Expensive tobacco leaf forces BAT to divert shareholder dividend

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By Alois Vinga

A 300% increase in  the price of tobacco has forced the British American Tobacco (BAT) to divert money which was meant to settle shareholder dividends, towards purchasing the golden leaf among other priorities in a bid to maintain sustainability.

In an interview with Business Tuesday, BAT managing director, Clara Mlambo said the recently introduced interbank foreign exchange market had resulted in higher prices of tobacco, hence the need to direct financial resources towards procurement of stock and shelving dividends to shareholders.

“One of the priority areas of focus will be investing in purchasing the tobacco leaf and we also have some projects that are coming up during the course of the year but I cannot mention them.

“We used to buy the tobacco at a 1:1 ratio against the United States dollar and the RTGS$ but now there is a bank rate for the two currencies, which means that the prices have increased threefold,” she said.

Quizzed on the negative impact of non- payment of shareholder dividends who are likely to insist considering the challenges currently obtaining in the economy, Mlambo said that it is important to keep the business running.

“I think as a business what is really important is to keep running and to achieve this kind of sustainability we sometimes need to refocus. In this particular instance we are refocusing by reinvesting the money we have into the business. This will guarantee sustainability going forward.

“Because the tobacco is purchased through a window period beginning March to end of July, this demands that we need to buy our stock during this period. It is also important to note that the exercise is cash intensive hence the need for us to utilise the money that we would have otherwise declared as dividend for this period wisely to take us through to the next season,” said Mlambo.

The BAT boss highlighted that one kilogram of the golden leaf which used to cost RTGS$1 last year now requires RTGS$3.20 because of the interbank rate which is more than three times higher.

Mlambo also hinted that the entity would be spending part of its revenue on other projects which she did not disclose.

BAT’s revenues increased by 16 percent during the financial year ending December 31 2018 when compared to the previous financial year.

Gross profit for the period under review increased by US$4.7 million compared to 2017 due to increased efficiencies in the Company’s manufacturing activities.

While merchants like BAT are crying foul claiming the golden leaf is now expensive, growers have appealed to government to intervene to make sure they get a better deal. The farmers have threatened to dumb the crop next season arguing they are being paid peanuts.