British American Tobacco Uganda (USE:BATU), the cigarette distributor, reported a drop in after-tax profit last year amid “an exceptionally challenging operating environment” as weak consumer spending and “illicit trade” hit its sales.

The company said its gross revenue fell 42 per cent year on year to Shs93.8bn, depressed by a public spending squeeze and an increase in the sales of “tax-evaded cigarettes”. Operational profit was down 47.8 per cent to Shs15.2bn a year earlier. Net profit decreased to Shs10.3bn ($2.9m), 48.5 per cent lower than what it reported in 2020.

The slump in profits is BATU’s first since 2016 when earnings declined following tax-driven price increases and weak spending it blamed on a tough economy. In 2016, its after-tax profit fell 25.5 per cent while profit from operations declined 19.9 per cent. Gross sales weakened by 1.9 per cent.

“Notwithstanding the easing of Covid-19 restrictions, there has been slow economic recovery with consumer disposable incomes remaining low and continuing to impact affordability,” BATU said in a statement to the Uganda Securities Exchange. “This, coupled with the increased incidence of illicit trade in tax-evaded cigarettes, resulted in a material reduction of our sales volume, revenue and profitability.”

Illicit cigarette trade accounted for an estimated 24 per cent of cigarette sales in Uganda last year, the company said, quoting research from an unnamed third party. BATU is by far the country’s largest cigarette distributor.

Operational costs, meanwhile, fell 40 per cent to Shs30bn due to “lower sales volume[s] and cost management initiatives undertaken to cushion business profitability.”

The company’s earnings per share reduced by 48.4 per cent to Shs210. It said it will pay a dividend of Shs209 per share for the year.