CPA(U) IOK Exam 1

Buddu Highlands Coffee Ltd: integrated case

Today is Monday 16 November 2026. You are the Chief Finance Officer of Buddu Highlands Coffee Ltd (BHC), a coffee buying, processing and export company with its head office and factory in Masaka, in the central region of Uganda. You are a CPA(U) and were promoted to the post in August 2026 after six years as the company's financial controller. You report to the Managing Director, Rehema Kizito-Mugisha, and you attend board meetings as an executive, although you are not a member of the board.

The board will meet on Friday 11 December 2026. Its main business is to decide whether BHC should build a coffee roasting and packing plant, known as Project Ember, and how the plant should be financed. The directors have also asked for advice on a large export contract that is being negotiated in US dollars, on the company's tax position for the current year of income, on matters raised by the external auditors, and on the way the company is governed and manages its risks. Rehema Kizito-Mugisha has asked you to bring all of these matters together in a single report to the board. The information you have collected is set out below and in Appendices 1 to 7. Amounts are in Uganda shillings (Shs) million unless otherwise stated.

History and operations

BHC was founded in 1996 by Ephraim Kizito, a former agricultural extension officer, as a coffee buying store in Nyendo, on the outskirts of Masaka town. The business grew with the liberalisation of the coffee trade and in 2004 opened its own hulling and grading factory on a 9-acre site beside the Masaka to Mbirizi road. The factory now has a capacity of about 16,000 tonnes of green (export-ready) coffee a year. In the year to 30 June 2026 BHC exported 11,800 tonnes of green robusta coffee, which made it one of the larger exporters based outside Kampala.

Almost all of BHC's coffee is robusta. It is bought from about 13,500 smallholder farmers in Masaka, Lwengo, Bukomansimbi, Kalungu and Rakai districts through 27 buying centres. Farmers sell either dried cherry (known locally as kiboko) or fair average quality coffee (FAQ) that has already been hulled by small village hullers. Each buying centre has a moisture meter, scales and a clerk; coffee is paid for in cash or by mobile money on the day of delivery. Coffee bought as kiboko is hulled at the Masaka factory. All coffee is then dried to below 13% moisture, cleaned, sorted by bean size into screen grades, hand-picked for defects, bagged in 60-kilogram jute bags and trucked to the port of Mombasa in Kenya for shipment.

The main harvest in the region runs from about May to August, with a smaller fly crop from November to January. BHC must buy most of its year's coffee within five months, which it finances with seasonal crop finance from its bank. Coffee held in stores is at risk from rewetting, mould, theft and price falls. Competition for farmers' coffee is fierce: multinational exporters with stores in the same districts and many small traders who pay cash at the farm gate compete for the same crop, and prices paid to farmers follow the world price closely, sometimes changing twice in a week.

BHC owns one subsidiary, BHC Trading Kenya Ltd (100%), a small office in Nairobi that arranges shipping documents, insurance and port clearance in Mombasa and sells small lots of green coffee to roasters in Kenya. Its manager is Wanjiru Kamau. The group employs about 410 permanent staff and up to 600 seasonal workers in the main harvest.

The coffee industry

Coffee is Uganda's largest agricultural export. National exports reached record volumes in 2024/25 and 2025/26, helped by new plantings, better farm practice and high world prices. Most Ugandan coffee is exported green, and only a very small share is roasted in the country. Several large buyers in North Africa, the Middle East and Europe buy Ugandan robusta for blending and for instant coffee. The domestic market for roasted coffee is small but growing at an estimated 12% to 15% a year, driven by cafés, hotels, offices and supermarkets in Kampala, Entebbe and other towns, and by tourism.

Robusta is priced by reference to the London robusta futures market. An exporter's selling price is usually the futures reference price for the shipping month plus or minus a differential, quoted in US dollars a tonne, which reflects quality, screen size, the origin and the delivery terms. Over the last five years the reference price has moved between about USD 1,700 and USD 5,600 a tonne. Because farm-gate prices in shillings follow the reference price, an exporter's margin depends mainly on the differential it can obtain, its processing outturn and costs, and the exchange rate between the shilling and the US dollar when the export proceeds are received.

The national coffee regulator registers exporters, buying stores and processors, inspects quality at the point of export and issues the quality certificates needed for each shipment. Buyers in the European Union have told exporters that the European Union's deforestation regulation will require proof, for each lot, that the coffee did not come from land cleared of forest after 2020, including the map location of each farm. Buyers in North Africa and the Middle East have not yet asked for this.

Shareholders, board and management

BHC is a private company limited by shares, incorporated in Uganda under the Companies Act, 2012. Its shareholders are the Kizito family (60%), the Buddu Growers' Co-operative Union Ltd (20%), which represents about 4,100 farmer members who sell to BHC, and Savanna Harvest Capital Fund (20%), an agribusiness fund managed from Accra, Ghana, which invested in 2020. Savanna's shareholders' agreement gives it one board seat, a veto over new share issues and a right to sell its shares to the other shareholders at a fair value from 2029.

The board meets four times a year. It has no committees, and the chairman sets the agenda with the Managing Director. Since 2019 Nyendo Haulage Ltd, owned by Daniel Kizito, has carried most of BHC's coffee to Mombasa; the rates were agreed by Daniel Kizito and Rehema Kizito-Mugisha and have not been compared with other hauliers. Pay and bonuses for the executive directors are proposed by the chairman and approved by the board, with the executive directors present and voting. A single checking officer, who reports to the Managing Director, spends most of her time counting cash at buying centres.

At its last meeting the Co-operative Union complained, through Mariam Nakato, that its members cannot see how BHC sets farm-gate prices or why the second payment (bonus) promised to farmers for high quality coffee was smaller in 2026 than in 2025. Yaw Boateng has said that Savanna's investment committee is concerned about contracts with companies owned by directors and about the lack of independent oversight of the accounts.

The external auditors are Mrema Nakimuli & Co, a Kampala firm of Certified Public Accountants that has been BHC's auditor since 2017. Their work on the 2025/26 accounts (year to 30 June 2026) is in its last stage, and they intend to sign on 18 December 2026.

Customers, markets and Project Ember

In 2025/26 about 46% of BHC's export volume went to Morocco, Algeria and Egypt, 31% to trading houses and roasters in Italy and Spain, 14% to roasters in the Gulf states and 9% to roasters in Kenya through BHC Trading Kenya Ltd. Sales are made on documents: the buyer pays against the shipping documents, normally 60 to 90 days after the coffee leaves Masaka. All export sales are invoiced in US dollars, while almost all of BHC's costs, including the coffee itself, are paid in shillings.

Atlas Torréfaction SA, a large roaster in Casablanca, Morocco, is BHC's biggest customer. Its buyer, Youssef El Amrani, is negotiating a contract for 1,500 tonnes of screen 15 robusta for shipment in January 2027, with payment 90 days later (Appendix 4).

Project Ember would add a roasting, grinding and packing plant at the Masaka site to sell roasted coffee in Uganda and the region. Nokuthula Dlamini, who chairs a small working group of the board on the project, has proposed two routes to market. One is to build BHC's own brand, Buddu Fire Roast, sold in 250-gram and 500-gram valve bags in supermarkets and to hotels, cafés and offices in Uganda and, through BHC Trading Kenya Ltd, in Nairobi. She estimates the brand would need about Shs 1,000 million of launch marketing in its first year, followed by steady spending on promotion. The other is to roast and pack coffee for other companies' brands. Karoo Bean Company (Pty) Ltd, a chain of 85 cafés based in Cape Town, South Africa, has offered a three-year agreement to buy up to 600 tonnes a year of roasted coffee packed under its own label, at a price about 8% below the expected price of BHC's own brand, provided BHC passes its food safety and ethical sourcing audit. Hotels and supermarkets in Kampala currently buy imported roasted coffee from Kenya and Europe as well as from several small Ugandan roasters.

Tesfaye Gebremedhin believes that BHC's knowledge of quality, its supply of fresh beans and its relationships with farmers give it an advantage over importers, but he notes that BHC has never sold to consumers, has no sales team for retail customers and has no experience of roasting at scale. He has arranged for Sidama Roast Technologies PLC, an Ethiopian company based in Addis Ababa, to help design the plant and to train BHC's roasters.

Systems

BHC uses an accounting package on a server at the Masaka head office. Buying centres record each purchase in a receipt book and send a daily summary by text message; stock in each store is recorded on spreadsheets that are reconciled to the factory records at the end of each month. Purchase prices are telephoned to centre managers each morning. In 2025 the checking officer found that one centre manager had recorded purchases at prices above the price set for the day and kept the difference; the loss was about Shs 85 million. Tesfaye Gebremedhin has proposed a mobile system that records each farmer's delivery, its weight, moisture and the price paid, together with the map location of the farm, and passes the data to a central system. Savanna has suggested that the same data could be placed on a blockchain platform that several European and Middle Eastern buyers are testing.

Appendix 1: Financial statements of BHC (the Ugandan company), years ended 30 June (Shs million; 2026 draft, not yet audited)

Statements of profit or loss and other comprehensive income

Statements of financial position at 30 June

Notes: (1) All borrowings are from Sango Bay Commercial Bank Uganda Ltd. Its loan agreement requires total borrowings (long-term loans plus crop finance) to be no more than 100% of total equity at each 30 June, and the bank must approve any new borrowing from other lenders. (2) Revenue growth since 2024 is mainly due to higher world prices: export volume was 11,200 tonnes in 2024, 11,500 tonnes in 2025 and 11,800 tonnes in 2026. (3) The inventories at 30 June 2026 are about 2,600 tonnes of coffee, a higher quantity than usual, because the board decided in June to hold stock in expectation of higher prices.

Appendix 2: Memo from the Managing Director to the Chief Finance Officer, 6 November 2026

Subject: Board meeting on 11 December

1. Project Ember. Roasting is our future. Every exporter in this country sells raw coffee and leaves the value to others. The estimates are in Appendix 3. I am told the project shows a good profit from year 2, but please give the board a proper financial appraisal. Some directors say the coffee we roast costs us only what we pay the farmers; please make sure the numbers are right.

2. Financing. The options are in Appendix 5. My father and I will not accept any arrangement that takes control of the company away from the family.

3. The Atlas contract. Youssef El Amrani wants an answer by the end of the month. Please advise on the price we can accept and on how we protect ourselves against the dollar (Appendix 4).

4. The downgraded coffee. The auditors have raised the 180 tonnes that were damaged by rain in the Kalungu store (Appendix 6). Tesfaye tells me that if we blend these bags in small amounts into the Atlas shipment the buyer will not notice. Please keep the stock at cost in the accounts and do not discuss the blending with the auditors; it is a commercial matter.

5. The VAT refund. We are owed a large VAT refund (Appendix 6). An officer dealing with our claim has told our clearing agent that a payment of Shs 40 million to a consultant he named would make sure the refund is paid before Christmas. Please arrange for the clearing agent to pay this and charge it to us as clearing fees. Our cash position needs the refund.

6. Tax. Please tell the board what we expect to pay for this year (Appendix 6).

Appendix 3: Project Ember estimates, prepared by the Project Ember working group with Sidama Roast Technologies PLC, October 2026

The plant would be installed during the first half of 2027 in an existing warehouse at the Masaka site and would begin roasting on 1 July 2027, the start of year 1 (2027/28). The appraisal covers six years. Treat every operating cash flow as occurring on the last day of its year; the capital spending and working capital are paid on the first day of year 1 (time 0). Figures are in Shs million. Each tonne of roasted coffee needs 1.2 tonnes of green coffee because of weight lost in roasting.

BHC can sell all the green coffee it can buy and process, so any green coffee used for roasting would otherwise be exported. For the appraisal, take income tax at 30% as paid in the year the profit arises; BHC's other profits are large enough to absorb any tax relief at once. The finance team has worked out the yearly tax benefit of the capital allowances on the plant and the fit-out (below), and these figures should be used without change. A discount rate of 16% reflects the risk of the project.

Appendix 4: The Atlas Torréfaction contract and foreign exchange information, November 2026

Atlas Torréfaction SA has offered to buy 1,500 tonnes of screen 15 robusta, delivered free on board at Mombasa, at the London reference price for the March 2027 position plus a differential. BHC proposed a differential of USD 160 a tonne. Youssef El Amrani has replied that Atlas would prefer a differential of USD 100 a tonne, because other exporters have offered similar coffee more cheaply. Atlas has agreed to fix the reference price at USD 4,080 a tonne when the contract is signed. Payment would be received in US dollars three months after signing.

BHC's costs for this contract are estimated as follows, all in Shs million a tonne of green coffee delivered at Mombasa: coffee bought from farmers and hulled 13.40; drying, grading, hand-picking, bags and fumigation 0.52; transport to Mombasa, port handling and export documentation 0.68. The board's policy is that every export contract should earn a margin of at least Shs 1.0 million a tonne after these costs.

Sango Bay Commercial Bank has quoted the following rates.

The shilling usually strengthens during the main harvest, when exporters sell dollars, and weakens at other times. In 2025 it moved by more than 5% against the US dollar in a single quarter. BHC has never hedged; the Managing Director has said she prefers to wait and convert dollars when the rate looks good. The bank has also offered a three-month option to sell US dollars at Shs 3,700 for a premium of Shs 20 for each dollar, payable now.

Appendix 5: E-mail from Yaw Boateng to the board, 2 November 2026

Subject: Funding Project Ember

Dear colleagues, Project Ember needs about Shs 22,000 million (the plant, the fit-out and the working capital). I set out the three options we have discussed.

Option 1: Sango Bay Commercial Bank. Robert Ochieng, our relationship manager, has offered a Shs 22,000 million term loan for seven years at 17.0% fixed, with equal annual instalments starting at the end of year 1. The bank's existing covenant would continue to apply.

Option 2: Afro-Mediterranean Trade Bank. Dina Farouk of the bank's Cairo office has outlined a seven-year loan in US dollars worth Shs 22,000 million at today's rate at a fixed rate of 8.5% a year in US dollars, with no repayment of principal for two years. The bank requires a first charge over the new plant, an assignment of BHC's export proceeds from two named buyers, and annual reports on environmental and social matters. Sango Bay Commercial Bank would have to consent, and its covenant would also apply. Our economists expect the shilling to fall by about 3.5% a year against the US dollar over the next seven years.

Option 3: new shares for Savanna. Savanna Harvest Capital would pay Shs 22,000 million for newly issued ordinary shares, on the basis that BHC's shares in issue are worth Shs 66,000 million before the investment. Savanna would expect a second board seat. Savanna has also said it would subscribe a smaller amount of Shs 8,000 million for new shares on the same valuation if the rest were borrowed in US dollars from the Afro-Mediterranean Trade Bank.

I suggest the board compares the options using total borrowings to total equity at 30 June 2026, adjusted for the new money (ignore the project's own profits for this purpose). Kind regards, Yaw.

Appendix 6: Tax information and extract from the auditors' letter

Tax data for BHC (the Ugandan company) for the year of income 2026/27, which runs from 1 July 2026 to 30 June 2027. Use only the rules below. They summarise the Income Tax Act, Cap 340 and the Value Added Tax Act, Cap 349 in the form that applies for 2026/27, after the amendments that took effect on 1 July 2026.

• Companies pay income tax at 30% of chargeable income.
• Accounting depreciation is added back. Manufacturing plant forms a pool, and 30% of the pool's written-down value at the year end is allowed as wear and tear. Buildings used in manufacturing attract an industrial building deduction of 5% of their cost each year.
• No deduction is given for fines or penalties, or for a general provision against doubtful debts.
• Exchange gains and losses count for tax only once they are realised.
• Interest limit: where a company belongs to a group (non-individual persons sharing at least 51% common underlying ownership, ignoring any dormant member), its interest deduction cannot exceed 30% of tax EBITDA. Tax EBITDA means chargeable income before the interest deduction, with the wear and tear and industrial building deductions added back.
• A non-resident paid a management or technical service fee suffers withholding tax at 15% of the gross fee.
• VAT: exported goods are zero-rated, so the exporter charges no VAT on them yet recovers input tax on its taxable purchases and is refunded any excess. Unprocessed agricultural produce, such as coffee bought from farmers, is an exempt supply. Letting commercial premises is standard-rated at 18%. Where a non-resident supplies services into Uganda, the Ugandan customer accounts for VAT at 18% itself; only petroleum and mining contractors and business process outsourcing providers may treat that VAT as input tax.

1. BHC's forecast accounting profit before tax for 2026/27, before Project Ember, is Shs 8,600 million. The figure is after charging depreciation of Shs 3,400 million, interest of Shs 2,600 million, an increase of Shs 240 million in the general provision for doubtful debts and a penalty of Shs 60 million paid to the customs authorities for a late export declaration. It includes an unrealised foreign exchange gain of Shs 520 million on US dollar receivables at the year end. No other tax adjustments are needed.
2. The written-down value of BHC's pool of manufacturing plant at 1 July 2026 is Shs 15,000 million. BHC expects to add Shs 3,000 million of plant to the pool during 2026/27 and to sell none. The cost of BHC's factory buildings, all used in manufacturing and still qualifying for the deduction, is Shs 14,000 million.
3. From 1 July 2026 Sidama Roast Technologies PLC, a company resident in Ethiopia that has no office or other base in Uganda, supplies roasting design and training services from Addis Ababa for a fee of Shs 800 million in 2026/27, which is included in the forecast. No tax treaty between Uganda and Ethiopia is in force.
4. For 2026/27 BHC forecasts input tax of Shs 1,380 million on standard-rated purchases such as fuel, packaging, transport and professional services. It will continue to let the warehouse to its tenant for Shs 250 million (excluding VAT) during 2026/27. All its other supplies are exports. BHC carries on no petroleum, mining or business process outsourcing activity.
5. BHC Trading Kenya Ltd is not dormant. BHC has no tax losses or interest carried forward from earlier years.

Extract from the letter of Mrema Nakimuli & Co to the Managing Director, 30 October 2026.

Damaged inventory. During our attendance at the inventory count we found 180 tonnes of coffee in the Kalungu store that had been rewetted by a roof leak in May 2026 and has since shown mould and a high defect count. The draft financial statements carry it at the average cost of Shs 13.0 million a tonne. The national regulator would not certify it for export. A Kampala manufacturer of instant coffee has offered to buy it for Shs 7.9 million a tonne, collected from Masaka, with BHC paying Shs 0.3 million a tonne for re-drying and sorting.

Inventory records. Stock records at four buying centres could not be reconciled to the factory records at 30 June 2026. The total difference is about 95 tonnes, which management attributes to moisture loss.

Forward contracts. In June 2026 BHC agreed with a commodity trading company in Mombasa to sell 900 tonnes of coffee for delivery in September 2026 at a fixed price in US dollars. The draft financial statements make no mention of this commitment.

VAT refund. BHC's claim for a VAT refund of Shs 1,240 million for the year to 30 June 2026 has not yet been paid. We will need evidence to support its recoverability.

Appendix 7: Notes from the risk workshop and letter from Savanna, October 2026

• The London reference price fell by 22% in six weeks in early 2026 before recovering. BHC buys coffee at prices that follow the reference price but sells, on average, about seven weeks later. It does not use futures or fixed-price purchase agreements.
• Seasonal crop finance rose to Shs 21,500 million at 30 June 2026 because the board decided to hold more stock. The facility must be renewed each April.
• Rainfall in the district has become less reliable: a drought in 2022 cut the fly crop by about 40%, and heavy rains in 2026 damaged coffee in stores.
• Atlas Torréfaction pays against documents and has always paid on time. Two Middle Eastern buyers paid between 30 and 50 days late in 2026.
• The Italian and Spanish buyers have said they will stop buying from exporters that cannot provide farm location data for the European Union deforestation regulation by the end of 2026. BHC has map locations for about 2,000 of its 13,500 farmers.
• Cash is still used at 19 of the 27 buying centres. The 2025 price fraud was found by chance.
• Nobody has written down BHC's main risks, and the directors have not agreed what level of risk they would tolerate.

Letter from Yaw Boateng, Savanna Harvest Capital, 20 October 2026 (extract). Two development finance institutions that invest in our fund have told us that every portfolio company must disclose its climate and wider sustainability information under international standards. Coffee growing in the district is exposed to rising temperatures and less reliable rainfall; studies suggest that the area where robusta grows well in central Uganda could shrink over the next 25 years. BHC's dryers burn coffee husks and some firewood, and its trucks use diesel. Most of the emissions linked to BHC's coffee arise on farms and in shipping. We would like BHC's first sustainability report to cover 2026/27 and to obtain some independent checking of the figures, which the Afro-Mediterranean Trade Bank would also require.

Required

Having studied this material, you have grouped the matters for the board's attention under four headings: A, strategy and marketing; B, finance, tax and performance; C, governance, risk, control and ethics; and D, current and emerging issues. The report is to begin with an executive summary.

Prepare a report to the board advising on the issues below.

Where a part gives you a workings grid, set out your figures there; elsewhere, type your workings line by line.

Buddu Highlands Coffee Ltd: integrated case

Today is Monday 16 November 2026. You are the Chief Finance Officer of Buddu Highlands Coffee Ltd (BHC), a coffee buying, processing and export company with its head office and factory in Masaka, in the central region of Uganda. You are a CPA(U) and were promoted to the post in August 2026 after six years as the company's financial controller. You report to the Managing Director, Rehema Kizito-Mugisha, and you attend board meetings as an executive, although you are not a member of the board.

The board will meet on Friday 11 December 2026. Its main business is to decide whether BHC should build a coffee roasting and packing plant, known as Project Ember, and how the plant should be financed. The directors have also asked for advice on a large export contract that is being negotiated in US dollars, on the company's tax position for the current year of income, on matters raised by the external auditors, and on the way the company is governed and manages its risks. Rehema Kizito-Mugisha has asked you to bring all of these matters together in a single report to the board. The information you have collected is set out below and in Appendices 1 to 7. Amounts are in Uganda shillings (Shs) million unless otherwise stated.

History and operations

BHC was founded in 1996 by Ephraim Kizito, a former agricultural extension officer, as a coffee buying store in Nyendo, on the outskirts of Masaka town. The business grew with the liberalisation of the coffee trade and in 2004 opened its own hulling and grading factory on a 9-acre site beside the Masaka to Mbirizi road. The factory now has a capacity of about 16,000 tonnes of green (export-ready) coffee a year. In the year to 30 June 2026 BHC exported 11,800 tonnes of green robusta coffee, which made it one of the larger exporters based outside Kampala.

Almost all of BHC's coffee is robusta. It is bought from about 13,500 smallholder farmers in Masaka, Lwengo, Bukomansimbi, Kalungu and Rakai districts through 27 buying centres. Farmers sell either dried cherry (known locally as kiboko) or fair average quality coffee (FAQ) that has already been hulled by small village hullers. Each buying centre has a moisture meter, scales and a clerk; coffee is paid for in cash or by mobile money on the day of delivery. Coffee bought as kiboko is hulled at the Masaka factory. All coffee is then dried to below 13% moisture, cleaned, sorted by bean size into screen grades, hand-picked for defects, bagged in 60-kilogram jute bags and trucked to the port of Mombasa in Kenya for shipment.

The main harvest in the region runs from about May to August, with a smaller fly crop from November to January. BHC must buy most of its year's coffee within five months, which it finances with seasonal crop finance from its bank. Coffee held in stores is at risk from rewetting, mould, theft and price falls. Competition for farmers' coffee is fierce: multinational exporters with stores in the same districts and many small traders who pay cash at the farm gate compete for the same crop, and prices paid to farmers follow the world price closely, sometimes changing twice in a week.

BHC owns one subsidiary, BHC Trading Kenya Ltd (100%), a small office in Nairobi that arranges shipping documents, insurance and port clearance in Mombasa and sells small lots of green coffee to roasters in Kenya. Its manager is Wanjiru Kamau. The group employs about 410 permanent staff and up to 600 seasonal workers in the main harvest.

The coffee industry

Coffee is Uganda's largest agricultural export. National exports reached record volumes in 2024/25 and 2025/26, helped by new plantings, better farm practice and high world prices. Most Ugandan coffee is exported green, and only a very small share is roasted in the country. Several large buyers in North Africa, the Middle East and Europe buy Ugandan robusta for blending and for instant coffee. The domestic market for roasted coffee is small but growing at an estimated 12% to 15% a year, driven by cafés, hotels, offices and supermarkets in Kampala, Entebbe and other towns, and by tourism.

Robusta is priced by reference to the London robusta futures market. An exporter's selling price is usually the futures reference price for the shipping month plus or minus a differential, quoted in US dollars a tonne, which reflects quality, screen size, the origin and the delivery terms. Over the last five years the reference price has moved between about USD 1,700 and USD 5,600 a tonne. Because farm-gate prices in shillings follow the reference price, an exporter's margin depends mainly on the differential it can obtain, its processing outturn and costs, and the exchange rate between the shilling and the US dollar when the export proceeds are received.

The national coffee regulator registers exporters, buying stores and processors, inspects quality at the point of export and issues the quality certificates needed for each shipment. Buyers in the European Union have told exporters that the European Union's deforestation regulation will require proof, for each lot, that the coffee did not come from land cleared of forest after 2020, including the map location of each farm. Buyers in North Africa and the Middle East have not yet asked for this.

Shareholders, board and management

BHC is a private company limited by shares, incorporated in Uganda under the Companies Act, 2012. Its shareholders are the Kizito family (60%), the Buddu Growers' Co-operative Union Ltd (20%), which represents about 4,100 farmer members who sell to BHC, and Savanna Harvest Capital Fund (20%), an agribusiness fund managed from Accra, Ghana, which invested in 2020. Savanna's shareholders' agreement gives it one board seat, a veto over new share issues and a right to sell its shares to the other shareholders at a fair value from 2029.

The board meets four times a year. It has no committees, and the chairman sets the agenda with the Managing Director. Since 2019 Nyendo Haulage Ltd, owned by Daniel Kizito, has carried most of BHC's coffee to Mombasa; the rates were agreed by Daniel Kizito and Rehema Kizito-Mugisha and have not been compared with other hauliers. Pay and bonuses for the executive directors are proposed by the chairman and approved by the board, with the executive directors present and voting. A single checking officer, who reports to the Managing Director, spends most of her time counting cash at buying centres.

At its last meeting the Co-operative Union complained, through Mariam Nakato, that its members cannot see how BHC sets farm-gate prices or why the second payment (bonus) promised to farmers for high quality coffee was smaller in 2026 than in 2025. Yaw Boateng has said that Savanna's investment committee is concerned about contracts with companies owned by directors and about the lack of independent oversight of the accounts.

The external auditors are Mrema Nakimuli & Co, a Kampala firm of Certified Public Accountants that has been BHC's auditor since 2017. Their work on the 2025/26 accounts (year to 30 June 2026) is in its last stage, and they intend to sign on 18 December 2026.

Customers, markets and Project Ember

In 2025/26 about 46% of BHC's export volume went to Morocco, Algeria and Egypt, 31% to trading houses and roasters in Italy and Spain, 14% to roasters in the Gulf states and 9% to roasters in Kenya through BHC Trading Kenya Ltd. Sales are made on documents: the buyer pays against the shipping documents, normally 60 to 90 days after the coffee leaves Masaka. All export sales are invoiced in US dollars, while almost all of BHC's costs, including the coffee itself, are paid in shillings.

Atlas Torréfaction SA, a large roaster in Casablanca, Morocco, is BHC's biggest customer. Its buyer, Youssef El Amrani, is negotiating a contract for 1,500 tonnes of screen 15 robusta for shipment in January 2027, with payment 90 days later (Appendix 4).

Project Ember would add a roasting, grinding and packing plant at the Masaka site to sell roasted coffee in Uganda and the region. Nokuthula Dlamini, who chairs a small working group of the board on the project, has proposed two routes to market. One is to build BHC's own brand, Buddu Fire Roast, sold in 250-gram and 500-gram valve bags in supermarkets and to hotels, cafés and offices in Uganda and, through BHC Trading Kenya Ltd, in Nairobi. She estimates the brand would need about Shs 1,000 million of launch marketing in its first year, followed by steady spending on promotion. The other is to roast and pack coffee for other companies' brands. Karoo Bean Company (Pty) Ltd, a chain of 85 cafés based in Cape Town, South Africa, has offered a three-year agreement to buy up to 600 tonnes a year of roasted coffee packed under its own label, at a price about 8% below the expected price of BHC's own brand, provided BHC passes its food safety and ethical sourcing audit. Hotels and supermarkets in Kampala currently buy imported roasted coffee from Kenya and Europe as well as from several small Ugandan roasters.

Tesfaye Gebremedhin believes that BHC's knowledge of quality, its supply of fresh beans and its relationships with farmers give it an advantage over importers, but he notes that BHC has never sold to consumers, has no sales team for retail customers and has no experience of roasting at scale. He has arranged for Sidama Roast Technologies PLC, an Ethiopian company based in Addis Ababa, to help design the plant and to train BHC's roasters.

Systems

BHC uses an accounting package on a server at the Masaka head office. Buying centres record each purchase in a receipt book and send a daily summary by text message; stock in each store is recorded on spreadsheets that are reconciled to the factory records at the end of each month. Purchase prices are telephoned to centre managers each morning. In 2025 the checking officer found that one centre manager had recorded purchases at prices above the price set for the day and kept the difference; the loss was about Shs 85 million. Tesfaye Gebremedhin has proposed a mobile system that records each farmer's delivery, its weight, moisture and the price paid, together with the map location of the farm, and passes the data to a central system. Savanna has suggested that the same data could be placed on a blockchain platform that several European and Middle Eastern buyers are testing.

Appendix 1: Financial statements of BHC (the Ugandan company), years ended 30 June (Shs million; 2026 draft, not yet audited)

Statements of profit or loss and other comprehensive income

Statements of financial position at 30 June

Notes: (1) All borrowings are from Sango Bay Commercial Bank Uganda Ltd. Its loan agreement requires total borrowings (long-term loans plus crop finance) to be no more than 100% of total equity at each 30 June, and the bank must approve any new borrowing from other lenders. (2) Revenue growth since 2024 is mainly due to higher world prices: export volume was 11,200 tonnes in 2024, 11,500 tonnes in 2025 and 11,800 tonnes in 2026. (3) The inventories at 30 June 2026 are about 2,600 tonnes of coffee, a higher quantity than usual, because the board decided in June to hold stock in expectation of higher prices.

Appendix 2: Memo from the Managing Director to the Chief Finance Officer, 6 November 2026

Subject: Board meeting on 11 December

1. Project Ember. Roasting is our future. Every exporter in this country sells raw coffee and leaves the value to others. The estimates are in Appendix 3. I am told the project shows a good profit from year 2, but please give the board a proper financial appraisal. Some directors say the coffee we roast costs us only what we pay the farmers; please make sure the numbers are right.

2. Financing. The options are in Appendix 5. My father and I will not accept any arrangement that takes control of the company away from the family.

3. The Atlas contract. Youssef El Amrani wants an answer by the end of the month. Please advise on the price we can accept and on how we protect ourselves against the dollar (Appendix 4).

4. The downgraded coffee. The auditors have raised the 180 tonnes that were damaged by rain in the Kalungu store (Appendix 6). Tesfaye tells me that if we blend these bags in small amounts into the Atlas shipment the buyer will not notice. Please keep the stock at cost in the accounts and do not discuss the blending with the auditors; it is a commercial matter.

5. The VAT refund. We are owed a large VAT refund (Appendix 6). An officer dealing with our claim has told our clearing agent that a payment of Shs 40 million to a consultant he named would make sure the refund is paid before Christmas. Please arrange for the clearing agent to pay this and charge it to us as clearing fees. Our cash position needs the refund.

6. Tax. Please tell the board what we expect to pay for this year (Appendix 6).

Appendix 3: Project Ember estimates, prepared by the Project Ember working group with Sidama Roast Technologies PLC, October 2026

The plant would be installed during the first half of 2027 in an existing warehouse at the Masaka site and would begin roasting on 1 July 2027, the start of year 1 (2027/28). The appraisal covers six years. Treat every operating cash flow as occurring on the last day of its year; the capital spending and working capital are paid on the first day of year 1 (time 0). Figures are in Shs million. Each tonne of roasted coffee needs 1.2 tonnes of green coffee because of weight lost in roasting.

BHC can sell all the green coffee it can buy and process, so any green coffee used for roasting would otherwise be exported. For the appraisal, take income tax at 30% as paid in the year the profit arises; BHC's other profits are large enough to absorb any tax relief at once. The finance team has worked out the yearly tax benefit of the capital allowances on the plant and the fit-out (below), and these figures should be used without change. A discount rate of 16% reflects the risk of the project.

Appendix 4: The Atlas Torréfaction contract and foreign exchange information, November 2026

Atlas Torréfaction SA has offered to buy 1,500 tonnes of screen 15 robusta, delivered free on board at Mombasa, at the London reference price for the March 2027 position plus a differential. BHC proposed a differential of USD 160 a tonne. Youssef El Amrani has replied that Atlas would prefer a differential of USD 100 a tonne, because other exporters have offered similar coffee more cheaply. Atlas has agreed to fix the reference price at USD 4,080 a tonne when the contract is signed. Payment would be received in US dollars three months after signing.

BHC's costs for this contract are estimated as follows, all in Shs million a tonne of green coffee delivered at Mombasa: coffee bought from farmers and hulled 13.40; drying, grading, hand-picking, bags and fumigation 0.52; transport to Mombasa, port handling and export documentation 0.68. The board's policy is that every export contract should earn a margin of at least Shs 1.0 million a tonne after these costs.

Sango Bay Commercial Bank has quoted the following rates.

The shilling usually strengthens during the main harvest, when exporters sell dollars, and weakens at other times. In 2025 it moved by more than 5% against the US dollar in a single quarter. BHC has never hedged; the Managing Director has said she prefers to wait and convert dollars when the rate looks good. The bank has also offered a three-month option to sell US dollars at Shs 3,700 for a premium of Shs 20 for each dollar, payable now.

Appendix 5: E-mail from Yaw Boateng to the board, 2 November 2026

Subject: Funding Project Ember

Dear colleagues, Project Ember needs about Shs 22,000 million (the plant, the fit-out and the working capital). I set out the three options we have discussed.

Option 1: Sango Bay Commercial Bank. Robert Ochieng, our relationship manager, has offered a Shs 22,000 million term loan for seven years at 17.0% fixed, with equal annual instalments starting at the end of year 1. The bank's existing covenant would continue to apply.

Option 2: Afro-Mediterranean Trade Bank. Dina Farouk of the bank's Cairo office has outlined a seven-year loan in US dollars worth Shs 22,000 million at today's rate at a fixed rate of 8.5% a year in US dollars, with no repayment of principal for two years. The bank requires a first charge over the new plant, an assignment of BHC's export proceeds from two named buyers, and annual reports on environmental and social matters. Sango Bay Commercial Bank would have to consent, and its covenant would also apply. Our economists expect the shilling to fall by about 3.5% a year against the US dollar over the next seven years.

Option 3: new shares for Savanna. Savanna Harvest Capital would pay Shs 22,000 million for newly issued ordinary shares, on the basis that BHC's shares in issue are worth Shs 66,000 million before the investment. Savanna would expect a second board seat. Savanna has also said it would subscribe a smaller amount of Shs 8,000 million for new shares on the same valuation if the rest were borrowed in US dollars from the Afro-Mediterranean Trade Bank.

I suggest the board compares the options using total borrowings to total equity at 30 June 2026, adjusted for the new money (ignore the project's own profits for this purpose). Kind regards, Yaw.

Appendix 6: Tax information and extract from the auditors' letter

Tax data for BHC (the Ugandan company) for the year of income 2026/27, which runs from 1 July 2026 to 30 June 2027. Use only the rules below. They summarise the Income Tax Act, Cap 340 and the Value Added Tax Act, Cap 349 in the form that applies for 2026/27, after the amendments that took effect on 1 July 2026.

• Companies pay income tax at 30% of chargeable income.
• Accounting depreciation is added back. Manufacturing plant forms a pool, and 30% of the pool's written-down value at the year end is allowed as wear and tear. Buildings used in manufacturing attract an industrial building deduction of 5% of their cost each year.
• No deduction is given for fines or penalties, or for a general provision against doubtful debts.
• Exchange gains and losses count for tax only once they are realised.
• Interest limit: where a company belongs to a group (non-individual persons sharing at least 51% common underlying ownership, ignoring any dormant member), its interest deduction cannot exceed 30% of tax EBITDA. Tax EBITDA means chargeable income before the interest deduction, with the wear and tear and industrial building deductions added back.
• A non-resident paid a management or technical service fee suffers withholding tax at 15% of the gross fee.
• VAT: exported goods are zero-rated, so the exporter charges no VAT on them yet recovers input tax on its taxable purchases and is refunded any excess. Unprocessed agricultural produce, such as coffee bought from farmers, is an exempt supply. Letting commercial premises is standard-rated at 18%. Where a non-resident supplies services into Uganda, the Ugandan customer accounts for VAT at 18% itself; only petroleum and mining contractors and business process outsourcing providers may treat that VAT as input tax.

1. BHC's forecast accounting profit before tax for 2026/27, before Project Ember, is Shs 8,600 million. The figure is after charging depreciation of Shs 3,400 million, interest of Shs 2,600 million, an increase of Shs 240 million in the general provision for doubtful debts and a penalty of Shs 60 million paid to the customs authorities for a late export declaration. It includes an unrealised foreign exchange gain of Shs 520 million on US dollar receivables at the year end. No other tax adjustments are needed.
2. The written-down value of BHC's pool of manufacturing plant at 1 July 2026 is Shs 15,000 million. BHC expects to add Shs 3,000 million of plant to the pool during 2026/27 and to sell none. The cost of BHC's factory buildings, all used in manufacturing and still qualifying for the deduction, is Shs 14,000 million.
3. From 1 July 2026 Sidama Roast Technologies PLC, a company resident in Ethiopia that has no office or other base in Uganda, supplies roasting design and training services from Addis Ababa for a fee of Shs 800 million in 2026/27, which is included in the forecast. No tax treaty between Uganda and Ethiopia is in force.
4. For 2026/27 BHC forecasts input tax of Shs 1,380 million on standard-rated purchases such as fuel, packaging, transport and professional services. It will continue to let the warehouse to its tenant for Shs 250 million (excluding VAT) during 2026/27. All its other supplies are exports. BHC carries on no petroleum, mining or business process outsourcing activity.
5. BHC Trading Kenya Ltd is not dormant. BHC has no tax losses or interest carried forward from earlier years.

Extract from the letter of Mrema Nakimuli & Co to the Managing Director, 30 October 2026.

Damaged inventory. During our attendance at the inventory count we found 180 tonnes of coffee in the Kalungu store that had been rewetted by a roof leak in May 2026 and has since shown mould and a high defect count. The draft financial statements carry it at the average cost of Shs 13.0 million a tonne. The national regulator would not certify it for export. A Kampala manufacturer of instant coffee has offered to buy it for Shs 7.9 million a tonne, collected from Masaka, with BHC paying Shs 0.3 million a tonne for re-drying and sorting.

Inventory records. Stock records at four buying centres could not be reconciled to the factory records at 30 June 2026. The total difference is about 95 tonnes, which management attributes to moisture loss.

Forward contracts. In June 2026 BHC agreed with a commodity trading company in Mombasa to sell 900 tonnes of coffee for delivery in September 2026 at a fixed price in US dollars. The draft financial statements make no mention of this commitment.

VAT refund. BHC's claim for a VAT refund of Shs 1,240 million for the year to 30 June 2026 has not yet been paid. We will need evidence to support its recoverability.

Appendix 7: Notes from the risk workshop and letter from Savanna, October 2026

• The London reference price fell by 22% in six weeks in early 2026 before recovering. BHC buys coffee at prices that follow the reference price but sells, on average, about seven weeks later. It does not use futures or fixed-price purchase agreements.
• Seasonal crop finance rose to Shs 21,500 million at 30 June 2026 because the board decided to hold more stock. The facility must be renewed each April.
• Rainfall in the district has become less reliable: a drought in 2022 cut the fly crop by about 40%, and heavy rains in 2026 damaged coffee in stores.
• Atlas Torréfaction pays against documents and has always paid on time. Two Middle Eastern buyers paid between 30 and 50 days late in 2026.
• The Italian and Spanish buyers have said they will stop buying from exporters that cannot provide farm location data for the European Union deforestation regulation by the end of 2026. BHC has map locations for about 2,000 of its 13,500 farmers.
• Cash is still used at 19 of the 27 buying centres. The 2025 price fraud was found by chance.
• Nobody has written down BHC's main risks, and the directors have not agreed what level of risk they would tolerate.

Letter from Yaw Boateng, Savanna Harvest Capital, 20 October 2026 (extract). Two development finance institutions that invest in our fund have told us that every portfolio company must disclose its climate and wider sustainability information under international standards. Coffee growing in the district is exposed to rising temperatures and less reliable rainfall; studies suggest that the area where robusta grows well in central Uganda could shrink over the next 25 years. BHC's dryers burn coffee husks and some firewood, and its trucks use diesel. Most of the emissions linked to BHC's coffee arise on farms and in shipping. We would like BHC's first sustainability report to cover 2026/27 and to obtain some independent checking of the figures, which the Afro-Mediterranean Trade Bank would also require.

Required

Having studied this material, you have grouped the matters for the board's attention under four headings: A, strategy and marketing; B, finance, tax and performance; C, governance, risk, control and ethics; and D, current and emerging issues. The report is to begin with an executive summary.

Prepare a report to the board advising on the issues below.

Where a part gives you a workings grid, set out your figures there; elsewhere, type your workings line by line.

Buddu Highlands Coffee Ltd: integrated case

Today is Monday 16 November 2026. You are the Chief Finance Officer of Buddu Highlands Coffee Ltd (BHC), a coffee buying, processing and export company with its head office and factory in Masaka, in the central region of Uganda. You are a CPA(U) and were promoted to the post in August 2026 after six years as the company's financial controller. You report to the Managing Director, Rehema Kizito-Mugisha, and you attend board meetings as an executive, although you are not a member of the board.

The board will meet on Friday 11 December 2026. Its main business is to decide whether BHC should build a coffee roasting and packing plant, known as Project Ember, and how the plant should be financed. The directors have also asked for advice on a large export contract that is being negotiated in US dollars, on the company's tax position for the current year of income, on matters raised by the external auditors, and on the way the company is governed and manages its risks. Rehema Kizito-Mugisha has asked you to bring all of these matters together in a single report to the board. The information you have collected is set out below and in Appendices 1 to 7. Amounts are in Uganda shillings (Shs) million unless otherwise stated.

History and operations

BHC was founded in 1996 by Ephraim Kizito, a former agricultural extension officer, as a coffee buying store in Nyendo, on the outskirts of Masaka town. The business grew with the liberalisation of the coffee trade and in 2004 opened its own hulling and grading factory on a 9-acre site beside the Masaka to Mbirizi road. The factory now has a capacity of about 16,000 tonnes of green (export-ready) coffee a year. In the year to 30 June 2026 BHC exported 11,800 tonnes of green robusta coffee, which made it one of the larger exporters based outside Kampala.

Almost all of BHC's coffee is robusta. It is bought from about 13,500 smallholder farmers in Masaka, Lwengo, Bukomansimbi, Kalungu and Rakai districts through 27 buying centres. Farmers sell either dried cherry (known locally as kiboko) or fair average quality coffee (FAQ) that has already been hulled by small village hullers. Each buying centre has a moisture meter, scales and a clerk; coffee is paid for in cash or by mobile money on the day of delivery. Coffee bought as kiboko is hulled at the Masaka factory. All coffee is then dried to below 13% moisture, cleaned, sorted by bean size into screen grades, hand-picked for defects, bagged in 60-kilogram jute bags and trucked to the port of Mombasa in Kenya for shipment.

The main harvest in the region runs from about May to August, with a smaller fly crop from November to January. BHC must buy most of its year's coffee within five months, which it finances with seasonal crop finance from its bank. Coffee held in stores is at risk from rewetting, mould, theft and price falls. Competition for farmers' coffee is fierce: multinational exporters with stores in the same districts and many small traders who pay cash at the farm gate compete for the same crop, and prices paid to farmers follow the world price closely, sometimes changing twice in a week.

BHC owns one subsidiary, BHC Trading Kenya Ltd (100%), a small office in Nairobi that arranges shipping documents, insurance and port clearance in Mombasa and sells small lots of green coffee to roasters in Kenya. Its manager is Wanjiru Kamau. The group employs about 410 permanent staff and up to 600 seasonal workers in the main harvest.

The coffee industry

Coffee is Uganda's largest agricultural export. National exports reached record volumes in 2024/25 and 2025/26, helped by new plantings, better farm practice and high world prices. Most Ugandan coffee is exported green, and only a very small share is roasted in the country. Several large buyers in North Africa, the Middle East and Europe buy Ugandan robusta for blending and for instant coffee. The domestic market for roasted coffee is small but growing at an estimated 12% to 15% a year, driven by cafés, hotels, offices and supermarkets in Kampala, Entebbe and other towns, and by tourism.

Robusta is priced by reference to the London robusta futures market. An exporter's selling price is usually the futures reference price for the shipping month plus or minus a differential, quoted in US dollars a tonne, which reflects quality, screen size, the origin and the delivery terms. Over the last five years the reference price has moved between about USD 1,700 and USD 5,600 a tonne. Because farm-gate prices in shillings follow the reference price, an exporter's margin depends mainly on the differential it can obtain, its processing outturn and costs, and the exchange rate between the shilling and the US dollar when the export proceeds are received.

The national coffee regulator registers exporters, buying stores and processors, inspects quality at the point of export and issues the quality certificates needed for each shipment. Buyers in the European Union have told exporters that the European Union's deforestation regulation will require proof, for each lot, that the coffee did not come from land cleared of forest after 2020, including the map location of each farm. Buyers in North Africa and the Middle East have not yet asked for this.

Shareholders, board and management

BHC is a private company limited by shares, incorporated in Uganda under the Companies Act, 2012. Its shareholders are the Kizito family (60%), the Buddu Growers' Co-operative Union Ltd (20%), which represents about 4,100 farmer members who sell to BHC, and Savanna Harvest Capital Fund (20%), an agribusiness fund managed from Accra, Ghana, which invested in 2020. Savanna's shareholders' agreement gives it one board seat, a veto over new share issues and a right to sell its shares to the other shareholders at a fair value from 2029.

The board meets four times a year. It has no committees, and the chairman sets the agenda with the Managing Director. Since 2019 Nyendo Haulage Ltd, owned by Daniel Kizito, has carried most of BHC's coffee to Mombasa; the rates were agreed by Daniel Kizito and Rehema Kizito-Mugisha and have not been compared with other hauliers. Pay and bonuses for the executive directors are proposed by the chairman and approved by the board, with the executive directors present and voting. A single checking officer, who reports to the Managing Director, spends most of her time counting cash at buying centres.

At its last meeting the Co-operative Union complained, through Mariam Nakato, that its members cannot see how BHC sets farm-gate prices or why the second payment (bonus) promised to farmers for high quality coffee was smaller in 2026 than in 2025. Yaw Boateng has said that Savanna's investment committee is concerned about contracts with companies owned by directors and about the lack of independent oversight of the accounts.

The external auditors are Mrema Nakimuli & Co, a Kampala firm of Certified Public Accountants that has been BHC's auditor since 2017. Their work on the 2025/26 accounts (year to 30 June 2026) is in its last stage, and they intend to sign on 18 December 2026.

Customers, markets and Project Ember

In 2025/26 about 46% of BHC's export volume went to Morocco, Algeria and Egypt, 31% to trading houses and roasters in Italy and Spain, 14% to roasters in the Gulf states and 9% to roasters in Kenya through BHC Trading Kenya Ltd. Sales are made on documents: the buyer pays against the shipping documents, normally 60 to 90 days after the coffee leaves Masaka. All export sales are invoiced in US dollars, while almost all of BHC's costs, including the coffee itself, are paid in shillings.

Atlas Torréfaction SA, a large roaster in Casablanca, Morocco, is BHC's biggest customer. Its buyer, Youssef El Amrani, is negotiating a contract for 1,500 tonnes of screen 15 robusta for shipment in January 2027, with payment 90 days later (Appendix 4).

Project Ember would add a roasting, grinding and packing plant at the Masaka site to sell roasted coffee in Uganda and the region. Nokuthula Dlamini, who chairs a small working group of the board on the project, has proposed two routes to market. One is to build BHC's own brand, Buddu Fire Roast, sold in 250-gram and 500-gram valve bags in supermarkets and to hotels, cafés and offices in Uganda and, through BHC Trading Kenya Ltd, in Nairobi. She estimates the brand would need about Shs 1,000 million of launch marketing in its first year, followed by steady spending on promotion. The other is to roast and pack coffee for other companies' brands. Karoo Bean Company (Pty) Ltd, a chain of 85 cafés based in Cape Town, South Africa, has offered a three-year agreement to buy up to 600 tonnes a year of roasted coffee packed under its own label, at a price about 8% below the expected price of BHC's own brand, provided BHC passes its food safety and ethical sourcing audit. Hotels and supermarkets in Kampala currently buy imported roasted coffee from Kenya and Europe as well as from several small Ugandan roasters.

Tesfaye Gebremedhin believes that BHC's knowledge of quality, its supply of fresh beans and its relationships with farmers give it an advantage over importers, but he notes that BHC has never sold to consumers, has no sales team for retail customers and has no experience of roasting at scale. He has arranged for Sidama Roast Technologies PLC, an Ethiopian company based in Addis Ababa, to help design the plant and to train BHC's roasters.

Systems

BHC uses an accounting package on a server at the Masaka head office. Buying centres record each purchase in a receipt book and send a daily summary by text message; stock in each store is recorded on spreadsheets that are reconciled to the factory records at the end of each month. Purchase prices are telephoned to centre managers each morning. In 2025 the checking officer found that one centre manager had recorded purchases at prices above the price set for the day and kept the difference; the loss was about Shs 85 million. Tesfaye Gebremedhin has proposed a mobile system that records each farmer's delivery, its weight, moisture and the price paid, together with the map location of the farm, and passes the data to a central system. Savanna has suggested that the same data could be placed on a blockchain platform that several European and Middle Eastern buyers are testing.

Appendix 1: Financial statements of BHC (the Ugandan company), years ended 30 June (Shs million; 2026 draft, not yet audited)

Statements of profit or loss and other comprehensive income

Statements of financial position at 30 June

Notes: (1) All borrowings are from Sango Bay Commercial Bank Uganda Ltd. Its loan agreement requires total borrowings (long-term loans plus crop finance) to be no more than 100% of total equity at each 30 June, and the bank must approve any new borrowing from other lenders. (2) Revenue growth since 2024 is mainly due to higher world prices: export volume was 11,200 tonnes in 2024, 11,500 tonnes in 2025 and 11,800 tonnes in 2026. (3) The inventories at 30 June 2026 are about 2,600 tonnes of coffee, a higher quantity than usual, because the board decided in June to hold stock in expectation of higher prices.

Appendix 2: Memo from the Managing Director to the Chief Finance Officer, 6 November 2026

Subject: Board meeting on 11 December

1. Project Ember. Roasting is our future. Every exporter in this country sells raw coffee and leaves the value to others. The estimates are in Appendix 3. I am told the project shows a good profit from year 2, but please give the board a proper financial appraisal. Some directors say the coffee we roast costs us only what we pay the farmers; please make sure the numbers are right.

2. Financing. The options are in Appendix 5. My father and I will not accept any arrangement that takes control of the company away from the family.

3. The Atlas contract. Youssef El Amrani wants an answer by the end of the month. Please advise on the price we can accept and on how we protect ourselves against the dollar (Appendix 4).

4. The downgraded coffee. The auditors have raised the 180 tonnes that were damaged by rain in the Kalungu store (Appendix 6). Tesfaye tells me that if we blend these bags in small amounts into the Atlas shipment the buyer will not notice. Please keep the stock at cost in the accounts and do not discuss the blending with the auditors; it is a commercial matter.

5. The VAT refund. We are owed a large VAT refund (Appendix 6). An officer dealing with our claim has told our clearing agent that a payment of Shs 40 million to a consultant he named would make sure the refund is paid before Christmas. Please arrange for the clearing agent to pay this and charge it to us as clearing fees. Our cash position needs the refund.

6. Tax. Please tell the board what we expect to pay for this year (Appendix 6).

Appendix 3: Project Ember estimates, prepared by the Project Ember working group with Sidama Roast Technologies PLC, October 2026

The plant would be installed during the first half of 2027 in an existing warehouse at the Masaka site and would begin roasting on 1 July 2027, the start of year 1 (2027/28). The appraisal covers six years. Treat every operating cash flow as occurring on the last day of its year; the capital spending and working capital are paid on the first day of year 1 (time 0). Figures are in Shs million. Each tonne of roasted coffee needs 1.2 tonnes of green coffee because of weight lost in roasting.

BHC can sell all the green coffee it can buy and process, so any green coffee used for roasting would otherwise be exported. For the appraisal, take income tax at 30% as paid in the year the profit arises; BHC's other profits are large enough to absorb any tax relief at once. The finance team has worked out the yearly tax benefit of the capital allowances on the plant and the fit-out (below), and these figures should be used without change. A discount rate of 16% reflects the risk of the project.

Appendix 4: The Atlas Torréfaction contract and foreign exchange information, November 2026

Atlas Torréfaction SA has offered to buy 1,500 tonnes of screen 15 robusta, delivered free on board at Mombasa, at the London reference price for the March 2027 position plus a differential. BHC proposed a differential of USD 160 a tonne. Youssef El Amrani has replied that Atlas would prefer a differential of USD 100 a tonne, because other exporters have offered similar coffee more cheaply. Atlas has agreed to fix the reference price at USD 4,080 a tonne when the contract is signed. Payment would be received in US dollars three months after signing.

BHC's costs for this contract are estimated as follows, all in Shs million a tonne of green coffee delivered at Mombasa: coffee bought from farmers and hulled 13.40; drying, grading, hand-picking, bags and fumigation 0.52; transport to Mombasa, port handling and export documentation 0.68. The board's policy is that every export contract should earn a margin of at least Shs 1.0 million a tonne after these costs.

Sango Bay Commercial Bank has quoted the following rates.

The shilling usually strengthens during the main harvest, when exporters sell dollars, and weakens at other times. In 2025 it moved by more than 5% against the US dollar in a single quarter. BHC has never hedged; the Managing Director has said she prefers to wait and convert dollars when the rate looks good. The bank has also offered a three-month option to sell US dollars at Shs 3,700 for a premium of Shs 20 for each dollar, payable now.

Appendix 5: E-mail from Yaw Boateng to the board, 2 November 2026

Subject: Funding Project Ember

Dear colleagues, Project Ember needs about Shs 22,000 million (the plant, the fit-out and the working capital). I set out the three options we have discussed.

Option 1: Sango Bay Commercial Bank. Robert Ochieng, our relationship manager, has offered a Shs 22,000 million term loan for seven years at 17.0% fixed, with equal annual instalments starting at the end of year 1. The bank's existing covenant would continue to apply.

Option 2: Afro-Mediterranean Trade Bank. Dina Farouk of the bank's Cairo office has outlined a seven-year loan in US dollars worth Shs 22,000 million at today's rate at a fixed rate of 8.5% a year in US dollars, with no repayment of principal for two years. The bank requires a first charge over the new plant, an assignment of BHC's export proceeds from two named buyers, and annual reports on environmental and social matters. Sango Bay Commercial Bank would have to consent, and its covenant would also apply. Our economists expect the shilling to fall by about 3.5% a year against the US dollar over the next seven years.

Option 3: new shares for Savanna. Savanna Harvest Capital would pay Shs 22,000 million for newly issued ordinary shares, on the basis that BHC's shares in issue are worth Shs 66,000 million before the investment. Savanna would expect a second board seat. Savanna has also said it would subscribe a smaller amount of Shs 8,000 million for new shares on the same valuation if the rest were borrowed in US dollars from the Afro-Mediterranean Trade Bank.

I suggest the board compares the options using total borrowings to total equity at 30 June 2026, adjusted for the new money (ignore the project's own profits for this purpose). Kind regards, Yaw.

Appendix 6: Tax information and extract from the auditors' letter

Tax data for BHC (the Ugandan company) for the year of income 2026/27, which runs from 1 July 2026 to 30 June 2027. Use only the rules below. They summarise the Income Tax Act, Cap 340 and the Value Added Tax Act, Cap 349 in the form that applies for 2026/27, after the amendments that took effect on 1 July 2026.

• Companies pay income tax at 30% of chargeable income.
• Accounting depreciation is added back. Manufacturing plant forms a pool, and 30% of the pool's written-down value at the year end is allowed as wear and tear. Buildings used in manufacturing attract an industrial building deduction of 5% of their cost each year.
• No deduction is given for fines or penalties, or for a general provision against doubtful debts.
• Exchange gains and losses count for tax only once they are realised.
• Interest limit: where a company belongs to a group (non-individual persons sharing at least 51% common underlying ownership, ignoring any dormant member), its interest deduction cannot exceed 30% of tax EBITDA. Tax EBITDA means chargeable income before the interest deduction, with the wear and tear and industrial building deductions added back.
• A non-resident paid a management or technical service fee suffers withholding tax at 15% of the gross fee.
• VAT: exported goods are zero-rated, so the exporter charges no VAT on them yet recovers input tax on its taxable purchases and is refunded any excess. Unprocessed agricultural produce, such as coffee bought from farmers, is an exempt supply. Letting commercial premises is standard-rated at 18%. Where a non-resident supplies services into Uganda, the Ugandan customer accounts for VAT at 18% itself; only petroleum and mining contractors and business process outsourcing providers may treat that VAT as input tax.

1. BHC's forecast accounting profit before tax for 2026/27, before Project Ember, is Shs 8,600 million. The figure is after charging depreciation of Shs 3,400 million, interest of Shs 2,600 million, an increase of Shs 240 million in the general provision for doubtful debts and a penalty of Shs 60 million paid to the customs authorities for a late export declaration. It includes an unrealised foreign exchange gain of Shs 520 million on US dollar receivables at the year end. No other tax adjustments are needed.
2. The written-down value of BHC's pool of manufacturing plant at 1 July 2026 is Shs 15,000 million. BHC expects to add Shs 3,000 million of plant to the pool during 2026/27 and to sell none. The cost of BHC's factory buildings, all used in manufacturing and still qualifying for the deduction, is Shs 14,000 million.
3. From 1 July 2026 Sidama Roast Technologies PLC, a company resident in Ethiopia that has no office or other base in Uganda, supplies roasting design and training services from Addis Ababa for a fee of Shs 800 million in 2026/27, which is included in the forecast. No tax treaty between Uganda and Ethiopia is in force.
4. For 2026/27 BHC forecasts input tax of Shs 1,380 million on standard-rated purchases such as fuel, packaging, transport and professional services. It will continue to let the warehouse to its tenant for Shs 250 million (excluding VAT) during 2026/27. All its other supplies are exports. BHC carries on no petroleum, mining or business process outsourcing activity.
5. BHC Trading Kenya Ltd is not dormant. BHC has no tax losses or interest carried forward from earlier years.

Extract from the letter of Mrema Nakimuli & Co to the Managing Director, 30 October 2026.

Damaged inventory. During our attendance at the inventory count we found 180 tonnes of coffee in the Kalungu store that had been rewetted by a roof leak in May 2026 and has since shown mould and a high defect count. The draft financial statements carry it at the average cost of Shs 13.0 million a tonne. The national regulator would not certify it for export. A Kampala manufacturer of instant coffee has offered to buy it for Shs 7.9 million a tonne, collected from Masaka, with BHC paying Shs 0.3 million a tonne for re-drying and sorting.

Inventory records. Stock records at four buying centres could not be reconciled to the factory records at 30 June 2026. The total difference is about 95 tonnes, which management attributes to moisture loss.

Forward contracts. In June 2026 BHC agreed with a commodity trading company in Mombasa to sell 900 tonnes of coffee for delivery in September 2026 at a fixed price in US dollars. The draft financial statements make no mention of this commitment.

VAT refund. BHC's claim for a VAT refund of Shs 1,240 million for the year to 30 June 2026 has not yet been paid. We will need evidence to support its recoverability.

Appendix 7: Notes from the risk workshop and letter from Savanna, October 2026

• The London reference price fell by 22% in six weeks in early 2026 before recovering. BHC buys coffee at prices that follow the reference price but sells, on average, about seven weeks later. It does not use futures or fixed-price purchase agreements.
• Seasonal crop finance rose to Shs 21,500 million at 30 June 2026 because the board decided to hold more stock. The facility must be renewed each April.
• Rainfall in the district has become less reliable: a drought in 2022 cut the fly crop by about 40%, and heavy rains in 2026 damaged coffee in stores.
• Atlas Torréfaction pays against documents and has always paid on time. Two Middle Eastern buyers paid between 30 and 50 days late in 2026.
• The Italian and Spanish buyers have said they will stop buying from exporters that cannot provide farm location data for the European Union deforestation regulation by the end of 2026. BHC has map locations for about 2,000 of its 13,500 farmers.
• Cash is still used at 19 of the 27 buying centres. The 2025 price fraud was found by chance.
• Nobody has written down BHC's main risks, and the directors have not agreed what level of risk they would tolerate.

Letter from Yaw Boateng, Savanna Harvest Capital, 20 October 2026 (extract). Two development finance institutions that invest in our fund have told us that every portfolio company must disclose its climate and wider sustainability information under international standards. Coffee growing in the district is exposed to rising temperatures and less reliable rainfall; studies suggest that the area where robusta grows well in central Uganda could shrink over the next 25 years. BHC's dryers burn coffee husks and some firewood, and its trucks use diesel. Most of the emissions linked to BHC's coffee arise on farms and in shipping. We would like BHC's first sustainability report to cover 2026/27 and to obtain some independent checking of the figures, which the Afro-Mediterranean Trade Bank would also require.

Required

Having studied this material, you have grouped the matters for the board's attention under four headings: A, strategy and marketing; B, finance, tax and performance; C, governance, risk, control and ethics; and D, current and emerging issues. The report is to begin with an executive summary.

Prepare a report to the board advising on the issues below.

Where a part gives you a workings grid, set out your figures there; elsewhere, type your workings line by line.

Buddu Highlands Coffee Ltd: integrated case

Today is Monday 16 November 2026. You are the Chief Finance Officer of Buddu Highlands Coffee Ltd (BHC), a coffee buying, processing and export company with its head office and factory in Masaka, in the central region of Uganda. You are a CPA(U) and were promoted to the post in August 2026 after six years as the company's financial controller. You report to the Managing Director, Rehema Kizito-Mugisha, and you attend board meetings as an executive, although you are not a member of the board.

The board will meet on Friday 11 December 2026. Its main business is to decide whether BHC should build a coffee roasting and packing plant, known as Project Ember, and how the plant should be financed. The directors have also asked for advice on a large export contract that is being negotiated in US dollars, on the company's tax position for the current year of income, on matters raised by the external auditors, and on the way the company is governed and manages its risks. Rehema Kizito-Mugisha has asked you to bring all of these matters together in a single report to the board. The information you have collected is set out below and in Appendices 1 to 7. Amounts are in Uganda shillings (Shs) million unless otherwise stated.

History and operations

BHC was founded in 1996 by Ephraim Kizito, a former agricultural extension officer, as a coffee buying store in Nyendo, on the outskirts of Masaka town. The business grew with the liberalisation of the coffee trade and in 2004 opened its own hulling and grading factory on a 9-acre site beside the Masaka to Mbirizi road. The factory now has a capacity of about 16,000 tonnes of green (export-ready) coffee a year. In the year to 30 June 2026 BHC exported 11,800 tonnes of green robusta coffee, which made it one of the larger exporters based outside Kampala.

Almost all of BHC's coffee is robusta. It is bought from about 13,500 smallholder farmers in Masaka, Lwengo, Bukomansimbi, Kalungu and Rakai districts through 27 buying centres. Farmers sell either dried cherry (known locally as kiboko) or fair average quality coffee (FAQ) that has already been hulled by small village hullers. Each buying centre has a moisture meter, scales and a clerk; coffee is paid for in cash or by mobile money on the day of delivery. Coffee bought as kiboko is hulled at the Masaka factory. All coffee is then dried to below 13% moisture, cleaned, sorted by bean size into screen grades, hand-picked for defects, bagged in 60-kilogram jute bags and trucked to the port of Mombasa in Kenya for shipment.

The main harvest in the region runs from about May to August, with a smaller fly crop from November to January. BHC must buy most of its year's coffee within five months, which it finances with seasonal crop finance from its bank. Coffee held in stores is at risk from rewetting, mould, theft and price falls. Competition for farmers' coffee is fierce: multinational exporters with stores in the same districts and many small traders who pay cash at the farm gate compete for the same crop, and prices paid to farmers follow the world price closely, sometimes changing twice in a week.

BHC owns one subsidiary, BHC Trading Kenya Ltd (100%), a small office in Nairobi that arranges shipping documents, insurance and port clearance in Mombasa and sells small lots of green coffee to roasters in Kenya. Its manager is Wanjiru Kamau. The group employs about 410 permanent staff and up to 600 seasonal workers in the main harvest.

The coffee industry

Coffee is Uganda's largest agricultural export. National exports reached record volumes in 2024/25 and 2025/26, helped by new plantings, better farm practice and high world prices. Most Ugandan coffee is exported green, and only a very small share is roasted in the country. Several large buyers in North Africa, the Middle East and Europe buy Ugandan robusta for blending and for instant coffee. The domestic market for roasted coffee is small but growing at an estimated 12% to 15% a year, driven by cafés, hotels, offices and supermarkets in Kampala, Entebbe and other towns, and by tourism.

Robusta is priced by reference to the London robusta futures market. An exporter's selling price is usually the futures reference price for the shipping month plus or minus a differential, quoted in US dollars a tonne, which reflects quality, screen size, the origin and the delivery terms. Over the last five years the reference price has moved between about USD 1,700 and USD 5,600 a tonne. Because farm-gate prices in shillings follow the reference price, an exporter's margin depends mainly on the differential it can obtain, its processing outturn and costs, and the exchange rate between the shilling and the US dollar when the export proceeds are received.

The national coffee regulator registers exporters, buying stores and processors, inspects quality at the point of export and issues the quality certificates needed for each shipment. Buyers in the European Union have told exporters that the European Union's deforestation regulation will require proof, for each lot, that the coffee did not come from land cleared of forest after 2020, including the map location of each farm. Buyers in North Africa and the Middle East have not yet asked for this.

Shareholders, board and management

BHC is a private company limited by shares, incorporated in Uganda under the Companies Act, 2012. Its shareholders are the Kizito family (60%), the Buddu Growers' Co-operative Union Ltd (20%), which represents about 4,100 farmer members who sell to BHC, and Savanna Harvest Capital Fund (20%), an agribusiness fund managed from Accra, Ghana, which invested in 2020. Savanna's shareholders' agreement gives it one board seat, a veto over new share issues and a right to sell its shares to the other shareholders at a fair value from 2029.

The board meets four times a year. It has no committees, and the chairman sets the agenda with the Managing Director. Since 2019 Nyendo Haulage Ltd, owned by Daniel Kizito, has carried most of BHC's coffee to Mombasa; the rates were agreed by Daniel Kizito and Rehema Kizito-Mugisha and have not been compared with other hauliers. Pay and bonuses for the executive directors are proposed by the chairman and approved by the board, with the executive directors present and voting. A single checking officer, who reports to the Managing Director, spends most of her time counting cash at buying centres.

At its last meeting the Co-operative Union complained, through Mariam Nakato, that its members cannot see how BHC sets farm-gate prices or why the second payment (bonus) promised to farmers for high quality coffee was smaller in 2026 than in 2025. Yaw Boateng has said that Savanna's investment committee is concerned about contracts with companies owned by directors and about the lack of independent oversight of the accounts.

The external auditors are Mrema Nakimuli & Co, a Kampala firm of Certified Public Accountants that has been BHC's auditor since 2017. Their work on the 2025/26 accounts (year to 30 June 2026) is in its last stage, and they intend to sign on 18 December 2026.

Customers, markets and Project Ember

In 2025/26 about 46% of BHC's export volume went to Morocco, Algeria and Egypt, 31% to trading houses and roasters in Italy and Spain, 14% to roasters in the Gulf states and 9% to roasters in Kenya through BHC Trading Kenya Ltd. Sales are made on documents: the buyer pays against the shipping documents, normally 60 to 90 days after the coffee leaves Masaka. All export sales are invoiced in US dollars, while almost all of BHC's costs, including the coffee itself, are paid in shillings.

Atlas Torréfaction SA, a large roaster in Casablanca, Morocco, is BHC's biggest customer. Its buyer, Youssef El Amrani, is negotiating a contract for 1,500 tonnes of screen 15 robusta for shipment in January 2027, with payment 90 days later (Appendix 4).

Project Ember would add a roasting, grinding and packing plant at the Masaka site to sell roasted coffee in Uganda and the region. Nokuthula Dlamini, who chairs a small working group of the board on the project, has proposed two routes to market. One is to build BHC's own brand, Buddu Fire Roast, sold in 250-gram and 500-gram valve bags in supermarkets and to hotels, cafés and offices in Uganda and, through BHC Trading Kenya Ltd, in Nairobi. She estimates the brand would need about Shs 1,000 million of launch marketing in its first year, followed by steady spending on promotion. The other is to roast and pack coffee for other companies' brands. Karoo Bean Company (Pty) Ltd, a chain of 85 cafés based in Cape Town, South Africa, has offered a three-year agreement to buy up to 600 tonnes a year of roasted coffee packed under its own label, at a price about 8% below the expected price of BHC's own brand, provided BHC passes its food safety and ethical sourcing audit. Hotels and supermarkets in Kampala currently buy imported roasted coffee from Kenya and Europe as well as from several small Ugandan roasters.

Tesfaye Gebremedhin believes that BHC's knowledge of quality, its supply of fresh beans and its relationships with farmers give it an advantage over importers, but he notes that BHC has never sold to consumers, has no sales team for retail customers and has no experience of roasting at scale. He has arranged for Sidama Roast Technologies PLC, an Ethiopian company based in Addis Ababa, to help design the plant and to train BHC's roasters.

Systems

BHC uses an accounting package on a server at the Masaka head office. Buying centres record each purchase in a receipt book and send a daily summary by text message; stock in each store is recorded on spreadsheets that are reconciled to the factory records at the end of each month. Purchase prices are telephoned to centre managers each morning. In 2025 the checking officer found that one centre manager had recorded purchases at prices above the price set for the day and kept the difference; the loss was about Shs 85 million. Tesfaye Gebremedhin has proposed a mobile system that records each farmer's delivery, its weight, moisture and the price paid, together with the map location of the farm, and passes the data to a central system. Savanna has suggested that the same data could be placed on a blockchain platform that several European and Middle Eastern buyers are testing.

Appendix 1: Financial statements of BHC (the Ugandan company), years ended 30 June (Shs million; 2026 draft, not yet audited)

Statements of profit or loss and other comprehensive income

Statements of financial position at 30 June

Notes: (1) All borrowings are from Sango Bay Commercial Bank Uganda Ltd. Its loan agreement requires total borrowings (long-term loans plus crop finance) to be no more than 100% of total equity at each 30 June, and the bank must approve any new borrowing from other lenders. (2) Revenue growth since 2024 is mainly due to higher world prices: export volume was 11,200 tonnes in 2024, 11,500 tonnes in 2025 and 11,800 tonnes in 2026. (3) The inventories at 30 June 2026 are about 2,600 tonnes of coffee, a higher quantity than usual, because the board decided in June to hold stock in expectation of higher prices.

Appendix 2: Memo from the Managing Director to the Chief Finance Officer, 6 November 2026

Subject: Board meeting on 11 December

1. Project Ember. Roasting is our future. Every exporter in this country sells raw coffee and leaves the value to others. The estimates are in Appendix 3. I am told the project shows a good profit from year 2, but please give the board a proper financial appraisal. Some directors say the coffee we roast costs us only what we pay the farmers; please make sure the numbers are right.

2. Financing. The options are in Appendix 5. My father and I will not accept any arrangement that takes control of the company away from the family.

3. The Atlas contract. Youssef El Amrani wants an answer by the end of the month. Please advise on the price we can accept and on how we protect ourselves against the dollar (Appendix 4).

4. The downgraded coffee. The auditors have raised the 180 tonnes that were damaged by rain in the Kalungu store (Appendix 6). Tesfaye tells me that if we blend these bags in small amounts into the Atlas shipment the buyer will not notice. Please keep the stock at cost in the accounts and do not discuss the blending with the auditors; it is a commercial matter.

5. The VAT refund. We are owed a large VAT refund (Appendix 6). An officer dealing with our claim has told our clearing agent that a payment of Shs 40 million to a consultant he named would make sure the refund is paid before Christmas. Please arrange for the clearing agent to pay this and charge it to us as clearing fees. Our cash position needs the refund.

6. Tax. Please tell the board what we expect to pay for this year (Appendix 6).

Appendix 3: Project Ember estimates, prepared by the Project Ember working group with Sidama Roast Technologies PLC, October 2026

The plant would be installed during the first half of 2027 in an existing warehouse at the Masaka site and would begin roasting on 1 July 2027, the start of year 1 (2027/28). The appraisal covers six years. Treat every operating cash flow as occurring on the last day of its year; the capital spending and working capital are paid on the first day of year 1 (time 0). Figures are in Shs million. Each tonne of roasted coffee needs 1.2 tonnes of green coffee because of weight lost in roasting.

BHC can sell all the green coffee it can buy and process, so any green coffee used for roasting would otherwise be exported. For the appraisal, take income tax at 30% as paid in the year the profit arises; BHC's other profits are large enough to absorb any tax relief at once. The finance team has worked out the yearly tax benefit of the capital allowances on the plant and the fit-out (below), and these figures should be used without change. A discount rate of 16% reflects the risk of the project.

Appendix 4: The Atlas Torréfaction contract and foreign exchange information, November 2026

Atlas Torréfaction SA has offered to buy 1,500 tonnes of screen 15 robusta, delivered free on board at Mombasa, at the London reference price for the March 2027 position plus a differential. BHC proposed a differential of USD 160 a tonne. Youssef El Amrani has replied that Atlas would prefer a differential of USD 100 a tonne, because other exporters have offered similar coffee more cheaply. Atlas has agreed to fix the reference price at USD 4,080 a tonne when the contract is signed. Payment would be received in US dollars three months after signing.

BHC's costs for this contract are estimated as follows, all in Shs million a tonne of green coffee delivered at Mombasa: coffee bought from farmers and hulled 13.40; drying, grading, hand-picking, bags and fumigation 0.52; transport to Mombasa, port handling and export documentation 0.68. The board's policy is that every export contract should earn a margin of at least Shs 1.0 million a tonne after these costs.

Sango Bay Commercial Bank has quoted the following rates.

The shilling usually strengthens during the main harvest, when exporters sell dollars, and weakens at other times. In 2025 it moved by more than 5% against the US dollar in a single quarter. BHC has never hedged; the Managing Director has said she prefers to wait and convert dollars when the rate looks good. The bank has also offered a three-month option to sell US dollars at Shs 3,700 for a premium of Shs 20 for each dollar, payable now.

Appendix 5: E-mail from Yaw Boateng to the board, 2 November 2026

Subject: Funding Project Ember

Dear colleagues, Project Ember needs about Shs 22,000 million (the plant, the fit-out and the working capital). I set out the three options we have discussed.

Option 1: Sango Bay Commercial Bank. Robert Ochieng, our relationship manager, has offered a Shs 22,000 million term loan for seven years at 17.0% fixed, with equal annual instalments starting at the end of year 1. The bank's existing covenant would continue to apply.

Option 2: Afro-Mediterranean Trade Bank. Dina Farouk of the bank's Cairo office has outlined a seven-year loan in US dollars worth Shs 22,000 million at today's rate at a fixed rate of 8.5% a year in US dollars, with no repayment of principal for two years. The bank requires a first charge over the new plant, an assignment of BHC's export proceeds from two named buyers, and annual reports on environmental and social matters. Sango Bay Commercial Bank would have to consent, and its covenant would also apply. Our economists expect the shilling to fall by about 3.5% a year against the US dollar over the next seven years.

Option 3: new shares for Savanna. Savanna Harvest Capital would pay Shs 22,000 million for newly issued ordinary shares, on the basis that BHC's shares in issue are worth Shs 66,000 million before the investment. Savanna would expect a second board seat. Savanna has also said it would subscribe a smaller amount of Shs 8,000 million for new shares on the same valuation if the rest were borrowed in US dollars from the Afro-Mediterranean Trade Bank.

I suggest the board compares the options using total borrowings to total equity at 30 June 2026, adjusted for the new money (ignore the project's own profits for this purpose). Kind regards, Yaw.

Appendix 6: Tax information and extract from the auditors' letter

Tax data for BHC (the Ugandan company) for the year of income 2026/27, which runs from 1 July 2026 to 30 June 2027. Use only the rules below. They summarise the Income Tax Act, Cap 340 and the Value Added Tax Act, Cap 349 in the form that applies for 2026/27, after the amendments that took effect on 1 July 2026.

• Companies pay income tax at 30% of chargeable income.
• Accounting depreciation is added back. Manufacturing plant forms a pool, and 30% of the pool's written-down value at the year end is allowed as wear and tear. Buildings used in manufacturing attract an industrial building deduction of 5% of their cost each year.
• No deduction is given for fines or penalties, or for a general provision against doubtful debts.
• Exchange gains and losses count for tax only once they are realised.
• Interest limit: where a company belongs to a group (non-individual persons sharing at least 51% common underlying ownership, ignoring any dormant member), its interest deduction cannot exceed 30% of tax EBITDA. Tax EBITDA means chargeable income before the interest deduction, with the wear and tear and industrial building deductions added back.
• A non-resident paid a management or technical service fee suffers withholding tax at 15% of the gross fee.
• VAT: exported goods are zero-rated, so the exporter charges no VAT on them yet recovers input tax on its taxable purchases and is refunded any excess. Unprocessed agricultural produce, such as coffee bought from farmers, is an exempt supply. Letting commercial premises is standard-rated at 18%. Where a non-resident supplies services into Uganda, the Ugandan customer accounts for VAT at 18% itself; only petroleum and mining contractors and business process outsourcing providers may treat that VAT as input tax.

1. BHC's forecast accounting profit before tax for 2026/27, before Project Ember, is Shs 8,600 million. The figure is after charging depreciation of Shs 3,400 million, interest of Shs 2,600 million, an increase of Shs 240 million in the general provision for doubtful debts and a penalty of Shs 60 million paid to the customs authorities for a late export declaration. It includes an unrealised foreign exchange gain of Shs 520 million on US dollar receivables at the year end. No other tax adjustments are needed.
2. The written-down value of BHC's pool of manufacturing plant at 1 July 2026 is Shs 15,000 million. BHC expects to add Shs 3,000 million of plant to the pool during 2026/27 and to sell none. The cost of BHC's factory buildings, all used in manufacturing and still qualifying for the deduction, is Shs 14,000 million.
3. From 1 July 2026 Sidama Roast Technologies PLC, a company resident in Ethiopia that has no office or other base in Uganda, supplies roasting design and training services from Addis Ababa for a fee of Shs 800 million in 2026/27, which is included in the forecast. No tax treaty between Uganda and Ethiopia is in force.
4. For 2026/27 BHC forecasts input tax of Shs 1,380 million on standard-rated purchases such as fuel, packaging, transport and professional services. It will continue to let the warehouse to its tenant for Shs 250 million (excluding VAT) during 2026/27. All its other supplies are exports. BHC carries on no petroleum, mining or business process outsourcing activity.
5. BHC Trading Kenya Ltd is not dormant. BHC has no tax losses or interest carried forward from earlier years.

Extract from the letter of Mrema Nakimuli & Co to the Managing Director, 30 October 2026.

Damaged inventory. During our attendance at the inventory count we found 180 tonnes of coffee in the Kalungu store that had been rewetted by a roof leak in May 2026 and has since shown mould and a high defect count. The draft financial statements carry it at the average cost of Shs 13.0 million a tonne. The national regulator would not certify it for export. A Kampala manufacturer of instant coffee has offered to buy it for Shs 7.9 million a tonne, collected from Masaka, with BHC paying Shs 0.3 million a tonne for re-drying and sorting.

Inventory records. Stock records at four buying centres could not be reconciled to the factory records at 30 June 2026. The total difference is about 95 tonnes, which management attributes to moisture loss.

Forward contracts. In June 2026 BHC agreed with a commodity trading company in Mombasa to sell 900 tonnes of coffee for delivery in September 2026 at a fixed price in US dollars. The draft financial statements make no mention of this commitment.

VAT refund. BHC's claim for a VAT refund of Shs 1,240 million for the year to 30 June 2026 has not yet been paid. We will need evidence to support its recoverability.

Appendix 7: Notes from the risk workshop and letter from Savanna, October 2026

• The London reference price fell by 22% in six weeks in early 2026 before recovering. BHC buys coffee at prices that follow the reference price but sells, on average, about seven weeks later. It does not use futures or fixed-price purchase agreements.
• Seasonal crop finance rose to Shs 21,500 million at 30 June 2026 because the board decided to hold more stock. The facility must be renewed each April.
• Rainfall in the district has become less reliable: a drought in 2022 cut the fly crop by about 40%, and heavy rains in 2026 damaged coffee in stores.
• Atlas Torréfaction pays against documents and has always paid on time. Two Middle Eastern buyers paid between 30 and 50 days late in 2026.
• The Italian and Spanish buyers have said they will stop buying from exporters that cannot provide farm location data for the European Union deforestation regulation by the end of 2026. BHC has map locations for about 2,000 of its 13,500 farmers.
• Cash is still used at 19 of the 27 buying centres. The 2025 price fraud was found by chance.
• Nobody has written down BHC's main risks, and the directors have not agreed what level of risk they would tolerate.

Letter from Yaw Boateng, Savanna Harvest Capital, 20 October 2026 (extract). Two development finance institutions that invest in our fund have told us that every portfolio company must disclose its climate and wider sustainability information under international standards. Coffee growing in the district is exposed to rising temperatures and less reliable rainfall; studies suggest that the area where robusta grows well in central Uganda could shrink over the next 25 years. BHC's dryers burn coffee husks and some firewood, and its trucks use diesel. Most of the emissions linked to BHC's coffee arise on farms and in shipping. We would like BHC's first sustainability report to cover 2026/27 and to obtain some independent checking of the figures, which the Afro-Mediterranean Trade Bank would also require.

Required

Having studied this material, you have grouped the matters for the board's attention under four headings: A, strategy and marketing; B, finance, tax and performance; C, governance, risk, control and ethics; and D, current and emerging issues. The report is to begin with an executive summary.

Prepare a report to the board advising on the issues below.

Where a part gives you a workings grid, set out your figures there; elsewhere, type your workings line by line.

Buddu Highlands Coffee Ltd: integrated case

Today is Monday 16 November 2026. You are the Chief Finance Officer of Buddu Highlands Coffee Ltd (BHC), a coffee buying, processing and export company with its head office and factory in Masaka, in the central region of Uganda. You are a CPA(U) and were promoted to the post in August 2026 after six years as the company's financial controller. You report to the Managing Director, Rehema Kizito-Mugisha, and you attend board meetings as an executive, although you are not a member of the board.

The board will meet on Friday 11 December 2026. Its main business is to decide whether BHC should build a coffee roasting and packing plant, known as Project Ember, and how the plant should be financed. The directors have also asked for advice on a large export contract that is being negotiated in US dollars, on the company's tax position for the current year of income, on matters raised by the external auditors, and on the way the company is governed and manages its risks. Rehema Kizito-Mugisha has asked you to bring all of these matters together in a single report to the board. The information you have collected is set out below and in Appendices 1 to 7. Amounts are in Uganda shillings (Shs) million unless otherwise stated.

History and operations

BHC was founded in 1996 by Ephraim Kizito, a former agricultural extension officer, as a coffee buying store in Nyendo, on the outskirts of Masaka town. The business grew with the liberalisation of the coffee trade and in 2004 opened its own hulling and grading factory on a 9-acre site beside the Masaka to Mbirizi road. The factory now has a capacity of about 16,000 tonnes of green (export-ready) coffee a year. In the year to 30 June 2026 BHC exported 11,800 tonnes of green robusta coffee, which made it one of the larger exporters based outside Kampala.

Almost all of BHC's coffee is robusta. It is bought from about 13,500 smallholder farmers in Masaka, Lwengo, Bukomansimbi, Kalungu and Rakai districts through 27 buying centres. Farmers sell either dried cherry (known locally as kiboko) or fair average quality coffee (FAQ) that has already been hulled by small village hullers. Each buying centre has a moisture meter, scales and a clerk; coffee is paid for in cash or by mobile money on the day of delivery. Coffee bought as kiboko is hulled at the Masaka factory. All coffee is then dried to below 13% moisture, cleaned, sorted by bean size into screen grades, hand-picked for defects, bagged in 60-kilogram jute bags and trucked to the port of Mombasa in Kenya for shipment.

The main harvest in the region runs from about May to August, with a smaller fly crop from November to January. BHC must buy most of its year's coffee within five months, which it finances with seasonal crop finance from its bank. Coffee held in stores is at risk from rewetting, mould, theft and price falls. Competition for farmers' coffee is fierce: multinational exporters with stores in the same districts and many small traders who pay cash at the farm gate compete for the same crop, and prices paid to farmers follow the world price closely, sometimes changing twice in a week.

BHC owns one subsidiary, BHC Trading Kenya Ltd (100%), a small office in Nairobi that arranges shipping documents, insurance and port clearance in Mombasa and sells small lots of green coffee to roasters in Kenya. Its manager is Wanjiru Kamau. The group employs about 410 permanent staff and up to 600 seasonal workers in the main harvest.

The coffee industry

Coffee is Uganda's largest agricultural export. National exports reached record volumes in 2024/25 and 2025/26, helped by new plantings, better farm practice and high world prices. Most Ugandan coffee is exported green, and only a very small share is roasted in the country. Several large buyers in North Africa, the Middle East and Europe buy Ugandan robusta for blending and for instant coffee. The domestic market for roasted coffee is small but growing at an estimated 12% to 15% a year, driven by cafés, hotels, offices and supermarkets in Kampala, Entebbe and other towns, and by tourism.

Robusta is priced by reference to the London robusta futures market. An exporter's selling price is usually the futures reference price for the shipping month plus or minus a differential, quoted in US dollars a tonne, which reflects quality, screen size, the origin and the delivery terms. Over the last five years the reference price has moved between about USD 1,700 and USD 5,600 a tonne. Because farm-gate prices in shillings follow the reference price, an exporter's margin depends mainly on the differential it can obtain, its processing outturn and costs, and the exchange rate between the shilling and the US dollar when the export proceeds are received.

The national coffee regulator registers exporters, buying stores and processors, inspects quality at the point of export and issues the quality certificates needed for each shipment. Buyers in the European Union have told exporters that the European Union's deforestation regulation will require proof, for each lot, that the coffee did not come from land cleared of forest after 2020, including the map location of each farm. Buyers in North Africa and the Middle East have not yet asked for this.

Shareholders, board and management

BHC is a private company limited by shares, incorporated in Uganda under the Companies Act, 2012. Its shareholders are the Kizito family (60%), the Buddu Growers' Co-operative Union Ltd (20%), which represents about 4,100 farmer members who sell to BHC, and Savanna Harvest Capital Fund (20%), an agribusiness fund managed from Accra, Ghana, which invested in 2020. Savanna's shareholders' agreement gives it one board seat, a veto over new share issues and a right to sell its shares to the other shareholders at a fair value from 2029.

The board meets four times a year. It has no committees, and the chairman sets the agenda with the Managing Director. Since 2019 Nyendo Haulage Ltd, owned by Daniel Kizito, has carried most of BHC's coffee to Mombasa; the rates were agreed by Daniel Kizito and Rehema Kizito-Mugisha and have not been compared with other hauliers. Pay and bonuses for the executive directors are proposed by the chairman and approved by the board, with the executive directors present and voting. A single checking officer, who reports to the Managing Director, spends most of her time counting cash at buying centres.

At its last meeting the Co-operative Union complained, through Mariam Nakato, that its members cannot see how BHC sets farm-gate prices or why the second payment (bonus) promised to farmers for high quality coffee was smaller in 2026 than in 2025. Yaw Boateng has said that Savanna's investment committee is concerned about contracts with companies owned by directors and about the lack of independent oversight of the accounts.

The external auditors are Mrema Nakimuli & Co, a Kampala firm of Certified Public Accountants that has been BHC's auditor since 2017. Their work on the 2025/26 accounts (year to 30 June 2026) is in its last stage, and they intend to sign on 18 December 2026.

Customers, markets and Project Ember

In 2025/26 about 46% of BHC's export volume went to Morocco, Algeria and Egypt, 31% to trading houses and roasters in Italy and Spain, 14% to roasters in the Gulf states and 9% to roasters in Kenya through BHC Trading Kenya Ltd. Sales are made on documents: the buyer pays against the shipping documents, normally 60 to 90 days after the coffee leaves Masaka. All export sales are invoiced in US dollars, while almost all of BHC's costs, including the coffee itself, are paid in shillings.

Atlas Torréfaction SA, a large roaster in Casablanca, Morocco, is BHC's biggest customer. Its buyer, Youssef El Amrani, is negotiating a contract for 1,500 tonnes of screen 15 robusta for shipment in January 2027, with payment 90 days later (Appendix 4).

Project Ember would add a roasting, grinding and packing plant at the Masaka site to sell roasted coffee in Uganda and the region. Nokuthula Dlamini, who chairs a small working group of the board on the project, has proposed two routes to market. One is to build BHC's own brand, Buddu Fire Roast, sold in 250-gram and 500-gram valve bags in supermarkets and to hotels, cafés and offices in Uganda and, through BHC Trading Kenya Ltd, in Nairobi. She estimates the brand would need about Shs 1,000 million of launch marketing in its first year, followed by steady spending on promotion. The other is to roast and pack coffee for other companies' brands. Karoo Bean Company (Pty) Ltd, a chain of 85 cafés based in Cape Town, South Africa, has offered a three-year agreement to buy up to 600 tonnes a year of roasted coffee packed under its own label, at a price about 8% below the expected price of BHC's own brand, provided BHC passes its food safety and ethical sourcing audit. Hotels and supermarkets in Kampala currently buy imported roasted coffee from Kenya and Europe as well as from several small Ugandan roasters.

Tesfaye Gebremedhin believes that BHC's knowledge of quality, its supply of fresh beans and its relationships with farmers give it an advantage over importers, but he notes that BHC has never sold to consumers, has no sales team for retail customers and has no experience of roasting at scale. He has arranged for Sidama Roast Technologies PLC, an Ethiopian company based in Addis Ababa, to help design the plant and to train BHC's roasters.

Systems

BHC uses an accounting package on a server at the Masaka head office. Buying centres record each purchase in a receipt book and send a daily summary by text message; stock in each store is recorded on spreadsheets that are reconciled to the factory records at the end of each month. Purchase prices are telephoned to centre managers each morning. In 2025 the checking officer found that one centre manager had recorded purchases at prices above the price set for the day and kept the difference; the loss was about Shs 85 million. Tesfaye Gebremedhin has proposed a mobile system that records each farmer's delivery, its weight, moisture and the price paid, together with the map location of the farm, and passes the data to a central system. Savanna has suggested that the same data could be placed on a blockchain platform that several European and Middle Eastern buyers are testing.

Appendix 1: Financial statements of BHC (the Ugandan company), years ended 30 June (Shs million; 2026 draft, not yet audited)

Statements of profit or loss and other comprehensive income

Statements of financial position at 30 June

Notes: (1) All borrowings are from Sango Bay Commercial Bank Uganda Ltd. Its loan agreement requires total borrowings (long-term loans plus crop finance) to be no more than 100% of total equity at each 30 June, and the bank must approve any new borrowing from other lenders. (2) Revenue growth since 2024 is mainly due to higher world prices: export volume was 11,200 tonnes in 2024, 11,500 tonnes in 2025 and 11,800 tonnes in 2026. (3) The inventories at 30 June 2026 are about 2,600 tonnes of coffee, a higher quantity than usual, because the board decided in June to hold stock in expectation of higher prices.

Appendix 2: Memo from the Managing Director to the Chief Finance Officer, 6 November 2026

Subject: Board meeting on 11 December

1. Project Ember. Roasting is our future. Every exporter in this country sells raw coffee and leaves the value to others. The estimates are in Appendix 3. I am told the project shows a good profit from year 2, but please give the board a proper financial appraisal. Some directors say the coffee we roast costs us only what we pay the farmers; please make sure the numbers are right.

2. Financing. The options are in Appendix 5. My father and I will not accept any arrangement that takes control of the company away from the family.

3. The Atlas contract. Youssef El Amrani wants an answer by the end of the month. Please advise on the price we can accept and on how we protect ourselves against the dollar (Appendix 4).

4. The downgraded coffee. The auditors have raised the 180 tonnes that were damaged by rain in the Kalungu store (Appendix 6). Tesfaye tells me that if we blend these bags in small amounts into the Atlas shipment the buyer will not notice. Please keep the stock at cost in the accounts and do not discuss the blending with the auditors; it is a commercial matter.

5. The VAT refund. We are owed a large VAT refund (Appendix 6). An officer dealing with our claim has told our clearing agent that a payment of Shs 40 million to a consultant he named would make sure the refund is paid before Christmas. Please arrange for the clearing agent to pay this and charge it to us as clearing fees. Our cash position needs the refund.

6. Tax. Please tell the board what we expect to pay for this year (Appendix 6).

Appendix 3: Project Ember estimates, prepared by the Project Ember working group with Sidama Roast Technologies PLC, October 2026

The plant would be installed during the first half of 2027 in an existing warehouse at the Masaka site and would begin roasting on 1 July 2027, the start of year 1 (2027/28). The appraisal covers six years. Treat every operating cash flow as occurring on the last day of its year; the capital spending and working capital are paid on the first day of year 1 (time 0). Figures are in Shs million. Each tonne of roasted coffee needs 1.2 tonnes of green coffee because of weight lost in roasting.

BHC can sell all the green coffee it can buy and process, so any green coffee used for roasting would otherwise be exported. For the appraisal, take income tax at 30% as paid in the year the profit arises; BHC's other profits are large enough to absorb any tax relief at once. The finance team has worked out the yearly tax benefit of the capital allowances on the plant and the fit-out (below), and these figures should be used without change. A discount rate of 16% reflects the risk of the project.

Appendix 4: The Atlas Torréfaction contract and foreign exchange information, November 2026

Atlas Torréfaction SA has offered to buy 1,500 tonnes of screen 15 robusta, delivered free on board at Mombasa, at the London reference price for the March 2027 position plus a differential. BHC proposed a differential of USD 160 a tonne. Youssef El Amrani has replied that Atlas would prefer a differential of USD 100 a tonne, because other exporters have offered similar coffee more cheaply. Atlas has agreed to fix the reference price at USD 4,080 a tonne when the contract is signed. Payment would be received in US dollars three months after signing.

BHC's costs for this contract are estimated as follows, all in Shs million a tonne of green coffee delivered at Mombasa: coffee bought from farmers and hulled 13.40; drying, grading, hand-picking, bags and fumigation 0.52; transport to Mombasa, port handling and export documentation 0.68. The board's policy is that every export contract should earn a margin of at least Shs 1.0 million a tonne after these costs.

Sango Bay Commercial Bank has quoted the following rates.

The shilling usually strengthens during the main harvest, when exporters sell dollars, and weakens at other times. In 2025 it moved by more than 5% against the US dollar in a single quarter. BHC has never hedged; the Managing Director has said she prefers to wait and convert dollars when the rate looks good. The bank has also offered a three-month option to sell US dollars at Shs 3,700 for a premium of Shs 20 for each dollar, payable now.

Appendix 5: E-mail from Yaw Boateng to the board, 2 November 2026

Subject: Funding Project Ember

Dear colleagues, Project Ember needs about Shs 22,000 million (the plant, the fit-out and the working capital). I set out the three options we have discussed.

Option 1: Sango Bay Commercial Bank. Robert Ochieng, our relationship manager, has offered a Shs 22,000 million term loan for seven years at 17.0% fixed, with equal annual instalments starting at the end of year 1. The bank's existing covenant would continue to apply.

Option 2: Afro-Mediterranean Trade Bank. Dina Farouk of the bank's Cairo office has outlined a seven-year loan in US dollars worth Shs 22,000 million at today's rate at a fixed rate of 8.5% a year in US dollars, with no repayment of principal for two years. The bank requires a first charge over the new plant, an assignment of BHC's export proceeds from two named buyers, and annual reports on environmental and social matters. Sango Bay Commercial Bank would have to consent, and its covenant would also apply. Our economists expect the shilling to fall by about 3.5% a year against the US dollar over the next seven years.

Option 3: new shares for Savanna. Savanna Harvest Capital would pay Shs 22,000 million for newly issued ordinary shares, on the basis that BHC's shares in issue are worth Shs 66,000 million before the investment. Savanna would expect a second board seat. Savanna has also said it would subscribe a smaller amount of Shs 8,000 million for new shares on the same valuation if the rest were borrowed in US dollars from the Afro-Mediterranean Trade Bank.

I suggest the board compares the options using total borrowings to total equity at 30 June 2026, adjusted for the new money (ignore the project's own profits for this purpose). Kind regards, Yaw.

Appendix 6: Tax information and extract from the auditors' letter

Tax data for BHC (the Ugandan company) for the year of income 2026/27, which runs from 1 July 2026 to 30 June 2027. Use only the rules below. They summarise the Income Tax Act, Cap 340 and the Value Added Tax Act, Cap 349 in the form that applies for 2026/27, after the amendments that took effect on 1 July 2026.

• Companies pay income tax at 30% of chargeable income.
• Accounting depreciation is added back. Manufacturing plant forms a pool, and 30% of the pool's written-down value at the year end is allowed as wear and tear. Buildings used in manufacturing attract an industrial building deduction of 5% of their cost each year.
• No deduction is given for fines or penalties, or for a general provision against doubtful debts.
• Exchange gains and losses count for tax only once they are realised.
• Interest limit: where a company belongs to a group (non-individual persons sharing at least 51% common underlying ownership, ignoring any dormant member), its interest deduction cannot exceed 30% of tax EBITDA. Tax EBITDA means chargeable income before the interest deduction, with the wear and tear and industrial building deductions added back.
• A non-resident paid a management or technical service fee suffers withholding tax at 15% of the gross fee.
• VAT: exported goods are zero-rated, so the exporter charges no VAT on them yet recovers input tax on its taxable purchases and is refunded any excess. Unprocessed agricultural produce, such as coffee bought from farmers, is an exempt supply. Letting commercial premises is standard-rated at 18%. Where a non-resident supplies services into Uganda, the Ugandan customer accounts for VAT at 18% itself; only petroleum and mining contractors and business process outsourcing providers may treat that VAT as input tax.

1. BHC's forecast accounting profit before tax for 2026/27, before Project Ember, is Shs 8,600 million. The figure is after charging depreciation of Shs 3,400 million, interest of Shs 2,600 million, an increase of Shs 240 million in the general provision for doubtful debts and a penalty of Shs 60 million paid to the customs authorities for a late export declaration. It includes an unrealised foreign exchange gain of Shs 520 million on US dollar receivables at the year end. No other tax adjustments are needed.
2. The written-down value of BHC's pool of manufacturing plant at 1 July 2026 is Shs 15,000 million. BHC expects to add Shs 3,000 million of plant to the pool during 2026/27 and to sell none. The cost of BHC's factory buildings, all used in manufacturing and still qualifying for the deduction, is Shs 14,000 million.
3. From 1 July 2026 Sidama Roast Technologies PLC, a company resident in Ethiopia that has no office or other base in Uganda, supplies roasting design and training services from Addis Ababa for a fee of Shs 800 million in 2026/27, which is included in the forecast. No tax treaty between Uganda and Ethiopia is in force.
4. For 2026/27 BHC forecasts input tax of Shs 1,380 million on standard-rated purchases such as fuel, packaging, transport and professional services. It will continue to let the warehouse to its tenant for Shs 250 million (excluding VAT) during 2026/27. All its other supplies are exports. BHC carries on no petroleum, mining or business process outsourcing activity.
5. BHC Trading Kenya Ltd is not dormant. BHC has no tax losses or interest carried forward from earlier years.

Extract from the letter of Mrema Nakimuli & Co to the Managing Director, 30 October 2026.

Damaged inventory. During our attendance at the inventory count we found 180 tonnes of coffee in the Kalungu store that had been rewetted by a roof leak in May 2026 and has since shown mould and a high defect count. The draft financial statements carry it at the average cost of Shs 13.0 million a tonne. The national regulator would not certify it for export. A Kampala manufacturer of instant coffee has offered to buy it for Shs 7.9 million a tonne, collected from Masaka, with BHC paying Shs 0.3 million a tonne for re-drying and sorting.

Inventory records. Stock records at four buying centres could not be reconciled to the factory records at 30 June 2026. The total difference is about 95 tonnes, which management attributes to moisture loss.

Forward contracts. In June 2026 BHC agreed with a commodity trading company in Mombasa to sell 900 tonnes of coffee for delivery in September 2026 at a fixed price in US dollars. The draft financial statements make no mention of this commitment.

VAT refund. BHC's claim for a VAT refund of Shs 1,240 million for the year to 30 June 2026 has not yet been paid. We will need evidence to support its recoverability.

Appendix 7: Notes from the risk workshop and letter from Savanna, October 2026

• The London reference price fell by 22% in six weeks in early 2026 before recovering. BHC buys coffee at prices that follow the reference price but sells, on average, about seven weeks later. It does not use futures or fixed-price purchase agreements.
• Seasonal crop finance rose to Shs 21,500 million at 30 June 2026 because the board decided to hold more stock. The facility must be renewed each April.
• Rainfall in the district has become less reliable: a drought in 2022 cut the fly crop by about 40%, and heavy rains in 2026 damaged coffee in stores.
• Atlas Torréfaction pays against documents and has always paid on time. Two Middle Eastern buyers paid between 30 and 50 days late in 2026.
• The Italian and Spanish buyers have said they will stop buying from exporters that cannot provide farm location data for the European Union deforestation regulation by the end of 2026. BHC has map locations for about 2,000 of its 13,500 farmers.
• Cash is still used at 19 of the 27 buying centres. The 2025 price fraud was found by chance.
• Nobody has written down BHC's main risks, and the directors have not agreed what level of risk they would tolerate.

Letter from Yaw Boateng, Savanna Harvest Capital, 20 October 2026 (extract). Two development finance institutions that invest in our fund have told us that every portfolio company must disclose its climate and wider sustainability information under international standards. Coffee growing in the district is exposed to rising temperatures and less reliable rainfall; studies suggest that the area where robusta grows well in central Uganda could shrink over the next 25 years. BHC's dryers burn coffee husks and some firewood, and its trucks use diesel. Most of the emissions linked to BHC's coffee arise on farms and in shipping. We would like BHC's first sustainability report to cover 2026/27 and to obtain some independent checking of the figures, which the Afro-Mediterranean Trade Bank would also require.

Required

Having studied this material, you have grouped the matters for the board's attention under four headings: A, strategy and marketing; B, finance, tax and performance; C, governance, risk, control and ethics; and D, current and emerging issues. The report is to begin with an executive summary.

Prepare a report to the board advising on the issues below.

Where a part gives you a workings grid, set out your figures there; elsewhere, type your workings line by line.

Buddu Highlands Coffee Ltd: integrated case

Today is Monday 16 November 2026. You are the Chief Finance Officer of Buddu Highlands Coffee Ltd (BHC), a coffee buying, processing and export company with its head office and factory in Masaka, in the central region of Uganda. You are a CPA(U) and were promoted to the post in August 2026 after six years as the company's financial controller. You report to the Managing Director, Rehema Kizito-Mugisha, and you attend board meetings as an executive, although you are not a member of the board.

The board will meet on Friday 11 December 2026. Its main business is to decide whether BHC should build a coffee roasting and packing plant, known as Project Ember, and how the plant should be financed. The directors have also asked for advice on a large export contract that is being negotiated in US dollars, on the company's tax position for the current year of income, on matters raised by the external auditors, and on the way the company is governed and manages its risks. Rehema Kizito-Mugisha has asked you to bring all of these matters together in a single report to the board. The information you have collected is set out below and in Appendices 1 to 7. Amounts are in Uganda shillings (Shs) million unless otherwise stated.

History and operations

BHC was founded in 1996 by Ephraim Kizito, a former agricultural extension officer, as a coffee buying store in Nyendo, on the outskirts of Masaka town. The business grew with the liberalisation of the coffee trade and in 2004 opened its own hulling and grading factory on a 9-acre site beside the Masaka to Mbirizi road. The factory now has a capacity of about 16,000 tonnes of green (export-ready) coffee a year. In the year to 30 June 2026 BHC exported 11,800 tonnes of green robusta coffee, which made it one of the larger exporters based outside Kampala.

Almost all of BHC's coffee is robusta. It is bought from about 13,500 smallholder farmers in Masaka, Lwengo, Bukomansimbi, Kalungu and Rakai districts through 27 buying centres. Farmers sell either dried cherry (known locally as kiboko) or fair average quality coffee (FAQ) that has already been hulled by small village hullers. Each buying centre has a moisture meter, scales and a clerk; coffee is paid for in cash or by mobile money on the day of delivery. Coffee bought as kiboko is hulled at the Masaka factory. All coffee is then dried to below 13% moisture, cleaned, sorted by bean size into screen grades, hand-picked for defects, bagged in 60-kilogram jute bags and trucked to the port of Mombasa in Kenya for shipment.

The main harvest in the region runs from about May to August, with a smaller fly crop from November to January. BHC must buy most of its year's coffee within five months, which it finances with seasonal crop finance from its bank. Coffee held in stores is at risk from rewetting, mould, theft and price falls. Competition for farmers' coffee is fierce: multinational exporters with stores in the same districts and many small traders who pay cash at the farm gate compete for the same crop, and prices paid to farmers follow the world price closely, sometimes changing twice in a week.

BHC owns one subsidiary, BHC Trading Kenya Ltd (100%), a small office in Nairobi that arranges shipping documents, insurance and port clearance in Mombasa and sells small lots of green coffee to roasters in Kenya. Its manager is Wanjiru Kamau. The group employs about 410 permanent staff and up to 600 seasonal workers in the main harvest.

The coffee industry

Coffee is Uganda's largest agricultural export. National exports reached record volumes in 2024/25 and 2025/26, helped by new plantings, better farm practice and high world prices. Most Ugandan coffee is exported green, and only a very small share is roasted in the country. Several large buyers in North Africa, the Middle East and Europe buy Ugandan robusta for blending and for instant coffee. The domestic market for roasted coffee is small but growing at an estimated 12% to 15% a year, driven by cafés, hotels, offices and supermarkets in Kampala, Entebbe and other towns, and by tourism.

Robusta is priced by reference to the London robusta futures market. An exporter's selling price is usually the futures reference price for the shipping month plus or minus a differential, quoted in US dollars a tonne, which reflects quality, screen size, the origin and the delivery terms. Over the last five years the reference price has moved between about USD 1,700 and USD 5,600 a tonne. Because farm-gate prices in shillings follow the reference price, an exporter's margin depends mainly on the differential it can obtain, its processing outturn and costs, and the exchange rate between the shilling and the US dollar when the export proceeds are received.

The national coffee regulator registers exporters, buying stores and processors, inspects quality at the point of export and issues the quality certificates needed for each shipment. Buyers in the European Union have told exporters that the European Union's deforestation regulation will require proof, for each lot, that the coffee did not come from land cleared of forest after 2020, including the map location of each farm. Buyers in North Africa and the Middle East have not yet asked for this.

Shareholders, board and management

BHC is a private company limited by shares, incorporated in Uganda under the Companies Act, 2012. Its shareholders are the Kizito family (60%), the Buddu Growers' Co-operative Union Ltd (20%), which represents about 4,100 farmer members who sell to BHC, and Savanna Harvest Capital Fund (20%), an agribusiness fund managed from Accra, Ghana, which invested in 2020. Savanna's shareholders' agreement gives it one board seat, a veto over new share issues and a right to sell its shares to the other shareholders at a fair value from 2029.

The board meets four times a year. It has no committees, and the chairman sets the agenda with the Managing Director. Since 2019 Nyendo Haulage Ltd, owned by Daniel Kizito, has carried most of BHC's coffee to Mombasa; the rates were agreed by Daniel Kizito and Rehema Kizito-Mugisha and have not been compared with other hauliers. Pay and bonuses for the executive directors are proposed by the chairman and approved by the board, with the executive directors present and voting. A single checking officer, who reports to the Managing Director, spends most of her time counting cash at buying centres.

At its last meeting the Co-operative Union complained, through Mariam Nakato, that its members cannot see how BHC sets farm-gate prices or why the second payment (bonus) promised to farmers for high quality coffee was smaller in 2026 than in 2025. Yaw Boateng has said that Savanna's investment committee is concerned about contracts with companies owned by directors and about the lack of independent oversight of the accounts.

The external auditors are Mrema Nakimuli & Co, a Kampala firm of Certified Public Accountants that has been BHC's auditor since 2017. Their work on the 2025/26 accounts (year to 30 June 2026) is in its last stage, and they intend to sign on 18 December 2026.

Customers, markets and Project Ember

In 2025/26 about 46% of BHC's export volume went to Morocco, Algeria and Egypt, 31% to trading houses and roasters in Italy and Spain, 14% to roasters in the Gulf states and 9% to roasters in Kenya through BHC Trading Kenya Ltd. Sales are made on documents: the buyer pays against the shipping documents, normally 60 to 90 days after the coffee leaves Masaka. All export sales are invoiced in US dollars, while almost all of BHC's costs, including the coffee itself, are paid in shillings.

Atlas Torréfaction SA, a large roaster in Casablanca, Morocco, is BHC's biggest customer. Its buyer, Youssef El Amrani, is negotiating a contract for 1,500 tonnes of screen 15 robusta for shipment in January 2027, with payment 90 days later (Appendix 4).

Project Ember would add a roasting, grinding and packing plant at the Masaka site to sell roasted coffee in Uganda and the region. Nokuthula Dlamini, who chairs a small working group of the board on the project, has proposed two routes to market. One is to build BHC's own brand, Buddu Fire Roast, sold in 250-gram and 500-gram valve bags in supermarkets and to hotels, cafés and offices in Uganda and, through BHC Trading Kenya Ltd, in Nairobi. She estimates the brand would need about Shs 1,000 million of launch marketing in its first year, followed by steady spending on promotion. The other is to roast and pack coffee for other companies' brands. Karoo Bean Company (Pty) Ltd, a chain of 85 cafés based in Cape Town, South Africa, has offered a three-year agreement to buy up to 600 tonnes a year of roasted coffee packed under its own label, at a price about 8% below the expected price of BHC's own brand, provided BHC passes its food safety and ethical sourcing audit. Hotels and supermarkets in Kampala currently buy imported roasted coffee from Kenya and Europe as well as from several small Ugandan roasters.

Tesfaye Gebremedhin believes that BHC's knowledge of quality, its supply of fresh beans and its relationships with farmers give it an advantage over importers, but he notes that BHC has never sold to consumers, has no sales team for retail customers and has no experience of roasting at scale. He has arranged for Sidama Roast Technologies PLC, an Ethiopian company based in Addis Ababa, to help design the plant and to train BHC's roasters.

Systems

BHC uses an accounting package on a server at the Masaka head office. Buying centres record each purchase in a receipt book and send a daily summary by text message; stock in each store is recorded on spreadsheets that are reconciled to the factory records at the end of each month. Purchase prices are telephoned to centre managers each morning. In 2025 the checking officer found that one centre manager had recorded purchases at prices above the price set for the day and kept the difference; the loss was about Shs 85 million. Tesfaye Gebremedhin has proposed a mobile system that records each farmer's delivery, its weight, moisture and the price paid, together with the map location of the farm, and passes the data to a central system. Savanna has suggested that the same data could be placed on a blockchain platform that several European and Middle Eastern buyers are testing.

Appendix 1: Financial statements of BHC (the Ugandan company), years ended 30 June (Shs million; 2026 draft, not yet audited)

Statements of profit or loss and other comprehensive income

Statements of financial position at 30 June

Notes: (1) All borrowings are from Sango Bay Commercial Bank Uganda Ltd. Its loan agreement requires total borrowings (long-term loans plus crop finance) to be no more than 100% of total equity at each 30 June, and the bank must approve any new borrowing from other lenders. (2) Revenue growth since 2024 is mainly due to higher world prices: export volume was 11,200 tonnes in 2024, 11,500 tonnes in 2025 and 11,800 tonnes in 2026. (3) The inventories at 30 June 2026 are about 2,600 tonnes of coffee, a higher quantity than usual, because the board decided in June to hold stock in expectation of higher prices.

Appendix 2: Memo from the Managing Director to the Chief Finance Officer, 6 November 2026

Subject: Board meeting on 11 December

1. Project Ember. Roasting is our future. Every exporter in this country sells raw coffee and leaves the value to others. The estimates are in Appendix 3. I am told the project shows a good profit from year 2, but please give the board a proper financial appraisal. Some directors say the coffee we roast costs us only what we pay the farmers; please make sure the numbers are right.

2. Financing. The options are in Appendix 5. My father and I will not accept any arrangement that takes control of the company away from the family.

3. The Atlas contract. Youssef El Amrani wants an answer by the end of the month. Please advise on the price we can accept and on how we protect ourselves against the dollar (Appendix 4).

4. The downgraded coffee. The auditors have raised the 180 tonnes that were damaged by rain in the Kalungu store (Appendix 6). Tesfaye tells me that if we blend these bags in small amounts into the Atlas shipment the buyer will not notice. Please keep the stock at cost in the accounts and do not discuss the blending with the auditors; it is a commercial matter.

5. The VAT refund. We are owed a large VAT refund (Appendix 6). An officer dealing with our claim has told our clearing agent that a payment of Shs 40 million to a consultant he named would make sure the refund is paid before Christmas. Please arrange for the clearing agent to pay this and charge it to us as clearing fees. Our cash position needs the refund.

6. Tax. Please tell the board what we expect to pay for this year (Appendix 6).

Appendix 3: Project Ember estimates, prepared by the Project Ember working group with Sidama Roast Technologies PLC, October 2026

The plant would be installed during the first half of 2027 in an existing warehouse at the Masaka site and would begin roasting on 1 July 2027, the start of year 1 (2027/28). The appraisal covers six years. Treat every operating cash flow as occurring on the last day of its year; the capital spending and working capital are paid on the first day of year 1 (time 0). Figures are in Shs million. Each tonne of roasted coffee needs 1.2 tonnes of green coffee because of weight lost in roasting.

BHC can sell all the green coffee it can buy and process, so any green coffee used for roasting would otherwise be exported. For the appraisal, take income tax at 30% as paid in the year the profit arises; BHC's other profits are large enough to absorb any tax relief at once. The finance team has worked out the yearly tax benefit of the capital allowances on the plant and the fit-out (below), and these figures should be used without change. A discount rate of 16% reflects the risk of the project.

Appendix 4: The Atlas Torréfaction contract and foreign exchange information, November 2026

Atlas Torréfaction SA has offered to buy 1,500 tonnes of screen 15 robusta, delivered free on board at Mombasa, at the London reference price for the March 2027 position plus a differential. BHC proposed a differential of USD 160 a tonne. Youssef El Amrani has replied that Atlas would prefer a differential of USD 100 a tonne, because other exporters have offered similar coffee more cheaply. Atlas has agreed to fix the reference price at USD 4,080 a tonne when the contract is signed. Payment would be received in US dollars three months after signing.

BHC's costs for this contract are estimated as follows, all in Shs million a tonne of green coffee delivered at Mombasa: coffee bought from farmers and hulled 13.40; drying, grading, hand-picking, bags and fumigation 0.52; transport to Mombasa, port handling and export documentation 0.68. The board's policy is that every export contract should earn a margin of at least Shs 1.0 million a tonne after these costs.

Sango Bay Commercial Bank has quoted the following rates.

The shilling usually strengthens during the main harvest, when exporters sell dollars, and weakens at other times. In 2025 it moved by more than 5% against the US dollar in a single quarter. BHC has never hedged; the Managing Director has said she prefers to wait and convert dollars when the rate looks good. The bank has also offered a three-month option to sell US dollars at Shs 3,700 for a premium of Shs 20 for each dollar, payable now.

Appendix 5: E-mail from Yaw Boateng to the board, 2 November 2026

Subject: Funding Project Ember

Dear colleagues, Project Ember needs about Shs 22,000 million (the plant, the fit-out and the working capital). I set out the three options we have discussed.

Option 1: Sango Bay Commercial Bank. Robert Ochieng, our relationship manager, has offered a Shs 22,000 million term loan for seven years at 17.0% fixed, with equal annual instalments starting at the end of year 1. The bank's existing covenant would continue to apply.

Option 2: Afro-Mediterranean Trade Bank. Dina Farouk of the bank's Cairo office has outlined a seven-year loan in US dollars worth Shs 22,000 million at today's rate at a fixed rate of 8.5% a year in US dollars, with no repayment of principal for two years. The bank requires a first charge over the new plant, an assignment of BHC's export proceeds from two named buyers, and annual reports on environmental and social matters. Sango Bay Commercial Bank would have to consent, and its covenant would also apply. Our economists expect the shilling to fall by about 3.5% a year against the US dollar over the next seven years.

Option 3: new shares for Savanna. Savanna Harvest Capital would pay Shs 22,000 million for newly issued ordinary shares, on the basis that BHC's shares in issue are worth Shs 66,000 million before the investment. Savanna would expect a second board seat. Savanna has also said it would subscribe a smaller amount of Shs 8,000 million for new shares on the same valuation if the rest were borrowed in US dollars from the Afro-Mediterranean Trade Bank.

I suggest the board compares the options using total borrowings to total equity at 30 June 2026, adjusted for the new money (ignore the project's own profits for this purpose). Kind regards, Yaw.

Appendix 6: Tax information and extract from the auditors' letter

Tax data for BHC (the Ugandan company) for the year of income 2026/27, which runs from 1 July 2026 to 30 June 2027. Use only the rules below. They summarise the Income Tax Act, Cap 340 and the Value Added Tax Act, Cap 349 in the form that applies for 2026/27, after the amendments that took effect on 1 July 2026.

• Companies pay income tax at 30% of chargeable income.
• Accounting depreciation is added back. Manufacturing plant forms a pool, and 30% of the pool's written-down value at the year end is allowed as wear and tear. Buildings used in manufacturing attract an industrial building deduction of 5% of their cost each year.
• No deduction is given for fines or penalties, or for a general provision against doubtful debts.
• Exchange gains and losses count for tax only once they are realised.
• Interest limit: where a company belongs to a group (non-individual persons sharing at least 51% common underlying ownership, ignoring any dormant member), its interest deduction cannot exceed 30% of tax EBITDA. Tax EBITDA means chargeable income before the interest deduction, with the wear and tear and industrial building deductions added back.
• A non-resident paid a management or technical service fee suffers withholding tax at 15% of the gross fee.
• VAT: exported goods are zero-rated, so the exporter charges no VAT on them yet recovers input tax on its taxable purchases and is refunded any excess. Unprocessed agricultural produce, such as coffee bought from farmers, is an exempt supply. Letting commercial premises is standard-rated at 18%. Where a non-resident supplies services into Uganda, the Ugandan customer accounts for VAT at 18% itself; only petroleum and mining contractors and business process outsourcing providers may treat that VAT as input tax.

1. BHC's forecast accounting profit before tax for 2026/27, before Project Ember, is Shs 8,600 million. The figure is after charging depreciation of Shs 3,400 million, interest of Shs 2,600 million, an increase of Shs 240 million in the general provision for doubtful debts and a penalty of Shs 60 million paid to the customs authorities for a late export declaration. It includes an unrealised foreign exchange gain of Shs 520 million on US dollar receivables at the year end. No other tax adjustments are needed.
2. The written-down value of BHC's pool of manufacturing plant at 1 July 2026 is Shs 15,000 million. BHC expects to add Shs 3,000 million of plant to the pool during 2026/27 and to sell none. The cost of BHC's factory buildings, all used in manufacturing and still qualifying for the deduction, is Shs 14,000 million.
3. From 1 July 2026 Sidama Roast Technologies PLC, a company resident in Ethiopia that has no office or other base in Uganda, supplies roasting design and training services from Addis Ababa for a fee of Shs 800 million in 2026/27, which is included in the forecast. No tax treaty between Uganda and Ethiopia is in force.
4. For 2026/27 BHC forecasts input tax of Shs 1,380 million on standard-rated purchases such as fuel, packaging, transport and professional services. It will continue to let the warehouse to its tenant for Shs 250 million (excluding VAT) during 2026/27. All its other supplies are exports. BHC carries on no petroleum, mining or business process outsourcing activity.
5. BHC Trading Kenya Ltd is not dormant. BHC has no tax losses or interest carried forward from earlier years.

Extract from the letter of Mrema Nakimuli & Co to the Managing Director, 30 October 2026.

Damaged inventory. During our attendance at the inventory count we found 180 tonnes of coffee in the Kalungu store that had been rewetted by a roof leak in May 2026 and has since shown mould and a high defect count. The draft financial statements carry it at the average cost of Shs 13.0 million a tonne. The national regulator would not certify it for export. A Kampala manufacturer of instant coffee has offered to buy it for Shs 7.9 million a tonne, collected from Masaka, with BHC paying Shs 0.3 million a tonne for re-drying and sorting.

Inventory records. Stock records at four buying centres could not be reconciled to the factory records at 30 June 2026. The total difference is about 95 tonnes, which management attributes to moisture loss.

Forward contracts. In June 2026 BHC agreed with a commodity trading company in Mombasa to sell 900 tonnes of coffee for delivery in September 2026 at a fixed price in US dollars. The draft financial statements make no mention of this commitment.

VAT refund. BHC's claim for a VAT refund of Shs 1,240 million for the year to 30 June 2026 has not yet been paid. We will need evidence to support its recoverability.

Appendix 7: Notes from the risk workshop and letter from Savanna, October 2026

• The London reference price fell by 22% in six weeks in early 2026 before recovering. BHC buys coffee at prices that follow the reference price but sells, on average, about seven weeks later. It does not use futures or fixed-price purchase agreements.
• Seasonal crop finance rose to Shs 21,500 million at 30 June 2026 because the board decided to hold more stock. The facility must be renewed each April.
• Rainfall in the district has become less reliable: a drought in 2022 cut the fly crop by about 40%, and heavy rains in 2026 damaged coffee in stores.
• Atlas Torréfaction pays against documents and has always paid on time. Two Middle Eastern buyers paid between 30 and 50 days late in 2026.
• The Italian and Spanish buyers have said they will stop buying from exporters that cannot provide farm location data for the European Union deforestation regulation by the end of 2026. BHC has map locations for about 2,000 of its 13,500 farmers.
• Cash is still used at 19 of the 27 buying centres. The 2025 price fraud was found by chance.
• Nobody has written down BHC's main risks, and the directors have not agreed what level of risk they would tolerate.

Letter from Yaw Boateng, Savanna Harvest Capital, 20 October 2026 (extract). Two development finance institutions that invest in our fund have told us that every portfolio company must disclose its climate and wider sustainability information under international standards. Coffee growing in the district is exposed to rising temperatures and less reliable rainfall; studies suggest that the area where robusta grows well in central Uganda could shrink over the next 25 years. BHC's dryers burn coffee husks and some firewood, and its trucks use diesel. Most of the emissions linked to BHC's coffee arise on farms and in shipping. We would like BHC's first sustainability report to cover 2026/27 and to obtain some independent checking of the figures, which the Afro-Mediterranean Trade Bank would also require.

Required

Having studied this material, you have grouped the matters for the board's attention under four headings: A, strategy and marketing; B, finance, tax and performance; C, governance, risk, control and ethics; and D, current and emerging issues. The report is to begin with an executive summary.

Prepare a report to the board advising on the issues below.

Where a part gives you a workings grid, set out your figures there; elsewhere, type your workings line by line.

Buddu Highlands Coffee Ltd: integrated case

Today is Monday 16 November 2026. You are the Chief Finance Officer of Buddu Highlands Coffee Ltd (BHC), a coffee buying, processing and export company with its head office and factory in Masaka, in the central region of Uganda. You are a CPA(U) and were promoted to the post in August 2026 after six years as the company's financial controller. You report to the Managing Director, Rehema Kizito-Mugisha, and you attend board meetings as an executive, although you are not a member of the board.

The board will meet on Friday 11 December 2026. Its main business is to decide whether BHC should build a coffee roasting and packing plant, known as Project Ember, and how the plant should be financed. The directors have also asked for advice on a large export contract that is being negotiated in US dollars, on the company's tax position for the current year of income, on matters raised by the external auditors, and on the way the company is governed and manages its risks. Rehema Kizito-Mugisha has asked you to bring all of these matters together in a single report to the board. The information you have collected is set out below and in Appendices 1 to 7. Amounts are in Uganda shillings (Shs) million unless otherwise stated.

History and operations

BHC was founded in 1996 by Ephraim Kizito, a former agricultural extension officer, as a coffee buying store in Nyendo, on the outskirts of Masaka town. The business grew with the liberalisation of the coffee trade and in 2004 opened its own hulling and grading factory on a 9-acre site beside the Masaka to Mbirizi road. The factory now has a capacity of about 16,000 tonnes of green (export-ready) coffee a year. In the year to 30 June 2026 BHC exported 11,800 tonnes of green robusta coffee, which made it one of the larger exporters based outside Kampala.

Almost all of BHC's coffee is robusta. It is bought from about 13,500 smallholder farmers in Masaka, Lwengo, Bukomansimbi, Kalungu and Rakai districts through 27 buying centres. Farmers sell either dried cherry (known locally as kiboko) or fair average quality coffee (FAQ) that has already been hulled by small village hullers. Each buying centre has a moisture meter, scales and a clerk; coffee is paid for in cash or by mobile money on the day of delivery. Coffee bought as kiboko is hulled at the Masaka factory. All coffee is then dried to below 13% moisture, cleaned, sorted by bean size into screen grades, hand-picked for defects, bagged in 60-kilogram jute bags and trucked to the port of Mombasa in Kenya for shipment.

The main harvest in the region runs from about May to August, with a smaller fly crop from November to January. BHC must buy most of its year's coffee within five months, which it finances with seasonal crop finance from its bank. Coffee held in stores is at risk from rewetting, mould, theft and price falls. Competition for farmers' coffee is fierce: multinational exporters with stores in the same districts and many small traders who pay cash at the farm gate compete for the same crop, and prices paid to farmers follow the world price closely, sometimes changing twice in a week.

BHC owns one subsidiary, BHC Trading Kenya Ltd (100%), a small office in Nairobi that arranges shipping documents, insurance and port clearance in Mombasa and sells small lots of green coffee to roasters in Kenya. Its manager is Wanjiru Kamau. The group employs about 410 permanent staff and up to 600 seasonal workers in the main harvest.

The coffee industry

Coffee is Uganda's largest agricultural export. National exports reached record volumes in 2024/25 and 2025/26, helped by new plantings, better farm practice and high world prices. Most Ugandan coffee is exported green, and only a very small share is roasted in the country. Several large buyers in North Africa, the Middle East and Europe buy Ugandan robusta for blending and for instant coffee. The domestic market for roasted coffee is small but growing at an estimated 12% to 15% a year, driven by cafés, hotels, offices and supermarkets in Kampala, Entebbe and other towns, and by tourism.

Robusta is priced by reference to the London robusta futures market. An exporter's selling price is usually the futures reference price for the shipping month plus or minus a differential, quoted in US dollars a tonne, which reflects quality, screen size, the origin and the delivery terms. Over the last five years the reference price has moved between about USD 1,700 and USD 5,600 a tonne. Because farm-gate prices in shillings follow the reference price, an exporter's margin depends mainly on the differential it can obtain, its processing outturn and costs, and the exchange rate between the shilling and the US dollar when the export proceeds are received.

The national coffee regulator registers exporters, buying stores and processors, inspects quality at the point of export and issues the quality certificates needed for each shipment. Buyers in the European Union have told exporters that the European Union's deforestation regulation will require proof, for each lot, that the coffee did not come from land cleared of forest after 2020, including the map location of each farm. Buyers in North Africa and the Middle East have not yet asked for this.

Shareholders, board and management

BHC is a private company limited by shares, incorporated in Uganda under the Companies Act, 2012. Its shareholders are the Kizito family (60%), the Buddu Growers' Co-operative Union Ltd (20%), which represents about 4,100 farmer members who sell to BHC, and Savanna Harvest Capital Fund (20%), an agribusiness fund managed from Accra, Ghana, which invested in 2020. Savanna's shareholders' agreement gives it one board seat, a veto over new share issues and a right to sell its shares to the other shareholders at a fair value from 2029.

The board meets four times a year. It has no committees, and the chairman sets the agenda with the Managing Director. Since 2019 Nyendo Haulage Ltd, owned by Daniel Kizito, has carried most of BHC's coffee to Mombasa; the rates were agreed by Daniel Kizito and Rehema Kizito-Mugisha and have not been compared with other hauliers. Pay and bonuses for the executive directors are proposed by the chairman and approved by the board, with the executive directors present and voting. A single checking officer, who reports to the Managing Director, spends most of her time counting cash at buying centres.

At its last meeting the Co-operative Union complained, through Mariam Nakato, that its members cannot see how BHC sets farm-gate prices or why the second payment (bonus) promised to farmers for high quality coffee was smaller in 2026 than in 2025. Yaw Boateng has said that Savanna's investment committee is concerned about contracts with companies owned by directors and about the lack of independent oversight of the accounts.

The external auditors are Mrema Nakimuli & Co, a Kampala firm of Certified Public Accountants that has been BHC's auditor since 2017. Their work on the 2025/26 accounts (year to 30 June 2026) is in its last stage, and they intend to sign on 18 December 2026.

Customers, markets and Project Ember

In 2025/26 about 46% of BHC's export volume went to Morocco, Algeria and Egypt, 31% to trading houses and roasters in Italy and Spain, 14% to roasters in the Gulf states and 9% to roasters in Kenya through BHC Trading Kenya Ltd. Sales are made on documents: the buyer pays against the shipping documents, normally 60 to 90 days after the coffee leaves Masaka. All export sales are invoiced in US dollars, while almost all of BHC's costs, including the coffee itself, are paid in shillings.

Atlas Torréfaction SA, a large roaster in Casablanca, Morocco, is BHC's biggest customer. Its buyer, Youssef El Amrani, is negotiating a contract for 1,500 tonnes of screen 15 robusta for shipment in January 2027, with payment 90 days later (Appendix 4).

Project Ember would add a roasting, grinding and packing plant at the Masaka site to sell roasted coffee in Uganda and the region. Nokuthula Dlamini, who chairs a small working group of the board on the project, has proposed two routes to market. One is to build BHC's own brand, Buddu Fire Roast, sold in 250-gram and 500-gram valve bags in supermarkets and to hotels, cafés and offices in Uganda and, through BHC Trading Kenya Ltd, in Nairobi. She estimates the brand would need about Shs 1,000 million of launch marketing in its first year, followed by steady spending on promotion. The other is to roast and pack coffee for other companies' brands. Karoo Bean Company (Pty) Ltd, a chain of 85 cafés based in Cape Town, South Africa, has offered a three-year agreement to buy up to 600 tonnes a year of roasted coffee packed under its own label, at a price about 8% below the expected price of BHC's own brand, provided BHC passes its food safety and ethical sourcing audit. Hotels and supermarkets in Kampala currently buy imported roasted coffee from Kenya and Europe as well as from several small Ugandan roasters.

Tesfaye Gebremedhin believes that BHC's knowledge of quality, its supply of fresh beans and its relationships with farmers give it an advantage over importers, but he notes that BHC has never sold to consumers, has no sales team for retail customers and has no experience of roasting at scale. He has arranged for Sidama Roast Technologies PLC, an Ethiopian company based in Addis Ababa, to help design the plant and to train BHC's roasters.

Systems

BHC uses an accounting package on a server at the Masaka head office. Buying centres record each purchase in a receipt book and send a daily summary by text message; stock in each store is recorded on spreadsheets that are reconciled to the factory records at the end of each month. Purchase prices are telephoned to centre managers each morning. In 2025 the checking officer found that one centre manager had recorded purchases at prices above the price set for the day and kept the difference; the loss was about Shs 85 million. Tesfaye Gebremedhin has proposed a mobile system that records each farmer's delivery, its weight, moisture and the price paid, together with the map location of the farm, and passes the data to a central system. Savanna has suggested that the same data could be placed on a blockchain platform that several European and Middle Eastern buyers are testing.

Appendix 1: Financial statements of BHC (the Ugandan company), years ended 30 June (Shs million; 2026 draft, not yet audited)

Statements of profit or loss and other comprehensive income

Statements of financial position at 30 June

Notes: (1) All borrowings are from Sango Bay Commercial Bank Uganda Ltd. Its loan agreement requires total borrowings (long-term loans plus crop finance) to be no more than 100% of total equity at each 30 June, and the bank must approve any new borrowing from other lenders. (2) Revenue growth since 2024 is mainly due to higher world prices: export volume was 11,200 tonnes in 2024, 11,500 tonnes in 2025 and 11,800 tonnes in 2026. (3) The inventories at 30 June 2026 are about 2,600 tonnes of coffee, a higher quantity than usual, because the board decided in June to hold stock in expectation of higher prices.

Appendix 2: Memo from the Managing Director to the Chief Finance Officer, 6 November 2026

Subject: Board meeting on 11 December

1. Project Ember. Roasting is our future. Every exporter in this country sells raw coffee and leaves the value to others. The estimates are in Appendix 3. I am told the project shows a good profit from year 2, but please give the board a proper financial appraisal. Some directors say the coffee we roast costs us only what we pay the farmers; please make sure the numbers are right.

2. Financing. The options are in Appendix 5. My father and I will not accept any arrangement that takes control of the company away from the family.

3. The Atlas contract. Youssef El Amrani wants an answer by the end of the month. Please advise on the price we can accept and on how we protect ourselves against the dollar (Appendix 4).

4. The downgraded coffee. The auditors have raised the 180 tonnes that were damaged by rain in the Kalungu store (Appendix 6). Tesfaye tells me that if we blend these bags in small amounts into the Atlas shipment the buyer will not notice. Please keep the stock at cost in the accounts and do not discuss the blending with the auditors; it is a commercial matter.

5. The VAT refund. We are owed a large VAT refund (Appendix 6). An officer dealing with our claim has told our clearing agent that a payment of Shs 40 million to a consultant he named would make sure the refund is paid before Christmas. Please arrange for the clearing agent to pay this and charge it to us as clearing fees. Our cash position needs the refund.

6. Tax. Please tell the board what we expect to pay for this year (Appendix 6).

Appendix 3: Project Ember estimates, prepared by the Project Ember working group with Sidama Roast Technologies PLC, October 2026

The plant would be installed during the first half of 2027 in an existing warehouse at the Masaka site and would begin roasting on 1 July 2027, the start of year 1 (2027/28). The appraisal covers six years. Treat every operating cash flow as occurring on the last day of its year; the capital spending and working capital are paid on the first day of year 1 (time 0). Figures are in Shs million. Each tonne of roasted coffee needs 1.2 tonnes of green coffee because of weight lost in roasting.

BHC can sell all the green coffee it can buy and process, so any green coffee used for roasting would otherwise be exported. For the appraisal, take income tax at 30% as paid in the year the profit arises; BHC's other profits are large enough to absorb any tax relief at once. The finance team has worked out the yearly tax benefit of the capital allowances on the plant and the fit-out (below), and these figures should be used without change. A discount rate of 16% reflects the risk of the project.

Appendix 4: The Atlas Torréfaction contract and foreign exchange information, November 2026

Atlas Torréfaction SA has offered to buy 1,500 tonnes of screen 15 robusta, delivered free on board at Mombasa, at the London reference price for the March 2027 position plus a differential. BHC proposed a differential of USD 160 a tonne. Youssef El Amrani has replied that Atlas would prefer a differential of USD 100 a tonne, because other exporters have offered similar coffee more cheaply. Atlas has agreed to fix the reference price at USD 4,080 a tonne when the contract is signed. Payment would be received in US dollars three months after signing.

BHC's costs for this contract are estimated as follows, all in Shs million a tonne of green coffee delivered at Mombasa: coffee bought from farmers and hulled 13.40; drying, grading, hand-picking, bags and fumigation 0.52; transport to Mombasa, port handling and export documentation 0.68. The board's policy is that every export contract should earn a margin of at least Shs 1.0 million a tonne after these costs.

Sango Bay Commercial Bank has quoted the following rates.

The shilling usually strengthens during the main harvest, when exporters sell dollars, and weakens at other times. In 2025 it moved by more than 5% against the US dollar in a single quarter. BHC has never hedged; the Managing Director has said she prefers to wait and convert dollars when the rate looks good. The bank has also offered a three-month option to sell US dollars at Shs 3,700 for a premium of Shs 20 for each dollar, payable now.

Appendix 5: E-mail from Yaw Boateng to the board, 2 November 2026

Subject: Funding Project Ember

Dear colleagues, Project Ember needs about Shs 22,000 million (the plant, the fit-out and the working capital). I set out the three options we have discussed.

Option 1: Sango Bay Commercial Bank. Robert Ochieng, our relationship manager, has offered a Shs 22,000 million term loan for seven years at 17.0% fixed, with equal annual instalments starting at the end of year 1. The bank's existing covenant would continue to apply.

Option 2: Afro-Mediterranean Trade Bank. Dina Farouk of the bank's Cairo office has outlined a seven-year loan in US dollars worth Shs 22,000 million at today's rate at a fixed rate of 8.5% a year in US dollars, with no repayment of principal for two years. The bank requires a first charge over the new plant, an assignment of BHC's export proceeds from two named buyers, and annual reports on environmental and social matters. Sango Bay Commercial Bank would have to consent, and its covenant would also apply. Our economists expect the shilling to fall by about 3.5% a year against the US dollar over the next seven years.

Option 3: new shares for Savanna. Savanna Harvest Capital would pay Shs 22,000 million for newly issued ordinary shares, on the basis that BHC's shares in issue are worth Shs 66,000 million before the investment. Savanna would expect a second board seat. Savanna has also said it would subscribe a smaller amount of Shs 8,000 million for new shares on the same valuation if the rest were borrowed in US dollars from the Afro-Mediterranean Trade Bank.

I suggest the board compares the options using total borrowings to total equity at 30 June 2026, adjusted for the new money (ignore the project's own profits for this purpose). Kind regards, Yaw.

Appendix 6: Tax information and extract from the auditors' letter

Tax data for BHC (the Ugandan company) for the year of income 2026/27, which runs from 1 July 2026 to 30 June 2027. Use only the rules below. They summarise the Income Tax Act, Cap 340 and the Value Added Tax Act, Cap 349 in the form that applies for 2026/27, after the amendments that took effect on 1 July 2026.

• Companies pay income tax at 30% of chargeable income.
• Accounting depreciation is added back. Manufacturing plant forms a pool, and 30% of the pool's written-down value at the year end is allowed as wear and tear. Buildings used in manufacturing attract an industrial building deduction of 5% of their cost each year.
• No deduction is given for fines or penalties, or for a general provision against doubtful debts.
• Exchange gains and losses count for tax only once they are realised.
• Interest limit: where a company belongs to a group (non-individual persons sharing at least 51% common underlying ownership, ignoring any dormant member), its interest deduction cannot exceed 30% of tax EBITDA. Tax EBITDA means chargeable income before the interest deduction, with the wear and tear and industrial building deductions added back.
• A non-resident paid a management or technical service fee suffers withholding tax at 15% of the gross fee.
• VAT: exported goods are zero-rated, so the exporter charges no VAT on them yet recovers input tax on its taxable purchases and is refunded any excess. Unprocessed agricultural produce, such as coffee bought from farmers, is an exempt supply. Letting commercial premises is standard-rated at 18%. Where a non-resident supplies services into Uganda, the Ugandan customer accounts for VAT at 18% itself; only petroleum and mining contractors and business process outsourcing providers may treat that VAT as input tax.

1. BHC's forecast accounting profit before tax for 2026/27, before Project Ember, is Shs 8,600 million. The figure is after charging depreciation of Shs 3,400 million, interest of Shs 2,600 million, an increase of Shs 240 million in the general provision for doubtful debts and a penalty of Shs 60 million paid to the customs authorities for a late export declaration. It includes an unrealised foreign exchange gain of Shs 520 million on US dollar receivables at the year end. No other tax adjustments are needed.
2. The written-down value of BHC's pool of manufacturing plant at 1 July 2026 is Shs 15,000 million. BHC expects to add Shs 3,000 million of plant to the pool during 2026/27 and to sell none. The cost of BHC's factory buildings, all used in manufacturing and still qualifying for the deduction, is Shs 14,000 million.
3. From 1 July 2026 Sidama Roast Technologies PLC, a company resident in Ethiopia that has no office or other base in Uganda, supplies roasting design and training services from Addis Ababa for a fee of Shs 800 million in 2026/27, which is included in the forecast. No tax treaty between Uganda and Ethiopia is in force.
4. For 2026/27 BHC forecasts input tax of Shs 1,380 million on standard-rated purchases such as fuel, packaging, transport and professional services. It will continue to let the warehouse to its tenant for Shs 250 million (excluding VAT) during 2026/27. All its other supplies are exports. BHC carries on no petroleum, mining or business process outsourcing activity.
5. BHC Trading Kenya Ltd is not dormant. BHC has no tax losses or interest carried forward from earlier years.

Extract from the letter of Mrema Nakimuli & Co to the Managing Director, 30 October 2026.

Damaged inventory. During our attendance at the inventory count we found 180 tonnes of coffee in the Kalungu store that had been rewetted by a roof leak in May 2026 and has since shown mould and a high defect count. The draft financial statements carry it at the average cost of Shs 13.0 million a tonne. The national regulator would not certify it for export. A Kampala manufacturer of instant coffee has offered to buy it for Shs 7.9 million a tonne, collected from Masaka, with BHC paying Shs 0.3 million a tonne for re-drying and sorting.

Inventory records. Stock records at four buying centres could not be reconciled to the factory records at 30 June 2026. The total difference is about 95 tonnes, which management attributes to moisture loss.

Forward contracts. In June 2026 BHC agreed with a commodity trading company in Mombasa to sell 900 tonnes of coffee for delivery in September 2026 at a fixed price in US dollars. The draft financial statements make no mention of this commitment.

VAT refund. BHC's claim for a VAT refund of Shs 1,240 million for the year to 30 June 2026 has not yet been paid. We will need evidence to support its recoverability.

Appendix 7: Notes from the risk workshop and letter from Savanna, October 2026

• The London reference price fell by 22% in six weeks in early 2026 before recovering. BHC buys coffee at prices that follow the reference price but sells, on average, about seven weeks later. It does not use futures or fixed-price purchase agreements.
• Seasonal crop finance rose to Shs 21,500 million at 30 June 2026 because the board decided to hold more stock. The facility must be renewed each April.
• Rainfall in the district has become less reliable: a drought in 2022 cut the fly crop by about 40%, and heavy rains in 2026 damaged coffee in stores.
• Atlas Torréfaction pays against documents and has always paid on time. Two Middle Eastern buyers paid between 30 and 50 days late in 2026.
• The Italian and Spanish buyers have said they will stop buying from exporters that cannot provide farm location data for the European Union deforestation regulation by the end of 2026. BHC has map locations for about 2,000 of its 13,500 farmers.
• Cash is still used at 19 of the 27 buying centres. The 2025 price fraud was found by chance.
• Nobody has written down BHC's main risks, and the directors have not agreed what level of risk they would tolerate.

Letter from Yaw Boateng, Savanna Harvest Capital, 20 October 2026 (extract). Two development finance institutions that invest in our fund have told us that every portfolio company must disclose its climate and wider sustainability information under international standards. Coffee growing in the district is exposed to rising temperatures and less reliable rainfall; studies suggest that the area where robusta grows well in central Uganda could shrink over the next 25 years. BHC's dryers burn coffee husks and some firewood, and its trucks use diesel. Most of the emissions linked to BHC's coffee arise on farms and in shipping. We would like BHC's first sustainability report to cover 2026/27 and to obtain some independent checking of the figures, which the Afro-Mediterranean Trade Bank would also require.

Required

Having studied this material, you have grouped the matters for the board's attention under four headings: A, strategy and marketing; B, finance, tax and performance; C, governance, risk, control and ethics; and D, current and emerging issues. The report is to begin with an executive summary.

Prepare a report to the board advising on the issues below.

Where a part gives you a workings grid, set out your figures there; elsewhere, type your workings line by line.

Buddu Highlands Coffee Ltd: integrated case

Today is Monday 16 November 2026. You are the Chief Finance Officer of Buddu Highlands Coffee Ltd (BHC), a coffee buying, processing and export company with its head office and factory in Masaka, in the central region of Uganda. You are a CPA(U) and were promoted to the post in August 2026 after six years as the company's financial controller. You report to the Managing Director, Rehema Kizito-Mugisha, and you attend board meetings as an executive, although you are not a member of the board.

The board will meet on Friday 11 December 2026. Its main business is to decide whether BHC should build a coffee roasting and packing plant, known as Project Ember, and how the plant should be financed. The directors have also asked for advice on a large export contract that is being negotiated in US dollars, on the company's tax position for the current year of income, on matters raised by the external auditors, and on the way the company is governed and manages its risks. Rehema Kizito-Mugisha has asked you to bring all of these matters together in a single report to the board. The information you have collected is set out below and in Appendices 1 to 7. Amounts are in Uganda shillings (Shs) million unless otherwise stated.

History and operations

BHC was founded in 1996 by Ephraim Kizito, a former agricultural extension officer, as a coffee buying store in Nyendo, on the outskirts of Masaka town. The business grew with the liberalisation of the coffee trade and in 2004 opened its own hulling and grading factory on a 9-acre site beside the Masaka to Mbirizi road. The factory now has a capacity of about 16,000 tonnes of green (export-ready) coffee a year. In the year to 30 June 2026 BHC exported 11,800 tonnes of green robusta coffee, which made it one of the larger exporters based outside Kampala.

Almost all of BHC's coffee is robusta. It is bought from about 13,500 smallholder farmers in Masaka, Lwengo, Bukomansimbi, Kalungu and Rakai districts through 27 buying centres. Farmers sell either dried cherry (known locally as kiboko) or fair average quality coffee (FAQ) that has already been hulled by small village hullers. Each buying centre has a moisture meter, scales and a clerk; coffee is paid for in cash or by mobile money on the day of delivery. Coffee bought as kiboko is hulled at the Masaka factory. All coffee is then dried to below 13% moisture, cleaned, sorted by bean size into screen grades, hand-picked for defects, bagged in 60-kilogram jute bags and trucked to the port of Mombasa in Kenya for shipment.

The main harvest in the region runs from about May to August, with a smaller fly crop from November to January. BHC must buy most of its year's coffee within five months, which it finances with seasonal crop finance from its bank. Coffee held in stores is at risk from rewetting, mould, theft and price falls. Competition for farmers' coffee is fierce: multinational exporters with stores in the same districts and many small traders who pay cash at the farm gate compete for the same crop, and prices paid to farmers follow the world price closely, sometimes changing twice in a week.

BHC owns one subsidiary, BHC Trading Kenya Ltd (100%), a small office in Nairobi that arranges shipping documents, insurance and port clearance in Mombasa and sells small lots of green coffee to roasters in Kenya. Its manager is Wanjiru Kamau. The group employs about 410 permanent staff and up to 600 seasonal workers in the main harvest.

The coffee industry

Coffee is Uganda's largest agricultural export. National exports reached record volumes in 2024/25 and 2025/26, helped by new plantings, better farm practice and high world prices. Most Ugandan coffee is exported green, and only a very small share is roasted in the country. Several large buyers in North Africa, the Middle East and Europe buy Ugandan robusta for blending and for instant coffee. The domestic market for roasted coffee is small but growing at an estimated 12% to 15% a year, driven by cafés, hotels, offices and supermarkets in Kampala, Entebbe and other towns, and by tourism.

Robusta is priced by reference to the London robusta futures market. An exporter's selling price is usually the futures reference price for the shipping month plus or minus a differential, quoted in US dollars a tonne, which reflects quality, screen size, the origin and the delivery terms. Over the last five years the reference price has moved between about USD 1,700 and USD 5,600 a tonne. Because farm-gate prices in shillings follow the reference price, an exporter's margin depends mainly on the differential it can obtain, its processing outturn and costs, and the exchange rate between the shilling and the US dollar when the export proceeds are received.

The national coffee regulator registers exporters, buying stores and processors, inspects quality at the point of export and issues the quality certificates needed for each shipment. Buyers in the European Union have told exporters that the European Union's deforestation regulation will require proof, for each lot, that the coffee did not come from land cleared of forest after 2020, including the map location of each farm. Buyers in North Africa and the Middle East have not yet asked for this.

Shareholders, board and management

BHC is a private company limited by shares, incorporated in Uganda under the Companies Act, 2012. Its shareholders are the Kizito family (60%), the Buddu Growers' Co-operative Union Ltd (20%), which represents about 4,100 farmer members who sell to BHC, and Savanna Harvest Capital Fund (20%), an agribusiness fund managed from Accra, Ghana, which invested in 2020. Savanna's shareholders' agreement gives it one board seat, a veto over new share issues and a right to sell its shares to the other shareholders at a fair value from 2029.

The board meets four times a year. It has no committees, and the chairman sets the agenda with the Managing Director. Since 2019 Nyendo Haulage Ltd, owned by Daniel Kizito, has carried most of BHC's coffee to Mombasa; the rates were agreed by Daniel Kizito and Rehema Kizito-Mugisha and have not been compared with other hauliers. Pay and bonuses for the executive directors are proposed by the chairman and approved by the board, with the executive directors present and voting. A single checking officer, who reports to the Managing Director, spends most of her time counting cash at buying centres.

At its last meeting the Co-operative Union complained, through Mariam Nakato, that its members cannot see how BHC sets farm-gate prices or why the second payment (bonus) promised to farmers for high quality coffee was smaller in 2026 than in 2025. Yaw Boateng has said that Savanna's investment committee is concerned about contracts with companies owned by directors and about the lack of independent oversight of the accounts.

The external auditors are Mrema Nakimuli & Co, a Kampala firm of Certified Public Accountants that has been BHC's auditor since 2017. Their work on the 2025/26 accounts (year to 30 June 2026) is in its last stage, and they intend to sign on 18 December 2026.

Customers, markets and Project Ember

In 2025/26 about 46% of BHC's export volume went to Morocco, Algeria and Egypt, 31% to trading houses and roasters in Italy and Spain, 14% to roasters in the Gulf states and 9% to roasters in Kenya through BHC Trading Kenya Ltd. Sales are made on documents: the buyer pays against the shipping documents, normally 60 to 90 days after the coffee leaves Masaka. All export sales are invoiced in US dollars, while almost all of BHC's costs, including the coffee itself, are paid in shillings.

Atlas Torréfaction SA, a large roaster in Casablanca, Morocco, is BHC's biggest customer. Its buyer, Youssef El Amrani, is negotiating a contract for 1,500 tonnes of screen 15 robusta for shipment in January 2027, with payment 90 days later (Appendix 4).

Project Ember would add a roasting, grinding and packing plant at the Masaka site to sell roasted coffee in Uganda and the region. Nokuthula Dlamini, who chairs a small working group of the board on the project, has proposed two routes to market. One is to build BHC's own brand, Buddu Fire Roast, sold in 250-gram and 500-gram valve bags in supermarkets and to hotels, cafés and offices in Uganda and, through BHC Trading Kenya Ltd, in Nairobi. She estimates the brand would need about Shs 1,000 million of launch marketing in its first year, followed by steady spending on promotion. The other is to roast and pack coffee for other companies' brands. Karoo Bean Company (Pty) Ltd, a chain of 85 cafés based in Cape Town, South Africa, has offered a three-year agreement to buy up to 600 tonnes a year of roasted coffee packed under its own label, at a price about 8% below the expected price of BHC's own brand, provided BHC passes its food safety and ethical sourcing audit. Hotels and supermarkets in Kampala currently buy imported roasted coffee from Kenya and Europe as well as from several small Ugandan roasters.

Tesfaye Gebremedhin believes that BHC's knowledge of quality, its supply of fresh beans and its relationships with farmers give it an advantage over importers, but he notes that BHC has never sold to consumers, has no sales team for retail customers and has no experience of roasting at scale. He has arranged for Sidama Roast Technologies PLC, an Ethiopian company based in Addis Ababa, to help design the plant and to train BHC's roasters.

Systems

BHC uses an accounting package on a server at the Masaka head office. Buying centres record each purchase in a receipt book and send a daily summary by text message; stock in each store is recorded on spreadsheets that are reconciled to the factory records at the end of each month. Purchase prices are telephoned to centre managers each morning. In 2025 the checking officer found that one centre manager had recorded purchases at prices above the price set for the day and kept the difference; the loss was about Shs 85 million. Tesfaye Gebremedhin has proposed a mobile system that records each farmer's delivery, its weight, moisture and the price paid, together with the map location of the farm, and passes the data to a central system. Savanna has suggested that the same data could be placed on a blockchain platform that several European and Middle Eastern buyers are testing.

Appendix 1: Financial statements of BHC (the Ugandan company), years ended 30 June (Shs million; 2026 draft, not yet audited)

Statements of profit or loss and other comprehensive income

Statements of financial position at 30 June

Notes: (1) All borrowings are from Sango Bay Commercial Bank Uganda Ltd. Its loan agreement requires total borrowings (long-term loans plus crop finance) to be no more than 100% of total equity at each 30 June, and the bank must approve any new borrowing from other lenders. (2) Revenue growth since 2024 is mainly due to higher world prices: export volume was 11,200 tonnes in 2024, 11,500 tonnes in 2025 and 11,800 tonnes in 2026. (3) The inventories at 30 June 2026 are about 2,600 tonnes of coffee, a higher quantity than usual, because the board decided in June to hold stock in expectation of higher prices.

Appendix 2: Memo from the Managing Director to the Chief Finance Officer, 6 November 2026

Subject: Board meeting on 11 December

1. Project Ember. Roasting is our future. Every exporter in this country sells raw coffee and leaves the value to others. The estimates are in Appendix 3. I am told the project shows a good profit from year 2, but please give the board a proper financial appraisal. Some directors say the coffee we roast costs us only what we pay the farmers; please make sure the numbers are right.

2. Financing. The options are in Appendix 5. My father and I will not accept any arrangement that takes control of the company away from the family.

3. The Atlas contract. Youssef El Amrani wants an answer by the end of the month. Please advise on the price we can accept and on how we protect ourselves against the dollar (Appendix 4).

4. The downgraded coffee. The auditors have raised the 180 tonnes that were damaged by rain in the Kalungu store (Appendix 6). Tesfaye tells me that if we blend these bags in small amounts into the Atlas shipment the buyer will not notice. Please keep the stock at cost in the accounts and do not discuss the blending with the auditors; it is a commercial matter.

5. The VAT refund. We are owed a large VAT refund (Appendix 6). An officer dealing with our claim has told our clearing agent that a payment of Shs 40 million to a consultant he named would make sure the refund is paid before Christmas. Please arrange for the clearing agent to pay this and charge it to us as clearing fees. Our cash position needs the refund.

6. Tax. Please tell the board what we expect to pay for this year (Appendix 6).

Appendix 3: Project Ember estimates, prepared by the Project Ember working group with Sidama Roast Technologies PLC, October 2026

The plant would be installed during the first half of 2027 in an existing warehouse at the Masaka site and would begin roasting on 1 July 2027, the start of year 1 (2027/28). The appraisal covers six years. Treat every operating cash flow as occurring on the last day of its year; the capital spending and working capital are paid on the first day of year 1 (time 0). Figures are in Shs million. Each tonne of roasted coffee needs 1.2 tonnes of green coffee because of weight lost in roasting.

BHC can sell all the green coffee it can buy and process, so any green coffee used for roasting would otherwise be exported. For the appraisal, take income tax at 30% as paid in the year the profit arises; BHC's other profits are large enough to absorb any tax relief at once. The finance team has worked out the yearly tax benefit of the capital allowances on the plant and the fit-out (below), and these figures should be used without change. A discount rate of 16% reflects the risk of the project.

Appendix 4: The Atlas Torréfaction contract and foreign exchange information, November 2026

Atlas Torréfaction SA has offered to buy 1,500 tonnes of screen 15 robusta, delivered free on board at Mombasa, at the London reference price for the March 2027 position plus a differential. BHC proposed a differential of USD 160 a tonne. Youssef El Amrani has replied that Atlas would prefer a differential of USD 100 a tonne, because other exporters have offered similar coffee more cheaply. Atlas has agreed to fix the reference price at USD 4,080 a tonne when the contract is signed. Payment would be received in US dollars three months after signing.

BHC's costs for this contract are estimated as follows, all in Shs million a tonne of green coffee delivered at Mombasa: coffee bought from farmers and hulled 13.40; drying, grading, hand-picking, bags and fumigation 0.52; transport to Mombasa, port handling and export documentation 0.68. The board's policy is that every export contract should earn a margin of at least Shs 1.0 million a tonne after these costs.

Sango Bay Commercial Bank has quoted the following rates.

The shilling usually strengthens during the main harvest, when exporters sell dollars, and weakens at other times. In 2025 it moved by more than 5% against the US dollar in a single quarter. BHC has never hedged; the Managing Director has said she prefers to wait and convert dollars when the rate looks good. The bank has also offered a three-month option to sell US dollars at Shs 3,700 for a premium of Shs 20 for each dollar, payable now.

Appendix 5: E-mail from Yaw Boateng to the board, 2 November 2026

Subject: Funding Project Ember

Dear colleagues, Project Ember needs about Shs 22,000 million (the plant, the fit-out and the working capital). I set out the three options we have discussed.

Option 1: Sango Bay Commercial Bank. Robert Ochieng, our relationship manager, has offered a Shs 22,000 million term loan for seven years at 17.0% fixed, with equal annual instalments starting at the end of year 1. The bank's existing covenant would continue to apply.

Option 2: Afro-Mediterranean Trade Bank. Dina Farouk of the bank's Cairo office has outlined a seven-year loan in US dollars worth Shs 22,000 million at today's rate at a fixed rate of 8.5% a year in US dollars, with no repayment of principal for two years. The bank requires a first charge over the new plant, an assignment of BHC's export proceeds from two named buyers, and annual reports on environmental and social matters. Sango Bay Commercial Bank would have to consent, and its covenant would also apply. Our economists expect the shilling to fall by about 3.5% a year against the US dollar over the next seven years.

Option 3: new shares for Savanna. Savanna Harvest Capital would pay Shs 22,000 million for newly issued ordinary shares, on the basis that BHC's shares in issue are worth Shs 66,000 million before the investment. Savanna would expect a second board seat. Savanna has also said it would subscribe a smaller amount of Shs 8,000 million for new shares on the same valuation if the rest were borrowed in US dollars from the Afro-Mediterranean Trade Bank.

I suggest the board compares the options using total borrowings to total equity at 30 June 2026, adjusted for the new money (ignore the project's own profits for this purpose). Kind regards, Yaw.

Appendix 6: Tax information and extract from the auditors' letter

Tax data for BHC (the Ugandan company) for the year of income 2026/27, which runs from 1 July 2026 to 30 June 2027. Use only the rules below. They summarise the Income Tax Act, Cap 340 and the Value Added Tax Act, Cap 349 in the form that applies for 2026/27, after the amendments that took effect on 1 July 2026.

• Companies pay income tax at 30% of chargeable income.
• Accounting depreciation is added back. Manufacturing plant forms a pool, and 30% of the pool's written-down value at the year end is allowed as wear and tear. Buildings used in manufacturing attract an industrial building deduction of 5% of their cost each year.
• No deduction is given for fines or penalties, or for a general provision against doubtful debts.
• Exchange gains and losses count for tax only once they are realised.
• Interest limit: where a company belongs to a group (non-individual persons sharing at least 51% common underlying ownership, ignoring any dormant member), its interest deduction cannot exceed 30% of tax EBITDA. Tax EBITDA means chargeable income before the interest deduction, with the wear and tear and industrial building deductions added back.
• A non-resident paid a management or technical service fee suffers withholding tax at 15% of the gross fee.
• VAT: exported goods are zero-rated, so the exporter charges no VAT on them yet recovers input tax on its taxable purchases and is refunded any excess. Unprocessed agricultural produce, such as coffee bought from farmers, is an exempt supply. Letting commercial premises is standard-rated at 18%. Where a non-resident supplies services into Uganda, the Ugandan customer accounts for VAT at 18% itself; only petroleum and mining contractors and business process outsourcing providers may treat that VAT as input tax.

1. BHC's forecast accounting profit before tax for 2026/27, before Project Ember, is Shs 8,600 million. The figure is after charging depreciation of Shs 3,400 million, interest of Shs 2,600 million, an increase of Shs 240 million in the general provision for doubtful debts and a penalty of Shs 60 million paid to the customs authorities for a late export declaration. It includes an unrealised foreign exchange gain of Shs 520 million on US dollar receivables at the year end. No other tax adjustments are needed.
2. The written-down value of BHC's pool of manufacturing plant at 1 July 2026 is Shs 15,000 million. BHC expects to add Shs 3,000 million of plant to the pool during 2026/27 and to sell none. The cost of BHC's factory buildings, all used in manufacturing and still qualifying for the deduction, is Shs 14,000 million.
3. From 1 July 2026 Sidama Roast Technologies PLC, a company resident in Ethiopia that has no office or other base in Uganda, supplies roasting design and training services from Addis Ababa for a fee of Shs 800 million in 2026/27, which is included in the forecast. No tax treaty between Uganda and Ethiopia is in force.
4. For 2026/27 BHC forecasts input tax of Shs 1,380 million on standard-rated purchases such as fuel, packaging, transport and professional services. It will continue to let the warehouse to its tenant for Shs 250 million (excluding VAT) during 2026/27. All its other supplies are exports. BHC carries on no petroleum, mining or business process outsourcing activity.
5. BHC Trading Kenya Ltd is not dormant. BHC has no tax losses or interest carried forward from earlier years.

Extract from the letter of Mrema Nakimuli & Co to the Managing Director, 30 October 2026.

Damaged inventory. During our attendance at the inventory count we found 180 tonnes of coffee in the Kalungu store that had been rewetted by a roof leak in May 2026 and has since shown mould and a high defect count. The draft financial statements carry it at the average cost of Shs 13.0 million a tonne. The national regulator would not certify it for export. A Kampala manufacturer of instant coffee has offered to buy it for Shs 7.9 million a tonne, collected from Masaka, with BHC paying Shs 0.3 million a tonne for re-drying and sorting.

Inventory records. Stock records at four buying centres could not be reconciled to the factory records at 30 June 2026. The total difference is about 95 tonnes, which management attributes to moisture loss.

Forward contracts. In June 2026 BHC agreed with a commodity trading company in Mombasa to sell 900 tonnes of coffee for delivery in September 2026 at a fixed price in US dollars. The draft financial statements make no mention of this commitment.

VAT refund. BHC's claim for a VAT refund of Shs 1,240 million for the year to 30 June 2026 has not yet been paid. We will need evidence to support its recoverability.

Appendix 7: Notes from the risk workshop and letter from Savanna, October 2026

• The London reference price fell by 22% in six weeks in early 2026 before recovering. BHC buys coffee at prices that follow the reference price but sells, on average, about seven weeks later. It does not use futures or fixed-price purchase agreements.
• Seasonal crop finance rose to Shs 21,500 million at 30 June 2026 because the board decided to hold more stock. The facility must be renewed each April.
• Rainfall in the district has become less reliable: a drought in 2022 cut the fly crop by about 40%, and heavy rains in 2026 damaged coffee in stores.
• Atlas Torréfaction pays against documents and has always paid on time. Two Middle Eastern buyers paid between 30 and 50 days late in 2026.
• The Italian and Spanish buyers have said they will stop buying from exporters that cannot provide farm location data for the European Union deforestation regulation by the end of 2026. BHC has map locations for about 2,000 of its 13,500 farmers.
• Cash is still used at 19 of the 27 buying centres. The 2025 price fraud was found by chance.
• Nobody has written down BHC's main risks, and the directors have not agreed what level of risk they would tolerate.

Letter from Yaw Boateng, Savanna Harvest Capital, 20 October 2026 (extract). Two development finance institutions that invest in our fund have told us that every portfolio company must disclose its climate and wider sustainability information under international standards. Coffee growing in the district is exposed to rising temperatures and less reliable rainfall; studies suggest that the area where robusta grows well in central Uganda could shrink over the next 25 years. BHC's dryers burn coffee husks and some firewood, and its trucks use diesel. Most of the emissions linked to BHC's coffee arise on farms and in shipping. We would like BHC's first sustainability report to cover 2026/27 and to obtain some independent checking of the figures, which the Afro-Mediterranean Trade Bank would also require.

Required

Having studied this material, you have grouped the matters for the board's attention under four headings: A, strategy and marketing; B, finance, tax and performance; C, governance, risk, control and ethics; and D, current and emerging issues. The report is to begin with an executive summary.

Prepare a report to the board advising on the issues below.

Where a part gives you a workings grid, set out your figures there; elsewhere, type your workings line by line.

Buddu Highlands Coffee Ltd: integrated case

Today is Monday 16 November 2026. You are the Chief Finance Officer of Buddu Highlands Coffee Ltd (BHC), a coffee buying, processing and export company with its head office and factory in Masaka, in the central region of Uganda. You are a CPA(U) and were promoted to the post in August 2026 after six years as the company's financial controller. You report to the Managing Director, Rehema Kizito-Mugisha, and you attend board meetings as an executive, although you are not a member of the board.

The board will meet on Friday 11 December 2026. Its main business is to decide whether BHC should build a coffee roasting and packing plant, known as Project Ember, and how the plant should be financed. The directors have also asked for advice on a large export contract that is being negotiated in US dollars, on the company's tax position for the current year of income, on matters raised by the external auditors, and on the way the company is governed and manages its risks. Rehema Kizito-Mugisha has asked you to bring all of these matters together in a single report to the board. The information you have collected is set out below and in Appendices 1 to 7. Amounts are in Uganda shillings (Shs) million unless otherwise stated.

History and operations

BHC was founded in 1996 by Ephraim Kizito, a former agricultural extension officer, as a coffee buying store in Nyendo, on the outskirts of Masaka town. The business grew with the liberalisation of the coffee trade and in 2004 opened its own hulling and grading factory on a 9-acre site beside the Masaka to Mbirizi road. The factory now has a capacity of about 16,000 tonnes of green (export-ready) coffee a year. In the year to 30 June 2026 BHC exported 11,800 tonnes of green robusta coffee, which made it one of the larger exporters based outside Kampala.

Almost all of BHC's coffee is robusta. It is bought from about 13,500 smallholder farmers in Masaka, Lwengo, Bukomansimbi, Kalungu and Rakai districts through 27 buying centres. Farmers sell either dried cherry (known locally as kiboko) or fair average quality coffee (FAQ) that has already been hulled by small village hullers. Each buying centre has a moisture meter, scales and a clerk; coffee is paid for in cash or by mobile money on the day of delivery. Coffee bought as kiboko is hulled at the Masaka factory. All coffee is then dried to below 13% moisture, cleaned, sorted by bean size into screen grades, hand-picked for defects, bagged in 60-kilogram jute bags and trucked to the port of Mombasa in Kenya for shipment.

The main harvest in the region runs from about May to August, with a smaller fly crop from November to January. BHC must buy most of its year's coffee within five months, which it finances with seasonal crop finance from its bank. Coffee held in stores is at risk from rewetting, mould, theft and price falls. Competition for farmers' coffee is fierce: multinational exporters with stores in the same districts and many small traders who pay cash at the farm gate compete for the same crop, and prices paid to farmers follow the world price closely, sometimes changing twice in a week.

BHC owns one subsidiary, BHC Trading Kenya Ltd (100%), a small office in Nairobi that arranges shipping documents, insurance and port clearance in Mombasa and sells small lots of green coffee to roasters in Kenya. Its manager is Wanjiru Kamau. The group employs about 410 permanent staff and up to 600 seasonal workers in the main harvest.

The coffee industry

Coffee is Uganda's largest agricultural export. National exports reached record volumes in 2024/25 and 2025/26, helped by new plantings, better farm practice and high world prices. Most Ugandan coffee is exported green, and only a very small share is roasted in the country. Several large buyers in North Africa, the Middle East and Europe buy Ugandan robusta for blending and for instant coffee. The domestic market for roasted coffee is small but growing at an estimated 12% to 15% a year, driven by cafés, hotels, offices and supermarkets in Kampala, Entebbe and other towns, and by tourism.

Robusta is priced by reference to the London robusta futures market. An exporter's selling price is usually the futures reference price for the shipping month plus or minus a differential, quoted in US dollars a tonne, which reflects quality, screen size, the origin and the delivery terms. Over the last five years the reference price has moved between about USD 1,700 and USD 5,600 a tonne. Because farm-gate prices in shillings follow the reference price, an exporter's margin depends mainly on the differential it can obtain, its processing outturn and costs, and the exchange rate between the shilling and the US dollar when the export proceeds are received.

The national coffee regulator registers exporters, buying stores and processors, inspects quality at the point of export and issues the quality certificates needed for each shipment. Buyers in the European Union have told exporters that the European Union's deforestation regulation will require proof, for each lot, that the coffee did not come from land cleared of forest after 2020, including the map location of each farm. Buyers in North Africa and the Middle East have not yet asked for this.

Shareholders, board and management

BHC is a private company limited by shares, incorporated in Uganda under the Companies Act, 2012. Its shareholders are the Kizito family (60%), the Buddu Growers' Co-operative Union Ltd (20%), which represents about 4,100 farmer members who sell to BHC, and Savanna Harvest Capital Fund (20%), an agribusiness fund managed from Accra, Ghana, which invested in 2020. Savanna's shareholders' agreement gives it one board seat, a veto over new share issues and a right to sell its shares to the other shareholders at a fair value from 2029.

The board meets four times a year. It has no committees, and the chairman sets the agenda with the Managing Director. Since 2019 Nyendo Haulage Ltd, owned by Daniel Kizito, has carried most of BHC's coffee to Mombasa; the rates were agreed by Daniel Kizito and Rehema Kizito-Mugisha and have not been compared with other hauliers. Pay and bonuses for the executive directors are proposed by the chairman and approved by the board, with the executive directors present and voting. A single checking officer, who reports to the Managing Director, spends most of her time counting cash at buying centres.

At its last meeting the Co-operative Union complained, through Mariam Nakato, that its members cannot see how BHC sets farm-gate prices or why the second payment (bonus) promised to farmers for high quality coffee was smaller in 2026 than in 2025. Yaw Boateng has said that Savanna's investment committee is concerned about contracts with companies owned by directors and about the lack of independent oversight of the accounts.

The external auditors are Mrema Nakimuli & Co, a Kampala firm of Certified Public Accountants that has been BHC's auditor since 2017. Their work on the 2025/26 accounts (year to 30 June 2026) is in its last stage, and they intend to sign on 18 December 2026.

Customers, markets and Project Ember

In 2025/26 about 46% of BHC's export volume went to Morocco, Algeria and Egypt, 31% to trading houses and roasters in Italy and Spain, 14% to roasters in the Gulf states and 9% to roasters in Kenya through BHC Trading Kenya Ltd. Sales are made on documents: the buyer pays against the shipping documents, normally 60 to 90 days after the coffee leaves Masaka. All export sales are invoiced in US dollars, while almost all of BHC's costs, including the coffee itself, are paid in shillings.

Atlas Torréfaction SA, a large roaster in Casablanca, Morocco, is BHC's biggest customer. Its buyer, Youssef El Amrani, is negotiating a contract for 1,500 tonnes of screen 15 robusta for shipment in January 2027, with payment 90 days later (Appendix 4).

Project Ember would add a roasting, grinding and packing plant at the Masaka site to sell roasted coffee in Uganda and the region. Nokuthula Dlamini, who chairs a small working group of the board on the project, has proposed two routes to market. One is to build BHC's own brand, Buddu Fire Roast, sold in 250-gram and 500-gram valve bags in supermarkets and to hotels, cafés and offices in Uganda and, through BHC Trading Kenya Ltd, in Nairobi. She estimates the brand would need about Shs 1,000 million of launch marketing in its first year, followed by steady spending on promotion. The other is to roast and pack coffee for other companies' brands. Karoo Bean Company (Pty) Ltd, a chain of 85 cafés based in Cape Town, South Africa, has offered a three-year agreement to buy up to 600 tonnes a year of roasted coffee packed under its own label, at a price about 8% below the expected price of BHC's own brand, provided BHC passes its food safety and ethical sourcing audit. Hotels and supermarkets in Kampala currently buy imported roasted coffee from Kenya and Europe as well as from several small Ugandan roasters.

Tesfaye Gebremedhin believes that BHC's knowledge of quality, its supply of fresh beans and its relationships with farmers give it an advantage over importers, but he notes that BHC has never sold to consumers, has no sales team for retail customers and has no experience of roasting at scale. He has arranged for Sidama Roast Technologies PLC, an Ethiopian company based in Addis Ababa, to help design the plant and to train BHC's roasters.

Systems

BHC uses an accounting package on a server at the Masaka head office. Buying centres record each purchase in a receipt book and send a daily summary by text message; stock in each store is recorded on spreadsheets that are reconciled to the factory records at the end of each month. Purchase prices are telephoned to centre managers each morning. In 2025 the checking officer found that one centre manager had recorded purchases at prices above the price set for the day and kept the difference; the loss was about Shs 85 million. Tesfaye Gebremedhin has proposed a mobile system that records each farmer's delivery, its weight, moisture and the price paid, together with the map location of the farm, and passes the data to a central system. Savanna has suggested that the same data could be placed on a blockchain platform that several European and Middle Eastern buyers are testing.

Appendix 1: Financial statements of BHC (the Ugandan company), years ended 30 June (Shs million; 2026 draft, not yet audited)

Statements of profit or loss and other comprehensive income

Statements of financial position at 30 June

Notes: (1) All borrowings are from Sango Bay Commercial Bank Uganda Ltd. Its loan agreement requires total borrowings (long-term loans plus crop finance) to be no more than 100% of total equity at each 30 June, and the bank must approve any new borrowing from other lenders. (2) Revenue growth since 2024 is mainly due to higher world prices: export volume was 11,200 tonnes in 2024, 11,500 tonnes in 2025 and 11,800 tonnes in 2026. (3) The inventories at 30 June 2026 are about 2,600 tonnes of coffee, a higher quantity than usual, because the board decided in June to hold stock in expectation of higher prices.

Appendix 2: Memo from the Managing Director to the Chief Finance Officer, 6 November 2026

Subject: Board meeting on 11 December

1. Project Ember. Roasting is our future. Every exporter in this country sells raw coffee and leaves the value to others. The estimates are in Appendix 3. I am told the project shows a good profit from year 2, but please give the board a proper financial appraisal. Some directors say the coffee we roast costs us only what we pay the farmers; please make sure the numbers are right.

2. Financing. The options are in Appendix 5. My father and I will not accept any arrangement that takes control of the company away from the family.

3. The Atlas contract. Youssef El Amrani wants an answer by the end of the month. Please advise on the price we can accept and on how we protect ourselves against the dollar (Appendix 4).

4. The downgraded coffee. The auditors have raised the 180 tonnes that were damaged by rain in the Kalungu store (Appendix 6). Tesfaye tells me that if we blend these bags in small amounts into the Atlas shipment the buyer will not notice. Please keep the stock at cost in the accounts and do not discuss the blending with the auditors; it is a commercial matter.

5. The VAT refund. We are owed a large VAT refund (Appendix 6). An officer dealing with our claim has told our clearing agent that a payment of Shs 40 million to a consultant he named would make sure the refund is paid before Christmas. Please arrange for the clearing agent to pay this and charge it to us as clearing fees. Our cash position needs the refund.

6. Tax. Please tell the board what we expect to pay for this year (Appendix 6).

Appendix 3: Project Ember estimates, prepared by the Project Ember working group with Sidama Roast Technologies PLC, October 2026

The plant would be installed during the first half of 2027 in an existing warehouse at the Masaka site and would begin roasting on 1 July 2027, the start of year 1 (2027/28). The appraisal covers six years. Treat every operating cash flow as occurring on the last day of its year; the capital spending and working capital are paid on the first day of year 1 (time 0). Figures are in Shs million. Each tonne of roasted coffee needs 1.2 tonnes of green coffee because of weight lost in roasting.

BHC can sell all the green coffee it can buy and process, so any green coffee used for roasting would otherwise be exported. For the appraisal, take income tax at 30% as paid in the year the profit arises; BHC's other profits are large enough to absorb any tax relief at once. The finance team has worked out the yearly tax benefit of the capital allowances on the plant and the fit-out (below), and these figures should be used without change. A discount rate of 16% reflects the risk of the project.

Appendix 4: The Atlas Torréfaction contract and foreign exchange information, November 2026

Atlas Torréfaction SA has offered to buy 1,500 tonnes of screen 15 robusta, delivered free on board at Mombasa, at the London reference price for the March 2027 position plus a differential. BHC proposed a differential of USD 160 a tonne. Youssef El Amrani has replied that Atlas would prefer a differential of USD 100 a tonne, because other exporters have offered similar coffee more cheaply. Atlas has agreed to fix the reference price at USD 4,080 a tonne when the contract is signed. Payment would be received in US dollars three months after signing.

BHC's costs for this contract are estimated as follows, all in Shs million a tonne of green coffee delivered at Mombasa: coffee bought from farmers and hulled 13.40; drying, grading, hand-picking, bags and fumigation 0.52; transport to Mombasa, port handling and export documentation 0.68. The board's policy is that every export contract should earn a margin of at least Shs 1.0 million a tonne after these costs.

Sango Bay Commercial Bank has quoted the following rates.

The shilling usually strengthens during the main harvest, when exporters sell dollars, and weakens at other times. In 2025 it moved by more than 5% against the US dollar in a single quarter. BHC has never hedged; the Managing Director has said she prefers to wait and convert dollars when the rate looks good. The bank has also offered a three-month option to sell US dollars at Shs 3,700 for a premium of Shs 20 for each dollar, payable now.

Appendix 5: E-mail from Yaw Boateng to the board, 2 November 2026

Subject: Funding Project Ember

Dear colleagues, Project Ember needs about Shs 22,000 million (the plant, the fit-out and the working capital). I set out the three options we have discussed.

Option 1: Sango Bay Commercial Bank. Robert Ochieng, our relationship manager, has offered a Shs 22,000 million term loan for seven years at 17.0% fixed, with equal annual instalments starting at the end of year 1. The bank's existing covenant would continue to apply.

Option 2: Afro-Mediterranean Trade Bank. Dina Farouk of the bank's Cairo office has outlined a seven-year loan in US dollars worth Shs 22,000 million at today's rate at a fixed rate of 8.5% a year in US dollars, with no repayment of principal for two years. The bank requires a first charge over the new plant, an assignment of BHC's export proceeds from two named buyers, and annual reports on environmental and social matters. Sango Bay Commercial Bank would have to consent, and its covenant would also apply. Our economists expect the shilling to fall by about 3.5% a year against the US dollar over the next seven years.

Option 3: new shares for Savanna. Savanna Harvest Capital would pay Shs 22,000 million for newly issued ordinary shares, on the basis that BHC's shares in issue are worth Shs 66,000 million before the investment. Savanna would expect a second board seat. Savanna has also said it would subscribe a smaller amount of Shs 8,000 million for new shares on the same valuation if the rest were borrowed in US dollars from the Afro-Mediterranean Trade Bank.

I suggest the board compares the options using total borrowings to total equity at 30 June 2026, adjusted for the new money (ignore the project's own profits for this purpose). Kind regards, Yaw.

Appendix 6: Tax information and extract from the auditors' letter

Tax data for BHC (the Ugandan company) for the year of income 2026/27, which runs from 1 July 2026 to 30 June 2027. Use only the rules below. They summarise the Income Tax Act, Cap 340 and the Value Added Tax Act, Cap 349 in the form that applies for 2026/27, after the amendments that took effect on 1 July 2026.

• Companies pay income tax at 30% of chargeable income.
• Accounting depreciation is added back. Manufacturing plant forms a pool, and 30% of the pool's written-down value at the year end is allowed as wear and tear. Buildings used in manufacturing attract an industrial building deduction of 5% of their cost each year.
• No deduction is given for fines or penalties, or for a general provision against doubtful debts.
• Exchange gains and losses count for tax only once they are realised.
• Interest limit: where a company belongs to a group (non-individual persons sharing at least 51% common underlying ownership, ignoring any dormant member), its interest deduction cannot exceed 30% of tax EBITDA. Tax EBITDA means chargeable income before the interest deduction, with the wear and tear and industrial building deductions added back.
• A non-resident paid a management or technical service fee suffers withholding tax at 15% of the gross fee.
• VAT: exported goods are zero-rated, so the exporter charges no VAT on them yet recovers input tax on its taxable purchases and is refunded any excess. Unprocessed agricultural produce, such as coffee bought from farmers, is an exempt supply. Letting commercial premises is standard-rated at 18%. Where a non-resident supplies services into Uganda, the Ugandan customer accounts for VAT at 18% itself; only petroleum and mining contractors and business process outsourcing providers may treat that VAT as input tax.

1. BHC's forecast accounting profit before tax for 2026/27, before Project Ember, is Shs 8,600 million. The figure is after charging depreciation of Shs 3,400 million, interest of Shs 2,600 million, an increase of Shs 240 million in the general provision for doubtful debts and a penalty of Shs 60 million paid to the customs authorities for a late export declaration. It includes an unrealised foreign exchange gain of Shs 520 million on US dollar receivables at the year end. No other tax adjustments are needed.
2. The written-down value of BHC's pool of manufacturing plant at 1 July 2026 is Shs 15,000 million. BHC expects to add Shs 3,000 million of plant to the pool during 2026/27 and to sell none. The cost of BHC's factory buildings, all used in manufacturing and still qualifying for the deduction, is Shs 14,000 million.
3. From 1 July 2026 Sidama Roast Technologies PLC, a company resident in Ethiopia that has no office or other base in Uganda, supplies roasting design and training services from Addis Ababa for a fee of Shs 800 million in 2026/27, which is included in the forecast. No tax treaty between Uganda and Ethiopia is in force.
4. For 2026/27 BHC forecasts input tax of Shs 1,380 million on standard-rated purchases such as fuel, packaging, transport and professional services. It will continue to let the warehouse to its tenant for Shs 250 million (excluding VAT) during 2026/27. All its other supplies are exports. BHC carries on no petroleum, mining or business process outsourcing activity.
5. BHC Trading Kenya Ltd is not dormant. BHC has no tax losses or interest carried forward from earlier years.

Extract from the letter of Mrema Nakimuli & Co to the Managing Director, 30 October 2026.

Damaged inventory. During our attendance at the inventory count we found 180 tonnes of coffee in the Kalungu store that had been rewetted by a roof leak in May 2026 and has since shown mould and a high defect count. The draft financial statements carry it at the average cost of Shs 13.0 million a tonne. The national regulator would not certify it for export. A Kampala manufacturer of instant coffee has offered to buy it for Shs 7.9 million a tonne, collected from Masaka, with BHC paying Shs 0.3 million a tonne for re-drying and sorting.

Inventory records. Stock records at four buying centres could not be reconciled to the factory records at 30 June 2026. The total difference is about 95 tonnes, which management attributes to moisture loss.

Forward contracts. In June 2026 BHC agreed with a commodity trading company in Mombasa to sell 900 tonnes of coffee for delivery in September 2026 at a fixed price in US dollars. The draft financial statements make no mention of this commitment.

VAT refund. BHC's claim for a VAT refund of Shs 1,240 million for the year to 30 June 2026 has not yet been paid. We will need evidence to support its recoverability.

Appendix 7: Notes from the risk workshop and letter from Savanna, October 2026

• The London reference price fell by 22% in six weeks in early 2026 before recovering. BHC buys coffee at prices that follow the reference price but sells, on average, about seven weeks later. It does not use futures or fixed-price purchase agreements.
• Seasonal crop finance rose to Shs 21,500 million at 30 June 2026 because the board decided to hold more stock. The facility must be renewed each April.
• Rainfall in the district has become less reliable: a drought in 2022 cut the fly crop by about 40%, and heavy rains in 2026 damaged coffee in stores.
• Atlas Torréfaction pays against documents and has always paid on time. Two Middle Eastern buyers paid between 30 and 50 days late in 2026.
• The Italian and Spanish buyers have said they will stop buying from exporters that cannot provide farm location data for the European Union deforestation regulation by the end of 2026. BHC has map locations for about 2,000 of its 13,500 farmers.
• Cash is still used at 19 of the 27 buying centres. The 2025 price fraud was found by chance.
• Nobody has written down BHC's main risks, and the directors have not agreed what level of risk they would tolerate.

Letter from Yaw Boateng, Savanna Harvest Capital, 20 October 2026 (extract). Two development finance institutions that invest in our fund have told us that every portfolio company must disclose its climate and wider sustainability information under international standards. Coffee growing in the district is exposed to rising temperatures and less reliable rainfall; studies suggest that the area where robusta grows well in central Uganda could shrink over the next 25 years. BHC's dryers burn coffee husks and some firewood, and its trucks use diesel. Most of the emissions linked to BHC's coffee arise on farms and in shipping. We would like BHC's first sustainability report to cover 2026/27 and to obtain some independent checking of the figures, which the Afro-Mediterranean Trade Bank would also require.

Required

Having studied this material, you have grouped the matters for the board's attention under four headings: A, strategy and marketing; B, finance, tax and performance; C, governance, risk, control and ethics; and D, current and emerging issues. The report is to begin with an executive summary.

Prepare a report to the board advising on the issues below.

Where a part gives you a workings grid, set out your figures there; elsewhere, type your workings line by line.

Buddu Highlands Coffee Ltd: integrated case

Today is Monday 16 November 2026. You are the Chief Finance Officer of Buddu Highlands Coffee Ltd (BHC), a coffee buying, processing and export company with its head office and factory in Masaka, in the central region of Uganda. You are a CPA(U) and were promoted to the post in August 2026 after six years as the company's financial controller. You report to the Managing Director, Rehema Kizito-Mugisha, and you attend board meetings as an executive, although you are not a member of the board.

The board will meet on Friday 11 December 2026. Its main business is to decide whether BHC should build a coffee roasting and packing plant, known as Project Ember, and how the plant should be financed. The directors have also asked for advice on a large export contract that is being negotiated in US dollars, on the company's tax position for the current year of income, on matters raised by the external auditors, and on the way the company is governed and manages its risks. Rehema Kizito-Mugisha has asked you to bring all of these matters together in a single report to the board. The information you have collected is set out below and in Appendices 1 to 7. Amounts are in Uganda shillings (Shs) million unless otherwise stated.

History and operations

BHC was founded in 1996 by Ephraim Kizito, a former agricultural extension officer, as a coffee buying store in Nyendo, on the outskirts of Masaka town. The business grew with the liberalisation of the coffee trade and in 2004 opened its own hulling and grading factory on a 9-acre site beside the Masaka to Mbirizi road. The factory now has a capacity of about 16,000 tonnes of green (export-ready) coffee a year. In the year to 30 June 2026 BHC exported 11,800 tonnes of green robusta coffee, which made it one of the larger exporters based outside Kampala.

Almost all of BHC's coffee is robusta. It is bought from about 13,500 smallholder farmers in Masaka, Lwengo, Bukomansimbi, Kalungu and Rakai districts through 27 buying centres. Farmers sell either dried cherry (known locally as kiboko) or fair average quality coffee (FAQ) that has already been hulled by small village hullers. Each buying centre has a moisture meter, scales and a clerk; coffee is paid for in cash or by mobile money on the day of delivery. Coffee bought as kiboko is hulled at the Masaka factory. All coffee is then dried to below 13% moisture, cleaned, sorted by bean size into screen grades, hand-picked for defects, bagged in 60-kilogram jute bags and trucked to the port of Mombasa in Kenya for shipment.

The main harvest in the region runs from about May to August, with a smaller fly crop from November to January. BHC must buy most of its year's coffee within five months, which it finances with seasonal crop finance from its bank. Coffee held in stores is at risk from rewetting, mould, theft and price falls. Competition for farmers' coffee is fierce: multinational exporters with stores in the same districts and many small traders who pay cash at the farm gate compete for the same crop, and prices paid to farmers follow the world price closely, sometimes changing twice in a week.

BHC owns one subsidiary, BHC Trading Kenya Ltd (100%), a small office in Nairobi that arranges shipping documents, insurance and port clearance in Mombasa and sells small lots of green coffee to roasters in Kenya. Its manager is Wanjiru Kamau. The group employs about 410 permanent staff and up to 600 seasonal workers in the main harvest.

The coffee industry

Coffee is Uganda's largest agricultural export. National exports reached record volumes in 2024/25 and 2025/26, helped by new plantings, better farm practice and high world prices. Most Ugandan coffee is exported green, and only a very small share is roasted in the country. Several large buyers in North Africa, the Middle East and Europe buy Ugandan robusta for blending and for instant coffee. The domestic market for roasted coffee is small but growing at an estimated 12% to 15% a year, driven by cafés, hotels, offices and supermarkets in Kampala, Entebbe and other towns, and by tourism.

Robusta is priced by reference to the London robusta futures market. An exporter's selling price is usually the futures reference price for the shipping month plus or minus a differential, quoted in US dollars a tonne, which reflects quality, screen size, the origin and the delivery terms. Over the last five years the reference price has moved between about USD 1,700 and USD 5,600 a tonne. Because farm-gate prices in shillings follow the reference price, an exporter's margin depends mainly on the differential it can obtain, its processing outturn and costs, and the exchange rate between the shilling and the US dollar when the export proceeds are received.

The national coffee regulator registers exporters, buying stores and processors, inspects quality at the point of export and issues the quality certificates needed for each shipment. Buyers in the European Union have told exporters that the European Union's deforestation regulation will require proof, for each lot, that the coffee did not come from land cleared of forest after 2020, including the map location of each farm. Buyers in North Africa and the Middle East have not yet asked for this.

Shareholders, board and management

BHC is a private company limited by shares, incorporated in Uganda under the Companies Act, 2012. Its shareholders are the Kizito family (60%), the Buddu Growers' Co-operative Union Ltd (20%), which represents about 4,100 farmer members who sell to BHC, and Savanna Harvest Capital Fund (20%), an agribusiness fund managed from Accra, Ghana, which invested in 2020. Savanna's shareholders' agreement gives it one board seat, a veto over new share issues and a right to sell its shares to the other shareholders at a fair value from 2029.

The board meets four times a year. It has no committees, and the chairman sets the agenda with the Managing Director. Since 2019 Nyendo Haulage Ltd, owned by Daniel Kizito, has carried most of BHC's coffee to Mombasa; the rates were agreed by Daniel Kizito and Rehema Kizito-Mugisha and have not been compared with other hauliers. Pay and bonuses for the executive directors are proposed by the chairman and approved by the board, with the executive directors present and voting. A single checking officer, who reports to the Managing Director, spends most of her time counting cash at buying centres.

At its last meeting the Co-operative Union complained, through Mariam Nakato, that its members cannot see how BHC sets farm-gate prices or why the second payment (bonus) promised to farmers for high quality coffee was smaller in 2026 than in 2025. Yaw Boateng has said that Savanna's investment committee is concerned about contracts with companies owned by directors and about the lack of independent oversight of the accounts.

The external auditors are Mrema Nakimuli & Co, a Kampala firm of Certified Public Accountants that has been BHC's auditor since 2017. Their work on the 2025/26 accounts (year to 30 June 2026) is in its last stage, and they intend to sign on 18 December 2026.

Customers, markets and Project Ember

In 2025/26 about 46% of BHC's export volume went to Morocco, Algeria and Egypt, 31% to trading houses and roasters in Italy and Spain, 14% to roasters in the Gulf states and 9% to roasters in Kenya through BHC Trading Kenya Ltd. Sales are made on documents: the buyer pays against the shipping documents, normally 60 to 90 days after the coffee leaves Masaka. All export sales are invoiced in US dollars, while almost all of BHC's costs, including the coffee itself, are paid in shillings.

Atlas Torréfaction SA, a large roaster in Casablanca, Morocco, is BHC's biggest customer. Its buyer, Youssef El Amrani, is negotiating a contract for 1,500 tonnes of screen 15 robusta for shipment in January 2027, with payment 90 days later (Appendix 4).

Project Ember would add a roasting, grinding and packing plant at the Masaka site to sell roasted coffee in Uganda and the region. Nokuthula Dlamini, who chairs a small working group of the board on the project, has proposed two routes to market. One is to build BHC's own brand, Buddu Fire Roast, sold in 250-gram and 500-gram valve bags in supermarkets and to hotels, cafés and offices in Uganda and, through BHC Trading Kenya Ltd, in Nairobi. She estimates the brand would need about Shs 1,000 million of launch marketing in its first year, followed by steady spending on promotion. The other is to roast and pack coffee for other companies' brands. Karoo Bean Company (Pty) Ltd, a chain of 85 cafés based in Cape Town, South Africa, has offered a three-year agreement to buy up to 600 tonnes a year of roasted coffee packed under its own label, at a price about 8% below the expected price of BHC's own brand, provided BHC passes its food safety and ethical sourcing audit. Hotels and supermarkets in Kampala currently buy imported roasted coffee from Kenya and Europe as well as from several small Ugandan roasters.

Tesfaye Gebremedhin believes that BHC's knowledge of quality, its supply of fresh beans and its relationships with farmers give it an advantage over importers, but he notes that BHC has never sold to consumers, has no sales team for retail customers and has no experience of roasting at scale. He has arranged for Sidama Roast Technologies PLC, an Ethiopian company based in Addis Ababa, to help design the plant and to train BHC's roasters.

Systems

BHC uses an accounting package on a server at the Masaka head office. Buying centres record each purchase in a receipt book and send a daily summary by text message; stock in each store is recorded on spreadsheets that are reconciled to the factory records at the end of each month. Purchase prices are telephoned to centre managers each morning. In 2025 the checking officer found that one centre manager had recorded purchases at prices above the price set for the day and kept the difference; the loss was about Shs 85 million. Tesfaye Gebremedhin has proposed a mobile system that records each farmer's delivery, its weight, moisture and the price paid, together with the map location of the farm, and passes the data to a central system. Savanna has suggested that the same data could be placed on a blockchain platform that several European and Middle Eastern buyers are testing.

Appendix 1: Financial statements of BHC (the Ugandan company), years ended 30 June (Shs million; 2026 draft, not yet audited)

Statements of profit or loss and other comprehensive income

Statements of financial position at 30 June

Notes: (1) All borrowings are from Sango Bay Commercial Bank Uganda Ltd. Its loan agreement requires total borrowings (long-term loans plus crop finance) to be no more than 100% of total equity at each 30 June, and the bank must approve any new borrowing from other lenders. (2) Revenue growth since 2024 is mainly due to higher world prices: export volume was 11,200 tonnes in 2024, 11,500 tonnes in 2025 and 11,800 tonnes in 2026. (3) The inventories at 30 June 2026 are about 2,600 tonnes of coffee, a higher quantity than usual, because the board decided in June to hold stock in expectation of higher prices.

Appendix 2: Memo from the Managing Director to the Chief Finance Officer, 6 November 2026

Subject: Board meeting on 11 December

1. Project Ember. Roasting is our future. Every exporter in this country sells raw coffee and leaves the value to others. The estimates are in Appendix 3. I am told the project shows a good profit from year 2, but please give the board a proper financial appraisal. Some directors say the coffee we roast costs us only what we pay the farmers; please make sure the numbers are right.

2. Financing. The options are in Appendix 5. My father and I will not accept any arrangement that takes control of the company away from the family.

3. The Atlas contract. Youssef El Amrani wants an answer by the end of the month. Please advise on the price we can accept and on how we protect ourselves against the dollar (Appendix 4).

4. The downgraded coffee. The auditors have raised the 180 tonnes that were damaged by rain in the Kalungu store (Appendix 6). Tesfaye tells me that if we blend these bags in small amounts into the Atlas shipment the buyer will not notice. Please keep the stock at cost in the accounts and do not discuss the blending with the auditors; it is a commercial matter.

5. The VAT refund. We are owed a large VAT refund (Appendix 6). An officer dealing with our claim has told our clearing agent that a payment of Shs 40 million to a consultant he named would make sure the refund is paid before Christmas. Please arrange for the clearing agent to pay this and charge it to us as clearing fees. Our cash position needs the refund.

6. Tax. Please tell the board what we expect to pay for this year (Appendix 6).

Appendix 3: Project Ember estimates, prepared by the Project Ember working group with Sidama Roast Technologies PLC, October 2026

The plant would be installed during the first half of 2027 in an existing warehouse at the Masaka site and would begin roasting on 1 July 2027, the start of year 1 (2027/28). The appraisal covers six years. Treat every operating cash flow as occurring on the last day of its year; the capital spending and working capital are paid on the first day of year 1 (time 0). Figures are in Shs million. Each tonne of roasted coffee needs 1.2 tonnes of green coffee because of weight lost in roasting.

BHC can sell all the green coffee it can buy and process, so any green coffee used for roasting would otherwise be exported. For the appraisal, take income tax at 30% as paid in the year the profit arises; BHC's other profits are large enough to absorb any tax relief at once. The finance team has worked out the yearly tax benefit of the capital allowances on the plant and the fit-out (below), and these figures should be used without change. A discount rate of 16% reflects the risk of the project.

Appendix 4: The Atlas Torréfaction contract and foreign exchange information, November 2026

Atlas Torréfaction SA has offered to buy 1,500 tonnes of screen 15 robusta, delivered free on board at Mombasa, at the London reference price for the March 2027 position plus a differential. BHC proposed a differential of USD 160 a tonne. Youssef El Amrani has replied that Atlas would prefer a differential of USD 100 a tonne, because other exporters have offered similar coffee more cheaply. Atlas has agreed to fix the reference price at USD 4,080 a tonne when the contract is signed. Payment would be received in US dollars three months after signing.

BHC's costs for this contract are estimated as follows, all in Shs million a tonne of green coffee delivered at Mombasa: coffee bought from farmers and hulled 13.40; drying, grading, hand-picking, bags and fumigation 0.52; transport to Mombasa, port handling and export documentation 0.68. The board's policy is that every export contract should earn a margin of at least Shs 1.0 million a tonne after these costs.

Sango Bay Commercial Bank has quoted the following rates.

The shilling usually strengthens during the main harvest, when exporters sell dollars, and weakens at other times. In 2025 it moved by more than 5% against the US dollar in a single quarter. BHC has never hedged; the Managing Director has said she prefers to wait and convert dollars when the rate looks good. The bank has also offered a three-month option to sell US dollars at Shs 3,700 for a premium of Shs 20 for each dollar, payable now.

Appendix 5: E-mail from Yaw Boateng to the board, 2 November 2026

Subject: Funding Project Ember

Dear colleagues, Project Ember needs about Shs 22,000 million (the plant, the fit-out and the working capital). I set out the three options we have discussed.

Option 1: Sango Bay Commercial Bank. Robert Ochieng, our relationship manager, has offered a Shs 22,000 million term loan for seven years at 17.0% fixed, with equal annual instalments starting at the end of year 1. The bank's existing covenant would continue to apply.

Option 2: Afro-Mediterranean Trade Bank. Dina Farouk of the bank's Cairo office has outlined a seven-year loan in US dollars worth Shs 22,000 million at today's rate at a fixed rate of 8.5% a year in US dollars, with no repayment of principal for two years. The bank requires a first charge over the new plant, an assignment of BHC's export proceeds from two named buyers, and annual reports on environmental and social matters. Sango Bay Commercial Bank would have to consent, and its covenant would also apply. Our economists expect the shilling to fall by about 3.5% a year against the US dollar over the next seven years.

Option 3: new shares for Savanna. Savanna Harvest Capital would pay Shs 22,000 million for newly issued ordinary shares, on the basis that BHC's shares in issue are worth Shs 66,000 million before the investment. Savanna would expect a second board seat. Savanna has also said it would subscribe a smaller amount of Shs 8,000 million for new shares on the same valuation if the rest were borrowed in US dollars from the Afro-Mediterranean Trade Bank.

I suggest the board compares the options using total borrowings to total equity at 30 June 2026, adjusted for the new money (ignore the project's own profits for this purpose). Kind regards, Yaw.

Appendix 6: Tax information and extract from the auditors' letter

Tax data for BHC (the Ugandan company) for the year of income 2026/27, which runs from 1 July 2026 to 30 June 2027. Use only the rules below. They summarise the Income Tax Act, Cap 340 and the Value Added Tax Act, Cap 349 in the form that applies for 2026/27, after the amendments that took effect on 1 July 2026.

• Companies pay income tax at 30% of chargeable income.
• Accounting depreciation is added back. Manufacturing plant forms a pool, and 30% of the pool's written-down value at the year end is allowed as wear and tear. Buildings used in manufacturing attract an industrial building deduction of 5% of their cost each year.
• No deduction is given for fines or penalties, or for a general provision against doubtful debts.
• Exchange gains and losses count for tax only once they are realised.
• Interest limit: where a company belongs to a group (non-individual persons sharing at least 51% common underlying ownership, ignoring any dormant member), its interest deduction cannot exceed 30% of tax EBITDA. Tax EBITDA means chargeable income before the interest deduction, with the wear and tear and industrial building deductions added back.
• A non-resident paid a management or technical service fee suffers withholding tax at 15% of the gross fee.
• VAT: exported goods are zero-rated, so the exporter charges no VAT on them yet recovers input tax on its taxable purchases and is refunded any excess. Unprocessed agricultural produce, such as coffee bought from farmers, is an exempt supply. Letting commercial premises is standard-rated at 18%. Where a non-resident supplies services into Uganda, the Ugandan customer accounts for VAT at 18% itself; only petroleum and mining contractors and business process outsourcing providers may treat that VAT as input tax.

1. BHC's forecast accounting profit before tax for 2026/27, before Project Ember, is Shs 8,600 million. The figure is after charging depreciation of Shs 3,400 million, interest of Shs 2,600 million, an increase of Shs 240 million in the general provision for doubtful debts and a penalty of Shs 60 million paid to the customs authorities for a late export declaration. It includes an unrealised foreign exchange gain of Shs 520 million on US dollar receivables at the year end. No other tax adjustments are needed.
2. The written-down value of BHC's pool of manufacturing plant at 1 July 2026 is Shs 15,000 million. BHC expects to add Shs 3,000 million of plant to the pool during 2026/27 and to sell none. The cost of BHC's factory buildings, all used in manufacturing and still qualifying for the deduction, is Shs 14,000 million.
3. From 1 July 2026 Sidama Roast Technologies PLC, a company resident in Ethiopia that has no office or other base in Uganda, supplies roasting design and training services from Addis Ababa for a fee of Shs 800 million in 2026/27, which is included in the forecast. No tax treaty between Uganda and Ethiopia is in force.
4. For 2026/27 BHC forecasts input tax of Shs 1,380 million on standard-rated purchases such as fuel, packaging, transport and professional services. It will continue to let the warehouse to its tenant for Shs 250 million (excluding VAT) during 2026/27. All its other supplies are exports. BHC carries on no petroleum, mining or business process outsourcing activity.
5. BHC Trading Kenya Ltd is not dormant. BHC has no tax losses or interest carried forward from earlier years.

Extract from the letter of Mrema Nakimuli & Co to the Managing Director, 30 October 2026.

Damaged inventory. During our attendance at the inventory count we found 180 tonnes of coffee in the Kalungu store that had been rewetted by a roof leak in May 2026 and has since shown mould and a high defect count. The draft financial statements carry it at the average cost of Shs 13.0 million a tonne. The national regulator would not certify it for export. A Kampala manufacturer of instant coffee has offered to buy it for Shs 7.9 million a tonne, collected from Masaka, with BHC paying Shs 0.3 million a tonne for re-drying and sorting.

Inventory records. Stock records at four buying centres could not be reconciled to the factory records at 30 June 2026. The total difference is about 95 tonnes, which management attributes to moisture loss.

Forward contracts. In June 2026 BHC agreed with a commodity trading company in Mombasa to sell 900 tonnes of coffee for delivery in September 2026 at a fixed price in US dollars. The draft financial statements make no mention of this commitment.

VAT refund. BHC's claim for a VAT refund of Shs 1,240 million for the year to 30 June 2026 has not yet been paid. We will need evidence to support its recoverability.

Appendix 7: Notes from the risk workshop and letter from Savanna, October 2026

• The London reference price fell by 22% in six weeks in early 2026 before recovering. BHC buys coffee at prices that follow the reference price but sells, on average, about seven weeks later. It does not use futures or fixed-price purchase agreements.
• Seasonal crop finance rose to Shs 21,500 million at 30 June 2026 because the board decided to hold more stock. The facility must be renewed each April.
• Rainfall in the district has become less reliable: a drought in 2022 cut the fly crop by about 40%, and heavy rains in 2026 damaged coffee in stores.
• Atlas Torréfaction pays against documents and has always paid on time. Two Middle Eastern buyers paid between 30 and 50 days late in 2026.
• The Italian and Spanish buyers have said they will stop buying from exporters that cannot provide farm location data for the European Union deforestation regulation by the end of 2026. BHC has map locations for about 2,000 of its 13,500 farmers.
• Cash is still used at 19 of the 27 buying centres. The 2025 price fraud was found by chance.
• Nobody has written down BHC's main risks, and the directors have not agreed what level of risk they would tolerate.

Letter from Yaw Boateng, Savanna Harvest Capital, 20 October 2026 (extract). Two development finance institutions that invest in our fund have told us that every portfolio company must disclose its climate and wider sustainability information under international standards. Coffee growing in the district is exposed to rising temperatures and less reliable rainfall; studies suggest that the area where robusta grows well in central Uganda could shrink over the next 25 years. BHC's dryers burn coffee husks and some firewood, and its trucks use diesel. Most of the emissions linked to BHC's coffee arise on farms and in shipping. We would like BHC's first sustainability report to cover 2026/27 and to obtain some independent checking of the figures, which the Afro-Mediterranean Trade Bank would also require.

Required

Having studied this material, you have grouped the matters for the board's attention under four headings: A, strategy and marketing; B, finance, tax and performance; C, governance, risk, control and ethics; and D, current and emerging issues. The report is to begin with an executive summary.

Prepare a report to the board advising on the issues below.

Where a part gives you a workings grid, set out your figures there; elsewhere, type your workings line by line.

Buddu Highlands Coffee Ltd: integrated case

Today is Monday 16 November 2026. You are the Chief Finance Officer of Buddu Highlands Coffee Ltd (BHC), a coffee buying, processing and export company with its head office and factory in Masaka, in the central region of Uganda. You are a CPA(U) and were promoted to the post in August 2026 after six years as the company's financial controller. You report to the Managing Director, Rehema Kizito-Mugisha, and you attend board meetings as an executive, although you are not a member of the board.

The board will meet on Friday 11 December 2026. Its main business is to decide whether BHC should build a coffee roasting and packing plant, known as Project Ember, and how the plant should be financed. The directors have also asked for advice on a large export contract that is being negotiated in US dollars, on the company's tax position for the current year of income, on matters raised by the external auditors, and on the way the company is governed and manages its risks. Rehema Kizito-Mugisha has asked you to bring all of these matters together in a single report to the board. The information you have collected is set out below and in Appendices 1 to 7. Amounts are in Uganda shillings (Shs) million unless otherwise stated.

History and operations

BHC was founded in 1996 by Ephraim Kizito, a former agricultural extension officer, as a coffee buying store in Nyendo, on the outskirts of Masaka town. The business grew with the liberalisation of the coffee trade and in 2004 opened its own hulling and grading factory on a 9-acre site beside the Masaka to Mbirizi road. The factory now has a capacity of about 16,000 tonnes of green (export-ready) coffee a year. In the year to 30 June 2026 BHC exported 11,800 tonnes of green robusta coffee, which made it one of the larger exporters based outside Kampala.

Almost all of BHC's coffee is robusta. It is bought from about 13,500 smallholder farmers in Masaka, Lwengo, Bukomansimbi, Kalungu and Rakai districts through 27 buying centres. Farmers sell either dried cherry (known locally as kiboko) or fair average quality coffee (FAQ) that has already been hulled by small village hullers. Each buying centre has a moisture meter, scales and a clerk; coffee is paid for in cash or by mobile money on the day of delivery. Coffee bought as kiboko is hulled at the Masaka factory. All coffee is then dried to below 13% moisture, cleaned, sorted by bean size into screen grades, hand-picked for defects, bagged in 60-kilogram jute bags and trucked to the port of Mombasa in Kenya for shipment.

The main harvest in the region runs from about May to August, with a smaller fly crop from November to January. BHC must buy most of its year's coffee within five months, which it finances with seasonal crop finance from its bank. Coffee held in stores is at risk from rewetting, mould, theft and price falls. Competition for farmers' coffee is fierce: multinational exporters with stores in the same districts and many small traders who pay cash at the farm gate compete for the same crop, and prices paid to farmers follow the world price closely, sometimes changing twice in a week.

BHC owns one subsidiary, BHC Trading Kenya Ltd (100%), a small office in Nairobi that arranges shipping documents, insurance and port clearance in Mombasa and sells small lots of green coffee to roasters in Kenya. Its manager is Wanjiru Kamau. The group employs about 410 permanent staff and up to 600 seasonal workers in the main harvest.

The coffee industry

Coffee is Uganda's largest agricultural export. National exports reached record volumes in 2024/25 and 2025/26, helped by new plantings, better farm practice and high world prices. Most Ugandan coffee is exported green, and only a very small share is roasted in the country. Several large buyers in North Africa, the Middle East and Europe buy Ugandan robusta for blending and for instant coffee. The domestic market for roasted coffee is small but growing at an estimated 12% to 15% a year, driven by cafés, hotels, offices and supermarkets in Kampala, Entebbe and other towns, and by tourism.

Robusta is priced by reference to the London robusta futures market. An exporter's selling price is usually the futures reference price for the shipping month plus or minus a differential, quoted in US dollars a tonne, which reflects quality, screen size, the origin and the delivery terms. Over the last five years the reference price has moved between about USD 1,700 and USD 5,600 a tonne. Because farm-gate prices in shillings follow the reference price, an exporter's margin depends mainly on the differential it can obtain, its processing outturn and costs, and the exchange rate between the shilling and the US dollar when the export proceeds are received.

The national coffee regulator registers exporters, buying stores and processors, inspects quality at the point of export and issues the quality certificates needed for each shipment. Buyers in the European Union have told exporters that the European Union's deforestation regulation will require proof, for each lot, that the coffee did not come from land cleared of forest after 2020, including the map location of each farm. Buyers in North Africa and the Middle East have not yet asked for this.

Shareholders, board and management

BHC is a private company limited by shares, incorporated in Uganda under the Companies Act, 2012. Its shareholders are the Kizito family (60%), the Buddu Growers' Co-operative Union Ltd (20%), which represents about 4,100 farmer members who sell to BHC, and Savanna Harvest Capital Fund (20%), an agribusiness fund managed from Accra, Ghana, which invested in 2020. Savanna's shareholders' agreement gives it one board seat, a veto over new share issues and a right to sell its shares to the other shareholders at a fair value from 2029.

The board meets four times a year. It has no committees, and the chairman sets the agenda with the Managing Director. Since 2019 Nyendo Haulage Ltd, owned by Daniel Kizito, has carried most of BHC's coffee to Mombasa; the rates were agreed by Daniel Kizito and Rehema Kizito-Mugisha and have not been compared with other hauliers. Pay and bonuses for the executive directors are proposed by the chairman and approved by the board, with the executive directors present and voting. A single checking officer, who reports to the Managing Director, spends most of her time counting cash at buying centres.

At its last meeting the Co-operative Union complained, through Mariam Nakato, that its members cannot see how BHC sets farm-gate prices or why the second payment (bonus) promised to farmers for high quality coffee was smaller in 2026 than in 2025. Yaw Boateng has said that Savanna's investment committee is concerned about contracts with companies owned by directors and about the lack of independent oversight of the accounts.

The external auditors are Mrema Nakimuli & Co, a Kampala firm of Certified Public Accountants that has been BHC's auditor since 2017. Their work on the 2025/26 accounts (year to 30 June 2026) is in its last stage, and they intend to sign on 18 December 2026.

Customers, markets and Project Ember

In 2025/26 about 46% of BHC's export volume went to Morocco, Algeria and Egypt, 31% to trading houses and roasters in Italy and Spain, 14% to roasters in the Gulf states and 9% to roasters in Kenya through BHC Trading Kenya Ltd. Sales are made on documents: the buyer pays against the shipping documents, normally 60 to 90 days after the coffee leaves Masaka. All export sales are invoiced in US dollars, while almost all of BHC's costs, including the coffee itself, are paid in shillings.

Atlas Torréfaction SA, a large roaster in Casablanca, Morocco, is BHC's biggest customer. Its buyer, Youssef El Amrani, is negotiating a contract for 1,500 tonnes of screen 15 robusta for shipment in January 2027, with payment 90 days later (Appendix 4).

Project Ember would add a roasting, grinding and packing plant at the Masaka site to sell roasted coffee in Uganda and the region. Nokuthula Dlamini, who chairs a small working group of the board on the project, has proposed two routes to market. One is to build BHC's own brand, Buddu Fire Roast, sold in 250-gram and 500-gram valve bags in supermarkets and to hotels, cafés and offices in Uganda and, through BHC Trading Kenya Ltd, in Nairobi. She estimates the brand would need about Shs 1,000 million of launch marketing in its first year, followed by steady spending on promotion. The other is to roast and pack coffee for other companies' brands. Karoo Bean Company (Pty) Ltd, a chain of 85 cafés based in Cape Town, South Africa, has offered a three-year agreement to buy up to 600 tonnes a year of roasted coffee packed under its own label, at a price about 8% below the expected price of BHC's own brand, provided BHC passes its food safety and ethical sourcing audit. Hotels and supermarkets in Kampala currently buy imported roasted coffee from Kenya and Europe as well as from several small Ugandan roasters.

Tesfaye Gebremedhin believes that BHC's knowledge of quality, its supply of fresh beans and its relationships with farmers give it an advantage over importers, but he notes that BHC has never sold to consumers, has no sales team for retail customers and has no experience of roasting at scale. He has arranged for Sidama Roast Technologies PLC, an Ethiopian company based in Addis Ababa, to help design the plant and to train BHC's roasters.

Systems

BHC uses an accounting package on a server at the Masaka head office. Buying centres record each purchase in a receipt book and send a daily summary by text message; stock in each store is recorded on spreadsheets that are reconciled to the factory records at the end of each month. Purchase prices are telephoned to centre managers each morning. In 2025 the checking officer found that one centre manager had recorded purchases at prices above the price set for the day and kept the difference; the loss was about Shs 85 million. Tesfaye Gebremedhin has proposed a mobile system that records each farmer's delivery, its weight, moisture and the price paid, together with the map location of the farm, and passes the data to a central system. Savanna has suggested that the same data could be placed on a blockchain platform that several European and Middle Eastern buyers are testing.

Appendix 1: Financial statements of BHC (the Ugandan company), years ended 30 June (Shs million; 2026 draft, not yet audited)

Statements of profit or loss and other comprehensive income

Statements of financial position at 30 June

Notes: (1) All borrowings are from Sango Bay Commercial Bank Uganda Ltd. Its loan agreement requires total borrowings (long-term loans plus crop finance) to be no more than 100% of total equity at each 30 June, and the bank must approve any new borrowing from other lenders. (2) Revenue growth since 2024 is mainly due to higher world prices: export volume was 11,200 tonnes in 2024, 11,500 tonnes in 2025 and 11,800 tonnes in 2026. (3) The inventories at 30 June 2026 are about 2,600 tonnes of coffee, a higher quantity than usual, because the board decided in June to hold stock in expectation of higher prices.

Appendix 2: Memo from the Managing Director to the Chief Finance Officer, 6 November 2026

Subject: Board meeting on 11 December

1. Project Ember. Roasting is our future. Every exporter in this country sells raw coffee and leaves the value to others. The estimates are in Appendix 3. I am told the project shows a good profit from year 2, but please give the board a proper financial appraisal. Some directors say the coffee we roast costs us only what we pay the farmers; please make sure the numbers are right.

2. Financing. The options are in Appendix 5. My father and I will not accept any arrangement that takes control of the company away from the family.

3. The Atlas contract. Youssef El Amrani wants an answer by the end of the month. Please advise on the price we can accept and on how we protect ourselves against the dollar (Appendix 4).

4. The downgraded coffee. The auditors have raised the 180 tonnes that were damaged by rain in the Kalungu store (Appendix 6). Tesfaye tells me that if we blend these bags in small amounts into the Atlas shipment the buyer will not notice. Please keep the stock at cost in the accounts and do not discuss the blending with the auditors; it is a commercial matter.

5. The VAT refund. We are owed a large VAT refund (Appendix 6). An officer dealing with our claim has told our clearing agent that a payment of Shs 40 million to a consultant he named would make sure the refund is paid before Christmas. Please arrange for the clearing agent to pay this and charge it to us as clearing fees. Our cash position needs the refund.

6. Tax. Please tell the board what we expect to pay for this year (Appendix 6).

Appendix 3: Project Ember estimates, prepared by the Project Ember working group with Sidama Roast Technologies PLC, October 2026

The plant would be installed during the first half of 2027 in an existing warehouse at the Masaka site and would begin roasting on 1 July 2027, the start of year 1 (2027/28). The appraisal covers six years. Treat every operating cash flow as occurring on the last day of its year; the capital spending and working capital are paid on the first day of year 1 (time 0). Figures are in Shs million. Each tonne of roasted coffee needs 1.2 tonnes of green coffee because of weight lost in roasting.

BHC can sell all the green coffee it can buy and process, so any green coffee used for roasting would otherwise be exported. For the appraisal, take income tax at 30% as paid in the year the profit arises; BHC's other profits are large enough to absorb any tax relief at once. The finance team has worked out the yearly tax benefit of the capital allowances on the plant and the fit-out (below), and these figures should be used without change. A discount rate of 16% reflects the risk of the project.

Appendix 4: The Atlas Torréfaction contract and foreign exchange information, November 2026

Atlas Torréfaction SA has offered to buy 1,500 tonnes of screen 15 robusta, delivered free on board at Mombasa, at the London reference price for the March 2027 position plus a differential. BHC proposed a differential of USD 160 a tonne. Youssef El Amrani has replied that Atlas would prefer a differential of USD 100 a tonne, because other exporters have offered similar coffee more cheaply. Atlas has agreed to fix the reference price at USD 4,080 a tonne when the contract is signed. Payment would be received in US dollars three months after signing.

BHC's costs for this contract are estimated as follows, all in Shs million a tonne of green coffee delivered at Mombasa: coffee bought from farmers and hulled 13.40; drying, grading, hand-picking, bags and fumigation 0.52; transport to Mombasa, port handling and export documentation 0.68. The board's policy is that every export contract should earn a margin of at least Shs 1.0 million a tonne after these costs.

Sango Bay Commercial Bank has quoted the following rates.

The shilling usually strengthens during the main harvest, when exporters sell dollars, and weakens at other times. In 2025 it moved by more than 5% against the US dollar in a single quarter. BHC has never hedged; the Managing Director has said she prefers to wait and convert dollars when the rate looks good. The bank has also offered a three-month option to sell US dollars at Shs 3,700 for a premium of Shs 20 for each dollar, payable now.

Appendix 5: E-mail from Yaw Boateng to the board, 2 November 2026

Subject: Funding Project Ember

Dear colleagues, Project Ember needs about Shs 22,000 million (the plant, the fit-out and the working capital). I set out the three options we have discussed.

Option 1: Sango Bay Commercial Bank. Robert Ochieng, our relationship manager, has offered a Shs 22,000 million term loan for seven years at 17.0% fixed, with equal annual instalments starting at the end of year 1. The bank's existing covenant would continue to apply.

Option 2: Afro-Mediterranean Trade Bank. Dina Farouk of the bank's Cairo office has outlined a seven-year loan in US dollars worth Shs 22,000 million at today's rate at a fixed rate of 8.5% a year in US dollars, with no repayment of principal for two years. The bank requires a first charge over the new plant, an assignment of BHC's export proceeds from two named buyers, and annual reports on environmental and social matters. Sango Bay Commercial Bank would have to consent, and its covenant would also apply. Our economists expect the shilling to fall by about 3.5% a year against the US dollar over the next seven years.

Option 3: new shares for Savanna. Savanna Harvest Capital would pay Shs 22,000 million for newly issued ordinary shares, on the basis that BHC's shares in issue are worth Shs 66,000 million before the investment. Savanna would expect a second board seat. Savanna has also said it would subscribe a smaller amount of Shs 8,000 million for new shares on the same valuation if the rest were borrowed in US dollars from the Afro-Mediterranean Trade Bank.

I suggest the board compares the options using total borrowings to total equity at 30 June 2026, adjusted for the new money (ignore the project's own profits for this purpose). Kind regards, Yaw.

Appendix 6: Tax information and extract from the auditors' letter

Tax data for BHC (the Ugandan company) for the year of income 2026/27, which runs from 1 July 2026 to 30 June 2027. Use only the rules below. They summarise the Income Tax Act, Cap 340 and the Value Added Tax Act, Cap 349 in the form that applies for 2026/27, after the amendments that took effect on 1 July 2026.

• Companies pay income tax at 30% of chargeable income.
• Accounting depreciation is added back. Manufacturing plant forms a pool, and 30% of the pool's written-down value at the year end is allowed as wear and tear. Buildings used in manufacturing attract an industrial building deduction of 5% of their cost each year.
• No deduction is given for fines or penalties, or for a general provision against doubtful debts.
• Exchange gains and losses count for tax only once they are realised.
• Interest limit: where a company belongs to a group (non-individual persons sharing at least 51% common underlying ownership, ignoring any dormant member), its interest deduction cannot exceed 30% of tax EBITDA. Tax EBITDA means chargeable income before the interest deduction, with the wear and tear and industrial building deductions added back.
• A non-resident paid a management or technical service fee suffers withholding tax at 15% of the gross fee.
• VAT: exported goods are zero-rated, so the exporter charges no VAT on them yet recovers input tax on its taxable purchases and is refunded any excess. Unprocessed agricultural produce, such as coffee bought from farmers, is an exempt supply. Letting commercial premises is standard-rated at 18%. Where a non-resident supplies services into Uganda, the Ugandan customer accounts for VAT at 18% itself; only petroleum and mining contractors and business process outsourcing providers may treat that VAT as input tax.

1. BHC's forecast accounting profit before tax for 2026/27, before Project Ember, is Shs 8,600 million. The figure is after charging depreciation of Shs 3,400 million, interest of Shs 2,600 million, an increase of Shs 240 million in the general provision for doubtful debts and a penalty of Shs 60 million paid to the customs authorities for a late export declaration. It includes an unrealised foreign exchange gain of Shs 520 million on US dollar receivables at the year end. No other tax adjustments are needed.
2. The written-down value of BHC's pool of manufacturing plant at 1 July 2026 is Shs 15,000 million. BHC expects to add Shs 3,000 million of plant to the pool during 2026/27 and to sell none. The cost of BHC's factory buildings, all used in manufacturing and still qualifying for the deduction, is Shs 14,000 million.
3. From 1 July 2026 Sidama Roast Technologies PLC, a company resident in Ethiopia that has no office or other base in Uganda, supplies roasting design and training services from Addis Ababa for a fee of Shs 800 million in 2026/27, which is included in the forecast. No tax treaty between Uganda and Ethiopia is in force.
4. For 2026/27 BHC forecasts input tax of Shs 1,380 million on standard-rated purchases such as fuel, packaging, transport and professional services. It will continue to let the warehouse to its tenant for Shs 250 million (excluding VAT) during 2026/27. All its other supplies are exports. BHC carries on no petroleum, mining or business process outsourcing activity.
5. BHC Trading Kenya Ltd is not dormant. BHC has no tax losses or interest carried forward from earlier years.

Extract from the letter of Mrema Nakimuli & Co to the Managing Director, 30 October 2026.

Damaged inventory. During our attendance at the inventory count we found 180 tonnes of coffee in the Kalungu store that had been rewetted by a roof leak in May 2026 and has since shown mould and a high defect count. The draft financial statements carry it at the average cost of Shs 13.0 million a tonne. The national regulator would not certify it for export. A Kampala manufacturer of instant coffee has offered to buy it for Shs 7.9 million a tonne, collected from Masaka, with BHC paying Shs 0.3 million a tonne for re-drying and sorting.

Inventory records. Stock records at four buying centres could not be reconciled to the factory records at 30 June 2026. The total difference is about 95 tonnes, which management attributes to moisture loss.

Forward contracts. In June 2026 BHC agreed with a commodity trading company in Mombasa to sell 900 tonnes of coffee for delivery in September 2026 at a fixed price in US dollars. The draft financial statements make no mention of this commitment.

VAT refund. BHC's claim for a VAT refund of Shs 1,240 million for the year to 30 June 2026 has not yet been paid. We will need evidence to support its recoverability.

Appendix 7: Notes from the risk workshop and letter from Savanna, October 2026

• The London reference price fell by 22% in six weeks in early 2026 before recovering. BHC buys coffee at prices that follow the reference price but sells, on average, about seven weeks later. It does not use futures or fixed-price purchase agreements.
• Seasonal crop finance rose to Shs 21,500 million at 30 June 2026 because the board decided to hold more stock. The facility must be renewed each April.
• Rainfall in the district has become less reliable: a drought in 2022 cut the fly crop by about 40%, and heavy rains in 2026 damaged coffee in stores.
• Atlas Torréfaction pays against documents and has always paid on time. Two Middle Eastern buyers paid between 30 and 50 days late in 2026.
• The Italian and Spanish buyers have said they will stop buying from exporters that cannot provide farm location data for the European Union deforestation regulation by the end of 2026. BHC has map locations for about 2,000 of its 13,500 farmers.
• Cash is still used at 19 of the 27 buying centres. The 2025 price fraud was found by chance.
• Nobody has written down BHC's main risks, and the directors have not agreed what level of risk they would tolerate.

Letter from Yaw Boateng, Savanna Harvest Capital, 20 October 2026 (extract). Two development finance institutions that invest in our fund have told us that every portfolio company must disclose its climate and wider sustainability information under international standards. Coffee growing in the district is exposed to rising temperatures and less reliable rainfall; studies suggest that the area where robusta grows well in central Uganda could shrink over the next 25 years. BHC's dryers burn coffee husks and some firewood, and its trucks use diesel. Most of the emissions linked to BHC's coffee arise on farms and in shipping. We would like BHC's first sustainability report to cover 2026/27 and to obtain some independent checking of the figures, which the Afro-Mediterranean Trade Bank would also require.

Required

Having studied this material, you have grouped the matters for the board's attention under four headings: A, strategy and marketing; B, finance, tax and performance; C, governance, risk, control and ethics; and D, current and emerging issues. The report is to begin with an executive summary.

Prepare a report to the board advising on the issues below.

Where a part gives you a workings grid, set out your figures there; elsewhere, type your workings line by line.