- Financial Reversal: Reported a significant loss of ZWG 183.4 million, a contrast to a profit of ZWG 234 million in FY2023, with a 21.7% drop in revenue
- Market Pressures: A 9% decline in sales volumes and increased competition from smuggled cigarettes have further eroded BAT’s market position
- Strategic Outlook: BAT remains optimistic, planning to diversify into reduced-risk products and improve operational efficiency
Harare-British American Tobacco Zimbabwe (BAT Zimbabwe) experienced a pronounced financial reversal in its fiscal year 2024 (FY2024), transitioning from a profit after tax of ZWG 234 million (US$9 million to a loss of 7 million) in FY2023 to a loss after tax of ZWG 183.4 million.
This downturn coincided with a 21.7% contraction in nominal revenue, from ZWG 1.2 billion to ZWG 939.6 million, equivalent to a decline from US$47.2 million to US$36.4 million in real terms.
Operating performance deteriorated, recording an operating loss of US$0.88 million compared to a US$15 million operating profit in FY2023.
The company did not explicitly comment on the loss position. Still, chairperson Lovemore Manats said,” In 2024, the Business navigated a challenging operating environment, largely driven by the negative effects of commodity price shocks, policy uncertainty, supply chain bottlenecks, and, hard currency shortages,” likely contributing the performance on a confluence of calamities.
However, the company is optimistic going into the future.
“We remain optimistic of a positive future on the back of demonstrated solid fundamentals, a proven business strategy, an innovative product portfolio, as well as the right people to accelerate the transformation of our business,” added Manatsa.
The transition from the Zimbabwean dollar (ZWL) to Zimbabwe Gold (ZWG) in FY2024 introduced substantial exchange rate distortions, resulting in monetary losses of ZWG 440 million from hyperinflationary accounting adjustments under IAS 29 and foreign exchange losses of ZWG 100.7 million.
These losses reflect the erosion of real purchasing power and asset revaluation costs in a hyperinflationary economy.
Additionally, the Reserve Bank of Zimbabwe’s (RBZ) restrictive monetary policy and persistent issue of US$16.3 million in blocked funds registered under legacy debt directives since 2019 severely constrained liquidity.
This capital immobility, coupled with the government’s delayed settlement, has forced BAT Zimbabwe to rely on costly domestic borrowing, increasing its cost of capital and interest expense burden.
The Treasury’s assumption of liability in 2021 has not translated into tangible liquidity relief, further impairing BAT’s financial flexibility.
The non-settlement has curtailed BAT’s ability to service operational and capital expenditure, exacerbating working capital deficits.
Revenue Contraction and Demand-Side Pressures
Revenue decline of 21.7% in FY2024 was driven by a 9% reduction in sales volumes, first observed in the first half of 2024 (HY2024), where revenue plummeted 38% to ZWG 248 million.
This contraction reflects diminished aggregate demand, attributable to reduced consumer purchasing power amid inflationary pressures and a hawkish fiscal policy environment.
The company faced a tax burden of ZWG 112 million in HY2024, contributing to an operating loss of ZWG 22.7 million (from a ZWG 28 million profit in HY2023) and a net loss after tax of ZWG 175.95 million.
The decline in sales volumes can be modelled as a leftward shift in the demand curve, driven by a contraction in real disposable income and intensified by competition from smuggled, low-cost cigarettes originating from neighbouring countries.
These illicit products, which evade Zimbabwe’s high excise duties, have eroded BAT’s market share in a price-elastic market, further depressing revenue.
Smuggled cigarettes, benefiting from lower production costs and tax evasion, have created a price differential that undermines BAT’s market position. This competitive distortion is compounded by Zimbabwe’s high taxation regime, which imposes substantial compliance costs.
The influx of illicit products has shifted consumer preferences toward cheaper alternatives, reducing BAT’s price-setting power and contributing to the observed 9% volume decline.
Additionally, BAT’s reliance on imported raw materials, coupled with supply chain frictions due to hard currency shortages, has constrained production efficiency, further eroding competitiveness.
Mitigatory measures
To mitigate these challenges, the company can adopt strategies informed by global BAT practices and economic theory.
Diversification into reduced-risk products (RRPs), such as vapes, heated tobacco, and oral nicotine pouches, aligns with BAT’s global target for New Categories to contribute over 50% of revenues by 2035.
This shift could reduce BAT Zimbabwe’s exposure to regulatory and competitive pressures on traditional cigarettes, leveraging product differentiation to capture consumer surplus in a price-sensitive market.
Implementing Integrated Work Systems (IWS) tools could enhance operational efficiency, reducing average total costs and improving supply chain resilience by sourcing raw materials locally to mitigate foreign exchange constraints, while continued advocacy for stricter anti-smuggling measures, such as enhanced border controls, could restore market share by levelling the competitive playing field.
Additionally, support from BAT International Holdings (UK) Limited, which has committed financial assistance without immediate repayment obligations, provides a critical lifeline to bolster solvency.
Export Market Trends and Regional Context
While BAT Zimbabwe’s domestic market faces significant challenges, its export market trends offer limited relief due to the company’s constrained operational capacity.
In Southern and Eastern Africa, the tobacco market remains competitive, with demand for traditional cigarettes declining due to health regulations and illicit trade.
BAT Kenya, for instance, reported a modest 1% increase in net revenue to KShs 25.7 billion in FY2024, despite profit pressures, driven by diversification into smokeless products like Vuse.
BAT Zimbabwe’s export potential is limited by liquidity constraints and supply chain disruptions, but regional demand for tobacco products in markets like Zambia and Malawi could be tapped by introducing affordable, locally tailored products. The African Continental
Globally, BAT reported a 1.3% organic revenue growth in FY2024, driven by strong performances in the US, Germany, Japan, and Brazil, particularly in New Categories like Vuse and nicotine pouches, which saw significant volume growth.
BAT’s global success stems from portfolio diversification, market-specific pricing strategies, and operational efficiencies, which BAT Zimbabwe could emulate by prioritising RRPs, optimising cost structures, and engaging regulators to resolve liquidity constraints.
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