• BAT Zimbabwe expects a significant improvement in profitability for 2025, driven by the absence of non-cash exchange losses and IAS 29 hyperinflation adjustments
• The company introduced a multicurrency billing model in August 2024, aligning revenue currency with costs and improving margins
• 2025 results, due by 31 March 2026, will show a material improvement vs 2024's losses, providing a clearer picture of BAT Zimbabwe's normalised earnings power

Harare- British American Tobacco Zimbabwe Holdings Limited, the ZSE-listed manufacturer and marketer of cigarettes and tobacco products whose brands include Dunhill, Peter Stuyvesant, and Madison, expects its financial results for the year ended 31 December 2025 are expected to differ materially from those reported for the year ended 31 December 2024, with a significant improvement in profitability anticipated. The full results are expected to be published on or before 31 March 2026.

A profit warning that signals a significant improvement in profitability is, in the ordinary course of corporate communications, not a warning at all. It is an announcement. The reason BAT Zimbabwe is required to issue it as a formal cautionary disclosure under Section 32 of the Securities and Exchange ZSE Listings Requirements Rules is that the variance between 2025 and 2024 is expected to be material, and material variances in either direction are price-sensitive information that must be disclosed to enable investors to make informed decisions.

The company is not warning shareholders that results will be worse than expected. It is warning them that results will be dramatically better than the prior year's comparative, and that the dramatic improvement could move the share price when the full results are published.

The 2024 financial year was one of the most technically complex and financially damaging reporting periods in BAT Zimbabwe's listed history, not because the underlying cigarette business deteriorated, but because of the intersection of two powerful accounting standards applied simultaneously to a company operating in one of the world's most volatile currency environments. The two standards are IAS 21, which governs the treatment of foreign currency-denominated balances and transactions in financial statements, and IAS 29, which applies to entities operating in hyperinflationary economies and requires that financial statements be restated in terms of a measuring unit current at the reporting date.

The specific event that triggered the most acute accounting damage was the transition from the Zimbabwe Dollar to the Zimbabwe Gold on 5 April 2024. BAT, as a subsidiary of British American Tobacco plc and a company that sources inputs, manages intercompany balances, and operates within a global treasury structure, held foreign currency-denominated balances on its books at the time of the transition.

When the exchange rate shifted dramatically as part of the ZWL-to-ZiG conversion, those balances were revalued under IAS 21, generating significant monetary losses that flowed directly through the income statement. These were non-cash losses. They did not represent money leaving the business. They represented the accounting recognition of the change in the local currency equivalent of assets and liabilities that were denominated in foreign currency, but under IFRS, they are required to be recognised in the period they occur, and their scale in the 2024 transition context was material.

The IAS 29 hyperinflationary restatement compounds the picture. IAS 29 requires that all non-monetary items in the financial statements of a hyperinflationary economy entity be restated in terms of the measuring unit current at the reporting date, using a general price index. Zimbabwe's inflation environment prior to the ZiG transition in April 2024 was characterised by elevated levels that qualified the economy for hyperinflationary treatment under the standard's criteria.

The restatement process under IAS 29 affects the income statement through what is called a net monetary loss: when a company holds net monetary assets in a hyperinflationary currency, the purchasing power of those assets erodes in real terms, and that erosion must be recognised as a loss. For a company like BAT Zimbabwe, which had significant ZWL-denominated balances accumulated over years of operating in the local currency environment, the IAS 29 monetary loss in the period leading up to the April 2024 transition was substantial.

The 2025 financial year presents a fundamentally different accounting environment, and the three improvements BAT Zimbabwe cites in its profit warning statement map directly onto the three sources of damage in 2024. The first improvement is the absence of comparable exchange losses. In 2025, the ZiG was the established functional currency for the Zimbabwean operations, the transition from ZWL was complete, and the revaluation losses that accompanied the April 2024 currency switch did not recur.

A company that is already operating in the post-transition currency environment does not face a second transition event in the following year. The IAS 21 foreign currency revaluation losses that devastated the 2024 income statement were a one-time transition cost, not a recurring operational charge. Their absence in 2025 is the single largest contributor to the expected improvement in profitability.

The second improvement is currency stability during the reporting period. The ZiG, whatever its limitations as a long-term currency adoption project, delivered a degree of nominal stability in 2025 that the ZWL had never achieved in its post-reintroduction life. ZiG inflation fell to 3.85% by February 2026, and while the currency still carries a 30% parallel market premium, the rate of change in official exchange rates was far lower in 2025 than in the turbulent transition year of 2024. Lower currency volatility means lower IAS 21 revaluation losses on foreign currency balances, lower IAS 29 monetary loss recognition, and greater predictability in revenue and cost planning. For a company that sells its products at prices denominated in or linked to hard currency, currency stability is directly accretive to reported profitability.

The third improvement is the positive impact of the multicurrency billing model introduced in August 2024. This is the operational change that has the most durable positive impact on BAT Zimbabwe's earnings quality. Prior to August 2024, BAT Zimbabwe was billing customers in ZWL at regulated exchange rates, meaning it was receiving local currency that was losing value faster than it could be converted into the hard currency needed to pay for imported inputs, royalties, and intercompany obligations.

The multicurrency billing model, under which customers are billed in USD or at USD-equivalent rates, aligned the company's revenue currency with its cost currency and eliminated the margin erosion that had been occurring through the gap between the official billing rate and the effective cost of sourcing hard currency. A company that had been losing money on every ZWL invoice it issued began, from August 2024, to receive revenue in the same currency in which it incurred its most significant costs.

Beneath the accounting noise of currency transition, exchange losses, and hyperinflationary restatements, the underlying business that BAT Zimbabwe operates has remained fundamentally intact. The company holds dominant market positions in Zimbabwe's cigarette market, with brands across the premium, mainstream, and value segments that have sustained consumer loyalty through multiple cycles of economic disruption.

The tobacco raw material supply chain, which connects BAT Zimbabwe to Zimbabwe's flue-cured tobacco production through contract farming and purchasing arrangements with Fidelity and private merchants, benefits from the same production growth that has driven Zimbabwe's total gold output to record levels. The distribution infrastructure, the manufacturing facility in Southerton, and the brand equity accumulated over decades of operation represent durable competitive advantages that no accounting standard adjustment can impair.

The multicurrency billing model has resolved the most acute operational tension in BAT Zimbabwe's recent history, the disconnect between revenue currency and cost currency. With that resolved, the company's reported profitability in 2025 should, for the first time in several years, more accurately reflect the actual economics of selling cigarettes in Zimbabwe rather than the accounting consequences of currency mismatches that the management team was unable to control.

The full results, due on or before 31 March 2026, will quantify the improvement. The profit warning signals that the improvement is material, meaning it is not merely the reversal of a small prior-year charge but a significant swing in reported profitability.

The analytical question that the full results will need to address, beyond the scale of the year-on-year improvement, is the quality and sustainability of the 2025 earnings base. If the improvement is primarily driven by the absence of non-recurring 2024 losses, it tells investors that the business has returned to a normalised reporting environment but does not necessarily indicate growth in the underlying cigarette business.

If the improvement includes genuine revenue growth, volume expansion, or margin improvement from the multicurrency billing model that goes beyond the elimination of currency losses, it signals that the operational business is performing ahead of the normalised baseline and that the improvement has a compounding rather than one-off character.

That distinction will determine the appropriate valuation of BAT Zimbabwe's shares in the period between the profit warning and the full results publication.

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