- Cost Reduction Strategy: BAT is focusing on reducing operational costs to return to profitability after experiencing continuous losses since 2021
- Sales Volume Decline: During Q3 2024, BAT reported a 9% decrease in sales volumes and a 38% decline in revenue
- Challenging Operating Environment: Faces significant high taxes from ZIMRA, rising electricity costs, and frequent power outages
Harare- British American Tobacco (BAT) Zimbabwe, a producer and marketer of premium cigarette brands, is prioritizing cost reduction as a strategic initiative aimed at returning to profitability.
The company last registered after-tax profitability in 2021, but has since encountered continuous losses. However, evaluating the company's performance solely through profitability metrics in an inflationary environment may not provide an accurate assessment. It is essential to also consider sales volumes.
BAT’s volume decline has paralleled its financial losses, indicating that the challenges extend beyond inflationary pressures at the national level to encompass various internal factors within the company.
During the third quarter ending September 30, 2024, BAT reported a 9% decrease in sales volumes, which coincided with a revenue decline of 38%, bringing total revenue to ZWG248 million.
According to Lovemore Manatsa, the company's Chairperson, the decline in sales volumes was attributed to a change in functional currency and a shortage of the new currency. However, while the shortage of ZiG) was a significant issue in the first quarter, it was less of a concern during the third quarter.
The predominant factor impacting performance may be the influx of low-cost cigarette brands from neighboring countries and the emergence of new market entrants, which pose a formidable threat to BAT.
This situation is exacerbated by a challenging operating environment in Zimbabwe, characterized by elevated tax burdens imposed by the Zimbabwe Revenue Authority (ZIMRA), high operational costs due to frequent power outages, and skyrocketing electricity tariffs.
ZESA has increased electricity tariffs three times over the past year, with approximately 20% of many companies’ revenues, particularly in the mining sector, being allocated to electricity bills.
During the first half of 2024, despite incurring losses, BAT allocated approximately half of its revenue, amounting to ZWG112 million, towards taxes.
To navigate high operational costs and drive a return to profitability, BAT is implementing rigorous cost reduction strategies. In the first half of 2024, the company successfully reduced production costs to ZWG47 million from ZWG60 million, while administrative expenses decreased to ZWG33 million from ZWG42 million.
These cost reduction initiatives were also evident in the third quarter, where operating costs were reduced by 33%, driven by strategic cost optimization measures.
To counter the challenge posed by the influx of low-cost cigarettes, BAT must enhance promotional activities for its product offerings and capitalize on pricing strategies.
This approach will be crucial for increasing brand visibility and effectively competing with local rivals.
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