• BAT Zimbabwe posted profit before tax of US$16.13 million in FY2025, a 582% surge from US$2.36 million, while revenue contracted 20% to US$29.09 million
• RBZ settled US$16.4 million in blocked funds with a zero-coupon Treasury Bill maturing in 2050, no interest for 25 years and is approximately one-tenth of its face value in today's money
• Dividends payable stand at US$17.86 million against total equity of US$1.85 million

Harare- BAT Zimbabwe has posted one of the most spectacular profit numbers in Zimbabwe's FY2025 earnings season, and probably, one of the most misleading according to its FY2025 financial results.

The group recorded profit before tax of US$16.13 million for the year ended 31 December 2025, a 582% surge from US$2.36 million in the prior year, while profit attributable to shareholders surged 1,623% from a loss of US$757,432 to a gain of US$11.54 million.

Basic earnings per share swung from negative four cents to positive 56 cents, and, on the surface, it reads as one of the most dramatic corporate turnarounds in Zimbabwe's recent corporate history.

Peel back the profit and loss account and the story is the opposite of a turnaround. The real picture is that the business is contracting, the profit surge has almost nothing to do with selling cigarettes, and the most analytically significant development in the results, a Reserve Bank of Zimbabwe settlement that exchanges a US$16.4 million cash obligation for a bond that matures in 2050  has received far less scrutiny than the headline earnings numbers.

Net revenue has declined 20% from US$36.42 million in 2024 to US$29.09 million in FY2025.

Cigarette segment gross external revenue, before tobacco duties are stripped out, fell from US$50.64 million to US$40.52 million. The domestic market, which constitutes the entirety of BAT Zimbabwe's commercial operations in Zimbabwe, has generated substantially less volume and revenue than it did twelve months earlier.

Constrained consumer affordability, grey market cigarette imports, and the secular decline of formal tobacco consumption in a market under sustained economic pressure are the structural forces driving that contraction. A company that was selling more than US$50 million of cigarettes at the gross revenue line in 2024 is now selling US$40 million.

That is a business in volume decline, and no profit headline changes that underlying commercial reality.

The route-to-consumer investment and brand portfolio work that management has undertaken are genuine strategic responses to a difficult market. Gross margin actually expanded as cost of sales fell faster than revenue, and administrative expenses were trimmed from US$7.45 million to US$5.03 million, both of which reflect genuine operational discipline.

But these improvements are worth perhaps US$2 million to US$3 million in incremental profit against the prior year. The remaining US$13 million of the profit and loss improvement has nothing to do with how effectively BAT Zimbabwe is selling cigarettes in 2025.

The 582% profit surge did not come from the business, but from the elimination of a catastrophic accounting line that devastated the prior year result and has now been structurally resolved. In 2024, other losses included US$17.36 million in foreign exchange losses, almost entirely attributable to the group's obligations to BAT South Africa, which were denominated in South African rand.

As the rand moved against the dollar, BAT Zimbabwe's liability to its parent supplier expanded on paper, and the mark-to-market loss flowed through the income statement. The 2024 annual result was essentially destroyed by a currency exposure that had nothing to do with whether BAT Zimbabwe was selling cigarettes effectively or not.

In 2025, BAT South Africa switched from rand-denominated to USD-denominated invoicing. That single operational decision, taken in Johannesburg rather than Harare, transformed BAT Zimbabwe's financial statements. The US$17.36 million exchange loss became a US$525,382 loss, a reduction of US$16.83 million in a single line item. That reduction, almost in its entirety, is the profit surge.

Adjusting both years to strip out the exchange loss differential reveals an underlying operating performance improvement that is real but modest, genuine manufacturing efficiency gains worth US$2 million to US$3 million in incremental profit, sitting beneath a headline number that is overwhelmingly the product of currency accounting reclassification rather than commercial improvement.

There is a further complication in the other income line that investors must understand before drawing conclusions from the FY2025 profit number. Sundry income of US$4.41 million, against US$29,187 in the prior year is disclosed as arising from intercompany write-offs of long-outstanding balances relating to goods received and services rendered between group entities.

These write-offs were recognised following a review and reconciliation of intercompany positions. The group's own disclosure confirms that no similar income was recorded in the prior year and that the write-off exercise was specific to the current reporting period. This is a non-recurring income item, and it inflates FY2025 profit and has no equivalent in either the prior year or the years ahead.

Headline earnings, which strip out this non-recurring item and disposal gains, came in at US$7.73 million, translating to headline earnings per share of 37 US cents against the reported basic EPS of 56 cents. The gap between those two figures , 19 cents per share , is material. The headline earnings per share figure of 37 cents is the more economically meaningful number for any investor attempting to assess BAT Zimbabwe's sustainable earnings power, and it is the figure that valuation models should be built on rather than the reported 56 cents.

Meanwhile, the blocked funds settlement was the most analytically significant development in BAT Zimbabwe's FY2025 results, and it deserves considerably more scrutiny than the headline profit figures have attracted. The company had US$16.4 million in registered blocked funds, dividends that had accumulated and been trapped in Zimbabwe by the Reserve Bank of Zimbabwe's foreign currency restrictions over a period of years. During FY2025, the Reserve Bank settled this obligation by issuing Treasury Bill No. 6831960, a zero-coupon instrument maturing on 19 September 2050.

To understand what this means in economic terms, the mechanics of a zero-coupon bond must be clearly understood. A zero-coupon bond pays no interest. Its value at maturity is its face amount , in this case, US$16.4 million. But its present value today, discounted at any reasonable rate of return, is a small fraction of that face amount. At a discount rate of 8%, a 25-year zero-coupon instrument with a face value of US$16.4 million has a present value today of approximately US$2.4 million.

At a discount rate of 10%, that present value falls to approximately US$1.5 million. The group accounts for the instrument at amortised cost, and the current carrying value on the balance sheet as a financial asset at amortised cost stands at US$1.23 million. The Reserve Bank of Zimbabwe has, in substance, settled a US$16.4 million cash obligation with an instrument worth approximately one-tenth of that amount in today's money.

This settlement does and does not represent, it does not deliver cash, neither does it restore the dividend-paying capacity of the blocked amounts. It does not put a single dollar in the hands of shareholders today, next year, or in the decade after that. It provides a legal claim on the Reserve Bank of Zimbabwe for US$16.4 million in September 2050, twenty-five years from now.

The practical question of whether that claim will be honoured, in what currency, in what form, and at what real purchasing power after a quarter century of Zimbabwean inflation, sits entirely outside the control of the group, its board, or its management team in Harare.

The difference between the carrying amount of the blocked funds asset that was derecognised and the fair value of the Treasury Bill at initial recognition generated the gain or loss recorded in other income,  yet the disclosure around the magnitude and precise treatment of this impact is limited in the abridged results, and investors deserve greater transparency on the exact accounting entries involved.

Against the backdrop of a contracting core business, a profit surge driven by currency accounting, a non-recurring income windfall, and a blocked funds settlement that will not deliver cash for 25 years, BAT has declared a dividend of US$0.22 per share, equivalent to approximately US$4.54 million in aggregate.

The dividend is funded by operating cash flows of US$9.88 million in 2025 , the underlying cash-generative capacity of the cigarette manufacturing operation remains intact, the company carries no bank borrowings, and the BAT Group shareholder support letter reinforces going concern. The declaration is operationally supportable from the current year's cash generation.

What no investor should overlook, however, is what sits on the balance sheet alongside that dividend declaration. Dividends payable of US$17.86 million  accumulated, declared but unpaid dividends representing years of blocked fund accumulation , sit as a liability against total equity of US$1.85 million. The company technically owes its shareholders nearly ten times its net worth in accumulated, unpaid dividends. The 2050 Treasury Bill is the Reserve Bank's answer to that obligation.

It is an answer denominated in a 25-year instrument worth US$1.23 million on the balance sheet today against a liability of US$17.86 million. The arithmetic of that gap is not resolved by the FY2025 profit number, however spectacular it appears.

Two further developments merit sustained investor attention as BAT Zimbabwe moves into FY2026. The first is the revenue trajectory. At US$29.09 million in net revenue in 2025 against US$36.42 million in 2024, the group is on a declining path in its core business, and the structural headwinds, constrained consumer purchasing power, growing informal cigarette competition from grey market imports, and the long-term global direction of tobacco regulation , are not abating. The route-to-consumer and brand portfolio investments are genuine strategic responses, but they are fighting forces that no amount of marketing efficiency can reverse in isolation.

The second is the restatement. The prior period adjustment under IAS 8, which restated 2024 retained earnings downward by US$16.35 million to correct the historical failure to retranslate the blocked fund foreign currency liability at closing spot rates, is a material revision to the historical financial record. It means every prior year comparison in the group's published financial history carries an asterisk. Investors building valuation models on historical BAT Zimbabwe data must reconstruct their assumptions on the restated base rather than the previously published figures, and analysts who have not done so are working with numbers the company has formally corrected.

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