• Operating cash flow fell to US$1.4 million from US$7.9 million
  • Inventory and prepayments absorbed more than US$4.1 million in cash
  • Cost reductions lifted operating margin to 55.4% as revenue fell 6%

Harare – British American Tobacco Zimbabwe, the country’s largest cigarettes maker has  generated only US$1.41 million in net operating cash during the first half of 2026, down 82% from US$7.92 million a year earlier, even as profit attributable to shareholders increased 6% to US$4.61 million.

The divergence reduced operating cash conversion to about 31% of attributable profit from approximately 183% in the comparable period. Cash generated from operations before tax fell to US$1.71 million from US$9.07 million, exposing a significantly weaker conversion of reported earnings into cash during the period.

Working capital absorbed much of the cash generated by the business. Inventories consumed US$1.25 million and prepayments absorbed another US$2.89 million, taking the combined cash absorption from those two items above US$4.1 million. Lower trade and other payables absorbed a further US$1.10 million, with the reduction in employee benefit liabilities taking another US$458,000.

However, receivables provided some relief, releasing about US$590,000 during the half. The scale of inventory and prepayment absorption remained large enough to reduce cash generated from operations to less than a fifth of the previous year’s level.

In terms of topline performance, revenue declined 6% to US$12.18 million from US$13.01 million and sales volumes fell 3%, with Group Chairperson Constatine Chikoso attributing the weakness to constrained disposable incomes, affordability pressure and continued consumer downtrading. Operating profit increased 2% to US$6.75 million and attributable profit rose to US$4.61 million.

Cost reductions carried a substantial part of the earnings defence. Selling and marketing expenses fell 33% to US$713,000 from US$1.07 million and administrative expenses declined by a similar magnitude to US$1.04 million from US$1.54 million. Gross profit fell to US$8.24 million from US$8.84 million, leaving the improvement in operating profit dependent on lower operating expenditure.

The cost reduction lifted BAT’s operating margin to approximately 55.4% from 51.0% in H1 2025. Management attributed the improvement to cost discipline and operating model changes implemented during 2025, with procurement savings, local sourcing and factory productivity remaining among its strategic priorities.

The margin expansion therefore came during a period of declining domestic cigarette revenue. Revenue from cigarette sales in Zimbabwe fell 6.7% to US$12.03 million from US$12.89 million, leaving the domestic cigarette business responsible for almost 99% of group revenue. Cut rag export revenue increased to US$155,064 from US$119,678, remaining too small to materially change the group’s revenue trajectory.

Cash holdings fell to US$4.52 million at the end of June from US$7.37 million at the beginning of the year, a decline of almost 39%. BAT generated US$1.41 million from operations and US$294,000 from investing activities, then paid US$4.55 million in dividends during the six months.

The dividend outflow exceeded operating cash generated during the period by more than three times. BAT has since proposed an interim dividend of US$0.11 per share for H1 2026, equivalent to half of its US$0.22 earnings per share for the period.

Liquidity also remains shaped by legacy obligations. BAT closed June with current assets of US$21.08 million against current liabilities of US$23.75 million, leaving a net current liability position of US$2.67 million. Management said the position partly arises from legacy foreign currency obligations linked to dividends and imported goods and concluded that available resources remain sufficient to meet obligations as they fall due.

The US$16.4 million Treasury Bill received in settlement of BAT’s blocked funds exposure provides little immediate liquidity. The instrument matures in September 2050 and carried a balance sheet value of US$957,410 at June after BAT recognised a US$268,964 remeasurement loss during the half year.

BAT enters the second half with profitability protected by lower costs and a significantly weaker cash conversion profile. Restoring revenue growth becomes increasingly important because further earnings support from expense compression carries finite room, particularly when inventories and prepayments are absorbing cash and shareholder distributions continue drawing on liquidity.

The next results will therefore need to show stronger conversion of profit into operating cash alongside recovery in cigarette volumes and revenue. BAT’s H1 earnings remained profitable, but the balance between reported profit, working capital requirements and cash available for reinvestment and dividends has tightened materially.

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