• Selling and administrative costs fell by about US$858,000 in H1 2026
• Revenue declined 6% as cigarette volumes fell 3% and consumers traded down
• Operating margin widened to 55.4% from 51.0% after deep expenditure reductions

Harare – British American Tobacco Zimbabwe has cut selling and administrative expenses by almost US$858,000 during the first half of 2026, allowing operating profit to increase 2% to US$6.75 million as weaker consumer demand reduced revenue by 6% to US$12.18 million.

The earnings defence came principally through expenditure reduction. Selling and marketing costs declined 33% to US$712,895 from US$1.07 million, with administrative expenses falling another 33% to US$1.04 million from US$1.54 million. Combined expenditure across the two lines dropped to US$1.75 million from US$2.61 million.

That US$858,000 saving was larger than the deterioration recorded at gross profit level. Gross profit fell by about US$600,000 to US$8.24 million from US$8.84 million as revenue weakened, leaving lower operating expenses to absorb the pressure coming through BAT Zimbabwe’s core cigarette business.

Operating margin consequently widened to approximately 55.4% from 51.0% a year earlier, adding about 4.4 percentage points even as the company sold fewer cigarettes.

Group chairperson Constatine Chikoso has attributed the margin improvement to cost discipline and operating model changes introduced during 2025. Its current priorities include procurement savings, greater local sourcing and improved factory productivity, extending the cost programme into sourcing and manufacturing rather than relying only on reductions in administrative expenditure.

The pressure on the top line is coming directly from the Zimbabwean consumer. BAT said, “disposable incomes remained constrained during the half, contributing to subdued demand and continued downtrading”. Cigarette sales volumes fell 3% year on year, with revenue declining twice as fast at 6%.

The difference between the two movements points to deterioration in the revenue generated from the average volume sold. On an indexed basis, revenue per unit of volume was approximately 3% lower than in the comparable period, consistent with management’s disclosure that consumers are shifting towards more affordable products.

Domestic cigarette revenue fell 6.7% to US$12.03 million from US$12.89 million. Cut rag export revenue increased 29.6% to US$155,064 from US$119,678, leaving exports at only about 1.3% of total revenue and unable to materially offset weakness in BAT’s Zimbabwean cigarette market.

The revenue composition leaves BAT heavily exposed to changes in household purchasing power. Nearly 99% of group revenue continues to come from domestic cigarette sales, making consumer affordability and product mix central to the company’s earnings trajectory.

BAT’s gross margin remained close to prior year levels at approximately 67.7%, compared with 68.0% in H1 2025. The larger movement occurred below gross profit, where reductions in selling and administrative expenses created the additional operating margin.

Other income also fell substantially to US$293,948 from US$714,270, reducing another source of earnings support. Net other losses improved to US$41,226 from US$323,411 after foreign exchange losses on foreign currency denominated liabilities fell sharply.

Operating profit therefore increased by only US$111,294 even after approximately US$858,000 was removed from selling and administrative expenditure. The arithmetic places the scale of the underlying revenue pressure into sharper focus. A large portion of the savings programme was required simply to compensate for weaker gross profit and lower other income.

Profit before tax declined 2% to US$6.48 million after BAT recorded a US$268,964 remeasurement loss on its financial assets at amortised cost. Profit attributable to shareholders still increased 6% to US$4.61 million as the income tax charge declined to US$1.87 million from US$2.31 million.

The company has acknowledged that cost management alone cannot carry the earnings model indefinitely. Management stated that sustainable performance depends on restoring top line momentum, with its immediate priorities centred on stabilising revenue, improving productivity and protecting margins.

That leaves BAT entering the second half with two operating tasks. The cost base has already been materially reduced, giving the company stronger protection around operating margins. Revenue now needs to recover through volumes, product mix or pricing because another 33% reduction in major operating expense lines would become progressively harder to repeat without affecting market execution and organisational capacity.

The first half therefore places BAT’s next earnings threshold on the consumer rather than another round of overhead reductions. The company has demonstrated that it can defend profitability through efficiency. Sustainable earnings growth now requires the domestic cigarette business to regain revenue momentum as affordability pressures ease and downtrading stabilises.

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