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BAT posts $73,7m profit in Q1

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BY FIDELITY MHLANGA LISTED cigarette maker, British American Tobacco (BAT) posted a profit of $73,7 million driven by revenue growth during the half year ended June 30, 2020 from a loss position of $18,82 million in the prior year.

BY FIDELITY MHLANGA

LISTED cigarette maker, British American Tobacco (BAT) posted a profit of $73,7 million driven by revenue growth during the half year ended June 30, 2020 from a loss position of $18,82 million in the prior year.

Although the company’s total sales volumes for the period under review decreased by 3% compared to the same period in prior year mainly due to shrinking consumer disposable incomes and the impact of the COVID-19-induced lockdown, revenue grew by 20%.

The decline in volumes was caused by restrictions on movement of people and their normal way of life such as visiting recreational facilities, where products are normally consumed.

“The Premium Brand, Dunhill returned to the market as the company was now able to import the brand and consequently it recorded a significant increase of 184% versus the same period in prior year,” BAT chairman Lovemore Manatsa said in a statement accompanying the results.

“In the Aspirational Premium segment, Newbury volumes declined by 10% while the Value for Money segment, (Madison and Everest) and Low Value for Money brand (Ascot), recorded a 1% increase and 40% decrease respectively. These movements were driven by shrinking consumer disposable incomes due to the challenging economic environment and the COVID-19 pandemic’s impact on sales.”

Despite the drop in volumes, revenue increased $68,9 million (20%) from $341,6 million to $410,5 million, when compared to the same period in 2019 driven by price increases effected during the period as well as revenue generated from the export of cut-rag.

Cut-rag is tobacco that has been cut into fine strips for use in cigarettes.

Price increases and export revenue resulted in a gross profit increase of $49,6 million (22%) compared to the same period in 2019.

“Net profit attributable to shareholders for the period under review was $73,7 million compared to a net loss of $18,8 million in the same period in prior year, representing a 492% increase. The company’s earnings per share increased to $3,58 from ($0,91) generated in the same period in 2019,” Manatsa said.

Selling and marketing costs decreased by $0,2 million (1%) compared to the same period in prior year, driven by route to market initiatives aimed at managing the company’s distribution costs.

Administrative expenses were $17 million (35%) lower than those for the same period in prior year, driven by the business’ ongoing cost-saving initiatives.

Other losses increased by $116,4 million (397%) due to foreign exchange losses on liabilities driven by the devaluation of the Zimbabwe dollar against major currencies.

The company bemoaned Zimbabwe dollar devaluation against major currencies affecting consumer disposable incomes, resulting in the rising of inflation to 737% by the end of June 2020 against 175,6% in June 2019.

This contributed to increased operating costs for the company on a historical cost basis.

Cash generated from operations was a negative $13,1 million as a result of a significant increase in trade and other receivables due to prepayments to purchase leaf and an increased debtors’ book as a result of price increases effected during the period.

On the outlook, the company said it would continuously review the business model and related strategies so as to remain aligned to the market dynamics in response to the COVID-19 pandemic which has transformed the way of doing business.

“We remain confident that our brand portfolio and route to consumer footprint remains consumer relevant to deliver value growth for our shareholders. With the introduction of the foreign currency auction platform, we hope to access the much-needed foreign currency which the company requires to source raw materials for the production of our consumer centric brand,” Manatsa said.

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