British American Tobacco (Zambia), on 12 August 2022, shared its financial results for the half-year 2022 in which it has posted 124% increase in Profit before tax in comparison to the same period, the year prior.
Operating Environment
BAT Zambia continues to record a positive performance against the backdrop of improved economic conditions, as evidenced by the reduction in year-on-year inflation for June 2022 to single digits (9.7%) for the first time in years, and the appreciation of the local currency against major foreign currencies.
During the period under review, the Zambian economy witnessed improved performance underpinned by recovery in the mining, tourism, and manufacturing sectors. A general reduction in the prevalence of COVID-19 globally provided a concerted boost to economic activity, which has also been bolstered by renewed investor confidence in both the local and global markets.
Despite operating in a more conducive environment (compared to the previous year), the illicit trade of cigarettes continues to affect our Company’s bottom line and presents a persistent challenge to the sustainability of our legitimate business.
Estimated to account for up to 30% of the total cigarette market, illicit trade continues to deprive the Zambian Government – and its people – of significant tax revenue, which remains vital to supporting the economic transformation agenda being pursued. The Company remains strongly supportive of measures to enhance effective enforcement actions against illicit players, as well as efforts to strengthen anti-illicit trade legislation and penalties. We urge all relevant stakeholders to take bold, decisive steps to address this significant issue.
Financial Results
Gross revenue increased by 20% to ZMW 399.9 million in the period under review, compared to ZMW 334.1 million in the same period in 2021. This performance is as a result of the implementation of an optimal pricing strategy, improved sales mix, and improved efficiencies.
The cost of operations reduced by 5% to ZMW 157.6 million, compared to ZMW 165.3 million recorded in the same period in 2021. This reduction is attributed to foreign exchange benefit resulting from local currency appreciation and a reduction in manufacturing costs arising from improved efficiencies. Further, operating profit has increased from ZMW 58.3 million in 2021 to ZMW 98.6 million in 2022 in this period.
This increase was as a result of a growth in revenues and a reduction in cost of operations.
Profit before tax increased by 124% to ZMW 89.7 million, when compared to same period last year.
Contribution to Government Revenues
BAT Zambia contributed ZMW 160.2 million to Government revenues through various taxes in the period under consideration. This marks a ZMW 45.5 million increase compared to the prior year’s contribution of ZWM 114.7 million.
Dividend
The Board of Directors does not recommend paying an interim dividend for the six months ended 30 June 2022, to enable the Company to effectively manage its cashflows against liabilities in line with its dividend policy.
Outlook
The Zambian economy is projected to grow by 3.1% in 2022. Maintaining single digit inflation rates remains a broad objective of the Zambian government on the backdrop of a continued slowdown in both food and non-food inflation, while the fiscal deficit is projected to decrease. These market conditions, coupled with a predictable, stable, and sustainable excise structure for cigarettes, set us on a positive trajectory to continue growing the business.
Conclusion
I would like to express my appreciation to the Board, the Management Team, staff and all stakeholders for an outstanding year as we continue transforming our business and building A Better Tomorrow TM together.