–Extract from half-year SENS announcement issued by By Order of the Board by Zoe Chisanga Chiliboyi (Company Secretary)
The operating environment in Zambia has been challenging and the cigarette industry has not been spared from the impact of the current economic climate. The Company has demonstrated resilience in the wake of the significant devaluation of the Kwacha by 30% as at 30 June 2020 from the previous year, and amidst the COVID-19 pandemic which worsened an already challenging environment. The economic impact of the COVID-19 pandemic has put severe pressure on consumer affordability, in addition to adversely impacting the trading environment, occasionally resulting in limited product availability owing to border closures and the implementation of strict lockdowns by key trading partners such as South Africa. Illicit trade in tax-evaded cigarettes remains a major concern for Zambia.
Our Company remains focused on ensuring that our employees are safe throughout the duration of the pandemic. The Company has maintained business continuity and has continued to work with relevant Government agencies to ensure a stable and predictable regulatory environment which will support economic recovery.
The Company maintained operating profitability despite the impact of the COVID-19 pandemic.
The Company recorded an increase in gross revenue of 33% amounting to ZMW226.2million during the period under review compared to the ZMW 169.5million recorded in same period in 2019. The increase was mainly driven by improved revenues resulting from a price increase on our key brands. Net revenue increased by 42.1% to ZMW146million driven by the increase in gross revenue. Total cost of operations increased by 31 % to ZMW123million reflecting the impact of increased costs of operation.
This was mainly driven by leaf and wrapping material imports which have been impacted by the foreign exchange devaluation of the Kwacha against other major currencies.
Operating margin increased by 7.2 percentage points to 16.3% as a result of an increase in total revenues.
For the period ended 30 June 2020, the Company made a loss before taxation of ZMW26.2million compared to a loss before taxation in 2019 of ZMW 0.6million. The increase is largely attributable to the severe devaluation of the Kwacha versus the United States Dollar which impacted the Company’s foreign currency denominated borrowings.
Contribution to Government Revenues
The Company continues to be a key and compliant contributor to the Zambian Government’s treasury through the payment of various taxes key among them; Excise, Corporate Tax, VAT, PAYE and Withholding Taxes. The Company’s contribution to the Zambian Government treasury in various taxes for the period to 30 June 2020 was ZMW80million (2019: ZMW66 million).
In view of the Company’s financial performance for the period, the Directors do not recommend the payment of an interim dividend for the six months ended 30 June 2020.