British American Tobacco (BAT) Zimbabwe is undergoing significant shifts in its business strategies to remain viable amid declining sales and macroeconomic turmoil.
For the nine months ending September, the company reported an alarming 8% drop in sales volumes compared to the previous year, primarily attributed to persistent inflation and currency instability effectively eroding consumer spending power.
On Friday it cited “inflation and currency challenges,” with revenues for the period consequently decreasing by 37% as reduced consumer spending and disposable income took a toll.
“Zimbabwe’s operating environment continues to be complex and uncertain, with macroeconomic turbulence fuelled by monetary instability and substantial exchange rate distortions adversely impacting business activity,” said Lovemore Manatsa, chairman of BAT Zimbabwe.
Although the economic environment was proving to be highly uncertain, BAT Zimbabwe “is optimistic about the future and continues to review its business model” to ensure long-term sustainability.
During the nine month period under review, BAT Zimbabwe reduced operating costs by 33% compared to the same period a year earlier as it optimised costs.
The company also had to review its route-to-consumer operations as it created “a robust and future fit model that is responsive to evolving consumer and market” trends.
In response to the tough Zimbabwean economic challenges, the company implemented dual currency billing, enabling it to offer transacting flexibility for its customers. This ensured business continuity for BAT Zimbabwe.
However, in spite of this, the “decline in sales volumes as well as foreign exchange losses from translation of monetary assets and liabilities” tipped the company into a pre-tax loss of over $5 million.
After a drought in the 2023/2024 season, under which Zimbabwe’s tobacco production dropped 22% from 296 million kilograms to 231 million kilograms, it is expected that the tobacco sector will rebound this year.
Prices for the 2023/2024 season firmed up by about 4% to $5.23 per KG, in spite of the lower production. The tobacco industry in Zimbabwe plans to boost processed tobacco from 2% to over 30%.
In the current season, the Tobacco Industry Marketing Board (TIMB) is confident that 300 million kilograms in output will be achieved.
Data from the TIMB shows that as at 11 September this year, about 1.25 million grams of tobacco seed had been sold, covering approximately 208 450 hectares.
“Assuming an average yield of 1,500 kg/hectare, that amounts to an estimated 312 million kilograms harvest,” analysts said.
This was likely to boost cigarette manufacturers in the country as well as brightening prospects for export earnings for the country.
BUSINESS REPORT