BAT Zimbabwe facing new challenges

However, despite the decrease in the amount of gross profit , the gross profit margin has been improving over the period under analysis although there was a slump in 2014.

The increase in gross profit margin is attributed to efficient use of resources as the company endeavour to contain costs of sales.

The group’s Earnings Before Income Tax Depreciation and Amortisation (EBITDA) has been increasing on average between 2012 and 2015 before a sharp decline in 2016 to $13.2 million from $22 million in the previous year.

EBITDA for 2016 was 29 percent lower than the $18.6 million recorded in 2012 and 40 percent lower than recorded in 2015.

Likewise the margin improved in the period between 2012 and 2015 before it went down from 48 percent in 2015 to 39 percent in 2016 on the back of an increase in selling and distribution expenses, as well as price adjustments in a bid to remain competitive.

In the previous period, the company increased its expenditure on selling and distribution by 9.4 percent to $4.01 million and it intends to continue with increasing marketing spend during 2017  in order  to defend its market share, a move that will continue to put pressure on the margins.

Operating profit has been on average increasing between 2012 and 2015 before it declined sharply by 42 percent in 2016 to $11.9 million from $20 million recorded in 2015. 

Likewise the operating profit margin has been improving on average in the same period before it declined from 46 percent in 2015 to 35 percent in 2016.

However, the company, in a bid to contain costs and improve its operating profit, undertook staff rationalisation exercise and installed a new ERP system.

At the recent analyst briefing management indicated the residual costs of the ERP system has resulted in the lower than expected savings on administration expenses.

Nonetheless, these initiatives are yet to prove that they will defend and improve its operational efficiency since the latest financial results have shown a decline in operating profit.

Finance costs declined by 91 percent from $740 000 recorded in 2012 to $64 000 in 2016 on the back of a reduction in interest payments associated with borrowing.

The company’s financials show that the last borrowing, which amounted to $5.8 million, was recorded in 2012 and thereafter the company has been using its internal funds as reflected by an increase in retained earnings from $5.3 million in 2013 to $9.1 million in 2015.

However, retained earnings have started to fall in 2016 owing to reduced net income.

The group’s after tax profit has been unstable in the period between 2012 and 2016 and similarly, the profit margin.

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