The Sunday Mail
Enacy Mapakame
BRITISH AMERICAN TOBACCO (BAT) is intensifying efforts towards diversifying into e-cigarette distribution, which comes in handy at a time the company is seeing thinning in export and domestic sales volumes, and the move is in line with the global health narrative that sees them as less harmful.
E-cigarettes are known by many different names: e-cigs, e-hookahs, mods, vape pens, vapes, tank systems and electronic nicotine delivery systems.
While scientists are still trying to come up with clear pros and cons of e-cigarettes, the Centres for Disease Control and Prevention (CDC) admits they contain fewer toxic chemicals compared to “the deadly mix of 7 000 chemicals in smoke from regular cigarettes”.
Now, with an overall decline in sales on both the domestic and export markets, the Zimbabwe Stock Exchange-listed firm is continuing to take proactive steps into diversification of its income and it recently introduced a distribution channel for Vuse e-cigarette products.
However, since its inception in October 2023, the channel has sold only 34 000 devices.
“The group and company also launched Vuse ‘New Category’ products into the Zimbabwean market in the month of October 2023, which realised a total sale of 34 000 devices,” said BAT chairperson Mr Lovemore Manatsa in a performance update for the financial year 2023.
E-cigarettes are a relatively new development in the tobacco market. Industry experts see high potential in this market, taking into account that a large number of smokers in the United States would like to quit the habit, and many of them see e-cigarettes as a significant alternative to smoking.
Additionally, smoking bans are now widespread nationwide and most grocery stores decided not to stock regular cigarettes anymore in favour of e-cigarettes, which has emerged as one of the fastest-growing segments in the tobacco products market, mainly owing to the younger generations.
The global e-cigarettes market is projected to generate a revenue of US$26 billion in 2024. It is anticipated to experience an annual growth rate of 3,06 percent on a global scale, according to Statista.
One of the factors driving growth is the perception that e-cigarettes are reduced-risk products. A Statista Global Consumer Survey conducted in early 2022 says 27 percent of Millennials used e-cigarettes.
Other reasons include lower pricing of e-cigarettes in comparison to other tobacco products and the availability of a wide variety of flavours.
With the world increasingly shifting towards e-cigarettes, it will take some innovativeness for countries like Zimbabwe that rely on tobacco as a major foreign currency earner to offset the effects of the bans.
In this country, tobacco is the second single largest export earner after gold.
The World Integrated Trade Solutions estimates that Zimbabwe exported over 2,4 million kilogrammes of cigarettes containing tobacco worth US$15,357 million. Mozambique, Botswana and South Africa were the top three export destinations, accounting for US$8,3 million, US$6,1 million and US$347,000, respectively.
Now, with consumer spending seen depressed during the financial year 2024 due to the adverse impacts of inflationary pressures and exchange rate volatility, businesses are in a fix as they may see a slowdown in sales volumes and earnings for businesses.
BAT will not be spared from this erosion on disposable incomes, as per analysts’ projections.
Already, the cigarette maker had a depressed volume performance for the past financial year, experiencing a 5 percent drop to 1,003 billion sticks from the 1,054 billion sold in the previous comparable period.
“In our view, volumes will likely remain weak for BAT Zimbabwe. Market share will also remain under pressure from the availability of cheaper brands, signalling decreasing pricing elasticity for the firm,” said IH Securities.
“We forecast that US$ revenue will register at US$35,14 million in financial year 2024 (FY24). Advertising costs as a percentage of revenue will, in our view, register higher within the year as the company tries to stimulate demand,” said the research firm.
According to IH’s projections, BAT will register some earnings before interest, tax, depreciation and amortisation (EBITDA) of US$14,06 million in FY24, with a corresponding margin of 40 percent.
During the past year, cut rag export volumes saw a dip shedding 32 percent year on year to 282 940kg. The company notably saw increased defaults from its customers.
However, BAT Zimbabwe’s historical revenue grew by 937 percent to $180,96 billion from the $17,445 billion registered in the prior year. Selling and marketing costs as a percentage of sales came in at 6,74 percent versus 8,99 percent in the previous period whilst administrative costs trailed revenue growth in nominal terms, increasing by 486 percent to $13,39 billion.
As a result, BAT saw EBITDA growing at 1 210 percent to $101,88 billion, with a corresponding margin of 56 percent versus a margin of 45 percent in FY22.
