Zimbabwe: BAT Invests in New Plant

Source from:  Financial Gazette 05/16/2011

Zimbabwe Stock Exchange-listed cigarette producing concern, British American Tobacco Zimbabwe Holdings (BAT), has invested in new cigarette manufacturing plant as competition intensifies in the sector which has witnessed the entry of new players. The move is also despite an acknowledgement last year by the cigarette manufacturer of a worldwide move towards tobacco control, over which it called for sensible, proportionate regulations based on scientific evidence. BAT board chairperson, Ken-nedy Mandevhani, said the company would still bring in new machinery this year to reinforce its market position despite lingering market concerns. BAT introduced a new cigarette making machine in 2010 to enhance production efficiencies, which are expected to be developed this year. The cigarette industry has become highly competitive following the entry of new players who have been aggressive in their marketing campaigns and have taken a significant share of the market previously dominated by BAT's cigarette brands. This has given the market diversity in terms of brand choices and pricing. The increasing competition within the sector has been regardless of the demanding regulatory and statutory requirements put in place to protect consumers. Mandevhani said expected volume growth from existing resources would further enhance delivery while continuing to maintain high finished product quality standards. "To sustain improvements in productivity levels the company is investing in the acquisition of additional production machinery in 2011," said Mandevhani. He said BAT had last year built on its strengths to ensure improved growth potential in the period ahead as well as ensuring a sustainable business that would create long-term value to all shareholders fundamentally based on its strong brand portfolio. In an announcement last year, BAT said it was mindful of the worldwide move towards tobacco control but said regulation should be sensible, proportionate and based on scientific evidence. "Likewise, we believe that regulation should ensure that adult consumers can continue to make informed choices about a legal product, thus accommodate the interests of both smokers and non-smokers," the company, which is part of an international conglomerate, said. It said smoking should be only for adults who understood the risks and BAT supported regulations limiting non-smokers involuntary exposure. "We favour restrictions on smoking in enclosed public places and support practical initiatives such as the creation of smoke-free areas, combined with adequate provision for smokers". "We strongly believe that children should not smoke and that tobacco products should never be marketed to minors," said BAT. The company said it had adopted appropriate marketing ensuring consumer packaging and any advertising carried clearly visible health warnings and was compliant with all domestic laws and industry marketing codes. "We have now updated the standards to include more restrictions and more adult age verification procedures. We believe this will help us to further raise the bar in appropriate marketing," said the company. The announcement had come after Health and Child Welfare Minister, Henry Madzorere, had said he would push for punitive levies on alcohol and tobacco advertisement in order to curb consumption. He said government wanted images of damaged lungs on tobacco adverts to accompany the traditional "smoking may be hazardous to your health" messages in order to reinforce the impact of smoking on health. Mandevhani said BAT's brands had continued to dominate the market despite these concerns. "British American Tobacco Zimbabwe (Holdings) Limited continues to maintain its leadership position in the industry sector having increased sales volumes by 12 percent from the previous year. Net turnover recorded for the year was US$22,9 million, up from US$15,1 million in 2009," said Mandevhani. Resulting from an increase in variable costs, driven by an increased cost of leaf tobacco due to the transition from Zimbabwe dollar to US dollar-based stock holding values, gross margin decreased by eight percent during the period under review to US$7 million in comparison to prior year results and operating profit closed at US$184 000, against US$402 million recorded the previous year. The company registered a US$293 000 loss before tax during the period, from a profit before tax of US$236 000 the previous year. "The focus for the 2011 year will be growth in volumes and revenue through increased sales across the portfolio whilst ensuring reasonable cost increases," said Mandevhani. "2011 will see the business growing both in volume and also in value as we continue to focus on the increased distribution of brands across the portfolio through our strong national distribution capacity," he said. Enditem