Quarterly profit of BAT Bangladesh declines despite higher revenue

Despite earning higher gross revenue, British American Tobacco (BAT) Bangladesh experienced a marginal decline in net profit in the April-June quarter of this year due to higher production costs and increased operating expenses.
The cigarette manufacturer's gross revenue rose 15 per cent year on year to Tk 113.30 billion in the June quarter while net profit dropped by 0.80 per cent to Tk 4.93 billion, according to its unaudited financial statements published on Monday.
Higher production costs, soaring operating expenses and increased tax payments have negatively impacted the earnings growth. If these factors had not come into play, the company's profit would have been higher, said a company official, who declined to be named.
The tobacco market leader's cost of sales increased 41 per cent while operating expenses jumped 90 per cent year on year in the June quarter owing to high inflation and energy price hike.
BAT Bangladesh also paid 13 per cent higher supplementary duty and value added tax (VAT) to the government exchequer in April-June quarter over the same quarter a year before.
However, the company's half yearly profit rose 4 per cent year on year to Tk 9.50 billion while gross revenue grew by 14 per cent to Tk 212.30 billion, driven by higher domestic sales and tobacco leaf exports.
The company's tobacco leaf exports more than doubled year on year to Tk 1.99 billion while domestic cigarette sales grew by 16 per cent to Tk 47.20 billion in January-June period this year.
As a result, the company's earnings per share stood at Tk 17.59 for January-June period this year, up from Tk 16.93 in the same period a year before.
"EPS has increased from the same period last year driven by revenue growth and higher leaf export," said the company in a regulatory filing on Monday.
BAT has secured a steady business growth for the past three years, even amid several economic adversities, riding on increased demand for cigarettes.
Factors like high inflation and product price increase could not change the buying habits of the inelastic product's consumers, which helped the company's business keep growing, according to market analysts.
The company official said leaf exports had jumped significantly during the period as the company is exporting it to China and the Maldives.
China is a huge market for cigarettes. BATBC could not export finished products (cigarette sticks) to China due to various complexities. So, it exports leaf there.
The revenue from leaf exports would increase much more in the future as the company had invested Tk 5.74 billion in its Savar factory last year to expand its capacity so that it could take full advantage of export opportunities, the company official said.
The board of the company in May this year also approved a fresh investment of Tk 607 million to enhance its production capacity.
Cigarettes are exported to many countries from Bangladesh. Tobacco green leaf is also exported to EU countries, the USA, the UAE, Indonesia, Korea and South Africa.
In 2022, BAT Bangladesh exported leaf worth Tk 5.58 billion.
BAT Bangladesh markets various brands namely Benson & Hedges, John Player Gold Leaf, Capstan, Star, Royals, Lucky Strike, Derby, Pilot, Flag and Hollywood.
The cigarette maker has factories located in Dhaka and Savar, a green leaf threshing plant in Kushtia, and a green leaf re-drying plant in Manikganj.
The company's net operating cash flow per share remained negative at Tk 1.23 for January-June as against Tk 16.77 for the same period last year due to higher VAT, supplementary duty, health development surcharge, tax payments and reduced receipt from customers.
BAT Bangladesh's annual profits grew more than 19 per cent year on year to Tk 17.87 billion in 2022 and the company declared a 200 per cent cash dividend for the year, down from 275 per cent cash in 2021.
Despite the business growth, the company's share has been languishing at the floor price of Tk 518.70 on the Dhaka Stock Exchange since September 6 last year.

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