BATBC stands tall when most make steep fall

British American Tobacco's profit grew a whopping 69 per cent in the second quarter of 2020 on the back of lower operating costs whereas most companies bled because of the coronavirus pandemic. 

Operating expenses were Tk 35.8 crore in the April-June quarter, down 84.2 per cent from a year earlier.

Subsequently, earnings per share of the multinational company rose to Tk 16.48 from Tk 9.73 during the same three-month period a year earlier.

In the first half, the EPS had risen to Tk 33.35 from Tk 21.17 during the same period of in 2019.

"Many of our operations were shut in the second quarter due to the pandemic, which brought down the operating costs," Md Azizur Rahman, company secretary of BATBC, told The Daily Star yesterday.

"But we will have to spend money in the next quarters, so our operating costs will not be too low come the end of the year."

The company's profit rose sharply at a time when most of the companies in Bangladesh had been in the red because of the pandemic.

For example, most banks' operating profits declined 20 to 30 per cent in the first half because of the depressed economy.

The cigarette maker's operating expenses came in at Tk 279.7 crore in the first quarter. So, the total half-yearly operating expenses were supposed to be Tk 315.5 crore. However, the half-yearly report showed it to be Tk 260.5 crore.

In the first quarter, some costs had been mistakenly shown under the operating cost head, which should have been shown under the cost of goods sold segment, Rahman said. 

"It has been adjusted in the second quarter. However, it did not affect the profits," he said, adding that the adjustment is legal under accounting standards.

Despite the higher profit, stock investors were not excited about the shares of British American Tobacco yesterday. Its stocks were unchanged at Tk 907.6 on the Dhaka Stock Exchange (DSE).

The higher EPS was driven by higher sales volume and deferral of major initiatives to the second half due to the pandemic along with lower interest expenses, the company said in a posting on the DSE.

The company's net interest expense more than halved to Tk 8.10 crore in the first half from a year earlier.

The EPS, however, slid in the last two years as it provided stock dividends, which squeezed its capacity to pay reward the investors, said a top official of an asset management company.

In 2017, it was Tk 130, according to the DSE. It announced a 200 per cent stock dividend for 2018. The EPS dropped to Tk 51.37 in 2019 because of the increase in the number of shares.

It announced a 400 per cent cash dividend in 2019, 500 per cent in 2018 and 600 per cent in 2017.

Still, the stock has fallen more than 80 per cent in the last two years. This is because the government imposed a higher tax on the lower segments of cigarettes in fiscal 2019-20 that hit its profits, the asset manager said.

The sales growth was as usual in the first quarter that contributed to the higher revenue in the first half. Sales in the second quarter were lower because of the interruption caused by the pandemic to the supply chain, said an official of the company.

In Bangladesh, sales rose 10.38 per cent year-on-year to Tk 14,765 crore in the first half. It sold 2,860.9 crore sticks from January to July, up 9.33 per cent from a year earlier.

The export of cigarette and tobacco leaf surged 19.88 per cent to Tk 57.70 crore during the same time. Revenue dropped 10.74 per cent to Tk 6,184.92 crore in the second quarter.

BATBC sells cigarettes under the brands Benson & Hedges, John Player Gold Leaf, Capstan, Star, Royal, Derby, Pilot and Hollywood.