KUALA LUMPUR (Oct 31): British American Tobacco (Malaysia) Bhd (BAT Malaysia), which said it is extremely concerned about the lack of progress on the reduction of illegal cigarette trade, saw its third-quarter earnings drop 42% year-on-year (y-o-y) on lower volume.
Net profit for the quarter ended Sept 30, 2019 (3QFY19) fell to RM84.8 million from RM146.27 million a year ago. This resulted in a lower earnings per share of 29.1 sen for 3QFY19 compared with 51.1 sen for 3QFY18.
Quarterly revenue also came in 20.6% lower at RM584.34 million from RM735.53 million in 3QFY18.
The country's largest tobacco company said contraction in the legal tobacco market, as well as inventory adjustment from seasonal impact, led to the decline in its volume by 8% quarter-on-quarter (q-o-q) in 3QFY19.
Nevertheless, the group declared a third interim dividend of 29 sen per share totalling RM82.8 million for the financial year ending Dec 31, 2019 (FY19), payable on Nov 26.
In a bourse filing today, BAT Malaysia said overall volume in the legal industry contracted by 4% q-o-q in 3QFY19, due primarily to the increase in illegal cigarettes trade, as well as the impact of illegal vaping.
As a result, the group’s market share declined marginally by 0.4 percentage points (ppts) to 54.4%.
"The decline is mainly driven by premium and aspirational premium (AP) segment performance due to the continuous downtrading in the market; partly offset by Rothmans’ solid growth of 0.5 ppts q-o-q.
The weaker quarterly performance dragged the group's net profit for the cumulative nine months ended Sept 30, 2019 (9MFY19) down 29.8% to RM249.95 million from RM355.88 million a year ago, driven mainly by lower volume as a result of legal market contraction and the absence of one-off factors reported in the same period last year such as the benefit from the goods and services tax removal and prior year tax stamps refunds.
Revenue for 9MFY19 also declined 10% to RM1.85 billion from RM2.05 billion in 9MFY18.
In separate statement, BAT Malaysia said total legal industry volume declined by 11% y-o-y in 9MFY19, largely attributed to high levels of illegal cigarette trade incidence which now stood at 65% and impact from sales and service tax-led pricing.
"It is compounded by the rapid growth of illegal vaping which puts further pressure onto legal cigarette volumes," it added.
“The current environment within the tobacco industry is one that is unsustainable and untenable for any legal company. While we continue in our commitment to deliver value to our shareholders, the results for this quarter was achieved on the back of conscious cost base and investment management," BAT Malaysia managing director Erik Stoel said.
“The grim fact is that the current scenario of cheap illegal and contraband tobacco products has further deteriorated in Malaysia despite the efforts by law enforcement agencies like the Royal Malaysian Police and the Royal Malaysian Customs Department to clamp down on the cartels running these syndicates. When are we going to realise that this is an issue that goes beyond tobacco duty evasion?"
Stoel said there is a need for more players like the ministry of health to clamp down on the inflow of cheap contraband cigarettes that does not comply with tobacco control laws into the country.
“What Malaysia needs to do is come together and fight this huge issue collectively and pragmatically with all legal stakeholders. While there might be differing viewpoints and perspectives, we can all agree that fuelling a black economy that encourages corruption and crime will do the country no good.
“We need a sustainable total nicotine regulatory and fiscal framework in order to build our business back into growth," he added.
In the remaining 2019, Stoel said BAT Malaysia will adopt a multi-category approach with investment into new category segments such as tobacco heated products where Malaysia is the first market in Southeast Asia to launch ‘Glo’.
"However, diversification and investment into these new categories can only be done on the basis of sensible and pragmatic total category regulation that allows legal companies to operate and set a tighter control restricting the entry of illegal cigarettes into the country. Otherwise, it is simply unsustainable,” he added.
The group will also continue to rationalise operating costs and work closely with the authorities on enhancing enforcement and setting up a comprehensive and sustainable total regulatory and fiscal framework.
BAT Malaysia shares closed up 14 sen or 0.75% at RM18.82 today, with 417,800 shares done, bringing a market capitalisation of RM5.37 billion.