Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily, on April 27, 2016.

 

KUALA LUMPUR: British American Tobacco (M) Bhd (BAT Malaysia) saw its net profit fall 28.6% to RM172.61 million for the first quarter ended March 31, 2016 (1QFY16), from RM241.74 million a year ago, mainly due to weak volume performance.

The group’s domestic volumes for 1QFY16 declined by 34%, compared with the same period last year, mainly as a consequence of the overall pressure on the legal industry following the November 2015 steep excise increase, which in turn resulted in a significant increase in illegal cigarette incidence.

Volumes sold in the duty-free business increased by 28.9% in 1QFY16, compared with 1QFY15, while contract manufacturing volumes saw a 36.2% year-on-year decline, largely due to lower demand from Australia, the Philippines, Singapore and Taiwan.

Due to the weak volume performance, BAT Malaysia’s revenue for 1QFY16 dropped 19.9% to RM1.02 billion, from RM1.27 billion in 1QFY15.

In a bourse filing yesterday, BAT Malaysia said its share of the legal tobacco industry declined 2.3 percentage points (ppts) to 58.7% against full-year 2015, as the November 2015 excise-driven price increase had negatively impacted the premium segment of the industry and with that, the group’s biggest brand, Dunhill.

Dunhill saw a decline of 2.6ppts versus full-year 2015, mainly attributed to the Dunhill Full Flavour franchise, though Dunhill still maintained its No 1 position overall, with a market share of 43.5%.

Despite the weaker 1QFY16 results, BAT Malaysia declared a first interim dividend of 55 sen per share or RM157.04 million in total for FY16 ending Dec 31, 2016, payable on May 27.

Meanwhile, BAT Malaysia said it is in the midst of reviewing the impact of the winding down of its factory operations in Petaling Jaya, Selangor, on its financial results. The winding down will be carried out in stages until the second half of 2017.

Going forward, BAT Malaysia said the outlook for 2016 will be very much dependant on the recovery of the legal market.

It remains concerned with legal volumes continuing to be impacted by rampant illegal cigarette trade, as a consequence of the steep excise increases in September 2014 and November 2015, as well as consumer down trading within the legal market.

“The escalating illegal cigarette trade will be the single most important challenge in 2016 for the legal tobacco industry. The recent Illicit Cigarette Study conducted by Nielsen revealed that illegal cigarette trade had reached a record high of 45.6% as of December 2015, from 33.7% in 2014,” it noted.

BAT Malaysia said it hopes enforcement agencies will further enhance their enforcement efforts, and that courts will impose much steeper penalties given the current high incidence of illegal cigarette trade.

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