Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on May 22, 2018

KUALA LUMPUR: British American Tobacco (Malaysia) Bhd (BAT Malaysia) said first-quarter net profit fell 16.1%, its third straight quarter of profit decline, on a declining legal tobacco volume which impacted the group’s volume by 8% year-on-year (y-o-y).

Net profit for the three months ended March 31, 2018 (1QFY18) fell to RM95.88 million from RM114.23 million a year ago, resulting in lower earnings per share of 33.7 sen for 1QFY18 compared with 41.6 sen for 1QFY17.

Quarterly revenue also came in 14.8% lower at RM637.65 million from RM748.37 million in 1QFY17, due to a domestic and duty-free volume decline and absence of the sale of residual leaf raw materials to related companies outside of Malaysia in 1QFY17 in line with the winding down of its manufacturing operations.

Nevertheless, BAT Malaysia declared a first interim dividend of 33 sen per share, amounting to RM94.22 million, for FY18, payable on June 19.

In a filing with Bursa Malaysia yesterday, BAT Malaysia said the total legal industry volume declined by 4% y-o-y in 1QFY18 as a result of total illegal cigarette growth of 0.3 percentage points.

“As a consequence, the group’s domestic volume declined by 6% y-o-y, driven by market contraction,” it added.

On market prospects, BAT Malaysia said the legal market remains under pressure with illegal volume share at an all-time high of 63% in the first quarter of 2018 (consisting of 59% smuggled illegal cigarettes and 4% legally perceived local cigarettes with fake tax stamps) as a result of low consumer confidence and lack of enforcement effectiveness in the quarter, fuelled by ongoing affordability pressures in the market.

“Consequently, such high incidence of illegal cigarette trade continues to be the main challenge in the short and medium term for the legal tobacco industry. The outlook for 2018 will be very much dependent on the recovery of the legal market,” it added.

“We remain very concerned about the high level of illegal cigarette incidence, with no sign of reduction in the first quarter of this year, and therefore the ongoing pressure on the legal volume,” BAT Malaysia managing director Erik Stoel said in a separate statement.

“The price gap between legal and illegal cigarettes currently ranges between RM8 and RM13 with ‘excise paid at RM8 per pack’ being the main differentiator. As such, while appreciating the removal of the goods and services tax, we do not feel that this will structurally address the state of the legal/illegal cigarette market and as such, more measures will be required.

“We hope that the new government will be committed, as a matter of priority, to review pragmatic and new solutions to address illegal cigarettes beyond the abolishment of the GST,” Stoel added.

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