KUALA LUMPUR: British American Tobacco (Malaysia) Bhd's profit before tax rose 3.3% to RM254.30mil in the fourth quarter ended Dec 31, 2013 from RM246.12mil a year ago, mainly due to growth in contract manufacturing volume for export and lower operating expenses.
In a Bursa Malaysia filing on Wednesday, BAT Malaysia said earnings fell 3.9% to RM189.93mil from RM197.78mil a year ago. Its revenue dipped 0.04% to RM1.0934bil from RM1.0939bil a year ago.
Earnings per share were 66.2 sen versus 68.9 sen a year ago. It declared a 78 sen dividend for the quarter.
On the sales of cigarettes, BAT Malaysia said following the significant excise increase in September 2013, the Q4 2013 domestic and duty-free volumes fell 17% versus Q3. For 2013, the domestic and duty-free volume was 6% lower than in 2012.
"Despite the large excise increase, BAT Malaysia's excise payments to the government have declined almost 4% versus 2012.
"The third wave 2013 Illicit Cigarette Study (ICS) witnessed a massive 4.5 percentage point increase in illicit trade, to record one of the highest ever single reading at 38.9% (Wave 3, 2013)," it pointed out.
For FY13, BAT Malaysia's earnings rose 3.42% to RM825.77 mil from RM798.39mil a year ago. Revenue was up 3.5% to RM4.517bil from RM4.364bil a year ago while earnings per share stood at 288.4 sen from 279.4 sen a year ago.
Profit growth was due to higher exports and savings in operating cost, whilst the domestic market income has been impacted by on-year volume decline.
"Following the steep increase in excise in September 2013, the 2014 outlook for domestic volume is a higher rate of decline than experienced in recent years," it said.
BAT Malaysia said its leading brand, Dunhill recorded a growth of +1.3 percentage point in share of market, contributed from growth across almost all its variants.
BAT Malaysia's managing director Stefano Clini said the overall 2013 performance was admirable despite the current economic climate and illegal cigarette trade challenge.
"We are fortunate that growth in our contract manufacturing export volume has offset our domestic volume decline. However, as foreseen, the cigarette excise increase has accelerated consumer down trading to cheap illegal alternatives with severe impact on already declining domestic volumes," added Clini.
The recent Wave 3 Illegal Cigarette Study which covered October to December 2013 showed that illegal cigarette incidence in Malaysia had risen by 4.5 percentage point from previous wave of 34.4% to 38.9%.
"This increase is chiefly driven by the growth in the illegal 'John' brand variants which are being sold at approximately half the minimum price set by the government.
"We commend the government for adopting game changing approaches to combat this major problem. The various law enforcement agencies are not just tackling the supply of illegal cigarettes by going after smugglers; they are also working cohesively to address the issue of illegal cigarette demand by stepping up enforcement at the retail and consumer level.
“We also see in the news that the Royal Malaysian Customs has taken stronger deterrent action by remanding offenders caught pending investigation," Clini said.
With effect from Jan 1, 2014, under a new law gazetted by the Ministry of Health, buyers, just like sellers of illegal cigarettes, can face a maximum fine of RM10,000 and jail of up to two years or both for buying illegal cigarettes.
BAT Malaysia pointed out these concerted efforts showed the government was serious about addressing this problem.
"We had a solid performance for 2013. However, in light of the challenging economic environment and the specter of illegal cigarette hanging over our business, we are preparing ourselves for a tough 2014," concluded Clini.