A customs officer holding up a few packets of illegal cigarettes that were seized during a raid at a restaurant in Pandan Cahaya, Ampang. More than 5000 illicit cigarette sticks were nabbed in the operation codenamed Ops Outlet on April 5, 2014. FAIHAN GHANI/The Star.
KUALA LUMPUR: British American Tobacco (M) Bhd
’s (BAT) net profit attributable to its owners fell by 28.6% year-on-year to RM172.61mil in the first quarter (Q1) ended March 31, 2016 -- the biggest quarterly drop in more than three years.
Reporting its unaudited quarterly results to Bursa Malaysia on Tuesday, the country’s leading tobacco firm said this was recorded on the back of a 19.9% decrease in revenue to RM1.02bil.
This marked only the second time since 2013 that BAT had recorded a double-digit drop in quarterly net profit, the other quarter being in Q2 of last year (down 13.2%). In most quarters, the company’s bottom line grew.
BAT noted that during the first quarter of 2016, the group’s volumes saw the full quarter impacted by the excise-led price rise in November 2015, falling 7.7% versus the fourth quarter of 2015.
This decline was driven by the domestic business, where volumes sank 11.1% against the previous quarter. This compares to the milder 6% slide in contract manufacturing volumes (for export).
“On a March year-to-date basis, the group’s domestic volumes declined by 34.0% compared to the same period of last year, mainly as a consequence of the overall pressure on the legal industry following the November 2015 steep excise increase, which in turn has resulted in a significant increase in illegal cigarette incidence,” the company said.
In contrast, volumes sold in the duty-free business increased by 28.9% compared to Q1 of 2015.
Contract manufacturing volumes, meanwhile, registered a large decline, resulting in a total reduction (cigarettes and non-cigarettes) of 36.2% versus same period of last year. It said this was largely attributed to lower demand from the Australian, Philippines, Singapore and Taiwan markets.
BAT announced last month that it would not only cease contract manufacturing but even manufacturing for itself in stages by the end of next year. It will source tobacco products from other factories in the region under the British American Tobacco group.
On prospects for this year, BAT said the group remained concerned with the continuing impact on legal volumes by the current rampant illegal cigarette trade as a result of the steep excise hike in September 2014 and unprecedented 36% excise increase in 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. There has been a sharp increase in illegal cigarette trade incidence from 33.7% in 2014 to 45.6%, as recorded in the month of December 2015,” it noted.
BAT’s board has declared a first interim dividend of 55 sen per share, down from 78 sen previously.
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