PETALING JAYA: British American Tobacco (M) Bhd (BAT) recorded a 32% lower net profit of RM77.2mil for the second quarter ended June 30, 2019 (Q2’19) as it continues to be affected by illegal cigarette trade and rising operating expenses.
The group’s revenue for the period also came in 5.6% lower than the same period a year ago, at RM640.8mil.
In a statement, the group said despite external pressures, BAT had outperformed the legal industry in Q2’19, marking a 3.6% growth compared to the preceding quarter.
This, it said, had translated to revenue growth of 3.2%.
The group said it had also registered a market share of 54.8% in Q2’19, indicating a stabilisation mainly driven by the strong performance of Rothmans in the value-for-money segment.
Rothmans, it said, had continued its growth trend, while premium brand Dunhill remained stable despite a slight impact to market share when compared to the previous quarter, as the affordability stretch on consumers remained a key challenge.
For the first half of the year, the group’s revenue and net profit were both down at RM1.26bil and RM165.1mil respectively, as profit from operations declined by 19.4% due to market contraction and higher operating costs.
In a filing to the stock exchange, BAT said downtrading and market contraction in the legal market had impacted its volumes by 10% and revenues by 4.2% during the the six-month period.
This, it said, was partially offset by SST-led pricing benefit and the removal of GST.
The group said its investment in self-driven initiatives to fight illicit trade, an aggressive marketing investment in the value-for-money segment in Q2’19, the pre-launch investment on its tobacco heated product, ‘Glo’, and the phasing of spend resulted in a 19.8% year-on-year increase in operating expenses.
“As a result, profit from operations declined by 19.4% due to market contraction and higher operating cost versus the same period of last year,” it said.
BAT said total legal industry volume had declined by 8% during the first half, compared to the same period last year, largely attributed to SST-led pricing and high illegal cigarette incidence of 60%.
The growth of cigarettes with fake tax stamps and other illegal products in the market, it said, was building additional pressure on the legal industry volume.
Moving forward, the group said it was “extremely concerned” about the market outlook for 2019 after the first six months of the year, due to the lack of progress on the reduction of illegal tobacco trade and the high level of affordability stretch on legal consumers.
“Due to these external challenges, the group’s focus for the second half of 2019 will be to rationalise operating costs and continue to work closely with the authorities on enhancing enforcement and other solutions to address illegal cigarette trade,” it said.