PETALING JAYA: The second largest tobacco company in the country will be undertaking a significant downsizing exercise, just two years after it shut down its manufacturing plant.
According to sources, JT International Bhd (JTI Malaysia) is looking at trimming its workforce by about 40%, or around 170 people, over the next two years.
While the redundancy progress will be across the company, it is learnt that this will mainly affect the company’s shared services.
The shared services operations are expected to be closed down within the time frame and could be relocated to another country.
Sources said the market has been very challenging and it is made worse by the illicit cigarette trade and the unregulated vape industry.
“The market condition here has not been improving and profitability for the industry as a whole has halved since 2015 ever since the huge increase in excise duty.
“Retailers get margins from the industry but the industry can’t be supporting a bleeding situation, ” the source told StarBiz, adding that there was a global review of Japan Tobacco Inc’s operations and Malaysia was among the countries in scope.
It is learnt that the staff of JTI Malaysia have been informed of the rationalisation programme on Aug 30.
The source added that sales of legitimate cigarettes in Malaysia used to be in the tune of 20 billion sticks annually but now, the industry is struggling to even achieve seven billion sticks.
A briefing by JTI Malaysia early last month revealed that illegal cigarettes and unregulated vaping products have since ballooned to 70% of the total consumption in the country, which bleeds the government some RM6bil in uncollected taxes.
In a response to StarBiz, JTI Malaysia managing director Cormac O’Rourke said following a review of the company’s business operations, structures and processes, JTI Malaysia has proposed to make changes to how it operates here, including a reduction in employee numbers.
“We have entered into consultation process on the matter.
“As this process is ongoing, we are not yet in a position to comment on or confirm what the potential changes may be here, but will provide further clarity in due course, ” he said. O’Rourke added that the operating environment in Malaysia has been extremely challenging over the past few years, especially the significant and alarming development of illegal tobacco products, which now represented as much as 60% of the market.
“There is a significant and fast growing illegal vaping segment that accounts for a further 10% of the market.
“This development has led to a more than 30% decline in the size of the overall legitimate industry.
“As a result of these challenges, a transformation of the operations in Malaysia is necessary to ensure overall business sustainability, ” he said in a statement, adding that this will require a complete review of all investments JTI Malaysia currently make in the operations of its business in the country, including those in support of the retail trade.
O’Rourke said the decision to change the way the company operates will enable it to improve operational efficiencies and meet the business needs and the ability to face the challenges ahead.
Japan Tobacco Inc recently announced plans to eliminate 3,720 positions over three years.
Just on Thursday, British American Tobacco Plc announced that it planned to cut 2,300 jobs by January.
Philip Morris International Inc, which is another major player, is also in talks with Altria Group Inc to reunite in a merger.
JTI Malaysia, which carries the Mevius, Winston and LD brands, currently has an estimated market share of 25% in the country. It was delisted from the Main Market of Bursa Malaysia on June 25,2014, leaving British American Tobacco (Malaysia) Bhd as the only listed tobacco company in Malaysia.
BAT (Malaysia) saw 32.09% dip in net profit for the second quarter to RM77.23mil.
Net profit for the first half of the year also recorded a decline of 21.21% to RM165.15mil.
Year-to-date (y-t-d), its share price had dropped 41% to RM21.50 at its last close.