PETALING JAYA: British American Tobacco (M) Bhd (BAT) registered a 42.7% year-on-year decline in net profit to RM50.8mil for the first quarter ended March 31, 2020.
This was mainly attributed to lower profit from operations which saw lower domestic volumes from the legal market, seasonality, stock in trade corrections as well as reduced duty free sales due to the Covid-19 pandemic.
The duty free business, which makes up 4% of BAT’s revenue, had ceased as a result of border closures and travel restrictions.
According to a Bursa Malaysia filing yesterday, the total legal industry volume declined by 11% against the same period last year as persistently high levels of illegal cigarette sales and illicit nicotine vaping products continued to impact the legal tobacco market.
The combination of legal market contraction and downtrading was further compounded by impact on Duty- Free sales due to Covid-19.
This led to a decline of 21% in the group’s volume and a decline of 22.5% in the group’s revenue to RM481mil for the quarter, compared to the same period last year.
While operating expenses were marginally lower compared to the previous quarter, the improvement in operational efficiencies was not sufficient to offset revenue loss.
Despite the difficult operating landscape, the board of directors of BAT has declared a first interim dividend of 17 sen per share.
BAT Malaysia managing director Jonathan Reed said the results were within expectations despite the disruption from the movement control order (MCO) in the last two weeks of the first quarter.
However, due to the supply disruptions of legitimate tobacco manufacturers during the MCO period, consumers had turned to cheap, black market cigarettes.
“It has been highly disappointing to see a severe uptick in illegal cigarette activities.
“The government is losing RM 5.1bil in tax revenue to the tobacco black market at a time when the country needs every ringgit for the Covid-19 fight and the subsequent recovery,” he said.
Reed explained that criminal syndicates had been able to establish a virtual monopoly by brazenly flouting MCO orders and profiting from a national health and economic crisis.
“It is alarming that this happened at a time when movement controls were at their strictest and the legal business had distribution disruptions.
“Now, more than ever, there must be focus given over to ensure that effective structural reforms are put in place to tackle this problem once and for all.
“The sustainability of the industry and livelihoods of our employees will be very much dependent on tackling the tobacco black market scourge, a regulated nicotine landscape and sensible fiscal policies,” he said.
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