Illicit market dampener


BAT Malaysia managing director Jonathan Reed (pic) said B40 and M40 consumers especially will be facing financial pressures due to the prolonged movement control order (MCO), and these segments may turn to cheaper black market alternatives.

PETALING JAYA: Travel restrictions will continue to impact duty-free cigarette sales of British American Tobacco (M) Bhd (BAT Malaysia) and the levels of black market cigarettes in Malaysia is expected to remain high in 2021.

In a Bursa filing, BAT Malaysia said sales growth is dependent on the recovery of the legal cigarette market, a regulated nicotine landscape and a resolution to the affordability issues affecting consumers.

“The group is unable to compete against the black market without significant enforcement and effective excise reform by the government, ” said BAT Malaysia.

For 2021, the group’s strategies include strengthening Dunhill’s premium leadership and leading in the value for money (VFM) portfolio with Rothmans and KYO.

BAT Malaysia managing director Jonathan Reed (pic) said B40 and M40 consumers especially will be facing financial pressures due to the prolonged movement control order (MCO), and these segments may turn to cheaper black market alternatives.

“The government has made a good start in addressing the tobacco black market in Budget 2021.

“There is now an urgent need to close the price gap between legal and black market products. Only then can the illegal cigarettes problem be addressed effectively and tax losses can be stemmed.”

“Further, it is critical that the government introduces regulatory and excise frameworks for nicotine vaping. This would ensure that the one million Malaysian vapers can access products of known quality, allowing the government to collect significant revenue, ” said Reed.

For its fourth quarter ended Dec 31,2020, BAT Malaysia’s net profit fell 25.6% year-on-year to RM72.7mil due to higher cost of sales and operating expenses, while revenue was slightly lower at RM660mil.

However, Reed noted that the group had three consecutive quarters of growth in profit from operations.

“Notably, BAT Malaysia was able to outperform the legal industry with a growth of 3% over the previous quarter, mainly due to the market leadership of Dunhill coupled with the strong performance of our VFM brands Rothmans and KYO, ” he said.

For the full financial year (FY20), net profit fell 30% year-on-year to RM241.8mil while revenue fell 7.7% to RM2.3bil.

BAT Malaysia said FY20 performance was overshadowed by the growth of the tobacco and vaping black market which grew to 70%.

The group said the decline in its FY20 perfomance was mainly due to legal market contraction as a result of high illicit cigarette volume, growth of illicit vaping, market downtrading and lower duty-free sales.

Euromonitor International had stated in October 2020 that Malaysia had the highest illegal tobacco incidence in the world.

However, BAT Malaysia’s market share grew 1.1% year-on-year to 51.7%, driven by the strength of its flagship brand Dunhill and growing VFM portfolio, namely Rothmans and KYO.

Compared with 2019, in the premium and VFM segments, Dunhill’s market share grew 2% while Rothmans and KYO grew 5.3% respectively.

BAT Malaysia declared a fourth interim dividend of 27 sen per share, totalling RM77mil to be paid on March 9,2021.

This brings FY20 dividend to 83 sen, compared with 118 sen for FY19.

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