By RAHIMI YUNUS / Pic By TMR

British American Tobacco (M) Bhd (BAT) noted the contracting cigarette market — amid illegal cigarettes’ persistent cannibalisation of the market — led it to post a 21.1% year-on-year (YoY) fall in net profit for the second quarter ended June 30, 2018, to RM113.7 million.

Its revenue slumped 9.2% YoY to RM679.1 million as a result.

The maker of Dunhill cigarettes said in a filing to Bursa Malaysia yesterday illegal cigarettes have grown 4% to 63%, and subsequently, compressed the total legal industry volume for June 2018 year-to- date by 3.5% compared to the same period of last year.

BAT noted the duty-free volumes in the first half of 2018 (1H18) declined by 6.7% versus the same period of last year, which was higher than the industry average rate of decline due to its premium portfolio and geographical coverage.

Revenue was also impacted by the absence of the sale of residual leaf raw materials to related companies outside of Malaysia and the portfolio mix impact as a result of the Rothmans launch in the value for money (VFM) segment.

BAT has cut the second interim dividend payout to 35 sen per share, compared to 45 sen paid in the same quarter a year ago.

Earnings per share reduced to 38.6 sen a share versus 51.6 sen last year. The dividend is payable on Aug 23, 2018.

For its prospects, the group noted the current high incidence of illegal cigarette trade remains a concern.

Rothmans in the VFM segment is expected to see a moderate growth, while the premium segment will remain challenged by affordability concerns.

“The outlook of 2H18 will be very much dependant on the recovery of the legal market,” BAT noted.

BAT added that it has observed an improvement in shareholder confidence since the new government took over, but highlighted no new significant enforcement initiatives, nor decline in illegal incidences.

“We have been concerned and continue to be so over this issue which translates to RM5 billion in tax revenue loss, at the expense of taxpayers, legitimate companies like BAT, as well as our global and local investors which saw their investment value halved over the last two years,” BAT MD Erik Stoel said in a statement.

The BAT counter closed two sen lower at RM33.68 yesterday.