BAT’s 3Q profit hit by higher operating costs


British American Tobacco (M) Bhd’s (BAT) net profit for the third quarter ended Sept 30, 2018 (3Q18), remained flat year-on-year (YoY) at RM145.81 million, mainly due to higher operating costs despite a pick up in demand.

The tobacco company’s revenue for the quarter improved to RM735.53 million from the RM734.61 million recorded in 3Q17, mainly due to a one-off benefit from the removal of the Goods and Services Tax (GST) from June to August 2018 and a strong volume mix.

In an exchange filing last week, BAT noted the higher operating expenses in 3Q18 was due to investment for strategic initiatives.

It added that the domestic volume remained stable in 3Q18 despite the price volatility in September caused by the different interpretations of the quantum of the Sales and Services Tax (SST) that is required  to be passed on.

The group continues to show strong resilience in this challenging period, with its volume recovery at 4.8% versus 1Q18.

Total industry legal volumes declined 3.8% YoY primarily due to high illegal cigarette trading.

BAT’s volume performance was impacted and registered a decline of 5.8% versus the same period last year.

MD Erik Stoel (picture) said the company is encouraged by its 3Q18 results, but is concerned with the development on SST pricing.

“Until today, we have not been given clear guidance on the minimum quantum that needs to be passed on.

“We have met with the bureaucrats of the Ministry of Health (MoH) who have indicated an expectation of a price increase of about RM1, ignoring the fact that SST is a replacement of GST.

“It is also inconsistent with the recent statement by the MoH that the ministry is looking at determining the recommended ceiling price to equalise and control cigarette prices across the board,” Stoel said in a statement last week.

He added that setting a price increase of such magnitude will spark a fresh push towards illegal cigarettes, which will aggravate the high incidence of illegal trade in this country, especially in the absence of effective government initiatives to reduce illegal cigarettes.

He hopes the price volatility brought on by the different interpretations of the SST implementation will cease soon once companies receive proper guidance from the MoH to enable industry plyers to navigate through this complexity and minimise impact on consumers.

BAT declared a dividend of 40 sen to be paid on Nov 16, 2018.