BAT to review investment as illicit cigarette trade worsens

The level of illegal tobacco in the market has grown by double digits despite constant calls for action

By SULHI KHALID / Pic By RAZAK GHAZALI

BRITISH American Tobacco (M) Bhd (BAT) will review its level of investment in Malaysia if there is no meaningful intervention to curb the illegal cigarette trade, warned its MD Erik Stoel (picture).

The tobacco company noted the level of illegal tobacco in the market has grown by double digits despite constant calls for action to be taken.

“I’d like to remind all stakeholders that this is an issue beyond enforcement.

“A cross-government action plan involving key ministries and agencies needs to be in effect to bring down the levels of illegal tobacco entering into Malaysia,” he said in a statement to Bursa Malaysia yesterday.

The group is extremely concerned about the market outlook for 2019 as there is a lack of progress on the reduction of illegal tobacco trade and the high level of affordability stretch on legal consumers in Malaysia, it noted.

BAT added that the persistent high levels of illegal tobacco has seen the group committing additional resources to commission an international study highlighting the impact of this black economy on the country.

Early last month, Oxford Economics Ltd highlighted that Malaysia is estimated to have lost RM5.13 billion in potential tax revenue to the black market for cigarettes as the high cost of legal brands is driving both supply and demand for illicit trade.

About 75% of Malaysia’s black market for cigarettes in 2018 comprised illicit whites smuggled primarily from Vietnam, Indonesia and the Philippines where legal cigarette brands cost less than half of that in Malaysia.

Stoel’s warning comes as BAT’s net profit declined by 32% year-on-year (YoY) to RM77 million for its second quarter ended June 30, 2019, due to market contraction and higher operating cost.

Revenue dropped by 6% YoY to RM640 million for the period as its premium brand, Dunhill, saw a slight impact in market share due to affordability stretch on consumers.

On its outlook, BAT stated it will be rationalising its opera-ting cost and continue to work closely with the authorities on enhancing enforcement and other solutions to address the illegal cigarette trade.

BAT announced an interim dividend of 26 sen per share to its shareholders, to be paid on Aug 22, 2019.

BAT’s shares closed 48 sen lower yesterday to RM29.60, valuing the company at RM8.45 billion.

BAT is a leading tobacco company in Malaysia, offering high-quality tobacco products designed to meet its diverse consumer preferences.

Its portfolio includes world famous brands like Dunhill, Kent, Peter Stuyvesant, Pall Mall and Rothmans.