by FARA AISYAH/ pic by TMR FILE

BRITISH American Tobacco (M) Bhd’s (BAT) earnings fell 42.7% year-on-year (YoY) to RM50.77 million in the first quarter ended March 31, 2020 (1Q20), as the legal market for cigarettes continued to contract.

Illicit cigarette volume and illicit nicotine vaping growth, as well as market downtrading dragged the group’s earnings lower, BAT said in an exchange filing yesterday.

Duty-free sales, which comprise 4% of group revenue, also fell as a consequence of regional and international Covid-19 travel restrictions.

Quarterly revenue decreased 22.5% to RM481.15 million from RM620.96 million in January to March 2019, as volume declined 21% for the aforementioned reasons.

The group declared a first interim dividend of 17 sen to be paid on June 18, 2020.

BAT Malaysia MD Jonathan Reed said the sustainability of the industry and livelihoods of the group’s employees will be very much dependent on tackling the black market and creating a regulated nicotine landscape and sensible fiscal policies.

“The government is losing RM5.1 billion 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.

“It’s alarming that at a time when movement restrictions are at their strictest and the legal business had distribution disruptions — the criminal syndicates are able to establish a virtual monopoly by brazenly flouting the Movement Control Order (MCO) and profiteer from a national health and economic crisis,” Reed said.

He added that due to the supply disruptions of legitimate tobacco manufacturers during the MCO period, consumers were forced to turn to cheap, black market cigarettes.

Hence, the severe uptick in illegal cigarette activities impacted BAT’s earnings in the quarter, although the group said its domestic volume remains resilient despite distribution disruption.

BAT added that its restructuring exercise, which began in 4Q19 as a means of surviving the challenging environment, is expected to be completed in 2020.

The exercise resulted in a reduction of workforce and incurred a charge of RM4 million in 1Q20.