BAT continues to be affected by black market

by RAHIMI YUNUS / pic by TMR

ILLICIT cigarettes and vapes continue to affect the top and bottom lines of tobacco companies, such as British American Tobacco (M) Bhd (BAT) which saw volume in its 2020 fiscal year declined by 8%.

According to an exchange filing yesterday, the group’s net profit in the fourth quarter ended Dec 31, 2020 (4Q20), dropped by 25.6% year-on-year to RM72.7 million from RM97.7 million last year.

Revenue in 4Q20 fell slightly from RM662.4 million a year ago to RM660.2 million.

For the full year, BAT’s net profit declined by 30% to RM241.8 million from RM345.7 million.

“Full-year 2020 performance was overshadowed by the growth of the tobacco and vaping black market which grew to 70%. The crisis has been underscored by Euromonitor International, stating in October that Malaysia had the highest illegal tobacco incidence in the world,” the company said in the announcement yesterday.

The group said it firmly believes significant enforcement and structural excise reforms are urgently needed to tackle the tobacco black market.

In the 4Q20, BAT stated that legal domestic industry volume remained flat compared to the preceding quarter as the tobacco black market continued to record a high illegal cigarette incidence at 64%.

The group’s volume, however, outperformed the legal domestic industry with a growth of 3% over the previous quarter to register a 52.4% market share.

It said the performance was mainly driven by market leader Dunhill and strong results of its value for money (VFM) portfolio with Rothmans International plc and KYO.

BAT said its duty-free business operations remained impacted by Covid-19 travel restrictions that continued in 4Q20.

“BAT proved to be resilient in 2020, with strong signs of improved quarter-on-quarter performance. Based on our 4Q results, we successfully delivered three consecutive quarters of growth in profit from operations,” MD Jonathan Reed said in a statement yesterday.

In 2021, Reed said the company expects the levels of black market cigarettes in Malaysia to remain high as the bottom 40% and middle 40% income groups will be facing financial pressures due to the prolonged Movement Control Order.

He said these segments may turn to cheaper black market alternatives because they cannot afford legal cigarettes.

In the exchange filing, the group said it has robust plans for 2021 to get back to growth, including strategies to strengthen its premium leadership and leading in VFM, by offering a robust portfolio in the segment to capture its fair share of down traders as a result of consumer affordability stretch given the economic slowdown.

BAT said growth will be very much 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,” it added.

Read our previous report here

Malaysia’s RM2.27b vape industry too substantial to remain unregulated