BAT Malaysia encouraged by illicit trade crackdown

KUALA LUMPUR: British American Tobacco (Malaysia) Bhd (BAT Malaysia), which has seen a stabilisation in its domestic sales volume in the first quarter of 2017, guided that the outlook for the year will be highly dependent on the effectiveness of the government’s initiatives to curb illegal trade.

Managing director Erik Stoel said it was encouraged by the government’s efforts to crack down on illicit cigarettes and its intention of not raising excise duty at the moment.

“We’ve seen in the last couple of months an absolute stabilisation of our volume and (market) share to a marginal growth. We aim for share and volume growth in a challenging time,” he told a press conference after its AGM yesterday.

Within the total legal market, BAT holds a 57.1% share in 2016 with leading brand Dunhill recording a market share of 42.2%. BAT’s portfolio also includes the Peter Stuyvesant, Kent and Pall Mall brands.

BAT remains concerned by the current high level of illegal cigarette trade in Malaysia, which forms the main challenge in the short and medium term for the legal tobacco industry after illicits rose to a record high of 57.1% of total cigarette consumption as of December 2016.

“It’s the biggest illicit market in the world and it’s quite concerning, definitely a pressure to the entire tobacco industry,” said Stoel.

It was a challenging 2016 for the legal tobacco industry in Malaysia, including BAT, whose net profit fell 20.07% last year, while its domestic volumes dropped 27.8%, principally driven by the steep excise increase in November 2015, which in turn resulted in a significant increase in illegal cigarettes.

Despite the challenging business environment in Malaysia, Stoel said BAT will not exit the Malaysian market and is here for the long term.

He said if the government were to be more effective, quite a significant part of the (illicit) market will flow back to the legal brands.

“When the government gets more effective, consumers will come back but their consumption will go down. If that happens, it’d be the most effective way of addressing this topic, also from a health perspective as consumption will reduce,” said Stoel.

He said BAT will not raise prices of its products as long as the government does not increase excise. But being a commercial organisation, it will always look at the pricing factor because costs will go up.

Stoel said to partially address the challenging business environment, it is making transformative change to its business model in 2016, sharpening its commercial capabilities while optimising its supply chain and transactional activities.

Meanwhile, the group will move from its current headquarters at Virginia Park in Section 19, Petaling Jaya, Selangor, to Wisma Guocoland in Bukit Damansara, Kuala Lumpur by August 2017.

In line with the restructuring of its business operations, all contract manufacturing has stopped and the winding down of the manufacturing facilities is expected to be completed by third quarter this year. It is laying off 230 workers.