Illegal cigarettes weigh on BAT
Tobacco company’s revenue 20% down in fiscal 2017
KUALA LUMPUR: The growing size of the illegal tobacco market in Malaysia continues to weigh on the performance and share price of British American Tobacco (M) Bhd (BAT).
BAT MD Erik Stoel said the group’s performance and declining share price were directly correlated to the growing size of the country’s illicit market.
The group’s share price, which closed at RM24.72 yesterday, has halved from RM47.06 a year ago.
The size of the illegal market, meanwhile, has grown to 58.3% in 2017 from 52.5% in the previous year.
In FY17, the group’s revenue fell 20% to RM3bil from RM3.8bil.
“Of course we are not happy with the numbers because we are a very healthy company and our share price as well as our results are heavily influenced and directly correlated to the state of the tobacco market in Malaysia – which is about 60% illegal trade,” said Stoel during a media briefing.
Another major factor affecting the company’s performance, he said, was customer affordability, which in turn, fuelled illegal trade due to the significant price gap between legal and illegal cigarettes.
“While the macroeconomic indicators of the country are looking better but the translation of that to the average person on the street is not happening yet.
“And therefore we continue to see a contraction of the legal market,” he said.
Despite these challenges, he said, the group had managed to grow its share of the legal market to 54.6% in Dec 2017, from 53.2% in December 2016.
This, he said, was driven by strong growth in flagship brand Dunhill and a growing share in the premium segment.
“It was a very hard year but we made a huge amount of progress,” he said.
To address the issue of affordability, the group also entered the “value for money” segment with the Rothmans brand, and quickly captured a 30% share in the segment.
Moving forward, he said the group’s key priorities were to continue to grow within the legal market and identify solutions to address illegal trade.
BAT finance director Ricardo Guardo said the company expects the share price to recover, in line with the recovery of the market.
“The legal industry is half the size it was two years ago and the share price has, in a way, followed that trend,” he said.