The growing trend of consumers trading down had an impact on British American Tobacco (Malaysia) Bhd (BAT) as declining volumes caused its net profit for the second quarter ended June 30, 2010 to decline 7.7% to RM185.84 million.
The lower profits were also due to higher packaging cost from the introduction of Dunhill Reloc, the timing of its marketing activities and overheads expenditure. BAT reported that volumes had registered a marginal decline by 1.6% for the first six months of 2010 in comparison to the same period last year partially also due to high levels of illicit trade.
Revenue for the quarter, however, grew 1.7% to RM993.87 million from RM977.65 million. Despite the lower profit, BAT declared an interim dividend of RM1.13 to go ex on Aug 10, 2010. The entitlement date is Aug 12.
In a statement yesterday, BAT noted that its local portfolio of brands performed commendably in the first five months of the year, recording a market share of 60.3% up to May, which is an increase of 0.3 percentage point compared to that in the previous corresponding period.
It said the growth was led by strong performance from the group’s global drive brands with Dunhill which recorded its highest ever market share of 44.8%. The group continues to lead the premium segment of the market with a year-to-date May market share standing at 73.9%.
“Industry volumes contracted by 0.9% in the first half compared to the previous year’s which is a much smaller decline after the double-digit contractions experienced in 2009, benefiting from our country’s double-digit economic growth in the first quarter and the slight reduction in smuggled cigarettes,” managing director William Toh said.
However, he added despite the slight reduction, smuggled cigarettes remain a major thorn in the industry as it continues to have a large presence with 37.1% market share. Smuggled cigarettes continue to be a lucrative multi-million dollar illegal market that deprives the government of much needed tax funds and impacts legal businesses.
Toh said BAT is committed to strengthening its leading position within the tobacco industry through continued focus on reinforcing its brand portfolio, trade effectiveness, enhancing productivity and running its business responsibly.
“Given the demanding environment and barring unforeseen circumstances, we maintain our expectation that the financial results for the year will be satisfactory at best. As for the implementation of the ban on packs less than 20 sticks by the government, it is still in its early stages and the full impact of this ban has yet to be realised,” Toh said.
This article appeared in The Edge Financial Daily, July 23, 2010.
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