KUALA LUMPUR: British American Tobacco (Malaysia) Bhd's (BAT Malaysia) profit from operations for the third quarter (Q3) ended 30 September 2020 (FY20) stood at RM88 million, a 6 per cent increase compared to the preceding quarter.
Revenue for the quarter increased by 15 per cent to RM628 million compared to the preceding quarter.
Domestic industry volume increased by 7 per cent compared with the second quarter (Q2) FY20, mainly driven by volume recovery post the Movement Control Order (MCO) and the normalisation of consumer sales and trade inventories in the market.
BAT Malaysia managing director Jonathan Reed said the Q3 FY20 performance marks the company's second consecutive quarter of financial growth.
"This momentum resulted from Dunhill's continued and stable leadership position within the premium segment and a robustly positioned portfolio in the value-for-money (VFM) segment that includes the introduction of KYO brand, which has recorded a positive share of market since launching," he said in a statement.
Overall, BAT Malaysia recorded a growth in Q3 FY20 outperforming the legal domestic industry with a growth of 14 per cent compared with Q2 FY20 mainly due to Dunhill and the introduction of KYO, BAT Malaysia's new brand in the VFM segment.
Market share stood at 52.5 per cent, a 1.0ppt increase compared with the preceding quarter, driven by KYO and reinforced by Dunhill's consistent leadership within the premium segment.
Combined with Rothmans, BAT Malaysia's share of the VFM segment achieved a 35.8 per cent market share, a 5.6ppt increase compared with Q2 FY20.
The premium segment remains stable compared with the preceding quarter as a result of Dunhill's continued market leadership.
This overall improvement translated to the company's revenue increase of 15 per cent in Q3 FY20, which resulted in a 6 per cent rise in profit from operations against the preceding quarter.
Despite posted a slight stronger financial results, the company's year-to-date performance still faces serious impact from rampant tobacco and vaping black market that has overshadowed its earnings.
For the nine months, profit from operations stood at RM242 million, a 29 per cent decrease from last year, attributed to legal market contraction as a result of high illicit cigarette volume, growth of illicit vaping, market down-trading and lower duty-free sales as a result of regional and international travel restrictions.
However, the decline was partially offset by the benefit of cost rationalisation BAT Malaysia has undertaken since the end of 2019.
Further, BAT Malaysia also noted that the tobacco black market grew to 64.5 per cent during the quarter under review, translating to an increase of 4ppt, representing an additional RM80 million loss in tax revenue for the government.
This was despite the increase in enforcement activities this year, clearly indicating that this solution alone is not enough to curb this issue.
"Consumer affordability will continue to come under pressure due to the global pandemic, leading to further downtrading in the legal market and the growth of the tobacco and vaping black market.
"At 64.5 per cent, Malaysia is already the number one tobacco black market in the world," said Jonathan.
"The impact of the tobacco black market is far-reaching, it funds crime, fuels corruption and will hamper the country's economic recovery from the global Covid-19 pandemic.
"In response to this worrying trend, we launched an awareness campaign to STOP THE BLACK MARKET seeking the views and opinions of Malaysians on this crisis," he said.
Jonathan said from the feedback received, the company have found that Malaysians want urgent action to be taken against the tobacco black market.
Many Malaysians surveyed said they would like to see the government adopt a holistic approach to solving the issue via increased enforcement initiatives and structural excise reform.
"Budget 2021 provides an excellent opportunity for the government to unite, demonstrate leadership and collective will to address the problem by tabling broader solutions that includes strategic policy changes and taxation reforms," Jonathan said.