BAT Hopes to Maintain RM4b Revenue

Source from:  Business Times (Malaysia) 04/21/2009

Malaysia's largest cigarette maker also expects to continue paying out at least 90 per cent of its net profit to shareholders, says its managing director. MALAYSIA'S largest cigarette maker, British American Tobacco (Malaysia) Bhd (BAT) (4162), says it hopes to at least maintain last year's revenue of RM4.1 billion this year as it battles growing illicit trade. Illicit trade has reached decade-high levels in Malaysia, averaging 25.6 per cent of total cigarette sales, managing director Jack Bowles said. "This coupled with the start of the economic downturn that has impacted spending power has led to the continued decline of legal-tobacco volumes," he told reporters after the company's annual general meeting yesterday. Tobacco volumes this year will likely fall by more than 2 per cent from 16 billion sticks last year, finance director Stephen Rush said. Still, BAT's revenue should be "stable", he said, without elaborating. The company also expects to continue paying out at least 90 per cent of its net profit to shareholders, he added. BAT, which sells brands like Dunhill and Pall Mall, commands about two-thirds of the cigarette market in Malaysia. The company, which raised the price of its 14-stick premium packs by 10 sen to RM6.60 this month, citing higher costs, has no plans to increase prices further "unless required by tax or regulation", said Rush. Analysts said BAT's latest price increase was a "strategic move" prior to the removal of 14-stick packs in Malaysia by next year. The price of a single premium cigarette in a 14-stick pack is now about 4.7 per cent more expensive than in a 20-stick pack. "Given the significant price difference on a per stick basis, we believe consumers will be more willing to migrate to the 20-stick pack," analyst Rachel Huang of Affin Investment Bank said in a report last week. Bowles voiced hopes that any further cigarette tax increase by the government this year - there was a 20 per cent increase last year - would be done in a "moderate and gradual manner" so as not to push consumption to the illicit industry. Illict trade will increase in line with higher taxes, he said. Singapore, he noted, has managed to keep illicit trade stable at 18 per cent as it has not increased cigarette taxes in three years. Meanwhile, Bowles said it was too soon to say if graphic health warnings on cigarette packs, a move required by the government from this year, had hurt sales. "In terms of information to the consumer, the impact has been big. But in terms of its impact on sales, it is too soon to make a judgement," he said. Enditem