High level of illicit cigarette trade continues to hamper legal volumes

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Petaling Jaya, 11 February 2010 – British American Tobacco (Malaysia) Berhad (BAT Malaysia) announced that the Group’s turnover for 2009 was 5.1% lower at RM3,923.4 million compared to RM4,135.2 million in the same period last year. This was attributed to a volume decline of 13.8% due primarily to the increasing level of illicit trade and the contraction of the economy impacting consumer spending power, partially offset by higher net pricing and improved sales mix.

Despite this significant decline in volumes, the Group’s realigned strategic portfolio led by its Global Drive Brands has performed commendably during this period, gaining 2.6 percentage points market share amongst legal brands compared to the previous year to reach 54.6% market share. The main contributors to the strong performance of the Global Drive Brands in 2009 were Dunhill and Kent, which have both gained 1.9 percentage points and 1.4 percentage points market share respectively.

The Board of Directors of BAT Malaysia recommends a net final dividend of 62.00 sen per share for financial year ended 31 December 2009, subject to the approval of shareholders at the Company’s forthcoming Annual General Meeting on 20 April 2010. This brings the total net dividend for the 2009 financial year to 236.00 sen per share.

Commenting on the latest results, William Toh, Managing Director of BAT Malaysia said ”The legal cigarette industry volumes continue to be hampered by the excessively high levels of illicit cigarette trade which now accounts for more than one third of the total cigarettes sold in the country, according to the Illicit Cigarette Study commissioned by the Confederation of Malaysia Tobacco Manufacturers. These contraband cigarettes that are not manufactured by the major legal cigarette manufacturers in the country are smuggled in from neighbouring countries before being sold by errant retailers. This threat will be on an uptrend as smuggling and selling of illegal cigarettes is a lucrative addition to an organised crime’s portfolio of activities and to a retailer's earnings and these people will continue to deal in illicit cigarettes so long as the penalties are not a deterrent but merely a cost of doing business."

BAT Malaysia believes that the continued influx of very cheap illicit cigarette is not only a threat to the legal industry with loss of legal volumes year on year but seriously undermines the Government’s tax collection and health agenda to reduce smoking incidence in Malaysia. Cheap illicit cigarettes of unknown and undeclared substances are easily accessible and highly affordable.

We are greatly encouraged with the significant increase in enforcement efforts by the law enforcement agencies over the past year, especially the recent announcement by the Royal Malaysian Customs earlier this year of their intention to increase their force by 2500 new officers and staff in a concerted effort to further address smuggling activities. In addition to the increase in enforcement, it is also our hope that stricter penalties be meted out making it a bigger deterrence for those involved in the trade of illicit cigarettes.

Toh added that, “Moving forward, 2010 will continue to provide a challenging operating environment for the Group driven primarily by high level of illicit cigarette trade coupled with pressures on consumer spending power. The implementation of regulation by 1 June 2010 requiring the withdrawal of packs less than 20 sticks will also impose further pressure on the Group’s operating margin. Nevertheless, despite these challenges, the Group is committed to protecting and enhancing its leadership position within the industry through its strategic initiatives.”

For more information on British American Tobacco Malaysia’s financial results, please visit www.batmalaysia.com 

About British American Tobacco (Malaysia) Berhad

British American Tobacco (Malaysia) Berhad (British American Tobacco Malaysia) emerged on 3rd November 1999 from the merger of Rothmans of Pall Mall (Malaysia) Berhad and Malaysian Tobacco Company Berhad. These two long established tobacco companies brought with the merger, experience and an unrivalled portfolio of highly successful international brands to create the largest tobacco company in the country.

British American Tobacco Malaysia manufactures and markets high quality tobacco products designed to meet diverse consumer preferences. Brand portfolio includes well-established international names like Dunhill, Kent and Pall Mall. British American Tobacco Malaysia has about 2,000 employees who are involved in the full spectrum of the tobacco industry, from leaf buying and processing to manufacturing, marketing and distribution.

British American Tobacco Malaysia is part of the British American Tobacco group, which is the world’s most international tobacco group and the second largest stock market listed tobacco group by global market share.

For more information, please contact British American Tobacco Malaysia:

Mr Chin Tuck Weng, Corporate Affairs Manager at 03-7941 7318 or Chin_Tuck_Weng@bat.com
Ms Annabel Ng, Corporate Communications Manager at 03-7491 7281 or Annabel_Ng@bat.com