British American Tobacco Malaysia - British American Tobacco Malaysia Shows Strong Progress In The Legal Market Though Results Continue To Be Impacted By High Level Of Illegal Trade

Kuala Lumpur, 19 April 2018 – Malaysia’s No 1. legal tobacco company, British American Tobacco (Malaysia) Berhad (‘BAT Malaysia or Company’), held its 57th Annual General Meeting and declared its 2017 numbers which showed a revenue decline of 20.1% compared to 2016 as a result of continued growth of the illegal trade in Malaysia, suppressing the legal market. In spite of this, based upon the successful completion of its business reorganisation and strong performance in the legal market, BAT Malaysia expressed commitment towards investing behind growing its leadership in the legal market and supporting the Government in their fight against illegal trade.

Building a Fair Society: BAT Malaysia’s Commitment

Erik Stoel, Managing Director of BAT Malaysia said, “Over 100 years, the Company grew to be Malaysia’s most valuable, successful and resilient companies. However, the current state of the tobacco market in Malaysia remains very concerning, with high level of illegal trade but we will do all that is within our control and right to ensure that the current situation and pressure on our operating results, as a result of illegal trade, will be resolved, and we can continue our journey as one of the most successful companies in Malaysia.”

“Our foundation is strong and has strengthened considerably in 2017 via the transformation of our business model. We are saddened by the closure of our factory and as a result had to let 230 of our colleagues go. However, it has made us faster, leaner, cost effective and has allowed us to review our entire way of working to be a more competitive company.”

“Our leading brands, Dunhill and Peter Stuyvesant, have performed very strong and our portfolio has been strengthened with the introduction of Rothmans in the VFM segment. Our growth was enabled via improved insights, sharper and faster decision making and development of new skillsets that have enabled better execution. Unfortunately due to the substantial price gap between legal and illegal cigarettes and the pressure on affordability, it is extremely difficult to compete with the illegal segment and this is a general industry issue. However, our performance in the legal market has given us a greater level of confidence.”

“Despite the challenges we have to face, we will continue to run our business responsibly and be a respectable corporate citizen with an excellent track record in corporate governance and as a leading employer, with a multitude of award-winning, best-in-class talent development programmes for Malaysians. We export our talent to other BAT markets simply because our capabilities are in demand, and the experiences of our Malaysian colleagues abroad will help us to strengthen our organisation for the future. We are also recognised as one of the best tax payers by the Government. Our leading position and status in Malaysia compel us to do our part that leads toward a society where diversity is treasured, positive actions are recognised, freedom of choice is encouraged and fairness is an integral part of our DNA. We do all to live and protect these guiding principles to allow benefits not only for the Company, but also for our shareholders, the country we have our business in, people and community.”

“We will continue to invest where it matters to strengthen our business performance in the legal market whilst continuing to explore avenues for further cost efficiencies which do not undermine our growth. We invest for the future and like all fair minded people and corporate citizens we will not tolerate and allow any illegal trade to define who we are as a company. The challenges for the legal tobacco industry may be great, but we believe we have the resilience, foundation and commitment to embrace these challenges and take the necessary actions and find ways to overcome them”, reassured Stoel.

Our 2017 Business performance

BAT Malaysia continues to be the leading tobacco company in the legal market in Malaysia and has shown solid share performance. Though our FY corporate share was down by 3.2% compared to 2016, we actually grew our share by 1.4% from exit 2016 to 54.6% by exit 2017. This was driven by strong growth of our flagship brand Dunhill (+0.7% to 37.8%) growing our share of segment in the premium segment from 59% to 62%. We also obtained leadership in the aspiration premium segment via a strong performance of Peter Stuyvesant (7.5%).

With affordability remaining a key concern for consumers, the Company entered the Value for Money segment (VFM - lowest price segment in the market) with Rothmans, quickly achieving 30% share in that segment. The launch of Rothmans in the VFM segment will strengthen the Company’s portfolio for the long term in helping to retain down trading consumers to remain in the legal market.

Our volume in 2017 was down by 14.5% compared to 2016, however from end 2016 to end 2017, we have seen a stable volume performance, in spite of continued growth of illegal trade.

The Company’s revenue and profit from operations in 2017 were down following the legal market size decline compared to 2016 and the significantly reduced export volumes as a result of the factory closure. Results were marginally off-set by reductions in the cost base.

Full year 2017 financial highlights:

• Fourth interim dividend : 43 sen per share.
• Revenue declined 20.1% for 2017 when compared to the same period of last year
• Gross Profit decreased by 18.8% versus same period of last year.
• Operating expenses were at 4.7% (RM19 million) lower than the same period last year, attributed to overhead savings from cost base transformation initiatives the Company has undertaken, lower recharges from related entities and the one-off rental income from the sub-lease of the unutilized space tenanted by the Company in the first three quarters of 2017.
• Profit from Operations registered a decline of 29.2% and Profit after Tax a decline of 31.7% when compared to the previous year.

Illegal Trade

“While we remain concerned that the legal domestic market continues to suffer due to the escalating illegal cigarette trade in the country, we have faith that Malaysians are all for fair trade and society. We may have differing opinion on tobacco, but I am sure that the Government and Malaysians will not stand for allowing this unfair illegal trade to continue in this country, and let the illegal operators rob the country of its rights to provide and protect welfare, development, safety and employment,” said Stoel.

“We hope the Government and Malaysians understand that the illegal cigarettes problem is a reality which is now too big to ignore and has become a societal problem that undermines not only our business but the health agenda of the country with respect to smoking, shareholders returns, jobs in legal industry as well as tax revenues that could be invested in the development of the country and people.”

“It seems abundantly clear that against a backdrop of a challenging economic environment and poor consumer sentiment, this illegal and undesirable societal problem can only be brought under control via a strong and integrated national agenda of enforcement amongst all law enforcement agencies and the willingness to have an open mind to consider alternative solutions on how to regulate the tobacco market.”

“Whilst the successful completion of our transformation in 2017 and the underlying results in the legal market gave us a greater level of confidence for the future, it also has to be acknowledged that any significant legal industry growth and as such our growth, will require big interventions and actionable solutions in reducing the illegal market”, Stoel stressed.

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For more information on British American Tobacco Malaysia, please visit www.batmalaysia.com.

About British American Tobacco (Malaysia) Berhad

British American Tobacco (Malaysia) Berhad (British American Tobacco Malaysia) British American Tobacco Malaysia is the leading tobacco company in Malaysia. British American Tobacco Malaysia markets high quality tobacco products designed to meet diverse consumer preferences. Our portfolio includes world-famous brands like DUNHILL, KENT, PETER STUYVESANT, PALL MALL and ROTHMANS.

British American Tobacco Malaysia employs 497 employees who are involved in a wide spectrum of disciplines, from generating insights, developing brands and making these available on a national level. In addition, we also set leading edge talent development practices as well as ensure a strong foundation of corporate governance and shareholder relations.

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.

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For more information, please contact British American Tobacco Malaysia:

Fairuz Helmi, Head of External Affairs at 03-27208188 or Fairuz_Helmi@bat.com

Prianka Krishnamurthy, External Affairs Manager at 03-27208147 or Prianka_Krishnamurthy@bat.com

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