KUALA LUMPUR (July 24): British American Tobacco Malaysia Bhd (BAT) posted a lower net profit of RM47.53 million for the second quarter ended June 30, 2023 (2QFY2023), down 35.11% from the RM73.25 million it made in 2QFY2022, despite higher revenue, as the group increased its investments towards launching vapour products, which hiked up its operating expenses to RM100.8 million from RM60.58 million previously.

Earnings per share dropped to 16.6 sen from 25.7 sen, its bourse filing showed. Quarterly was at RM678.12 million, up 6.38% from RM637.46 million, its bourse filing showed.

The tobacco group declared a second interim dividend of 16 sen per share — down from 25 sen offered in the same period last year — that amounted to RM45.7 million, payable on Aug 22, 2023.

For the six months ended June 30, 2023, the group's net profit fell 30% to RM87.85 million from RM125.54 million, as revenue dropped 7.76% to RM1.07 billion from RM1.16 billion.

"Though the group’s volume had trended upwards in the second quarter, the overall volume for the first half of 2023 was impacted by the soft market demand in the first quarter of the current year due to increased vapour interaction, tobacco black market and the start of the fasting month," it said.

Compared to a year ago, its premium market share dropped 0.8% to 33%, while aspiration premium brands saw a 0.1% drop to 6.7%. "Consistent with the downtrading trend observed within the legal combustible market, the group’s VFM (value-for-money) brands saw an increase of 0.5% share of market to 11.6%."

"The fall in the group’s volume of 7.3% in the first half of the year when compared to the same period last year has resulted in the decrease of revenue of 7.8% (RM91 million). Profit from operations registered a drop of 30.8% (RM58 million) when compared to the same period last year as a result of the group’s heightened investment towards the launch of its vapour products in the coming months," the group added.

Going forward, BAT expects an impact to its financial performance in the short-term, driven by the tough economic landscape due to inflationary pressures, accelerated vapour interaction, and the group’s amplified investment into the launch of vapour products. "The challenging operating landscape is expected to stretch disposable income, further leading consumers to switch from legal products to black market options," it said.

BAT managing director Nedal Salem said the group's financial results were within expectations, given the tough economic climate. Nevertheless, it expects the impact to be short term, as the group continues to progress into a multi-category organisation, backed by its trajectory into its new category segment that offers reduced-risk alternatives to adult smokers.

"To this end, the group aims to continue growing its tobacco heating product, gloTM, while preparing for the launch of Vuse, our vapour product which is currently the number one global vaping brand. Both gloTM and Vuse represent the group’s efforts to offer a choice of reduced-risk alternatives to adult smokers. This is in line with our commitment towards building A Better Tomorrow.”

Meanwhile, the group noted that the tobacco black market continues to impact the industry and said it would continue to work with authorities to bring down the incidence of black-market cigarettes, which hovers above 55% now.

“The group is positive that the government will continue to drive the fight against the high level of tobacco black market and hopes that the Budget 2024 tabling will continue to see current measures like tightening controls on the importation of cigarettes, enhancing controls along the Malaysian coastline and at landing points including private jetties, and the continued implementation of a special rewards scheme for enforcement agencies be maintained,” Salem added.

BAT shares closed four sen or 0.39% lower at RM10.30 on Monday, valuing the group at RM2.94 billion.