JTI worried about impact of illegal cigarette sales, cheaper local brands

JT International Bhd (JTI) is expecting the industry to “remain extremely challenging” this year due to the continued sale of illegal cigarettes and the impact from certain local brands being sold below the Government-mandated minimum cigarette price.
The company, which has the second-biggest cigarette market share in the country and is the maker of Winston cigarettes, cited a recent Goldman Sachs intelligence report that stated that illicit trade in Malaysia was the second-highest in the world.
“If you look at the illicit trade situation in the market today, total illicit trade (of the entire market) last year was at 34.5%, which is just a marginal decline from 2011's 36.1%.
“These are still very high figures, and we are the second-highest in the world,” JTI's chief financial officer Thean Nam Hooi told journalists after its AGM.
While acknowledging the enforcement agencies' efforts to reduce the trade, he said any further drastic increases in excise duties might result in undesired outcomes for the industry.
“Any further drastic excise hikes would probably push total excise revenues down, so I can't gauge what the Government would do. But we are hopeful that there would be a pragmatic approach to excise taxation moving forward,” Thean said.
The company's managing director Robert Stanworth hopes that any increase in the excise duties would be done in an organised manner.
“The important thing with excise duties, as we have experienced in many organisations in many markets, is that it be moderate and predictable.
“We understand that the Government might want to increase it from time to time, but it is important that it is moderate and predictable to a certain degree so that the market can absorb it,” he said.
“Any large and sudden increase almost inevitably causes a decline in the legitimate market, resulting in lower revenues for the Government at the end of the day,” Stanworth added.
Meanwhile, JTI said that while it did not have a formal dividend policy, any excess liquidity on top of its working capital needs would be returned as dividends.
On another matter, the company will rebrand its Mild Seven cigarettes to Mevius by the middle of this year.
This would involve the full range of the Mild Seven brand, an official statement said.
According to the Nielsen Retail Audit Report, JTI recorded a market share of 19.6% in 2012, compared to 19.9% the year before.
Its Mild Seven recorded an increase in market share to 4.4% last year from 4.1% in 2011. Winston's market share, in the meantime, declined to 9.8% last year from 10% in 2011.