British American Tobacco Holdings (New Zealand), the nation’s largest cigarette company, reported a 3.9 percent decline in annual profit as it absorbed the government’s latest hike in excise tax.
The local arm of British American Tobacco, whose brands include Pall Mall, Benson & Hedges and Dunhill, reported net profit of $126.5 million in calendar 2014, down from $131.6 million a year earlier, according to financial statements lodged with the Companies Office. Revenue increased 1.5 percent to $1.23 billion, slower than the 4.3 percent increase in excise tax to $945 million. Total cost of sales, which includes excise tax, rose 3.3 percent to $995.1 million.
“Volume and share fell due to pricing activity related to excise absorption, leading to lower profit,” the parent company said of the New Zealand unit in its 2014 annual report.
The New Zealand government has been increasing the tobacco excise by 10 percent each year since 2012, lifting the price consumers must pay as part of an aspiration to make New Zealand smoke-free by 2025. Since the first quarter of 2012, consumer prices for tobacco and cigarettes have climbed 40 percent, compared to just a 2.5 percent increase across the broader basket of consumer prices used to measure inflation.
The Crown accrued tobacco excise duties of $1.33 billion in the 10 months ended April 30, $20 million ahead of forecast and up from $1.12 billion a year earlier. The Treasury estimates tobacco excise will generate $1.46 billion of revenue in the June financial year.
BAT NZ reduced costs in other areas, with selling, distribution and marketing costs down 4.3 percent to $35.7 million, while administrative and other overheads shrank 7.7 percent to $21.7 million and finance costs tumbled 45 percent to $3.8 million. The tobacco company’s tax expense slipped to $50 million in the year from $51.3 million in 2013.
Employee benefits increased 1.4 percent to $15 million in the year, though BAT took a smaller provision for staff incentives to be paid in 2015 of $1.5 million, compared to $2.1 million a year earlier. The incentives are provided for based on forecast year-end results and whether preset targets are met.
BAT paid dividends totalling $115.7 million in 2014, down from $122 million a year earlier when it posted its biggest annual profit since at least 1999.
The company dominates New Zealand’s tobacco market, with nearest rival Imperial Tobacco New Zealand, whose brands include Peter Jackson and Drum loose tobacco, reporting annual profit of $20.5 million on revenue of $475.9 million in the year ended Sept. 30, 2014, and Philip Morris (New Zealand), which has the Marlboro brand, generating profit of $1.2 million on sales of $99 million in calendar 2014.
Imperial’s global parent said the company grew local market share in 2014 with growth form its JPS and West brands, while Philip Morris’s New Zealand business didn’t rate a mention in the parent’s 2014 annual report beyond noting the government is considering the introduction of plain packaging.