Philip Morris Malaysia hopes to regain momentum as Covid-19 restrictions relax
PHILIP Morris (Malaysia) Sdn Bhd (PMM), a wholly owned subsidiary of Hong Kong-based Philip Morris Asia Ltd, was making significant progress in converting smokers nationwide to its reduced risk product (RRP) – IQOS. Then the Covid-19 pandemic struck.
The heat-without-burning tobacco (HNB) product, IQOS, was launched in Malaysia in 2018. The higher-margin IQOS began to advance a year later, partly contributing to the 1,359.12% increase PMM’s net profit for the year ended December. 31 2019 (FY2019), at RM18.56million compared to RM1.27million in FY2018. But mainly, the merger of Godfrey Philips Malaysia Sdn Bhd, which belonged to Philip Morris International Inc (PMI ), and PMM helped boost profits. The tobacco company also saw its revenue increase by 678.4% to Ringgit 1.08 billion in fiscal 2019, from Ringgit 138.34 million the year before.
However, the pandemic has disrupted his efforts to persuade adult smokers to switch from traditional cigarettes to alternatives to smokeless tobacco. Data from Malaysia Companies Commission (SSM) shows PMM’s net profit fell 69.6% to RM 5.64 million in fiscal 2020 as its revenue fell 7% to RM 1 billion of RM amid the blockages induced by Covid-19. It has not yet filed its financial statements for fiscal year 2021 with SSM.
Without disclosing the company’s profit figures, PMM chief executive Naeem Shahab Khan said 2021 has been a “difficult year” due to the prolonged lockdowns.
“2021 is mainly aimed at ensuring the safety of our teams and that our fundamental activity is intact – that we are able to distribute, open our points of sale and bring new products like the lil SOLID 2.0 to the market – rather as income and profit. And yes, the longer lockdown periods (June to September) affected our business, ”he told The Edge.
On the one hand, the temporary closure of its 29 IQOS outlets in Malaysia due to movement restrictions impacted PMM’s ability to communicate with consumers and slowed down plans to educate smokers about risky alternatives. reduced to conventional cigarettes, reveals Naeem.
“Our internal survey shows that more than half of those surveyed still believe that there is no difference in risk between PRRs and a normal cigarette. So our main job, in the future, is to make them understand that there is a difference and we can only do that in our stores because we are not allowed to advertise it because RRPs are still a tobacco product, ”he adds.
Still, Naeem notes that smokers who have switched to IQOS continue to stick with it. “This is because once you start using RRPs you will feel that there is a big difference – less smoke, less smell, more convenience and you also feel better – than you do.” not want to go back to smoking. “
Regarding his outlook for PMM next year, he said: “We hope that there will be no more blockages in 2022. We hope that 2022 will be a better year than 2021. We will continue to improve our operational efficiency and ensure that our team works in a safe environment where Covid-19 continues to be rampant. We need to make sure we come back stronger as the economy recovers and move more people away from cigarettes and other combustible tobacco to RRPs, ”he said, as the company seeks to increase sales of its HNB tobacco devices in the country via the introduction of the more affordable lil SOLID 2.0 on November 27.
Three years after its launch, the number of IQOS users has reached nearly 115,000, which is 2% of all adult smokers in Malaysia.
Naeem refuses to reveal PMM’s 2022 sales target for IQOS except to say that it is “much, much higher than what we’ve been doing in the past three years.” “There are approximately 5.9 million adult smokers in Malaysia. So you can imagine the margin [for growth] is quite high, ”he adds.
PMM has so far released five versions of the IQOS heater in Malaysia: IQOS 2.4+, IQOS 3, IQOS Multi, IQOS 3 DUO and lil SOLID 2.0.
“As we continue to expand our portfolio, we will consider whether there is still a role to play for the products we had previously launched. For example, IQOS 3 is no longer available because we now have IQOS 3 DUO. We’ll always be looking to meet the right pricing needs and that’s why we’ve introduced lil SOLID 2.0 at RM99 – our first MSRP below RM100, ”said James Ryan, COO. commercial PMM.
As the PMI-led group moves globally in favor of smoke-free alternatives as part of what it calls a smoke-free future, what will happen to its traditional cigarette products such as Marlboro and Chesterfield? Naeem says, “This is a question that has been asked of us many times. Today, if we stop selling Marlboro and Chesterfield, that doesn’t mean that all the people who smoke them will quit.
“For us, these products are important because they allow us to move as many people as possible away from combustible cigarettes to smoke-free alternatives. We have a clear strategy on these products, but basically our goal is to make Malaysia smoke free.
“Over the past five to six years, PMI has spent over US $ 8.1 billion (RM 34.36 billion), or 98% of our total research and development budget, on the development of RRP. Today, RRPs are sold in more than 70 markets, ”he adds. Smoke-free products were reported to account for nearly 30% of PMI’s total net revenues globally in the quarter ended June 30, 2021. By 2025, it aims to generate at least 50% of PMI’s net revenues. these products.
Naeem says that although sales volume has picked up for PMM, it is still below pre-2019 pandemic levels. Indeed, stay-at-home orders and declining public activities have led Malaysians to smoke less. “The impact is felt by the entire industry. “
Meanwhile, one of the main positive benefits of the pandemic is that the illicit cigarette trade in the country has declined. “The pandemic has reduced illegal cigarette consumption from 64% before the pandemic to 57% today. “
PMM waits and sees it approaching on vape
Like its peers British American Tobacco (Malaysia) Bhd and JT International Bhd (JTI Malaysia), PMM takes a wait-and-see approach until there is an appropriate regulatory framework for nicotine vaping before introducing other RRPs. such as vape products in Malaysia.
“Today vaping is illegal in Malaysia. There is a lot of talk going on to legalize the vaping industry. Once they are legalized we will have a vape product available but for now we will focus on our HNB products [IQOS], says Naeem.
Vape players have spent years asking the government to regulate the industry. Yet sales of nicotine-containing vaporizers and e-cigarettes remain federally illegal, although they are sold openly and readily available.
In January of this year, the government imposed a 10% excise tax on all cigarette devices, electronic and non-electronic. In addition, an excise duty of 40 sen per ml of nicotine-free vaping liquids has been imposed. More recently, authorities announced that they would introduce an excise tax of RM1.20 per ml on vape liquids containing both nicotine and non-nicotine from January 1, 2022.
“The government is trying to tax all vaping products and I think it’s a good thing for us because once these products enter the tax system there will be a tax or regulatory mechanism available to businesses. like us. This game. Currently, there is none. “
Yet JTI Malaysia previously lamented that there is currently a huge disparity in the excise tax levied on nicotine products. For example, HNB products such as IQOS are taxed at RM 4 per pack, while nicotine-free vape liquids are taxed at 40 sen per ml, which is 20 times less than legal cigarettes, with a pack of cigarettes taxed at 8. RM.
“Regarding the tax system, our overall philosophy is that taxation should be based on the level of risk [of tobacco products]. The higher the risk, the higher the tax. We recognize that people should not smoke at all. If they smoke, they should try to quit. If they can’t stop, then we can be part of the solution by moving them to RRPs, and therefore the tax treatment on RRPs should be different from the tax treatment on cigarettes. With the current mechanism that the government is following, I think they are moving in that direction, ”Naeem said.
On November 23, it was reported that the Ministry of Health (MoH) is expected to present the draft of a new law to regulate the use of tobacco and electronic cigarette products at the first session of the Dewan Rakyat serving the ‘next year.
“Malaysia is at a crossroads. Over the past five to eight years, companies have invested in RRPs [including vaping, e-cigarettes and HNB variants]. How can we as a country benefit from these products and keep so many people away from combustible tobacco products?
“Another thing to understand is that our children should not smoke. People who have not started smoking should not smoke. So how do they ensure that the access of young people [to tobacco products] is properly governed and prevented? We hope the health ministry will look into this issue, ”Naeem said.