August 13, 2013

European Cigarette Industry to Be Steady Within 12-18 Months

The perspective for the European cigarette industry will continue to be steady within the coming 12-18 months, highlighting an estimated decrease of operating revenue increase to about 4.5%-5.5% versus the preceding requirement of 7% increase. "We anticipate observing a further more acceleration in decreasing cigarette sales within the next 12-18 months in the majority of European markets. Volume decreases may be greater in more successful markets, which will produce a larger effect on all round industry earnings," stated Paolo Leschiutta, author of the record. "On the whole, enhanced regulating pressure will probably persist in the operating earnings of cigarette manufacturers into 2015."

Throughout Europe, specialists anticipate a drop in cigarette volumes to be higher in southern European countries, where the rating agency is expecting no, or very sluggish, economic expansion in the period. In addition, experts note that corporate pressure has risen in the past year, which include a smoking ban in Russia, which the rating agency considers will produce a substantial short-term effect on volumes.

Cigarette producers will most likely boost prices in order to compensate the growing pressure on volumes. Price inflexibility is still good; however the present market factors will limit price boosts.
Industry experts assume that developing market expansion will help compensate slow mature markets. Philip Morris International and British American Tobacco must take advantage from their larger subjection to growing markets and from their preceding starts in investing in non-traditional goods. Imperial Tobacco is more open to mature markets as it has varied products, which will aid decrease the effect of sales decreases in those markets.

The developing e-cigarette market could add some pressure in the industry. Nevertheless, in the next two years experts estimate that these products would represent just 1%-2% of the worldwide cigarette market with regards to volumes. Some companies are entering into the segment through acquisitions when it comes to BAT, or product investment as in case with PMI. Experts consider that the perspective has more positive prospective than negative aspect. In case companies can compensate the industry's short-term difficulties with expansion in developing markets, potential small purchases and price boosts, then earnings growth could go over 6% and industry experts might consider modifying the perspective back to favorable.