Imperial Tobacco Summarises Year 2012

Imperial Tobacco, which remains one of the leading tobacco companies in Ukraine maintained its market share at 22% (AC Nielsen analytical company rating) during fiscal year 2012 (October 2011 to September 2012) despite competitive price wars and the rapid growth of the illegal tobacco trade.

This share was achieved by the effective development of Imperial's key brands and new products. The new Davidoff ID premium brand was Imperial’s  most successful launch last year, as it claimed  0.3 % of the market in less than six months. Davidoff ID Blue generates nearly half of the ID category sales turnover. Another innovative product line, West Compact, has also shown steady growth, despite a weaker  position for its main competitors in the medium price segment.

Imperial Tobacco’s success is highlighted in the modern cigarette format segment – sales of Super slim grew by 13 % in 2012, sales of Imperial’s King size super slim products doubled and these now account for  0.48 % of the market.  Imperial’s Queen size compact cigarette format sales increased to 0.2 %  market share.

In 2012, the Imperial Tobacco factory, located in Kyiv, produced 18.3 billion cigarettes, including 1.76 billion for export. 39.8 million hryvnias were invested in fixed assets in 2012. Volume of production decreased by 15% compared with 2011, which is a direct consequence of the situation in the market - replacement of the shadow of legal tobacco products.

Imperial Tobacco remains one of the largest taxpayers in Ukraine. Its various enterprises paid  3.94 billion hryvnias in tax to the Ukrainian State Budget during the 2012 fiscal year, including 3.12 billion in  excise taxes. This represents an increase of 14 million in total taxes paid compared with the previous year.

Imperial Tobacco’s enterprises  created 87 new jobs during the last year and the average wages of its employees increased by 10 per cent. More than 85,3 million hryvnias were transferred to the State Budget of Ukraine in the form of social contributions and employee income taxes.

In this fiscal year, Imperial Tobacco also undertook a number of social projects aimed at preserving the beauty, historical and cultural heritage of the capital city as part of its programme of corporate social responsibility. For example, in the Holosiivskyi district of Kyiv, a new recreation area and a decorative fountain were opened. The value of these investments exceeded 500 thousand hryvnias. All the activities were undertaken prior to the entry into force of the law which now prohibits tobacco companies from undertaking any social responsibility activity that could contribute positively to the communities in which they operate.

One of the key trends during the year was the continued increase in the sale of illegal – both smuggled and counterfeit –tobacco products in Ukraine. The sale of illegal products causes significant losses of excise to the State, deprives legal manufacturers and retailers of income and makes unregulated products accessible to consumers. Commissioned market research, carried out by the TNS Ukraine on behalf of Imperial Tobacco, confirms that consumption of illegal tobacco products ( cigarettes upon which the relevant taxes have not been paid) increased from 4.20 % of all consumed products in  October 2011 to 4.41 % in  October 2012. However, this figure does not take into account the turnover of counterfeit products, which according to company experts is estimated at approaching 1 % of the entire market. Last year, more than half of these  smuggled goods came from Russia (54 %), followed by Moldova (26 %) and Belarus (13 %); these products are mainly sold in the Donetsk, Odessa and Dnipropetrovsk regions.

Company experts predict further growth in illegal trade due to the changes in  state excise tax policy, which came into effect on January 1, 2013. The increase in  the tax burden on  cigarettes in the lower and middle segments, which will hurt lower income consumers, will further increase the grey market, add to the profitability of illegal business, reduce the overall excise contribution to the State budget and add further pressure to households with less expendable income.

Eugene Walsh: Director General of Imperial Tobacco in Ukraine and Moldova

“2012 was a year of significant change and challenge both for our company and for the tobacco industry as a whole: additional restrictions on advertising and sales promotion, a total ban on smoking in bars and restaurants and the further growth of smuggling and counterfeiting. It led to the reduction of legal production and, as a result, to the reduction of public revenues from excise tax. We are convinced that under such circumstances the industry will soon play a less important role in significantly contributing to the State Budget of Ukraine. It is important to realise that only through a predictable, proportionate and graduated excise policy can stability be assured for the market where Government and legal business revenues are protected”