Imperial Tobacco summed up the results of 2013

In 2013, Imperial Tobacco Company strengthened market positions of key cigarette brands under conditions of shadowing of the tobacco market in Ukraine, reduction of legal production and anticompetitive excise burden.

According to AC Nielsen Research Company, the share of Imperial Tobacco in Ukraine amounted to 20.1% by the end of 2013.The overall market position of the company has slightly reduced due to the substitution of the legal market with a shadow one, as well as to the elimination of volume-generating cigarette brands Golden Gate and Classic from the portfolio of Imperial Tobacco. As a responsible business company it abandoned production and sales of brands which were often subjected to counterfeit and carried risks for smokers and trading partners.

In 2013, a number of key brands showed growth compared to the 2012 figures: market share of Stolichnye cigarettes family has grown by 0.7 percentage points, West and Style by 2 percentage points each respectively, Davidoff by 0.1 percentage points. Prima Lux cigarettes retained its share in the highly competitive tobacco market of Ukraine. Development of Stolichnye cigarettes became possible owing to the successful innovative launch of large packs Stolichnye 25 as well as to the production of cigarettes in a popular format with a paper mouthpiece at the end of last year.

The company continues to advance in modern formats - cigarette brands of Imperial Tobacco in the formats of King Size Super Slims, Queen Size, Ultra Slims showed growth in 2013. With this, Ultra Slims format is a totally new segment for the cigarette market in Ukraine, first to develop by Imperial Tobacco owing to the launch of Davidoff Boudoir cigarettes. To date, these cigarettes are the only ones in this format on the Ukrainian market and continue to gain popularity among smokers.

In 2013, Imperial Tobacco factory in Ukraine produced 15.5 billion cigarettes, including the company's exports which amounted to 1.5 billion cigarettes. The main export destinations of the company are Armenia, Azerbaijan, Turkey, United Arab Emirates, Uzbekistan, Moldova, Mongolia. In 2013, the cigarettes produced in Ukraine by Imperial Tobacco factory started to be exported to Georgia on a great scale. The company continues technical modernization and implementation of investment projects, in particular, the construction of high-rise automated warehouse of finished products in Kiev. Last year, the company invested 140 mln UAH, which is 3.5 times more than over the same period in 2012.

Imperial Tobacco enterprises in Ukraine maintain leadership positions among the largest taxpayers. They paid taxes totalling 4.01 bln UAH to the budgets of all levels, including excise duty which amounted to 3.21 bln UAH in 2013. To compare, in 2012 the company paid respectively 3.94 bln and 3.12 billion UAH.

Salaries of employees of Imperial Tobacco enterprises rose on average by 12%. The state budget of Ukraine received more than 50.6 mln UAH in the form of a single social contribution and employees' income tax.

The key trend in the development of tobacco market during the last year was an alarming increase in illegal tobacco products - smuggling and counterfeiting. Share of illegal products in the total volume of manufactured cigarettes consumed in October 2013 amounted to 9.5% (data based on studying the volumes of illegal market presented by TNS Ukraine Company). According to AC Nielsen, legal market in 2013 reduced by 6.4% compared to 2012. This, in turn,causes a significant loss of excise and other tax revenues, loss of legal manufacturers’ and retailers’ revenue, as well as allows an easy supplying of uncontrolled products to consumers.

Experts of Imperial Tobacco Company forecast further growth of illegal products in 2014. Reasons for that are primarily economic. Ukraine has already one of the highest cigarette prices in Europe in comparison to salary levels, leading declining product affordability. The high cigarette prices are caused by a discriminatory taxation of inexpensive cigarettes which was introduced in Jan 13 while at the same time the ad valorem component of excise tax has been reduced (from 25% to 12%). Thus, expensive and premium segments got unjustified preferences with a lower tax burden. As a result, low-income consumers started to increasingly use the services of the black market. Instability is also increased by the regular attempts to introduce minimum retail prices (in the latest amendment -11 UAH for filter cigarettes and 5 UAH of non-filtered cigarettes).

 Oliver Kutz, CEO of Imperial Tobacco Ukraine:

“Overall our company showed a stable performance in a very difficult market environment. We have successfully introduced new products and innovations to satisfy the needs of our consumers for a larger products variety and we will continue our long term investment strategy. At the same time, we are remaining concerned about the market conditions with growing illicit trade due to an inefficient excise structure which was introduced in January 2013. The biggest threats to the industry were the attempts to introduce minimum pricing during the last months. This is seen as an uncompetitive initiative which contradicts European legislation and the rights of consumers, particularly the majority of population with lower or medium income levels. A further growth of illicit would be unavoidable. In such condition, Ukraine needs a reasonable excise and regulatory state policy, developed jointly with the industry and free from anti-competitive initiatives”