Downward pressure and growth drivers facing international tobacco companies

According to Tobacco Online and the Tobacco Science and Education Network, the recent overall performance reported by major tobacco companies worldwide shows a downward trend. Facing the downward pressure of the global economy and the continuous compression of sales space, major tobacco companies are calmly reflecting and actively responding. Why is performance declining? How to cope with the downward pressure? Is it through mergers and acquisitions, personnel changes, or new product development? Can the downward pressure be transformed into growth drivers?

Recently, major tobacco companies around the world have successively announced their recent performance and dynamics.

Philip Morris International

In the third quarter, Philip Morris International's cigarette sales reached 222.3 billion sticks, a year-on-year decrease of 0.4%. Among them, Marlboro sales were 72.6 billion sticks, down 3.5% year-on-year; L&M sales were 24 billion sticks, down 0.6%; Bond Street sales were 12 billion sticks, up 0.3%; Parliament sales were 12.9 billion sticks, up 9.3%; Chesterfield sales were 11.6 billion sticks, up 25.9%. Other tobacco products saw a year-on-year sales increase of 7.6%, mainly in the fine-cut tobacco category. Revenue was $7.9 billion, a year-on-year increase of 4% excluding exchange rate factors; net profit was $2.16 billion, down 7.7% year-on-year.

In the first nine months of this year, Philip Morris International's cigarette sales reached 641.1 billion sticks, a year-on-year decrease of 2.4%. Revenue was $22.6 billion, a year-on-year increase of 2.3% excluding exchange rate factors.

In the third quarter, Philip Morris International's market share showed growth trends in many key markets, including Algeria, Argentina, Austria, Brazil, Colombia, Czech Republic, Egypt, France, Germany, Italy, Kazakhstan, Netherlands, Philippines, Poland, Russia, Saudi Arabia, Spain, and Switzerland.

On November 5, Philip Morris International announced that starting from the 2015 planting season, it would transition from directly purchasing tobacco leaves from U.S. growers to sourcing from suppliers like Alliance One International.

British American Tobacco

In the first nine months of this year, British American Tobacco's cigarette sales reached 495 billion sticks, a year-on-year decrease of 1.2%. Among them, sales in the Asia-Pacific region were 150 billion sticks, up 0.7% year-on-year; sales in Eastern Europe, the Middle East, and Africa were stable at 168 billion sticks; sales in the Americas were 95 billion sticks, down 2.1% year-on-year; sales in Western Europe fell to 82 billion sticks, a decrease of 5.7%. Total tobacco sales (including other tobacco products) decreased by 1.1% year-on-year to 515 billion sticks.

During the same period, the sales of the company's five global drive brands increased by 6.2% year-on-year, and its market share continued to improve in key markets. Dunhill sales increased by 3.5%, with strong growth in Indonesia, Brazil, and South Korea, partially offset by declines in Malaysia; Kent sales decreased by 2.7%, mainly due to declines in the Russian and Romanian markets, but some declines were offset by growth in Middle Eastern countries and Japan; Lucky Strike saw a slight decline; Pall Mall sales increased by 7.7%; Rothmans sales increased by 37.0%, benefiting from strong growth in Russia, Italy, Ukraine, and the UK.

At fixed exchange rates, the company's revenue for the first nine months increased by 2.4% year-on-year. However, due to the fluctuations of most major trading currencies, the company's total revenue decreased by 9.6% year-on-year at current exchange rates.

“The performance report reflects our market share increase and the strong growth of our global drive brands,” said British American Tobacco CEO Nicandro Durante. “Despite the impact of exchange rate fluctuations on our performance, we are confident in achieving good growth in earnings in the future.”

Japan Tobacco

From April to September this year, Japan Tobacco's domestic cigarette sales reached 53.5 billion sticks, a year-on-year decrease of 10.2%. The company stated that the decline in sales was due to the increase in domestic cigarette consumption tax in April. The total revenue from domestic cigarette sales was 312.4 billion yen (1 yen is approximately 0.05 RMB), a year-on-year decrease of 7%. The adjusted operating profit was 121.5 billion yen, down 7.4% year-on-year, partially offset by cost reductions.

In terms of international business, from April to September, Japan Tobacco's international cigarette sales reached 106 billion sticks, with operating profit increasing by 4.8%. The company's leading brand—Camel—saw a significant year-on-year sales increase of 26.8%, with sales reaching 13.5 billion sticks. The growth in sales in EU member countries such as Belgium, the Netherlands, Luxembourg, Spain, and Turkey was the main reason for the increase. The sales of Mild Seven decreased year-on-year, primarily due to its high retail price leading consumers to choose lower-priced cigarettes. In the first nine months of this year, Japan Tobacco's international cigarette sales reached 296.6 billion sticks, a year-on-year decrease of 4.9%, with global flagship brand sales down 2.2%, to 194.3 billion sticks.

Japan Tobacco President and CEO Koizumi Mitsuomi stated: “In Japan, we are gradually recovering from the impact of the consumption tax increase. Despite intensified competition, we will strive to enhance brand value and further increase market share.”#p#分页标题#e#

Imperial Brands

Due to poor performance in the Russian and Turkish markets, as well as a decrease in market share in the U.S. and Saudi Arabia, Imperial Brands' cigarette sales fell to 294 billion sticks in the twelve months ending September, a year-on-year decrease of 7%. Net profit was £1.42 billion (1 pound is approximately 9.6 RMB), a significant increase of 57%, with the growth coming from cost reductions. Revenue decreased by 5.8% year-on-year to £26.63 billion.

Imperial Brands has continued its strategy of reducing inventory to improve performance and reduce costs. This strategy is expected to save £300 million annually by 2018.

Additionally, the $7.1 billion acquisition of key cigarette brands from Reynolds American and Lorillard will change Imperial Brands' market position in the U.S. and globally. “This is a key strategic investment. The investment will diversify our profit sources and create greater value for shareholders,” said Imperial Brands CEO Alison Cooper.

Altria Group

In the third quarter, Altria Group's cigarette sales reached 33 billion sticks, a year-on-year decrease of nearly 3%. The company's market share in the U.S. domestic cigarette market rose by 0.2% to 50.9%. Marlboro sales decreased by about 3% year-on-year, but its market share in the U.S. domestic cigarette market increased by 0.1% to 43.8%.

In May, the company raised the price of each pack of cigarettes by 6 cents. The higher prices offset the impact of declining sales, resulting in a slight increase in profits in the third quarter.

At the same time, Altria Group is beginning to focus on cigarette alternatives, such as electronic cigarettes, cigars, snuff, and chewing tobacco. Its smokeless tobacco brand, Copenhagen, has seen an increase in market share, and the sales of Black & Mild cigars have increased by over 9%. The company also stated that it will continue to expand the sales of its electronic cigarette brand MarkTen and plans to complete nationwide market expansion in the fourth quarter.

Reynolds American

In the third quarter, Reynolds American's net profit increased by 2.2% year-on-year to $467 million, as higher prices offset the continued decline in cigarette sales. Its products accounted for 26.6% of the U.S. domestic cigarette market, showing little change compared to the same period last year.

The company's leading brand—Camel—saw sales of 5.7 billion sticks, a year-on-year increase of 3%; its market share in the U.S. domestic cigarette market increased by 0.4% to 10.4%. Pall Mall sales reached 5.5 billion sticks, a year-on-year decrease of 1.5%.

Its Santa Fe Natural Tobacco Company primarily produces smokeless tobacco products, with third-quarter sales increasing by 1.7%, leading to a growth in market share for similar products in the U.S. Among them, American Spirit sales reached 120 million cans, a year-on-year increase of 2.9%; Grizzly sales reached 101 million cans, a year-on-year increase of 0.36%; other smokeless tobacco products saw a year-on-year decrease of 3.3%.

Additionally, the company is making progress in launching the Vuse brand of electronic cigarettes in the U.S., with sales already in 70,000 stores nationwide and plans for a new round of expansion early next year.

Swedish Match

In the third quarter, Swedish Match's sales reached 3.416 billion Swedish Krona (1 Swedish Krona is approximately 0.83 RMB), a year-on-year increase of 6%. Excluding the Scandinavian Tobacco Group (in which Swedish Match holds a 49% stake), the company's operating profit was 989 million Swedish Krona, a year-on-year increase of 7%.

During the same period, sales of ignition products (matches and lighters) reached 319 million Swedish Krona, a year-on-year decrease of 4%. Due to lower sales, the sales and operating profit of lighters decreased year-on-year; however, the higher prices and favorable exchange rate environment offset the negative impact of low sales, keeping match sales stable and slightly increasing operating profit.

Alliance One International

In the third quarter, Alliance One International's tobacco leaf sales reached 107 million kilograms, a year-on-year decrease of 17%. The average selling price of tobacco leaves was $4.6 per kilogram. Profit decreased by 15.8% year-on-year.

The performance report analysis indicates that the global tobacco leaf market is oversupplied, which is the main reason for the decline in tobacco leaf sales and profits in the third quarter. Additionally, poor climatic conditions in Brazilian tobacco-growing regions have also impacted the company's performance.

Universal Leaf Tobacco

In the third quarter, Universal Leaf Tobacco's sales fell sharply by 29% compared to the same period last year, with profits dropping to $28.6 million.

Universal Leaf Tobacco's performance report analysis indicates that the oversupply in the global tobacco leaf market is the main reason for the decline in sales performance. The company's president and CEO, George Freeman, pointed out that due to the oversupply in the tobacco leaf market, some major clients delayed their scheduled shipments, leading to a decline in the company's performance this quarter.