PMI Reports 2012 Results: European Union Region (EU)

Source from:  Business Wire (press release)  02/08/2013

EUROPEAN UNION REGION (EU)

2012 Full-Year

In the EU, net revenues decreased by 7.4% to $8.5 billion, due primarily to unfavorable currency of $716 million. Excluding currency, net revenues increased by 0.3%, mainly reflecting favorable pricing of $475 million, driven by France, Germany, Italy, the Netherlands, Poland, Spain and Switzerland, partly offset by unfavorable volume/mix of $445 million, predominantly due to a lower total market and share in Italy, France, Portugal and Spain.

Operating companies income decreased by 8.2% to $4.2 billion, due primarily to unfavorable currency of $384 million. Excluding the unfavorable impact of currency, operating companies income increased by 0.2%, reflecting higher pricing and favorable asset impairment and exit costs compared to 2011, offset by: an unfavorable volume/mix of $380 million; higher manufacturing costs, mainly related to the mandated implementation of reduced cigarette ignition propensity standards which began in the fourth quarter of 2011; and higher marketing costs, principally reflecting marketing investment behind new brand launches and the roll-out of the “Be Marlboro” marketing campaign.

Adjusted operating companies income decreased by 9.0%, as shown in the table below and detailed on Schedule 15. Adjusted operating companies income, excluding currency, decreased by 0.6%.

Excluding the impact of currency, adjusted operating companies income margin declined by 0.5 percentage points to 49.5%, as detailed on Schedule 15, primarily as a result of the aforementioned higher manufacturing and marketing costs.

The total cigarette market in the EU declined by 6.3% to 520 billion units, due primarily to tax-driven price increases, the unfavorable economic and employment environment, particularly in southern Europe, the growth of the OTP category, and the increased prevalence of illicit trade.

PMI’s cigarette shipment volume in the EU declined by 6.4%, due principally to a lower total market across the Region. Shipment volume of Marlboro decreased by 4.6%, mainly due to a lower total market, partially offset by higher share. Shipment volume of L&M was down by 4.1%. Shipment volume of Chesterfield was up by 4.7%.

PMI’s market share in the EU was essentially flat at 38.1% as gains, notably in Belgium, Greece, Finland, Hungary and Poland were offset by declines, primarily in the Czech Republic, France and Portugal. Marlboro’s share was up by 0.3 points to 18.3%, its first year-on-year share gain since 2002, reflecting a higher share mainly in Belgium, Greece, Hungary, Italy and Poland, which more than offset lower share mainly in France, the Netherlands, Portugal and Spain. L&M’s market share was flat at 6.6%, with gains in Finland, Germany, Poland and the Slovak Republic offset by declines notably in Greece and Portugal. Chesterfield’s market share was up by 0.4 points to 3.7%, driven notably by gains in Austria, the Czech Republic, France, Hungary, Poland, Portugal, Spain and the United Kingdom. Philip Morris’ market share was up by 0.1 point to 2.1%, with gains, notably in the Czech Republic and Italy, partly offset by a decline in Portugal and Spain.

PMI’s shipments of OTP, in cigarette equivalent units, grew by 16.1%, reflecting a higher total market and share. PMI’s OTP total market share was 12.2%, up by 1.1 points, driven by gains in the fine cut category, notably in Belgium, up by 3.2 points to 16.3%, France, up by 0.9 points to 25.2%, Germany, up by 0.7 points to 14.7%, Greece, up by 4.7 points to 12.8%, Italy, up by 16.0 points to 27.9% and Spain, up by 1.1 points to 11.7%.

2012 Fourth-Quarter

In the EU, net revenues decreased by 6.6% to $2.1 billion, due primarily to unfavorable currency of $133 million, largely reflecting the strengthening of the U.S. dollar to the Euro compared to the fourth quarter of 2011. Excluding currency, net revenues decreased by 0.5%, mainly due to unfavorable volume/mix of $105 million, predominantly reflecting a lower total market and share, and unfavorable trade inventory movements, in France and Italy, and a lower total market and share in Portugal. The decrease was partly offset by favorable pricing of $93 million, driven by France, Germany, the Netherlands, Poland, Switzerland and the United Kingdom.

Operating companies income decreased by 5.6% to $955 million, due primarily to unfavorable currency of $78 million. Excluding the unfavorable impact of currency, operating companies income increased by 2.1%, reflecting higher pricing and favorable asset impairment and exit costs compared to the fourth quarter of 2011, partly offset by higher marketing costs, principally reflecting marketing investment behind the “Be Marlboro” marketing campaign.

Adjusted operating companies income decreased by 7.2%, as shown in the table above and detailed on Schedule 11. Adjusted operating companies income, excluding currency, increased by 0.4%.

Excluding the impact of currency, adjusted operating companies income margin was up by 0.5 percentage points to 47.3%, as detailed on Schedule 11.

The total cigarette market in the EU declined by 5.7% to 124.3 billion units, due primarily to tax-driven price increases, the unfavorable economic and employment environment, particularly in southern Europe, the growth of the OTP category, and the increased prevalence of illicit trade.

PMI’s cigarette shipment volume in the EU declined by 5.7%, due principally to a lower total market across the Region. Shipment volume of Marlboro decreased by 3.2%, mainly due to a lower total market, partially offset by higher share. Shipment volume of L&M was down by 3.4%. Shipment volume of Chesterfield was up by 4.7%.

PMI’s market share in the EU was up by 0.4 points to 38.4%. Market share of Marlboro was up by 0.5 points to 18.5%, reflecting gains mainly in Belgium, Greece, Hungary, Italy and Poland, which more than offset lower share mainly in France, the Netherlands and Portugal. L&M’s market share was up by 0.1 point to 6.8%. Chesterfield’s market share was up by 0.4 points to 3.8%, driven notably by gains in Austria, the Czech Republic, France, Portugal, Spain and the United Kingdom. Philip Morris’ market share was up by 0.2 points to 2.1%, with gains, notably in the Czech Republic, France, Italy and Portugal.

PMI’s shipments of OTP, in cigarette equivalent units, grew by 4.1%, reflecting a higher total market and share. The decline in the growth rate compared to the 2012 full-year growth rate principally reflects the impact of excise tax-driven price increases, notably in Italy. PMI’s OTP total market share was 12.3%, up by 0.6 points, driven by gains in the fine cut category, notably in Belgium, up by 2.0 points to 16.3%, France, up by 1.1 points to 26.1%, Greece, up by 3.7 points to 13.1%, Italy, up by 6.6 points to 27.8% and Spain, up by 3.0 points to 13.1%.

EU Key Market Commentaries

In the Czech Republic, the total cigarette market was down by 2.8% to 20.5 billion units in 2012, mainly reflecting the impact of excise tax-driven price increases in the first and second quarters of 2012 and a more than 20% growth of the fine cut category over the full year. In the fourth quarter of 2012, the total cigarette market was down by 0.7% to 5.3 billion units. PMI’s shipments were down by 7.4% in 2012 and by 5.7% in the fourth quarter. Market share was down by 2.1 points to 42.2% in 2012, principally reflecting continued share declines for lower-margin local brands, such as Petra and Sparta, down by a combined 1.2 points to 6.1%, and Red & White, down by 1.2 points to 11.7%. This decline was partly offset by a higher share for Marlboro, Chesterfield and Philip Morris, up by 0.2, 0.5 and 0.6 points to 7.4%, 0.8% and 2.9%, respectively. Market share of L&M was essentially flat at 7.1%. PMI’s 2012 fourth-quarter market share was down by 2.1 points to 40.0%.

In France, the total cigarette market was down by 4.9% to 51.5 billion units in 2012, mainly reflecting the impact of price increases in the fourth quarters of 2011 and 2012. In the fourth quarter of 2012, the total cigarette market was down by 7.2% to 11.6 billion units, reflecting the unfavorable impact of the aforementioned price increase which raised premium price products to €6.60 per pack, an increase in illicit trade and growth of the OTP category. PMI’s shipments were down by 7.7% in 2012 and by 11.9% in the fourth quarter. PMI’s market share was down by 0.9 points to 39.6% in 2012, mainly due to Marlboro, down by 0.9 points to 24.8%, and to L&M, down by 0.3 points to 2.7%. Market share of premium Philip Morris was up by 0.1 point to 8.3% and share of Chesterfield was up by 0.2 points to 3.3%. PMI’s 2012 fourth-quarter market share was essentially flat at 40.1%. PMI’s market share of the fine cut category was up by 0.9 points to 25.2% in 2012 and up by 1.1 points to 26.1% in the fourth quarter.

In Germany, the total cigarette market was down by 1.2% to 83.4 billion units in 2012, flattered by trade inventory movements of competitors’ products in December ahead of the January 2013 excise tax increase. In the fourth quarter of 2012, the total cigarette market was down by 0.2% to 20.5 billion units, reflecting the favorable impact of the aforementioned inventory movements. PMI’s shipments were down by 1.5% in 2012 and by 2.4% in the fourth quarter. PMI’s market share was essentially unchanged at 35.8% in 2012, with Marlboro essentially flat at 21.3%, L&M up by 0.1 point to 10.5% and Chesterfield flat at 2.3%. While PMI’s 2012 fourth quarter market share was down by 0.8 points to 35.6%, reflecting the impact of the aforementioned inventory movements, share of Marlboro was up by 0.1 point to 21.6%. PMI’s market share of the fine cut category was up by 0.7 points to 14.7% in 2012 and up by 0.3 points to 14.6% in the fourth quarter.

In Italy, the total cigarette market was down by 7.9% to 78.7 billion units in 2012, reflecting the impact of price increases in 2011 and March 2012, an unfavorable economic environment, strong growth in the fine cut category, and an increase in illicit trade. In the fourth quarter of 2012, the total cigarette market was down by 4.0% to 19.0 billion units. PMI’s shipments were down by 7.3% in 2012 and by 4.8% in the fourth quarter. PMI’s market share was essentially flat at 53.0% in 2012, with Marlboro, up by 0.6 points to 23.1%, fueled by the March 2012 and June 2012 launches of Marlboro Silver and Marlboro Pocket Pack, and Philip Morris, up by 0.4 points to 3.7%, benefiting from the first-quarter 2012 launch of Philip Morris Selection in the low-price segment, offset by low-price Diana, down by 0.8 points to 12.4%. PMI’s 2012 fourth quarter market share was up by 0.9 points to 53.2%, driven by Marlboro, up by 1.3 points to 23.5%. PMI’s market share of the fine cut category was up by 16.0 points to 27.9% in 2012 and up by 6.6 points to 27.8% in the fourth quarter.

In Poland, the total cigarette market was down by 6.1% to 52.1 billion units in 2012, mainly reflecting the impact of price increases in the first quarter of 2012 and growth in the availability of non-duty paid OTP products. In the fourth quarter of 2012, the total cigarette market was down by 10.0% to 11.5 billion units, reflecting the unfavorable impact of the aforementioned factors. PMI’s shipments were down by 3.1% in 2012, and by 4.3% in the fourth quarter. Market share was up by 1.1 points to 36.4% in 2012, benefiting from the launch of two new Marlboro super slims variants in the second quarter. Market shares of Marlboro, Chesterfield and L&M were up by 0.9, 0.4 and 0.7 points to 11.3%, 1.8% and 16.6%, respectively. PMI’s 2012 fourth-quarter market share was up by 2.3 points to 39.2%. PMI’s market share of the fine cut category was up by 0.5 points to 17.8% in 2012 and down by 1.5 points to 15.5% in the fourth quarter.

In Spain, the total cigarette market was down by 11.7% to 53.5 billion units in 2012, mainly reflecting the impact of price increases in the second half of 2011 and second quarter of 2012, the unfavorable economic environment, the growth of the OTP category and illicit trade. In the fourth quarter of 2012, the total cigarette market was down by 14.0% to 12.1 billion units, reflecting the aforementioned factors and the unfavorable impact of trade inventory movements. PMI’s shipments were down by 11.4% in 2012 and by 5.7% in the fourth quarter. Market share was down by 0.3 points to 30.6% in 2012, with higher share of Chesterfield, revamped in the first quarter of 2012, up by 0.6 points to 9.0%, offset by Marlboro, down by 0.4 points to 14.3% and Philip Morris, down by 0.3 points to 0.7%. Market share of L&M was down by 0.2 points to 6.3%. PMI’s 2012 fourth quarter market share was up by 0.7 points to 31.3%. PMI’s market share of the fine cut category was up by 1.1 points to 11.7% in 2012 and up by 3.0 points to 13.1% in the fourth quarter. Enditem