UK. Gallaher Group, whose brands include Benson & Hedges, Silk Cut, Mayfair, Sovereign, Sobranie and Dorchester, has released a statement in advance of the announcement of its preliminary results for the year ended 31 December 2003.
The Group confirmed that its trading in 2003 has been in line with expectations, and the business remains in a strong position going forward.
Gallaher’s trading in the UK cigarette, cigar and ryo tobacco markets remains robust, with UK cigarette market share stable year-on-year. The increase in government guidelines for personal tobacco import allowances in October 2002 for travellers returning from the EU, together with the continuing high levels of UK tobacco taxation, drove an underlying decline in UK duty paid market volumes of about -5% in the first six months of 2003.
For the full year, Gallaher expects the UK cigarette market to decline by about -3%, mainly because the effect of increased “advisory” duty paid allowances for travellers was already a factor in the second half of 2002.
Gallaher said it continues to trade well in continental Europe, growing underlying volumes by more than +7% in the first ten months of 2003. This performance was achieved despite the negative impact of above-inflation duty increases on total market volumes in certain European countries, including France and Germany, and “lower-than-anticipated” UK traveller volumes during the second half.
Planned duty increases in France and Germany are expected to reduce duty paid sales volumes in these markets. However Gallaher said it is well placed to compete in the French market with its value brands, and has a balance of branded, private label, vending and distribution interests in Germany.
Meanwhile, following the acquisition of KT Merkury in July, Gallaher is making good progress in Poland. A programme of investment is under way at the factory in Gostkow and brands including LD and Level have been launched.
Gallaher’s brands continue to trade strongly in the CIS, with market share gains in Russia, Kazakhstan and Ukraine. In the first ten months of 2003 divisional volumes grew by over +13%, with vibrant growth in Kazakhstan, Ukraine and hard box filter cigarettes in Russia more than offsetting a planned reduction in non-filter Russian oval sales.
In Russia average 2003 market share is around 15% and the Group’s share of the strategically-important premium sub-sector has continued to increase; it is now over 3%. Gallaher’s CIS sales are largely US Dollar denominated. So the continued weakening of the Dollar during the second half of 2003 will adversely affect the translation of CIS profits into Pounds Sterling.
Gallaher’s trading performance in Ireland remains resilient, with market share being maintained at around 49%. Total market volumes declined however following the substantial increase in excise tax that took place last December, and have stayed at reduced levels compared with 2002. The additional duty increase that took place in Ireland on 4 December this year is expected to further reduce market volumes.
Trading in the Americas and Asia Pacific remains in line with expectations. The Group said it has continued to achieve good volume growth in Asia, driven by increased market penetration in Taiwan, China and Japan.
Gallaher’s total portfolion includes Benson & Hedges, Silk Cut, Mayfair, Sovereign, Sobranie, Dorchester, Troika, LD, Memphis, Meine Sorte, Ronson, Blend, Hamlet, Old Holborn, Amber Leaf and Condor. The Group employs over 10,000 people, with manufacturing plants in the UK, Russia, Ireland, Kazakhstan, Austria, Sweden, Poland and Ukraine.
