Weak economy can’t stop German smokers

July 30, 2016

By GlobalPost WriterJenny Cosgrave, CNBC

Cigarettes are ripped off prior to be analyzed at the ‘Seita-Imperial tobacco’ research centre, on May 29, 2012 in Fleury-les-Aubrais, near Orleans, central France.
Alain Jocard

Alison Cooper, CEO of Imperial Tobacco, said cigarette and tobacco sales in Germany were "excellent," despite EU weakness, which hit the British multinational's half-year profits.

"We are growing cigarette share, we are growing fine-cut share, and not just at the value end of the market. We have seen growth at the top-end in brands such as Davidoff and Gauloises," Cooper told CNBC.

"We have seen excellent performance in that market," she added.

However, Imperial Tobacco, the world's fourth-largest cigarette company, said volumes were hit by difficult trading conditions in the broader European Union, from where it makes two-thirds of its earnings.

Revenue in the six months leading to March 31 stood at 13.4 billion pounds ($20.8 billion), down 4.2 percent on the previous year's 14.0 billion pounds. Operating profit was down 9.7 percent at 1.2 billion pounds.

"The performance reflects the weak consumer environment across Europe, challenging competitive situation in the US and the need to step up investment behind its key brands," said Damian McNeela and Graham Jones, analysts at Panmure Gordon, in a research note released after the earnings announcement.

Imperial Tobacco earnings per share also fell sharply to 63.8 pence (99.0 cents) from 82.5 pence in the prior period. However, the Bristol-headquartered company hiked its half-year dividend 11 percent to 35.2 pence.

Cooper said revenues from key strategic brands, fine-cut tobaccos and snus (similar to American dipping tobacco) had increased, with improved volumes, and the company achieved revenue growth in the UK and Germany, plus Africa and a number of other emerging markets.

"Excise-driven market dynamics in Russia, and our transition to a new pricing strategy in the US slowed our revenue and profit momentum in non-EU territories, masking the good growth we're generating in Asia-Pacific and Africa and the Middle East," Cooper said in a press release issued after the results.

Despite the weak economic environment, Cooper said consumers are not reducing their tobacco consumption.

"We don't see people smoking less; consumption is very resilient, maybe off a percent or so, or 2 percent in some markets.

"The consumer is just making a choice around what they are smoking, which is why we have got the big growth in fine-cut, which is a more economical price for the consumer. But unfortunately that is also why we have growth in illicit trade as well," said Cooper.

She added that the EU market would remain tough for at least another 12-to-18 months.