5 Aug 2009 14:33

BAT Russia reduces cigarette production 6% in H1

MOSCOW. Aug 5 (Interfax) - British American Tobacco Russia produced 40 billion cigarettes in the first half of 2009, down 6% from the same period of 2008, BAT Russia managing director Kingsley Wheaton said at a press conference in Moscow on Wednesday.

The reduction in production can be attributed to seasonal factors, he said. The biggest decline in smoking is seen in the winter, while a 20%-30% increase in smoking is seen in the summer, he said.

The company's results were also impacted by general trends on the market. The Russian tobacco market contracted 3%-4% in the first half and will continue to decline at a similar pace until the end of the year, he said. Growth on the market can only be expected in the second half of 2010, he said.

Wheaton also said BAT Russia's share of the tobacco market totaled 20% by volume and 23% by value in the first half, down slightly from roughly 22% and 24%, respectively, in the same period of last year. The company had a 37.2% of the premium cigarette segment in the period, a 7% share of the average price segment, a 23.9% share of the 'quality at a reasonable price' segment and a 23.4% share of the low price segment.

The decline in market share resulted from the fact that BAT Russia raised prices on its products at the start of 2009 due to growth in excise taxes, while its competitors did not hike prices. When the company's competitors reacted to the increase in excise taxes in the second quarter and this impacted their prices as well, BAT Russia's share of the market stabilized, he said.

BAT Russia invested $210 million in its Russian plants from 2005 until July 2009, Wheaton said. The company completed a program in the first half aimed at expanding the production capacity of its Russian plants. The company invested $170 million on the program from 2005-2008 and then spent $40 million on the modernization of equipment in January-July 2009.

The program enabled the company to increase production capacity to 115 billion cigarettes per year from 86 billion in 2005. BAT will continue to invest in Russia and plans to be more innovative, he said.

The company had invested $870 million in Russia as of the end of 2008.

Wheaton also said BAT Russia exported 4.4 billion cigarettes in the first half of 2009, up 5% from the same period of 2008. The company has "very ambitious" export plans and CIS countries remain its top priority. BAT Russia exports its products to eleven countries.

BAT Russia boosted cigarette production 0.5% to 85.7 billion cigarettes in 2008. The company's market share by value increased 0.6 percentage points to 24.9% in 2008, while its share by volume came to 21.8%.

British American Tobacco has been working in Russia since 1994. It owns the tobacco plants BAT-Yava (Moscow), BAT-STF (Saratov) and BAT-SPB (St. Petersburg).