* CEO says market share, boosting exports in focus
* Price hikes difficult, excise tax impact limited
* Plant expansion will increase capacity, flexibility
By Jan Korselt
PRAGUE, May 28 (Reuters) - Czech cigarette maker Philip
Morris CR <> is positioned to end a decline in its
share of core Czech and Slovak markets in the coming years while
it also looks at boosting exports, its CEO told Reuters.
The company will also explore ways to increase prices after
massive tax increases in recent years ate into margins, a
difficult task due to the depressed economy and high
competition, chief executive Alvise Giustiniani added.
"I have trust in the plans we are putting through and the
new (brand) launches we are doing to be able to stop the decline
and increase the market share going forward," Giustiniani said
in an interview with Reuters.
Philip Morris CR's Czech market share fell to 54.7 percent
in the first quarter 2010 from 73.5 percent in 2004. Sales of
low-margin, cheap brands in the overall market jumped to 70
percent from around 50 percent in the same time.
The shift to lower-priced tobacco followed incremental Czech
Republic tax rises to above the European Union minimum since its
entry in the bloc in 2004. The price of Philip Morris's flagship
Marlboro brand jumped by 55 percent in that time, pushing
thrifty customers to cheaper, often-imported brands.
Giustiniani said however that the latest excise tax hike in
February was not big enough to destabilise the Czech market like
in the past. In previous years producers and retailers
stockpiled heavily before tax hikes, which caused sharp swings
in earnings.
"In the market we do not expect those disruptions we had in
previous years. I would expect a marginal growth of the low
(price) segment, maybe by 1 percentage point or something like
that," he said. "We will not continue seeing a growth in the mid
segment; that is all. Not in 2010."
Revenue at the largest Czech tobacco seller rose 6 percent
in the first quarter and was underpinned by an 18 percent rise
in exports to other companies within Philip Morris International
(PMI) <PM.N>, the Czech group's 78 percent owner.
Giustiniani said that with his company's business largely
confined to the Czech and Slovak markets, exports would be an
strong driver in coming years, though at lower margins than in
its home markets.
Towards this end, the company will introduce an extended
production line at its factory 70 km east of Prague in the
second half this year. The expansion will increase its capacity
by one third, and also make the production mix more flexible to
current market needs.
"What we can do, and we are doing it, is to be
competitive... to attract volumes to export to other PMI
markets," he said.
Philip Morris CR is also battling growing trade in smuggled
or illegally produced cigarettes, which Giustiniani said have
jumped over the past years to around 8 to 10 percent of the
market.
"I think that trading conditions will stay difficult in the
Czech market going forward because we have the financial crisis
and I see that contraband (illegal cigarettes) could be a
problem," Giustiniani said.
The Czech group's shares, attractive due to more that 9
percent dividend yield, have gained 35 percent in the past year,
outperforming a 29 percent rise in Prague's index <>.
(Writing by Jason Hovet; Editing by Hans Peters)
