Credit ratings agency Moody’s has said that the pace of tobacco volume decline in developed markets ‘could speed up again during the next 12-18 months as a result of the new legislation designed to reduce smoking’.
These include the EU Tobacco Products Directive, which will be fully implemented by May 2017, and plain packaging legislation in markets such as France, Ireland and the UK.
Moody’s said that it anticipates ‘volumes to decline around 1.0%-2.0% in the next 12-18 months in Western Europe. This is slightly weaker than in 2015 when volumes increased by 0.7%, but in line with 2014.
‘However, due to the relatively inelastic nature of tobacco demand, volume declines will remain more than offset by positive price/mix, with profitability further benefiting from cost efficiencies’.
Overall, however, the tobacco sector is expected to see ‘steady operating profit growth’, driven in particular by increased consumption in the Middle East, Africa and Indonesia.
‘We expect steady operating profit growth, excluding foreign exchange effects, of around 4.0%-5.0% for European tobacco companies in the next 12-18 months,’ it said. ‘This will be driven by solid price increases across markets of around 5.0%-6.0%, a stronger product mix and contributions from efficiency programmes.’
© 2016 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. To subscribe to ESM: The European Supermarket Magazine, click here.