Imperial Tobacco's NZ arm lifts export sales to Australia; Philip Morris NZ boosts revenue

Wednesday 16th April 2014

Imperial Tobacco New Zealand, the nation's second largest cigarette company, boosted annual sales after expanding its Wellington factory to supply the Australian market and taking on a 10 percent excise tax hike.

Sales at the local arm of Imperial Tobacco, whose brands include Peter Jackson and Drum loose tobacco, rose 9.6 percent to $432 million in the year ended Sept. 30, according to the company's annual report.

Profit fell 12 percent to $19.8 million.

Imperial has spent $50 million to increase capacity at its only New Zealand plant, which exports 80 percent of production to Australia. The company exported $75.6 million worth of cigarettes and tobacco, and paid $286 million worth of duty to the government last year. Sales to Australia helped offset weaker turnover in New Zealand, it said.

"Domestic market volume is down slightly, reflecting normal trends, whilst Imperial Tobacco New Zealand's domestic volume has remained relatively flat," Adam Cleave, the parent company's intergovernmental relations manager told BusinessDesk. "Production at our Petone plant has increased largely in response to market demand in Australia."

Imperial's smaller rival, third-ranked Philip Morris (New Zealand), had a 13 percent sales gain to $83 million in calendar 2013. The annual report for the maker of Marlboro brand showed profit rose 20 percent to $1.2 million last year, after a 30 percent drop to $993,000 in 2012.

Early this month parent Philip Morris International said it would close its manufacturing plant in Australia, saying government regulations that reduce the 'fire risk' of cigarettes, required by Australian legislation had hurt exports. In 2013 the New Zealand arm of the company purchased $5.1 million worth of product from its Australian counterpart.

Philip Morris Asia is challenging Australia's plain packaging legislation in the international Permanent Court of Arbitration, claiming it breaches a Hong Kong-Australia trade agreement, after having lost a bid to sue in the Australian High Court in 2012.

In New Zealand, the government has been increasing the tobacco excise by 10 percent each year since 2012, lifting the price consumers must pay as part of a policy to make New Zealand smoke-free by 2025. The increases are expected to lift the average price of a pack of 20 cigarettes to more than $20 by 2016.

New Zealand is looking to follow Australia in introducing plain packaging in a bid to reduce brand recognition and shrink the cigarette market. Australia has introduced non-identifiable tobacco products but is being sued by tobacco producing countries at the World Trade Organisation which say the new regulations are intellectual property infringement.

Tobacco companies have been vigorously opposed to the plain packaging movement, questioning the legality and effectiveness of removing the last mode of advertisement for their brands and arguing it has led to an increase in black market tobacco.

British American Tobacco Holdings (New Zealand), which sells the Winfield and Benson & Hedges brands and is the nation's largest cigarette business, hasn't yet published its 2013 annual report. In 2012, sales rose 8.3 percent to $1.1 billion while it recorded a 5 percent drop in profit after recognising a 40 percent increase in tax expenses.

BusinessDesk.co.nz

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