Philip Morris CR just released 1H13 numbers - net income falls 25% to 851m CZK in 1H13 which is below our expectations. We consider results as NEGATIVE as adverse economic conditions and grey zone sales hit earnings harder as expected.
Consolidated sales of 6.03 bln. CZK were down 4.1%; which is a bit faster pace of a decline than in 1Q13 (-3 %). Moreover, net income falls of 25% to 851 mln. CZK as adverse economic conditions in CR and „grey-zone“ sales hit earnings harder than we have expected. Earnings therefore decreased with y/y lower shipments. Shipments in CR has been 8.9% lower y/y which is similar to a decrese in 1Q13 (-9.8%), most probably reflecting the impact of tax-driven price increases in 2012 and in 1H13. Low-margin exports stagnated y/y in 1H13 and 2Q13 thus erased the 5.5% improvement from 1Q13. Market share of TABAK in CR has decreased of 1.2 pp to 49.7 % which is a faster pace than in 1Q13 (-0.9 pp).
We consider results as NEGATIVE for short-term trading as a dividend sustainability seems to be at risk at the moment, despite the fact we expect an improvement of PM CR results in 2H13.