On Friday Philip Morris CR posted worse than expected 1H2005 results. The figures included Slovakia’s operations. PMCR’s 1H performance was impacted by a continued loss of market share to cheaper brands of 6.5pp to 69%. The introduction of cheaper brands Clea and Next helped shipments in 2Q but still led to lower sales. In addition 1H04 was not impacted by the entry of the CR into the EU, which eliminated the 55% cigarette import tax. Sales in Slovakia improved due to a market recovery after tax hikes in 2003 and 2004. PMCR’s market share increased by 4.5pp to 60.2%. As expected operating profit was impacted by a one-off charge of CZK 377.6m in relation to the closure of the Hodonin plant. Further excise tax increases in the Czech Republic and Slovakia in 2005 and 2006 may lead to a further consumer shift towards cheaper brands. We will provide more details after our meeting with PMCR today.
CZK m H1 2005 H1 2004 change Consensus Patria 1H2005E
Sales 5,735 6,391 -10.3% 6,080 6,193
EBITDA 2,241 2,909 -23.0% 2,300 2,497
EBIT 2,041 2,707 -24.6% 2,100 2,297
Pre-tax income 2032 2,699 -24.7% - 2,333
Net income 1,457 1,908 -23.6% 1,600 1,750
EPS (annualized, CZK) 1,060 1,390 -23.7% 1,166 1,275