Souza Cruz expects a tough year

Sandford, of Souza Cruz: focus on cost reduction and in the premium segment to Souza Cruz, controlled by the British American Tobacco Group, will have a 2015 difficult, with an increase in production costs and tax burden, at a time when cigarette consumption falls. To stand up to little favourable scenario, the company will work to improve the management of costs and gain market share. The company, however, does not disclose projection for next year. "It's still premature to predict how financial performance will be in 2015. It is necessary to see the evolution of the economy in the first quarter, "said Leonardo Sangani, CFO of Souza Cruz. The Executive said that the Government gave signs that wants to change the macroeconomic scenario, but see signs of improvement in the indicators of income and household consumption. The Souza Cruz, like its competitors, is trying to remain competitive amid the reduction of consumption in the country. According to the IRS, from January to November, the cigarette production for the domestic market fell 13.2%, to 3.3 billion units. Sandford said that the reduction in consumption reflects the concern of consumers with health and also the price increase and weak income growth for households. He cited the increase in Sandford country sales of contraband cigarettes, that reach consumers at lower prices. "Whenever there is price adjustment, smuggling grows. From 2011, the illegal market grew 50% in Brazil, "said the Executive. Nielsen produced a study showing that, from January to August, the market for cigarettes in the country had retraction of 9.9% in volume, while prices rose by 6.2%, discounted the inflation. In January 2015, the industry suffers new adjustment, with 10% increase in the tax on industrialized products (IPI). "This is the smallest increase of recent years, which is favorable to the industry, but still can lead to an increase in the illegal market," said Sandford. In the last four years, taxes on cigarettes grew 110%. In addition to increased tax burden, the increase in production costs also worries the Souza Cruz. This month, the company closed deal with representatives of producers to readjust the price table of yield by 6.4%. From January to September, the Souza Cruz recorded a 5.3% fall in sales, a total of 41.1 billion units. Net revenue increased by 1.3% in the period, to $ 4.49 billion. Net income fell 6 percent to $ 1.22 billion. Sangani considered the positive result. Until September, the Souza Cruz gained 1.1 percentage point in market share. In relation to premium brands, Dunhill brand gained 1.3 percentage point in the year, reaching 11.9% stake. The Lucky Strike was stable with 1.3 percent of the market. The Free had fallen 0.3 percentage point to 14 percent. Hollywood lost 0.5 percentage point, to 12.6%. Popular cigarettes (Derby and Minister) maintained stable participation. "The Souza Cruz sought to improve efficiency and reduce costs. The perspective is to maintain this focus in 2015, "said Sandford. In relation to the brand Dunhill, the Executive said the company adopted innovations that pleased consumers, as a seal that seals the box after open, maintaining the freshness of the product. "The company will work to gain more market in the premium segment," said Sandford. The company did not disclose projections for the fourth quarter. This month, the Souza Cruz lowered prices of some brands in São Paulo and Rio Grande do Sul. The measure was adopted after rival Philip Morris cut prices. The reduction was announced at a time when, traditionally, the Souza Cruz would raise prices, in anticipation of the tax increase. The measure will affect profit margins of manufacturers.