“We are still interested in establishing production facilities in Cuba. But at the moment the conditions for us are not yet met, “said Oettinger Davidoff CEO Hans-Kristian Hoejsgaard at his yearly press conference yesterday in Zurich. “We will only return to Cuba, once we can control the quality from seed to the finished cigar ourselves. A facility in Cuba would not replace any of our production sites in the Dominican Republic, Honduras and Nicaragua, but it would be a fourth pillar for the Davidoff brand.”
In the 140th year of its existence, Basel-based Oettinger Davidoff AG was able to expand its strong global market position in an environment that continues to be very challenging. Total sales in the 2015 financial year declined due to falling demand in Europe and China, the effects of the strong Swiss franc and the slightly lower sales in the cigarette and general agency business of -8.2% (currency-adjusted: -3%) to CHF 1.126 billion (previous year: CHF 1.227 billion). Nevertheless, the company again succeeded in gaining market shares worldwide thanks to the growing North American and Asian markets and some significant improvements in core brand sales. Against the backdrop of a declining market, both core brands, Davidoff and Camacho, reported gratifying double-digit growth of +10.5% and +34.4% respectively. In addition, Oettinger Davidoff achieved a production record for the third consecutive time: it produced a grand total of 45.8 million cigars (previous year: 44.0 million) in 2015, an increase of 4.1%. Mr. Hoejsgaard predicted a reduction in total sales and employee numbers in the current 2016 financial year. “This development is intentional and reflects the strong focus on the core business of premium cigars and tobacco accessories which the company has systematically pursued over the past five years.”
The most important contributors to this positive development were innovations and new product launches in the Davidoff and Camacho core brands as well as the relaunched AVO line. The new Davidoff lines Winston Churchill, Escurio and Nicaragua now account for around a third of all Davidoff cigar sales. Whereas demand fell in the European cigar market, it increased in Asia and the USA. In the USA, Oettinger Davidoff was able to outperform the market growth of 2% many times over with an increase of 15%.
With the acquisition of 150 hectares of land in Nicaragua and Honduras, on which new areas are being cultivated and state-of-the-art production facilities constructed, the company has also invested heavily at the start of the value creation chain.
The challenges
The regulatory requirements will continue to challenge the industry both in Europe and in the USA during the current year. In Europe, the EU Tobacco Products Directive TPD2 enters into force in the individual member countries on 20 May. Among other things, this new regulation increases the complexity and compliance requirements through new packaging rules, which will result in considerable additional costs. In the USA, the FDA is also planning to tighten the regulations governing tobacco consumption later this year, which will probably also affect the cigar industry. In addition, the relevant committee of the Swiss Council of States (upper chamber of parliament) is occupied with the draft by the Federal Council for a tobacco products law. “The draft overshoots the target by a wide margin, especially against the background that the legal rules currently applicable to tobacco products in Switzerland are very detailed and suffice completely”, says Hans-Kristian Hoejsgaard. “We are pleased that the committee of the Council of States charged with preparing the business sent back this draft to the Federal Council for revision.” These regulatory developments will result in further consolidation in the tobacco industry on account of the fact that some of the market players will no longer be able to fulfill the new requirements and bear the costs.
