Last week, Oettinger Davidoff AG released a review for financial year 2015. as well as an outlook for its 2016 business. While the company said it expanded its global market position despite challenging marketing conditions, it reported a decline in total sales for the 2015 financial year.

The report highlighted five themes:

  • Double-digit growth thanks to innovation in the Davidoff and Camacho core brands
  • A continued increase in market shares in the core cigar business
  • Achieving a new production record for the third time in a row
  • Total sales slightly down due to the exchange rate situation and the downturn in sales in the cigarette and sole agency business
  • Further concentration on the core business through the sale of the wholesale business consolidated in Contadis AG, and strengthening of the value creation chain

The Numbers

The company reported revenue 1.126 CHF (1.17 Billion, U.S. Dollars). Without any adjustments, this marked a -8.2% decrease from 2014 where revenues were reported to be 1.227 CHF (1.28 Billion, U.S. Dollars). However, factoring in a currency adjustment, the company says the decrease is -3%.

The company attributed challenging market conditions for the drop in revenue. These conditions included the effects of a strong Swiss Franc, falling demand in the European and Chinese markets, and lower sales in the cigarette and general agency business.

For the third consecutive year, Oettinger Davidoff reported a record high for production. For FY 2015, production totaled 45.8 million cigars, eclipsing the previous year’s record of 44 million cigars by 4.1%.

“In the financial year gone by, Oettinger Davidoff has made great progress, both strategically and with regard to the development of the core brands and market shares,” commented Oettinger  Davidoff CEO Hans- Kristian Hoejsgaard, commenting on the business performance last year. “This is all the more gratifying since we were obliged to campaign simultaneously on a number of fronts, such as the exchange rate situation, the anti-corruption law in China and the economic trend in Russia, as well as further international tightening of anti-tobacco regulations.”

Brand Performance

In terms of growth, Oettinger Davidoff attributed innovation and new product launches led to positive growth of Davidoff, Camacho and the revamped AVO line. The company reported the Camacho brand grew 34.4% while the Davidoff brand grew 10.5%.  In addition, Oettinger Davidoff noted that the Winston Churchill, Escurio, and Nicaragua brands accounted for one third of Davidoff’s total cigar sales. This was attributed to a trend toward more stronger cigars and preferences of the younger generation of cigar enthusiasts. The company noted demand fell in Europe, but increased in Asia and the U.S. market.  In the USA, Oettinger Davidoff reported an increase of 15%.

Addressing Global Challenges

Oettinger Davidoff noted two strategic moves to address the challenges in the Asian market. Earlier this year, the company exercised an option to acquire a majority stake in Bluebell Cigars and has formed Davidoff of Geneva Asia to further develop the Asian market outside of China. As for China, Oettinger Davidoff entered into a joint venture with Sparkle Roll to address that market.

Meanwhile in Europe, the company announced it will take back distribution in the German market from Arnold Andre and will launch Davidoff of Geneva Germany on January 1st, 2017.

With market conditions changing in Switzerland’s wholesale business, Oettinger Davidoff sold Contadis AG to Lekkerland (Schweiz) AG.  Contadis is focused in the wholesale segment and has a customer base that includes convenience stores, kiosks, and tobacco customers. This move has allowed Davidoff to have a greater focus of its core business in cigars and tobacco accessories. By selling this business, Davidoff anticipates a drop in revenue of 440 million CHF for FY 2016.  Oettinger Davidoff say that employment has been found for about 2/3 of the employees of Contadis and expects to increase this number by June.

Investment in Honduras and Nicaragua

Last February, Oettinger Davidoff announced it was expanding its presence in Central America. As a part of this initiative, the company announced it purchased 150 hectares of farmland in Nicaragua and Honduras. At the same time the company announced it would be building a new modern and larger factory in Honduras, which handles the Camacho brand.

These moves strengthen Oettinger Davidoff’s “Crop to Shop” strategy and ensure the can continue to meet growing demand for cigars being made in this region.

Status of the Davidoff Art Initiative

The Davidoff Art Initiative that was announced in December 2013 at the Art Basel festival in Miami Beach, Florida. As a part of this initiative, Davidoff established an art residency to help emerging artists (including one in the Dominican Republic); provide art grants (which were awarded to two Dominican institutions); and produce the first Davidoff Art Edition cigar.

This year the firth and (for what Davidoff says is the time being) final artist will be taking up a residency in Bogota, Colombia.  The company is also launched its second Davidoff Limited Art Edition cigar where part of the proceeds will flow back into the project.

Regulatory Challenges

While both the European and American tobacco industry continue to be challenged by potential new regulatory requirements. The company feels that its investments innovation combined with the fact that many of its competitors may not be able to absorb the costs associated with regulation puts itself in a position to overcome these challenges.