Source: Economic Situation, 21/08/2008

Innovating is something that is already in the DNA of Souza Cruz, a company of Rio de Janeiro origin, born in 1903, which since 1914 has been controlled by the international group British American Tobacco, which holds a 17% share of the global market, present in 180 countries.

Since the first cigarettes, of the Dalila brand, produced in batches of five units by a machine considered revolutionary at the beginning of the last century, Souza Cruz has been seeking innovation in the passport to remain the market leader.

Absolute leader in the national cigarette market and one of the five largest business groups in Brazil, the company, which operates in the entire tobacco cycle, from the production and processing of leaves to the manufacture and distribution of cigarettes, celebrates another year of growth .

Souza Cruz ended 2007 with a total volume of 78,8 billion cigarettes sold, 0,8% higher than the 78,2 billion obtained in 2006. Market share grew by 0,5 percentage points compared to 2006 , reaching 60,9% of the Brazilian market, in a year that total cigarette consumption remained relatively stable.

“This performance is mainly due to the decrease in the volume of cigarettes in the illegal market, due to the actions of the authorities in repressing companies that sell the product without paying taxes, associated with the expansion of the sales and distribution structure and with a better focus on the Premium brands ”, explains Dante Letti, president of Souza Cruz.

In 2007, gross revenue grew 14,5%, from R $ 8,7 million in 2006 to more than R $ 9,9 million. The consolidated operating profit before the financial result was R $ 1,2 million, 14% higher than that recorded in the previous year (R $ 1,1 million). And the net profit of R $ 908,1 million was 10,2% higher than the R $ 824,1 million registered in 2006.

“The main factors responsible for this growth were the increase in the operating result and the positive financial result of R $ 54,6 million (in 2006, R $ 23,9 million), mainly resulting from the income from financial investments and the reduction of negative impacts caused by the devaluation of assets indexed to the dollar ”, says Dante Letti. He also highlights the benefit of mandatory electronic invoicing for the cigarette sector, valid since April 1, a way to combat informality, which in the sector reaches 28,7% of the approximately 130 billion cigarettes consumed annually in the Brazil.

Until April 2009, the company wants to open the Cachoeirinha do Sul printing plant, the last step of a concentration process started in 2005 that consumed investments of R $ 330 million. “The objective of this process is to capture operational synergies, obtaining greater efficiency and logistical integration in the production chain”, reveals Dante Letti. (BC and FR)

Between records and illegalities

The tobacco sector has been recording records for internal and external sales, even facing unfair competition resulting from the illegal cigarette trade and also anti-smoking campaigns, with sales restrictions in some sectors. According to figures from the Tobacco Industry Union (Sindifumo), the tobacco sector's exports hit all records in 2007. The volume of tobacco exported by the South Region, where 96% of national production is concentrated (the remaining 4% comes from Bahia and Alagoas, in the Northeast), were 25% higher than the previous year, totaling 700 thousand tons and moving US $ 2,2 billion (FOB) - against 560 thousand tons and a turnover of US $ 1,72 billion (FOB ), in 2006. “Among the factors that contributed to this performance are the quality of the harvest, as well as the sale of a good part of the remaining stocks from previous harvests”, explains Iro Schünke, president of Sindifumo.

Foreign sales in the last decade form an ascending line: they have grown, in volume, no less than 140% since 1998, when the country exported 291 thousand tons at a value of US $ 960 million. The quality and integrity of Brazilian tobacco, coupled with the guarantee of supply and, mainly, supported by the Integrated Production System (SIP) is what ensured this result, according to the director. “Brazil is the world's largest exporter of the product, in addition to the second largest producer,” says Schünke. Brazil exports to about 100 countries - Europe is the main market, absorbing 45% of Brazilian foreign sales.

“The System is a consolidated form of operation, which serves as a model for other cultures and also for other countries”, says Iro Schünke. The system underpins tobacco agribusiness, present in the economy of 780 municipalities in the Southern Region of Brazil. Through SIP, companies regulate the volume of the harvest according to their needs while ensuring the quality and integrity of the final product.

For the president of Sindifumo, the advantage of this system is reflected in figures of the sector: in the last two decades, it incorporated more than 70 thousand families of small rural producers in the activity, which today total 182 thousand in the three southern states. And the area planted and production volume increased by more than 100% in the same period.

However, the tobacco industry still faces the illegal Brazilian cigarette market: the country is in fourth place in sales in Latin America. The formal industry is directly affected by smuggling, counterfeiting and tax evasion - the product is manufactured in the country in a clandestine manner, without paying taxes. In addition to tax evasion, the sector suffers from the discount between prices in the informal market and the practice of high margin in the distribution chain. The average price practiced in the illegal market presents a discount of about 50% in relation to the legal price. (BC and FR)