The rise of Islamic extremism in the Middle East has disrupted sales growth at Imperial Tobacco, known around the world for its Davidoff and Gauloises cigarettes.
The world's fourth-largest cigarette company blamed the “turbulent situation in the Middle East” for falling cigarette and tobacco sales in Iraq, one of its key growth markets.
“It is difficult for distributors to get the product on the shelves. Roads are closed, some retailers can’t get to their shop to open it,” said Simon Evans, press officer at Imperial Tobacco.
“Security concerns are the main problem and affect the logistics of getting the product on the market there,” he added. He confirmed that the current conflict in Iraq has had an impact on sales and stressed that they will continue to monitor the situation. Evans did not elaborate which areas have seen significant decreases in sales, as suppliers struggle to deliver cigarettes.
The firm's net tobacco revenue decreased by 1 percent to £4.75bn ($7.95 bn) in the nine months to 30 June.
"In several Middle Eastern markets, sales have been disrupted by the deteriorating security situation," Imperial Tobacco said in a statement.
The rise of the militant Islamic State (IS) group, also known as ISIS and ISIL, caused disruption to supply in the region. Road closures and damage to retail outlets are making it harder for Imperial’s distributors to operate in affected areas, especially northern Iraq.
“Whilst conditions are still tough in a number of our markets, our [global] footprint provides balance,” said Alison Cooper, Imperial’s chief executive.
Iraq and Saudi Arabia belong to Imperial’s “growth markets” segment, which includes selected markets across the world where the company is prioritizing driving long-term market share and profit growth.
However, during that period, overall net revenues from tobacco sales in this segment increased 8 percent, and the company reported that growth had been “encouraging” in a number of Asian markets and the US, where it has continued to deliver market share improvements in its targeted states.
Aside from the disruption in the Middle East, Imperial Tobacco has also been hit by the continuing regulatory restrictions in Russia. The company said the decline in the size of the market had “accelerated.”
The company agreed to buy a number of cigarette brands including Winston, Kool and Salem from Reynolds and Lorillard for $7.1 billion (£4 bn) last month as part of a planned $25 billion merger between the two US companies. The deal also included Blu electronic cigarettes, the top selling brand in the US.
The $7 billion takeover of several key brands in the US is expected to be completed next year, the company said. The new brands would make Imperial the third-largest player in the US tobacco market.