Statistics list Bulgarians as among the heaviest smokers in Europe, yet cigarette sales have dropped so much after excise duty hikes at the beginning of 2006 that tobacco giant Bulgartabac is getting burnt.

Bulgartabac Holding’s net profit plummeted to 54 000 leva for the first quarter of 2006, compared to 6.35 million leva for Q1 of 2005.

Cigarette sales dropped by 25 million leva after the excise hike. The hike was just the first of a series of two major problems that the tobacco near-monopoly will face this year. On July 1 2006, regulated cigarette pricing will be abolished, leaving pricing decisions to producers and importers.

According to the non-audited consolidated report presented to the Bulgarian Stock Exchange-Sofia, Bulgartabac’s revenue from core operations fell by 22 per cent year on year to 64.5 million leva in Q1, mainly because of the excise increases and reduced price margins between locally produced and imported brands.

The earlier published non-consolidated Bulgartabac report showed a net loss of 0.2 million leva in Q1, marking a six-fold narrowing in a year.

The excise duty hikes at the beginning of this year were imposed by the Government at a steeper rate than expected in order to avoid future adjustments that could undermine Bulgaria’s plans to adopt the euro in 2010.

At the beginning of June, Bulgartabac signed a contract with a local consortium made up of Subev & Co, Euro-Finance and Balkan Consulting Company to act as consultants on the sale of 12 tobacco processing units and a paper-packaging company in Plovdiv.

The planned sales will be done through the local stock exchange or open bidding auctions.

Privatisation of the major cigarette makers in Blagoevgrad, Sofia, Plovdiv and Stara Zagora is not envisaged at this stage.

The restructuring consultant will have to prepare the analysis necessary for implementation of the sale of most companies in the structure of the holding.

The consultant will be paid about 145 000 euro, and if the deals are completed successfully, about 1.65 per cent of the sale price of each unit.

On May 26, Economy and Energy Minister Roumen Ovcharov held a meeting with the management of Bulgartabac Holding because of a decline in cigarette production.

Cigarette production at Blagoevgrad BT dropped 65 per cent year-on-year in January 2006, following the cigarette price hike in the beginning of the year. The year-on-year decrease in cigarette output was limited to 11 per cent in April 2006, Ovcharov said. Plovdiv BT registered a more than 52 per cent decrease in output for January 2006, which was reduced to 14 per cent in April 2006.

After the meeting, Ovcharov said that production would be stepped up once more.

He said that the key issues on the agenda of his meeting with Bulgartabac’s management had been the restructuring of the holding and its subsidiaries, the companies’ financial status and the effect of cigarette prices introduced early in 2006, tobacco exports and tobacco purchases.

He said that while Bulgartabac’s financial results had worsened, the company was expected to turn around financially once production resumed.

A clearer picture of the options for the group’s development was expected to emerge by early August, Ovcharov said.

Bulgartabac’s woes are taking place against a background of new statistics released in May showing that the number of smokers in European Union countries had dropped from 33 per cent to 27 per cent since 2002. The number of people who had given up smoking had risen from 19 to 22 per cent.

Across the EU, the number of cigarettes smoked per day varies from 12.2 in Slovakia to more than 23 in Greece. Most Cypriots and Greeks smoke more than 20 cigarettes a day, the study found.

People in Bulgaria and Romania, provisionally scheduled to join the EU in 2007, and in Turkey, an EU candidate state, smoked the highest number of cigarettes a day, according to the research.