Tobacco giant Imperial Tobacco claimed on Wednesday that the legal European cigarette market had shrunk by 7%.
However, a black market for tobacco products was on the rise, which affected the cigarette manufacturer's European returns.
Market pressures, as Imperial refers to the problems it faces, are particularly acute in Britain. Annual sales actually increased across southern Europe in countries such as Spain, Italy, Greece and Portugal.
American sales remained stable, but Russia has experienced "weaker than expected demand", despite a renewed marketing drive for its premium brands, which include Davidoff, Gauloises, West and JPS.
Interestingly, Imperial also noted that the Australian ban on product packaging for cigarettes, which came into force from 1 December, 2012, has had no significant impact on consumption levels.
Despite this, Imperial's tobacco net revenue up by more than 2% - why? Because of its performance in emerging market territories.
As with other cigarette brands, Imperial has continued to perform well in emerging market countries. Nick Hood, business analyst at Company Watch told the Huffington Post UK: "Imperial Tobacco won't shake off its legacy issues with these latest results, indeed more cynical commentators might see some irony in it being savaged in Europe by competition from black market smugglers.
"But the fact remains that success in the developing world is driving overall revenue gains against a background of challenging conditions in its mature markets."
However, Imperial carries a high debt burden and adverse working capital position, according to Hood, as well as nearly £18 billion in intangible assets which can become a problem for hypothetical accounting values.
Chief market strategist at City Index Josh Raymond wrote in his analysis on Wednesday that Imperial Tobacco was now "in a fight" against declining volumes and sales in Europe thanks to economic headwinds and black market sales.
"Imperial Tobacco has already taken a £1.2bn hit by writing down the value of its business in Spain, where 26% of adults are unemployed and the country fell deeper into recession in its third quarter by -1.6% on an annual basis. Share prices fell 3% immediately after the firm reporting their figures this morning, testing support levels at 2350p," he added.
Imperial Tobacco has also made some management changes - Mark Williamson has been appointed as deputy chairman. He currently serves as a senior independent non-executive director, and formerly worked at International Power as its chief financial officer.
The cigarette manufacturer has also lost its finance director after Bob Dyrbus announced he is to step down after 25 years.Suggest a correction