News Column

Imperial Tobacco Keeps Outlook Unchanged Despite Revenue Slip

August 18, 2014

Rowena Harris-Doughty



LONDON (Alliance News) - Imperial Tobacco Group PLC Tuesday reported a slight fall in sales volume and revenue for the first nine months of its financial year, but left unchanged its full-year guidance for "modest" growth in earnings per share and a dividend increase of at least 10%.


The London-based tobacco firm said its stock optimisation programme - by which it is reducing stock levels to improve supply and cost efficiencies - reduced trade inventories in a number of markets, especially Iraq and Russia, which has hit volume, revenue and profit.


"Whilst conditions are still tough in a number of our markets, our footprint provides balance, and we're generating good results in growth markets, whilst demonstrating on-going resilience in our returns markets," said Chief Executive Alison Cooper in a statement.


The company said it still expects "modest growth" in earnings per share at constant currency rates for the full financial year, accompanied by at least a 10% increase in dividend. It also said its cost-optimisation programme remains on track to deliver incremental savings of GBP60 million for the full year.


However Imperial Tobacco said its profit continues to be hurt by the strong pound.


"If exchange rates stay the same in the final quarter, the full-year impact on operating profit is expected to be close to 5%," it said.


Imperial Tobacco said tobacco net revenue in the nine months to June 30 was GBP4.75 billion, down 1% on a reported basis, but up 2% on an underlying basis.


Tobacco net revenue comprises tobacco revenue, less duty and similar items, excluding peripheral products.


The company said its Growth Brands - which include Davidoff, Gauloises Blondes, JPS, West, Fine, News, USA Gold, Bastos, Lambert & Butler and Parker & Simpson - saw a 1% fall in reported volume on a stick equivalent basis to 91.7 billion. On an underlying basis, volume was up 3%.


Imperial Tobacco measures volumes on a 'stick equivalent basis' which combines cigarette and fine-cut tobacco volumes.


The company said its Growth Brands and its Specialist Brands - which consist of a range of cigarette, fine cut tobaccos, papers and cigars brands, including Golden Virginia and Rizla - now account for 53% of its reported total tobacco net revenue.


Imperial Tobacco said it has seen a "modest deceleration" in the rate of market decline in parts of Europe, but improvements have been offset by significant deterioration in the Russian market and political unrest in the Middle East.


Last month, fellow UK tobacco firm British American Tobacco PLC said it would will invest USD4.7 billion to maintain its existing 42% interest in the enlarged Reynolds American Inc group, following the acquisition of Lorillard Inc by Reynolds in a deal valued at USD27.4 billion.


On the same day, Imperial Tobacco said it had entered into a purchase agreement with Reynolds American to acquire a portfolio of US cigarette brands, office and productions facilities currently owned by Lorillard.


Imperial Tobacco said it would buy some brands from Reynolds and Lorillard, including a portfolio of US cigarette brands - Winston, Maverick, Kool, Salem - and US and international e-cigarette brand blu. It is also buying the national sales force, offices and production facilities currently owned by Lorillard, all for a total consideration of USD7.1 billion in cash.


Those brands in 2013 generated net revenue of USD2.4 billion, EBITDA of USD0.8 billion and operating profit of USD0.6 billion.


Imperial Tobacco said the acquisition will "transform its US business" and has huge growth potential. The company said Tuesday that it expects the transaction to be complete in 2015.


Earlier in the year, Imperial Tobacco also sold 30% of its European logistics unit, Logista, for EUR518 million by floating it on the Spanish stock exchanges. It said it will use the IPO proceeds from Logista to reduce its indebtedness.







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Source: Alliance News


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