Imperial Tobacco profit rises but volumes fall

Imperial Tobacco Group PLC Tuesday issued a revenue growth due to rising prices, but strong demand in emerging markets was not enough to prevent a fall in volumes.

Number of world’s four global tobacco sales groups said that trading in line with expectations, placing a 3% increase in tobacco revenue for the nine months to 30 June on an ongoing basis the currency.

However, the total volume of the stick, which combines cigarettes and fine-cut tobacco, fell 3% over the same period.

“Difficult conditions persist in some markets, but we have extensive experience delivering growth in this environment and remain in good position to continue to maximize value for shareholders,” said Chief Executive Officer Alison Cooper.

Imperial is building its position in developing countries such as Eastern Europe, Africa, Middle East and Asia to offset the slowdown in developed markets, where consumers are struggling with tough economic conditions.

Smokers in developed countries move to cheap brands like tax increases, spending cuts, unemployment and inflationary pressures, the compression of discretionary spending, especially in Europe.

This trend also affects competitors Imperial. The market leader Philip Morris International, Inc (PM) last week reported a 3.8% drop in second quarter net profit, attributed in part to the less amount of debt in Europe. In March, British American Tobacco PLC (BATS.LN) recorded a slight drop in full year volumes, even if profits rose. BAT is due to report its first half profit on Wednesday.

Like his peers, Bristol, England-based Imperial offset soft volumes with higher prices for selected markets in order to preserve and enhance profits.

The first half of the company’s net profit, reported in May, was struck by a tax increase and one-time finance. It focuses on the full year dividend payout ratio of adjusted earnings to come in the share of growth.

Imperial Tobacco shares closed Monday at 2449 pence, considering the company in GBP24.3 billion.

Imperial suffers as price wars hit Spain

Imperial Tobacco has issued a profit warning stemming from a price war in Spain.

The company, which owns the Davidoff and Gauloises cigarettes brands, said on Monday that adjusted operating profits in the region could be as much as £110m ($180m) lower than previously forecast.

Spain has not been the favorite territory of any tobacco company lately.
The woeful economy means smokers have less money to spend, while a ban on smoking in public places instituted in January means they have fewer places to light up. The market has dropped precipitously as a result.

However, two of the four global tobacco companies have borne the brunt of the pain in Spain. They are Imperial, whose Fortunas is the number two brand by volume in the country, and Philip Morris International, which makes the market leader Marlboro.

Both groups have lost market share recently to British American Tobacco, primarily as it pushed its Pall Mall value brand through price and marketing. BAT boasted last month it aimed to “never miss a good crisis”, in reference to Spain.

At first, Imperial gritted its teeth and held prices, in part because it was still paying down debt from its 2008 acquisition of Madrid-based Altadis.
But Philip Morris took a different tack. Starting in May this year, it began a series of steep price cuts, and reasserted the role of its value L&M brand as the cheapest on the market.

The ensuing price war eventually drew in Imperial, too, leading to Monday’s profit warning.
But the war is attracting attention disproportionate to what it is costing Imperial, in part because it breaks with an industry-wide pattern that developed early in the recession and has been little questioned since.
Despite volumes ebbing, revenues rose on higher prices. Even if smoking was not recession-proof, tobacco stocks seemed to be. Now some investors worry that Spain could be a harbinger of a new era of tougher pricing pressures for the industry.

Imperial – and many analysts – argue the situation in Spain is unique.
Its recession, after all, was deeper than elsewhere, and exacerbated by a tobacco tax increase late last year and the smoking ban this year. The structure of Spain’s tobacco duty means price wars hit government coffers, too, making price cuts attractive to companies wanting to influence government policy.

Some observers believe Philip Morris is tilting for regulatory change. But one City analyst doubted that. “Price wars happen,” he said. “This is just getting attention because Spain is a big market and it’s in Europe.”
He thinks Philip Morris is taking advantage of the weak dollar to stem market share declines, rather than fundamentally reassessing the trade-off between smoker retention and price.

However, Martin Deboo at Investec Securities is more anxious. “With FY10 an annus horribilis for industry volumes, perhaps Philip Morris might be worried about consumption trends generally, a stance consistent with their FY11 guidance that pricing will be more ‘conservative’,” he wrote on Monday.
“We sense they have a very keen awareness of when pricing is drifting too far away from what customers are willing to pay.”
If this were the case, he said, “we see mature markets where Imperial is number two to Philip Morris – for example Germany, France and Poland – as concerns.”

Imperial’s shares fell on Monday by 29p, or 1.4 per cent, to £20.56. Its difficulties play into market speculation that the number four tobacco group worldwide, by market capitalisation, could eventually be a take-over target. However, many sector watchers argue consolidation would be stymied by competition authorities.

M&A would become more appealing for the industry if organic growth and pricing stuttered. But it is far from clear that it has reached that point. “You can’t really extrapolate from Spain,” said an analyst.
Imperial Tobacco
Nor would weakening Imperial ahead of a take-over be one of Philip Morris’s aims. Competition concerns would keep the global market leader from picking off the number four.
The Financial Times

Imperial Tobacco aims for organic growth

On the first anniversary last week of Alison Cooper’s appointment as chief executive of Imperial Tobacco, an analyst at Investec Securities reminded investors of the fundamental question that she needs to answer: can the FTSE 100 tobacco company transform itself from the M&A machine it has been over the past two decades into a vehicle for organic growth?

The tobacco marketShareholders may have been temporarily distracted from that question by the announcement that Imperial would begin buying back shares.

The company has paid down debt from its last big deal – the acquisition of Altadis, maker of Gauloises Blondes, in 2008 – to just over two times earnings.
It will also push up dividends, hitting 50 per cent of adjusted earnings this year and aims to increase them ahead of the rate of earnings growth.
But with investors’ “cash return bloodlust now sated” – as the Investec analyst Martin Deboo put it – the organic growth question is nagging again.
r employees as much as investors. She recalls how, a year ago, some staff had seemed hesitant about the new direction she was advocating.

She wants to turn a team skilled at bedding down new businesses – from Australian, Dutch and African acquisitions in the late 1990s, to Reemtsma of Germany in 2002 and Altadis six years later – into one that can increase market share and volumes through better sales and marketing.

“They all said, ‘we like Alison, we really want to go for it’,” she says. “But they wanted to get some meat on the bones.” Enthusiasm has grown in the course of the year, she believes, as seen at a recent management meeting in Prague. “All the feedback from Prague was, ‘we really see it’.”

She has also brought in fresh blood. Two recent hires – a marketing director from Reckitt Benckiser and a sales director from Metro Group, the German retail business – underscore her belief that Imperial should think of itself as a regular fast-moving consumer goods company and that organic growth, not M&A, is top of the agenda.

Investors, meanwhile, saw some signs of progress in the company’s half-year results. Sales of its premium Davidoff cigarettes were up 9 percent, helped by a strong performance in emerging markets. And while the West value brand had subdued growth – up just 1 percent – and cigarette volumes were down as a whole, fine-cut tobacco volumes rose 5 percent.

“In most of my discussions with the investment community, I feel there’s a general growing confidence with the organic growth story,” says Ms Cooper.
Mr Deboo is less convinced. He points out that market share declined in the six months to March 31 in 11 of the company’s 20 reported markets, including Russia, France and regulation-hit Spain.

To counter these trends, Ms Cooper has been creating “cocktails” of solutions, designed for each territory. They are based on the notion that Imperial can improve revenues not just through pricing and cigarette sales, but by selling cigars, fine-cut tobacco, rolling papers and filters, even rolling machines.
The difficult UK market, where Imperial generates 13 per cent of its revenues via brands such as Lambert & Butler, Regal and Golden Virginia, is a good example. The company is coping with poorer, recession and austerity-hit smokers by pushing fine-cut tobacco as a cheaper alternative to cigarettes. This year, it introduced an alternative to roll-your-own tobacco: cigarette-making kits, with filters already fitted into tubes, and a special cut of loose tobacco to be fed into the tubes using a machine.

Julian Hardwick of RBS says: “There’s a perception in the market that the European Union is not a good place to have a tobacco business. One of the strong views that Alison has is that there are always growth opportunities. It may not be in cigarettes, it may not be in premium cigarettes, but there are always going to be opportunities, and it’s very important that Imperial capitalises on them through its ‘total tobacco’ portfolio. That’s a key mindset that’s brought to the whole business.”

If Ms Cooper can’t capitalise on these opportunities, M&A could be back on the agenda – this time with Imperial as the target.
Some of the 12 per cent climb in the share price since the start of the year has come on the back of research by analysts at Goldman Sachs arguing that four global tobacco companies – Philip Morris, British American Tobacco, Japan Tobacco and Imperial – is still one too many. They argue that debt across the sector is low, volumes are stagnating and competition issues are not insurmountable, particularly if BAT were to buy Imperial.
Ms Cooper, who occasionally deviates from the on-message, unironic language of top managers to show a more jaundiced view of the world, is sceptical: “Anything to do with four to three has got very significant antitrust issues; I always describe it as not impossible but very difficult. But I’m sure bankers, in particular, will continue to speculate. Because I’m sure they’d love the fees on a deal like that.”
Her counterpart at BAT, meanwhile, who is also new to the job, says M&A will not be his focus for the next few years at least.
Mr Hardwick, of RBS, argues, like Ms Cooper, that if the market were taking bid speculation seriously, the shares would be much higher than they are. Even Mr Deboo says that the stock is a safe buy, “the closest thing to a bond available in the equity market”. He contests the notion, however, that Imperial is cheap next to rivals with greater emerging markets exposure.

Ms Cooper prefers to see emerging markets as one of the opportunities on offer for a company occupying the fourth position in the global market. For the M&A bulls on the sidelines, being fourth could offer other tantalizing opportunities, too.
The Financial Times Limited 2011. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web.
By Rose Jacobs

Imperial Tobacco On Track; Sales Up, But Volumes Fall

LONDON -Imperial Tobacco Group PLC (IMT.LN) Thursday said it’s on track to meet full year expectations following an expected rise Imperial tobaccoin first-half sales, but the maker of Lambert & Butler and JPS cigarettes also forecast volumes to fall by around 1%.
The world’s fourth-largest global tobacco group by revenue said first-half tobacco sales, at constant exchange rates and excluding Morocco, are expected to increase around 2% year-on-year.
It said the drop in combined cigarette and fine cut tobacco volumes is partly due to a change in U.K. trade buying patterns which will shift some volumes from the first to the second half. Still, fine cut tobacco shows strong volume growth overall, it added.
Spain remains challenging due to a December duty increase, the ban on smoking in public places and the ongoing weak economy, the company said.
But it noted that volumes of its cigarette brands cigarette-store.biz/online/davidoff, cigarette-store.biz/online/gauloises and cigarette-store.biz/online/west have risen, driven by growth in emerging markets. It also said JPS has maintained its “excellent” performance.
Still, at 0801 GMT, Imperial Tobacco shares fell 42 pence, or 2.2%, to 1880 pence, the biggest faller on the FTSE 100 Index. The company’s first-half trading update reflects a weak second-quarter performance, Evolution Securities analysts said. They said the projections for the top line and volumes contrasts unfavorably with first quarter trends.
Last month, the Bristol, England-based company posted higher first-quarter sales and volumes, driven by a strong performance in growing economies. Imperial’s priority is to continue building its position in markets such as Eastern Europe, Africa, the Middle East and Asia.
By contrast, smokers in developed markets, who are struggling in tough global economic conditions, are switching to low-cost brands in the face of dented discretionary income as governments impose austerity measures such as tax hikes and public spending cuts to rein in borrowing.
The company has offset soft volumes with price rises. Increases are essential in high-exposure, mature markets like Western Europe and the U.S., where volumes are either in long-term decline or at best flat.
By Simon Zekaria, Dow Jones Newswires; +44 207 842-9410; simon.zekaria@dowjones.com

Imperial Tobacco denies sparking price war

Imperial Tobacco Canada Ltd. has denied starting a price war for cigarettes in the Maritimes despite concerns by some store cigarettesowners, another tobacco company and the Canadian Cancer Society.
The reaction comes after imperial-tobacco discounting-program, called the expansion preferred pricing program, in November. It has been offered to about one-third of retailers in Nova Scotia.
As a result, some cigarettes are being sold for as much as 50 cents less per package in 621 stores across the Maritimes.
Sid Chedrawe, a convenience store owner in Dartmouth, N.S., said he was not invited to participate in the program.
“You are only given the opportunity to join this program by invitation and there’s just something that seems at odds with fair competition rules that we have here in Canada,” he told CBC News.
Eric Gagnon, a spokesman for Imperial Tobacco, said the program is designed to encourage competitive pricing, and it’s up to store owners to decide how much of a discount — if any — is offered to customers.
“Some of them will have a benefit, which is a reduction in the price they pay,” Gagnon said.
“Even before the program, the prices of tobacco products were not the same in all the stores. It was all based on the margin that the retailers themselves wanted to take.”
He refused to say what criteria was used to select stores for the cheaper cigarettes.
Chedrawe said there’s no question he will lose business when smokers start finding which stores sell the discounted cigarettes — such as the one across the street from his.
“Fifty cents is a huge difference, and they will go down the road, across the street or across town for that,” he said.
“It’s just the way it is. It’s like gas. People will drive all the way to Sackville because they think they can get gas for a penny cheaper.”
Cancer society reacts
JTI-Macdonald Corp., one of Imperial Tobacco’s largest competitors, sent a letter to its retailers that said Imperial Tobacco’s new program “raises serious legal issues under the federal Competition Act.”
“ITCO [Imperial Tobacco Company] is asking you to reduce your margin on its premium brands, alleging that it will increase traffic into your store,” said the letter, obtained by CBC News.
“You will lose those adult consumers seeking the lowest-priced cigarettes unless you drastically reduce your own profit margin in what is the fastest-growing segment.”
Chedrawe said what Imperial Tobacco is doing is not how a free market should operate.
“A company should not be allowed to control the destiny of retailers. They cannot just randomly select people and say, ‘We will let you do this,'” he said.
“From a retailer’s perspective, the people who are not on this program seem to take it on the chin because if two retailers across the street from each other — one has it and one doesn’t — the one who doesn’t, people may perceive that retailer as being someone who’s gouging and overcharging.”
Meanwhile, the campaign has also caught the attention of the Canadian Cancer Society, which said the issue will be dealt with at the national level.
“The Canadian Cancer Society supports a total ban on all promotional measures put forth by the tobacco industry that are intended to increase tobacco sales and thus consumption,” said Maureen Summers, executive director of the society’s Nova Scotia division.
“We will be working with our national public issues office to move this issue forward to see what we can do with provincial and federal governments in terms of strengthening the Tobacco Act and legislation that would restrict this kind of activity and promotion from the tobacco industry.”
CBC News

Imperial sees return to cigarette volume growth

LONDON, – imperial-tobacco discounting-program (IMT.L), the world’s fourth-biggest cigarette maker, predicted a return to volume growth this year as Spanish and Russian markets improved after it met forecasts with an 11 percent annual earnings rise.
Chief Executive Alison Cooper said she is looking for a small rise in global cigarette volumes for the current year after reporting a 4.2 percent fall for the year to September 2010 due to poor trading in four of its key markets.
“We have had a tough year in Spain and Russia as well as the U.S. and Ukraine but conditions are getting better in Spain and Russia and we are looking for a small rise in volumes this year,” she told a full-year results briefing on Tuesday.
The British maker of Lambert & Butler, West and Gauloises saw its cigarette volumes fall as smokers switched to cheaper, and sometimes illicit, cigarettes in the global downturn but it has offset this by price rises, on-going cost savings and growth in its fine-cut loose tobacco.
Analysts said a strong rise in the dividend, a better than expected fall in net debt and a commitment to create further sustained returns for shareholders all helped to push the shares up 2.1 percent to 2,038 pence by 1540 GMT.
Imperial reported a 8.7 percent growth in fine cut loose tobacco volume meaning its cigarette equivalent volumes fell just 2.9 percent, and with the help of price rises overall annual sales rose 3 percent.
The Bristol-based company, which acquired Franco-Spanish group Altadis in January 2008, posted adjusted earnings per share for the year to end-September of 178.8 pence, line with a Thomson Reuters I/B/E/S/ consensus of 178.7 pence.
Imperial raised its annual dividend by 15 percent to 84.3 pence a share, while cutting its adjusted net debt by 1.5 billion pounds to 9.3 billion pounds.
“Imperial’s results contain no real surprises and show an extremely resilient sales and profit performance against some challenging market conditions,” said analyst Julian Hardwick at house broker RBS. He is holding his earnings forecast for the year to September 2011 at 191.6 pence.
The group, with brands such as Fortuna and Davidoff, is heavily exposed to Western Europe and North America for over 70 percent of earnings and has seen cigarette volumes dip more sharply than most rivals.
Last week, rival British American Tobacco Plc (BAT) (BATS.L) reported a 3 percent fall in volumes for the first nine months of 2010, and said the downturn’s impact on smokers showed no sign of abating.
Imperial ranks after cigs4us.biz/marlboro-cigarette maker Philip Morris International (PM.N), BAT, and Japan Tobacco (2914.T) in terms of global cigarette volumes. (Reporting by David Jones and Julie Crust; Editing by James Davey and Dan Lalor) ($1 = 0.6274 pound)
By Julie Crust and David Jones
Reauters

Imperial Tobacco Sees Weaker Volumes on Eastern Europe, U.S.

Imperial Tobacco Group said it sees a 4% drop in cigarette volumes in the first half of the year due to supply disruption in the Middle East and certain weak markets. In a trading statement, the company, however, confirmed that its overall performance and financial position for the year ending September 30 remain in line with the management’s expectations.
Imperial tobacco
The UK-based company operates under two segments: tobacco and logistics. Its portfolio of products includes Golden Virginia, Montecristo, Gauloises West, Cohiba, Van Nelle, Davidoff and Rizla.
According to the company, its global strategic cigarette brands have performed strongly with increase in volumes witnessed in Davidoff and Gauloises Blondes. ‘ volumes also grew after adjusting for the impact of temporary supply chain disruption in the Middle East.
The company expects that its first-half cigarette volumes will be down by around 4% due to this disruption and continued weak markets in certain Eastern European countries, the USA and Spain. Cigarette volumes are expected to stabilize in the second half, compared to the same period last year, it added.
Imperial Tobacco had said in an interim management statement last month that it made a good start to the new financial year, with trading in line with the board’s expectations, despite weak economic environment. At that time, the company said its first-quarter cigarette market volumes in Spain were down about 10%, while the drop was 2% in Germany. French cigarette market volumes in the quarter grew 3%, while it declined 9% in the U.S.
The company said today that its fine cut tobacco business performed well with first-half volumes expected to be up around 10% as the UK, Germany and Central European markets performed particularly well.
The impact of increase in leaf costs has been offset by price increases in several markets since the financial year began, the company noted.
”We expect our working capital to follow its normal pattern with a significant outflow in the first half followed by an unwinding in the second half. For the full year we expect our cash conversion to be between 90% and100%,” the company said.
The company said in November 2009 that its attributable profit in fiscal 2009 increased to GBP 663 million from GBP 428 million in the prior-year period. On a per share basis, earnings advanced 30% to 65.3 pence from 50.4 pence earned in the previous year. Annual revenues grew 29% to GBP 26.5 billion from GBP 20.5 billion reported in the year ended September 30, 2008.
Imperial Tobacco is scheduled to report its results for the half year ending March 31 on April 27.
ITYBY.PK settled Monday at $61.70, compared to the prior close of $60.86, on 12,100 shares.
IMT.L closed Monday’s regular trade at 2,050 pence, up 19.00 pence or 0.94%, on 1.72 million shares.
RTTNews

Imperial Tobacco hit by concerns on earnings growth

Imperial Tobacco was a casualty yesterday as the FTSE 100 continued to flatline near its 18-month high.Imperial tobacco
The maker of Davidoff and Gauloises lost 2.5 per cent to £20.91, its sharpest fall in six weeks, after UBS said earnings growth was set to slow significantly and consensus forecasts for next year looked too high.
Imperial was running out of cost savings from its purchase in 2008 of Altadis but remained hamstrung by the debt, analyst Jonathan Leinster said.
He argued that Imperial had very few internationally recognised brands and was underweight compared with peers in emerging markets.
But Deutsche Bank said worries about an earnings slowdown were “frankly, bizarre”.
Imperial had been providing the same profit guidance in investor presentations for two years and its increased stress recently on driving organic sales growth should be reason for encouragement, the broker argued.
The FTSE 100 recovered from a fall of as much as 0.8 per cent to close barely changed, down 4.42 points at 5,602.3.
Banks weakened on profit taking, a trend encouraged by Jonathan Pierce, Credit Suisse analyst.
He said UK lenders still had to shrink their asset books by up to 18 per cent to meet new liquidity requirements in addition to raising new funding, which would temper any recovery.
Lloyds Banking Group was down 0.9 per cent to 53¼p and Royal Bank of Scotland lost 1.2 per cent to 39p. Barclays , recently the subject of rumours about a fundraising backed by a Chinese investor, closed flat at 345¾p.
Liberty International led property stocks lower, losing 4.1 per cent to 486p, after a lower than expected portfolio valuation overshadowed its break-up plans.
BAE Systems drifted 1 per cent to 380½p on news it was facing an export ban while US authorities process its plea bargain on corruption allegations. Analysts played down the potential disruption, saying the bar was likely to be brief and relatively easy to work round.

Arm Holdings
faded 0.7 per cent to 229p after Tudor Brown, director and co-founder, raised nearly £1.2m with a share sale.
Other dollar earners featured among the gainers, with Aggreko taking on 2 per cent to £10.66 after UBS raised forecasts and repeated “buy” advice.
Old Mutual , which has been looking to sell its US operations, gained 1.8 per cent to 121½p ahead of tomorrow’s results and strategy update.
Credit Suisse remained positive on Compass Group , up 0.7 per cent to 503p, after a meeting with management boosted confidence that the caterer could improve profit margins.
Shanks Group headed the mid-cap fallers, down 15.1 per cent to 102¼p, after it walked away from takeover talks with Carlyle Group, which had offered 120p per share. Speculation that Carlyle might take the offer direct to shareholders helped keep the stock above 90p, which was where it was trading before the approach was made public.
In spite of sector consolidation gossip, Misys fell 3 per cent to 236¼p. Citigroup said the software maker was too optimistic about how quickly customers would adopt its banking and healthcare products. With shares trading at 25 times its current-year forecasts, any disappointment against the ambitious targets could trigger a derating, the broker said.

Logica
was up 3.3 per cent to 124¼p after Evolution Securities turned positive on the IT services group, citing recovering demand and a prospective 12 per cent free cashflow yield next year.
A retread of takeover speculation helped Tullett Prebon , the inter-dealer broker, edge 0.5 per cent higher at 310¼p. Some traders were also suggesting that housebuilder Barratt Developments , down 1.6 per cent to 115½p, could be vulnerable to an offer.
Better than feared maiden results from Gartmore , up 2.6 per cent to 195p, helped buoy other fund managers. Henderson Group rose 3.6 per cent to 132p and F&C Asset Management took on 1.5 per cent to 63½p ahead of results due this morning.
By Bryce Elder and Neil Hume, The Financial Times
March 10 2010

Imperial Tobacco Takes UK Vending Machine Row To Court

LONDON -The battle between the U.K. government and the tobacco industry stepped up a gear Wednesday after Imperial Tobacco PLC (IMT.LN) said it was seeking a judicial review of the decision to ban cigarette vending machines.
The ban on cigarette vending machines forms part of the U.K. government’s Health Act 2009 and is set to be implemented in October 2011. The U.K. accounts for 25% of Imperial’s profits and vending machine sales account for less than 1% of sales.
Imperial is seeking permission from a judge to launch a legal challenge to the legislation and a spokesman said it is likely to take some months before a decision is made.
“Legal action is always a last resort but the Government’s decision to ban cigarette vending machines is so disproportionate and unnecessary that it must be challenged,” Chief Executive Gareth Davis said in a statement.
Davis said he supported the Government’s proposal to stop underage smoking through the introduction of electronic ID cards, token mechanisms for vending machines and remote control technology.
“These are effective solutions which have been implemented in a number of other countries and it is a matter of great regret that the UK Government ultimately chose to disregard all of these options in favor of a ban that will result in significant job losses in the vending industry.”
A spokesman for Imperial Tobacco pointed to other European countries such as Germany, the Netherlands and Spain where a variety of methods are successfully used to restrict the access of cigarette vending machines to legal-age smokers. After months of working with the government on implementing similar proposals, he said the company had “the rug pulled from under our feet” by the move to an outright ban.
The ban forms part of wider measures to restrict underage smoking. The U.K. government is also planning to force the sale of tobacco “under the counter” through a ban on retailers’ displaying cigarettes.
Since the 2009 measures were passed by U.K. lawmakers, the government has made more proposals to cut smoking rates include stripping cigarette packs of their logos and branding–a move which is seen as a major threat to profitability for the industry.
In recent years most forms of tobacco advertising and sponsorship has been banned in the U.K., hard-hitting pictorial warnings have been introduced, and the minimum age at which people can be sold tobacco has risen to 18 years from 16.
The government has also banned smoking in enclosed public places such as pubs and restaurants.
These moves have cut the prevalence of smoking in the U.K., particularly among young people. Just 6% of 11-15 year olds now smoke, down from 11% in 1998. By 2020, the government plans to cut that rate below 1%.
Company Web site: www.imperial-tobacco.co.uk/
By Michael Carolan
Of DOW JONES NEWSWIRES

Imperial Tobacco 1Q Good Despite Weak Economy

LONDON –Imperial Tobacco Group PLC (IMT.LN) said Tuesday it has made a good start to the year despite a weak economic environment and hit out at the U.K. government’s latest proposals to strip cigarette packaging of logos and branding.
The world’s fourth-largest global tobacco group by sales said in its first-quarter trading update that its performance and financial position in the financial year to date is in line with management expectations.
The maker of cigarette-store.biz/online/davidoff, cigarette-store.biz/online/gauloises, Gitanes Blondes and JPS cigarettes said it had increased prices across its portfolio in the U.K., Spain and France since the start of the year. Price increases are essential in mature markets, where volumes are either in long-term decline or at best flat.
Imperial could face a tough time in its home U.K. market if government plans to cut smoking by half over the next 10 years succeed. As well as measures to end vending machine sales and tighten up restrictions in underage selling, the government said Monday it was also looking at banning logos and color from cigarette packaging.
Chief Executive Officer Gareth Davis said Tuesday the group was “strongly opposed” to the plain packaging proposal.
“There is no credible evidence that young people start smoking or adult smokers continue to smoke because of tobacco packaging,” he said. “Making all tobacco products available in the same generic plain packaging will further fuel the growth in illicit trade and undermine the government’s plans to increase investment in tackling smuggling and counterfeiting.”
Imperial has been under pressure in the past year from Japan Tobacco Inc.’s (2914.TO) U.K. business, which said late last year it had begun closing the gap on Imperial and gaining market share.
Imperial said Tuesday its average U.K. market share for the year to December was 45.2%, slightly down on 45.3% three months earlier. In its second-largest market, Germany, its market share dropped to 27.1% from 27.3%.
It increased the U.K. price of 20 cigarettes in December by 27 pence, following a similar increase by Japan Tobacco.
In Spain, cigarette volumes dropped 10% in the year to December while fine-cut tobacco market volumes grew 30%. In January, Imperial increased the price of the majority of its brands there by 15 cents per pack.
In the U.S., a sharp rise in federal taxes in April resulted in a 9% drop in cigarette market volumes for the year to December.
Cigarette volumes were strong in the group’s Rest of European Union region and in its Rest of the World region, with further cigarette share gains in Africa, the Middle East and Asia Pacific.
The company’s shares closed Monday at 2002 pence, having grown by a third since April last year as sales have grown and the company’s debt position has stabilized.
The company added that its focus on cash generation was helping to further reduce debt. “This has been recognized with Moody’s recently changing their credit rating outlook from negative to stable,” it said.
CEO Davis is due to retire in May to be replaced by Chief Operating Officer Alison Cooper. Cooper was named COO in March last year, immediately becoming the favorite to succeed Davis, who has led Imperial for all of its 13 years as an independent company.
Cooper has already pledged to enhance the group’s focus on sales growth under her stewardship.
-By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; michael.carolan@dowjones.com