Imperial Tobacco Holds Ground

Source from:  forbes.com Vidya Ram, 10.30.07 11/01/2007

Smokers aren't the only ones suffering from the ban on smoking in public places in Britain that started in July. Imperial Tobacco reported a decline in U.K. sales Tuesday, but a new acquisition in the United States as well as a takeover of its Franco-Spanish rival Altadis has helped the company maintain its buzz. Imperial Tobacco (nyse: ITY - news - people ) said that net profit for the year rose by 6.3% to £1.24 billion ($2.56 billion) from £1.17 billion ($2.42 billion) for the year before. The company said that the results were driven by growth in central and Eastern Europe, where it has been bumping up its presence and a strong performance of Commonwealth Brands, its new U.S. acquisition. As a result total sales rose to £200.3 billion ($413.8 billion) from £186.9 billion ($386.1 billion), despite a decline in British volumes to £22.9 billion ($47.3 billion) from £23.4 billion ($48.3 billion) for the year. "Imperial Tobacco's full-year results were almost exactly in line with our expectations, and the shares have experienced mild profit taking after a good run," Jeremy Batstone-Carr of Charles Stanley told the Associated Press. "The performance of Commonwealth Brands is particularly pleasing, with an excellent return on investment in the first six months," said Chief Executive Gareth Davis, adding that the acquisition had given the company a firm foothold in the US. After China, the U.S. is the largest market for cigarettes. Kentucky-based Commonwealth Brands is the fourth-largest cigarette producer in America with brands including USA Gold and Sonoma. (See: " Imperial Takes A Drag On The U.S. Market") Imperial Tobacco put a brave face on the British results, arguing that the decline was largely in line with their experiences in other markets which had introduced bans, and that by the following year the rate of decline would be around just 3.0% to 4.0% inline with the long term decline in volumes in the West. It added that it had offset some of the impact by increasing its British market share to 46.4% from 45.5%. However, its upbeat outlook failed to convince analysts, who were looking for an update about its acquisition of Altadis, but got no more out of the company apart from a statement that the deal was expected to be completed by January. In a note to investors, Dresdner Kleinwort analyst Charles Manso de Zuniga said that the company's shares were likely to ease as there was "no positive surprise" in the results, and nothing new on the Altadis acquisition, on which high hopes have been placed. (See: " Altadis Lights Up Imperial Tobacco's Future") Imperial Tobacco was trading up 40 pence (58 cents), or 0.2 %, at £24.47 ($35.33) at the close in London. British American Tobacco (amex: bti - news - people ) ticked down 1.20 euros (33 cents), or 1.6%, to £18.00 ($37.19). Altadis (other-otc: ALTDF - news - people ), which Imperial Tobacco is set to acquire for 12.6 billion euros ($18.2 billion), closed virtually unchanged at 49.33 euros ($71.07) in Paris. England has followed a number of other European countries including Ireland and France in banning smoking in public places such as bars and restaurants, despite protests from cigarette makers. At the start of October, England also raised the age limit for cigarette sales to 18 from 16. While sales of cigarettes have weakened in the West due to health concerns, demand in emerging markets such as India and China have soared. Enditem