Imperial Tobacco Declines on Concern Over Lower Dividend Payout

Source from:  Bloomberg 05/13/2009

Imperial Tobacco Group Plc, Europe's second-largest cigarette maker, fell the most since January in London trading on concern that dividends may be restricted by costs for cutting jobs after the takeover of Altadis SA. Altadis's restructuring led to expenses of 43 million pounds ($65.2 million) in the first half and "given the current macroeconomic environment, it's prudent for the board to take this into account" when it decides on the full-year dividend, Chief Financial Officer Bob Dyrbus said in a Cantos interview today. Imperial Tobacco previously said it aimed to pay out about 50 percent of profit as dividends. Imperial fell as much as 77 pence, or 4.7 percent, to 1,555 pence in London, the steepest intraday drop since Jan. 21. The cigarette maker also reported a first-half loss today, as currency and interest-rate fluctuations led to an increase in so-called fair value losses on derivatives used for hedging. "Management is guiding towards a temporarily lower dividend payout," Eileen Khoo, an analyst at Morgan Stanley, wrote in a note to clients. She rates the stock "overweight." Khoo estimates Imperial Tobacco will pay about 44 percent of profit in dividends this year. Imperial Tobacco plans to make a first-half dividend payment of 21 pence a share, compared with 20.9 pence in the previous year. The company said it maintains its goal of paying about 50 percent of profit in dividends while "recognizing" the costs of Altadis restructuring. A decision on the final dividend will be made by the board in November, Imperial said. Cheaper Brands Imperial Tobacco also said it expects operating profit growth to accelerate in the second half as outdoor smoking increases in the summer months and consumers switch to roll- your-own products to cut spending on cigarettes. "We can look forward to a good second half," Chief Executive Officer Gareth Davis said on a conference call with reporters today. Operating profit growth, excluding acquisitions and currencies, will be "slightly stronger" than the first half's 6 percent rate, he added. A shift by consumers toward cheaper brands has benefited Imperial, which gets almost half of its volumes from low-priced products. Ducados Rubio cigarettes in Spain sell for 2.45 euros a pack, 24 percent less than the price of Philip Morris International Inc.'s Marlboro Gold. The first-half loss was 149 million pounds, compared with a year-earlier profit of 233 million pounds, the Bristol, England- based maker of West and John Player Special cigarettes said in a statement today. Earnings per share on a so-called adjusted basis rose 14 percent to 71.8 pence, beating the 70.8 pence median estimate of five analysts. Imperial Tobacco said it had "fair value" losses on hedging of 937 million pounds and amortization of 224 million pounds from acquisitions, which led to the loss. Enditem