Imperial Tobacco Counts on Cost Cuts as Volumes Fall

Source from:  Reuters 08/16/2013

Imperial Tobacco Group, the world's No. 4 cigarette maker, stuck to its full-year earnings guidance on Thursday, counting on cost cuts to offset falling sales from economic downturn and smuggling in its main European markets.

Shares in the company rose more than 4 percent, despite sales falling 7 percent in the first nine months of 2013 and missing analysts' forecasts, after Chief Executive Alison Cooper said expectations were unchanged and that cost cuts would deliver savings of 30 million pounds ($46.6 million) this year.

"We continue to focus on maximising opportunities for our total tobacco portfolio in the EU against a backdrop of weak industry volumes and are driving good in-market performances in Asia-Pacific and Africa and Middle East, with our share improving in many markets," Cooper said.

The company said in April that growth in its earnings per share (EPS) would be towards the lower end of its 4-8 percent target range, which would result in EPS of at least 209 pence. Consensus, according to Thomson Reuters I/B/E/S, is 209.6p.

Imperial, whose biggest markets in Europe are Britain, Germany and Spain, reported stick equivalent volume - a measure which includes loose tobacco as well as ready-made cigarettes - and revenue declines of 7 percent and 3 percent respectively.

That compares with volume decline of 5.9 percent in the first half. Stripping out the impact of destocking and currency fluctuations, volumes fell 5 percent and revenue 1 percent.

The group's shares have fallen 9 percent since the start of the year, underperforming sector peer British American Tobacco (BAT) by 19 percent.

Ronnie Chopra, a strategist at TradeNext, said: "There is relief in the market that they are sticking to their year-end expectations and results are not worse."

Imperial said its big brands - Davidoff, Gauloises Blondes, West and JPS - were outperforming the market. It estimated European Union industry volumes fell 6 percent over the period.

Analyst Owen Bennett at Nomura, however, said the group's performance at those brands was trailing BAT.

"Key strategic brands were down (4 percent on a reported basis in the nine months), that implies over 10 percent in the quarter," he said. "Considering they are putting all their focus on key strategic brands, that raises questions."

Imperial Tobacco also said it would launch its first e-cigarette via its subsidiary Fontem Ventures in 2014.

Electronic cigarettes, battery-powered metal tubes that turn nicotine-laced liquid into vapour, are gaining popularity among smokers trying to quit. BAT set up Nicoventures in 2011 to develop such products. Enditem