Imperial Tobacco Sales Growth Disrupted by Iraq Conflict

Source from:  Financial Times 08/20/2014

The rise of Islamic extremism in the Middle East has disrupted sales growth at Imperial Tobacco, which has blamed the "turbulent situation" for falling cigarette and tobacco sales in Iraq, one of its key growth markets.

"In several Middle Eastern markets, sales have been disrupted by the deteriorating security situation," the company said in an otherwise positive third-quarter trading statement on Tuesday.

The rise of the Islamic State of Iraq and the Levant, known as Isis, has caused disruption to supply in the region as a result of road closures and damage to retail outlets, which is making it harder for Imperial's distributors to operate in some areas.

The company would not quantify the effects of the disruption, but stressed that its full-year outlook remained unchanged, and reiterated that it expected to increase its full-year dividend by "at least 10 per cent".

"Whilst conditions are still tough in a number of our markets, our [global] footprint provides balance," said Alison Cooper, Imperial's chief executive.

Tobacco net revenue rose 2 per cent to £4.8bn on an underlying basis, which stripped out the effects of Imperial's "stock optimisation" programme launched earlier this year, in the nine months to June 30.

The programme reduced the amount of cigarettes held by Imperial's distributors. This has resulted in a sharp drop in volumes, which were down 8 per cent over the same period.

Iraq and Saudi Arabia are both counted within the "growth markets" segment of Imperial's business, which includes selected markets across the world where the company is prioritising driving long-term market share and profit growth.

During the period, overall net revenues from tobacco sales in this segment increased 8 per cent, and the company reported that growth had been "encouraging" in a number of Asian markets and the US, where it has continued to deliver market share improvements in its targeted states.

As well as the disruption in the Middle East, the division has also been hit by the continuing regulatory restrictions and excise changes in Russia. The company said the decline in the size of the market had "accelerated" but had taken action including reducing stock levels to make supply efficiencies and improve performance.

Excluding Russia, the company said the overall market share for its growth markets division "has increased year on year".

Shares in Imperial have risen 15 per cent over the past 12 months, outperforming London-listed rival British American Tobacco. This improved performance came after Ms Cooper revealed a host of plans to get the tobacco company back on track, ranging from spinning off its distribution arm to buying cigarette – and ecigarette – brands in the US. Enditem