Imperial Tobacco Profits Rise by 19%

Source from:  Wall Street Journal 11/04/2015

Imperial Tobacco Group PLC reported a 19% jump in full-year profit on Tuesday as it offset declining revenue with tighter cost controls.

The U.K. tobacco company, which makes the JPS and Gauloises brands, said net profit for the 12 months to Sept. 30 was £1.69 billion ($2.61 billion), compared with £1.42 billion a year earlier, on revenue that was 4.4% lower at £25.29 billion.

Imperial grew profit on falling revenue partly because of its cost-cutting program, which aims to strip out £300 million a year by September 2018. The company said it saved £85 million over the year through measures to reduce complexity, drive operational efficiencies and find procurement benefits globally.

Input costs fell 5.5% to £20.19 billion while investment income rose to £948 million from £516 million.

Total cigarette volumes declined 3.1% to 285.1 billion sticks while Imperial said it expects first quarter volumes "will continue to reflect the situation in Iraq and Syria as well as a strong comparator quarter for volumes last year while first-half revenue should benefit from stronger relative pricing."

As expected, the company increased its full-year dividend by 10%.

Imperial reported adjusted earnings per share of £2.13 compared with £2.09 expected by analysts. Tobacco net revenue of £6.25 billion missed analysts' forecasts of £6.45 billion.

Chief Executive Officer Alison Cooper said the company benefited from brand migration-the process of moving customers from one brand to another. Imperial has said slimming down its number of brands has reduced complexity and created economies of scale in production, marketing and advertising, allowing it to make better products.

Imperial completed 21 brand migrations last year and is working on more for 2016.

Imperial Tobacco in June closed its acquisition of a number of cigarette brands, including Winston, Kool, Salem and electronic cigarette brand Blu from Reynolds American Inc. and Lorillard Inc. for $7.1 billion. The deal catapulted Imperial into the position of third-largest player in the U.S. tobacco market with a 9.5% market share.

Imperial on Tuesday said the acquired brands had maintained stable market shares in the fourth quarter. Tobacco net revenue in the U.S. rose to £707 million from £507 million a year earlier.

In mid-November, a standstill period that Imperial had agreed to with Reynolds will expire, allowing the U.K. company to actively work on engaging U.S. retailers and striking contracts with them, Ms. Cooper said on a call with journalists. While Imperial has held prices steady until now, under the agreement with Reynolds, the company will be free to change these as of mid-November.

Imperial said the Blu e-cigarette brand is gaining traction in the U.K. and that it is implementing plans to strength Blu's position in the U.S.

A lawsuit it filed in June against the U.K. government over its plans to ban branding on cigarette packs will be heard in London in mid-December, the company said. The branding is slated to be banned as of next year, which means cigarettes will be sold in uniform packs stripped of distinctive logos and colors-and adorned with graphic health warnings. Enditem