Imperial benefits from price conscious consumers

Imperial Tobacco, the world's fourth largest tobacco company, is seeing strong demand for its economy cigarette brands from price-conscious consumers as it continues the integration of Altadis, the Franco-Spanish tobacco group it purchased last year.

"In a year of significant achievement we competed the Altadis acquisition and grew our cigarette volumes and shares in both mature and emerging markets." said Gareth Davis, Imperial's chief executive.

Imperial sold 292bn cigarettes in the last year, an increase of 46 per cent.

Pre-tax profit for the year ending in September fell 50 per cent to £621m on revenues (including a nine-month contribution from Altadis) that rose 66 per cent to £20.5bn. However this loss in pre-tax profits reflects restructuring and amortisation costs related to the Altadis acquisition. Adjusted pre-tax profit rose 30 per cent to £1.6bn.

Adjusted earnings per share were 15 per cent higher at 136.9p, and Imperial will raise its full-year dividend by 4 per cent to 63.1p.

Imperial has embarked on a series of consultation processes in France, Spain and Germany regarding the integration of the Altadis businesses. The consultation process in France has already been concluded, with implementation expected to begin early in 2009. The sales teams of Imperial and Altadis have already been fully integrated in Russia, the UK, Poland, Austria, Belgium and Italy.

"Maintaining this positive momentum will be key focus going forward and I can confirm that we remain on track to deliver the previously announced annual operating efficiencies," said Mr Davis.

Long a defensive staple for investors seeking safety in an economic downturn, the company has also capitalised on consumers' bid to economise.

"The economy sector has grown as consumers downgrade to cheaper brands and products," said Mr Davis.

"To capitalise on this, we launched the JPS silver range a few weeks ago."

The downtrading trend among smokers has progressed even further in Germany, where JPS Silver is now the number two cigarette brand, with just under 8 per cent of the market.

In spite of Imperial's relatively high level of borrowings, the company said it was still comfortable with its debt position, and said it would consider further borrowings or a debt issue if market conditions were suitable."

"We constantly monitor the state of the markets," said Bob Dyrbus, finance director of Imperial.

"We have seen that the [debt] markets do seem to be open now for tobacco companies. Recently, Altria, Philip Morris International and British American Tobacco have gotten bonds away, admittedly at some cost. Its something we constantly monitor. We have no absolute requirement, but if we see an attractive opportunity we'll take it."

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