4th Nov 2014 09:27
LONDON (Alliance News) - Imperial Tobacco Group PLC Tuesday reported a fall in both volume and revenue in its last financial year, but its pretax profit rose as it continued to strip out costs across the business.
In its trading update back in August, Imperial Tobacco said it stock optimisation programme - by which it is reducing stock levels to improve supply and cost efficiencies - reduced trade inventories in a number of markets, especially Iraq and Russia, which it said hit volume, revenue and profit in the first nine months of the financial year.
The group said Tuesday that it has now completed its stock optimisation programme, and that let to a decline in both total tobacco volume and revenue in the financial year ended September 30. Revenue for the year fell by 6% to GBP26.63 billion, down from GBP28.27 billion a year earlier, while total tobacco volume declined by 7% at actual rates and 4% on an underlying basis to 294 billion sticks equivalent.
"This reflects the impact of market declines and our stock optimisation programme, which reduced the level of stock held by distributors by more than nine billion stick equivalents," the company said.
The group, similar to its peers, is also taking a hit from the current strength of the pound.
Its pretax profit for the year, however, rose to GBP1.52 billion, up from GBP1.22 billion the prior year, as its stripped out costs in the business as part of its cost optimisation programme. Last year's results were also knocked back by a GBP580 million impairment charge.
"We are a stronger business going into 2015. We've strengthened our brands and market footprint, increased cash conversion and considerably reduced our debt level," the company said in a statement.
Imperial Tobacco said those factors will help it generate "quality sustainable growth" as it drive its growth an specialist brands.
Highlighting its outlook, the FTSE 100 tobacco firm said its focus on cost optimisation will help it free up funds to invest in growth, although it warned that trading in some of its markets remains tough.
"The external environment remains challenging but the progress we've made has strengthened our ability to navigate headwinds and we can look forward to delivering another year of value creation for our shareholders, including our commitment to dividend growth of at least 10%," it said.
The group declared a 10% increase in its dividend for the year just ended to 128.1 pence, and said return on invested capital was 14.2%.
The company's growth brands - which include Davidoff, Gauloises Blondes, JPS, West, Fine, News, USA Gold, Bastos, Lambert & Butler and Parker & Simpson - generate a significant amount of its overall volume and revenue, accounting for 44.5% of total tobacco volumes and 41.6% of overall tobacco net revenue in the year just ended. During the year, its underlying volumes from the growth brands grew 7% against a backdrop of market volume declines, to 131 billion stick equivalents. It also grew its market share from the brands, with strong growth from JPS in Australia and the EU, Davidoff gains in Germany and Taiwan, and good progress from West in Turkey, Ukraine and Japan.
"At the beginning of the year we said our overall performance would be affected by our stock optimisation programme, which reduced the level of stock held by our distributors in some markets to improve our long-term supply effectiveness," the company said in a statement.
"Our underlying performance, which excludes the impact of the stock programme, has been encouraging and provides plenty for us to build on in 2015," it added.
Imperial Tobacco shares were up 2.7% at 2,739.00 pence Tuesday morning.
Imperial Tobacco said its specialist brands - which consist of a range of cigarette, fine cut tobaccos, papers and cigars brands, including Golden Virginia and Rizla - continue to generate strong returns, increasing net revenue during the year by 2% on an underlying basis.
"We've strengthened our brands and market footprint, improved cash conversion to 91%, reduced debt by GBP1 billion and delivered another 10% dividend increase to shareholders. We've completed our stock optimisation programme and realised over GBP60 million of further savings through our cost optimisation programme," said Chief Executive Alison Cooper.
It said its cost optimisation programme remains on track to save GBP300 million per year from September 2018.
The FTSE 100-listed tobacco firm said it continues to see "considerable opportunities" to generate long-term share and profit growth in key territories including the US, several EU countries, Eastern Europe, Asia and the Middle East.
"We made good progress in a broad spread of these markets including Italy, Greece, Sweden, Norway, Taiwan, Cambodia and Kazakhstan. Results in Russia were undermined by difficult trading conditions, as industry volumes continued to decline following excise increases and changes to regulation and the route to market. In the USA, we improved our share position in a number of key states," the company said.
Earlier this year, US tobacco firm Reynolds American Inc struck a deal to acquire smaller rival Lorillard Inc, in a cash-and-stock deal valued at over USD27 billion. London tobacco companies British American Tobacco PLC and Imperial Tobacco both took a slice of the deal, with Imperial making a deal to acquire a portfolio of US cigarette brands, office and productions facilities currently owned by Lorillard.
"We expect to complete the USA transaction in the spring of 2015, which will significantly enhance our operational and financial delivery in this key growth Market," the company said Tuesday.
Imperial Tobacco has also been busy in Europe, having recently spun-off its European logistics unit, Logista, when it sold a 30% stake in the unit and floated the business on the Spanish stock exchanges in July. Logista makes more than 35 million deliveries a year to 300,000 outlets across Spain, France, Italy, Portugal and Poland.
"Retaining a majority shareholder position ensures we continue to benefit from the strong cash flows that Logista generates," the company said.
Imperial Tobacco's comments on sterling echo those of UK rival, British American Tobacco, which last month said that the strength of the pound continues to hit its revenue in sterling terms, although an increase in tobacco prices helped lift sales at constant currency rates.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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