19th Aug 2015 08:28
LONDON (Alliance News) - Imperial Tobacco Group PLC on Wednesday said its net revenue was dragged lower by currency effects in the first nine months of its financial year, as a rise in volumes in its Growth brands portfolio was offset elsewhere to pull total volumes down, but Imperial said it is on track to meet its expectations for the full year.
The FTSE 100-listed tobacco company, which owns Golden Virginia tobacco and Rizla cigarette papers, said tobacco net revenue in the nine months to the end of June was GBP4.44 billion, down from GBP4.63 billion a year earlier. The 4% decline on a reported basis compared to a 2% rise in constant currencies.
The group said volume growth in its Growth Brands portfolio, which includes Lambert & Butler and John Player & Sons, hit 15% in the period, but total tobacco volumes fell by 3%. The group said the volume fall was primarily down to the deteriorating political and security situation in Iraq, which has hit volumes across the industry.
On an underlying basis, which is in constant currency and strips out the impact of the stock optimisation programme the group carried out in its 2014 financial year, net revenue was flat, while Growth Brands volumes rose 10% and total tobacco volumes were down 6%. Stripping out the impact Iraq has had, underlying volumes were down 4%.
Imperial said it expects its cash conversion ratio to be at around 90% for the full year, amid a continued focus on managing its working capital position, and said it is on track to deliver dividend growth of 10% for the full year.
It added its cost-cutting plans are on track, and it expects to deliver around GBP85 million in annual savings for the full year to the end of September.
"This has been another good quarter, building on the progress we made in the first half. Our continued focus on improving the consistency and quality of our performance has delivered excellent results from our Growth Brands which continue to grow net revenue, volume and market share. We've strengthened our performance in Returns Markets and maintained positive momentum in Growth Markets," said Chief Executive Alison Cooper.
"This consistent delivery against our strategic agenda leaves us on track to deliver against full-year expectations and to create further sustainable value for our shareholders," Cooper added.
Imperial shares were down 0.2% to 3,234.00 pence on Wednesday morning.
Imperial has two main tobacco brand portfolios, Growth and Specialist brands. The Growth portfolio comprises brands the company is actively managing to drive long-term volume, market share and revenue growth, while the Specialist portfolio covers brands which already generate strong returns and have robust market positions.
The Growth brands portfolio did well in the first nine months, with the John Player brand continuing to perform well in a number of key markets, boosted by marketing activities and migration activities, which helped support market share gains in Germany, Australia, Spain, the UK and Italy.
The Gauloises brand was hit by conditions in Iraq, though this was offset for the brand by a successful marketing campaign in Germany and growing market share in Algeria.
The Davidoff brand made progress in the Taiwan market, boosted again by marketing activity and the launch of Absolute, a premium variant of the brand, while volumes and market share for West improved on the back of a good performance in Saudi Arabia and a supermenthol variant it launched in Japan.
The Growth brands portfolio contributed 51% of total tobacco volumes in the first nine months, up 780 basis points year-on-year, and generated 47% of the group's net revenue on a reported basis, a 550 basis point rise.
In the Specialist portfolio, net revenue rose by 3% on an underlying basis in the first nine months, boosted by growth for modern variants of Golden Virginia in the UK, the Skruf snuff brand in Scandinavia and premium cigars in the US and Europe. Specialist brands accounted for 12% of net revenue for the company, up by 30 basis points.
In addition to the brand portfolio split, Imperial defines its end markets under the Growth and Returns monikers. Growth Markets for the company are those in which the group has a market share of less than 15% and in which it sees opportunities to increase this. Returns markets are those in which Imperial has a relatively large share and is focused on growing profits, while managing its existing market share.
Within the Growth segment, Imperial said has continued to grow its net revenue in Russia, boosted by strong pricing and consumer demand at the value end of the market, which it has tapped via the Maxim brand. The group said it has seen robust trading in the snus, or snuff, markets in Norway and Sweden and has benefited from increasing customer engagement in Taiwan.
It has made market share gains in Saudi Arabia and performed well in Italy, but the situation in Iraq has held back volumes in Growth markets, which also took a hit from the surging illicit market in Vietnam following the introduction of pictorial health warnings on cigarette packaging last year.
Within Return markets, Imperial said good pricing contributed to a solid performance, with continued growth in Australia, where the John Player brand is now the market leader. Carlton and Players have both performed well in the UK, tapping the value end of the market, while John Player also made market share gains in Germany.
Elsewhere in the Return segment, Imperial said market declines in France and Spain have eased, but said Morocco conditions remain challenging following recent excise increases and higher prices, which have fuelled the country's illicit trade. News and John Player both performed well in France, and West did well in Spain, where the group also said it maintained its share of the blonde cigarettes market and strengthened its portfolio via the migration of its Brooklyn and Ducados brands.
In the US, where Imperial has acquired a portfolio of assets from Reynolds American Inc following its acquisition of rival Lorillard Inc, the integration of the new assets is progressing well and on track with the group's expectations, Imperial said. The assets generated GBP41 million in net revenue in the period to the end of June, having only been taken into the portfolio after the deal completed on June 12.
Imperial said challenges remain in the US mass market cigar segment, meaning total US revenue for the group was down by 1% in the period.
Elsewhere, Imperial said its Fontem Ventures business, designed to develop non-tobacco products, particularly e-cigarette or vapour products, is developing well, with its blu e-cigarettes brand showing encouraging growth in the UK and the company starting a strategic roll-out in the US. Imperial acquired the blu brand as part of the Reynolds-Lorillard deal.
Imperial's trading update coincided with the release of a report from Public Health England, a unit within the UK's Department of Health which advises on health policy and which found e-cigarettes are 95% less harmful than tobacco and could be prescribed on the NHS in the future in order to help smokers trying to quit.
The study, led by professors from King's College London and Queen Mary University of London, found 45% of the UK population was not aware that e-cigarettes are much less harmful than smoking and found there is no evidence to suggest e-cigarettes act as a gateway to smoking for either children or non-smokers.
"E-cigarettes are not completely risk free but when compared to smoking, evidence shows they carry just a fraction of the harm. The problem is people increasingly think they are at least as harmful, and this may be keeping millions of smokers from quitting. Local stop smoking services should look to support e-cigarette users in their journey to quitting completely," said Kevin Fenton, Public Health England's director of health and wellbeing.
By Sam Unsted; [email protected]; @SamUAtAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
IMT.L