Smoking may not be good for your health, but if Imperial Tobacco's results are anything to go by, it's certainly good for your portfolio. The world's fourth-largest tobacco company saw adjusted pre-tax profits climb 39 per cent to £2.2bn, comfortably outstripping the market's expectations.
Although the performance was flattered by gains on currency translation, as well as a full 12-month contribution from Altadis - which the group acquired in January 2008 - Imperial also managed respectable organic sales growth, as smokers traded down to its value cigarettes. That trend was particularly apparent in the UK, where the value segment grew from 11 per cent of the market in 2008 to 15 per cent in 2009. Imperial has been a direct beneficiary of that market shift - the business saw its share of the economy segment rise to 31 per cent thanks to growth of its JPS Silver brand, launched a year ago, and the repositioning of its Windsor Blue brand to target value-driven smokers. From a standing start, JPS has grown its market share to 3.3 per cent, helping to push UK net revenues 3 per cent higher to £893m and underlying operating profits up 3 per cent to £601m.
But chief executive Gareth Davis was keen to stress the enormous progress from its overseas businesses, and particularly the strength of its international premium brands including Davidoff, which saw volumes grow 12 per cent. "We've moved from being a UK centric company to a very large global company", he said. Overall cigarette volumes climbed almost 10 per cent to 322bn "sticks"over the year, although underlying volumes fell 2 per cent in the second half as a result of the economic downturn.
The results were accompanied by news that chief executive, Gareth Davis, will retire in May. But he leaves the company in good shape for his successor, former chief operating officer Alison Cooper, who has driven much of the financial improvement seen this year. Working capital was reduced by almost £1bn, while improved cash generation helped the group reduce adjusted net debt by £2bn, to £10.8bn. Cost savings from the Altadis deal were €10m (£9m) better than expected, at €190m, and Imperial is on track to hit its €300m cumulative target.
Broker Evolution expects adjusted pre-tax profits to rise to £2.4bn in 2010, giving EPS of 176p (2009: 162p).
IMPERIAL TOBACCO (IMT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,882p | MARKET VALUE: | £19.1bn | |
| TOUCH: | 1,881p-1,883p | 12-MONTH HIGH: | 1,983p | LOW: 1,412p |
| DIVIDEND YIELD: | 3.9% | PE RATIO: | 29 | |
| NET ASSET VALUE: | 643p* | NET DEBT: | 183% | |
| Year to 30 Sep | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 3.1 | 1.08 | 109 | 56.0 |
| 2006 | 3.2 | 1.17 | 122 | 62.0 |
| 2007 | 3.3 | 1.24 | 117 | 60.4 |
| 2008 | 10.1 | 0.62 | 51 | 63.1 |
| 2009 | 14.7 | 0.95 | 66 | 73.0 |
| % change | +46 | +52 | +29 | +16 |
Ex-div: 20 Jan Payment: 19 Feb *Includes intangible assets of £22.4bn, or 2,199p a share | ||||
