Imperial Tobacco Reports Earning Growth, Matching Expert Forecasts

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Imperial Tobacco Group, the second-largest tobacco group across Europe, reported its earnings grew in the first half of the financial year, matching experts’ forecasts, after increasing prices on its cigarette brands in United Kingdom, its biggest market.

Imperial Tobacco Group Logotype

After adjustment operating profit added 3 percent to 1.52 billion pounds (approximately $2.5 billion) during the six months to March 31, the UK-based maker of Davidoff, West, Gauloises Blondes and other brands said earlier this week.

Imperial Tobacco holds strong leadership position on the U.K. tobacco market, with profit going up by 9 percent after price in October and March. Sales volume grew by 6.5 percent as some cigarette smokers turned to less expensive brands, like JPS Silver and Windsor Blue, or to loose tobacco.

In the U.K., which currently faces its first double-digit recession since the 1970s, the company saw sales rise by 12 percent even despite overall cigarette market was down by 2 percent. Imperial Tobacco holds nearly 45 percent of cigarette market in Britain.

Decreasing Volume

The switch by smokers to less expensive brands resulted in a reduction in Imperial Tobacco’s operating profit margin in the United Kingdom to 65.5 percent down from 67.2 percent in the previous year. However, CEO Alyson Cooper admitted they expect the margin to widen during the second half of the current financial year.

The overall amount of cigarettes sold by Imperial Tobacco was down by 1 percent during the second quarter, still going up from a 7 percent drop reported in the first quarter, three months ago.

What takes Spain, which declared earlier this week it had fallen into the second recession since 2009, the company increased its leading market share by stronger sales of Fortuna cigarette brand, Cuban cigars and loose tobacco. These were the positive news from Spanish market, which according to the industry analysts is expected to contract by nearly 9 percent this year.

Developing Markets

In addition to increasing prices, cigarette makers are turning to emerging markets in order to offset decreasing sales and growing taxes across European Union and North America.

Imperial Tobacco Chief Executive Officer admitted she was happy with the sales in Ukraine, Russia and Taiwan.

In the meantime, Australia has adopted legislation, contested by leading tobacco corporations, obliging all cigarette brands to be sold in plain packages from December. The U.K. government is considering the same measure, Cooper named an unnecessary decision, not backed by any credible evidence.

Volume for the group’s leading brand, Gauloises Blondes, grew 11 percent during the six-month period, contributed by strong sales in North Africa and the Middle East.

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