Imperial Tobacco Group Plc (IMT.L, ITYBY.PK) Tuesday reported a sharp decline in profit for the first half as tobacco volumes were hit mainly by difficult trading conditions in the European Union, as well as pressures in Russia and the USA. Citing the difficult operating environment, the British tobacco products maker now expects full-year earnings at the lower end of forecast range.
According to the company, further afield, excise-driven market dynamics in Russia and its transition to a new pricing strategy in the USA slowed revenue and profit momentum in non-EU territories, masking the good growth it is generating in Asia-Pacific and Africa and the Middle East.
Chief Executive Alison Cooper said, "In January we said these headwinds would affect our first half results and in line with our strategy we've been implementing portfolio and cost initiatives to strengthen delivery in the second half and into 2014. Leveraging our total tobacco brands and optimizing costs will drive this stronger performance, supported by effective cash management..."
For the first six months, the net income attributable to owners of the parent was 625 million pounds, lower than last year's 826 million pounds. On a per share basis, earnings fell to 63.6 pence from 82.3 pence a year ago.
Adjusted earnings, which excluded certain charges, were 884 million pounds or 90 pence per share, lower than 932 million pounds or 92.9 pence per share last year.
Revenue fell 4.2 percent to 13.38 billion pounds from 13.96 billion pounds last year. Volumes of stick equivalents, reflecting combined cigarette and fine cut tobacco volumes, fell 5.9 percent to 149.7 billion.
The company said the overall tobacco net revenue was down 3.1 percent.
However, revenues of key strategic brands, fine cut tobaccos and snus increased with improved volumes, and the company achieved revenue growth in several regions including UK, Germany, Africa and a number of emerging markets in Rest of World region, particularly in Asia-Pacific and Africa and the Middle East.
According to the company, maximizing the potential of key strategic brands, which account for 32 percent of total volumes, remains a priority.
Further, the company said it has declared an interim dividend of 35.2 pence per share, 11 percent higher than last year, payable on August 16. The company intends to grow dividends by at least 10 percent per year over the medium term.
Looking ahead, Imperial Tobacco expects to grow full year earnings per share in line with earnings model, albeit at the lower end given the difficult operating environment.
The company noted that its earnings model aims to grow earnings per share between 4 and 8 percent per annum before the beneficial impact of share buybacks.
According to the firm, total tobacco strength and cost benefits should drive an improved EU performance over the coming months.
The company further said that its strategic initiatives will benefit performance and put the business in a stronger position to drive sustainable growth over the coming years.
In London, Imperial Tobacco shares are currently trading at 2,307.70 pence, up 8.70 pence or 0.38 percent.
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