Imperial Tobacco held back by falling sales in Iraq

Imperial Tobacco’s otherwise good results in the past three quarters were held back by the deteriorating political and security situation in Iraq.

Iraq accounts for just 5 per cent of group volumes but Imperial Tobacco, the world’s fourth-largest international tobacco maker by market share, said falling sales in the war-torn country were to blame for a third of an overall 6 per cent decline in underlying group volumes in the nine months to June 30.

The reverse in Iraq masked a 3 per cent increase in the rest of the company’s growth markets, where Russia, Taiwan and Norway delivered a strong performance, Imperial said.

Tobacco net revenues of £4.4bn were down 4 per cent year on year, but up 2 per cent on a constant currency basis, as fluctuating exchange rates negatively affected results.

However, Imperial said the results were helped by a 14 per cent increase in underlying revenues from its growth brands such as Davidoff and Gauloises.

Alison Cooper, chief executive, said: “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.”

Imperial has also started to reap benefits from the four US brands it acquired as part of a £4.6bn ($7.1bn) deal with Reynolds American and Lorillard. The new brands, including Kool, Salem and Winston, generated £41m net revenue in the period after completing the deal on June 12, in line with expectations.

The acquisition helped the British tobacco maker gain a bigger foothold on the US market. Aside from the US, Imperial reported its performance improved in Germany, Australia and Ukraine, where it increased net revenue by 2 per cent.

The company said it was on track to deliver full-year targets despite the decline in Iraq and confirmed its intention to deliver dividend growth of 10 per cent for the full year.

Jonathan Leinster, analyst at Panmure Gordon, said: “We continue to believe the positive impact of the US acquisition on group cash flow is under-appreciated by the market allowing 10 per cent dividend growth per annum to be sustained for many years.”