Strong sales growth from Imperial Tobacco's key strategic brands wasn't enough to prevent a fall in group revenue in the first half, as its performance was hit by issues in Europe, Russia and the US.
Total revenue in the six months to March 31st fell by 4.2% from £13.96bn to £13.38bn as stick equivalent volumes fell 5.9% from 159.1bn to 149.7bn. Adjusted tobacco net revenue was down 3.1% at £3.28bn.
Nevertheless, the company's strategic brands of Davidoff, Gauloises Blondes, West and JPS generate high returns and performed well in the first half with net revenue up 5.0% and volumes 1.0% higher.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Imperial is continuing to have a tough time in Europe, especially Spain, where market sizes have shrunk "considerably" in the first half due to austerity, rising unemployment and increases in illicit trade.
Germany however remains resilient, while tobacco revenues in the UK were marginally lower though the company said this was a good result.
A revised pricing strategy in the States and reduced trade stock levels saw tobacco revenues fall, while a new excise structure and increased investment in Russia had a negative effect.
Meanwhile, operating profit fell 9.7% from £1.33bn to £1.20bn and earnings per share slumped 22.7% from 82.5p to 63.8p.
Despite the weakness, the company declared an interim dividend of 35.2p per share, up 11% on the year before, in line with its medium-term target for at least 10% dividend growth.
"Resilience""Our focus on quality growth has delivered further volume and revenue gains from our key strategic brands and fine cut tobaccos and good results in a number of markets across our footprint," said Chief Executive Alison Cooper.
"The resilience we're showing in a deteriorating EU environment demonstrates the strength and versatility of our unique total tobacco portfolio. Further afield, excise-driven market dynamics in Russia and our transition to a new pricing strategy in the USA slowed our revenue and profit momentum in non-EU territories, masking the good growth we're generating in Asia-Pacific and Africa and the Middle East."
Cooper said that Imperial is still working on its cost optimisation programme to save £300m per annum from September 2018 through simplifying product costs and cutting overheads. Around £30m of this will be realised in the second half.
"We're focused on leveraging our portfolio to drive quality growth across our footprint and the initial £30m savings from our cost optimisation programme will support our earnings delivery in the second half," the firm said.
