Imperial Tobacco says it started the year well despite challenging conditions

Ahead of its today’s AGM, Imperial Tobacco Group (LSE: IMT) said it has made a good start to the year and its trading in line with expectations despite the weak economic environment. The tobacconist achieved notable cigarette volume growth in the ‘Rest of Europe’ (ex UK, Spain, Germany), in Africa, the Middle East and Asia Pacific regions. The company has been focused on working capital and cash generation, leading to a Moody’s upgrade to ‘stable’.

“Our emphasis on cost optimisation and synergy delivery will continue and further advances in productivity will help in offsetting further world leaf inflation”, said Imperial Tobacco chief executive, Gareth Davis.

Imperial Tobacco also responded to the UK government’s new Tobacco Control Strategy, which endorses the plain packaging of tobacco products. The company said that it remains strongly opposed to the strategy and that it believes there is no credible evidence that young people start smoking or adult smokers continue to smoke because of tobacco packaging. According to Imperial Tobacco, making all tobacco products available in the same generic plain packaging will further fuel the growth in illicit trade and undermine the government's plans to increase investment in tackling smuggling and counterfeiting.

In the three months ended 31 December, the UK cigarette market grew by 1% whilst the fine cut tobacco volumes increased more substantially with a 21% increase to 4,650 tonnes. The company said it achieved strong volume growth in the value segment, with the ‘Gold Leaf’ and ‘Golden Virginia Yellow’ brands continuing to perform well.

The consumer’s shift towards hand rolled tobacco was also reflected in Germany and Spain, where the trend appears more pronounced, the company said. For the year to December, German cigarette market volumes declined by 2% to 85.5 billion whilst other tobacco products grew by 11% to 37.8 billion cigarette equivalents. During the same period, Spanish cigarette market volumes declined by an estimated 10% to 80.7 billion, and similarly fine cut tobacco market volumes grew 30% to 5,150 tonnes.

Despite the difficult economic backdrop, elsewhere in Europe, volumes increased for both cigarettes and fine cut tobacco, the company said. Performance in the EU accession countries in Central Europe was particularly strong with cigarette and fine cut tobacco share increases in the majority of markets.

Although the ‘Rest of the World’ regional volumes were temporarily affected by supply chain disruptions in the Middle East, Imperial Tobacco continued to build sales and achieved cigarette share gains in the majority of its markets. In Africa and the Middle East, Imperial Tobacco grew cigarette share in almost all markets. Fine improved volumes in the region with the ‘Gauloises Blondes’ brand performing well in Morocco. Similarly in Eastern Europe, cigarette market share improved in most regions with Davidoff performing particularly well and Maxim continuing its positive momentum in Russia.

Imperial Tobacco said its overall performance and financial position for the financial year to 30 September 2010 is currently in line with the board's expectations.