Tuesday, 5 November 2013

Imperial Tobacco - Full Year Results

I finally managed to quit smoking for a second time in 2007. Over the past few years, I have therefore saved quite a bit of money - maybe around £4,000 as a result - and last year I thought it may be a good idea to invest some of these savings in IMT - I guess I harbour a sense of perverse satisfaction in receiving an income from something that would otherwise shorten my life expectancy!

Imperial are world leaders in high margin premium Cuban cigars and fine-cut tobacco. Some well known brands include Gauloises Blondes, JPS, Lambert & Butler, Golden Virginia and Drum and Rizla papers.

IMT have today released full year results for the 12 months to 30th September 2013. It is no secret that the Company has been struggling during the past few years. Indeed, a combination of razor-thin profit margins from Imperial's European logistics operation and falling cigarette sales have pressured the company's bottom line.

Annual tobacco revenue fell 1% from £28.5m to £28.2m  as volumes declined by 7%. However, pre-tax profit were marginally up at £2.64m compared to the previous year’s £2.62m as net finance costs dropped and earnings per share rose to 210.7p from 201.0p

Alison Cooper, Chief Executive, said:
"Our focus on driving quality growth and transitioning the business has delivered another year of earnings growth and further strengthened our sustainability.

Market conditions remain tough. We remain focused on maximising our long-term growth potential and in 2014 our priority is to continue transitioning the business: increasing investment behind our key brands and markets to drive quality growth; delivering our cost optimisation programme; and implementing our stock optimisation programme. A reasonable working assumption for 2014 therefore is modest growth in earnings per share at constant currency, with another strong dividend increase of at least 10%.

Our actions in 2013 and over the coming year will provide us with a strong platform for growth in 2015 and beyond."
They have not disappointed on shareholder return and propose to lift the full-year dividend by 10% to 116.4p. The results appear to have been well received and in morning trade the share price was up over 2% at 2360p giving a yield of 4.9% and cover of 1.8x adjusted earnings. The promise of a further 10% rise for the coming year would give a figure of around 128p and forward yield of 5.4%.

I need to take care not to become too overweight with this share as it is widely held in several of my investment trusts e.g. City of London and Edinburgh which I have recently topped up.

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