Link: Operating under pressure
Does it sound supremely confident to say I’m not sure if there are pitfalls?’ asks Robert Dyrbus, finance director of Imperial Tobacco. Perhaps not supreme confidence, but confidence nonetheless characterises Dyrbus and FTSE100-darling Imperial.
His optimism could be misconstrued for arrogance were it not for the clear-cut trading results consistently produced by Imperial over recent years, no doubt thanks to its FD.
Dyrbus is a company man – and one who has forged an extremely successful path since he became group finance director of the newly demerged tobacco company eight years ago. And, yes, he is an unapologetic smoker.
After graduating from Bristol University in 1974, he worked his way up the ranks of Deloitte, Hertz Europe and Colgate Palmolive. His career with Imperial Tobacco dates back to well before its listing, when it was owned by Hanson. In 1987 he joined Hanson as financial controller for Imperial, Ever-Ready and Allders. He was appointed finance director in 1989.
His broad knowledge is paying dividends. At the beginning of April, shares in Imperial, the world’s fourth-largest cigarette maker by volume, advanced 37p, or 3.2%, to 1,197p, the stock’s steepest increase in over a year. As last count it was 1,253p.
You will see few, if any, headlines of shareholder revolts over executive pay or other matters at Imperial – the company has a well-established and relatively happy shareholder base. With ultimate responsibility for the company’s investor relations’ policy, Dyrbus makes it his business to ‘explain the reality’ and move beyond the negative headlines.
‘There’s a lot of press comment. We spend a lot of time working with investors. It’s about coming back to what the facts are.’
In November, the maker of Embassy and Lambert & Butler cigarettes reported a 40% jump in profits on the back of strong growth in its key UK and German markets. Pre-tax profits in the year to 30 September 2003 rose to £898m.
Imperial has seen its cigarette sales grow to £220bn today from £42bn in 1997.
Future forecasts are no less rosy. Last month, analysts at JP Morgan raised their estimates for the company. Imperial is poised for continued domestic market share gains in 2004, according to JP Morgan. The results show the advertising ban on tobacco products in the UK has had little or no effect on its ability to trade here.
‘We’ve been anticipating the ban for a number of years. I remember back in the late eighties, when I first became involved with Imperial via Hansons, they were talking about an advertising ban,’ he says.
This, he says, is the nature of business. There is no overt frustration at the government’s decision to ban advertisements of tobacco products. ‘Anticipating the advertising ban in the UK, we have been investing more in shop gantries, trade marketing and we have a larger sales force. It’s an advertising ban – not a communication ban,’ he emphasises.
‘All businesses should constantly look to the horizon to see what’s happening out there. Are there storm clouds and, if there are, how do we navigate through them? It’s about “where are we going and what’s happening out there?” and aligning the business accordingly.’
Nevertheless, Imperial, together with six other tobacco companies including British American Tobacco and Gallaher, are seeking a judicial review of new legislation that will severely limit advertising at point of sale.
What is bothering the companies most is the proposed size of the lone advertisements, which are part of new tobacco advertising and promotion regulations for 2004.
Tim Lord, chief executive of the Tobacco Manufacturers Association, says: ‘Regrettably, our attempts to resolve the matter through dialogue with the Department of Health have come to nothing, so we have no option but to resort to legal action.’
Anticipating change and grasping opportunities is clearly the secret of Imperial’s success. The company’s reach is increasingly global, where regulation of tobacco products remains less stringent. Germany is one of its most lucrative markets, where views on advertising remain liberal.
But Imperial also sees opportunities in Asia. The company signed a 10-year deal with the Yuxi Hongta group, and began production and distribution of West cigarettes in China last December. The Chinese market holds significant long-term growth opportunities, with 1.7 trillion cigarettes smoked each year.
Dyrbus’ pragmatism is highlighted once again in the company’s preparation for the switch to international financial reporting standards. There are a few criticisms he would make about the process, but on the whole the company is ready.
‘We have had the team working on it for well over a year. We’re well advanced in our thinking. We don’t know yet what the bottom line is going to be – there will be inevitably more volatility in a reported earnings number. But we’re not sure if that will be a number the financial markets will concentrate on,’ he says.
In this increasingly accountable business world, one area where the conservative company has found success is in its reporting of corporate social responsibility.
For a product that is, from the outset, off the scale in the socially responsible stakes, Imperial is taking its duty seriously. It recently garnered 71 out of 100 points in The Times’ annual FTSE100 corporate social responsibility survey this year, just two points lower than British American Tobacco, but ahead of rival Gallaher.
Dyrbus is pleased with the company’s first offering of a formal corporate responsibility review. ‘A lot of what people are talking about in CSR, we’ve been doing as good business practice for years and years. It’s a case of talking about it. I suppose we’ve been our worst enemy in some ways.’
The buoyant mood surfaces again when asked about his worries for the company’s future. ‘I’m not sure if I’d call them concerns. They’re more objectives,’ says Dyrbus.
He acknowledges one concern for the company’s future; that of using cash wisely.
A strong management team will ensure that cash generated in this fast-growing business is used wisely through further growth, and sharing it among its loyal fans. But, with the ambitious growth plans around the world, particularly in Asia and Africa, what the company will have to increasingly focus on is its duty as a good corporate citizen to all stakeholders, not just shareholders.
But CSR is not everything – and it does not take account of whether a sector is controversial. With an advertising ban in Europe and potentially crippling legal actions being pursued against tobacco companies in the US, the challenges facing Drybus will not slow any time soon.
operating under pressure As business worries go, the rise of just over 9p in tax on a packet of 20 cigarettes announced in this year’s Budget is the tip of the iceberg for tobacco companies, writes Rachel Fielding.
Imperial Tobacco is upbeat about its prospects after announcing a 20% rise in interim pre-tax profits late last month for the six months to March 31 to £454m. But in many respects, the company is facing a turning point, with no-smoking campaigns ramping up across its European markets and cigarette volumes in Germany falling 10%, following the first of three planned excise duty increases. Both of these events highlight the company’s growing pressure to expand into new markets, including China and Turkey.
The company, which also makes Castella cigars, St Bruno pipe tobacco and Rizla cigarette papers, describes the UK market as ‘relatively stable’ and says there is no evidence that public smoking bans, such as the one in Ireland, have led to a big fall in consumption.
But the challenges are not to be underestimated. The company is being forced to cut back and increase productivity to improve profitability. Imperial has closed factories, cut jobs and made acquisitions in a move to cut costs by combining distribution centres and closing duplicate factories.
But there is still more to be done. ‘The future holds considerable opportunities for further standardisation and capacity optimisation,’ the company says in its 2003 annual report.
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