Business Week - Smoking good for profits.
Global acquisitions and strategic alliances look to boost tobacco producer Imperial's profits
If you have ever rolled your own cigarettes with Rizla papers and Drum tobacco you have been helping Imperial Tobacco’s profit margins.
On Monday, Imperial reveals full-year results that are greatly anticipated by observers and analysts watching a market which had been technically ‘in decline’.
Despite that, Imperial has had a buoyant year. At the end of the last year finance director Bob Dyrbus and chief executive Gareth Davis were confident enough to have photos taken puffing their own products. By spring they predicted ‘accelerated growth’ for the second half of the year.
In the company’s last accounts, 8% growth was recorded with operating profits at #560m.
One thing FD Dyrbus will have had to consider when drawing the year-end figures is the 75% stake Imperial took in Tobaccor. The #179m deal aligned Imperial with a company that sold 15 million cigarettes in 2000 across French-speaking central and west Africa.
Other acquisitions include those of cigarette paper and tubes manufacturer EFKA and roll-your-own maker Baelen. Both will have helped strengthen the company’s position in Western Europe, a key area in Imperial’s business strategy. Indeed Imperial’s share price has gone from a low in February of around 620p to around 882p last week.
That said, some of Imperial’s activities in 2001 will have had no effect on the bottom line.
Perhaps the most important was the deal with Philip Morris to sell and distribute Marlboro cigarettes, which set up an alliance with the biggest US manufacturer.
Imperial has gone on the offensive this year. An important aspect in any cigarette manufacturer’s accounts is tax. When Gordon Brown announced more rises this year Imperial was quick to tell him he had backed the wrong horse and should be funding the fight against cigarette smuggling.
Imperial’s focus on acquisition has partly been a result of a steep decline in UK turnover. In April Gareth Davis said: ‘Our core strategy is to strengthen our domestic business and develop international activities by increasing our presence in western Europe and by growing in emerging markets. For us that is the former Soviet Union, Africa and Asia-Pacific.’