Imperial Tobacco Jumps on the E-Cigarette Bandwagon

Imperial Tobacco which presently ranks fourth by market share announced recently that it had established a new venture to produce electronic cigarettes. The company presently produces Davidoff and Gauloises cigarettes. Its newly set up Fontem Ventures will concentrate on segments like the e-vapour cigarettes.

Alison Cooper on Tuesday accepted that the company is exploring opportunities and growing this segment of the business. She also confirmed that the company was open to acquiring existing players in this area. Electronic cigarettes are metal tubes which use the power from a tiny battery to convert nicotine containing liquid into vapour. These e-cigarettes are gaining popularity especially among smokers intending to quit. British American Tobacco, a competitor of Imperial Tobacco has already set up Nicoventures in 2011 to mark its foray into the e-cigarette business.

Imperial has raised prices, cut costs and has concentrated on marketing its products in new and developing markets like Saudi Arabia and Turkey in order to effectively combat the dual problems of reduction in the number of smokers in Europe and increasing black marketing in countries like France and Spain.

While analysts expect the company’s earnings per share to grow by 5.6%, the company expects growth to be closer to 4% due to the challenges faced by it.

Results for the half year period ending with March saw a fall of 3.1 percent in the adjusted earnings to 90.2 pence per share. This was partly due to changes in the tax regime in Russia and investments in the US which ate into the profit growth in Germany and Britain.

Analysts predict earnings of 90.3 pence a share. Data with Reuters has shown an overall reduction of 2% in the net revenues from tobacco and a 5.9% drop in the volumes of tobacco sold, both in stick form and as fine cut tobacco.

The company’s results could also be affected by a proposed ban on distinguishing branding achieved from cigarette packaging. Cooper stated that a similar ban in Australia had not adversely impacted the sales of cigarettes and that Imperial was ready to face a change of this type in Britain.

Imperial announced its dividend for the half year at 35.2 pence per share, an increase of 11 percent which resulted in a marginal increase in the quoted price of its shares.