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Imperial earnings rise, Altadis delay hits shares

The world’s fourth-biggest cigarette firm, which makes Britain’s two top-selling brands Lambert & Butler and Richmond, and also West and Davidoff in Germany, said it expects approval by the Spanish regulator CNMV soon for its 12.6 billion euros ($18.2 billion) Altadis deal.

‘We expect clearance very shortly and to complete the Altadis deal in January 2008,’ Chief Executive Gareth Davis told a conference call after announcing annual results.

The shares drifted down 1.4 percent to 24.08 pounds by 1005 GMT on what analysts said was profit taking and some disappointment that the Altadis deal was delayed from the previous target of the last quarter of 2007.

The British group posted adjusted earnings per share of 136.7 pence for its year to Sept 30, in line with analysts’ consensus forecast of 136.4p and within a 135.4-137.4p range.

‘The disappointment remains in the delay to completing the Altadis deal,’ said industry analyst Andrew Darke at Evolution Securities. While fellow analyst Jeremy Batstone-Carr at Charles Stanley said, ‘Residual concerns exist pertaining to the ability to integrate Altadis successfully.’

Other analysts said the Altadis delay prompted some concerns over funding the Altadis deal, which Imperial says will be part paid for by one the UK’s biggest ever rights issues.

Imperial’s Davis reiterated that the group will launch an equity rights issue to fund the Altadis deal within a year of announcing its agreed offer, or July 18, 2008, and issue the minimum amount of equity—seen by analysts at 5 billion pounds - to maintain an investment grade on its debt.

The group agreed in July to buy the Gauloises and Fortuna cigarette maker, but Spanish takeover law changed in August and this is the first deal to be examined under the new rules.

UK smoking ban hits sales

Imperial saw its worldwide volumes rise 7 percent to 200 billion cigarettes with good growth from Davidoff, West and JPS, and also helped by the acquisition in April of the fourth largest cigarette group in the U.S, Commonwealth Brands.

Analysts said group earnings were boosted by a higher than expected first six-month contribution from Commonwealth Brands and by strong results in its domestic British market.

In the UK, Imperial’s largest market which accounts for nearly 40 percent of profits, the group said the dip in smoking volumes in England was higher-than-expected after the smoking ban in public places from July 1 and poor summer weather.

Davis said English volumes were down 4 percent by end-Sept but once its impact was dissipated the annual cigarette market will continue its long-term annual fall of 3-4 percent. He said its UK market share rose to 46.4 percent from 45.5 last year.

Germany, Imperial’s second biggest market, saw profits fall due to tax rises and the end of make your own singles products, but he said the worst is now over in the German market and Imperial’s market share rose to 21.3 percent from 20.7.

The Bristol-based group increased its annual operating profits by 9 percent to 1.48 billion pounds, while the company raised its full year dividend 12 percent to 69.5 pence a share.

Imperial shares have outperformed the FTSE 100 by 11 percent but underperformed rival British American Tobacco by 5 percent since the start of the year.