Big tobacco is refusing to go up in smoke

Imperial's chief exec was upbeat today despite falling revenues.

by Jack Torrance
Last Updated: 01 Dec 2015

Given all the tax hikes, bans on lighting up in public, plain packaging laws and consequential declining smoking rates in the UK and much of the western world, you could be forgiven for thinking big tobacco is on the verge of its last puff.

But smokers are stubborn sorts – as you will know if you've ever encouraged one to quit – and the likes of Philip Morris (revenues up 18% since 2010) and British American Tobacco show no sign of giving up just yet. The share prices of those two and the other big players Imperial and Japan have all increased by more than 50% over the last five years – largely thanks to growth in emerging markets and cutting costs.

The share prices of Japan Tobacco (brown), Philip Morris (red), British American (green) and Imperial (blue) have all increased in the past five years.

Today Imperial Tobacco, owner of Lambert & Butler, Rizla and Gauloises, posted third quarter results that weren't exactly positive. Total tobacco sales volumes were down 3%, and 6% on an underlying basis, while revenues were down 4% to £4.4bn. But they were actually up 2% when adjusted for currency fluctuations, and chief executive Alison Cooper (one of the FTSE 100's few female bosses) was upbeat.

'This has been another good quarter, building on the progress we made in the first half,' she said. 'Our continued focus on improving the consistency and quality of our performance has delivered excellent results from our growth brands which continue to grow net revenue, volume and market share.'

Still it can't be easy running one of the most reviled companies in the world, and its latest trading statement highlighted several threats to its growth markets, including the introduction of 'pictoral health warnings', like those on British cigarettes, in Vietnam, and the 'security situation' (ISIS) in Iraq. Nonetheless it seems Australia's introduction of plain packaging hasn't exactly made much of a mark, as Imperial has 'continued to grow revenue, profit and share' there.

Big tobacco is also well-placed to capitalise on the growing market for electronic cigarettes. 'E-cigs', which produce vapourised nicotine rather than carcinogenic smoke, have received a mixed reaction from health campaigners but got a big shot in the arm today from Public Health England which published a report claiming they are 95% safer than cigarettes and suggesting they could be made available on prescription.

All of the 'Big Four' have acquired e-cig companies, including British brands Intellicig and E-Lites, and some of them have developed their own brands. They may be large, wheezing dinosaurs, but it seems Big Tobacco's bosses aren't blind to the challenges of the future and have still got some fight left in them.

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