K up a celebratory cigar – Imperial Tobacco has managed to offset the shift towards cheaper brands in recession-hit countries by upping prices elsewhere.
The firm has taken a gamble that richer customers – already resigned to paying steep taxes to fulfill their nicotine craving – won’t balk at an extra premium on their favourite brands.
The solid results will bring some relief to investors, who’ve been shaken by a seven per cent drop in the firm’s share price in recent months.
But the drop in volumes is concerning, and market research (by peer Philip Morris) implies that accelerating decline is the new normal in Europe. According to the American firm’s research, cigarette volumes have shown a steady downward trend for the past four years – down three to 3.5 per cent in 2008-09, about 4.5 per cent in 2010-11, with a warning that they’re on track to drop as much as six per cent this year.
Stable revenues, therefore, rely on Imperial’s ability to keep their cash-rich customers spending.
But innovations such as the squeezable menthol filters and brightly coloured new Davidoff ID seem too gimmicky to attract anything other than fleeting interest.
According to Investec, Imperial’s stock currently has the dubious honour of being the cheapest consumer goods stock in the world.
The short and sweet statement seems to be enough to keep investors interested for now, but with plain packaging rows on the horizon and no chance of a pick-up in volumes in the near term, Imperial’s defensive credentials look likely to suffer.