Imperial confident on smokers' litigation
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Your support makes all the difference.GARETH DAVIES, chief executive of Imperial Tobacco, remains confident about the outcome of the latest bout of litigation against the company, but admits that continuing speculation over such cases makes life uncomfortable for investors.
Imperial, which owns John Player, Embassy and market-leading Lambert and Butler brands, is involved in 16 product liability lawsuits in the UK, with one case brought by 49 smokers due to be heard in the Appeal Court next week.
On the subject of the forthcoming lawsuit, Mr Davies said he was very confident of Imperial's position. "We have made no provision for possible damage payments."
Imperial has no exposure to the US market, and was not involved in the recent $206bn settlement between cigarette companies and US health authorities.
Announcing a 6 per cent rise in full year pre-tax profits to pounds 325m, Mr Davies was extremely pleased at the results and the "successful integration of the Rizla business into the group."
He expects UK cigarette sales to continue to fall by up to 7 per cent annually, due to declining cigarette consumption, bootleg sales and the Government's "penal taxation policy."
Mr Davies wants to continue the expansion into the more stable European market, which has seen Imperial acquire Rizla and the Dutch Douwe Egbert tobacco business this year, but he refused to be drawn on possible takeover targets.
The results were broadly in line with City forecasts, with the share price rising by 1 per cent to 634p. The City regards tobacco companies as defensive stocks, meaning that, in the event of a recession, their earnings are only marginally affected. In an economic downturn smokers are more likely to change their brand than give up altogether.
For this reason, both Imperial and the rival cigarette producer Gallaher have enjoyed considerable share price rises in recent months, with Imperial surging 52 per cent since the end of June.
One City pundit said Imperial's figures looked good. "At current levels their price/earnings ratio is 25 per cent below the market as a whole."
The litigation threat is seen as minimal, and analysts would be surprised if there were any damage to the company as a result of the lawsuits.
One commentator said "both Imperial and Gallaher have had great runs since July. Although the company is in good shape, it is unlikely that the share price has much further to go."
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