It just so happens that we have had announcements by stocks in these two sectors today. When you think about it they are quite good partners in a portfolio as one is exposed to longevity risk in its business while the other sells products that help to reduce life expectancy, despite what the picture above might suggest. Indeed back in the days of conglomerates BATS even owned a life company (Allied Dunbar / Eagle Star) and Imperial was part of the infamous Hanson Trust before it was broken up and Imperial was de-merged.
Imperial Tobacco (IMT) announced their interim results to 31st March 2014 in which they saw revenues down by 5%, operating profits by 4%, earnings by 1% but the dividend was increased again by 10% which is around the rate of growth forecast for the full year. Aside from the headlines numbers being down they point to Specialist & growth brands / markets being up. While they also suggested significant stock reductions were achieved, which impacted volume, revenue and profit - begs the question if they had stuffed channels in the previous years to hit numbers? They also said they are on track to deliver £60 million of cost savings from their cost optimisation programme this year and a total of £300 million by 2018.
Looking ahead they said they will move to paying quarterly dividends from 2015 and expect modest adjusted earnings per share growth at constant currency and further dividend growth of at least 10%. They talk about their actions providing a stronger platform for generating quality sustainable growth. They say that trading conditions are unlikely to materially improve in the coming months but that they are experienced in growing their business in a demanding environment and remain on track to achieve their targets and create further value for shareholders.
They also emphasise that their cost and stock optimisation programmes supports their growth ambitions. On this it looks to me like cost cutting and share buy backs are probably supplying up to half of the likely 5%(?) or so underlying growth, which I guess is not surprising for a mature business such as this. It does beg the question how they can sustain dividend growth…
