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Imperial Tobacco Plans E-Cigarettes in 2014 as Smokers ‘Vape’

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Nov. 5 (Bloomberg) -- Imperial Tobacco Group Plc said it will introduce two e-cigarette products in the coming year as more smokers start “vaping,” the term the industry has coined for consuming nicotine via aerosols.

One of the products will come from Imperial’s Dragonite electronic cigarette unit, which it bought in September for $75 million, Chief Executive Officer Alison Cooper said in an interview today. She declined to provide more details.

“It’s best to look at this as a two-pronged attack,” Cooper said in a conference call with reporters. “We have been developing our own products, and Dragonite adds to that.”

The new offerings could help lift Imperial’s shares, which have been held back partly as the company trails rivals in development of e-cigarettes and other nicotine replacement products, according to Berenberg Bank analyst Erik Bloomquist.

Adjusted operating profit was little changed at 3.18 billion pounds ($5.1 billion) in the 12 months ended Sept. 30, compared with 3.16 billion pounds a year earlier, the Bristol, England-based maker of Davidoff cigarettes said today in a statement. That compares with the 3.19 billion-pound average estimate of 12 analysts surveyed by Bloomberg.

Imperial rose 3.1 percent to 2,381 pence at 9:49 a.m. in London, erasing this year’s decline.

Going Electronic

Cooper also said Imperial “was not behind” its peers in the development of next-generation tobacco products. British American Tobacco Plc this year introduced its own e-cigarette, called Vype, in the U.K. and is awaiting approval for an aerosol-based nicotine delivery device that could go on sale in the country as soon as next year. Philip Morris International Inc. plans to sell cigarettes which heat tobacco rather than burn it within four years. It also plans a product similar to e-cigarettes.

“We don’t spend the same amount of money as our rivals, but we are looking at the consumer opportunity and how we define that, rather than jumping on the me-too bandwagon, which others have done so far,” she said.

E-cigarettes will continue to encroach on traditional cigarettes in mature markets, Berenberg’s Bloomquist has said.

The company forecast “modest” 2014 earnings per share growth at constant rates of currency exchange, which Cooper said would be below this year’s 6 percent uptick. Exane BNP Paribas analyst James Bushnell said the guidance was “soft-ish,” and said he expects an increase of 2 percent to 4 percent.

Cash Back

The company also said it will increase its dividend by at least 10 percent, similar to this year’s increase to 116.4 pence, which was in line with analysts polled by Bloomberg.

Imperial’s so-called stick equivalent volumes declined 7 percent for the year, compared with the 5.9 percent drop in shipments in the first half. Tobacco revenue excluding taxes fell 1 percent in constant currencies to 7 billion pounds. The company’s top brands include Davidoff, JPS, West, and Gauloises Blondes, accounting for 41 percent of total volume.

Cooper said the tobacco market remains “tough,” particularly in Russia, where volumes declined “considerably” due to tax increases and restrictions on smoking, and in Spain, where the company took a 580 million-pound writedown at the end of the fiscal year due to falling rates of tobacco consumption and an increase in illicit trade. Imperial is the market leader in Spain, having bought Altadis SA, the maker of Fortuna cigarettes, in 2008.

In the U.K., where Imperial is also the biggest tobacco seller, the company saw “significant” volume declines, Cooper said, which were offset by shifts to fine-cut tobacco and innovations like new Lambert & Butler packs.

U.S. Rebound

“Performance in Europe continues to be a contrast between a weak south and a more resilient north,” Credit Suisse analyst Charlie Mills said in a note today.

Imperial’s performance rebounded in the U.S., where it gained market share in “key states” and boosted profits in the back half of the year, the company said. Cooper said she was “pleased” with the progress.

Imperial plans to cut costs to make savings of about 300 million pounds a year by September 2018, including 30 million pounds in the past fiscal year.

The company also said non-executive chairman Iain Napier will retire from the board in February, to be succeeded by deputy chairman Mark Williamson.

To contact the reporters on this story: Gabi Thesing in London at gthesing@bloomberg.net; Matthew Boyle in London at mboyle20@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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