Imperial Tobacco Nine-Month Sales Weighed Down by Iraq Slump

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Imperial Tobacco Group Plc, Europe’s second-biggest tobacco company, reported nine-month net revenue that rose slightly less than analysts estimated as tough conditions in Iraq weighed on the cigarette maker.

Sales gained 2 percent at constant rates of exchange, the Bristol, England-based maker of Davidoff cigarettes said in a statement Wednesday. That compares with the 2.6 percent median estimate of nine analysts in a Bloomberg News survey.

On a so-called underlying basis, Imperial sold 6 percent fewer cigarettes in the period to the end of June, which the company attributed partly to a deteriorating political and security situation in Iraq. The Iraqi army is trying to recapture large areas of the country from Islamic State, while the economy of OPEC’s second-biggest crude producer is reeling from a yearlong slump in the oil price. Excluding that country, cigarette volume fell 4 percent, Imperial said.

As Iraq is a small market for Imperial, the business there “must have been obliterated,” Philip Gorham, an analyst at Morningstar in Amsterdam, said by e-mail. “Distribution has become very difficult, while other products are coming in from Turkey and other places.”

The company’s shares fell 0.3 percent to 3,231 pence as of 9:30 a.m. in London, trimming this year’s advance to 14 percent.

Aside from Iraq, Imperial’s underlying net revenue rose 14 percent across its faster-growing markets, driven by price increases in Russia, as well as market-share gains in the lower priced segment in the country. The company also said its performance improved in Australia and Germany, while market declines in both France and Spain eased further.

U.S. Deal

The four U.S. brands that Imperial acquired as part of the merger of Reynolds American Inc. and Lorillard LLC generated 41 million pounds of net revenue following the completion of the deal in June, a performance the company said was in line with its expectations. Imperial paid 4.6 billion pounds ($7.1 billion) for the brands in a bid to gain a foothold in the U.S. market, and said their integration is progressing well.

Imperial is “on track to deliver against full-year expectations,” the company said in the statement.

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