British tobacco group Imperial Brands said it would sell its global premium cigar business as part of plans to divest assets worth 2 billion pounds ($2.61 billion) by May 2020 to cut debt and invest in vaping products and other growth areas.
The maker of Davidoff, Parker & Simpson and Gauloises Blondes cigarettes said last year it would sell businesses, as it looks to roll out new vaping products to improve performance in a declining tobacco market.
Cigarette sales have fallen for 17 consecutive months, industry-wide analysis by Cowen showed. Sales fell 3.8 percent in the four weeks to April 20 and 4.2 percent over 12 weeks.
E-cigarettes have also faced pressure from the U.S. Food and Drug Administration (FDA), which released plans in March to slow a surge in teenage use of the devices.
Imperial, which had net debt of 11.9 billion pounds at the end of September, said it had generated 280 million pounds from its divestment and expected to generate a total of 2 billion pounds by May 2020, “if not earlier”.
Analysts at Jefferies said in a note they expected selling the premium cigar business to raise 1 billion to 1.5 billion pounds for Imperial, which also makes Kool and Winston cigarettes.
“Proceeds can be used to delever and further support investment around its vapour business where we believe it is positioned well to take more than a fair share,” they said.
The premium cigar business makes 340 million cigars a year with 4,500 employees and factories in Dominican Republic, Honduras and the United States.
“Premium cigars has performed well over a number of years,” Imperial said. “However, it is a unique luxury business with a different consumer base and route to market relative to Imperial’s other businesses.”
Imperial does not list performance indicators for the premium cigar business, but Jefferies analysts estimate it generates annual sales of about 345 million pounds and profit of about 85 million pounds.
Imperial said “significant progress” had been made with a number of other divestment opportunities.
“Recognising that tobacco valuations have come under some pressure in the last 12 months, assets will be sold only if they will realise appropriate value,” the company added.
Imperial is being advised by AZ Capital on the sale of its premium cigar business.
Source: Reuters.com