Spain’s tobacco price war is continuing to drag down profits at Imperial Tobacco, in spite of the cigarette manufacturer winding back forecasts of the impact from intense competition.
Imperial Tobaco Group PLC
In June, Imperial, which owns the Davidoff, West and Gauloises brands, warned that full-year adjusted operating profits in the region could be as much as £110m ($180m) lower than previously forecast.
But on Tuesday, the FTSE 100 group said an improvement in prices in the region and a one-off £20m saving at its logistics arm would lessen the full-year impact of the price war to £70m.
In January, Spain became the latest European country to implement a ban on smoking in public places. The country’s struggling economy further compounded the situation for tobacco companies, with smokers having less disposable income to fund their habit.
Davidoff Classic cigarettes
In response, Imperial was forced to cut its prices in Spain to compete with British American Tobacco’s drive to promote its Pall Mall value brand, resulting in Imperial’s profit warning last month.
Updating the market for the nine months to June 30, Imperial on Tuesday said that tobacco net revenue had risen by 2 per cent, in spite of a 3 per cent fall in cigarette volumes.
Increases in volumes of habanos cigars and cans of snus – powdered tobacco that is placed between the teeth and lip – failed to prevent the group reporting a slip of 2 per cent in total stick equivalent volumes.
“We grew volumes of our global strategic cigarette brands Davidoff, Gauloises Blondes and West with good performances in emerging markets and we also achieved further excellent progress with JPS,” said Alison Cooper, chief executive.
Gauloises cigarettes
“We made strong fine cut tobacco gains in a number of EU markets and we also increased volumes of our luxury Cuban cigars, despite difficult conditions in Spain.”
Davidoff volumes rose by 6 per cent, driven by increased popularity in Taiwan, Ukraine, Saudi Arabia and Russia.
Imperial recently brought forward plans for share buy-backs and in May announced the launch of a programme to repurchase £500m of shares a year.
Analysts had expected the tobacco group to begin buybacks in 2012, after it had paid down debt related to its 2007 purchase of Altadis to about 2.5 times earnings before interest, tax, depreciation and amortisation. At the end of last year, net debt stood at 2.9 times ebitda.
Shares in Imperial Tobacco, which have risen by 15 per cent over the past 12 months, was down 4p at £21.48 in London on Tuesday.
