Imperial Tobacco Bears Losses Due to Spanish Price War

September 21st, 2011 08:58

Cigarette price war in Spain is continuing to decrease profits at imperial Tobacco, regardless of the tobacco manufacturer winding back forecasts of the influence from great competition. Imperial Tobacco is a giant international tobacco company, which produces and sells a great number of well-known cigarette brands as: Davidoff, Gauloises, Classic, Richmond and many others in more than 160 countries worldwide. Several months ago, Imperial Tobacco predicted that whole year adjusted operating profits in the given region could constitute as much as £110m ($180m) lower than former forecast.

But a few days ago, the FTSE 100 group declared that betterment in prices in the region and a single £20m saving at its logistics arm would drop the full-year effect of the price war to £70m. In January this year, Spain became the last European country to adopt a ban on smoking in public places. The country’s fighting economy later compounded the situation for tobacco enterprises, having less available revenue to fund their habit. In response, Imperial was reluctant to drop its cigarette prices in Spain in order to oppose to British American Tobacco’s action to advertise popular Pall Mall brand, resulting in Imperial’s profit warning last month.

Cigarette price in Spain

Renewing the cigarette market for the nine months to July 30, Imperial recently declared that tobacco net profit had increased by 2 %, regardless of a 3% drop in cigarette volumes. The growth in volumes of cigars and snus – a special tobacco alternative that is placed between the teeth and lip didn’t realize to prevent the group informing about a slip of 2% in total stick equivalent volumes. “We realized to increase the volumes of our world strategic cigarette brands as Davidoff, Gauloises, West and demonstrate good results in developing markets and we also realized further great progress with JPS,” stated Alison Cooper JT’s representative.

“We assured strong positions to our fine cut tobacco in various EU markets and we also raised volumes of our luxury Cuban cigars, in spite of difficult situation in Spain.” Davidoff cigarette volumes have increased by 6 %, prompted by raised popularity in Russia, Saudi Arabia, Taiwan and Ukraine. Not so long ago Imperial proposed its plans for share buy-back and in June declared the beginning of a program directed on the repurchase £500m of shares per year. Experts had forecasted the tobacco group to launch buybacks in 2012, after it had paid a debt related to its 2007 purchase of Altadis to nearly 2.5 times earnings before interest, tax, depreciation and amortization. At the end of the 2010, net debt constituted 2.9 times ebitda. Shares in Imperial Tobacco, which have increased by 15 % over the past year, dropped 4 % at £21.48 in London this week.

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