Price War on Spanish Tobacco Market Affects Imperial Tobacco

Published on September 5th, 2011 14:06

Two months ago, Imperial Tobacco, which markets, Gauloises Blondes, West and Davidoff on Spanish market, notified investors that adjusted operating profits in Western Europe might be £100m ($180) million lower than expected previously. Last week the FTSE 100 tobacco giant states price improvement in the country and a £20-million- cut in expenses on logistics would reduce the full-year effect of the price war to nearly £70 million. This January Spain introduced a ban on smoking in indoor public places. The recession and high unemployment rare made the situation even more difficult for cigarette makers, as smokers are cutting their expenses on cigarettes.

mperial Tobacco

Therefore, Imperial Tobacco had to slash prices on its products in Spain to withstand competition from British American Tobacco’s move to promote its flagship Pall Mall brand, which led to Imperial’s revenue warning in July.Commenting on the market report for the nine months ending on July 1st, Imperial Tobacco admitted last week that tobacco products net revenue had grown by 2 percent, despite the cigarette volumes fell by 3 percent.

Growth in sales of cigars and snus – smokeless tobacco powder that is put between the gum and lips – didn’t manage to offset the fall of 2 percent in the group’s overall stick equivalent volumes. “We managed to increase volumes of our strategic growth tobacco products, such as Davidoff, West and Gauloises Blondes, which performed strongly in developing markets and as well reached further exceptional growth with JPS,” reported Alison Cooper, Imperial’s CEO. “In addition, we achieved solid growth in fine cut tobacco segment in several markets across the European Union and we also grew volumes of our premium and super premium Cuban cigars, in spite of unfavorable trade conditions in Spain,” Cooper added. Davidoff sales were up by 6 percent, due to the growing popularity in Russia, Ukraine, Taiwan and Saudi Arabia.

In recent months Imperial Tobacco introduced share buy-back plans and proclaimed the start of the strategy to repurchase £500m of shares annually in May.

Experts had predicted the tobacco company to launch buybacks program in 2012, after the group had closed its debt following its 2007 acquisition of Atladis to nearly 2.5 times profits before tax and amortization. At the end of 2010, the net debt was at 2.9 times before tax.

Shares of Imperial Tobacco, which have grown by 15 percent during the last 12 months, fell 4 points to £21.48 in London last week.

By Joanna Johnson, Staff Writer. Copyright © 2011 All rights reserved.

Related tags: tobacco market | imperial tobacco | tobacco industry | cigarettes prices

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