Imperial’s Spanish losses continue

A combination of anti-smoking regulation, higher taxes and a price war precipitated a double-digit fall in cigarette volumes in the key Spanish market during the first quarter for Imperial Tobacco.

The FTSE 100 company, which owns Davidoff and Gauloises brands, declined to specify the extent of the fall for the three months to 31 December but said it expected the rate of decline to slow during the remainder of the year.

Imperial Tobacco Brands

Imperial Tobacco cigarette brands: Davidoff, Gauloises, West and Golden Virginia

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It caps a miserable year for Imperial in Spain, its biggest single market by revenue after Germany and the UK, coming in the wake of a profit warning last June due to a price war with rivals BAT and Philip Morris.

In November Imperial reported its full year operating profit in Spain had fallen by more than a quarter to £200m.

Jonathan Fell at Deutsche Bank said he expected the losses to moderate.

“The extent of the volume loss in Spain is very unusual in the context of developed cigarette markets – but it’s the result of higher taxes, more regulation and worse economic circumstances…the economic situation might not improve rapidly but the impact of other factors should reduce so we shouldn’t be seeing the market decline at a double-digit rate this year.”

The tough market in Spain, as well as trade sanctions in Syria and price increases in the US, saw Imperial’s overall cigarette volumes drop 7 per cent contributing to a 1 per cent decline in net tobacco revenue. However, cigar chompers in Russia and China boosted Imperial’s luxury cigar volumes in emerging markets by 14 per cent.

Alison Cooper, Imperial Tobacco’s chief executive, said the company was focusing on its four strategic brands – Davidoff, Gauloises, West and JPS – in Asia-Pacific, Africa and the Middle East.

“Combined stick equivalent volumes of our key strategic brands were up 3 per cent and net revenues up 10 per cent with our focus on driving growth in these brands in emerging markets and fine cut tobacco in the EU,” she said.

Shares in Imperial Tobacco closed up 1.45 per cent at £23.03.

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