Imperial issues profits alert over Spanish price war

By Rupert Steiner for the Daily Mail
Updated: 16:20 EDT, 13 June 2011

Davidoff maker Imperial Tobacco has issued its first profits warning since demerging from Hanson fifteen years ago, blaming intense competition in it's cruicial Spanish market.

The world’s fourth largest cigarette maker has a big exposure to Spain following its £11bn acquisition of Altadis in 2007 – the country is now its third most profitable market.

Chief executive Alison Cooper, who has only been at the helm since last spring, warned a price war and tough trading in Spain could cut annual profits by £110m.

Light up: Davidoff maker Imperial Tobacco has issued its first profits warning since demerging from Hanson fifteen years ago, blaming intense competition in it's cruicial Spanish market

The cigar-puffing mother of two moved to cut prices in line with rivals – a step which is likely to hit the bottom line.

Around £70m will relate to tobacco profit while £40m represents a one-off hit to its logistics business.

Logista distributes cigarettes and other consumers goods for third parties as well as Imperial and will take a hit from stock it has already bought which will have to be shifted at a lower price.

Cooper said: ‘In recent weeks there have been a number of price moves in Spain impacting all market participants. ‘We have acted to protect our market position and the longterm sustainability of our Spanish business.’

Imperial is the market leader in Spain with around a 29 per cent share from cigarette brands like Fortuna, Ducados and Nobel, but it faces stiff price competition from the world’s two biggest players, Philip Morris International (PMI) and British American Tobacco (BAT).

Chris Wickham, an analyst at broker Matrix, said: ‘There is good reason to believe that the Spanish skirmish, while costly, should be temporary. In particular it significantly relates to the market leader PMI’s determination that its Liggett & Myers brand should trade at the same price as BAT’s Pall Mall brand.

‘Both are currently selling at Euro 3.30 per pack at retail following the latest round of price changes. Imperial’s Ducados Rubio and JPS brands sell at this price point with its largest label Fortuna, selling at Euro 3.40.’

The Spanish cigarette market has suffered from a double whammy – with the economic downturn causing smokers to trade down to cheaper brands and a ban on smoking in public places introduced at the turn of the year.

This caused the price war between the major players to intensify as they battle it out for market share.

At the end of last week Imperial (down 29p to 2056p) said it had made the latest of its price cuts to a number of its Spanish brands.