Imperial Tobacco hit by Spanish price war

Cigarettes and cigar giant Imperial Tobacco today warned profits from its Spanish business would fall by 40% this year after a price war broke out in the country.

Imperial, best known for the Gauloises, Lambert & Butler and Davidoff brands, cautioned the impact on profits could be as much as £110 million, which will include a £40 million one-off charge from restructuring.

It said it had acted to protect its market position and long-term prospects in the country after downward price moves affected the whole market.

Sales across Spain have been hit by a tightened smoking ban that came in at the start of 2011 and made it illegal to smoke in bars, restaurants, on TV or in hospitals and near schools.

Imperial built up its presence in Spain through the 2007, £11 billion acquisition of Altadis, the world’s leading cigar maker, Gauloises owner and Europe’s third largest cigarette manufacturer with 60% of its sales in France and Spain.

Spain contributed operating profits of £268 million out of a group-wide total of £3.1 billion in the year to last September. The group, which is the world’s fourth largest tobacco firm, added that outside of Spain it has performed in line with expectations.

Imperial’s shares fell 1% following the update, as City analysts cut their profit forecasts and added there was little end in sight to the repeated rounds of price cuts in Spain.

US broker Citigroup said: “Given that the industry has driven itself ever deeper into this mess in multiple rounds of price cuts, we don’t see anyone reversing and putting up prices.”