Imperial says profits will fall in Spain

IMPERIAL Tobacco, the world’s fourth-largest cigarette maker, yesterday warned a price war in Spain could wipe hundreds of millions of pounds off its profits in the region.

The firm, which makes the popular Spanish Fortuna brand of cigarettes, said adjusted operating profits in the region could be up to £110m lower than previously expected.

It blamed the profit warning on its decision to enter a bitter price war in the region, “to protect [its] market position and the long-term sustainability of [its] Spanish business”.

Spain, which accounts for around eight per cent of its sales and profits, has proven a perennial problem for the tobacco giant.

At its half yearly results last month, it warned that the number of cigarettes it had sold in Spain had declined by 16 per cent to 65.1bn due to a ban on smoking in public places, higher duties and a tough economic outlook.

Analysts also say a thriving contraband market is putting pressure on prices and margins.

Recently, rival Philip Morris International cut the price of its Spanish brands in response to a challenge from British American Tobacco.

Imperial decided it could not stand on the sidelines of the price war

and consequently cut the price of Fortuna and Ducados, its Spanish value brand.

Around £40m of the £110m hit will come from a one-off charge at is logistics business, Imperial Tobacco said in a statement to the stock exchange yesterday.

It added the financial outlook for the remainder of the group was in line with expectations.

Shares in Imperial Tobacco closed down 1.39 per cent at 2,056p yesterday, valuing the group at £21.2bn.