Imperial Tobacco price rises offset falling sales

Imperial Tobacco Brands

Increased cigarette prices have augmented Imperial Tobacco’s earnings amid a decrease in sales volumes for the world’s fourth largest tobacco company as it experienced suffer in recession-hit Spain’s declining market as well as Ukraine and Poland.

The British multinational tobacco company, which sells over 340 billion cigarettes yearly of brands such as Gauloises, Davidoff, West, said that income increased 3 % for the nine months to the end of June while volumes decreased 3 %.

The company’s prices increased an average 6 % in comparison with a previous year – well above inflation in most of its markets and 2.4 % in the euro zone. Most of its business is located in Western Europe and Britain and Germany are the company’s biggest markets.

The tobacco company that is headquartered in Bristol intends to counter Europe’s decline by offering cigarette brands, such as JPS and Lambert & Butler and roll-your-own products as well as increasing prices for rich consumers.

But the company suffered from the crisis in Spain, which is its third-biggest market, which only dropped out of a price war a year earlier.

Whole volumes in Spain have declined 11 % as recession and a high unemployment to one in four of the population have obliged consumers to reduce the amount of cigarettes consumed. Sales of cigarettes are prone to be relatively firm to economic conditions.

Imperial Tobacco as well suffered because Ukraine’s market declined 11% because of increased illicit trade in cigarettes on which no tax has been paid. The group’s hand rolling tobacco business in Poland decreased because tobacco selling was done by farmers directly to consumers.

Rogerio Fujimori, Credit Suisse analyst, said the 5 percent drop in Imperial’s cigarette volumes in the European Union was an area of interest.

After a previous decline, Imperial Tobacco shares increased 0.5 % to 2,462 pence by 1100 GMT in a slightly weaker UK stock market.

Alison Cooper, Chief Executive, said the difficulties in some trading zones were compensated by the performance of Imperial’s four major brands, earnings from which increased 13%, and excellent emerging-market growth in areas such as Asia Pacific and Africa.

Imperial Tobacco shares have increased over 10% since a decline in January. The company trades on 11.6 times 2012 forecast revenues in comparison with British American Tobacco, which trades on 14.8.

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