UPDATE 2-Imperial Tobacco price rises offset falling sales

Tue Jul 24, 2012 7:08am EDT

* Imperial nine-month revenue rises 3 pct

* Sees tough markets in Spain, Ukraine and Poland

* Financial performance in line with expectations

* Shares up 0.5 percent

By David Jones

LONDON, July 24 (Reuters) - Price rises have lifted Imperial Tobacco's revenues despite a drop in sales volumes for the world's fourth largest cigarette group as it suffered in recession-hit Spain's shrinking market as well as Ukraine and Poland.

The British group, which sells over 340 billion cigarettes annually of brands such as Gauloises, Davidoff, West and JPS, said on Tuesday that revenue rose 3 percent for the nine months to the end of June while volumes fell 3 percent.

Its prices roses an average 6 percent compared to a year earlier - well above inflation in most of its markets and 2.4 percent in the 17-nation euro zone. Most of its business is in western Europe and its biggest markets are Britain and Germany.

The Bristol-based company aims to counter Europe's downturn by offering economy brand cigarettes, such as JPS and Lambert & Butler and roll-your-own products as well as raising prices for more affluent consumers.

But it felt the impact of the crisis in Spain, its third-biggest market, which only emerged from a price war last year.

Overall volumes in Spain have fallen 11 percent as recession and a rise in unemployment to one in four of the population have forced consumers to cut back even on cigarettes - sales of which tend to be relatively resistant to economic conditions.

Imperial also suffered as Ukraine's market fell 11 percent due to increased illicit trade in cigarettes on which no duty has been paid. Its business in Poland for hand rolling tobacco fell as farmers sold more tobacco directly to consumers.

Credit Suisse analyst Rogerio Fujimori said the fall in Imperial's cigarette volumes in the European Union, which he estimates at 5 percent for the April-June quarter, was an area of concern, as was the situation in Ukraine and a tough market in the United States.

After an early fall, Imperial shares edged up 0.5 percent to 2,462 pence by 1100 GMT in a slightly weaker UK stock market.

Chief Executive Alison Cooper said the difficulties in some trading areas were offset by the performance of Imperial's four key brands, revenues from which rose 13 percent, and strong emerging-market growth in areas such as Asia Pacific and Africa.

Imperial shares have risen over 10 percent since a low in January and Imperial trades on 11.6 times 2012 forecast earnings compared with British American Tobacco, which reports half-year results on Wednesday, trading on 14.8.