Imperial Tobacco sales rise but volumes fall

Emerging market demand boosts sales, but volumes fall as developed markets remain weak

--Weak Spanish trading likely to hit full-year operating profit by up to GBP70 million

--Global cigarette brand volumes rise 2%

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LONDON - Imperial Tobacco Group PLC (IMT.LN) said Tuesday emerging market demand boosted tobacco sales, but the maker of Gauloises Blondes and Davidoff cigarettes nonetheless recorded a fall in overall volumes as the slowdown in mature markets continued.

Imperial is focused on building its position in developing economies such as Eastern Europe, Africa, the Middle East and Asia to offset a weaker performance in developed markets where consumers are struggling with tough economic conditions.

Smokers in developed markets are switching to low-cost brands in the face of dented discretionary income as governments impose austerity measures such as tax hikes and public spending cuts to rein in borrowing.

The Bristol, England-based company has offset soft volumes with price rises which have helped maintain and build margins in markets like Western Europe and the U.S., where volumes are either in long-term decline or at best flat.

The world's fourth-largest global tobacco group by revenue said Tuesday it is trading in line with expectations and posted a 2% rise in tobacco sales in the nine months to June 30 on a constant currency basis. Sales were hit by falling tobacco prices in a difficult Spanish market in May and June, but total sales excluding Spain rose 4%. The company said the continued challenging economic environment in Spain is likely to hit full-year operating profit from the country by up to GBP70 million, which is better than previous forecasts of a GBP110 million hit.

Total stick volumes, or cigarette and fine cut tobacco combined, fell 2% in the nine-month period.

Still, Imperial, which sells its products in over 160 countries, said combined volumes of its global strategic cigarette brands grew 2%.

Davidoff volumes rose 6%, boosted by sales in Taiwan, Ukraine, Saudi Arabia and Russia, while Gauloises Blondes volumes were up 1%. However, demand for West cigarettes in Eastern Europe was offset by declines in Poland and Turkey.

JPS cigarette volumes rose 15% boosted by trading in Australia, Germany and U.K.

Fine cut tobacco volumes rose 4%, while Cuban cigar volumes rose 1% and snus -- a smokeless tobacco product popular in Sweden and Norway -- saw volumes increase 26%.

"We are well placed to build on our sales growth momentum in the remainder of the year," said Chief Executive Alison Cooper.