Imperial Tobacco Slides on News of U.K. Plain Packaging Law

Imperial Tobacco Group Plc, Europe’s second-biggest tobacco company, fell the most in five weeks in London after the Guardian reported that the U.K. plans to follow Australia in introducing plain packaging for cigarettes.

The shares slid as much as 2.8 percent, the most since Jan. 30 when the company forecast a decline in first-half profit. They were down 2.1 percent at 2,393 pence as of 10:13 a.m. Rival British American Tobacco Plc fell as much as 1.6 percent.

U.K. legislation to introduce a law on plain packaging will be announced in the Queen’s speech in May, the Guardian said, citing an unidentified government official. The law will also ban smoking in cars carrying anyone under the age of 16, according to the newspaper. Tobacco companies are facing stricter government restrictions on smoking, with New Zealand announcing last month that it would follow Australia by forcing cigarette makers to sell their products in plain packages.

A similar move in the U.K. “isn’t totally unexpected and the implementation lead time will be long,” said Martin Deboo, an analyst at Investec in London. “Even if it is announced in May, the law may not come into force until 2015 or 2016.”

U.K. Health Secretary Jeremy Hunt is considering the results of a consultation exercise on plain packaging and hasn’t made a decision yet, according to an official familiar with his thinking, who asked not to be identified because the discussions are continuing. The government isn’t looking at banning smoking in cars, the official said.

Uniform Packs

A move to plain packaging in the U.K. “will hurt Imperial more than BAT,” Deboo said. Imperial has 13 percent of tobacco sales and almost 20 percent of profit in the U.K., while BAT generates only 1 percent of revenue in the country, he said.

In Australia, cigarette packets have since Dec. 1 contained warnings that include photos of a gangrenous limb and a cancer victim. All cigarettes in Australia must be sold in uniform packs, with the brand name relegated to the bottom quarter of the package on a drab brown background. The law is being challenged at the World Trade Organization and at arbitration.

Still, plain packaging “has so far had a limited effect on consumption in Australia,” said Erik Bloomquist, an analyst at Berenberg Bank in London. “People will continue to smoke regardless of how unpleasant the pack is to look at.”