Chief Executive Alison Cooper was more confident for the group overall next year as cigarette volumes started to recover and Germany posted a robust result while growth in emerging markets, such as Russia and Taiwan, offset the pain in Spain.
We are seeing a more stable position in Spain with prices back or above those seen at the start of this year, so we see a better year in Spain in 2012, Cooper told a conference call.
She added that tough trading conditions had accelerated the long-term trend towards cheaper cigarettes where Imperial was well position with a string of value brands and the world's biggest fine cut loose tobacco business.
Cooper said the overall business was resilient with its key four brands -- upmarket Davidoff, mid-priced Gauloises Blondes and value brands West and JPS -- seeing annual volumes up 4 percent while its Gold Leaf and Golden Virginia fine cut business saw a similar volume rise.
The downturn has accelerated the trend to value and plays to our total tobacco portfolio, she said.
Imperial, market leader in Spain with a near 30 percent share from brands like Fortuna, Ducados and Nobel, suffered a sharp fall in Iberian profits from the price war before the four main cigarette players called a cease-fire in September.
Imperial's Spanish volumes were down 13 percent, leading to a 25-percent fall in country profit which accounts for nearly a tenth of group earnings. Spain is Imperial's third most profitable market after Britain and Germany.
Cooper said the group helped mitigate the impact of Spain with gains elsewhere in the European Union and strong growth in the emerging markets of Eastern Europe, Africa and the Middle East and Asia Pacific.
The Bristol-based group, which also makes Lambert & Butler and Embassy cigarettes, reported adjusted earnings rose to 188 pence a share for the year to end-September largely in line with the 187.7p predicted by Reuters SmartEstimates and also with a company-compiled consensus.
The annual dividend increased 13 percent to 95.1 pence a share, raising its payout ratio from earnings to 50.6 percent.
On balance, Imperial navigated relatively well through difficult trading conditions in Spain, said analyst Rogerio Fujimori at brokers Credit Suisse.
Imperial shares, after an initial rise, dipped 1 percent to 2,251 pence compared with a 2.6 percent fall in the FTSE 100 index <.FTSE> by 1500 GMT.
The group, which sells over 340 billion cigarettes annually, said volumes dipped 1.5 percent due largely to Spain, but price increases lifted sales by 2 percent at 6.9 billion pounds. Ex-Spain, volumes were flat and revenues up 4 percent.
Spain's economic woes, an excise tax rises and a smoking ban in public places sparked a price war led by Marlboro-maker Philip Morris
Imperial shares have risen over the last six weeks to have performed in line with larger peer BAT during 2011, but Imperial trades at a discount, at 11 times 2012 forecast earnings compared to BAT on 13.6.
BAT is favoured by many investors due to its 50-50 balance of business from mature and emerging market, while around 65 percent of Imperial's business still comes from mature markets.
(Editing by David Cowell)