British tobacco company Gallaher Group has reported an expected 6.6% rise in 2005 profits but warned of lower profit growth in continental Europe in 2006 due to tough trading conditions.
The company, whose cigarette brands include Benson & Hedges, Silk Cut and Mayfair, also warned the impending smoking ban in pubs and clubs in England due by mid-2007 will cut the cigarette market by around 4-5%.
Gallaher CEO Nigel Northridge said tough conditions especially in Austria, Spain and Germany due to tax rises, increased cross-border trading and stiff competition will cut the group's regional profits growth during this year.
The world's fifth-largest cigarette maker said it is targeting 4-5% EBITA (earnings before interest tax and amortisation) growth in continental Europe, but tax rises in Austria and Spain and a flood of cheaper cigarettes after the accession of eastern European nations into the European Union will see lower growth.
Gallaher, which earns around 70% of its profits in the declining cigarette markets of the UK, Ireland, Austria and Sweden, posted 2005 underlying pretax profits of £570m sterling, at the top end of analyst forecasts.
In the UK, where Gallaher earns around 45% of its profits, the group expects a one-off decline in the cigarette market after a smoking ban in pubs, clubs and indoor public places following smoking bans in Ireland, Italy and Sweden.
Gallaher says strong growth came again from Russia, where it owns Liggett-Ducat, Kazakhstan and Ukraine with profits 17% ahead on volumes up 7% with consumers moving to more expensive international brands.
The group raised its 2005 dividend by 6.3% to 33.5 pence a share and reported 2005 adjusted earnings per share up 7.5% at 63.1 pence a share, compared to the analysts' forecast range of 62.2-63.5 pence.
