6/28/2006

Gallaher warns of tough markets in Sweden, Poland

Gallaher, whose cigarette brands in Britain include Benson & Hedges and Silk Cut, said its cigarette volumes rose 4.4 percent in the first five months, after a first-quarter 6.7 percent rise, as it said trading was in line with its expectations.

The world's fifth-largest cigarette group was giving a trading update towards the end of its half-year, and ahead of its first-half 2006 results due in early September.

It said due to tough markets in Sweden and Poland and spending on a new plant in Singapore, first-half earnings before interest, tax and amortisation (EBITA) in its so-called rest of the world region will be sharply down on 2005.

The company earns 70 percent of its profits from the shrinking cigarette markets of Britain, Ireland, Austria and Sweden and, to offset this, has been expanding into the former Soviet Union.

Analysts expect higher growth from the former Soviet Union will marginally offset flat annual profit growth in the rest of the world region and push group EBITA forecasts for 2006 up 1-2 million pounds to 687-688 million pounds ($1.25 billion).

Gallaher shares were one of the top 10 losers in a generally firmer FTSE 100 index, being off 0.9 percent at 820-1/2 pence by 0920 GMT.

he Swedish duty-paid cigarette market fell 9 percent in the first 5 months after a tax rise in January and a smoking ban in public places in June 2005. Gallaher also lost market share in Poland where it did not cut prices.

It added that trading in its Europe region continued to be challenging especially in Austria and Spain, and first-half EBITA was expected broadly flat although full-year profits in the region are expected to be marginally ahead of 2005.

The group has suffered from higher taxes, cheaper Eastern European brands coming into western markets as well as lower tourist numbers and workplace smoking bans, while weak pricing hit Austria and sharp price cuts Spain.

In the UK, which accounts for nearly half of group profits, Gallaher held its 38.7 percent market share in the first 5 months, similar to the first-quarter, and expected EBITA to be more weighted to the second-half after a May price rise.

Rival Imperial Tobacco gave its latest share at 45.2 percent share driven by its Lambert & Butler and Richmond brands.

In countries of the former Soviet Union such as Russia, Kazakhstan, and Ukraine, which make nearly 12 percent of group profit, analysts expect the region to show around 20 percent profit growth in 2006 compared to 17 percent in 2005.

Source: By David Jones



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