Gallaher profits boosted by sales in Eastern Europe

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The Independent Online

Gallaher Group's profit before tax rose by 24.1 per cent to £200m for the first half of this year, with strong sales in Eastern Europe and Russia offsetting worsening conditions in Ireland - where there has been a ban on workplace and public area smoking - and Germany. The interim dividend goes up from 9.45p a share to 10p.

Gallaher Group's profit before tax rose by 24.1 per cent to £200m for the first half of this year, with strong sales in Eastern Europe and Russia offsetting worsening conditions in Ireland - where there has been a ban on workplace and public area smoking - and Germany. The interim dividend goes up from 9.45p a share to 10p.

But the shares fell 4.5p to 645.5p after the chief executive, Nigel Northridge, warned: "We continue to grow our volumes and profits year-on-year in the face of difficult trading conditions in a number of European markets, coupled with the negative effect of foreign exchange."

Global volumes at Gallaher, which makes Benson & Hedges and Mayfair cigarettes in the UK, rose 7.6 per cent to 79.3 billion, taking cash turnover up 8.1 per cent to £4.67bn. Within this, sales outside the UK, Europe and the Commonwealth of Independent States fell 2.6 per cent to £235m, mainly because of lower sales in Africa, Arab countries and Ireland. The Ireland ban shrank that market by 7.5 per cent.

But a cost-cutting drive boosted pre-tax profits, and took basic earnings per share up by 31.7 per cent to 20.6p.

Net debt at 30 June fell by £252m compared with 31 December 2003. The decrease was attributable to a net cash inflow of £174m and favourable translation of the group's euro-denominated debt.

Mr Northridge said: "Overall group trading remains in line with expectations. At the earnings-per-share level, improved prospects in the UK - including accelerated benefits from the restructuring programme - should broadly offset worsening conditions in continental Europe, notably the impact of the continued deterioration of the branded cigarette market in Germany on the group's vending operation."

Cigarette unit costs fell 6.7 per cent in real terms, reflecting improved productivity and lower material costs.

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