Imperial weathers steeper-than-expected fall in cigarette sales

Sales of cigarettes fell further than expected in England after the introduction of the ban on smoking in public places, Imperial Tobacco said yesterday.

The ban was timed for the summer in order to mitigate the effects as pubgoers were expected to enjoy a smoke outdoors but the terrible weather and almost constant rain meant many smokers cut down onlighting up instead.

Imperial Tobacco said the market took a 4 per cent hit by the end of September from the ban which came into force on 1 July. This was 2 per cent higher than had been expected.

"Once the initial impact of public smoking bans has dissipated, we expect annual cigarette market declines of 3 to 4 per cent in line with the long term trend," its chief executive, Gareth Davis, said.

Despite the overall decline, Imperial Tobacco grew market share in the UK from 45.5 per cent to 46.4 per cent, mainly due to the strength of its best-selling brands Lambert & Butler and Richmond and the introduction of the low-cost Windsor Blue, which is the fastest-growing brand in the UK. The company posted a 6 per cent rise in full-year pre-tax profits yesterday to £1.2bn across the group.

The company's gains were boosted futher by strong sales in developing countries, such as Vietnam, Laos and Ukraine, along with the acquisition of Commonwealth Brands in the US earlier this year.

Overall, cigarette volumes increased by 7 per cent to 200 billion while revenue was up 4 per cent to £3.3bn.

Shares in the company added 4p to 2447p following an earlier dip which analysts put down to the news that Imperial's takeover of Franco-Spanish company Altadis, has been delayed until the end of January. It had been expected to complete at the end of this year but Mr Davis said completion of the deal had been delayed by Spanish regulators due to changes in the takeover rules in Spain brought in this summer.

This is the first major deal the regulators have had to clear since then, Mr Davis said. The purchase will consolidate Imperial's position as the world's number four tobacco company and will give it the well-known brands Gitanes and Gauloises. Imperial said a rights issue, which is in part financing the acquisition, will take place before July 18 next year.

"The disappointment remains in the delay," said Andrew Darke, an analyst at Evolution Securities. "We continue to believe that Imperial will realise considerable shareholder value in the Altadis deal."

Mr Davis added that he expects the global credit crunch to have little effect on Imperial. Although he said 2008 is set to be a challenging year for the wider economy, he insisted: "Tobacco is an extremely resilient sector and it always withstands bad times well."