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Gallaher Says Austrian, Spanish Competition to Weigh on Profit

June 28th, 2006 · 22 Comments
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http://www.bloomberg.com
June 27 (Bloomberg) — Gallaher Group Plc, which makes Benson & Hedges cigarettes in the European Union, said competition to lower prices in Austria and Spain is weighing on profit this year.

Earnings before interest, tax and amortization from its tobacco business in continental Europe in the first half “is expected to be broadly flat versus the first half of 2005,” the Weybridge, England-based company said today in a statement distributed by PR Newswire. Full-year profit from that business will probably be “marginally ahead of 2005 levels.”

The cigarette maker, the U.K.’s second-largest by market share after Imperial Tobacco Group Plc, is trying to overcome waning demand in Britain by expanding in countries such as Russia and Ukraine. Some smokers in eastern European countries are switching from local brands to more expensive Western imports.

Gallaher also said Ebita from Sweden, Poland and markets in Africa and Asia will be “down sharply” in the first half as retailers stocked up on cigarettes last year before a price increase. Full-year Ebita from those regions, which Gallaher calls “Rest of World,” should be “broadly flat.”

The company, which also makes Silk Cut cigarettes, said in March it would miss its goal for profit from its continental European business for a second year as rivals cut prices in Spain and countries such as Austria raise tobacco taxes.

Gallaher said in March it expected earnings before interest, tax and amortization from the region to rise 1 percent to 2 percent this year. The company’s long-term target for the region is growth of 4 percent to 6 percent.

The company also said in March it expects profit at its U.K. business to increase 1 percent to 2 percent this year. The company gets almost half its profit from that market.

Gallaher raised the prices of most of its cigarette brands in the U.K. by 7 pence per pack of 20 in May. It also increased prices in March after that country raised tobacco taxes.

Gallaher, which has roots going back to 1857, owns the rights to Benson & Hedges in the European Union and several other European countries. Altria Group Inc. controls the brand’s U.S. rights, and British American Tobacco Plc owns the rights in more than 80 other countries including Australia.

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