Profits rise in Gallaher Group's Irish operations

Gallaher Group plc, the UK tobacco group that closed its plant in Tallaght, Dublin, last year, has seen a rise in its Irish operating profits despite a fall in its Irish turnover. Lower costs and higher prices more than compensated for a fall in Irish sales.

The group's operating profits for its "rest of the world" sales, i.e. the Republic, Africa and the Middle East, were up 9.5 per cent in the first half of 2004, to £27 million (€39.7 million), according to figures released yesterday.

The bulk of the group's rest of the world sales are in the Republic.

"The total cigarette market in the Republic of Ireland declined around 7.5 per cent in the first half of 2004," the company said. "This reduction was influenced by successive above inflation duty increases, which have affected the affordability of tobacco products and impacted on cross-border trade."

"The ban on workplace smoking, effective from the end of March, has also affected market volumes. Monthly volumes have varied widely since the introduction of the ban, influenced by de-stocking in the vending channel, which largely operates in pubs and clubs, and the weather. It is too early to assess what the longer-term impact of the ban will be."

The group sold 1.3 billion cigarettes in the Republic in the first half of 2004, down from 1.4 billion in the first half of 2003. It retained its lead position in the market, with its share going from 49 per cent from 48.4 per cent.

"In the Republic of Ireland, manufacturer's price increases and favourable changes to the cost structure as a result of the factory closure in 2003, more than compensated for lower volumes in the reduced Irish market."

Overall, the group reported a 4.4 per cent rise in pre-tax profits, to £250 million, as higher UK cigarette sales offset worsening conditions in other European markets, including Ireland.

In Germany tax increases were behind a 13.5 per cent drop in market size.

The group owns a number of well-known brands including Silk Cut and Benson & Hedges. It said UK consumers smoked 3.3 per cent more of its cigarettes in the first half of 2004 despite prices continuing to go up.

Analysts Dresdner Kleinwort Wasserstein, in London, in a note on the results, said approximately 5 per cent of the 7.5 per cent drop in the Irish market could be due to "aggressive tax increases".

It said that approximately 11 per cent of the Irish cigarette market was traditionally through vending machines in pubs and night clubs.

"Naturally since the ban became effective, this channel has suffered significant de-stocking and it is unclear if and where such volumes will re-emerge."