Imperial Tobacco profits rise on German takeover

Imperial Tobacco said yesterday that the cost savings from last year's £3.6bn acquisition of the German tobacco group Reemstma would exceed the £170m a year stated at the time of the deal.

The company said it would provide more guidance at the time of its full-year results in November but analysts have upgraded their forecasts of possible savings to between £190m and £200m.

The comments came as the maker of Lambert & Butler and Embassy cigarettes reported a strong set of figures boosted by the Reemstma deal. Operating profits rose 56 per cent to £497m in the six months to 31 March, with UK market share increasing from 42.4 per cent to 43.8 per cent, helped by Embassy and Regal brands.

Net income fell to £182m, or 25p a share, in the six months ended March 31, from £183m, or 29.4p, a year ago.

Group operating margins rose from 29 per cent to 33 per cent as the company reaped the benefits of the Reemstma synergies.

"We said the Reemstma deal would be a transforming one and we're seeing the reality of that now," Gareth Davis, the chief executive, said.

He added that the £140m of cost savings for the first year of the deal were "pretty much in the bag", with more to go for in terms of manufacturing integration. The deal is also expected to achieve cost savings of at least £170m in 2004.

Imperial enjoyed strong trading performances in the UK, Germany and Eastern Europe. The performance in Africa and the Middle East was disappointing. The performance in Asia during April was hit by the Sars virus, which affected travel in and out of the region. However, Mr Davis said the impact would be "immaterial" to the group.

Imperial said the performance of the UK operation would be affected by a relaxation of Customs & Excise rules, which allow people to bring more cigarettes into the country from abroad.

The company estimates the UK market will fall from 56 million sticks (individual cigarettes) to 54 million this year. However Imperial said it would make up the lost sales in other countries.,

Mr Davis said Reemstma's market share in Germany had stabilised after four years of decline.

He ruled out large acquisitions, saying: "I wouldn't rule out smaller, bolt-on deals. But our focus is really on rebuilding our interest cover."