Imperial Tobacco Says U.K., German Markets Shrank (Update2)

Jan. 29 (Bloomberg) -- Imperial Tobacco Group Plc, Europe's second-largest publicly traded cigarette maker, said the U.K. and German tobacco markets shrank last year after England banned indoor smoking in public places and taxes rose in Germany.

Britain's market contracted 4 percent by volume in the 12 months through December, the Bristol, England-based company said today. Imperial said business so far this fiscal year ``remains in line with our expectations,'' while earnings, shipments and market share rose in ``many'' markets in its first quarter.

Imperial accounts for almost half of the British market and about a fifth of that in Germany, where the tobacco market declined 6 percent. The company this month finished buying Altadis SA, the Spanish maker of Gauloises cigarettes, for 12.6 billion euros ($19 billion) to reduce its reliance on those shrinking markets.

``This market fall is not out of kilter given it's the first six months after a smoking ban,'' Dresdner Kleinwort analyst Charles Manso said of the U.K. market in an e-mailed note. ``The general tobacco pricing environment remains firm, underpinned by industry consolidation.''

Cigarette makers based in western Europe have bought rivals to add market share and expanded outside the region as governments toughen smoking restrictions. Indoor smoking in public places was barred across the U.K. last July, France prohibited smoking in cafes, hotels and clubs at the start of this year and six German states widened bans.

U.S. Delay

``Imperial has an opportunity to raise guidance on Altadis synergies'' when it next releases an update in March, Dresdner's Manso said.

The company, whose Lambert & Butler brand is the top seller in Britain, also said today it's taking longer than expected to register its cigarette brands for sale in the U.S. Imperial Tobacco now expects to finish registering its European brands in the ``next few'' months after receiving regulatory approval in November to start selling them in the U.S. That's ``slightly later than originally expected,'' the company said.

The stock fell 5 pence, or 0.2 percent, to 2,365 pence in London. Imperial added 35 percent last year, the eighth straight annual gain and double that of larger rival Altria Group Inc., the owner of the Marlboro brand.

In connection with the Altadis takeover, the company plans to offer 910 million euros for full control of distributor Compania de Distribucion Integral Logista SA, of which it owns about 59 percent after buying the Spanish cigarette maker. Logista transports cigarettes and other goods from magazines to pharmaceuticals in southern Europe.

Imperial Tobacco may bid for Turkish cigarette maker Tekel, Chief Executive Officer Gareth Davis said last week. Turkey's government is trying to sell Tekel for the third time after drawing no bids in a 2005 effort. More than three-fifths of adult Turkish males smoke, compared with fewer than a third in the U.K., the World Health Organization's Tobacco Atlas shows.

To contact the reporter on this story: Thomas Mulier in Madrid at tmulier@bloomberg.net.

To contact the editor responsible for this story: Keith Campbell at k.campbell@bloomberg.net