Imperial said some 39 percent of its profits were now earned from abroad and Chief Executive Gareth Davis aims to push this to 50 percent as quickly as possible to counter the steep decline in the duty-paid UK cigarette market. The group which makes Embassy, John Player and Lambert & Butler cigarettes in Britain and owns the Dutch Van Nelle hand-rolling tobacco business, reported pre-tax profits of 400 million pounds ($641.7 million) for the year to September 25 on sales ahead 12 percent at 4.49 billion pounds. ``The future is abroad. It is a very big world and Imperial is a relative newcomer in this international market,'' Davis said in a interview following results. When Imperial was demerged from Hanson in October 1996, some 86 percent of profits were earned in the UK, but after an Australian deal in September to buy a number of BAT cigarette brands, overseas profits should reach 45 percent, analysts said. SHARES FAIL TO CATCH FIRE Imperial shares edged ahead as profits came towards the top of analysts' forecasts, but then came back to stand unchanged at 668 pence by 1215 GMT, after a warning it would be difficult to improve underlying UK profits in the current climate. Arch-rival in the UK, Gallaher Group Plc (quote from Yahoo! UK & Ireland: GLH.L) rose 6p to 336p. ``These were a good set of results, mainly driven by the international growth at Van Nelle. But the shares are worried about the comments made about UK profits,'' said CSFB tobacco analyst Nyren Scott-Malden. UK profits were up three percent at 330 million pounds, but there was an underlying nine percent decline, after stripping out the effect of the surprise immediate implementation of a duty rise in the UK March budget. This allowed Imperial to sell stockpiled cigarettes with duty paid at old rates at the new increased prices. Davis said although the overall UK annual market had held steady at around 81 billion sticks, the duty-paid market dipped 10 percent to 65 billion from 71 billion and this decline was set to continue due to high British tobacco duty. ``It is difficult to see UK profits increasing in the future, as a 10 percent decline in the market and consumer downtrading is difficult to make up with productivity gains,'' he said. British policy is to increase duty on cigarettes by RPI inflation plus five percent each year, which has made a 20-pack of Imperial's B&H around two pounds more than across the Channel in France, encouraging an upsurge in smuggling, which is reckoned will lose the UK government 2.5 billion pounds in duty in 1999. Imperial's overseas profits have been driven by the Rizla cigarette papers acquisition in January 1997 and Dutch hand rolling tobacco company Van Nelle Tabak made in July 1998, giving strong Europe profits growth, while there was good growth from developing markets such as in Africa and the Middle East. It proposed a final dividend of 18.7 pence a share, making a full year payout to shareholders of 27.5p, up 18 percent. ($1 equals .6233 Pound)

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