UPDATE 1-Imperial Tobacco to develop e-cigarettes as profits drop
* Sets up Fontem Ventures, may make acquisitions
* FY EPS growth to be at lower end of range
* H1 earnings fall 3.1 percent, hit by Europe, Russia
LONDON, April 30 (Reuters) - Imperial Tobacco, the world's fourth-largest cigarette group by market share, said it had set up a venture to develop electronic cigarettes, as it battles an increasingly tough consumer environment in Europe.
The maker of Davidoff and Gauloises cigarettes said Fontem Ventures would look into areas such as e-vapour cigarettes.
"We're looking at opportunities and we're actively developing in that area at the moment," Chief Executive Alison Cooper said on Tuesday, adding that the company would be "open-minded" to making acquisitions.
Electronic cigarettes - battery-powered metal tubes that turn nicotine-laced liquid into vapour - are gaining popularity among smokers trying to quit. Rival British American Tobacco set up Nicoventures, in 2011 to develop such products.
Imperial has been combating falling smoker numbers in developed countries and rising black market trade in countries such as Spain and France by raising prices, cutting costs and focusing on emerging markets including Turkey and Saudi Arabia.
The company said full-year earnings per share growth would be at the lower end of its 4-8 percent target range due to such challenges. Analysts had been expecting Imperial to post a 5.6 percent rise, Reuters data showed.
Adjusted earnings fell 3.1 percent to 90.2 pence a share for the six months to the end of March, hit also by tax changes in Russia and investments in the United States which masked profit growth in Britain and Germany, the company said.
Analysts expected it to report 90.3 pence a share, Reuters data showed. Its tobacco net revenues over the period fell 2 percent, with overall stick equivalent volumes - cigarettes and fine cut tobacco - down by 5.9 percent.
British lawmakers are also threatening to ban distinguishing branding from cigarette packaging, a move already implemented in Australia. Cooper said that Imperial had not seen any significant impact on its consumption levels in Australia and believed it was well-equipped to handle such changes in Britain.
The Bristol-based company also increased its half-year dividend by 11 percent to 35.2 pence per share.
By 0807 GMT, Imperial shares rose 0.4 percent to 2307 pence.