UPDATE 2-Imperial Tobacco to launch e-cigarettes to counter falling sales

Tue Nov 5, 2013 8:52am EST

By Martinne Geller

LONDON Nov 5 (Reuters) - Imperial Tobacco Group said cost cuts and the launch of electronic cigarettes would help deliver "modest" growth for the new year as it posted slightly better than expected earnings.

Imperial, and its rivals such as Philip Morris International and British American Tobacco are grappling with declining sales in a number of markets due to increasing government regulation and more health-aware consumers, as well as smuggling and an economic downturn.

They are investing in electronic cigarettes, battery-powered metal tubes that turn nicotine-laced liquid into vapour, which are gaining popularity among those looking for smoking alternatives.

Imperial Chief Executive Alison Cooper said the "modest" growth for the fiscal year which began on Oct.1 was likely to come in lower than the 6 percent increase in adjusted earnings per share that Imperial generated in fiscal 2013.

"For our current year to September 2014, I am not assuming any improvement in the market environment, but clearly one can hope," she said.

Imperial, the world's No. 4 international tobacco company by market share, said it would launch two electronic cigarettes in fiscal 2014, without giving details.

It also plans to increase dividends ahead of adjusted earnings by at least 10 percent per year over the medium term, and said its cost-cutting programme was on track to yield savings of 300 million pounds per year from September 2018.

It said it expected savings of around 60 million pounds ($95.71 million) in 2014.

Shares in the company, known for its Davidoff and Gauloises Blondes cigarettes, were up 2 percent at 2357 pence at 1340 GMT, against a 0.6 percent decline in the FTSE 100 index.

"The actual quality of the results and (guidance on) how the business is going to be managed in 2014 ... is superior to people's expectations," said Chris Wickham, an analyst with Oriel Securities.

Imperial said its long-time chairman, Iain Napier, would resign following the firm's annual meeting in February. He will be replaced by Deputy Chairman Mark Williamson.

In fiscal 2013, earnings were 210.7 pence per share, ahead of analysts' expectations for 209.4 pence, according to a company-provided consensus.

Group revenue edged down to 28.27 billion pounds in 2013, from 28.57 billion in 2012.