UPDATE 2-Essentra profit rises as cigarette filter sales grow

Thu Jul 31, 2014 5:51am EDT

* H1 pretax profit rises to 64.2 mln stg vs 60.3 mln stg

* H1 revenue increases to 431.1 mln stg vs 384.6 mln stg

* Filter products revenue up 9 pct

* Shares rise as much as 3.5 pct (Adds details, CEO comment, share price)

By Aashika Jain

July 31 (Reuters) - Essentra Plc, making a push into the growing e-cigarette business, reported a 6 percent rise in half-year pretax profit, driven by strong demand for more innovative filters.

The company's shares rose as much as 3.5 percent to rank among the top percentage gainers on the FTSE-250 Index.

The British company said sales from its filter products unit, the largest contributor to revenue, rose 9 percent on a like-for-like basis for the six months ended June 30.

"We can get close to 10 percent for the second half," Chief Executive Colin Day told Reuters in an interview.

Cigarette makers including British American Tobacco Plc , Imperial Tobacco Plc and Philip Morris International Inc have been grappling with declining sales as more people quit smoking.

But demand for Essentra's filters has not suffered, said Day. The company's laboratory in the northeastern English town of Jarrow has performed well, particularly in e-cigarettes.

U.S. sales of e-cigarettes are expected to outpace sales of tobacco cigarettes by 2020, in part because of the perception - not proven by long-term scientific evidence - that they are safer to smoke.

"There is quite a desire by the tobacco companies for innovation on the filter, and we have capitalised on that," Day said. "In the last two-three years, we have increased our margins in the filters business by about 300 to 400 percent."

Not all of this growth is from e-cigarettes. Margin growth has also been driven by the company's eastward expansion and some big contracts wins in Asia, said Day.

But it has helped. Essentra has started making non-smoke filters as it looks to tap the e-cigarette industry.

Filter products accounted for nearly a third of Essentra's first-half revenue. The company also makes a range of plastic and fibre products, from cartons to self-adhesive labels.

Though North America supplies about half of Essentra's revenue and Europe is its next biggest market, Essentra has been expanding elsewhere through acquisitions in Turkey, India and the United Arab Emirates.

The company said it expected a negative 7 percent impact from the strength of the pound against other currencies for the second half of the year. This would be similar to the first-half impact.

Adjusted pretax profit rose to 64.2 million pounds ($108.6 million) for the first half of 2014 from 60.3 million pounds a year earlier.

Revenue rose 12 percent to 431.1 million pounds.

Essentra's shares were flat at 773.5 pence on the London Stock Exchange at 0948 GMT. ($1 = 0.5912 British Pounds) (Editing by Robin Paxton)

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