British tobacco company Gallaher Group posted a 4 per cent rise in first-half profits and forecast an improving second half.

The company, whose cigarette brands include Benson & Hedges, Silk Cut and Mayfair in Britain, said its problem areas in Europe such as Austria, Spain and Poland should improve in the second half as competitive pressure eases and stability returns.

The world's fifth-largest cigarette group posted underlying pretax profits of £275 million (€404.8 million) for the first six months of 2006, in line with analyst forecasts of £271-£277 million. Its adjusted earnings per share increased 3.3 per cent to 30.1 pence.

The company did not break out first half 2006 figures for its Irish operation, which made profits before tax in 2005 of €9.7 million on sales of €677 million. It said that the group maintained its lead in the Irish market with a 21.6 per cent share, up from 20.6 per cent in the first half of last year.

"Looking ahead, those areas that showed profits down are now showing improvements and we expect to hit our expectations for the year," said chief executive Nigel Northridge in a conference call after the results.

He added a strong performance in Russia and its CITA Canary Islands acquisition in January were not enough to offset challenges elsewhere, and without cost savings it was difficult for Gallaher to get good earnings growth.

In Britain, which accounts for nearly half of group profits, earnings rose 1.4 per cent, and Gallaher said the cigarette market in Scotland dipped 3-4 per cent after a smoking ban in public places from March. It expected a similar one-off effect when bans are introduced in the rest of the UK during 2007. Gallaher's UK market share was stable at its 2005 rate of 38.6 per cent compared to Imperial's 45.2 per cent.

The group earns 70 per cent of its profits from the shrinking cigarette markets of Britain, Ireland, Austria and Sweden. - (Reuters)