August 12, 2008 / 12:16 PM / 10 years ago

Rothmans reports loss after smuggling settlement

TORONTO (Reuters) - Rothmans Inc ROC.TO, which is being bought by Philip Morris International Inc (PM.N), reported a first-quarter loss on Tuesday, hurt by expenses after it admitted to helping tobacco smuggling.

Canada’s No. 2 cigarette maker said it lost C$354.4 million ($334 million), or C$5.20 a share, compared with a profit of C$33.8 million, or 49 Canadian cents a share, a year earlier.

Rothmans said its profit was hit by expenses relating to a settlement involving its unit Rothmans Benson & Hedges Inc, which in late July admitted to aiding the contraband tobacco trade.

The police investigation relates to the years 1989 through 1996, the company said, when tobacco was exported from Canada to the United States and then smuggled back into the country to avoid high taxes.

Under terms of the settlement, Rothmans said it will pay a total of C$550 million this year and over the next 10 years.

Imperial Tobacco Canada Ltd. — a unit of British American Tobacco (BATS.L) also admitted it aided the contraband tobacco trade. Together, the fines and settlement costs totaled more than C$1 billion.

Rothmans said it logged an expense of C$415 million in the quarter to recognize the settlement.

As well, the Rothmans Benson & Hedges said it has logged a related expense of C$9.7 million.

Rothmans said adjusted operating earnings were C$35.4 million, or 52 Canadian cents a share in the quarter.

Analysts had expected average earnings of 51 Canadian cents a share before exceptions, according to Reuters Estimates.

Rothmans, known for its Craven A, Rothmans, and Benson & Hedges brands, said revenue slid to C$178.7 million from C$180.1 million.

The company also said it was suspending its quarterly dividend, which is usually paid in September.

Toronto-based Rothmans is Canada’s only publicly traded cigarette maker. In the C$2 billion transaction with Philip Morris, announced the same day as the smuggling news, the U.S.-based company will buy the 60 percent of Rothmans it does not already own.

The company said it believes the illegal trade in contraband tobacco will remain a key factor affecting both Rothmans Benson & Hedges Inc and total industry volumes.

Availability of smuggled cigarettes in Canada, due to high tobacco taxes, may hurt sales volumes, it said.

Shares of Rothmans were up 2 Canadian cents, or 0.1 percent, at C$29.85 on the Toronto Stock Exchange at midday.

($1=$1.06 Canadian)

Reporting by Jennifer Kwan; editing by Rob Wilson

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