Imperial Tobacco sent a defiant message to the government yesterday, saying that banning tobacco advertising would not kill the industry.

The government has pledged to stub out cigarette advertising bythe end of the year, but yesterday Imperial Tobacco's chief executive Gareth Davis said: "I think, with all the evidence we've seen around the world, the advertising ban has no effect on market size. In countries where there is an ad ban, the market has even grown." Imperial Tobacco, the world's fourth largest tobacco company, yesterday announced better than expected annual profits boosted by its recent acquisition of German rival Reemtsma. The company, which makes West, Davidoff, Lambert & Butler and Embassy cigarettes as well as Rizla papers, increased its hold on the market in the UK during the year . Its share of the market rose to 42.9% compared with 39.7% last year as a result of the takeover of UK distribution rights for Philip Morris's Marlboro brands and a clampdown on tobacco smuggling. The company also improved sales of its Richmond and Lambert & Butler brands, the latter being the subject of a hefty poster campaign. In October, however, a new law to ban tobacco adverts was flagged through by MPs. The tobacco advertising and promotion bill, was the brainchild of Liberal Democrat health spokesman Lord Clement-Jones but it was later adopted by the government. The bill received an unopposed third reading in late October. The government wants to ban cigarette advertising by the end of the year. Alongside the ban, the government is also adopting a get-tough attitude with the tobacco industry. Last week health secretary Alan Milburn stepped up the fight against smoking by announcing that graphic health warnings - possibly including pictures of diseased hearts, lungs and brains - will be put on cigarette packets. Mr Davis said yesterday that the price of cigarettes and high taxes imposed on the industry are a much more effective way of stopping people smoking than banning advertising. The German government is considering a 1euro per packet tax on cigarettes - increasing the price of an average packet by just under a third. While Imperial Tobacco is publicly unfazed by the proposal, analysts believe it will hit earnings. The company's share of the German cigarette market is already under pressure, slipping this year to 20% from 22% due to the increased attractiveness of private-label cigarette brands. Imperial Tobacco's position in the country was bolstered, however, by the acquisition of Reemtsma for 5.8bn euros in May. The deal catapulted the company into the number four spot globally, behind Philip Morris, British American Tobacco and Japan Tobacco. The acquisition also helped boost the company's profits. Yesterday Imperial Tobacco announced pre-tax profits before financial charges of £640m for the year to September 28, at the very top end of analysts' forecasts. "The Reemtsma acquisition will take some digesting, but we are very confident that we can win £170m of synergies, which we have targeted by the year to September 2004," said Mr Davis.

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