BAT Targets Further £800 Million in Savings

Source from:  tr.itsmyiq.com May 2, 2008 05/04/2008

British American Tobacco's revenue was up by three per cent and each of its regions delivered profit growth, raising overall operating profit, before exceptionals, by 11 per cent to £2.9 billion and adjusted diluted earnings per share by 11 per cent to 108.5 pence, chairman, Jan du Plessis, told the company's annual general meeting on Wednesday. Although overall volumes were down slightly, he said, volume sales of the company's premium brands grew, with the global drive brands, Dunhill, Kent, Lucky Strike and Pall Mall, collectively growing by 10 per cent. "Both Kent and Pall Mall broke through the 50 billion volume mark," he added. "Kent again raced ahead, growing by 19 per cent to become our best-seller at 54 billion, while Pall Mall rose 10 per cent to 51 billion. Dunhill was up 6 per cent at 35 billion and Lucky Strike achieved a second year of growth to reach 23 billion. "Our global drive brands have doubled their volume since 1999 and now account for 24 per cent of our volume worldwide." Turning to non-organic growth, du Plessis said that five years after BAT's previous major acquisition, ETI, the company had been able to announce in February "two significant transactions at sensible prices that offer prospects for attractive financial returns". "We have agreed to acquire the cigarette and certain snus and roll-your-own businesses of Skandinavisk Tobakskompagni, in exchange for our current 32 per cent stake in the company and £1.1 billion in cash," du Plessis added. "By turning our shareholding in a diversified group into full control of a very profitable tobacco business, we believe we will greatly strengthen our position in the Nordic countries. Subject, of course, to regulatory approvals, the deal brings us cigarette volumes of 30 billion across Poland, Denmark, Norway and Sweden, the premium brand Prince and roll-your-own tobacco sales across Europe. It also brings into the Group the smokeless snus business, Fiedler & Lundgren, who already manufacture snus for us and have an annual volume of 16 million tins. "We also made the winning bid of £860 million when the Turkish government auctioned the cigarette assets of Tekel, its state tobacco business. This will transform our position in the world's eighth largest cigarette market, boosting our market share in Turkey five-fold to 36 per cent and giving us a stronger platform to grow our international brands." Last year BAT completed its initial five-year productivity program, which is focused on reducing costs and complexity and making savings in the supply chain. During the five years, du Plessis reported, the company had removed or relocated more than 400 billion sticks of manufacturing capacity, equivalent to over half its annual production volume. "For overheads and indirects, our initial target was to save £200 million, but as we continued to make inroads we doubled this target to £400 million," he said. "We have actually saved £455 million in overheads and indirects and over £550 million in supply chain costs." BAT has now set a new target of saving a further £800 million during the next five years. Enditem