British American Tobacco Profit Boosted by Weak PoundMarcus Leroux

Source from:  The Times 02/27/2009

Recession-resilient smokers boosted profit at British American Tobacco, the London cigarette maker reported yesterday. Profit before tax rose 20 per cent to ￡3.7 billion, boosted by acquisitions in Scandinavia and Turkey and the weak pound, which inflated earnings from overseas. But the company warned that it remains on its guard against smokers switching to cheaper brands or contraband cigarettes. Even allowing for the favourable currency movements and the acquisitions of Tekel and Skandinavisk Tobakskompagni, revenue increased by 7 per cent, with the volume of cigarettes sold rising by 1 per cent in 2008. Paul Adams, the chief executive, said: "We have gone back and looked at what happened to our brands in previous recessions, such as the rouble crisis and the Asian crisis. "Smokers continue to keep smoking. That's not to say volumes are flat - they are falling by around 1 per cent per annum and that historic trend continues. "They will first change where they shop, rather than what they smoke. They will go to value outlets but still buy the same brand. Then, as the economic squeeze tightens they may trade down slightly and buy cheaper cigarettes. But it's only when unemployment really spikes that you get real down-trading. We're well placed." Mr Adams said that BAT's brands were evenly spread between premium, mid-market and value cigarettes. Latin America, Canada and Japan saw declines in volumes, driven by health concerns and public smoking restrictions. He worried about any sharp rises in taxation, saying: "I recognise the point that governments around the world are feeling the squeeze and may well look to increase taxes or excise rates. What has always presented a problem is if there's a sudden and dramatic increase in excise because that has the danger of increasing illegal trade and contraband." BAT's main brands increased revenues by 16 per cent. Kent, its biggest brand, reported its sixth consecutive year of double-digit growth, increasing volume sales by 18 per cent. About 63 billion Kent cigarettes were sold, while Lucky Strike volumes grew by 9 per cent. Pall Mall, its cheaper range, rose 22 per cent. But the company suspended a share buyback to conserve cash. Ben Stevens, the finance officer, said: "We spent ￡2 billion in acquisitions in 2008, so it's probably prudent". BAT is the world's second-largest cigarette maker after Altria, home of Marlboro. Yesterday's results were its tenth since it disposed of British American Financial Services, which included Eagle Star. It subsequently bought Rothmans International for ￡5.1 billion, vaulting it on to the world stage. Shares in BAT, which is one of the ten largest companies in the FTSE 100, rose 3 per cent to ￡17.65. However, analysts said that foreign exchange volatility may cause trading concern. Jonathan Leinster, at UBS, said: "The earnings outlook is less certain than in previous years as recent currency volatility means that the industry may well have to pass on significant price increases, in local currency terms, in certain markets". Rogerio Fujimori, at Credit Suisse, said: "On balance, this a strong finish to a vintage year for BAT". Enditem