BAT Profit Gains 10% as Prices Offset Sliding Demand

Source from:  Bloomberg 02/26/2010

British American Tobacco Plc, Europe's second-largest cigarette maker, said full-year profit rose 10 percent after the maker of Lucky Strike and Kent brands increased prices to offset sliding demand. Net income climbed to 2.71 billion pounds ($4.16 billion) from 2.46 billion pounds a year earlier, the London-based company said today in a statement. That trailed the 2.95 billion-pound average estimate of six analysts surveyed by Bloomberg. Sales increased 17 percent to 14.2 billion pounds. BAT said it raised cigarette prices by an average of 8 percent in Europe, Asia, Africa and the Americas. Overall volume, excluding acquisitions, slid 3 percent last year as some customers turned to cheaper private labels, smoking rates in western Europe declined and Japanese and Russians bought fewer Kent cigarettes. "We're still confident of our ability to raise prices," said Michael Prideaux, director of corporate and regulatory affairs. "We think volume may well be down 2 percent this year. We expect to take share from our competitors." BAT dropped 2.3 percent to 2,179.5 pence in London trading, the steepest decline in three months. The shares have gained 8.1 percent this year, outperforming rivals such as Imperial Tobacco Group Plc, which has added 3.9 percent, and Philip Morris International Inc., which has risen about 2.6 percent. Kent BAT is joining competitors worldwide in lifting prices to boost sales, as rising unemployment cuts consumer budgets. Three of BAT's four so-called major global brands -- Kent, Lucky Strike, Dunhill and Pall Mall -- posted a volume gain that raised the average increase to 4 percent. "There's a remarkable brand loyalty," said Prideaux. "What consumers generally do is maybe trade down during the week, but smoke their favorite brand in the weekends." Volumes of Kent slid 4 percent last year, hit by Russia and Japan, which account for half of the brand's volume, Prideaux said. Swedish Match AB today said full-year net income rose 39 percent to 3.15 billion Swedish kronor ($436 million) as it sold more cans of snus, pasteurized tobacco that is placed under the upper lip. That beat the average 3.02 billion kronor estimate of 13 analysts surveyed by Bloomberg. Shares of the Stockholm-based company rose 1.4 percent to 163 kronor. Not Much Out There Following the 2008 purchases of Turkish cigarette maker Tekel and most of Skandinavisk Tobakskompagni A/S, BAT will continue to look for takeovers to help lift growth, Prideaux said, adding that there's "not much out there" to buy. BAT will also keep lowering costs, he said, to help boost profitability. "There are signs that the global economy is beginning to improve, although unemployment, which is an important influence on our business, may continue to rise in developed markets," BAT Chairman Richard Burrows said in the statement. Enditem