South Africa: British American Tobacco Lifts Profit

Source from:  AllAfrica.com 07/30/2010

Johannesburg - BRITISH American Tobacco increased the profit on its South African operations in the six months to June, even as it suffered a "significant" decline in cigarettes sold as illegal imports surged, the group said yesterday. London- and Johannesburg- listed British American Tobacco , which has a 90% share of SA's cigarette market, said profit rose due to "increased pricing, cost-cutting and the rand's strengthening against the pound over the period". It did not quantify the increase in profit for SA, which analysts estimate accounts for 7%- 10% of group profit. While issues like unemployment do influence sales, cigarettes are less hostage to the prevailing economic climate, with the results showing the profitable nature of an industry that sells an addictive product.' "Normal economic cycles would not cause a shock of significant declines in volume. That just doesn't happen in a smoking market," Mark Ansley, a portfolio manager at Cadiz Asset Management, said. Cut-price illegal cigarettes are a different matter, however. The volume of illegal cigarettes sold in SA has grown from a negligible level in the mid-1990s to 5,5-billion sticks, or 20% of the 27,5- billion sold in SA each year, according to Cape Town-based Tobacco Institute of SA. An illegally imported packet sells for about half the R25 average price of a legitimate packet. Despite fewer smokers in developed markets, the rising number in emerging markets had meant net growth at an annual rate of between 0,5% and 1% over the past five years, Simon Raubenheimer, a portfolio manager at Allan Gray, said. Enditem