30th Jul 2014 07:00
LONDON (Alliance News) - British American Tobacco PLC Wednesday reported lower profit and revenue for the first half of the year as it was hit hard by the comparative strength of sterling, although sales and profit rose at constant rates as volume declines moderated and it raised tobacco prices and further cut operating costs.
The company, one of the world's biggest tobacco companies, reported a pretax profit of GBP2.61 billion for the six months to June 30, down from GBP2.99 billion a year earlier, as revenue declined to GBP6.80 billion, from GBP7.57 billion.
However, revenue at constant exchange rates would have been up 3% at GBP7.78 billion, while operating profit would have risen to GBP2.84 billion, from GBP2.81 billion, at constant rates as cost cutting pushed up the operating margin by 30 basis points. However, the big sterling hit meant operating profit was actually GBP2.46 billion.
Chairman Richard Burrows said the company was still maintaining its positive outlook for the full year at constant rates.
"British American Tobacco performed well during the first half of the year but, as expected, results were affected by the strength of sterling. We are consistently increasing our market share, driven by the strong growth of our Global Drive Brands. Tight control of costs resulted in an improved operating margin. We remain confident of high single-digit earnings growth at constant rates of exchange, which we have said we will recognise with an increase in the dividend," he said in the company's earnings statement.
The company declared an interim dividend of 47.5 pence, up 6% from a year earlier.
The decline in the cigarette volumes that BAT sells has been moderating in recent quarters, and was down just 0.4% in the first half of 2014. Total tobacco volume, including cigarettes was down 0.5%. That compares with declines of 3.4% and 3.2%, respectively, in the first half of 2013.
It also compares with a 1.1% decline in total tobacco volume in the first quarter of 2014.
British American Tobacco has been reporting the same story for some time: steady profit growth as it focuses on driving growth of its most profitable brands in Asia and other emerging markets. BAT also is focused on reducing costs and increasing prices. Both efforts are aimed at offsetting continued declines in sales in most developed markets and in overall tobacco sales volumes.
It said it continued to increase market share in key markets, thanks to its so-called "global drive brands" which grew volume by 5.7%. Those brands comprise Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans. The global drive brands had grown volume by 6.3% during the first quarter of this year.
BAT also said it remains on track with the timing of planned price increases, with the rises set to be more weighted to the second half of the year compared with last year.
By Steve McGrath; [email protected]; @stevemcgrath1
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