26th Feb 2015 13:29
LONDON (Alliance News) - British American Tobacco PLC Thursday reported a drop in 2014 profit and revenue, hit by the strength of the pound, although revenue increased at constant exchange rates thanks as price rises and market share gains offset a fall in volumes.
The company said the market as a whole is experiencing volume declines and tough competition, and although it is doing better than the market, it expects the trading environment to remain difficult in 2015.
"Foreign exchange headwinds will continue to have a significant impact on both a transactional and translational level," said Chief Executive Nicandro Durante in the company's statement.
The tobacco giant reported a pretax profit of GBP4.85 billion for 2014, down 16% from GBP5.80 billion in 2013, after the group said it was hit by a non-tobacco litigation charge and adverse exchange rate movements.
Its closely-watched adjusted group profit from operations, which strips out items including restructuring costs, would have increased by 4.4% if exchange rates had stayed the same but decreased by 7.2% at actual rates. Revenue grew 2.8% at constant exchange rates to GBP15.68 billion, but was down 8.4% at actual rates due to the strength of sterling.
"The group continued to perform extremely well despite challenging trading conditions. We grew revenue and profit at constant rates of exchange and we increased our market share. Although significant exchange rate movements in many of our key currencies impacted our reported results, the underlying performance of our business remains strong," said Chairman Richard Burrows in a statement.
British American Tobacco said its own group cigarette volume fell 1.4% to 667 billion, but was better than the overall industry decline, estimated at 2.5%. Total tobacco volume was 1.3% lower, supported by market share gains in its key markets driven by its so-called "global drive brands" include Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans. Together they delivered growth in cigarette volume of 5.8%, driven primarily by its Dunhill brand, as well as Rothmans and Pall Mall.
The group said an industry-wide decline drove lower volume in Russia, Vietnam, Brazil, Denmark and Poland, but the volume weakness was partially offset by higher volume in Bangladesh, Iran, Venezuela, Turkey, Ukraine and Pakistan.
"We maintained good pricing, despite an increase in competitive pricing activity in some key markets. We also achieved another good improvement in operating margin (over 50 basis points) - an excellent result given that we absorbed significant transactional costs caused by currency movements," the company said.
The group declared a 4% increase in its total dividend per share for the year to 148.1 pence. Basic earnings per share were down 18.6% at 167.1 pence, from 205.4 pence last year.
"The increase in our total dividend for 2014 to 148.1p reflects our commitment to growing shareholder returns as well as our confidence in the strength of our business, our strategy and our future," said Burrows.
The group continues to invest in its key markets, building a pipeline of so-called "next-generation" products. The group launched its e-cigarette brand, Vype, in the UK last year, and is progressing towards the launch of Voke, a medicinal nicotine product, which was granted a UK medicines licence last year.
"We plan to begin consumer trials of a tobacco heating product by the end of 2015 and have our first product in a test market in 2016," the company said.
The company's heated products contain tobacco just like conventional cigarettes, but instead of being burned the tobacco is heated to vaporise the nicotine and some tobacco flavouring compounds into an aerosol that can be inhaled. This creates fewer smoke toxicants than conventional cigarettes, BAT says.
On Monday, British American Tobacco announced that it was evaluating a possible public tender offer to acquire the remaining 24.7% stake in Brazil's Souza Cruz SA that it does not already own, and then delist the company from the São Paulo Stock Exchange.
"This investment would further strengthen our presence in Brazil, a key strategic market where we are already market leader. It would also provide opportunities to leverage Souza Cruz's capabilities in areas such as leaf and closer cooperation in research and development, while further integrating the business into our Americas region," said Durante in Thursday's statement.
British American Tobacco shares were up 1.2% at 3,774.72 pence Thursday early afternoon.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
British American Tobacco