BAT boosts profits despite recession
Categories:
· Business
International:
· Worldwide
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Source:http://www.guardian.co.uk/,2010-03-18
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British American Tobacco boosted profits last year despite cigarette smoking declining and the recession forcing people to trade down to cheaper brands or rely on smuggled or counterfeit products.
The multinational, which is the world's second-largest tobacco firm after Philip Morris, is rewarding shareholders with a bumper dividend, up nearly 20%, after last year's numbers were lifted by acquisitions and a weaker pound – allowing it to make more money overseas.
Richard Burrows, who took over as chairman from Jan du Plessis at the end of 2009, said there were signs that the global economy was beginning to improve but warned that unemployment may continue to rise in developed markets.
Underlying volumes fell 3% as the recession forced consumers to cut spending, particularly in eastern Europe and Japan. But BAT increased revenue by 17% following acquisitions in Indonesia, Turkey and Scandinavia and by increasing prices.
BAT's main premium brands – Dunhill, Pall Mall and Lucky Strike – increased their market share but Kent fell 4% because of weak trading in Russia.
The tobacco industry has proved relatively resilient to the recession, with strong pricing power and a wide range of brands that appeal to smokers in developing countries, where western cigarettes are viewed as trophy products. But the global picture is one of overall decline, with volumes falling annually by about 2% as people give up for health reasons or because cigarettes have become too expensive as governments in western countries increase excise duties.
In the City, there has been speculation that BAT could bid for its US rival Reynolds but these stories were dismissed as "rumour" by the company yesterday.
BAT did well in the Americas, where profit rose by £134m, mainly due to a strong performance in Brazil, an improved product mix and exchange rate benefits. But volumes were down 6%, illustrating how the company is having to work harder to deliver improved earnings. In 2008, it closed a factory in Denmark in an efficiency drive that is saving £250m a year.
Last year there was controversy over Burrows' appointment after he resigned under a cloud at Bank of Ireland, where he was governor. He presided over mounting losses and a government bailout and was forced to apologise to shareholders.
Guy Jubb, head of corporate governance at Standard Life Investments, said then: "When stewardship is in sharp focus, it is questionable whether this appointment will enjoy unanimous support."
But others were prepared to give him the benefit of the doubt after successful stints at Pernod Ricard and Irish Distillers, where he is credited with turning Jameson whiskey into an international brand.
Philip Morris International unveiled a joint venture today in the Philippines that will see it team up with Fortune Tobacco, a domestic cigarette maker owned by the business tycoon Lucio Tan, to create a company that would control 90% of the local cigarette market. |
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