British American Tobacco Profits Grow On Higher Pricing
Last week, British American Tobacco reported the company’s results for nine months to September 30th, posting 7 percent growth at constant exchange rates and on organic basis, due to high pricing, even despite volumes went down and economic conditions remained challenging. Nicandro Durante, BAT Chief Executive declared the tobacco giant eyes another year of profits growth.
According to Durante, whereas the challenging market conditions continued to affect smokers in many markets, other markets are demonstrating growth. Price increases driven by excise tax growth will continue to impact on tobacco industry volumes, yet, the company managed to achieve strong performance with Global Drive Brands and reached solid growth in profits.
BAT released an interim management statement for three quarters, saying that it managed to increase overall market share in the main 40 markets thanks to continued growth of market share of its key brands.
In the meantime, shipment volumes generated by subsidiaries went down 0.6 percent reaching 523 billion down from 526 billion last year. Organic volumes fell 0.4 percent.
The company CEO said the benefit from increased sales in Japan was offset by drop in industry volume resulted from considerable excise-driven price hikes that hit Japanese tobacco market last year.
Cigarette shipment volumes in Asia-Pacific region were flat, equaling 141 billion during the nine-month period, whereas volume in American region went down to 105 billion from the 110 billion, reported last year. Western Europe region’s volume dropped to 100 billion from 101 billion shown previous year, and volume in EEMEA region (Eastern Europe, Middle East, Africa) went up to 177 billion from 174 billion a year ago.
The volume of the company’s Global Drive Brand added 8 percent during the nine months to September 30th. Kent’s volume grew 9 percent with market share boost in all of its major ten markets. Dunhill went up slightly since solid performances in several markets were offset by the negative effect of pricing policy in South Korea. Pall Mall volumes posted 12 percent growth thanks to great performances in Russia, Romania, Pakistan and Germany and finally, Lucky Strike showed 9 percent growth following strong increase in Germany, Argentina, France, and Chile.
As regards the present trading, British American Tobacco mentioned that the business environment is challenging due to the recent economic climate fluctuations although there are several signs that the effect on sales volume is moderating.
“Nevertheless, the growth of illegal trade remains a significant threat, resulting from shock excise tax hikes and pressure on smokers’ disposable income,” said the company. In addition, several currencies lost their positions against sterling in the third quarter.
The company also noted that it is working to improve its operating margin by balancing the cost base by means of factory rationalization, systems standardization and productivity improvement.
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