UPDATE: BAT Results Beat Hopes, Forecasts Strong Year

28th Jul 2010 08:36

(Adds comment from management) By Michael Carolan Of DOW JONES NEWSWIRES LONDON (Dow Jones)--British American Tobacco PLC (BATS.LN), the world's second biggest-tobacco group by sales, Wednesday beat expectations with its first-half results and forecast another year of good growth in both profit and dividends despite expecting a tougher second half. The company, which competes with the likes of larger rival Philip Morris Inc. (PM) and smaller London-based rival Imperial Tobacco Group PLC (IMT.LN), said it was able to raise some prices and had increased market share in key markets, helping to offset problems like a growing illicit trade in tobacco in some countries because governments had raised tobacco duties too much. "While the comparisons with 2009 will become tougher in the second half, shareholders should see another year of good growth in both earnings and dividends," Chairman Richard Burrows in a statement. "We get the feeling we're coming out of the recession stronger than we went into it," said director of corporate and regulatory affairs Michhael Prideaux in an interview with Dow Jones Newswires. London-based BAT, the maker of cigarette brands such as Dunhill, Kent, Lucky Strike and Pall Mall, said net profit rose to GBP1.53 billion in the six months to June 30, from GBP1.45 billion a year earlier as sales increased to GBP7.3 billion from GBP6.78 billion. Earnings per share were 87.1 pence, up from 77.3 pence and ahead of market expectations. Striping out acquisitions, volumes for the half were down 3%, compared with a 4% fall in the first quarter and a 2.4% drop in the last three months of the previous year. Prideaux said volumes were down just 1.9% in the second quarter and would be down less than 2% in the second half. The volume drop compares favorably with Imperial Tobacco, which last week disappointed the market with a 4.3% decline in volumes in its latest quarter. Prideaux criticized some governments for raising tobacco duties too much, leading to an increase in illicit trade in countries including Romania, Turkey, Japan and Pakistan. This was hitting volumes of low-price cigarettes, he said, although overall volumes of premium and mainstream brands were holding up well. Overall volumes would have grown if it wasn't for the growth in illicit cigarette trade in the affected countries, he said. Tobacco firms are usually able to raise prices to offset any volume declines. Price rises are often pushed through at the same time as duty increases--of which there have been plenty in recent months as governments try to reduce budget deficits. "Where governments overcook the duty increase, you tend to get illicit trade problems," Prideaux said. The executive said the second half of the year would be a little more difficult for the company because comparative results were boosted by price increases and the acquisition of PT Bentoel in Indonesia, while a strong benefit from currency rates is also expected to abate. The company's proven ability to grow profit and sales despite falling volumes has resulted in a 25% rise in the company's share price over the last year. However, at 0730 GMT, the stock was down 27 pence, or 1.2% at 2232 pence. Chief Executive Paul Adams is retiring in February next year and will be replaced by Chief Operating Officer Nicandro Durante. The 53-year-old Italian joined BAT in 1981 and has held senior roles in Africa and Middle East, Brazil, the U.K. and Hong Kong. -By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; [email protected] (END) Dow Jones Newswires July 28, 2010 03:36 ET (07:36 GMT)