British American Tobacco intends to gain good earnings growth this year contrary to the strong pound holding back its performance at the half-year after the tobacco company gained from price increases and strong developing markets.
The world’s No.2 cigarette maker, which produces Kent, Dunhill, Lucky Strike and Pall Mall cigarettes, reported that earnings increased 7 % in the first half and analysts expects a similar increase for the full year with sterling’s strength still dampening growth.
Chairman Richard Burrows said that in spite of indeterminacy of global economic, particularly in southern Europe, and the negative translation influence of the strong pound on earnings, the company had performed well.
Burrows said that the basic business continues to perform well and the company is sure in another year of good earnings growth.
BAT experienced pressure in the southern European markets of Spain, Italy and Greece where tobacco market volumes were dropped by nearly 10p %, but succeeded in still fast-growing developing markets such as Russia, Vietnam, Pakistan and Nigeria.
Last year the tobacco company made 705bn cigarettes. BAT is the most worldwide spread of the big tobacco companies with over 60 % of earnings coming from developing markets, which have helped to compensate heavy conditions elsewhere with smoking levels reducing in Western Europe and North America.
Whole half-year volumes were 344bn cigarettes at the time when price hikes increased its basic sales by 4 %, and the company sees more price increases in the second half.
BAT shares decreased by 1.3 % to £32.64 by 0800 GMT after a strong run since May as its defensive qualities were emphasized by analysts in the global market indeterminacy.
In accordance with a company-compiled study of analysts, the tobacco group put its 7% increase in half-year adjusted diluted profits per share to 102.4p, along with a consensus forecast of 102.5p.
The half-year dividend, set at one third of 2011’s full year level, increased 11% to 42.2p a share.
BAT increased its 2012 share buyback by two-thirds to £1.25bn in February confident of its growth prospects and that it still had adequate firepower for purchase.
BAT’s competitor Imperial Tobacco said that price increases compensated volume declines as it raised its earnings by 3% in the nine-month to end-June after it suffered in recession-hit Spain as well as Ukraine and Poland.