BAT - 2009 financial statement..

February 27, 2010 - The Latest financial results to 31 December 2009

British American Tobacco (BAT) boosted profits in 2009 despite cigarette smoking declining and the recession forcing people to trade down to cheaper brands or rely on smuggled or counterfeit products. 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. (Richard Burrows former Bank of Ireland governor to become chairman of BAT..)

Underlying volumes fell 3% as the recession forced consumers to cut spending, particularly in eastern Europe and Japan. But BAT increased revenue by 17% in very difficult times as a result of favourable exchange rate movements, good pricing momentum, volume from acquisitions made in the middle of 2008 (ST and Tekel) and the acquisition of acquisitions in Indonesia of Bentoel, June 2009 and increasing prices.

The four Global Drive Brands achieved good overall volume growth of 4 per cent. Dunhill was up 9 per cent, Lucky Strike 4 per cent and Pall Mall grew by 10 per cent, while Kent volumes fell 4 per cent.

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.

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 owns about 42 percent of Reynolds American Inc. stock.)

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.

Around the world, BAT saw variations in sales, with Russia particularly tough. BAT said tobacco industry declines in both Russia and Japan knocked sales volumes for its Kent brand by 4%. But Dunhill rose by 9% and Lucky Strike volumes were up 4% with growth in Germany, France, Italy and Chile, partially offset by declines in Spain, Japan and Argentina. Pall Mall saw the strongest growth, up 10%.

Good volume growth in Bangladesh, South Korea, Vietnam, Uzbekistan,
Nigeria, Egypt and the Gulf Cooperation Council (GCC) was more than offset by declines in Malaysia, Japan, Brazil, Mexico, Argentina, Venezuela, Italy, Russia, Ukraine, Romania.

Just over half of the growth was contributed by brand migrations. Although there was pressure on the premium segment, Dunhill grew market share in all its key markets, except in Taiwan, while Kent increased market share in its main markets, apart from Japan.

Kent volumes fell by 4 per cent mainly as a result of industry declines in Russia and Japan, its principal markets and despite a higher market share in Eastern Europe and an increased premium segment share in Russia. Volumes grew in Kazakhstan, Ukraine, Uzbekistan and Azerbaijan, while they were slightly down in Romania. Dunhill rose by 9 per cent, mostly driven by a brand migration in
Brazil, with growth in South Korea, the GCC, South Africa and Russia, partially offset by declines in Malaysia, Taiwan and Australia. Lucky Strike volumes were 4 per cent higher with growth in Germany, France, Italy and Chile, partially
offset by declines in Spain, Japan and Argentina, largely as a result of the industry volume decline. Market share grew well across all its key markets. Pall Mall volumes increased by 10 per cent with growth in Germany, Uzbekistan, Spain, Mexico, Chile and Turkey, partially offset by lower volumes in
Pakistan, Russia, Romania and Hungary.

Reference: BAT boosts profits despite recession British American Tobacco raises dividend by 20% as acquisitions and weak pound compensate for lower volumes globally, Richard Wachman,, 2/25/2010.