On the same day that Royal Bank of Scotland announced the biggest loss in UK corporate history, British American Tobacco revealed that its own adjusted profit before tax - before the impact of positive foreign exchange profits and the contribution from acquisitions - had grown by 10 per cent in 2008.
And as companies across the FTSE slash dividends, BAT was able to boost its own payment by more than a quarter, which means it now pays out 65 per cent of earnings, up from 61 per cent. Chief executive Paul Adams offered encouragement on the outlook too stressing that it's business as usual. “Overall volumes are holding up. Down-trading is continuing in western Europe and the US, meanwhile up-trading is continuing in places like Russia,” he said.
Management are wary, however, recognising that a meaningful spike in unemployment could cause smokers to 'down-trade' or buy cheaper brands. And the tobacco industry is still a likely target for increases in excise taxes, to account for any recession-induced shortfall in taxation receipts elsewhere.
Mr Adams countered this view, suggesting that the company is used to handling hikes in excise tax, although added the caveat that “what would be damaging is a sudden and dramatic increase in excise tax, which would lead to higher sales of contraband.”
Net debt was significantly higher at £9.9bn, up from £5.6bn at the end of 2007. Around £2bn of the increase was the result of acquisitions of Tekel and ST. And because BAT generates a very small proportion of its income in the UK, and therefore has little sterling denominated debt, £2.6bn of the increase came from foreign exchange translation. The group’s financial position is still strong, however, with an average life of the debt portfolio of five and a half years.
Broker Investec expects pre-tax profits of £4.0bn and EPS of 152p in 2009, with management indicating that it is enjoying a foreign exchange “tailwind” in the current financial year.
| BRITISH AMERICAN TOBACCO (BATS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,748p | MARKET VALUE: | £34.9bn | |
| TOUCH: | 1,747-1,748p | 12-MONTH HIGH: | 2,043p | LOW: 1,350p |
| DIVIDEND YIELD: | 4.8% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 311p* | NET DEBT: | 137% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2004 | 10.8 | 3.63 | 133 | 41.9 |
| 2005 | 9.3 | 2.58 | 84 | 47.0 |
| 2006 | 9.8 | 2.76 | 92 | 55.9 |
| 2007 | 10.0 | 3.08 | 105 | 66.2 |
| 2008 | 12.1 | 3.68 | 123 | 83.7 |
| % change | +21 | +20 | +17 | +26 |
Ex-div: 11 Mar Payment: 6 May *Includes intangible assets £12.3bn, or 617p a share | ||||
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