British American Tobacco's (BATS) oft-trumpeted exposure to developing markets couldn't prevent economic turmoil in southern europe from causing a 1.6 per cent contraction in cigarette volumes last year. In addition, the knock-on effect of exchange-rate turbulence kept a lid on reported revenues. However, the maker of the Kent and Dunhill brands used its pricing power and ability to find cost savings to offset this effect and keep profits and, more importantly, dividends growing at a decent rate.
Pricing power helped the tobacco giant grow profits ahead of revenues in key markets. For example, in eastern Europe, Middle East and Africa, revenue grew by 9 per cent to £4.35bn at constant currency rates, which translated into a 15 per cent hike in profits to £1.5bn. The improvement in margins was particularly notable in these results, with a combination of factory rationalisation and productivity savings helping to boost operating margins by 150 basis points to 37.3 per cent. Further savings are possible as a new operating model is rolled out over the next four years. There were also signs that the business is starting to diversify away from tobacco. In addition to the purchase of CN Creative, a specialist in non-tobacco nicotine products, the company created a board-level post to manage its "next generation" products.
Broker forecasts are under review, but prior to these results analysts at Investec were forecasting current year adjusted pre-tax profits of £6.3bn and EPS of 224p (from £5.97bn and 207p in 2012).
BRITISH AMERICAN TOBACCO (BATS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 3,438p | MARKET VALUE: | £66.4bn | |
| TOUCH: | 3,436p-3,438p | 12-MONTH HIGH: | 3,514p | LOW: 2,986p |
| DIVIDEND YIELD: | 3.9% | PE RATIO: | 17 | |
| NET ASSET VALUE: | 387p* | NET DEBT: | 109% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 12.1 | 3.68 | 123 | 84 |
| 2009 | 14.2 | 4.08 | 137 | 100 |
| 2010 | 14.9 | 4.39 | 145 | 114 |
| 2011 | 15.4 | 4.93 | 157 | 126 |
| 2012 | 15.2 | 5.65 | 198 | 135 |
| % change | -1 | +15 | +26 | +7 |
Ex-div: 13 Mar Payment: 8 May *Includes intangible assets of £11.7bn, or 606p a share | ||||
