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BAT Profits Up 20 Percent

LONDON -- British American Tobacco, the world's second-largest cigarette maker, posted a 20 percent increase in third-quarter profits, although it said it continued to be affected by the weakness of the dollar, reported the London-based The Guardian.

The maker of Lucky Strike, Kent, Dunhill and Pall Mall cigarettes reported pre-tax profits of £1.54bn (U.S. $2.83 billion) for the first nine months of the year, up from £1.29bn (U.S. $2.37 billion) in 2003. Although doing most of its business in dollars, it credited its brand range and geographic spread with helping to offset the strength of the pound.

BAT merged its U.S. subsidiary Brown & Williamson with R.J. Reynolds in July to create Reynolds American, helping drive group volume up 6 percent in the nine months to 618 billion cigarettes. Chairman Jan du Plessis said his company now had a 42 percent stake in a "much stronger and competitive business."

The group also gained from its acquisition of Italy's ETI last December and a good performance in all regions apart from America Pacific, where it was hit by tax hikes in the Canadian market. Tax increases in France and Germany also hit sales.

"We continue to see tough trading in Canada, France and Germany, but see positive trends in Russia, Italy and good signs from Reynolds American," a spokesman said.

The pre-tax figure was, however, boosted by fewer exceptional costs than last year. With exceptional items stripped out, underlying operating profit rose only 1 percent in the nine months, to £2.14bn (U.S. $3.93 billion), but would have risen 7 percent were it not for the effects of currency fluctuations.

"While the results for the nine months continue to be adversely affected by the strength of sterling, they do also demonstrate the real benefit that we derive from our balanced brand portfolio and the geographic spread of our businesses," said du Plessis, who succeeded Martin Broughton in July.

JP Morgan analyst Michael Smith, who has cut BAT forecasts by 6 percent this year, described the figures as a possible turning point, and said his only doubt was whether the dollar would weaken further, as 55 percent of the group's earnings are in dollars.
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