Exchange rates hurt first half at British American Tobacco

The FTSE 100 firm said this was driven by a strong volume performance and good pricing.

Reported revenue was 4.2% higher than the same period last year, which BAT said reflected the continued adverse translational impact of exchange rates.

Group cigarette volume was 332 billion, an increase of 3.4% on the same period last year, or 2.1% on an organic basis.

British American Tobacco’s cigarette market share in its key markets continued to grow strongly, the board reported, up 30 basis points driven by the so-called ‘Global Drive Brands’ which increased volume by 10.8%.

Adjusted group profit from operations, at constant rates of exchange, was up 1.8% at £2.551bn.

Excluding the adverse transactional impact of foreign exchange, the increase would have been approximately 8%, the board said, but at current rates of exchange, adjusted profit from operations fell 2.2%.

Profit from operations, at current rates of exchange, was 5.7% lower at £2.213bn.

The company’s underlying operating margin fell 170 bps, and excluding the adverse transactional impact of foreign exchange, BAT said it would have increased by around 50 bps.

On a reported basis, operating margin fell 240 bps to 36.8%.

Adjusted diluted earnings per share, at constant rates of exchange, were up 13.4%, while at current rates, they were 10.9% higher at 111.1p.

Basic earnings per share were 1.0% higher at 143.8p, benefiting from the acquisition of Lorillard by BAT’s associate Reynolds American in 2015, and one-off gains as a result of RAI's sale of the international brand rights of Natural American Spirit.

British American’s ‘Next Generation Products’ portfolio continues to develop with Vype electronic cigarettes said to be performing well and now available in six markets.

The company’s first tobacco heating product iFuse is performing ahead of expectations in Romania, the board said, and its portfolio has been further strengthened by the acquisition of Ten Motives in April 2016.

BAT’s board declared an interim dividend of 51.3p, being one third of the 2015 dividend and a 4% increase on last year, to be paid on 28 September 2016.

“The business has delivered strong organic growth in the first six months of the year,” said British American Tobacco chairman Richard Burrows.

“This is despite the significant adverse transactional impact of foreign exchange and the continued investment in our long-term future via our Next Generation Products portfolio.

“With profit growth weighted to the second half of the year, we remain confident that we will deliver another year of good earnings growth at constant rates of exchange,” Burrows added.