BRITISH American Tobacco, the world's second-largest cigarette company, yesterday reported a 26% fall in full-year profits for 2003 and warned that growth this year would be hampered by the current strength of the pound against the US dollar.
Unveiling figures for the 12 months to December 31, BAT said total sales volumes rose by 2% to (pounds) 792bn driven by global brands Kent, Dunhill, Lucky Strike, and Pall Mall, which together grew sales by 13%. Pre-tax profits slipped to (pounds) 1.57bn from (pounds) 2.11bn in 2002, reflecting restructuring and job losses in Britain and Canada and losses on disposals including last year's withdrawal from Myanmar, formerly Burma.
However, operating profits at the tobacco giant rose 4% to (pounds) 2.78bn, after stripping out restructuring costs and losses on disposals.
Martin Broughton, the chairman who leaves this summer to take up the same post with British Airways, said: ''We expect the real momentum in our business to continue during 2004 although, at current exchange rates, the profit growth would be adversely affected when translated into sterling.''
Paul Rayner, the company's finance director, warned that, if the dollar fell 10%, as it did in 2003, it would wipe 5% off 2004 operating profit. Exchange rate movements only had a small impact last year, as other currencies made up for the damage.
BAT earnings were in line with City expectations, with continued sales pressure in the United States and the weaker US dollar offset by a share buyback programme. Meanwhile, BAT has continued to reshape its business by combining its US subsidiary Brown & Williamson with RJ Reynolds in a move designed to strengthen its American position and compete with world number one Philip Morris.
The process is undergoing regulatory approval with BAT expecting the transaction, which gives it a 42% stake, to be completed by around the middle of this year.
In Europe, total profit was down (pounds) 11m to (pounds) 536m despite the strengthening of the euro currency. Good performances from Eastern and Central Europe, led by Russia and Romania, were insufficient to cover lower profits from Western Europe, particularly in the fourth quarter, with France and Germany hardest hit.
Analysts at fund manager Gerrard said 2004 would be a better year for BAT, with an improving world economic outlook benefiting the group's presence in emerging markets, particularly in the Far East and Latin America.
The company is also striving to save (pounds) 200m a year in overheads and indirect costs by 2007 and said it had made a good start in 2003, saving around (pounds) 64m.
Under Paul Adams, who replaced Broughton as chief executive last month, BAT is working to reduce its costs to offset declining cigarette consumption as smokers in the US and Europe give up or cut down.
Last year's star performer was Pall Mall, which broke the 30 billion cigarette barrier for the first time, rising by 32% largely thanks to strong growth in Italy. Of BAT's other big brands, Kent's volume reached almost 30 billion, improving 14%, while Dunhill climbed 8% and is already over the key 30 billion mark.
Shareholders will get a total dividend for 2003 of 38.8p a share, up from 35.2p last year.
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