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BAT profits plummet as tobacco giant suffers £957m from exit from Russia

British American Tobacco’s profits plummet 25% after the owner of Lucky Strike suffered £957m from its exit from Russia

  • Half-year profit from operations at cigarette maker Dunhill fell to £3.68 billion
  • Earnings were also impacted by the company’s Quantum restructuring program
  • BAT’s revenue from its non-combustible brands rose 45.4% to £1.28 billion

British American Tobacco’s profits fell by a quarter after the decision to exit the Russian market.

The Lucky Strike owner fell to £3.68 billion in operating profit for the first six months of the year, even as overall sales rose 45 per cent thanks to strong demand for non-combustible products.

The decline in profit was mainly due to £957m of impairments from the proposed transfer of BAT’s business in Russia, where it had controlled around 25 per cent of the local tobacco market.

Decline: Cigarette maker Lucky Strike’s operating profits fell to £3.68 billion in the first six months of the year, even as total revenue rose 45 per cent

A further £450m charge arose in connection with investigations by the US Department of Justice and the US Treasury’s Office of Foreign Assets Control into the alleged sanctions breach.

Results were also impacted by BAT’s Quantum restructuring program, which included exiting the Egyptian market and the planned closure of a factory in Singapore.

However, the FTSE 100 company said Quantum had achieved annual savings of £1.5 billion six months ahead of schedule, with further savings expected through the end of 2022.

BAT continues to expect sales growth of 2-4 per cent for the full year and is confident of achieving its target of turning a profit by 2025, generating £5bn from its ‘new category’ portfolio.

Chief Executive Jack Bowles said: “We are of course not immune to the mounting macroeconomic pressures exacerbated by the conflict in Ukraine.

‘However, we are well positioned to navigate the current turbulent environment due to our strong brands, operational agility and continued strong cash generation.’

Demand: Over 20 million people now use at least one of British American Tobacco's non-combustible brands, which now accounts for 14.6 percent of total sales

Demand: Over 20 million people now use at least one of British American Tobacco’s non-combustible brands, which now accounts for 14.6 percent of total sales

In the first half of this year, the group’s sales of its three non-combustible brands, Velo, Vuse and Glo, rose 45.4 percent to £1.28 billion.

Vuse saw the biggest increase in sales, up 55.2 percent to £617 million, as massive demand for its Alto e-cigarette helped the brand become the market leader in 34 US states.

Alongside this, BAT achieved 38.6 percent sales growth in heated tobacco products based on a much higher sales and volume share in Europe and the increasing popularity of Glo Hyper devices.

Over 20 million people now use at least one of the company’s non-combustible brands, which now account for 14.6 per cent of its total revenue, although BAT said it is still making £222m losses from the segment.

In the second half of 2022, the company expands the range with the launch of Glo Hyper X2 and expands its Vuse Go platform to additional markets following a trial in the UK.

However, as BAT seeks to increase its trade share from new categories, Bowles said the company sees “no acceleration in downtrading” of its combustible products.

Sales of traditional cigarette brands, which include Dunhill, Rothmans and Pall Mall, rose by around 250 million in the US and Turkey on higher prices.

Steve Clayton, fund manager at Hargreaves Lansdown, said: “Tobacco will always be a controversial industry but BAT is making tangible progress towards a future where its products are less harmful.

‘In the meantime, the Group’s ability to generate reliable cash flows and dividends remains unhindered and the elimination of debt improves the Group’s financial attractiveness.’

British American Tobacco shares are up 0.4 per cent to 3,485.5 pence late Wednesday morning, meaning their value is up over 25 per cent over the past year.

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BAT profits plummet as tobacco giant suffers £957m from exit from Russia

Source link BAT profits plummet as tobacco giant suffers £957m from exit from Russia

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