BAT Operating Profit Rise on Cigarette Prices

British American Tobacco Plc (BATS), Europe’s largest cigarette maker, said it expects to reach a profitability goal a year earlier than forecast and aims to expand margins by as much as 1 percentage point each year.

BAT is “confident” its operating margin will exceed 35 percent in 2011, Chief Financial Officer Ben Stevens said on a call with analysts. The company intends to expand its margin by 0.5 percentage point to 1 percentage point each year, he said. The margin was 33.5 percent last year.

BAT said adjusted profit from operations rose to 2.76 billion pounds ($4.5 billion) in the first half from 2.46 billion pounds a year earlier. That beat the 2.67 billion-pound median estimate of three analysts surveyed by Bloomberg. Sales increased 2 percent to 7.44 billion pounds.

The maker of Lucky Strike and Pall Mall cigarettes has increased prices to offset declining tobacco consumption. BAT also benefited from increased shipments to Japan where rival production was affected by the March 11 earthquake and tsunami. The global cigarette market excluding China, which is largely closed to foreign tobacco companies, will probably shrink by 2 percent in volume this year, the company predicted.

Logo Ban

BAT rose 38.5 pence, or 1.4 percent, to 2899.5 pence at 10:37 a.m. in London.

The decline of the global cigarette market is decelerating compared with past years, Chief Executive Officer Nicandro Durante said on the call.

An Australian parliamentary committee may publish a report on a proposal to ban logos on cigarette packaging by September, which could allow the country to implement the measure in 2012, Durante said. BAT has said it will cut prices to compete with smuggling and counterfeit trade if the legislation is passed.

Philip Morris International Inc., the world’s largest publicly traded tobacco company, last week raised its full-year earnings forecast and posted second-quarter profit that topped analysts’ estimates, helped by sales in Asia.

BAT plans to increase the first-half dividend by 15 percent, the company said.

’Good’ Acquisitions

Some "good" acquisition opportunities exist, CEO Durante said in an interview by Cantos, which provides multimedia for companies.

BAT agreed to buy Productora Tabacalera de Colombia S.A.S, which owns Mustang, Columbia’s second-biggest cigarette brand, for $452 million in May. BAT has also received tender documents to submit a binding bid by Aug. 29 for an 80 percent stake in Bulgaria’s state tobacco company, Bulgartabak Holding, the country’s asset-selling agency said yesterday.

BAT won’t definitely make an offer for the state-run tobacco company, said Michael Prideaux, a spokesman.

“It’s a privatization happening in our backyard, so we’ve joined in to see what’s going on,” Prideaux said. “Just because we participate doesn’t necessarily mean we’ll make an offer.”

BAT said in February it planned to buy back 750 million pounds of shares in 2011. The company bought back 13 million shares in the first half at a cost of 335 million pounds.

The company’s guidance is based on constant currencies, Prideaux said.

To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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