British American Tobacco Earnings Rise on Product Pricing

British American Tobacco Plc, Europe’s largest cigarette maker, said first-half operating profit rose 4 percent as higher prices offset falling consumption.

Adjusted profit from operations increased to 2.94 billion pounds ($4.5 billion), the London-based company said in a statement today. That compares with the 2.95 billion-pound estimate of nine analysts surveyed by Bloomberg. Sales growth, excluding currency shifts, was 4 percent, led by pricing as volume dropped 3.2 percent.

“We performed well during the first half of the year with strong pricing momentum, increased market share and continued growth in our global drive brands, strengthening the foundations for another year of good results,” Chief Executive Officer Nicandro Durante said in the statement.

The maker of Lucky Strike and Pall Mall cigarettes is stepping up the development of alternative nicotine products amid stricter government constraints on smoking. It started selling Vype electronic cigarettes online in the U.K. yesterday and expects U.K. approval for another alternative product that delivers nicotine via aerosol technology before the end of the year, said Kingsley Wheaton, director of regulatory affairs.

Across Europe

That product will be sold in the U.K. by 2014 or 2015 and BAT plans to sell Vype in Europe “over the next year or so,” Wheaton said in an interview.

BAT is “the leader in the reduced risk area, given all the R&D it has carried out over the years,” Erik Bloomquist, an analyst at Berenberg Bank in London, said by e-mail. “Vype is recognition that the marketplace is evolving quickly and shows they are willing to meet consumer needs with a variety of products.”

The stock rose 0.4 percent to 3,475 pence at 8:36 a.m. in London. The shares have gained 2 percent over the past 12 months, while the Bloomberg Europe Tobacco Index fell 12 percent.

First-half earnings growth was driven by the Asia-Pacific and Eastern Europe, Middle East and Africa regions, which both increased by 7 percent at current rates in the period, followed by a 3 percent gain in western Europe and a 1 percent decrease in the Americas.

Chief Operating Officer John Daly will retire at the end of the year, the company also said today.

The company also scored a victory after campaigning against the introduction of plain packaging in the U.K., when health minister Jeremy Hunt announced on July 12 that the government needs more time to assess the effect of a similar policy in Australia.

Australia became the first country to enforce plain tobacco packaging on Dec. 1. All cigarettes in the nation must be sold in uniform packs with the brand name relegated to the bottom quarter of the package on a brown background.

BAT’s Australian unit on July 22 disputed the findings of a cancer charity’s study that plain packaging lowers the appeal of cigarettes and increases the desire to quit.

“BAT is well-positioned going forward, since it is leveraged to markets where consumer disposable income is growing and pricing is intact,” Bloomquist said.

Before it's here, it's on the Bloomberg Terminal.