Capacity problems threaten BAT jobs

Listen to this article

00:00
00:00

British American Tobacco has raised the prospect of further job losses across its European operations in its quest for further savings.

Paul Adams, chief executive, said: "We have made no secret of the fact that we have excessive capacity and that we have particularly excessive capacity in western Europe, which has higher costs than other regions."

The group announced the planned closure of its UK and Irish cigarette factories this month, a move expected to save £40m annually.

In the last two years, BAT has closed eight factories and downsized a further 20, resulting in more than 4,500 job losses.

In Thursday’s half-year results, the maker of West and Lucky Strike cigarettes beat expectations despite falling sales as it benefited from cost cuts and strong growth in emerging markets.

Four out of five of its geographical regions performed well, with the exception of America-Pacific, where profit was hit by weak markets in Canada and Japan.

Sales fell 21 per cent in the first half, hit by changes in the business following the sale of Etinera, the Italian distribution business and the shift to the new International Financial Reporting Standards. The standard prevented BAT from including revenue from its 42 per cent stake in Reynolds American.

Analysts reacted positively to the 2 per cent organic volume growth from subsidiaries, thanks to strong performances from areas including Turkey, Russia and Iran that sparked upgrades.

JPMorgan said it would be raising its underlying earnings per share growth target for the year from 11 per cent to 13 to 14 per cent.

The group's core brands - Dunhill, Kent, Lucky Strike and Pall Mall - saw a 6 per cent rise in like-for-like volumes in the period.

But Mr Adams, who had set targets of high single-digit growth for the brands, said the rate was behind expectations.

Pre-tax profit rose 17 per cent from £1.16bn to £1.35bn, helped by a £114m contribution from Reynolds.

Earnings per share exceeded forecasts, rising from 33.98p to 44.48p.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.