British American Tobacco hopes to ensure future earnings growth by rolling out “innovative” cigarettes to entice emerging market smokers up to higher margin premium brands.

BAT said it planned to expand novelties such as re-sealable packs, designed to keep cigarettes fresh, and crushable filters, which can change regular cigarettes into menthol ones, in its four premium “global brands” – Kent, Dunhill, Pall Mall and Lucky Strike.

“We’re seeking to expand the innovation further but within the premium brands,” said Michael Prideaux, BAT’s director of corporate affairs. “That’s what we see as driving earnings in the near term – the future is about innovation and about rolling it out more quickly than in the past.”

Emerging markets account for around 60 per cent of BAT’s earnings and 70 per cent of volumes, according to the company.

BAT is challenging laws in Australia, due to come into force in December, that will force tobacco companies to sell their products in identical drab packaging.

“If regulators take away our packaging then having innovations which consumers talk to each other about is the way forward – with packaging it is even better,” Mr Prideaux said.

BAT said it would buy up to £1.25bn of its own shares in 2012 after purchasing 28m BAT shares at a cost of £750m last year.

The group, the world’s second-largest cigarette company by sales outside China, said it would increase its dividend by 11 per cent to 126.5p after boosting full-year revenues on the back of higher prices in spite of the economic downturn.

Revenues rose from £14.9bn to £15.4bn the 12 months to December 31.

Pre-tax profit rose from £4.4bn to £4.9bn, diluted earnings per share rose from 144.4p to 156.2p, and a final dividend of 88.4p (81p) was proposed, bringing the total pay-out for the year to 126.5p (114.2p).

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