British American Tobacco gets boost from weak sterling

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British American Tobacco, the brand behind Lucky Strike and Dunhill cigarettes, reported rising revenues and profits last year as it sealed a deal to create the world’s largest tobacco company by sales last month.

BAT, who agreed a $49.9bn deal to buy its unowned stake in Reynolds American – maker of Camel cigarettes – in January said it had upped its market share in its core markets with group revenues rising by 12.6 per cent at current exchange rates, helped along by the pound’s post-Brexit falls.

When measured in current exchange rates, profits were 2.2 per cent higher to $4.7bn. This would have translated to a 2.9 per cent fall at constant exchange rates.

But the company said the net effect of its currency movements, as well as acquisitions, was to squeeze operating profit margins by 90 basis points.

It also complained of the “ineffectiveness” of its currency hedging strategy, “driven by the market volatility” following the UK’s EU referendum in June.

Richard Burrows, chairman, said earnings, volume and market share growth were “exceptional” but that challenging trading conditions “persisted”.

Cigarette volumes rose 0.2 per cent overall but fell 0.8 per cent on an organic basis – outperforming the wider industry where they are forecast to have fallen 3 per cent.

BAT added that its deal for Reynolds, which will return it to the US market for the first time in a decade, is due to be completed by the third quarter of this year.

Mr Burrows added:

Our results this year demonstrate our ability to continue delivering excellent shareholder returns while investing in the future strength of the business.

The 10% increase in our total dividend for 2016 to 169.4p reflects our confidence in our strategy, our people and in generating growth for our shareholders in 2017 and beyond.

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