[Intl-tobacco] British American Tobacco's Profit Growth Exceeds Goal

[robert weissman]

1. British American Tobacco's Profit Growth Exceeds Goal (Bloomberg)
2. Excerpts from BAT quarterly statement

1.

British American Tobacco's Profit Growth Exceeds Goal

Oct. 27 (Bloomberg) -- British American Tobacco Plc, the world's
second-largest cigarette maker, said growth this year in per-share
profit is above its goal.

Nine-month earnings rose 23 percent to 67.91 pence on that basis, the
London-based company said today in a Regulatory News Service statement.
BAT, the maker of Lucky Strike cigarettes, is ``plainly performing above
trend'' and its goal of ``high single''-figure growth, spokesman Michael
Prideaux said.

``It's going to be a vintage year,'' Chief Executive Paul Adams said on
a conference call with analysts.

Expansion in countries such as Turkey and Pakistan has helped the
company to make up for falling demand in markets including Canada. BAT
singled out ``outstanding performances'' by its Kent brand in Russia and
Romania in today's statement and said the number of Lucky Strikes sold
in Germany, Japan and Spain declined.

``The outlook statement is the most bullish we have seen in the company
in the last 10 years,'' Michael Smith, an analyst at JPMorgan Chase &
Co. in London, wrote in a report. He rates the shares ``overweight'' and
considers BAT to be Europe's most attractive tobacco stock.

Third-quarter profit dropped 76 percent to 443 million pounds ($789
million) from 1.82 billion pounds a year earlier as a gain from
combining the company's U.S. units into Reynolds American Inc. didn't
recur. The transaction resulted in a gain of 1.39 billion pounds for BAT
in the year-earlier quarter and gave the company a 42 percent stake in
Reynolds American.

Pall Mall

The number of cigarettes sold by BAT under its four main brands rose 9
percent in the year's first nine months, led by growth of 17 percent at
Kent and 23 percent for Pall Mall. Dunhill fell 4 percent in the period,
though third-quarter volumes rose 7 percent. Lucky Strike declined
``marginally'' and the brand is now ``recovering,'' Adams said.

``Based on good quality organic volume growth, British American Tobacco
has real momentum,'' Chairman Jan du Plessis said in the statement,
reiterating that comparisons with last year's results will however
become more ``demanding.''

The shares rose as much as 17 pence, or 1.4 percent, to 1,212 pence in
London, 12 pence short of a record. They were down 7 pence at 1,188
pence at 9:52 a.m. local time. The stock has gained 45 percent in the
past year, the biggest climb in the five-member Bloomberg Europe Tobacco
Index, which has advanced 34 percent.

Lower Sales

Third-quarter sales fell 6.6 percent to 2.49 billion pounds. BAT can't
include revenue from its stake in Reynolds American, the second-largest
U.S. cigarette maker, under International Financial Reporting Standards.

Altria Group Inc., the world's biggest tobacco company, said Oct. 19 its
Philip Morris International unit boosted third- quarter volumes
excluding acquisitions by 0.8 percent, even though European Union
volumes fell 4.2 percent.

Of 14 analyst recommendations gathered by Bloomberg, 12 have the stock
at ``buy'' and two at ``hold.'' That gives BAT's shares the
fifth-highest analyst rating in the Dow Jones Stoxx 600 Index, according
to Bloomberg data.

British American Tobacco bought back 37 million shares in the year's
first nine months for about 394 million pounds and plans to continue
repurchases at a similar rate to previous quarters, according to Prideaux.

The company may close more factories, Adams said.


2. Excerpts from BAT quarterly statement (October 27, 2005)
http://www.bat.com/oneweb/sites/uk__3mnfen.nsf/vwPagesWebLive/DO5XJHA8?open=
document&SID=3D&DTC=3D&TMP=3D1



In Europe, profit, excluding restructuring costs and the gain on
disposal of brands, increased by =A342 million to =A3616 million, with
strong growth from Russia, Germany, France and Romania.  The
integration of the Smoking Tobacco and Cigars business into the
respective markets, together with cost savings across the region,  also
contributed to the positive result.  Regional volumes were up by  around
1 per cent to 184 billion as growth in Russia, France and  Poland was
offset by declines in Italy and Germany.

In Italy, the virtual ban on indoor public smoking effective from the
beginning of this year and an excise increase at the end of last year
resulted in a total market decline of 6 per cent leading to lower
profit and volumes.  Market share was slightly down as a result of
increased competition in the low-price segment.  Profit was affected  by
a =A316 million reduction as a result of the sale of Etinera at the  end
of 2004 (see page 16).

Germany continued its excellent profit performance.  In a reduced
market size, profit increased substantially, driven by price and mix
changes, a significant reduction in the overall cost base and higher
cigarette market share, with strong growth from Pall Mall.  Volumes  in
France were up in a total market that has shown signs of  stabilising,
although consumer off-take share softened slightly.

Profit increased impressively due to the higher volumes, driven by  the
global drive brands, and lower costs.

Russia continued its excellent performance with strong volume and
market share growth, principally from the premium brands Kent and
Vogue.  The continued focus on our global drive brands and national
expansion led to a better product mix and strong volume growth,
resulting in significantly higher profit.  In Romania, market share
grew as Kent and Pall Mall recorded excellent share and volume
performances resulting in a strengthening of the Group=92s market
leadership position and higher profits.

In Switzerland, although costs were lower, profit and volumes were
adversely affected by an excise increase at the end of last year.

Overall market share was slightly down due to increased price
competition but Lucky Strike and Pall Mall remained stable with
Parisienne growing share.  In the Netherlands and Belgium, the
integration of the Smoking Tobacco and Cigars business, as well as
other cost savings, contributed to improved profit although volumes
were lower.  In Poland, profit was higher as volumes rose in an
increased market.  Volumes in Ukraine were slightly down but profit
grew strongly as a result of product mix improvements through Kent  and
Pall Mall.  In Hungary, profit and volume were adversely affected  by a
continuing decline in the total market and down-trading.

In Asia-Pacific, regional profit rose by =A341 million to =A3418 million  a=
s
good performances in Australasia and Pakistan, a benefit in the  first
quarter from the timing of an excise payment in South Korea and  the
good results from a number of the other markets more than covered  the
reductions in Malaysia and Vietnam.  Regional volumes at  103 billion
were 4 per cent higher as strong increases in Pakistan  and Bangladesh
were partially offset by volume declines in South  Korea, Vietnam and
Malaysia.

Although industry volumes remained under pressure, Australia  continued
its profit growth with stable volumes, higher margins and  overall
market share up due to strong performances from Dunhill and  Winfield.
In New Zealand, higher margins and volumes led to  increased profit.

In Malaysia, excise taxes increased by a further 13 per cent after  last
year=92s severe increase and industry volumes continued to be  under
pressure.  Market share was in line with last year but profit  was
impacted by the lower volumes, adverse product mix, price  competition
and the contribution to a government sponsored leaf  programme.
Although Pall Mall increased share, this was offset by  reductions in
Dunhill and non-drive brands.  In Vietnam, market share  rose but lower
industry volumes led to a decline in profit.  Consumer  off-take and
market share reached an all time high as State Express  555 and Craven
=91A=92 continued to grow.

South Korea=92s profit reflected the first quarter excise benefit,
although shipments declined significantly due to stocking by the  trade
before the excise increase.  The strong profit growth in the  nine
months also reflected productivity gains.  Dunhill continued to  deliver
good share growth, while Vogue was relaunched in August.

In Pakistan, higher margins and excellent volume growth by Gold Flake
and John Player Gold Leaf resulted in higher profit and market share.

Volumes rose in Bangladesh but profit was lower as down-trading
continued and prices were maintained despite an excise increase.  In
Sri Lanka, strong profit and share growth was achieved through John
Player Gold Leaf and Benson & Hedges.

In Latin America, profit at =A3378 million, increased by =A353 million,  as
good performances were delivered in Brazil, Chile, Venezuela and  Peru.
  Volume at 110 billion increased slightly as growth in many  markets
was offset by declines in Mexico and Argentina.

In Brazil, profit was higher as the benefits of a stronger local
currency, price increases, an improved product mix and higher volumes
more than offset increased brand and trade marketing investment and
lower export leaf margins.  Volumes were higher as a result of major
anti-illicit trade operations by various Government bodies.

Good profit growth in Mexico was the result of higher margins,  improved
product mix and a stronger local currency, partly offset by  lower
volumes as the total market declined and market share fell in  the
low-price segment. In Argentina, profit rose as price increases  offset
the impact of lower volumes and higher marketing investment.

Premium brands, mainly Lucky Strike, continued to grow but overall
volumes were affected as price increases benefited the ultra  low-price
local manufacturers.

In Chile, the good profit increase was the result of a stronger
currency, higher volumes and market share as Belmont significantly
improved its market position.  Excellent profit growth in Venezuela  was
the result of a general recovery in consumer purchasing power,  higher
margins and strong volume growth, mainly from Viceroy, leading  to a
higher market share.  Profit in Peru increased due to a better  mix and
lower expenses, as well as higher volumes.  Strong profit  performance
in the Central America and Caribbean area was driven by  higher volumes
and increased margins.

Profit in the Africa and Middle East region grew by =A349 million to  =A330=
8
million with good performances mainly from South Africa, Turkey  and
Iran.  Volumes grew by 8 per cent to 76 billion as a result of  the
strong growth in Turkey and the markets in the Middle East.

In South Africa, profit grew, benefiting from an improved product mix
as Peter Stuyvesant continued its impressive growth to reach a record
market share, together with the stronger rand and higher pricing.

These improvements were partially offset by lower volumes as industry
volumes declined due to illicit trade.  Market share in Nigeria
increased in a stable overall market, as a result of the Benson &
Hedges and London brands gaining share after the authorities  continued
to address the illicit trade.

Strong volume growth in Iran, from Kent and Montana, resulted in a
higher profit.  The Arabian Gulf markets increased volumes but not
sufficiently to cover the higher marketing investment, leading to  lower
profit.

Turkey continued to make good progress despite further excise changes
throughout the year, with strong volume growth driven by Viceroy  which
increased market share significantly, while Pall Mall share was  stable.
  Losses were significantly reduced by the volume gains and  lower
costs.

On a comparable basis, the America-Pacific regional profit was  =A343
million lower at =A3327 million, and volumes were 4 per cent lower.

Profit was down in both Canada and Japan while volumes were also  lower
in Canada.  As the comparative period included the US tobacco
businesses now merged with R.J. Reynolds and included in associates
(see page 16), reported regional volumes were down by 42 per cent to  33
billion and reported profit was =A3192 million lower.

The profit contribution from Canada was down =A316 million to  =A3236
million as a result of a decline in volumes and a continuing  shift in
sales mix to low-price products which more than offset lower  operating
costs and the impact of the stronger Canadian dollar.  The  low-price
segment continued to grow slowly and represented 41 per cent  of the
market in the third quarter.  Within the low-price segment, a  budget
segment has developed, further widening the price gap between  premium
brands and low-price products.  For the nine months Imperial  Tobacco=92s
market share declined by 3 percentage points to 56 per cent.

In Japan, volumes were up resulting in an increased market share in a
declining total market with Kool and Kent increasing share, while  Lucky
Strike was stable.  Profit was adversely affected by the impact  of
exchange and the non-recurrence of a benefit from a business
reorganisation included in prior years.  This was partly offset by
increases in volumes and lower costs.