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Lucky Strike Maker’s Earnings Went Up

Published on August 13th, 2013 00:00

British American Tobacco’s (BAT) earnings went up 2% in the H1 (first half) of the year, in spite of a drop in the number of cigarettes sold.

Europe’s major cigarette company is paying attention on its key international brands as Kent, Viceroy, Dunhill, Lucky Strike and Pall Mall and has been capable to boost prices in spite of the slow market backdrop. It is also paying attention on its key 40 markets, which it calls “T40”. Sales increase, stripping out transfers in foreign currencies, has been 4pc, as volumes decreased 3.2%. This is a move ahead of the world industry in general, which is decreasing by around 2.5% to 3% annually.

BAT declared that it is taking hold of market share in its key markets, with its premium cigarette brands rising by 0.7%. The strongest increase was registered in the Asia-Pacific and Eastern Europe regions and also in the Middle East and Africa area, with sales surging by 7%. Even so, there are potential headwinds for the entire industry. The worldwide trade in illegal cigarettes at all times raises in a recession and it is currently increasing at around 1% on a yearly basis. On the other hand, it is dropping in such regions as Canada, Mexico and Pakistan.

The step to plain packaging is also a possible challenge for the sector, even if the UK has left behind its ideas to make this mandatory. Up to now, solely Australia has introduced a plain packaging law, however recently Nicandro Durante, BAT’s chief manager, reported that up to now the modification has had no impact on sales. The e-cigarette market continues to be modest, however is predicted to demonstrate solid future increase. For instance, in Western Europe, the size of the e-cigarettes market is about 0.5% to 0.8% of the entire tobacco segment.

These days, BAT introduced its first e-cigarette in Britain, known as Vype. It is also looking for endorsement for one more product that is a smoking alternative. Management strategy to swiftly broaden BAT’s presence in this market around the world. Vype is offered online in the UK and is planned to be sold in stores from September. The pricing power that cigarette makers have is outstanding since people are hooked on their product and growing economies are absorbing some of the slack from Western markets where volumes are dropping the quickest. Nevertheless, the companies keep on to be cash creating machines that are perfect for income hunters.