British American Tobacco profits and revenues grow on positive FX impact

British American Tobacco agreed to buy sector peer Reynolds in JanuaryReuters

British American Tobacco (BAT) saw revenue and profit grow in its latest financial year, on the back of favourable currency exchange movements.

The tobacco giant said on Thursday (23 February) that adjusted profit from operations grew 9.8% year-on-year in the 12 months to 31 December to £5.5bn ($6.8bn, €6.5bn), rising 4.1% on a constant currency basis to £5.2bn.

Meanwhile, at £14.7bn, revenue was 12.6% higher than in the previous 12 months on a current currency basis, and rose 6.9% year-on-year when excluding currency movements. BAT added its cigarette volume rose 0.2% to 665 billion in 2016, although the figure recorded a 0.8% decline on an organic basis due to people increasingly cutting back on smoking.

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Despite the drop, however, the maker of Dunhill and Lucky Strike cigarettes performed better than the rest of the sector, which recorded a 3% drop in volumes.

The group claimed it has now the biggest vaping business in the world outside the US, as tobacco firms invest in alternatives to cigarettes. BAT said its vaping products are available in 10 different markets and amount to 40% and 50% of the market in Britain and Poland respectively, adding it plans to double the number of countries in which it sells its vaping products next year and in the following 12 months.

Last month, the FTSE 100-listed company agreed a deal to acquire its US sector peer Reynolds, the manufacturer of Camel and Rothmans cigarettes, in a move that will create the biggest tobacco firm in the world.

BAT said it will pay $29.44 in cash and a 0.5260 BAT share for each Reynolds share, meaning it will pay $49.4bn for the 57.8% stake in the US company it does not already own.

"This deal will create a truly global business with a world-class portfolio of tobacco and next generation products which will be available across the most attractive markets in the world," said group chief executive Nicandro Durante.

"Financially, it will be earnings accretive with enhanced cash generation while maintaining a solid investment grade credit rating. We expect the transaction to close during the third quarter of 2017, subject to obtaining the relevant shareholder and regulatory approvals."

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