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OT: BTI ~~ British American Tobacco profit, cash returns upped


Cigarette maker sets new dividend policy

By Steve Goldstein, MarketWatch
Last Update: 3:49 AM ET Mar 1, 2007

LONDON (MarketWatch) -- British American Tobacco on Thursday announced a 7% profit rise and a boost to its cash return program, as the maker of Kent and Lucky Strike cigarettes relied on increased demand from Russia and South Korea.

British American Tobacco (BTI: news)(BATS: news) said its profit rose to 1.9 billion pounds ($3.72 billion), with revenue up 5% to 9.76 billion pounds.

BTI 61.01 +0.71

The profit and revenue figures were about in line with forecasts, but British American's cash return program excited investors.

It's upping its dividend 19% to 55.9 pence a share, and its stock buyback program will be lifted to 750 million pounds from 500 million pounds.

The company said its old policy was to return 50% of earnings in dividends, but it's now shooting for 65%, a goal it plans to reach in 2008.

British American Tobacco shares rallied 3.3% in early London trading.

The company is buying back so much stock that it will need to get shareholder approval to let the stake held by Swiss luxury group Richemont and South African investment group Remgro rise above 30% without having to make an offer for all of British American Tobacco.

British American Tobacco says it will stop its buyback program when the combined stake reaches 35% -- which is "unlikely" to be reached in seven years.

Russian demand for Kent, Pall Mall climbs

During the year, Kent volume rose 16% on the back of significant increases in Russia, Romania, Ukraine and Chile and market share growth in Japan. Pall Mall volumes jumped 40% on growth from Spain, Greece, Poland, Russia and Bangladesh.

"Marginal" Lucky Strike volume growth came as rises in Spain, France, Italy and Indonesia were offset by lower industry volumes in Germany and Japan. Dunhill volumes rose 6% on South Korean, Taiwan, Australian, South African and Middle Eastern growth.

The company said profit was hit by a one-off charge of 175 million pounds reflecting restructuring costs in its factory closure program, which was partly offset by the gain on a disposal of brands.

Other factors that helped its profit rise included price hikes in Australia, cost savings in Italy, France, the Netherlands and Mexico, and Brazilian action against illicit trade.

The impact of exchange rates for the year as a whole was negligible, but for the last six months it was significantly negative and this effect has continued into 2007, it noted.


Steve Goldstein is MarketWatch's London bureau chief.