BAT boosts profits by 20%

British American Tobacco, the world's second biggest cigarette maker, today reported 2004 pretax profits of ?1.8bn, a 20% increase over the previous year.

BAT, with core brands Lucky Strike, Kent, Dunhill and Pall Mall cigarettes, said it plans to pay a final dividend of 29.2p on May 4, bringing the full-year dividend increase to 8%.

The company's four main brands rose 2% from last year. BAT faces tough markets in western Europe where demand has been hurt by higher taxes in countries such as Germany and restrictions on public smoking in the Irish Republic.

Britain may follow in the republic's footsteps and implement a national ban in restaurants and bars that serve food in 2008, while Scotland is considering a similar move. But BAT has benefited from strong performances in Russia, Turkey, India and Pakistan.

BAT merged its US division with RJ Reynolds last July to create Reynolds American and bought Italy's largest tobacco company, Ente Tabacchi Italiani, in 2003.

The Italian acquisition boosted profit, but also increased BAT's exposure to foreign currencies at a time when gains by the pound have reduced the value of overseas revenue when those sales are converted to sterling.

BAT reiterated its aim to increase profits at a high single-digit percentage annual rate and pay out at least half of these earnings as dividends to its shareholders.

The tobacco group, second only to Altria's Philip Morris, raised its target for cutting costs by the end of 2007 by up to ?320m a year from the ?200m target set in 2003.

BAT has cut its production costs over the last two years by ?120m, due largely to plant closures, and it expects other "substantial" savings in the years ahead, probably through widespread factory closures in Europe.

"It has been a good year for the group, with all regions apart from America-Pacific achieving organic growth at comparable rates of exchange," said Jan du Plessis. "This demonstrates the fundamental strength provided by British American Tobacco's successful strategy and geographical diversity."