BAT tops £1bn despite sales dip

BRITISH American Tobacco has revealed that it had missed its sales targets for the second successive quarter and that the problems had been compounded by falls in the South African rand and US dollar.

Sales volumes were down 3% in the three months to 30 June compared with the same time last year. This was half the size of the fall suffered in the first quarter but still left an overall drop of 5% for the six months, well short of BAT's goal of restricting the fall to between 2% and 3%.

BAT blamed the slide on its decision to limit the supply of duty-free cigarettes and the loss of low-margin business in several regions.

But the tobacco giant still managed a 6% rise in halfyear pre-tax profits to £1.15 billion and is lifting the interim dividend by 10% to 10.7p.

Revenue slipped to £12.5 billion but the profit line was helped by a £36 million reduction in the net interest bill.

However, BAT provided no update on its efforts to strike a joint venture with an arm of the China National Tobacco Corporation, with which it has had an agreement in principle for a year.

The lack of apparent progress on this front will add to pressure-on BAT either to make an acquisition or return cash to shareholders. Analysts estimate that it could fund a £3 billion-plus special dividend and still retain a sufficient warchest.

BAT is facing more than 4000 lawsuits in America alone. These include a case in Florida where a jury has awarded $17 billion (£10.8 billion) in damages against BAT subsidiary Brown & Williamson.

It is also being sued by a group of 25,000 Australian retailers, who say BAT retained fees they collected on behalf of state governments. The retailers claim BAT and competitor Philip Morris collected about A$250 million (£86.5 million), which has risen to about A$400 million after interest.

The company has so far refused to make any provisions in its accounts for these cases, saying a final resolution is too far away and it is confident it will win.

'Your board does not consider there has been any material change in the aggregate legal risk faced by Brown & Williamson,î said chairman Martin Broughton.

'It remains the case that the threat from third-party recoupment cases and class actions in general has diminished. Although some individual cases have been lost at the trial court level, the appeal process is not yet over in any of them.î