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British American Tobacco hit by currency fluctuations

The FTSE 100 cigarette maker suffered a 6pc drop in profits due to dwindling smoking rates, price wars in certain markets and adverse exchange rates

Packets of cigarettes are on display for sale at James Harvie Tobacconist
British American Tobacco sells Lucky Strikes, Kents, Pall Malls and Dunhills Credit: Photo: Getty Images

Currency fluctuations and dwindling smoking rates weighed on British American Tobacco's revenues in the first half of the year, as they fell 5.9pc to £6.4bn.

Excluding adverse exchange rates, revenues increased by 2.4pc to nearly £7bn due to higher prices of products, the company said on Wednesday. BAT sold 322 billion cigarettes in the six-month period, a drop of 2.9pc from last year.

The industry-wide decline is estimated to be closer to 3.5pc as higher taxes in key markets such as Russia and Australia have exacerbated the price- and health-related backlash against smoking.

Profits from operations at British American Tobacco, the world's second-largest tobacco company, fell 6pc to £2.5bn, but increased by 1.3pc when the effects of currency movements are excluded.

Operating margins at the company behind the Lucky Strike, Kent and Pall Mall brands remained constant at around 39pc.

cigarettes in a British American Tobacco worker's shirt pocket

British American Tobacco sells Lucky Strike and Kent cigarettes

"As we anticipated, the first half of the year has been impacted by adverse exchange rate movements and a strong first-half volume comparator," said chairman Richard Burrows.

"The underlying performance of the business remains strong and we are confident that we are on course to deliver an improved second-half, leading to another year of good earnings growth at constant rates of exchange."

In the January to June period, British American Tobacco completed its $4.7bn cash investment in Reynolds American to maintain its 42pc stake in its US rival, which recently completed its acquisition of cigarette maker Lorillard.

The FTSE 100 company said its €550m bid to buy TDR, the Central European tobacco company, should be approved in October and its offer to buy the shares in its Brazilian subsidiary Souza Cruz that it does not already own will complete in the third quarter.

Earlier this month, three UK cigarette makers including BAT were ordered to pay £8.2m in damages to Canadian smokers in two class action suits, wiping more than £2.5bn off the market value of UK tobacco companies.

British American Tobacco increased its interim dividend per share by 4pc to 49.4p.