BAT 4th-Qtr Loss Widens; Warns on 1st-Quarter Profit
London, March 9 1999
British American Tobacco Plc, the world's No. 2 cigarette company, said the cost
of November's settlement among tobacco companies and U.S. states and losses in Asia meant
its fourth-quarter loss widened 4.9 percent.
The loss in the quarter ended Dec. 31 was 171 million pounds ($276.9 million), compared
with 163 million pounds a year ago, after the company paid 463 million pounds of
settlement costs and its operations in the Asia-Pacific region lost 21 million pounds.
That pushed full-year profit down 16 percent to 346 million pounds, or 22.17 pence per
share, below most forecasts. BAT said first-quarter operating profit probably won't match
last year's, sending the shares down 2.6 percent.
``It's clearly going to take a year or two for their earnings growth to get back on
track,'' said Trevor Moss, an analyst at Robert Fleming Securities. `The results will
dampen enthusiasm in the short term.''
The maker of Lucky Strike cigarettes has borne costs from the $206 billion U.S. settlement
to pay for treating smokers and has suffered from emerging-market recession since its
creation in September, when B.A.T Industries Plc split its tobacco activities from its
Pretax profit fell to 738 million pounds in 1998 from 875 million pounds a year earlier.
Analysts polled by Bloomberg News expected pretax profit to come in at between 767 million
pounds and 926 million pounds.
First-quarter sales volumes probably will be down in Asia Pacific year-on-year though
higher than the fourth quarter, when it sold 14.7 billion cigarettes, BAT said.
China and neighboring countries ``have been hit by devaluations,'' said Ulrich Herter, the
company's managing director, at a press conference. ``People don't have enough money to
buy the international brands.''
Nevertheless, he said Asia should return to profit in the first quarter. In the U.S., the
market remains competitive, Herter said, adding BAT decided to join competitors and cut
prices after losing market share last year.
BAT generated about 20 percent of its 1998 sales from Asia and Africa and 18 percent from
Latin America. A further 27 percent came from the U.S. and Japan, 17 percent from Europe,
and 18 percent from Canada.
The company said in January it will buy Rothmans International from Cie. Financiere
Richemont AG for 4.6 billion pounds in stock. The move will give it a firmer foothold in
the stable markets of Europe, increase its share of the market for high-priced cigarettes,
and take it within a hairbreadth of Philip Morris Cos. in world market share.
BAT decided Rothmans was more attractive than RJR Nabisco Holdings Corp.'s international
division, which RJR said today it will sell to Japan Tobacco Inc. for $8 billion.
``Investors should be pleased that the deal with Rothmans will dilute the impact of Latin
America and Asia,'' said Robert Fleming's Moss. ``That is probably going to be the next
thing people focus on.''
BAT expects the Rothmans acquisition to be completed in the second quarter, said Martin
Broughton, the company's chairman. It will hold an extraordinary general meeting April 8.
Like its larger rival Philip Morris, BAT is awaiting further legal action in the U.S.
after President Bill Clinton pledged in January to sue the tobacco companies. Last year's
settlement, with states rather than the federal government, sparked similar action in
countries including Bolivia, Panama and
Venezuela. BAT also faces class actions and individual cases.
``These developments have shaken investor confidence,'' said Broughton. ``I think investor
concern is considerably overstated. From my perspective the litigation scene is hugely
different and very much less daunting'' than before November's settlement with U.S.
BAT's shares fell 15 pence to 557.5p.