British American Tobacco's profit heats up as it looks to the vaping market

Courtney Goldsmith
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World No Tobacco Day
BAT is in a strong position to grow its next generation products (Source: Getty)

Lucky Strike and Dunhill cigarette maker British American Tobacco (BAT)'s profits and revenue grew over 2016 as it strives to pump up its next generation product offerings.

The figures

The tobacco giant reported revenue increased 12.6 per cent to £14.75bn, helped by the weak pound, while organic revenue increased 6.9 per cent, driven by good pricing. Adjusted profit from operations increased 9.8 per cent to £5.48bn.

For the year ended 31 December 2016, dividends per share increased 10 per cent to 169.4p.

Cigarette volume grew 0.2 per cent to 665bn in 2016. Volume fell 0.8 per cent on an organic basis as more people cut back on smoking, but it still outperformed the industry which expected around a three per cent decline.

Shares in the FTSE 100-listed firm increased less than one per cent in morning trading.

Why it's interesting

Last month, BAT reported it had signed a deal with US competitor Reynolds, agreeing to pay around $49.4bn (£39.6bn) for the 57.8 per cent of the American company it didn't already own to create the world's largest tobacco company by sales.

The firm is looking to double the number of countries where it sells its vaping products in 2017 and again the following year, head of corporate affairs Jerry Abelman told Reuters.

BAT's vapour products, which are currently in 10 markets, have almost 40 per cent of the rapidly growing market in Britain and around 50 per cent of Poland's market.

Read more: British smokers are switching to vaping faster than anyone in Europe

In the future, the cigarette maker plans to gain more of its profit from such next generation products. Today, it said its vapour business has become the world's largest outside of the US. In the period, it successfully launched its tobacco heating product Glo in Japan.

What BAT said

Chairman Richard Burrows said the 2016 results show BAT's ability to continue delivering shareholder returns while investing in the business' future.

"The 10 per cent increase in our total dividend for 2016 to 169.4p reflects our confidence in our strategy, our people and in generating growth for our shareholders in 2017 and beyond," Burrows said.

Chief executive Nicandro Durante was pleased with BAT's progress in next generation products while the combustible tobacco business continues to perform well.

He added: "Both would be made stronger by our proposed acquisition of Reynolds American, creating what will become a truly global tobacco and next generation products company, delivering sustained long-term profit growth and returns."

Read more: BAT just brought its newest vaping product to the UK

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