BAT Profit Boosted by Investments

LONDON—British American Tobacco PLC on Wednesday reported higher first-half profit as the cigarette-maker was buoyed by investments that helped offset currency losses.

The maker of Dunhill and Lucky Strike posted a net profit of £ 2.65 billion ($4.13 billion) in the six months to June 30, compared with £ 1.75 billion a year earlier, helped by higher finance income and profit from associates and joint ventures.

Revenue fell 5.9% to £ 6.4 billion but was 2.4% higher at constant exchange rates.

BAT said its results were pressured by volatile currencies and falling cigarette volume as the company was hit by excise increases in Australia, Russia and South Korea, but Chairman Richard Burrows said the company "is on course to deliver an improved second half."

BAT's cigarette volume fell 2.9% to 322 billion sticks, a deterioration from the 0.4% decline last year. The tobacco industry has faced decades-long volume declines.

Still, BAT was helped by income from joint ventures and associates in the first half, which more than doubled to £ 799 million. BAT maintains a 42% stake in Reynolds American Inc. following its acquisition of Lorillard and the American company now accounts for roughly 20% of BAT's net profit, according to Credit Suisse. Reynolds earlier this week reported its domestic cigarette volume increased 5.6% for the quarter ended June 30, outpacing an industrywide gain of 1.9%.

BAT's profit has been pressured in recent quarters by volatile currencies, with Citigroup analysts noting that foreign exchange knocked 13% off per-share earnings last year, warning that "2015 may be as bad."

The company reported its operating profit fell 4.6% at current exchange rates to £ 2.35 billion.

BAT has secured approval from the British government's health care authority to launch Voke, a cigarette-shaped nicotine inhaler that doesn't heat liquid, use a battery or create vapor. BAT said Wednesday that it expects to launch Voke in the U.K. by the end of the year.

Developing cigarettes that heat but don't burn tobacco is one of the areas that BAT has said it is focused on, although the company hasn't yet released a product. It said Wednesday it plans to test market one such platform this year.

The area has showed mixed success for tobacco firms. Reynolds on Tuesday said it would stop marketing Revo, its heat-not-burn cigarette, less than six months after introducing it, because consumer-adoption rates failed to meet expectations. But earlier this month Philip Morris said it plans to start offering its heat-not-burn iQOS product--already available in Italy and Japan—in Switzerland.

Write to Saabira Chaudhuri at [e-mail]

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