British American Tobacco plc (LON:BATS) today posted a lower-than-expected 10.4% rise in full year earnings as operating margins declined and tobacco volumes were broadly flat.
The tobacco maker reported adjusted earnings per share (EPS) of 230p at constant currencies in the year to 31 December 2016, compared to 208.4p in the year-ago period.
Revenue at constant currencies rose 6.9% to £14.0bn from £13.1bn the previous year as cigarette volumes climbed 0.2% and total tobacco volume edged up just 0.1%.
Analysts at Factset had expected EPS of 2.47p and revenues of £14.8bn.
Operating margins on a reported basis fell 90 basis points to 37.2%.
While tobacco volumes were broadly flat, the company said its vapour business continued to “perform very well”. Following the international expansion of Vype in 2016, BATS is now present in 10 markets and has the largest vapour business in the world outside of the US.
Hargreaves Lansdown analyst Steve Clayton said the company's early investments into the e-cigarettes market leave it well placed for the future evolution of what remains a "legal, but deeply controversial" industry.
"Masses of regulation and taxation initiatives around the world have failed to dent BATS’ extraordinary profitability and look likely to continue to do so, especially as it pivots towards the USA, which is still one of the most attractive markets in the world for tobacco companies."
The group raised its total dividend per share 10% to 169.4p from 154p, saying it confident in its strategy for generating growth for shareholders in 2017.
Last month company announced it has agreed the terms of its offer to buy the remaining 57.8% of Reynolds American Inc. that it does not already own. The deal is expected to close the third quarter of fiscal year 2017, subject to relevant approvals, BATS said.
Shares edged up 0.34% to 5,019p in morning trade.
-- Adds broker comment, updates share price --