British American Tobacco plc (LON:BATS) has reported higher full year sales and profits, helped by the acquisition of Reynolds American, but its shares still followed the market lower in early trading on Thursday as organic volumes decline.
The FTSE 100-listed cigarette manufacturer saw its full-year revenue rise to £20.292bn, up from £14.751bn the year before, with adjusted organic revenue at £15.712bn, ahead 6.5%.
READ: BAT says recent US tax reforms to benefit full year 2018 earnings per share by 6%
The group's adjusted organic profit from operations rose 7.8% to £5.91bn, and adjusted diluted earnings per share increased by about 10% to 284.4p, excluding the impact of a gain related to the deal and a deferred tax credit.
The company said that volume of cigarettes and tobacco heating product grew by 3.2%, driven by the acquisition of US tobacco company Reynolds American Inc. but on an organic basis it fell by 2.6%, albeit outperforming the market which declined by an estimated 3.5%.
Richard Burrows, BAT chairman, said: “The Group continued to deliver on its commitment to high single figure constant currency earnings growth, substantially reinforced the long term sustainability of that growth with the largest acquisition of a tobacco company ever completed and achieved success in its Next generation Products business.”
The firm hiked its dividends per share to 195.2p, up 15.2% on the 169.4p paid in the previous year.
In early trading, BAT shares were 4.7% lower at 4,239.5p.
Analyst comment
In a note to clients, Accendo Markets head of research Mike van Dulken said that real problem was the volume growth of 3.2%, thanks only to the monster Reynolds acquisition. He said that excluding the purchase, volumes fell 2.6% organically basis and total organic growth did at least outperform a market down 3.6%.
He said: “Nonetheless, falling volumes are a problem unless you can keep increasing prices. Comments about a challenging trading environment, even after a transformational deal, also ring loudly in investors ears.”
He concluded: “Even a 15% dividend hike and attractive yield is failing to help, with the bond-proxy suffering even more on the back of higher US bond yields overnight after January Fed meeting minutes suggested optimism in economic growth and determination to act, which may imply higher rates, and sooner.”