BAT Profits Fired Up By Rothmans
British American Tobacco Plc Tuesday reported a six percent rise in nine months operating profits, powered by its merger with Rothmans, and said it was confident of foiling a landmark U.S. lawsuit.
The world's second-largest cigarette company, which markets such brands as Lucky Strike, State Express 555 and now Rothmans, reported operating profits of 1.255 billion pounds ($2.09 billion) in the nine months ended September 30, 1999 compared with 1.183 billion pounds in the year earlier period.
Operating profit excluding goodwill amortization and exceptional items rose 13 percent to 1.427 billion pounds. Analysts had forecast nine months operating profits in a range from 1.33 to 1.40 billion pounds.
BAT said that when calculated without the benefits of its 13 billion pound merger with Rothmans earlier this year, operating profit was six percent lower than last year but said it improved in the third quarter.
Shares in the tobacco company were up 8-1/2 pence or two percent on the earnings news to 392p by 1325 GMT in London.
Analysts said BAT's profits will continue to improve in the fourth quarter and that the shares should rise.
``I'd expect the same kind of improvement we've seen in the third quarter to continue,'' said Jonathan Fell, analyst at Merrill Lynch, who rated the shares a buy.
The tobacco producer said that following its merger with Rothmans it was on track to achieve forecast annual cost savings of 250 million pounds.
``Progress with the merger has been excellent,'' said BAT Chairman Martin Broughton in a statement with the earnings.
BAT said its group volumes continued to be affected by adverse economic conditions in a number of markets as well as price increases in the United States to fund legal settlements and a cigarette export tax in Brazil.
Seeks To Fight Individuals
On the legal front, Broughton said he expected a September 3 Florida Appeals Court judgement, which limited damages for victims of smoking-related illnesses to awards on an individual basis rather than en masse in a class action, to prevail.
``We are confident that the ruling on September 3 is the one that will ultimately prevail and we also expect that the class itself will eventually be de-certified,'' Broughton said.
Earlier this month the same Florida appeals court refused to shelter the tobacco companies from punitive damages, potentially in the hundreds of billions of dollars, but crucially failed to overturn its September 3 ruling.
BAT's Brown & Williamson division is one of the top three cigarette companies in the United States named as a defendant in a ground-breaking Florida class action suit called Engle versus Reynolds. The case was named after Miami pediatrician Howard Engle, who has emphysema.
In a huge defeat last July 7, the U.S. firms were found liable for lung cancer and other ailments of as many as one million sick smokers in Florida and now face in follow-up trials the possibility of damages worth hundreds of billions of dollars.
Analysts said that if the September 3 ruling prevails then sufferers with smoking-related illnesses will have to prove their cases against tobacco companies individually, stringing out the time it takes to get awards from the courts.
``What it will mean is that the class action disappears altogether and rather than having everything decided on a group basis it is decided on an individual basis and therefore it will take many, many years to sort out,'' one analyst said.
Broughton said BAT's acquisition of the 58 percent of Canadian-listed Imasco Ltd, which it did not already own, had gone smoothly.
He said the resulting auction process for Imasco's Shoppers Drug Mart chemist shop chain and Genstar Development Co property firm was proving robust.
``This process will demonstrate the real market values of these businesses and should generate an increase in the C$40 a share base price,'' Broughton said.