British American Tobacco NZ posts biggest annual profit in at least 14 years

British American Tobacco Holdings (New Zealand), the nation's largest cigarette company, reported its biggest annual profit since at least 1999, after earnings rose 15 percent as it cut costs while increased excise tax hiked prices.

The local arm of British American Tobacco, whose brands include Pall Mall, Benson & Hedges and Dunhill, lifted profit to $132 million in calendar 2013 from $115 million a year earlier, according to financial statements lodged with the Companies Office. That's the biggest annual profit the New Zealand unit has reported according to financial statements dating back to 1999. BAT NZ paid and declared dividends of $122 million in 2013, down from $139.2 million in 2012. BAT NZ declined to confirm whether the profit was a record.

The company's revenue, which includes excise duties, rose 3.6 percent to $1.21 billion, while administrative and other overheads and selling, distribution and marketing costs shrank 17 percent to $60.8 million. The cost of sales, which includes excise tax, rose 3.6 percent to $963.5 million. BAT NZ spent $46.7 million buying finished goods from related parties in the year, while its inventories shrank to $329.1 million as at Dec. 31 from $344.8 million a year earlier.

New Zealand "market share was higher, however, volume was impacted by the industry contraction. Profit grew strongly due to price increases and cost savings," the London-based parent said in its 2013 annual report. The parent reported a 2.7 percent decline in volume to 676 billion cigarettes in the year ended Dec. 31, while global sales were flat at 15.3 billion pounds. BAT group profit rose 3 percent to 5.55 billion pounds in 2013. Its Asia-Pacific unit made up 27 percent of revenue with 4.2 billion pounds in sales, delivering a profit of 1.7 billion pounds.

BAT dominates the local market, with its nearest rival, Imperial Tobacco, reporting sales of $432 million in the year ended Sept. 30, 2013 and third-ranked Phillip Morris posting sales of $83 million in calendar 2013.

The New Zealand government has been increasing the tobacco excise by 10 percent each year since 2012, lifting the price consumers must pay as part of a policy to make New Zealand smoke-free by 2025. The increases are expected to lift the average price of a pack of 20 cigarettes to more than $20 by 2016.

"Tobacco consumption in New Zealand has been declining for many years, principally in response to gradual excise increases," Dawn O'Connor, BAT NZ spokeswoman told BusinessDesk. "There have been significant excise increases imposed since 2010 and we think that existing measures should be given time to have an impact before new measures are considered."

New Zealand is looking to follow Australia in introducing plain packaging in a bid to reduce brand recognition and shrink the cigarette market. Australia has introduced non-identifiable tobacco products but is being sued by tobacco producers at the World Trade Organisation which say the new regulations are intellectual property infringement.

Tobacco companies have been vigorously opposed to the plain packaging movement, questioning the legality and effectiveness of removing the last mode of advertisement for their brands and arguing it has led to an increase in black market tobacco.

Last month, New Zealand's government cut duty free allowances on tobacco to 50 cigarettes per person, from 200 cigarettes. Duty free sales make up 2 percent of the local British American Tobacco sales, O'Connor said.

As more governments clamp down on smoking and the market reaches maturity, tobacco companies are looking for alternative, such as the e-cigarette. Nicotine e-cigarettes are illegal in New Zealand, something which the company is lobbying the government to change.

(BusinessDesk)