BTI British American Tobacco PLC

By Saabira Chaudhuri 

LONDON-- British American Tobacco PLC predicted a year of good earnings growth after first-half profit climbed despite currency volatility as the tobacco giant was helped by strong results from associates and joint ventures.

Shares climbed 1.6% to GBP48.24 in early trading in London on Thursday before edging back down to trade roughly flat.

The owner of Dunhill, Lucky Strike and Pall Mall brand cigarettes said net profit during the six months ended June 30 rose 1% to GBP2.67 billion ($3.51 billion). Adjusted operating profit dropped 2.2% but the company benefited from an 81% rise in its share of posttax results from associates and joint ventures.

The cigarette maker indicated that it is on track for a strong year. "With profit growth weighted to the second half of the year, we remain confident that we will deliver another year of good earnings growth at constant rates of exchange," said Chairman Richard Burrows.

BAT maintains a 42% stake in Reynolds American Inc. and the U.S. company accounts for a chunk of its net profit. Reynolds this week said sales climbed 33% in its latest quarter as the tobacco company continued to benefit from last year's acquisition of Lorillard Inc.

BAT's results were also helped by a GBP890 million gain tied to the sale by Reynolds of the non-U.S. rights to its Natural American Spirit cigarette brand to Japan Tobacco Inc. as well as by BAT's acquisition in October of the 24.7% of Souza Cruz SA--Brazil's largest cigarette maker--it didn't already own.

Like its peers, BAT has been pouring money into tobacco alternatives, buying Ten Motives in April. The U.K. e-cigarette business sells in Tesco, Sainsbury's, WH Smith and The Co-Op as well as directly to consumers through a handful of retail outlets and its website.

BAT test launched iFuse--a product that heats but doesn't burn tobacco allegedly making it less harmful for smokers--in Romania in May. In a Thursday interview Kingsley Wheaton, head of next generation products at BAT, said 2.3% of smokers in Bucharest already own iFuse. Mr. Wheaton said the company will roll the product out more broadly over the next 12 months but declined to say when or where.

First-half revenue at BAT rose 4.2% to GBP6.67 billion, helped by higher volumes and pricing.

Chief Executive Nicandro Durante said he believes three categories that will help BAT grow: vaping, medicinal licensed products and tobacco heating products. BAT already plays in all three with its Vype e-cigarettes, Voke nicotine inhaler and iFuse respectively.

Next generation products is "a category that is going to grow very fast and BAT is very well positioned," said Mr. Durante. Still, he said combustible cigarettes will continue to make up the bulk of BAT's business for years to come and that the company has been able to raise prices while also taking share in markets that are still growing.

BAT reported group cigarette volume was 332 billion, an increase of 3.4% on the same period last year, or 2.1% on an organic basis.

Razak Musah Baba contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

July 28, 2016 07:18 ET (11:18 GMT)

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