BAT profits warning – reducing smuggling reduces profits

Wednesday 05 December 2001

ASH release

BAT profits warning – reducing smuggling reduces profits

5th December 2001 immediate


British American Tobacco today announced a profits warning [1] and attributed this in part to the decision “to apply even more stringent criteria for the supply of products to trade customers, especially in the area of duty free sales”


ASH said this was the early sign that BAT was under pressure to stop supplying the smugglers through third parties and treating the black market as if it is just another distribution channel.    BAT is currently facing a DTI investigation into internal documents that ASH says show the company had a controlling and managing role in large scale global smuggling of its cigarettes.  The company also faces racketeering (RICO) legal action in the US courts over its role in smuggling in Colombia.


Clive Bates, Director of ASH said:


“BAT makes hundreds of millions in profit from cigarettes sold on the black market by smugglers, but they are coming under real pressure to clean up their act.  The profits warning shows that tackling smuggling hurts their bottom line, and that explains why they have never done much to tackle smuggling and plenty to encourage it.


“BAT’s internal documents certainly don’t suggest any stringent checks on the integrity of trade customers – in fact we believe they show that BAT were choosing their business partners on the basis of who could run the biggest and best smuggling operation while remaining under arms-length control of BAT.”


“This is the first sign that whole transit smuggling business is beginning to unravel.  This could cost them very dearly in the next few years.”


Contact Clive Bates 020 7739 5902 – 077 6879 1237


[1]  BAT profits warning

5th December 2001


British American Tobacco will shortly be meeting analysts and investors prior to the end of its

financial year and is therefore making the following statement. The Board is re-affirming its

confidence in delivering high single figure earnings growth in line with market estimates for 2001 and, at current exchange rates, for 2002.


This continued growth should be achieved despite an expected reduction of some 2-3% in volumes in 2002. Economic conditions will have an impact on Group performance in the coming year and the Group’s operational management have reviewed their procedures and decided to apply even more stringent criteria for the supply of products to trade customers, especially in the area of duty-free sales.


The net impact is that the rate of operating profit growth is likely to be lower than market estimates. As mentioned above, however, adjusted diluted earnings per share should still increase in line with market expectations of high single figure growth, as a result of improvements in the net interest, minorities and tax charges.


The business remains buoyant and the Board is confident of continuing to generate similar growth in earnings per share over the medium term and expects dividend growth to continue at current levels.