British American Tobacco (BAT) recently announced a 19% rise in profits for the first half of 2018. The record numbers are related to the acquisition of the American cigarette company Reynolds. The merger occurred in July 2017. However, these profits belie the generally poor economic performance of the global tobacco market.
British American Tobacco bought Reynolds for a whopping $49.4 billion. The acquisition of the Big Tobacco giant allowed the British company to gain ownership over various brands, including Camel, Newports and Winsport. It also helped the British company reaffirm its strategic position in the USA.
The merger led to a 57% increase in turnover, or 11.6 billion pounds sterling. However, according to the company, the profits could have been much higher, since profits were affected by the unfavorable exchange rate, which accounted for an 8% drop in revenue in 2018. With a net gain of 2.7 billion pounds sterling, BAT becomes the stock market leader for all tobacco companies.
…still an uncertain future
Despite these positive results, British American Tobacco may run into trouble in the next few months. Indeed, the company’s cigarette sales have continued to drop, with a 2.2% fall recorded in the first half of 2018. But this loss is minimal compared to the industry average, which is between 3 and 4%.
By acquiring Reynolds, BAT is becoming a key player in the vaping industry, which has also seen a drop in sales in Japan and Korea. However, the general director of the Nicandro Durante group is confident in the future of his company. According to him, the sale of a new generation products should make up for over a billion dollar of losses suffered in 2018.