bat plc annual report 2007 - Latin America
"Another year of truly exceptional results with double-digit profit growth despite some volume contraction due to excise and pricing dynamics. Product mix improved with a strong growth in Global Drive Brands."
Mark CobbenDirector, Latin America
Profit in Latin America increased by £69 million to £680 million due to good performances in key markets such as Brazil and Venezuela, partly offset by lower profit in Mexico and the adverse impact of some weaker local currencies. At comparable rates of exchange, profit would have increased by £86 million or 14 per cent.
Volumes were 1 per cent down at 151 billion as the increases in Brazil, Venezuela and Chile were more than offset by declines in Mexico, Argentina and Central America.
In Brazil, profit grew strongly, benefiting from higher volumes, price rises in anticipation of the excise increase in July, some improvement in product mix and a stronger local currency. Market share was higher as volumes increased due to strong brand and trade marketing efforts and the effective anti-illicit trade enforcement actions by the government.
Industry volume in Mexico suffered following a large excise-driven price increase at the beginning of 2007 and this, together with a lower market share and a weaker currency, resulted in lower profit. In Argentina, profit grew as prices increased after the severe price competition of the prior year, as well as a better product mix and cost saving initiatives. Volumes and market share, however, were both down.
In Chile, volumes were higher than last year and, despite an unfavourable exchange rate, profit grew due to higher margins and strong up-trading to Kent and Lucky Strike. Volumes in Peru were stable although profit declined due to competitive pricing.
Development of strategic brand portfolio in Chiletabacos
Chiletabacos has an excellent track record of delivering strong financial results. Yet more recently it has also demonstrated sterling progress in the development of a strategic brand portfolio where Global Drive Brands now deliver nearly 15 per cent of its sales volume, with total sales of Kent, Pall Mall and Lucky Strike surpassing the 2 billion mark in 2007.
Led by Kent, which alone has a market share of 8 per cent, the company has enriched its sales mix, with Premium-priced products now representing over 15 per cent of its sales volume. Notwithstanding tightening regulation and competition, Chiletabacos has, as a result, been very successful in benefiting from up-trading to these brands, all of which contributes to its sustainable future and continued success.
In Venezuela, profit increased strongly, despite the impact of exchange, due to price rises and higher volumes, partially offset by increased costs. Market share grew through good performances by Consul and Belmont.
The Central America and Caribbean area benefited from higher margins and more efficient product sourcing, but this was more than offset by the impact of exchange and lower industry volumes, as a result of excise-driven price increases.