british american tobacco p.l.c. annual report 2008 - Europe (1 of 2)

In Europe, profit at £1,213 million was up £371 million, as a result of the ST acquisition and excellent performances in Russia, Uzbekistan, Romania and Spain, with growth in Germany, France, Switzerland and Italy, partially offset by decreases in Hungary, the Czech Republic and Belgium. These results benefited from the more favourable pricing environment, an improved product mix and exchange rates. At constant rates of exchange, profit would have increased by £235 million or 28 per cent.

Excluding the benefit from the acquisition of ST, profit increased by £280 million, up 33 per cent, or £144 million, up 17 per cent at constant rates of exchange.

Regional volumes were up 4 per cent at 254 billion, benefiting from the acquisition of ST. Volume increases in Poland, Romania, Uzbekistan, Switzerland and Spain were more than offset by decreases in Russia, Italy, Germany, Ukraine and the Czech Republic.

The acquisition of ST in the middle of the year resulted in significant additional profit for the region.

In Italy, Lucky Strike performed very well although overall volumes were adversely impacted by the decline of local brands and the disposal of some brands in 2007. Profit increased as a result of lower product costs due to continuing productivity programmes and reduced overheads, partly offset by reduced volumes.

Volumes in Germany declined as industry volumes shrank while market share was slightly lower. However, Pall Mall performed well by growing volume and market share. Profit increased as a result of higher margins from a combination of price increases, reduced product costs and overhead savings.

While industry volumes in France were lower, volume and market share grew, led by Dunhill, Lucky Strike and Pall Mall. Profit increased as a result of higher prices and overhead savings.

In Switzerland, Parisienne, Lucky Strike and Pall Mall continued to grow market share and profit increased due to higher volumes and improved margins.

In the Netherlands, profits were down as a result of slightly lower volumes, despite an increase in market share. Industry volumes in Belgium were severely impacted by last year’s excise-driven price increase and, together with the sale of the pipe and cigar business in 2007, resulted in lower profit. Market share improved, assisted by the successful migration of Winfield to Pall Mall.

In Spain, strong profit growth and higher volumes were achieved due to the excellent volume and share growth of Lucky Strike, coupled with a more favourable pricing environment.