BAT in $2 billion share buyback as earnings rise

British American Tobacco , the world's second-biggest cigarette maker, increased its share buyback to 1.25 billion pounds ($2.0 billion) after it raised prices and saw strong growth in emerging markets to help boost full-year earnings.

The London-based maker of Dunhill, Kent, Lucky Strike and Pall Mall cigarettes bought back 750 million pounds of shares in 2011 and has raised its 2012 programme, confident it has growth ahead and firepower for acquisitions.
BAT, which made 705 billion cigarette last year, has seen smoking decline in Western Europe and North America and offset that with higher prices and by making gains from growth in developing markets such as Brazil, Mexico, Romania and Russia.

"The economic climate around the world is far from settled but we remain confident that our strategy should continue to generate growth for our shareholders in the years ahead," chairman Richard Burrows said on Thursday.

BAT, the most globally spread of the big tobacco groups, has not been immune from tough economies, excise tax rises and higher unemployment which have pushed smokers to give up or switch to cheaper -- and sometimes illicit -- cigarettes.

Higher prices meant that while underlying global volumes fell 0.4 percent last year, revenue rose 3 percent to 14.4 billion pounds. Marlboro-maker Philip Morris, the world's largest cigarette group, saw its underlying 2011 volumes rise 0.5 percent.

BAT Chief Executive Nicandro Durante said he expected industry volumes ex-China to be down 1-2 percent this year after a decline of 2 percent in 2011, while BAT would continue to outperform as it gained share in a number of markets.

"We face a very difficult economy with disposable income not up and unemployment high," he added.

Durante said the group was flexible enough to conduct bolt-on acquisitions but he said it was difficult to see big deals happening with the world's four largest listed cigarette groups controlling 80 percent of the global market outside China.

BAT said it gained from its good spread of businesses with 60 percent of profit and 75 percent of volume coming from emerging markets. In mature Western Europe, where it cut costs as well as raising prices, profit rose 10 percent.

The higher buyback and slightly better than expected 2011 earnings prompted analysts to upgrade forecasts, with Rae Maile at JP Morgan increasing his 2012 earnings estimate 0.5 percent to 213.85 pence per share and put 2013 up 1.5 percent. "The company continues to offer shareholders a compelling mix of earnings growth, dividend growth and modest valuation," he said.

BAT shares, up 9 percent over the past month, were down 1.4 percent at 3,088 pence by 1300 GMT in a 0.2 percent higher London blue-chip stock market.

The group posted a rise of 11 percent in 2011 adjusted diluted earnings per share to 194.6 pence, compared with a Thomson Reuters poll forecast for 193.9 pence and a BAT-compiled consensus of 194.3 pence.