BAT signals that yet more factories will close to cut costs

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The Independent Online

British American Tobacco yesterday signalled further factory closures were likely as it raised its cost-cutting targets after reporting a jump in profits. The group, which owns the Lucky Strike, Kent, Dunhill and Pall Mall brands, is targeting "substantial" savings from its supply chain as it tries to integrate recent acquisitions such as Italy's ETI. It has recently shut factories in the UK and Canada, cutting more than 1,000 jobs.

British American Tobacco yesterday signalled further factory closures were likely as it raised its cost-cutting targets after reporting a jump in profits. The group, which owns the Lucky Strike, Kent, Dunhill and Pall Mall brands, is targeting "substantial" savings from its supply chain as it tries to integrate recent acquisitions such as Italy's ETI. It has recently shut factories in the UK and Canada, cutting more than 1,000 jobs.

A company spokesman said there was "considerable overcapacity" across its 67 factories. "We have 16 factories in the enlarged European Union and you have to wonder how long that is sustainable," he said. "No decision has been taken but the consensus is that we have to get our costs down."

A decision to shift to manufacturing in countries such as Nigeria and South Korea has left BAT with other factories that are producing too many cigarettes for export. "Not all our capacity is in the right place," the spokesman added.

The cigarette-maker still employs 2,000 people in the UK, at its one remaining factory at Southampton. The group also expects to cut an additional £120m from its overhead and indirect cost base, saving up to £320m by the end of 2007. It raised its original target after achieving £153m of savings with two years of its cost-cutting drive left to run.

Jan du Plessis, who succeeded Martin Broughton as chairman last year, yesterday knocked back persistent speculation that BAT would mount a takeover bid for its UK rival, Gallaher. "Sitting where we are today, we can't see us bidding for Gallaher or [Spain's] Altadis. We are focused on relatively small acquisitions," he said.

Mr de Plessis reiterated the group's pledge to pay out half its future earnings in dividends as BAT reported a 20 per cent jump in pre-tax profits to £1.89bn, including gains on disposals and a 2 per cent jump in operating profits to £2.83bn, in line with forecasts. Shares in the group jumped 21.5p to 976.5p.

Its cigarette volumes rose 8 per cent to 853 billion in 2004, although the increase was limited to just 0.4 per cent excluding the impact of acquisitions. In Canada, Japan, France and Germany, higher excise taxes have hit its volumes.

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