BAT on track for £800m savings

26 October 2011

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26 October 2011 | Adam Leach

BritishAmerica Tobacco is on target to deliver efficiency savings of £800 million over five years through rationalisation and centralised procurement.

In a statement to shareholders, released today, the company said: “The group continues to improve its operating margin by addressing the cost base through factory rationalisation, systems standardisation and productivity savings.”

A spokeswoman for the company told SM that the cost efficiency drive is part of a five-year plan to make savings of £800 million. She explained that the company is currently three years into the initiative and on track to deliver the savings.

While a breakdown of the precise areas where the savings have been delivered is not available, the spokeswoman explained that a rationalisation of its factory base has made a significant impact. In addition to this, the company has been examining and will continue to look at the potential to increase efficiency in back-office and IT functions. It will also look to leverage economies of scale benefits as a result of recent acquisitions, such as the Productura Tabacalera de Colombia, Colombia’s second largest cigarette company.

Centralised purchasing has already helped BAT increase its buying power and secure better deals and is continuing to do so. The £800 million plan was launched straight after the company announced it had delivered £1 billion in savings over five years in 2008. In order to deliver the first savings plan, it reduced supplier numbers and made the packaging materials of its cigarette brands, such as Lucky Strike, less complex.

In today’s statement, the company reported revenue growth of 7 per cent. Chief executive Nicandro Durante, said: “We are on track for another year of good earnings growth.”

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