UPDATE 2-BAT plans rapid e-cigarette expansion around world

Wed Jul 31, 2013 5:22am EDT

* H1 adj. EPS up 10 pct to 111.1p at constant currency

* Rev up 4 pct to 7.75 bln stg, cigarette volume down 3.4 pct

* Shares up 0.3 pct

By Neil Maidment

LONDON, July 31 (Reuters) - British American Tobacco said it would move rapidly to expand its presence in the electronic cigarette market around the world after launching its first product in Britain earlier this week.

The world's No.2 cigarette maker, whose premium brands include Kent, Dunhill, Lucky Strike and Pall Mall, launched online sales of 'Vype' on Monday, becoming the first major tobacco firm to offer e-cigarettes in Britain.

"We'll focus on the UK, but the e-cigarette business is moving quickly all over the world, and we want to make sure that we also move quickly, because we want to take a leading position," BAT director Kingsley Wheaton said on Wednesday, after the firm posted a 4 percent rise in first-half sales.

"I think we'll be following it (Vype) up with other opportunities around the world with a reasonable degree of speed," he said.

Electronic cigarettes - battery-powered metal tubes that turn nicotine-laced liquid into vapour - are gaining popularity among smokers who are trying to quit. Market consultant Euromonitor estimates the world market was worth over $2 billion last year.

All the top tobacco companies including Lorillard, Imperial Tobacco, Reynolds American and Altria are now placing bets on e-smokes, which some analysts say may outsell conventional cigarettes in 10 years.

In Britain, where BAT expects to sell Vype in shops from September, the number of e-cigarette users is expected to grow from 700,000 in 2012 to 1.3 million this year, according to analysts. E-cigarettes will be regulated in the UK as non-prescription medicines from 2016.

"BATS' move we would argue is positive and puts pressure on the UK major tobacco manufacturers to demonstrate their respective capabilities in the space," Panmure analysts said, adding the group's first-half results were broadly in line.

BAT said it was confident of another year of good earnings growth as price rises helped offset falling consumption to push first-half sales up 4 percent to 7.75 billion pounds ($11.8 billion) at constant exchange rates.

Operating profit grew 4 percent to 2.94 billion pounds.

Sales volumes in the first six months of the year were down 3.4 percent at 332 billion cigarettes as a strong performance in Asia Pacific and higher sales of its premium brands was outweighed by a fragile European market and tough one-off trade comparatives in Brazil and the Middle East.

"Despite fragile economic conditions persisting in some parts of the world, notably Europe, BAT has delivered another good set of results," Chairman Richard Burrows said.

Half-year adjusted diluted earnings per share rose 10 percent to 111.1 pence, and BAT declared an interim dividend of 45.0 pence, up 7 percent on last year.

Shares in the firm, which hit a record high of 3807.50 pence in May, were up 0.4 percent to 3474.0 pence at 0918 GMT.

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