UPDATE 2-British American Tobacco sees more earnings growth in 2014
* Sees single-digit core profit growth
* Adjusted EPS up 6 pct in 2013, in line with consensus
* Currency headwinds could impact this year
* Shares down 1.2 pct
By Sarah Young
LONDON, Feb 27 (Reuters) - British American Tobacco , the world's No. 2 cigarette maker, said it expected single-digit core earnings growth again this year as it continues to expand its share of a shrinking cigarette market.
BAT's core earnings rose 6 percent in 2013 as it snapped up a bigger share of its key cigarette markets, boosted by growth of its global brands Kent, Dunhill, Lucky Strike and Pall Mall.
"We think we'll continue to be able to deliver the high single digit earnings per share growth," BAT's director of corporate affairs, Kingsley Wheaton, said in an interview on Thursday.
Last year, innovations such as "capsules" which can change the taste of a cigarette to menthol drove sales in Malaysia and other parts of Asia, while an "additive free" range of Lucky Strikes proved popular, particularly in Germany, said Wheaton.
BAT's overall cigarette volumes declined by 2.7 percent in 2013, a less steep decline than the wider industry which shrank by 3 percent, Wheaton said.
Big tobacco companies including BAT's rivals Philip Morris International and Imperial Tobacco are grappling with waning demand in a number of markets due to increasing government regulation and more health-conscious consumers, as well as economic weakness and smuggling.
But Wheaton said BAT's focus on its global brands, combined with more product innovation and further tight control of costs, would underpin earnings growth this year.
The company improved its operating profit margin by 100 basis points last year, partly through a standardisation of its systems.
BAT posted 2013 adjusted diluted earnings per share of 216.6, up from 205.2 pence last year and in line with an analyst consensus forecast of 216.8 pence.
Adverse currency movements in countries including Brazil, Australia, Japan and South Africa impacted earnings by about 4 percent, BAT said. On a constant-currency basis, adjusted earnings per share would have come in 10 percent higher at 224.7 pence.
"If the rates remained as they are today for the rest of the year, we would indeed have another year of some currency headwinds," Wheaton warned.
Panmure Gordon analysts estimated that currency headwinds could depress BAT's revenue by around 11 percent this year.
SHARES OUTPERFORM FTSE
Shares in BAT traded down 1.2 percent at 3,134 pence at 1028 GMT. Britain's bluechip FTSE 100 index which was down 0.9 percent.
"I think there was a growing unease that maybe the underlying markets would have been getting tougher for BAT so the fact that they've come in with a robust set of underlying numbers is quite reassuring," said Societe Generale analyst Chas Manso.
The company said it would lift its annual dividend by 6 percent to 142.4 pence per share, and confirmed a further 1.5 billion share buy-back programme for 2014.
To help secure growth in the longer term, BAT, like its rivals, is investing in electronic cigarettes - battery-powered metal tubes that turn nicotine-laced liquid into vapour.
These so-called e-cigarettes are gaining popularity in markets such as Europe and the United States, with people looking for smoking alternatives.
BAT launched its own version called Vype in Britain last July, but did not give details of its performance on Thursday.
Earlier this month, the company became the biggest tobacco company to show a television advert for e-cigarettes in Britain, using the strap line "pure satisfaction for vapers" on television, but "pure satisfaction for smokers" online.
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