JOHANNESBURG – British American Tobacco (BAT) jumped 3 percent on Thursday after the tobacco giant announced that it planned to reduce 20 percent of senior roles as part of a plan to simplify the organisation and cut costs.
BAT, the world’s second-biggest tobacco producer after Philip Morris, told shareholders that, by January next year, it envisaged cutting about 2 300 roles globally on mounting debt and the looming ban of vaping and e-cigarettes in the US, which is expected to weigh heavily on the prospects of the tobacco industry.
BAT said the headcount reduction would help it to deliver savings that could be reinvested in the growth of new products, including vapour, tobacco-heating products and oral tobacco.
Chief executive Jack Bowles said downsizing was a vital move to ensure that the company was simplified.
“Since taking on the role of chief executive five months ago, I have been clear that I wanted to make BAT a stronger, simpler and faster organisation, and ensure a future fit culture. My goal is to oversee a step change in new category growth and significantly simplify our current ways of working and business processes, whilst delivering long-term sustainable returns for our shareholders,” said Bowles.
“As a result, BAT will be better placed to deliver on our target of generating £5 billion (R90.6bn) of revenues in new categories by 2023/24.”
BAT proposed trimming management layers, and the creation of fewer but larger more accountable business units to focus on key growth areas. It also aimed to simplify key business processes and better leverage its global business services activities.
BAT is one of the biggest stocks on the JSE.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers said BAT shares strengthened yesterday as shareholders welcomed the cost-saving initiative.
“The worry by investors has been that significant investment into the new generation business should not be at the risk of further increasing gearing should the cash-cow traditional cigarettes business decline faster than expectations,” Takaendesa said.
“The other option in that case would have been to cut the dividend payment. The news of the headcount reduction means that the new generation business will now be safely funded internally, meaning that the risk of cutting dividends has diminished.”
Takaendesa said investors had been expecting the company to address its highly geared balance sheet.
“BAT aims to generate savings through reducing costs and by reinvesting the savings to grow the new generation business,” he said. “If you have high gearing on your balance, you need to generate alternative new funding sources.”
BAT closed 0.63 percent higher at R552.56 on Thursday.