22nd Oct 2014 09:13
LONDON (Alliance News) - British American Tobacco PLC Wednesday said revenue in the first nine months of its financial year grew by 2.4% at constant foreign-exchange rates, as it raised its tobacco prices, but said that in sterling terms it's still being hit hard by the strength of the pound.
The company, one of the world's second biggest tobacco companies, said revenue grew at constant rates of exchange on the back of a slightly better price mix, but said growth was held back by weaker trading in Western Europe and, to a lesser extent, the Americas. It also cited competitive pricing in markets such as Australia and Malaysia as a drag on pricing.
"Group revenue for the nine months, at constant rates of exchange, was driven by good pricing, offset by increased competitive pricing activity and growth in the low-price segment in some key markets," the company said in its statement.
However, at reported currency rates, it said revenue declined by 9.6% for the nine months to September 30.
"Although currency movements impacted our reported results, the group continues to perform well, and we are on track to deliver another year of good earnings growth at constant rates of exchange," said Chief Executive Nicandro Durante in the statement.
The tobacco giant's shares were down 4.2% at 3,321.50 pence Wednesday morning, the biggest faller in the FTSE 100 index.
BAT's comments on sterling echoed those of rivals, including London-based Imperial Tobacco Group PLC, which last month said its profit continued to be hurt by the strong pound.
Berenberg analyst Erik Bloomquist said the BAT's third quarter figures were weaker than expected, with a currency drag for third quarter of about 10%, but said he expects the drag to lessen further in the fourth quarter to around 6%.
"In our opinion, the prospects for tobacco fundamentals are improving despite regulatory headline risk, as volume decline rates moderate and tax rate increases slow as well," said Bloomquist in a research note Wednesday.
British American Tobacco has been reporting the same story for some time now: steady profit gains as it focuses on driving growth of its most profitable brands in Asia and other emerging markets. BAT also is focused on reducing costs and increasing prices. Both efforts are aimed at offsetting continued declines in sales in most developed markets and in overall tobacco sales volumes.
In its statement Wednesday, the company said that in the nine months to end of September, it saw strong growth from its so called "global drive brands", with a good market-share performance in several key markets but a 1% decline in cigarette volume from its subsidiaries.
Its so-called "global drive brands" include Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans. Together they delivered growth in cigarette volume of 6.2%, driven primarily by its Dunhill brand.
"Our volume performance reflects our broad geographic spread, increased market share and excellent growth of our global drive brands," said Durante.
The company said cigarette volume grew in key markets including the Middle East, Venezuela, Pakistan, Ukraine and Indonesia, but was more than offset by lower volume in Russia, Vietnam, Brazil, Poland and Canada, mainly driven by industry declines.
Total tobacco volume also was 1.0% lower, it said.
Overall, total cigarette volumes across the group fell by 1% to 515 billion, down from 521 billion in the first nine months of last year, with developed markets in Western Europe and the Americas leading the fall.
"Industry volume has declined at a lower rate than last year, but is being impacted by large excise-driven price increases," the company said.
It said that although pricing is weighted to the second half of the year, recent competitive pricing activity in key markets such as Australia and Malaysia, and the growth of the low price segment, have resulted in some moderation of the improvement in price mix.
Earlier this year, British American Tobacco suspended its share buy-back programme, due to its planned investment of USD4.7 billion to maintain its existing 42% interest in the enlarged Reynolds American Inc group, following the acquisition of Lorillard Inc by Reynolds in a deal valued at USD27.4 billion.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
British American TobaccoIMT.L