British American Tobacco reports revenue growth of 4% in first nine months of 2012; cigarette volumes from subsidiaries down 1.2% to 517 billion

Nevin Barich

LONDON , October 24, 2012 (press release) – Cigarette maker British American Tobacco (BAT) reported revenue growth of 4% at constant rates of exchange in the nine months to end-September. Cigarette volumes from subsidiaries decreased by 1.2% to 517 billion.

Global Drive Brand volumes grew by 3%.

Nicandro Durante, CEO, commented: "Economic recovery remains fragile this year and difficult trading conditions persist in many parts of the world. However, pricing remains strong, we are growing underlying market share and our Global Drive Brands continue to perform well. The trading performance of the Group is good and we are on track for another year of good earnings growth."

British American Tobacco said it continued to perform well in the nine months to the end of September 2012 with continued growth in underlying revenue and in the Global Drive Brands. Group volumes were down, after a low Q3, mainly driven by reduced industry volumes and a strong comparator, although the effect is expected to moderate by Q4. Underlying market share grew with strong performances in the majority of the top 40 markets.

Group revenue for the nine months at constant currency grew 4%, driven by continued good pricing. Reported revenue was down 1%, adversely impacted by exchange rate movements. Organic revenue growth at constant currency was 3%.

Group volumes from subsidiaries were 517 billion, down 1.2 per cent, while organic volumes were 1.8 per cent lower as a result of the industry volume decline and the benefit in the comparative period of the one-off increase in sales volumes in Japan. Industry volume was down in Brazil as a result of a significant excise increase which has led to a rise in illicit trade. The benefit to Group volumes from the acquisition of Protabaco in Colombia and the higher sales in Bangladesh, Vietnam, Pakistan and the GCC, was more than offset by decreases in Brazil, Japan, Italy, Turkey and Egypt.

The four Global Drive Brands continued their good performance and achieved overall volume growth of 3 per cent. Kent was slightly up, growing in Russia, Ukraine and Azerbaijan but almost offset by the decline in Japan. Dunhill was 2 per cent higher than last year with good performances in the GCC, South Africa, Romania and Indonesia, partially offset by the adverse impact of competitive pricing activity in South Korea. Good performances in Pakistan, Russia, Romania and Canada, partially offset by lower volumes in Chile, Spain and Italy, contributed to a 2 per cent increase in Pall Mall volumes. Lucky Strike grew 14 per cent following good growth in Poland, Germany, France, South Korea, Argentina and Chile.

Other tobacco products performed very well and market share grew strongly. Volumes were up 8 per cent to 10,739 tonnes of Fine Cut in Western Europe, mainly in Germany, France, Hungary, the Netherlands, Spain and the United Kingdom. Pall Mall remains by far the largest Fine Cut brand in Western Europe.

BAT said the trading environment continues to be challenging, with industry volumes under pressure. In this environment the expansion of illicit trade remains a threat, driven by excise increases and pressure on consumers' disposable income.

The Group resumed an on-market share buy-back programme from the end of February 2012. During the nine months to September 2012, 30 million shares were bought at a total cost of £978m, excluding transaction costs.

The Group said it has sufficient financing and facilities available for the foreseeable future.

The changes in the financing arrangements since the beginning of the financial year were the repayment in June 2012 of a €337 million bond, a $690 million syndicated term credit facility and Mexican Peso 2,469 million borrowings. In June 2012, the Group issued $2 billion bonds and in July 2012, cancelled a €450 million syndicated term credit facility.

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