British American Tobacco hit by strong pound, lower sales

By Aastha Agnihotri

(Reuters) - British American Tobacco Plc (BATS.L), the world's No. 2 cigarette maker, reported a drop in first-quarter revenue, hurt by a stronger pound and as more people cut back on smoking.

Tobacco companies are grappling with falling sales as people cut back on smoking due to higher taxes and growing health consciousness. In response, the companies have forayed into e-cigarettes and the industry has witnessed consolidation.

Shares in BAT, which makes Dunhill and Lucky Strike cigarettes, fell as much as 2.4 percent in early trading on Wednesday, and were among the top losers on the FTSE-100 index (.FTSE).

Revenue fell 5.8 percent for the three months ended March 31. Excluding the impact of currency, revenue rose 1.7 percent.

The pound gained almost 2 percent against the Bank of England's trade-weighted basket of currencies (=GBP) in the first quarter.

Volume, which measures the amount of tobacco sold, fell 3.6 percent.

"Volume data can be volatile in tobacco but following a very positive picture given by Philip Morris International Inc (PM.N), the major international rival, this is disappointing," Panmure Gordon analysts said in a note.

Philip Morris, the maker of Marlboro cigarettes, raised its full-year profit forecast earlier this month as it sold more cigarettes at higher prices, especially in Europe.

BAT, which sold 667 billion cigarettes last year, also said the trading environment remained challenging and that performance would be weighted towards the second half of the year.

The company said its good volume performance in markets such as South/Central Asia and Mexico was more than offset by declines in countries such as Brazil, Russia and Vietnam.

"The main markets Brazil, Russia and Vietnam are weaker, which are the three big emerging markets. So we are seeing some downtrading, people buying cheaper cigarettes," analyst Eddy Hargreaves of Canaccord Genuity told Reuters.

BAT shares were down 1.2 percent at 3622.5 pence at 0836 GMT.

(Reporting by Aastha Agnihotri in Bengaluru; Editing by Anupama Dwivedi)