British American Tobacco's slow-burn sales disappoint

29th Apr 2015 08:16

Sales volumes and revenues were lower at British American Tobacco in the first quarter but the group grew market share from its top brands and said results would be "significantly skewed" to the second half of the year.The company's headline performance was dented by continued pressure on consumers' disposable income worldwide and the impact of adverse exchange rates, with revenue declining 5.8% at current rates of exchange but actually rising 1.7% at constant currencies in the three months to end-March.The volume of cigarettes sold decreased by 3.6% to 152bn due to the tobacco industry's continuing worldwide decline, which was particularly felt in Brazil, Russia and Vietnam, exacerbated by inventory movements and strong volumes in the same period last year.However, the group grew market share by 40 basis point in the period thanks to 5.7% volume growth from its Global Drive Brands - Dunhill, Kent, Lucky Strike, Rothmans and Pall Mall.Rothmans volume increased by a notable 36.9%, driven by a strong performance in a number of markets, including Russia, Australia, Kazakhstan, Turkey and Italy.Last year the group suspended its share buyback after it agreed to invest $4.7bn as part of Reynolds American's proposed acquisition of Lorillard and maintain its 42% equity position in the enlarged Reynolds American business.The transaction has been approved by both Reynolds and Lorillard shareholders and a regulatory decision from the US anti-trust authority, the Federal Trade Commission, is expected shortly.RBC Capital Markets, which has a £30 price target and an 'underperform' rating, noted that the strong pricing was in part driven by increases in high inflation markets, "which highlight the shortfalls of focusing on organic revenue growth when part of the increase is likely to be lost in FX translation".The Canadian bank added: "The company also highlighted industry volume declines in Brazil and Russia; this isn't totally surprising but it is interesting to notice how we are receiving mixed signals on these two countries from other consumer companies."