BAT Admits Some Customers Are Trading Down

Source from:  Times Online 05/07/2009

British American Tobacco, the world's second-biggest cigarette maker, admitted this morning that it has been hit by some customers downtrading to cheaper brands. The company, whose brands include Dunhill, Kent, Lucky Strike and Pall Mall cigarettes, said general trading conditions had become "tougher" during the first three months - with signs that in some markets, particularly in central and eastern Europe, consumers were downtrading to illicit tobacco. It said this was as a result of excise increases. BAT sold 27.1 billion cigarettes in Eastern Europe during the first three months of 2009 - down from 29.1 billion in the same period last year. Despite this, Paul Adams, chief executive, insisted BAT had made a good start to the year, highlighting an average 7 per cent increase in sales volumes of the London company's top four 'drive' brands. Pall Mall was the star performer, achieving an 11 per cent rise in sales volumes, while Dunhill rose by 8 per cent. Mr Adams said: "We have been encouraged by the good start to the year and the first quarter's trading demonstrates the strength of British American Tobacco's business, despite the difficult economic conditions. The continuing growth from our global drive brands, the balanced brand portfolio covering all price points, our leading market positions and our broad geographic spread give us confidence that we should deliver another year of good earnings growth." He said that total sales volumes during the period were up 170 billion on the same three months last year, a rise of 7 per cent, thanks mainly to last year's acquisitions of Tekel, the Turkish tobacco group - which gave it 36 per cent of Turkey's cigarette market - and Skandinavisk Tobakskompagni of Denmark. Shares of BAT, which have lost a sixth of their value since the end of January, were up 22p at ￡16.05 in mid-morning trading. David Hayes, of broker Nomura, said the sales volumes were slightly below expectations. He said: "The market may have some concern about the comments on the illicit trade growth." But Adam Spielman, of Citi, said: "Volumes are weakening, particularly in Eastern Europe, but this is offset by excellent pricing - so all regions saw increases in net sales and operating profits." Enditem