BAT sees volumes dip as smokers cut back

British American Tobacco, the world's number two cigarette maker, posted a bigger than expected 3 per cent fall in underlying volumes as recession caused smokers to cut back and a rise in illicit trade hit sales.

In the nine months to 30 September, volumes were down 1 per cent to 526 billion cigarettes, which equated to a 3 per cent dip in underlying sales.

The maker of Kent, Dunhill, Lucky Strike and Pall Mall said that although cigarette volumes dipped, revenue showed good growth helped by price rises, the weak pound and the purchase of PT Bentoel in Indonesia in June 2009, and it still saw a year of good earnings growth for 2010.

The group said the volume decline was due to recent flooding in Pakistan, increased illicit trade in Romania, South Africa and Turkey and also tough trading in Germany.

The 3 per cent dip was below analyst forecasts for a fall of 2 to 2.5 per cent and was similar to the 3 per cent fall seen in first-half volumes.

Paul Adams, BAT's chief executive, said: "The challenging economic conditions, excise-driven price increases and high unemployment have led to some softening of our volumes. The recession's impact on consumers is still with us and shows no signs of abating."

Analysts said the 3 per cent fall in third-quarter volumes was in line with the world's largest listed tobacco group, Philip Morris International, and better than Imperial Tobacco's 4 per cent.