BAT Sees Cigarette Shipment Decline on Pakistan Floods

British American Tobacco Plc, Europe’s largest cigarette maker, said shipments will decline in 2010 as Pakistan’s worst flooding snares distribution in that market.

BAT expects full-year volume excluding acquisitions and divestments to drop about 3 percent, maintaining the rate of the first nine months, Michael Prideaux, director of corporate and regulatory affairs for the London-based company, said by telephone. BAT said in July it expected volumes to slow their decline in the second half.

“There’s an area the size of Italy that’s still underwater,” Prideaux said. “That does have an impact on distribution. Without Pakistan, I think I’d be more positive.”

BAT gets 6 percent of its volume from Pakistan, according to an estimate by Evolution Securities. One-fifth of the country was hit by the nation’s worst flooding ever in July. BAT said shipments are also declining as consumers switch to counterfeit and smuggled cigarettes in Romania, Turkey and South Africa.

BAT fell 44.5 pence, or 1.8 percent, to 2,393.5 pence at 8:53 a.m. in London trading.

The maker of Kent and Lucky Strike cigarettes also said it’s started talks with worker representatives to close a factory in Lecce, Italy, and cut 400 jobs to reduce costs.

The quantity of cigarettes sold in the nine months ended Sept. 30 dropped 1 percent to 526 billion. The median analyst estimate was 529 billion, according to a survey by Bloomberg News. BAT’s 3 percent decline in nine-month organic volume was lower than the median estimate for a 2.5 percent drop.

Cheaper Brands

Consumers are trading down to cheaper brands, though the company has boosted revenue through price increases, BAT said.

“The recession’s impact on consumers is still with us and shows no signs of abating,” Chief Executive Officer Paul Adams said in the statement.

BAT said it has continued to widen its operating margin by cutting costs, without elaborating. “We are on track for another year of good earnings growth,” Adams said.

Volumes of Kent, Lucky Strike, Dunhill and Pall Mall, BAT’s main global brands, rose 8 percent in the period. That rate will probably be closer to 6 percent for the full year, Prideaux said, adding that third-quarter shipments were boosted as consumers hoarded cigarettes in Japan ahead of a tax increase.

Tobacco companies will be able to increase sales in coming years as they still have pricing power, market research company Euromonitor said Sept. 21, predicting 2 percent annual growth in cigarette volume worldwide in the next five years.

Imperial Tobacco Group Plc, the maker of Davidoff cigarettes, said Sept. 22 it expected net revenue from tobacco to rise about 3 percent in the year through September as price increases offset a shipment decline.

To contact the reporter on this story: Tom Mulier in Geneva at tmulier@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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