BAT triggers buyback but shares drop

BRITISH American Tobacco’s (BAT) resumption of its share buyback programme and an upbeat 2011 outlook yesterday failed to offset concerns about declining cigarette volumes.

Shares in the London-based maker of Kent, Dunhill, Lucky Strike and Pall Mall cigarettes, fell 1.5 per cent despite the £750m share buyback plan and BAT saying the worst of the recession was behind it.

BAT, the world’s second-biggest cigarette maker and most globally spread of the big tobacco groups, said it had gained from raising prices, the purchase of Indonesia’s PT Bentoel and a weak pound as it posted a 15 per cent rise in annual earnings.

However, underlying cigarette volumes are still in decline and likely to stay weak in 2011. BAT has suffered as smokers switch to cheaper – and sometimes smuggled – cigarettes as they have been hit by excise tax rises and high unemployment levels.

BAT has sought to offset this with price rises and cost savings.

The group’s global cigarette volumes fell two per cent to 708bn cigarettes in 2010, but after price rises annual revenues rose five per cent to £14.9bn.

On an underlying basis BAT volumes fell three per cent in line with industry declines.

However, rival Imperial has seen a rebound in volumes. The share buyback scheme also disappointed some analysts who had suggested it would be worth £1bn rather than £750m.

BAT chief executive Paul Adams said: “Some emerging markets are now showing strong economic growth and even developed markets are returning to growth, yet unemployment remains stubbornly high in many parts of the world and disposable incomes are still under pressure.” Operating officer Nicandro Durante will succeed Adams, who is retiring, as chief next month.