Here are two numbers that I think help make the case.
British American Tobacco, like the rest of the cigarette manufacturing sector, has seen demand for its traditional products steadily collapse due to pressure from many quarters. With regulatory conditions tightening across both traditional and emerging markets; sales for counterfeit products thriving amidst significant pressure on consumers wallets; and concerns rising over the health implications of smoking, revenues forecasts across the sector have worsened in recent times.
Indeed, British American Tobacco advised in todays financial update that total cigarette volumes decline to 495 billion sticks during January-September, down from 501 billion sticks during the corresponding 2013 period.
The business likes to make a song and dance over the strength of its Global Drive Brands, labels which comprise the likes of Lucky Strike, Kent and Dunhill. And while these products do indeed continue to perform well volumes here advanced 6.2% during the nine months due to market share grabs in key territories weakness across British American Tobaccos other brands continues to offset rising demand here.
On top of the sales problems outlined above, British American Tobaccos pan-global presence also leaves it horribly exposed to unfavourable currency movements. While the company saw turnover rise 2.4% at constant exchange rates during January-September, at current rates revenues nosedived a massive 9.6%.
The strength of the pound has proved a significant millstone across the firms neck, a point made all the worse by its heavy reliance upon emerging markets across Asia and Africa where currencies continue to fall through the floor.
And British American Tobacco is also facing galloping headwinds from Europe, with a steady deterioration of the euro against sterling exacerbating a natural decline in cigarette demand owing to the wider macroeconomic challenges on the continent.
With domestic interest rates expected to increase until after the general election at the earliest latest Monetary Policy Committee minutes for October showed economists at the Bank of England choose to keep rates on hold at record lows of 0.5% by seven votes to two and many analysts even ruling out a rise through to at least 2016, British American Tobacco looks set to endure the effects of adverse currency movements for some time to come.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.