Shares in British American Tobacco were down in morning trading after the company reported a slight drop in the volume of cigarettes sold in the nine months to 30 September.
The total volume of cigarettes sold by the group dropped from 533 billion in the nine month period last year, to 526 billion this year.
The group saw declining volumes in all regions, with the exception of Asia-Pacific, where volumes rose from 134 billion to 141 billion. The fall in volumes was attributed in part to illicit trading in some markets being encouraged by high excise rates and lower disposable income.
Despite the fall in volumes British American Tobacco said that it had seen good revenue growth in the period and that it was "on track for another year of good earnings growth".
Revenue growth was put down to favourable exchange rate movements and the acquisition of PT Bentoel Internasional Investama Tbk (Bentoel) in Indonesia.
Paul Adams, Chief Executive of British American Tobacco, 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. Despite this, we have increased market share in our largest markets, grown the Global Drive Brands and achieved good growth in revenue. We are on track for another year of good earnings growth."
Richard Hunter, Head of UK Equities at Hargreaves Lansdown Stockbrokers, commented, "The wider market malaise has exacerbated a difficult trading update from the company.
"Inelastic demand has been tested in some of the emerging regions, as some smokers have turned to the illicit trade with less disposable income available at the cheaper end of the market. The overall volume decline for BATs was also caused from the Pakistan floods and falls in certain markets. Further out, the threat of litigation remains a potential cost of doing business, whilst the current foreign exchange benefit is likely to wane over the remainder of the year. Nonetheless, the company has reported good revenue growth, helped along by keen pricing and the close control of operating margins. The shares remain largely defensive, the business is geographically diverse and the dividend policy is both progressive and attractive in the current interest rate environment, with the shares presently yielding in excess of 4%.
"Global market turbulence has highlighted the shares' defensive appeal, which have risen 23% over the last year as opposed to a 10% gain in the wider FTSE100. The investment case remains tilted towards the positive with the general market consensus remaining that the BATs is a buy."
By 09:30 shares in British American Tobacco were down 1.50 per cent to 2,401.50 pence per share.