By Martinne Geller
LONDON (Reuters) - British American Tobacco (L:BATS), the world's second-biggest tobacco company, reported slightly better than expected sales for 2014, gaining share in a market shrinking as more smokers stub out the habit.
The company, with operations in over 200 countries, was hit hard by the strong British pound and said that impact would continue this year, especially as some currency hedges expire.
Aside from a growing health-consciousness, the global tobacco industry is under pressure from weak consumer spending, higher taxes and competition from cheaper black-market smokes and e-cigarettes.
Still, BAT's stock, like those of its consumer packaged- goods peers, has risen significantly over the last year, as economic volatility and low interest rates led investors into stocks with reliable dividends.
The company proposed a final dividend for 2014 that would result in a four percent increase for the year. It said it had the capacity to continue increasing it in 2015 and beyond, despite currency headwinds.
The London-based company behind Dunhill and Lucky Strike said annual 2014 revenue fell 8.4 percent to 13.97 billion pounds. Analysts on average expected 13.89 billion, according to Reuters data. Earnings per share were 208 pence, also beating expectations.
RBC Capital Markets analysts called the performance "robust" and BAT's shares were up 0.7 percent at 0930 GMT, while the FTSE 100 index (FTSE) was flat.
Cigarette volume, down 1.4 percent, was more resilient than a 2.5 percent decline for the industry. It expects sales to again outperform the market this year, which should shrink by 1 to 1.5 percent, excluding the impact of certain tax-related price increases.
BAT is considering buying out its Brazil subsidiary Souza Cruz (SA:CRUZ3) in a deal that could cost 2.3 billion pounds. If that goes ahead, BAT says it would likely not consider any share buybacks until 2017. It had previously flagged 2016.
Like rivals, BAT is exploring cigarette alternatives that replace smoke with vapour. It said it plans to start consumer trials of a tobacco heating product by end-2015 and to have a product in a test market in 2016.