UPDATE 2-British American Tobacco profit hit by strong pound

Wed Jul 30, 2014 4:19am EDT

* H1 sales volume down 0.4 pct

* H1 EPS 101.8 pence vs forecast 102 pence

* Firm says Rothmans, Pall Mall, Dunhill gaining share (Adds analysts' estimates, share activity, background)

By Martinne Geller

LONDON, July 30 (Reuters) - British American Tobacco reported lower revenue and profit for the six months ended June 30, hurt by the strong British pound and a slight decline in volume.

Excluding the impact of foreign exchange rates, the world's No. 2 tobacco company by sales cited improved market share for its Rothmans, Pall Mall and Dunhill brands and strong performance in places including Indonesia and Mexico.

Sales volume for the global tobacco market is expected to shrink by about 2 to 3 percent this year, hurt by economic weakness and a growing health consciousness that is leading many people to quit smoking or switch to e-cigarettes.

BAT expects to outperform the industry, said its head of corporate and regulatory affairs, Kingsley Wheaton.

In the first six months of the year, BAT's sales volume, which measures the number of cigarettes sold, fell 0.4 percent, an improvement on the 2.7 percent decline the company reported for 2013.

"We remain confident of high single-digit earnings growth at constant rates of exchange, which we have said we will recognize with an increase in the dividend," said Chairman Richard Burrows in a statement.

Adjusted earnings fell 9 percent to 2.7 billion pounds ($4.6 billion) in the first half of 2014. At constant exchange rates, earnings rose 4 percent, helped by price increases.

Earnings per share were 101.8 pence, a shade below analysts' average estimate of 102 pence.

Revenue also fell 10 percent to 6.8 billion pounds. Excluding the impact of currency, revenue rose 3 percent.

At current spot rates, Wheaton said foreign exchange would have a 12 percent hit on earnings and revenue for the full year. In particular, BAT has been hurt by a weakening of the Brazilian real, South African rand, Australian dollar, Canadian dollar, Russian rouble and Japanese yen against the sterling.

Sterling's trade-weighted index against a basket of currencies hit a six-year high earlier this month.

BAT's shares were down 0.4 percent at 0851 GMT in London.

($1 = 0.5903 British Pounds) (Editing by Louise Heavens and Mark Potter)