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British American Tobacco PLC (BATS.LN), Thursday cautioned the consumer outlook remains uncertain, even as it posted a rise in profit on higher revenue, boosted by demand in emerging markets. BAT is further building its position in growth economies such as Eastern Europe, Africa, the Middle East and Asia, where adult and middle-class populations are rising. Developing economies account for around 75% and 60% of the industry's total volumes and profit, respectively.

BAT, the world's second-biggest listed tobacco company, and its competitors--U.S.-based global market leader Philip Morris International Inc. (PM), Japan Tobacco Inc. (2914.TO) and U.K. peer Imperial Tobacco Group PLC (IMT.LN)--account for around 75% of the total cigarette market, excluding China, the word's biggest single market, where state-controlled China National Tobacco Co. has a virtual monopoly. Still, Chairman Richard Burrows cautioned the global economic climate remains "far from settled".

Smokers in more mature markets are switching to low-cost brands as spending is squeezed amid government austerity measures like tax hikes and spending cuts. To compensate, tobacco companies are phasing in price rises to maintain and build margins. London-based BAT, the maker of Dunhill, Kent and Lucky Strike cigarettes, said net profit in the year to Dec. 31 rose to GBP3.1 billion from GBP2.9 billion a year earlier.

Pretax profit excluding exceptional items, the figure closely watched by analysts, increased 11% to GBP5.52 billion from GBP4.98 billion, missing a company consensus forecast of GBP5.68 billion. Revenue increased 3% to GBP15.4 billion from GBP14.9 billion. Still, the company's total volumes, excluding acquistions, fell 0.4% to 705 billion sticks from 708 billion, as smokers struggle with tough global economic conditions.

This compares to Imperial's 7% first-quarter volumes fall as constant currency revenue slipped 1%, hit by a trade ban in Syria and destocking. Philip Morris notched up full-year volume growth of 1.7%, or 0.5% excluding acquisitions. At 0919 GMT, BAT shares were down 24 pence, or 0.8%, at 3109 pence, in a higher London market. Deutsche Bank analysts said the results are solid, while the group's valuation is attractive to investors, leading to profit-taking. In the U.K., BAT has been generally favored by investors due to its balance between mature and emerging markets, while around 65% of Imperial's business is in developed economies. Even as cigarette sales are under attack by advertising and display restrictions, as well as smoking bans in public places, tobacco stocks have maintained their outperformance in the downturn as consumers are reluctant to crimp habits.

Global brand volumes rose 9%, with Lucky Strike rising 14% and Pall Mall increasing by 11%. Asia Pacific volumes rose to 191 billion from 188 billion, but volumes in the Americas and Western Europe fell. Director of corporate and regulatory affairs Michael Prideaux said Russia, Mexico and Brazil performed well, even as he estimated the profitability of the Turkish market has halved due to higher excise duties. Still, Prideaux said strong pricing in Europe last year, which boosted profit, should continue. The company recommended a full-year dividend of 126.5 pence, up 11% from 114.2 pence. It will also buy back further shares, to the value of GBP1.25 billion, after completing a buyback of GBP750 million in 2011.

Prideaux said the company has a "strong case to argue" against legislation to introduce plain packaging, which comes into force in Australia at the end of this year. He expects the U.K. to launch a consultation next month. If the policies are eventually implemented, the U.K. would become the first European Union country to introduce plain cigarette packs. "You would hope that other countries would wait and see if it's the disaster that we think its going to be," Prideaux said.

The tobacco industry says there's no evidence plain packaging impacts smoking uptake by young people. It's also claiming intellectual property and international trade infringements. The industry is also concerned that generic packs--which would prevent manufacturers from using logos or colors--will increase illicit trade.