British American Tobacco increases outlook for smokeless alternatives to cigarettes
British American Tobacco has increased its outlook for smokeless alternatives to cigarettes as part of a strategy to move away from traditional tobacco products.
The Lucky Strike and Dunhill maker said sales of so-called new category products, such as vapes and nicotine pouches, are set for “mid-teens” growth, up from previous guidance for a low double-digit increase. The group said wider global cigarette industry sales by volumes are now expected to fall by around 2.5 per cent, against the 2 per cent decline previously forecast. British American Tobacco (BAT) confirmed annual revenue growth is still expected at the lower end of its 3 per cent to 5 per cent target range, while underlying operating profit will also be at the lower end of the 4 per cent to 6 per cent medium-term growth guidance.
Profits are set to be weighted toward the second half, helped by a “stabilising” performance across Asia Pacific, Middle East and Africa and savings from its cost-cutting overhaul. It said it was “closely monitoring developments in the Middle East”.
“While there is no significant impact on the group at this time, the broader macroeconomic and geopolitical backdrop is dynamic, increasing the risk of volatility in consumer sentiment should uncertainty persist,” it added.
The group said the growth in smokeless alternatives was being driven by oral and vaping products, with major brands including its vape brand Vuse and nicotine pouch Velo.
The FTSE 100-listed group said its Velo brand continued to deliver “excellent” revenue growth globally.
Tadeu Marroco, chief executive of BAT, said the group’s full-year delivery remains “firmly on track”. BAT has for a number of years been shifting its focus away from cigarettes and towards products like vapes and nicotine pouches to meet the changing market. This has prompted the company to say it is aiming to be a “predominately smokeless” business by 2035.
Despite this, smokeless products made up about 18 per cent of the group’s total revenues last year, with the rest coming primarily from cigarette brands including Lucky Strike, Pall Mall and Dunhill.
Sales from its cigarettes business totalled £20.2 billion for the year while it made £3.6 billion from so-called new category products.
Richard Hunter, Head of Markets at interactive investor, commented: “The update confirms both the perils and yet the robust profitability of the tobacco industry, as BATS continues to weave between the hurdles which it faces. On the one hand, the pressure on traditional tobacco products has been in evidence for some considerable time, driven both by changing lifestyle habits as well as increasing regulation.
"There have been several instances of governments toughening their stance on tobacco sales, especially to youngsters, which adds to the burden of regulatory censure which has plagued the sector over recent years.
"In addition, and quite apart from this general decline in traditional tobacco products sales as health issues come to the fore, there is a reluctance among some investors to invest in the sector at all on ethical grounds.”
Alex Pugh of investment platform Freetrade, said: "Fewer people are smoking, but BAT is still highly cash generative. The business is promising a progressive dividend, £1.3bn of buybacks this year and leverage back within target by year-end. BAT has a clearer map beyond cigarettes, but some routes look smoother than others.”