BATS cheers vape and non-traditional product growth

British American Tobacco gained 900,000 additional users of non-flammable products such as vaping in the first quarter amid an ongoing shift away from smoking.

In the company’s first trading update since becoming CEO last month, Tadeu Marroco said the performance not only boosted sales but also reduced losses across BAT’s “new categories” business.

Velo remains the group’s most popular modern oral brand in 15 European countries, while Vuse increased its value share to 38.8 percent in the top five vape markets of the UK, US, Canada, France and Germany.

Marroco said tobacco-related sales are still “performing well,” with the exception of “disappointing” sales in the US, where the cigarette brand sells Camel and Newport.

While BAT, like other tobacco companies, is gradually shifting its business away from traditional products, Marroco added that “returning combustibles to consistent value creation” is “critical” to the company’s US strategy.

He said: “We are taking action, and while it will take some time to carefully and thoroughly execute our plans, our volume share has grown sequentially since the beginning of the year.”

BAT relies on solid performance from its combustible brands to fund the development of next-generation products such as oral nicotine pouches and vaping.

The company, which owns the Lucky Strike and Dunhill brands, claimed to be on track to reach £5bn in sales from non-tobacco alternatives by 2025 and for the division to turn a profit next year.

Marroco, who succeeded Jack Bowles on May 15, told investors that BAT was continuing with its current strategy, which he said was “correct” and would be successfully completed.

He said: ‘Simply put, smokers should have access to better choices. This is already a reality for smokers who have switched to our reduced risk products.

“It also represents a commitment to our consumers who continue to smoke and have yet to make that transition.”

New head: Tadeu Marroco (pictured) succeeded Jack Bowles as CEO of British American Tobacco last month

Sales growth for BAT’s so-called “reduced risk” products was much faster than that of tobacco-related products, with the former increasing by 29.4 percent and the latter by only 4.5 percent.

In the new categories segment, sales of Vuse increased by more than half to £1.44 billion, and sales of tobacco heating products increased by almost a quarter to more than £1 billion.

Yet flammable goods still contributed about 90 percent of BAT’s total sales.

The BAT trade update comes a day after the head of Philip Morris International, owner of Marlboro and Benson & Hedges, told the Daily Mail that governments should set dates for banning cigarettes.

Jacek Olczak said a timetable for the implementation of the measure along the lines of the ban on fossil fuel vehicles should be established.

He added: ‘Looking at what the UK is doing in the car industry, saying you can’t produce petrol cars from a certain year, we could have this with tobacco too.’

British American Tobacco Stocks were 0.2 per cent higher on Tuesday morning at £25.76, though they are down about 23 per cent this year.

Charlie Huggins, head of equities at investment brokerage Wealth Club. said, “BATS’ stock price performance over the past few years has been nothing short of appalling.”

But fundamentally, BATS is still a huge cash-generating company, with the firepower to invest in the NGP transition while returning cash to shareholders.

“If the new CEO can accelerate that transition while also getting cash flow into the shareholders’ coffers, there is room for sentiment to recover.”