British American Tobacco optimistic of delivering annual outlook
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British American Tobacco’s shift to vaping and other “new category” products is accelerating as sales grow
- BAT expects revenue growth of 2-4% at constant exchange rates this year
- The company owns the Lucky Strike, Rothmans and Dunhill cigarette brands
- It estimated the total customer base for its “new category” products at 21.5 million
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British American Tobacco maintains its full-year outlook due to continued growth in demand for non-tobacco products.
Chief executive Jack Bowles told investors that the blue-chip company was on track to steadily increase adjusted operating margins, despite significant inflationary pressures in the supply chain, through higher prices and brand size.
For the current year, the company also expects revenue growth of 2 to 4 percent at constant exchange rates, in addition to a mid-single figure increase in adjusted diluted earnings per share.
Popularity: British American Tobacco estimated that about 3.2 million more people began using its non-combustible offerings in the first nine months of 2022
In recent years, BAT has sought to bolster demand for its “new categories” while reducing reliance on traditional tobacco products.
It estimated that in the first nine months of 2022, approximately 3.2 million people increased use of the non-flammable offering, bringing the total customer base for this market to 21.5 million.
The popularity of flagship brand Vuse fueled much of this growth, expanding its value share to more than a third in the top five vaping regions, including the US, where it is the market leader in 35 states.
Thanks to the healthy demand for nicotine pouches, market leadership was further maintained by the modern oral brand Velo in 15 European countries.
However, volume share in the five largest modern oral markets fell 4.1 percentage points from the previous year due to a weaker performance in the US, where the group has decided to prioritize investments in the vapor sector.
Tobacco volumes in the US are under greater pressure from the normalization of consumption patterns and rising fuel prices due to the easing of Covid-19 restrictions and the Russian invasion of Ukraine.
Bowles said, “To offset early signs of accelerated industry downtrading in the second half of the year, we recently activated commercial plans for specific brands, channels and states.”
BAT’s revenues are still entirely dependent on cigarette sales from brands such as Lucky Strike, Rothmans and Dunhill, as it has yet to make a profit from its new category branch due to significant investment in marketing and R&D.
Profits have also been hit this year by the decision to suspend operations in Russia, where the group controlled about a quarter of the local tobacco market.
In March it said it would “swiftly hand over” Russian operations, although today it gave no further update on how that was progressing.
British American tobacco Shares fell 2.4 percent to 3,328.5 pence mid-morning Thursday, though their value far outperformed the broader FTSE 100 index by about 26 percentage points.
Head of markets at Interactive Investor Richard Hunter: ‘BAT is in a sector that is in full transformation and is driving its own course towards the new world.
“With the industry acknowledging the longer term need to reduce reliance on traditional tobacco and transition to the fast-growing “new category” product area, the signs for BAT are encouraging.
‘The group is confident that it will reach the £5bn revenue milestone by 2025 whilst driving the unit to profitability…the group’s established scale and cash generation brings the target closer.’