BATS cheers vape and non-traditional product growth
British American Tobacco cheers vape and non-traditional product growth as US demand for cigarettes and combustible products disappoints
- Tadeu Marroco only succeeded Jack Bowles as BAT’s chief executive on 15 May
- BAT is relying on tobacco sales to fund developing its next-generation products
- Philip Morris International’s boss has said governments should ban cigarettes
British American Tobacco gained 900,000 more users of non-combustible products such as vapes in the first quarter, amid a continued shift away from smoking.
In the firm’s first trading update since becoming chief executive last month, Tadeu Marroco said the achievement not only boosted turnover but narrowed losses within BAT’s ‘new categories’ business.
Velo remains the group’s most popular modern oral brand in 15 European countries, while Vuse lifted its value share to 38.8 per cent across the top five vapour markets of the UK, US, Canada, France and Germany.
Next generation: British American Tobacco’s recently-appointed boss has said the company attracted 900,000 new users of non-combustible products in the first quarter alone
Marroco said tobacco-related sales are still ‘performing well’, with the exception of ‘disappointing’ sales in the US, where it sells the Camel and Newport brand of cigarettes.
While BAT, like other tobacco companies, is shifting its business gradually away from traditional products Marroco added that ‘returning combustibles to consistent value creation’ is ‘critical’ to the firm’s US strategy.
He said: ‘We are taking action, and while it will take some time to carefully and thoroughly implement our plans, our volume share has grown sequentially since the start of the year.’
BAT is reliant on solid performance from its combustible brands in order to fund the development of next-generation products, such as oral nicotine pouches and vapes.
The company, which owns the Lucky Strike and Dunhill brands, claimed to be on track to earn £5billion in turnover from non-tobacco alternatives by 2025 and for the division to turn a profit by next year.
Marroco, who succeeded Jack Bowles on 15 May, told investors that BAT was continuing ahead with its current strategy, which he said was ‘right’ and would be successfully completed.
He said: ‘Put simply, smokers must have access to better choices. This is already a reality for smokers who have made the switch to our reduced-risk products.
‘It also represents a commitment to our consumers who continue to smoke and are yet to make that transition.’
New head: Tadeu Marroco (pictured) succeeded Jack Bowles as chief executive of British American Tobacco last month
Sales growth within BAT’s so-called ‘reduced-risk’ products far outpaced the that of tobacco-related products, with the former expanding by 29.4 per cent and the latter only increasing by 4.5 per cent.
In the new categories segment, Vuse sales soared by over half to £1.44billion, and sales of tobacco heating products rose by nearly a quarter to over £1billion.
Yet combustible goods still contributed roughly 90 per cent of BAT’s total turnover.
BAT’s trading 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 carrying out the measure should be made along the lines of the prohibition of vehicles powered by fossil fuels.
He added: ‘Looking at what the UK is doing in the car industry, saying that as of a certain year, you are not allowed to produce petrol cars, we could have this with tobacco too.’
British American Tobacco shares were 0.2 per cent higher at £25.76 on Tuesday morning, although they have slumped by about 23 per cent this year.
Charlie Huggins, head of equities at investment broker Wealth Club. said: ‘The share price performance of BATS in recent years has been nothing short of dire.’
‘But fundamentally, BATS is still a hugely cash-generative business, with the firepower to invest in the NGP transition whilst returning cash to shareholders.
‘If the new CEO can accelerate that transition whilst keeping the cash flowing into shareholder’s coffers, there is scope for a recovery in sentiment.’