Cigarette giant BAT still upbeat on alternative smoking gadgets

Cigarette giant British American Tobacco (BAT) believes revenue from its new-generation products (NGPs) will still top £1bn (R17.4bn) in revenue in the year to end-December despite a sales growth slowdown.

While BAT continues to build its traditional or cigarettes business, which still accounts for 94% of sales, there has been an increasing emphasis on investing in NGP categories such as tobacco heated products (THP) and vapour (vapes).

On Thursday BAT’s interim results commentary noted a slowdown in the THP category in certain segments including key markets in Japan and South Korea. But CEO Nicandro Durante was confident the 2018 revenue target for NGP would be exceeded with a range of new launches to re-energise growth in THP in the second half of the year.

Clearance

Durante said that in Japan the “glo” THP brand grew market share to 4.3% (from 3.3% at the end of 2017).

Durante said BAT had clearance to launch THP brands in the US, and plans to test this market in the next 12 months. He said the size of the THP category in the US was unknown. “We need to understand this market before doing a full launch.”

A revenue breakdown showed NGP products generating £405m, with THP accounting for £289m and vapes £116m.

Dirk van Vlaanderen, associate portfolio manager at Kagiso Asset Management, said after the unprecedented growth in THP in Japan over the past three years, it was inevitable that the market would have to pause for breath at some point.

“We still think THP will continue to take share from conventional cigarettes but at a much more modest pace, and the market is likely to become much more competitive….”

BAT’s traditional cigarette business managed smouldering profit growth in declining industry volumes, with revenue from the “strategic portfolio” more than doubling to reach £8.125bn after the inclusion of recently acquired Reynolds America.

On a representative constant currency basis the increase was 8.5%, buoyed by pricing and a 160 basis-point increase in market share.

Durante said the strategic cigarette and THP brands collectively grew volume 11.7% on a representative basis.

hasenfussm@fm.co.za