British American Tobacco PLC (LSE:BATS)’s new boss Tadeu Marroco has warned investors not to expect “linear growth” in its new products division, even though it is on track to turn a profit next year.
New products such as vapes, oral nicotine and heated products saw 29% growth in the half year to end June 2023 compared to just 4.4% in cigarettes and tobacco.
But concern has been growing about the health risks of these new category products, especially heated tobacco and menthols.
Marroco said vapour and oral products did well in the first half but conceded there is more work to do in heated tobacco, especially in the US where a groundswell is building against certain types of these new product categories.
Sales overall rose to £13.4bn with £1.65bn from new categories, with inflation and slower global growth affecting the core business, said Marroco.
Stripping out the impact of its pullout from Russia last year, underlying profits rose by 3.6% to £6bn at constant currencies.
“I remain confident that New Categories will deliver a positive contribution in 2024. However, we do not expect contribution growth to be linear, as levels of investment will align with the phasing of our big innovation platforms," Marroco added.
"While more focus is required in the US, our sequential performance improvement in the critical premium US combustibles business since January 2023 is encouraging."
Full-year guidance was unchanged at revenue growth of 3-5% and mid-single figure earnings growth.
Net debt at the half year was £37.3bn.