Big Tobacco giant British American Tobacco PLC (LSE:BATS) has criticised US authorities for the “lack of enforcement” against “illicit” single-use vapour products, as it reported earnings ahead of forecasts for the first half of the year.
The comments came in BAT’s half-year trading update, which showed that smokeless products now comprise 17.9% of the company’s total revenues, up from 16.5% in the first half of 2023.
Single-use vapes, primarily cheaply imported from China, have become a hot-button issue in the industry. Though technically never approved by the Food and Drug Administration in the US, brands such as Elf Bar and Esco Bar remain widely available at retail outlets.
In the UK, the government is moving to fully ban disposable vapes due to environmental and underage vaping concerns.
The FDA seized 1.4 million illegal vape units with a retail value of $18 million in December 2023, but BAT says the level of enforcement is insufficient for the scale of the problem.
“The growth of illicit single-use vapes continues to negatively impact the legal market with industry volumes in rechargeable closed systems down c. 9% in the first half of the year,” said BAT.
“We continue to call for more appropriate regulation and enforcement to tackle illicit products in the category,” the company added while welcoming the “encouraging early signs of illicit products volume decline in Louisiana, the first state to implement a vapour directory and enforcement legislation in October 2023”.
BAT also welcomed the creation of a Federal Multi-Agency Task Force to tackle the problem.
BAT has its own vaping product, the tobacco-flavoured Vuse Alto, which was recently approved by the FDA.
Vuse volumes were down 8.1% in the first half, which BAT again blamed on the illicit single-use industry.
Total revenues across all product lines fell 8.2% to £12.34 billion while operating profit fell by more than a quarter due to a ramping up of US-based amortisation charges and the company’s exit from Belarus and Russia.
However, BAT remains a high-margin, cash-generative business, with £700 million worth of shares being repurchased in 2024 and £900 million planned for 2025.
BAT paid out £2.6 billion in dividends in the reporting period. The group also announced the hiring of Goldman Sachs to handle its share repurchase programme.
Adjusted earnings per share of 169p were ahead of consensus forecasts of 166p.
Shares were up 1.7% to 2,620p in early Thursday trades.