British American Tobacco plc (LON:BATS) said its earnings have been boosted by a weaker pound but warned that volumes would be affected by shipment delays.
The London-based tobacco company, whose cigarette brands include Pall Mall, Lucky Strike and Dunhill, revealed in a trading update that its first half will be hurt by the phasing of shipments in a number of its key markets, including Pakistan.
It therefore expects full year volumes to fall 4% and that profit growth will be weighted to the second half.
Investments in next generation products, including e-cigarettes, and marketing spend in the first half will also carve into profits.
E-cigarettes expansion for BATS...
The group’s vapour business is now the largest in the world outside of the US on the back of the expansion of its Vype brand. Its share of the UK vapour market is now 40%, according to data from AC Nielsen.
The company also launched its tobacco heating product, glo, in Japan in December, and said the product “continues to exceed our expectations”. BATS - which said the product heats rather than burns tobacco, producing about 90% less toxicants than a conventional cigarette - is on track for further Japanese and international rollout in the second half.
The group’s expansion of next generation products comes as growth in the consumption of conventional cigarettes stalls.
BATS said while it continues to perform well in Canada, Romania, Bangladesh and Ukraine, conditions “remain challenging” in Brazil, South Africa, Malaysia, France and the UK.
Still, the company expects its market share to continue to grow, driven by its core cigarette brands.
Currency tailwinds blowing in BATS' favour...
Favourable foreign exchange rates have also supported results, lifting earnings per share by 14% in the first half. Should exchange rates remain relatively unchanged for the rest of the year, then BATS expects a tailwind on operating profit of 7% for the full year.
“The business continues to perform very well and trading is in line with our expectations,” BATS said.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said currency winds are blowing in BATS favour for a change but the group sounds cautious on volumes.
"Market share growth is certainly welcome, but with market volumes expected to fall 4% that still leaves plenty of room for a negative volume outcome," Hyett said.
Next generation products seem to be making steady progress, although will remain a small part of the overall business. Longer term, we’ll be particularly interested to see which of the competing reduced harm technologies carries the day, as there are significant differences between the approaches of major tobacco companies at present.”
Shares in BATS rose 0.85% to 5,460.0p in afternoon trading.