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British American Tobacco cuts full year revenue target for cigarette alternatives

The maker of Lucky Strike and Dunhill cigarettes also warned that currency fluctuations would drag on full-year earnings

BAT
BAT recalled its called Vuse Vibe power units in the US earlier this year

British American Tobacco plc (LON:BAT) has lowered its annual revenue target for cigarette alternatives, blaming a flat performance in Japan and a product recall in the US.

The FTSE 100 company expects revenue from next-generation products, which include e-cigarettes and tobacco-heating devices, of £900mln this year, down from a previous target of £1bn.

BAT saw flat growth in Japan, which led the company to reduce planned inventories in the nation. It also recalled Vuse Vibe power units in the US earlier this year after receiving complaints from customers about malfunctioning batteries, which could have caused the product to overheat and create a fire risk.

READ: London’s tobacco stocks puff higher as vaping firm Juul gets surprise raid from US FDA

The company, which owns Lucky Strike and Dunhill cigarettes, also warned that currency fluctuations would drag on its adjusted earnings per share (EPS) growth by 7% if rates are unchanged for the rest of the year. At constant currencies, the group expects to exceed its target for high single-digit EPS growth.

In the cigarettes division, BAT said it continues to gain share in an industry where volumes are estimated to drop 3.5% this year as more people give up smoking.

Industry volume in the US is expected to fall 4.0% to 4.5% this year.

Chief executive Nicandro Durante said the company is making progress with its so-called potentially reduced risk products business, which includes the vapour and tobacco heating devices, and has a pipeline of new product launches over the coming months.

"At the same time, our combustible tobacco business continues to perform well," he said. "We remain on track for a strong performance in 2018."]

Shares dropped 1.4% to 3,283p in morning trading.

The trading update comes amid worries about a crackdown on cigarette regulation after the US Food and Drugs Administration highlighted research last week that discovered that cutting nicotine by as much as 96% would improve public health. 

“BAT is a share with an excellent long-term track record but it has come under pressure this year and hit a four-year low last week," said Graham Spooner, investment research analyst at The Share Centre.

"But overall the group stated that it continues to perform well and is still is confident to achieve good adjusted revenue growth mainly as a result of its strategic brand portfolio."

Quick facts: British American Tobacco PLC

Price: 2852 GBX

LSE:BATS
Market: LSE
Market Cap: £65.42 billion
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