British American Tobacco PLC (LON:BATS) said a stronger performance from cigarettes was offsetting weaker growth from vaping in the US, meaning full-year sales and profits are on track to be in the upper end of its expectations.
Echoing recent warnings from industry rivals, the Lucky Strike and Rothmans maker said revenue growth of “new category” products – ie e-cigarettes – was likely to be the lower end of its predicted 30-50%, “reflecting the recent slowdown in the US vapour market”.
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But the FTSE 100 group said it was gaining market share in this category thanks to increased investment and new product launches that had seen “good growth” in the second half.
Counterbalancing this, ciggies and other ‘combustibles’ are expected to see full-year sales volumes in line with the 3.5% industry decline but with BAT’s big brands gaining market share and enjoying strong pricing both globally and in the US.
As such, the full-year outlook is for adjusted revenue growth to be in the upper half of management’s 3-5% long term guidance range at constant currency rates, with adjusted operating profit growth in the upper half of the 5-7% range and adjusted earnings per share growth at a high single figure.
With a US$45.5bn pile of adjusted net debt earlier this year, BAT said it was reducing its ratio of debt to earnings by roughly 0.4 times, excluding the impact of currency swings, with free cash flow after dividends on track to come in around £1.5bn for the year.
Chief executive Jack Bowles, who joined in January and in September unveiled major job cuts, said: “We are driving value growth in combustibles, we are investing to deliver a step-change in New Categories and we are transforming the business to create a stronger, simpler, more agile BAT. We are on track for a strong year.”
On the issues around vaping in the US, he added that he thought it “should lead to a better and stronger regulatory environment in which we are well placed to succeed”.