British American Tobacco PLC (LSE:BATS) reported a surge in revenues from its vaping products and other new categories in the first half, however margins remained under pressure.
In its results for the six months to June 30, the FTSE 100 maker of Pall Mall cigarettes reported adjusted revenues of £12.18bn, up 8.1% year-on-year, while profits from operations jumped 5.4% to £5.2bn.
READ: British American Tobacco ups revenue forecast as non-tobacco products pick up
Revenues were lifted by a 50% jump in the new categories division to £883mln, although BAT’s operating margins were cut by 70 basis points to 43%.
New categories include BAT’s glo tobacco heating brand as well as its Vuse and Vype vapour products and Velo modern oral products.
Revenue from its vapour products had jumped 59% during the period, the company said, with glo revenues up 38% and Velo increased 63%.
BAT also said it had achieved its “highest ever non-combustible product consumer acquisition”, with 11.8% of group revenue derived from non-combustible products and 2.6mln new consumer acquired. As a result, it predicted losses from the new category business are “expected to reduce” in the full year.
Looking ahead, the group reiterated its commitment to a 65% dividend pay-out ratio and growth while also forecasting mid-single figure constant currency adjusted earnings per share growth.
BAT also noted that global tobacco industry volume is now expected to be down 1.5% in the year compared to previous guidance of a 3% decline thanks to a strong recovery in emerging markets.
"This has been an exciting period of growth in New Categories, with New Category constant currency revenue up by 50% in the first half. We added 2.6mln consumers, our highest ever increase, to our non-combustible product consumer base, to reach 16.1m. This demonstrates our accelerating transformation driven by our multi-category portfolio, with continued key market share gains in all three New Categories”, BAT chief executive Jack Bowles said in a statement.
“We are building strong, global brands of the future with Vuse, Velo and glo. These are underpinned by industry leading multi-category consumer insights and science, with increasing digitalisation. We have invested a further incremental £346mln in the first half, funded by continued value growth from combustibles and expect to reach our £1bn Quantum savings target 12 months early. We have now increased our savings target to £1.5bn by 2022”, the CEO added.
It also said it is establishing a ‘Centre of Excellence’ to focus on developing the next generation of cannabis products, with an initial focus on cannabidiol (CBD).