British American Tobacco PLC (LSE:BATS) reiterated its revenue guidance for 2022 in a trading update today, anticipating that its diversification into the vapour and non-cigarette market will finally begin to pay off.
Its new business line “is increasingly contributing to group performance, and we are confident in delivering our £5bn New Category revenue and profitability targets by 2025”, the company said in a statement.
Ross Hindle, an analyst at Third Bridge, said BAT's aspiration to reach £5bn of sales and achieve profitability in its new products stream is “achievable”, but warned: “Russia and Ukraine are very important heated tobacco markets, they are even more important for BAT than PMI, with 26% of their heated tobacco sales coming from the region historically.”
BAT predicted a 3% drop in tobacco industry volume due to the macro impact of Russia’s war on Ukraine and an “uncertain” outlook in the US due to rising gas prices.
It is "transferring" its Russian operations in addition to moving its East and North Africa business into its Europe portfolio, after selling its operations in Iran last August.
The non-combustible product consumer base reached 19.4mln in the first quarter of the year. In the first half of the fiscal year, it invested more than £1bn to build its brands in this area. Its portfolio of non-combustible products includes vapes, nicotine pouches, tobacco heating products and other oral products.
“We are leveraging the strength and increasing scale of our three global drive brands, and are continuing to reduce New Category losses,” said chief executive Jack Bowles.
Its vape brand Vuse now occupies a value market share of 35.9% in the US, up 3.4 percentage points in the year to date versus 2021, it said. The product launched in the UK this May and the company said it has further rollouts planned for the second half of the year.
The FTSE 100-listed company reported that early clinical studies have shown "completely switching to glo from cigarettes resulted in positive changes to all measured indicators of potential harm, with the majority of indicators similar to quitting”, with results due to be published shortly.
The tobacco products company claims to hold a 69.3% share of the modern oral products market in Europe and its heated tobacco product share is expected to reach 19.6% in top markets for these products for the year to date.
Reiterating its 2022 guidance, BAT said it predicts revenue growth of 2% to 4% this year and mid-single figure adjusted earnings per share growth. However, it forecast tailwinds to its earnings per share growth and operating profit from foreign exchange rates.
“We are highly cash generative," said Bowles. "In line with our active capital allocation framework, and in addition to our growing dividend, we are on track to return £2bn to shareholders through our 2022 share buyback. We are committed to delivering superior long term shareholder returns.
“As previously announced, given the continuing conflict in Ukraine, we are working towards transferring our Russian business in full compliance with international and local laws.”
The company hopes to become carbon neutral by 2030 and brought online two new low-carbon factories this year.