BAT aims to ignite profit

• Company will simplify traditional cigarette business to help vapour and tobacco-heated devices hit £5bn by 2022

Cigarette company British American Tobacco is looking for blazing profit growth by 2022 from new-generation products such as tobacco-heated and vapour brands.

Cigarette company British American Tobacco (BAT) is looking for blazing profit growth by 2022 from new-generation products such as vapour and tobacco-heated brands.

Speaking at a Capital Markets Day presentation in London on Wednesday, BAT CEO Nicandro Durante said the group was already budgeting to break even in its tobacco-heated products (THP) and vapour divisions in financial 2018, with expectations for the delivery of “substantial profits” by 2022.

Durante disclosed that THP and vapour (or e-cigarette) sales should double to top £1bn in financial 2018. The sales split should result in THP generating revenue of £600m and vapour products £400m.

By 2022, Durante believed total new-generation product sales should reach £5bn. The sales split is expected to be £3.5bn from THP brands and £1.5bn from vapour products.

Durante said there was longer-term margin upside in new-generation product sales.

“Our new-generation product business has real momentum and our confidence is reflected in the financial objectives we have set out,” he said.

THPs work by having the tobacco heated sufficiently to release nicotine but not high enough to burn the tobacco.

In an international business review, BAT chief operating officer Jack Bowles said the THP and vapour segments had performed ahead of expectations.

BAT was accelerating the roll-out of THP and vapour.

Bowles noted that a further simplification of the traditional combustible business would be undertaken to release funds for new-generation expansion.

BAT’s recent acquisition of US-based Reynolds America also offered more traction in the THP and vapour market.

In a presentation covering the US markets, Reynolds America president and CEO Debra Crew said the company’s Vuse e-cigarette brand was the number one vapour brand, with market share leadership in 44 US states.

Crew disclosed that in the last financial year, Vuse had grown its market share by 2.9 percentage points. Vuse volumes were up 18% and revenue grew 35%, with “significant growth” in gross profit reported.

BAT has also enjoyed early successes with its THP brand, Glo, in Japan.

Durante said Glo had already notched up a national share in a leading convenience chain of more than 1.8% in only the second week of the national rollout. The market share in Sendai – where Glo was first launched – was now at 10.4%.

Bowles said Glo’s recent expansion in Tokyo, Osaka and Miyagi showed rapid growth in 12 weeks with the device managing market penetration of about 14.3%.