BAT goes on the campaign trail

PUNTING ALTERNATIVES: LESS DAMAGING TO HEALTH

New noncombustion range includes vapour, tobacco heating and oral tobacco.

Facing legal and regulatory actions involving claims of personal injury and economic loss, as well as swelling antismoking sentiment fuelled by campaigns, British American Tobacco (BAT) is forging ahead in transforming tobacco.

Investing heavily in creating an alternative product with less harmful toxins, it has termed this new line next generation products (NGP).

BAT distinguishes between tobacco products, which require combustion (producing toxic smoke), and “potentially reduced-risk” products, which are vapour, tobacco heating, oral tobacco and nicotine products.

Hence, “alternative tobacco products” refers to noncombustion products, which either heat the tobacco (producing a tobacco-tasting nicotine-laced aerosol), or a liquid that produces a vapour to be inhaled.

It’s the action of heating, as opposed to burning, that reduces the harm to health, according to industry-funded research.

Vaping products don’t necessarily contain nicotine from tobacco plants. The synthetic version of nicotine is prohibitively expensive, but the cost may reduce in time.

The group has begun an extensive scientific research programme and is investing heavily in the development and commercialisation of the global NGP market. It has expressed confidence that this market is set to more than double in the five years up to 2021.

Much has gone into design and development, resulting in small, sleek products, such as glo and glo iFuse, which can be held in one’s palm, or the e-pens closely resembling their namesake.

The NGP products may escape the wrath of the antismoking lobby, for now. However, there is no guarantee the tobacco giants will be in control of the rapidly developing NGP market.

BAT faces strong competition from other vapour-like products. It is too soon to tell if vaping is attracting smokers, or growing a new market from nonsmokers.

In July 2017, BAT acquired the remaining 57.8% share in Reynolds American for £41.8 billion, becoming the world’s largest e-cigarette maker.

The acquisition was funded in part cash, part equity; 429 million new BAT ordinary shares underlying the BAT ADSs were listed on the LSE and JSE, resulting in the share capital increasing by 21.19% from £507 million to £614 million.

The group’s products are sold in over 200 markets. Its leading brands include Kent, Dunhill, Lucky Strike, Newport, Camel, Rothmans, Pall Mall and Natural American Spirit cigarettes, and vapour brands Vype ePen and Vuse. Vuse sales are rising despite a recall relating to a consignment of malfunctioning batteries.

The Reynolds acquisition boosted group revenue by 32.6% to £19.6 billion at December 31, 2017, and £11.6 billion for the six months to end June 2018.08.12.

The extensive public relations exercise in brand awareness, cognisance of consumers of the alleged reduced risk, the industry-funded research and the weighty legal machinery all come at a huge cost. Nonetheless, the profit after tax for the six months to end June 2018 is £2.8 billion.

BAT is facing litigation in many jurisdictions from claims for personal loss to violations of competition and antitrust laws.

Yet it is confident it will win most tobacco-related litigation, or that the claims will be dismissed at or before trial.

It is too soon to tell if vaping is attracting smokers, or growing a new market from nonsmokers.