BAT aims to double e-cigarette revenue
• Tobacco company targets at least £5bn in income from new products in four years, CEO says
British American Tobacco (BAT), which owns cigarette brands such as Camel, Lucky Strike and Kent, wants to more than double revenues from newer “non com bustible products” such as vapour and tobacco heating products (THP) in the next few years.
This thrust comes as shareholders weigh up the effects of the Covid-19 outbreak on tobacco companies, whose products can compromise consumers’ health.
In the annual report released on Friday, BAT chair Richard Burrows said the London-based group was closely monitoring the development of Covid-19.
“We believe that our business continuity plans will ensure the business is prepared to manage the challenges as and when they may develop.
“Notwithstanding Covid 19, with our new management team and strategy, I am confident that we are well placed to deliver sustainable growth for many years to come.”
On the growth of BAT’s business outside its traditional cigarette market, CEO Jack Bowles said the group was aiming for at least £5bn (more than R105bn) in “new categories” revenues in the 2023/2024 financial year.
BAT’s brands in this niche include Vuse and Vype (vapours) and Glo (THP).
NEW GENERATION
In the past financial year to endDecember BAT managed to increase revenues from noncombustible products 37% to £1.3bn, with the group claiming nearly 11-million consumers of the so-called new-generation brands.
Bowles said the past year’s revenue had more than doubled from two years ago. “This provides us with a vital platform for the future.”
Neil Brown, a fund manager at Electus Fund Managers, cautioned that 2023/2024 was a long way away. “So it’s dangerous forecasting £5bn of revenue. BAT will no longer comment regarding the breakeven or profitability of new-generation products ... and this is very important.”
Brown also warned that it seemed likely countries would want the same value of tax from tobacco companies regardless of the product being peddled.
“So as people smoke fewer cigarettes and use more newgeneration products, the countries will have to increase their taxes on these products.”
Contextualising the £5bn sales target, Bowles said the success of the new non-combustible product categories was an ability to offer consumer satisfaction in circumstances where the consumption of combustible tobacco is no longer permitted or socially acceptable.
“With new adult generations increasingly focused on health and lifestyle considerations, technological innovation and personalised consumer experiences, it is expected that the growth of new categories will continue to accelerate as they can better meet consumer preferences and demands.”
Bowles pointed out that newcategory nicotine products have grown quickly worldwide, with an estimated 54-million vapour consumers and 15-million THP consumers.
He said the latest (2018) global figures suggest that global vapour product sales were worth $15.7bn, while global THP revenues stand at $11.9bn.
CONSUMER TASTES
Bowles noted there had also been growth in the market for wellbeing and “new active” products, and said this growth would continue as consumer tastes fragmented and evolved.
“Within this space, cannabidiol [CBD] oil is expected to gain wider use, as already evidenced by its recent growth in market size.”
The BAT annual report showed its THP consumable volume up 32% to 9-billion sticks, with revenue increasing about 29% to £728m.
In the Japanese market, BAT’s THP category volume share reached 19.6%, with volume growing 21% because of the launch of new device upgrades such as Glo Pro, Glo Nano and Glo Sens.
BAT’s total volume of vapour consumables was up 19% to 226-million units in 2019, with revenue up 26.1% to £401m.
But in the US, total revenue from vapour products only increased 12% to £207m, with that market partly affected by the Food and Drug Administration decision that all flavoured cartridges and pods (excluding menthol and tobacco flavours) must be withdrawn until cleared through the premarket tobacco application process.
There is debate in the market that regulatory initiatives to ban menthol and reduce nicotine levels in cigarettes — which have dogged BAT in recent years — might be muted by the outbreak of Covid-19, with legislators perhaps reluctant to add more pressure to US businesses.