British American Tobacco adds three million more modern product users

British American Tobacco has revealed it added 3 million new users of vaping and traditional oral products last year as it forecasted worldwide tobacco industry volumes would fall in 2021.

The Rothmans and Dunhill maker said sales of new categories jumped by 14.9 per cent, thanks to revenues from its vapour and modern oral products each rising by more than half to £611million and £198million respectively.

But this was not enough to stop its reported revenues falling 0.4 per cent to £25.78billion due to tobacco demand, which makes up the overwhelming majority of its earnings, falling by 1.1 per cent to £22.75billion.

BAT’s reported revenues fell modestly due to falling tobacco demand despite the surging popularity of products in new categories like vaping and modern oral 

It said cigarette volumes grew in its biggest market, the United States, as well as Brazil, Turkey and Russia, but travel restrictions imposed in response to the Covid-19 pandemic badly affected its duty-free business.

Online vapour product sales grew 40 per cent, with Vuse’s popularity helping to push revenues in the United States up by 11.2 per cent to £11.5billion, and BAT said the label now has the highest value share among vaping goods in 15 US states.

By contrast, the Middle East and Asia-Pacific region saw revenues decline 11.9 per cent as sales of cigarettes and tobacco heating products were severely hurt by travel curbs and the withdrawal of Sens from Japan at an estimated cost of £50million.

The firm also blamed weak demand in emerging markets, South Africa’s prohibition of tobacco purchases between March and August and higher excise taxes in Indonesia for the drop-off in trade.

However, its operating profits grew by 10.5 per cent to £9.96billion, and it raised its full-year dividend by 2.5 per cent to 215.6p per share, which it said was the highest dividend yield among FTSE-listed stocks, at a time rivals such as Imperial Brands have cut theirs.

Profits were boosted by shaving £660million in costs as part of Quantum, a corporate strategy project aimed at saving the firm £1billion by 2022 and allow them to invest far more money growing its new category products.

Vaping: British American Tobacco’s online vapour product sales grew 40 per cent, and Vuse’s popularity helped push revenues in the United States up 11.2 per cent to £11.5billion 

BAT believes revenues on a constant currency basis will rise by about 3 to 5 per cent to between £26.6billion and £27.1billion this year, at least £500million above analysts’ forecasts.

It added that it believes it will get closer to achieving £5billion in sales from new categories by 2025 and that it was ‘well on track’ to having 50 million customers of its non-combustible brands by 2030.

Growing health worries have led traditional tobacco companies to invest in less harmful goods such as vaping products. The National Health Service (NHS) states that vaping is far safer than smoking cigarettes.

The World Health Organization and the United States Centers for Disease Control and Prevention have also redoubled warnings about smoking, saying it makes it harder to fight off the effects of the coronavirus.

Russ Mould said BAT ‘faces a similar challenge to the oil and gas sector, replacing a revenue stream which is widely perceived as harmful with one which is as yet much less profitable and where its ability to dominate the market is less certain.

‘The growth in ethical investing is arguably even more of a problem for the likes of British American than the oil industry because, while fossil fuels perform a useful function alongside their less beneficial polluting qualities, it’s hard to make a case for cigarettes having any sort of positive impact.’ 

Shares in the company were down 4 per cent to £26.38 during the late morning. 

This post first appeared on Dailymail.co.uk