LONDON, Aug 1 — British American Tobacco reported better than expected first half sales today, helped by higher demand for e-cigarettes and tobacco heating products, and said revenue growth would accelerate in the second half of the year.
The Lucky Strike and Dunhill cigarette maker, which is the world’s No. 2 tobacco company by sales, said it was on track to deliver high single digit constant currency-adjusted earnings growth this year, even as it invests more money into its brands.
BAT shares were up 2.3 per cent at 3020.5 pence in early trade, adding to the 18 per cent rise in the company’s market value this year.
First half revenue for the maker of Vuse e-cigarettes and glo tobacco heating devices rose 4.6 per cent to £12.17 billion (RM61 billion) beating an average forecast by analysts of £12.09 billion.
It said growth came mainly from new categories that include modern oral products - small nicotine pouches applied on gums — e-cigarettes and tobacco heating devices, with their total revenue rising 27 per cent to £531 million in the first half. This helped offset a decline in cigarette sales in the United States.
Europe and Canada led e-cigarette demand, while Japan snapped up its tobacco heating product glo and Russia led in oral products, said Group Head of Corporate Affairs Simon Cleverly.
Jefferies analysts said BAT delivered a “better than expected” cigarette volume performance with declines running in line with broader industry trends and showing some market recovery.
Cash cow
But despite the better performance BAT said US cigarette volumes would fall 5.5 per cent, accelerating from the 4-5 per cent it estimated earlier, as tougher regulation and a wider array of e-cigarette options continue to hit its cash cow business. The US market contributes to a third of the BAT’s overall sales.
On Tuesday, bigger rival Altria Group Inc said US volumes could fall by as much as six per cent this year.
Still, the results were generally seen as positive.
“This was a solid half year for BAT. Their focus on key global brands and next generation products is sustaining the group’s earnings power at a time when the regulatory pressure on the industry is stepping upwards,” said Steve Clayton, manager of HL Select funds, which holds a position in BAT.
BAT also said today that in May the British American Tobacco UK Pension Fund entered into a buy-in transaction with Pension Insurance Corporation plc, to transfer £3.4 billion of assets.
The deal secures benefits for 10,600 members, including 8,300 pensioners and 2,300 non-pensioners.
The Pension Insurance Corp separately said the deal was the third largest transaction in the United Kingdom and was the largest-ever including both pensioner and deferred members.
BAT’s adjusted earnings per share came in at 149.3 pence, beating analysts’ estimates of 146.15 pence, according to Refinitiv’s I/B/E/S.
BAT also said it was on track to be “around the middle” of its guidance range of 30-50 per cent of annual revenue growth from new categories, on a constant currency basis. — Reuters
