British American Tobacco has cut its full-year revenue target for cigarette alternatives such as vaping pens and tobacco heating devices, citing a flat market in Japan and a product recall in the United States.
The world's second-biggest international tobacco company by revenue is pinning its hopes for volume growth on next-generation products, as demand for traditional cigarettes wanes.
But regulators are closely watching the new products. Advocates say they can be used to wean lifelong smokers onto less harmful nicotine products, but critics warn they risk drawing a new generation to nicotine addiction.
Next-Generation Products
The company said on Tuesday it expected revenue from next-generation products to reach £900 million this year, down from a previous target of £1 billion.
It said the cut was due to flat growth in Japan, the most developed market for tobacco-heating devices, and the recall in the United States of its Vuse Vibe e-cigarette.
BAT's Finance Chief Ben Stevens said that tobacco heating devices, such as its glo product and Philip Morris International's IQOS, can still reach one-third of Japan's tobacco market, up from about a quarter now. The slowness, he said, is due to more conservative consumers taking longer to adopt the new product.
He said that many consumers are using both, conventional cigarettes and tobacco-heating devices - which heat tobacco enough to create a vapour, rather than burning it - whereas initial expectations were that once consumers started using the devices they would switch altogether.
The maker of Lucky Strike and Dunhill cigarettes also warned that currency fluctuations would hurt its full-year adjusted earnings per share growth by 7%, assuming rates were unchanged for the rest of the year. Its previous guidance was for a 6% hit.
On a constant currency basis, BAT expects to exceed its target for high single-digit adjusted earnings per share growth.
Gaining Share
In cigarettes, BAT said it was gaining share in an overall market whose volume is expected to shrink about 3.5% this year, as more people quit smoking.
In the United States, industry volume is expected to fall 4 to 4.5% this year, with a slight improvement in the second half.
BAT's Stevens said the company had no plans to enter the cannabis market at this stage.
"We're making sure we understand the market, we're studying it in detail but we're not planning at the moment to sign any alliances or marketing arrangements," he said.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
