BAT emphasizes the vaping shift, but tobacco sales still generate billions of pounds in profits.Business news

For some time it was clear that the world’s largest tobacco company was facing an existential crisis.

As existing smokers die, even some developing countries, where the health risks associated with smoking are underestimated, have not been replaced by a sufficient number of young consumers.

Meanwhile, as the number of investors focusing on environmental, social and governance (ESG) issues grows, companies that sell products that ultimately kill them to their customers are reducing the number of buyers of their shares. increase.

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BAT said its vaping brand is approaching global market leadership

Therefore, competition is shifting from traditional “flammable” products to less harmful alternatives.

Jack Bowles, CEO of British American Tobacco (BAT), the world’s second-largest tobacco company, said today:

“To achieve this, we would like to encourage smokers who would otherwise continue to smoke to completely switch to low-risk alternatives.

“It is clear that the greatest contribution we can make to society is to provide smokers with a wide range of low-risk cigarette alternatives.”

His comments are behind a statement from Yazek Olzac, CEO of Philip Morris International (PMI), the world’s largest tobacco company, over the weekend. New Gasoline and Diesel Vehicles-For Tobacco Outlawing.

Many are skeptical of such comments.

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Increasingly ESG-focused investors are less enthusiastic about tobacco company stocks

They would argue that if companies like PMI and BAT are serious about improving public health, they will soon stop selling tobacco.

Nevertheless, it is worth pointing out that even ten years ago, such comments from the executives running BigTobacco would not have been possible.

So it would also have been the type of investor presentation given today by BAT.

Owners of tobacco brands such as Kent, Dunhill, Pal Mall, Rothmans and Camel talk about so-called new categories of products (vaping brand Vuse, heat-not-burn tobacco brand Glo, nicotine pouch Velo) rather than traditional products. Spent a lot of time on. , Old-fashioned gasping.

BAT was renewing the market with adjusted semi-annual operating profit up 5.4% to £ 5,235m.

Perhaps the most eye-catching number disclosed by BAT today was that 12% of sales (nearly £ 1 for every £ 8) came from non-combustible products.

Sales in this category were up 50% to £ 942m and sales in the vaping category were up 59%.

Bowles said Vuse, which became the company’s flagship brand earlier this year after the abolition of the former British brand Vype, is now approaching leadership in the global market.

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CEO Jack Bowles said BAT’s priority is to invest in new categories. Photo: BAT via PA

He added that BAT plans to generate £ 5 billion annually in new categories of products by 2025.

Vuse is currently the market-leading vaping brand in 20 states in the United States. Tighter regulatory approach Even though startup brand Juul has established a lead over the years, it’s more vaping than Europe.

In the UK it accounts for just over 36% of the vaping market, and in Germany and France it is 59% and 43.6% respectively.

Unfortunately for BAT, this category is not yet profitable due to the large investment required to increase its market presence.

All the benefits reported by BAT today were from its traditional products.

Total sales of so-called combustibles increased by 5.8% in 6 months, not only due to price increases in some markets, but also due to volume increases.

In the first half of this year, the company sold 316 billion “sticks,” the industry term for individual cigarettes. This was an increase of 1.8% year-on-year.

It highlighted the strong growth of markets such as Bangladesh, Pakistan and Vietnam. All of these suffered during the 2020 lockdown, highlighting what BAT pointed out last year and contradicting some of its competitors. It was hit From a pandemic.

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BAT is one of the largest payers of dividends on the FTSE 100 Pic: BAT via PA.

Most investors support the move to a new category of products (1 billion BAT tobacco packets worldwide this year will carry a message urging smokers to switch to them), but this most Further debate continues about what the cash-producing companies are doing, and they will deploy the enormous amount of cash they generate.

This has reached £ 2.25 billion in the last six months alone.

Frenchman Bowles today reveals that BAT’s top priority is to reduce its net debt of £ 40.5 billion at the end of June and support continued investment in new categories. Did.

However, there is disagreement over how cash will be developed after these uses.

BAT is important to many income funds as one of the largest payers of dividends on the FTSE 100.

However, the stock has a relatively low valuation due to the stable flow of investors abandoning the company, and BAT will issue in just five years if it is ready to use such cash instead of paying dividends. You can buy back half of your stock.

Intriguingly, Bowles hinted that the company needed to say more about this later this year.

Meanwhile, with the Biden administration Reportedly The move to reduce nicotine levels in traditional cigarettes to non-addictive levels does not make the switch to new categories of products fast enough.

BAT emphasizes the vaping shift, but tobacco sales still generate billions of pounds in profits.Business news

Source link BAT emphasizes the vaping shift, but tobacco sales still generate billions of pounds in profits.Business news

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