BAT delays revenue goals as vaping hit by pandemic
9 June 2020, 08:24
Revenue growth targets for this year have been reduced to between 1% and 3% due to the crisis.
Cigarette giant British American Tobacco has warned that it could take two years longer than expected to reach a major milestone in the business unit which includes its vape pens.
It also warned that revenue from its overall business is likely to miss expectations.
Covid-19 has slowed the growth of vaping products, which are touted as the big saviour in western countries for under-pressure tobacco companies.
BAT said that it could now take until 2025 before it starts making £5 billion in revenue from its new categories business unit, which includes vape pen Vype.
“Covid-19 has disrupted consumer activation plans, reducing overall industry growth rates in new categories,” BAT told shareholders on Tuesday.
“It has also led to the scaling back or postponement of some launches, as well as causing supply disruption and out-of-stocks earlier in the year.
“While the vapour category continues to recover following the global slowdown in the second half last year, the US market remains below historical levels.”
BAT had originally hoped the segment could reach revenue of £5 billion in the 2023-24 financial year.
The new categories products include oral tobacco, and heated tobacco products, including Glo.
It follows a turbulent time for the vaping industry. Not only have the tobacco giants who are betting on it had to deal with the pandemic, they are also being increasingly scrutinised by regulators.
Vapes had been riding high until reports started linking them to lung damage, and even death, among young people.
It led to a ban on many flavours of the devices in several US states.
“The last three years have been difficult ones for big tobacco. Hit by regulatory crackdowns, and advertising bans on its traditional tobacco products, the industry switched focus onto the e-cigarettes and vaping products,” said Michael Hewson, an analyst at CMC Markets.
“British American Tobacco has been no different, its share price sliding sharply in the wake of the global crackdown on cigarette advertising as well as the recent lockdowns.”
Meanwhile, BAT warned it was set to miss guidance, as South Africa sticks to a ban on selling tobacco during the pandemic, and sales have taken a significant hit in Bangladesh, Malaysia and Vietnam.
It now expects revenue to grow between 1% and 3%, down from previous expectations of between 3% and 5%.
Chief executive Jack Bowles said: “We have made a good start to the year, with strong volume and value share growth in combustibles underpinning the sustainability of the business.
“Thanks to the hard work and dedication of our teams around the world, I am pleased to say that we continue to perform well and expect a good performance in 2020, in the context of very challenging circumstances.
“Looking further ahead, we are confident about the future opportunities for BAT. Our continued commitment to our dividend policy reflects this confidence.”