Impressive vape sales power BAT revenue

British American Tobacco (BAT) has posted a resilient performance in its half-year financial results, benefitting from New Category products of tobacco alternatives and cigarettes pricing.

The half-year revenue saw a growth rate of 2.6 per cent at constant currency, primarily driven by the company’s New Categories, which experienced an impressive revenue surge of 26.6 per cent.

BAT, which has set a target to achieve £5 billion in revenue from New Categories by 2025, said the non-combustible alternatives now account for 16.6 per cent of its total group revenue, representing an increase of 180 basis points compared to the previous fiscal year.

The company’s flagship products in New Categories, Vuse, and Velo, demonstrated continued strong revenue performance. Additionally, BAT has activated commercial plans for its product glo and introduced glo Hyper X2 Air, showcasing the company’s commitment to an enhanced innovation pipeline.

“We are making great progress in New Categories. Revenues are up by 29 per cent (on reported basis) and we are now close to breakeven, with consumers of Non-Combustible products up by 1.5 million versus FY 2022 . While it’s encouraging to see continued good performance in Vapour and Modern Oral, we recognise more work is required in heated tobacco,” Tadeu Marroco, chief executive, said.

New Categories have contributed a £201 million increase in the group profit, as losses reduce. The company said it remains on track to achieve its profitability target for the category by 2024.

“I remain confident that New Categories will deliver a positive contribution in 2024. However, we do not expect contribution growth to be linear, as levels of investment will align with the phasing of our big innovation platforms,” Marroco added.

BAT’s traditional combustible products also showed resilience, with strong revenue performances in Americas & Europe and Asia Pacific, Middle East & Africa, offsetting the challenges faced in the US. The US market has, meanwhile, showed signs of stabilisation, the company said,  with a sequential improvement in the premium combustibles volume share in 2023.

On an adjusted basis at constant currency, the company’s profit saw a 3.6 per cent increase, with adjusted operating margin rising by 40 basis points to reach 44.8 per cent. Adjusted diluted earnings per share (EPS) witnessed a growth of 5.3 per cent to 181.6p.

“Having been in my new role for 10 weeks, I’m pleased with the resilient performance of BAT in the first half of 2023 and the renewed sense of energy across the organisation,” Marroco said. “It is a challenging external environment. High inflation and slower global growth are impacting consumers and business. Yet our revenue, profit from operations and earnings are all up.”

The company kept its full-year guidance unchanged, at organic constant currency revenue growth of 3-5 per cent and mid-single figure constant currency adjusted EPS growth.