According to BAT c.e.o. Tadeu Marroco, the company is likely to miss its goal of generating £5 billion (US$6.4 billion) in revenue from smoking alternatives by 2025. Photo credit: BAT.
British American Tobacco (BAT) shares rose nearly 3% after surpassing first-half profit forecasts and investors saw some positives in its key US business.
In 2023, BAT generated over 40% of its revenue in the US, mostly from tobacco products, while also trying to grow income from smoking alternatives. However, the company has struggled in this market as financially pressured consumers have shifted from its higher-priced cigarette brands to lower-priced alternatives or e-cigarettes. Additionally, BAT's e-cigarettes have lost market share to a surge of illegal disposable vapes. C.E.O. Tadeu Marroco said the company is unlikely to achieve its goal of generating £5 billion (US$6.4 billion) in revenue from smoking alternatives by 2025, as the US is a key growth driver.
Reuters reported that despite difficulties in the US. market, BAT investors still found reasons for optimism. Anthony Sedgwick, co-founder of BAT investor Abax Investments, noted the company's recovering cigarette market share and strong performance in nicotine pouches in the US. Thishan Govender, equity analyst at Truffle Asset Management, another BAT investor, pointed out that BAT's smoking alternatives business became more profitable in the first half and surpassed revenue expectations.
BAT reported a 5.7% rise in pretax profit to £5.60 billion for the first half of 2024, up from £5.30 billion a year earlier, driven by profits from "associates and joint ventures." The post-tax results of associates and joint ventures surged to £1.65 billion from £289 million. However, revenue fell 8.2% to £12.34 billion from £13.44 billion due to the sale of businesses in Russia and Belarus in September 2023 and currency headwinds.
Revenue from new categories decreased 0.4% to £1.65 billion. Despite this, BAT expects improvement in revenue and profitability across its new categories for the full year.
Combustibles in Africa, the Middle East, and Asia Pacific showed "resilient" organic performance with solid volume share growth. However, these gains were offset by challenges in the US, where the combustibles industry remains under pressure due to macroeconomic factors and a lack of effective enforcement against illicit single-use vapor products.
BAT expects second-half growth to accelerate, driven by the roll-out of product innovations, successful US commercial actions from the first half of 2024, and the normalization of wholesaler inventory movements.
The company anticipates global tobacco industry volume to decline by 2% in 2024, with ongoing weakness in the US, France, and Sudan. This decline is expected to be partially offset by an improving outlook in Turkey and Mexico.