British American Tobacco Plc reaffirmed Thursday its fiscal 2022 financial guidance for revenue and adjusted earnings growth.
BAT, parent company of Reynolds American Inc., also said it is progressing on its pledge in March to exit the Russian marketplace.
The report comes 17 days before the June 26 close of BAT’s financial first half of 2022. British publicly traded companies are required to have first-half and full-year reports.
The first-half preview outlook included projections of global tobacco industry volume falling by 3%, rather than the previous down 2.5% guidance, “due to the macro-economic impact of continuing global uncertainty over Ukraine and Russia.
“U.S. industry volume outlook remaining uncertain, given rapidly rising gas prices, on-going macro uncertainties and a strong prior-year comparator.”
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Still, BAT maintains a revenue growth target of between 2% and 4%, as well as mid-single-digit growth in adjusted earnings per share.
BAT chief executive Jack Bowles said Thursday that “BAT’s transformation continues at pace, with strong revenue and volume growth in all three new categories driving share gains across our key markets.”
BAT said it has reached 19.4 million consumers of next-generation products worldwide, up from 18.3 million on Dec. 31.
“We are leveraging the strength and increasing scale of our three global drive brands, and are continuing to reduce new category losses,” Bowles said.
For fiscal 2021, new-category revenue, which has a heavy Reynolds influence, was at $2.79 billion, up 51.8% over fiscal 2020.
It was the first fiscal year where BAT’s new-category revenue vs. expenses showed an overall loss reduction. The loss was down 9% to $135.7 million, which BAT said contributed to the overall revenue and profit growth.
New category products are led by R.J. Reynolds Vapor Co.’s Vuse — which recently returned as the top-selling U.S. electronic cigarette — the glo heat-not-burn cigarette that are not sold in the U.S., and modern oral products led by top-selling Camel Snus and Velo.
Vuse also is the top-selling global e-cigarette with a 34.4% market share as of April. BAT debuted its Vuse Go disposable style in the U.K. in May with further market roll outs planned for the second half of 2022.
Bowles continued to express confidence that BAT will meet its goal of at least $6.79 billion in annual new-category revenue by 2025.
The manufacturer said it has spent about $1.25 billion on next-generation product development during the first half of 2022.
Analysts response
Ross Hindle, a tobacco industry analyst with Third Bridge, said Thursday that BAT still remains behind Philip Morris International in terms of global buildout of its next-generation products.
Barclays analyst Jain Gaurav said this week that “BAT’s heat-not-burn volumes are still only 22% of Philip Morris International’s volumes.
“BAT hasn’t launched a new glo device in now almost 2½ years vs. Philip Morris International launching a new device about every 18 months.
Hindle said the $6.79 billion in next-generation product revenue by 2025 “is definitely achievable.”
“However, given the rate of growth by the market and PMI, our experts do not see BAT closing the gap to PMI within that time frame, and more consequently, falling further behind.
“PMI’s NGP division has already reached a state of profitability, with the group further ahead in terms of regional roll-out and a more sound route-to-market strategy.”
Hindle said that BAT’s glo Hyper “is still seen as inferior to PMI’s Iqos in terms of flavors, sensory, taste, and electronics.”
“BAT is in need of the next generation of glo to better compete with PMI, but long research and development cycles mean it won’t happen overnight.”
“BAT further needs to focus on penetrating the e-cigarette market in the US, where potential for growth remains high and Vuse remains the market leader.”
Russian update
BAT announced March 11 its decision to exit the Russian marketplace in response to the military invasion in Ukraine.
The manufacturer said in a statement at that time “we have concluded that BAT’s ownership of the business in Russia is no longer sustainable in the current environment.”
Russia is the fourth-largest cigarette market in the world, according to Forbes magazine. BAT has a 23.5% market share, according to Cowen & Co., trailing Japan Tobacco at 36.7% and Philip Morris International at 31.7%.
BAT has not provided a timeline for completing the exit.
BAT’s Ukraine operations are based in Kyiv, and its Russia operations are based in Moscow. BAT said it has 1,000 manufacturing employees in Pryluky, Ukraine, and 2,500 in St. Petersburg, Russia.
“We are working towards transferring our Russian business in full compliance with international and local laws,” BAT said Thursday. “Our priority remains the safety and wellbeing of our people in Ukraine and across the wider region.”
BAT acknowledged the Russian invasion of Ukraine “is increasing global uncertainty and disruption, further exacerbating inflationary pressures on supply chains, impacting consumer consumption and resulting in increased finance costs.”
“While we are not immune to these pressures, we are confident in delivering on our current financial targets, irrespective of the timing of the transfer of our Russian business.”
Gaurav said in March that BAT likely accelerated its decision once Russian president Vladimir Putin announced he was backing a plan to nationalize assets of western companies exiting Russia.
Russia is among nine key markets for BAT’s heated cigarette product glo, which has not been approved for U.S. usage by the Food and Drug Administration.
