British American Tobacco says Covid will cost it less than previously thought thanks to overturning of South African cigarette sales ban

British American Tobacco says Covid will cost it less than previously thought thanks to overturning of South African cigarette sales ban

  • BAT’s brands include Dunhill, Lucky Strike and vaping brands Vuse and Vype 
  • Global industry cigarette and THP volumes are forecast to drop by 5% this year 
  • The coronavirus has brought further worries over the harms of smoking tobacco

British American Tobacco has lowered its predicted blow from the Covid-19 pandemic despite taking a significant hit from the withdrawal of its Glo Sens e-cigarette in Japan.

The Dunhill and Lucky Strike maker said it forecasts losing £50million from the exit, but has been buoyed by the lifting of a cigarette sales ban in South Africa.

It now predicts taking a 2.5 per cent impact from the coronavirus instead of 3 per cent after a five-month prohibition in the country ended in August when total virus cases there declined substantially.

However, a black market boomed in its place, hurting BAT who estimate their cigarette sales comprise almost 80 per cent of South Africa’s legal market.

The company now expects industry volume for tobacco products in the United States to be largely flat in 2020 versus a previous forecast for a fall of 2.5 per cent.

Global industry cigarette and tobacco heating product volumes are also anticipated to drop by 5 per cent this year rather than 7 per cent, while it believes its revenues from new categories like vaping will rise in the second half of the year.

Furthermore, it maintained its ambition to earn sales of £5billion from its new categories business by 2025. It initially hoped to achieve this by 2023/24, but it changed the June projection due to lockdown measures and weakening trade.

At the same time, the Camel cigarettes brand owner cut its expected overall adjusted revenue growth rate to 1 to 3 per cent. The FTSE 100 business declared today that it thinks expansion will now be towards the high end of this outlook.

‘Throughout 2020, our priority has been the health and wellbeing of our employees. Covid-19 has made this a difficult year for everyone, and I am proud of the continued commitment and dedication of our people around the world,’ said chief executive Jack Bowles.

‘It is their hard work that has ensured we are on track to deliver a strong set of results in 2020, given this backdrop.’

Vaping has become considerably more popular in recent years as consumers look to healthier alternatives, and BAT has rested its future success in large part on this.

The coronavirus has brought further worries about the perils of smoking tobacco with the World Health Organisation warning that it makes it harder for the body to fight off coronaviruses.

In spite of the purported benefits of vaping though, American authorities have exerted pressure on the industry, with bans there on certain e-cigarette flavours, after rising usage by teenagers and a spate of vaping-related illnesses and deaths.

Still, the London-based group is expected to increase their spending on new categories by £200million in the second half of the year.

BAT’s new categories division has four main brands at its core: vapour products Vuse and Vype, tobacco-heating label Glo, and Velo, which offers tobacco-free nicotine pouches.

Vuse and Vype are top in device sales across the five biggest vapour markets by revenue, where their market share is also above 50 per cent, while Velo and Lyft have a volume share in Sweden of Norway of more than 60 per cent.

‘We are transforming our business in order to build A Better Tomorrow…through providing a range of enjoyable and less risky products is the greatest contribution we can make to society,’ remarked Jack Bowles.

He added: ‘We are growing our New Category business as fast as possible and we are proud to now have around 13 million non-combustible product consumers.

‘We are continuing to increase investment in our three New Categories of potentially reduced-risk cigarette alternatives, capitalising on our momentum, while continuing to deliver on our financial commitments.’