BAT looks to double its vaping markets

(Reuters) - British American Tobacco BATS.L wants to double the number of countries where it sells vaping products this year and again in 2018, it said on Thursday, as it chases rivals Philip Morris International PM.N to grab a share of a growing market.

FILE PHOTO - People walk past the British American Tobacco offices in London, Britain October 21, 2016. REUTERS/Stefan Wermuth/File Photo

BAT and Philip Morris were the first of the big tobacco firms to invest in cigarette alternatives a few year back, as growing health consciousness reduces traditional smoking.

Earlier this year, BAT agreed to buy U.S. peer Reynolds American RAI.N for $49.4 billion (40 billion pounds), a deal that will help boost its position in the small but growing market for e-cigarettes and other cigarette alternatives.

However, analysts say BAT is scrambling to catch up with Philip Morris in the heated products ‘vaping’ market, where the U.S. firm has established a stronghold with its IQOS device, the result of a decade of research and $3 billion of investment.

IQOS, which electronically heats tobacco enough to produce a vapour without burning it, is currently in 20 markets, including most notably Japan, and will be in as many as 30 by the end of this year, Philip Morris said on Wednesday.

BAT said on Thursday it now had the biggest vapour business in the world outside of the United States and was present in 10 markets, with almost 40 percent of the market in Britain and around 50 percent in Poland.

The company, which in January quit plans to market a nicotine inhaler called Voke, plans to double the number of markets where it offers cigarette alternatives this year, and again next year.

“It is really only the beginning,” Kingsley Wheaton, head of next generation products at BAT, told journalists, adding BAT had invested over $1 billion in cigarette alternatives. “We are committed to delivering more innovation and less harm.”

BAT said initial results were very encouraging for a new tobacco heating device called Glo it launched in Sendai, Japan in December, which takes aim at IQOS. BAT plans to roll-out and upgrade the product in 2017 and beyond.

Some analysts said a lack of detail left them unimpressed, especially after Philip Morris broke out the 2016 net revenue contribution from so-called reduced risk products, which include IQOS, as $739 million, less than 1 percent of its total revenue.

“In the heated product, it would be very fair to say Philip Morris is significantly ahead,” Shane MacGuill, Head of Tobacco Research at Euromonitor International, told Reuters.

BAT, the maker of Dunhill and Lucky Strike cigarettes, said cigarette volume grew 0.2 percent to 665 billion in 2016, adding that although it fell 0.8 percent on an underlying basis, it outperformed the industry which saw a roughly 3 percent decline.

Adjusted profit from operations rose 9.8 percent to 5.48 billion pounds ($6.83 billion). Revenue climbed 12.6 percent to 14.75 billion pounds, helped by a weaker British pound.

Editing by Mark Potter