(Reuters) - British American Tobacco (BATS.L) plans to lay off 4% of its workforce, including a fifth of senior managers, as recently-promoted chief executive Jack Bowles grapples with challenges to the group’s legacy products and health fears over vaping.
Shares of the second-largest tobacco company by sales were up 1.6 %, the biggest boost to the broader FTSE index .FTSE on Thursday, after the maker of Lucky Strike and Dunhill cigarettes said it will cut 2,300 roles as it eliminates duplication and consolidates business units.
The move by BAT, which employed more than 56,000 people at the end of last year, 629 of them senior managers, comes a day after President Donald Trump said that the U.S. would remove all flavored e-cigarettes from shelves, as officials warned millions of children had been drawn into nicotine addiction.
“Today’s announcement represents a bold first step for new chief executive Jack Bowles, but he must hope the crackdown on vaping doesn’t see his growth ambitions run out of puff,” said Russ Mould, investment director at AJ Bell.
BAT sells the Vuse e-cigarette in the United States, a product it acquired after buying U.S. rival Reynolds American for $49 billion in 2017. It also sells the Vype e-cigarette devices in many European markets, including the United Kingdom. Both are available with e-liquid flavourings.
There has been growing concern on the safety of vaping after health officials reported 450 cases of vaping-related lung illness and six deaths linked to its use in the United States.
Since taking charge in April, insider Bowles has promised to slim down BAT, which was slow to react to the vaping craze in the United States, the market which generates nearly 45% of its annual profits, partly allowing rival Altria-backed (MO.N) Juul to capture nearly three-quarters of the new market.
Bowles said in June that BAT would pour more money into its “new category” business - which makes tobacco heating products, e-cigarettes and nicotine pouches - and consolidate them into three main brands as sales of traditional cigarettes decline.
BAT said the planned job cuts would help save money that can be reinvested in the growth of its portfolio and deliver on its target of generating 5 billion pounds ($6.2 billion) of revenue in “new categories” by 2023-24.
It expects the business to generate constant currency revenue of 1.19 billion-1.375 billion pounds this fiscal year.
However, Liberum analyst Nico von Stackelberg was puzzled by the laying off of senior managers when BAT was seeking growth.
“You are going to lose people that know the business, a market or a certain category or why something was done one way,” von Stackelberg said.
“It’s not great for the business in that regard.”
Reporting by Siddharth Cavale, Pushkala Aripaka and Noor Zainab Hussain in Bengaluru; editing by Jason Neely and Alexander Smith