October 16, 2018 / 6:32 AM / a month ago

British American Tobacco cuts sales target for new products

LONDON (Reuters) - British American Tobacco (BATS.L) cut its full-year revenue target for cigarette alternatives such as vaping pens and tobacco heating devices, citing a flat market in Japan and a product recall in the United States.

FILE PHOTO: A man walks past the British American Tobacco offices in London, Britain October 21, 2016. REUTERS/Stefan Wermuth/File Photo

The world’s second-biggest international tobacco company by revenue is pinning its hopes for volume growth on next-generation products, as demand for traditional cigarettes wanes.

But regulators are closely watching the new products. Advocates say they can be used to wean lifelong smokers onto less harmful nicotine products, but critics warn they risk drawing a new generation to nicotine addiction.

The company said on Tuesday it expected revenue from next-generation products to reach 900 million pounds ($1.18 billion) this year, down from a previous target of 1 billion pounds.

It said the cut was due to flat growth in Japan, the most developed market for tobacco-heating devices, and the recall in the United States of its Vuse Vibe e-cigarette.

BAT’s Finance Chief Ben Stevens said that tobacco heating devices, such as its glo product and Philip Morris International’s (PM.N) IQOS, can still reach one-third of Japan’s tobacco market, up from about a quarter now. The slowness, he said, is due to more conservative consumers taking longer to adopt the new product.

He said that many consumers are using both, conventional cigarettes and tobacco-heating devices - which heat tobacco enough to create a vapor, rather than burning it - whereas initial expectations were that once consumers started using the devices they would switch altogether.

The maker of Lucky Strike and Dunhill cigarettes also warned that currency fluctuations would hurt its full-year adjusted earnings per share growth by 7 percent, assuming rates were unchanged for the rest of the year. Its previous guidance was for a 6 percent hit.

On a constant currency basis, BAT expects to exceed its target for high single-digit adjusted earnings per share growth.

In cigarettes, BAT said it was gaining share in an overall market whose volume is expected to shrink about 3.5 percent this year, as more people quit smoking.

In the United States, industry volume is expected to fall 4 to 4.5 percent this year, with a slight improvement in the second half.

BAT’s Stevens said the company had no plans to enter the cannabis market at this stage.

“We’re making sure we understand the market, we’re studying it in detail but we’re not planning at the moment to sign any alliances or marketing arrangements,” he said.

BAT shares were down 1.2 percent by 0823 GMT, underperforming a blue-chip index .FTSE down 0.2 percent.

Reporting by Martinne Geller; Editing by Edmund Blair and Louise Heavens

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