British American Tobacco (BAT) has raised its sales growth forecast for smokeless alternatives, including vapes and nicotine pouches, as the decline in cigarette sales accelerates. The company now expects 'mid-teens' growth in new category products, up from a previous low double-digit forecast.
The Lucky Strike and Dunhill maker reported that global cigarette industry volumes are now expected to fall by around 2.5%, compared to an earlier forecast of a 2% decline. Despite this shift, BAT confirmed that annual revenue growth remains at the lower end of its 3% to 5% target range, with underlying operating profit also at the lower end of its 4% to 6% medium-term guidance.
Profits are expected to be weighted toward the second half of the year, supported by a stabilising performance in Asia Pacific, the Middle East, and Africa, as well as savings from cost-cutting measures. The company noted it is closely monitoring developments in the Middle East, citing potential volatility in consumer sentiment due to the dynamic macroeconomic and geopolitical backdrop.
The growth in smokeless products is being driven by oral and vaping brands, particularly Vuse and Velo. BAT CEO Tadeu Marroco stated that the group's full-year delivery remains 'firmly on track'. The company aims to become a 'predominately smokeless' business by 2035, though smokeless products currently account for about 18% of total revenues.
Russ Mould, investment director at AJ Bell, commented that the update indicates demand for new category products is picking up, which should be good news for investors, though the market had expected the tobacco cash cow to remain stronger for longer.
