British American Tobacco (BAT) has raised its growth outlook for smokeless alternatives to cigarettes, as the global shift away from traditional tobacco products accelerates. The owner of Lucky Strike and Dunhill now expects sales of its new category products, including vapes and nicotine pouches, to achieve "mid-teens" percentage growth, up from previous guidance for a low double-digit increase.
Revised Market Expectations
The FTSE 100-listed group also revised its forecast for global cigarette industry volumes, now predicting a decline of around 2.5% for the year, compared to the earlier estimate of a 2% drop. Despite this, BAT confirmed that annual revenue growth remains at the lower end of its 3% to 5% target range, while underlying operating profit is expected to be at the lower end of the 4% to 6% medium-term guidance.
Profit Timing and Regional Performance
Profits are anticipated to be weighted toward the second half of the year, supported by a stabilising performance across Asia Pacific, the Middle East, and Africa, as well as savings from the company's cost-cutting overhaul. BAT noted that it is closely monitoring developments in the Middle East, adding: "While there is no significant impact on the group at this time, the broader macroeconomic and geopolitical backdrop is dynamic, increasing the risk of volatility in consumer sentiment should uncertainty persist."
Growth Drivers in Smokeless
The growth in smokeless alternatives is being driven by oral and vaping products, particularly the company's vape brand Vuse and nicotine pouch Velo. BAT reported that Velo continues to deliver "excellent" revenue growth globally. Tadeu Marroco, chief executive of BAT, stated that the group's full-year delivery remains "firmly on track."
Strategic Shift Towards Smokeless
BAT has been shifting its focus away from cigarettes for several years, aiming to become a "predominately smokeless" business by 2035. However, smokeless products accounted for only about 18% of total revenues last year, with the bulk still coming from cigarette brands such as Lucky Strike, Pall Mall, and Dunhill. In the last financial year, cigarette sales generated £20.2 billion, while new category products contributed £3.6 billion.
Market Reaction
Despite the positive outlook for smokeless products, shares in BAT fell 4% in early trading on Tuesday, reflecting ongoing investor concerns about the broader decline in cigarette sales and geopolitical uncertainties.
