British American Tobacco has hiked its outlook for smokeless alternatives to cigarettes as the shift away from traditional tobacco products picks up pace.
The Lucky Strike and Dunhill maker said sales of so-called new category products, such as vapes and nicotine pouches, are set for “mid-teens” growth, up from previous guidance for a low double-digit increase.
The group said wider global cigarette industry sales by volumes are now expected to fall by around 2.5%, against the 2% decline previously forecast.
British American Tobacco (BAT) confirmed annual revenue growth is still expected at the lower end of its 3% to 5% target range, while underlying operating profit will also be at the lower end of the 4% to 6% medium-term growth guidance.
Profits are set to be weighted toward the second half, helped by a “stabilising” performance across Asia Pacific, Middle East and Africa and savings from its cost-cutting overhaul.
It said it was “closely monitoring developments in the Middle East”.
“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,” it added.
The group said the growth in smokeless alternatives was being driven by oral and vaping products, with major brands including its vape brand Vuse and nicotine pouch Velo.
The FTSE 100-listed group said its Velo brand continued to deliver “excellent” revenue growth globally.
Tadeu Marroco, chief executive of BAT, said the group’s full-year delivery remains “firmly on track”.
BAT has for a number of years been shifting its focus away from cigarettes and towards newer products like vapes and nicotine pouches to meet the changing market.
This has prompted the company to say it is aiming to be a “predominately smokeless” business by 2035.
Despite this, smokeless products made up about 18% of the group’s total revenues last year, with the rest coming primarily from cigarette brands including Lucky Strike, Pall Mall and Dunhill.
Sales from its cigarettes business totalled £20.2 billion for the year while it made £3.6 billion from so-called new category products.
Shares in BAT fell 4% in early trading on Tuesday.
