British American Tobacco has raised its annual revenue growth forecast to more than 5% at constant currency levels, as the tobacco giant's focus on newer products like e-cigarettes and tobacco-heating devices continues to pay off.
In the company's first-half pre-close trading update, Jack Bowles, chief executive, commented, "We are investing and building strong, fast growing international brands in each segment, rapidly accelerating our reach and consumer acquisition, thanks to our digitalisation and our multi-category consumer-centric approach, supported by the right resources and products, and our agile organisation.
"Our portfolio of non-combustible products is tailored to meet the needs of adult consumers. We are growing New Categories at pace, encouraging more smokers to switch to scientifically substantiated reduced risk alternatives."
The company had previously forecast revenue growth in the range of 3% to 5%. It, however, kept unchanged its growth expectation for adjusted earnings per share in the mid-single digit range.
'New Category' Products
The maker of Lucky Strike cigarettes said the raised forecast comes as so-called 'New Category' products gained shares in all key markets, including the United States, where menthol cigarettes and flavoured cigars are facing a possible ban.
"We continue to expect 2021 to be a pivotal year for the business, with accelerating New Category revenue growth, a clear pathway to New Category profitability by 2025, and leverage reducing to c.3x by year end," Bowles added.
The company also said it expects its full-year cigarette volumes to be ahead of the total industry, which it expects will be down about 3% this year.
It said 1.4 million more consumers started using its new category products - e-cigarettes, tobacco heating and oral nicotine products - in the first quarter, bringing its total non-combustible user base to 14.9 million.
The group also recently announced its environmental and sustainability progress, hosting an ESG Week in March.
Commenting on BAT's trading update, analyst Russ Mould of AJ Bell said, “For several years traditional tobacco companies have been under pressure for failing to deliver on growth expectations for next-generation products such as vaping. Expectations were too high, competition was tough with many new entrants to the market, and political and regulatory bodies were coming down hard on the space.
"British American Tobacco has upgraded its earnings guidance after saying smokers continue to switch to less harmful alternatives. The company will be hoping that customers stay loyal once it has hooked them in.
“While trading in the tobacco sector is looking more positive, the backdrop of political and regulatory intervention has not changed. It has become commonplace to see an annual stab at the industry, be it through threats on taxation or bans on certain types of products. A world increasingly focused on the health and wellbeing of individuals is also not a supportive backdrop for an industry that sells addictive products."