British American Tobacco Tips 2% To 4% FY Sales Rise As Non-Combustibles Impress

British American Tobacco said it expects sales to grow by low-to-mid-single digits in 2022 as it reported strong sales of new technologies like electronic cigarettes.

Shares in the FTSE 100 business were last trading 2% lower on Thursday, at £33.27.

In a pre-close update, the Lucky Strike and Camel manufacturer said it expects revenues to rise between 2% and 4% at constant currencies this year thanks to “continued strong pricing.”

Adjusted diluted earnings per share, meanwhile is tipped to rise by mid-single digits. It said that adverse currency movements would reduce earnings by around 7%.

Industry Volumes Fall

Sales are tipped to rise at British American Tobacco even as the number of smokers across the world falls. The tobacco titan predicts that global industry volumes will drop 2% year-on-year in 2022.

Speaking about the US, chief executive Jack Bowles commented that “industry volumes remain under pressure due to ongoing macro-economic factors and post-Covid normalisation of consumption patterns.”

The company makes more that three-quarters of its profits from customers in the States.

Impressive New Category Sales

Performance across its New Category business has been far stronger in 2022. This division includes its Vuse line of vapour devices and glo thermal heating products.

Mr Bowles said that its non-combustibles business “continues to drive strong volume, revenue and market share growth and has become a significant contributor to group performance.”

He said that fresh product launches and innovations, allied with expansion into new markets allowed it to add 3.2 million new customers in the first nine months of 2022. Total customers stood at 21.5 million as of September.

The company aims to have 50 million non-combustibles customers by 2030.

Its Vuse product retains a leading position in the US and its value share rose to 39.3% as of September. This is up 6.8% from last year’s levels.

The business affirmed its target of achieving £5 billion worth of revenues at its New Category unit by 2025. It also expects the unit to become profit making by then.

“Proving its Resilience”

Elsewhere, British American Tobacco said that it expects operating cash conversion to beat its target of 90% in 2022.

Bowles said that the business looks set to “deliver strong adjusted operating margin improvement despite increasing inflation in our supply chain.” This is thanks to strong pricing, the scale of its brands and targeting marketing spending, he added.

However, it added that it expects net debt to adjusted EBITDA to come in “at the high end of our corridor” of 2 times to 3 times. This is assuming that exchange rates remain at current levels until the end of next year.

The company also expects rising interest rates and US dollar strength to push net finance costs above £1.6 billion.

Following today’s results, analyst Derren Nathan of Hargreaves Lansdown commented that “British American Tobacco is again proving its resilience, with strong pricing and a pivot to new products driving revenue growth, even as cigarette volumes fall.”

Nathan noted that while volumes outside the US remain steady, he added that “across the pond a prolonged period of inflation is starting to impact consumer behaviour, with early signs of accelerated downtrading in the industry in the second half of the year.”