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OLD-SCHOOL PROFITS

British American Tobacco: The money’s still on cigarettes

British American Tobacco: The money’s still on cigarettes
The British American Tobacco South Africa offices in Cape Town, South Africa. (Photo: Gallo Images / Ziyaad Douglas)

BAT may be hedging its bets on new-category products, but the big yields are on butts, despite efforts to talk up ESG strategy for ‘a better tomorrow’.

The London-headquartered tobacco giant British American Tobacco (BAT) is pinning hopes on vaping and heated tobacco products, or “new category” brands, as a growth category, expecting these to break even by 2024 – a year sooner than expected. 

Its popular cigarette brands include Peter Stuyvesant, Dunhill, Rothmans and Benson & Hedges, and traditional combustible cigarettes remain its lifeblood, dwarfing sales of heating products, e-cigarettes and oral nicotine, which comprise only 15% of BAT.

Globally, revenue from cigarettes has increased by almost 8% to £27.7-billion (R598-billion), with vaping and heated tobacco contributing just £2.8-billion.

In its preliminary results for the year ended 31 December 2022, the tobacco giant reported a 4% increase in its operating profits while suffering a 1.3% decline in diluted headline earnings per share, largely owing to the impairment of its Russian and Belarussian businesses (which it is still attempting to offload), restructuring and litigation. 

CEO Jack Bowles talked up BAT’s efforts to accelerate the company’s ESG transformation, trademarked “A Better Tomorrow”, whose goal is to reduce the health effects of its commercial business by offering greater choices of “reduced-risk and enjoyable products” for consumers “at speed”.

“Driven by our strong new-category momentum, [with revenue approaching £3-billion], we are confident in our £5-billion revenue target by 2025, and now expect new category profitability in 2024, one year ahead of plan-

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“Our new-category business delivered strong volume, revenue and market share growth and has become a significant contributor to the group’s financial delivery. In 2022, we invested more than £2-billion in new categories to drive long-term sustainable growth, while making excellent progress in reducing operating losses by 62%,” Bowles said

He said that while the company’s reported results were affected by a number of one-off charges, it achieved a 150bps improvement in adjusted operating margin at current rates and “another year of 100% operating cash conversion, demonstrating our ability to successfully navigate an increasingly challenging macroeconomic environment”.

“This enabled us to return £6.9-billion to shareholders in 2022. I am proud of our people and their focus on delivery of our three strategic priorities, demonstrating once again the strength and resilience of our business.”

In South Africa, illegal cigarette sales are eating BAT’s lunch. BAT explains that SA is the first country in the world to allow an illegal brand to become its top-selling cigarette.

Illegal cigarettes now account for about a third of all cigarettes sold in SA, especially in informal trade, where they constitute about 42% of the market.

Global tobacco volumes are expected to be down by about 2%. Here BAT has been battered by competition from illicit trade; the impact of adverse legislation and regulation; and the inability to develop, commercialise and deliver on the group’s new categories strategy. 

Consumers of non-combustible products around the world increased by 4.2-million to 22.5-million, while total profit from operations rose 2.8% to £12.4-billion. BM/DM

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Comments - Please in order to comment.

  • Lesley Young says:

    “…illegal…top selling brand “ !!! Are the police doing anything??? Or are too many senior politicians and their families involved??? How difficult is it to identify “illegal” cigarettes? They are the ones still available during the mad tobacco ban.

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