Revenue climbed 45 per cent to £12.8bn for British American Tobacco as the company continues to pivot towards cigarette alternatives.
New Categories revenue was up 45 per cent in half-year results to £1.2bn, with 14.6 per cent of group revenue delivered by non-combustible products. This was up 2.2 per cent from full year 2021.
Non-combustible product consumers increased by 2.1m to 20.4m for British American Tobacco (BAT), ahead of expectations.
Vapour revenue also climbed 48 per cent, with Vuse becoming U.S. No.1.
The company invested £1bn in New Categories in the first half, with losses down for the second consecutive period, reducing by a further £281 million, at constant rates. The New Category business is delivering a positive financial contribution in nine markets.
Adjusted operating margin growth of 90 bps was supported by a further £275m of Quantum savings in the first half of 2022. BAT now expects to achieve in excess of £1.5bn annualised savings by the end of 2022.
The group notably took a £950m charge against the exit from their business in Russia, but said this won’t impact materially on cash flow.
Global tobacco industry volume is expected to be down around three per cent for the full year, partly due to the U.S., Turkey and uncertainty over Russia / Ukraine.
BAT chief Jack Bowles said: “We have a strong and resilient portfolio in the U.S., growing value share in both combustibles and vapour. We continue to grow our premium value share in combustibles and to date we see no acceleration of downtrading in our combustibles portfolio.”
He said the company was not immune to increasing macro-economic pressures, which had been exacerbated by the conflict in Ukraine. But said it was “well positioned to navigate the current turbulent environment due to our powerful brands, operational agility and continued strong cash generation”.
Commenting on the results, Steve Clayton, fund manager at Hargreaves Lansdown Select said: “These results show a solid performance from BAT, with New Categories of potentially reduced risk products now contributing 15 per cent of revenues. Profits are being supported by lower losses in these new products, which more than halved during the period.
The group looks to have held or increased market share in its key markets, whilst recruiting new consumers for its potentially reduced risk products.”
Clayton said that while tobacco would always be a “controversial industry”, the firm is making tangible progress toward a future where its products are less harmful.
“In the meantime, the group’s ability to churn out reliable cash flows and dividends remains unimpeded and with debts falling away the financial appeal of the group is improving,” he said.