BAT’s e-cigarette a bid to stay ahead

Published Feb 28, 2014

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London - British American Tobacco (BAT), Europe’s largest cigarette maker, plans to introduce a second e-cigarette next year after identifying that a failure to progress in non-tobacco products was one of the main risks for the business.

A device using asthma inhaler technology to deliver a nicotine hit was also set to reach the market this year, Kingsley Wheaton, BAT’s group director of regulatory affairs, said yesterday, as it seeks to steal a march on rivals in developing alternatives to cigarettes.

Both products were going through an approval process with the UK Medicines and Healthcare Products Regulatory Agency, Wheaton said.

For the e-cigarette “we are hoping for approval sometime through 2015”, he said.

BAT gained an advantage over UK rival Imperial Tobacco by starting to sell its first e-cigarette, known as Vype, last year. Imperial introduced its first e-cigarette in the UK this week as it seeks to catch up. Euromonitor International estimates that global sales of e-cigarettes are likely to break $5 billion (R53.8bn) this year.

BAT shares fell 0.8 percent by 10am in London yesterday, even after it reported a 3 percent gain in full-year earnings.

The stock has declined 17 percent from its peak last year, fuelled by concern over currency fluctuations, slowing emerging-market economies and government clampdowns on tobacco companies.

“After a period of weak share price performance, the future looks brighter for BAT from here,” said James Bushnell, an analyst at Exane BNP Paribas in London.

BAT planned to bring its second e-cigarette to market “within a reasonable timeframe” after it had gained approval for the product, Wheaton said.

Failure to lead the development of the non-tobacco nicotine market was a “key risk”, BAT said.

Tobacco companies are racing to develop alternatives to cigarettes amid government clampdowns on smoking.

Philip Morris International, the maker of Marlboro, said in November last year that it would bring forward to next year the planned introduction of a new device that heats tobacco rather than burns it.

A “base-case” scenario by Bloomberg Industries pegs global e-cigarette sales at $2.3 trillion by 2050, or 41 percent of all cigarette sales.

Yesterday BAT reported adjusted operating profit of £5.82bn (R104bn) last year, up from £5.64bn in 2012. A survey of 12 analysts had anticipated £5.78bn on average.

The cigarette maker raised the dividend for the year by 6 percent to £1.424 a share and said its operating margin had widened by 1 percentage point to 38.1 percent.

Sales rose 4 percent at constant exchange rates as price increases more than offset declining tobacco consumption. – Bloomberg

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