BAT slumps to loss on US hit; Vape category achieves profitability

British American Tobacco (BAT) slumped into a 2023 loss on a huge US impairment, it said on Thursday, but shares rose as BAT eyed a smaller stake in Indian peer ITC.

The maker of Vuse vapes, glo heated tobacco and Velo nicotine pouches added that its ‘New Categories’ achieved profitability in 2023 at a category contribution level, two years ahead of original target and contributing a £398 million increase to group profit, at constant rates of exchange

BAT, however, suffered a loss after tax of £14.4 billion last year, contrasting with net profit of £6.7bn in 2022. Revenues dipped 1.3 per cent to £27.2bn last year.

Last year it took a bigger-than-expected impairment of £27.6bn, mainly on its troubled US business.

BAT said the US cigarette industry was hit hard by “macro-economic pressures and proliferation of illicit single-use vapour products”.

It forecast that global tobacco industry volumes would sink about 3 per cent this year on further poor performance in the US, as well as in Indonesia.

Investors shrugged off Thursday’s gloomy annual loss. BAT’s share price jumped almost 8 per cent to £24.99 on London’s top-tier FTSE 100 index, which was up only 0.2 per cent overall in late morning deals.

“The proposed sale of some or all of its stake in ITC could release significant funds, which would both give financial flexibility for future plans — as well as increasing the scope for shareholder returns such as higher dividends and share buybacks,” noted Interactive Investor analyst Richard Hunter.

“This speculation comes alongside what were otherwise a slightly disappointing set of results,” he added.

BAT chief executive Tadeu Marroco flagged the possible part-sale of its nearly 30 per cent stake in ITC.

“We have been actively working for some time on completing the regulatory process required to give us the flexibility to monetise some of our shareholding,” he said.

BAT had in December warned that it would take a hit of around £25bn on US cigarette brands, citing a slowing economy and shift away from traditional products.

Tobacco companies face tumbling demand for cigarettes in Western markets, where high taxes, smoking bans and health concerns persuade many consumers to give up or switch to other controversial smoking products.

BAT has sought to capitalise on the fast-growing vaping market, which is however also clouded by health fears.

Sales of BAT’s vape products rose about 7 per cent overall in 2023 from the year before, while nicotine pouch sales jumped by a third. Revenue from non-combustibles now account for 16.5 per cent of group revenue, up 170 bps vs FY22.

Vuse vapes account for about 50 per cent of its UK revenue with disposable vapes accounting for about half of its vape sales in that market, Marroco said on a call with reporters.