British American Tobacco will miss sales targets for ‘new category’ smoking alternatives by 2025

British American Tobacco has warned it is unlikely to hit key revenue targets from “new categories”.

The owner of Dunhill and Lucky Strike has invested billions in recent years in developing e-cigarettes, heated tobacco brands and modern oral products amid growing demand for healthier alternatives to smoking.

It aims to generate £5bn from such products by 2025 and have 50 million people using its non-fuel products by 2030.

However, the London-based firm’s chief executive, Tadeu Marroco, said it was “likely” that sales of new categories next year would fall short of that target.

He said this was due to a “lack of enforcement” by US authorities against illegal single-use vaping products and the recent liquidation of its businesses in Russia and Belarus.

While BAT acknowledged that many US states were cracking down on illicit single-use vapes, it still believes they account for half of the total US vape market.

In the six months to June, BAT saw its adjusted revenue from new categories rise 3.1 per cent to £1.7bn, helped by strong demand among US customers for its Velo nicotine pouches.

Still, its adjusted total revenue fell 3.7 percent to £12.3 billion, while reported sales fell 8.2 percent due to currency headwinds.

Revenue was also hit by fuel volumes affected by supply chain disruption in Sudan, economic pressures across the United States and the group’s withdrawal from many African markets.

BAT posted a pre-tax loss of £17.1bn last year after taking a £27.3bn writedown on the value of some US fuel brands due to falling smoking rates and a subdued economic backdrop.

By comparison, the group saw its pre-tax profit expand by almost £300m to £5.6bn during the first half of 2024, partly thanks to lower finance costs.

However, BAT’s operating profit fell 28.3 percent to £4.3 billion as the company began to decommission its wholesale inventory in the United States and incurred £1.4 billion in write-down and impairment charges.

Marroco said: ‘While there is more to do, we are making good progress and I am encouraged that our new category launches and our first-half investments to strengthen our US fuels portfolio are gaining traction.

“Together with the expected reduction in inventory movements by US wholesalers, I am confident that this will drive an acceleration in our performance in the second half.”

BAT has maintained its full-year guidance following its first-half result, which included low-single-digit organic growth in constant currency revenue and adjusted operating profit.

British American Tobacco shares Treasury bonds rose 4.8 percent to 2,700 pence on Thursday afternoon, but have barely risen in the past year.