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BAT plans second e-cigarette in 2015

To keep ahead of rivals.

British American Tobacco plc (JSE:BTI)Plc, Europe’s largest cigarette maker, plans to introduce a second e- cigarette in 2015 after identifying failure to progress in non- tobacco products as one of the main risks for the business.

A device that uses asthma inhaler technology to deliver a nicotine hit is also set to reach the market this year, Kingsley Wheaton, BAT’s group director of regulatory affairs, said in an interview today, as the company seeks to steal a march on rivals in developing alternatives to cigarettes.

Both products are going through an approval process with the U.K. Medicines and Healthcare Products Regulatory Agency, Wheaton said by phone. For the e-cigarette “we are hoping for approval sometime through 2015,” he said.

London-based BAT gained an advantage over U.K. rival Imperial Tobacco Group Plc by starting to sell its first e- cigarette, known as Vype, last year. Imperial introduced its first e-cigarette in the U.K. this week as it seeks to catch up. Global sales of e-cigarettes will likely break $5 billion this year, according to Euromonitor International Ltd.

BAT shares fell 0.8% to 3,149.5 pence at 10:18 a.m. in London, even after the company reported a 3% gain in full-year earnings. The stock has declined 17 percent from its 2013 peak, fueled 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.

‘Key Risk’

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

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

Tobacco companies are racing to develop alternatives to cigarettes amid government clampdowns on smoking. Philip Morris International Inc., the maker of Marlboro, said in November it would bring forward to 2015 the planned introduction of a new device that heats tobacco rather than burns it.

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

“BAT’s efforts, including heat-not-burn as well as e-cigs, reinforce that BAT and PMI are leaders” in the field, according to Erik Bloomquist, an analyst at Berenberg in London.

Higher Dividend

BAT today reported adjusted operating profit of 5.82 billion pounds ($9.7 billion) in 2013, up from 5.64 billion pounds in 2012. Analysts had anticipated 5.78 billion pounds, according to the average of 12 estimates compiled by Bloomberg.

The cigarette maker raised the dividend for the year by 6% to 142.4 pence a share and said its operating margin had widened by 1 percentage point to 38.1%.

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

While currency fluctuations will continue to pose difficulty this year, “tobacco is a resilient product,” said Oriel Securities analyst Chris Wickham. “The commitment to its drive brands should continue to underpin pricing while volumes should not be overly affected” by slowing economies.

©2014 Bloomberg News

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