UK Markets open in 6 hrs 19 mins

Cigarette maker British American Tobacco warns of COVID-19 hit

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
A pack of British American Tobacco Lucky Strike cigarettes in a Tobacco Store. (Igor Golovniov/SOPA/LightRocket via Getty)

British American Tobacco (BATS.L) has cut growth targets for the year and pushed back its goal of hitting £5bn ($6.3bn)in sales for alternative products like vapes.

BAT, the company behind brands like Dunhill, Lucky Strike, and Pall Mall, blamed the COVID-19 pandemic for the downgrades.

In a statement on Tuesday, BAT said longer-than-expected lockdowns in markets like South Africa, Mexico, and Argentina had contributed to disappointing sales in emerging markets. In South Africa, authorities have temporarily banned tobacco and alcohol sales during the shutdown.

Sales falls in markets like Bangladesh, Vietnam and Malaysia has also been “more pronounced”, the company said.

As a result, BAT now expects sales volumes to shrink by 7% this year, worse than its previous forecast of a 5% decline.

Revenue for the year is expected to grow by between 1-3%, down from an earlier range of 3-5%. Debt will remain at its current levels, while BAT’s earnings per share growth forecast was downgraded.

The company also pushed back a target to reach £5bn in sales from new products such as vapes and tobacco heating pens. BAT had previously hoped to hit the milestone by 2023/24, but now expects to reach the goal by 2025.

However, the company reaffirmed its commitment to continue to pay its dividend at the current rate.

Shares in the business fell 2.5% in early trade in London.

Chief executive Jack Bowles said in a statement: “We have made a good start to the year, with strong volume and value share growth in combustibles underpinning the sustainability of the business.

“I am pleased to say that we continue to perform well and expect a good performance in 2020, in the context of very challenging circumstances.

“Looking further ahead, we are confident about the future opportunities for BAT. Our continued commitment to our dividend policy reflects this confidence."

Micheal Hewson, chief market analyst at CMC Markets, said: “The last three years have been difficult ones for big tobacco, hit by regulatory crackdowns, and advertising bans on its traditional tobacco products the industry switched focus onto the e-cigarettes and vaping products.

“British American Tobacco has been no different.”