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British American Tobacco chief confident of ecigarette push

Nicandro Durante shrugs off suggestions it is playing catch-up in fast-growing market Read next BAT aims to double size of vaping business Nicandro Durante describes the market share BAT has achieved since the launch of Glo in Japan as ‘fantastic’

https://www.ft.com/content/23b177f8-f8f7-11e6-bd4e-68d53499ed71

Nicandro Durante has big plans for what is set to become the world’s largest listed tobacco company.

During his six years as chief executive, the market value of British American Tobacco has more than doubled and last month it agreed a $50bn deal to buy Reynolds American, marking the company’s return to the US after a decade’s absence.

But the Brazilian is not done yet. Last week he revealed bold plans to expand BAT’s next-generation products division, with the aim of quadrupling the number of markets in which it sells ecigarettes by 2019.

“The rate of growth is exponential,” says Mr Durante. “We’re in 12 markets now, and I want to double this in 2017, and double it again in 2018.”

Nik Oliver, consumer goods analyst at UBS, says BAT’s growth target is “relatively aggressive, but it’s feasible”, adding that the group’s “record has been very good in ecigarettes”.

While BAT is leading the market in vapour, according to Berenberg, some analysts have questioned the efficacy of its heat-not-burn tobacco product Glo.

“If BAT is going to gain any real ground [on rival Philip Morris International] the product needs to be better than IQOS [PMI’s device] in our view,” says Owen Bennett, consumer goods analyst at Jefferies.

“From trying it, we would not say this is the case.”

In addition, analysts point out that BAT’s Glo has launched only in Japan so far, while IQOS is on track to hit 35 markets, including the UK, by the end of this year.

James Bushnell, analyst at Exane BNP Paribas, says that while BAT is focused on the “more competitive” vaping market, its products “aren’t significantly better than what’s out there”.

Meanwhile, he says, it is lagging behind PMI in the tobacco-heating category.

Mr Durante rejects such criticism. He says that while the Reynolds deal will give BAT access to the US group’s reduced-risk portfolio, his group’s products are strong enough to stand alone.

“Philip Morris had a one-and-a-half year head start on us. The market shares we have been experiencing in Japan are fantastic — 5.2 per cent in nine weeks. So I don’t think that we are behind any competing products.”

Indeed, Mr Oliver at UBS describes BAT’s share in Japan as “initially very impressive”.

Mr Durante expects the Japan rollout of Glo to be completed this year and says the company is already developing new versions of the product.

The rapid expansion of IQOS has led PMI chief executive André Calantzopoulos to talk of a “smokeless future”.

But while Mr Durante expects rapid growth, he says such exuberance is premature.

“Those categories now are probably 1 or 2 per cent of the whole industry,” he says. “At the end of the day it’s all about consumer choice. Do I think that you will have a smoke-free world in my generation . . . in the next 20 years? I don’t think so.”

Mr Durante expects to continue to boost sales of traditional cigarettes in several key markets, and points to north Africa and Asia as the fastest-growing areas. “Places like Vietnam, the Philippines, and Indonesia — there are many opportunities out there,” he says.

BAT derives more than 50 per cent of its total revenues from emerging markets, according to UBS.

Mr Durante has indicated he sees further growth in north Africa and Asia, but Mr Oliver at UBS notes that while BAT has “definitely got the strongest EM portfolio of their peers”, the Reynolds deal “would definitely tilt them more towards developed markets given the huge size of the US market”.

In the US, the Reynolds deal will give BAT access to the world’s biggest vapour market.

Analysts have pointed to a further potential upside to the deal, with President Donald Trump vowing to slash corporation tax.

They warn, however, that such a move could lead Reynolds to withdraw its support for the deal on the basis that the bid substantially undervalues it, but Mr Durante is unfazed. “People just see the headline that corporation tax is going to go down,” he says. “But then you have the border tax. [It] can have a huge influence on our business in terms of the downsides,” he adds, noting that Reynolds “imports a lot of raw material”.

Assuming the Reynolds deal completes as planned by the third quarter, it will mark a milestone return to the US for a company that fled the market amid costly litigation battles over safety claims by cigarette manufacturers.

But while the industry is keen to trumpet its shift to reduced-risk products, some problems remain.

BAT has hired lawyers to examine allegations that it bribed African officials and paid a private security company to spy on and disrupt competitors on the continent.

Mr Durante pledges firm action if wrongdoing is found to have taken place. “BAT has very strong policies in this area. If there is any [wrongdoing], we are going to act and we are going to act in a very strong way.

He concedes, however: “We are in 200 countries, so I cannot give a 100 per cent guarantee that everything’s going to go by the book.”

While he refuses to be drawn on whether the lawyer’s report will be made public, insisting it is not up to BAT to decide, he stresses that BAT assures “total anonymity” to whistleblowers.

Although unsure when the report will be concluded, he is keen to see the investigation draw to a close. “As a CEO of the company I would like this to finish as soon as possible because it’s costing me a lot of money.”

British American Tobacco sets sight on dominance in alternative products

Cigarette giant British American Tobacco has said its vapour business is now the largest in the world outside the US thanks to the expansion of its Vype brand.

The Dunhill and Lucky Strike owner, which is reporting its results for the year to December 31, said its vapour business had now been extended to 10 markets.

In the UK, it’s share of the vapour market is now 40pc, according to independent data from AC Nielsen, thanks to its Vype brand and acquisition of Ten Motives.

The move towards a greater reliance on alternative products – the company also launched its tobacco heating product glo in Japan in December – is becoming even more important as the growth in the consumption of conventional cigarettes stalls.

British American did manage to halt the decline in cigarette volumes it saw in 2015 but only registered a marginal 0.2pc volume rise to 665bn in 2016.

There was, however, a 0.8pc drop on an organic basis but this was better than the average 3pc decline for the industry, British American said.

The weakness of sterling benefited the company, with revenue up 12.6pc if currency movements are factored in. This is because sales in dollars translate handsomely into the now weaker pound. Sales still rose an impressive 6.9pc on a constant currency basis.

But the currency markets weren’t entirely beneficial for the group. On a constant currency basis, adjusted operating profit rose 4.1pc – a figure which would have been 10pc were it not for the “significant ongoing effect of adverse foreign exchange movements on our cost base during 2016″.

This meant underlying operating margins actually fell 0.9pc to 37.2pc if currency movements are included. Underlying operating margins rose 1.6pc excluding transactional foreign exchange and acquisitions.

Management said the proposed deal to buy the 57.8pc of Reynolds American it does not already own would give it a “world class portfolio of tobacco and Next Generation Products”, and that it would enhance earnings at the enlarged group. The transaction is expected to close during the third quarter subject to shareholder and regulatory approvals being sought. If the deal goes ahead, the company would become the world’s largest listed tobacco company by sales.

British American Tobacco drops its nicotine inhaler Voke to prioritise vapour and tobacco heating products

British American Tobacco (BAT) today announced it would drop its medical nicotine inhaler Voke to focus more directly on products like e-cigarettes aimed at consumers.

http://www.cityam.com/256448/british-american-tobacco-drops-its-nicotine-inhaler-voke

BAT said it will give up its manufacturing, intellectual property and know-how assets to Kind Consumer, from which it licensed the product, in return for deferred, contingent payments.

No financial details were disclosed.

Kind will take back ownership for the commercialisation of Voke, which was the first device of its kind to be approved as a medical prescription to people trying to quit smoking.

Like e-cigarettes, Voke uses liquid nicotine, but it does not use a battery to heat it into a vapour.

Manufacturing issues have delayed the commercial launch of the inhaler, which was supposed to hit the market in 2016.

Kind chief executive Paul Triniman said the company will be looking for a new global partner or several regional partners to speed up distribution this year.

Kingsley Wheaton, managing director of next generation products at BAT, said Kind’s focus and single-mindedness will bring about a quicker commercialisation of the product.

BAT on the other hand will focus on its Vype e-cigarette and glo tobacco heating products, which are broadly considered to be safer than traditional cigarettes.

BAT, the world’s second-largest international tobacco company, is also in talks of a $47bn (£37bn) takeover of US cigarette maker Reynolds American.

Big Tobacco Gets Into Retail Storefronts

British American Tobacco and Philip Morris International have both opened stores to educate consumers on how to vape.

http://www.nacsonline.com/Media/Daily/Pages/ND1202162.aspx

Big tobacco firms are getting into the retail business more directly than in past years. British American Tobacco (BAT) has opened a store in Milan to sell Vype, its e-cig product, while Philip Morris International has stores in England, Italy, Japan and Switzerland to promote its heat-not-burn product iQOS, the Wall Street Journal reports.

For BAT, the strategy to having an actual store extends beyond selling electronic cigarettes. The firm wants to use the location as another way to promote new products, such as Pebble, a Vype-branded vaping device that debuted yesterday. “If we’re going to massify the market—inject life into it—we have to come up with these innovative, groundbreaking products,” said Kingsley Wheaton, who heads BAT’s next-generation products.

This increased emphasis on connecting with customers on the ground comes as sales of cigarettes continue to soften. Philip Morris even said this week that the company could stop selling traditional cigarettes one day and is focusing on developing tobacco alternatives.

BAT CEO Nicandro Durante has a long-term view in mind when it comes to e-cigs and other vaping devices, which have experienced slow growth. Wheaton predicted that next-generation products will reach $18.7 billion within five years, but he doesn’t see cigarettes disappearing altogether.

BAT Bets on Vaping as Tobacco Makers Do Battle With New Devices

http://www.swissinfo.ch/eng/bat-bets-on-vaping-as-tobacco-makers-do-battle-with-new-devices/42723034

Trailing Philip Morris International Inc. in the contest to move smoking alternatives beyond e-cigarettes is just fine with British American Tobacco Plc.

According to Kingsley Wheaton, head of BAT’s next-generation products, longer-established electronic products hold more promise than the heat-not-burn technology pioneered by its main rival. The high acceptance of Philip Morris’s iQOS tobacco device in its debut market of Japan won’t be easy to replicate elsewhere, he said in an interview Thursday.

“Are we behind Philip Morris on the tobacco-heating journey? The answer is yes,” Wheaton said. “But we have a different take. Vapor is going to be a bigger category worldwide.”

More than 1 million smokers have switched to Philip Morris’s iQOS since it first went on sale in 2014. Demand has proven strongest so far in Japan, where Philip Morris has had a two-year headstart on BAT. While analysts at Exane BNP Paribas and Wells Fargo say the Marlboro maker has invented the most promising smoking substitute, BAT contends that heat-not-burn will only become dominant in a few countries, and that Japan alone may represent as much as half of the potential demand.

“Japanese consumers are very tech-savvy and vapor is banned,” Wheaton said. “The consumer is highly socially considerate and really worried about their hygiene impact on others. When you put all that together, you create a real melting pot of reasons why tobacco heating will work in Japan.”

Companies Divided

Tobacco companies are divided on where the future of their $770 billion industry lies. Philip Morris Chief Executive Officer Andre Calantzopoulos has said his company may one day stop making traditional cigarettes as the market for alternative products takes hold. His non-combustible iQOS devices have taken a 5 percent share of the Japanese market.

While BAT plans to compete against its rival with a heat-not-burn product called Glo, Wheaton said the bulk of his company’s efforts will remain in the vapor market.

In the second half of next year, BAT will start selling a new product called Vype Raptor. The device gets nicotine into the bloodstream faster and more closely mimics the sensation of smoking because the vapor particles are larger, according to BAT.

The company is also opening a store in a fashionable neighborhood of Milan as well as pop-up shops in London to sell Vype-branded vapor products. And it will introduce a 17.99-pound ($23) brightly-colored plastic device called Pebble that delivers nicotine infused with flavors such as wild berry and smooth vanilla.

BAT aims to sell vapor products in more than 15 markets by the end of next year, according to next-generation marketing director Frederico Monteiro. It currently has a presence in 10 and plans to be in 30 to 40 markets by 2020.

BAT launches e-cigarette as alternative to tobacco

http://thestandard.com.ph/business/221917/bat-launches-e-cigarette-as-alternative-to-tobacco.html

The British American Tobacco said will launch an “alternative to tobacco” product in the Philippines, the first country in Asia-Pacific to take advantage of the growing vape market.

BAT head of government regulatory affairs Robert Eugenio told reporters in a media roundtable the Philippines would become the first country in the Asia and Pacific region to avail of Vype E-pen, BAT’s e-cigarette brand, following successful launches in Europe and South America.

“It’s just a combination of business consideration, regulatory environment. It’s a combination of many factors,” Eugenio said.

Eugenio said there were no laws in the country regulating the market of e-cigarettes or vape industry.

BAT said Vype would be available in selected convenience stores in the country.

Vype E-pen is a vapor device with easy-to-change e-liquid caps with two power settings, delivering rich vapor at the click of a button.

The design also offers one-step charging micro USB cable, a battery life indicator and auto shutdown when the device is used for 10 minutes.

Eugenio said despite offering new product, BAT would not completely shift to e-cigarette products and leave their tobacco-combustion market.

“We, of course, are still focused on trying to grow our shares in combustible business. This is an additional part of our business but i wouldn’t call that a shift. We have seen that there is a growing market for e-cigarettes here. From a commercial stand point, we are hopeful that we will be able to drive our share of that emerging market,” Eugenio said.

BAT is the maker of Pall Mall and Lucky Strike cigarettes.

British American Tobacco to test e-cigarette in Japan

http://www.dailymail.co.uk/wires/reuters/article-3915432/British-American-Tobacco-test-e-cigarette-Japan.html

British American Tobacco PLC (BAT) plans to test a new tobacco-based cigarette alternative in Japan next month, it said on Tuesday, taking aim at Philip Morris International Inc’s popular iQOS and Japan Tobacco Inc’s Ploom Tech.

BAT said it plans to launch its new product, called “glo”, on Dec. 12 in the northeastern city of Sendai. It will then use learning from that launch to expand the product nationwide.

Glo electronically heats tobacco enough to create an inhalable vapour. That vapour, according to BAT, has about 90 percent less toxicant than smoke. The temperature of glo and the Kent Neostiks that go with it, is about 240 degrees Celsius, whereas combustion in traditional cigarettes takes place at over 800 degrees.

BAT has invested more than $1 billion over the past five years in the development, scale up and launch of cigarette alternatives.

It sells Vype e-cigarettes, which use nicotine liquid, in several European markets and is testing iFuse, a liquid-based e-cigarette that also uses tobacco, in Romania.

BAT has also developed a nicotine inhaler called Voke that can be licensed as a medical product in Britain, but it is not yet on the market.

The glo device will cost 8,000 yen ($76.61) with packs of twenty Kent Neostiks, which come in three flavours, costing 420 yen ($4.02).

BAT is also in the process of buying U.S. peer Reynolds American Inc in a $47 billion takeover that would create the world’s biggest listed tobacco company.

SMOKELESS WAR

All big tobacco companies are investing in tobacco alternatives, as the cigarette market in most Western countries declines with more people giving up the habit. Some analysts think tobacco-based vapour products will be more successful at attracting cigarette smokers since they use tobacco and might therefore be more satisfying for smokers who cannot quit.

Philip Morris chose Japan as a test market for its “heat not burn” product due in part to regulations around nicotine liquid. Its iQOS, introduced nationwide in Japan in April, has turned out so popular that supplies are short.

“At this moment, we are seeing far greater demand than our expectations and iQOS devices sell out as soon as they hit stores,” said a Philip Morris Japan spokeswoman.

Japan Tobacco has also said production of its Ploom Tech has not caught up with demand. It has suspended taking orders on its online store and is limiting supply to stores in the city of Fukuoka, where it is test sold.