British American Tobacco PLC (LSE) has criticized US authorities for insufficient enforcement against illicit single-use vapour products, reporting earnings that surpassed forecasts for the first half of the year.
In its half-year trading update, BAT revealed that smokeless products now make up 17.9% of its total revenues, an increase from 16.5% in the first half of 2023.
Single-use vapes, mostly imported from China, have become a contentious issue. Despite not being approved by the US Food and Drug Administration (FDA), brands like Elf Bar and Esco Bar are still widely sold in retail outlets.
In the UK, the government is moving towards a complete ban on disposable vapes due to environmental and underage vaping concerns.
In December 2023, the FDA seized 1.4 million illegal vape units worth $18 million. However, BAT claims enforcement is inadequate given the problem’s scale.
“The growth of illicit single-use vapes continues to negatively impact the legal market with industry volumes in rechargeable closed systems down about 9% in the first half of the year,” said BAT.
BAT is advocating for better regulation and enforcement to combat illicit products. The company noted positive early results from Louisiana, the first state to implement a vapour directory and enforcement legislation in October 2023.
BAT also praised the creation of a Federal Multi-Agency Task Force to address the issue.
BAT’s own vaping product, the Vuse Alto, was recently approved by the FDA. Despite this, Vuse volumes dropped 8.1% in the first half, which BAT attributes to the illicit single-use vape market.
Overall revenues across all product lines fell 8.2% to £12.34 billion, and operating profit declined by over 25% due to increased US-based amortisation charges and the company’s exit from Belarus and Russia.
Despite these challenges, BAT remains a high-margin, cash-generative business. The company repurchased £700 million worth of shares in 2024 and plans to buy back £900 million in 2025. BAT paid out £2.6 billion in dividends during the reporting period and hired Goldman Sachs to manage its share repurchase program.
Adjusted earnings per share were 169p, exceeding consensus forecasts of 166p.
Shares rose 1.7% to 2,620p in early Thursday trades.
