BAT Says New ‘Safe’ Nicotine Product May Be Ready by 2014

British American Tobacco Plc (BATS) said it may sell an alternative nicotine product in the U.K. as early as next year, as Europe’s largest cigarette maker moves to counter stricter global restrictions on smoking.

The maker of Lucky Strikes is expecting approval for a new “tobacco inhalation device” that is not an electronic cigarette by the end of this year and it could be “ready to launch some time in 2014, if not, 2015,” Kingsley Wheaton, BAT’s director of corporate and regulatory affairs, said in a telephone interview today.

BAT, which reported a 2.9 percent gain in full-year profit after raising prices, has appointed its former Group Operations Director Des Naughton as managing director of Next Generation Products. The company said it plans to step up its share buyback program in 2013.

The company has accelerated the development of alternative nicotine products amid stricter government constraints on smoking. In December, BAT spent about 40 million pounds ($60.6 million) on acquiring U.K.-based CN Creative Ltd., which makes e-cigarettes and in 2010 it set up Nicoventures, the company developing the new device. Nicoventures’ website calls the product a “safe alternative to cigarettes.”

Investor Enthusiasm

“It’s very, very interesting that BAT has made Next Generation Products a management board-level position, which will add to investors’ enthusiasm,” said Erik Bloomquist, an analyst at Berenberg Bank in London.

While the global market for non-combustible nicotine products, including smoking cessation patches, gum and prescription drugs, is currently as low as about 2 billion pounds, “I think it is going to be an important category and that’s why we’re putting investment behind it,” BAT Chief Executive Officer Nicandro Durante told reporters today.

“If you ask me if it’s a good opportunity down the road, in five, ten or fifteen years, the answer is yes,” he said.

Adjusted operating profit climbed to 5.68 billion pounds in 2012 at current rates of exchange from 5.52 billion pounds the previous year, London-based BAT said in a statement. Analysts had anticipated earnings on that basis of 5.65 billion pounds. While profit was hit by “adverse exchange rates,” last year, it may benefit from “a marginal currency tailwind due to the weakening sterling,” this year, Wheaton said.

The company has raised prices to offset falling tobacco consumption and tighter regulation. Group volume fell 1.6 percent in the year, more than the 1.4 percent drop forecast by the median of 9 analyst predictions in a Bloomberg survey. Adjusted operating profit rose 8 percent on a constant-currency basis.

Russian President Vladimir Putin on Feb. 25 signed a package of anti-tobacco measures to curb demand in the world’s second-largest cigarette market, while New Zealand’s government said this month that the country will become the first after Australia to require that cigarettes be sold in plain packages.

“The resilience of the business model in tough trading conditions has been proven once again,” J.P. Morgan Cazenove analyst Rae Maile said in a note to investors.

The shares rose 0.4 percent to 3,431 pence at 10:16 a.m. in London. They have gained 8.2 percent in the past year.

Share Buybacks

BAT said it plans to repurchase 1.5 billion pounds of shares in 2013, up from 1.25 billion pounds last year.

“Our geographic diversity, powerful brands, investment in innovations and strong positions in emerging markets remain key strengths and we are confident in the future of the tobacco business,” Durante said in the statement. “I look forward to 2013 with optimism.”

To contact the reporters on this story: Celeste Perri in Amsterdam at cperri@bloomberg.net; Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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