August 31, 2017 / 1:40 PM / in 2 months

BAT restructures to help e-cigarettes go mainstream

(Reuters) - British American Tobacco (BATS.L) has reorganized its regional management structure to integrate its vaping products with its core business, in a push by the world’s biggest listed tobacco company to help cigarette alternatives go mainstream.

FILE PHOTO - People walk past the British American Tobacco offices in London, Britain October 21, 2016. REUTERS/Stefan Wermuth/File Photo

The move, announced on Thursday, follows the company’s $49 billion takeover of U.S. peer Reynolds American, which added Camel cigarettes and Vuse e-cigarettes to a BAT portfolio that includes Lucky Strike cigarettes, Vype e-cigarettes and the glo tobacco-heating device.

“Now that we have built a successful NGP (next generation products) business which is poised for substantial growth, we will be fully integrating NGP to leverage the scale and expertise of the whole group to drive growth in an area that is fast becoming a key part of our mainstream business,” BAT said in a statement.

BAT wants to double the number of countries where it sells vaping products this year and again in 2018, as it jostles for position in a growing market against rivals Philip Morris International (PM.N) and Imperial Brands (IMB.L).

BAT and Philip Morris were the first of the big tobacco firms to invest in cigarette alternatives a few year back, as growing health consciousness reduces traditional smoking.

Philip Morris, maker of Marlboro cigarettes, is ahead of BAT in the market for tobacco-based vaping devices, which some analysts believe will be more popular than traditional e-cigarettes with regular smokers, and its shares have been at a bigger premium to its peers. (bit.ly/2xOLU9R)

Last month, the U.S. Food and Drug Administration (FDA) proposed cutting nicotine in cigarettes to “non-addictive” levels in a push to move smokers toward potentially less harmful e-cigarettes.

Under the management reorganization announced on Thursday BAT appointed Asia-Pacific Director Jack Bowles to the newly created role of chief operating officer for the international business, excluding the United States.

Shares were up around 1.5 percent at 1322 GMT on Thursday.

Jefferies analyst Owen Bennett said the changes could add some uncertainty for BAT in the near term, but in the longer term it reinforced the importance of cigarette alternatives to tobacco companies, which face slowing sales globally.

“Whereas those companies that were better positioned for emerging market growth in the past were favoured, the key differentiator now is likely to be who is positioned best in emerging products, given the recent slowdown in emerging market cigarettes,” the analyst said.

Japan Tobacco said last week it would buy the Philippines’ No. 2 cigarette maker Mighty Corp for about $936 million, its second large deal in Southeast Asia this month, as it deepens its push into emerging markets.

For a graphic on British American Tobacco vs Philip Morris (YTD) bit.ly/2xOLU9R

Reporting By Justin George Varghese in Bengaluru and Martinne Geller in London; Editing by Greg Mahlich and Susan Thomas

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