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BAT says U.S vaping slowdown will curb growth of e-cig business

(Reuters) - World No.2 tobacco maker British American Tobacco said on Wednesday a slowdown in the U.S. vaping market would lead to lower revenue growth in its vaping arm even as it gained market share in its traditional cigarettes business.

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U.S. health officials have reported more than 2,000 cases of vaping-related lung illness and 47 deaths linked to its use in the country, leading to tighter regulatory scrutiny and individual state bans.

This has led to a drop in demand for the devices, pushing BAT to forecast revenue growth in its new categories business - e-cigarettes, tobacco heating and oral products - to be at the low end of its 30-50% target.

It had previously anticipated revenue growth in the middle of that range.

U.S. vaping products make up 17% of BAT’s new categories and generate 0.8% of total group revenue, according to Jefferies.

BAT sells the Vuse e-cigarette in the United States, a product it acquired after buying U.S. rival Reynolds American for $49 billion in 2017.

It controls only a sliver of the market, in contrast to rival Altria-backed Juul, which has three-quarters of market share.

BAT’s new chief executive Jack Bowles, who took over the reins in April, has acknowledged the company was slow to react to the vaping craze in the United States.

Since then he has taken steps to slim down BAT to focus on its “new category” business, including consolidating that portfolio into three main brands and cutting 2,300 jobs.

Bowles said these steps would lead the company to put in a strong performance in 2019 and be “well placed to succeed” even if the U.S. vaping crisis led to stricter regulations.

“The argument... is that youth-orientated upstart brand Juul, which had stolen a march on its larger rivals, is being stopped in its tracks amid a crackdown to tackle an apparent vaping-related health crisis among young Americans,” AJ Bell Investment Director Russ Mould said.

BAT on Wednesday also forecast overall revenue to now grow in the upper half of its 3%-5% long term forecast range, benefiting from stronger pricing and market share gains in its traditional cigarettes business.

This was in contrast to rival Imperial Brands Plc, which issued a cautious forecast for 2020, due to its slightly larger exposure to U.S. vaping.

BAT shares were up 2.2% at 3,058 pence in morning trading. Imperial Brands also rose 2.5%.

Reporting by Siddharth Cavale in Bengaluru; Editing by Aditya Soni, Bernard Orr and Jan Harvey