BAT lifts annual profit growth target as Velo drives US momentum

By Yamini Kalia and Emma Rumney

July 30 (Reuters) - British American Tobacco lifted its annual earnings growth forecast on Thursday as lower costs and stronger cash generation combined with strong performance of its Velo nicotine pouches in the United States.

The maker of Lucky Strike and Dunhill cigarettes now expects growth in full-year adjusted earnings per share towards the middle of its previously stated 5% to 8% range, up from its earlier forecast closer to the lower end.

Grappling with a prolonged decline in demand for traditional cigarettes, BAT has poured investment into smoking alternatives and is pursuing an overhaul that will eliminate 9,000 jobs in a bid to lift profitability.

BAT MAKES SUSTAINABLE GROWTH ITS PRIORITY

BAT kept its revenue and adjusted operating profit guidance unchanged at the lower-end of its 4% to 6% range. CEO Tadeu Marroco said investments in new products and a slower than expected recovery in Asia, where sales have been hit by regulatory and tax changes, led it to remain conservative.

He said BAT was prioritising sustainable growth after years of investment to rebuild the business, while adding there were no plans for further major restructuring in the short term.

BAT shares, which have risen about 11% so far this year, were down 2.8% at 4,606 pence by 1108 GMT.

VAPES AND NICOTINE POUCHES DRIVE GROWTH

Revenue from BAT's portfolio of smoking alternatives - spanning vapes, heated tobacco and nicotine pouches - grew 18% at constant currency in the first half, helping offset declines in Asia.

"BAT is, in our view, at an early stage of a successful transition towards a smoke free products-centric portfolio," Jefferies analysts said.

The company forecast growth in its U.S. combustibles business to moderate in the second-half.

Meanwhile, it is expected to benefit from a recent move by the U.S. Food and Drug Administration that now allows the sale of some unlicensed vapes.

A booming market for flavoured disposable vapes in particular, illegally sold without the necessary permission from regulators, has been eating into its U.S. sales and market share.

BAT plans to launch flavoured versions of its Vuse vape from the third quarter but has no plans to come out with its own disposable vapes, Marroco told Reuters by phone.

"We wouldn't be interested," he said in a telephone interview, adding that disposables are not economical for consumers or environmentally sustainable.

BAT would also be unable to compete with some rival offerings that risk harming users' health, such as devices offering 10,000 or more puffs, he said.

Adjusted earnings rose 7.9% to 164 pence per share in the six months to June 30, beating a company-compiled consensus of 158.5 pence.

($1 = 0.7473 pounds)

(Reporting by Yamini Kalia in Bengaluru; Editing by Nivedita Bhattacharjee, David Holmes and Joe Bavier)