British American Tobacco - Half-year Report to 30 June 2018

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News Release

Half-year Report to 30 June 2018

26 July 2018

On track for another good year

“Our strategy is to continue to grow our combustible business while investing in the exciting potentially reduced risk categories of THP, vapour and oral. As the Group expands its portfolio in these categories, we will continue to drive sustainable growth.

In the first six months of 2018, the Group continued to perform well. The cigarettes and THP portfolio has outperformed the industry as market share grew 40 basis points (bps) with a tobacco price mix of approximately 4% which is expected to strengthen in the second half of the year. The performance of Reynolds American Inc. (RAI) since acquisition is encouraging and the Group’s diverse NGP portfolio has grown strongly. The foreign exchange impact on the Group’s results was a headwind of 8% for the first six months of the year and is estimated to be 5-6% for the full year, based upon the current foreign exchange rates.

Despite the recent slowdown in the THP category in some markets, including Japan and South Korea, we remain confident of exceeding £1 billion of reported revenue in NGP in 2018 as we expect a range of new launches to re-energise growth in THP in the second half of the year. We anticipate another good year of adjusted earnings growth at constant rates of exchange”.

Nicandro Durante, Chief Executive


Six Months Results – unaudited
Change vs
Change vs
Revenue £11,636m - +56.9% -
Profit from operations £4,438m - +72.4% -
Basic earnings per share (EPS) 117.7p - -3.4% -
Diluted EPS 117.4p - -3.3% -
Net cash generated from operating activities £3,858m - +126.1% -
Borrowings £48,512m - -1.9% -
Adjusted revenue on a representative basis* £11,533m £12,553m -6.4% +1.9%
Adjusted profit from operations on a representative basis* £4,818m £5,216m -5.4% +2.4%
Adjusted diluted EPS 137.2p 148.4p +2.1% +10.4%
Adjusted cash generated from operations £2,953m £3,147m +204% +224%
Net debt £45,679m - +0.2% -
The use of non-GAAP measures, including adjusting items and constant currencies, are further discussed on page 50 to 51 of the attached full announcement, with reconciliations from the most comparable IFRS measure provided.
* Representative basis – see page 3 of the attached full announcement for explanation of this metric. All variances above are against equivalent 2017 information for the six-month period ended 30 June 2017, except for borrowings and net debt which are against the 31 December 2017 position.

  • On an IFRS reported basis, due to the inclusion of the results from acquisitions completed in 2017, notably RAI (contributing approximately 40% to revenue and profit from operations), which was partially offset by a translational foreign exchange headwind of approximately 8%:
    • Revenue increased by 56.9% with revenue from the strategic portfolio up 128%;
    • Volume from cigarettes and THP grew 11.0%;
    • Profit from operations was up 72.4%; and
    • Operating margin increased 340 bps to 38.1%.
  • On a representative basis (as if BAT had owned RAI and the other acquisitions, completed in 2017, from 1 January 2017, and defined on page 3 of the attached full announcement.):
    • Cigarettes and THP volume fell 2.2% to 348 billion (including 3 billion of THP), outperforming the industry which is estimated to be down 3-4% in the first half of 2018;
    • Cigarettes and THP market share1 in the Key Markets2 increased by 40 bps driven by strategic cigarette and THP volume growth of 11.7%;
    • Adjusted revenue, at constant rates, increased by 1.9%, driven by robust price mix (4% on cigarettes and THP, which is expected to strengthen in the second half of the year as the impact of Pakistan and GCC unwinds);
    • Adjusted revenue would have grown by 2.6% on a representative, constant currency basis, excluding an estimated £89 million of revenue recognised by RAI in the first six months of 2017, largely related to the sale of inventory associated with the international brand rights of Natural American Spirit;
    • Revenue from the strategic portfolio (defined on page 3) was up 8.5% on a constant rate basis, driven by a 5.0% growth in revenue from the strategic combustible brands and the growth of THP revenue (up over 750% at £305 million) driven by glo in Japan;
    • Adjusted profit from operations grew 2.4% at constant rates as the adjusted revenue growth was partly offset by increased investment in NGP; and
    • Adjusted operating margin, at current rates, grew 50 bps.
  • Basic earnings per share fell 3.4%, with diluted earnings per share 3.3% down, as the net effect from the inclusion of the operating performance of RAI was more than offset by higher financing costs, an increase in costs associated with the amortisation of acquired trademarks, provisions for tax claims and the foreign exchange headwinds;
  • Adjusted diluted earnings per share rose 10.4% at constant rates of exchange; and
  • The next quarterly dividend payment of 48.8p will be paid in August 2018, as part of the previously announced interim dividend of 195.2p per share which is payable in four equal instalments.

The Group expects foreign exchange to be a headwind on the full year financial results of approximately 5-6%.

1 - Key Market offtake share, as independently measured by retail audit agencies (including Nielsen), shipment share estimates, and share of retail for the US business, based upon latest available validated data.
2 - The Group’s Key Markets represent over 80% of the Group’s cigarette volume.

HY 2018 Full announcement (1.9 mb) 
(The above version of the Half-year Report to 30 June 2018 includes a correction on page 7 related to the volume growth of Natural American Spirit.)

Forward looking statements

This announcement contains certain forward-looking statements, including “forward-looking” statements made within the meaning of Section 21E of the United States Securities Exchange Act of 1934. These statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,” “could,” “may,” “would,” “should,” “intend,” “plan,” “potential,” “predict,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “outlook”, “target” and similar expressions. These include statements regarding our intentions, beliefs or current expectations concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the economic and business circumstances occurring from time to time in the countries and markets in which the Group operates.

All such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual future financial condition, performance and results to differ materially from the plans, goals, expectations and results expressed in the forward-looking statements and other financial and/or statistical data within this announcement. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking statements are uncertainties related to the following: the impact of competition from illicit trade; the impact of adverse domestic or international legislation and regulation; changes in domestic or international tax laws and rates; adverse litigation and dispute outcomes and the effect of such outcomes on the Group’s financial condition; changes or differences in domestic or international economic or political conditions; adverse decisions by domestic or international regulatory bodies; the impact of market size reduction and consumer down-trading; translational and transactional foreign exchange rate exposure; the impact of serious injury, illness or death in the workplace; the ability to maintain credit ratings and to fund the business under the current capital structure; the inability to lead the development and roll-out of BAT innovations (NGP and Combustible); and changes in the market position, businesses, financial condition, results of operations or prospects of the Group.

It is believed that the expectations reflected in this announcement are reasonable but they may be affected by a wide range of variables that could cause actual results to differ materially from those currently anticipated. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. The forward-looking statements reflect knowledge and information available at the date of preparation of this announcement and the Group undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on such forward-looking statements.

No statement in this communication is intended to be a profit forecast and no statement in this communication should be interpreted to mean that earnings per share of BAT for the current or future financial years would necessarily match or exceed the historical published earnings per share of BAT.

Additional information concerning these and other factors can be found in the Company’s filings with the U.S. Securities and Exchange Commission (“SEC”), including the Annual Report on Form 20-F filed on 15 March 2018 and Current Reports on Form 6-K, which may be obtained free of charge at the SEC’s website,, and the Company’s Annual Reports, which may be obtained free of charge from the British American Tobacco website


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