British American Tobacco - Half-year Report to 30 June 2019

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News Release

Half-year Report to 30 June 2019

1 August 2019

Strong H1 results: on track for a good year

Key financials
Change vs
Change vs
Revenue £12,170m - +4.6% -
Profit from operations £4,380m - -1.3% -
Basic earnings per share 123.2p - +4.6% -
Diluted earnings per share 122.8p - +4.6% -
Net cash generated from operating activities £2,288m - -41% -
Borrowings £50,292m - +3.7% -
Adjusted revenue £12,139m £12,004m +5.3% +4.1%
Adjusted profit from operations £5,209m £5,103m +8.1% +5.9%
Adjusted diluted EPS 149.3p 146.9p +8.8% +7.1%
Adjusted cash generated from operations £1,469m £1,310m -50.3% -55.6%
Adjusted net debt £45,532m £44,311m +1.8% -1.0%
The use of non-GAAP measures, including adjusting items and constant currencies, are further discussed on pages 78 to 82 of the full announcement, with reconciliations from the most comparable IFRS measure provided. 

Jack Bowles, Chief Executive said:

"We continue to deliver on our financial objectives with adjusted revenue and adjusted profit from operations in line with our guidance, driven by a continued strong financial performance in combustibles.

Our New Categories portfolio continued to deliver encouraging growth. While there is much more to be done, with new product launches planned for the second half of the year and the impact of a full year of additional investment, we expect revenue growth to accelerate in the second half of the year. In 2019, we are on track to be around the middle of our guidance range of 30-50% New Categories revenue growth per annum, excluding the impact of translational foreign exchange.

As we create a stronger, faster, more agile organisation and deliver enhanced value growth from our combustibles business, our adjusted operating margin grew 110 basis points (bps), alongside the significant increase in investment in New Categories. We continue to generate cash and we maintain our guidance of deleveraging by 0.4 times, excluding the effect of currency movements on our reported results.

We are on track to deliver another good financial performance in 2019, including high single figure adjusted earnings growth, at constant rates of exchange.

Highlights at constant rates of exchange unless otherwise stated include:

  • Group adjusted revenue grew 4.1% driven by price/mix and growth in New Categories;
  • Value share1 grew 10 bps, with volume share2 recovering to be in line with 2018, while reducing portfolio complexity to realise efficiency gains;
  • New Categories adjusted revenue grew 27% to £531 million with growth in all categories, and is on track, in 2019, to reach the middle of the Group’s stated 30-50% growth range per annum through 2023/24;
  • Adjusted profit from operations up 5.9%, with growth in all regions, and adjusted operating margin (at current rates) higher by 110 bps while significantly increasing the investment in New Categories;
  • In the US, adjusted revenue grew 3.7% and adjusted profit from operations was 11.2% higher, with the roll-out of Velo progressing well and the US$400 million of synergies arising from the acquisition of RAI expected to be fully realised in 2019, 12-months ahead of schedule;
  • Adjusted diluted earnings per share (EPS) up 7.1%, or 8.8% at current rates; and
  • Operating cash flow conversion of 66%, at current rates."

Key performance indicators - summary

  • Total cigarette and THP volume declined in line with the industry*, down 3.5% to 336 billion sticks. In the key markets, value share1 increased 10 bps while volume share2 was in line with 2018;
  • Strategic Cigarette and THP increased volume share by 60 bps driven by the continued growth of Rothmans and success of Neo, with Strategic Cigarette and THP volume down only 0.5%;
  • Revenue increased 4.6% to £12,170 million, as good price/mix (totalling 7%) across the cigarette portfolio, as well as growth in revenue from New Categories and Traditional Oral, more than offset lower cigarette volume. The foreign exchange impact was a tailwind of 1.2% on our reported results. On a constant currency basis and excluding the impact of excise on bought in goods, adjusted revenue^ increased by 4.1%;
  • Revenue from the Strategic Portfolio (defined on page 80 of the full announcement) was up 8.7%, or 6.6% on an adjusted constant rate basis, with the growth driven (at constant rates) by:
    • 5.2% growth in revenue from the strategic combustible brands;
    • 27% increase in revenue from New Categories to £531 million, with volume growth across all categories:
      • THP revenue up 4% to £301 million, with consumable volume up 17% to 3.9 billion sticks, driven by Japan, South Korea and Russia;
      • Vapour revenue up 58% to £183 million, with consumables volume increasing 32% to 102 million units, with volume higher across ENA and Canada; and
      • Modern oral revenue up 284% to £47 million, with volume 179% higher (to 412 million pouches) driven by Scandinavia and Russia; and
    • 10% increase in revenue from traditional oral to £463 million with volume in line with 2018;
  • Profit from operations was down 1.3%, as the strong operational performance, which included a translational foreign exchange tailwind of 2.2%, was more than offset by the £436 million charge recognised in Canada related to the Quebec Class Action. Consequently, operating margin declined 210 bps;
  • Adjusted profit from operations grew 5.9% at constant rates of exchange as the adjusted revenue growth and continued drive for efficiency gains (including the product rationalisation to remove complexity) more than offset the increased investment in New Categories that reflects the Group’s continued development of these categories;
  • Adjusted operating margin, at current rates, was 110 bps higher than the same period in 2018 at 42.9%, as the investment in the development and roll out of New Categories was more than offset by pricing and cost control;
  • Net cash generated from operating activities fell by 41% to £2,288 million, with cash conversion of 52% (compared to 87% in the same period last year) due to the timing of payments related to the master settlement agreement (MSA) in prior periods described on page 36, and working capital movements. Operating cash flow conversion of 66% (30 June 2018: 70% after normalising for the timing of the MSA payment). The decrease in conversion, on a normalised basis, was largely due to the working capital movements in the period;
  • Borrowings increased to £50,292 million (30 June 2018: £48,512 million, 31 December 2018: £47,509 million), driven by the timing of cash generation, working capital movements and the recognition of lease liabilities under IFRS 16 (£607 million);
  • Adjusted net debt3 increased to £45,532 million (30 June 2018: £44,739 million, 31 December 2018: £43,407 million). This was driven by the recognition of lease liabilities under IFRS 16 (£607 million) and free cash outflow (after dividends paid to shareholders) of £1,052 million (30 June 2018: £611 million inflow). The movement in free cash flow after dividends paid to shareholders against 2018 was due to the short-term timing impact of working capital movements and the payments related to the MSA. With the normal weighting of cash generation to the second half of the year, the Group continues to expect to generate free cash flow after dividends in excess of £1.5 billion for the full year. Adjusted net debt to adjusted EBITDA is expected to reduce by approximately 0.4x in 2019, excluding the translational foreign exchange impact;
  • Basic earnings per share increased 4.6%, with diluted earnings per share 4.6% higher, as a reduction in the effective tax rate from 30.1% to 25.1% and an improved performance from the Group’s main associate in India (ITC) more than offset the lower profit from operations explained above; and
  • Adjusted diluted earnings per share at constant rates of exchange rose 7.1%, as the Group’s growth in adjusted profit from operations, an improved performance from ITC and a decrease in the underlying effective tax rate from 26.9% to 26.6% more than offset a £55 million increase in adjusted net finance costs.

The next quarterly dividend payment of 50.75p per share will be paid in August 2019, as part of the previously announced dividend of 203.0p per share which is payable in four equal instalments.

1 - Value share represents customer sales price earned as a proportion of the industry total customer sales price.
2 - Key Market offtake volume 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. The Group’s Key Markets represent over 80% of the Group’s cigarette volume
3 - Adjusted net debt is net debt excluding the impact of the purchase price allocation (PPA) adjustments of £915 million (30 June 2018: £940 million, 31 December 2018: £944 million).
^ Adjusted revenue excludes excise on bought-in goods, acquired and sold under short-term contract manufacturing agreements which distort revenue and operating margin in a temporary basis. Such adjustment only applies to revenue related to certain non-strategic combustible volume in ENA.
* Source: Internal estimates

HY 2019 Full announcement (1.8 mb) 

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.

In particular, these forward-looking statements include, among other statements, statements regarding the BAT Group’s future financial performance, second-half 2019 New Category revenue, planned product launches and future regulatory developments, as well as: (i) certain statements in the Performance Review section (pages 6 to 8); (ii) certain statements in the Regional Review section (pages 9 to 12); (iii) certain statements under the headings “UK Pension Fund – Buy In”, “Update on Quebec Class Action” and “Going Concern” (pages 18 to 20); (iv) certain statements in the Notes to the Interim Financial Statements section (pages 30 to 45), including the Liquidity and Contingent Liabilities and Financial Commitments sections; (v) certain statements in the Other Information section (pages 76 to 82), including the Non-GAAP Measures section; and (vi) certain statements in the Chief Executive introduction (page 1).

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 develop, commercialise and roll-out Potentially Reduced-Risk Products; 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 2019 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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