British American Tobacco - Half-year Report to 30 June 2020

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News Release

31 July 2020

Half-year Report to 30 June 2020

Multi-category strategy delivers growth in difficult times

Change vs
Change vs
Cigarette and THP volume share - - +50 bps -
Cigarette and THP value share - - +20 bps -
Non-Combustibles consumers 11.6m - +1.1m -
Revenue £12,271m - +0.8% -
Profit from operations £5,097m - +16.4% -
Operating margin 41.5% - +550 bps -
Effective tax rate 23.0% - -210 bps -
Basic earnings per share (EPS) 151.2p - +22.7% -
Diluted EPS 150.7p - +22.7% -
Net cash generated from operating activities £3,484m - +52.3% -
Cash conversion 68% - +1,600 bps -
Borrowings £50,461m - +0.3% -
Adjusted revenue £12,271m £12,434m +1.1% +2.4%
Adjusted profit from operations £5,368m £5,379m +3.1% +3.3%
Adjusted operating margin 43.7% 43.3% +80 bps +40 bps
Underlying tax rate 25.0% 24.9% -160 bps -170 bps
Adjusted diluted EPS 157.8p 159.1p +5.7% +6.6%
Adjusted cash generated from operations (ACGFO) £2,806m £2,719m +91% +85%
Operating cash conversion 80% - +1,400 bps -
Adjusted net debt £44,237m - -2.8% -
The use of non-GAAP measures, including adjusting items and constant currencies, are further discussed on pages 59 to 64 of the full announcement, with reconciliations from the most comparable IFRS measure provided.

Jack Bowles, Chief Executive said:

"The business is performing well in difficult circumstances as our continued focus on our three key priorities2 has enabled us to rapidly adapt to the current environment.

  1. We are building A Better Tomorrow
    • 10% of our revenues come from non-combustible categories
    • We are making good progress towards our target of 50 million non-combustibles consumers by 2030
    • Invested an additional £250 million in New Categories marketing
  2. We are continuing to deliver adjusted revenue, profit from operations and earnings growth at constant rates
    • Strong cigarette price/mix (8.5%) reflects the strength of our differentiated brand portfolio
    • Which offsets lower cigarette and THP volume (down 6.3%)
    • And the impact of COVID-19 of approximately -4% on adjusted revenue in the first six-months of 2020
  3. Multi-category consumer acquisition drives share growth
    • Our Non-Combustibles consumer base increased to 11.6 million (up 1.1 million from December 2019), being an increase of 2.7 million consumers on a rolling 12 month basis from June 2019
    • New categories revenue grew 12.7% (at constant rates)
    • We are growing volume share in THP and value share in Vapour, with Modern oral adjusted revenue up 71% (at constant rates)   
  4. We are delivering excellent combustibles volume and value share growth
    • Cigarette volume share (up 50 bps) and value share (up 20 bps)
    • Driven by the strength of the Group’s differentiated cigarette portfolio
    • Strategic cigarettes and THP portfolio now accounts for 66% of total cigarettes and THP volume
    • US cigarette volume share up 10 bps and value share up 30 bps
  5. We are navigating COVID-19 supported by a diverse market footprint
    • Consumption trends in Developed Markets (75% of Group adjusted revenue) remain robust, with good pricing and little evidence to date of accelerated down-trading
    • In Emerging Markets, we are growing cigarette and THP volume share strongly, up 70 bps
    • Volumes are strong where we see illicit trade reduction and can leverage our operational agility
    • Weaker industry volume where there have been stricter lockdown measures (for instance South Africa)
    • We continue to anticipate a full year headwind of around 3% from COVID-19 on constant currency adjusted revenue
  6. We are committed
    • We are on track to deliver against our 2020 guidance
    • We maintain our medium-term post COVID-19 guidance of 3-5% constant currency adjusted revenue growth and high-single figure constant currency adjusted diluted EPS growth
    • We are committed to our 65% dividend pay-out ratio

I would like to thank our staff, customers, partners and suppliers for working tirelessly through this difficult period. We expect the coming months to bring continued uncertainty. Nevertheless, we will continue to invest in accelerating our strategy. Building on our excellent momentum, we are confident that we will exit this crisis as a stronger and better business”

  1. The use of non-financial key performance indicators (KPIs) is further discussed on pages 57 and 58 of the full announcement.
  2. Three key priorities are “Driving value from Combustibles”, “Ensuring a step change in New Category performance” and “Simplifying the business”.

Half-year Report to 30 June 2020 (1.4 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, including the projected future financial and operating impacts of the COVID-19 pandemic.

In particular, these forward-looking statements include, among other statements, statements regarding the BAT Group’s future financial performance, planned product launches and future regulatory developments, as well as: (i) certain statements in the Sustainability and COVID-19 section (pages 5 to 7); (ii) certain statements in the Financial Performance Review section (pages 10 to 13); (iii) certain statements in the Category Performance Review section (pages 14 to 17); (iv) certain statements in the Regional Review section (pages 18 to 23); (v) certain statements under the headings “Update on investigations into Misconduct Allegations”, “Update on Quebec Class Action and CCAA” and “Going Concern” (pages 25 and 27); (vi) certain statements in the Notes to the Interim Financial Statements section (pages 37 to 54), including the Liquidity and Contingent Liabilities and Financial Commitments sections; (vii) certain statements in the Other Information section (pages 55 to 66), including the Non-GAAP Measures section and under the heading “Dividends”; and (viii) certain statements in the Chief Executive introduction (pages 1 to 2).

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 and the impact of an unfavourable ruling by a tax authority in a disputed area; 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; the impact of the COVID-19 pandemic; 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 rollout New Categories; 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 26 March 2020 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

Paul McCrory
30 July 2020


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