British American Tobacco - Preliminary announcement - year ended 31 December 2020

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News Release

17 February 2021

Preliminary announcement - year ended 31 December 2020

Growth in New Categories and Group earnings despite COVID-19

Jack Bowles, Chief Executive:

“As the largest, and only truly global company in our industry, we take seriously our role to transform ourselves and demonstrate thought leadership. We have a clear purpose to reduce the harm footprint of our business. We are uniquely positioned to encourage the switch to reduced risk products**.

We operate worldwide, including the US, which represents 40% of the global industry’s value. Our well-embedded consumer-centric, multi-category strategy is activated on a global scale, leveraging our insights on consumer satisfaction, innovation needs and taste preference. We are building the brands of the future – strong, global brands, specifically positioned in each target consumer segment.

Last year we increased the number of consumers of our non-combustible products by 3m to 13.5m, doubling the rate of consumer adoption in the second half of 2020. We have excellent momentum in New Categories, with accelerating volume and value share gains.

Our investment behind New Categories has increased by a further £426m compared to 2019, enabled by a 5th consecutive year of value share growth in combustibles. Enabled by Project Quantum, we continued to simplify the company and drive efficiencies, delivering £660m of cost savings (being well on track to deliver our ambitious £1bn of savings by 2022), further supporting new capabilities investment.

Our ESG targets are transformational and support our A Better Tomorrow ambition. We will track and share our progress. We are committed to reducing the health impact of our business, whilst delivering sustainable results that create long-term multi-stakeholder value”.

Performance highlights
Vs 2019 Current
Vs 2019
Cigarette and THP volume share   +30 bps    
Cigarette and THP value share   +20 bps    
Non-Combustibles consumers1 13.5m +3.0m    
Revenue (£m) £25,776m -0.4% £25,776m +3.3%
Profit from operations (£m) £9,962m +10.5% £11,365m +4.8%
Operating margin (%) +38.6% +380 bps +44.1% +100 bps2
Diluted EPS (pence) 278.9p +12.0% 331.7p +5.5%
Net cash generated from operating activities (£m) £9,786m +8.8%    
Free cash flow after dividends (£m)     £2,550m +32.7%
Cash conversion (%)2 98.2% -160 bps 103.0% +650 bps
Borrowings3 (£m) £43,968m -3.1%    
Adjusted Net Debt (£m)     £39,451m -5.3%
Dividend per share (pence) 215.6p +2.5%    
The use of non-GAAP measures, including adjusting items and constant currencies, are further discussed on pages 48 to 53 in the preliminary announcement, with reconciliations from the most comparable IFRS measure provided.
  1. Internal estimate.
  2. Movement in adjusted operating margin and operating cash conversion are provided at current rates.
  3. Borrowings includes lease liabilities.

Delivering today

  • Revenue, profit from operations and earnings growth* absorbing estimated 2.5% COVID-19 revenue headwind
  • Combustible revenue up 2.8%* with volume down 4.5% offset by strong price/mix of 7.3%
  • Cigarette value share up 20 bps driven by the Strategic portfolio up 40 bps
  • £660m annualised cost savings, driven by Quantum
  • Adjusted profit from operations up 4.8%*
  • Adjusted operating margin up 100 bps
  • Adjusted diluted EPS up 5.5%*
  • Operating cashflow conversion of 103%, >90% target.
  • £2.6bn FCF generation driving deleverage to 3.3x adjusted net debt / adjusted EBITDA
  • Full Year dividend 215.6p up 2.5%
  • 65% dividend pay-out ratio

Building A Better Tomorrow™

  • 13.5m consumers of our non-combustible products1, adding 3m in 2020. On track to 50m by 2030
  • New Categories revenue up 15%*, accelerating through the second half
  • Incremental £426m New Categories investment in 2020
  • Volume (of consumables) up 52% in Vapour
  • Volume (of consumables) up 19% in THP (or 29% excluding glo Sens withdrawal)
  • Volume up 62% in Modern Oral
  • Acquisition of Dryft assets in the US expanding our US portfolio from 4 to 28 product variants
  • Ahead of schedule to deliver £1bn annualised savings by 2022 to fund investment in New Categories and in developing new operational capabilities
* at constant rates of exchange


2021 outlook: 

  • Global tobacco industry volume expected to be down around 3%. US market dependent on COVID-19 uncertainties.
  • Constant currency revenue growth of 3%-5%, and continued progress towards our New Categories revenue target of £5bn in 2025.
  • Mid-single figure constant currency adjusted EPS growth reflecting continued COVID-19 impacts. Expected FX headwind of around 7% on full year adjusted EPS growth.
  • Operating cashflow conversion in excess of 90%, Adj Net debt/Adj EBITDA around 3.0x.

Post COVID-19, confident in our guidance of 3-5% revenue and high single-figure adjusted diluted EPS growth at constant currency.

** Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive

Preliminary announcement - year ended 31 December 2020 (1.1 mb) 

Forward looking statements

This announcement contains certain forward-looking statements, including "forward-looking" statements made within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. 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 British American Tobacco Group (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 Group's future financial performance, planned product launches and future regulatory developments, as well as: (i) certain statements in the Chief Executive commentary (pages 1 to 2 in the preliminary announcement); (ii) certain statements in the Finance and Transformation Director’s Statement (page 2 in the preliminary announcement); (iii) certain statements in the Category Performance Review (pages 4 to 7 in the preliminary announcement); (iv) certain statements in the Regional Performance Review section (pages 8 to 13 in the preliminary announcement); (v) certain statements in the Other Financial Information section (pages 14 to 17); (vi) certain statements in the Managing Through COVID-19 section (pages 18 to 20 in the preliminary announcement); (vii) certain statements in the Other Information section (pages 21 to 25 in the preliminary announcement); (viii) certain statements in the Notes to the Interim Financial Statements section (pages 32 to 43 in the preliminary announcement), including the Liquidity and Contingent Liabilities and Financial Commitments sections; (ix) certain statements in the Other Information section (pages 44 to 55 in the preliminary announcement), including the Non-GAAP Measures sections and under the heading “Dividends”.

All such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and other factors. 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.

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; the inability to develop, commercialise and deliver the Group’s New Categories strategy; the impact of market size reduction and consumer down-trading; adverse litigation and dispute outcomes and the effect of such outcomes on the Group’s financial condition; the impact of significant increases or structural changes in tobacco, nicotine and New Categories related taxes; translational and transactional foreign exchange rate exposure; changes or differences in domestic or international economic  or political conditions; the ability to maintain credit ratings and to fund the business under the current capital structure; the impact   of serious injury, illness or death in the workplace; adverse decisions by domestic or international regulatory bodies; and changes in the market position, businesses, financial condition, results of operations or prospects of the Group. 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 BAT 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 announcement 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 BAT's filings with the U.S. Securities and Exchange Commission ("SEC"), including the Annual Report on Form 20-F and Current Reports on Form 6-K, which may be obtained free of charge at the SEC's website,

All financial statements and financial information provided by or with respect to the U.S. or Reynolds American Inc. (“Reynolds”) are initially prepared on the basis of U.S. GAAP and constitute the primary financial statements or financial records of the U.S. / Reynolds. This financial information is then converted to International Financial Reporting Standards as issued by the IASB and as adopted by the European Union (“IFRS”) for the purpose of consolidation within the results of the Group. To the extent any such financial information provided in this announcement relates to the U.S. or Reynolds it is provided as an explanation of, or supplement to, Reynolds’ primary U.S. GAAP based financial statements and information.

Our vapour product Vuse (including Alto, Solo, Ciro and Vibe), and certain products including Velo, Grizzly, Kodiak, Camel Snus and Granit, which are sold in the U.S., are subject to FDA regulation and no reduced-risk claims will be made as to these products without agency clearance.


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