British American Tobacco - Half-Year Report to 30 June 2022

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News Release

27 July 2022

Half-Year Report to 30 June 2022

New Categories growth drives Faster Transformation

Jack Bowles, Chief Executive: “I am very proud that our continued New Categories growth momentum is driving Faster Transformation, with revenue growth of 45%* in the first half of 2022, on top of 51%* growth in FY2021. We are delivering both strong operational performance and transforming the business.

“I am especially proud that the number of consumers using our non-combustible brands has passed the milestone of 20m in the first half. Our A Better Tomorrow purpose, partnered with our well-established multi-category strategy, continues to drive growth.

“Our three strong, global New Category brands underpinned our revenue performance, with non-combustibles now representing 14.6% of revenue. Revenue growth was ahead of volume growth in all three New Categories. We are confident in delivering £5bn New Category revenue, and profitability, by 2025.

“Furthermore, New Category contribution improved by over 50% in H1, with losses reduced by £281m* in the period alongside a continued increase in investment in our transformation, with a total of £1.1bn invested in New Categories in the first half.

“From an innovation perspective, the second half promises to be exciting. We are launching our new glo system proposition, hyper X2, and a new consumables range in the THP category, where we are enjoying strong growth. In addition, we continue to build on our international leadership position in Vapour, expanding our portfolio with the launch of Vuse Go, our new disposable Vapour platform. This will be scaled-up and rolled out into a number of new markets following our successful UK pilot launch in the first half of 2022.

“Our combustibles business continues to grow value share enabled by robust pricing. In addition, we have delivered £1.5bn Quantum savings six months early, and our progress continues. We now expect to achieve in excess of £1.5bn by year end.

“We have a strong and resilient portfolio in the U.S., growing value share in both combustibles and vapour. We continue to grow our premium value share in combustibles and to date we see no acceleration of downtrading in our combustibles portfolio.

“We are not immune, of course, to the increasing macro-economic pressures, exacerbated by the conflict in Ukraine. However, we are well positioned to navigate the current turbulent environment due to our powerful brands, operational agility and continued strong cash generation.

“I am very pleased that, thanks to the hard work and commitment of BAT employees all over the world, we are delivering our operational performance and business transformation at pace in a challenging environment.

“With this strong start to the year, I am confident in achieving our full year guidance. While understanding that there is more to do, these results demonstrate the strong progress we are making in our Faster Transformation towards A Better Tomorrow.”

Performance highlights
Vs 2021
Vs 2021
Vs 2021
Cigarette and THP value share   +10 bps      
Cigarette and THP volume share   flat      
Consumers of non-combustible products1 20.4m +2.1m      
Revenue (£m) £12,869m +5.7% £12,869m +5.7% +3.7%
Revenue from New Categories (£m) £1,283m +45.4% £1,283m +45.4% +45.0%
Profit from operations (£m) £3,678m -25.0% £5,645m +7.8% +4.9%
New Category contribution (£m)     £(222)m -56.1%^ -55.4%^
Operating margin (%) +28.6% -11.7 ppts +43.9% +90 bps +50 bps
Diluted EPS (pence) 80.8p -42.9% 167.4p +8.6% +5.7%
Net cash generated from operating activities (£m) £3,221m +42.9%      
Adjusted cash generation from operations (£m)     £2,137m +60.2% +64.2%
Cash conversion (%) +87.6% +41.7 ppts +77.3% +10.6ppts  
Borrowings (£m) £44,875m -0.3%      
Adjusted Net Debt (£m)     £39,990m -1.2% -7.5%

The use of non-GAAP measures, including adjusting items and constant currencies, are further discussed on pages 55 to 60 of the full announcement, with reconciliations from the most comparable IFRS measure provided. 

1 Internal estimate.
^ Improvement in New Categories contribution as losses reduce by 56.1% (or 55.4% at constant rates of exchange)

Faster Transformation

  • New Categories revenue up 45% to £1,283m*
  • Non-combustible product consumers increased by 2.1m to 20.4m, with 14.6% of Group revenue delivered by non-combustible products, up 2.2 ppts from FY21
  • Vapour revenue up 48%*, Vuse extended global category value share leadership, becoming U.S. No.1
  • glo revenue up 44%*, with glo hyper volume share gains in Europe
  • Modern Oral revenue up 37%*, driven by Velo, with continued volume share leadership in Europe
  • All New Categories grew revenue faster than volume
  • New Category contribution losses reduced by over 50% to £222m

HY Results

  • Revenue up 3.7%* led by New Category growth
  • Combustible revenue up 0.6%* against a strong U.S. comparator, price/mix was up 4.8%
  • Cigarette value share up 10 bps
  • £1.5bn Quantum savings delivered six months early, expect to deliver in excess of £1.5bn by end of 2022
  • Adjusted profit from operations up 4.9%* includes an adverse transactional FX impact of 1.5%
  • Adjusted operating margin up 90 bps
  • Adjusted diluted EPS up 5.7% to 163.0p*
  • Operating cashflow conversion of 77%, reflecting continued excellent cash generation
  • Reported results mainly reflect charges in respect of Russia and the DOJ/OFAC investigations

* at constant rates of exchange

Half-Year Report to 30 June 2022 (1.3 mb) 

Forward looking statements and other matters

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.

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 and business objectives (including with respect to sustainability and other environmental, social and governance matters), as well as: (i) certain statements in the Chief Executive commentary (pages 1 to 2 of the full annoucement); (ii) certain statements in the Finance and Transformation Director’s Outlook Statement (page 2 of the full annoucement); (iii) certain statements in the Category Performance Review (pages 4 to 8 of the full annoucement); (iv) certain statements in the Regional Review section (pages 9 to 13 of the full annoucement); (v) certain statements in the Other Financial Information section (pages 14 to 17 of the full annoucement); (vi) certain statements in the Other Information section (pages 18 to 22 of the full annoucement); (vii) certain statements in the Notes to the Unaudited Interim Financial Statements section (pages 31 to 50 of the full annoucement), including the Liquidity and Contingent Liabilities and Financial Commitments sections; and (viii) certain statements in the Other Information section (pages 51 to 63 of the full annoucement), including the Non-GAAP Measures sections and under the heading “Dividends”.

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.

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 and performance 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; 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.

A review of the reasons why actual results and developments may differ materially from the expectations disclosed or implied within forward-looking statements can be found by referring to the information contained under the headings “Cautionary statement”, "Group Principal Risks" and "Group Risk Factors" in the 2021 Annual Report and Form 20-F of British American Tobacco p.l.c. (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, and BAT’s Annual Reports, which may be obtained free of charge from the British American Tobacco website

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. 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.

All financial statements and financial information provided by or with respect to the U.S. or Reynolds American Inc. (Reynolds American) are initially prepared on the basis of U.S. GAAP and constitute the primary financial statements or financial records of the U.S. / Reynolds American. This financial information is then converted to International Financial Reporting Standards as issued by the IASB and as adopted for use in the UK (“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 American it is provided as an explanation of, or supplement to, Reynolds American’s 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, and Camel Snus , 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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