REG - British Amer.Tobacco - Trading Statement

British American TobaccoAnnouncement

11/12/2024 07:00

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RNS Number : 5886P  British American Tobacco PLC  11 December 2024

11 December 2024

 

On track to deliver FY guidance; 2024 investment driving positive momentum
toward long-term sustainable growth

·      Confirming FY24 delivery in line with our guidance

·      H2 acceleration in line with our expectations, driven by New
Categories innovation phasing, the benefits of H1 investment in U.S.
commercial actions and unwind of wholesaler inventory movements

·      We expect to deliver improved New Category and Combustibles
revenue growth in H2 versus H1

·      Further improving New Category profitability(1) through Quality
Growth focus and smart re-investment

·      Strong >90% cash conversion with leverage(2) at the high end
of our target range of 2.0-2.5x by year-end 2024, also impacted by recent USD
strengthening

·      We support the proposed Canadian CCAA settlement in the
mediator's and monitor's plan of arrangement, and we are hopeful of securing a
conclusion for the benefit of all stakeholders

Tadeu Marroco, Chief Executive

"We are on track to deliver our 2024 guidance, demonstrating the strength and
resilience of our business. Our second-half performance acceleration is driven
by the phasing of New Categories innovation, the benefits of investment in
U.S. commercial actions and the unwind of wholesaler inventory movements.

In October, I was delighted to host our Capital Markets Day together with our
management team in our Innovation Centre in Southampton. This event
demonstrated how BAT's science, innovation, breadth of capabilities and people
can combine to achieve a Smokeless World and deliver long-term sustainable
value for all our stakeholders. We continue to make progress towards our
ambition of becoming a predominantly Smokeless(3) business by 2035.

Our Quality Growth imperative is delivering higher returns on more targeted
investments across all three New Categories, and that prioritisation and focus
is already transforming our business in Europe. We are making further progress
increasing profitability(1) across New Categories, and I am particularly
pleased with the improvements in Heated Products and Modern Oral.

In the U.S., I am encouraged that our investment approach, taken over the last
18 months to strengthen our business, is working, despite a challenging
macro-economic backdrop. Through our commercial actions, we have invested in
our portfolio and improved our executional capabilities. With these previously
announced plans now completed, we can prioritise driving sharper execution and
opening incremental white space, related to Modern Oral.

We continue to prioritise shaping a Sustainable Future and call for more
appropriate regulation and enforcement of New Categories, including Vapour in
the U.S. and Canada.

We are making good progress and while there is still more to do, I believe
that the choices we have made and the actions we are taking through this
investment year are the right way forward for BAT.

As previously highlighted, we do not expect the journey to our mid-term
guidance to be linear. Building on the strong foundations we have established,
I am confident that we will deliver an improved underlying performance as we
move from investment to deployment in 2025. In addition, we expect to have
more clarity on the financial impacts of CCAA in Canada when we provide our
2025 guidance with our FY24 results in February.

We will continue to reward shareholders through strong cash returns, including
our progressive dividend and sustainable share buy-back, and we remain
committed to returning to our mid-term guidance of 3-5% revenue and mid-single
digit adjusted profit from operations growth on an organic(4) constant
currency basis by 2026."

 

 

Our outlook is underpinned by the following three key areas, where we continue
to make progress:

1. Combustibles: U.S. commercial actions continuing to gain traction in H2;
volume & value share gains in AME & APMEA

·      Benefits of H1 investment in U.S. commercial actions and unwind
of wholesaler inventory movements, together with robust pricing across all
three regions, has driven improved Combustibles organic(4) volume and
financial performance in H2

·      Volume share up 20 bps in Top markets(5).  Value share down 20
bps, mainly due to adverse geographical mix and implementation of commercial
plans in the U.S.

·      U.S. industry volume down c.9% YTD reflecting continued
macro-economic pressures and the impact of illicit single-use Vapour products

·      U.S. commercial actions gaining traction with volume share flat
and value share down 30 bps

·      Continued volume share and value share gains in AME and APMEA

2. Improving New Category performance in H2

2.1 Vuse: Continued global value share leadership(6); U.S. illicit single-use
vape headwinds persist

·      Global value share leadership maintained at 40.3% in Top
markets(7), incl. U.S. tracked channels at 50.7%

·      Our U.S. financial performance continues to be impacted by the
illicit Vapour market

o  Actively supporting more appropriate regulation and enforcement to tackle
illicit products

o  In Louisiana, further encouraging signs that Vapour enforcement works -
driving strong legal Vapour industry gains with Vuse capturing the majority of
the flowback

·      In AME, we are seeing continued New Categories poly-usage(8)
benefiting the Vapour category

o  Value share leadership maintained at 31.6%, with strong performances in
Spain, France and Germany, more than offset by the impact of illicit growth in
Canada post Quebec flavour ban

o  Excluding Canada, value share in AME up 90 bps

o  In Mexico, we continue to monitor the progress of legislation seeking to
ban vapour products

2.2 glo: Innovation pipeline starts to drive performance acceleration in H2

·      New innovations glo Hyper Pro and enhanced consumables are
driving improved organic(4) volume, revenue and profit(1) performance in H2
versus H1

·      glo continues to show early signs of category volume share
improvement in Top markets(9), with volume share down 30 bps to 16.8% (versus
down 110 bps in 2023)

·      Category volume share improvement versus 2023 in Italy; in Japan,
our new glo Hyper Pro consumables continue to gain volume share, up 110 bps,
partially offsetting the decline of our legacy consumables range, resulting in
total decline of 40 bps

·      Continued strong performance in AME, with category volume share
up 10 bps driven by Poland and the Czech Republic, reaching 34.8% and 18.1%,
respectively

·      veo, our non-tobacco consumables range, continues to perform
strongly

2.3 Velo: Strong volume, revenue and profit(1) growth; continued leadership
outside the U.S.

·      Strong volume, revenue and profit(1) growth driven by the
continued success of Velo in established oral markets, and strong momentum in
newer launch markets incl. the UK and Poland

·      Velo's volume share up 180 bps to 11.2% of Total Oral and up 110
bps to 28.2% of MO in Top markets(10)

·      Clear category leadership in AME, reflecting the strength of our
brand equity and superior portfolio

·      In the U.S., our refreshed Velo brand expression and Grizzly
Modern Oral are performing well and have re-invigorated our performance with
volume share up 180 bps to 6.3%

·      Expanding our U.S. portfolio with Velo Plus, a more competitive
product with a broad variety of flavours and nicotine levels - the nationwide
roll-out is underway

3. Strong cash generation

·      On track to deliver operating cash flow conversion in excess of
90% again in 2024, enabled by our continuous improvement mindset and further
optimising resource allocation

·      We expect to be at the high end of our leverage(2) target range
of 2.0-2.5x adjusted net debt / adjusted EBITDA(2) by year-end 2024, also
impacted by recent USD strengthening

Technical guidance for full-year 2024:

·      Global tobacco industry volume expected to be down c.2%

·      Low-single figure organic(4) constant currency revenue growth

·      Low-single figure organic(4) adjusted profit from operations
growth, incl. a c.1.5% transactional FX(11) headwind

·      Expected translational FX(11) headwind of c.4.5% on full-year
adjusted profit from operations

·      Net finance costs now expected to be c.£1.6bn, subject to FX(11)
and interest rate volatility

·      Gross capital expenditure in 2024 of c. £600 million

·      Operating cash flow conversion in excess of 90%

 

 

For further information, please contact:

 

Media Centre

+44 (0) 20 7845 2888 (24 hours) | press_office@bat.com
(mailto:press_office@bat.com) | @BATplc (https://twitter.com/BATplc)

Investor Relations
ir_team@bat.com (mailto:ir_team@bat.com)

Victoria Buxton: +44 (0)20 7845 2012

Amy Chamberlain: +44 (0)20 7845 1124

John Harney: +44 (0)20 7845 1263

 

Webcast and Conference call - The conference call will begin at 8.30am (GMT)

You can access the audio webcast via our website. You can also listen via conference call by dialling the numbers below. Quote the password 'BAT trading update' when prompted by the operator.

UK Toll-Free: 0808 109 0700

UK-Toll: +44 (0) 33 0551 0200

South Africa Toll-Free: +27 80 098 0512

USA Toll-Free: +1 866 580 3963

USA Toll: +1 786 697 3501

 

A playback facility for the conference call will be available online via
www.bat.com (http://www.bat.com)
.

 

 

Market share and volume data YTD September 2024 average share growth vs.
FY2023 average.

(1) New Category profitability at category contribution level: Profit from
operations before the impact of adjusting items and translational foreign
exchange, having allocated costs that are directly attributable to New
Categories.

 

(2) Leverage refers to the ratio of adjusted net debt to adjusted EBITDA.

Adjusted net debt is not a measure defined by IFRS. Adjusted net debt is total
borrowings, including related derivatives, less cash and cash equivalents and
current investments held at fair value, excluding the impact of the
revaluation of Reynolds American Inc. acquired debt arising as part of the
purchase price allocation process.

 

Adjusted EBITDA is not a measure defined by IFRS. Adjusted EBITDA is profit
for the year before net finance costs/income, taxation on ordinary activities,
depreciation, amortisation, impairment costs, the Group's share of post-tax
results of associates and joint ventures, and other adjusting items.

(3) Predominantly Smokeless refers to our ambition to achieve 50% of Group
revenue from our smokeless products by 2035. Smokeless refers to
Non-Combustibles, including Vapour products, Heated Products, Modern Oral
pouches and Traditional Oral.

(4) Organic: To supplement the Group's results presented in accordance with
International Financial Reporting Standards (IFRS), the Group's Management
Board, as the chief operating decision maker, reviews certain of its results,
including revenue, and adjusted profit from operations, at constant rates of
exchange, prior to the impact of businesses sold or held-for-sale in the case
of revenue and adjusted profit from operations. Although the Group does not
believe that these measures are a substitute for IFRS or other operating
measures, the Group does believe that such results excluding the impact of
businesses sold or to be held-for-sale provide additional useful information
to investors regarding the underlying performance of the business on a
comparable basis and in the case of the sale of the Group's businesses in
Russia and Belarus, the impact these businesses had on revenue and profit from
operations. Accordingly, the organic volume and financial measures appearing
in this document should be read in conjunction with the Group's results as
reported under IFRS and other operating measures.

 

(5) Top 8 Combustibles markets: U.S. - Marlin, Germany - NielsenIQ, Japan -
CVS, Romania - NielsenIQ, Brazil - Scanntech, Mexico - NielsenIQ, Bangladesh -
IMS, Pakistan - Retail Access. These eight markets cover an estimated c.60% of
Combustibles industry revenue.

(6) Vuse leadership: Based on Vuse closed systems consumables value share in
the Top 7 Vapour markets.

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

† Our products as sold in the U.S., including Vuse, Velo, Grizzly, Kodiak,
and Camel Snus, are subject to Food and Drug Administration (FDA) regulation
and no reduced-risk claims will be made as to these products without FDA
clearance.

 

(7) Top 7 Vapour markets: U.S. - RSD, Canada - Scan Data, UK - NielsenIQ,
France - Strator, Germany - NielsenIQ, Poland - NielsenIQ, Spain - Logista RA.
These seven markets cover an estimated c.90% of global closed system industry
revenue.

(8) New Categories Poly-use ("NC Poly-use"): Refers to the consumption of two
or more potentially reduced-risk tobacco or nicotine product categories by
adult consumers who do not consume any Combustibles products.

(9) Top 9 HP markets: Japan - CVS-BC, South Korea - CVS, Italy - NielsenIQ,
Germany - NielsenIQ, Greece - NielsenIQ, Hungary - SZTFH, Poland - NielsenIQ,
Romania - NielsenIQ, Czech Republic - NielsenIQ. These nine markets account
for c.80% of total industry HP revenue.

(10) Top 7 Modern Oral markets: U.S. - RSD, Sweden - NielsenIQ, Denmark -
NielsenIQ, Norway - NielsenIQ, Switzerland - IMS, UK - NielsenIQ, Poland -
NielsenIQ. These seven markets cover an estimated c.90% of total industry
Modern Oral revenue

(11) Based on current exchange rates of USD/GBP 1.2798 as at close on 9
December 2024.

 

Share growth refers to volume share for HP and Modern Oral and value share for
Vapour. As used herein, volume share refers to the estimated retail sales
volume of the product sold as a proportion of total estimated retail sales
volume in that category and value share refers to the estimated retail sales
value of the product sold as a proportion of total estimated retail sales
value in that category. Please refer to the 2023 Annual Report on Form 20‐F
for a full description of these measures, together with a description of other
Key Performance Indicators (KPIs), on pages 333 and 334. Industry and global
revenue refer to the total industry revenue in the markets in which we are
present.

New Categories comprises Heated Products (HP), Vapour and Modern Oral. Our
products as sold in the U.S., including Vuse, Velo, Grizzly, Kodiak, and Camel
Snus, are subject to Food and Drug Administration (FDA) regulation and no
reduced-risk claims will be made as to these products without FDA clearance.

 

Note on Non-GAAP Measures

This announcement contains several forward-looking non-GAAP measures used by
management to monitor the Group's performance. For the non-GAAP information
contained in this announcement, no comparable GAAP or IFRS information is
available on a forward-looking basis and our forward-looking revenue and other
components of the Group's results, including adjusting items, cannot be
estimated with reasonable certainty due to, among other things, the impact of
foreign exchange and adjusting items, which could be significant, being highly
variable. As such, no reconciliations for this forward-looking non-GAAP
information are available and we are unable to: present revenue before
presenting New Category revenue or organic(4) constant currency revenue; or
present profit from operations before presenting adjusted profit from
operations on an organic(4) basis at constant rates.

One non-GAAP measure which the Group uses and that is contained in this
announcement is operating cash conversion, a non-GAAP measure defined as net
cash generated from operating activities before the impact of adjusting items
and dividends from associates and excluding trade loans to third-parties,
pension short fall funding, taxes paid and after net capital expenditure, as a
proportion of adjusted profit from operations. This announcement also contains
New Category contribution, adjusted EBITDA and adjusted net debt, all of which
are before the impact of adjusting items and which are reconciled from profit
from operations and borrowings. In addition, this announcement contains
organic(4) revenue, which is a non-GAAP measure that is before the impact of
businesses sold or held for sale and is derived from revenue. This
announcement also contains organic(4) adjusted profit from operations, which
is a non-GAAP measure that is before the impact of adjusting items and the
impact of businesses sold or held for sale and is derived from profit from
operations.

 

Adjusting items, as identified in accordance with the Group's accounting
policies, represent certain items of income and expense which the Group
considers distinctive based on their size, nature or incidence. These include
significant items in, profit from operations, net finance costs, taxation and
the Group's share of the post‐tax results of associates and joint ventures
which individually or, if of a similar type, in aggregate, are relevant to an
understanding of the Group's underlying financial performance. Although the
Group does not believe that these measures are a substitute for IFRS measures,
the Group does believe such results excluding the impact of adjusting items
provide additional useful information to investors regarding the underlying
performance of the business on a comparable basis.

The Group's Management Board reviews a number of our IFRS and non‐GAAP
measures for the Group and its geographic segments at constant rates of
exchange. This allows comparison of the Group's results, had they been
translated at the previous year's average rates of exchange. The Group does
not adjust for the normal transactional gains and losses in operations that
are generated by exchange movements. Although the Group does not believe that
these measures are a substitute for IFRS measures, the Group does believe that
such results excluding the impact of currency fluctuations year‐on‐year
provide additional useful information to investors regarding the operating
performance on a local currency basis.

The Group's Management Board regularly reviews the measures used to assess and
present the financial performance of the Group and, as relevant, its
geographic segments, and believes that these measures provide additional
useful information to investors. Certain of our measures are presented based
on an adjusted basis and on a constant currency basis. Please refer to the
2023 Annual Report on Form 20‐F for a full description of each measure
alongside non-financial measures, pages 333 to 349.

Forward looking statements

References in this announcement to 'BAT', 'Group', 'we', 'us' and 'our' when
denoting opinion refer to British American Tobacco p.l.c. (BAT PLC) and when
denoting business activity refer to BAT Group operating companies,
collectively or individually as the case may be.

 

This announcement does not constitute an invitation to underwrite, subscribe
for, or otherwise acquire or dispose of any BAT PLC shares or other
securities. 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. In particular, these
forward-looking statements include statements regarding (i) the bullets under
"On track to deliver FY guidance; strategic discipline and focused investment
driving positive early momentum", (ii) the Group's expectations for revenue
and adjusted profit from operations growth in 2024,  on an organic(4) basis
at constant rates, (iii) the Group's expectations with respect to its
investment decisions, (iv) the Group's expectations for New Categories
profitability(1), (v) the Group's expectations

for a cash conversion in excess of 90%, (vi) the Group's expectations for
revenue and adjusted operating profit growth, on an organic(4) basis at
constant rates by 2026, (vii) the Group's leverage range target and
expectations for year-end, (viii) statements under the heading "Technical
guidance for full year 2024", (ix) statements regarding strong cash returns,
(x) the Group's expectations with respect to the impact of legislation and
enforcement actions in connection with illicit single-use Vapour products on
its performance and guidance, (xi) the Group's expectations regarding an
improvement of its underlying performance in 2025 and (xii) the Group's
expectation of securing a settlement in connection with the CCAA litigation in
Canada."

 

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. 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; the impact of supply chain disruptions; 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; changes in
the market position, businesses, financial condition, results of operations or
prospects of the Group; direct and indirect adverse impacts associated with
climate change; direct and indirect adverse impacts associated with the move
towards a circular economy; and cyber security risks caused by the heightened
cyber-threat landscape, and the increased digital interactions with consumers,
and changes to regulation.

 

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 announcement should be interpreted to mean that earnings per
share of BAT PLC for the current or future financial years would necessarily
match or exceed the historical published earnings per share of BAT PLC.

 

Additional information concerning these, and other factors can be found in BAT
PLC 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.

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