British American Tobacco Posts H1 2020 Profit Rises Despite Volume Decline

British American Tobacco said its first-half profit edged higher, as sales of higher-priced items and cost cuts offset a fall in volume.  

British American Tobacco BATS BTI said its profit from operations rose 3.3% to £5.37 billion, with revenue up 1.1% to £12.27 billion. Its adjusted earnings per share of 157.8 pence came in ahead of a FactSet-compiled analyst estimate of 156.54 pence on sales of £12.16 billion.  In early London trade, British American Tobacco shares rose 1%.  

Volume fell 6.3%, which the company blamed on international travel restrictions, but a greater proportion of higher-priced cigarette sales helped revenue to rise.  The company highlighted its “new categories” revenue growth of 14.7%, which includes 9.1% growth for tobacco heated products, 41% growth in vapor and 67% growth in what it calls “modern oral.”

Kingsley Wheaton, the company’s chief marketing officer, in an interview with MarketWatch said that was a sign its multicategory strategy was working.  The company reiterated it expects revenue growth between 1% and 3% for the year at constant currencies — it had lowered that target in June — and mid-single figure adjusted EPS growth. 

The company said U.S. industry volumes will fall 2.5% instead of a previously estimated 4%, citing the continued resilience of consumer demand and higher trade stock levels being maintained as a result of COVID-19.  Its Kentucky BioProcessing division has applied and is awaiting U.S. Food and Drug Administration approval to start a trial of its COVID-19 vaccine, Wheaton said. 

He said that approval to begin testing could be “pretty imminent.”  The unit already has FDA approval to test an influenza vaccine. British American Tobacco had announced in April that it was trying to create a COVID-19 vaccine and that its work there would be on a not-for-profit basis.

Jack Bowles, Chief Executive in a statement said: “The business is performing well in difficult circumstances as our continued focus on our three key priorities has enabled us to rapidly adapt to the current environment.

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

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.

Multi-category consumer acquisition drives share growth

Our Non-Combustibles consumer base increased to 11.6 million (up 1.1 million from December 2019), is 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). 

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. 

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 a constant currency adjusted revenue

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 payout 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”

July 31, 2020