Coronavirus Update

British Am. Tobacco - Final Results






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Profit from operations






Basic earnings per share (EPS)






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Net cash generated from operating activities












Dividend per share


















Adjusted revenue on a representative basis*






Adjusted profit from operations on a representative basis*






Adjusted diluted EPS






Adjusted cash generated from operations






Adjusted net debt







Nicandro Durante, Chief Executive said:

"BAT performed well in 2018, exceeding our target of high single figure adjusted constant currency EPS growth, whilst continuing to invest in long-term sustainable returns. The full year effect of the RAI acquisition and a translational foreign exchange headwind of approximately 6% (on revenue and profit from operations) and 7% (on EPS) distorted the Group's results. On an adjusted, constant currency, representative basis, this was a strong performance across the business, with:


·   11.8% growth in adjusted, diluted, constant currency EPS;

·   Group adjusted revenue growing 3.5% driven by total price/mix of +7%, adjusted profit from operations up 4.0% and adjusted operating margins higher by 40bps, at current rates, with substantial investment in Potentially Reduced-Risk Products (PRRPs);

·   Outperformance in combustibles, with market share1 up 40 bps and strategic cigarette brand volume up 4.8%;

·   Excellent progress in Tobacco Heating Products (THP) and vapour, with adjusted revenue up 95% to £901 million, benefiting from the growth of vapour in the US, increasing 20%, and growth in glo, notably in Japan. With an excellent product pipeline, the Group continues to expect strong New Category growth, leading to New Category revenue of £5 billion by 2023/2024;

·   Improved financial performance across all regions, notably the US, where revenue was up 2.5% (excluding £94 million of revenue related to the sale of the international brand rights of Natural American Spirit in 2017), driven by pricing and value share, up 25bps, in combustibles; and

·   Strong operating cash flow conversion of 113% driving ex-foreign exchange deleveraging of 0.4x and supporting an increase in the dividend of 4%. At current rates, adjusted net debt to adjusted EBITDA was 4.0x.


We recognise that the proposed potential regulatory changes in the US have created some investor uncertainty.  We have a long experience of managing regulatory developments, a track record of delivering strong growth while investing for the future and an established multi-category approach. I am confident that my successor, Jack Bowles, will continue to deliver a similar level of sustainable long-term returns as we accelerate our Transforming Tobacco agenda. Looking into 2019 we are confident of another year of high single figure adjusted constant currency earnings growth and this confidence is reflected in our Board's proposal to increase the dividend by 4%". 




·   The Group's results benefitted from the full year effect of the RAI acquisition, which included certain accounting impacts related to the acquisition that affected the prior period. On a reported basis:

Revenue increased 25%, with revenue from the Strategic Portfolio higher by 49%;

Volume from cigarettes and THP grew 3.3%;

Profit from operations was up 45%;

Operating margin increased over 500 bps to 38.0%; and

Cash conversion of 111%.


·   On a representative basis (as if BAT had owned RAI and the other acquisitions, completed in 2017, from 1 January 2017, and defined on page 3):

Total cigarette and THP volume declined 3.5% to 708 billion. In the key markets2 volume was down 2.7%, outperforming the industry which was estimated to be down 3.4%*, leading to a 40 bps increase in market share;

Strategic cigarette and THP volume grew 5.8%, led by a 217% increase in THP consumables to 7 billion sticks, as well as growth of Natural American Spirit, Rothmans and Pall Mall;

Adjusted revenue, at constant rates, increased by 3.5%, driven by robust cigarette price mix (6%) and growth in THP and vapour revenue of 95% to £901 million at constant rates of exchange;

Adjusted revenue from the Strategic Portfolio (defined on page 3) was up 8.5% on a constant rate basis, driven by:

§ a 5.7% growth in revenue from the strategic combustible brands;

§ a near doubling of adjusted revenue from NGP to £901 million, at constant rates, with THP (up over 180% to £576 million) and vapour (26% higher at £325 million); and

§ an increase of over 11% in revenue from oral to £952 million.

Adjusted profit from operations grew 4.0% at constant rates of exchange as the adjusted revenue growth and continued drive for efficiency gains more than offset the significant investment in PRRP as the Group continues to develop this category until it matures to break-even and profitability. Since the acquisition, the Group has realised over US$300 million of savings from RAI on an annualised basis;

Adjusted operating margin, at current rates, was 40 bps higher at 42.6%, as the investment in the development and roll out of PRRP was more than offset by good pricing and cost control; and

Operating cash flow conversion of 113% (2017: 79%). Normalising for the timing of the MSA payment, brought forward to 2017, the operating cash conversion was 100% (2017: 97%), demonstrating the continuing strong cash generation while investing in the New Categories.


·   Adjusted net debt3 to adjusted EBITDA was 4.0x (from 5.3x in 2017) but would have been 3.6x on a constant currency basis. This reduction reflects the Group's commitment to deleveraging;

·   Basic earnings per share declined 86%, with diluted earnings per share 86% lower, as the prior year was affected by a one-off gain related to the acquisition of RAI of £23.3 billion and by a £9.6 billion deferred tax credit due to the US tax reforms, both of which do not repeat in 2018;

·   Adjusted diluted earnings per share at constant rates of exchange rose 11.8% as the Group's growth in operating performance and lower underlying effective tax rate (mainly due to the US Federal tax reform in 2017) more than offset an increase in net finance costs, due to the higher borrowings following the acquisition of RAI and an increase in investment in PRRPs; and

·   Dividend per share increases 4.0% to 203.0p, payable in four quarterly dividend payments of 50.75p per share.