British Am. Tobacco – Trading Update 2018

Trading update – ahead of closed period commencing 1 January 2019

·      The business continues to perform well and full year guidance remains unchanged

·      Continued good market share growth in combustibles, driven by the Strategic Brands

·      Strong growth across THP, Vapour and Oral (PRRP) categories

·      The US is performing well with volume in line with expectations

·      De-leveraging remains on track

·      Remain well placed to manage US regulatory proposals

1. The business continues to perform well and full year (FY) 2018 guidance remains unchanged

·    Expecting FY industry volume decline around 3.5%

·   Exceeding the 5.5% full year price mix achieved in 2017

·    Delivering good adjusted revenue and adjusted operating profit growth, on a constant currency representative basis, with a second half weighting

·   Growing market share +40bps YTD v FY17 driven by the Strategic Brands +180bps YTD

·    Full year adjusted EPS growth is expected to be impacted by a currency translation headwind, around 6% for FY18, at current exchange rates*

·    Exceeding our high single figure constant currency adjusted diluted EPS growth target

2. Strong growth across THP, Vapour and Oral (PRRP) categories

·    THP and Vapour on track to reach £900m of full year reported revenue

·    Glo now in 16 markets globally; share in Japan continues to grow and is now 4.6%

·    Epen3 performing well with new market launches including France and New Zealand

·   Oral tobacco expected to deliver strong constant currency revenue growth on a representative basis.

3. The US is performing well with volume in line with expectations

·    US industry volume decline remains in line with historic ranges down 4.4% YTD and we continue to expect an industry decline of around 4.0-4.5% for the full year 2018

[Note: An explanation of volume data sources in the US is attached in Appendix 1]

·    Continued value share growth +20bps YTD with NAS, Camel and Newport all growing share

·    Vuse volume up over 30% YTD, despite the Vuse Vibe recall. Vuse Alto's national roll-out has now reached ~55,000 stores after 13 weeks

·    Delivering good revenue growth on a constant currency representative basis

4. De-leveraging remains on track

·   Net debt**/adjusted EBITDA*** reducing at around 0.4x per annum excluding the impact of FX

·   At current exchange rates* net debt**/adjusted EBITDA*** is expected to be around 3.9X by end 2018

·   The Group's medium-term rating target remains BBB+/Baa1, with a current rating of BBB+/Baa2

5. Remain well placed to manage US regulatory proposals

·    We are constructively engaging regulators and supporting evidence-based regulation

·    We have experience in managing regulatory change over many years

·    Regulation of menthol in cigarettes should be developed through a comprehensive rule-making process, be based on a thorough review of the science and consider the unintended consequences, in order to withstand judicial review

“We remain on track for a strong performance in 2018 – driven by both our combustible and PRRP businesses. In the US, we are performing well, with positive pricing and continued value share growth. Our de-leveraging remains on track and we remain committed to a dividend pay-out ratio of at least 65%. We expect to exceed our high single figure adjusted diluted EPS growth at constant rates of exchange.”

Nicandro Durante, CEO

 

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