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British American Tobacco Plc - Year-End Results

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British American Tobacco Plc 

Final Results




Change vs 2018























Profit from operations







Basic earnings per share (EPS)







Diluted EPS







Net cash generated from operating activities





















Adjusted revenue







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Adjusted diluted EPS







Adjusted cash generated from operations (ACGFO)







Adjusted net debt






Deliver a step change in New Categories and develop a simpler, stronger, faster, more agile organisation to create a better tomorrow. I am delighted with the progress we have made in all areas. We have delivered value growth from our combustible business and grown our New Categories business, now providing potentially reduced risk products to close to 11 million consumers. In September, we announced a significant restructuring and simplification programme, which is largely complete. This will create the capabilities and resources to continue investing in New Categories and allow us to deliver on our financial commitments. Looking into 2020, we are confident of another year of high single figure adjusted constant currency earnings growth."

Key highlights, at current rates unless otherwise stated:

  • Reported diluted EPS of 249.0p down 5.4%, impacted by a number of adjusting items discussed below;
  • Adjusted diluted EPS of 323.8p up 9.1%, or 321.6p up 8.4% at constant rates;
  • Cigarette and THP volume share1 increased by 20bps, with value share2 up 30bps in key markets;
  • New Categories revenue grew 36.9% or 32.4% to £1,214m at constant rates with strong growth in all categories, despite the slowdown in US vapour. Excluding US vapour, New Categories revenue grew 39% at constant rates;
  • Reported revenue of £25,877m (up 5.7%);
  • Adjusted revenue of £25,827m (up 6.2%), or £25,683m on a constant currency basis (up 5.6%);
  • Reported profit from operations of £9,016m down 3.2% driven by adjusting items of £2,114m (2018: £1,034m) partly due to the charges incurred in respect of Canada (Quebec), Quantum (simplification programme), other smoking and health litigation including Engle in the US, Russia (excise dispute) and Indonesia (goodwill impairment), the majority of which are non-cash items;
  • Adjusted profit from operations of £11,130m (up 7.6%), an increase of 6.6% on a constant currency basis;
  • Reported operating margin declined 320 bps to 34.8%, largely due to the adjusting items;
  • Adjusted operating margin up 50 bps with significantly increased investment in New Categories;
  • At constant rates of exchange, the US delivered a strong year with adjusted revenue up 4.4%, value share up 30 bps and adjusted profit from operations up 6.4%;
  • Operating cash flow conversion was 97%, with adjusted cash generated from operations down 16.3% (on a constant currency basis). Normalising for the timing of the 2018 MSA payment, ACGFO increased 1.2%;
  • Free cash flow after dividends of £1,921m drove deleveraging of 0.5x to 3.5x (0.4x at constant rates); and
  • Dividend up 3.6% to 210.4p, in line with our commitment to a 65% pay-out ratio of adjusted diluted EPS.    



  • Reported revenue increased 5.7% to £25,877m;
  • Reported profit from operations was down 3.2% to £9,016m, with reported operating margin down 320 bps at 34.8%, as the Group was impacted by a number of financial headwinds totalling £2,114m. These include charges related to Canada (Quebec £436m), amortisation and impairment of trademarks (£481m), the Group's restructuring programme Quantum (£264m), other litigation including Engle in the US (£236m), Russia (in relation to an excise dispute, £202m) and Indonesia (goodwill impairment £172m);
  • Reported basic and diluted EPS both declined 5.4% to 249.7p and 249.0p respectively;
  • Borrowings decreased to £45,366m (2018: £47,509m), driven by the net repayment of borrowings, foreign exchange tailwinds and cash generation more than offsetting the non-cash recognition of lease liabilities under IFRS 16 of £607m; and
  • Net cash generated from operating activities declined 12.6% to £8,996m, due to the timing of the Master Settlement Agreement (MSA) in the US in prior periods.

Volume and Share

  • Total cigarette and THP volume declined 4.4% to 677bn sticks, with cigarette volume down 4.7% and THP volume up 31.6%. Group volume was particularly impacted by a one-off stock reduction in Russia, combined volume decline in Egypt (due to a change in local taxes impacting Pall Mall) and Venezuela (where macroeconomic conditions remain challenging). The remainder of the Group performed largely in line with the industry3 with combined cigarettes and THP volume down 3.2%. In the key markets, value share2 increased 30 bps while volume share1 was 20 bps up against 2018; and
  • Strategic Cigarette and THP volume was down 2.5%, with volume share up by 70 bps (or 30 bps excluding migrations), with growth in all regions.

Non-GAAP adjusted basis

  • Adjusted revenue4 increased 6.2% to £25,827m, or 5.6% to £25,683m on a constant currency basis , as cigarette price/mix of 9% and growth in revenue from New Categories and Traditional Oral, more than offset lower cigarette volume;
  • Revenue from the Strategic Portfolio (defined on page 49) was up 8.9%, or 7.3% on a constant rate basis, with the growth driven (at constant rates) by:
  • 5.6% growth in revenue from the strategic combustible brands;
  • 32.4% increase in revenue from New Categories to £1,214m, with volume growth across all categories:
  • THP revenue up 22.7% to £693m, with consumable volume up 31.6% to 9bn sticks, driven by Japan, Ukraine and Russia;
  • Vapour revenue up 23.4% to £392m, with consumables volume increasing 19.5% to 226m units, with volume higher across ENA and Canada, which more than offset the slowdown in the US. In the US, volume returned to growth in the final quarter of the year; and
  • Modern oral revenue up 273% to £129m, with volume 188% higher (to 1,194m pouches) driven by Scandinavia, US and Russia; and
  • 11.0% increase in revenue from strategic traditional oral to £980m;
  • Adjusted profit from operations   grew 7.6% to £11,130m, or 6.6% to £11,032m at constant rates of exchange as adjusted revenue growth and the continued drive for efficiency gains (including product rationalisation to remove complexity) more than offset the increased investment in New Categories;
  • Adjusted operating margin, at current rates, was 50 bps higher than 2018 at 43.1%;
  • Adjusted diluted earnings per share at constant rates of exchange increased 8.4% to 321.6p ;
  • Adjusted cash generated from operating activities was down by 15.4% to £6,831m due to the timing of payments related to the MSA in prior periods described on page 7, and working capital movements. Operating cash conversion was 97% (2018: 113%);
  • Adjusted net debt5 decreased to £41,726m (2018: £43,407m).   The decrease in free cash flow (after dividends paid to shareholders) to £1,921m (2018: £3,337m) was largely due to the timing of payments related to the MSA in prior periods. Adjusted net debt to adjusted EBITDA reduced by 0.5x in 2019, 0.4x on a constant currency basis; and
  • Dividend per share increased 3.6% to 210.4p,   payable in four quarterly dividend payments of 52.6p per share, being a pay-out ratio of 65% of adjusted diluted EPS, in line with the Group's dividend pay-out policy.


2020 outlook

We anticipate global industry cigarette and THP volume to be down c.4%, with US industry volume down c.5%, in 2020. We expect adjusted revenue growth in the 3-5% guidance range (at constant rates of exchange), together with continued operating margin improvement and further progress in New Categories towards our 2023/24 ambition of £5bn in revenue. Results, in particular New Category revenue growth, will be weighted to the second half of the year. The business is performing well and we are confident of delivering another year of high single figure constant currency adjusted EPS growth, with strong operating cashflow conversion in excess of 90%. Extrapolating today's foreign exchange spot rates for the full year, we would expect a headwind of around 4% on full year adjusted EPS growth.