TIDMBATS
RNS Number : 0887B
British American Tobacco PLC
08 June 2021
8 June 2021
BRITISH AMERICAN TOBACCO p.l.c.
2021 First Half Pre-Close Trading Update
CONTINUED NEW CATEGORY ACCELERATION
Trading update - ahead of closed period commencing 28 June
2021
Jack Bowles, Chief Executive:
' We are accelerating our transformation to build A Better
Tomorrow.
We are creating brands of the future and sustainable value for
all our stakeholders. We added +1.4m non-combustible product
consumers(1) in Q1, to reach a total of 14.9m.
We are investing and building strong, fast growing international
brands in each segment, rapidly accelerating our reach and consumer
acquisition, thanks to our digitalisation and our multi-category
consumer-centric approach, supported by the right resources and
products, and our agile organisation. Our portfolio of
non-combustible products is tailored to meet the needs of adult
consumers. We are growing New Categories at pace, encouraging more
smokers to switch to scientifically substantiated reduced risk
alternatives(2) .
We continue to expect 2021 to be a pivotal year for the
business, with accelerating New Category revenue growth, a clear
pathway to New Category profitability by 2025, and leverage
reducing to c.3x by year end.
ESG is deeply embedded in our organisation, and we have set
ourselves stretching targets: GBP5bn New Category revenue by 2025;
50 million consumers of non-combustible products and carbon
neutrality across our own operations by 2030(3) , which I am
confident in delivering.
In summary, we are accelerating our transformation with
increased investment capitalising on our growing momentum in the
New Categories, and a record quarter for consumer acquisition.
This, together with our strong business performance, is reflected
in our upgraded Group revenue growth guidance of above 5% for
2021.
The momentum across the business is strong, and I am excited
about the future for BAT.'
FY 2021 expectations:
o Upgraded constant currency revenue growth of above 5%, ahead
of our 3-5% guidance
o Mid-single digit adjusted diluted constant currency EPS
growth
o Strong operating cashflow conversion in excess of 90%
o Leverage reducing to around c.3x Adjusted Net debt(4) /
Adjusted EBITDA(5) by year end
Driven by:
o Accelerating acquisition of non-combustible product
consumers(1) , up +1.4m to 14.9m in Q1, with our New Category
products now sold in 74 markets across 53 countries
o Continued acceleration of New Category volume and revenue
growth, with market share(6) gains across all three New Categories
in all key markets
o Further increased New Category investment, weighted to H1,
capitalising on our good momentum
o Strong combustibles pricing and robust volume
o Negative geographic mix driven by a continuing recovery in
Emerging Markets
o No expected recovery in Global Travel Retail until 2022
o A robust US performance, driven by New Category growth and
strong combustible pricing
o Associate income reflecting the impact of the COVID
environment in India on ITC, given our share of results are
reported one quarter in arrears
o Operating cash conversion weighted to the second half due to
the phasing of Excise and MSA payments relative to the prior
year
o Translation headwind of c.-8% on adjusted diluted EPS growth,
and a transactional headwind of c.-2% on adjusted profit, for both
H1 and FY 2021, applying current foreign exchange spot rates(7)
Trading update detail: Strong share(6) growth in each New
Category across key markets
Vuse approaching global leadership in vapour reaching 31.4%
category value share in Top 5 vapour markets April YTD, up 5.9 ppts
vs FY 2020
o Vuse independently confirmed as the first global carbon
neutral vape brand(8)
o Vuse/Vype growing value share in all Top 5 markets and
continuing to close the gap on global leadership
o Vuse/Vype brand migrations in Top 5 markets to be completed by
the end of H1
o Continued volume share leadership of devices in all Top 5
markets
o Vuse now leads the category in 16 states in the US, with a
total YTD Vuse family value share of 29.8%; Vuse Alto value share
is up 6.9 ppts v FY20 to 27.2% YTD
glo achieving strong volume share growth in ENA driven by Hyper,
with continued positive volume share momentum in Japan. glo's THP
category volume share of consumables in the Top 9 THP markets
reached 16.2% April YTD, up 2.9 ppts vs. FY 2020
o In Japan, glo nicotine (FMC+THP) volume share grew +80bps v
FY20 to reach YTD share of 6.2%. Whilst volume growth continued to
be strong, revenue in H1 is expected to be impacted by increased
consumer acquisition investment, and partial absorption of excise
also due to the disproportionate impact of the excise harmonisation
on our products
o In ENA, which represents more than half of global THP industry
volume, glo Hyper drove strong volume share growth, reaching a glo
YTD nicotine (FMC+THP) volume share of 1.7% in Russia, Ukraine
2.7%, Romania 1.5% and 1.4% in Italy, in April
o glo Hyper is now launched in 18 of 21 glo markets with further
expansion planned in H2 2021
Consolidating International volume share leadership in Modern
Oral, with strong Velo volume share growth in the US. Modern Oral
Category share of Modern Oral in Top 5 markets reached 40.2% April
YTD up 3.4 ppts vs. FY 2020
o Velo volume share in the US up strongly by 6 ppts from
December to reach an April share of 14.6% in a competitive
market
o On track for unconstrained US production capacity around
mid-year
o In Sweden and Norway modern oral category volume share of
57.6% and 63.3% drove total oral category volume share of 6.7% and
17.2%, up 1.8 ppts and 2.0 ppts YTD v FY20 respectively
Continued value and volume share gains in combustibles, with
strong pricing partially offset by geographic mix
o Group value and volume share both up 10bps YTD. Group FY
cigarette volume expected to be ahead of the industry, with FY
industry volume expected to be down c.3%
o We continue to extract costs, rationalise, and simplify our
combustible portfolio and Strategic Brands represent around two
thirds of our volume
o Volume recovery and share growth in key Emerging Markets,
including Bangladesh, Pakistan and Vietnam
o Expected strong constant currency revenue growth in the US
driven by strong price mix, and value share up 40bps YTD, with
premium share up 40bps YTD, driven by Natural American Spirit and
Newport, reflecting no accelerated downtrading in our portfolio
o The US industry volume outlook remains unclear, due to
continuing macro-economic and fiscal uncertainties
Building on our strong ESG foundations we are creating shared
value for all our stakeholders, recent highlights include:
o In 2020, we set ambitious environmental targets(3) , including
achieving carbon neutrality across our own operations by 2030, and
for our tobacco supply chain to be free of child labour by
2025.
o In 2021, we set additional stretching targets, which include
achieving carbon neutrality across our value chain by 2050 and 100%
renewable electricity in operations sites by 2030
o We have a substantial body of scientific data for our reduced
risk products(2) across each category and look forward to
publishing our glo 180 day study in July, following very
encouraging results from our 90 day study.
o Our work has continued to receive external recognition this
year, including Refinitiv ranking BAT as the third highest
ESG-rated FTSE100 company, the Financial Times naming us as Climate
and Diversity leaders, and being recognised as a Global Top
Employer for the fourth year in a row by the Top Employers
Institute.
For further information, please contact:
British American Tobacco Press Office
+44 (0) 20 7845 2888 (24 hours) | @BATplc
British American Tobacco Investor Relations
Mike Nightingale / Victoria Buxton / William Houston / John
Harney
+44 (0) 20 7845 1180 / 2012 / 1138 / 1263
Webcast and Conference call - The conference call will begin at
8.30am (BST).
You can access the audio webcast via our website. You can also
listen via conference call by dialling the numbers below, using the
password: BAT Pre-Closing Update
United Kingdom Toll-Free: 0808 109 0700
United Kingdom Toll: +44 (0) 33 0551 0200
United States Toll-Free: 1 866 966 5335
United States New York: +1 212 999 6659
South Africa Toll-Free: 0 800 980 512
Johannesburg Toll: +27 (0) 11589 8302
A playback facility for the conference call will be available
online via www.bat.com .
Market share and volume data (unless otherwise stated) YTD April
2021.
T9 THP markets: Japan - CVS-BC, South Korea - CVS, Russia - IMS
(BAT+PMI), Italy - Nielsen, Germany - Nielsen, Romania - Nielsen,
Ukraine - Nielsen, Poland - Nielsen, Czech - Nielsen.
T5 Vapour markets: US - Marlin, Canada - Scan Data, UK -
Nielsen, France - Strator, Germany - Nielsen.
T5 M Oral markets: US - Marlin, Sweden - Nielsen, Denmark -
Nielsen, Norway - Nielsen, Switzerland - Scan Data excl. SPAR and
Top CC.
(1) Non-Combustible Consumer Definition: The number of consumers
of Non-Combustible products is defined as the estimated number of
Legal Age (minimum 18 years, US: 21 years) consumers of the Group's
Non-Combustible products. In markets where regular consumer
tracking is in place, this estimate is obtained from adult consumer
tracking studies conducted by third parties (including Kantar). In
markets where regular consumer tracking is not in place, the number
of consumers of Non-Combustible products is derived from volume
sales of consumables and devices in such markets, using consumption
patterns obtained from other similar markets with consumer tracking
(utilising studies conducted by third parties including
Kantar).
The number of Non-Combustible products consumers is used by
management to assess the number of consumers regularly using the
Group's New Category products as the increase in Non-Combustible
products is a key pillar of the Group's ESG Ambition and is
integral to the sustainability of our business.
The Group's management believes that this measure is useful to
investors given the Group's ESG ambition and alignment to the
sustainability of the business with respect to the Non-Combustibles
portfolio.
(2) Based on the weight of evidence and assuming a complete
switch from cigarette smoking. These products are not risk free and
are addictive. Our products as sold in the US, 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.
(3) Environmental Targets cover: climate change, water and
waste, sustainable agriculture. Full details are available from the
ESG Report
https://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DOAWWEKR/$file/BAT_ESG_Report_2020.pdf
.
(4) 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.
(5) 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.
(6) Share growth refers to volume share for THP and Modern oral
and Value share for Vapour
As used herein, volume share refers to the retail sales volume
of the product sold as a proportion of total retail sales volume in
that category and value share refers to the retail sales value of
the product sold as a proportion of total retail sales value in
that category. Please refer to the 2020 Annual Report on Form 20--F
for a full description of these measures, together with a
description of other Key Performance Indicators (KPIs), on page
275-275
(7) Current exchange rates of USD/GBP 1.4172 as at 4 June
2021
(8) Vuse's carbon neutrality has been independently validated by
Vertis based on product Life Cycle Assessment data provided by an
independent third party across scopes 1, 2 and 3. Based on ePod,
ePen, eTank mini, Alto devices and consumables internal sales
forecast (calculated March 2021) for 12 months starting from April
2021.
New Categories comprises Tobacco Heating Products (THP), Vapour
and Modern Oral.
Note on Non -GAAP Measures
This announcement contains several 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, as the
effect of adjusting items and rates of exchange, which could be
significant, may be highly variable and cannot be estimated with
reasonable certainty.
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 2020 Annual
Report on Form 20--F for a full description of each measure
alongside non-financial KPIs, pages 274 to 284.
The principal non-GAAP measure which the Group uses and that is
contained in this announcement is adjusted diluted earnings per
share which is before the impact of adjusting items and is derived
from diluted earnings per share. This announcement also contains
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 adjusted net debt and adjusted
EBITDA. The Group uses adjusted net debt and adjusted EBITDA to
assess its financial capacity. The Management Board believes that
these additional measures, which are used internally, are useful to
the users of the financial statements in helping them to see how
business financing has changed over the year.
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 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.
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. 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 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 market size reduction and consumer down-trading; 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; and changes in the market position, businesses,
financial condition, results of operations or prospects of the
Group.
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, http://www.sec.gov , and the Company's Annual
Reports, which may be obtained free of charge from the British
American Tobacco website http://www.bat.com .
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