TIDMBATS
RNS Number : 6779G
British American Tobacco PLC
28 July 2021
28 JULY 2021 - INTERIM RESULTS
BRITISH AMERICAN TOBACCO p.l.c.
HALF-YEAR REPORT TO 30 JUNE 2021
STRONG BRANDS DRIVE NEW CATEGORY ACCELERATION
PERFORMANCE HIGHLIGHTS REPORTED ADJUSTED
------------------------ -------------------------------
Current Vs 2020 Current Vs 2020
rates Rates (constant)
----------- ----------- ------------ ---------------
Cigarette and THP volume share +20 bps
Cigarette and THP value share +10 bps
Consumers of non-combustible
products(1) 16.1m +2.6m
Revenue (GBPm) GBP12,175m -0.8% GBP12,175m +8.1%
Revenue from New Categories
(GBPm) GBP883m +40.4% GBP883m +50.0%
Profit from operations (GBPm) GBP4,907m -3.7% GBP5,235m +5.4%
Operating margin (%) 40.3% -120 bps 43.0% -70 bps(2)
Diluted EPS (pence) 141.6p -6.0% 154.2p +6.1%
Net cash generated from operating
activities (GBPm) GBP2,254m -35.3%
Free cash flow after dividends
(GBPm) (GBP1,163)m Not meaningful
Cash conversion (%)(2) 45.9% -22.5 ppts 66.7% -13.5 ppts
Borrowings(3) (GBPm) GBP45,010m -10.8%
Adjusted Net Debt (GBPm) GBP40,490m -7.6%
----------- ----------- ------------ ---------------
The use of non-GAAP measures, including adjusting items and
constant currencies, are further discussed on pages 54 to 58, with
reconciliations from the most comparable IFRS measure provided.
Note - 1. Internal estimate. 2. Movement in adjusted operating
margin and operating cash conversion is provided at current rates.
3. Borrowings includes lease liabilities.
Accelerating our Transformation Strong H1 Results
* New Categories revenue up 50% to GBP942m* * Revenue up 8.1%* led by New Category growth and a
partial recovery from prior-year COVID-19 impacts
* Our highest ever non-combustible product consumer
acquisition +2.6m to 16.1m in H1, with 11.8% of Group * Combustible revenue up 5.8%* with price/mix of 4.3%,
revenue delivered by non-combustible products reflecting Emerging Market (EM) recovery
* Vapour revenue up 59%*, Vuse approaching global * Cigarette value share up 10 bps, and volume share up
category value share leadership 10 bps reflecting strong EM performance
* glo revenue up 38%*, with glo Hyper volume share * Further GBP256m cost savings, driven by Quantum,
gains in ENA and Japan target increased to GBP1.5bn (previously GBP1bn) by
2022
* Velo revenue up 63%*, with our T5 volume share of the
Modern Oral category at 39.5% up 280 bps * Adjusted profit from operations up 5.4%* includes a
transactional FX impact of 2%
* Further incremental increase of GBP346m investment in
H1, capitalising on strong momentum in all three New * Adjusted operating margin down 70 bps, driven by
Categories increased New Category investment, geographic mix an
d
transactional FX
* Full Year New Category losses expected to reduce
* Adjusted diluted EPS up 6.1%*
* Operating cashflow conversion of 67%, reflecting
phasing of excise payments in the US in 2020
------------------------------------------------------------ -----------------------------------------------------------
Jack Bowles, Chief Executive:
"This has been an exciting period of growth in New Categories,
with New Category constant currency revenue up by 50% in the first
half. We added 2.6m consumers, our highest ever increase, to our
non-combustible product consumer base, to reach 16.1m. This
demonstrates our accelerating transformation driven by our
multi-category portfolio, with continued key market share gains in
all three New Categories.
We are building strong, global brands of the future with Vuse,
Velo and glo. These are underpinned by industry leading
multi-category consumer insights and science, with increasing
digitalisation. We have invested a further incremental GBP346m in
the first half, funded by continued value growth from combustibles
and expect to reach our GBP1bn Quantum savings target 12 months
early. We have now increased our savings target to GBP1.5bn by
2022.
Our rapid growth in New Categories is driving significant scale
benefits and 2021 is shaping up to be a pivotal year in our journey
towards A Better Tomorrow.
Our focus on New Categories growth and business sustainability
puts ESG at the core of our strategy. There is great momentum
across the business and we are well on track to meet our targets of
GBP5bn of New Category revenue by 2025 and 50m non-combustible
product consumers by 2030.
We are committed to reducing the health impact of our business .
Our ambition remains a sustainable, high growth, multi-category,
consumer products business. I am excited about the future for
BAT."
On track for FULL YEAR 2021 guidance:
-- Global tobacco industry volume now expected to be down
c.-1.5% (from c.-3%), driven by strong EM recovery.
-- US industry volume expected to be down c.-5.5%, given
continuing macro-economic uncertainties and a strong
comparator.
-- Constant currency revenue growth above 5% and continued
strong progress towards GBP5bn New Categories revenue in 2025.
-- Mid-single figure constant currency adjusted EPS growth,
including continued expectation of c.2% transactional FX
headwind.
-- Expected translational FX headwind of c.7% on full year adjusted diluted EPS growth.
-- Operating cashflow conversion in excess of 90%, Adjusted Net
debt/Adjusted EBITDA around three times.
-- Commitment to 65% dividend pay-out ratio and growth in sterling terms.
* at constant rates of exchange
CHIEF EXECUTIVE'S STATEMENT
Transforming our business - BUILDING A BETTER TOMORROW(TM)
We are committed to our purpose of building A Better
Tomorrow(TM) . We will achieve this by reducing the health impact
of our business through a progressive and continued portfolio
transformation. As these results show, we are becoming a business
that defines itself, not by the product it sells, but by the
consumer needs that it meets. The addition of 2.6m consumers of
non-combustible products in H1 2021, reaching 16.1m, highlights the
progress we are making.
The accelerated growth of Vuse, glo and Velo positions us well
to meet our New Categories revenue target of GBP5 billion by 2025.
The progress of these brands - brands with purpose - highlights the
strength of our three strategic priorities:
-- Accelerating growth in New Categories, fuelled by:
-- Value growth in combustibles; and
-- Benefitting from a faster, simpler, more agile business.
Hyper has driven the growth of glo, we are growing volume share
of the total modern oral market (partly due to Velo in US) and Vuse
is the category value share leader in four of the top five vapour
markets and market leader (by value share) in 20 US states.
Digitalisation is key to the future of our business and we
continue to invest beyond our technology capabilities in
manufacturing and supply chain. Our e-commerce footprint is
developing quickly with consumer subscription programmes growing in
priority New Category markets. Increasingly, data and analytics are
playing a critical role in new capability areas such as more
powerful Customer Relationship Management, pricing realisation via
Revenue Growth Management and Marketing Spend Effectiveness
tools.
Building A Better Tomorrow(TM) is about creating shared value
for all our stakeholders. We are making good progress towards
achieving our ambitions, including:
-- In May, we announced that Vuse had become the world's first
verified(1) global carbon neutral vapour brand; and
-- In March, we augmented our existing carbon emissions target
by announcing our ambition to be carbon neutral across our entire
value chain by 2050.
We are also proud of the notable recognition we have received
for our ESG efforts (see page 22). So far, in 2021, this has
included:
-- The highest 'Gold Class' distinction in S&P Global's Sustainability Yearbook;
-- Ranked as the third highest ESG-rated FTSE 100 company by
Refinitiv, global provider of financial market data and a
subsidiary of London Stock Exchange Group;
-- Named as a Climate Leader by the Financial Times in its inaugural European ranking; and
-- Named as a Global Top Employer for the fourth year running by the Top Employers Institute.
Our progress is testimony to the resilience of our staff,
customers, partners and suppliers. We remain committed to
supporting all our stakeholders throughout the COVID-19
pandemic.
As we enter the second half of the year, our focus on developing
and delivering consumer-focused products and brands is driving
accelerated momentum. We are creating multi-stakeholder value and
transforming ourselves into a high-growth, consumer products
business: global, consumer-centric, multi-category, with
sustainability front and centre.
(1) As verified by Vertis based on product Life Cycle Assessment
data provided by an independent third party, taking into account
the Group's purchase of carbon credits through reforestation
projects.
FINANCE & TRANSFORMATION DIRECTOR'S OUTLOOK STATEMENT
STRONG OPERATIONAL MOMENTUM AND CASH FLOW
Our strong momentum underpins our expectations for constant
currency revenue growth of above 5% in 2021. The second half of the
year will reflect the impact of geographic and portfolio mix, and a
strong prior year comparator which offset the continued progress
from New Categories.
Capitalising on our strong momentum, we further increased
investment in New Categories by GBP346 million in H1 2021 and
additional investment is planned for H2 2021. We continue to expect
full year 2021 losses from New Categories to reduce, with a clear
pathway to profitability by 2025. This investment has been funded
by our continued strong growth in combustibles, and savings from
Quantum, and expect to reach the GBP1 billion annualised savings
target 12 months ahead of plan. With further savings identified, we
have upgraded our Quantum target to GBP1.5 billion by 2022.
Full year constant currency adjusted profit from operations
growth is expected to be driven by strong revenue performance and
further savings from Quantum. This will be partially offset by the
continued incremental New Category investment and challenges in
Australia where we anticipate a one-off impact from changes in
excise (GBP170 million) alongside a highly competitive pricing
environment.
As previously communicated, we continue to expect no recovery in
Global Travel Retail (GTR) until 2022, with COVID-19 continuing to
negatively impact our associate income from ITC in the second half
of 2021. We are also absorbing a c.2% transactional FX headwind in
our constant currency guidance. Accordingly, we maintain our FY
2021 guidance of mid-single figure constant currency adjusted
diluted EPS growth.
BAT is a highly cash generative business and we are on track to,
once again, achieve operating cash flow conversion in excess of
90%, with year-on-year growth in H1 2021 impacted by the phasing of
excise payments in 2020.
Our liquidity profile remains strong, with average debt maturity
close to 10 years and maximum debt maturities in any one calendar
year of around GBP4 billion. Our medium-term rating target remains
BBB+/Baa1, with a current rating of BBB+/Baa2****.
We remain committed to our 65% dividend pay-out ratio and
dividend growth in sterling terms, continuing to invest in the
transformation of the business and building A Better Tomorrow(TM) ,
while deleveraging the balance sheet to reach around 3x adjusted
net debt to adjusted EBITDA by the year end. At that point we
expect increased flexibility for capital allocation.
****A credit rating is not a recommendation to buy, sell or hold
securities. A credit rating may be subject to withdrawal or
revision at any time. Each rating should be evaluated separately of
any other rating.
GROUP OPERATING REVIEW
TOTAL GROUP VOLUME and REVENUE
For six months
ended 30 June Volume (unit) Revenue (GBPm)
---------------- ------------------------------------------------------------
Reported At constant rates
------------------------- ---------------------------------
2021
2021 Change 2021 2020 Change FX cc 2020 Change
Unit % GBPm GBPm % GBPm GBPm GBPm %
New Categories 883 628 +40.4% 59 942 628 +50.0%
------- ------- ------- ------- ------- ------ ------- ------- -------
Vapour ( 10ml units
/ pods mn) 247 +70% 398 265 +49.9% 25 423 265 +59.3%
THP (sticks bn) 8.4 +99% 359 286 +25.3% 35 394 286 +37.8%
Modern Oral (pouches
mn) 1,607 +124% 126 77 +64.2% (1) 125 77 +63.2%
------- ------- ------- ------- ------- ------ ------- ------- -------
Traditional Oral
(stick eq bn) 4.1 -3.1% 558 576 -3.3% 54 612 576 +6.1%
------- ------- ------- ------ ------- ------- -------
Total Non-Combustibles 1,441 1,204 +19.5% 113 1,554 1,204 +29.0%
------- ------- ------- ------ ------- ------- -------
Cigarettes (sticks
bn) 316 +1.8%
------- ------- ------- ------ ------- ------- -------
OTP incl RYO/MYO
(stick eq bn) 9 -6.6%
------- ------- ------- ------- ------- ------ ------- ------- -------
Total Combustibles 325 +1.5% 10,527 10,854 -3.0% 958 11,485 10,854 +5.8%
------- ------- ------- ------ ------- ------- -------
Other 207 213 -2.0% 22 229 213 +7.9%
------- ------- ------- ------ ------- ------- -------
Total 12,175 12,271 -0.8% 1,093 13,268 12,271 +8.1%
======= ======= ======= ====== ======= ======= =======
Cigarettes and
THP (sticks bn) 324 +3.1%
======================== ======= ======= ======= ------- ------- ------ ------- ------- -------
Use of the term "cc" refers to the variance between the 2021
adjusted performance, at 2020 exchange rates, against the adjusted
2020 performance.
New Category consumables volume growth accelerated and was up
substantially in all three categories. Combustibles volume was up
1.5%, driven by cigarette volume share gains (up 10 bps) and the
recovery of emerging markets including Bangladesh, Pakistan,
Vietnam, Brazil and South Africa, following the impact of COVID-19
last year. Duty paid industry cigarette volume was broadly stable
in the first half of 2021.
On a reported basis, revenue was marginally lower than the prior
year (down 0.8% to GBP12,175 million). Strong revenue growth in New
Categories, up 40.4%, supported by combustible volume growth,
price/mix of 4.3%, and value share gains of 10 bps, were more than
offset by a translational foreign exchange headwind of 8.9%.
Revenue was up 8.1% on a constant currency basis, reflecting New
Category growth and a partial recovery in some EMs from the impact
of COVID-19 in 2020.
Revenue from non-combustibles now represents 11.8% of Group
revenue, up from 10.1% at FY 2020, reflecting strong New Category
revenue growth of 40.4% (or 50.0% at constant rates of
exchange).
PROFIT FROM OPERATIONS AND OPERATING MARGIN
Reported PfO (GBPm) Adjusted PfO (GBPm)
For six months ended Operating Margin Adjusted operating margin
30 June (%) (%)
------------------------ -------------------------------------------
2021
2021 2020 Change Adj FX cc 2020 Change
Profit from Operations
(PfO) 4,907 5,097 -3.7% 328 424 5,659 5,368 +5.4%
-120
Operating Margin 40.3% 41.5% bps 42.6% 43.7% * 110 bps
-------------------------- ------- ------ ------- ---- ---- ------ ------ ---------------
Use of the term "cc" refers to the variance between the 2021
adjusted performance, at 2020 exchange rates, against the adjusted
2020 performance.
Profit from operations on a reported basis was down 3.7% at
GBP4,907 million, driven by an improvement in the Group's operating
performance despite an incremental increase in investment in New
Categories of GBP346 million (compared to the first six months of
2020) and a transactional foreign exchange headwind of 2%. This was
more than offset by a translational foreign exchange headwind of 8%
and GBP328 million in one-off charges (30 June 2020: GBP271
million) which included a cost of GBP71 million related to assets
and liabilities held-for-sale, including in respect of the proposed
sale of the Group's operations in Iran (as explained on page
20).
Reported operating margin was down 120 bps to 40.3%, largely due
to the increased investment in New Categories, the held-for-sale
impairment charges and higher costs due to transactional foreign
exchange discussed earlier.
Adjusted profit from operations and adjusted operating
margin
Adjusted profit from operations at constant rates was up 5.4%.
Strong revenue growth and GBP256 million productivity savings
driven by Quantum was partly offset by the further increase in New
Category investment, up GBP346 million in H1 2021, geographic mix,
no recovery in GTR and the absorption of a 2% transactional
headwind in the period. Accordingly, adjusted operating margin was
down 70 bps or down 110 bps at constant rates of exchange.
CATEGORY PERFORMANCE REVIEW
A STEP CHANGE IN NEW CATEGORIES
For six months
ended 30 June Volume (unit) Revenue (GBPm)
---------------- ----------------------- ------------------------------
Reported At constant rates
----------------------- ------------------------------
2021
2021 Change 2021 2020 Change FX cc 2020 Change
Unit % GBPm GBPm % GBPm GBPm GBPm %
New Categories 883 628 +40.4% 59 942 628 +50.0%
------- ------- ------ ------ ------- ----- ------ ------ -------
Vapour ( 10ml units
/ pods mn) 247 +70% 398 265 +49.9% 25 423 265 +59.3%
THP (sticks bn) 8.4 +99% 359 286 +25.3% 35 394 286 +37.8%
Modern Oral (pouches
mn) 1,607 +124% 126 77 +64.2% (1) 125 77 +63.2%
------- ------- ------ ------ ------- ----- ------ ------ -------
Traditional Oral
(stick eq bn) 4.1 -3.1% 558 576 -3.3% 54 612 576 +6.1%
------ ------ ------- ----- ------ ------ -------
Total Non-Combustibles 1,441 1,204 +19.5% 113 1,554 1,204 +29.0%
------------------------ ------- ------- ------ ------ ------- ----- ------ ------ -------
Use of the term "cc" refers to the variance between the 2021
adjusted performance, at 2020 exchange rates, against the adjusted
2020 performance.
VUSE - VAPOUR: Approaching Global Category leadership
-- Vapour volume growth accelerating, up 70% with our highest
ever consumer acquisition +0.9m to 7.5m
-- Vuse value share growth of 610 bps vs FY 2020 to reach 31.6%
May YTD of total vapour value share in key (T5) markets
-- Vuse value share leader in four of the T5 markets, with leadership in 20 states in the US
-- Vuse is the first global vapour brand to be independently
verified(1) by Vertis as carbon neutral
Vapour continued its strong momentum (driven by Vuse) with
volume accelerating, up 70%, and revenue up 50%, or 59% at constant
currency. We delivered strong growth and value share gains across
all our T5 markets achieving our highest total vapour value share
of 31.6% May YTD (up 610 bps vs FY 2020) and are approaching global
value share leadership. We maintained volume share leadership of
devices in all T5 markets.
In the US, Vuse consumables volume grew 97%, materially
outperforming the total vapour industry which has returned to
growth (with industry volume up approximately 30%). This drove
revenue growth of 42%, or 56% on a constant currency basis. Vuse
family value share of total vapour was 30.0% (up 510 bps on FY
2020), driven by the continued success of Vuse Alto with value
share reaching 27.5% May YTD, up 720 bps vs FY 2020. We have
achieved market value share leadership in 20 states and continue to
approach total value share market leadership.
In our other T5 markets, we continued to extend our value share
leadership position, with all T5 Vype brand migrations completed by
the end of H1 2021.
-- In the UK, we reached 36.3% value share of the total vapour
market May YTD, up 80 bps vs. FY 2020, led by Vuse reaching value
share of 19.3% YTD up 440 bps vs FY 2020.
-- In France, our value share leadership of total vapour
extended further to reach 43.6% May YTD, up 1,210 bps vs FY 2020
driven by both ePen3 and ePod.
-- In Germany, our value share of total vapour was 59.0% Apr
YTD, up 930 bps vs FY 2020, driven by ePen3 and ePod.
-- In Canada, our value share of total vapour was 75.2% May YTD,
up 2,900 bps vs FY 2020, driven by ePod.
We have continued the rapid expansion of our e-commerce revenue,
up 77% YTD compared to the first six months of 2020, with Vuse
ranked No.1 in branded web traffic in all of our T5 markets (2) .
The number of consumers utilising our subscription programme has
increased to c.20k, up 63% vs H1 2020.
This valuable subscriber base, improved trade margins and cost
of sales scale efficiencies through automation and deployment of
Marketing Spend Effectiveness and Revenue Growth Management tools
are all contributing to our pathway to New Category
profitability.
In May, the FDA posted its list of New Category 'deemed' tobacco
products for which a Pre-market Tobacco Application (PMTA) had been
filed, reflecting a positive step forward in the enforcement
against products that are not included on the list. All our
currently marketed deemed products are on the list and we remain
optimistic about the impact that this will have on the addressable
market for our brands going forward.
Vuse is one example of how we are driving our ESG purpose. We
are very proud that Vuse has been independently certified by Vertis
as the first global carbon neutral vapour brand in the period (1) .
Together with award-winning campaigns and digital engagement we are
committed to building the most trusted vaping brand worldwide with
a clear consumer-led purpose.
* T5 markets by revenue are the US, UK, France, Germany and
Canada; they account for 75% of total industry vapour revenue
(closed systems)
(1) As verified by Vertis based on product Life Cycle Assessment
data provided by an independent third party, taking into account
the Group's purchase of carbon credits through reforestation
projects.
(2) Source: Similar Web.
CATEGORY PERFORMANCE REVIEW
glo - TOBACCO HEATING PRODUCTS (THP) - Hyper continues to
accelerate share growth
-- Volume up 99% driven by the continued success of glo Hyper,
with consumer numbers up 1.2m to 5.3m.
-- glo's THP category volume share reached 16.5% May YTD, up 320
bps vs. FY 2020 in our Top 9 markets.
-- ENA volume up 368%, and revenue up 241% (or 248% at constant
rates of exchange), gaining volume share across all key
markets.
-- Japan reached 6.2% May YTD volume share of total cigarettes and THP, up 80 bps vs FY 2020.
glo total consumable volume grew 99% in H1 2021, further
accelerating from H2 2020, achieving over three times the global
THP industry volume growth of 31.9%. This was driven by the
continued success of glo Hyper in Japan and across ENA. glo total
revenue grew 25.3% or 37.8% at constant currency. Since the launch
of Hyper in the first half of 2020, glo's performance on key
metrics such as brand power and consumer conversion have continued
to improve supporting the sustainability of our ambition for glo to
be the fastest growing global THP brand.
In APME, volume grew 23.1%, driven by Hyper as we continue to
invest in consumer acquisition. The increased investment together
with the partial absorption of excise in Japan, due to the
disproportionate impact of excise harmonisation on our products,
resulted in THP revenue in the region down 11.7% or 3.5% on a
constant currency basis.
In Japan, volume growth for consumables and devices was driven
by Hyper, with improved consumer conversion from trial to active
usage of 41%. glo's volume share of the THP category reached 19.8%
May YTD up 50 bps vs FY 2020. This represents 24% of the total
growth in cigarettes and THP, well ahead of our category share.
In ENA, glo volume grew 368%, more than six times faster than
THP industry growth rates of 54% in the region. The region now
represents around 50% of our global THP volume. Revenue growth
accelerated, up 241% or 278% at constant currency.
-- In Russia, glo reached 17.6% THP category volume share in May
YTD, up 900 bps FY 2020 and accounting for 44% of the growth of the
category.
-- In the Ukraine, glo reached 19.0% THP category volume share
May YTD (up 800 bps vs. FY 2020), with Kiev reaching 18.5% category
volume share.
-- In Italy, glo reached 10.7% THP category volume share May
YTD, up 670 bps, with Hyper driving 100% of the growth.
-- In Romania, we reached 22.7% category volume share May YTD,
up 590 bps, and 20.1% volume share in Bucharest up 550 bps.
Hyper also continued to make good progress in Kazakhstan,
Poland, Egypt, the Czech Republic and across other smaller ENA
launch markets, and is now in 21 of glo's 23 markets, with further
market roll-outs planned.
CATEGORY PERFORMANCE REVIEW
VELO - MODERN ORAL - International leadership and strong US
momentum
-- Accelerating global volume growth, up 124%, with consumer numbers up 0.7m to 2.2m
-- Category volume share in key (T5*) markets reached 39.5% May YTD up 280 bps on FY 2020
-- US volume up 450%, with volume share of Modern Oral at 16.0% May YTD, up 840 bps vs FY 2020
-- ENA volume up 77.2% driving volume share of Modern Oral to 69.1% May YTD, up 160 bps
Our Modern Oral growth accelerated in the first six months of
2021, with volume up 124% and revenue up 64.2% or 63.2% at constant
currency. Volume share of the Modern Oral category in our T5
markets reached 39.5% May YTD 2021 up 280 bps vs FY 2020.
In the US, volume was up 450% to 405 million pouches (compared
to 74 million pouches in the same period in 2020) significantly
outpacing industry growth of around 110%, with revenue up 17.3% or
29.3% on a constant currency basis. We continue to focus on
consumer acquisition with our expanded portfolio following the
acquisition of the nicotine pouch products of Dryft Sciences LLC
(Dryft) in October 2020.
Velo recorded the largest growth in awareness across Modern Oral
brands in the US, as we continued the national roll out of our
enlarged portfolio reaching over 80,000 outlets in June 2021. In a
competitive market we reached 16.0% volume share of Modern Oral May
YTD 2021 up 840 bps vs FY 2020, with our volume share in 6 states
already over 20%.
We estimate that approximately half of Velo consumers (in the
US) come from the existing Modern Oral users, with the remainder
sourced evenly from combustible, snus, traditional oral and vapour
consumers. Our insights suggest that a high percentage of Modern
Oral users are already poly-users of other categories.
In ENA, volume grew 77.2% with revenue up 67.5% or 64.9% at
constant currency, as the Modern Oral segment continues to expand
rapidly, and we continue to consolidate our industry leading
position**. We consistently lead innovation in the category with
three new formats launched and seven new flavours added in the last
12 months.
-- In Sweden, where Modern Oral now represents 11.8% of the
total oral category, our volume share of the Modern Oral category
reached 57.8% May YTD, an increase of 410 bps vs. FY 2020**.
-- In Norway, where Modern Oral now represents 27.3% of the
total oral category, our volume share of the Modern Oral reached
63.4% May YTD up 130 bps vs. FY 2020.
-- In Denmark, Modern Oral now represents 88.8% of the total
oral category and continues to be the main driver of total oral
category growth. Our volume share of the Modern Oral category
declined by 380 bps vs FY 2020 to 90.1% May YTD, but still drove a
460 bps increase in our Modern Oral volume share of total oral
category to 80.0%.
Our pilot launches in emerging markets including Pakistan and
Indonesia are now delivering valuable insights, as we continue our
roll-out in key urban markets. We believe that Modern Oral is an
exciting longer-term opportunity to commercialise reduced risk
products by offering affordable New Category alternatives to adult
nicotine consumers, with further emerging market roll-outs planned
for the second half of 2021.
In Kenya sales remain suspended due to local regulatory
challenges, and we continue to engage with local authorities. In
Germany, sales of Modern Oral have been suspended pending
engagement with the authorities regarding the classification of
tobacco-free nicotine pouches.
* Modern Oral focus markets revised to be T5 markets of US,
Sweden, Norway, Denmark and Switzerland.
** Sweden volume share has been rebased to include Nicotine free
pouches in all periods. Accordingly, BAT's FY2020 volume share of
modern oral was rebased to 53.8%.
CATEGORY PERFORMANCE REVIEW
BEYOND NICOTINE
Our corporate venturing unit, Btomorrow Ventures (BTV) made five
new investments in the first six months of 2021 - four in
innovative consumer and technology businesses and one fund
investment. Overall, 13 BTV investments have been completed since
launch in 2020, p roviding us with evolving capabilities for the
future across both New Categories and Beyond Nicotine.
As we explore beyond nicotine, we are building an eco-system of
new capabilities and insights for the future. We are leveraging the
expertise of our external partners and while it is early days in
this space, we see this as an exciting way to recapture lost
consumer moments and drive longer term growth.
On 11 March 2021, we entered a strategic collaboration agreement
with Organigram Inc., a wholly-owned subsidiary of publicly-traded
Organigram Holdings Inc., focused on research and product
development activities of next generation adult cannabis products,
with an initial focus on c annabidiol ( CBD). As described on page
20, under the terms of the transaction, a Group subsidiary acquired
a 19.9% equity stake in Organigram Holdings Inc. (listed on both
the Nasdaq and Toronto Stock Exchange under the symbol "OGI") to
become its largest shareholder.
TRADITIONAL ORAL
Group volume declined 3.1% to 4.1 billion stick equivalents.
Total revenue was GBP558 million, down 3.3% due to the impact of
foreign exchange. At constant rates, revenue grew by 6.1%, driven
by continued strong pricing in the US (price mix of 9.1%) which
accounts for 97% of revenue from the category.
In the US, Traditional Oral volume declined 3.1% in the first
half of 2021, with value share of moist up 20 bps and volume share
down 20 bps. This was driven by Grizzly which continues to drive
value growth through strong pricing, utilising revenue growth
management techniques.
The Modified Risk Tobacco Product (MRTP) applications for Camel
Snus were discussed by the Tobacco Products Scientific Advisory
Committee (TPSAC) in September 2018. We continue to work with the
FDA as the MRTP applications and public comments remain under
review by the Agency.
VALUE THROUGH COMBUSTIBLES
-- Group value share up 10 bps, driven by the US up 40 bps
-- Volume up 1.5% driven by EM recovery
-- Strong pricing, partially offset by negative geographic mix
-- Revenue growth up 5.8% at constant rates, with Combustibles price/mix +4.3%
Group cigarette value share increased 10 bps vs FY 2020, driven
by the continued performance of the strategic cigarette brands in
the US (up 50 bps). This combined with higher cigarette value share
in Bangladesh, Germany, Japan, Vietnam, Turkey, Mexico, Pakistan
and Taiwan to more than offset lower value share in Indonesia,
Saudi Arabia, South Africa and Spain. Group cigarette volume share
grew 10 bps with the strategic portfolio also up 10 bps. Pricing
continued to be strong, with combustibles price/mix of 4.3%.
Group cigarette volume grew by 1.8% to 316.0 billion sticks
(2020: 310.5 billion sticks) driven by the recovery in emerging
markets. Volume grew in:
-- Bangladesh (driven by the continued strength of the local portfolio);
-- Brazil (where enhanced border security and restricted
population mobility due to COVID-19 led to an increase in duty paid
volume);
-- South Africa (as the market recovered from the COVID-19
lockdown and ban of sales in April to August 2020);
-- Pakistan (where illicit trade reduced following significant
excise-led growth in recent years ); and
-- Vietnam (with strong volume recovery post COVID-19 lockdowns in the comparator).
This was partially offset by lower volume in:
-- the US where the Group's cigarette volume was down 4.4% to
34.7 billion sticks (2020: 36.2 billion sticks), broadly in-line
with industry volume which was down around 5%. This is more in-line
with historical rates, driven by rising gas prices and the partial
unwinding of last year's additional supply chain inventories and
stronger consumption trends; and
-- Indonesia where the Group has sought to drive increased value
with pricing ahead of the industry.
Our GTR business continues to show no signs of recovery due to
COVID-19 travel restrictions.
CATEGORY PERFORMANCE REVIEW
Volume of the strategic cigarette brands, collectively, grew
0.7% in the first six months of 2021 :
-- Dunhill's value share was down 10 bps as growth in Romania,
Taiwan, Pakistan and Brazil was more than offset by declines in
Indonesia, South Korea, Saudi Arabia, Australia, Malaysia and
Netherlands. Volume was 8% lower, largely due to the impact of the
tax increases and minimum retail price compliance in Indonesia,
partially offset by recovering volume in Brazil and South
Africa;
-- Kent's value share was stable as growth in Turkey, Russia and
Saudi Arabia were offset by lower value share in Japan, Romania,
Brazil and Chile. Volume was down 0.5% as growth in Turkey was more
than offset by lower volume in Japan and the Middle East;
-- Lucky Strike's value share grew 20 bps, as growth in the US
(following launch), in AMSSA (particularly Brazil, Chile and
Colombia) in Japan and Russia more than offset lower value share in
Indonesia, France and Spain. Volume grew 17% driven by Brazil,
Russia, Argentina and the US, following the reintroduction of the
brand in the final quarter of 2020. Growth was partially offset by
the impact of the tax increases and minimum retail price compliance
in Indonesia and lower volume in France;
-- Rothmans' value share was stable as growth in Brazil, Italy,
Malaysia and Czech Republic was offset by lower value share in
Russia, New Zealand, Australia, South Africa, Poland, Ukraine, UK,
and Pakistan. Volume was down 3.5% as growth in Brazil, Cuba and
Poland was more than offset by lower volume in Russia, Ukraine,
Kazakhstan and Nigeria;
-- Pall Mall's value share was down by 10 bps as growth in
Germany, Mexico, Australia and Chile was more than offset by lower
value share in US, Saudi Arabia, Canada, Romania, New Zealand and
UK. Volume was 6.1% higher, largely driven by Pakistan, Nigeria,
Chile, Mexico and Saudi Arabia; and
-- T he Group's US domestic strategic combustibles portfolio largely performed well:
-- Newport value share increased 60 bps in the US, despite a
2.4% volume decline, as both the menthol and non-menthol variants
outperformed the market;
-- Natural American Spirit value share was marginally higher
than 2020. Volume was up 1.5% against the first six months of 2020;
and
-- Camel's value share declined 30 bps in the US, with volume
down against the same period of 2020 by 9.7%.
Volume of other tobacco products (OTP) declined 6.6% to 9
billion sticks equivalent (being 3% of the Group's combustible
portfolio).
Revenue from combustibles was down 3.0% at GBP10,527 million
(June 2020: GBP10,854 million) with a translational foreign
exchange headwind of 8.8% more than offsetting the impact of higher
pricing across the Group. Revenue at constant rates of exchange was
up 5.8% at GBP11,485 million (June 2020: GBP10,854 million) driven
by good pricing notably in the US, Canada, Germany, Bangladesh and
Brazil.
SIMPLIFYING THE BUSINESS - Transitioning to the enterprise of
the future
-- Quantum savings target increased (from GBP1bn) to GBP1.5bn by the end of 2022
-- Quantum phase 2 drove GBP256m of savings in H1 2021
-- The QUEST programme (Building the Enterprise of the Future)
drives our transition, supported by accelerated digital
transformation, technology and innovation
Building the Enterprise of the Future will give us the
organisational flexibility to implement and operationalise our
growth strategy - simplifying the business and speeding up
decision-making. QUEST is an organisational transformation
programme, built around five pillars, designed to deliver the
Enterprise of the Future at enhanced speed. Underpinning QUEST
is:
-- Q uantum, our programme designed to simplify our business;
-- U nleashing innovation through data-driven insights and
foresights, leveraging state-of-the-art technologies to ensure we
are building the brands of the future;
-- E mpowering our organisation and attracting and retaining an
increasingly diverse workforce;
-- S haping the sustainability agenda through our focus on
reducing the health impact of our business and demonstrating
excellence across our other ESG measures; and
-- T echnology and data analytics, which will drive our
transformation and unlock commercial value across the entire value
chain.
Phase 1 of the Quantum programme was completed last year
delivering greater organisational speed and agility. We are
building on this success by rolling-out Phase 2 which covers
operational efficiency, route-to-market focus and supply chain
productivity. We have realised further savings of GBP256 million in
the first six months of 2021 driven by Quantum and are well on
track to deliver our annualised GBP1 billion target by the end of
2021, being 12 months earlier than planned. As a result we have
increased our expected cost savings target to annualised cost
savings of GBP1.5 billion by the end of 2022. The savings from
Quantum are enabling further increases in investment in New
Categories and the building of new capabilities.
REGIONAL REVIEW
The performances of the regions are discussed below. The
following discussion is based upon the Group's internal reporting
structure.
UNITED STATES (US):
Volume (unit) Revenue (GBPm)
---------------- ------------------------ --------------------------------------
Reported At constant rates
------------------------ --------------------------------
For six months ended 2021
30 June 2021 Change 2021 2020 Change FX cc 2020 Change
Unit % GBPm GBPm % GBPm GBPm GBPm %
New Categories 243 173 +40.8% 24 267 173 +55.1%
------ -------- ------- ------ ------- ---- ----- ------- ------ --------
Vapour ( 10ml units
/ pods mn) 139 +97.3% 235 166 +41.9% 24 259 166 +56.3%
THP (sticks bn) - - - - - - - - -
Modern Oral (pouches
mn) 405 +450% 8 7 +17.3% - 8 7 +29.3%
------ -------- ------- ------ ------- ---- ----- ------- ------ --------
Traditional Oral
(stick eq bn) 3.6 -3.1% 537 558 -3.8% 55 592 558 +6.0%
------- ------ ------- ---- ----- ------- ------ --------
Total Non-Combustibles 780 731 +6.7% 79 859 731 +17.6%
Total Combustibles
(sticks bn) 35 -4.3% 4,769 4,861 -1.9% 486 5,255 4,861 +8.1%
Other 14 27 -49.9% 2 16 27 -44.8%
------- ------ ------- ---- ----- ------- ------ --------
Total 5,563 5,619 -1.0% 567 6,130 5,619 +9.1%
======= ====== ======= ==== ===== ======= ====== ========
Adjusted PfO (GBPm)
Reported PfO (GBPm) Adjusted operating margin
Margin (%) (%)
------------------------ --------------------------------------
2021
2021 2020 Change Adj FX cc 2020 Change
Profit from Operations
(PfO) 2,570 2,619 -1.9% 196 306 3,072 2,801 +9.7%
-40
Operating Margin 46.2% 46.6% bps 50.1% 49.8% +30 bps
------------------------- ------ -------- ------- ------ ------- ---- ----- ------- ------ --------
Use of the term "cc" refers to the variance between the 2021
adjusted performance, at 2020 exchange rates, against the adjusted
2020 performance.
-- Vuse revenue growth up 42% closing the gap on the market leader
-- Velo volume share up strongly in a competitive market, with capacity unconstrained
-- Continued strong cigarette pricing driving revenue and
adjusted profit from operations growth (excluding the impact of
translational foreign exchange)
Regional Revenue and Profit from operations
Reported revenue declined slightly (down 1.0%), as strong
cigarette and traditional oral pricing and continued value share
gains in Vuse and combustibles were offset by translational foreign
exchange headwinds of 10% due to the relative strength of sterling
to the US dollar. On a constant currency basis, revenue was up
9.1%.
Reported profit from operations reduced by 1.9%, as combustibles
pricing, higher revenue from New Categories and savings from the
Quantum programme were more than offset by the translational
foreign exchange headwinds and a further increase in investment
(over the same period of 2020) of GBP103 million to drive awareness
and trial. Amortisation and impairment of brands (treated as
adjusting items in line with Group policy) was in line with the
first half of 2020 (30 June 2021: GBP137 million; 30 June 2020:
GBP137 million).
On an adjusted, constant currency basis profit from operations
was up 9.7%.
New Categories
In vapour, Vuse revenue was up 42%, being growth of 56% at
constant rates of exchange. Vuse has further expanded its value
share to 30.0%, up 510 bps against FY 2020, with market value share
leadership in 20 US states.
The US vapour market continues to recover following the EVALI
crisis in 2019 and the impacts of the flavour ban in 2020. While
the Group has no presence in disposable vapour products in the US,
it is notable that these products - as well as those flavoured
products containing synthetic nicotine - have continued to increase
market share over the period. This remains a concern given the
sharp increase in consumption of disposable products noted in the
2020 National Youth Tobacco Survey.
We support efforts by the FDA to address the increasing
availability of synthetic nicotine products and enhance the FDA's
enforcement actions against flavoured disposable vapour products.
The FDA is under increased scrutiny from Congress to act against
these types of products, which we believe will likely lead to
substantive action by the FDA.
REGIONAL REVIEW
United States cont...
In Modern Oral, Velo revenue increased 17% in the first six
months of 2021 (to GBP8 million), or 29% at constant rates of
exchange, as the Group invested in consumer acquisition and
geographic expansion, with volume up 450%. Following the
acquisition (in October 2020) of the nicotine pouch products from
Dryft, the expanded range of products is now present in
approximately 80,000 stores under the Velo brand and we will
continue to build distribution further. Velo volume share has
increased by 840 bps from FY 2020 to reach 16.0% May YTD 2021 in a
competitive market.
PMTAs were submitted ahead of the 9 September 2020 deadline for
four Vuse products (Alto, Solo, Ciro and Vibe) and for Velo modern
oral products from both our existing portfolio and the recently
acquired Dryft products. We will continue to work with the FDA as
the PMTAs progress through the various stages of the review
process.
Traditional Oral
Traditional Oral revenue reduced by 3.8%, being an increase of
6.0% excluding the unfavourable impact of foreign exchange. Strong
price/mix of 9.1% offset a volume decline of 3.1%. Value share of
moist grew 20 bps and volume share was down 20 bps, as Grizzly
continues to drive value growth through strong pricing, utilising
revenue growth management techniques.
The MRTP applications for Camel Snus were discussed by the TPSAC
in September 2018. We continue to work with the FDA as the MRTP
applications and public comments remain under review by the
Agency.
Combustibles
Combustibles revenue was down 1.9%, driven by a volume decline
of 4.3% and foreign exchange headwinds. At constant rates of
exchange, revenue increased 8.1% driven by value share gains and
strong price/mix from price increases at the end of 2020 and during
H1 2021. Value share increased 40 bps compared to the FY 2020,
driven by our premium brands Newport and Natural American Spirit
and the success of our launch of Lucky Strike. We are not
experiencing any acceleration in downtrading.
Volume share reduced 30 bps as we continued to focus on value
generation.
On 29 April 2021, the FDA announced it is setting into motion
the process for advancing two tobacco product standards regarding
menthol in cigarettes and all flavours in cigars. The Group's US
subsidiary, Reynolds American Inc. will evaluate any proposed
regulation and will participate in any consultation and the
rulemaking process by submitting robust comments grounded in
science-based evidence. The published science does not support
regulating menthol cigarettes differently from non-menthol. The
scientific evidence neither shows a difference in health risks
between menthol and non-menthol cigarettes, nor indicates that
menthol cigarettes adversely affect initiation, dependence or
cessation.
REGIONAL REVIEW
ASIA-PACIFIC AND MIDDLE EAST (APME):
Volume (unit) Revenue (GBPm)
---------------- ------------------------- ---------------------------------------------
Reported At constant rates
------------------------- ---------------------------------------
For six months ended 2021
30 June 2021 Change 2021 2020 Change FX cc 2020 Change
Unit % GBPm GBPm % GBPm GBPm GBPm %
New Categories 228 250 -9.2% 20 248 250 -1.1%
------ -------- ------- ------ -------- ---- ----- ------- ------ ---------------
Vapour ( 10ml units
/ pods mn) 4 +125.7% 9 5 +60.4% - 9 5 +58.9%
THP (sticks bn) 4.0 +23.1% 216 244 -11.7% 20 236 244 -3.5%
Modern Oral (pouches
mn) 111 +502% 3 1 +418.2% - 3 1 +457.6%
------ -------- ------- ------ -------- ---- ----- ------- ------ ---------------
Traditional Oral
(stick eq bn) - - - - - - - - -
------- ------ -------- ---- ----- ------- ------ ---------------
Total Non-Combustibles 228 250 -9.2% 20 248 250 -1.1%
Total Combustibles
(sticks bn) 109 +8.0% 1,781 1,838 -3.1% 180 1,961 1,838 +6.7%
Other 46 49 -2.9% 5 51 49 +5.1%
------- ------ -------- ---- ----- ------- ------ ---------------
Total 2,055 2,137 -3.8% 205 2,260 2,137 +5.8%
======= ====== ======== ==== ===== ======= ====== ===============
Adjusted PfO (GBPm)
Reported PfO (GBPm) Adjusted operating margin
Margin (%) (%)
------------------------- ---------------------------------------------
2021
2021 2020 Change Adj FX cc 2020 Change
Profit from Operations
(PfO) 769 865 -11.1% 99 47 915 890 +2.8%
-310
Operating Margin 37.4% 40.5% bps 40.5% 41.6% * 110 bps
------------------------- ------ -------- ------- ------ -------- ---- ----- ------- ------ ---------------
Use of the term "cc" refers to the variance between the 2021
adjusted performance, at 2020 exchange rates, against the adjusted
2020 performance.
-- glo volume growth and share gain, driven by continued Hyper
momentum, offset by the partial absorption of Japan excise
increase
-- Combustible volume growth, lapping the impact of COVID-19 in 2020
-- Volume growth partially offset by negative geographic mix on revenue
Regional Revenue and Profit from operations
Revenue declined 3.8% largely due to the impact of foreign
exchange on the reported results. At constant rates, revenue
increased 5.8% driven by volume growth in combustibles, as a
partial recovery from the impacts of COVID-19 were supported by
volume share gains. These more than offset the negative geographic
mix effect from the faster growth of lower value combustibles
markets.
Reported profit from operations declined 11.1% due to the
unfavourable movements in foreign exchange and impairment charges
recognised in respect of the proposed sale of the Group's
operations in Iran, as described on page 20.
Excluding adjusting items which mainly related to the impairment
charges referred to above, adjusted profit from operations
increased 2.8% at constant rates of exchange, driven by revenue
growth. Adjusted operating margin reduced by 110 bps (at constant
rates) as the negative mix impact of growth in lower margin, higher
volume markets and the partial absorption the harmonisation of
excise in Japan, offset continued savings from Project Quantum and
productivity initiatives.
New Categories
In THP, consumable volume increased by 23% to 4.0 billion sticks
in the first half of 2021 as glo Hyper continued to make good
progress following its launch last year. THP revenue declined 11.7%
or 3.5% on a constant currency basis, as strong volume growth was
offset by the impact of harmonisation of excise in Japan. glo's
share of the key Japanese market has continued to rise, reaching
6.2% volume share of cigarettes and THP May YTD, an increase of 80
bps relative to FY 2020.
Combustibles
Combustibles revenue declined 3.1% largely due to the impact of
foreign exchange as, on a constant currency basis, revenue
increased by 6.7%. This was driven by higher volume (up 8.0%), as a
number of markets, notably Bangladesh, Vietnam and Pakistan, lapped
lower volume in the first half of 2020 due to the impact of
COVID-19 lockdowns. This was partially offset by negative price/mix
largely from the faster growth of lower value markets.
Volume remains under pressure in Indonesia as the Group seeks to
drive value with pricing ahead of the industry. We continued to
grow volume share in combustibles, up 60 bps in the first half of
2021 led by gains in Bangladesh, Vietnam, Pakistan and Japan, while
value share declined 10 bps, largely driven by Indonesia.
REGIONAL REVIEW
AMERICAS AND SUB-SAHARAN AFRICA (AMSSA):
Volume (unit) Revenue (GBPm)
---------------- ------------------------- ---------------------------------------------
Reported At constant rates
------------------------- ---------------------------------------
For six months ended 2021
30 June 2021 Change 2021 2020 Change FX cc 2020 Change
Unit % GBPm GBPm % GBPm GBPm GBPm %
New Categories 54 31 +74.2% - 54 31 +74.8%
------ -------- ------- ------ -------- ---- ----- ------- ------ ---------------
Vapour ( 10ml units
/ pods mn) 27 +75.8% 54 30 +77.8% - 54 30 +78.4%
THP (sticks bn) - - - - - - - - -
Modern Oral (pouches
mn) 0 -100% 0 1 -100% - 0 1 -100%
------ -------- ------- ------ -------- ---- ----- ------- ------ ---------------
Traditional Oral
(stick eq bn) - - - - - - - - -
------- ------ -------- ---- ----- ------- ------ ---------------
Total Non-Combustibles 54 31 +74.2% - 54 31 +74.8%
Total Combustibles
(sticks bn) 71 +3.3% 1,651 1,646 +0.3% 139 1,790 1,646 +8.7%
Other 91 72 +27.3% 14 105 72 +46.8%
------- ------ -------- ---- ----- ------- ------ ---------------
Total 1,796 1,749 +2.7% 153 1,949 1,749 +11.5%
======= ====== ======== ==== ===== ======= ====== ===============
Adjusted PfO (GBPm)
Reported PfO (GBPm) Adjusted operating margin
Margin (%) (%)
------------------------- ---------------------------------------------
2021
2021 2020 Change Adj FX cc 2020 Change
Profit from Operations
(PfO) 694 669 +3.7% 15 42 751 721 +4.2%
Operating Margin 38.6% 38.3% +30 bps 38.5% 41.2% * 270 bps
------------------------ ------ -------- ------- ------ -------- ---- ----- ------- ------ ---------------
Use of the term "cc" refers to the variance between the 2021
adjusted performance, at 2020 exchange rates, against the adjusted
2020 performance.
-- Revenue growth of over 70% in New Categories, driven by Vuse
-- Vuse value share leadership in key Canadian vapour market extended further
-- Combustibles volume and price/mix growth, with markets
including South Africa recovering from a challenging 2020
Regional Revenue and Profit from operations
Revenue increased by 2.7%, as 11.5% growth on a constant
currency basis was offset by translational foreign exchange
headwinds caused by the weakness of a number of currencies relative
to sterling, including the Brazilian real, Argentine peso, Nigerian
naira and Kenyan shilling. Constant currency revenue growth was
driven by a near doubling of vapour revenue, alongside combustible
volume growth (up 3.3%) and price/mix (5.4%), in part due to the
initial impact of COVID-19 in the prior period.
Reported profit from operations grew by 3.7%, driven by the
growth in revenue and lower charges in respect of the restructuring
programme as adjusting items reduced from GBP52 million in the
first half of 2020 to GBP15 million in H1 2021. Excluding these
adjusting items and on a constant currency basis, adjusted profit
from operations was up 4.2%. Operating margins contracted by 270
bps owing to the negative geographic mix in combustibles and rapid
growth, including increased investment, in vapour.
New Categories
In vapour, revenue grew 78%, with volume up 76% as the Group
further extended its leadership position in Canada, with value
share growth of 2,900 bps to 75.2% share. In South Africa, vapour
revenue recovered from the suspension of sales, alongside
cigarettes, as part of the country's COVID-19 response. South
Africa followed the successful migration to the Vuse brand seen in
other markets, including in Canada last year, with the migration
from Twisp in the first half of the year.
Combustibles
Combustibles revenue was marginally higher (up 0.3%), negatively
impacted by translational foreign exchange headwinds. On a constant
currency basis, revenue grew 8.7%, underpinned by volume growth of
3.3% driven by the recovery in a number of markets, notably South
Africa, from the initial impacts of COVID-19 in the prior
period.
The Group's combustible share declined 30 bps on both a volume
and value basis driven by South Africa, Brazil, and Canada. In
South Africa, H1 2021 duty paid industry volume growth was strong
year-on-year, following the ban on sales from April-August 2020 as
part of the country's COVID-19 measures. However, the share of the
illicit trade remains above pre-COVID levels and there has been
some limited downtrading, negatively impacting volume and value
share. Similarly in Brazil, the duty paid industry grew, in part
due to the COVID-19 related travel restrictions and increased
border security leading to a reduction in illicit trade, although
growth in consumption at the lower end of the market has led to
some volume and value share loss.
REGIONAL REVIEW
EUROPE AND NORTH AFRICA (ENA):
Volume (unit) Revenue (GBPm)
---------------- ------------------------- ---------------------------------------------
Reported At constant rates
------------------------- ---------------------------------------
For six months ended 2021
30 June 2021 Change 2021 2020 Change FX cc 2020 Change
Unit % GBPm GBPm % GBPm GBPm GBPm %
New Categories 358 174 +105.1% 15 373 174 +113.5%
------ -------- ------- ------ -------- ---- ----- ------- ------ ---------------
Vapour ( 10ml units
/ pods mn) 77 +32.8% 100 64 +56.6% 1 101 64 +57.8%
THP (sticks bn) 4.4 +367.8% 143 42 +240.9% 15 158 42 +278.3%
Modern Oral (pouches
mn) 1,091 +77.2% 115 68 +67.5% (1) 114 68 +64.9%
------ -------- ------- ------ -------- ---- ----- ------- ------ ---------------
Traditional Oral
(stick eq bn) 0.5 -3.2% 21 18 +14.1% (1) 20 18 +9.2%
------- ------ -------- ---- ----- ------- ------ ---------------
Total Non-Combustibles 379 192 +96.6% 14 393 192 +103.8%
Total Combustibles
(sticks bn) 110 -3.4% 2,326 2,509 -7.3% 153 2,479 2,509 -1.2%
Other 56 65 -13.8% 1 57 65 -11.1%
------- ------ -------- ---- ----- ------- ------ ---------------
Total 2,761 2,766 -0.2% 168 2,929 2,766 +5.9%
======= ====== ======== ==== ===== ======= ====== ===============
Adjusted PfO (GBPm)
Reported PfO (GBPm) Adjusted operating margin
Margin (%) (%)
------------------------- ---------------------------------------------
2021
2021 2020 Change Adj FX cc 2020 Change
Profit from Operations * 3.7%
(PfO) 874 944 -7.4% 18 29 921 956
-240
Operating Margin 31.7% 34.1% bps 31.4% 34.6% * 320 bps
------------------------- ------ -------- ------- ------ -------- ---- ----- ------- ------ ---------------
Use of the term "cc" refers to the variance between the 2021
adjusted performance, at 2020 exchange rates, against the adjusted
2020 performance.
-- New Category revenue doubling compared to the first half of 2020
-- glo Hyper expansion drives more than tripling of THP revenue
-- Combustibles volume share and value share declined 10 bps
Regional Revenue and Profit from operations
Revenue was marginally lower (down 0.2%) as the doubling of New
Categories revenue and combustibles pricing were more than offset
by translational foreign exchange headwinds. On a constant currency
basis, revenue increased 5.9%.
Profit from operations reduced by 7.4%, partly driven by the
foreign exchange headwinds and investment in New Categories.
Adjusted profit from operations at constant rates fell by 3.7% as
higher revenue and Quantum cost savings were more than offset by
the negative mix impact from New Category growth and increased
investment behind the New Category brands.
New Categories
Vapour revenue increased by over 50%, ahead of the strong volume
growth of 33%, driven by growth of the vapour market and value
share gains by Vuse in all key European markets. The Vype brand was
migrated to Vuse across the region during the first half of the
year, completing the last transitions of our major markets. Vuse
further extended its value share leadership position in France,
Germany and the UK, although in the latter vapour revenue growth
was moderated by a reduction in sales of Ten Motives and the
remainder of the local portfolio.
Building on the strong momentum in 2020, THP volume quadrupled
and revenue more than tripled driven by the progress of glo Hyper
in a number of markets across the region. glo has grown volume
share in key THP markets across ENA since the launch of glo Hyper
last year. glo's May YTD 2021 share of cigarettes and THP had
reached 1.8% in Russia (up 110 bps on FY 2020), 1.4% in Italy (up
110 bps on FY 2020), 2.8% in Ukraine (up 180 bps on FY 2020) and
1.6% Romania (up 70 bps on FY 2020).
In Modern Oral, revenue grew 67.5%, driven by volume growth (up
77%), with volume share gains of both the modern oral and total
oral categories in more established markets such as Sweden and
Norway. In Germany, sales of Modern Oral have been suspended
pending engagement with the authorities regarding the
classification of tobacco-free nicotine pouches.
Combustibles
Combustibles revenue fell 7.3% (or 1.2% at constant rates) as
combustible volume declines (3.4%) more than offset price/mix
growth. On a country level, revenue growth in Ukraine, UK and
Romania was offset by weakness in countries including Denmark,
Russia and France. Volume share declined 10 bps, as growth in
Turkey and Germany was more than offset by lower volume share in
Russia, France, Poland and Spain. Value share was 10 bps lower.
OTHER FINANCIAL INFORMATION
ANALYSIS OF PROFIT FROM OPERATIONS AND DILUTED EARNINGS PER
SHARE BY SEGMENT
2021 2020
========================================================= ===================================
For six months Reported Adj Items(1) Adjusted Exchange Adjusted Reported Adj Items(1) Adjusted
ended 30 June at CC
(2)
--------- ------------- --------- --------- --------- --------- ------------- ---------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Profit from
Operations
US 2,570 196 2,766 306 3,072 2,619 182 2,801
APME 769 99 868 47 915 865 25 890
AMSSA 694 15 709 42 751 669 52 721
ENA 874 18 892 29 921 944 12 956
--------- ------------- --------- --------- --------- --------- ------------- ---------
Total Region 4,907 328 5,235 424 5,659 5,097 271 5,368
Net finance
costs (756) 34 (722) (55) (777) (786) 3 (783)
Associates and
joint ventures 233 (7) 226 20 246 281 (15) 266
--------- ------------- --------- --------- --------- --------- ------------- ---------
Profit before
tax 4,384 355 4,739 389 5,128 4,592 259 4,851
Taxation (1,055) (64) (1,119) (76) (1,195) (1,054) (93) (1,147)
Non-controlling
interests (79) (1) (80) (8) (88) (81) (4) (85)
--------- ------------- --------- --------- --------- --------- ------------- ---------
Profit attributable
to shareholders 3,250 290 3,540 305 3,845 3,457 162 3,619
Diluted number
of shares (m) 2,296 2,296 2,296 2,294 2,294
--------- ------------- --------- --------- --------- --------- ------------- ---------
Diluted earnings
per share (pence) 141.6 154.2 167.5 150.7 157.8
--------- --------- --------- --------- ---------
Notes to the analysis of profit from operations above:
(1) Adjusting items represent certain items which the Group
considers distinctive based upon their size, nature or
incidence.
(2) CC: constant currency - measures are calculated based on a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
NET FINANCE COSTS
Net finance costs for the six months to 30 June 2021 were GBP756
million, compared to GBP786 million in the same period in 2020,
with the reduction largely due to the translational foreign
exchange impact due to the movement of sterling against the US
dollar and euro and lower interest rates, partially offset by the
impairment of investments held at fair value (GBP24 million) as
part of the proposed sale of the Group's operations in Iran (as
described on page 20).
On a constant currency basis, and after adjusting for items
including the finance costs related to the Franked Investment
Income Group Litigation Order (FII GLO, as described on page 45)
and impairment described earlier, adjusted net finance costs were
largely in line the first half of 2020, being a decrease of 1.0% to
GBP777 million.
SHARE OF POST-TAX RESULTS OF ASSOCIATES AND JOINT VENTURES
The Group's share of post-tax results of associates and joint
ventures decreased from GBP281 million to GBP233 million which
largely relates to the performance of the Group's main associate,
ITC Ltd (ITC) in India. The Group's share of ITC's post-tax results
was 17.8% lower at GBP226 million (2020: GBP275 million), as the
impact of COVID-19 in India continued to lead to business
disruption.
Excluding adjusting items of GBP7 million (2020: GBP15 million),
which largely related to the deemed gain on dilution of the Group's
holding in ITC, as described on page 36, and the impact of
translational foreign exchange, on an adjusted constant rate basis,
the Group's share of post-tax results from associates and joint
ventures decreased 7.5% to GBP246 million.
TAXATION
The tax rate in the income statement was 24.1% for the six
months to 30 June 2021, compared to 23.0% for the six months to 30
June 2020 (31 December 2020: 24.3%). The Group's tax rate is
affected by the impact of the adjusting items referred to on pages
33 to 36 and by the inclusion of the share of associates' and joint
ventures' post-tax profit in the Group's pre-tax results.
Excluding these, the Group's underlying tax rate for
subsidiaries reflected in the adjusted earnings per share on page
40 was 24.8% in the six months ended 30 June 2021 compared to 25.0%
for the six months to 30 June 2020. For the year to 31 December
2020, it was 24.9%. A full reconciliation from taxation on ordinary
activities to the underlying tax rate is provided on page 57.
The effective and underlying rate in the six months to 30 June
2021 reflects the impact of prior and current year tax reclaims in
Brazil together with mix of profits.
We continue to expect the 2021 full-year underlying tax rate to
be around 25%.
OTHER FINANCIAL INFORMATION
EARNINGS PER SHARE
Basic earnings per share were down 6.0% at 142.1p (30 June 2020:
151.2p) as the growth in operational performance was more than
offset by a higher effective tax rate, lower share of associates,
charges in respect of the proposed sale of the Group's operations
in Iran and the translational foreign exchange headwind due to the
relative strength of sterling particularly against the US
dollar.
Before adjusting items and including the dilutive effect of
employee share schemes, adjusted diluted earnings per share fell
2.3% to 154.2p (30 June 2020: 157.8p). Excluding the impact of
translational foreign exchange, adjusted diluted earnings per share
were 6.1% higher at 167.5p, at constant rates of exchange. For a
full reconciliation of diluted earnings per share to adjusted
diluted earnings per share, at constant rates, see page 57.
CASH FLOW
For year ended
For six months ended 31 December
30 June 2020
---------------------------------- ------------------
2021 2020 Change 2020
-------- ------- --------------- ------------------
GBPm GBPm % GBPm
Net cash generated from operating
activities 2,254 3,484 -35.3% 9,786
Operating cash flow conversion 67% 80% -13 ppts 103%
Free cash flow - before payment
of dividends 1,280 2,397 -46.6% 7,295
Free cash flow - after payment
of dividends (1,163) 51 Not meaningful 2,550
As at 30 June As at 31 December
---------------------------------- ------------------
2021 2020 Change 2020
-------- ------- --------------- ------------------
GBPm GBPm % GBPm
Borrowings (including lease
liabilities) 45,010 50,461 -10.8% 43,968
Adjusted net debt 40,490 44,237 -8.5% 39,451
----------------------------------- -------- ------- --------------- ------------------
In the Group's cash flow, prepared in accordance with
International Financial Reporting Standards (IFRS) and presented on
page 31, net cash generated from operating activities declined by
35.3% to GBP2,254 million (30 June 2020: GBP3,484 million) , partly
due to :
-- the deferral, in the US, of excise (GBP795 million) and
corporate tax (GBP438 million) payments from the first half to the
second half of 2020;
-- MSA-related outflows (GBP397 million) due to timing and
one-off litigation settlements made in the first half of 2021;
and
-- an increase in tax paid in Canada (due to the timing of payments) .
These were partly offset by an increase in dividends received
from associates to GBP164 million (30 June 2020: GBP2 million)
following the payment of an interim dividend by the Group's Indian
associate, ITC.
Net cash generated from operating activities was also impacted
by the translational foreign exchange headwind of around 8% due to
the relative strength of sterling versus the Group's operating
currencies (particularly US dollar).
Operating cash conversion and free cash flow (before and after
dividends paid to shareholders)
The Group's operating cash conversion rate (based upon adjusted
profit from operations and defined on page 58) was 67% (30 June
2020: 80%). The reduction was largely due to the deferral of excise
in the US in the first half of 2020 (mentioned above) and higher
capital expenditure in 2021 compared to the comparator period as
investment was delayed to the second half of 2020 due to the
COVID-19 pandemic.
The Group continues to target an operating cash flow conversion
ratio of at least 90% in 2021.
Free cash flow (before the payment of dividends), as defined on
page 58, declined from GBP2,397 million (for the six months ended
30 June 2020) to GBP1,280 million largely driven by the reduction
in net cash generated from operations described above.
After paying dividends of GBP2,443 million (30 June 2020:
GBP2,346 million), free cash flow (after dividends paid to
shareholders), as defined on page 58, was an outflow of GBP1,163
million compared to an inflow of GBP51 million in the same period
in 2020. For a full reconciliation of net cash generated from
operating activities to free cash flow before and after dividends,
see page 58.
OTHER FINANCIAL INFORMATION
BORROWINGS AND NET DEBT
Borrowings (including lease liabilities) were GBP45,010 million
at 30 June 2021, compared to GBP50,461 million at 30 June 2020 and
GBP43,968 million at 31 December 2020. The increase from the end of
2020 was largely due to higher short term borrowings (including
commercial paper) due to short-term funding needs in the period.
The movement in the Group's borrowings is described on page 38.
The Group remains confident about its ability to access the debt
capital markets successfully and reviews its options on a
continuing basis.
The Group defines net debt as borrowings including related
derivatives, less cash and cash equivalents and current investments
held at fair value. Closing net debt was GBP41,251 million (30 June
2020: GBP45,114 million; 31 December 2020: GBP40,241 million). A
reconciliation of borrowings to net debt is provided below.
As at 30 June As at 31 December
------------------------------ ------------------
2021 2020 Change 2020
--------- --------- -------- ------------------
GBPm GBPm % GBPm
Borrowings (including lease (50,461
liabilities) (45,010) ) -10.8% (43,968)
Derivatives in respect of
net debt 409 380 +7.6% 346
Cash and cash equivalents 3,014 4,784 -37.0% 3,139
Current investments held at
fair value 336 183 +83.6% 242
--------- --------- -------- ------------------
Net debt (41,251) (45,114) -8.6% (40,241)
Maturity profile of net debt:
Net debt due within one year (5,144) (2,014) +155.4% (635)
Net debt due beyond one year (36,107) (43,100) -16.2% (39,606)
--------- --------- -------- ------------------
Net debt (41,251) (45,114) -8.6% (40,241)
------------------------------- --------- --------- -------- ------------------
The movement in net debt includes the free cash outflow, after
payment of dividends to shareholders, in the six months ended 30
June 2021 of GBP1,163 million (30 June 2020: GBP51 million inflow;
31 December 2020: GBP 2,550 million inflow ) as described on page
15. Also impacting the carrying value of net debt at the balance
sheet date are
-- other cash outflows related to share schemes and investing
activities of GBP165 million (30 June 2020: GBP53 million: 31
December 2020: GBP210 million);
-- other non-cash movements of GBP45 million (mainly related to interest accruals);
-- the classification of certain balances as held-for-sale
related to the proposed sale of the Group's operations in Iran of
GBP100 million; and
-- foreign exchange tailwind related to the revaluation of
foreign currency denominated net debt balances of GBP373 million
(30 June 2020: GBP2,342 million headwind; 31 December 2020: GBP69
million tailwind).
In 2020, following the acquisition of a distribution company in
the Middle East, the Group also recognised net debt acquired of
GBP95 million. These movements can be summarised as follows:
As at 30 June As at 31 December
-------------------- --------------------
2021 2020 2020
--------- --------- ------------------
GBPm GBPm GBPm
Opening net debt (40,241) (42,574) (42,574)
Free cash inflow (after dividends) (1,163) 51 2,550
Other cash payments (165) (53) (210)
Net debt acquired - - 95
Other non-cash movements 45 (196) (171)
Transferred to held-for-sale (100 - -
)
Foreign exchange 373 (2,342) 69
--------- --------- ------------------
Closing net debt (41,251) (45,114) (40,241)
------------------------------------ --------- --------- ------------------
OTHER FINANCIAL INFORMATION
BORROWINGS AND NET DEBT cont...
Adjusted net debt
The Group also adjusts net debt for the purchase price
allocation adjustment to the debt, included within borrowings,
acquired as part of the acquisition of Reynolds American Inc. This
is an accounting adjustment and does not reflect the enduring
repayment of the instrument. The Group Management Board believes
that this additional measure, which is used internally to assess
the Group's financial capacity, is useful to the users of the
financial statements in helping them to see how the Group's
financial capacity has changed over the year. The adjusted net debt
position is provided below:
As at 30 June As at 31 December
============================= ==================
2021 2020 Change 2020
--------- --------- ------- ------------------
GBPm GBPm % GBPm
Net debt (41,251) (45,114) -8.6% (40,241)
Purchase price allocation
(PPA) adjustment to acquired
debt 761 877 -13.2% 790
--------- --------- ------- ------------------
Adjusted net debt (40,490) (44,237) -8.5% (39,451)
Exchange (374)
--------- ========= ======= ==================
Adjusted net debt at constant
rates (40,864) (44,237) -7.6%
------------------------------- --------- --------- ------- ------------------
DIVIDS
On 17 February 2021, British American Tobacco p.l.c. (the
Company) announced that the Board had declared an interim dividend
of 215.6p per ordinary share of 25p for the year ended 31 December
2020, payable in four equal quarterly instalments of 53.9p per
ordinary share in May 2021, August 2021, November 2021 and February
2022.
The May 2021 dividend was paid to shareholders on the UK main
register and South Africa branch register on 12 May 2021 and to
holders of American Depositary Shares (ADSs) on 17 May 2021. The
three remaining quarterly dividends will be paid to shareholders
registered on either the UK main register or the South Africa
branch register, and to holders of ADSs, each on the applicable
record dates set out in the table below.
Event (2021 unless Payment No. Payment No. Payment No.
stated) 2 3 4
Record date (JSE,
LSE and NYSE) 9 July 1 October 24 December
Payment date (LSE 9 February
and JSE) 19 August 11 November 2022
14 February
ADS payment date (NYSE) 24 August 16 November 2022
------------------------ ------------ ------------ ------------
OTHER INFORMATION
FOREIGN CURRENCIES
The principal exchange rates used to convert the results of the
Group's foreign operations to sterling for the purposes of
inclusion and consolidation within the Group's financial statements
are indicated in the table below. Where the Group has provided
results "at constant rates of exchange" this refers to the
translation of the results from the foreign operations at rates of
exchange prevailing in the prior period - thereby eliminating the
potentially distorting impact of the movement in foreign exchange
on the reported results.
The principal exchange rates used were as follows:
Average for the period As at
ended
------------------- -------------------------------- --------------------------------
30 June 31 December 30 June 31 December
------------------ ------------ ------------------ ------------
2021 2020 2020 2021 2020 2020
Australian dollar 1.800 1.919 1.862 1.840 1.795 1.771
Brazilian real 7.476 6.186 6.616 6.932 6.784 7.100
Canadian dollar 1.731 1.720 1.720 1.711 1.683 1.741
Euro 1.153 1.144 1.125 1.165 1.100 1.117
Indian rupee 101.849 93.400 95.097 102.683 93.292 99.880
Japanese yen 149.701 136.475 137.017 153.327 133.303 141.131
Russian rouble 103.178 87.661 92.844 100.920 88.042 101.106
South African
rand 20.183 20.956 21.099 19.725 21.469 20.079
US dollar 1.389 1.261 1.284 1.381 1.236 1.367
-------- -------- ------------ -------- -------- ------------
RISKS AND UNCERTAINTIES
The Board carried out a robust assessment of the principal risks
and uncertainties facing the Group for the period, including those
that would threaten its business model, future performance,
solvency, liquidity and viability. As part of that assessment, the
Board reviewed all the risks, both individually and collectively,
as they relate to the impact of COVID-19 on the performance of the
Group.
The COVID-19 pandemic may have a lasting impact on operations,
suppliers, customers and our people. The governments of the
countries in which we operate and sell our products will adjust as
they tackle the socio-economic impact of the pandemic. This could
lead to increased risk of regulation, affect the ability to realise
revenue growth due to consumer down-trading, excise increases or
higher illicit trade, whilst also potentially impacting the supply
chain, financial markets and customer credit risk. The impact of
these risks is difficult to ascertain and potentially unforeseen
during this period of uncertainty. As new working practices are
implemented to reflect the current operating environment and
associated risks are incorporated into existing Group risks
(including principal risks noted below), the Group does not
maintain COVID-19 as a separate principal risk.
All Group risks are managed individually and collectively by
management and overseen by the Board. The principal risks remain
broadly unchanged except for "market size reduction and consumer
down trading" which, due to the Group's strategy to deliver
long-term sustainable growth with a range of innovation and less
harmful products that stimulate senses of new adult generations, is
no longer considered a principal risk . The principal risks facing
the Group are summarised under the headings of:
-- Competition from illicit trade;
-- Tobacco, New Categories and other regulation interrupts the growth strategy;
-- Disputed taxes, interest and penalties;
-- Inability to develop, commercialise and deliver the New Categories strategy;
-- Litigation;
-- Significant increases or structural changes in tobacco,
nicotine and New Categories related taxes;
-- Foreign exchange rate exposures;
-- Geopolitical tensions;
-- Solvency and liquidity; and
-- Injury, illness or death in the workplace.
A summary of the other risks for the Group which are not
considered principal risks but are monitored by the Board through
the Group's risk register is set out on pages 288-306 of the
Group's Annual Report and Form 20-F for the year ended 31 December
2020. These and all of the Group's risks should be read in the
context of the forward-looking statements on page 61 of this
Half-Year Report.
OTHER INFORMATION
MANAGING THROUGH COVID-19
The Group continues to perform well despite the operational
challenges posed by the COVID-19 pandemic, whilst recognising that
GTR continues to be affected by the ongoing travel restrictions in
certain parts of the world. Our Board has continued to maintain
close oversight of the Group's response to the impact of COVID-19
throughout this period.
Our robust contingency plans and organisational flexibility have
ensured that, where operations have been affected by local lock
downs, the supply chain disruption to our ongoing business has
largely been mitigated. We have embraced remote working where
appropriate and would like to thank our staff around the world for
the resilience and agility they have demonstrated during these
unprecedented times. That such progress towards building A Better
Tomorrow(TM) has been made during such a challenging period is
testimony to the resilience of our staff, customers, partners and
suppliers.
We remain committed to supporting all our stakeholders
throughout the COVID-19 pandemic. Our COVID-19 candidate vaccine is
currently in Phase 1 trials. To enhance recruitment to the trials,
we have expanded our clinical trial footprint to include study
sites in the US, Canada and Germany.
UPDATE ON INVESTIGATIONS INTO MISCONDUCT ALLEGATIONS
From time-to-time, the Group investigates, and becomes aware of
governmental authorities' investigations into, allegations of
misconduct against Group companies. The Group co-operates with the
authorities' investigations, where appropriate, including with the
DOJ and OFAC in the United States, which are conducting an
investigation into suspicions of breach of sanctions.
The potential for fines, penalties or other consequences cannot
currently be assessed. As the investigations are ongoing, it is not
possible to identify the timescale in which these matters might be
resolved.
UPDATE ON QUEBEC CLASS ACTION AND CCAA
In 2015, the plaintiffs in the two certified classes in Quebec
were awarded damages and interest in the amount of CAD$15.6 billion
(GBP9 billion), of which Imperial Tobacco Canada Ltd's (ITCAN)
share is CAD$10.4 billion (GBP6 billion). Also in 2015, the Quebec
Court of Appeal upheld the Order for Security, of which ITCAN's
share was CAD$758 million (GBP436 million), which has been paid in
full to the Court escrow account as required by the judgment.
Following the decision of the Quebec Court of Appeal in Montreal,
the Board of Directors of ITCAN reassessed the recoverability of
the deposit and the Group recognised a charge against the income
statement of GBP436 million in 2019. As a consequence, in the
Group's consolidated balance sheet, the deposit has been utilised
against the current estimate of the liability.
Further, on 12 March 2019, ITCAN obtained an Initial Order from
the Ontario Superior Court of Justice granting it protection under
the Companies' Creditors Arrangement Act (CCAA). This has the
effect of staying all current tobacco litigation in Canada against
ITCAN and other Group companies (the "stays"). The stays are
currently in place until 30 September 2021. While the stays are in
place, no steps are to be taken in connection with the Canadian
tobacco litigation with respect to ITCAN, certain of its
subsidiaries or any other Group company.
In addition to Quebec, across Canada, other tobacco plaintiffs
and provincial governments are collectively seeking significant
damages which substantially exceed ITCAN's total assets. In seeking
protection under the CCAA, ITCAN will look to resolve not only the
Quebec case but also all other tobacco litigation in Canada under
an efficient and court supervised process, while continuing to
trade in the normal course.
Under the terms of CCAA, the court appointed FTI Consulting
Canada Inc. to act as a monitor. This monitor has no operational
input and is not involved in the management of the business. The
Group considers that ITCAN continues to meet the requirements of
IFRS 10 Consolidated Financial Statements, and, until such
requirements are not met, the Group will continue to consolidate
the results of ITCAN. The GBP2.3 billion of goodwill relating to
ITCAN on the Group's balance sheet at 31 December 2020 will
continue to be reviewed on a regular basis. Any potential future
impairment charge would result in a non-cash charge to the income
statement that would be treated as an adjusting item.
Please refer to "Contingent Liabilities and Financial
Commitments" below (page 43) and the Group's Annual Report and
Accounts and Form 20-F for the year ended 31 December 2020, note 27
Contingent Liabilities and Financial Commitments for a full
discussion of the case.
BANGLADESH
In Bangladesh, on 25 July 2018, the Appellate Division of the
Supreme Court of Bangladesh reversed the decision of the High Court
against BAT Bangladesh in respect of the retrospective demands for
VAT and Supplementary Duty amounting to approximately GBP153
million. On 3 February 2020, the certified Court Order was
received. The Government filed a Review Petition on 25 March 2020
in the Appellate Division of the Supreme Court of Bangladesh
against the judgment. The matter is yet to be taken up for
hearing.
OTHER INFORMATION
CHANGES IN THE GROUP
1. ORGANIGRAM
On 11 March 2021, the Group announced a strategic collaboration
agreement with Organigram Inc., a wholly-owned subsidiary of
publicly-traded Organigram Holdings Inc. (collectively,
Organigram). Under the terms of the transaction, a Group subsidiary
acquired a 19.9% equity stake in Organigram Holdings Inc. (listed
on both the Nasdaq and Toronto Stock Exchange under the symbol
"OGI") to become its largest shareholder, with the ability to
appoint two directors to Organigram Holdings Inc.'s board of
directors and representation on its investment committee. At
closing, one BAT nominee, Mr. Jeyan Heper, was added to the board
and another nominee is expected to be added in the near term. The
Group will account for the investment as an associate.
The investment, valued at approximately GBP129 million, was
priced at CAD$3.79 per share which was based on the five-day volume
weighted average price of Organigram Holdings Inc.'s shares on the
Toronto Stock Exchange ended 9 March 2021 and represents a discount
to the closing price of CAD$3.94 on 9 March 2021. The Group's share
of the fair value of net assets acquired included GBP49 million of
intangibles, and GBP30 million of goodwill, representing a
strategic premium to enter the legal cannabis market in North
America which was provisionally recognised as part of the
acquisition.
The Group's investment provides a significant injection of
capital for Organigram that will enable them to expand and
accelerate their R&D and product development activities, and
support business expansion.
A "Centre of Excellence" will be established to focus on
developing the next generation of cannabis products with an initial
focus on cannabidiol (CBD). The Centre of Excellence will be
located at Organigram's indoor facility in New Brunswick, Canada,
which holds the Health Canada licenses required to conduct R&D
activities with cannabis products. Both BAT and Organigram will
contribute scientists, researchers, and product developers to the
Centre of Excellence which will be governed and supervised by a
steering committee consisting of an equal number of senior members
from each of BAT and Organigram. Both partners share a commitment
to continue to maintain the highest regulatory and ethical
standards. Furthermore, as part of the transaction, BAT and
Organigram will grant each other a licence to certain intellectual
property to enable the development of new and potentially
disruptive, novel products. Both parties will have the ability to
independently commercialise any products developed as a result of
the collaboration under their own brands.
On 6 April 2021, Organigram acquired all of the issued and
outstanding shares of The Edibles & Infusions Corporation (EIC)
for consideration of CAD$22 million, payable in shares, with a
potential additional CAD$13 million in shares payable upon the EIC
business achieving certain earnout milestones. The impact on the
Group's stake in Organigram was not material.
The transactions and results of these changes are immaterial to
the Group and organic measures, excluding the results of these
acquisitions, are not presented.
2. B.A.T. Pars Company - IRAN
On 25 June 2021, the Group agreed to dispose of its Iranian
subsidiary, B.A.T. Pars Company PJSC (BAT Pars) to DTM ME FZE LLC.
Consideration is subject to the completion accounts process, with
payment deferred until September 2022. It is expected that the
agreement will be completed by the end of 2021. The transaction is
subject to the approval by State Centre of Tobacco Planning and
Supervision of the Ministry of Industry of Iran.
In accordance with IFRS, BAT Pars has been classified as
held-for-sale at 30 June 2021 and presented as such on the balance
sheet. An impairment charge and associated costs of GBP71 million
has been recognised in the income statement and has been treated as
a non-cash, adjusting item. On completion of the transaction,
certain other items (including an estimated GBP270 million in
respect of foreign exchange previously recognised in the Statement
of Other Comprehensive Income) will be reclassified to the income
statement in the period in which completion occurs. The financial
impact of these items will also be treated as non-cash, adjusting
items.
On a full year basis, in 2020, in respect of Iran, the Group
reported 11.4 billion sticks, revenue of approximately GBP170
million and adjusted profit from operations of approximately GBP60
million (at 2020 rates of exchange).
OTHER INFORMATION
UK PENSION FUND - BUY-IN
On 19 May 2021, the Trustee of the British American Tobacco UK
Pension Fund (UK Fund) entered into an agreement with Pension
Insurance Corporation plc ("PIC") to acquire a second insurance
policy that matches a specific part of the UK Fund's future cash
flow arising from the accrued pension liabilities of pensioners and
deferred members, following the first agreement entered into in May
2019. Such an arrangement is commonly termed as a "Buy-In".
The Buy-In transaction involved the transfer of GBP383 million
of assets held by the UK Fund to PIC and, as such, has no cash
effect to the Group. On an IAS 19 basis, the fair value of the
insurance policy will match the present value of the liabilities
being insured and a loss of GBP117 million has been recognised
through the statement of other comprehensive income on the
revaluation of the insurance asset with no impact to the income
statement.
As disclosed in the Group's Annual Report and Accounts and Form
20-F for the year ended 31 December 2020, the UK Fund closed to
future accrual with effect from 1 July 2020. The Trustee and the
Group agreed a new Schedule of Contributions with an effective date
of 5 October 2020 such that the Group would pay GBP12 million per
annum from July 2021 until July 2023. This schedule was
subsequently replaced with a new schedule with an effective date of
30 March 2021 such that the Group will effectively make no
contributions in 2021, but will pay GBP18 million in July 2022 and
GBP18 million in July 2023 as contributions towards de-risking of
the UK Fund's assets and securing members' benefits. The funding
commitment is therefore not considered onerous, and in accordance
with IFRIC 14 no additional liabilities or surplus restrictions
have been recognised in respect of these commitments.
CHANGES TO THE MAIN BOARD
As previously announced, Luc Jobin succeeded Richard Burrows as
Chairman of British American Tobacco p.l.c. on 28 April 2021. Also
as previously announced in 2021, Jerry Fowden resigned from the
Board as a Non-Executive Director with effect from 1 April
2021.
GOING CONCERN
A description of the Group's business activities, its financial
position, cash flows, liquidity position, facilities and borrowings
position, together with the factors likely to affect its future
development, performance and position, as well as risks associated
with the business, are set out in the Strategic Report and in the
notes to the financial statements, all of which are included in the
Group's Annual Report and Accounts and Form 20-F for the year ended
31 December 2020, and available on the Group's website, www.bat.com
. This Half-Year Report provides updated information regarding the
business activities, including cash flow, for the six months to 30
June 2021 and of the financial position and liquidity position at
30 June 2021.
The Group has, at the date of this announcement, sufficient
existing financing available for its estimated requirements for at
least 12 months from the date of approval of this condensed
consolidated financial information. This, together with the ability
to generate cash from trading activities, the performance of the
Group's Strategic Portfolio, its leading market positions in a
number of countries and its broad geographical spread, as well as
numerous contracts with established customers and suppliers across
different geographical areas and industries, provides the Directors
with the confidence that the Group is well placed to manage its
business risks successfully through the ongoing uncertainty and
risks associated with COVID-19 and its impact on the current
financial conditions and the general outlook in the global
economy.
After reviewing the Group's forecast financial performance and
financing arrangements, the Directors consider that the Group has
adequate resources to continue operating for at least 12 months
from the date of approval of this condensed consolidated financial
information and that it is therefore appropriate to continue to
adopt the going concern basis in preparing this Half-Year
Report.
OTHER INFORMATION
EXTERNAL RECOGNITION IN RESPECT OF SUSTAINABILITY
The Group continues to be recognised for its ESG performance,
building on the numerous ESG-related awards BAT has won in the
past:
Year Award/rating Environmental Social Governance
2021 S&P Global's Sustainability Yearbook 2021: ü ü ü
highest "Gold Class" distinction
------------------------------------------------ -------------- ------- -----------
Refinitiv: BAT ranked as the third highest ü ü ü
ESG-rated FTSE 100 company
------------------------------------------------ -------------- ------- -----------
Financial Times Europe Climate Leader Ranking ü ü
2021
------------------------------------------------ -------------- ------- -----------
Financial Times Diversity Leader Ranking ü
2021
------------------------------------------------ -------------- ------- -----------
Gartner Supply Chain 2021 Award: Top 20 ü
ranking
------------------------------------------------ -------------- ------- -----------
Institutional Shareholder Services' (ISS) ü
Social Disclosures Quality Score: highest
rating for best-in-class sustainability
disclosure practices
------------------------------------------------ -------------- ------- -----------
Workforce Disclosure Initiative (WDI): ü
ranked in the top 10% of responding companies
------------------------------------------------ -------------- ------- -----------
WDI Workforce Transparency Awards: special ü
mentions in the 'COVID-19 transparency'
and 'Workforce action' categories
------------------------------------------------ -------------- ------- -----------
Global Top Employer 2021 ü
------------------------------------------------ -------------- ------- -----------
Undergraduate Employability Awards: top ü
Medium-sized Undergraduate Scheme (UK)
------------------------------------------------ -------------- ------- -----------
Corporate Equality Index 2021: our businesses ü
in the US and Mexico were ranked among
the best places to work for LGBTQ equality
------------------------------------------------ -------------- ------- -----------
dotCOMM Awards: Platinum award for our ü
Women in Science video
------------------------------------------------ -------------- ------- -----------
2020 Dow Jones Sustainability Indices (DJSI): ü ü ü
World Index & Industry leader
------------------------------------------------ -------------- ------- -----------
Corporate Responsibility Reporting Awards ü ü ü
2020: Winner in the 'Openness and Honesty'
category
------------------------------------------------ -------------- ------- -----------
Disability Confident Committed employer ü
under the UK Government's accreditation
scheme
------------------------------------------------ -------------- ------- -----------
MSCI: BBB rating ü ü ü
------------------------------------------------ -------------- ------- -----------
Vigeo Eiris: 47% score ü ü ü
------------------------------------------------ -------------- ------- -----------
Sustainalytics: 27.8 score ü ü ü
------------------------------------------------ -------------- ------- -----------
Corporate Reporting Awards (CRRA): Openness ü
and Transparency
------------------------------------------------ -------------- ------- -----------
Carbon disclosure Project (CDP): Climate ü
A and Water A-
------------------------------------------------ -------------- ------- -----------
S&P Global Sustainability Yearbook Award: ü ü ü
highest "Gold Class" distinction
------------------------------------------------ -------------- ------- -----------
Sustainability, Environmental Achievement ü ü ü
and Leadership (SEAL) Awards: top 50 companies
------------------------------------------------ -------------- ------- -----------
Global Top Employer ü
------------------------------------------------ -------------- ------- -----------
Financial Times Diversity Leader Ranking ü
2020
------------------------------------------------ -------------- ------- -----------
Gartner Supply Chain Award: top 25 ranking ü
------------------------------------------------ -------------- ------- -----------
Corporate Equality Index: best place to ü
work for LGBTQ equality (Reynolds American
Inc. and its operating companies)
------------------------------------------------ -------------- ------- -----------
Undergraduate Employability Awards: top ü
Medium-sized Undergraduate Scheme (UK)
------------------------------------------------ -------------- ------- -----------
Product of the Year: Vype ePod best e-cigarette ü
------------------------------------------------ -------------- ------- -----------
2019 DJSI: World Index & Industry leader ü ü ü
------------------------------------------------ -------------- ------- -----------
RobecoSAM Sustainability Award: Gold Class ü ü ü
------------------------------------------------ -------------- ------- -----------
MSCI: BBB rating ü ü ü
------------------------------------------------ -------------- ------- -----------
Vigeo Eiris: 42% score ü ü ü
------------------------------------------------ -------------- ------- -----------
CDP: Climate A and Water B ü
------------------------------------------------ -------------- ------- -----------
Global Child Forum benchmark: leader status ü
------------------------------------------------ -------------- ------- -----------
Global Top Employer ü
------------------------------------------------ -------------- ------- -----------
Workforce Disclosure Initiative (WDI): ü
industry leader
------------------------------------------------ -------------- ------- -----------
International Women's Day: best practice ü
winner
------------------------------------------------ -------------- ------- -----------
Product of the Year: Vype ePod best e-cigarette ü
------------------------------------------------ -------------- ------- -----------
2018 DJSI: World Index & Industry leader ü ü ü
------------------------------------------------ -------------- ------- -----------
RobecoSAM Sustainability Award: Gold Class ü ü ü
------------------------------------------------ -------------- ------- -----------
MSCI: A rating ü ü ü
------------------------------------------------ -------------- ------- -----------
CDP: Climate B and Water B- ü
------------------------------------------------ -------------- ------- -----------
Global Top Employer ü
------------------------------------------------ -------------- ------- -----------
WDI: industry leader ü
------------------------------------------------ -------------- ------- -----------
International Women's Day: best practice ü
winner
------------------------------------------------ -------------- ------- -----------
Fortune best workplaces: best in manufacturing ü
and production (Reynolds American Inc.
and its operating companies)
------------------------------------------------ -------------- ------- -----------
dotCOMM Awards: best ebook for Science ü
& Technology Report
------------------------------------------------ -------------- ------- -----------
OTHER INFORMATION
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that, to the best of their knowledge, this
condensed consolidated financial information has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK and as issued by the International Accounting
Standards Board (IASB), and that this Half-Year Report includes a
fair review of the information required by both DTR 4.2.7R and DTR
4.2.8R of the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority.
The Directors of British American Tobacco p.l.c. are as listed
on pages 92 and 93 in the British American Tobacco Annual Report
and Form 20-F for the year ended 31 December 2020, with the
exception of Jerry Fowden who stepped down on 1 April 2021 and
Richard Burrows who stepped down on 28 April 2021.
Details of all the current Directors of British American Tobacco
p.l.c. are maintained on www.bat.com .
For and on behalf of the Board of Directors:
Luc Jobin Tadeu Marroco
Chairman Finance and Transformation Director
27 July 2021 27 July 2021
ENQUIRIES
INVESTOR RELATIONS: PRESS OFFICE:
+44 (0)20 7845
1180
+44 (0)20 7845
2012
Mike Nightingale +44 (0)20 7845
Victoria Buxton 1138
William Houston +44 (0)20 7845 +44 (0)20 7845
John Harney 1263 Press Office 2888
Webcast and Conference Call Participant Passcode: BAT
A webcast of the results is available via
www.bat.com/latestresults on 28 July 2021 from 08.30 BST.
If you wish to listen to the presentation via a conference call
facility please use the dial in details below:
Standard International Access: +44 (0) SA (toll free): 0 800 980
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966 5335
INDEPENT REVIEW REPORT TO BRITISH AMERICAN TOBACCO p.l.c.
Conclusion
We have been engaged by British American Tobacco p.l.c. (the
Company) to review the condensed consolidated financial information
in the Half-Year report for the six months ended 30 June 2021 which
comprises the Group Income Statement, the Group Statement of
Comprehensive Income, the Group Statement of Changes in Equity, the
Group Balance Sheet, the Group Cash Flow Statement and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated financial
information in the Half-Year report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted for use in the
UK and as issued by the International Accounting Standards Board
(IASB), and the Disclosure Guidance and Transparency Rules (the
DTR) of the UK's Financial Conduct Authority (the UK FCA).
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
Half-Year report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated financial information.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The Half-Year report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Half-Year report in accordance with the DTR of the UK
FCA.
As disclosed in the Accounting Policies and Basis of Preparation
note, the latest annual financial statements of the Group were
prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the IASB, and international
accounting standards in conformity with the requirements of the
Companies Act 2006, and in accordance with International Financial
Reporting Standards adopted pursuant to Regulation (EC) No
1606/2002 as it applied in the European Union. The next annual
financial statements of the Group will be prepared in accordance
with IFRS as issued by the IASB and UK-adopted international
accounting standards. The directors are responsible for preparing
the condensed consolidated financial information included in the
Half-Year report in accordance with IAS 34 Interim Financial
Reporting as adopted for use in the UK and as issued by the
IASB.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated financial information in the Half-Year
report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Philip Smart
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square, London E14 5GL
27 July 2021
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
GROUP INCOME STATEMENT
Six months ended Year ended
30 June 31 December
------------------ -------------
2021 2020 2020
-------- -------- -------------
GBPm GBPm GBPm
Revenue (1) 12,175 12,271 25,776
Raw materials and consumables used (2,195) (2,182) (4,583)
Changes in inventories of finished goods
and work in progress 70 183 445
Employee benefit costs (1,360) (1,306) (2,744)
Depreciation, amortisation and impairment
costs (473) (533) (1,450)
Other operating income 102 42 188
Loss on reclassification from amortised
cost to fair value (1) (1) (3)
Other operating expenses (3,411) (3,377) (7,667)
-------- -------- -------------
Profit from operations 4,907 5,097 9,962
Net finance costs (756) (786) (1,745)
-------- -------- -------------
Finance income 15 36 50
Finance costs (771) (822) (1,795)
-------- -------- -------------
Share of post-tax results of associates
and joint ventures 233 281 455
-------- -------- -------------
Profit before taxation 4,384 4,592 8,672
Taxation on ordinary activities (1,055) (1,054) (2,108)
-------- -------- -------------
Profit for the period 3,329 3,538 6,564
======== ======== =============
Attributable to:
Owners of the parent 3,250 3,457 6,400
Non-controlling interests 79 81 164
-------- -------- -------------
3,329 3,538 6,564
======== ======== =============
Earnings per share
Basic 142.1p 151.2p 280.0p
======== ======== =============
Diluted 141.6p 150.7p 278.9p
======== ======== =============
All of the activities during both years are in respect of continuing
operations.
The accompanying notes on pages 32 to 49 form an integral part
of this condensed consolidated financial information.
(1) Revenue is net of duty, excise and other taxes of GBP18,553
million and GBP18,415 million for the six months ended 30 June
2021 and 2020 respectively, and GBP39,172 million for the year
ended 31 December 2020.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
GROUP STATEMENT OF COMPREHENSIVE INCOME
Six months ended Year ended
30 June 31 December
------------------ -------------
2021 2020 2020
-------- -------- -------------
GBPm GBPm GBPm
Profit for the period (page 25) 3,329 3,538 6,564
Other comprehensive income/(expense)
Items that may be reclassified subsequently
to profit or loss: (802) 4,095 (2,997)
-------- -------- -------------
Differences on exchange (786) 4,847 (2,597)
Cash flow hedges
- net fair value gains/(losses) 50 (267) (257)
- reclassified and reported in profit
for the period 4 48 90
Investments held at fair value
- net fair value gains 5 - -
Net investment hedges
- net fair value gains/(losses) 111 (353) (16)
- differences on exchange on borrowings (121) (230) (163)
Associates - share of OCI, net of tax (49) - (98)
Tax on items that may be reclassified (16) 50 44
-------- -------- -------------
Items that will not be reclassified subsequently
to profit or loss: 228 57 55
-------- -------- -------------
Retirement benefit schemes
- net actuarial gains 282 78 105
- surplus recognition (1) (6) 10
Associates - share of OCI, net of tax 4 (11) (34)
Tax on items that will not be reclassified (57) (4) (26)
-------- -------- -------------
Total other comprehensive (expense)/income
for the period (574) 4,152 (2,942)
-------- -------- -------------
Total comprehensive income for the period 2,755 7,690 3,622
======== ======== =============
Attributable to:
Owners of the parent 2,679 7,596 3,474
Non-controlling interests 76 94 148
-------- -------- -------------
2,755 7,690 3,622
======== ======== =============
The accompanying notes on pages 32 to 49 form an integral part of
this condensed consolidated financial information.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
GROUP STATEMENT OF CHANGES IN EQUITY
At 30 June 2021 Attributable to owners of the parent
---------------------------------------------------------------------
Share premium,
capital
redemption Total attributable
Share and merger Other Retained to owners Non-controlling Total
capital reserves reserves earnings of parent interests equity
-------- ----------------- --------- --------- ------------------ --------------- --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
January
2021 614 26,618 (6,600) 42,041 62,673 282 62,955
Total
comprehensive
(expense)/income
for
the period
comprising:
(page 26) - - (795) 3,474 2,679 76 2,755
------------------ -------- ----------------- --------- --------- ------------------ --------------- --------
Profit for the
period
(page 25) - - - 3,250 3,250 79 3,329
Other
comprehensive
(expense)/income
for
the period (page
26) - - (795) 224 (571) (3) (574)
------------------ -------- ----------------- --------- --------- ------------------ --------------- --------
Other changes in
equity
Cash flow hedges
reclassified
and reported in
total
assets - - 34 - 34 - 34
Employee share
options
- value of
employee
services - - - 32 32 - 32
- treasury shares
used
for share option
schemes - 4 - (4) - - -
Dividends and
other
appropriations
- ordinary shares - - - (2,443) (2,443) - (2,443)
- to
non-controlling
interests - - - - - (81) (81)
Purchase of own
shares
- held in employee
share
ownership trusts - - - (82) (82) - (82)
Other movements - - - 4 4 - 4
------------------ -------- ----------------- --------- --------- ------------------ --------------- --------
Balance at 30 June
2021 614 26,622 (7,361) 43,022 62,897 277 63,174
================== ======== ================= ========= ========= ================== =============== ========
At 30 June 2020 Attributable to owners of the parent
----------------------------------------------------------------------
Share premium,
capital redemption Total attributable
Share and merger Other Retained to owners Non-controlling Total
capital reserves reserves earnings of parent interests equity
-------- ------------------ --------- --------- ------------------ --------------- --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
January
2020 614 26,609 (3,555) 40,234 63,902 258 64,160
Total comprehensive
income for the
period
comprising: (page
26) - - 4,071 3,525 7,596 94 7,690
------------------- -------- ------------------ --------- --------- ------------------ --------------- --------
Profit for the
period
(page 25) - - - 3,457 3,457 81 3,538
Other comprehensive
income for the
period
(page 26) - - 4,071 68 4,139 13 4,152
------------------- -------- ------------------ --------- --------- ------------------ --------------- --------
Other changes in
equity
Cash flow hedges
reclassified
and reported in
total
assets - - (26) - (26) - (26)
Employee share
options
- value of employee
services - - - 34 34 - 34
- proceeds from new
shares issued - 1 - - 1 - 1
- treasury shares
used
for share option
schemes - 7 - (7) - - -
Dividends and other
appropriations
- ordinary shares - - - (2,347) (2,347) - (2,347)
- to
non-controlling
interests - - - - - (80) (80)
Purchase of own
shares
- held in employee
share
ownership trusts - - - (17) (17) - (17)
Other movements
non-controlling
interests - - - - - 10 10
Balance at 30 June
2020 614 26,617 490 41,422 69,143 282 69,425
=================== ======== ================== ========= ========= ================== =============== ========
The accompanying notes on pages 32 to 49 form an integral part
of this condensed consolidated financial information.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
GROUP STATEMENT OF CHANGES IN EQUITY - cont...
At 31 December 2020 Attributable to owners of the parent
----------------------------------------------------------------------
Share premium,
capital redemption Total attributable
Share and merger Other Retained to owners Non-controlling Total
capital reserves reserves earnings of parent interests equity
-------- ------------------ --------- --------- ------------------ --------------- --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
January
2020 614 26,609 (3,555) 40,234 63,902 258 64,160
Total comprehensive
(expense)/income
for
the year
comprising:
(page 26) - - (3,012) 6,486 3,474 148 3,622
------------------- -------- ------------------ --------- --------- ------------------ --------------- --------
Profit for the year
(page 25) - - - 6,400 6,400 164 6,564
Other comprehensive
(expense)/income
for
the year (page 26) - - (3,012) 86 (2,926) (16) (2,942)
------------------- -------- ------------------ --------- --------- ------------------ --------------- --------
Other changes in
equity
Cash flow hedges
reclassified
and reported in
total
assets - - (33) - (33) - (33)
Employee share
options
- value of employee
services - - - 88 88 - 88
- proceeds from new
shares issued - 2 - - 2 - 2
- treasury shares
used
for share option
schemes - 7 - (7) - - -
Dividends and other
appropriations
- ordinary shares - - - (4,747) (4,747) - (4,747)
- to
non-controlling
interests - - - - - (141) (141)
Purchase of own
shares
- held in employee
share
ownership trusts - - - (17) (17) - (17)
Other movements
non-controlling
interests - - - - - 17 17
Other movements - - - 4 4 - 4
------------------- -------- ------------------ --------- --------- ------------------ --------------- --------
Balance at 31
December
2020 614 26,618 (6,600) 42,041 62,673 282 62,955
=================== ======== ================== ========= ========= ================== =============== ========
The accompanying notes on pages 32 to 49 form an integral part of
this condensed consolidated financial information.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
GROUP BALANCE SHEET
At 30 June At 31 December
-------------------
2021 2020 2020
GBPm GBPm GBPm
Assets
Non-current assets
Intangible assets 113,827 126,764 115,343
Property, plant and equipment 4,866 5,444 5,060
Investments in associates and joint
ventures 1,939 2,133 1,796
Retirement benefit assets 803 577 714
Deferred tax assets 622 419 534
Trade and other receivables 255 240 242
Investments held at fair value 37 28 22
Derivative financial instruments 295 504 367
---------
Total non-current assets 122,644 136,109 124,078
---------
Current assets
Inventories 6,408 6,796 5,998
Income tax receivable 146 108 79
Trade and other receivables 3,934 4,484 3,721
Investments held at fair value 336 183 242
Derivative financial instruments 419 210 430
Cash and cash equivalents 3,014 4,784 3,139
---------
14,257 16,565 13,609
Assets classified as held-for-sale 94 3 3
---------
Total current assets 14,351 16,568 13,612
---------
Total assets 136,995 152,677 137,690
The accompanying notes on pages 32 to 49 form an integral part
of this condensed consolidated financial information.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
GROUP BALANCE SHEET - cont...
At 30 June At 31 December
2021 2020 2020
GBPm GBPm GBPm
Equity - capital and reserves
Share capital 614 614 614
Share premium, capital redemption and
merger reserves 26,622 26,617 26,618
Other reserves (7,361) 490 (6,600)
Retained earnings 43,022 41,422 42,041
-------
Owners of the parent 62,897 69,143 62,673
Non-controlling interests 277 282 282
-------
Total equity 63,174 69,425 62,955
-------
Liabilities
Non-current liabilities
Borrowings 36,361 43,395 39,927
Retirement benefit liabilities 1,279 1,574 1,524
Deferred tax liabilities 16,245 18,104 16,314
Other provisions for liabilities 411 399 387
Trade and other payables 1,058 1,034 1,064
Derivative financial instruments 49 212 41
-------
Total non-current liabilities 55,403 64,718 59,257
-------
Current liabilities
Borrowings 8,649 7,066 4,041
Income tax payable 776 1,295 868
Other provisions for liabilities 372 365 598
Trade and other payables 8,504 9,535 9,693
Derivative financial instruments 97 273 278
Liabilities associated with asset classified
as held-for-sale 20 - -
-------
Total current liabilities 18,418 18,534 15,478
-------
Total equity and liabilities 136,995 152,677 137,690
The accompanying notes on pages 32 to 49 form an integral part of
this condensed consolidated financial information.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
GROUP CASH FLOW STATEMENT
Six months ended Year ended
30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
Cash flows from operating activities
Cash generated from operating activities
(page 37) 3,317 4,034 11,567
Dividends received from associates 164 2 351
Tax paid (1,227) (552) (2,132)
Net cash generated from operating activities 2,254 3,484 9,786
Cash flows from investing activities
Interest received 14 27 48
Purchases of property, plant and equipment (129) (106) (511)
Proceeds on disposal of property, plant
and equipment 19 13 44
Purchases of intangibles (46) (62) (244)
Purchases of investments (220) (183) (343)
Proceeds on disposals of investments 101 97 184
Investment in associates and acquisitions
of other subsidiaries net of cash acquired (130) (3) 39
Net cash used in investing activities (391) (217) (783)
Cash flows from financing activities
Interest paid (753) (841) (1,737)
Interest element of lease liabilities (11) (14) (26)
Capital element of lease liabilities (72) (76) (164)
Proceeds from increases in and new borrowings 2,986 5,204 9,826
Outflows relating to derivative financial
instruments (171) (2) (283)
Purchases of own shares held in employee
share ownership trusts (82) (17) (18)
Reductions in and repayments of borrowings (1,153) (2,811) (10,633)
Dividends paid to owners of the parent (2,443) (2,346) (4,745)
Capital injection from non-controlling interests - 10 17
Dividends paid to non-controlling interests (81) (70) (136)
Other - 1 2
Net cash used in financing activities (1,780) (962) (7,897)
Net cash flows from operating, investing
and financing activities 83 2,305 1,106
Transferred to held-for-sale (100) - -
Differences on exchange (173) 9 (253)
(Decrease)/increase in net cash and cash
equivalents in the period (190) 2,314 853
Net cash and cash equivalents at 1 January 2,888 2,035 2,035
Net cash and cash equivalents at period
end 2,698 4,349 2,888
Cash and cash equivalents per balance sheet 3,014 4,784 3,139
Overdrafts and accrued interest (316) (435) (251)
Net cash and cash equivalents at period
end 2,698 4,349 2,888
The accompanying notes on pages 32 to 49 form an integral part
of this condensed consolidated financial information. The net cash
outflows relating to the adjusting items within profit from
operations on pages 33 and 34, included in the above, are GBP322
million (30 June 2020: GBP411 million; 31 December 2020: GBP732
million).
Notes to the Unaudited Interim Financial Statements
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed consolidated financial information comprises the
unaudited interim financial information for the six months to 30
June 2021. This condensed consolidated financial information has
been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted for use in the UK and as issued by the International
Accounting Standards Board (IASB), and the Disclosure Guidance and
Transparency Rules issued by the Financial Conduct Authority. The
interim condensed consolidated financial information is unaudited
but has been reviewed by the auditor and its review report is set
out on page 24.
This condensed consolidated financial information does not
constitute statutory accounts within the meaning of Section 434 of
the Companies Act 2006 and should be read in conjunction with the
Group's Annual Report and Accounts and Form 20-F for the year ended
31 December 2020, including the audited financial statements for
the year ended 31 December 2020, which were prepared in accordance
with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB), and
international accounting standards in conformity with the
requirements of the Companies Act 2006, and in accordance with
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
(EU) ('IFRS as adopted by the EU'). The Group's Annual Report and
Form 20-F for the year ending 31 December 2021 will be prepared in
accordance with IFRS as issued by the IASB and UK-adopted
international accounting standards.
IFRS as adopted by the UK, IFRS as adopted by the EU and
international accounting standards in conformity with the
requirements of the Companies Act 2006 differ in certain respects
from IFRS as issued by the IASB. The differences have no impact on
the Group's consolidated financial statements for the periods
presented. The Group's Annual Report and Accounts and Form 20-F for
the year ended 31 December 2020 represent the statutory accounts
for that year and have been filed with the Registrar of Companies.
The auditor's report on those statements was unmodified and did not
contain an emphasis of matter paragraph and did not contain any
statement under Section 498 (2) or (3) of the Companies Act
2006.
These condensed consolidated financial statements have been
prepared under the historical cost convention, except in respect of
certain financial instruments. They are prepared on a basis
consistent with the IFRS accounting policies as set out in the
Group's Annual Report and Form 20-F for the year ended 31 December
2020. In addition, the investments in associates and joint ventures
shown in the Group balance sheet include biological assets held by
Organigram Holdings Inc., which was acquired by the Group on 11
March 2021. In accordance with IAS 41 Agriculture, the Group
measures biological assets at fair value less costs to sell up to
the point of harvest, at which point this becomes the basis for the
cost of finished goods inventories after harvest with subsequent
expenditures incurred on these being capitalised, where applicable,
in accordance with IAS 2 Inventories. Unrealised fair value gains
and losses arising during the growth of biological assets are
recognised immediately in the income statement.
The preparation of these condensed consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities at the
date of these condensed consolidated financial statements. Such
estimates and assumptions are based on historical experience and
various other factors that are believed to be reasonable in the
circumstances and constitute management's best judgement at the
date of the condensed consolidated financial statements. The key
estimates and assumptions were the same as those that applied to
the consolidated financial information for the year ended 31
December 2020, apart from updating the assumptions used to
determine the carrying value of liabilities for retirement benefit
schemes. As described on page 35, the Group has reviewed the
carrying value of the significant investments of goodwill and
intangibles (due in part to the announcements in the US regarding
potential menthol regulation, the impact of COVID-19 across the
Group and ongoing challenging trading conditions in certain
markets) and determined that no impairment is required. In the
future, actual experience may deviate from these estimates and
assumptions, which could affect these condensed consolidated
financial statements as the original estimates and assumptions are
modified, as appropriate, in the period in which the circumstances
change.
As discussed on page 21, after reviewing the Group's forecast
financial performance and financing arrangements, the Directors
consider that the Group has adequate resources to continue
operating for at least 12 months from the date of approval of this
condensed consolidated financial information and that it is
therefore appropriate to continue to adopt the going concern basis
in preparing this Half-Year Report.
Notes to the Unaudited Interim Financial Statements
ADJUSTING ITEMS
Adjusting items are significant items of income or expense 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 because of their size, nature or incidence. In
identifying and quantifying adjusting items, the Group consistently
applies a policy that defines criteria that are required to be met
for an item to be classified as adjusting. These items are
separately disclosed in the segmental analyses or in the notes to
the accounts as appropriate.
The Group believes that these items are useful to users of the
Group financial statements in helping them to understand the
underlying business performance and are used to derive the Group's
principal non-GAAP measures of adjusted profit from operations,
adjusted diluted earnings per share, and operating cash flow
conversion ratio, all of which are before the impact of adjusting
items and which are reconciled from profit from operations, diluted
earnings per share, cash conversion ratio and net cash generated
from operating activities.
ANALYSIS OF REVENUE AND PROFIT FROM OPERATIONS BY SEGMENT
Six months 2021 2020
ended 30
June
Reported Exchange At CC Reported
(2)
Revenue GBPm GBPm GBPm GBPm
US 5,563 567 6,130 5,619
APME 2,055 205 2,260 2,137
AMSSA 1,796 153 1,949 1,749
ENA 2,761 168 2,929 2,766
Total Region 12,175 1,093 13,268 12,271
Six months 2021 2020
ended 30
June
Reported Adj Adjusted Exchange Adjusted Reported Adj Adjusted
Items(1) at CC Items(1)
(2)
Profit from GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Operations
US 2,570 196 2,766 306 3,072 2,619 182 2,801
APME 769 99 868 47 915 865 25 890
AMSSA 694 15 709 42 751 669 52 721
ENA 874 18 892 29 921 944 12 956
Total Region 4,907 328 5,235 424 5,659 5,097 271 5,368
Notes to the analysis of revenue and profit from operations
above:
(1) Adjusting items represent certain items which the Group
considers distinctive based upon their size, nature or
incidence.
(2) CC: constant currency - measures are calculated based on a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
ADJUSTING ITEMS INCLUDED IN PROFIT FROM OPERATIONS
Adjusting items are significant items in the profit from
operations that individually or, if of a similar type, in
aggregate, are relevant to an understanding of the Group's
underlying financial performance.
In summary, in the six months ended 30 June 2021, the Group
incurred GBP328 million (30 June 2020: GBP271 million; 31 December
2020: GBP1,403 million) of adjusting items within profit from
operations:
Six months ended Year ended 31
30 June December
2021 2020 2020
GBPm GBPm GBPm
Restructuring and integration costs 83 69 408
Amortisation and impairment of
trademarks and similar intangibles 151 171 339
Impairment of goodwill - 11 209
Impairment and associated costs
in respect of assets/liabilities
held-for-sale 71 - -
Credit in respect of an excise
dispute in Russia - (15) (40)
Charge in respect of MSA liabilities
related to brands sold to a third
party - - 400
Other adjusting items (largely
other litigation including Engle) 23 35 87
24
Total adjusting items included
in profit from operations 328 271 1,403
Notes to the Unaudited Interim Financial Statements
Adjusting items included in profit from operations cont...
(a) Restructuring and integration costs
Restructuring costs reflect the costs incurred as a result of
initiatives to improve the effectiveness and the efficiency of the
Group as a globally integrated enterprise. These costs represent
additional expenses incurred that are not related to the normal
business and day-to-day activities. These initiatives include a
review of the Group's manufacturing operations, and the costs
associated with Quantum. Quantum is the review of the Group's
organisational structure announced in 2019 to simplify the business
and create a more efficient, agile and focused company . Quantum
was expected to deliver at least GBP1 billion of annualised savings
over a three-year period (to 2022). However, with further savings
identified, we have upgraded our Quantum target to GBP1.5 billion
by 2022. The charges include the cost of packages in respect of
permanent headcount reductions and permanent employee benefit
reductions in the Group. The costs of the Group's initiatives are
included in profit from operations under the following
headings:
Six months ended Year ended 31
30 June December
2021 2020 2020
GBPm GBPm GBPm
Employee benefit costs 68 34 91
Depreciation, amortisation and
impairment costs (4) 3 151
Other operating expenses 19 32 166
--------
Total 83 69 408
The restructuring costs in the six months ended 30 June 2021
include the cost of employee packages in respect of Quantum and the
ongoing costs associated with initiatives to improve the
effectiveness and efficiency of the Group as a globally integrated
organisation. The credit recognised in depreciation and impairment
costs is due to a partial impairment reversal following the
revision of factory rationalisation initiatives.
The restructuring costs in the six months ended 30 June 2020
include the costs of packages paid to employees in respect of
Quantum and the ongoing costs of the previously announced factory
rationalisation activities in Russia and APME. In the twelve months
ended 31 December 2020, in addition to the activities described in
relation to the first half of 2020, the Group incurred
restructuring costs in relation to factory rationalisation
activities in the Netherlands, Hungary and Indonesia.
(b) Amortisation and impairment of trademarks and similar
intangibles
Acquisitions in previous years have resulted in the
capitalisation of trademarks and similar intangibles including
those which are amortised over their expected useful lives, which
do not exceed 20 years. The amortisation and impairment charge of
GBP151 million (30 June 2020: GBP171 million; 31 December 2020:
GBP339 million) is included in depreciation, amortisation and
impairment costs in the income statement for the six months ended
30 June 2021.
(c) Other
In the six months ended 30 June 2021, the Group incurred GBP94
million (30 June 2020: GBP31 million; 31 December 2020: GBP656
million) of other adjusting items. In the first half of 2021, the
Group has recognised a charge of GBP71 million, largely in relation
to the impairment arising from the proposed sale of the Group's
operations in Iran, as described on page 20, as the assets and
liabilities have been classified as held-for-sale at 30 June
2021.
The charge in 2020 included impairment of goodwill related to
the Group's acquisition of Twisp in South Africa (GBP11 million)
and in the second half of 2020 a further GBP198 million of
impairment of goodwill was recognised largely relating to Malaysia
due to the ongoing challenging operating environment, including the
continued level of illicit trade. These costs were partially offset
by a credit of GBP40 million (of which GBP15 million was recognised
in the first half of 2020) recognised in relation to the excise
dispute in Russia for which a charge of GBP202 million was
recognised, and disclosed, in 2019.
The charge for the first six months of 2021 also includes GBP23
million (30 June 2020: GBP35 million; 31 December 2020: GBP87
million) predominantly related to other litigation costs including
Engle progeny.
In the second half of 2020, the Group recognised charges in
respect of developments in cases regarding payment obligations
under the state settlement agreements with Florida, Texas,
Minnesota and Mississippi for brands previously sold to a third
party. A total of GBP400 million was recognised following a
decision in the Florida court (with respect to which the Group will
continue to pursue indemnification remedies in a Delaware court)
and following settlement discussions with other manufacturers and
the states of Texas, Minnesota and Mississippi.
Notes to the Unaudited Interim Financial Statements
Adjusting items included in profit from operations cont...
(d) Ongoing impairment review of assets
The Group reviews and monitors the performance of its
non-financial assets (including goodwill) in line with the
requirements of IAS 36 Impairment of Assets. COVID-19 continues to
impact the ability of a certain number of our cash generating units
to return to normal operations and, where applicable, this was
considered to be a trigger to review the carrying value of those
assets. Specifically, in preparing the half year report for the six
months ended 30 June 2021, the Group has assessed the Group's
operations in GTR due to the ongoing difficult trading conditions.
In line with the assessment undertaken as part of the year-end 2020
exercise, management has applied a reasonable range of
sensitivities and continues to assess that, despite a delayed
return to normal operations, there was no indication of impairment.
For GTR's headroom to be reduced to nil, the forecast cash flows
will have to reduce by 66% in each forecast year which is not
considered to be a reasonably possible scenario as we continue to
believe that the duty-free business will recover.
On 29 April 2021, in the US, the FDA reconfirmed its intention
to issue a proposed product standard to ban menthol as a
characterising flavour in cigarettes. Management notes that the FDA
announcement does not itself constitute a ban on menthol in
cigarettes, and any proposed regulation of menthol in cigarettes
would need to be introduced through the established US
comprehensive rule-making process, the timetable and outcome for
which was, and remains, uncertain. Management continues to believe
that any ban, given the mechanisms and processes required to be
followed in the US, is unlikely to be implemented within the next
five years.
However, it is recognised that the April 2021 announcement
constituted a trigger for management to undertake a more detailed
impairment indicator review of goodwill related to Reynolds
American and the value of the Newport and Camel trademarks.
As previously described in the Group's Annual Report and
Accounts and Form 20-F for the year ended 31 December 2020, the
value-in-use calculations have been prepared on a five-year cash
flow forecast which assumes long-term volume decline of cigarettes,
offset by pricing. After this forecast, a growth rate into
perpetuity has been applied. Pre-tax discount rates were used in
the impairment testing, based upon the Group's weighted average
cost of capital, taking into account the cost of capital and
borrowings, to which specific market-related premium adjustments
were made. These adjustments are derived from external sources and
are based on the spread between bonds (or credit default swaps, or
similar indicators) issued by the US or comparable governments and
by local government, adjusted for the Group's own credit market
risk. For ease of use and consistency of application, these results
are periodically calibrated into bands based on internationally
recognised credit ratings. The long-term growth rates and discount
rates have been applied to forecast cash flows, determined by local
management based upon experience, specific market and brand trends
as well as pricing and cost expectations. A further adjustment of
approximately 70 bps to the pre-tax discount rate was applied to
the US cash generating unit to reflect ongoing risk related to
potential future regulation, not otherwise reflected in the
forecast cash flows.
The below table illustrates the carrying values, the key
assumptions used in the assessment and the variance in that
assumption required before an impairment is required:
Carrying Pre-tax discount Perpetuity growth
Value rate rate
At 30 June Assumed Required Assumed Required
2021 (GBPm) to reach to reach
nil headroom nil headroom
Reynolds American
Goodwill 32,375 7.6% 8.3% 1.00% 0.4%
+70 bps -60bps
Newport 28,941 9.1% 9.7% 0.75% -1.5%
+60 bps -225 bps
Camel 12,241 8.7% 11.8% 0.85% -4.7%
+310 bps -555 bps
-------
In management's view, the required movement to the discount rate
and perpetuity growth rates required to trigger a material
impairment were not deemed to be likely. Further, in making the
assessment, management also considered a number of scenarios
related to the potential impact to volume in the event of a ban.
There was no scenario that management considered likely that would,
at this time, result in a reduction to the value-in-use that would
trigger an impairment.
Accordingly, after carefully analysing both the qualitative and
quantitative considerations, management concluded that no
impairment was required for either the Newport and Camel brands or
the overall Reynolds American goodwill balance. As part of the
standard year-end impairment process another detailed impairment
review will be undertaken for all the cash generating units in line
with IAS 36. This will include the entire Reynolds American
portfolio (including Newport and Camel) to ensure the book values
remain supportable.
Notes to the Unaudited Interim Financial Statements
ADJUSTING ITEMS INCLUDED IN NET FINANCE COSTS
In the six months ended 30 June 2021, the Group incurred
adjusting items within net finance costs of GBP34 million (30 June
2020: GBP3 million; 31 December 2020: GBP153 million).
This includes, in the first half of 2021, the impairment of
investments held at fair value (GBP24 million) as part of the
proposed sale of the Group's operations in Iran (as described on
page 20). Also included is interest on adjusting tax payables of
GBP10 million (30 June 2020: GBP3 million; 31 December 2020: GBP11
million), including interest of GBP10 million (30 June 2020: GBP12
million; 31 December 2020: GBP21 million) in relation to the FII
GLO, as described on page 45. In addition, in 2020, the Group
recognised a net credit of GBP10 million in respect of an excise
dispute and in respect of withholding tax in Russia.
In the second half of 2020, the Group also incurred net finance
costs of GBP142 million (being interest costs of GBP157 million
partly offset by fair value gains of GBP15 million) in relation to
the early redemption and repurchase of bonds. This was in respect
of a tender offer in October 2020 of GBP2,653 million, followed by
a "make-whole" redemption of GBP462 million in November 2020, in
respect of certain bonds and was treated as an adjusting item.
All of the adjustments noted above have been included in the
adjusted earnings per share calculation on page 40.
ADJUSTING ITEMS INCLUDED IN SHARE OF POST-TAX RESULTS OF
ASSOCIATES AND JOINT VENTURES
The Group's interest in ITC decreased from 29.42% to 29.41% as a
result of ITC issuing ordinary shares under the company's Employees
Share Option Scheme. The issue of these shares and change in the
Group's share of ITC resulted in a gain of GBP8 million (30 June
2020: GBP19 million; 31 December 2020: GBP17 million), which is
treated as a deemed partial disposal and included in the income
statement. Also, in the six months to 30 June 2021, the Group
incurred a GBP1 million charge in relation to the amortisation of
acquired intangibles associated with the acquisition of Organigram
in March 2021, as described on page 20.
In 2020, ITC recognised a charge in respect of the cost of leaf
tobacco stocks destroyed in a third-party warehouse fire, the
Group's share of which was GBP4 million.
The share of post-tax results of associates and joint ventures
is after the adjusting items noted above, which are excluded from
the calculation of adjusted earnings per share as set out on page
40.
ADJUSTING ITEMS INCLUDED IN TAXATION
The Group's tax rate is affected by the adjusting items referred
to below and by the inclusion of the share of associates' and joint
ventures' post-tax profit in the Group's pre-tax results.
In the six months to 30 June 2021, adjusting tax items included
a net credit of GBP4 million ( 30 June 2020: GBP26 million; 31
December 2020: GBP35 million) relating to the impact of tax rate
changes on deferred tax balances .
Adjusting tax items also includes GBP60 million for the six
months to 30 June 2021 (30 June 2020: GBP67 million; 31 December
2020: GBP287 million) in respect of the taxation on adjusting
items, which are described on pages 33 to 36.
As the above items are not reflective of the ongoing business,
they have been recognised as adjusting items within taxation. Refer
to page 45 for the FII GLO update. All of the adjustments noted
above have been included in the adjusted earnings per share
calculation on page 40.
Notes to the Unaudited Interim Financial Statements
CASH FLOW
Net cash generated from operating activities
Net cash generated from operating activities in the IFRS cash
flows on page 31 includes the following items:
Six months ended Year ended
30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
Profit from operations 4,907 5,097 9,962
Depreciation, amortisation and impairment 473 533 1,450
Increase in inventories (600) (574) (144)
(Increase)/decrease in trade and other
receivables (325) (368) 300
(Decrease)/increase in provision for
MSA (670) (386) 369
Decrease in trade and other payables (314) (4) (320)
Decrease in net retirement benefit liabilities (41) (26) (96)
Decrease in other provisions (193) (245) -
Other non-cash items 80 7 46
Cash generated from operating activities 3,317 4,034 11,567
Dividends received from associates 164 2 351
Tax paid (1,227) (552) (2,132)
Net cash generated from operating activities 2,254 3,484 9,786
Net cash generated from operating activities declined by 35.3%
to GBP2,254 million (30 June 2020: GBP3,484 million) , partly due
to
-- the deferral of excise and corporate tax payments from the
first half to the second half of 2020 in the US (GBP1,233
million);
-- MSA-related outflows (GBP397 million) due to timing and
one-off litigation settlements made in the first half of 2021;
and
-- an increase in tax paid in Canada (due to the timing of payments) .
These were partly offset by an increase in dividends received
from associates to GBP164 million (30 June 2020: GBP2 million)
following the payment of an interim dividend by the Group's Indian
associate, ITC. Net cash generated from operating activities was
also impacted by the translational foreign exchange headwind of
around 8% due to the relative strength of sterling versus the
Group's operating currencies (particularly US dollar).
Expenditure on research and development was approximately GBP142
million in the six months ended 30 June 2021 (30 June 2020: GBP137
million) with a focus on products that could potentially reduce the
risk associated with smoking conventional cigarettes.
Net cash used in investing activities
Net cash used in investing activities in the six months ended 30
June 2021 was higher than the same period in 2020 at GBP391 million
(30 June 2020: GBP217 million) largely due to the investment in OGI
(as described on page 20) and a net outflow from short-term
investment products, including treasury bills. Purchases of
property, plant, equipment and intangibles totalled GBP175 million
in the six months ended 30 June 2021 (30 June 2020: GBP168
million), which includes the investment in the Group's global
operational infrastructure (including, but not limited to, the
manufacturing network, trade marketing and IT systems).
Net cash used in financing activities
Net cash used in financing activities was an outflow of GBP1,780
million in the first six months of 2021 (30 June 2020: GBP962
million outflow). The 2021 outflow was mainly due to the payment of
the dividend GBP2,443 million (30 June 2020: GBP2,346 million), an
increase on prior year due to the higher dividend per share. The
higher cash outflow from financing activities in the period,
compared to the same period in 2020, was largely due to the prior
period including the net inflow from new borrowings in the period
in response to the COVID-19 pandemic. In the six months ended 30
June 2021 the net inflow from borrowings was GBP1,833 million
compared to GBP2,393 million in the same period of 2020.
Notes to the Unaudited Interim Financial Statements
LIQUIDITY
The Treasury function is responsible for raising finance for the
Group, managing the Group's cash resources and the financial risks
arising from underlying operations. All these activities are
carried out under defined policies, procedures and limits, reviewed
and approved by the Board, delegating oversight to the Finance and
Transformation Director and Treasury function. The Group has
targeted an average centrally managed bond maturity of at least
five years with no more than 20% of centrally managed debt maturing
in a single rolling 12-month period. As at 30 June 2021, the
average centrally managed debt maturity of bonds was 9.7 years (30
June 2020: 8.9 years; 31 December 2020: 9.9 years) and the highest
proportion of centrally managed debt maturing in a single rolling
12-month period was 16.8% (30 June 2020: 17.4%: 31 December 2020:
16.4%).
The Group continues to maintain investment-grade credit ratings,
with ratings from Moody's/S&P at Baa2 (stable outlook)/BBB+
(stable outlook), respectively, with a medium-term target of
Baa1/BBB+. The strength of the ratings has underpinned debt
issuance and the Group is confident of its ability to continue to
successfully access the debt capital markets. A credit rating is
not a recommendation to buy, sell or hold securities. A credit
rating may be subject to withdrawal or revision at any time. Each
rating should be evaluated separately of any other rating. In order
to manage its interest rate risk, the Group maintains both floating
rate and fixed rate debt. The Group sets targets (within overall
guidelines) for the desired ratio of floating to fixed rate debt on
a net basis (at least 50% fixed on a net basis in the short to
medium term). At 30 June 2021, the relevant ratios of floating* to
fixed rate borrowings were 15:85 (30 June 2020: 12:88, 31 December
2020: 7:93) on a net basis.
Available facilities
It is Group policy that short-term sources of funds (including
drawings under both the US$4 billion US commercial paper programme
and GBP3 billion euro commercial paper programme) are backed by
undrawn committed lines of credit and cash. As at 30 June 2021,
there was GBP1,653 million of commercial paper outstanding (30 June
2020: GBP224 million drawn; 31 December 2020: undrawn).
In February 2021, the Group exercised the one-year extension
options on both tranches of the GBP6.0 billion revolving credit
facility. The GBP3.0 billion 364-day tranche was reduced to GBP2.85
billion and extended to March 2022. The GBP3.0 billion five-year
tranche remains available until March 2025 after which it will
reduce to GBP2.85 billion until March 2026. This facility was
undrawn at 30 June 2021.
In March 2021, the Group extended short term bilateral
facilities totalling GBP2.5 billion for one year. As at 30 June
2021, GBP900 million was drawn on a short-term basis.
Issuance and repayment of bonds in the period
-- In February 2021, the Group repaid a EUR650 million bond at maturity; and
-- In June 2021, the Group repaid GBP500 million of the GBP1,929
million term loan that has a maturity date in January 2022.
Subsequent to the balance sheet date, in July 2021, the Group
repaid a GBP500 million bond at maturity.
* In relation to the Group's floating rate borrowings and hedge
instruments, there is exposure to uncertainty associated with the
LIBOR Reform. The Group believes that its contracts with interest
rates based on LIBOR benchmarks adequately provide for alternate
rates and calculations of interest in the event that the relevant
LIBOR rate is unavailable. The Group believes that hedge
relationships on derivatives will continue with the resulting
ineffectiveness likely to be immaterial. Furthermore, the Group
signed up to the ISDA 2020 IBOR Fallback Protocol as published by
the International Swaps and Derivative Association Inc., ensuring
that appropriate fallback rates can apply in relation to
derivatives that are impacted by LIBOR cessation.
Notes to the Unaudited Interim Financial Statements
FAIR VALUE MEASUREMENTS AND VALUATION PROCESSES
The Group held certain financial instruments at fair value at 30
June 2021. The definitions and valuation techniques employed for
these as at 30 June 2021 are consistent with those used at 31
December 2020 and disclosed in Note 22 on pages 212 to 217 of the
Group's Annual Report and Accounts and Form 20-F for the year ended
31 December 2020:
-- Level 1 financial instruments are traded in an active market
and fair value is based on quoted prices at the period end.
-- Level 2 financial instruments are not traded in an active
market, but the fair values are based on quoted market prices,
broker/dealer quotations, or alternative pricing sources with
reasonable levels of price transparency. The Group's level 2
financial instruments include OTC derivatives.
-- The fair values of level 3 financial instruments have been
determined using a valuation technique where at least one input
(which could have a significant effect on the instrument's
valuation) is not based on observable market data. The Group's
level 3 financial instruments primarily consist of an equity
investment in an unquoted entity, interest free loans and other
treasury products which are valued using the discounted cash flows
of estimated future cash flows.
While the carrying values of assets and liabilities at fair
value have changed since 31 December 2020, the Group does not
consider the movements in value to be significant, and the
categorisation of these assets and liabilities in accordance with
the disclosure requirements of IFRS 7 has not materially changed.
The values of level 1 assets and level 3 assets are not material to
the Group and were GBP299 million and GBP74 million, respectively,
at 30 June 2021 (30 June 2020: GBP56 million and GBP155 million
respectively and 31 December 2020: GBP171 million and GBP93
million, respectively).
Level 2 assets and liabilities are shown below.
At 30 June At 31 December
2021 2020 2020
GBPm GBPm GBPm
Assets at fair value
Derivatives relating to
- interest rate swaps 50 65 65
- cross-currency swaps 326 466 444
- forward foreign currency contracts 338 183 288
Assets at fair value 714 714 797
Liabilities at fair value
Derivatives relating to
- interest rate swaps 34 52 53
- cross-currency swaps 9 156 -
- forward foreign currency contracts 103 277 266
Liabilities at fair value 146 485 319
Borrowings are carried at amortised cost. The fair value of
borrowings is estimated to be GBP46,607 million (30 June 2020:
GBP52,544 million; 31 December 2020: GBP47,029 million). The value
of other assets and liabilities held at amortised cost are not
materially different from their fair values.
RELATED PARTY DISCLOSURES
The Group's related party transactions and relationships for
2020 were disclosed on pages 222 and 223 of the Group's Annual
Report and Form 20-F for the year ended 31 December 2020. Apart
from the investment in and collaboration with Organigram, explained
on page 20, there were no material changes in related parties or
related party transactions in the six months ended 30 June
2021.
Notes to the Unaudited Interim Financial Statements
EARNINGS PER SHARE
Basic earnings per share were down 6.0% at 142.1p (30 June 2020:
151.2p) as the growth in operational performance was more than
offset by a higher effective tax rate, lower share of associates,
charges in respect of the proposed sale of the Group's operations
in Iran and the translational foreign exchange headwind due to the
relative strength of sterling particularly against the US
dollar.
Before adjusting items and including the dilutive effect of
employee share schemes, adjusted diluted earnings per share fell
2.3% to 154.2p (30 June 2020: 157.8p). Excluding the impact of
translational foreign exchange, adjusted diluted earnings per share
were 6.1% higher at 167.5p, at constant rates of exchange. For a
full reconciliation of diluted earnings per share to adjusted
diluted earnings per share, at constant rates, see page 57.
Six months ended Year ended
30 June 31 December
2021 2020 2020
pence pence pence
Earnings per share
- basic 142.1 151.2 280.0
- diluted 141.6 150.7 278.9
Adjusted earnings per share
- basic 154.8 158.3 333.0
- diluted 154.2 157.8 331.7
Headline earnings per share
- basic 144.7 151.9 295.5
- diluted 144.2 151.4 294.4
Basic earnings per share are based on the profit for the year
attributable to ordinary shareholders and the weighted average
number of ordinary shares in issue during the period (excluding
treasury shares). For the calculation of the diluted earnings per
share, the weighted average number of shares reflects the potential
dilutive effect of employee share schemes.
Adjusted diluted earnings per share are calculated by taking the
following adjustments into account (see pages 33 to 36):
Six months ended Year ended
30 June 31 December
-------------------
2021 2020 2020
pence pence pence
Diluted earnings per share 141.6 150.7 278.9
Effect of restructuring and integration
costs 3.1 2.1 14.9
Effect of amortisation and impairment
of goodwill, trademarks and similar
intangibles 4.8 6.4 20.5
Effect of the Russian excise dispute - - (1.1)
Effect of retrospective guidance
on overseas withholding tax - - (1.8)
Effect of other adjusting items 3.5 (0.7) 16.7
Effect of associates' adjusting
items (0.3) (0.7) (0.6)
Effect of other adjusting items
in net finance costs 1.4 - 5.1
Effect of adjusting items in respect
of deferred taxation 0.1 - (0.9)
Adjusted diluted earnings per share 154.2 157.8 331.7
Notes to the Unaudited Interim Financial Statements
Earnings per share cont...
The presentation of headline earnings per share, as an
alternative measure of earnings per share, is mandated under the
JSE Listing Requirements. It is calculated in accordance with
Circular 1/2021 'Headline Earnings' as issued by the South African
Institute of Chartered Accountants.
Diluted headline earnings per share are calculated by taking the
following adjustments into account:
Six months ended Year ended
30 June 31 December
2021 2020 2020
pence pence pence
Diluted earnings per share 141.6 150.7 278.9
Effect of impairment of intangibles
and property, plant and equipment
and held-for-sale assets (net of
tax) 3.2 1.7 17.0
Effect of losses on disposal of
property, plant and equipment, held-for-sale
assets, partial/full implementation
of IFRS 16 Leases and sale and leaseback
(net of tax) (0.3) (0.2) (0.8)
Issue of shares and changes in shareholding
of associates (0.3) (0.8) (0.7)
Diluted headline earnings per share 144.2 151.4 294.4
The following is a reconciliation of earnings to headline
earnings, in accordance with the JSE Listing Requirements:
Six months ended Year ended
30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
Earnings 3,250 3,457 6,400
Effect of impairment of intangibles
and property, plant and equipment
and held-for-sale assets (net of
tax) 75 41 391
Effect of losses on disposal of
property, plant and equipment, held-for-sale
assets, partial/full implementation
of IFRS 16 Leases and sale and leaseback
(net of tax) (7) (6) (18)
Issue of shares and changes in shareholding
of associates (8) (19) (17)
Headline earnings 3,310 3,473 6,756
The earnings per share are based on:
Six months ended 30 June Year ended 31
December
2021 2020 2020
Earnings Shares Earnings Shares Earnings Shares
GBPm m GBPm m GBPm m
Earnings per share
- basic 3,250 2,287 3,457 2,286 6,400 2,286
- diluted 3,250 2,296 3,457 2,294 6,400 2,295
Adjusted earnings
per share
- basic 3,540 2,287 3,619 2,286 7,613 2,286
- diluted 3,540 2,296 3,619 2,294 7,613 2,295
Headline earnings
per share
- basic 3,310 2,287 3,473 2,286 6,756 2,286
- diluted 3,310 2,296 3,473 2,294 6,756 2,295
Notes to the Unaudited Interim Financial Statements
CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
The Group has contingent liabilities in respect of litigation,
taxes and guarantees in various countries. These are described
below and further described in Note 27 to the Group's Annual Report
and Accounts and Form 20-F for the year ended 31 December 2020 ,
pages 224 to 248. The Group is subject to contingencies pursuant to
requirements that it complies with relevant laws, regulations and
standards. Failure to comply could result in restrictions in
operations, damages, fines, increased tax, increased cost of
compliance, interest charges, reputational damage or other
sanctions. These matters are inherently difficult to quantify.
In cases where the Group has an obligation as a result of a past
event existing at the balance sheet date, it is probable that an
outflow of economic resources will be required to settle the
obligation and the amount of the obligation can be reliably
estimated, a provision will be recognised based on best estimates
and management judgement. There are, however, contingent
liabilities in respect of litigation, taxes in some countries and
guarantees for which no provisions have been made. While the
amounts that may be payable or receivable could be material to the
results or cash flows of the Group in the period in which they are
recognised, the Board does not expect these amounts to have a
material effect on the Group's financial condition.
Taxes
The Group has exposures in respect of the payment or recovery of
a number of taxes. The Group is and has been subject to a number of
tax audits covering, among others, excise tax, value-added taxes,
sales taxes, corporate taxes, overseas withholding taxes and
payroll taxes. The estimated costs of known tax obligations have
been provided in these accounts in accordance with the Group's
accounting policies. In some countries, tax law requires that full
or part payment of disputed tax assessments be made pending
resolution of the dispute. To the extent that such payments exceed
the estimated obligation, they would not be recognised as an
expense.
There are disputes that are in or may proceed to litigation in a
number of countries including Brazil and the Netherlands.
In Turkey, British American Tobacco Tutun Mamulleri Sanayi ve
Ticaret Anonim Sirketi (BAT Tutun) has been subject to tax audits
on inventory movements for the years 2015, 2016 and 2019. In
November 2020, BAT Tutun received a tax assessment amounting to
GBP84 million for the years 2015 and 2016. The Group has not, at
the date of this report, received a tax assessment in relation to
2019. Management is engaging with the tax authorities comprising
principal, penalty and interest for the years on the matter but
believes that the tax claims are unfounded.
In Bangladesh, on 25 July 2018, the Appellate Division of the
Supreme Court of Bangladesh reversed the decision of the High Court
against BAT Bangladesh in respect of the retrospective demands for
VAT and Supplementary Duty amounting to approximately GBP153
million. On 3 February 2020, the certified Court Order was
received. The Government filed a Review Petition on 25 March 2020
in the Appellate Division of the Supreme Court of Bangladesh
against the judgment. The matter is yet to be taken up for
hearing.
British American Tobacco Egypt LLC is subject to two ongoing
civil cases concerning the imposition of sales tax on low-price
category brands brought by the Egyptian tax authority for GBP121
million. Management believes that the tax claims are unfounded and
has appealed the tax claims. These cases are under review by the
Council of State. During hearings in August 2020, the courts
decided, in both cases, to transfer the files to court appointed
experts. One case has been referred to a court-appointed expert
with no hearing date set yet and in the other case, the expert has
concluded his report and filed it with the court. In May 2021, a
judgment was issued. However the court has not yet recorded the
judgment in the official records. The Group is following up with
the court on the judgment.
The Group is also appealing the ruling in respect of central and
local excise taxes and penalties in South Korea.
Notes to the Unaudited Interim Financial Statements
Contingent liabilities and financial commitments cont...
Group litigation
Group companies, as well as other leading cigarette
manufacturers, are defendants in a number of product liability
cases. In a number of these cases, the amounts of compensatory and
punitive damages sought are significant.
While it is impossible to be certain of the outcome of any
particular case or of the amount of any possible adverse verdict,
the Group believes that the defences of the Group's companies to
all these various claims are meritorious on both the law and the
facts, and a vigorous defence is being made everywhere. If an
adverse judgment is entered against any of the Group's companies in
any case, avenues of appeal will be pursued as necessary. Such
appeals could require the appellants to post appeal bonds or
substitute security in amounts that could in some cases equal or
exceed the amount of the judgment. At least in the aggregate, and
despite the quality of defences available to the Group, it is not
impossible that the Group's results of operations or cash flows in
a particular period could be materially affected by this and by the
final outcome of any particular litigation.
Canada
In Canada, following the implementation of legislation enabling
provincial governments to recover healthcare costs directly from
tobacco manufacturers, ten actions for recovery of healthcare costs
arising from the treatment of smoking and health-related diseases
were commenced in ten provinces. Damages sought have not yet been
quantified by all ten provinces; however, in respect of five
provinces, the damages quantified in each of the provinces range
between CAD$10 billion (approximately GBP5.8 billion) and CAD$118
billion (approximately GBP69 billion), and the province of Ontario
delivered an expert report quantifying its damages in the range of
CAD$280 billion (approximately GBP163 billion) and CAD$630 billion
(approximately GBP368 billion) in 2016/2017 dollars. Ontario has
amended its Statement of Claim to claim damages of CAD$330 billion
(approximately GBP193 billion). On 31 January 2019, the Province
delivered a further expert report claiming an additional CAD$9.4 -
CAD$10.9 billion in damages (approximately GBP5.5 billion - GBP6.4
billion) in respect of environmental tobacco smoke. No trial date
has been set. In respect of New Brunswick, on 7 March 2019, the New
Brunswick Court of Queen's Bench released a decision requiring the
Province to produce a substantial amount of additional
documentation and data to the defendants. As a result, the original
trial date of 4 November 2019 would have been delayed. No new trial
date has been set.
In addition to the actions commenced by the provincial
governments, there are numerous class actions outstanding against
Group companies. As set out below, all of these actions are
currently subject to stays of proceedings. On 1 March 2019, the
Quebec Court of Appeal handed down a judgment which largely upheld
and endorsed the lower court's previous decision in the Quebec
class actions. ITCAN's share of the judgment is approximately CAD$
9.2 billion. As a result of this judgment, the then immediate
attempts by the Quebec plaintiffs to obtain payment out of the
CAD$758 million on deposit with the court, the fact that
JTI-MacDonald Corp (a co-defendant in the cases) filed for
protection under the CCAA on 8 March 2019 and obtained a court
ordered stay of all tobacco litigation in Canada as against all
defendants (including the RJR Group Companies) until 4 April 2019,
and the need for a process to resolve all of the outstanding
litigation across the country, on 12 March 2019, ITCAN filed for
protection under the CCAA. In its application, ITCAN asked the
Ontario Superior Court to stay all pending or contemplated
litigation against ITCAN, certain of its subsidiaries and all other
Group companies that were defendants in the Canadian tobacco
litigation (the "stays"). The stays are currently in place until 30
September 2021 . While the stays are in place, no steps are to be
taken in connection with the Canadian tobacco litigation with
respect to any of the defendants.
US - Engle
As at 30 June 2021, the Group's subsidiaries, R. J. Reynolds
Tobacco Company (RJRT), Lorillard Tobacco Company (Lorillard) and
Brown & Williamson Holdings, Inc., had collectively been served
in 1,274 pending Engle progeny cases filed on behalf of
approximately 1,573 individual plaintiffs. Many of these are in
active discovery or nearing trial.
In the first half of 2021, RJRT or Lorillard paid judgments in
three Engle progeny cases. Those payments totalled US$0.8 million
(approximately GBP0.6 million) in compensatory or punitive damages.
Additional costs were paid in respect of attorneys' fees and
statutory interest. In addition, since 1 January 2019 through to 30
June 2021, outstanding jury verdicts in favour of the Engle progeny
plaintiffs had been entered against RJRT or Lorillard for US$51.6
million (approximately GBP37 million) in compensatory damages and
US$152 million (approximately GBP110 million) in punitive damages.
A significant majority of these verdicts are in various stages in
the appellate process and have been bonded as required by Florida
law under the US$200 million (approximately GBP144 million) bond
cap passed by the Florida legislature in 2009. Although the Group
cannot currently predict when or how much it may be required to
bond and pay, the Group companies will likely be required to bond
and pay additional judgments as the litigation proceeds.
Notes to the Unaudited Interim Financial Statements
Contingent liabilities and financial commitments cont...
Fox River
In January 2017, NCR and Appvion entered into a Consent Decree
with the US Government to resolve how the remaining clean-up will
be funded and to resolve further outstanding claims between them.
The Consent Decree was approved by the District Court of Wisconsin
in August 2017. The US Government enforcement action against NCR
was terminated as a result of that order and contribution claims
from the Potentially Responsible Parties ("PRPs") against NCR were
dismissed. On 4 January 2019, the US Government, P. H. Glatfelter
and Georgia-Pacific (the remaining Fox River PRPs) sought approval
for a separate Consent Decree settling the allocation of costs on
the Fox River. This Consent Decree was approved by the District
Court in the Eastern District of Wisconsin on 14 March 2019, and
concludes all existing litigation on the Fox River clean-up.
Considering these developments, the provision has been reviewed. No
adjustment has been proposed, other than as related to the payments
in the period of GBP2 million, with the provision standing at GBP68
million at 30 June 2021 (30 June 2020: GBP70 million; 31 December
2020: GBP70 million) after disbursements.
In July 2016, the High Court ruled in favour of a Group
subsidiary, BTI 2014 LLC (BTI), stating that a dividend of EUR135
million (approximately GBP123 million) paid by Windward to Sequana
in May 2009 was a transaction made with the intention of putting
assets beyond the reach of BTI and of negatively impacting its
interests. On 10 February 2017, further to a hearing in January
2017 to determine the relief due, the Court found in BTI's favour,
ordering that Sequana must pay an amount up to the full value of
the dividend plus interest which equates to around US$185 million
(approximately GBP134 million), related to past and future clean-up
costs. The Court granted all parties leave to appeal and Sequana a
stay in respect of the above payments. The appeal was heard in June
2018 . Judgment was given on 6 February 2019 and the Court of
Appeal upheld the High Court's findings against Sequana. The Court
of Appeal refused applications made by both parties for a further
appeal to the U.K. Supreme Court. Both parties applied directly to
the U.K. Supreme Court for permission to appeal in March 2019. On
31 July 2019, BTI was granted permission to appeal to the Supreme
Court. On the same day, the Supreme Court refused Sequana
permission to appeal. The hearing of BTI's appeal was listed to
take place on 25 and 26 March 2020 but was adjourned because of the
COVID-19 pandemic. The hearing of BTI's appeal took place before
the Supreme Court on 4 and 5 May 2021 and the judgment is awaited.
In February 2017, Sequana entered into a process in France seeking
court protection (the "Sauvegarde"), exiting the Sauvegarde in June
2017. No payments have been received.
Investigations
From time-to-time, the Group investigates, and becomes aware of
governmental authorities' investigations into, allegations of
misconduct against Group companies. The Group co-operates with the
authorities' investigations, where appropriate, including with the
DOJ and OFAC in the United States, which are conducting an
investigation into suspicions of breach of sanctions.
The potential for fines, penalties or other consequences cannot
currently be assessed. As the investigations are ongoing, it is not
possible to identify the timescale in which these matters might be
resolved.
Summary
With regard to all these matters, with the exception of Fox
River, Quebec and certain Engle progeny cases, the Group does not
consider it appropriate to make any provision or charge in respect
of any pending litigation. The Group does not believe that the
ultimate outcome of this litigation will significantly impair the
Group's financial condition. If the facts and circumstances change,
then there could be a material impact on the financial statements
of the Group.
Full details of the litigation against Group companies and tax
disputes as at 31 December 2021 will be included in the Group's
Annual Report and Form 20-F for the year ending 31 December 2021.
Whilst there has been some movement on new and existing cases
against Group companies, there have been, except as otherwise
stated, no material developments in 2021 that would impact the
financial position of the Group.
Notes to the Unaudited Interim Financial Statements
FRANKED INVESTMENT INCOME GROUP LITIGATION ORDER
The Group is the principal test claimant in an action in the
United Kingdom against HM Revenue and Customs ("HMRC") in the FII
GLO. There are 23 corporate groups in the FII GLO. The case
concerns the treatment for UK corporate tax purposes of profits
earned overseas and distributed to the UK. The Supreme Court heard
appeals in two separate trials during 2020. The judgment in the
first hearing was handed down in November 2020 and concerned the
time limit for bringing claims. The Supreme Court remitted that
matter to the High Court to determine whether the claim is within
time on the facts. The judgment from the second hearing was handed
down in July 2021 and concerned the appropriate methodology to
compute the claim. Applying that judgment reduces the value of the
FII claim to approximately GBP0.3 billion, mainly as the result of
the application of simple interest, which is subject to the
determination of the timing issue by the High Court and any
subsequent appeal.
During 2015, HMRC paid to the Group a gross amount of GBP1.2
billion in two separate payments, less a deduction (withheld by
HMRC) of GBP0.3 billion. The payments made by HMRC have been made
without any admission of liability and are subject to refund, were
HMRC to succeed on appeal. Due to the uncertainty of the amounts
and eventual outcome the Group has not recognised any impact in the
Income Statement in the current or prior period in respect of the
receipt (being net GBP0.9 billion) and is held as deferred income.
Any future recognition as income will be treated as an adjusting
item, due to the size of the order, with interest of GBP10 million
for the six months ended 30 June 2021 (30 June 2020: GBP12 million;
31 December 2020: GBP21 million) accruing on the balance, which was
also treated as an adjusting item. Further information on FII GLO
is described in Note 6 to the Group's Annual Report and Accounts
and Form 20-F for the year ended 31 December 2020, page 174.
Notes to the Unaudited Interim Financial Statements
SUMMARISED FINANCIAL INFORMATION
The following summarised financial information is required by
the rules of the Securities and Exchange Commission and has been
prepared in accordance with Section 3-10 of Regulation S-X in
respect of the guarantees of:
The financial information relates to the guarantees of:
-- US$12.35 billion of outstanding bonds issued by B.A.T Capital
Corporation (BATCAP) in connection with the acquisition of
Reynolds, including registered bonds issued in exchange for the
initially issued bonds (the 2017 Bonds);
-- US$10.65 billion of outstanding bonds issued by BATCAP
pursuant to the Shelf Registration Statement on Form F-3 filed on
July 17, 2019, pursuant to which BATCAP or BATIF may issue an
indefinite amount of debt securities; and
-- US$1.50 billion of outstanding bonds issued by BATIF pursuant
to the Shelf Registration Statement on Form F-3 filed on July 17,
2019, pursuant to which BATCAP or BATIF may issue an indefinite
amount of debt securities.
As of July 28, 2020, all relevant Group entities suspended their
reporting obligations with respect to the US$7.7 billion (30 June
2020: US$8.9 billion; 31 December 2020: US$7.7 billion) of RAI
unsecured notes and US$40.9 million (30 June 2020 and 31 December
2020: US$40.9 million) of Lorillard unsecured notes. As such, no
summarised financial information is provided with respect to these
securities.
As described below, Reynolds American Inc. (Reynolds
American/RAI) is a subsidiary guarantor of all outstanding series
of BATCAP and BATIF bonds. Under the terms of the indentures
governing such notes, any subsidiary guarantor (including Reynolds
American) other than BATCAP or BATIF, as applicable, BATNF and
BATHTN, will automatically and unconditionally be released from all
obligations under its guarantee, and such guarantee shall thereupon
terminate and be discharged and of no further force or effect, in
the event that (1) its guarantee of all then outstanding notes
issued under the Group's EMTN Programme is released or (2) at
substantially the same time its guarantee of the debt securities is
terminated, such subsidiary guarantor is released from all
obligations in respect of indebtedness for borrowed money for which
such subsidiary guarantor is an obligor (as a guarantor or
borrower). Under the EMTN Programme, Reynolds American's guarantee
is released if at any time the aggregate amount of indebtedness for
borrowed money, subject to certain exceptions, for which Reynolds
American is an obligor, does not exceed 10% of the outstanding
long-term debt of BAT as reflected in the balance sheet included in
BAT's most recent publicly released interim or annual consolidated
financial statements.
Reynolds American's guarantee may be released notwithstanding
Reynolds American guaranteeing other indebtedness, provided
Reynolds American's guarantee of outstanding notes issued under the
EMTN Programme is released. If Reynolds American's guarantee is
released, BAT is not required to replace such guarantee, and the
debt securities will have the benefit of fewer subsidiary
guarantees for the remaining maturity of the debt securities.
Note: The following summarised financial information reports the
unconsolidated contribution of each applicable company to the
Group's consolidated results and not the separate financial
statements for each applicable company as local financial
statements are prepared in accordance with local legislative
requirements and may differ from the financial information provided
below. In particular, in respect of the United States region, all
financial statements and financial information provided by or with
respect to the US business or RAI (and/ or RAI and its subsidiaries
(collectively, the Reynolds Group)) are prepared on the basis of US
GAAP and constitute the primary financial statements or financial
information of the US business or RAI (and/or the Reynolds Group).
Solely for the purpose of consolidation within the results of BAT
p.l.c. and the BAT Group, this financial information is then
converted to IFRS. To the extent any such financial information
provided in these financial statements relates to the US business
or RAI (and/or the Reynolds Group), it is provided as an
explanation of the US business's or RAI's (and/or the Reynolds
Group's) primary US GAAP-based financial statements and
information.
Notes to the Unaudited Interim Financial Statements
Summarised Financial Information cont...
The subsidiaries disclosed below are wholly-owned and the
guarantees provided are full and unconditional, and joint and
several:
a. British American Tobacco p.l.c. (as the parent guarantor),
referred to as 'BAT p.l.c.' in the financials below;
b. B.A.T Capital Corporation (as an issuer or a subsidiary
guarantor, as the case may be), referred to as 'BATCAP' in the
financials below;
c. B.A.T. International Finance p.l.c. (as an issuer or a
subsidiary guarantor, as the case may be), referred to as 'BATIF'
in the financials below;
d. B.A.T. Netherlands Finance B.V. (as a subsidiary guarantor),
referred to as 'BATNF' in the financials below;
e. Reynolds American Inc. (as a subsidiary guarantor), referred
to as 'RAI' in the financials below; and
f. British American Tobacco Holdings (The Netherlands) B.V. (as
a subsidiary guarantor of the 2017 Bonds only), referred to as
'BATHTN' in the financials below.
In accordance with Section 13-01 of Regulation S-X, information
in respect of investments in subsidiaries that are not issuers or
guarantors has been excluded from non-current assets as shown in
the balance sheet table below. The "BATHTN" column in the
summarised financial information is only applicable in the context
of the 2017 Bonds. British American Tobacco Holdings (The
Netherlands) B.V. ('BATHTN') is not an issuer nor a guarantor of
any of the other securities referenced in this note. None of the
issuers or other guarantors has material balances with or an
investment in BATHTN. Investments in subsidiaries represent share
capital acquired in relation to or issued by subsidiary
undertakings.
Notes to the Unaudited Interim Financial Statements
Summarised Financial Information cont...
Six months ended 30 June BAT BATCAP BATIF BATNF RAI BATHTN
2021 p.l.c.
GBPm GBPm GBPm GBPm GBPm GBPm
Income Statement
Revenue - - - - - -
(Loss)/profit from operations (10) (1) (1) - 4 -
Dividend income - - - - 2,255 -
Net finance income/(costs) 83 (16) 133 - (208) -
Profit/(loss) before
taxation 73 (17) 132 - 2,051 -
Taxation on ordinary
activities - 13 (1) - 43 -
Profit/(loss) for the
period 73 (4) 131 - 2,094 -
Intercompany transactions
- Income Statement
Transactions with non-issuer/non-guarantor
subsidiaries (expense)/income (10) (1) ( 1) - 17 -
Transactions with non-issuer/non-guarantor
subsidiaries net finance
income - 356 281 - 14 -
Dividend income from - - - - 2,255 -
non-issuer/non-guarantor
subsidiaries
Six months ended 30 June BAT BATCAP BATIF BATNF RAI BATHTN
2020 p.l.c.
GBPm GBPm GBPm GBPm GBPm GBPm
Income Statement
Revenue - - - - - -
(Loss)/profit from operations (19) 3 (1) - (3) -
Dividend income - - - - 2,310 -
Net finance income/(costs) 49 425 96 - (456) -
Profit/(loss) before
taxation 30 428 95 - 1,851 -
Taxation on ordinary
activities - (98) - - 109 -
Profit/(loss) for the
period 30 330 95 - 1,960 -
Intercompany transactions
- Income Statement
Transactions with non-issuer/non-guarantor
subsidiaries (expense)/income (19) 3 (1) - 8 -
Transactions with non-issuer/non-guarantor
subsidiaries net finance
income/(cost) 5 573 419 - 16 -
Dividend income from
non-issuer/non-guarantor
subsidiaries - - - - 2,310 -
Notes to the Unaudited Interim Financial Statements
Summarised Financial Information cont...
As at 30 June 2021 BAT BATCAP BATIF BATNF RAI BATHTN
p.l.c.
GBPm GBPm GBPm GBPm GBPm GBPm
Balance Sheet
Non-current assets 236 18,795 9,655 1,448 362 70
Current assets 4,707 2,419 30,953 18 997 20
Non-current liabilities 9 17,688 12,070 1,448 8,788 18
Non-current borrowings - 17,677 11,975 1,448 8,724 -
Other non-current liabilities 9 11 95 - 64 18
Current liabilities 1,621 3,419 26,835 18 722 7
Current borrowings 1,579 3,389 26,454 18 199 3
Other current liabilities 42 30 381 - 523 4
Intercompany transactions
- Balance Sheet
Amounts due from non-issuer/non-guarantor
subsidiaries 4,671 15,570 38,172 - 1,322 20
Amounts due to non-issuer/non-guarantor
subsidiaries - 2,228 18,376 - 55 2
Investment in subsidiaries
(that are not issuers
or guarantors) 27,234 - 718 - 23,189 1,516
As at 31 December 2020 BAT BATCAP BATIF BATNF RAI BATHTN
p.l.c.
GBPm GBPm GBPm GBPm GBPm GBPm
Balance Sheet
Non-current assets 236 18,991 10,332 1,509 402 26
Current assets 7,070 3,404 30,601 22 268 15
Non-current liabilities 1,580 17,867 15,326 1,509 8,885 6
Non-current borrowings 1,571 17,867 15,243 1,509 8,823 -
Other non-current liabilities 9 - 83 - 62 6
Current liabilities 52 4,444 24,038 22 972 2
Current borrowings 9 4,329 23,478 22 200 1
Other current liabilities 43 115 560 - 772 1
Intercompany transactions
- Balance Sheet
Amounts due from non-issuer/non-guarantor
subsidiaries 7,031 16,088 38,761 - 620 15
Amounts due to non-issuer/non-guarantor
subsidiaries 3 3,139 19,550 - 62 1
Investment in subsidiaries
(that are not issuers
or guarantors) 27,234 - 718 - 23,820 1,580
Other Information
DIVIDS
On 17 February 2021, the Company announced that the Board had
declared an interim dividend of 215.6p per ordinary share of 25p,
payable in four equal quarterly instalments of 53.9p per ordinary
share in May 2021, August 2021, November 2021 and February
2022.
The May 2021 dividend was paid to shareholders on the UK main
register and South Africa branch register on 12 May 2021 and to
holders of American Depositary Shares (ADSs) on 17 May 2021. The
three remaining quarterly dividends will be paid to shareholders
registered on either the UK main register or the South Africa
branch register, and to holders of ADSs, each on the applicable
record dates set out under the heading 'Key Dates' below.
General dividend information
Under IFRS, the interim dividend is recognised in the period
that it is paid. Therefore, the results for the six months ended 30
June 2021 reflect the fourth quarterly dividend from the
declaration made on 27 February 2020 of 52.6p per ordinary share
and the first quarterly dividend from the declaration made on 16
February 2021, of 53.9p per ordinary share as these were paid in
February 2021 and May 2021, respectively.
For the six months ended 30
June 2021
Pence per share US$ per ADS
Quarterly payment paid in
February 2021 52.60 0.717832
Quarterly payment paid in
May 2021 53.90 0.757618
106.50 1.475450
Holders of ADSs
For holders of ADSs listed on the New York Stock Exchange
(NYSE), the record dates and payment dates are set out below. The
equivalent quarterly dividends receivable by holders of ADSs in US
dollars will be calculated based on the exchange rate on the
applicable payment date. A fee of US$0.005 per ADS will be charged
by Citibank, N.A. in its capacity as depositary bank for the BAT
American Depositary Receipt (ADR) programme in respect of each
quarterly dividend payment.
South Africa Branch Register
In accordance with the JSE Limited (JSE) listing requirements,
the finalisation information relating to shareholders registered on
the South Africa branch register (comprising the amount of the
dividend in South African rand, the exchange rate and the
associated conversion date) will be published on the dates stated
below, together with South Africa dividends tax information.
The quarterly dividends are regarded as 'foreign dividends' for
the purposes of the South Africa Dividends Tax. For the purposes of
South Africa Dividends Tax reporting, the source of income for the
payment of the quarterly dividends is the United Kingdom.
Other Information
Dividends cont...
Key dates
In compliance with the requirements of the London Stock Exchange
(LSE), the NYSE and Strate, the electronic settlement and custody
system used by the JSE, the following salient dates for the
quarterly dividends payments are applicable. All dates are 2021,
unless otherwise stated.
Event Payment No. Payment No. Payment No.
2 3 4
Preliminary announcement 17 February
(includes declaration
data required for
JSE purposes)
Publication of finalisation 29 June* 20 September 13 December
information (JSE)
No removal requests 29 June- 20 September- 13 December-
permitted between 9 July 1 October 24 December
the UK main register (inclusive) (inclusive) (inclusive)
and the South Africa
branch register
Last Day to Trade 6 July 28 September 21 December
(LDT) cum dividend
(JSE)
Shares commence trading 7 July 29 September 22 December
ex-dividend (JSE)
No transfers permitted 7 July- 29 September 22 December-
between the UK main 9 July - 24 December
register and the South (inclusive) 1 October (inclusive)
Africa branch register (inclusive)
No shares may be dematerialised 7 July- 29 September- 22 December-
or rematerialised 9 July 1 October 24 December
on the South Africa (inclusive) (inclusive) (inclusive)
branch register
Shares commence trading 8 July 30 September 23 December
ex-dividend (LSE and
NYSE)
Record date 9 July 1 October 24 December
(JSE, LSE and NYSE)
Last date for receipt 29 July 21 October 19 January
of Dividend Reinvestment 2022
Plan (DRIP) elections
(LSE)
Payment date (LSE 19 August 11 November 9 February
and JSE) 2022
ADS payment date (NYSE) 14 February
24 August 16 November 2022
------------------------------- ------------ -------------
Note:
(1) The dates set out above may be subject to any changes to
public holidays arising and changes or revisions to the LSE, JSE
and NYSE timetables. Any confirmed changes to the dates will be
announced.
(2) *JSE finalisation information published on 29 June 2021 can
be found on the British American Tobacco website www.bat.com.
Other Information
NON-FINANCIAL KPIs
Volume
Volume is defined as the number of units sold. Units may vary
between categories. This can be summarised for the principal
metrics as follows:
- Factory made cigarettes (FMC) - sticks, regardless of weight or dimensions;
- Roll-Your-Own / Make-Your-Own - kilos, converted to a stick
equivalent based upon 0.8 grams (per stick equivalent) for
Roll-Your-Own and between 0.5 and 0.7 grams (per stick equivalent)
for Make-Your-Own;
- Traditional oral - pouches (being 1:1 conversion to stick
equivalent) and kilos, converted to a stick equivalent based upon
2.8 grams (per stick equivalent) for Moist Snuff, 2.0 grams (per
stick equivalent) for Dry Snuff and 7.1 grams (per stick
equivalent) for other oral;
- Modern Oral - pouches, being 1:1 conversion to stick equivalent;
- Tobacco Heat sticks - sticks, being 1:1 conversion to stick equivalent; and
- Vapour - pods and 10 millilitre bottles. There is no conversion to a stick equivalent.
Volume is recognised in line with IFRS 15 Revenue from Contracts
with Customers, based upon transfer of control. It is assumed that
there is no material difference, in line with the Group's
recognition of revenue, between the transfer of control and
shipment date.
Volume is used by management and investors to assess the
relative performance of the Group and its brands within categories,
given volume is a principal determinant of revenue.
Volume share
Volume share is the number of units bought by consumers of a
specific brand or combination of brands, as a proportion of the
total units bought by consumers in the industry, category or other
sub-categorisation. Sub-categories include, but are not limited to,
the total nicotine category, modern oral, vapour, traditional oral,
total oral or cigarette. Except when referencing particular
markets, volume share is based on our key markets (representing
over 80% of the Group's cigarette volume).
Where possible, the Group utilises data provided by third-party
organisations, including AC Nielsen, based upon retail audit of
sales to consumers. In certain markets, where such data is not
available, other measures are employed which assess volume share
based upon other movements within the supply chain, such as sales
to retailers. This may depend on the provision of data to the
industry by the customers including distributors / wholesalers.
Volume share is used by management to assess the relative
performance of the Group and its brands against the performance of
its competitors in the categories and geographies in which the
Group operates. The Group's management believes that this measure
is useful to investors to understand the relative performance of
the Group and its brands against the performance of its competitors
in the categories and geographies in which the Group operates. This
measure is also useful to understand the Group's performance when
seeking to grow scale within a market or category from which future
financial returns can be realised. Volume share provides an
indicator of the Group's relative performance in unit terms versus
competitors.
Volume share in each period compares the average volume share in
the period with the average volume share in the prior year. This is
a more robust measure of performance, removing short-term
volatility that may arise at a point in time.
However, in certain circumstances, related to periods of
introduction to a market, in order to illustrate the latest
performance, data may be provided as at the end of the period
rather than the average in that period. In these instances, the
Group states these at a specific date (for instance, June
2021).
Value share
Value share is the retail value of units bought by consumers of
a particular brand or combination of brands, as a proportion of the
total retail value of units bought by consumers in the industry,
category or other sub-categorisation in discussion.
Other Information
Non-Financial KPIs cont....
Where possible, the Group utilises data provided by third-party
organisations, including AC Nielsen, based upon retail audit of
sales to consumers. In certain markets, where such data is not
available, other measures are employed which assess value share
based upon other movements within the supply chain, such as sales
to retailers. This may depend on the provision of data to the
industry by the customers (including distributors and
wholesalers).
Value share is used by management to assess the relative
performance of the Group and its brands against the performance of
its competitors in the categories and geographies in which the
Group operates, specifically indicating the Group's ability to
realise value relative to the market. The measure is particularly
useful when the Group's products and/or the relevant category in
the market in which they are sold has developed or achieved scale
from which value can be realised. The Group's management believes
that this measure is useful to investors to comprehend the relative
performance of the Group and its brands against the performance of
its competitors in the categories and geographies in which the
Group operates, specifically indicating the Group's ability to
realise value relative to the market.
Value share in each period compares the average value share in
the period with the average value share in the prior year. This is
a more robust measure of performance, removing short-term
volatility that may arise at a point of time.
However, in certain circumstances, related to periods of
introduction to a market, in order to illustrate the latest
performance, data may be provided as at the end of the period
rather than the average in that period. In these instances, the
Group states these at a specific date (for instance, June
2021).
Price mix
Price mix is a term used by management and investors to explain
the movement in revenue between periods. Revenue is affected by the
volume (how many units are sold) and the value (how much is each
unit sold for). Price mix is used to explain the value component of
the sales as the Group sells each unit for a value (price) but may
also achieve a movement in revenue due to the relative proportions
of higher value volume sold compared to lower value volume sold
(mix).
This term is used to explain the Group's relative performance
between periods only. It is calculated as the difference between
the movement in revenue (between periods) and volume (between
periods). For instance, the growth in combustibles revenue
(excluding translational foreign exchange movements) of 5.8% in the
six months ended 30 June 2021, with an increase in combustibles
volume of 1.5% in the six months ended 30 June 2021, leads to a
price mix of 4.3% in the period. No assumptions underlie this
metric as it utilises the Group's own data.
Consumers of Non-Combustible products
The number of consumers of Non-Combustible products is defined
as the estimated number of Legal Age (minimum 18 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 adult consumer tracking (utilising studies conducted
by third parties including Kantar). The number of consumers is
adjusted for those identified (as part of the consumer tracking
studies undertaken) as using more than one BAT Brand - referred to
as "poly users".
The number of consumers of Non-Combustible products is used by
management to assess the number of consumers using the Group's New
Categories 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.
Other Information
NON-GAAP MEASURES
To supplement the presentation of the Group's results of
operations and financial condition in accordance with IFRS, the
Group also presents several non-GAAP measures used by management to
monitor the Group's performance. The Group's management regularly
reviews the measures used to assess and present the financial
performance of the Group and, as relevant, its geographic
segments.
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 principal non-GAAP measures which the Group uses are
adjusted profit from operations, adjusted diluted earnings per
share, operating cash flow conversion ratio, free cash flow (
before dividends paid to shareholders) and free cash flow ( after
dividends paid to shareholders) which are before the impact of
adjusting items and are reconciled from profit from operations,
diluted earnings per share, cash conversion ratio and net cash
generated from operating activities. 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. The adjusting items are
used to calculate the non-GAAP measures of adjusted profit from
operations, adjusted operating margin, adjusted net finance costs,
adjusted taxation, adjusted share of post-tax results of associates
and joint ventures, underlying tax rate and adjusted diluted
earnings per share. In addition to the operating cash flow
conversion ratio, free cash flow ( before dividends paid to
shareholders) and free cash flow ( after dividends paid to
shareholders) , the Group also provides other non-GAAP measures of
net debt, adjusted net debt and adjusted net debt to adjusted
earnings before interest, tax, depreciation, amortisation and
post-tax income from associates and joint-ventures (adjusted
EBITDA), which the Group uses to monitor its financial position.
The Group also supplements its presentation of revenue in
accordance with IFRS by presenting the non-GAAP component
breakdowns of revenues by product category (including revenue
generated from Vapour, Tobacco Heating Products, Modern Oral, New
Categories as a whole, Combustibles and Traditional Oral),
including by geographic segment (including revenue generated in the
United States, Europe and North Africa, Americas and Sub-Saharan
Africa and Asia-Pacific and Middle East). The Group's Management
Board believes these measures, which are used internally, are
useful to the users of the financial statements in helping them
understand the underlying business performance of individual Group
product categories, including by geographic segments.
The Management Board, as the chief operating decision maker,
reviews a number of our IFRS and non-GAAP measures for the Group
and its product categories and 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 profit from 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.
The Group also supplements its presentation of cash flows in
accordance with IFRS by presenting the non-GAAP measures of free
cash flow (before dividends paid to shareholders) , free cash flow
( after dividends paid to shareholders) and operating cash flow
conversion ratio. The Group's Management Board believes these
measures, which are used internally, are useful to the users of the
financial statements in helping them understand the underlying
business performance and can provide insights into the cash flow
available to, among other things, reduce debt and pay dividends.
Free cash flow (before dividends paid to shareholders) , free cash
flow ( after dividends paid to shareholders) and operating cash
flow conversion ratio have limitations as analytical tools. They
are not presentations made in accordance with IFRS and should not
be considered as an alternative to net cash generated from
operating activities determined in accordance with IFRS. Free cash
flow (before dividends paid to shareholders) , free cash flow (
after dividends paid to shareholders) and operating cash flow
conversion ratio are not necessarily comparable to similarly titled
measures used by other companies. As a result, readers should not
consider these measures in isolation from, or as a substitute
analysis for, the Group's results of operations or cash flows as
determined in accordance with IFRS.
Other Information
Non-GAAP measures cont...
The Group also presents net debt and adjusted net debt, non-GAAP
measures, on page 1 and pages 16 and 17. The Group uses net debt
and adjusted net debt 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. Net debt and adjusted net debt have
limitations as analytical tools. They are not presentations made in
accordance with IFRS and should not be considered as an
alternatives to borrowings or total liabilities determined in
accordance with IFRS. Net debt and adjusted net debt are not
necessarily comparable to similarly titled measures used by other
companies. As a result, readers should not consider these measures
in isolation from, or as a substitute analysis for the Group's
measures of financial position as determined in accordance with
IFRS.
Due to the secondary listing of the ordinary shares of British
American Tobacco p.l.c. on the main board of the JSE Limited (JSE)
in South Africa, the Group is required to present headline earnings
per share and diluted headline earnings per share, as alternative
measures of earnings per share, calculated in accordance with
Circular 1/2021 'Headline Earnings' issued by the South African
Institute of Chartered Accountants. These are shown on page 41.
The Group also presents the underlying tax rate, a non-GAAP
measure, on page 14. The Group uses the underlying tax rate to
assess the tax rate applicable to the Group's underlying
operations, excluding the Group's share of post-tax results of
associates and joint ventures in BAT's pre-tax results and
adjusting items. The Management Board believes that this additional
measure, which is used internally, is useful to the users of the
financial statements because it excludes the contribution from the
Group's associates, recognised after tax but within the Group's
pre-tax profits, and adjusting items, thereby enhancing users'
understanding of underlying business performance. Underlying tax
rate has limitations as an analytical tool. It is not a
presentation made in accordance with IFRS and should not be
considered as an alternative to the Group's headline effective tax
rate as determined in accordance with IFRS. Underlying tax rate is
not necessarily comparable to similarly titled measures used by
other companies. As a result, this measure should not be considered
in isolation from, or as a substitute analysis for, the Group's
underlying tax rate as determined in accordance with IFRS.
Revenue at constant rates of exchange
Definition: Revenue before the impact of
foreign exchange.
Six months ended 30 June 2021 2020
GBPm GBPm
Revenue 12,175 12,271
Impact of translational foreign exchange 1,093
Revenue re-translated at constant exchange
rates 13,268
Revenue by Product Category, including New Categories, at
constant rates of exchange
Definition: Revenue derived from each of the main product categories,
including New Categories, before the impact of foreign exchange.
This measure enables users of the financial statements to better
compare the Group's business performance across periods and with
reference to the Group's investment activity.
Six months ended 30 June 2021 Impact 2021 at 2020
of exchange 2020 CC
GBPm GBPm GBPm GBPm
New Categories 883 59 942 628
Vapour 398 25 423 265
THP 359 35 394 286
Modern Oral 126 (1) 125 77
Traditional Oral 558 54 612 576
Non Combustibles 1,441 113 1,554 1,204
Combustibles 10,527 958 11,485 10,854
Other 207 22 229 213
Total Revenue 12,175 1,093 13,268 12,271
Other Information
Non-GAAP measures cont...
Adjusted profit from operations and adjusted operating
margin
Definition: Profit from operations before the impact of adjusting
items (described on pages 33 to 34) and adjusted profit from
operations as a percentage of revenue.
Six months ended 30 June 2021 2020
GBPm GBPm
Profit from operations 4,907 5,097
Restructuring and integration costs 83 69
Amortisation and impairment of trademarks
and similar intangibles 151 171
Impairment of goodwill - 11
Credit in respect of an excise dispute in
Russia - (15)
Impairment in respect of assets/liabilities
held-for-sale 71 -
Other adjusting items (including Engle) 23 35
Adjusted profit from operations 5,235 5,368
Impact of translational foreign exchange 424
Adjusted profit from operations re-translated
at constant exchange rates 5,659
Operating margin (Profit from operations
as % of revenue) 40.3% 41.5%
Adjusted operating margin (Adjusted profit
from operations as a % of revenue) 43.0% 43.7%
Adjusted net finance costs
Definition: Net finance costs before the impact of adjusting
items (described on page 36).
Six months ended 30 June 2021 2020
GBPm GBPm
Finance costs (771) (822)
Finance income 15 36
Net finance costs (756) (786)
Less: Adjusting items in net finance
costs 34 3
Net adjusted finance costs (722) (783)
Comprising:
Interest payable (747) (832)
Interest and dividend income 15 29
Fair value changes - derivatives (210) 527
Exchange differences 220 (507)
Net adjusted finance costs (722) (783)
Impact of translational foreign exchange (55)
Net adjusted finance costs (at constant
rates of exchange) (777)
Adjusted taxation
Definition: Taxation before the impact of adjusting items
(described on page 36).
Six months ended 30 June 2021 2020
GBPm GBPm
UK
* current year tax 48 45
* adjustment in respect of prior periods - 5
Overseas
- current year tax 1,066 1,083
- adjustment in respect of prior periods 7 15
Current tax 1,121 1,148
Deferred tax (66) (94)
Taxation on ordinary activities 1,055 1,054
Adjusting items 64 93
Net adjusted tax charge 1,119 1,147
Other Information
Non-GAAP measures cont...
Underlying tax rate
Definition: Tax rate incurred before the impact of adjusting
items (described on page 33 to 36) and to adjust for the inclusion
of the Group's share of post-tax results of associates and
joint ventures within the Group's pre-tax results.
Six months ended 30 June 2021 2020
GBPm GBPm
Profit before taxation (PBT) 4,384 4,592
Less: Share of post-tax results of associates
and joint ventures (233) (281)
Adjusting items within profit from operations 328 271
Adjusting items within finance costs 34 3
Adjusted PBT, excluding associates and joint
ventures 4,513 4,585
Impact of translational foreign exchange 369
Adjusted PBT, excluding associates and joint
ventures (at constant rates) 4,882
Taxation on ordinary activities 1,055 1,054
Adjusting items within taxation and taxation
on adjusting items 64 93
Adjusted taxation 1,119 1,147
Impact of translational foreign exchange
on adjusted taxation 76
Adjusted taxation (at constant rates) 1,195
Underlying tax rate 24.8% 25.0%
Underlying tax rate (constant rates) 24.5% 24.9%
Effective tax rate 24.1% 23.0%
Adjusted diluted earnings per share, at constant rates of
exchange
Definition: Diluted earnings per share before the impact of
adjusting items, presented in the prior year's rate of exchange.
Six months ended 30 June 2021 2020
pence pence
Diluted earnings per share 141.6 150.7
Effect of restructuring and integration
costs 3.1 2.1
Effect of amortisation and impairment of
goodwill, trademarks and similar intangibles 4.8 6.4
Effect of other adjusting items 3.5 (0.7)
Effect of associates' adjusting items (0.3) (0.7)
Effect of other adjusting items in net finance
costs 1.4 -
Effect of adjusting items in respect of
deferred taxation 0.1 -
Adjusted diluted earnings per share 154.2 157.8
Impact of translational foreign exchange 13.3
Adjusted diluted earnings per share, at
constant exchange rates 167.5
Other Information
Non-GAAP measures cont...
Operating cash flow conversion ratio
Definition: Net cash generated from operating activities before
the impact of adjusting items and dividends from associates
and excluding trading loans to third-parties, pension short-fall
funding, taxes paid and after net capital expenditure, as a
proportion of adjusted profit from operations.
Six months ended 30 June 2021 2020
GBPm GBPm
Net cash generated from operating activities 2,254 3,484
Cash related to adjusting items 322 411
Dividends from associates (164) (2)
Tax paid 1,227 552
Net capital expenditure (149) (141)
Other 1 -
Operating cash flow 3,491 4,304
Adjusted profit from operations 5,235 5,368
Operating cash flow conversion ratio 67% 80%
Cash conversion ratio 46% 68%
Cash conversion is net cash generated from
operating activities as a proportion of
profit from operations
Free cash flow (before and after dividends paid to
shareholders)
Definition: Net cash generated from operating activities before
the impact of trading loans provided to a third-party and after
dividends paid to non-controlling interests, net interest paid
and net capital expenditure. This measure is presented before
and after dividends paid to shareholders.
Six months ended 30 June 2021 2020
GBPm GBPm
Net cash generated from operating activities 2,254 3,484
Dividends paid to non-controlling interests (81) (70)
Net interest paid (744) (876)
Net capital expenditure (149) (141)
Other - -
Free cash flow (before dividends paid to
shareholders) 1,280 2,397
Dividends paid to shareholders (2,443) (2,346)
Free cash flow (after dividends paid to
shareholders) (1,163) 51
Adjusted net debt
Definition: Total borrowings, including related derivatives,
less cash and cash equivalents and current investments held
at fair value, excluding the impact of the revaluation of RAI
acquired debt arising as part of the PPA process.
As at 30 June 2021 2020
GBPm GBPm
Borrowings (excluding lease liabilities) (44,571) (49,921)
Lease liabilities (439) (540)
Total borrowings (including lease liabilities) (45,010) (50,461)
Derivatives in respect of net debt 409 380
Cash and cash equivalents 3,014 4,784
Current assets held at fair value 336 183
(41,251
Total net debt ) (45,114)
Purchase price adjustment (PPA) to Reynolds
American Inc. debt 761 877
Adjusted net debt (40,490) (44,237)
Impact of translational foreign exchange
on adjusted net debt (374)
Adjusted net debt, at constant rates of
exchange (40,864)
Other Information
ADDITIONAL INFORMATION
British American Tobacco is one of the world's leading consumer
products businesses, with brands sold in more than 200 markets. We
have strategic combustible and THP brands - Dunhill, Kent, Lucky
Strike, Pall Mall, Rothmans, Neo, Newport, Camel (in the US) and
Natural American Spirit (in the US) - and over 200 brands in our
portfolio, including a growing portfolio of potentially
reduced-risk, New Category products. We hold robust market
positions in each of our regions and have leadership positions in
more than 55 markets.
References in this document to information on websites,
including the web address of BAT, have been included as inactive
textual references only. These websites and the information
contained therein or connected thereto are not intended to be
incorporated into or to form part of this report.
PUBLICATION OF HALF-YEAR REPORT
This Half-Year Report is released or otherwise made available or
notified to the London Stock Exchange, the JSE Limited and the New
York Stock Exchange and filed in accordance with applicable
regulations. It may be viewed and downloaded from our website
www.bat.com .
Copies of the announcement may also be obtained by contacting:
(1) the Company's registered office; (2) the Company's
representative office in South Africa; (3) British American Tobacco
Publications; or (4) Citibank Shareholder Services. Contact details
are set out on page 62.
ANNUAL REPORT: Statutory Accounts
The information for the year ended 31 December 2020 does not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. A copy of the statutory accounts for the year
2020 has been delivered to the Registrar of Companies. The
auditor's report on the 2020 accounts was unmodified, did not draw
attention to any matters by way of emphasis and did not contain
statements under Section 498(2) or (3) of the Companies Act
2006.
SHAREHOLDER INFORMATION
FINANCIAL CALAR
December 2021 Pre-close Trading Update
Friday 11 February 2022 Preliminary Statement 2021
PROPOSED DATES FOR QUARTERLY DIVID PAYMENTS FOR THE YEARING 31
DECEMBER 2021
Event Payment No. Payment No. Payment No. Payment No.
1 2 3 4
Last day to 22 March 2022 5 July 2022 27 September 20 December
trade (JSE) 2022 2022
Ex-dividend 23 March 2022 6 July 2022 28 September 21 December
date (JSE) 2022 2022
Ex-dividend 24 March 2022 7 July 2022 29 September 22 December
date (LSE and 2022 2022
NYSE)
Record date 25 March 2022 8 July 2022 30 September 23 December
(JSE, LSE 2022 2022
and NYSE)
Payment date 4 May 2022 17 August 10 November 2 February
(LSE and JSE) 2022 2022 2023
ADS payment 9 May 2022 22 August 15 November 6 February
date (NYSE) 2022 2022 2023
Notes:
(1) A complete timetable for the quarterly dividend payments for
the year ending 31 December 2021 and the declared amount will be
included in the Preliminary Results Announcement in February
2022.
(2) The dates set out above may be subject to any changes to
public holidays arising and changes or revisions to the LSE, JSE
and NYSE timetables. Any confirmed changes to the dates will be
announced.
Other Information
OTHER PRODUCTS
The Group reports volume as additional information. This is
done, where appropriate, with cigarette sticks as the basis, with
usage levels applied to other products to calculate the equivalent
number of cigarette units.
The conversion rates that are applied:
Unit
Factory Made Cigarettes 1 stick
(FMC)
Cigars 1 cigar (regardless
of size)
Pipe tobacco 0.8 grams
Roll-your-own 0.8 grams
Make-your-own
- Expanded tobacco 0.5 grams
- Optimised tobacco 0.7 grams
Tobacco Heat sticks 1 heat stick
Modern Oral 1 pouch
Traditional Oral
- Pouch 1 pouch
- Moist Snuff 2.8 grams
- Dry Snuff 2.0 grams
- Loose leaf, plug, 7.1 grams
twist
Roll-your-own (RYO)
Loose tobacco designed for hand rolling, normally a finer cut
with higher moisture, compared to cigarette tobacco.
Make-your-own (MYO)
MYO expanded tobacco; also known as volume tobacco.
Loose cigarette tobacco with enhanced filling properties - to
allow higher yields of cigarettes/kg - designed for use with
cigarette tubes and filled via a tobacco tubing machine.
MYO non-expanded tobacco; also known as optimised tobacco.
Loose cigarette tobacco designed for use with cigarette tubes
and filled via a tobacco tubing machine.
Other Information
FORWARD-LOOKING STATEMENTS AND OTHER MATTERS
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 .
In particular, these forward-looking statements include, among
other statements, statements regarding the Group's future financial
performance, planned product launches and future regulatory
developments, as well as: (i) certain statements in the Strong
Brands Drive New Category Acceleration section and in the Chief
Executive commentary (pages 1 to 2); (ii) certain statements in the
Finance and Transformation Director's Statement (page 2); (iii)
certain statements in the Category Performance Review (pages 4 to
8); (iv) certain statements in the Regional Review section (pages 9
to 13); (v) certain statements in the Other Financial Information
section (pages 14 to 17); (vi) certain statements in the Other
Information section (pages 18 to 23); (vii) certain statements in
the Notes to the Unaudited Interim Financial Statements section
(pages 32 to 49), including the Liquidity and Contingent
Liabilities and Financial Commitments sections; and (viii) certain
statements in the Other Information section (pages 50 to 62),
including the Non-GAAP Measures sections and under the heading
"Dividends".
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 British
American Tobacco Group (the "Group") operates, including the
projected future financial and operating impacts of the COVID-19
pandemic.
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; 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.
A review of the reasons why actual results and developments may
differ materially from the expectations disclosed or implied within
forward-looking statements can be found by referring to the
information contained under the headings "Cautionary statement",
"Group Principal Risks" and "Group Risk Factors" in the 2020 Annual
Report and Form 20-F of British American Tobacco p.l.c. (BAT).
Additional information concerning these and other factors can be
found in BAT's 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 BAT's Annual Reports,
which may be obtained free of charge from the British American
Tobacco website www.bat.com .
No statement in this announcement is intended to be a profit
forecast and no statement in this communication should be
interpreted to mean that earnings per share of BAT for the current
or future financial years would necessarily match or exceed the
historical published earnings per share of BAT. 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.
All financial statements and financial information provided by
or with respect to the U.S. or Reynolds American Inc. (Reynolds
American) are initially prepared on the basis of U.S. GAAP and
constitute the primary financial statements or financial records of
the U.S. / Reynolds American. This financial information is then
converted to International Financial Reporting Standards as issued
by the IASB and as adopted for use in the UK ("IFRS") for the
purpose of consolidation within the results of the Group. To the
extent any such financial information provided in this announcement
relates to the U.S. or Reynolds American it is provided as an
explanation of, or supplement to, Reynolds American's primary U.S.
GAAP based financial statements and information.
Our vapour product Vuse (including Alto, Solo, Ciro and Vibe),
and certain products including Velo, Grizzly, Kodiak, Camel Snus
and Granit, which are sold in the U.S., are subject to FDA
regulation and no reduced-risk claims will be made as to these
products without Agency clearance.
Paul McCrory
Secretary
27 July 2021
Other Information
SHAREHOLDER INFORMATION
CORPORATE INFORMATION
British American Tobacco p.l.c. is a public limited company
which is listed on the London Stock Exchange, New York Stock
Exchange and the JSE Limited in South Africa. British American
Tobacco p.l.c. is incorporated in England and Wales (No. 3407696)
and domiciled in the UK.
Premium listing
London Stock Exchange (Share Code: BATS; ISIN: GB0002875804)
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settled electronically through Strate.
Computershare Investor Services Proprietary Limited
Private Bag X9000, Saxonwold 2132, South Africa
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tel: 0861 100 634; +27 11 870 8216
email enquiries: web.queries@computershare.co.za
Sponsor for the purpose of the JSE - UBS South Africa (Pty)
Ltd
American Depositary Receipts (ADRs)
NYSE (Symbol: BTI; CUSIP Number: 110448107)
BAT's shares are listed on the NYSE in the form of American
Depositary Shares (ADSs) and these are evidenced by American
Depositary Receipts (ADRs), each one of which represents one
ordinary share of British American Tobacco p.l.c. Citibank, N.A. is
the depositary bank for the sponsored ADR programme.
Citibank Shareholder Services
PO Box 43077, Providence, Rhode Island 02940-3077, USA
tel: +1 888 985 2055 (toll-free) or +1 781 575 4555
email enquiries: citibank@shareholders-online.com ; website:
www.citi.com/dr
Publications
British American Tobacco Publications
Unit 80, London Industrial Park, Roding Road, London E6 6LS,
UK
tel: +44 20 7511 7797; e-mail enquiries: bat@team365.co.uk or
the Company's Representative office in South Africa using the
contact details below.
British American Tobacco p.l.c. - Registered office
Globe House, 4 Temple Place, London, WC2R 2PG, UK
tel: +44 20 7845 1000; facsimile: +44 20 7240 0555
British American Tobacco p.l.c. - Representative office in South
Africa
Waterway House South
No 3 Dock Road, V&A Waterfront, Cape Town 8000 South
Africa
PO Box 631, Cape Town 8000, South Africa
tel: +27 21 003 6712
GLOSSARY and DEFINITIONS
The following is a summary of the key terms used within this
report:
Term Definition
AMSSA Americas (excluding US) and Sub-Saharan Africa.
The key markets are:
Argentina, Brazil, Canada, Chile, Colombia, Mexico,
Nigeria, South Africa.
APME Asia Pacific and Middle East. The key markets are:
Australia, Bangladesh, Gulf Cooperation Council,
Indonesia, Iran, Iraq, Japan, Malaysia, New Zealand,
Pakistan, South Korea, Taiwan, Vietnam.
British American When the reference denotes an opinion, this refers
Tobacco, BAT, to British American Tobacco p.l.c. and when the
Group, we, reference denotes business activity, this refers
us and our to British American Tobacco Group operating companies,
either collectively or individually, as the case
may be.
Cigarette Factory made cigarettes (FMC) and products that
have similar characteristics and are manufactured
in the same manner, but due to specific features
may not be recognised as cigarettes for regulatory,
duty or similar reasons.
Combustibles Cigarettes and OTP.
Constant Currency Presentation of results in the prior year's exchange
/ Constant rate, removing the potentially distorting effect
rates of translational foreign exchange on the Group's
results. The Group does not adjust for normal transactional
gains or losses in profit from operations which
are generated by exchange rate movements.
Developed Markets As defined by the World Economic Outlook as Advanced
Economies and those within the European Union.
Emerging Markets Those markets not defined as Developed Markets.
ENA Europe and North Africa. The key markets are:
Algeria, Belgium, Czech Republic, Egypt, Denmark,
France, Germany, Italy, Kazakhstan, Morocco, the
Netherlands, Poland, Romania, Russia, Spain, Switzerland,
Turkey, United Kingdom, Ukraine.
GTR Global Travel Retail.
Key markets The key markets are:
Argentina, Brazil, Canada, Chile, Colombia, Mexico,
Nigeria, South Africa, Australia, Bangladesh, Gulf
Cooperation Council, Indonesia, Iran, Iraq, Japan,
Malaysia, New Zealand, Pakistan, South Korea, Taiwan,
Vietnam, Algeria, Belgium, Czech Republic, Denmark,
Egypt, France, Germany, Italy, Kazakhstan, Morocco,
the Netherlands, Poland, Romania, Russia, Spain,
Switzerland, Turkey, United Kingdom, Ukraine and
the United States.
Modern Oral Includes EPOK, Lyft, Velo and other modern white
snus.
New Categories Includes Vapour, THP and Modern Oral.
Non-Combustibles New Categories plus Traditional Oral.
OTP Other Tobacco Products, including make-your-own,
roll-your-own, Pipe and Cigarillos.
Project Quantum Review of the Group's operating model to drive increased
agility and efficiency.
Reduced risk* Based on the available science, products within
"New Categories" and "Traditional Oral" have been
shown to be reduced-risk; are likely to be reduced-risk;
or may have the potential to be reduced-risk, in
each case if switched to exclusively as compared
to continuing to smoke cigarettes.
Strategic combustible Includes Kent, Dunhill, Lucky Strike, Pall Mall,
and THP brands Rothmans, Newport, Natural American Spirit (US),
Camel (US), glo and Neo.
Strategic Portfolio Comprises strategic combustibles, strategic traditional
oral and New Categories - and includes Kent, Dunhill,
Lucky Strike, Pall Mall, Rothmans, Newport, Natural
American Spirit (US), Camel (US), Vype, Vuse, glo,
Neo, Ten Motives, Velo, EPOK, Lyft, Granit, Mocca,
Grizzly, Camel Snus, Kodiak.
Top 5 / T5 Being the top 5 markets for industry vapour sales
vapour markets by revenue - US, Canada, UK, France and Germany.
These markets represent an estimated 75% of Global
industry vapour revenue (closed systems).
Top 5 / T5 Being the top 5 markets for industry modern oral
modern oral sales by revenue - US, Sweden, Norway, Denmark and
markets Switzerland . These markets represent an estimated
90-95% of Global industry modern oral revenue. Germany
has been removed from the priority market given
the suspension in sales in 2021.
Top 9 / T9 Being the top 9 markets for industry THP sales by
THP markets revenue - Japan, South Korea, Russia, Italy, Romania,
Germany, Ukraine, Poland and Czech Republic . These
markets represent an estimated 90-95% of Global
industry THP revenue.
THP Tobacco heating products (i.e., the devices, which
include glo and our hybrid products) or Tobacco
heated products (i.e., the consumables used by Tobacco
heating product devices).
Traditional Moist Snuff (Granit, Mocca, Grizzly, Kodiak) and
Oral other traditional snus products (including Camel
Snus and Lundgrens).
US United States of America (a key market).
Value share Value share is the retail value of units bought
by consumers of a particular brand or combination
of brands, as a proportion of the total retail value
of units bought by consumers in the industry, category
or other sub-categorisation in discussion.
Volume share Offtake volume share, as independently measured
by retail audit agencies (including Nielsen and
Marlin) and scanner sales to consumers, where possible
or based on movements within the supply chain (such
as sales to retailers) to generate an estimate of
shipment share, based upon latest available data.
Except when referencing particular markets, volume
share is based on our key markets. The Group's key
markets represent over 80% of the Group's cigarette
volume.
Vapour Rechargeable, battery-powered devices that heat
liquid formulations - e-liquids - to create a vapour
which is inhaled. Vapour products include Vype,
Vuse, ViP and Ten Motives.
*Our vapour product Vuse (including Alto and Vibe), and oral
products (including Grizzly, Camel Snus, Kodiak and Velo), which
are only sold in the US, are subject to FDA regulation and no
reduced-risk claims will be made as to these products without
agency clearance.
Additional Information on Volume / Revenue by Category and by Region
Volume (unit)
Six months ended US APME AMSSA ENA Group
30 June
2021 % change 2021 % change 2021 % change 2021 % change 2021 % change
New Categories
Vapour 139 +97.3% 4 +125.7% 27 +75.8% 77 +32.8% 247 +69.5%
THP - - 4.0 +23.1% - - 4.4 +367.8% 8.4 +99.3%
Modern Oral 405 +450.4% 111 +502.5% 0 -100% 1,091 +77.2% 1,607 +124.1%
Traditional
Oral 3.6 -3.1% - - - - 0.5 -3.2% 4.1 -3.1%
Total Non-Combustibles
Cigarettes 34.7 -4.4% 107.9 +8.2% 70.5 +3.5% 102.9 -3.2% 316.0 +1.8%
OTP 0.0 -3.1% 0.9 -8.6% 0.9 -7.0% 7.4 -6.4% 9.2 -6.6%
Total Combustibles 34.7 -4.3% 108.8 +8.0% 71.4 +3.3% 110.3 -3.4% 325.2 +1.5%
Memo: Cigarettes
and THP 34.7 -4.4% 111.9 +8.6% 70.5 +3.5% 107.3 +0.0% 324.4 +3.1%
Revenue- at current rates (GBPm)
Six months ended US APME AMSSA ENA Group
30 June
2021 % change 2021 % change 2021 % change 2021 % change 2021 % change
New Categories 243 +40.8% 228 -9.2% 54 +74.2% 358 +105.1% 883 +40.4%
Vapour 235 +41.9% 9 +60.4% 54 +77.8% 100 +56.6% 398 +49.9%
THP - - 216 -11.7% - - 143 +240.9% 359 +25.3%
Modern Oral 8 +17.3% 3 +418.2% 0 -100% 115 +67.5% 126 +64.2%
Traditional
Oral 537 -3.8% - - - - 21 +14.1% 558 -3.3%
Total Non-Combustibles 780 +6.7% 228 -9.2% 54 +74.2% 379 +96.6% 1,441 +19.5%
Total Combustibles 4,769 -1.9% 1,781 -3.1% 1,651 +0.3% 2,326 -7.3% 10,527 -3.0%
Other 14 -49.9% 46 -2.9% 91 +27.3% 56 -13.8% 207 -2.0%
Total 5,563 -1.0% 2,055 -3.8% 1,796 +2.7% 2,761 -0.2% 12,175 * 0.8%
Of which:
Strategic 5,267 -0.4% 1,030 -8.4% 1,025 +9.8% 2,056 +3.1% 9,378 +0.4%
Non-strategic 296 -10.6% 1,025 +1.3% 771 -5.4% 705 -8.6% 2,797 * 4.5%
5,563 -1.0% 2,055 -3.8% 1,796 +2.7% 2,761 -0.2% 12,175 * 0.8%
Revenue- at constant rates (GBPm)
Six months ended US APME AMSSA ENA Group
30 June
2021 % change 2021 % change 2021 % change 2021 % change 2021 % change
New Categories 267 +55.1% 248 -1.1% 54 +74.8% 373 +113.5% 942 +50.0%
Vapour 259 +56.3% 9 +58.9% 54 +78.4% 101 +57.8% 423 +59.3%
THP - - 236 -3.5% - - 158 +278.3% 394 +37.8%
Modern Oral 8 +29.3% 3 +457.6% 0 -100% 114 +64.9% 125 +63.2%
Traditional
Oral 592 +6.0% - - - - 20 +9.2% 612 +6.1%
Total Non-Combustibles 859 +17.6% 248 -1.1% 54 +74.8% 393 +103.8% 1,554 +29.0%
Total Combustibles 5,255 +8.1% 1,961 +6.7% 1,790 +8.7% 2,479 -1.2% 11,485 +5.8%
Other 16 -44.8% 51 +5.1% 105 +46.8% 57 -11.1% 229 +7.9%
Total 6,130 +9.1% 2,260 +5.8% 1,949 +11.5% 2,929 +5.9% 13,268 +8.1%
Of which:
Strategic 5,804 +9.8% 1,140 +1.4% 1,126 +20.5% 2,180 +9.3% 10,250 +9.7%
Non-strategic 326 -1.5% 1,120 +10.6% 823 +1.1% 749 -2.9% 3,018 +3.0%
6,130 +9.1% 2,260 +5.8% 1,949 +11.5% 2,929 +5.9% 13,268 +8.1%
Note - n/m - not meaningful
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END
IR FDLLLFDLEBBF
(END) Dow Jones Newswires
July 28, 2021 02:00 ET (06:00 GMT)
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