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17 Feb 2021 | 07:34

British American Tobacco profit rises thanks to better price mix

(Sharecast News) - British American Tobacco reported adjusted revenue of £25.78bn on Wednesday, up 3.3%, as the company "absorbed" an estimated 2.5% headwind from the Covid-19 pandemic.

The FTSE 100 cigarette giant said its adjusted profit from operations was 4.8% higher in 2020 at £11.37bn, while adjusted diluted earnings per share were ahead 5.5% at 331.7p.

Its board declared a dividend of 215.6p per share for the year ended 31 December, up 2.5%.

Combustible revenue was up 2.8%, with a volume decline of 4.5% offset by a "strong" price mix of 7.3%.

The company's cigarette value share was up 20 basis points, driven by the 'strategic' portfolio, which was ahead 40 basis points.

It reported annualised cost savings of £660m, driven by its 'Quantum' programme, as its operating cash flow conversion was 103%, above its target of at least 90%.

Free cash flow generation of £2.6bn drove the firm's deleverage to 3.3x adjusted net debt-to-adjusted EBITDA.

A total of 13.5 million consumers were reported for the company's non-combustible products, which was up three million in the year ended 31 December, with the company on track for 50 million by 2030.

New categories revenue was up 15%, reportedly accelerating through the second half, as the company made incremental new categories investment of £426m in 2020.

Volume of consumables was up 52% in vapour, as it rose 19% in tobacco heating products - or 29% excluding the withdrawal of 'glo Sens', and volume in 'modern oral' was 62% higher.

The acquisition of the Dryft assets in the United States expanded its portfolio from four to 28 product variants in that country.

British American Tobacco said it was ahead of schedule to deliver £1bn annualised savings by 2022, to fund investment in new categories and in developing new operational capabilities.

On a statutory basis, the company's revenue was down 0.4% for 2020, as profit from operations rose 10.5% to £9.96bn and diluted earnings per share were 12% firmer at 278.9p.

Looking ahead, British American Tobacco said the global tobacco industry volume was expected to be down around 3% for 2021, with the US market dependent on Covid-19 uncertainties.

Constant currency revenue growth was pencilled in for between 3% and 5%, with continued progress towards its new categories revenue target of £5bn by 2025.

Mid-single figure constant currency adjusted earnings per share growth was anticipated, reflecting ongoing Covid-19 impacts.

An expected foreign exchange headwind of around 7% was flagged on full-year adjusted earnings per share growth.

Operating cash flow conversion was expected to be more than 90%, with adjusted net debt-to-adjusted EBITDA set to be around 3.0x.

Post Covid-19, the board said it was "confident" in its guidance of 3% to 5% revenue growth, and "high single-figure" adjusted diluted earnings per share expansion at constant currencies.

"Last year we increased the number of consumers of our non-combustible products by three million to 13.5 million, doubling the rate of consumer adoption in the second half of 2020," said chief executive officer Jack Bowles.

"We have excellent momentum in new categories, with accelerating volume and value share gains.

"Our investment behind new categories has increased by a further £426m compared to 2019, enabled by a fifth consecutive year of value share growth in combustibles."

Bowles said that thanks to 'Project Quantum', the company continued to simplify itself and drive efficiencies, further supporting its investment in new capabilities.

"Our environmental, social and governance targets are transformational and support our 'A Better Tomorrow' ambition.

"We will track and share our progress. We are committed to reducing the health impact of our business, whilst delivering sustainable results that create long-term multi-stakeholder value."

At 0808 GMT, shares in British American Tobacco were down 7.26% at 2,549p.
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