British American Tobacco profits & revenue soar in H1; volume growth recorded in Nigeria.


British American Tobacco reported higher first-half sales on Thursday, despite a slowing market in Japan for heated tobacco devices.

The performance of the Group in the first six months of the year is in line with expectations and demonstrates the good organic progress we are making. The relative weakness of sterling led to a significant tailwind on our reported results, with revenue 15.7% higher and profit from operations up 16.3% at current rates of exchange. Excluding the translational tailwind and the adjusting items, adjusted revenue and adjusted profit from operations were both up, 2.5% and 3.2% respectively at constant rates of exchange.

In Nigeria, a key market saw its volume grew, driven by Rothmans. Profit was lower largely due to the impact of transactional foreign exchange on our cost base, which was not offset by pricingRothmans’ growth momentum continued despite a strong comparator, with market share up a further 15 bps and volume 6.2% higher driven by Russia, Nigeria, Serbia, Algeria, and Poland offsetting lower volume in Kazakhstan, Ukraine, and Egypt.

South Africa’s volume and profit fell due to down-trading and the growth in illicit trade. Benson & Hedges and Dunhill continued to grow market share although this was more than offset by Peter Stuyvesant, with total market share down.

West Africa was offset by lower volume driven by market contraction and down-trading in Indonesia, Malaysia, and South Korea. Market share was lower by 10 bps, although recovered in the last three months with an improving market share in Malaysia, Brazil, and South Africa;

The growth in adjusted revenue was due to a strong price mix and to the increased contribution from both our NGP business and the acquisitions in the period. The growth in adjusted profit from operations led to an increase in adjusted operating margin of 30 bps.

As anticipated, the performance of the Group to date reflects a strong prior year volume comparator due to the timing of shipments in a number of key markets, principally Pakistan. Cigarette market share in our Key Markets continues to grow, up 30 bps, driven by the GDBs (up 50 bps). Group cigarette volume was 5.6%
down and GDB volume was lower by 1.3%. Excluding, in Pakistan, the effect of inventory movements and market contraction, cigarette volume fell 2.6% with GDB volume up 2.6%.

Richard Burrows, Chairman, commenting on the 6 months ended 30 June 2017

“These are exciting times for the Group. In the first six months of 2017, the combustible business continued to perform well, against the backdrop of a strong volume comparator. The performance of glo continues to exceed expectations, with new market launches showing encouraging early signs. The Group is the largest vapor company in the world and the successful completion of the Reynolds acquisition bolsters our leading position in both NGPs and combustibles. We remain confident of delivering another year of good earnings growth at constant rates of exchange.”

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Key Highlights

  •  Revenue, at current rates of exchange, was 15.7% higher than the same period last year, reflecting the translational foreign exchange tailwind due to the relative weakness of sterling. Adjusted revenue, adjusted for excise on goods bought in from third parties, was up 2.5% at constant rates of exchange.
  •  Profit from operations, at current rates of exchange, was 16.3% higher at £2,574 million.
  •  Adjusted profit from operations, at current rates of exchange, grew 15.8%. At constant rates of exchange, adjusted profit from operations was up 3.2% at £2,531 million. Excluding the adverse transactional impact of foreign exchange, the increase would have been approximately 6%.
  •  Adjusted operating margin was ahead of prior year by 30 basis points (bps) at 37.1%.
  •  Basic earnings per share were 15.3% lower at 121.8p (2016: 143.8p) due to the impact in 2016 of the sale by Reynolds American Inc. (“Reynolds”) of the international brand rights to Natural American Spirit.
  •  Adjusted diluted earnings per share, at current rates of exchange, were 21.0% higher at 134.4p and, at constant rates, were up 6.2%.
  •  The Group’s cigarette market share1 in its Key Markets2 continued to grow, up 30 bps, driven by the Global Drive Brands (“GDBs”) which were higher by 50 bps.
  •  Group cigarette volume was 314 billion, 5.6% down against a strong prior year comparator, with the GDB volume down 1.3%. Excluding Pakistan, which was impacted by stock movements ahead of an excise-led price increase and the subsequent market contraction, volume declined 2.6%, with the GDBs up 2.6%.
  •  Continued excellent performance in Next Generation Products (“NGPs”), with our Tobacco Heating Product (“THP”), glo, reaching an estimated 8% market share in Sendai, Japan. Early progress in other launch markets is above expectations. In vapor, the Group continued to cement its leadership position in Europe.
  •  The acquisition of Reynolds was completed on 25 July 2017, for a total consideration estimated, at the date of closure, at £41.7 billion for the remaining 57.8% of Reynolds not already owned by the Group.
  •  The Board has declared an interim dividend of 56.5p, being one-third of the total 2016 dividend, a 10% increase on last year. This will be paid on 28 September 2017. As announced on 26 April 2017, the Group will move to quarterly dividends from 1 January 2018.


Six Months Results – unaudited

2016 Change
Revenue £7,717m £6,901m £6,669m +15.7% +3.5%
Adjusted Revenue* £7,648m £6,838m £6,669m +14.7% +2.5%
Profit from operations £2,574m £2,295m £2,213m +16.3% +3.7%
Adjusted profit from operations* £2,841m £2,531m £2,452m +15.8% +3.2%
Basic earnings per share 121.8p 143.8p -15.3%
Adjusted diluted earnings per share* 134.4p 118.0p 111.1p +21.0% +6.2%
Interim dividend per share 56.5p 51.3p +10.1%
*The non-GAAP measures, including adjusting items and constant currencies, are further discussed on page 21 and 22 of the attached full announcement.