British American Tobacco posts H1 2020 profit rises despite volume decline

British American Tobacco resumes sales in South Africa

British American Tobacco reported its first-half profit edged higher, as sales of higher-priced items and cost cuts offset a fall in volume.

The company said its profit from operations rose 3.3% to £5.37 billion, with revenue up 1.1% to £12.27 billion. Its adjusted earnings per share of 157.8 pence came in ahead of a FactSet-compiled analyst estimate of 156.54 pence on sales of £12.16 billion.


Volume and Share

Total cigarette and THP volume declined 6.3% to 315 billion sticks (30 June 2019: 336 billion sticks) with cigarette volume down 6.5% and THP volume up 9.1%.

COVID-19 led to a sustained impact on our GTR business due to international travel restrictions, acting as a negative drag on total cigarette and THP volume of 1.1%. Excluding GTR, cigarette and THP volume declined 5.3% against an estimated industry decline of around 6%.

British American Tobacco posts H1 2020 profit rises despite volume decline - Brand Spur

While cigarette volume in Developed Markets has been largely unaffected, volume in Emerging Markets has been impacted by government-mandated factory closures and sales restrictions including in South Africa, Mexico and Argentina, as well as the severity and duration of lockdowns in a number of other markets, particularly in APME.

Volume was also down in Indonesia (driven by local pricing and tax) and Pakistan (as illicit trade grew).

In the key markets, value share increased 20 bps while volume share5 was 50 bps up against 2019; and Strategic Cigarette and THP volume was down 3.4%, with volume share up by 30 bps and value share up 40 bps, with growth in all regions.

The company stated that its “new categories” revenue growth of 14.7%, which includes 9.1% growth for tobacco heated products, 41% growth in vapour and 67% growth in what it calls “modern oral.”

What did BAT say?

Jack Bowles, Chief Executive said:

“The business is performing well in difficult circumstances as our continued focus on our three key priorities has enabled us to rapidly adapt to the current environment.

  1. We are building A Better Tomorrow
    •  10% of our revenues come from non-combustible categories
    •  We are making good progress towards our target of 50 million non-combustibles consumers by 2030
    •  Invested an additional £250 million in New Categories marketing
  2. We are continuing to deliver adjusted revenue, profit from operations and earnings growth at constant rates
    •  Strong cigarette price/mix (8.5%) reflects the strength of our differentiated brand portfolio
    •  Which offsets lower cigarette and THP volume (down 6.3%)
    •  And the impact of COVID-19 of approximately -4% on adjusted revenue in the first six-months of 2020
  3. Multi-category consumer acquisition drives share growth
    •  Our Non-Combustibles consumer base increased to 11.6 million (up 1.1 million from December 2019), is an increase of 2.7 million consumers on a rolling 12-month basis from June 2019
    •  New categories revenue grew 12.7% (at constant rates)
    •  We are growing volume share in THP and value share in Vapour, with Modern oral adjusted revenue up 71% (at constant rates)
  4. We are delivering excellent combustibles volume and value share growth
    •  Cigarette volume share (up 50 bps) and value share (up 20 bps)
    •  Driven by the strength of the Group’s differentiated cigarette portfolio
    •  Strategic cigarettes and THP portfolio now accounts for 66% of total cigarettes and THP volume
    •  US cigarette volume share up 10 bps and value share up 30 bps
  5. We are navigating COVID-19 supported by a diverse market footprint
    •  Consumption trends in Developed Markets (75% of Group adjusted revenue) remain robust, with good pricing and little evidence to date of accelerated down-trading
    •  In Emerging Markets, we are growing cigarette and THP volume share strongly, up 70 bps
    •  Volumes are strong where we see illicit trade reduction and can leverage our operational agility
    •  Weaker industry volume where there have been stricter lockdown measures (for instance South Africa)
    •  We continue to anticipate a full year headwind of around 3% from COVID-19 on a constant currency adjusted revenue
  6. We are committed
    •  We are on track to deliver against our 2020 guidance
    •  We maintain our medium-term post-COVID-19 guidance of 3-5% constant currency adjusted revenue growth and high-single figure constant currency adjusted diluted EPS growth
    •  We are committed to our 65% dividend payout ratio

I would like to thank our staff, customers, partners and suppliers for working tirelessly through this difficult period. We expect the coming months to bring continued uncertainty. Nevertheless, we will continue to invest in accelerating our strategy. Building on our excellent momentum, we are confident that we will exit this crisis as a stronger and better business”