Preliminary announcement - year ended 31 December 2019
27 February 2020
|Profit from operations||£9,016m||-||-3.2%||-|
|Basic earnings per share (EPS)||249.7p||-||-5.4%||-|
|Net cash generated from operating activities||£8,996m||-||-12.6%||-|
|Adjusted profit from operations||£11,130m||£11,032m||+7.6%||+6.6%|
|Adjusted diluted EPS||323.8p||321.6p||+9.1%||+8.4%|
|Adjusted cash generated from operations (ACGFO)||£6,831m||£6,753m||-15.4%||-16.3%|
|Adjusted net debt||£41,726m||-||-3.9%||-|
“When I became CEO, my commitment was to maximise value growth from combustibles, deliver a step change in New Categories and develop a simpler, stronger, faster, more agile organisation to create a better tomorrow. I am delighted with the progress we have made in all areas. We have delivered value growth from our combustible business and grown our New Categories business, now providing potentially reduced risk products to close to 11 million consumers. In September, we announced a significant restructuring and simplification programme, which is largely complete. This will create the capabilities and resources to continue investing in New Categories and allow us to deliver on our financial commitments. Looking into 2020, we are confident of another year of high single figure adjusted constant currency earnings growth."
Key highlights, at current rates unless otherwise stated:
We anticipate global industry cigarette and THP volume to be down c.4%, with US industry volume down c.5%, in 2020. We expect adjusted revenue growth in the 3-5% guidance range (at constant rates of exchange), together with continued operating margin improvement and further progress in New Categories towards our 2023/24 ambition of £5bn in revenue. Results, in particular New Category revenue growth, will be weighted to the second half of the year. The business is performing well and we are confident of delivering another year of high single figure constant currency adjusted EPS growth, with strong operating cashflow conversion in excess of 90%. Extrapolating today’s foreign exchange spot rates for the full year, we would expect a headwind of around 4% on full year adjusted EPS growth.
Adjusting items and constant currency measures
To provide a more comprehensive understanding of the performance of the Group, this announcement also presents the adjusted performance of the Group, at current and constant translational rates of exchange. This excludes the adjusting items explained on pages 31 to 35 of the full announcement.
Adjusting items within this report represent certain items of income and expense which the Group considers distinctive based upon their size, nature or incidence. In addition, certain adjusting items within this report represent the potentially distorting impact of foreign exchange on certain of the Group’s results. As explained on page 47 of the full announcement, the Group does not adjust for normal transactional gains or losses in profit from operations which are generated by exchange rate movements.
The term cigarette principally refers to factory made cigarettes (FMC) and includes 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.
Adjusted Revenue Growth of the Strategic Portfolio is a management measure, included within the Group’s short-term incentive scheme.
The Strategic Portfolio is comprised of:
Strategic combustibles comprise the Strategic Cigarette and OTP (defined below) brands Kent, Dunhill, Lucky Strike, Pall Mall, Rothmans, Newport, Camel (US) and Natural American Spirit (US).
Traditional Oral* comprises:
New Categories* comprises:
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.*
Other tobacco products (OTP) comprises largely the sales of roll-your-own (RYO), make-your-own (MYO), pipe and cigarillos.
*Our vapour product Vuse (including Alto and Vibe), and certain oral products including Grizzly, Granit, Camel Snus, Kodiak and Velo, which are sold in the US, are subject to the Food and Drug Administration (FDA) regulation and no reduced-risk claims will be made as to these products without agency clearance.
1. Key Market offtake volume share, as independently measured by retail audit agencies (including Nielsen), shipment share estimates, and share of retail for the US business, based upon latest available validated data. The Group’s Key Markets represent over 80% of the Group’s cigarette volume.
2. Value share represents the retail sales value of the product sold as a proportion of total retail sales value in that category.
3. Source – internal estimates.
4. Adjusted revenue excludes excise on bought-in goods, acquired and sold under short-term contract manufacturing agreements, discussed on page 31 of the full announcement which distort revenue and operating margin on a temporary basis. Such adjustment only applies to revenue related to certain non-strategic combustible volume in ENA.
5. Adjusted net debt is net debt excluding the impact of the purchase price allocation (PPA) adjustments of £848m (31 December 2018: £944m).
Forward looking statements
This announcement contains certain forward-looking statements, including “forward-looking” statements made within the meaning of Section 21E of the United States Securities Exchange Act of 1934. These statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,” “could,” “may,” “would,” “should,” “intend,” “plan,” “potential,” “predict,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “outlook”, “target” and similar expressions. These include statements regarding our intentions, beliefs or current expectations concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the economic and business circumstances occurring from time to time in the countries and markets in which the Group operates.
In particular, these forward-looking statements include, among other statements, statements regarding the BAT Group’s future financial performance, planned product launches and future regulatory developments, as well as: (i) certain statements in the Financial Performance Review section (pages 6 to 8); (ii) certain statements in the Category Performance Review section (pages 9 to 12); (iii) certain statements in the Regional Review section (pages 13 to 18); (iv) certain statements under the headings “Update on investigations into Misconduct Allegations”, “Update on Quebec Class Action and CCAA”, “Board Succession”, “Changes in the Group” and “Going Concern” (pages 20 to 23); (v) certain statements in the Notes to the Interim Financial Statements section (pages 30 to 44), including the Liquidity and Contingent Liabilities and Financial Commitments sections; (vi) certain statements in the Other Information section (pages 45 to 56), including the Non-GAAP Measures section and under the heading “Dividends”; and (vii) certain statements in the Chief Executive introduction (page 1).
All such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual future financial condition, performance and results to differ materially from the plans, goals, expectations and results expressed in the forward-looking statements and other financial and/or statistical data within this announcement. 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; changes in domestic or international tax laws and rates and the impact of an unfavourable ruling by a tax authority in a disputed area; adverse litigation and dispute outcomes and the effect of such outcomes on the Group’s financial condition; changes or differences in domestic or international economic or political conditions; adverse decisions by domestic or international regulatory bodies; the impact of market size reduction and consumer down-trading; translational and transactional foreign exchange rate exposure; the impact of serious injury, illness or death in the workplace; the ability to maintain credit ratings and to fund the business under the current capital structure; the inability to develop, commercialise and deliver New Category products; and changes in the market position, businesses, financial condition, results of operations or prospects of the Group.
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. 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 the Group undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on such forward-looking statements.
No statement in this communication 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.
Additional information concerning these and other factors can be found in the Company’s filings with the US Securities and Exchange Commission (“SEC”), including the Annual Report on Form 20-F filed on 15 March 2019 and Current Reports on Form 6-K, which may be obtained free of charge at the SEC’s website, http://www.sec.gov, and the Company’s Annual Reports, which may be obtained free of charge from the British American Tobacco website www.qiplant.com.