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BAT’s interims take strain but its New Categories business grows steadily

FILE PHOTO. British American Tobacco (BAT) yesterday reported a lower interim pre-tax profit.

FILE PHOTO. British American Tobacco (BAT) yesterday reported a lower interim pre-tax profit.

Published Jul 28, 2022

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British American Tobacco (BAT) yesterday reported a lower pre-tax interim profit as its operating costs rose in a tough macro-economic environment and as it was hit by a £1 billion (R20bn) impairment charge as the company exited Russia.

In its half-year report to June 30, 2022, the producer of Dunhill, Camel and Lucky Strike said its pretax profit fell 30 percent to £3.06bn from £4.38bn from the corresponding period last year owing to higher expenses. Operating costs jumped 49 percent to £5.09bn.

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Basic earnings per share were down 42.9 percent at 81.2p.

However, the firm saw growth largely driven by strong growth in New Categories, which led revenue 3.7 percent higher, excluding the impact of exchange rates, to £12.9bn. The traditional combustibles were broadly flat.

New Categories revenue increased by 45 percent across all product ranges to £1.3bn, while combustible revenue, including cigarettes revenue, grew by 0.6 percent.

Chief executive Jack Bowles said: “I am very proud that our continued New Categories growth momentum is driving faster transformation, with revenue growth of 45 percent in the first half of 2022, on top of 51 percent growth in 2021. We are delivering both strong operational performance and transforming the business.”

BAT had now reached a milestone of more than 20 million consumers of its non-combustible products. Non-combustible product consumers grew by 2.1 million in the reporting period.

Bowles said BAT’s three strong, global New Category brands underpinned its revenue performance, with non-combustibles now representing 14.6 percent of revenue.

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“We are confident in delivering £5bn New Category revenue, and profitability, by 2025,” he said.

Underlying operating profit rose 4.9 percent, excluding the impact of exchange rates, to £5.5bn as losses reduced in New Categories and cost savings kicked in.

The group said it was not immune to the increasing macro-economic pressures, exacerbated by the conflict in Ukraine.

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BAT’s results were also hit by a close on a £1bn impairment charge it suffered as the company exited Russia. But the company said its results gave it confidence that its full-year guidance would be met.

“We are well positioned to navigate the current turbulent environment due to our powerful brands, operational agility, and continued strong cash generation,” it said.

BAT said it expected to generate £40bn of free cash flow before dividends over the next five years.

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“With our active capital allocation framework, we are committed to delivering enhanced long-term value for shareholders. We have already repurchased 37.7 million shares at a cost of £1.3bn as part of our £2bn share repurchase programme for 2022,” the group said.

On February 11, the company announced that its board had declared an interim dividend of 217.8p per ordinary share of 25p, payable in four equal quarterly instalments of 54.45p per ordinary share.

From an innovation perspective, BAT said the second half promised to be exciting.

“Our combustibles business continues to grow value share enabled by robust pricing. In addition, we have delivered £1.5bn Quantum savings six months early, and our progress continues. We now expect to achieve in excess of £1.5bn by year-end," Bowles said.

BAT's share price was hovering around the R706.40 mark on the JSE yesterday, having gained 32.14 percent in three years.

Looking ahead in its full year 2022 guidance, the tobacco firm said the global tobacco industry volume was expected to be down 3 percent partly due to the US, Turkey and uncertainty over the Russia-Ukraine conflict.

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