By Rupert Hargreaves
Tobacco giant British American Tobacco has said it’s on track to deliver its previously stated guidance for 2024 thanks to the continued strong performance of its new categories.
The company said its Vuse and glo reduced-risk product categories had both maintained or expanded market share in key markets during the period.
Vuse, the world’s number-one global vaping brand, maintained its share of global vaping markets at 41.1 per cent. The group said it expected Vuse’s market share and profitability to expand in the second half of the financial year as it rolled out new products
However, British American Tobacco warned that its financial performance would “be impacted by the continued growth of illicit single-use vapes.”
At the group’s glo, heated tobacco division, market share held up well during the period with an “encouraging early consumer response to our new innovations glo Hyper Pro and improved consumables.”
On the other side of the portfolio, combustibles, British American Tobacco reported a 30 basis point increase in market share in its key cigarette markets.
In the US, a key market for the tobacco giant, volumes across the industry fell nine per cent in the first half of 2024, and the group said it would be impacted by this as well as “continued investment in our commercial actions and related phasing of wholesaler inventory movements.” These headwinds would “unwind” in the second half of the year, it added.
While the US market proved a headache for British American Tobacco in the first half, combustible sales in Germany, Romania, Pakistan and Mexico picked up some of the slack, the company said.
For 2024 as a whole, British American Tobacco said today it expected global tobacco industry volume to fall three per cent. Against this backdrop the group has projected low-single-figure organic constant currency revenue growth for the year, weighted to the second half.
It said it is on track to reduce leverage to within its targeted range of 2.0 to 2.5 times adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) by the end of the year. Cash conversion for the year would be around 90 per cent it said.
After selling 3.5 per cent of its stake in Indian conglomerate ITC in March, British American Tobacco said it would repurchase £700m of shares in 2024 and a further £900m in 2025. The company said this plan was on track.
Tadeu Marroco, chief executive, said: “Our focus on quality growth is starting to drive accelerating returns on more targeted investments across all three new categories, particularly HP and modern oral. As a result, we expect to deliver further improvement in new category profitability for both the first half and full year.”
Marroco added: “BAT is a highly cash generative business, and we are committed to continuing to reward shareholders with strong cash returns. I am pleased with our progress in enhancing financial flexibility driven by continued strong operating cash conversion and completion of the partial monetisation of our ITC stake, enabling the initiation of a sustainable share buy-back.
“Looking forward, we expect growing momentum in the second half, enabled by the investments we are making today. As we continue our journey towards building a smokeless world, guided by our refined strategy, we will progressively improve our performance to deliver three per cent to five per cent revenue, and mid-single digit adjusted profit from operations growth on an organic constant currency basis by 2026,” Marroco added.
Shares in the company dipped two per cent when the market opened on Tuesday after the trading update.
Rae Maile analyst, said: “Trading is “in line” with management’s expectations, but those expectations were not particularly stretching as the company resets (“invests”), again, this year. “Low-single digit” revenue and profit growth remains the target, but [foreign exchange headwinds are] tougher than in February, as it has been for Philip Morris but in PMI’s case there is rather more constant FX growth and it is already being delivered.
“’Quality growth’ is the mantra at BAT: the issue is the lack of ‘Quantity’. Imperial is similarly rated in PER terms but delivering operating profit growth on a par with BAT while being considerably more aggressive in its share repurchases. Both are ‘cheap’ but Imperial has a clearer strategy –operationally and financially –and is already delivering,” Maile added.
