Date/time: December 11, 2024 (Wednesday) at 8:00am UK time
– BAT reaffirms its low-single digit revenue and operating profit growth guidance for 2024. The H2 2024 acceleration is in line with previous communications, driven by New Categories innovation phasing, the benefits of H1 2024 investment in US commercial actions and unwind of wholesaler inventory movements
– BAT expects to deliver improved New Category and Combustibles revenue growth in H2 2024 versus H1 2024
– Further improvement in New Category profitability through Quality Growth focus and smart re-investment
– Strong >90% cash conversion with leverage at the high end of target range of 2.0-2.5x by year-end 2024, also impacted by recent USD strengthening
– BAT also reaffirms its support the proposed Canadian CCAA settlement in the mediator’s and monitor’s plan of arrangement
– BAT remains committed to returning to mid-term guidance of 3-5% revenue and mid-single digit adjusted operating profit by 2026
Business Update – Combustibles:
– Improved organic volume and financial performance in H2 2024
– USA: Industry volume is down c.9% YTD reflecting continued macro-economic pressures and the impact of illicit single-use vapes. US commercial actions are gaining traction with volume share flat and value share down 30 bps
– Rest of the World: Continued volume share and value share gains with robust pricing
Business Update – New Categories:
– Improving New Category performance in H2 2024
– E-vapor: Vuse maintains global value share leadership maintained with 40.3% SoM in top markets (50.7% SoM in the US tracked channels). US illicit single-use vape headwinds persist, negatively affecting the financial performance. Elsewhere, e-vapor category is benefiting from increased poly-usage
– Heated tobacco: New innovations glo Hyper Pro and enhanced consumables are driving improved organic volume, revenue and profit performance in H2 2024 versus H1 2024. Early signs of category volume share improvement in top markets
– Modern Oral Nicotine: Strong volume, revenue and profit growth delivered by Velo which maintains its leadership outside the key US market. Refreshed Velo brand expression and Grizzly line-up are re-fueling the performance in the US with volume share up 180 bps to 6.3%. The nationwide roll-out for Velo Plus, a more competitive product with a broad variety of flavours and nicotine levels, is underway
FY24 Technical Guidance:
– Global tobacco industry volume: to be down c.2% (no change)
– Low-single digit organic, constant FX revenue growth (no change)
– Low-single digit organic, adj. operating profit growth, including c.1.5% transactional FX headwind (FX headwind down from c.2%)
– Translational FX headwind of c.4.5% on FY adj. operating profit (FX headwind up from c.4%)
– Net finance costs: c.£1.6bn (vs. c.£1.7bn before)
– Gross capital expenditure: c. £600 million (no change)
– Operating cash flow conversion: in excess of 90% (no change)
Our take-away:
BAT reaffirmed its low-single digit revenue and operating profit growth guidance for 2024 – which implies that an acceleration in financial delivery is in place after realizing a low-single digit decline in the first half of 2024.
Confirmation of the financial acceleration is critical in building the much-needed market confidence on BAT’s mid-term target of 3-5% revenue and mid-single digit operating profit growth by 2026. Trading at an undemanding 8x P/E, BAT offered a good number of reasons for the market to be cautiously optimistic about its progress and plans with today’s reassuring update. Nevertheless, BAT’s trajectory towards its mid-term targets will be non-linear (bumpy), as shaped by the timing of investments as well as the wobbly consumer, competitive and regulatory & legal dynamics – especially, in the key US market that makes 54% of BAT’s operating profit. Based on BAT Executives’ comments, we assume that H1 2025 results will not be “cheerful” – but, FY25 results are expected to be markedly better than FY24 with accelerated financial delivery in the second half of 2025, heading towards the 2026 milestone.
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Expectations Ahead of the Release:
Sell-side expects -3.8% revenue, -3.7% adj. operating profit and -4.2% adj. diluted EPS decline in FY24. Note that BAT provides guidance on an organic basis, which excludes the structural business changes. In FY24, organic basis implies a further ~3% downward adjustment in BAT financial metrics. Thereby, on a comparable basis to BAT’s own guidance, sell-side expectations correspond to low-single digit decline (-1%) in BAT financials.
| (Last update: July 18) | 2024E | 2023A | Change |
| Total Revenue | £26,250 Mn | £27,283 Mn | -3.8% |
| NGP Revenue | £3,597 Mn | £3,347 Mn | +7.5% |
| Operating Profit | £11,999 Mn | £12,465 Mn | -3.7% |
| Operating Margin | 45.7% | £45.7% | — |
| Diluted EPS | 360p | 376p | -4.2% |
BAT’s Latest Guidance:
Low-single digit (+1%) revenue and operating profit growth in 2024 on an organic, constant FX basis. Acceleration in financial delivery in H2 2024 (from low-single digit decline in H1 2024), driven by the roll-out of product innovations, improved momentum in US commercial actions and unwind of wholesaler inventory movements. Progressive improvement towards 3%-5% revenue and 4%-6% operating profit growth by 2026.
