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BRITISH AMERICAN TOBACCO PLC - Preliminary results for the year ended 31 December 2020

Release Date: 17/02/2021 09:00
Code(s): BTI     PDF:  
Wrap Text
Preliminary results for the year ended 31 December 2020

British American Tobacco p.l.c.
Incorporated in England and Wales
(Registration number: 03407696)
Short name: BATS
Share code: BTI
ISIN number: GB0002875804
("British American Tobacco p.l.c." or "the Company")

17 February 2021          –PRELIMINARY         RESULTS
BRITISH AMERICAN TOBACCO p.l.c.
YEAR ENDED 31 DECEMBER 2020

‘ACCELERATING TRANSFORMATION’
GROWTH IN NEW CATEGORIES AND GROUP EARNINGS DESPITE COVID-19
PERFORMANCE HIGHLIGHTS                                                              REPORTED                                    ADJUSTED
                                                                             Current              Vs 2019                Current            Vs 2019
                                                                               rates                                       Rates         (constant)
Cigarette and THP volume share                                                                    +30 bps
Cigarette and THP value share                                                                     +20 bps
Non-Combustibles consumers1                                                        13.5m            +3.0m
Revenue (£m)                                                                £25,776m               -0.4%                £25,776m                +3.3%
Profit from operations (£m)                                                  £9,962m              +10.5%                £11,365m                +4.8%
Operating margin (%)                                                          +38.6%            +380 bps                  +44.1%            +100 bps2
Diluted EPS (pence)                                                           278.9p              +12.0%                  331.7p                +5.5%
Net cash generated from operating                                                                  +8.8%
                                                                             £9,786m
activities (£m)
Free cash flow after dividends (£m)                                                                                      £2,550m               +32.7%
Cash conversion (%)2                                                           98.2%            -160 bps                  103.0%             +650 bps
Borrowings3 (£m)                                                            £43,968m               -3.1%
Adjusted Net Debt (£m)                                                                                                  £39,451m                 -5.3%
Dividend per share (pence)                                                     215.6p                +2.5%
The use of non-GAAP measures, including adjusting items and constant currencies, are further discussed on pages 48 to 53, with reconciliations from the most
comparable IFRS measure provided. Note – 1. Internal estimate. 2. Movement in adjusted operating margin and operating cash conversion are provided at current
rates. 3. Borrowings includes lease liabilities.


                       Delivering today                                                     Building A Better TomorrowTM
-    Revenue, profit from operations and earnings                              -    13.5m consumers of our non-combustible
     growth* absorbing estimated 2.5% COVID-19                                      products1, adding 3m in 2020. On track to
     revenue headwind                                                               50m by 2030
-    Combustible revenue up 2.8%* with volume                                  -    New Categories revenue up 15%*, accelerating
     down 4.5% offset by strong price/mix of 7.3%                                   through the second half
-    Cigarette value share up 20 bps driven by                                 -    Incremental £426m New Categories investment
     the Strategic portfolio up 40 bps                                              in 2020
-    £660m annualised cost savings, driven by                                  -    Volume (of consumables) up 52% in Vapour
     Quantum                                                                   -    Volume (of consumables) up 19% in THP (or
-    Adjusted profit from operations up 4.8%*                                       29% excluding glo Sens withdrawal)
-    Adjusted operating margin up 100 bps                                      -    Volume up 62% in Modern Oral
-    Adjusted diluted EPS up 5.5%*                                             -    Acquisition of Dryft assets in the US
-    Operating cashflow conversion of 103%, >90%                                    expanding our US portfolio from 4 to 28
     target.                                                                        product variants
-    £2.6bn FCF generation driving deleverage to                               -    Ahead of schedule to deliver £1bn annualised
     3.3x adjusted net debt / adjusted EBITDA                                       savings by 2022 to fund investment in New
-    Full Year dividend 215.6p up 2.5%                                              Categories and in developing new operational
-    65% dividend pay-out ratio                                                     capabilities
* at constant rates of exchange

Jack Bowles, Chief Executive: “As the largest, and only truly global company in our industry, we take
seriously our role to transform ourselves and demonstrate thought leadership. We have a clear purpose to
reduce the harm footprint of our business. We are uniquely positioned to encourage the switch to reduced
risk products**.

We operate worldwide, including the US, which represents 40% of the global industry’s value. Our well-
embedded consumer-centric, multi-category strategy is activated on a global scale, leveraging our insights
on consumer satisfaction, innovation needs and taste preference. We are building the brands of the future –
strong, global brands, specifically positioned in each target consumer segment.
Last year we increased the number of consumers of our non-combustible products by 3m to 13.5m, doubling the
rate of consumer adoption in the second half of 2020. We have excellent momentum in New Categories, with
accelerating volume and value share gains.

Our investment behind New Categories has increased by a further £426m compared to 2019, enabled by a 5th
consecutive year of value share growth in combustibles. Enabled by Project Quantum, we continued to simplify
the company and drive efficiencies, delivering £660m of cost savings (being well on track to deliver our
ambitious £1bn of savings by 2022), further supporting new capabilities investment.

Our ESG targets are transformational and support our A Better Tomorrow ambition. We will track and share our
progress. We are committed to reducing the health impact of our business, whilst delivering sustainable
results that create long-term multi-stakeholder value”
2021 outlook:
-  Global tobacco industry volume expected to be down around 3%. US market dependent on COVID-19
   uncertainties.
-  Constant currency revenue growth of 3%-5%, and continued progress towards our New Categories revenue
   target of £5bn in 2025.
-  Mid-single figure constant currency adjusted EPS growth reflecting continued COVID-19 impacts. Expected
   FX headwind of around 7% on full year adjusted EPS growth.
-  Operating cashflow conversion in excess of 90%, Adj Net debt/Adj EBITDA around 3.0x.
Post COVID-19, confident in our guidance of 3-5% revenue and high single-figure adjusted diluted EPS growth
at constant currency.
** Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive



CHIEF EXECUTIVE’S STATEMENT
BUILDING A BETTER TOMORROWTM - OUR TRANSFORMATION JOURNEY
We are transforming our business to build A Better Tomorrow for our shareholders and other
stakeholders. The greatest contribution we can make to society is to reduce the health impact of our
global business. Above all, this means accelerating the growth of our New Categories business as
fast as possible.

Our transformation journey continues to be led by our three strategic priorities:

     -     Accelerating growth in New Categories, fuelled by
     -     Value growth in combustibles and
     -     Benefitting from a faster, simpler, more agile business.

We delivered against all of these priorities in 2020 despite the unprecedented challenges posed by
the COVID-19 pandemic. I am deeply appreciative of the determination and resilience of our people who
have helped ensure our business is strongly positioned for continued growth.

Last year, we announced several ambitious targets and are making steady progress towards achieving
them. We aim to further accelerate the growth of revenue from our New Categories, reaching £5
billion by 2025. We are proud that we now have 13.5 million consumers of non-combustible products, a
growth of 3 million - doubling the rate of consumer adoption in the second half of 2020. We are well
on track to meet our ambition of 50 million consumers of our Non-Combustible brands worldwide by
2030.

The sustainability of our business goes beyond the financial results alone. At the centre is our
continued commitment to our purpose to build A Better Tomorrow by reducing the health impact of our
global business. This entails:

     -     Committing to providing adult consumers with a wide range of enjoyable and less-risky
           products**;
     -     Continuing to be clear that combustible cigarettes pose serious health risks, and the only way
           to avoid these risks is not to start or to quit;
     -     Encouraging those who otherwise continue to smoke, to switch completely to scientifically-
           substantiated, reduced-risk alternatives**; and
     -     Tracking and sharing progress of our transformation.

Our A Better Tomorrow purpose is underpinned by an ESG strategy which sets out clear commitments to
deliver a positive impact on the environment, on society and on our employees. Chief amongst those,
beyond reducing the harm impacts of our business, is achieving carbon neutrality for direct emissions
(scope 1 and scope 2) by 2030. We are making good progress towards achieving these ambitions and are
proud of the recognition we have received. In 2020, we:

     -     Were named in the Dow Jones Sustainability Indices (DJSI) for the 19th consecutive year;
     -     Increased our scores with respected ESG ratings agencies, including Sustainalytics and Vigeo
           Eiris;
     -     Were awarded the prestigious ‘A’ score’ for climate change by the Carbon Disclosure Project
           (CDP);
     -     Maintained our BBB MCSI rating; and
     -     Were named as a Global Top Employer for the fourth year running by the Top Employers
           Institute.

As Chief Executive, I am determined that we make a positive contribution to society by transforming
our business and accelerating growth of our New Categories. I am proud of our achievements, yet I am
clear that there is more to do. I am excited by the prospect of the journey ahead. With our history
of strong financial delivery, coupled with deep consumer insights and an innovation-led, consumer-
centric, multi-category approach, we have the foundations in place to propel this great company even
further forward and build A Better Tomorrow for all stakeholders.

FINANCE AND TRANSFORMATION DIRECTOR’S STATEMENT
STRONG CASHFLOW GENERATION AND ENHANCED LIQUIDITY.
BAT is a highly cash generative business and in 2020 we achieved operating cash flow conversion in
excess of 95% for the 4th consecutive year. We delivered £9.8bn of net cash generated from operating
activities, realising £2.6bn of post dividend free cashflow despite a £131m impact on working capital
as a result of the global pandemic.

During 2020, the Group further strengthened its liquidity profile and successfully raised £8.9bn in
new debt (in $, € and £) in the capital markets, completed a liability management transaction
repurchasing and redeeming debt that would have otherwise matured in 2021 and 2022, signed short-term
bilateral facilities (with £3.4 billion available) and refinanced the Group’s £6.0 billion Revolving
Credit Facility (RCF), extending its maturity and removing the financial covenant. As a result,
average debt maturity is 9.9 years, with maximum annual debt maturities around £4 billion. We remain
committed to our 65% dividend pay-out ratio and to balance sheet deleveraging and expect to reach
around 3x adjusted net debt to adjusted EBITDA by the end of 2021. Our medium-term rating target
remains BBB+/Baa1, with a current rating of BBB+/Baa2****.

** Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive
****A credit rating is not a recommendation to buy, sell or hold securities. A credit rating may be subject to withdrawal or revision at any
time. Each rating should be evaluated separately of any other rating.


Other Information
DIVIDENDS

Declaration
The Board has declared an interim dividend of 215.6p per ordinary share of 25p, for the year ended 31
December 2020, payable in four equal quarterly instalments of 53.9p per ordinary share in May 2021,
August 2021, November 2021 and February 2022. This represents an increase of 2.5% on 2019 (2019:
210.4p per share), and a payout ratio, on 2020 adjusted diluted earnings per share, of 65.0%.

The quarterly dividends will be paid to shareholders registered on either the UK main register or the
South Africa branch register and to holders of American Depositary Shares (ADSs), each on the
applicable record dates set out under the heading ‘Key Dates’ below.

Holders of ADSs
For holders of ADSs listed on the New York Stock Exchange (NYSE), the record dates and payment dates
are set out below. The equivalent quarterly dividends receivable by holders of ADSs in US dollars
will be calculated based on the exchange rate on the applicable payment date. A fee of US$0.005 per
ADS will be charged by Citibank, N.A. in its capacity as depositary bank for the BAT American
Depositary Receipt (ADR) programme in respect of each quarterly dividend payment.

South Africa Branch Register
In accordance with the JSE Limited (JSE) Listing Requirements, the finalisation information relating
to shareholders registered on the South Africa branch register (comprising the amount of the dividend
in South African rand, the exchange rate and the associated conversion date) will be published on the
dates stated below, together with South Africa dividends tax information.

The quarterly dividends are regarded as ‘foreign dividends’ for the purposes of the South Africa
Dividends Tax. For the purposes of South Africa Dividends Tax reporting, the source of income for the
payment of the quarterly dividends is the United Kingdom.

General dividend information
Under IFRS, the dividend is recognised in the year that it is approved by shareholders or, if
declared as an interim dividend by directors, in the period that it is paid.

The cash flow, prepared in accordance with IFRS, reflects the total cash paid in the period,
amounting to £4,745 million (2019: £4,598 million).

                                                                                                     2020                                           2019
Dividends declared:                                                     Pence per              USD per                Pence per                  USD per
Quarterly payment 1 (paid May 2020)                                        share
                                                                            52.60                 ADS
                                                                                             0.6424030                   share
                                                                                                                          50.75                     ADS
                                                                                                                                               0.6596990
Quarterly payment 2 (paid August 2020)                                         52.60         0.6889020                       50.75             0.6155970
Quarterly payment 3 (paid November                                             52.60         0.6895860                       50.75             0.6521370
2020)
Quarterly payment 4 (paid February                                             52.60         0.7178320                       50.75             0.6571610
2021)                                                                          210.4           2.738723                      203.0             2.5845940
Key dates
 In compliance with the requirements of the London Stock Exchange (LSE), the NYSE and Strate, the
 electronic settlement and custody system used by the JSE, the following salient dates for the
 quarterly dividends payments are applicable. All dates are 2021, unless otherwise stated.

Event                          Payment No. 1    Payment No. 2     Payment No. 3    Payment No. 4

Preliminary announcement
(includes declaration data                                    17 February
required for JSE purposes)

Publication of finalisation    15 March         29 June           20 September     13 December
information (JSE)

No removal requests            15 March–        29 June–          20 September–    13 December–
permitted between the UK       26 March         9 July            1 October        24 December
main register and the South
                               (inclusive)      (inclusive)       (inclusive)      (inclusive)
Africa branch register

Last Day to Trade (LDT) cum    23 March         6 July            28 September     21 December
dividend (JSE)

Shares commence trading ex-    24 March         7 July            29 September     22 December
dividend (JSE)

No transfers permitted         24 March–        7 July–           29 September –   22 December–
between the UK main register   26 March         9 July            1 October        24 December
and the South Africa branch
                               (inclusive)      (inclusive)       (inclusive)      (inclusive)
register

No shares may be               24 March–        7 July–           29 September–    22 December–
dematerialised or              26 March         9 July            1 October        24 December
rematerialised on the South
                               (inclusive)      (inclusive)       (inclusive)      (inclusive)
Africa branch register

Shares commence trading ex-    25 March         8 July            30 September     23 December
dividend (LSE and NYSE)

Record date                    26 March         9 July            1 October        24 December
(JSE, LSE and NYSE)

Last date for receipt of       20 April         29 July           21 October       19 January 2022
Dividend Reinvestment Plan
(DRIP) elections (LSE)

Payment date (LSE and JSE)     12 May           19 August         11 November      9 February 2022

ADS payment date (NYSE)        17 May           24 August         16 November      14 February 2022

 Note:

 (1) The dates set out above may be subject to any changes to public holidays arising and changes or
    revisions to the LSE, JSE and NYSE timetables. Any confirmed changes to the dates will be
    announced.

 SHORT-FORM ANNOUNCEMENT
 This short-form announcement is the responsibility of the Directors of the Company. It is only a
 summary of the information contained in the full Preliminary Announcement – Year Ended 31 December
 2020 (the “Results Announcement”) and does not contain full or complete details. Any investment
 decisions should be based on consideration of the full Results Announcement available via the JSE at
 https://senspdf.jse.co.za/documents/2021/JSE/ISSE/BTI/BATFY20.pdf and on the Company’s website at
 www.bat.com. Copies of the full Results Announcement may also be obtained during normal business
 hours from the Company’s registered office and the Company’s representative office in South Africa.
 Contact details are set out below.

 SHAREHOLDER INFORMATION
 FINANCIAL CALENDAR 2021*


  Wednesday 28 April                           Annual General Meeting at 11.30am
                                               Details of the venue and business to be proposed
                                               at
                                               the meeting will be set out in the Notice of
                                               AGM, which
                                              will be made available to all shareholders and
                                              published
                                              on www.bat.com.
                                              The format for the 2021 AGM will be contingent
                                              on applicable UK Government health and safety
                                              restrictions in place at that time.

 Friday 30 July                               Half-Year Report

* Indicated dates are subject to change


CORPORATE INFORMATION

Premium listing
London Stock Exchange (Share Code: BATS; ISIN: GB0002875804)
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol BS99 6ZZ, UK
tel: 0800 408 0094; +44 370 889 3159
Share dealing tel: 0370 703 0084 (UK only)
Your account: www.computershare.com/uk/investor/bri
Share dealing: www.computershare.com/dealing/uk
Web-based enquiries: www.investorcentre.co.uk/contactus

Secondary listing
JSE (Share Code: BTI)
Shares are traded in electronic form only and transactions settled electronically through Strate.
Computershare Investor Services Proprietary Limited
Private Bag X9000, Saxonwold 2132, South Africa
tel: 0861 100 634; +27 11 870 8216
email enquiries: web.queries@computershare.co.za

Sponsor for the purpose of the JSE
UBS South Africa (Pty) Ltd

American Depositary Receipts (ADRs)
NYSE (Symbol: BTI; CUSIP Number: 110448107)
BAT’s shares are listed on the NYSE in the form of American Depositary Shares (ADSs) and these are
evidenced by American Depositary Receipts (ADRs), each one of which represents one ordinary share of
British American Tobacco p.l.c. Citibank, N.A. is the depositary bank for the sponsored ADR
programme.
Citibank Shareholder Services
PO Box 43077, Providence, Rhode Island 02940-3077, USA
tel: +1 888 985 2055 (toll-free) or +1 781 575 4555
email enquiries: citibank@shareholders-online.com
website: www.citi.com/dr

Publications
British American Tobacco Publications
Unit 80, London Industrial Park, Roding Road, London E6 6LS, UK
tel: +44 20 7511 7797 e-mail enquiries: bat@team365.co.uk or the Company’s Representative office in
South Africa using the contact details shown below.

British American Tobacco p.l.c.
Registered office
Globe House, 4 Temple Place, London, WC2R 2PG, UK
tel: +44 20 7845 1000; facsimile: +44 20 7240 0555

British American Tobacco p.l.c. is a public limited company which is listed on the London Stock
Exchange, New York Stock Exchange and the JSE Limited in South Africa. British American Tobacco
p.l.c. is incorporated in England and Wales (No. 3407696) and domiciled in the UK.

British American Tobacco p.l.c.
Representative office in South Africa
Waterway House South
No 3 Dock Road, V&A Waterfront, Cape Town 8000
South Africa
PO Box 631, Cape Town 8000, South Africa
tel: +27 21 003 6712


ENQUIRIES
INVESTOR RELATIONS:                            PRESS OFFICE:
Mike Nightingale        +44 (0)20 7845 1180    Press Office               +44 (0)20 7845 2888
Victoria Buxton         +44 (0)20 7845 2012
William Houston         +44 (0)20 7845 1138
John Harney               +44 (0)20 7845 1263




FORWARD LOOKING STATEMENTS
This announcement contains certain forward-looking statements, including "forward-looking" statements made within
the meaning of the U.S. Private Securities Litigation Reform Act of 1995. 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 British American Tobacco Group (the “Group”) operates, including the projected future financial
and operating impacts of the COVID-19 pandemic.

In particular, these forward-looking statements include, among other statements, statements regarding the Group's
future financial performance, planned product launches and future regulatory developments, as well as: (i) certain
statements in the Chief Executive commentary (pages 1 to 2); (ii) certain statements in the Finance and
Transformation Director’s Statement (page 2); (iii) certain statements in the Category Performance Review (pages 4
to 7); (iv) certain statements in the Regional Performance Review section (pages 8 to 13); (v) certain statements in
the Other Financial Information section (pages 14 to 17); (vi) certain statements in the Managing Through COVID-19
section (pages 18 to 20); (vii) certain statements in the Other Information section (pages 21 to 25); (viii) certain
statements in the Notes to the Interim Financial Statements section (pages 32 to 43), including the Liquidity and
Contingent Liabilities and Financial Commitments sections; (ix) certain statements in the Other Information section
(pages 44 to 55), including the Non-GAAP Measures sections and under the heading “Dividends”.

All such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and
other factors. 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.

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; the inability to develop, commercialise and
deliver the Group’s New Categories strategy; the impact of market size reduction and consumer down-trading; adverse
litigation and dispute outcomes and the effect of such outcomes on the Group’s financial condition; the impact of
significant increases or structural changes in tobacco, nicotine and New Categories related taxes; translational and
transactional foreign exchange rate exposure; changes or differences in domestic or international economic or
political conditions; the ability to maintain credit ratings and to fund the business under the current capital
structure; the impact of serious injury, illness or death in the workplace; adverse decisions by domestic or
international regulatory bodies; and changes in the market position, businesses, financial condition, results of
operations or prospects of the Group. 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 BAT 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 announcement 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 BAT's filings with the U.S. Securities and
Exchange Commission ("SEC"), including the Annual Report on Form 20-F and Current Reports on Form 6-K, which may be
obtained free of charge at the SEC's website, http://www.sec.gov.

All financial statements and financial information provided by or with respect to the U.S. or Reynolds American Inc.
(“Reynolds”) are initially prepared on the basis of U.S. GAAP and constitute the primary financial statements or
financial records of the U.S. / Reynolds. This financial information is then converted to International Financial
Reporting Standards as issued by the IASB and as adopted by the European Union (“IFRS”) for the purpose of
consolidation within the results of the Group. To the extent any such financial information provided in this
announcement relates to the U.S. or Reynolds it is provided as an explanation of, or supplement to, Reynolds’
primary U.S. GAAP based financial statements and information.

Our vapour product Vuse (including Alto, Solo, Ciro and Vibe), and certain products including Velo, Grizzly, Kodiak,
Camel Snus and Granit, which are sold in the U.S., are subject to FDA regulation and no reduced-risk claims will be
made as to these products without agency clearance.




Sponsor: UBS South Africa (Pty) Ltd

Date: 17-02-2021 09:00:00
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