TIDMBATS
RNS Number : 1733K
British American Tobacco PLC
12 December 2018
12 December 2018
BRITISH AMERICAN TOBACCO p.l.c.
SECOND HALF PRE-CLOSE TRADING UPDATE 2018
Trading update - ahead of closed period commencing 1 January
2019
-- The business continues to perform well and full year guidance remains unchanged
-- Continued good market share growth in combustibles, driven by the Strategic Brands
-- Strong growth across THP, Vapour and Oral (PRRP) categories
-- The US is performing well with volume in line with expectations
-- De-leveraging remains on track
-- Remain well placed to manage US regulatory proposals
1. The business continues to perform well and full year (FY)
2018 guidance remains unchanged
-- Expecting FY industry volume decline around 3.5%
-- Exceeding the 5.5% full year price mix achieved in 2017
-- Delivering good adjusted revenue and adjusted operating profit growth, on a constant currency representative basis, with a second half weighting
-- Growing market share +40bps YTD v FY17 driven by the Strategic Brands +180bps YTD
-- Full year adjusted EPS growth is expected to be impacted by a
currency translation headwind, around 6% for FY18, at current
exchange rates*
-- Exceeding our high single figure constant currency adjusted diluted EPS growth target
2. Strong growth across THP, Vapour and Oral (PRRP)
categories
-- THP and Vapour on track to reach GBP900m of full year reported revenue
-- Glo now in 16 markets globally; share in Japan continues to grow and is now 4.6%
-- Epen3 performing well with new market launches including France and New Zealand
-- Oral tobacco expected to deliver strong constant currency
revenue growth on a representative basis.
3. The US is performing well with volume in line with
expectations
-- US industry volume decline remains in line with historic
ranges down 4.4% YTD and we continue to expect an industry decline
of around 4.0-4.5% for the full year 2018
[Note: An explanation of volume data sources in the US is
attached in Appendix 1]
-- Continued value share growth +20bps YTD with NAS, Camel and Newport all growing share
-- Vuse volume up over 30% YTD, despite the Vuse Vibe recall.
Vuse Alto's national roll-out has now reached 55,000 stores after
13 weeks
-- Delivering good revenue growth on a constant currency representative basis
4. De-leveraging remains on track
-- Net debt**/adjusted EBITDA*** reducing at around 0.4x per annum excluding the impact of FX
-- At current exchange rates* net debt**/adjusted EBITDA*** is
expected to be around 3.9X by end 2018
-- The Group's medium-term rating target remains BBB+/Baa1, with a current rating of BBB+/Baa2
5. Remain well placed to manage US regulatory proposals
-- We are constructively engaging regulators and supporting evidence-based regulation
-- We have experience in managing regulatory change over many years
-- Regulation of menthol in cigarettes should be developed
through a comprehensive rule-making process, be based on a thorough
review of the science and consider the unintended consequences, in
order to withstand judicial review
"We remain on track for a strong performance in 2018 - driven by
both our combustible and PRRP businesses. In the US, we are
performing well, with positive pricing and continued value share
growth. Our de-leveraging remains on track and we remain committed
to a dividend pay-out ratio of at least 65%. We expect to exceed
our high single figure adjusted diluted EPS growth at constant
rates of exchange."
Nicandro Durante, CEO
For further information, please contact:
British American Tobacco Press Office
+44 (0) 20 7845 2888 (24 hours) | @BATPress
British American Tobacco Investor Relations
Mike Nightingale / Rachael Brierley / John Harney
+44 (0) 20 7845 1180 / 1519/ 1263
Market share data is at 31 October 2018 and volume data is based
on YTD 31 October 2018 (unless indicated otherwise).
* Current exchange rates of USD/GBP 1.25 as at close 10 December
2018
** Net debt excluding the impact of the revaluation of RAI
acquired debt arising as part of the purchase price allocation
process.
*** Adjusted EBITDA is not a measure defined by IFRS. Adjusted
EBITDA is profit from operations before amortisation and
depreciation and excluding the impact of adjusting items.
The Group management board believes that this additional
measure, which is used internally to assess the Group's financial
capacity, is useful to the users of the financial statements in
helping them to see how the Group's financial capacity has changed
over the year. Adjusted EBITDA has limitations as an analytical
tool. It is not a presentation made in accordance with IFRS and
should not be considered as an alternative to profit from
operations as determined in accordance with IFRS.
Appendix 1: US industry cigarette volume data sources:
Given continued investor interest in monthly US industry
cigarette volume data, investors should note that there are three
main sources of volume data in the US:
1. Shipments to Wholesale (STW): represents manufacturer
shipments (sales) to wholesale and drives the P&L. This system
is based upon actual shipments from manufacturers representing 90%
of cigarette volumes. An independent vendor then estimates the
remaining volumes using government tax data. Shipments can
fluctuate due to changes in inventory at wholesale.
2. Shipments to Retail (STR): represents sales from wholesale to
retail, which is subject to minimal changes in inventory, as
retailers will not significantly vary inventory levels due to the
impact on working capital. STR measures actual sales reported by
suppliers representing 94% industry coverage for cigarettes. In our
experience, this provides the most reliable indicator of consumer
trends in the US.
3. Syndicated sample-based survey data: Publicly available
sample-based data relies on representative outlet coverage (e.g.
Nielsen, IRI). When interpreting data from such studies, investors
should consider the following:
a. Surveys are designed to provide information across a wide
range of consumer goods categories, with the result that sample
construction is often a compromise in terms of representation
across distribution channels and categories.
b. More than 40% of cigarette industry sales are through a large
number of small chain and independent stores.
c. Survey samples can be skewed to larger organized outlets, due to the costs of constructing a representative sample of independent outlets, however, these independent outlets may be more relevant to cigarettes, than to other categories.
d. When modelling industry volume, retail outlets are weighted
by All Commodity Value (ACV), which can further skew data towards
stores within large chains and may not be representative of
cigarette industry trends.
As a result, syndicated sample-based data systems can be heavily
skewed towards large chains, and independents are
under-represented.
Based on Shipments to Retail, YTD October US industry volume is
down 4.4%, in line with our expectations and reflecting a slightly
improved H2, as previously communicated. We continue to expect US
industry cigarette volume to be down 4.0% - 4.5% in 2018.
Note on Non-GAAP Measures
This announcement contains several non-GAAP measures used by
management to monitor the Group's performance. Certain of our
measures are presented based on an adjusted basis, on a constant
currency basis and on a representative basis. Please refer to the
2017 Annual Report on Form 20--F for a full description of each
measure, pages 218 to 222, as well as the Half-Year Report to 30
June 2018 on Form 6-K, pages 50 to 53.
For the non-GAAP information contained in this announcement, no
comparable GAAP or IFRS information is available on a
forward-looking basis, as the effect of adjusting items and rates
of exchange, which could be significant, may be highly variable and
cannot be estimated with reasonable certainty. Statements
concerning information presented on a representative basis (i.e.,
information presented as though the Group had owned the
acquisitions made in 2017 for the whole of that year), also apply
to such information when it is not presented on a representative
basis.
Adjusting items, as identified in accordance with the Group's
accounting policies, represent certain items of income and expense
which the Group considers distinctive based on their size, nature
or incidence. These include significant items in revenue, profit
from operations, net finance costs, taxation and the Group's share
of the post--tax results of associates and joint ventures which
individually or, if of a similar type, in aggregate, are relevant
to an understanding of the Group's underlying financial
performance. Although the Group does not believe that these
measures are a substitute for IFRS measures, the Group does believe
such results excluding the impact of adjusting items provide
additional useful information to investors regarding the underlying
performance of the business on a comparable basis.
The Group's management reviews a number of our IFRS and
non--GAAP measures for the Group and its geographic segments at
constant rates of exchange. This allows comparison of the Group's
results, had they been translated at the previous year's average
rates of exchange. The Group does not adjust for the normal
transactional gains and losses in operations that are generated by
exchange movements. Although the Group does not believe that these
measures are a substitute for IFRS measures, the Group does believe
that such results excluding the impact of currency fluctuations
year--on--year provide additional useful information to investors
regarding the operating performance on a local currency basis.
As previously announced, this announcement and other results
communications in 2018 include a presentation of results against
2017 as though the Group had owned the acquisitions made in 2017
for the whole of that year. Comparison of results on this basis
will be termed "on a representative basis" and will provide
shareholders with a results comparison representative of the Group
having owned the acquisitions throughout 2017 and 2018. Although
the Group does not believe that results on this basis are a
substitute for IFRS measures, the Group does believe such results
including the impact of acquisitions as though the acquisitions had
occurred at the beginning of 2017 provide additional useful
information to investors regarding the underlying performance of
the business on a comparable basis. Because of the impact of the
acquisitions made in 2017, we believe statements concerning
non-representative information would be distorted and do not
provide meaningful information to investors regarding the
underlying performance of the business.
Forward-looking statements
This announcement does not constitute an invitation to
underwrite, subscribe for, or otherwise acquire or dispose of any
British American Tobacco p.l.c. ("BAT") shares or other securities.
This announcement contains certain forward-looking statements, made
within the meaning of Section 21E of the United States Securities
Exchange Act of 1934, 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.
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.
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; changes in domestic or
international tax laws and rates; 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 lead the development and roll-out of
BAT innovations (NGP and Combustible); 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 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 U.S. Securities and
Exchange Commission ("SEC"), including the Annual Report on Form
20-F filed on 15 March 2018 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.bat.com.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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