# British American Tobacco expect to deliver strong adjusted operating margin improvement - Link: https://www.directorstalkinterviews.com/british-american-tobacco-expect-to-deliver-strong-adjusted-operating-margin-improvement/4121093829 - Published: 2022-12-08T07:34:19+00:00 - Author: Amilia Stone **[British American Tobacco plc](https://www.directorstalkinterviews.com/ftse-company/british-american-tobacco/bats.l)**( [LON:BATS](https://www.directorstalkinterviews.com/company/british-american-tobacco/bats.l)) has announced its 2022 second half pre-close trading update. **FY 2022 guidance:** o  Revenue growth of 2% to 4% at constant currency rates o  Mid-single figure adjusted diluted EPS growth at constant currency, including a transactional FX headwind of c.2% o  FY global tobacco industry volume expected to be c. -2% (prev. c.-3%), driven by continued post COVID recovery in emerging markets o  Net finance costs above £1.6bn, driven by rising interest rates and USD strength o  Translation FX tailwind of c.7%^(2) on adjusted diluted EPS growth for FY 2022 o  FY operating cash conversion in excess of 90% of adjusted profit from operations o  We expect leverage for the full year at the high end of our corridor of 2-3x adjusted net debt^(3)/ adjusted EBITDA^(4), applying current exchange rates^(2)  until year end. **Trading update detail:** **Vuse extending global leadership position^(5) in Vapour** o Vuse global value share up 2.2 ppts Sept YTD vs. FY 2021, reaching 35.7% in key Vapour markets^(6) o Vuse extends No.1 national leadership position in the US^(7), with leadership in 35 states and total Vapour value share of 39.3%, up 6.8 ppts Sept YTD vs. FY 2021 o Continued strong incremental category growth internationally, driven by disposables segment o Recently launched Vuse Go has achieved No.2 value share in the UK and France o Rapid geographic rollout of Vuse Go, now launched in 12 markets **glo continues to make category share gains** o Category volume share up 1.6 ppts in key THP markets^(8) to reach 19.5% Sept YTD o In Europe, glo reached 20.4% volume share, up 4.0 ppts in key THP markets^(9)  Sept YTD o In Japan, Hyper drove glo’s total nicotine volume share up 50 bps vs. FY 2021 to reach Sept YTD share of 7.3%; our THP category volume share was 20.2% Sept YTD down 1.0 ppt in a highly competitive market o Encouraging early results from Hyper X2 launch in Japan following national rollout in October and recent launches in 19 key markets globally, with further rollouts planned by year-end **Velo strong European leadership continues; unlocking Emerging Markets** o Volume share leadership in Modern Oral in Europe at 69.1% o Velo remains volume share leader in 15 Modern Oral markets in Europe driven by innovation including Velo Mini pouches and our Velo Max ranges o Category volume share in key Modern Oral markets^(10) at 30.6% Sept YTD, down  4.1 ppts vs. FY 2021, driven by the US, where we have continued to prioritise investment in the much larger Vapour category o In Pakistan, which is now our third largest Modern Oral market, Velo has achieved monthly volume of greater than 40mn pouches, demonstrating the potential of Modern Oral in Emerging Markets **Resilient combustibles performance ** o  Group cigarette value share flat Sept YTD, with US and APME gains offset by AMSSA and Europe declines o  Continued strong pricing partially offset by mainly geographic mix o  Continued value share growth in the US, up 10 bps Sept YTD driven by our premium brands o  US industry volumes will reflect increasing macro-economic pressures observed in H2 o  Our Group performance will additionally reflect the unwinding of prior year inventory in the US and the impact of the sale of our business in Iran in August last year o  Robust financial performances across APME, AMSSA and Europe, including key markets Bangladesh, Pakistan, Poland, Romania, and Brazil **Accelerated ESG ambitions and targets** o  Race to Zero commitment embodied in our Low Carbon Transition plan published in September o  Ambition to halve absolute emissions across our value chain by 2030^(11) and achieve Net Zero by 2050 latest o  18 certified carbon neutral manufacturing and commercial facilities^(12) to date o  Alliance for Water Stewardship certification has been achieved at our largest US manufacturing facility, as we progress towards 100% group certification by 2025 **_Jack Bowles, British American Tobacco_** **_Chief Executive:_** _“We continue to accelerate our A Better Tomorrow ^(TM) transformation, at pace. We are confident in delivering our 2022 guidance, demonstrating once again the strength and resilience of our business. I am proud of our people and their focus on the delivery of our three strategic priorities._ _Our New Category business continues to drive strong volume, revenue and market share growth and has become a significant contributor to group performance._ _Our exciting new product launches and innovations, supported by further geographic expansion, have enabled the addition of another 3.2mn consumers within our non-combustible franchise^(1) in the first nine months, reaching 21.5mn._ _We are investing in New Categories, driving sustainable growth, while making excellent progress in reducing operating losses. We expect growing contribution across all New Categories, and all Regions in 2022. We are confident in delivering our targets of £5bn revenue, and profitability by 2025._ _In our combustibles business, we expect our targeted portfolio of brands across price tiers to deliver a robust performance across APME, AMSSA and Europe, driven by resilient volumes._ _In the US, industry volumes remain under pressure due to ongoing macro-economic factors and post-Covid normalisation of consumption patterns. In order to offset early signs of accelerated downtrading in the industry in the second half of the year, we have recently activated commercial plans across specific brands, channels and states._ _We expect to deliver strong adjusted operating margin improvement despite increasing inflation in our supply chain. This has been made possible through robust pricing, the scale of our brands and increasingly focusing our marketing investments. Our three year Quantum programme is expected to deliver in excess of £1.5bn annualised cost savings by the end of 2022._ _Our business is highly cash generative, and in 2022 we expect another year of operating cash conversion well ahead of our 90% target. While expecting net finance costs to increase given the recent speed and significance of global interest rate rises and currency volatility, we will benefit from a 90% fixed debt-profile and an average maturity of over 10 years._ _In summary, our transformation is accelerating, driven by our New Categories performance, and we are delivering on our full year guidance. Together, this_ _will enable us to further invest in, and accelerate the transformation of, our business.”_ **Webcast and Conference call – The conference call will begin at 8.30am (GMT).** You can access the audio webcast via our website. You can also listen via conference call by dialling the numbers below, using **the password: BAT** United Kingdom Toll-Free: 0808 109 0700  United Kingdom Toll: +44 (0) 33 0551 0200 United States Toll-Free: 1 866 966 5335  United States New York: +1 212 999 6659 South Africa Toll-Free: 0 800 980 512 Johannesburg Toll: +27 (0) 11589 8302 A playback facility for the conference call will be available online via www.bat. com. _Market share and volume data YTD September 2022._ ^(1) Non-Combustible Consumer Definition: The number of consumers of Non-Combustible products is defined as the estimated number of Legal Age (minimum 18 years, US: 21 years) consumers of the Group’s Non-Combustible products. In markets where regular consumer tracking is in place, this estimate is obtained from adult consumer tracking studies conducted by third parties (including Kantar). In markets where regular consumer tracking is not in place, the number of consumers of Non-Combustible products is derived from volume sales of consumables and devices in such markets, using consumption patterns obtained from other similar markets with consumer tracking (utilising studies conducted by third parties including Kantar). Target market for acquisition is existing adult smokers/nicotine users. The number of Non-Combustible product consumers is used by management to assess the number of consumers regularly using the Group’s New Category products as the increase in Non-Combustible products is a key pillar of the Group’s ESG Ambition and is integral to the [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news) of our business. The Group’s management believes that this measure is useful to investors given the Group’s ESG ambition and alignment to the sustainability of the business with respect to the Non-Combustibles portfolio. ^(2) Current exchange rates of USD/GBP 1.2366 as at 6 December 2022. ^(3) Adjusted net debt is not a measure defined by IFRS. Adjusted net debt is total borrowings, including related derivatives, less cash and cash equivalents and current investments held at fair value, excluding the impact of the revaluation of Reynolds American Inc. acquired debt arising as part of the purchase price allocation process. ^(4) Adjusted EBITDA is not a measure defined by IFRS. Adjusted EBITDA is profit for the year before net finance costs/income, taxation on ordinary activities, depreciation, amortisation, impairment costs, the Group’s share of post-tax results of associates and joint ventures, and other adjusting items. ^(5) Based on Vuse estimated value share from RRP in measured retail for Vapour ( i.e., total Vapour category value in retail sales) in the USA, Canada, France, UK, Germany. These 5 markets cover an estimated c.80% of global closed system revenue. _^(6)_ **_Top 5 Vapour markets:_** _US – Marlin, Canada – Scan Data, UK – Nielsen, France – Strator, Germany – Nielsen._ ^(7) Based on US Marlin Value Share of Total Vapor (Feb. 2022 – Sept. 2022). ^(8) **_Top 9 THP markets:_** _Japan – CVS-BC, South Korea – CVS, Italy – Nielsen, Hungary – Nielsen, Greece – Nielsen, Ukraine – Nielsen, Poland – Nielsen, Russia– Nielsen, Czech Republic – Nielsen. Russia will remain in the T9 THP markets until the transfer of the Russian business is complete. The THP T9 markets were adjusted in H2 2022, with Greece and Hungary introduced, replacing Germany and Romania. Accordingly, glo’s category volume share for 2021 was rebased on the new definition from 18.1% to 17.9%.  The T9  THP markets account for c.80% of total industry THP revenue._ Category volume share 18.8% Sept YTD excluding Russia, up 1.2 ppts _^(9)_ **_Top 7 THP markets:_** _Italy – Nielsen, Hungary – Nielsen, Greece – Nielsen, Ukraine – Nielsen, Poland – Nielsen, Russia – Nielsen, Czech Republic – Nielsen._ In Europe, excluding Russia glo’s volume share reached 18.8%, up 4.8ppts ^(10) **_Top 5 Modern Oral markets:_** _US – Marlin, Sweden – Nielsen, Denmark – Nielsen, Norway – Nielsen, Switzerland – Scan Data excl. SPAR and Top CC._ These 5 markets cover an estimated 80% of total industry revenue. ^(11) Compared to 2020 baseline. Comprises 50% reduction in Scope 1, 2 & 3 greenhouse gas emissions. Where Scope 3 emissions include purchased goods & services, upstream transportation & distribution, use of sold products, and end-of-life treatment of sold products; which collectively comprised >90% of BAT’s Scope 3 emissions in 2020. ^(12) Carbon neutrality relates to Scope 1 & 2 greenhouse gas (GHG) emissions, achieved by a combination of initiatives, including energy efficiency, emissions reduction, renewable energy use, the purchase of renewable energy certificates and offsetting. Share growth refers to volume share for THP and Modern Oral and value share for Vapour As used herein, volume share refers to the estimated retail sales volume of the product sold as a proportion of total estimated retail sales volume in that category and value share refers to the estimated retail sales value of the product sold as a proportion of total estimated retail sales value in that category. Please refer to the 2021 Annual Report on Form 20‐F for a full description of these measures, together with a description of other Key Performance Indicators (KPIs), on pages 302 and 303 New Categories comprises Tobacco Heating Products (THP), Vapour and Modern Oral. Our products as sold in the US, including Vuse, Velo, Grizzly, Kodiak, and Camel Snus, are subject to Food and Drug Administration (FDA) regulation and no reduced- risk claims will be made as to these products without FDA clearance.  Share on: