British American Tobacco (LON:BATS), today released 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 £900m 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
Nicandro Durante, British American Tobacco CEO commented:
“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.”
