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British American Tobacco plc

British American Tobacco on track for a strong year

British American Tobacco (LON:BATS) has announced its trading update, ahead of closed period commencing 1st January 2020.

The business continues to perform well and we expect:

·      A strong financial performance on an adjusted basis

·      A good performance from Combustibles, with strong price mix and share gains

·      Strong results in the US

·      Growing share and good revenue growth in New Categories in second half (H2)

·      FY New Category constant currency revenue growth at the lower end of our range of 30-50%, reflecting the recent slowdown in the US vapour market

·      De-leveraging in line with our guidance

The business continues to perform well and we expect:

A strong financial performance on an adjusted basis

·    FY constant currency adjusted revenue growth in the upper half of our 3-5% long term guidance range

·    FY adjusted operating margin improvement of 50-100bps while delivering substantial additional investment behind New Categories

·    FY constant currency adjusted operating profit growth in the upper half of our 5-7% long-term guidance range

·    FY high single figure constant currency adjusted diluted EPS growth, with a currency translation tailwind of around 1.2%, and a headwind of around 2%  for 2020*

A good performance from Combustibles, with strong price mix and share gains

·    No change to expectations for global industry volumes, down around 3.5% for the FY

·    BAT FY volumes to be broadly in line with the industry, after adjusting for the continued impact of Egypt and Venezuela and a 60bps impact from a one-off stock reduction in Russia

·    Corporate value share up 20bps YTD, driven by the Strategic Brands, up 55bps YTD

·    Corporate volume share up over 10bps YTD, with Strategic Brands up 60bps YTD

·    FY combustible price mix in excess of 7%

Strong results in the US

·    Strong constant currency revenue growth in line with the 3-5% Group guidance range, supported by good pricing and reduced discounting

·    No change to 2019 expectations for FY US industry volumes, down around 5.5%. Expect between 4-6% in 2020

·    Continued strong value share performance, with corporate value share up 30bps YTD, and premium share up 50bps YTD, driven by Natural American Spirit and Newport

·    Strategic brands volume share up 20bps YTD; corporate volume share flat YTD

·    Traditional Oral tobacco to deliver good constant currency revenue growth driven by pricing and share growth in moist snuff, up 90bps YTD

Growing share and good revenue growth in New Categories in H2

·    In vapour, Vuse is growing value share in the US, with Vuse Alto value share up 840bps to 11.1% in October, with total Vuse family value share at 17.5%. Vype continues to grow value share, reaching 11.8% in the UK, up 260bps, and 19.2% in France, up 790bps in October, with ePod successfully launched in both markets. In Canada, Vype is the fastest growing brand, reaching a value share of 27.6%, up 570 basis points since July

·   In THP, glo in Japan is holding volume share at 4.9% YTD in a competitive market. glo Pro and glo Nano launched successfully, with distribution building; glo Sens rollout began this month. Total nicotine corporate volume share in Japan is up 210bps to 18.4% YTD. Elsewhere, glo is now above 1% volume share in key cities in Eastern Europe, including Moscow

·   In Modern Oral, Velo’s rollout in the US has now expanded to 75k outlets and reaching a modern oral category volume share of 9.2%. LYFT/EPOK continue to grow, consolidating their leadership of the modern oral category outside the US

·    FY New Category constant currency revenue growth at the lower end of our range of 30-50%, reflecting the slowdown in the US vapour market

·    New Category constant currency revenue growth, excluding US vapour, to be around the middle of the range

De-leveraging in line with our guidance

·   Adjusted Net debt**/adjusted EBITDA*** reducing by approximately 0.4x excluding the impact of FX

·    FY free cash flow after dividends on track for £1.5bn

·   Medium-term rating target remains BBB+/Baa1, with a current rating of BBB+/Baa2****

The person responsible for making this announcement is Paul McCrory, BAT’s Company Secretary.

Jack Bowles, British American Tobacco Chief Executive:

“We expect to deliver a strong performance in 2019, building on the good progress we made in the first half. Our focus on our global strategic brands is delivering share gains and strong price mix in combustibles, both globally and in the US. Increased investment and new product launches are delivering good New Category revenue growth in H2, despite the recent slowdown in the US vapour market. We believe that the issues around vaping in the US should lead to a better and stronger regulatory environment in which we are well placed to succeed. In summary, we are delivering on our priorities. We are driving value growth in combustibles, we are investing to deliver a step change in New Categories and we are transforming the business to create a stronger, simpler, more agile BAT. We are on track for a strong year.”

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