TIDMBATS
RNS Number : 1752H
British American Tobacco PLC
26 July 2023
26 July 2023 - Press Release/Interim Results
British American Tobacco p.l.c.
Half-Year Report for the six months to 30 June 2023
Resilient performance, renewed energy, full-year guidance
on track
Half-Year summary
- Revenue up 4.4% (being +2.6% at constant FX), driven by New
Categories (revenue up 26.6%, at constant FX) - good progress
towards our GBP5 billion New Category target by 2025
- Revenue from Non-Combustibles now 16.6% of Group revenue , up
180 bps vs FY22
- Continued strong revenue performance of Vuse and Velo -
commercial plans activated for glo, launch of glo Hyper X2 Air a
first step in an enhanced innovation pipeline
- New Categories financial delivery significantly improved -
contributing GBP201 million increase to Group profit as losses
reduce, on track to achieve our New Category profitability target
in 2024
- Combustible pricing remains strong - good revenue performances
in AME and APMEA offset the U.S., demonstrating the benefit of our
global footprint
- Sequential performance improvement in our U.S. premium
combustibles volume share in 2023 - with sharper portfolio
management driving early signs of stabilisation
- Reported profit from operations up 61.4% (with reported
operating margin up 1,560 bps to 44.2%) - as prior period impacted
by charges related to Russia/Belarus, the U.S. DOJ/OFAC provision
and Quantum
- Adjusted profit up 3.6% at constant FX , adjusted operating
margin up 40 bps to 44.3%
- Reported diluted EPS up 118% to 176.0p; adjusted diluted EPS
up 5.3% at constant FX
- Restructured Management Board - driving sharper execution,
greater collaboration and agility
- Further strengthened sustainability delivery, building on
Double Materiality Assessment(1) , including increased
collaboration across our value chain to drive progress towards our
sustainability targets, including Scope 3 emissions and
biodiversity
Tadeu Marroco, Chief Executive
"Having been in my new role for 10 weeks, I'm pleased with the
resilient performance of BAT in the first half of 2023 and the
renewed sense of energy across the organisation.
It is a challenging external environment. High inflation and
slower global growth are impacting consumers and business. Yet our
revenue, profit from operations and earnings are all up.
We are making great progress in New Categories. Revenues are up
by 29% and we are now close to breakeven, with consumers of
Non-Combustible products up by 1.5 million versus FY 2022 . While
it's encouraging to see continued good performance in Vapour and
Modern Oral, we recognise more work is required in heated
tobacco.
I remain confident that New Categories will deliver a positive
contribution in 2024. However, we do not expect contribution growth
to be linear, as levels of investment will align with the phasing
of our big innovation platforms.
While more focus is required in the U.S., our sequential
performance improvement in the critical premium U.S. combustibles
business since January 2023 is encouraging.
These results are thanks to the hard work by BAT people around
the world. To help ensure we continue to deliver, the recently
announced Management Board structure is designed to enhance our
strategic capabilities and further embed the collaborative and
inclusive culture I want to see everywhere across the Group.
While more needs to be done, I'm excited by BAT's future. Our
full-year guidance remains unchanged."
Performance highlights Reported Adjusted(2) Adjusted
Organic(3)
===================== ====================== ===========
For six months to 30 June Current vs 2022 Current vs 2022 vs 2022
2023
rates (current) rates (constant) (constant)
================================== ========== ========= ========== ========== ===========
Cigarette and THP volume
share flat
Cigarette and THP value share -50 bps
Non-Combustibles consumers(4) 24.0m +1.5m
Revenue (GBPm) GBP13,441m +4.4% GBP13,441m +2.6% +2.8%
Revenue from New Categories
(GBPm) GBP1,656m +29.0% GBP1,656m +26.6% +27.9%
Profit from operations (GBPm) GBP5,935m +61.4% GBP6,020m +3.6% +2.7%
Category contribution - New
Categories (GBPm)(5) -GBP12m -90.7% -97.6%
+1,560
Operating margin (%) +44.2% bps +44.8% +40 bps flat
Diluted EPS (pence) 176.0p +118% 181.6p +5.3%
Net cash generated from operating
activities (GBPm) GBP3,375m +4.8%
Adjusted cash generated from
operations (GBPm) GBP1,965m -7.8%
-3,070
Cash conversion (%) +56.9% bps +72.4% -520 bps
Borrowings(6) (GBPm) GBP42,169m -6.0%
Adjusted Net Debt (GBPm) GBP37,259m -2.3%
================================== ========== ========= ========== ========== ===========
The use of non-GAAP measures, including adjusting items and
constant currencies, are further discussed from page 50 , with
reconciliation from the most comparable IFRS measure provided.
Notes: 1. Although financial materiality has been considered in
the development of our Double Materiality Assessment ("DMA"), our
DMA and any related conclusions as to the materiality of
sustainability or ESG matters do not imply that all topics
discussed therein are financially material to our business taken as
a whole, and such topics may not significantly alter the total mix
of information available about our securities. 2. See page 28 for
discussion on adjusting items. 3. Organic measures exclude the
performance of businesses sold (including the Group's Russian and
Belarusian businesses as those are held-for-sale) or acquired, or
that have an enduring structural change impacting performance that
may significantly affect the users' understanding of the Group's
performance in the current and comparator periods to ensure
like-for-like assessment across all periods. 4. Internal estimate,
see page 44 . 5. This represents an improvement in New Categories
contribution as losses reduced by 94.4% (or 90.7% at constant rates
of exchange). 6. Includes lease liabilities.
Group Operating Review
Total Group volume and revenue
Prior year data is provided in the tables on pages 49 and 51
Volume Revenue
========================== ======================= ===========================================================
Reported Organic
========================================== ===============
Reported Organic Current Exchange Constant Constant
For six months to
30 June 2023 Unit vs 2022 vs 2022 GBPm vs 2022 GBPm GBPm vs 2022 GBPm vs 2022
========================== ===== ======= ======= ====== ======= ======== ====== ======= ====== =======
New Categories 1,656 +29.0% (31) 1,625 +26.6% 1,565 +27.9%
====== ======= ======== ====== ======= ====== =======
Vapour (10ml units/pods
mn) 319 +9.0% +9.0% 866 +40.3% (29) 837 +35.5% 837 +35.5%
THP (sticks bn) 12.1 +9.8% +15.7% 550 +10.7% (3) 547 +10.2% 490 +11.8%
Modern Oral (pouches
mn) 2,348 +32.7% +32.2% 240 +41.8% 1 241 +42.4% 238 +42.0%
====== ======= ======== ====== ======= ====== =======
Traditional Oral
(stick eq bn) 3.3 -15.9% -15.9% 571 -4.5% (27) 544 -9.0% 544 -9.0%
====== ======= ======== ====== ======= ====== =======
Total Non-Combustibles 2,227 +18.4% (58) 2,169 +15.3% 2,109 +15.8%
====== ======= ======== ====== ======= ====== =======
Cigarettes (sticks
bn) 286 -5.7% -4.7%
OTP incl RYO/MYO
(stick eq bn) 7 -10.4% -10.4%
===== ======= =======
Total Combustibles 293 -5.8% -4.9% 10,967 +1.8% (171) 10,796 +0.2% 10,502 +0.4%
Other 247 +15.0% (11) 236 +10.4% 234 +9.6%
====== ======= ======== ====== ======= ====== =======
Total 13,441 +4.4% (240) 13,201 +2.6% 12,845 +2.8%
====== ======= ======== ====== ======= ====== =======
Cigarettes and THP
(sticks bn) 298 -5.2% -4.1%
========================== ===== ======= ======= ====== ======= ======== ====== ======= ====== =======
Constant currency measures are calculated based upon a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
Movement in Revenue
The following chart is in GBPm
Reported revenue increased 4.4% to GBP13,441 million, largely
due to:
- New Categories, up 29.0%, with volume growth in all three
categories;
- Robust delivery in combustibles in AME and APMEA, offsetting
the U.S., demonstrating the benefit of the Group's global
footprint; and
- A translational foreign exchange tailwind due to the relative
weakness of sterling, particularly against the US dollar.
Cigarette volume declined 5.7%, largely due to the U.S. (down
12.4%) which itself was negatively impacted by macro-economic
pressures affecting the industry (down 8.4%). In the U.S., the
Group underperformed the industry due to the premium skewed
portfolio, although the premium segment began to return to more
normalised decline rates in H1 2023. Our U.S. business was also
negatively impacted by the implementation of the flavour ban in
California, while lapping a comparator that included the short-term
inventory build related to the SAP roll out. Global duty paid
industry cigarette volume was down by c.3%.
Group cigarette volume share grew 10 bps, with value share 40
bps lower.
The following analysis is on a constant currency basis, which we
believe reflects the operational performance of the Group:
- In the U.S., revenue was down 5.4% as combustibles pricing and
the growth of New Categories (up 21.7%, underpinned by pricing,
which more than offset a decrease in volume of 6.5%) were more than
offset by lower cigarette volume. Vuse extended leadership in value
share (of total Vapour in tracked channels) by 570 bps to 46.7%. We
welcome the recent FDA actions with regards to the illicit
synthetic nicotine disposables in the U.S. (now estimated to be
more than 50% of the U.S. Vapour market) and continue to engage
with stakeholders to facilitate the removal of unauthorised
products;
- In AME, revenue grew 9.1% driven by combustibles (up 5.0%,
underpinned by a robust volume performance) and New Categories (up
35.9%) where the Group continued to grow revenue in all three
categories. On an organic basis, excluding the results of Russia
and Belarus, revenue increased by 10.3% to GBP4,273 million;
and
- In APMEA, revenue was up 9.8%, driven by combustibles pricing
in Bangladesh, Pakistan and Australia. New Categories revenue
increased by 15.0%, largely due to higher Vapour revenue (up 76.6%)
largely due to South Africa and New Zealand.
Please refer to pages 5 to 6 for a further discussion on the
performance by category and pages 7 to 9 for discussion on regional
performance.
Group Operating Review
Continued
Profit from operations, operating margin and category
contribution
Reconciliation of Profit from Operations and Operating Margin,
to adjusted profit from operations at constant rates of
exchange
Prior year data is provided in the table on page 53
Reported Adj. Exchange Adjusted Adjusted Organic
============================= ============== ==== ======== ============== ==================
Current Constant Constant
============== ==== ======== ============== ==================
For six months to
30 June 2023 GBPm vs 2022 GBPm GBPm GBPm vs 2022 GBPm vs 2022
============================= ===== ======= ==== ======== ===== ======= ======= =========
Profit from Operations
(PfO) 5,935 +61.4% 85 (170) 5,850 +3.6% 5,702 +2.7%
+1,560
Operating Margin 44.2% bps 44.3% +40 bps 44.4% flat
PfO delivered by
New Categories contribution^ (21) -90.7% (36) -81.8%
Rest of the Business 5,871 -0.1% 5,738 -0.7%
============================= ===== ======= ==== ======== ===== ======= ======= =========
Constant currency measures are calculated based upon a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
^This represents an improvement in New Categories contribution
as losses reduced by 94.4% (or 90.7% at constant rates of
exchange).
Movement in Profit from Operations
The following chart is in GBPm
Profit from operations and operating margin
Profit from operations on a reported basis was up 61.4% to
GBP5,935 million, with reported operating margin up 1,560 bps to
44.2%, due to:
- A significant reduction in one-off charges (GBP85 million in
HY23 compared to GBP1,967 million in HY22). The movement was
largely due to the decision to transfer the Group's Russian and
Belarusian businesses, the U.S. Department of Justice's ("DOJ") and
Department of the Treasury's Office of Foreign Assets Control's
("OFAC") investigations into suspicions of sanctions breaches and
the Group's restructuring programme Quantum, which negatively
impacted the prior year;
- A translational foreign exchange tailwind due to the relative
weakness of sterling against the Group's operating currencies;
and
- Growth in combustibles revenue in AME and APMEA, and an
improvement in New Categories performance (as losses reduced from
GBP222 million in the prior period to GBP21 million at constant
rates of exchange). However, these were partially offset by the
absorption of a 2% transactional foreign exchange headwind in the
period and a decline in U.S. combustibles volume and revenue.
For a full discussion on the performance by region, please see
pages 7 to 9 .
However, in summary, excluding the impact of adjusting items and
the impact of translational foreign exchange (as we believe this
provides an understanding of the operational performance on a
comparable basis):
- In the U.S., adjusted profit from operations was marginally
lower than HY22 (down 0.2% to GBP3,130 million), driven by the
lower volume in combustibles (described earlier) and associated
decline in revenue, which more than offset the continued improved
performance in Vapour;
- In AME, adjusted profit from operations increased 7.8%, driven
by good pricing in combustibles which provided the fuel to further
increase investment in New Categories, including further
geographical expansion mainly in Vapour. Notably, the Group
performance improved in Germany, Ukraine, Brazil, Mexico, Poland,
Norway and the Czech Republic. On an organic basis, adjusted profit
from operations increased 4.4% at constant rates of exchange;
and
- In APMEA, adjusted profit from operations increased 9.3%,
driven by Australia, Sri Lanka and Global Travel Retail (GTR),
which more than offset a decline in Japan, largely due to the
highly competitive pricing environment in combustibles and THP
(including the impact of the final step in the five-year excise
harmonisation programme in THP).
In aggregate, adjusted profit from operations at constant rates
was up 3.6%, or 2.7% on an organic basis, with a djusted operating
margin up 90 bps at current rates and 40 bps at constant rates of
exchange.
Group Operating Review
Continued
Cash/Capital allocation
We are making good progress reducing our leverage towards the
middle of our 2-3x adjusted net debt/adjusted EBITDA range by the
end of 2023, driven by continued strong cash generation. While cash
flow is always weighted to the second half, mainly due to timing of
Master Settlement Agreement ("MSA") payments and leaf purchases, we
are on track to deliver another year of operating cash conversion
in excess of our 90% guidance. We continue to expect the Group to
generate c.GBP40 billion of free cash flow before dividends over
the next five years.
Liquidity remains strong with average debt maturity close to 10
years, and a fixed debt profile of c.95% and close currency
matching. Our medium-term rating target remains Baa1/BBB+, with a
current rating of Baa2 (stable outlook)/BBB+ (negative outlook).
The Group expects gross capital expenditure in 2023 of
approximately GBP550 million, mainly related to the ongoing
investments in the Group's operational infrastructure, including
the expansion of our New Categories portfolio.
Our active capital allocation framework considers the continued
investment in our transformation, the macro environment, and
potential future litigation and regulatory outcomes. In April 2023,
we reached agreements with the DOJ and OFAC to resolve previously
disclosed investigations into suspicions of sanctions breaches. The
total amount payable to the U.S. authorities is $635 million plus
interest. In Canada, the confidential CCAA mediation process is
still ongoing and the outcome remains uncertain. At 30 June 2023,
Canada had a balance of GBP1,653 million related to restricted cash
and cash equivalents and GBP302 million related to investments held
at fair value. Given the above issues, and a more challenging and
dynamic macro environment, in 2023 the Board has taken a pragmatic
approach to prioritise strengthening our balance sheet. At the same
time, we understand the importance of cash returns to shareholders,
and remain committed to our 65% dividend payout ratio over the long
term.
In addition, once the middle of our target leverage range has
been reached, we will review and consider our objective to
sustainably return excess cash to shareholders.
ESG Performance update
We continue to embed sustainability in our business and across
our value chain guided by our focus on materiality*. In the first
half we made particular progress in our collaboration with key
supply partners:
- Climate Change: With Scope 3 emissions representing over 90%
of the Group's GHG emissions, we have continued to strengthen our
supplier engagement to drive emission reduction towards our targets
and further build resilience in our supply chain. In H1 2023, we
engaged with over 600 suppliers, representing over 90%(1) of our
purchased goods and services emissions, for them to participate in
the 2023 CDP Supply Chain programme . This level of engagement
presents a threefold increase vs prior year (FY2022: over 200
suppliers).
- Biodiversity: We have launched a new Biodiversity Operating
Standard to support our Group commitments on reducing our impact on
forests and natural ecosystems. This provides guidance on due
diligence and traceability to help protect biodiversity in our
tobacco supply chain, including the use of traceable wood that is
Deforestation and Conversion-Free(2) and Biodiversity Management
Plans(3) .
- Human Rights and Farmer Livelihoods: As part of the work we do
with over 80,000 of our directly contracted farmers in enhancing
their livelihoods, we have further developed our Living Income
Guidance and training for directly contracted farmers, in order to
help them implement tailored improvement plans.
*Refer to page 48 of this document for a full description of key
terms and definitions.
1. Excluding Russia and Belarus. More details about changes to
the Group related to Russia and Belarus are available on page 15 of
this document.
2. Deforestation and Conversion-Free (DCF) refers to the
sourcing or production of a commodity that does not cause or
contribute to deforestation or conversion of natural
ecosystems.
3. Biodiversity Management Plans (BMP) are implementation plans
for conserving, restoring and enhancing areas of high biodiversity
value.
On track for Full-Year 2023 guidance
- Global tobacco industry volume expected to be down c.3.0%
partly due to the U.S., Pakistan and uncertainty over
Russia/Ukraine.
- Organic constant currency revenue growth of 3-5% and continued
strong progress towards GBP5 billion New Category revenue in
2025.
- Mid-single figure constant currency adjusted EPS growth,
including continued expectation of c.2% transactional FX
headwind.
- Expected translational foreign exchange headwind of 3% on full
year adjusted diluted EPS growth.
- Operating cash flow conversion in excess of 90%.
- Progress towards the middle of our 2-3x Adjusted net
debt/Adjusted EBITDA corridor*.
- Commitment to dividend growth in sterling terms and our
long-term 65% dividend pay-out ratio*.
* at constant rates of exchange
Enquiries
For more information, please contact
Investor Relations: Press Office:
Victoria Buxton +44 (0)20 7845 2012 +44 (0)20 7845 2888 | @BATplc
Amy Chamberlain +44 (0)20 7845 1124 BAT Media Team
John Harney+44 (0)20 7845 1263
Jane Henderson +44 (0)20 7845 1117
BAT IR Team
Webcast and Q&A session:
BAT will hold a live webcast for investors and analysts at
9.30am (BST) on 26 July 2023, hosted by Tadeu Marroco, Chief
Executive, and Javed Iqbal, Interim Finance Director and Director,
Digital & Transformation. The presentation will be followed by
a Q&A session. The webcast and presentation slides will be
available to view on our website at www.bat.com/latestresults .
If you prefer to listen via conference call, please use the
following dial-in details (participant passcode: BAT).
Standard International: +44 (0) 33 0551 SA (toll free): 0 800 980
0200 512
UK (toll free): 0808 109 0700 U.S. (toll free): + 1 866
580 3963
Category Performance Review
Please see page 51 for a full reconciliation to constant
currency and organic metrics, including prior year data.
All references to volume share or value share movement in the
following discussion are compared FY 2022. See page 43 f or a
discussion on the use of this measure.
Our products as sold in the US, including Vuse, Velo, Grizzly,
Kodiak, and Camel Snus, are subject to FDA regulation and no
reduced-risk claims will be made as to these products without
agency clearance.
Volume Revenue
========================= ======================= ========================================================
Reported Organic
===== ======= ======================================== ==============
Reported Organic Current Exchange Constant Constant
============== ======= ============== ======== ============== ==============
For six months
to 30 June 2023 Unit vs 2022 vs 2022 GBPm vs 2022 GBPm GBPm vs 2022 GBPm vs 2022
========================= ===== ======= ======= ===== ======= ======== ===== ======= ===== =======
New Categories 1,656 +29.0% (31) 1,625 +26.6% 1,565 +27.9%
===== ======= ======== ===== ======= ===== =======
Vapour (10ml units/pods
mn) 319 +9.0% +9.0% 866 +40.3% (29) 837 +35.5% 837 +35.5%
THP (sticks bn) 12.1 +9.8% +15.7% 550 +10.7% (3) 547 +10.2% 490 +11.8%
Modern Oral (pouches
mn) 2,348 +32.7% +32.2% 240 +41.8% 1 241 +42.4% 238 +42.0%
===== ======= ======== ===== ======= ===== =======
New Categories
contribution (21) -90.7% (36) -81.8%
========================= ===== ======= ======= ===== ======= ======== ===== ======= ===== =======
Constant currency measures are calculated based upon a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
Vuse - Vapour: Extending global value share* leadership
- Vuse value share up 240 bps, reaching 38.3% in key Vapour
markets**, with the modern disposables continuing to accelerate
total category growth. Vuse Go now in 46 markets.
- Vuse extended leadership in value share (of total Vapour in
tracked channels) by 570 bps to 46.7% in the U.S. and leading in 36
states.
- Vapour revenue up 35.5% (at constant rates), delivered by
volume growth of 9% and pricing.
- Three of the five key Vapour markets are profitable(1) ,
driven by increased scale and marketing spend effectiveness.
Our Vapour portfolio performed well, driven by Vuse which
increased value share by 240 bps, reaching 38.3%, and which
continued its strong performance across all three regions.
Group consumables volume grew 9.0% vs H1 2022, with revenue up
40.3% to GBP866 million, or 35.5% at constant rates of
exchange.
Modern disposables continue to accelerate category growth with
their convenient format, driving consumer trial and conversion.
Vuse Go is now in 46 countries, with positive regulatory
developments enabling our entrance into a number of emerging
markets (Colombia, Paraguay, Peru). We continue to approach the
growing modern disposables product category in a responsible way
(including youth access prevention programmes and enhanced product
Take-Back schemes).
In the U.S., the world's largest Vapour market, Vuse extended
leadership in value share (of total Vapour in tracked channels) by
570 bps to 46.7%, with revenue up 29.4%, or 23.0% on a constant
currency basis, despite a decrease in consumables volume (down
6.5%) with the market down 15%(2) , due to the growth of illicit
synthetic nicotine disposables which we estimate to be more than
50% of the total Vapour market. We welcome the recent FDA actions
with regards to the illicit synthetic nicotine disposables in the
U.S. and we continue to engage with stakeholders to facilitate the
removal of unauthorised products. Furthermore, we remain confident
in our Premarket Tobacco Product Authorisation ("PMTA") submission
for Vuse Alto, which further built on the foundational science of
our successful applications for Solo, Ciro and Vibe tobacco
flavour.
In AME, Vuse continued to grow both revenue (up 60.1%, or 56.5%
on a constant currency basis) and volume (up 28.6%) with broad
based growth across key European markets, partly offset by a
marginal decline in volume in Canada.
In APMEA, total Vuse consumables volume grew 35.0%, with revenue
up 65.5%, or 76.6% on a constant currency basis, driven by South
Africa and New Zealand.
* Based on Vuse estimated value share from RRP in measured
retail for Vapour (i.e., total Vapour category value in retail
sales) in the U.S., Canada, France, the UK and Germany.
** Key Vapour markets are defined as the Top 5 markets by
industry revenue in tracked channels, being the U.S., Canada,
France, the UK and Germany. The Top 5 account for c.80% (2022:
c.80%) of Global industry vapour revenue (rechargeable closed
systems and disposables).
1. On a market contribution basis. 2. Source: Marlin
glo - Tobacco Heating Products (THP) - Activating commercial
plans in Japan and Italy
- glo revenue growth up 10.2% at constant rates, driven by
continued strong performance in some key THP markets* in AME.
- glo THP category volume share in our key THP markets declined
110 bps to 18.2%, glo volume share of total THP and combustibles up
20 bps to reach 4.0%
- Activating commercial plans in highly competitive markets
Japan and Italy.
- glo Hyper X2 Air, our first step in an enhanced innovation
cadence, already launched in nine markets with further H2 roll-outs
planned.
glo revenue was up 10.7%, or 10.2% at constant rates of exchange
(or 11.8% on an organic basis). Consumables volume grew by 9.8%, or
15.7% on an organic basis, as THP category growth continued to
drive our volume share of total THP and combustibles up 20 bps to
reach 4.0%.
Continued category volume share momentum in key AME THP markets,
including Poland and the Czech Republic, was offset by the highly
competitive markets in Japan and Italy, with glo's THP category
volume share in key THP markets down 110 bps to 18.2%.
As part of our enhanced innovation pipeline, our latest
platform, glo Hyper X2 Air (our lightest device to date), is
delivering positive early results in new launch markets with
further roll-outs planned in H2 2023. We continue to expand our
geographic footprint with glo now available in 33 markets. Notably,
glo's volume share in Japan started to recover in Q2 2023, driven
by the activation of our commercial plans, ahead of the launch of
glo Hyper X2 Air in July 2023.
In AME, volume was up 8.8%, as growth in Poland, the Czech
Republic and Romania was partly offset by Russia. Revenue was up
18.9%, or 14.3% at constant currency driven by the volume momentum,
partially offset by Italy. On an organic basis, volume was up 23.4%
with revenue growth of 19.6% at constant currency.
In APMEA, volume grew 10.9%, driving revenue up 3.0%, or 6.3% at
constant currency, although this was partly offset by the highly
competitive Japanese market, which included the impact of the final
step in the five-year excise harmonisation programme.
* Key THP markets are defined as the Top 12 markets (excl
Russia) by industry volume. They were adjusted in 2023, with more
established THP markets Kazakhstan, Romania, Switzerland and
Malaysia introduced and Russia removed in advance of the planned
exit this year. Accordingly, glo's category volume share for 2022
was rebased on the new definition from 19.4% to 19.2%. Top 12
markets are Japan, South Korea, Italy, Greece, Hungary, Kazakhstan,
Ukraine, Poland, Switzerland, Romania, Malaysia and the Czech
Republic. The Top 12 account for c.70% of total industry THP volume
in 2022.
Category Performance Review
Continued
VELO - Modern Oral - AME leadership continues, unlocking
emerging markets
- Revenue up 42.4% at constant rates, ahead of volume growth of
32.7%.
- Volume share of total oral category in key markets* grew 70
bps to 8.1%.
- BAT's volume share of the Modern Oral category in key markets*
down 190 bps, driven by U.S. market.
- Continued AME Modern Oral category volume leadership, with
Velo now the largest oral nicotine pouch brand in Sweden.
- Strong growth in Pakistan and Kenya, providing valuable
insights to guide our development in emerging markets.
Velo v olume was up 32.7% and revenue up 41.8%, or 42.4% at
constant rates. BAT's volume share of the total oral category grew
70 bps to 8.1%, while our category share of Modern Oral in key
markets was 28.4%, down 190 bps, mainly driven by the U.S.
Outside the U.S., the Group maintained clear volume share
leadership of the Modern Oral category, with Mini pouches and Max
ranges driving strong growth.
In the U.S., volume declined 37.7%, with volume share down 160
bps and revenue down 15.5% (or 19.7% at constant rates) as
promotional support was redirected behind Vuse in the much larger
Vapour category. We continue to await the outcome of our PMTA
submission for our new Velo product.
In AME, we remain the volume share leader in 15 Modern Oral
markets, with volume growth of 39.0% and revenue growth of 44.4% at
constant rates. From a high base, volume share was lowe r at 66.7%,
down 210 bps. As the Modern Oral category continues to grow and
becomes more established in AME, we continue to see strong growth
in average daily consumption. In Sweden, Velo is now the largest of
any snus or Modern Oral nicotine pouch brand.**
In APMEA, our volume grew 49.3% and our revenue grew 83.0%
(being 98% at constant rates). In Pakistan, growth continued as we
leveraged our category insights to drive consumer acquisition and
deepen conversion. In addition, in H1 2023 we rolled out nationally
in Kenya following successful pilots last year.
*Key Oral and Modern Oral markets are defined as the Top 5
markets by industry revenue, being the U.S., Sweden, Norway,
Denmark and Switzerland and accounting for c.85% (2022: c.85%) of
total industry Modern Oral revenue .
**Source: Kantar New Category Tracker.
Value through combustibles
- Group value share down 40 bps, with gains in AME (up 10 bps),
offset by APMEA (down 40 bps) and the U.S. (down 70 bps).
- Group volume share up 10 bps, driven by AME (up 30 bps), a
flat share in APMEA, offset by the U.S. (30 bps down).
- U.S. commercial plans driving sequential volume share growth
in 2023.
- Reinvigorated portfolios, refreshed brands and sharpened
execution deliver strong performance outside the U.S.,
demonstrating benefit of global footprint.
Group cigarette volume was down 5.7% to 286 billion sticks (30
June 2022: 303 billion sticks), as volume growth in Bangladesh,
Brazil and Turkey was more than offset by lower volume in the U.S.,
Russia and the impact of significant excise increases in
Pakistan.
In the U.S., volume declined 12.4%, compared to an industry
which was down 8.4%, largely driven by macro-economic pressures
impacting consumer behaviour. This included downtrading which had a
greater proportional effect on the Group due to the premium skewed
portfolio. The decline in the premium sector began to normalise in
the first half of 2023 (compared to H2 2022) as pricing moderated.
The Group's combustible volume was also negatively impacted by the
implementation of the flavour ban in California and lapping a
comparator period that included an inventory build in relation to
the implementation of SAP.
Revenue from combustibles grew 1.8% to GBP10,967 million (30
June 2022: GBP10,774 million), benefiting from a translational
foreign exchange tailwind. Revenue at constant rates of exchange
was up 0.2% to GBP10,796 million, being an increase of 0.4% on an
organic basis. Optimised pricing across all regions, most notably
in Australia, Pakistan, Turkey, Canada and Germany, more than
offset negative geographic mix (driven by the U.S.), delivering an
overall price/mix of 6.0%.
Traditional Oral
Group volume declined 15.9% to 3.3 billion stick equivalents.
Total revenue was GBP571 million (30 June 2022: GBP598 million),
down 4.5% or 9.0% at constant rates. Continued strong pricing in
the U.S. drove Group price/mix of 6.9%. This was more than offset
by the reduction in volume in both AME (down 5.3%) and the U.S.
(down 17.2%) in the first half of 2023.
In the U.S. (which accounts for 97% of revenue from the
category), revenue declined 9.5% (at constant rates of exchange) as
pricing was insufficient to offset the volume decline. This was
largely due to inventory movements (mainly related to the SAP
implementation in the first half of 2022) and the implementation of
menthol regulations in California. Value share in Traditional Oral
increased 10 bps, with volume share down 10 bps.
Beyond nicotine
BTV has completed 22 investments (with three successful exits)
since its launch in 2020 and continues to invest in innovative,
consumer-led new sciences and technologies.
In April 2023, we announced a joint venture agreement between a
Group subsidiary, AJNA BioSciences PBC and Charlotte's Web that
reinforces our commitment to Charlotte's Web and represents another
step for us in our exploration beyond tobacco and nicotine. The
Group contributed US$10 million to this joint venture as an initial
investor in exchange for 20% of the equity in the new entity (De
Floria LLC).
Please see page 15 for more information on our investment in
Charlotte's Web.
Regional Review
The performances of the regions are discussed below. The
following discussion is based upon the Group's internal reporting
structure.
All references to volume share or value share movement in the
following discussion are compared to FY 2022. See page 43 for a
discussion on the use of this measure. Our products as sold in the
US, including Vuse, Velo, Grizzly, Kodiak, and Camel Snus, are
subject to FDA regulation and no reduced-risk claims will be made
as to these products without agency clearance.
United States (U.S.):
- Vuse revenue growth of 29.4%, or 23.0% at constant rates of
exchange, and extended value share leadership
- Combustibles volume down, driven by macro-economic pressures,
the negative impact of the flavour ban in California and lapping
prior year's inventory build (related to SAP implementation)
- Moderated cigarette pricing in H1 2023, driven by investments
to support our premium portfolio
- Sequential growth in our U.S. volume share in 2023, with
sharper portfolio management driving early signs of
stabilisation
Volume/Revenue
Please see page 51 for a full reconciliation to constant
currency and organic metrics, including prior year data.
Volume Revenue
=========================== ====================== ========================================================
Reported Organic Reported Organic
======================================== ==============
Current Exchange Constant Constant
======= ============== ======== ============== ==============
For six months to
30 June 2023 Unit vs 2022 vs 2022 GBPm vs 2022 GBPm GBPm vs 2022 GBPm vs 2022
=========================== ==== ======= ======= ===== ======= ======== ===== ======= ===== =======
New Categories 530 +28.1% (25) 505 +21.7% 505 +21.7%
===== ======= ======== ===== ======= ===== =======
Vapour (10ml units/pods
mn) 155 -6.5% -6.5% 520 +29.4% (25) 495 +23.0% 495 +23.0%
THP (sticks bn) - -% -% - -66.2% - - -67.9% - -67.9%
Modern Oral (pouches
mn) 112 -37.7% -37.7% 10 -15.5% - 10 -19.7% 10 -19.7%
===== ======= ======== ===== ======= ===== =======
Traditional Oral
(stick eq bn) 2.9 -17.2% -17.2% 553 -4.7% (28) 525 -9.5% 525 -9.5%
===== ======= ======== ===== ======= ===== =======
Total Non-Combustibles 1,083 +8.9% (53) 1,030 +3.5% 1,030 +3.5%
Total Combustibles 26 -12.4% -12.4% 4,800 -2.6% (239) 4,561 -7.4% 4,561 -7.4%
Other 27 +135% (2) 25 +123% 25 +123%
===== ======= ======== ===== ======= ===== =======
Total 5,910 -0.4% (294) 5,616 -5.4% 5,616 -5.4%
=========================== ==== ======= ======= ===== ======= ======== ===== ======= ===== =======
Constant currency measures are calculated based upon a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
Reported revenue decreased 0.4%, driven by the translational
foreign exchange tailwind. On a constant currency basis, revenue
declined 5.4%. Continued growth in New Categories was driven by
Vuse with revenue up 29%, or 23% at constant rates of exchange, but
was more than offset by combustibles, driven by the decline in
volume (see below).
Non-Combustibles now represent 18.3% of total revenue.
On a constant currency basis (excluding translational foreign
exchange), which we believe reflects the operational
performance:
- In Vapour, the U.S. is the world's largest Vapour market. Vuse
extended leadership in value share (of total Vapour in tracked
channels) by 570 bps to 46.7% and leads in 36 U.S. states. Revenue
was up 23.0% despite a 6.5% decline in consumables volume, with the
market down 15%(2) due to the growth of illicit synthetic nicotine
disposables which we estimate to be more than 50% of the total
Vapour market. We welcome the recent FDA actions with regards to
the illicit synthetic nicotine disposables in the U.S. and we
continue to engage with stakeholders to facilitate the removal of
unauthorised products. Furthermore, we remain confident in our PMTA
submission for Vuse Alto;
- Modern Oral revenue declined 19.7%, driven by lower volume
(down 37.7%) as promotional support was redirected behind Vuse in
the much larger Vapour category;
- Traditional Oral revenue declined 9.5%, as pricing was more
than offset by lower volume (down 17.2%). This was largely due to
inventory movements (mainly related to the SAP implementation in
the first half of 2022) and the implementation of menthol
regulations in California. Volume share was down 10 bps while value
share was up 10 bps; and
- Combustibles revenue declined 7.4%, as moderated pricing was
more than offset by a reduction in volume of 12.4%, largely due
to:
- The continued pressure of macro-economic headwinds in the
U.S., with industry volume down 8.4%. The Group underperformed the
industry due to the premium skewed portfolio. The premium segment
began to return to more normalised decline rates in H1 2023;
- The negative impact of the flavour ban in California,
impacting Newport; and
- Lapping a prior year comparator that included the positive
impact of the SAP-related inventory phasing.
Combustibles volume share fell 30 bps with value share down 70
bps as affordability pressures on consumers impacted the Group's
more premium skewed portfolio.
Profit from operations and operating margin
Please see page 49 for a full reconciliation to constant
currency and organic metrics, including prior year data.
Reported Adj. Exchange Adjusted Adjusted Organic
======================= =============== ==== ======== =============== ==================
Current Constant Constant
=============== ==== ======== =============== ==================
For six months
to 30 June 2023 GBPm vs 2022 GBPm GBPm GBPm vs 2022 GBPm vs 2022
======================= ===== ======== ==== ======== ===== ======== ======= =========
Profit from Operations 3,168 +13.1% 137 (175) 3,130 -0.2% 3,130 -0.2%
Operating Margin 53.6% +640 bps 55.7% +280 bps 55.7% +280 bps
======================= ===== ======== ==== ======== ===== ======== ======= =========
Constant currency measures are calculated based upon a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
Reported profit from operations rose by 13.1%, largely due to a
translational foreign exchange tailwind of 6.0% and lower
amortisation of brands (treated as an adjusting item in both
periods). Accordingly, reported operating margin was up 640 bps to
53.6%.
On a constant currency basis, and excluding adjusting items, the
performance was negatively impacted by the decline in combustible
volume (described above), more than offsetting the continued
improved financial performance in Vapour. Adjusted profit from
operations, at constant rates of exchange (which excludes the
impact of adjusting items and translational foreign exchange) was
down 0.2% to GBP3,130 million.
2. Source: Marlin
Regional Review
Continued
Americas and Europe (AME):
- Multi-category region with Non-Combustibles now representing
17.4% of revenue
- New Category revenue growth of 39%, or 36% at constant rates
of exchange
- Resilient combustibles performance led by pricing
- Combustibles volume share up 30 bps and value share up 10
bps
Volume/Revenue
Please see page 52 for a full reconciliation to constant
currency and organic metrics, including prior year data.
Volume Revenue
=========================== ======================= ========================================================
Reported Organic Reported Organic
======================================== ==============
Current Exchange Constant Constant
============== ======= ============== ======== ============== ==============
For six months to
30 June 2023 Unit vs 2022 vs 2022 GBPm vs 2022 GBPm GBPm vs 2022 GBPm vs 2022
=========================== ===== ======= ======= ===== ======= ======== ===== ======= ===== =======
New Categories 804 +38.9% (18) 786 +35.9% 726 +40.0%
===== ======= ======== ===== ======= ===== =======
Vapour (10ml units/pods
mn) 145 +28.6% +28.6% 303 +60.1% (7) 296 +56.5% 296 +56.5%
THP (sticks bn) 6 +8.8% +23.4% 285 +18.9% (11) 274 +14.3% 217 +19.6%
Modern Oral (pouches
mn) 1,858 +39.0% +38.4% 216 +44.2% - 216 +44.4% 213 +44.0%
===== ======= ======== ===== ======= ===== =======
Traditional Oral
(stick eq bn) 0.4 -5.3% -5.3% 18 +1.4% 1 19 +5.7% 19 +5.7%
===== ======= ======== ===== ======= ===== =======
Total Non-Combustibles 822 +37.8% (17) 805 +35.0% 745 +38.8%
Total Combustibles 141 -0.7% +2.4% 3,734 +7.2% (75) 3,659 +5.0% 3,365 +6.0%
Other 174 +6.8% (9) 165 +1.1% 163 0.0%
===== ======= ======== ===== ======= ===== =======
Total 4,730 +11.5% (101) 4,629 +9.1% 4,273 +10.3%
=========================== ===== ======= ======= ===== ======= ======== ===== ======= ===== =======
Constant currency measures are calculated based upon a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
Reported revenue was up 11.5% at current rates, driven by New
Category revenue growth of 38.9%, a robust performance in
combustibles and a translational foreign exchange tailwind.
Non-Combustibles now represent 17.4% of total revenue.
On a constant currency basis (excluding translational foreign
exchange), which we believe reflects the operational performance,
revenue increased by 9.1%, driven by:
- Higher revenue from combustibles (up 5.0%), driven by a
favourable pricing environment across the region coupled with
volume performance in Brazil, Turkey and Germany, which more than
offset the impact of lower volume in Canada and Chile;
- Continued growth in Vapour revenue (up 56.5%), largely due to
the performance of Vuse in the UK, Germany, Italy, Poland, Greece,
France, Spain, Romania and the Czech Republic. Modern disposables
continued to grow across all key markets;
- A good performance in THP (up 14.3%), as revenue was higher in
the Czech Republic, Poland and Romania, despite a decline in volume
in Russia. On an organic basis, volume was up 23.4%, with revenue
up 19.6%; and
- Modern Oral revenue growth of 44.4%, driven by Norway, the
Czech Republic and Sweden, where Velo is now the largest of any
snus or Modern Oral nicotine pouch brand.**
On a constant currency, organic basis (excluding the results of
Russia and Belarus), revenue increased by 10.3% to GBP4,273
million.
** Source: Kantar New Category Tracker.
Profit from operations and operating margin
Please see page 49 for a full reconciliation to constant
currency and organic metrics, including prior year data.
Reported Adj. Exchange Adjusted Adjusted Organic
======================= ============== ==== ======== ============== ==================
Current Constant Constant
============== ==== ======== ============== ==================
For six months
to 30 June 2023 GBPm vs 2022 GBPm GBPm GBPm vs 2022 GBPm vs 2022
======================= ===== ======= ==== ======== ===== ======= ======= =========
Profit from Operations 1,767 +248% -119 (49) 1,599 +7.8% 1,451 +4.4%
+2,540
Operating Margin 37.4% bps 34.5% -40 bps 34.0% -190 bps
======================= ===== ======= ==== ======== ===== ======= ======= =========
Constant currency measures are calculated based upon a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
Reported profit from operations increased by 248%, with the
prior year impacted by charges related to the proposed transfer of
the Group's operations in Russia and Belarus (which continue to be
classified as held-for-sale) and Quantum-related restructurings
(including the closure of the factory in Switzerland), while H1
2023 also benefited from a translational foreign exchange
tailwind.
Excluding the impact of foreign exchange and adjusting items,
the increase was driven by an improved financial performance
in:
- Germany, due to a combination of higher volume and
pricing;
- Ukraine, where the Group had temporarily suspended operations
in the first six months of 2022;
- Brazil, largely due to higher volume in line with the
industry-wide volume growth; and
- Mexico, Poland, Norway and the Czech Republic, which all
increased profit from operations.
The continued good pricing in combustibles provided the fuel to
further increase investments in New Categories, including further
geographical expansion mainly in Vapour.
Adjusted profit from operations was up 7.8% at constant rates of
exchange, or 4.4% on an organic basis.
In June 2023, the Group's new Innovation Hub in Trieste, Italy,
was opened. The Hub will manufacture Velo, supporting our global
supply chain. It also houses an Innovation Lab (our first in
Europe) and a Digital Boutique (to accelerate BAT's digital
transformation). The facility uses 100% of its energy from
renewable sources and a biomass plant which is Programme for the
Endorsement of Forest Certification (PEFC) certified.
Regional Review
Continued
Asia-Pacific, Middle East and Africa (APMEA):
- New Category revenue growth up 10.7%, or 15.0% at constant
rates of exchange, driven by the growth of Vapour in South
Africa
- Robust combustibles performance led by pricing
- Combustibles value share down 40 bps with volume share
flat
Volume/Revenue
Please see page 52 for a full reconciliation to constant
currency and organic metrics, including prior year data.
Volume Revenue
=========================== ======================
Reported Organic Reported Organic
======================================== ==============
Current Exchange Constant Constant
============= ======= ============== ======== ============== ==============
For six months to
30 June 2023 Unit vs 2022 vs 2022 GBPm vs 2022 GBPm GBPm vs 2022 GBPm vs 2022
=========================== ==== ======= ======= ===== ======= ======== ===== ======= ===== =======
New Categories 322 +10.7% 12 334 +15.0% 334 +15.0%
===== ======= ======== ===== ======= ===== =======
Vapour (10ml units/pods
mn) 19 +35.0% +35.0% 43 +65.5% 3 46 +76.6% 46 +76.6%
THP (sticks bn) 6 +10.9% +10.9% 265 +3.0% 8 273 +6.3% 273 +6.3%
Modern Oral (pouches
mn) 378 +49.3% +49.3% 14 +83.0% 1 15 +98.1% 15 +98.1%
===== ======= ======== ===== ======= ===== =======
Traditional Oral - -% - -% - - -
(stick eq bn) -% -% -%
===== ======= ======== ===== ======= ===== =======
Total Non-Combustibles 322 +10.7% 12 334 +15.0% 334 +15.0%
Total Combustibles 126 -9.6% -9.6% 2,433 +3.1% 143 2,576 +9.1% 2,576 +9.1%
Other 46 +13.5% - 46 +15.3% 46 +15.3%
===== ======= ======== ===== ======= ===== =======
Total 2,801 +4.0% 155 2,956 +9.8% 2,956 +9.8%
=========================== ==== ======= ======= ===== ======= ======== ===== ======= ===== =======
Constant currency measures are calculated based upon a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
Reported revenue increased 4.0% despite a translational foreign
exchange headwind. Constant currency revenue was 9.8% higher,
driven by combustibles pricing (notably in Pakistan and Australia)
and combustibles volume growth (in Bangladesh).
Non-Combustibles now represent 11.5% of total revenue.
On a constant currency basis (excluding translational foreign
exchange), which we believe reflects the operational performance,
New Categories increased by 15.0%, driven by growth in revenue
from:
- Vapour, driven by increases in South Africa, New Zealand and
Indonesia, largely due to the growth of modern disposables;
- THP, mainly due to higher volume in both Japan (up 14.7%) and
South Korea (up 10.3%); and
- Modern Oral, due to continued growth in Pakistan and the
roll-out in Kenya.
Profit from operations and operating margin
Please see page 49 for a full reconciliation to constant
currency and organic metrics, including prior year data.
Reported Adj. Exchange Adjusted Adjusted Organic
======================= ============== ==== ======== ============== ==================
Current Constant Constant
============== ==== ======== ============== ==================
For six months
to 30 June 2023 GBPm vs 2022 GBPm GBPm GBPm vs 2022 GBPm vs 2022
======================= ===== ======= ==== ======== ===== ======= ======= =========
Profit from Operations 1,000 +171% 67 54 1,121 +9.3% 1,121 +9.3%
+2,200
Operating Margin 35.7% bps 37.9% -20 bps 37.9% -20 bps
======================= ===== ======= ==== ======== ===== ======= ======= =========
Constant currency measures are calculated based upon a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
Profit from operations was 171% higher, as the prior year was
adversely affected by charges related to the DOJ and OFAC
investigations into suspicions of sanctions breaches described on
page 14 (30 June 2023: GBP66 million; 30 June 2022: GBP450 million)
and other charges (in respect of Quantum and the proposed exit from
Egypt) that did not repeat in 2023. H1 2023 was impacted by a
translational foreign exchange headwind.
Excluding adjusting items and translational foreign exchange,
the performance was driven by:
- Australia, driven by pricing which more than offset a
reduction in combustibles volume;
- Sri Lanka, largely due to pricing in combustibles as
macro-economic stability returned; and
- GTR which has recovered to be 68% of the pre-COVID levels.
These more than offset a decline in Japan, largely due to the
highly competitive pricing environment in combustibles and THP
(including the final step in the five-year excise harmonisation
programme).
Adjusted profit from operations at constant rates of exchange
(which excludes the impact of adjusting items and translational
foreign exchange) increased by 9.3%.
Other Financial Information
Analysis of profit from operations and diluted earnings per
share by segment
Prior year data is provided in the table on page 49 .
Adjusted
vs Adj vs Adjusted vs Organic vs
Reported 2022 Items(1) Adjusted 2022 Exch. at CC(2) 2022 at CC(2) 2022
=========================== ======== ===== ========= ======== ===== ===== ========= ===== ========= =====
For six months to 30 GBPm % GBPm GBPm % GBPm GBPm % GBPm %
June 2023
=========================== ======== ===== ========= ======== ===== ===== ========= ===== ========= =====
Profit from Operations
======== ===== ========= ======== ===== ===== ========= ===== ========= =====
U.S. 3,168 13.1% 137 3,305 5.4% (175) 3,130 -0.2% 3,130 -0.2%
AME 1,767 248% (119) 1,648 11.1% (49) 1,599 7.8% 1,451 4.4%
APMEA 1,000 171% 67 1,067 4.0% 54 1,121 9.3% 1,121 9.3%
======== ===== ========= ======== ===== ===== ========= ===== ========= =====
Total Region 5,935 61.4% 85 6,020 6.6% (170) 5,850 3.6% 5,702 2.7%
Net finance costs (921) 12.7% 23 (898) 15.8% 39 (859) 10.7%
Associates and joint
ventures 289 44.5% 15 304 15.8% 8 312 18.8%
=========================== ======== ===== ========= ======== ===== ===== ========= ===== ========= =====
Profit before tax 5,303 73.2% 123 5,426 5.7% (123) 5,303 3.4%
Taxation (1,268) 12.9% 2 (1,266) 3.6% 9 (1,257) 2.8%
Non-controlling interests (76) -3.8% - (76) -4.8% (4) (80) 0.3%
Coupons relating to hybrid
bonds net of tax (22) -4.3% - (22) -4.3% - (22) -4.3%
=========================== ======== ===== ========= ======== ===== ===== ========= ===== ========= =====
Profit attributable
to shareholders 3,937 114% 125 4,062 6.7% (118) 3,944 3.6%
Diluted number of shares
(m) 2,237 -1.6% 2,237 -1.6% 2,237 -1.6%
=========================== ======== ===== ========= ======== ===== ===== ========= ===== ========= =====
Diluted earnings per
share (pence) 176.0 118% 181.6 8.5% 176.3 5.3%
=========================== ======== ===== ========= ======== ===== ===== ========= ===== ========= =====
1. Adjusting items represent certain items which the Group
considers distinctive based upon their size, nature or
incidence.
2. CC: constant currency - measures are calculated based on a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its
segments.
Net finance costs
Net finance costs for the six months were GBP921 million,
compared to GBP817 million in the same period in 2022. This was an
increase of 12.7%, largely due to:
- Higher interest expense, as the Group's average cost of debt
has increased to 4.3% (compared to 4.0% in 2022) in line with
higher interest rates in the market;
- A translational foreign exchange headwind due to the relative
weakness of sterling; and
- Partly offset by higher interest income, driven by higher
interest rates on local deposits and an increase in interest income
in Canada due to the cash build up in that market.
The Group has debt maturities of around GBP4 billion annually in
the next two years. Due to higher interest rates, net finance costs
are expected to increase as debts are refinanced.
Also in 2023, in line with IAS 33 Earnings Per Share, GBP22
million (30 June 2022: GBP23 million) has been recognised as a
deduction to EPS related to the perpetual hybrid bonds issued in
2021, as the coupons paid on such instruments are recognised in
equity rather than as a charge to the income statement in net
finance costs.
On a constant currency basis, and after adjusting for items
including finance costs related to the Franked Investment Income
Group Litigation Order (FII GLO, as described on page 39 ),
adjusted net finance costs were GBP859 million, an increase of
10.7% (30 June 2022: GBP776 million). Please refer to page 31 for
discussion of the adjusting items within net finance costs. For a
full reconciliation of net finance costs to adjusted net finance
costs at constant rates, see page 53 .
Results of associates and joint ventures
The Group's share of post-tax results of associates and joint
ventures increased from GBP200 million to GBP289 million which
largely relates to the performance of the Group's main associate,
ITC Ltd (ITC) in India. The Group's share of ITC's post-tax results
was 21.8% higher at GBP319 million (30 June 2022: GBP262 million).
The movements are largely due to the economic recovery in India in
2023 from COVID-19 which led to difficult trading conditions in
2022, more than offsetting a translational foreign exchange
headwind.
The Group recognised an impairment charge of GBP33 million (net
of tax) in respect of the Group's investment in Organigram, after
having recognised an impairment charge of GBP59 million (net of
tax) in the first half of 2022. The charge was treated as an
adjusting item in both periods.
Included above is other adjusting income of GBP18 million (30
June 2022: adjusting costs of GBP3 million). It is mainly related
to a deemed income of GBP16 million (30 June 2022: GBP8 million
gain) on dilution of the Group's holding in ITC.
Excluding these adjusting items and the impact of translational
foreign exchange, on an adjusted constant currency basis, the
Group's share of post-tax results from associates and joint
ventures was higher than 2022, up 18.8% to GBP312 million. Please
refer to page 31 for discussion of the adjusting items within the
Group's share of post-tax results from associates and joint
ventures.
Taxation
The tax rate in the income statement was a charge of 23.9% for
the six months to 30 June 2023 (30 June 2022: 36.7%). The Group's
tax rate is affected by the impact of the adjusting items referred
to on pages 28 to 32 and by the inclusion of the share of
associates and joint ventures post-tax profit in the Group's
pre-tax results.
Excluding these, the Group's underlying tax rate for
subsidiaries reflected in the adjusted earnings per share on page
36 was 24.7% for the six months to 30 June 2023 (30 June 2022:
25.1%).
A full reconciliation from taxation on ordinary activities to
the underlying tax rate is provided on page 54 .
The effective and underlying rate in the six months to 30 June
2023 reflects the mix of profits.
Other Financial Information
Continued
Earnings per share
The following chart is in pence per share
Basic earnings per share were up 117% to 176.6p (30 June 2022:
81.2p) driven by the improvement in operational performance and
translational foreign exchange tailwinds (partly offset by higher
net finance costs), whilst the prior period was impacted by higher
one-off charges (mainly related to the proposed transfer of the
Group's businesses in Russia and Belarus, the DOJ and OFAC
investigations into suspicions of sanctions breaches and Quantum
restructuring).
Before adjusting items and including the dilutive effect of
employee share schemes, adjusted diluted earnings per share
increased 8.5% to 181.6p (30 June 2022: 167.4p). On a constant
translational foreign exchange basis, adjusted diluted earnings per
share were 5.3% higher at 176.3p. For a full reconciliation of
diluted earnings per share to adjusted diluted earnings per share,
at constant rates, see page 55 .
Cash flow
For the year
For six months to 30 ended
June 31 December
========================================= ======================== =================
2023 2022 Change 2022
GBPm GBPm % GBPm
========================================= ======= ======= ====== =================
Net cash generated from operating
activities 3,375 3,221 4.8% 10,394
Operating cash flow conversion 72% 77% 100%
Free cash flow - before payment
of dividends 2,326 2,277 2.2% 8,049
Free cash flow - after payment of
dividends (153) (199) -23.1% 3,134
========================================= ======= ======= ====== =================
As at 30 June As at 31 December
========================================= ======================== =================
2023 2022 Change 2022
GBPm GBPm % GBPm
========================================= ======= ======= ====== =================
Borrowings (including lease liabilities) 42,169 44,875 -6.0% 43,139
Adjusted net debt 37,259 39,761 -6.3% 38,131
========================================= ======= ======= ====== =================
Note - Adjusted net debt of GBP39,761 million as at June 2022 is
revised to include net debt items included within asset
held-for-sale of GBP229 million. The amount disclosed in prior year
was GBP39,990 million.
In the Group's cash flow, prepared in accordance with IFRS and
presented on page 27 , net cash generated from operating activities
increased by 4.8% to GBP3,375 million (30 June 2022: GBP3,221
million), primarily driven by the realisation of tax credits in
Brazil (related to the previously disclosed VAT on social
contributions) and higher dividends received from the Group's
associate ITC. These were partly offset by lower receivables
factoring across the Group, lower working capital in APMEA and
higher payments of tax. In the six months ended 30 June 2023, the
Group paid GBP179 million related to litigation payments (30 June
2022: GBP31 million) which included, in both 2023 and 2022,
payments in respect of Engle and, in 2023, payments related to the
settlement of the investigation by the FCCPC in Nigeria, as
described on page 38 .
Operating cash conversion and free cash flow (before and after
dividends paid to shareholders)
The Group's operating cash conversion rate (based upon adjusted
profit from operations and defined on page 55 ) was 72% (30 June
2022: 77%), due to the impact of lower receivables factoring across
the Group and lower working capital in APMEA.
We expect our operating cash conversion in 2023 to exceed our
target of at least 90%, demonstrating the ongoing strength of the
Group in turning operating performance into cash.
Free cash flow (before the payment of dividends), as defined on
page 56 , was GBP2,326 million for the six months ended 30 June
2023
( 30 June 2022 : GBP2,277 million), an increase of 2.2%. This
was driven by the improvement in net cash generated from operations
and lower net capital expenditure (30 June 2023: GBP107 million; 30
June 2022 : GBP125 million), partly offset by higher net interest
paid due to the increase in interest rates.
After paying dividends of GBP2,479 million (30 June 2022:
GBP2,476 million), free cash flow (after dividends paid to
shareholders), as defined on page 56 , was an outflow of GBP153
million for the six months ended 30 June 2023 (30 June 2022: GBP199
million outflow).
For a full reconciliation of net cash generated from operating
activities to free cash flow before and after dividends, see page
56 .
Other Financial Information
Continued
Borrowings and net debt
Borrowings (which includes lease liabilities) were GBP42,169
million at 30 June 2023, a decrease of 6.0% compared to GBP44,875
million at 30 June 2022 (31 December 2022: GBP43,139 million). This
was partly due to the foreign exchange movements, mainly related to
the US dollar and sterling. The decrease was also due to lower
short-term borrowings (including commercial paper) in the first six
months of 2023, combined with the net reduction in borrowings in
the second half of 2022 as the Group repaid, on maturity a US$750
million bond in August 2022.
The Group remains confident of its ability to access the debt
capital markets successfully and reviews its options on a
continuing basis.
The Group's average centrally managed debt maturity was 9.5
years at 30 June 2023 (30 June 2022: 10.1 years; 31 December 2022:
9.9 years), and the highest proportion of centrally managed debt
maturing in a single rolling 12-month period was 18.5% (30 June
2022: 18.3%; 31 December 2022: 18.6%).
The Group defines net debt as borrowings (including related
derivatives and lease liabilities), less cash and cash equivalents
(including restricted cash) and current investments held at fair
value. Closing net debt was GBP38,345 million at 30 June 2023 (30
June 2022: GBP40,806 million; 31 December 2022: GBP39,281 million).
A reconciliation of borrowings to net debt is provided below.
As at 30 June As at 31 December
========================================= =========================== =================
2023 2022 Change 2022
GBPm GBPm % GBPm
========================================= ======== ======== ======= =================
Borrowings (including lease liabilities) (42,169) (44,875) -6.0% (43,139)
Derivatives in respect of net debt (308) (70) +340.0% (167)
Cash and cash equivalents 3,681 3,568 +3.2% 3,446
Current investments held at fair
value 451 571 -21.0% 579
========================================= ======== ======== ======= =================
Net debt (38,345) (40,806) -6.0% (39,281)
Maturity profile of net debt:
Net debt due within one year (909) (867) +4.8% (181)
Net debt due beyond one year (37,436) (39,939) -6.3% (39,100)
========================================= ======== ======== ======= =================
Net debt (38,345) (40,806) -6.0% (39,281)
========================================= ======== ======== ======= =================
The movement in net debt includes the free cash outflow, after
payment of dividends to shareholders, of GBP153 million (30 June
2022: GBP199 million outflow), as described on page 56 . Also
impacting the carrying value of net debt at the balance sheet date
are:
- Cash payments related to share schemes and investing
activities of GBP276 million (30 June 2022: GBP206 million), which,
in 2023, was higher mainly due to the movement in foreign exchange
dividend hedges due to the devaluation of sterling, predominantly
against the US dollar;
- Other non-cash movements of GBP104 million;
- The classification of certain balances as held-for-sale
related to the proposed sale of the Group's operations in Russia
and Belarus of
GBP4 million (30 June 2022: GBP229 million); and
- Foreign exchange impacts related to the revaluation of foreign
currency denominated net debt balances being a net tailwind of
GBP1,473 million (30 June 2022: GBP2,582 million headwind).
In the six months ended 30 June 2022, the Group purchased
GBP1,256 million of own shares under the Group's GBP2 billion share
buy-back programme, which ended in December 2022, by which time the
Group had purchased GBP2,012 million of own shares.
These movements can be summarised as follows:
As at 30 June As at 31 December
======================================== ========================== =================
2023 2022 Change 2022
GBPm GBPm % GBPm
======================================== ======== ======== ====== =================
Opening net debt (including IFRS
16) (39,281) (36,302) 8.2% (36,302)
Free cash inflow (after dividends) (153) (199) -23.1% 3,134
Other cash payments (276) (206) (635)
Purchase of own shares - (1,256) (2,012)
Transferred to held-for-sale / disposed
of (4) (229) (352)
Other non-cash movements (104) (32) (84)
Foreign exchange 1,473 (2,582) (3,030)
======================================== ======== ======== ====== =================
Closing net debt (38,345) (40,806) -6.0% (39,281)
======================================== ======== ======== ====== =================
Investments held at fair value through profit and loss above
include restricted amounts of GBP302 million (31 December 2022:
GBP396 million) due to investments held by subsidiaries in CCAA
protection, as well as GBP100 million (31 December 2022: GBP78
million) subject to potential exchange control restrictions.
Cash and cash equivalents include restricted amounts of GBP1,653
million (31 December 2022: GBP1,411 million) due to subsidiaries in
CCAA protection, as well as GBP239 million (31 December 2022:
GBP324 million) principally due to exchange control
restrictions.
Other Financial Information
Continued
Borrowings and net debt (continued)
Adjusted net debt
The Group also adjusts net debt for items held-for-sale and for
the purchase price allocation adjustment to the debt, included
within borrowings, acquired as part of the acquisition of Reynolds
American Inc. This is an accounting adjustment and does not reflect
the enduring repayment of the instrument. 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. The
adjusted net debt position is provided below:
As at 30 June As at 31 December
====================================== =================
2023 2022 Change 2022
GBPm GBPm % GBPm
====================================== ======== ======== ====== =================
Net debt (38,345) (40,806) -6.0% (39,281)
Net debt items included within assets
held-for-sale 356 229 +55.5% 352
Purchase price allocation (PPA)
adjustment to acquired debt 730 816 -10.5% 798
====================================== ======== ======== ====== =================
Adjusted net debt (37,259) (39,761) -6.3% (38,131)
Exchange (1,574)
====================================== ======== ======== ====== =================
Adjusted net debt translated at
2022 exchange rates (38,833) (39,761) -2.3% (38,131)
====================================== ======== ======== ====== =================
Note - Adjusted net debt of GBP39,761 million as at June 2022
has been revised to include net debt items included within assets
held-for-sale of GBP229 million. The amount disclosed in the prior
year was GBP39,990 million.
Foreign currencies
The principal exchange rates used to convert the results of the
Group's foreign operations to pounds sterling for the purposes of
inclusion and consolidation within the Group's financial statements
are indicated in the table below. Where the Group has provided
results "at constant rates of exchange" this refers to the
translation of the results from the foreign operations at rates of
exchange prevailing in the prior period - thereby eliminating the
potentially distorting impact of the movement in foreign exchange
on the reported results.
The principal exchange rates used were as follows:
Average for the period
ended As at
=================== =============================== =================================
30 June 31 December 30 June 31 December
================== =========== ==================== ===========
2023 2022 2022 2023 2022 2022
=================== ======= ========= =========== ========= ========= ===========
Australian dollar 1.826 1.806 1.779 1.910 1.766 1.774
Bangladeshi taka 131.958 113.361 115.040 137.535 113.521 123.502
Brazilian real 6.253 6.601 6.384 6.133 6.351 6.351
Canadian dollar 1.662 1.651 1.607 1.682 1.567 1.630
Chilean peso 994.090 1,072.376 1,076.291 1,019.813 1,137.776 1,024.811
Euro 1.141 1.187 1.173 1.165 1.162 1.127
Indian rupee 101.424 98.891 97.030 104.297 95.908 99.516
Japanese yen 166.538 159.379 161.842 183.755 164.989 158.717
Romanian leu 5.632 5.870 5.783 5.779 5.746 5.577
Russian rouble 95.605 101.992 87.184 113.786 66.491 87.812
South African rand 22.495 20.001 20.176 24.017 19.896 20.467
Swiss franc 1.125 1.225 1.179 1.137 1.163 1.113
US dollar 1.234 1.298 1.236 1.271 1.214 1.203
=================== ======= ========= =========== ========= ========= ===========
Other Information
Risks and uncertainties
The Board carried out a robust assessment of the Principal Risks
and uncertainties facing the Group for the period, including those
that would threaten its business model, future performance,
solvency, liquidity and viability. The Board also maintained close
oversight of the Group's response to critical external
uncertainties, recognising current macro-economic and geopolitical
challenges.
All Group risks are reviewed biannually by the Audit Committee
and annually by the Board. ESG is core to the Group's long-term
business strategy and ESG risk factors are embedded across the
Group's risks in accordance with the Risk Management Framework
within the Group. In 2022, following the conclusion of a Double
Materiality Assessment, the Board identified "Climate and
circularity", now renamed to "Climate change and circular economy",
as a Principal Risk to the Group, recognising the Group's existing
commitments to climate change and circular economy matters. In
2023, the Board identified "Cyber Security" as a Principal Risk to
the Group reflecting the general heightened cyber-threat landscape,
the increased digital interactions with consumers, combined with
changes to regulation.
The Principal Risks facing the Group are summarised under the
headings of:
- Competition from illicit trade;
- Geopolitical tensions;
- Tobacco, New Categories and other regulation interrupts the
growth strategy;
- Litigation;
- Significant increases or structural changes in tobacco,
nicotine and New Categories related taxes;
- Inability to develop, commercialise and deliver the New
Categories strategy;
- Injury, illness or death in the workplace;
- Disputed taxes, interest and penalties;
- Foreign exchange rate exposures;
- Solvency and liquidity;
- Climate change and circular economy; and
- Cyber security.
A summary of all the risk factors (including the Principal
Risks, except for the newly added Cyber Security Principal Risk)
which are monitored by the Board through the Group's risk register
are set out on pages 340 - 361 of the Group's Annual Report and
Accounts and Form 20-F for the year ended 31 December 2022. All the
Group's risks should be read in the context of the forward-looking
statements on page 46 of this Half-Year Report.
Update on investigations into misconduct allegations
From time to time, the Group investigates, and becomes aware of
governmental authorities' investigations into allegations of
misconduct, including alleged breaches of sanctions and allegations
of corruption, against Group companies. Some of these allegations
are currently being investigated. The Group cooperates with the
authorities' investigations, where appropriate.
On 25 April 2023, the Group announced that it had reached an
agreement with the DOJ and OFAC to resolve previously disclosed
investigations into suspicions of sanctions breaches. These
concerned business activities relating to the Democratic People's
Republic of Korea between 2007 and 2017. British American Tobacco
p.l.c. (the "Company") entered into a three-year deferred
prosecution agreement (DPA) with the DOJ and a civil settlement
agreement with OFAC. The DOJ's charges against the Company - one
count of conspiring to commit bank fraud and one count of
conspiring to violate sanctions laws - were filed and will later be
dismissed if the Company abides by the terms of the DPA. In
addition, a BAT subsidiary in Singapore, British-American Tobacco
Marketing (Singapore) Private Limited, pleaded guilty to the same
charges. The total amount payable to the U.S. authorities is US$635
million (GBP499 million) plus interest, which will be paid by the
Company.
Having recognised an initial provision of GBP450 million (US$540
million), in line with the International Accounting Standards 37
requirements, in the 2022 interim and full year results, the Group
has recognised an additional charge of GBP66 million in 2023.
Having made a payment of GBP4 million (US$5 million) in H1 2023,
the remainder will be paid in equal instalments in H2 2023 and H1
2024.
Update on Quebec class action and CCAA
There have been no substantial developments in respect of the
Quebec Class Action and subsequent grant of protection of the
Group's subsidiary, Imperial Tobacco Canada Ltd (ITCAN), under the
Companies' Creditors Arrangement Act (CCAA). The stays are
currently in place until 29 September 2023. While the stays are in
place, no steps are to be taken in connection with the Canadian
tobacco litigation with respect to ITCAN, certain of its
subsidiaries or any other Group company.
In accordance with the CCAA process, the parties continue to
work towards a plan of arrangement or compromise in a court-ordered
confidential mediation. The length and ultimate outcome of the CCAA
process, including the resolution of the underlying legal
proceedings, remains uncertain.
In line with IFRS 10 (Consolidated Financial Statements), ITCAN
is consolidated in the Group's results. For ease of reference and
to assist the users of this interim announcement, in the six months
ended June 2023, ITCAN's contribution to the financial performance
of the Group was:
- Revenue: GBP473 million;
- Profit from operations: GBP247 million;
- Adjusted profit from operations: GBP250 million; and
- Adjusted EBITDA: GBP255 million.
At 30 June 2023, restricted cash in ITCAN was GBP1,653 million
and restricted investments held at fair value are GBP302 million,
with goodwill recognised on the balance of the Group at GBP2,460
million.
Please refer to "Contingent Liabilities and Financial
Commitments" below (page 37 ) and the Group's Annual Report and
Accounts and Form 20-F for the year ended 31 December 2022 (note 12
Intangible Assets and note 31 Contingent Liabilities and Financial
Commitments) for a full discussion of the case and the assessment
of goodwill. There has been no trigger to reassess the impairment
position at 30 June 2023.
Other Information
Continued
Changes in the Group
Russia and Belarus
On 11 March 2022, as discussed on page 30 , the Group announced
the intention to transfer its Russian business in compliance with
international and local laws. The Group has two subsidiaries in
Russia (BAT Russia), being JSC British American Tobacco-SPb and JSC
International Tobacco Marketing Services. Due to operational
dependencies between Russia and the Group's subsidiary in Belarus
(International Tobacco Marketing Services BY) (BAT Belarus), as
previously announced, the Belarusian business will be included in
the transfer. Upon completion, the Group will no longer have a
presence in Russia or Belarus. The Group is working as quickly as
possible to transfer the businesses.
At the date of writing, no agreement to transfer the shares in
these subsidiaries has been entered into. Further, any transaction
that is agreed will be subject to regulatory approvals. In
accordance with IFRS, the assets and liabilities of the
subsidiaries comprising BAT Russia and BAT Belarus continue to be
classified as held-for-sale at 30 June 2023 and presented as such
on the balance sheet at an estimated recoverable value. Impairment
charges (and associated costs) of GBP612 million were recognised in
2022 (and treated as a non-cash adjusting item). Similarly, another
GBP17 million of associated costs have been recognised in the first
six months of 2023. Management has reassessed the carrying values
assets and liabilities held-for sale at 30 June 2023, noting the
assessment considers a range of internal assumptions, including
those regarding the impact, extent and duration of sanctions,
likely transaction terms, the likelihood of any consideration being
significantly deferred, including the ability to remit funds, and
ongoing macro-economic developments, including the impact of
inflation and interest rates. All assumptions are based on current
expectations and are subject to a high degree of volatility and
uncertainty. Management concluded that, as at 30 June 2023, there
was no requirement to change the previous assessment of values.
On completion of the proposed transfer, certain other items,
including foreign exchange previously recognised in the Statement
of Other Comprehensive Income (which was GBP500 million at 30 June
2023), will be reclassified to the Income Statement in the period
in which completion occurs. The financial impact of these items
will be treated as non-cash, adjusting items. Refer to page 30 for
a detailed analysis of the charge.
The transfer of the business will not have a material impact on
the remainder of the Group's supply chain.
The Group continues to monitor sanction developments to ensure
that it is compliant with international and local laws, and that it
has the necessary business controls in place to operate
effectively. The Group has taken steps to remain compliant with all
new measures and continues to assess their implications.
To supplement the Group's results presented in accordance with
IFRS, the Group's Management Board, as the chief operating
decision-maker, reviews the Group's results, including volume,
revenue, profit from operations and operating margin excluding
businesses sold or to be held-for-sale. Although the Group does not
believe that these measures are a substitute for IFRS measures, the
Group does believe that such presentation of the results (excluding
the impact of businesses sold or to be held-for-sale, and referred
to as "on an organic basis") provides additional useful information
to investors regarding the underlying performance of the business
on a comparable basis and in the case of the expected sale of the
Group's businesses in Russia and Belarus, the impact these
businesses have on revenue and profit from operations. Accordingly,
the organic financial measures appearing in this document should be
read in conjunction with the Group's results as reported under
IFRS.
Please see the reconciliations of volume to organic volume,
revenue to organic revenue, profit operations to adjusted organic
profit from operations and operating margin to adjusted organic
operating margin on page 49 .
At 30 June 2023, on a constant currency basis, Russia and
Belarus accounted for approximately 2.7% of Group revenue, and
approximately 2.5% of Group adjusted profit from operations.
Other changes
In April 2023, the Group announced a strategic joint venture
agreement between a Group subsidiary, AJNA BioSciences PBC and
Charlotte's Web. Under the terms of the transaction, a Group
subsidiary acquired a 20% stake in the new JV entity (DeFloria LLC)
at a cost of c.GBP7.9 million (US$10 million).
External Audit Tender Process
Earlier this year, it was announced that during 2023 the Audit
Committee would undertake a formal competitive audit tender process
in respect of the audit for the 2025 financial year. That process
has now concluded and the Board has approved the re-appointment of
KPMG LLP. A resolution proposing the appointment of KPMG LLP as
external auditors for the 2025 financial year will be put forward
to shareholders for approval at the 2025 Annual General Meeting.
Details of the external audit tender process and evaluation
criteria will be reported in the Group's Annual Report and Form
20-F 2023.
Other Information
Continued
Changes to the Main Board
As previously announced, the following Board changes have taken
place:
- Savio Kwan stepped down from the Board as a Non-Executive
Director with effect from 19 April 2023.
- Jack Bowles stepped down from the Board as Chief Executive
with effect from 15 May 2023.
- Tadeu Marroco was appointed as Chief Executive with effect
from 15 May 2023.
Changes to the Management Board
As previously announced, the following Management Board changes
have taken place:
Dr James Murphy joined the Management Board as Director,
Research and Science Designate, on 1 February 2023 and he assumed
the role of Director, Research and Science on 1 March 2023. Dr
David O'Reilly, Director, Research and Science, stepped down from
the Management Board on 28 February 2023 and left BAT with effect
from 31 May 2023.
With effect from 1 April 2023:
- Johan Vandermeulen was appointed to the role of Chief
Transformation Officer.
- Luciano Comin was appointed to the role of Director,
Combustibles.
- Frederico (Fred) Monteiro was promoted to the Management Board
as Regional Director, Americas and Europe Region (AME).
- Michael Dijanosic took on an expanded role as Regional
Director, Asia Pacific, Middle East and Africa (APMEA).
- Tadeu Marroco's role was redesignated as Finance Director.
With effect from 15 May 2023:
- Javed Iqbal was appointed Interim Finance Director until a
permanent successor is appointed. He retained his role as Director,
Digital & Information.
With effect from 30 June 2023:
- Guy Meldrum, President & CEO, Reynolds American Inc.,
stepped down from his role and from the Management Board.
- Paul Lageweg, Director, New Categories, stepped down from his
role and from the Management Board.
- Hae In Kim, Director, Talent, Culture & Inclusion, stepped
down from the Management Board and was appointed as Strategic
Talent Director from 1 July 2023.
With effect from 1 July 2023, Johan Vandermeulen was appointed
to the new role of Chief Operating Officer, reporting to the Chief
Executive. Reporting to Johan will be:
- David Waterfield, promoted to the Management Board as
President & CEO, Reynolds American Inc.
- Fred Monteiro (Director, Americas & Europe) and Michael
Dijanosic (Director, Asia Pacific, Middle East & Africa).
- Zafar Khan (Director, Operations) and Javed Iqbal (Director,
Digital & Information). Javed also continues to serve as
Interim Finance Director.
With effect from 1 September 2023, Kingsley Wheaton, currently
Chief Growth Officer, will be appointed to the new role of Chief
Strategy & Growth Officer, reporting to the Chief Executive.
Reporting to Kingsley will be:
- Luciano Comin, appointed to the new role of Marketing
Director, Combustibles & New Categories, with effect from 1
July 2023.
- Paul McCrory, currently Assistant General Counsel, Corporate
& Group Company Secretary, appointed to the new role of
Director, Corporate & Regulatory Affairs, with effect from 1
September 2023.
- James Barrett, currently Commercial Director, Wellbeing &
Stimulation, appointed to the new role of Director, Business
Development, with effect from 1 September 2023.
James Murphy, Director, Research & Science and Jerome
Abelman, Director, Legal Affairs & General Counsel, continue in
their roles reporting directly to the Chief Executive.
Other Information
Continued
Dividends
On 9 February 2023, the Company announced that the Board had
declared an interim dividend of 230.9p per ordinary share of 25p,
for the year ended 31 December 2022, payable in four equal
quarterly instalments of 57.72p per ordinary share in May 2023,
August 2023, November 2023 and February 2024.
The May 2023 quarterly dividend was paid to shareholders on the
UK main register and South Africa branch register on 3 May 2023 and
to holders of American Depositary Shares (ADSs) on 8 May 2023. The
three remaining quarterly dividends will be paid to shareholders
registered on either the UK main register or the South Africa
branch register, and to holders of ADSs, each on the applicable
record dates set out below.
General dividend information
Under IFRS, the interim dividend is recognised in the period
that it is paid. Therefore, the results for the six months ended 30
June 2023 reflect the fourth quarterly dividend from the
declaration made on 11 February 2022, of 54.45p per ordinary share
and the first quarterly dividend from the declaration made on 9
February 2023 of 57.72p per ordinary share as this was paid in May
2023.
For the six months
to 30 June 2023
===================================== ======================
Pence per
Dividends paid share USD per ADS
===================================== ========= ===========
Quarterly Payment paid February 2023 54.45 0.6691900
Quarterly Payment paid May 2023 57.72 0.7238660
===================================== ========= ===========
112.17 1.3930560
===================================== ========= ===========
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.
Key dividend 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.
Payment No. Payment No. Payment No.
Event 2 3 4
======================================= =========== ============ ============
Preliminary announcement (includes 09 February
declaration data required for JSE
purposes)
Publication of finalisation information
(JSE) 04 July 18 September 12 December
No removal requests permitted (in
either direction) between the UK 18 September 12 December
main register and the South Africa 04 July - - -
branch register 17 July 02 October 27 December
Last Day to Trade (LDT) cum-dividend
(JSE) 11 July 26 September 19 December
Shares commence trading ex-dividend
(JSE) 12 July 27 September 20 December
No transfers permitted between 27 September 20 December
the UK main register and the South 12 July - - -
Africa branch register 17 July 02 October 27 December
No shares may be dematerialised 27 September 20 December
or rematerialised on the South 12 July - - -
Africa branch register 17 July 02 October 27 December
Shares commence trading ex-dividend
(LSE) 13 July 28 September 21 December
Shares commence trading ex-dividend
(NYSE) 13 July 28 September 21 December
Record date (JSE, LSE and NYSE) 14 July 29 September 22 December
Last date for receipt of Dividend 28 July 13 October 11 January
Reinvestment Plan (DRIP) 2024
01 February
Payment date (LSE and JSE) 18 August 03 November 2024
06 February
ADS payment date (NYSE) 23 August 08 November 2024
======================================= =========== ============ ============
Notes:
1. All dates are 2023, unless otherwise stated.
2. 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.
3. JSE finalisation information published on 4 July 2023 can be
found on the BAT website www.bat.com.
Other Information
Continued
Going concern
A description of the Group's business activities, its financial
position, cash flows, liquidity position, facilities and borrowings
position, together with the factors likely to affect its future
development, performance and position, as well as risks associated
with the business, are set out in the Strategic Report and in the
Notes on the Accounts, all of which are included in the Group's
Annual Report and Accounts and Form 20-F for the year ended 31
December 2022, and available on the Group's website, www.bat.com.
This Half-Year Report provides updated information regarding the
business activities, including cash flow, for the six months to 30
June 2023 and of the financial position and liquidity position at
30 June 2023.
The Group has, at the date of this announcement, sufficient
existing financing available for its estimated requirements for at
least 12 months from the date of approval of this condensed
consolidated financial information. This, together with the ability
to generate cash from trading activities, the performance of the
Group's Strategic Portfolio, its leading market positions in a
number of countries and its broad geographical spread, as well as
numerous contracts with established customers and suppliers across
different geographical areas and industries, provides the Directors
with the confidence that the Group is well placed to manage its
business risks successfully through the ongoing uncertainty, the
current macro-economic financial conditions and the general outlook
in the global economy.
After reviewing the Group's forecast financial performance and
financing arrangements, the Directors consider that the Group has
adequate resources to continue operating for at least 12 months
from the date of approval of this condensed consolidated financial
information and that it is therefore appropriate to continue to
adopt the going concern basis in preparing this Half-Year
Report.
Directors' Responsibility Statement
The Directors confirm that, to the best of their knowledge, this
condensed consolidated financial information has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK and as issued by the International Accounting
Standards Board (IASB), and that this Half-Year Report includes a
fair review of the information required by both DTR 4.2.7R and DTR
4.2.8R of the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority.
The Directors of British American Tobacco p.l.c. are as listed
on pages 124 to 127 in the British American Tobacco Annual Report
and Form 20-F for the year ended 31 December 2022, with the
exceptions of Savio Kwan who stepped down on 19 April 2023, Jack
Bowles who stepped down on 15 May 2023 and Tadeu Marroco who was
appointed as Chief Executive with effect from 15 May 2023.
Details of all the current Directors of British American Tobacco
p.l.c. are maintained on www.bat.com.
For and on behalf of the Board of Directors:
Luc Jobin Tadeu Marroco
Chair Chief Executive
25 July 2023 25 July 2023
Independent Review Report to British American Tobacco p.l.c.
Conclusion
We have been engaged by British American Tobacco p.l.c. (the
"Company") to review the condensed consolidated financial
information in the Half-Year Report for the six months ended 30
June 2023 which comprises the Group Income Statement, the Group
Statement of Comprehensive Income, the Group Statement of Changes
in Equity, the Group Balance Sheet, the Group Cash Flow Statement
and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated financial
information in the Half-Year Report for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted for use in the
UK and the Disclosure Guidance and Transparency Rules (the "DTR")
of the UK's Financial Conduct Authority (the "UK FCA").
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity ("ISRE (UK) 2410") issued for use in the UK. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. We
read the other information contained in the Half-Year Report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed
consolidated financial information.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the basis for
conclusion section of this report, nothing has come to our
attention that causes us to believe that the Directors have
inappropriately adopted the going concern basis of accounting, or
that the Directors have identified material uncertainties relating
to going concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410. However, future events or
conditions may cause the Group to cease to continue as a going
concern, and the above conclusions are not a guarantee that the
Group will continue in operation.
Directors' responsibilities
The Half-Year Report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the Half-Year Report in accordance with the DTR of the UK
FCA.
As disclosed in the Accounting Policies and Basis of Preparation
note, the annual financial statements of the Group are prepared in
accordance with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB),
and UK-adopted international accounting standards.
The Directors are responsible for preparing the condensed
consolidated financial information included in the Half-Year Report
in accordance with IAS 34 as adopted for use in the UK and as
issued by the IASB.
In preparing the condensed consolidated financial information,
the Directors are responsible for assessing the Group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated financial information in the Half-Year
Report based on our review. Our conclusion, including our
conclusions relating to going concern, are based on procedures that
are less extensive than audit procedures, as described in the basis
for conclusion section of this report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Philip Smart
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square, London E14 5GL
25 July 2023
Contents
Page
==================================================== =========
Financial Statements:
==================================================== =========
Group Income Statement 21
==================================================== =========
Group Statement of Comprehensive Income 22
==================================================== =========
Group Statement of Changes in Equity 23
==================================================== =========
Group Balance Sheet 26
==================================================== =========
Group Cash Flow Statement 27
==================================================== =========
Notes to the Unaudited Interim Financial Statements 28
==================================================== =========
Other Information 43
==================================================== =========
Data Lake and Reconciliations 49
==================================================== =========
Interim Financial Statements (unaudited)
Group Income Statement
Six months
ended Year ended
30 June 31 December
================================================== ================ ============
2023 2022 2022
GBPm GBPm GBPm
================================================== ======= ======= ============
Revenue(1) 13,441 12,869 27,655
Raw materials and consumables used (2,251) (2,250) (4,781)
Changes in inventories of finished goods and work
in progress 7 97 227
Employee benefit costs (1,389) (1,329) (2,972)
Depreciation, amortisation and impairment costs (480) (659) (1,305)
Other operating income 239 42 722
Loss on reclassification from amortised cost to
fair value (3) (1) (5)
Other operating expenses (3,629) (5,091) (9,018)
================================================== ======= ======= ============
Profit from operations 5,935 3,678 10,523
Net finance costs (921) (817) (1,641)
Share of post-tax results of associates and joint
ventures 289 200 442
================================================== ======= ======= ============
Profit before taxation 5,303 3,061 9,324
Taxation on ordinary activities (1,268) (1,123) (2,478)
================================================== ======= ======= ============
Profit for the period 4,035 1,938 6,846
================================================== ======= ======= ============
Attributable to:
Owners of the parent 3,959 1,859 6,666
Non-controlling interests 76 79 180
================================================== ======= ======= ============
4,035 1,938 6,846
Earnings per share
================================================== ======= ======= ============
Basic 176.6p 81.2p 293.3p
================================================== ======= ======= ============
Diluted 176.0p 80.8p 291.9p
================================================== ======= ======= ============
All of the activities during both years are in respect of
continuing operations.
The accompanying notes on pages 28 to 42 form an integral part
of this condensed consolidated financial information.
1. Revenue is net of duty, excise and other taxes of GBP18,721
million and GBP18,190 million for the six months ended 30 June 2023
and 30 June 2022, respectively, and GBP38,527 million for the year
ended 31 December 2022.
Interim Financial Statements (unaudited)
Continued
Group Statement of Comprehensive Income
Six months
ended Year ended
30 June 31 December
========================================================== =============== ============
2023 2022 2022
GBPm GBPm GBPm
========================================================== ======= ====== ============
Profit for the period (page 21 ) 4,035 1,938 6,846
Other comprehensive income
Items that may be reclassified subsequently to
profit or loss: (4,642) 8,385 8,506
======= ====== ============
Foreign currency translation and hedges of net
investments in foreign operations
- differences on exchange from translation of
foreign operations (4,841) 8,665 8,923
- reclassified and reported in profit for the
period - 14 5
- net investment hedges - net fair value gains/(losses)
on derivatives 248 (500) (578)
- net investment hedges - differences on exchange
on borrowings 13 (9) (21)
Cash flow hedges
- net fair value gains 59 103 81
- reclassified and reported in profit for the
period (17) 50 101
- tax on net fair value gains in respect of cash
flow hedges (15) (26) (17)
Investments held at fair value
- net fair value gains 3 3 6
Associates - share of OCI, net of tax (92) 85 6
======= ======
Items that will not be reclassified subsequently
to profit or loss: 55 278 201
======= ====== ============
Retirement benefit schemes
- net actuarial gains 45 411 316
- surplus recognition 3 (23) (39)
- tax on actuarial gains in respect of subsidiaries 12 (120) (95)
Associates - share of OCI, net of tax (5) 10 19
======= ======
Total other comprehensive income for the period,
net of tax (4,587) 8,663 8,707
========================================================== ======= ====== ============
Total comprehensive income for the period, net
of tax (552) 10,601 15,553
========================================================== ======= ====== ============
Attributable to:
Owners of the parent (599) 10,507 15,370
Non-controlling interests 47 94 183
========================================================== ======= ====== ============
(552) 10,601 15,553
========================================================== ======= ====== ============
The accompanying notes on pages 28 to 42 form an integral part
of this condensed consolidated financial information.
Interim Financial Statements (unaudited)
Continued
Group Statement of Changes in Equity
Attributable to owners of the parent
==================================================== ====================================================================
Share
premium,
capital Total
redemption In respect attributable Perpetual
Share and merger Other Retained of assets to owners hybrid Non-controlling Total
capital reserves reserves earnings held-for-sale of parent bonds interests equity
At 30 June 2023 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Balance at 1 January
2023 614 26,628 2,655 44,081 (295) 73,683 1,685 342 75,710
Total comprehensive
(expense)/income
for the period
comprising:
(page 22 ) - - (4,619) 4,020 - (599) - 47 (552)
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Profit for the
period (page 21
) - - - 3,959 - 3,959 - 76 4,035
Other comprehensive
(expense)/income
for the period
(page 22 ) - - (4,619) 61 - (4,558) - (29) (4,587)
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Other changes
in equity
Cash flow hedges
reclassified and
reported in total
assets - - 38 - - 38 - - 38
Employee share
options
* value of employee services - - - 33 - 33 - - 33
* proceeds from new shares issued - 1 - - - 1 - - 1
* treasury shares used for share option schemes - - - - - - - - -
Dividends and other
appropriations
* ordinary shares - - - (2,493) - (2,493) - - (2,493)
* to non-controlling interests - - - - - - - (59) (59)
Purchase of own
shares -
* held in employee share ownership trusts - - - (110) - (110) - - (110)
* share buy-back programme - - - - - - - - -
Non-controlling
interests - acquisitions - - - - - - - - -
Reclassification
of equity relating
to assets held-for-sale - - 205 (205) - - - -
Other movements - - - 60 - 60 - - 60
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Balance at 30
June 2023 614 26,629 (1,721) 45,591 (500) 70,613 1,685 330 72,628
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Interim Financial Statements (unaudited)
Continued
Group Statement of Changes in Equity (continued)
Attributable to owners of the parent
==================================================== ====================================================================
Share
premium,
capital Total
redemption In respect attributable Perpetual
Share and merger Other Retained of assets to owners hybrid Non-controlling Total
capital reserves reserves earnings held-for-sale of parent bonds interests equity
At 30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Balance at 1 January
2022 614 26,622 (6,032) 44,212 - 65,416 1,685 300 67,401
Total comprehensive
income for the
period comprising:
(page 22 ) - - 8,379 2,128 - 10,507 - 94 10,601
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Profit for the
period (page 21
) - - - 1,859 - 1,859 - 79 1,938
Other comprehensive
income for the
period (page 22
) - - 8,379 269 - 8,648 - 15 8,663
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Other changes
in equity
Cash flow hedges
reclassified and
reported in total
assets - - (76) - - (76) - - (76)
Employee share
options
* value of employee services - - - 34 - 34 - - 34
* proceeds from new shares issued - 4 - - - 4 - - 4
* treasury shares used for share option schemes - 1 - (1) - - - - -
Dividends and other
appropriations
* ordinary shares - - - (2,476) - (2,476) - - (2,476)
* to non-controlling interests - - - - - - - (80) (80)
Purchase of own
shares
* held in employee share ownership trusts - - - (80) - (80) - - (80)
* share buy-back programme - - - (1,256) - (1,256) - - (1,256)
Non-controlling
interests - acquisitions - - - (1) - (1) - - (1)
Other movements
non-controlling
interests - - - - - - - -
Reclassification
of equity in respect
of assets classified
as held-for-sale - - 58 (58) - - - -
Other movements - - - (2) - (2) - - (2)
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Balance at 30
June 2022 614 26,627 2,329 42,558 (58) 72,070 1,685 314 74,069
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Interim Financial Statements (unaudited)
Continued
Group Statement of Changes in Equity (continued)
Attributable to owners of the parent
==================================================== ====================================================================
Share
premium,
capital Total
redemption In respect attributable Perpetual
Share and merger Other Retained of assets to owners hybrid Non-controlling Total
capital reserves reserves earnings held-for-sale of parent bonds interests equity
At 31 December 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Balance at 1 January
2022 614 26,622 (6,032) 44,212 - 65,416 1,685 300 67,401
Total comprehensive
income for the year
comprising: (page
22 ) - - 8,521 6,849 - 15,370 - 183 15,553
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Profit for the year
(page 21 ) - - - 6,666 - 6,666 - 180 6,846
Other comprehensive
income for the year
(page 22 ) - - 8,521 183 - 8,704 - 3 8,707
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Other changes in
equity
Cash flow hedges
reclassified and
reported in total
assets - - (129) - - (129) - - (129)
Employee share options
* value of employee services - - - 81 - 81 - - 81
* proceeds from new shares issued - 5 - - - 5 - - 5
* treasury shares used for share option schemes - 1 - (1) - - - - -
Dividends and other
appropriations -
* ordinary shares - - - (4,915) - (4,915) - - (4,915)
* to non-controlling interests - - - - - - - (141) (141)
Purchase of own shares -
* held in employee share ownership trusts - - - (80) - (80) - - (80)
* share buy-back programme - - - (2,012) - (2,012) - - (2,012)
Perpetual hybrid
bonds
* coupons paid - - - (59) - (59) - - (59)
* tax on coupons paid - - - 11 - 11 - - 11
Non-controlling interests
- acquisitions - - - (1) - (1) - - (1)
Other movements non-controlling
interests - - - - - - - - -
Reclassification
of equity in respect
of assets classified
as held-for-sale - - 295 - (295) - - - -
Other movements - - - (4) - (4) - - (4)
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
Balance at 31 December
2022 614 26,628 2,655 44,081 (295) 73,683 1,685 342 75,710
==================================================== ======= ========== ======== ======== ============= ============ ========= =============== =======
The accompanying notes on pages 28 to 42 form an integral part
of this condensed consolidated financial information.
Interim Financial Statements (unaudited)
Continued
Group Balance Sheet
As at 31
As at 30 June December
====================================================== ================ =========
2023 2022 2022
GBPm GBPm GBPm
====================================================== ======= ======= =========
Assets
Intangible assets 122,126 128,026 129,075
Property, plant and equipment 4,521 4,728 4,867
Investments in associates and joint ventures 2,061 2,055 2,020
Retirement benefit assets 1,027 1,219 1,000
Deferred tax assets 720 619 682
Trade and other receivables 284 224 241
Investments held at fair value 111 55 121
Derivative financial instruments 130 236 131
====================================================== ======= ======= =========
Total non-current assets 130,980 137,162 138,137
Inventories 5,634 5,952 5,671
Income tax receivable 160 145 149
Trade and other receivables 4,219 3,649 4,367
Investments held at fair value 451 571 579
Derivative financial instruments 413 270 430
Cash and cash equivalents 3,681 3,568 3,446
====================================================== ======= ======= =========
14,558 14,155 14,642
Assets classified as held-for-sale 534 554 767
====================================================== ======= ======= =========
Total current assets 15,092 14,709 15,409
====================================================== ======= ======= =========
Total assets 146,072 151,871 153,546
Equity - capital and reserves
Share capital 614 614 614
Share premium, capital redemption and merger reserves 26,629 26,627 26,628
Other reserves (1,721) 2,329 2,655
Retained earnings 45,591 42,558 44,081
In respect of assets held-for-sale (500) (58) (295)
====================================================== ======= ======= =========
Owners of the parent 70,613 72,070 73,683
Perpetual hybrid bonds 1,685 1,685 1,685
Non-controlling interests 330 314 342
====================================================== ======= ======= =========
Total equity 72,628 74,069 75,710
Liabilities
Borrowings 37,140 39,724 38,726
Retirement benefit liabilities 881 1,108 949
Deferred tax liabilities 17,389 18,361 18,428
Other provisions for liabilities 469 418 434
Trade and other payables 944 998 944
Derivative financial instruments 430 467 502
====================================================== ======= ======= =========
Total non-current liabilities 57,253 61,076 59,983
Borrowings 5,029 5,151 4,413
Income tax payable 905 888 1,049
Other provisions for liabilities 483 863 1,087
Trade and other payables 9,217 8,823 10,449
Derivative financial instruments 251 462 427
====================================================== ======= ======= =========
15,885 16,187 17,425
Liabilities associated with assets classified
as held-for-sale 306 539 428
====================================================== ======= ======= =========
Total current liabilities 16,191 16,726 17,853
====================================================== ======= ======= =========
Total equity and liabilities 146,072 151,871 153,546
====================================================== ======= ======= =========
The accompanying notes on pages 28 to 42 form an integral part
of this condensed consolidated financial information.
Interim Financial Statements (unaudited)
Continued
Group Cash Flow Statement
Six months
ended Year ended
30 June 31 December
======================================================== ================ ============
2023 2022 2022
GBPm GBPm GBPm
======================================================== ======= ======= ============
Cash flows from operating activities
Cash generated from operating activities (page
33 ) 4,522 4,330 12,537
Dividends received from associates 202 171 394
Tax paid (1,349) (1,280) (2,537)
======================================================== ======= ======= ============
Net cash generated from operating activities 3,375 3,221 10,394
======================================================== ======= ======= ============
Cash flows from investing activities
Interest received 78 28 85
Purchases of property, plant and equipment (110) (99) (523)
Proceeds on disposal of property, plant and equipment 22 13 31
Purchases of intangibles (21) (52) (133)
Proceeds on disposal of intangibles - - 3
Purchases of investments (433) (174) (257)
Proceeds on disposals of investments 543 81 128
Investment in associates and acquisitions of other
subsidiaries net of cash acquired (38) (5) (39)
Net cash generated from/(used in) investing activities 41 (208) (705)
======================================================== ======= ======= ============
Cash flows from financing activities
Interest paid on borrowings and financing related
activities (855) (746) (1,578)
Interest element of lease liabilities (14) (11) (25)
Capital element on lease liabilities (80) (71) (161)
Proceeds from increases in and new borrowings 2,054 3,162 3,267
Reductions in and repayments of borrowings (1,050) (1,087) (3,044)
(Outflows)/inflows relating to derivative financial
instruments (429) 253 (117)
Purchases of own shares - share buy-back programme - (1,256) (2,012)
Purchases of own shares held in employee share
ownership trusts (110) (80) (80)
Coupon paid on perpetual hybrid bonds - - (60)
Dividends paid to owners of the parent (2,479) (2,476) (4,915)
Capital injection from and purchases of non-controlling
interests - (1) (1)
Dividends paid to non-controlling interests (59) (80) (158)
Other (1) 4 6
======================================================== ======= ======= ============
Net cash used in financing activities (3,023) (2,389) (8,878)
======================================================== ======= ======= ============
Net cash flows generated from operating, investing
and financing activities 393 624 811
Transferred from/(to) held-for-sale 4 (240) (368)
Differences on exchange (171) 371 431
======================================================== ======= ======= ============
Increase in net cash and cash equivalents in
the year 226 755 874
Net cash and cash equivalents at 1 January 3,337 2,463 2,463
======================================================== ======= ======= ============
Net cash and cash equivalents at period end 3,563 3,218 3,337
======================================================== ======= ======= ============
Cash and cash equivalents per balance sheet 3,681 3,568 3,446
Overdrafts and accrued interest (118) (350) (109)
======================================================== ======= ======= ============
Net cash and cash equivalents at period end 3,563 3,218 3,337
======================================================== ======= ======= ============
The accompanying notes on pages 28 to 42 form an integral part
of this condensed consolidated financial information. The net cash
flows relating to the adjusting items within profit from operations
on pages 28 to 31 , included in the above, are an inflow of GBP56
million (30 June 2022: GBP155 million outflow; 31 December 2022:
GBP466 million outflow).
Notes to the Unaudited Interim Financial Statements
Accounting policies and basis of preparation
The condensed consolidated financial information comprises the
unaudited interim financial information for the six months to 30
June 2023. The condensed consolidated financial information has
been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted for use in the UK and as issued by the International
Accounting Standards Board (IASB), and the Disclosure Guidance and
Transparency Rules issued by the Financial Conduct Authority. The
interim condensed consolidated financial information is unaudited
but has been reviewed by the auditor and its review report is set
out on page 19 .
This condensed consolidated financial information does not
constitute statutory accounts within the meaning of Section 434 of
the Companies Act 2006 and should be read in conjunction with the
Group's Annual Report and Accounts and Form 20-F for the year ended
31 December 2022, including the audited financial statements for
the year ended 31 December 2022, which were prepared in accordance
with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB) and
UK-adopted international accounting standards, and in accordance
with the provisions of the UK Companies Act 2006. UK-adopted
international accounting standards differ in certain respects from
IFRS as issued by the IASB. The differences have no impact on the
Group's consolidated financial statements for the periods
presented.
The Group's Annual Report and Accounts and Form 20-F for the
year ended 31 December 2022 represent the statutory accounts for
that year and have been filed with the Registrar of Companies. The
auditor's report on those statements was unmodified and did not
contain an emphasis of matter paragraph and did not contain any
statement under Section 498 (2) or (3) of the Companies Act
2006.
These condensed consolidated financial statements have been
prepared under the historical cost convention, except in respect of
certain financial instruments. They are prepared on a basis
consistent with the IFRS accounting policies as set out in the
Group's Annual Report and Form 20-F for the year ended 31 December
2022.
The preparation of these condensed consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities at the
date of these condensed consolidated financial statements. Such
estimates and assumptions are based on historical experience and
various other factors that are believed to be reasonable in the
circumstances and constitute management's best judgement at the
date of the condensed consolidated financial statements. Other than
in respect of the Group's Russian and Belarusian businesses (which
have been classified as held-for-sale) and certain assumptions
related to the assessment of the carrying value of goodwill and
intangible assets, the key estimates and assumptions were the same
as those that applied to the consolidated financial information for
the year ended 31 December 2022, apart from updating the
assumptions used to determine the carrying value of liabilities for
retirement benefit schemes. As described on page 31 , the Group has
assessed whether there are any impairment triggers related to the
carrying value of the significant investments of goodwill and
intangibles. Other than as described on page 31 in relation to
Organigram, no other impairment is required. In the future, actual
experience may deviate from these estimates and assumptions, which
could affect these condensed consolidated financial statements as
the original estimates and assumptions are modified, as
appropriate, in the period in which the circumstances change.
As discussed on page 18 , after reviewing the Group's forecast
financial performance and financing arrangements, the Directors
consider that the Group has adequate resources to continue
operating for at least 12 months from the date of approval of this
condensed consolidated financial information and that it is
therefore appropriate to continue to adopt the going concern basis
in preparing this Half-Year Report.
Analysis of revenue and profit from operations by segment
Six months ended
30 June 2023 2022
================================================== ================================
Reported
Reported Exchange at CC(2) Reported
Revenue GBPm GBPm GBPm GBPm
======================= ======== ========= ======== ======== ========= ======== ============ ========
U.S. 5,910 (294) 5,616 5,934
AME 4,730 (101) 4,629 4,243
APMEA 2,801 155 2,956 2,692
======================= ======== ========= ======== ======== ========= ======== ============ ========
Total Region 13,441 (240) 13,201 12,869
======================= ======== ========= ======== ======== ========= ======== ============ ========
Six months ended
30 June 2023 2022
Adj Adjusted
Reported Items(1) Adjusted Exchange at CC(2) Reported Adj Items(1) Adjusted
Profit from Operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ========= ======== ======== ========= ======== ============ ========
U.S. 3,168 137 3,305 (175) 3,130 2,801 335 3,136
AME 1,767 (119) 1,648 (49) 1,599 508 975 1,483
APMEA 1,000 67 1,067 54 1,121 369 657 1,026
======================= ======== ========= ======== ======== ========= ======== ============ ========
Total Region 5,935 85 6,020 (170) 5,850 3,678 1,967 5,645
======================= ======== ========= ======== ======== ========= ======== ============ ========
Notes to the analysis of revenue and profit from operations
above:
1. Adjusting items represent certain items which the Group
considers distinctive based upon their size, nature or
incidence.
2. CC: constant currency - measures are calculated based on a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its segments
.
As part of plans to reduce complexity and drive efficiency in
management structures and achieve a better balance in the scale of
our regions, it was decided to reduce the management structure from
four regions to three regions, with the new organisational
structures in place from April 2023. The new regional structure
is:
- the U.S.;
- Americas and Europe (AME), comprising largely the old Europe
region with the inclusion of markets in Latin America and Canada;
and
- Asia-Pacific, Middle East and Africa (APMEA) comprising the
old APME region with the inclusion of markets in Sub-Saharan Africa
and parts of the former Europe region.
The regional results, for the six months ended 30 June 2022,
presented as comparators within this Half-Year Report have been
represented on the new regional structure.
Notes to the Unaudited Interim Financial Statements
Continued
Adjusting Items
Adjusting items are significant items of income or expense in
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 because of their size, nature or incidence. In
identifying and quantifying adjusting items, the Group consistently
applies a policy that defines criteria that are required to be met
for an item to be classified as adjusting. These items are
separately disclosed in the segmental analyses or in the notes to
the accounts as appropriate.
The Group believes that these items are useful to users of the
Group financial statements in helping them to understand the
underlying business performance and are used to derive the Group's
principal non-GAAP measures of organic revenue, adjusted profit
from operations, adjusted organic profit from operations, New
Categories contribution, organic New Categories contribution,
adjusted diluted earnings per share, adjusted net finance costs,
adjusted taxation and operating cash flow conversion ratio, all of
which are before the impact of adjusting items and which are
reconciled from revenue, profit from operations, diluted earnings
per share, net finance costs, taxation, cash conversion ratio and
net cash generated from operating activities.
Adjusting items included in profit from operations
Adjusting items are significant items in the profit from
operations that individually or, if of a similar type, in
aggregate, are relevant to an understanding of the Group's
underlying financial performance.
In summary, in the six months ended 30 June 2023, the Group
incurred GBP85 million (30 June 2022: GBP1,967 million; 31 December
2022: GBP1,885 million ) of adjusting items within profit from
operations:
Six months
ended Year ended
30 June 31 December
====================================================== ============ ============
2023 2022 2022
GBPm GBPm GBPm
====================================================== ===== ===== ============
(a) Restructuring and integration costs (2) 333 771
(b) Amortisation and impairment of trademarks
and similar intangibles 108 161 285
(c) Charges in connection with planned disposal
of subsidiaries 17 957 612
(c) (Credit)/charges in connection with disposal
of subsidiaries (1) 1 (6)
(d) Credit in respect of partial buy-out of the
pension fund in the U.S. - (15) (16)
(d) Credit in respect of calculation of excise
on social contributions in Brazil (147) - -
(d) Credit in respect of calculation of VAT on
social contributions in Brazil (13) - (460)
(d) Charges in respect of DOJ and OFAC investigations 66 450 450
(d) Charges in respect of Nigeria Federal Competition
and Consumer Protection Commission (FCCPC) case - - 79
(d) Other adjusting items (including Engle) 57 80 170
====================================================== ===== ===== ============
Total adjusting items included in profit from
operations 85 1,967 1,885
====================================================== ===== ===== ============
(a) Restructuring and integration costs
Restructuring costs reflect the costs associated with the
implementation of revisions to the Group's operating model, mainly
in relation to Quantum. This programme delivered GBP1.9 billion of
annualised savings over a three-year period (to 2022) and the
charges include the cost of packages in respect of permanent
headcount reductions and permanent employee benefit reductions in
the Group. No further restructuring charges were recognised as
adjusting in 2023, following the completion of the Quantum
programme.
The costs of the Group's initiatives are included in profit from
operations under the following headings:
Six months
ended Year ended
30 June 31 December
================================================ ============ ============
2023 2022 2022
GBPm GBPm GBPm
================================================ ===== ===== ============
Employee benefit costs (2) 49 315
Depreciation, amortisation and impairment costs - 131 220
Other operating expenses - 153 237
Other operating income - - (1)
================================================ ===== ===== ============
Total (2) 333 771
================================================ ===== ===== ============
Notes to the Unaudited Interim Financial Statements
Continued
Adjusting items included in profit from operations
(continued)
(b) Amortisation and impairment of trademarks and similar
intangibles
Acquisitions in previous years have resulted in the
capitalisation of trademarks and similar intangibles including
those which are amortised over their expected useful lives, which
do not exceed 20 years. The amortisation and impairment charge of
GBP108 million (30 June 2022: GBP161 million, 31 December 2022:
GBP285 million) is included in depreciation, amortisation and
impairment costs in the income statement.
(c) Assets classified as held-for-sale
On 11 March 2022, the Group announced its intention to transfer
BAT Russia in compliance with international and local laws; as
described on page 15 . Due to operational dependencies between BAT
Russia and BAT Belarus, it has been decided that the Belarusian
business will be included in any transaction. Upon completion, the
Group will no longer have a presence in Russia or Belarus. The
Group is working as quickly as possible to transfer the
businesses.
At the date of writing, no agreement to transfer the shares in
these subsidiaries has been entered into. Further, any transaction
that is agreed will be subject to regulatory approvals. In
accordance with IFRS, the assets of these subsidiaries comprising
GBP189 million of property, plant and equipment and other
non-current assets, GBP345 million of trade and other receivables,
GBP364 million of cash and cash equivalents and GBP180 million of
other current assets principally relating to inventories, have been
classified as held-for-sale at 30 June 2023 and presented as such
on the balance sheet at an estimated recoverable value (fair value
less costs to sell). In addition, GBP8 million of borrowings and
GBP299 million of trade creditors and other current liabilities
have been classified as held-for-sale at 30 June 2023. Impairment
charges of GBP554 million and associated costs of GBP58 million
were recognised in the Income Statement as adjusting items in 2022.
In addition, another GBP17 million of associated costs were
recognised in the Income Statement as adjusting items in the first
six months of 2023. No amendments to the recorded impairment charge
were deemed necessary as at 30 June 2023. The assessment of
recoverable value has taken into account a range of internal
assumptions, including those regarding the impact, extent and
duration of sanctions, likely transaction terms, the likelihood of
any consideration being significantly deferred, potentially
impacting the ability to remit funds, and ongoing macro-economic
developments, such as the impact of inflation and interest rates.
All assumptions are based on current expectations and are subject
to a very high degree of volatility and uncertainty and therefore
may change up until the final value can be determined, based on an
actual transaction.
On completion of the transaction, certain other items, including
foreign exchange previously recognised in the Statement of Other
Comprehensive Income (which was GBP500 million at 30 June 2023),
will be reclassified to the Income Statement in the period in which
completion occurs. The financial impact of these items will also be
treated as non-cash, adjusting items.
The following is a reconciliation between the total assets
available for sale and their estimated recoverable amount (fair
value less costs to sell):
At 30 June 2023 GBPm
==================================================================== =====
Total assets held-for-sale* 1,088
Impairment of non-current assets held-for-sale - Russia and Belarus (189)
==================================================================== =====
899
Excess impairment beyond non-current assets held-for-sale - Russia
and Belarus (365)
==================================================================== =====
Assets held-for-sale* 534
==================================================================== =====
*Includes GBP9 million of assets held-for-sale in territories
other than Russia and Belarus.
Also included in 2023 is a credit of GBP1 million (30 June 2022:
charge of GBP1 million) related to the sale of the Group's Iranian
business, which was completed in 2021.
(d) Other
In 2023, the Group benefited from a net credit of GBP37 million
(30 June 2022: net charge of GBP515 million) of other adjusting
items. These included:
- A charge of GBP66 million (30 June 2022: GBP450 million)
recognised in respect of the DOJ and OFAC investigations into
alleged historical breaches of sanctions (see page 14 );
- A credit of GBP147 million (30 June 2022: GBPnil million) in
respect of calculation of excise on social contributions in
Brazil;
- A credit of GBP13 million (30 June 2022: GBPnil million)
related to the calculation of VAT on social contributions in
Brazil;
- A credit of GBP15 million in the first half of 2022 in respect
of a settlement gain related to the partial buy-out of the U.S.
pension fund; and
- Other costs of GBP57 million (30 June 2022: GBP80 million). In
2023, this mainly related to litigation costs including Engle
progeny cases
(30 June 2022: GBP104 million, partly offset in the first half
of 2022 by a credit of GBP24 million related to a favourable
resolution in respect of MSA litigation in the state of
Illinois).
Notes to the Unaudited Interim Financial Statements
Continued
Adjusting items included in profit from operations
(continued)
(e) Ongoing impairment review of assets
The Group reviews and monitors the performance of its
non-financial assets (including goodwill) in line with the
requirements of IAS 36 Impairment of Assets. In preparing the
Half-Year Report for the six months ended 30 June 2023, the Group
has assessed if any impairment indicators exist requiring a further
detailed impairment assessment to be undertaken.
On 28 April 2022, the FDA announced a proposed product standard
to prohibit menthol as a characterising flavour in cigarettes,
consistent with their previously stated timeline. Management noted
that the proposal of a product standard does not itself constitute
a ban on menthol in cigarettes given the proposed standard is still
required to go through the established U.S. comprehensive
rule-making process, the timetable and outcome for which was, and
remains, uncertain. Management incorporated the anticipated impacts
of a proposed product standard within the 2022 year-end impairment
assessment and noted that there have been no developments since
31 December 2022 that would indicate a potential trigger for
impairment.
Further to this, on 21 June 2022, the FDA announced plans to
develop a proposed product standard that would establish a maximum
nicotine level in cigarettes and certain other combustible tobacco
products to reduce addictiveness. Management noted that the FDA
announcement does not itself constitute restrictions on nicotine
levels in cigarettes, and any proposed regulation would need to be
introduced through the established U.S. comprehensive rule-making
process, the timetable and outcome for which was, and remains,
uncertain. As of 30 June 2023, no proposed product standard had
been announced. However, Management will continue to monitor its
progress and its impact (if any) on the Cash Generating Unit's
("CGU") Value-in-Use.
During 2023, macro-economic pressures intensified within the
U.S. market resulting in higher than anticipated combustible volume
declines in the first half of the year, especially in the premium
segment. However, these impacts are expected to dissipate within
the short-term, as the macro-economic pressures normalise, and
therefore do not impact the longer term outlook for the Reynolds
American Inc. ("Reynolds") CGU. Additionally, New Categories have
continued delivering a strong performance, especially in Vapour
with the potential for enforcement action on disposable synthetic
nicotine vape products by the FDA, expected to bring further growth
to the Group's U.S. Vapour business. While the Reynolds CGU is
facing headwinds in 2023, Management has not identified an
impairment trigger in relation to either the Reynolds CGU or its
indefinite-lived brand intangibles. However, in relation to Camel
Snus, while its performance in the first half of 2023 indicated no
potential impairment triggers, Management continues to monitor its
performance, given it remains highly sensitive to movements in key
assumptions.
In December 2022, the sale of most tobacco products with
characterising flavours (including menthol) other than tobacco were
banned in the state of California. The impact of such ban does not
present an indicator of a potential impairment for Reynolds
goodwill or any of the indefinite-lived intangibles.
As part of the standard year-end impairment process, a detailed
impairment review will be undertaken for all CGUs in line with IAS
36 Impairment of Assets. This will include the entire Reynolds
portfolio (including Newport and Camel) to ensure the book values
remain supportable.
Adjusting items included in net finance costs
In the six months ended 30 June 2023, the Group incurred
adjusting items within net finance costs of GBP23 million (30 June
2022:
GBP41 million).
This included interest of GBP28 million (30 June 2022: GBP13
million) in relation to the FII GLO, as described on page 39 .
In the six months to 30 June 2022, the Group recognised GBP28
million of foreign exchange arising from the revaluation of foreign
currency balances held in Russia and Belarus that due to the
proposed transfer of the Group's Russian and Belarusian businesses
do not qualify for hedge accounting. There was no equivalent charge
in the first six months of 2023.
All of the adjustments noted above have been included in the
adjusted earnings per share calculation on page 36 .
Adjusting items included in results of associates and joint
ventures
Adjusting items included in results of associates and joint
ventures was a charge of GBP15 million in the first six months of
2023 (30 June 2022: GBP62 million), mainly related to:
- A gain of GBP16 million (30 June 2022: GBP8 million gain) as
the Group's interest in ITC decreased from 29.19% in 2022 to 29.12%
as a result of ITC issuing ordinary shares under the company's
Employees Share Option Scheme. The issue of these shares and change
in the Group's share of ITC resulted in a deemed partial disposal;
and
- An impairment charge with respect to the investment in
Organigram. Management assessed the carrying value of the Group's
investment in Organigram Holdings Inc., due to the continued
deterioration in the investment's market capitalisation which
Management identified as an impairment trigger. As part of this
exercise, Management took into consideration:
- Organigram's share price as at 30 June 2023;
- internal value-in-use calculations;
- external trading multiples; and
- broker forecasts.
As a result of this analysis, it was concluded that a further
impairment charge of GBP35 million (or GBP33 million net of tax)
was required against the carrying value of the investment in
associate, with the recoverable amount as at 30 June 2023 being
GBP33 million. In 2022, the Group recorded an impairment charge of
GBP65 million (or GBP59 million net of tax) against the carrying
value of Organigram Holdings Inc.
The share of post-tax results of associates and joint ventures
is after the adjusting items noted above, which are excluded from
the calculation of adjusted earnings per share as set out on page
36 .
Notes to the Unaudited Interim Financial Statements
Continued
Adjusting items included in taxation
The Group's tax rate is affected by the adjusting items referred
to below and by the inclusion of the share of associates and joint
ventures post-tax profit in the Group's pre-tax results.
Adjusting items in 2023 included a charge of GBP10 million (30
June 2022: GBP6 million) relating to the revaluation of deferred
tax liabilities arising on trademarks recognised in the Reynolds
American acquisition in 2017 due to changes in U.S. state tax
rates.
The adjusting tax item also includes GBP8 million (30 June 2022:
GBP105 million) in respect of the taxation on other adjusting
items, which are described on pages 28 to 32 .
Refer to page 39 for the Franked Investment Income Group
Litigation Order update.
As the above items are not reflective of the ongoing business,
they have been recognised as adjusting items within taxation. All
of the adjustments noted above have been included in the adjusted
earnings per share calculation on page 36 .
Liquidity
The Treasury function is responsible for raising finance for the
Group, managing the Group's cash resources and the financial risks
arising from underlying operations. All these activities are
carried out under defined policies, procedures and limits, reviewed
and approved by the Board, delegating oversight to the Finance
Director and Treasury function. The Group has targeted an average
centrally managed bond maturity of at least five years with no more
than 20% of centrally managed debt maturing in a single rolling
12-month period. As at 30 June 2023, the average centrally
managed debt maturity of bonds was 9.5 years (30 June 2022: 10.1
years;
31 December 2022: 9.9 years) and the highest proportion of
centrally managed debt maturing in a single rolling 12-month period
was 18.5% (30 June 2022: 18.3%; 31 December 2022: 18.6%).
The Group continues to maintain investment-grade credit ratings,
with ratings from Moody's/S&P at Baa2 (stable outlook)/BBB+
(negative outlook), respectively, with a medium-term target of
Baa1/BBB+. The strength of the ratings has underpinned debt
issuance and the Group is confident of its ability to continue to
successfully access the debt capital markets. 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.
In order to manage its interest rate risk, the Group maintains
both floating rate and fixed rate debt. The Group sets targets
(within overall guidelines) for the desired ratio of floating to
fixed rate debt on a net basis (at least 50% fixed on a net basis
in the short to medium term). At 30 June 2023, the relevant ratio
of floating to fixed rate borrowings after the impact of
derivatives was 14:86 (30 June 2022: 19:81; 31 December 2022:
12:88). On a net debt basis, after offsetting liquid assets, the
relevant ratio of floating to fixed rate borrowings was 5:95 (30
June 2022: 10:90; 31 December 2022: 3:97). Excluding cash and other
liquid assets in Canada, which are subject to certain restrictions
under CCAA protection, the ratio of floating to fixed rate
borrowings was 9:91 (30 June 2022: 13:87; 31 December 2022:
7:93).
The Group is party to the ISDA fallback protocol and, in January
2022, it automatically replaced GBP LIBOR with an economically
equivalent interest rate referencing SONIA for derivatives on their
reset date.
Available facilities
It is Group policy that short-term sources of funds (including
drawings under both the US$4 billion U.S. commercial paper
programme and GBP3 billion euro commercial paper programme) are
backed by undrawn committed lines of credit and cash. As at 30 June
2023, commercial paper of GBP269 million was outstanding (30 June
2022: GBP727 million drawn; 31 December 2022: GBP27 million). Cash
flows relating to commercial paper issuances with maturity periods
of three months or less are presented on a net basis in the Group's
cash flow statement.
At 30 June 2023, the Group had access to a GBP5.5 billion
revolving credit facility. This facility was undrawn at 30 June
2023. In March 2023, the Group refinanced the GBP2.7 billion
364-day tranche of the revolving credit facility at the reduced
amount of GBP2.5 billion, maturing in March 2024 with two one year
extension options, and a one year term out option. Additionally,
GBP3.0 billion of the five-year tranche remains available until
March 2025, with GBP2.85 billion extended to March 2026 and GBP2.5
billion extended to March 2027. During the first six months of
2023, the Group extended short-term bilateral facilities totalling
GBP2.9 billion. As at 30 June 2023, GBP1.5 billion was drawn on a
short-term basis with GBP1.4 billion undrawn and still available
under such bilateral facilities. Cash flows relating to bilateral
facilities that have maturity periods of three months or less are
presented on a net basis in the Group's cash flow statement.
Issuance, drawdowns and repayments in the period
- In January 2023, the Group repaid a EUR750 million bond at
maturity;
- In February 2023, the Group accessed the Euro market under its
EMTN Programme, raising a total of EUR800 million; and
- In May 2023, the Group repaid a US$48 million bond at
maturity.
The Group has debt maturities of around GBP4 billion annually in
the next two years. Due to higher interest rates, net finance costs
are expected to increase as debts are refinanced.
Notes to the Unaudited Interim Financial Statements
Continued
Cash Flow
Net cash generated from operating activities
Net cash generated from operating activities in the IFRS cash
flows on page 27 includes the following items:
Six months
ended Year ended
30 June 31 December
====================================================== ================ ============
2023 2022 2022
GBPm GBPm GBPm
====================================================== ======= ======= ============
Profit for the period 4,035 1,938 6,846
Taxation on ordinary activities 1,268 1,123 2,478
Share of post-tax results of associates and joint
ventures (289) (200) (442)
Net finance costs 921 817 1,641
====================================================== ======= ======= ============
Profit from operations 5,935 3,678 10,523
Adjustments for:
- depreciation, amortisation and impairment costs 480 659 1,305
- increase in inventories (357) (437) (246)
- (increase)/decrease in trade and other receivables (425) 41 (42)
- decrease in Master Settlement Agreement payable (897) (859) (145)
- increase/(decrease) in trade and other payables 347 (84) 3
- decrease in retirement benefit liabilities (55) (56) (110)
- (decrease)/increase in other provisions for
liabilities (535) 399 643
- other non-cash items 29 989 606
====================================================== ======= ======= ============
Cash generated from operating activities 4,522 4,330 12,537
====================================================== ======= ======= ============
Dividends received from associates 202 171 394
Tax paid (1,349) (1,280) (2,537)
====================================================== ======= ======= ============
Net cash generated from operating activities 3,375 3,221 10,394
====================================================== ======= ======= ============
Net cash generated from operating activities increased by GBP154
million, primarily driven by the realisation of tax credits in
Brazil (related to the previously disclosed VAT on social
contributions) and higher dividends received from the Group's
associate ITC. These were partly offset by lower receivables
factoring across the Group, lower working capital in APMEA and
higher payments of tax. Included within net cash generated from
operating activities were litigation payments of GBP179 million (30
June 2022: GBP31 million) which included, in both 2023 and 2022,
payments in respect of Engle and, in 2023, payments related to the
settlement of the investigation by the FCCPC in Nigeria, as
described on page 38 .
Expenditure on research and development was approximately GBP194
million for the six months to 30 June 2023 (30 June 2022: GBP150
million) with a focus on products that could potentially reduce the
risk associated with smoking conventional cigarettes.
Net cash from investing activities
Net cash from investing activities was GBP41 million, an
improvement of GBP249 million from the same period last year when
it was an outflow of GBP208 million. The improvement was largely
due to a net inflow of GBP110 million (30 June 2022: GBP93 million
net outflow) from short-term investment products, including
treasury bills. Purchases of property, plant and equipment were
largely in line with 2022, at GBP110 million (30 June 2022: GBP99
million).
Included within investing activities is gross capital
expenditure. This includes the investment in the Group's global
operational infrastructure (including, but not limited to, the
manufacturing network, trade marketing and IT systems). In 2023,
the Group invested GBP130 million, a decrease of 5.9% on the prior
year (30 June 2022: GBP138 million). The Group now expects gross
capital expenditure in 2023 of approximately GBP550 million mainly
related to the ongoing investment in the Group's operational
infrastructure, including the expansion of our New Categories
portfolio.
Net cash used in financing activities
Net cash used in financing activities was an outflow of GBP3,023
million in 2023 (30 June 2022: GBP2,389 million outflow). The total
outflow includes:
- The payment of the dividend of GBP2,479 million (30 June 2022:
GBP2,476 million);
- Higher interest paid in the period of GBP855 million (30 June
2022: GBP746 million), driven by higher interest charges as new
debt issued replaced cheaper debt on maturity;
- The net issuance of borrowings in 2023 of GBP1,004 million
compared to a net issuance of borrowings in the six months to 30
June 2022 of GBP2,075 million;
- An outflow of GBP429 million related to derivatives (30 June
2022: inflow of GBP253 million); and
- In the first six months of 2022, an outflow of GBP1,256
million in respect of the 2022 share buy-back programme.
Notes to the Unaudited Interim Financial Statements
Continued
Fair value measurements and valuation processes
The Group held certain financial instruments at fair value at 30
June 2023. The definitions and valuation techniques employed for
these as at 30 June 2023 are consistent with those used at 31
December 2022 and disclosed in Note 26 on pages 261 to 265 of the
Group's Annual Report and Accounts and Form 20-F for the year ended
31 December 2022:
- Level 1 financial instruments are traded in an active market
and fair value is based on quoted prices at the period end.
- Level 2 financial instruments are not traded in an active
market, but the fair values are based on quoted market prices,
broker/dealer quotations, or alternative pricing sources with
reasonable levels of price transparency. The Group's level 2
financial instruments include OTC derivatives.
- The fair values of level 3 financial instruments have been
determined using a valuation technique where at least one input
(which could have a significant effect on the instrument's
valuation) is not based on observable market data. The Group's
level 3 financial instruments primarily consist of an equity
investment in an unquoted entity, interest free loans and other
treasury products which are valued using the discounted cash flows
of estimated future cash flows.
While the carrying values of assets and liabilities at fair
value have changed since 31 December 2022, the Group does not
consider the movements in value to be significant, and the
categorisation of these assets and liabilities in accordance with
the disclosure requirements of IFRS 7 Financial Instruments has not
materially changed. The values of level 1 assets and level 3 assets
are GBP361 million and GBP200 million, respectively, at 30 June
2023 (30 June 2022: GBP506 million and GBP120 million,
respectively, and 31 December 2022: GBP514 million and GBP186
million, respectively).
Level 2 assets and liabilities are shown below.
As at 31
As at 30 June December
====================================== =============== =========
2023 2022 2022
GBPm GBPm GBPm
====================================== ======= ====== =========
Assets at fair value
Derivatives relating to
- interest rate swaps 6 12 43
- cross-currency swaps 234 227 254
- forward foreign currency contracts 305 267 264
====================================== ======= ====== =========
Assets at fair value 545 506 561
====================================== ======= ====== =========
Liabilities at fair value
Derivatives relating to
- interest rate swaps 398 303 450
- cross-currency swaps 75 114 121
- forward foreign currency contracts 208 512 358
====================================== ======= ====== =========
Liabilities at fair value 681 929 929
====================================== ======= ====== =========
Borrowings are carried at amortised cost. The fair value of
borrowings is estimated to be GBP36,945 million (30 June 2022:
GBP39,491 million; 31 December 2022: GBP37,170 million). The value
of other assets and liabilities held at amortised cost are not
materially different from their fair values.
Related party disclosures
The Group's related party transactions and relationships for
2022 were disclosed on pages 271 and 272 of the Annual Report and
Accounts and Form 20-F for the year ended 31 December 2022.
In the six months ended 30 June 2023, apart from the
collaboration with Organigram and the Group's investment in a new
joint venture entity partly owned by Organigram (refer to page 15
), there were no material changes in related parties or related
party transactions to be reported.
In the six months ended 30 June 2022, apart from the investment
in and collaboration with Organigram, there were no material
changes in related parties or related party transactions to be
reported.
Notes to the Unaudited Interim Financial Statements
Continued
Earnings per share
Basic earnings per share were up 117% to 176.6p (30 June 2022:
81.2p) driven by the improvement in operational performance and
translational foreign exchange tailwinds (partly offset by higher
net finance costs), whilst the prior period was impacted by higher
one-off charges (mainly related to the proposed transfer of the
Group's businesses in Russia and Belarus, the DOJ and OFAC
investigations into suspicions of sanctions breaches and Quantum
restructuring).
Before adjusting items and including the dilutive effect of
employee share schemes, adjusted diluted earnings per share
increased 8.5% to 181.6p (30 June 2022: 167.4p). On a constant
translational foreign exchange basis, adjusted diluted earnings per
share were 5.3% higher at 176.3p. For a full reconciliation of
diluted earnings per share to adjusted diluted earnings per share,
at constant rates, see page 55 .
Earnings used in the basic, diluted and headline earnings per
share calculation represent the profit attributable to the ordinary
equity shareholders after deducting amounts representing the coupon
on perpetual hybrid bonds on a pro-rata basis regardless of whether
or not coupons have been declared and paid in the period. In 2023,
this was GBP22 million (30 June 2022: GBP23 million).
Six months
ended Year ended
30 June 31 December
============================================== ============ ============
2023 2022 2022
GBPm GBPm GBPm
============================================== ===== ===== ============
Earnings attributable to owners of the parent 3,959 1,859 6,666
Coupon on perpetual hybrid bonds (29) (29) (60)
Tax on coupon on perpetual hybrid bonds 7 6 11
============================================== ===== ===== ============
Earnings 3,937 1,836 6,617
============================================== ===== ===== ============
On 11 February 2022, the Company announced its intention to
start a share buy-back programme of up to GBP2 billion. The
programme ended in December 2022. As at 30 June 2022, the Company
had repurchased 37,657,945 ordinary shares. The total number of
shares repurchased during 2022 as part of the share buy-back
programme was 59,541,862 ordinary shares. Total consideration for
the repurchase of shares was GBP1.3 billion in the first half of
2022, and was recorded within retained earnings.
Basic earnings per share are based on the profit for the period
attributable to ordinary shareholders and the weighted average
number of ordinary shares in issue during the period (excluding
treasury shares). For the calculation of the diluted earnings per
share, the weighted average number of shares reflects the potential
dilutive effect of employee share schemes.
Earnings per share calculations are based upon the following
:
Reported Adjusted Headline
============================ ===== ============== ============== ==============
Basic Diluted Basic Diluted Basic Diluted
============================ ===== ===== ======= ===== ======= ===== =======
Six months to 30 June 2023
- Earnings GBPm 3,937 3,937 4,062 4,062 3,980 3,980
- Shares m 2,229 2,237 2,229 2,237 2,229 2,237
- Per share p 176.6 176.0 182.2 181.6 178.6 177.9
Six months to 30 June 2022
- Earnings GBPm 1,836 1,836 3,806 3,806 2,968 2,968
- Shares m 2,262 2,273 2,262 2,273 2,262 2,273
- Per share p 81.2 80.8 168.3 167.4 131.2 130.6
Year ended 31 December 2022
- Earnings GBPm 6,617 6,617 8,420 8,420 7,499 7,499
- Shares m 2,256 2,267 2,256 2,267 2,256 2,267
- Per share p 293.3 291.9 373.2 371.4 332.4 330.8
============================ ===== ===== ======= ===== ======= ===== =======
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.
Notes to the Unaudited Interim Financial Statements
Continued
Earnings per share (continued)
Adjusted diluted earnings per share are calculated by taking the
following adjustments into account (see pages 28 to 32 ):
Six months
ended Year ended
30 June 31 December
============================================================ ============ ============
2023 2022 2022
pence pence pence
============================================================ ===== ===== ============
Diluted earnings per share 176.0 80.8 291.9
Effect of amortisation and impairment of goodwill,
trademarks and similar intangibles 3.6 5.5 9.6
Effect of Brazil excise and VAT cases (5.3) - (17.1)
Effect of disposal of subsidiaries - - (0.3)
Effect of planned disposal of subsidiaries 0.7 42.0 26.4
Effect of charges in respect of DOJ and OFAC investigations 3.0 - 19.9
Effect of charges in respect of Nigerian FCCPC
case - - 3.5
Effect of restructuring and integration costs - 12.7 28.9
Effect of other adjusting items 1.9 21.9 5.2
Effect of adjusting items in net finance costs 0.6 1.5 1.2
Effect of associates' adjusting items 0.7 2.7 4.1
Effect of adjusting items in respect of deferred
taxation 0.4 0.3 (1.9)
============================================================ ===== ===== ============
Adjusted diluted earnings per share 181.6 167.4 371.4
Impact of translational foreign exchange (5.3) - -
============================================================ ===== ===== ============
Adjusted diluted earnings per share translated
at 2022 exchange rates 176.3 167.4 371.4
============================================================ ===== ===== ============
The presentation of headline earnings per share, as an
alternative measure of earnings per share, is mandated under the
JSE Listing Requirements. It is calculated in accordance with
Circular 1/2021 'Headline Earnings' as issued by the South African
Institute of Chartered Accountants.
Diluted headline earnings per share are calculated by taking the
following adjustments into account:
Six months
ended Year ended
30 June 31 December
=================================================== ============ ============
2023 2022 2022
pence pence pence
=================================================== ===== ===== ============
Diluted earnings per share 176.0 80.8 291.9
Effect of impairment of intangibles, property,
plant and equipment, associates and held-for-sale
assets (net of tax) 3.0 8.8 15.5
Effect of losses on disposal of property, plant
and equipment, trademarks, held-for-sale assets,
partial/full termination of IFRS 16 leases, and
sale and leaseback (net of tax) (0.4) (0.1) (0.7)
Effect of impairment of subsidiaries transferred
to held-for-sale (net of tax) - 40.9 23.7
Effect of foreign exchange reclassification from
reserves to the income statement - 0.6 0.3
Issue of shares and change in shareholding of
an associate (0.7) (0.4) 0.1
=================================================== ===== ===== ============
Diluted headline earnings per share 177.9 130.6 330.8
=================================================== ===== ===== ============
The following is a reconciliation of earnings to headline
earnings, in accordance with the JSE Listing Requirements:
Six months
ended Year ended
30 June 31 December
=================================================== ============ ============
2023 2022 2022
GBPm GBPm GBPm
=================================================== ===== ===== ============
Earnings 3,937 1,836 6,617
Effect of impairment of intangibles, property,
plant and equipment, associates and held-for-sale
assets (net of tax) 68 199 352
Effect of losses on disposal of property, plant
and equipment, trademarks, held-for-sale assets,
partial/full termination of IFRS 16 leases, and
sale and leaseback (net of tax) (8) (2) (16)
Effect of impairment of subsidiaries transferred
to held-for-sale (net of tax) (1) 929 538
Effect of foreign exchange reclassification from
reserves to the income statement - 14 5
Issue of shares and change in shareholding of
an associate (16) (8) 3
=================================================== ===== ===== ============
Headline earnings 3,980 2,968 7,499
=================================================== ===== ===== ============
Notes to the Unaudited Interim Financial Statements
Continued
Contingent liabilities and financial commitments
The Group has contingent liabilities in respect of litigation,
taxes and guarantees in various countries. These are described
below, are further described in Note 31 to the 2022 Annual Report
and Accounts and Form 20-F and will be included in the 2023 Annual
Report and Accounts and Form 20-F. The Group is subject to
contingencies pursuant to requirements that it complies with
relevant laws, regulations and standards. Failure to comply could
result in restrictions in operations, damages, fines, increased
tax, increased cost of compliance, interest charges, reputational
damage or other sanctions. These matters are inherently difficult
to quantify.
In cases where the Group has an obligation as a result of a past
event existing at the balance sheet date, it is probable that an
outflow of economic resources will be required to settle the
obligation and the amount of the obligation can be reliably
estimated, a provision will be recognised based on best estimates
and management judgment. There are, however, contingent liabilities
in respect of litigation, taxes in some countries and guarantees
for which no provisions have been made. While the amounts that may
be payable or receivable could be material to the results or cash
flows of the Group in the period in which they are recognised, the
Board does not expect these amounts to have a material effect on
the Group's financial condition.
Taxes
The Group has exposures in respect of the payment or recovery of
a number of taxes. The Group is and has been subject to a number of
tax audits covering, among others, excise tax, value-added taxes,
sales taxes, corporate taxes, overseas withholding taxes and
payroll taxes. The estimated costs of known tax obligations have
been provided in these accounts in accordance with the Group's
accounting policies. In some countries, tax law requires that full
or part payment of disputed tax assessments be made pending
resolution of the dispute. To the extent that such payments exceed
the estimated obligation, they would not be recognised as an
expense.
There are disputes that are in or may proceed to litigation in a
number of countries, including Brazil and the Netherlands. In
relation to the Netherlands litigation, as described in the 2022
Annual Report and Accounts and Form 20-F on page 295, the initial
trial covering the periods from 2014-2016 (with an aggregate
potential net liability of GBP936 million at 31 December 2022) has
taken place and judgments from the District Court of North Holland
are pending. The judgments may be subject to further appeal to the
High Court.
The Group is also appealing the ruling in respect of sales taxes
and penalties in South Korea.
Group litigation
Group companies, as well as other leading cigarette
manufacturers, are defendants in a number of product liability
cases. In a number of the cases, the amounts of compensatory and
punitive damages sought are significant. While it is impossible to
be certain of the outcome of any particular case or of the amount
of any possible adverse verdict, the Group believes that the
defences of the Group's companies to all these various claims are
meritorious on both the law and the facts, and a vigorous defence
is being made everywhere. If an adverse judgment is entered against
any of the Group's companies in any case, avenues of appeal will be
pursued as necessary. Such appeals could require the appellants to
post appeal bonds or substitute security in amounts that could in
some cases equal or exceed the amount of the judgment. At least in
the aggregate, and despite the quality of defences available to the
Group, it is not impossible that the Group's results of operations
or cash flows in a particular period could be materially affected
by this and by the final outcome of any particular litigation.
Canada
In Canada, following the implementation of legislation enabling
provincial governments to recover healthcare costs directly from
tobacco manufacturers, ten actions for recovery of healthcare costs
arising from the treatment of smoking and health-related diseases
were commenced in ten provinces. Damages sought have not yet been
quantified by all ten provinces; however, in respect of five
provinces, the damages quantified in each of the provinces range
between CAD$10 billion (approximately GBP5.9 billion) and CAD$118
billion (approximately GBP70 billion), and the province of Ontario
delivered an expert report quantifying its damages in the range of
CAD$280 billion (approximately GBP166 billion) and CAD$630 billion
(approximately GBP374 billion) in 2016/2017 dollars. Ontario has
amended its Statement of Claim to claim damages of CAD$330 billion
(approximately GBP196 billion). On 31 January 2019, the Province
delivered a further expert report claiming an additional CAD$9.4
billion (approximately GBP5.6 billion) and CAD$10.9 billion in
damages (approximately GBP6.5 billion) in respect of environmental
tobacco smoke. No trial date has been set. In respect of New
Brunswick, on 7 March 2019, the New Brunswick Court of Queen's
Bench released a decision requiring the Province to produce a
substantial amount of additional documentation and data to the
defendants. As a result, the original trial date of 4 November 2019
has been delayed. No new trial date has been set.
In addition to the actions commenced by the provincial
governments, there are numerous class actions outstanding against
Group companies. As set out below, all of these actions are
currently subject to stays of proceedings. On 1 March 2019, the
Quebec Court of Appeal handed down a judgment which largely upheld
and endorsed the lower court's previous decision in the Quebec
class actions. ITCAN's share of the judgment is approximately
CAD$9.2 billion (approximately GBP5.5 billion). As a result of this
judgment, the attempts by the Quebec plaintiffs to obtain payment
out of the CAD$758 million (approximately GBP451 million) on
deposit with the court, the fact that JTI-MacDonald Corp (a
co-defendant in the cases) filed for protection under the CCAA on 8
March 2019 and obtained a court ordered stay of all tobacco
litigation in Canada as against all defendants (including the RJR
Group Companies) until 4 April 2019, and the need for a process to
resolve all of the outstanding litigation across the country, on 12
March 2019, ITCAN filed for protection under the CCAA. In its
application, ITCAN asked the Ontario Superior Court to stay all
pending or contemplated litigation against ITCAN, certain of its
subsidiaries and all other Group companies that were defendants in
the Canadian tobacco litigation (the "stays"). The stays are
currently in place until 29 September 2023. While the stays are in
place, no steps are to be taken in connection with the Canadian
tobacco litigation with respect to ITCAN, certain of its
subsidiaries or any other Group company. The parties continue to
work towards a plan of arrangement or compromise in a confidential
mediation (by order of the Court) as part of the CCAA process. The
length and ultimate outcome of the CCAA process, including the
resolution of the underlying legal proceedings, remains
uncertain.
Notes to the Unaudited Interim Financial Statements
Continued
Contingent liabilities and financial commitments (continued)
U.S. - Engle
As at 30 June 2023, the Group's subsidiaries, R. J. Reynolds
Tobacco Company (RJRT), Lorillard Tobacco Company (Lorillard
Tobacco) and Brown & Williamson Holdings, Inc., had
collectively been served in 521 pending Engle progeny cases filed
on behalf of approximately 642 individual plaintiffs. Many of these
are in active discovery or nearing trial. In the first half of
2023, RJRT or Lorillard Tobacco paid judgments in four Engle
progeny cases. Those payments totalled approximately US$25.0
million (approximately GBP19.7 million) in compensatory or punitive
damages. Additional costs were paid in respect of attorneys' fees
and statutory interest. In addition, from
1 January 2021 to 30 June 2023, outstanding jury verdicts in
favour of the Engle progeny plaintiffs had been entered against
RJRT or Lorillard Tobacco for US$58.3 million (approximately GBP46
million) in compensatory damages (as adjusted) and US$23.1 million
(approximately GBP18 million) in punitive damages. A majority of
these verdicts are in various stages in the appellate process and
have been bonded as required by Florida law under the US$200
million (approximately GBP157 million) bond cap passed by the
Florida legislature in 2009. Although the Group cannot currently
predict when or how much it may be required to bond and pay, the
Group's subsidiaries will likely be required to bond and pay
additional judgments as the litigation proceeds.
Fox River
In January 2017, NCR Corporation (NCR) and Appvion entered into
a Consent Decree with the U.S. Government to resolve how the
remaining clean-up will be funded and to resolve further
outstanding claims between them. The Consent Decree was approved by
the District Court of Wisconsin in August 2017. The U.S. Government
enforcement action against NCR was terminated as a result of that
order and contribution claims from the Potentially Responsible
Parties (PRPs) against NCR were dismissed. On 3 January 2019, the
U.S. Government, P. H. Glatfelter and Georgia-Pacific (the
remaining Fox River PRPs) sought approval for a separate Consent
Decree settling the allocation of costs on the Fox River. This
Consent Decree was approved by the District Court in the Eastern
District of Wisconsin on 14 March 2019, and concludes all existing
litigation on the Fox River clean-up. Considering these
developments, the provision has been reviewed. No adjustment has
been proposed, other than as related to the payments in the period
of GBP4 million, with the provision standing at GBP50 million at 30
June 2023 (30 June 2022: GBP59 million; 31 December 2022: GBP54
million) after disbursements.
In July 2016, the High Court ruled in favour of BAT Industries
p.l.c. (Industries), stating that a dividend of EUR135 million
(approximately GBP115.8 million) paid by Windward Prospects Limited
(Windward) to Sequana S.A. (Sequana) in May 2009 was a transaction
made with the intention of putting assets beyond the reach of
Industries and of negatively impacting its interests. On 10
February 2017, following a hearing in January 2017 to determine the
relief due, the Court found in favour of Industries, ordering that
Sequana must pay an amount up to the full value of the dividend
plus interest which equates to around US$185 million (approximately
GBP145.5 million), related to past and future clean-up costs. The
Court granted all parties leave to appeal and Sequana a stay in
respect of the above payments. The appeal was heard in June 2018.
Judgment was given on 6 February 2019 and the Court of Appeal
upheld the High Court's findings against Sequana. The Court of
Appeal refused applications made by both parties for a further
appeal to the UK Supreme Court. Both parties applied directly to
the UK Supreme Court for permission to appeal in March 2019. On 31
July 2019, BTI 2014 LLC (BTI), a Group subsidiary, was granted
permission to appeal to the Supreme Court in respect of its claims
against the former Windward directors (who authorised the dividend
payments to Sequana). On the same day, the Supreme Court refused
Sequana permission to appeal. The hearing of BTI's appeal took
place before the Supreme Court on 4 and 5 May 2021, and, on 5
October 2022, the Supreme Court handed down its judgment,
dismissing BTI's appeal. In February 2017, Sequana entered into a
process in France seeking court protection (the "Sauvegarde"),
exiting the Sauvegarde in June 2017. In May 2019, Sequana was
placed into formal liquidation proceedings. No payments have been
received from Sequana.
Kalamazoo
Georgia-Pacific, a designated PRP in respect of the Kalamazoo
River in Michigan, also pursued NCR in relation to remediation
costs caused by PCBs released into that river. On 26 September
2013, the Michigan Court held that NCR was liable as a PRP on the
basis that it had arranged for the disposal of hazardous material
for the purposes of the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA).
Following further litigation, on 11 December 2019, NCR announced
that it had entered into a Consent Decree with the U.S. Government
and the State of Michigan (subsequently approved by the Michigan
Court on 2 December 2020), pursuant to which it assumed liability
for certain remediation work at the Kalamazoo River. The payments
to be made on the face of the Consent Decree in respect of such
work total approximately US$245 million (approximately GBP204
million). The Consent Decree also provides for the payment by NCR
of an outstanding judgment against it of approximately US$20
million (approximately GBP16.6 million) to Georgia-Pacific.
The quantum of the clean-up costs for the Kalamazoo River is
presently unclear. It may well exceed the amounts payable on the
face of the Consent Decree.
On 10 February 2023, NCR filed a complaint in the United States
District Court for the Southern District of New York against
Industries, seeking a declaration that Industries must compensate
NCR for 60% of any costs NCR incurs relating to the Kalamazoo River
site on the asserted basis that the Kalamazoo River constitutes a
'Future Site' for the purposes of a 1998 Settlement Agreement
between it, Appvion and Industries. On 23 June 2023, Industries
filed its answer and counterclaims in the proceedings.
Investigations
There are instances where Group companies are cooperating with
relevant national competition authorities in relation to ongoing
competition law investigations and/or engaged in legal proceedings
at the appellate level, including (amongst others) in the
Netherlands and Nigeria.
In regards to the previously disclosed investigation by the
Nigerian Federal Competition and Consumer Protection Commission
(FCCPC) into alleged violations of the Nigerian Competition and
Consumer Protection Act and National Tobacco Control Act, a consent
order was entered into between the FCCPC and British American
Tobacco (Holdings) Limited, British American Tobacco (Nigeria)
Limited and British American Tobacco Marketing (Nigeria) Limited in
December 2022, terminating the investigation and associated
proceedings, replacing the previous Final Order. Amongst other
measures, the Final Order includes provision for the payment in
Naira of a penalty equivalent to US$110 million (approximately
GBP86.5 million) and the Group's Nigerian subsidiaries will be
subject to a two-year monitorship.
From time to time, the Group investigates, and becomes aware of
governmental authorities' investigations into allegations of
misconduct, including alleged breaches of sanctions and allegations
of corruption, against Group companies. Some of these allegations
are currently being investigated. The Group cooperates with the
authorities' investigations, where appropriate. For instance,
British American Tobacco Italia SpA has been charged with
administrative offences in Florence, Italy in a case against a
large number of individual and corporate defendants. This relates
to potential allegations of failure to supervise or take
appropriate steps to prevent alleged corruption by two (now former)
employees. Any financial penalty is not thought likely to be
material.
Notes to the Unaudited Interim Financial Statements
Continued
Contingent liabilities and financial commitments (continued)
Investigations (continued)
On 25 April 2023, the Group announced that it had reached an
agreement with the DOJ and OFAC to resolve previously disclosed
investigations into suspicions of sanctions breaches. These
concerned business activities relating to the Democratic People's
Republic of Korea between 2007 and 2017. British American Tobacco
p.l.c. entered into a three-year deferred prosecution agreement
("DPA") with the DOJ and a civil settlement agreement with OFAC.
The DOJ's charges against the Company - one count of conspiring to
commit bank fraud and one count of conspiring to violate sanctions
laws - were filed and will later be dismissed if the Company abides
by the terms of the DPA. In addition, a BAT subsidiary in
Singapore, British-American Tobacco Marketing (Singapore) Private
Limited, pleaded guilty to the same charges. The total amount
payable to the U.S. authorities is $635 million plus interest,
which will be paid by British American Tobacco p.l.c.
Summary
Having regard to all these matters, with the exception of Fox
River, Quebec, and the DOJ and OFAC investigations, the Group does
not consider it appropriate to make any provision or accrual in
respect of any pending litigation. The Group does not believe that
the ultimate outcome of this litigation will significantly impair
the Group's financial condition. If the facts and circumstances
change, then there could be a material impact on the financial
statements of the Group. In addition, the Group accrues for
damages, attorneys' fees and/or statutory interest, including in
respect of certain Engle progeny cases, certain U.S. individual
smoking and health cases and the DOJ medical
reimbursement/corrective statement case.
Full details of the litigation against Group companies and tax
disputes as at 30 June 2023 will be included in the Annual Report
and Accounts and Form 20-F for the year ended 31 December 2023.
Whilst there has been some movement on new and existing cases
against Group companies, there have been, except as otherwise
stated, no material developments to date in 2023 that would impact
the financial position of the Group.
Franked Investments Income Group Litigation Order
The Group is the principal test claimant in an action in the
United Kingdom against HM Revenue and Customs (HMRC) in the FII
GLO. There were 17 corporate groups in the FII GLO as at 30 June
2023. The case concerns the treatment for UK corporate tax purposes
of profits earned overseas and distributed to the UK. The Supreme
Court heard appeals in two separate trials during 2020. The
judgment in the first hearing was handed down in November 2020 and
concerned the time limit for bringing claims. The Supreme Court
remitted that matter to the High Court to determine whether the
claim is within time on the facts. The judgment from the second
hearing was handed down in July 2021 and concerned issues relating
to the type of claims BAT is entitled to bring. Applying that
judgment reduces the value of the FII GLO claim to approximately
GBP0.3 billion, mainly as the result of the application of simple
interest and the limitation to claims for advance corporation tax
offset against lawful corporation tax charges, which is subject to
the determination of the timing issue by the High Court and any
subsequent appeal.
During 2015, HMRC paid to the Group a gross amount of GBP1.2
billion in two separate payments, less a deduction (withheld by
HMRC) of GBP0.3 billion. The payments made by HMRC have been made
without any admission of liability and are subject to refund were
HMRC to succeed on appeal. Due to the uncertainty of the amounts
and eventual outcome the Group has not recognised any impact in the
income statement in the current or prior period in respect of the
receipt (being net GBP0.9 billion) which is held within trade and
other payables. Any future recognition as income will be treated as
an adjusting item, due to the size of the order, with interest of
GBP28 million for the six months ended 30 June 2023 (30 June 2022:
GBP13 million) accruing on the balance, which was also treated as
an adjusting item. Further information on FII GLO is described in
Note 10 to the Group's Annual Report and Accounts and Form 20-F for
the year ended 31 December 2022, page 220.
The final resolution of all issues in the litigation is likely
to take a number of years. The Group made an interim repayment to
HMRC of GBP50 million in 2022 and intends to make further interim
repayments in future periods.
Retirement benefit schemes
The Group's subsidiary undertakings operate various funded and
unfunded defined benefit schemes, including pension and
post-retirement healthcare schemes, and defined contribution
schemes in various jurisdictions, with its most significant
arrangements being in the U.S., the UK, Canada, Germany,
Switzerland and the Netherlands. Together, schemes in these
territories account for over 90% of the total underlying
obligations of the Group's defined benefit arrangements and over
70% of the current service cost.
Benefits provided through defined contribution schemes are
charged as an expense as payments fall due. The liabilities arising
in respect of defined benefit schemes are determined in accordance
with the advice of independent, professionally qualified actuaries,
using the projected unit credit method. It is Group policy that all
schemes are formally valued at least every three years.
The overall net asset for all pension and healthcare schemes in
Group subsidiaries amounted to GBP146 million at 30 June 2023,
compared to a net asset of GBP51 million at 31 December 2022 (30
June 2022: GBP111 million).
Post balance sheet event
On the 24 July 2023, ITC Ltd., a Group associate, announced the
proposal of a demerger of its 'Hotels Business' under a scheme of
arrangement by which 60% of the newly incorporated entity will be
held directly by ITC's shareholders proportionate to their
shareholding in ITC. Approval for this demerger is being sought at
a meeting scheduled for 14 August 2023. The announcement of this
proposed demerger does not impact the half-year accounts for the
period ending 30 June 2023.
Notes to the Unaudited Interim Financial Statements
Continued
Summarised financial information
The following summarised financial information is required by
the rules of the Securities and Exchange Commission and has been
prepared in accordance with Section 3-10 of Regulation S-X in
respect of the guarantees of:
- US$11.00 billion of outstanding bonds issued by B.A.T Capital
Corporation (BATCAP) in connection with the acquisition of
Reynolds, including registered bonds issued in exchange for the
initially issued bonds (the 2017 Bonds);
- US$12.15 billion of outstanding bonds issued by BATCAP
pursuant to the Shelf Registration Statement on Form F-3 filed on
17 July 2019;
- US$2.50 billion of outstanding bonds issued by BATIF pursuant
to the Shelf Registration Statement on Form F-3 filed on 17 July
2019; and
- US$0.6 billion of outstanding bonds issued by BATCAP pursuant
to the Shelf Registration Statement on Form F-3 filed on 1 July
2022, pursuant to which the Company, BATCAP or BATIF may issue an
indefinite amount of debt securities.
As of 28 July 2020, all relevant Group entities suspended their
reporting obligations with respect to the US$7.7 billion (30 June
2022 and 31 December 2022: US$7.7 billion) of RAI unsecured notes
and US$22.1 million (30 June 2022 and 31 December 2022: US$40.9
million) of Lorillard unsecured notes. As such, no summarised
financial information is provided with respect to these
securities.
As described below, Reynolds American Inc. (Reynolds
American/RAI) is a subsidiary guarantor of all outstanding series
of BATCAP and BATIF bonds. Under the terms of the indentures
governing such notes, any subsidiary guarantor (including Reynolds
American) other than BATCAP or BATIF, as applicable, BATNF and
BATHTN (as defined below), will automatically and unconditionally
be released from all obligations under its guarantee, and such
guarantee shall thereupon terminate and be discharged and of no
further force or effect, in the event that (1) its guarantee of all
then outstanding notes issued under the Group's EMTN Programme is
released or (2) at substantially the same time its guarantee of the
debt securities is terminated, such subsidiary guarantor is
released from all obligations in respect of indebtedness for
borrowed money for which such subsidiary guarantor is an obligor
(as a guarantor or borrower). Under the EMTN Programme, Reynolds
American's guarantee is released if at any time the aggregate
amount of indebtedness for borrowed money, subject to certain
exceptions, for which Reynolds American is an obligor, does not
exceed 10% of the outstanding long-term debt of BAT as reflected in
the balance sheet included in BAT's most recent publicly released
interim or annual consolidated financial statements.
Reynolds American's guarantee may be released notwithstanding
Reynolds American guaranteeing other indebtedness, provided
Reynolds American's guarantee of outstanding notes issued under the
EMTN Programme is released. If Reynolds American's guarantee is
released, BAT is not required to replace such guarantee, and the
debt securities will have the benefit of fewer subsidiary
guarantees for the remaining maturity of the debt securities.
Note: The following summarised financial information reports the
unconsolidated contribution of each applicable company to the
Group's consolidated results and not the separate financial
statements for each applicable company as local financial
statements are prepared in accordance with local legislative
requirements and may differ from the financial information provided
below. In particular, in respect of the United States region, all
financial statements and financial information provided by or with
respect to the U.S. business or RAI (and/or RAI and its
subsidiaries (collectively, the Reynolds Group)) are prepared on
the basis of U.S. GAAP and constitute the primary financial
statements or financial information of the U.S. business or RAI
(and/or the Reynolds Group). Solely for the purpose of
consolidation within the results of BAT p.l.c. and the BAT Group,
this financial information is then converted to IFRS. To the extent
any such financial information provided in these financial
statements relates to the U.S. business or RAI (and/or the Reynolds
Group), it is provided as an explanation of the U.S. business's or
RAI's (and/or the Reynolds Group's) primary U.S. GAAP-based
financial statements and information.
The subsidiaries disclosed below are wholly-owned and the
guarantees provided are full and unconditional, and joint and
several:
a. British American Tobacco p.l.c. (as the parent guarantor),
referred to as 'BAT p.l.c.' in the financials below;
b. B.A.T Capital Corporation (as an issuer or a subsidiary
guarantor, as the case may be), referred to as 'BATCAP' in the
financials below;
c. B.A.T. International Finance p.l.c. (as an issuer or a
subsidiary guarantor, as the case may be), referred to as 'BATIF'
in the financials below ;
d. B.A.T. Netherlands Finance B.V. (as a subsidiary guarantor),
referred to as 'BATNF' in the financials below;
e. Reynolds American Inc. (as a subsidiary guarantor), referred
to as 'RAI' in the financials below; and
f. British American Tobacco Holdings (The Netherlands) B.V. (as
a subsidiary guarantor of the 2017 Bonds only), referred to as
'BATHTN' in the financials below.
In accordance with Section 13-01 of Regulation S-X, information
in respect of investments in subsidiaries that are not issuers or
guarantors has been excluded from non-current assets as shown in
the balance sheet table below. The "BATHTN" column in the
summarised financial information is only applicable in the context
of the 2017 Bonds. British American Tobacco Holdings (The
Netherlands) B.V. ('BATHTN') is not an issuer nor a guarantor of
any of the other securities referenced in this note. None of the
issuers or other guarantors has material balances with or an
investment in BATHTN. Investments in subsidiaries represent share
capital acquired in relation to or issued by subsidiary
undertakings.
In the case of debt securities that may be issued by BAT p.l.c.,
BATCAP or BATIF under an indenture to be entered into (the "2022
Indenture") and referred to in the registration statement in Form
F-3 (Registration No. 333-265958), one or more of BATCAP, BATIF,
BATNF and RAI may guarantee such debt securities to the extent
specified in the applicable supplemental indenture to the 2022
Indenture. In addition, BAT p.l.c. will be a parent guarantor in
respect of any debt securities issued by BATCAP or BATIF under the
2022 Indenture.
Notes to the Unaudited Interim Financial Statements
Continued
Summarised financial information (continued)
BAT
p.l.c. BATCAP BATIF BATNF RAI BATHTN
==============================================
Six months ended 30 June 2023 GBPm GBPm GBPm GBPm GBPm GBPm
============================================== ======= ====== ===== ===== ===== ======
Income Statement
Revenue - - - - - -
(Loss)/profit from operations (521) - (1) - 15 4
Dividend income - - 1 - 2,276 -
Net finance income/(costs) 244 (96) 567 - (267) -
============================================== ======= ====== ===== ===== ===== ======
Loss/(profit) before taxation (277) (96) 567 - 2,024 4
Taxation on ordinary activities - (2) 7 - 64 (1)
============================================== ======= ====== ===== ===== ===== ======
Loss/(profit) for the period (277) (98) 574 - 2,088 3
============================================== ======= ====== ===== ===== ===== ======
Intercompany transactions - Income Statement
Transactions with non-issuer/non-guarantor
subsidiaries (expense)/income (513) - (8) - 25 3
Transactions with non-issuer/non-guarantor
subsidiaries net finance income 144 267 802 7 60 -
Dividend income from non-issuer/non-guarantor
subsidiaries - - 1 - 2,276 -
============================================== ======= ====== ===== ===== ===== ======
BAT
p.l.c. BATCAP BATIF BATNF RAI BATHTN
==============================================
Six months ended 30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm
============================================== ======= ====== ===== ===== ===== ======
Income Statement
Revenue - - - - - -
(Loss)/profit from operations (5) - - - 8 1
Dividend income - - - - 2,014 -
Net finance income/(costs) 113 (29) (118) - (227) -
============================================== ======= ====== ===== ===== ===== ======
Profit/(loss) before taxation 108 (29) (118) - 1,795 1
Taxation on ordinary activities - (19) 2 - 51 (1)
============================================== ======= ====== ===== ===== ===== ======
Profit/(loss) for the period 108 (48) (116) - 1,846 -
============================================== ======= ====== ===== ===== ===== ======
Intercompany transactions - Income Statement
Transactions with non-issuer/non-guarantor
subsidiaries (expense)/income (5) - - - 26 -
Transactions with non-issuer/non-guarantor
subsidiaries net finance income 11 381 136 - 14 -
Dividend income from non-issuer/non-guarantor
subsidiaries - - - - 2,014 -
============================================== ======= ====== ===== ===== ===== ======
Notes to the Unaudited Interim Financial Statements
Continued
Summarised financial information (continued)
BAT
p.l.c. BATCAP BATIF BATNF RAI BATHTN
==========================================
As at 30 June 2023 GBPm GBPm GBPm GBPm GBPm GBPm
========================================== ========== ====== ====== ===== ====== ======
Balance Sheet
Non-current assets 1,917 19,834 2,425 2,135 335 47
Current assets 6,926 9,278 42,637 32 1,050 10
Non-current liabilities 1,580 18,960 13,863 2,135 9,396 12
========================================== ========== ====== ====== ===== ====== ======
Non-current borrowings 1,571 18,727 13,392 2,135 9,349 -
Other non-current liabilities 9 233 470 - 47 12
========================================== ========== ====== ====== ===== ====== ======
Current liabilities 575 10,092 28,811 31 1,225 3
========================================== ========== ====== ====== ===== ====== ======
Current borrowings 32 10,023 28,277 31 650 2
Other current liabilities 543 69 534 - 575 1
========================================== ========== ====== ====== ===== ====== ======
Intercompany transactions - Balance
Sheet
Amounts due from non-issuer/non-guarantor
subsidiaries 6,835 16,171 42,313 - 662 9
Amounts due to non-issuer/non-guarantor
subsidiaries 6 2,988 22,608 - 36 2
Investment in subsidiaries (that
are not issuers or guarantors) 27,234 - 718 - 25,253 1,522
========================================== ========== ====== ====== ===== ====== ======
BAT p.l.c. BATCAP BATIF BATNF RAI BATHTN
==========================================
As at 31 December 2022 GBPm GBPm GBPm GBPm GBPm GBPm
========================================== ========== ====== ====== ===== ====== ======
Balance Sheet
Non-current assets 1,917 20,962 2,480 1,500 405 45
Current assets 9,166 7,947 42,748 22 1,135 8
Non-current liabilities 1,580 20,018 14,058 1,500 10,094 12
========================================== ========== ====== ====== ===== ====== ======
Non-current borrowings 1,572 19,762 13,510 1,500 10,033 -
Other non-current liabilities 8 256 548 - 61 12
========================================== ========== ====== ====== ===== ====== ======
Current liabilities 55 8,749 29,379 21 1,011 1
========================================== ========== ====== ====== ===== ====== ======
Current borrowings 23 8,657 28,525 21 568 1
Other current liabilities 32 92 854 - 443 -
========================================== ========== ====== ====== ===== ====== ======
Intercompany transactions - Balance
Sheet
Amounts due from non-issuer/non-guarantor
subsidiaries 9,117 17,003 42,752 - 700 8
Amounts due to non-issuer/non-guarantor
subsidiaries 5 3,890 22,702 - 34 1
Investment in subsidiaries (that
are not issuers or guarantors) 27,234 - 718 - 26,690 1,573
========================================== ========== ====== ====== ===== ====== ======
Perpetual hybrid bonds
In 2021, BAT p.l.c. issued two EUR1 billion of perpetual hybrid
bonds which were classified as equity as there is no contractual
obligation to either repay the principal or make payments of
interest. Further information on perpetual hybrid bonds is
described in note 22 of the Group's Annual Report and Accounts and
Form 20-F for the year ended 31 December 2022, page 255. BAT
p.l.c.'s unconsolidated contribution to the Group's consolidated
equity results is shown below:
As at 31
As at 30 June December
======================= =============== =========
2023 2022 2022
GBPm GBPm GBPm
======================= ======= ====== =========
Total Equity
======================= ======= ====== =========
Share capital 614 614 614
Share premium 112 112 113
Perpetual hybrid bonds 1,685 1,685 1,685
Other Equity 31,511 29,956 34,270
======================= ======= ====== =========
Other Information
Non-financial Key Performance Indicators (KPIs)
Volume
Volume is defined as the number of units sold. Units may vary
between categories. This can be summarised for the principal
metrics as follows:
- Factory-made cigarettes (FMC) - sticks, regardless of weight
or dimensions;
- Roll-Your-Own/Make-Your-Own - kilos, converted to a stick
equivalent based upon 0.8 grams (per stick equivalent) for
Roll-Your-Own and between 0.5 and 0.7 grams (per stick equivalent)
for Make-Your-Own;
- Traditional Oral - pouches (being 1:1 conversion to stick
equivalent) and kilos, converted to a stick equivalent based upon
2.8 grams (per stick equivalent) for Moist Snuff, 2.0 grams (per
stick equivalent) for Dry Snuff and 7.1 grams (per stick
equivalent) for other oral;
- Modern Oral - pouches, being 1:1 conversion to stick
equivalent;
- Tobacco Heat sticks - sticks, being 1:1 conversion to stick
equivalent; and
- Vapour - pods and 10 millilitre bottles. There is no
conversion to a stick equivalent.
Volume is recognised in line with IFRS 15 Revenue from Contracts
with Customers, based upon transfer of control. It is assumed that
there is no material difference, in line with the Group's
recognition of revenue, between the transfer of control and
shipment date.
Volume is used by management and investors to assess the
relative performance of the Group and its brands within categories,
given volume is a principal determinant of revenue.
Volume share
Volume share is the number of units bought by consumers of a
specific brand or combination of brands, as a proportion of the
total units bought by consumers in the industry, category or other
sub-categorisation. Sub-categories include, but are not limited to,
the total nicotine category, Modern Oral, Vapour, Traditional Oral,
total oral or cigarette. Except when referencing particular
markets, volume share is based on our key markets, excluding Russia
(representing around 70% of the Group's cigarette and THP
volume).
Where possible, the Group utilises data provided by third-party
organisations, including AC Nielsen, based upon retail audit of
sales to consumers. In certain markets, where such data is not
available, other measures are employed which assess volume share
based upon other movements within the supply chain, such as sales
to retailers. This may depend on the provision of data to the
industry by the customers including distributors/wholesalers.
Volume share is used by management to assess the relative
performance to the Group and its brands against the performance of
its competitors in the categories and geographies in which the
Group operates. The Group's management believes that this measure
is useful to investors to understand the relative performance of
the Group and its brands against the performance of its competitors
in the categories and geographies in which the Group operates. This
measure is also useful to understand the Group's performance when
seeking to grow scale within a market or category from which future
financial returns can be realised. Volume share provides an
indicator of the Group's relative performance in unit terms versus
competitors.
Volume share in each period compares the average volume share in
the period with the average volume share in the prior year. This is
a more robust measure of performance, removing short-term
volatility that may arise at a point in time. Due to the timing of
available information, volume share for 2023 is year-to-date May
2023 unless otherwise stated.
However, in certain circumstances, related to periods of
introduction to a market, in order to illustrate the latest
performance, data may be provided as at the end of the period
rather than the average in that period. In these instances, the
Group states these at a specific date (for instance, June
2023).
Value share
Value share is the retail value of units bought by consumers of
a particular brand or combination of brands, as a proportion of the
total retail value of units bought by consumers in the industry,
category or other sub-categorisation in discussion. Except when
referencing particular markets, value share is based on our key
markets, excluding Russia (representing around 80% of the Group's
cigarette and THP value).
Where possible, the Group utilises data provided by third-party
organisations, including AC Nielsen, based upon retail audit of
sales to consumers. In certain markets, where such data is not
available, other measures are employed which assess value share
based upon other movements within the supply chain, such as sales
to retailers. This may depend on the provision of data to the
industry by the customers (including distributors and
wholesalers).
Value share is used by management to assess the relative
performance of the Group and its brands against the performance of
its competitors in the categories and geographies in which the
Group operates, specifically indicating the Group's ability to
realise value relative to the market. The measure is particularly
useful when the Group's products and/or the relevant category in
the market in which they are sold has developed or achieved scale
from which value can be realised. The Group's management believes
that this measure is useful to investors to comprehend the relative
performance of the Group and its brands against the performance of
its competitors in the categories and geographies in which the
Group operates, specifically indicating the Group's ability to
realise value relative to the market.
Value share in each period compares the average value share in
the period with the average value share in the prior year. This is
a more robust measure of performance, removing short-term
volatility that may arise at a point of time. Due to the timing of
available information, value share for 2023 is year-to-date May
2023 unless otherwise stated.
However, in certain circumstances, related to periods of
introduction to a market, in order to illustrate the latest
performance, data may be provided as at the end of the period
rather than the average in that period. In these instances the
Group states these at a specific date (for instance, June
2023).
Price mix
Price mix is a term used by management and investors to explain
the movement in revenue between periods. Revenue is affected by the
volume (how many units are sold) and the value (how much is each
unit sold for). Price mix is used to explain the value component of
the sales as the Group sells each unit for a value (price) but may
also achieve a movement in revenue due to the relative proportions
of higher value volume sold compared to lower value volume sold
(mix).
This term is used to explain the Group's relative performance
between periods only. It is calculated as the difference between
the movement in revenue (between periods) and volume (between
periods). For instance, in the six months to June 2023 (compared to
the same period in the prior year) the increase in combustibles
revenue (excluding translational foreign exchange movements) of
0.2%, with a decline in combustibles volume of 5.8%, leads to a
price mix of 6.0%. No assumptions underlie this metric as it
utilises the Group's own data.
Other Information
Continued
Non-financial Key Performance Indicators (KPIs) (continued)
Consumers of Non-Combustible products
The number of consumers of Non-Combustible products is defined
as the estimated number of Legal Age (minimum 18 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 adult consumer tracking (utilising studies conducted
by third parties, including Kantar). The number of consumers is
adjusted for those identified (as part of the consumer tracking
studies undertaken) as using more than one BAT Brand - referred to
as "poly users".
The number of Non-Combustible products consumers is used by
management to assess the number of consumers using the Group's New
Categories products as the increase in Non-Combustible products is
a key pillar of the Group's ESG ambition and is integral to the
sustainability 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.
Our products
The Group reports volumes as additional information. This is
done, where appropriate, with cigarette sticks as the basis, with
usage levels applied to other products to calculate the equivalent
number of cigarette units. There is no conversion to a stick
equivalent for vapour products.
The conversion rates that are applied:
Equivalent to one cigarette
============================ ============================
Tobacco Heat sticks 1 heat stick
Cigars 1 cigar (regardless of size)
Oral
* Pouch 1 pouch
- Moist Snuff 2.8 grams
- Dry Snuff 2.0 grams
- Loose leaf, plug, twist 7.1 grams
Pipe tobacco 0.8 grams
Roll-your-own 0.8 grams
Make-your-own
- Expanded tobacco 0.5 grams
- Optimised tobacco 0.7 grams
============================ ============================
Roll-your-own (RYO)
Loose tobacco designed for hand rolling, normally a finer cut
with higher moisture, compared to cigarette tobacco.
Make-your-own (MYO)
MYO expanded tobacco; also known as volume tobacco.
Loose cigarette tobacco with enhanced filling properties - to
allow higher yields of cigarettes/kg - designed for use with
cigarette tubes and filled via a tobacco tubing machine.
MYO non-expanded tobacco; also known as optimised tobacco.
Loose cigarette tobacco designed for use with cigarette tubes
and filled via a tobacco tubing machine.
Other Information
Continued
Additional information
British American Tobacco is one of the world's leading consumer
products businesses, with brands sold across the world. We have
strategic combustible and THP brands - including Dunhill, Kent,
Lucky Strike, Pall Mall, Rothmans, glo, Newport (in the U.S.),
Camel (in the U.S.) and Natural American Spirit (in the U.S.) - and
over 200 brands in our portfolio, including a growing portfolio of
reduced-risk products* . We hold robust market positions in each of
our regions and have leadership positions in more than 50
markets.
References in this document to information on websites,
including the web address of BAT, have been included as inactive
textual references only. These websites and the information
contained therein or connected thereto are not intended to be
incorporated into or to form part of this report.
*Based on the weight of evidence and assuming a complete switch
from cigarette smoking. These products are not risk free and are
addictive.
Our products as sold in the US, including Vuse, Velo, Grizzly,
Kodiak, and Camel Snus, are subject to FDA regulation and no
reduced-risk claims will be made as to these products without
agency clearance.
Publication of Half-Year Report
This Half-Year Report is released or otherwise made available or
notified to the London Stock Exchange, the JSE Limited and the New
York Stock Exchange and filed in accordance with applicable
regulations. It may be viewed and downloaded from our website
www.bat.com.
Copies of the announcement may also be obtained by contacting:
(1) the Company's registered office; (2) the Company's
representative office in South Africa; (3) British American Tobacco
Publications; or (4) Citibank Shareholder Services. Contact details
are set out on
page 47 .
Annual Report: Statutory accounts
The information contained within this report for the year ended
31 December 2022 does not constitute statutory accounts as defined
in Section 434 of the Companies Act 2006. A copy of the statutory
accounts for the year 2022 has been delivered to the Registrar of
Companies. The auditor's report on the 2022 accounts was
unmodified, did not draw attention to any matters by way of
emphasis and did not contain statements under Section 498(2) or (3)
of the Companies Act 2006.
Shareholder Information
Financial calendar
Event
========================== ===========
December
Pre-close Trading Update 2023
08 February
Preliminary Statement 2023 2024
========================== ===========
Proposed dates for quarterly dividend payments for the year
ending 31 December 2023
Payment Payment Payment Payment
Event No. 1 No. 2 No. 3 No. 4
==================================== ======== ======== ============ ===========
Last Day to Trade (LDT) cum-dividend
(JSE) 18 March 25 June 23 September 17 December
Shares commence trading ex-dividend
(JSE) 19 March 26 June 25 September 18 December
Shares commence trading ex-dividend
(LSE and NYSE) 21 March 27 June 26 September 19 December
Record date (JSE, LSE and NYSE) 22 March 28 June 27 September 20 December
3 February
Payment date (LSE and JSE) 2 May 2 August 1 November 2025
6 February
ADS payment date (NYSE) 7 May 7 August 6 November 2025
------------------------------------ -------- -------- ------------ -----------
Notes:
1. All dates are 2024, unless otherwise stated.
2. A complete timetable for the quarterly dividend payments for
the year ending 31 December 2023 and the declared amount will be
included in the Preliminary Results Announcement in February
2024.
3. 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.
Other Information
Continued
Forward-looking statements and other matters
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.
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 and business objectives (including with respect to
sustainability and other environmental, social and governance
matters), as well as: (i) certain statements in the Half-Year
summary and the Chief Executive Statement (both on page 1 ); (ii)
certain statements in the Group Operating Review (pages 2 to 4 );
(iii) certain statements in the Category Performance Review (pages
5 to 6 ); (iv) certain statements in the Regional Review section
(pages 7 to 9 ); (v) certain statements in the Other Financial
Information section (pages 10 to 13 ); (vi) certain statements in
the Other Information (including Dividends) section (pages 14 to 18
); (vii) certain statements in the Notes to the Unaudited Interim
Financial Statements section (pages 28 to 42 ), including the
Liquidity and Contingent liabilities and financial commitments
sections; and (viii) certain statements in the Other Information
section (pages 43 to 46 ).
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.
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 and performance
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; 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; changes in the market position, businesses,
financial condition, results of operations or prospects of the
Group; direct and indirect adverse impacts associated with Climate
Change and the move towards a Circular Economy; and Cyber Security
caused by the heightened cyber-threat landscape, the increased
digital interactions with consumers and changes to regulation.
A review of the reasons why actual results and developments may
differ materially from the expectations disclosed or implied within
forward-looking statements can be found by referring to the
information contained under the headings "Cautionary statement",
"Group Principal Risks" and "Group Risk Factors" in the 2022 Annual
Report and Accounts and Form 20-F of British American Tobacco
p.l.c. (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 and BAT's Annual
Reports, which may be obtained free of charge from the BAT website
www.bat.com.
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. 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.
All financial statements and financial information provided by
or with respect to the U.S. or Reynolds American are initially
prepared on the basis of U.S. GAAP and constitute the primary
financial statements or financial records of the U.S./Reynolds
American. This financial information is then converted to
International Financial Reporting Standards as issued by the IASB
and as adopted for use in the UK (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 American it is provided as an explanation of,
or supplement to, Reynolds American's 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.
P McCrory
Secretary
25 July 2023
Other Information
Continued
Corporate information
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.
Registered office
Globe House, 4 Temple Place, London, WC2R 2PG, UK
tel: +44 20 7845 1000
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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
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
If you require publications and are located in South Africa,
please contact the Company's Representative office in South Africa
using the contact details shown above.
Glossary and Definitions
The following is a summary of the key terms used within this
report:
Term Definition
================== =====================================================================
AME Americas (excluding U.S.) and Europe . The key markets are:
Argentina, Belgium, Brazil, Bulgaria, Canada, Chile, Colombia,
Czech Republic, Denmark, France, Germany, Greece, Hungary,
Italy, Mexico, Netherlands, Poland, Romania, Russia, Spain,
Switzerland, Turkey, Ukraine, the UK.
================== =====================================================================
APMEA Asia Pacific, Middle East and Africa . The key markets are:
Algeria, Australia, Bangladesh, Egypt, Gulf Cooperation
Council (inc the Kingdom of Saudi Arabia (Saudi Arabia)),
Japan, Kazakhstan, Malaysia, Morocco, New Zealand, Nigeria,
Pakistan, South Africa, South Korea, Taiwan, Vietnam.
================== =====================================================================
British American When the reference denotes an opinion, this refers to British
Tobacco, American Tobacco p.l.c. and when the reference denotes business
BAT, Group, activity, this refers to British American Tobacco Group
we, us and operating companies, either collectively or individually,
our as the case may be.
================== =====================================================================
Carbon Dioxide Carbon Dioxide equivalent (CO(2) e) emissions include CO(2)
equivalent , CH4 and N2O and are reported where we have operational
emissions control. We do not include data on other GHG emissions (HFCs,
PFCs, SF6 and NF3) as they are estimated to be insignificant.
================== =====================================================================
Cigarette Factory-made cigarettes (FMC) and products that have similar
characteristics and are manufactured in the same manner,
but due to specific features may not be recognised as cigarettes
for regulatory, duty or similar reasons.
================== =====================================================================
Circular The circular economy is a model of production and consumption,
Economy which involves sharing, leasing, reusing, repairing, refurbishing
and recycling existing materials and products as long as
possible.
================== =====================================================================
Combustibles Cigarettes and OTP.
================== =====================================================================
Constant Presentation of results in the prior year's exchange rate,
Currency/Constant removing the potentially distorting effect of translational
rates foreign exchange on the Group's results. The Group does
not adjust for normal transactional gains or losses in profit
from operations which are generated by exchange rate movements.
================== =====================================================================
Developed As defined by the World Economic Outlook as Advanced Economies
Markets and those within the European Union.
================== =====================================================================
Double Materiality Although financial materiality has been considered in the
Assessment development of our Double Materiality Assessment ("DMA"),
our DMA and any related conclusions as to the materiality
of sustainability or ESG matters do not imply that all topics
discussed therein are financially material to our business
taken as a whole, and such topics may not significantly
alter the total mix of information available about our securities.
================== =====================================================================
Emerging Those markets not defined as Developed Markets.
Markets
================== =====================================================================
GTR Global Travel Retail.
================== =====================================================================
Key markets The key markets are: Algeria, Argentina, Australia, Bangladesh,
Belgium, Brazil, Bulgaria, Canada, Chile, Colombia, the
Czech Republic, Denmark, Egypt, France, Germany, Greece,
Gulf Cooperation Council (including Saudi Arabia), Hungary,
Italy, Japan, Kazakhstan, Malaysia, Mexico, Morocco, Netherlands,
New Zealand, Nigeria, Pakistan, Poland, Romania, Russia,
South Africa, South Korea, Spain, Switzerland, Turkey, Taiwan,
Ukraine, the United Kingdom, the United States, Vietnam.
================== =====================================================================
Modern Oral Includes EPOK, Lyft, Velo and other modern white snus.
================== =====================================================================
New Categories Includes Vapour, THP and Modern Oral.
================== =====================================================================
Non-Combustibles New Categories plus Traditional Oral.
================== =====================================================================
Organic Performance presented excluding businesses sold or acquired
that may significantly affect the users understanding of
the Group's performance when compared across periods. Organic
measures exclude the performance of such businesses in the
current and comparator periods to ensure like-for-like assessment
across all periods. In 2023, organic measures exclude the
performance of Russia and Belarus as those businesses (in
aggregate) were deemed to be significant to the users' understanding
of the financial performance. In 2021, the Group sold its
Iranian business. However, as the Iranian business was not
significant to the users' understanding of that year or
subsequent years financial performance, management did not
treat the sale of Iranian business as an organic adjustment.
================== =====================================================================
OTP Other Tobacco Products, including make-your-own, roll-your-own,
Pipe and Cigarillos.
================== =====================================================================
Project Quantum Review of the Group's operating model to drive increased
agility and efficiency.
================== =====================================================================
Reduced risk Based on the weight of evidence and assuming a complete
switch from cigarette smoking. These products are not risk
free and are addictive.
================== =====================================================================
Strategic Includes Kent, Dunhill, Lucky Strike, Pall Mall, Rothmans,
combustible Newport (U.S.), Natural American Spirit (U.S.), Camel (U.S.),
and THP brands glo and Neo.
================== =====================================================================
Strategic Comprises strategic combustibles (Kent, Dunhill, Lucky Strike,
Portfolio Pall Mall, Rothmans, Newport (U.S.), Natural American Spirit
(U.S.), Camel (U.S.)), strategic traditional oral (Grizzly)
and New Categories (Vuse, glo, Velo).
================== =====================================================================
Tobacco Supply Our goals cover all tobacco used in our combustibles and
Chain THP products. Our metrics, however, derive data from our
annual Thrive assessment, which includes our directly contracted
farmers and those of our strategic third-party suppliers,
representing over 80% of the tobacco purchased by volume
in 2022 and defined in this document as 'Tobacco Supply
Chain'.
================== =====================================================================
Top 5/T5 Being the top 5 markets for industry Vapour sales by revenue
Vapour markets - U.S., Canada, UK, France and Germany. These markets represent
an estimated c.80% (2022: c.80%) of global closed system
revenue (being rechargeable closed systems and disposables).
================== =====================================================================
Top 5/T5 Being the top 5 markets for industry Modern Oral sales by
Modern revenue - U.S., Sweden, Norway, Denmark and Switzerland.
Oral markets These markets represent c.85% (2022: c.85%) of global industry
Modern Oral revenue.
================== =====================================================================
Top 12/T12 Being the top 12 markets (excluding Russia) for industry
THP markets THP volume - Japan, South Korea, Italy, Greece, Hungary,
Kazakhstan, Ukraine, Poland, Switzerland, Romania, Malaysia
and the Czech Republic. These markets account for c.70%
of Global industry THP volume in 2022.
================== =====================================================================
THP Tobacco Heating Products (i.e., the devices, which include
glo and our hybrid products) or Tobacco Heated Products
(i.e., the consumables used by Tobacco heating product devices).
================== =====================================================================
Traditional Moist Snuff (Granit, Mocca, Grizzly, Kodiak) and other traditional
Oral snus products (including Camel Snus and Lundgrens).
================== =====================================================================
U.S. United States of America (a key market).
================== =====================================================================
Value share Value share is the retail value of units bought by consumers
of a particular brand or combination of brands, as a proportion
of the total retail value of units bought by consumers in
the industry, category or other sub-categorisation in discussion.
Except when referencing particular markets, value share
is based on our key markets (representing around 80% of
the Group's cigarette and THP value).
================== =====================================================================
Volume share Offtake volume share, as independently measured by retail
audit agencies (including Nielsen and Marlin) and scanner
sales to consumers, where possible or based on movements
within the supply chain (such as sales to retailers) to
generate an estimate of shipment share, based upon latest
available data. Except when referencing particular markets,
volume share is based on our key markets. The Group's key
markets represent around 70% of the Group's cigarette and
THP volume.
================== =====================================================================
Vapour Rechargeable, battery-powered devices that heat liquid formulations
- e-liquids - to create a vapour which is inhaled. Vapour
products include Vype, Vuse, ViP and Ten Motives.
================== =====================================================================
Our products as sold in the US, including Vuse, Velo, Grizzly,
Kodiak, and Camel Snus, are subject to FDA regulation and no
reduced-risk claims will be made as to these products without
agency clearance.
Data Lake and Reconciliations
Reconciling volume to organic volume
Group Volume
2023 2022
============================ ===================================== ============================
Organic
Inorganic growth Inorganic
Six months ended 30 June Reported adjust's Organic % Reported adjust's Organic
============================ ======== ========= ======= ======= ======== ========= =======
New Categories:
Vapour (mn 10ml/pods) 319 - 319 +9.0% 292 - 292
THP (bn sticks) 12.1 (2.1) 10.0 +15.7% 11.0 (2.3) 8.7
Modern Oral (mn pouches) 2,348 (36) 2,312 +32.2% 1,770 (21) 1,749
Traditional Oral (bn sticks
eq) 3 - 3 -15.9% 4 - 4
============================ ======== ========= ======= ======= ======== ========= =======
Cigarettes (bn sticks) 286.1 (17.6) 268.5 -4.7% 303.4 (21.5) 281.8
OTP (bn sticks) 7.3 - 7.3 -10.4% 8.2 - 8.2
Total Combustibles (bn
sticks) 293.4 (17.6) 275.9 -4.9% 311.6 (21.5) 290.0
============================ ======== ========= ======= ======= ======== ========= =======
Memo: Cigarettes + THP (bn
sticks) 298.2 (19.6) 278.5 -4.1% 314.4 (23.9) 290.5
============================ ======== ========= ======= ======= ======== ========= =======
Inorganic adjustments relate to businesses bought or sold,
including those held-for-sale (being the Group's operations in
Russia and Belarus). In 2021, the Group sold its Iranian business.
However, as the Iranian business was not significant to the users
understanding of that year or subsequent years financial
performance, Management did not treat the sale of Iranian business
as an organic adjustment.
Analysis of profit from operations and diluted earnings per
share by segment
2023
==================================== ========================================================================
Inorganic Adjusted
Adj Adjusted Adjs Organic
Reported Items(1) Adjusted Exchange at CC(2) at CC(2) at CC(2)
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ======== ========= ======== ======== ========= ========= =========
Profit from Operations
U.S. 3,168 137 3,305 (175) 3,130 - 3,130
AME 1,767 (119) 1,648 (49) 1,599 (148) 1,451
APMEA 1,000 67 1,067 54 1,121 - 1,121
==================================== ======== ========= ======== ======== ========= ========= =========
Total Region 5,935 85 6,020 (170) 5,850 (148) 5,702
Net finance costs (921) 23 (898) 39 (859)
Associates and joint ventures 289 15 304 8 312
==================================== ======== ========= ======== ======== ========= ========= =========
Profit before tax 5,303 123 5,426 (123) 5,303
Taxation (1,268) 2 (1,266) 9 (1,257)
Non-controlling interests (76) - (76) (4) (80)
Coupons relating to hybrid
bonds net of tax (22) - (22) - (22)
==================================== ======== ========= ======== ======== ========= ========= =========
Profit attributable to shareholders 3,937 125 4,062 (118) 3,944
Diluted number of shares
(m) 2,237 2,237 2,237
==================================== ======== ========= ======== ======== ========= ========= =========
Diluted earnings per share
(pence) 176.0 181.6 176.3
==================================== ======== ========= ======== ======== ========= ========= =========
2022
==================================== =====================================================
Inorganic Adjusted
Reported Adj Items(1) Adjusted Adjs Organic
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm
==================================== ======== ============ ======== ========= ========
Profit from Operations
U.S. 2,801 335 3,136 - 3,136
AME 508 975 1,483 (93) 1,390
APMEA 369 657 1,026 - 1,026
==================================== ======== ============ ======== ========= ========
Total Region 3,678 1,967 5,645 (93) 5,552
Net finance costs (817) 41 (776)
Associates and joint ventures 200 62 262
==================================== ======== ============ ======== ========= ========
Profit before tax 3,061 2,070 5,131
Taxation (1,123) (99) (1,222)
Non-controlling interests (79) (1) (80)
Coupons relating to hybrid
bonds net of tax (23) - (23)
==================================== ======== ============ ======== ========= ========
Profit attributable to shareholders 1,836 1,970 3,806
Diluted number of shares
(m) 2,273 2,273
==================================== ======== ============ ======== ========= ========
Diluted earnings per share
(pence) 80.8 167.4
==================================== ======== ============ ======== ========= ========
Notes to the analysis of profit from operations above:
1. Adjusting items represent certain items which the Group
considers distinctive based upon their size, nature or
incidence.
2. CC: constant currency - measures are calculated based on a
re-translation, at the prior year's exchange rates, of the current
year's results of the Group and, where applicable, its segments
.
Data Lake and Reconciliations
Continued
Non-GAAP measures
To supplement the presentation of the Group's results of
operations and financial condition in accordance with IFRS, the
Group also presents several non-GAAP measures used by management to
monitor the Group's performance. The Group's management regularly
reviews the measures used to assess and present the financial
performance of the Group and, as relevant, its geographic
segments.
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 principal non-GAAP measures which the Group uses are organic
revenue, adjusted profit from operations, adjusted organic profit
from operations, adjusted diluted earnings per share, adjusted net
finance costs, adjusted taxation, operating cash flow conversion
ratio, adjusted cash generated from operations, free cash flow
(before dividends paid to shareholders) and free cash flow (after
dividends paid to shareholders) which are before the impact of
adjusting items and, in certain instances, inorganic adjustments
and are reconciled from revenue, profit from operations, net
finance costs, taxation, diluted earnings per share, cash
conversion ratio and net cash generated from operating activities.
The Group also uses adjusted share of post-tax results of
associates and joint ventures, and underlying tax rate. 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. Inorganic adjustments refer to the results of businesses
that have been acquired, are due to be sold, or where there is an
enduring structural change in performance which would have a
significant impact on the users' understanding of the Group's
performance between periods. 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. The adjusting items are used to calculate
the non-GAAP measures of adjusted profit from operations, adjusted
organic profit from operations, adjusted operating margin, adjusted
organic operating margin, adjusted net finance costs, adjusted
taxation, adjusted share of post-tax results of associates and
joint ventures, underlying tax rate and adjusted diluted earnings
per share. In addition, the Group also provides other non-GAAP
measures of net debt and adjusted net debt which the Group uses to
monitor its financial position. Additionally, the Group uses the
non-GAAP measures of non controlling interest, coupons relating to
hybrid bonds net of tax and profit attributable to
shareholders.
The Group also supplements its presentation of revenue in
accordance with IFRS by presenting the non-GAAP component
breakdowns of revenues by product category (including revenue
generated from Vapour, Tobacco Heating Products, Modern Oral, New
Categories as a whole, Combustibles and Traditional Oral),
including by geographic segment (including revenue generated in the
United States, Americas and Europe and Asia-Pacific, Middle East
and Africa), and including on an organic basis. The Group further
supplements the presentation of profit from operations in
accordance with IFRS by presenting the non-GAAP measure referred to
as New Categories contribution (including on an organic basis),
which reflects the marginal contribution of the New Categories
products to the Group's financial performance. This measure
includes all directly attributable revenue and costs. The Group's
Management Board believes these measures, which are used
internally, are useful to the users of the financial statements in
helping them understand the underlying business performance of
individual Group product categories, including by geographic
segments. They are not presentations made in accordance with IFRS
and should not be considered as an alternative to breakdowns of
revenues or profit from operations determined in accordance with
IFRS. Breakdowns of revenues by product category and contributions
to profit from operations by product category are not necessarily
comparable to similarly titled measures used by other companies. As
a result, readers should not consider these measures in isolation
from, or as a substitute analysis for, the Group's breakdowns of
revenues as determined in accordance with IFRS or profit from
operations as determined in accordance with IFRS.
The Management Board, as the chief operating decision maker,
reviews a number of our IFRS and non-GAAP measures for the Group
and its product categories and geographic segments (including on an
organic basis) 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 profit from
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 (see page 15 ).
The Group also supplements its presentation of cash flows in
accordance with IFRS by presenting the non-GAAP measures of free
cash flow (before dividends paid to shareholders), free cash flow
(after dividends paid to shareholders) and operating cash flow
conversion ratio. The Group's Management Board believes these
measures, which are used internally, are useful to the users of the
financial statements in helping them understand the underlying
business performance and can provide insights into the cash flow
available to, among other things, reduce debt and pay dividends.
Free cash flow (before dividends paid to shareholders), free cash
flow (after dividends paid to shareholders) and operating cash flow
conversion ratio have limitations as analytical tools. They are not
presentations made in accordance with IFRS and should not be
considered as an alternative to net cash generated from operating
activities determined in accordance with IFRS. Free cash flow
(before dividends paid to shareholders), free cash flow (after
dividends paid to shareholders) and operating cash flow conversion
ratio are not necessarily comparable to similarly titled measures
used by other companies. As a result, readers should not consider
these measures in isolation from, or as a substitute analysis for,
the Group's results of operations or cash flows as determined in
accordance with IFRS.
The Group also presents net debt and adjusted net debt, non-GAAP
measures, on page 1 and pages 12 to 13 and page 56 . The Group uses
net debt and adjusted net debt to assess its financial capacity.
The Management Board believes that these additional measures, which
are used internally, are useful to the users of the financial
statements in helping them to see how business financing has
changed over the year. Net debt and adjusted net debt have
limitations as analytical tools. They are not presentations made in
accordance with IFRS and should not be considered as an alternative
to borrowings or total liabilities determined in accordance with
IFRS. Net debt and adjusted net debt are not necessarily comparable
to similarly titled measures used by other companies. As a result,
readers should not consider these measures in isolation from, or as
a substitute analysis for the Group's measures of financial
position as determined in accordance with IFRS.
Due to the secondary listing of the ordinary shares of British
American Tobacco p.l.c. on the main board of the JSE in South
Africa, the Group is required to present headline earnings per
share and diluted headline earnings per share, as alternative
measures of earnings per share, calculated in accordance with
Circular 1/2021 'Headline Earnings' issued by the South African
Institute of Chartered Accountants. These are shown on page 36
.
Data Lake and Reconciliations
Continued
Non-GAAP measures (continued)
The Group also presents the underlying tax rate, a non-GAAP
measure, on page 10 . The Group uses the underlying tax rate to
assess the tax rate applicable to the Group's underlying
operations, excluding the Group's share of post-tax results of
associates and joint ventures in the Group's pre-tax results and
adjusting items. The Management Board believes that this additional
measure, which is used internally, is useful to the users of the
financial statements because it excludes the contribution from the
Group's associates, recognised after tax but within the Group's
pre-tax profits, and adjusting items, thereby enhancing users'
understanding of underlying business performance.
Underlying tax rate 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 the Group's headline effective tax
rate as determined in accordance with IFRS. Underlying tax rate is
not necessarily comparable to similarly titled measures used by
other companies. As a result, this measure should not be considered
in isolation from, or as a substitute analysis for, the Group's
underlying tax rate as determined in accordance with IFRS.
Revenue and organic revenue, at constant rates of exchange
Definition: revenue before the impact of foreign exchange and
inorganic adjustments.
2023 2022
========================================================
Six months ended 30 June GBPm GBPm
======================================================== ====== ======
Revenue 13,441 12,869
Impact of translational foreign exchange (240)
======================================================== ====== ======
Revenue translated at 2022 exchange rates 13,201 12,869
Inorganic adjustments translated at 2022 exchange rates (356) (369)
======================================================== ====== ======
Organic revenue translated at 2022 exchange rates 12,845 12,500
======================================================== ====== ======
Revenue (and organic revenue) by Product Category, including New
Categories, at constant rates of exchange
Definition: revenue derived from each of the main product
categories, including New Categories, before the impact of foreign
exchange and inorganic adjustments. These measures enable users of
the financial statements to compare the Group's business
performance across and with reference to the Group's investment
activity.
Six months ended 30
June 2023 2022
===================================================== ==============================
Inorganic Organic
Impact Revenue Adjs revenue Inorganic Organic
Reported of exchange at CC at CC at CC Reported Adjs revenue
====================
Group Revenue GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ======== ============ ======= ========= ========= ======== ========= =========
New Categories 1,656 (31) 1,625 (60) 1,565 1,283 (60) 1,223
======== ============ ======= ========= ========= ======== ========= =========
Vapour 866 (29) 837 - 837 617 - 617
THP 550 (3) 547 (57) 490 497 (58) 439
Modern Oral 240 1 241 (3) 238 169 (2) 167
======== ============ ======= ========= ========= ======== ========= =========
Traditional Oral 571 (27) 544 - 544 598 - 598
==================== ======== ============ ======= ========= ========= ======== ========= =========
Non-Combustibles 2,227 (58) 2,169 (60) 2,109 1,881 (60) 1,821
Combustibles 10,967 (171) 10,796 (294) 10,502 10,774 (309) 10,465
Other 247 (11) 236 (2) 234 214 - 214
==================== ======== ============ ======= ========= ========= ======== ========= =========
Total Revenue 13,441 (240) 13,201 (356) 12,845 12,869 (369) 12,500
==================== ======== ============ ======= ========= ========= ======== ========= =========
Six months ended 30
June 2023 2022
Inorganic Organic
Impact Revenue Adjs revenue Inorganic Organic
Reported of exchange at CC at CC at CC Reported Adjs revenue
====================
U.S. Revenue GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ======== ============ ======= ========= ======== ======== ========= ========
New Categories 530 (25) 505 - 505 414 - 414
======== ============ ======= ========= ======== ======== ========= ========
Vapour 520 (25) 495 - 495 402 - 402
THP - - - - - - - -
Modern Oral 10 - 10 - 10 12 - 12
======== ============ ======= ========= ======== ======== ========= ========
Traditional Oral 553 (28) 525 - 525 580 - 580
==================== ======== ============ ======= ========= ======== ======== ========= ========
Non-Combustibles 1,083 (53) 1,030 - 1,030 994 - 994
Combustibles 4,800 (239) 4,561 - 4,561 4,928 - 4,928
Other 27 (2) 25 - 25 12 - 12
==================== ======== ============ ======= ========= ======== ======== ========= ========
Total Revenue 5,910 (294) 5,616 - 5,616 5,934 - 5,934
==================== ======== ============ ======= ========= ======== ======== ========= ========
Data Lake and Reconciliations
Continued
Non-GAAP measures (continued)
Six months ended 30
June 2023 2022
=============================
Inorganic Organic
Impact Revenue Adjs revenue Inorganic Organic
Reported of exchange at CC at CC at CC Reported Adjs revenue
====================
AME Revenue GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ======== ============ ======= ========= ======== ======== ========= ========
New Categories 804 (18) 786 (60) 726 578 (60) 518
======== ============ ======= ========= ======== ======== ========= ========
Vapour 303 (7) 296 - 296 189 - 189
THP 285 (11) 274 (57) 217 240 (58) 182
Modern Oral 216 - 216 (3) 213 149 (2) 147
======== ============ ======= ========= ======== ======== ========= ========
Traditional Oral 18 1 19 - 19 18 - 18
==================== ======== ============ ======= ========= ======== ======== ========= ========
Non-Combustibles 822 (17) 805 (60) 745 596 (60) 536
Combustibles 3,734 (75) 3,659 (294) 3,365 3,485 (309) 3,176
Other 174 (9) 165 (2) 163 162 - 162
==================== ======== ============ ======= ========= ======== ======== ========= ========
Total Revenue 4,730 (101) 4,629 (356) 4,273 4,243 (369) 3,874
==================== ======== ============ ======= ========= ======== ======== ========= ========
Six months ended 30
June 2023 2022
=============================
Inorganic Organic
Impact Revenue Adjs revenue Inorganic Organic
Reported of exchange at CC at CC at CC Reported Adjs revenue
====================
APMEA Revenue GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ======== ============ ======= ========= ======== ======== ========= ========
New Categories 322 12 334 - 334 291 - 291
======== ============ ======= ========= ======== ======== ========= ========
Vapour 43 3 46 - 46 26 - 26
THP 265 8 273 - 273 257 - 257
Modern Oral 14 1 15 - 15 8 - 8
======== ============ ======= ========= ======== ======== ========= ========
Traditional Oral - - - - - - - -
==================== ======== ============ ======= ========= ======== ======== ========= ========
Non-Combustibles 322 12 334 - 334 291 - 291
Combustibles 2,433 143 2,576 - 2,576 2,361 - 2,361
Other 46 - 46 - 46 40 - 40
==================== ======== ============ ======= ========= ======== ======== ========= ========
Total Revenue 2,801 155 2,956 - 2,956 2,692 - 2,692
==================== ======== ============ ======= ========= ======== ======== ========= ========
Adjusted profit from operations, adjusted profit from operations
at constant rates of exchange, adjusted organic profit from
operations at constant rates of exchange; adjusted operating margin
and adjusted organic operating margin
Definition: profit from operations before the impact of
adjusting items (described on pages 29 to 31 ), inorganic
adjustments and translational foreign exchange; and adjusted profit
from operations as a percentage of revenue and adjusted organic
profit from operations as a percentage of organic revenue, at
constant rates of exchange.
2023 2022
===================================================================
Six months ended 30 June GBPm GBPm
=================================================================== ===== =====
Profit from operations 5,935 3,678
Add:
Restructuring and integration costs (2) 333
Amortisation and impairment of trademarks and similar intangibles 108 161
Credit in respect of partial buy-out of the pension fund
in the U.S. - (15)
Charges in connection with planned disposal of subsidiaries 17 957
(Credit)/charges in connection with disposal of subsidiaries (1) 1
Credit in respect of calculation of Excise on social contributions
in Brazil (147) -
Credit in respect of calculation of VAT on social contributions
in Brazil (13) -
Charges in respect of the DOJ and OFAC investigation 66 450
Other adjusting items (including Engle) 57 80
=================================================================== ===== =====
Adjusted profit from operations 6,020 5,645
Impact of translational foreign exchange on adjusted profit
from operations (170)
=================================================================== ===== =====
Adjusted profit from operations translated at 2022 exchange
rates 5,850 5,645
Inorganic adjustments translated at 2022 exchange rates (148) (93)
=================================================================== ===== =====
Adjusted organic profit from operations translated at
2022 exchange rates 5,702 5,552
=================================================================== ===== =====
Operating Margin (Profit from operations as % of revenue) 44.2% 28.6%
Adjusted Operating Margin (Adjusted profit from operations
as % of revenue) 44.8% 43.9%
Adjusted Organic Operating Margin (Adjusted organic PFO
as % of organic revenue) 44.9% 44.4%
=================================================================== ===== =====
Data Lake and Reconciliations
Continued
Non-GAAP measures (continued)
Category contribution, at constant rates of exchange
Definition: profit from operations before the impact of
adjusting items (described on pages 29 to 31 ), inorganic
adjustments and translational foreign exchange, and after directly
attributable, category specific costs.
2023
============================= ===================================================================
Inorganic Adjusted
Adj Adjusted Adjs Organic
Reported Items Adjusted Exchange at CC at CC at CC
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================= ======== ====== ======== ======== ======== ========= ========
Profit from Operations 5,935 85 6,020 (170) 5,850 (148) 5,702
As delivered through:
New Categories contribution (21) (15) (36)
Rest of Business 5,871 (133) 5,738
============================= ======== ====== ======== ======== ======== ========= ========
2022
============================= ==================================================
Inorganic Adjusted
Reported Adj Items Adjusted Adjs Organic
Six months ended 30 June GBPm GBPm GBPm GBPm GBPm
============================= ======== ========= ======== ========= ========
Profit from Operations 3,678 1,967 5,645 (93) 5,552
As delivered through:
New Categories contribution (222) 23 (199)
Rest of Business 5,867 (116) 5,751
============================= ======== ========= ======== ========= ========
Category contribution reflects the marginal contribution of the
New Categories products to the Group's financial performance. This
measure includes all directly attributable revenue and costs. This
measure is provided in aggregate as certain costs are incurred
across all New Categories and are not product specific. However,
other overhead costs that are shared between New Categories and
Rest of Business are borne by the Rest of Business as they are
deemed to be incurred regardless of the performance of New
Categories.
Adjusted net finance costs and adjusted net finance costs, at
constant rates of exchange
Definition: net finance costs before the impact of adjusting
items (described on page 31 ) and translational foreign
exchange.
2023 2022
=======================================================
Six months ended 30 June GBPm GBPm
======================================================= ======= =====
Finance costs (1,006) (845)
Finance income 85 28
======================================================= ======= =====
Net finance costs (921) (817)
Less: Adjusting items in net finance costs 23 41
======================================================= ======= =====
Adjusted net finance costs (898) (776)
======================================================= ======= =====
Comprising:
Interest payable (903) (780)
Interest and dividend income 85 28
Fair value changes - derivatives (496) 479
Exchange differences 416 (503)
======================================================= ======= =====
Adjusted net finance costs (898) (776)
Impact of translational foreign exchange 39
======================================================= ======= =====
Adjusted net finance costs translated at 2022 exchange
rates (859) (776)
======================================================= ======= =====
Adjusted share of post-tax results of associates and joint
ventures and adjusted share of post-tax results of associates and
joint ventures, at constant rates of exchange
Definition: share of post-tax results of associates and joint
ventures before the impact of adjusting items (described on page 31
) and translational foreign exchange.
2023 2022
==========================================================
Six months ended 30 June GBPm GBPm
========================================================== ==== ====
Group's share of post-tax results of associates and joint
ventures 289 200
Issue of shares and changes in shareholding (16) (8)
Other exceptional items in ITC (2) -
Impairment in relation to Organigram (net of tax) 33 59
Other - 11
========================================================== ==== ====
Adjusted Group's share of post-tax results of associates
and joint ventures 304 262
Impact of translational foreign exchange 8
========================================================== ==== ====
Adjusted Group's share of post-tax results of associates
and joint ventures translated at 2022 exchange rates 312 262
========================================================== ==== ====
Data Lake and Reconciliations
Continued
Non-GAAP measures (continued)
Adjusted taxation
Definition: Taxation before the impact of adjusting items
(described on page 32 ).
2023 2022
==========================================
Six months ended 30 June GBPm GBPm
========================================== ===== =====
UK
- current year tax 15 23
- adjustment in respect of prior periods - -
Overseas
- current year tax 1,443 1,194
- adjustment in respect of prior periods (87) 27
========================================== ===== =====
Total current tax 1,371 1,244
Deferred tax (103) (121)
========================================== ===== =====
Taxation on ordinary activities 1,268 1,123
Adjusting items in taxation (10) (6)
Taxation on adjusting items 8 105
========================================== ===== =====
Adjusted taxation 1,266 1,222
========================================== ===== =====
Underlying tax rate and underlying tax rate, at constant rates
of exchange
Definition: tax rate incurred before the impact of adjusting
items (described on pages 29 to 32 ) and translational foreign
exchange and to adjust for the inclusion of the Group's share of
post-tax results of associates and joint ventures within the
Group's pre-tax results.
2023 2022
==============================================================
Six months ended 30 June GBPm GBPm
============================================================== ======= =======
Profit before taxation (PBT) 5,303 3,061
Less:
Share of post-tax results of associates and joint ventures (289) (200)
Adjusting items within profit from operations 85 1,967
Adjusting items within finance costs 23 41
============================================================== ======= =======
Adjusted PBT, excluding associates and joint ventures 5,122 4,869
Impact of translational foreign exchange (131)
============================================================== ======= =======
Adjusted PBT, excluding associates and joint ventures
translated at 2022 exchange rates 4,991 4,869
============================================================== ======= =======
Taxation on ordinary activities (1,268) (1,123)
Adjusting items within taxation and taxation on adjusting
items 2 (99)
============================================================== ======= =======
Adjusted taxation (1,266) (1,222)
Impact of translational foreign exchange on adjusted taxation 9
============================================================== ======= =======
Adjusted taxation translated at 2022 exchange rates (1,257) (1,222)
============================================================== ======= =======
Effective tax rate 23.9% 36.7%
Underlying tax rate 24.7% 25.1%
Underlying tax rate (constant rates) 25.2%
============================================================== ======= =======
Data Lake and Reconciliations
Continued
Non-GAAP measures (continued)
Adjusted diluted earnings per share, at constant rates of
exchange
Definition: diluted earnings per share before the impact of
adjusting items, presented at the prior year's rate of
exchange.
2023 2022
==============================================================
Six months ended 30 June pence pence
============================================================== ===== =====
Diluted earnings per share 176.0 80.8
Effect of amortisation and impairment of goodwill, trademarks
and similar intangibles 3.6 5.5
Effect of Brazil excise and VAT cases (5.3) -
Effect of planned disposal of subsidiaries 0.7 42.0
Effect of charges in respect of DOJ and OFAC investigations 3.0 -
Effect of restructuring and integration costs - 12.7
Effect of other adjusting items 1.9 21.9
Effect of adjusting items in net finance costs 0.6 1.5
Effect of associates' adjusting items 0.7 2.7
Effect of adjusting items in respect of deferred taxation 0.4 0.3
============================================================== ===== =====
Adjusted diluted earnings per share 181.6 167.4
============================================================== ===== =====
Impact of translational foreign exchange (5.3)
============================================================== ===== =====
Adjusted diluted earnings per share, at constant exchange
rates 176.3
============================================================== ===== =====
Operating cash flow conversion ratio
Definition: net cash generated from operating activities before
the impact of adjusting items and dividends from associates and
excluding pension short fall funding, taxes paid and after net
capital expenditure, as a proportion of adjusted profit from
operations.
2023 2022
================================================================
Six months ended 30 June GBPm GBPm
================================================================ ===== =====
Net cash generated from operating activities 3,375 3,221
Cash related to adjusting items (56) 155
===== =====
Non-tobacco litigation costs (263) 12
Tobacco litigation 84 19
Other adjusting cash items 123 124
===== =====
Dividends from associates (202) (171)
Tax paid 1,350 1,280
Net capital expenditure (107) (125)
Other (1) 2
================================================================ ===== =====
Operating cash flow 4,359 4,362
Adjusted profit from operations 6,020 5,645
Cash conversion ratio 57% 88%
Operating cash flow conversion ratio 72% 77%
Cash conversion is net cash generated from operating activities
as a proportion of profit from operations
================================================================ ===== =====
Data Lake and Reconciliations
Continued
Non-GAAP measures (continued)
Adjusted cash generated from operations
Definition: net cash generated from operating activities before
the impact of adjusting items (litigation), excluding dividends
received from associates, and after dividends paid to
non-controlling interests, net interest paid and net capital
expenditure.
2023 2022
===============================================================
Six months ended 30 June GBPm GBPm
=============================================================== ===== =====
Net cash generated from operating activities 3,375 3,221
Dividends paid to non-controlling interests (59) (80)
Net interest paid (883) (741)
Net capital expenditure (107) (125)
Other - 2
Cash related to adjusting items within adjusted cash generated
from operations (179) 31
===== =====
- Tobacco litigation (263) 12
- Other adjusting cash items 84 19
===== =====
Other costs excluding litigation and restructuring costs 20 -
Dividends from associates (202) (171)
=============================================================== ===== =====
Adjusted cash generated from operations 1,965 2,137
=============================================================== ===== =====
Free cash flow (before and after dividends paid to
shareholders), at constant rates of exchange
Definition: net cash generated from operating activities after
dividends paid to non-controlling interests, net interest paid and
net capital expenditure, and translational foreign exchange. This
measure is presented before and after dividends paid to
shareholders.
2023 2022
=======================================================
Six months ended 30 June GBPm GBPm
======================================================= ======= =======
Net cash generated from operating activities 3,375 3,221
Dividends paid to non-controlling interests (59) (80)
Net interest paid (883) (741)
Net capital expenditure (107) (125)
Other - 2
======================================================= ======= =======
Free cash flow (before dividends paid to shareholders) 2,326 2,277
Dividends paid to shareholders (2,479) (2,476)
======================================================= ======= =======
Free cash flow (after dividends paid to shareholders) (153) (199)
======================================================= ======= =======
Impact of translational foreign exchange (136)
======================================================= ======= =======
Free cash flow (after dividends paid to shareholders),
at constant exchange rates (289)
======================================================= ======= =======
Net debt
Definition: total borrowings, including related derivatives,
less cash and cash equivalents and current investments held at fair
value.
2023 2022
======================================================
Six months ended 30 June GBPm GBPm
====================================================== ======== ========
Opening net debt (39,281) (36,302)
Free cash flow (after dividends paid to shareholders) (153) (199)
Other cash payments (276) (206)
Net proceeds from the issue of perpetual hybrid bonds - -
Purchase of own shares - (1,256)
Other non-cash movements (104) (32)
Transferred to held-for-sale (4) (229)
Impact of foreign exchange 1,473 (2,582)
====================================================== ======== ========
Closing net debt (38,345) (40,806)
====================================================== ======== ========
Data Lake and Reconciliations
Continued
Non-GAAP measures (continued)
Adjusted net debt
Definition: net debt, excluding the impact of the revaluation of
Reynolds American Inc. acquired debt arising as part of the
purchase price allocation process and excluding net debt items
included within assets held-for-sale.
2023 2022
==========================================================
Six months ended 30 June GBPm GBPm
========================================================== ======= =======
Borrowings (excluding lease liabilities) 41,718 44,407
Lease liabilities 451 468
Derivatives in respect of net debt 308 70
Cash and cash equivalents (3,681) (3,568)
Current assets held at fair value (451) (571)
Net debt items included within asset held-for-sale (356) (229)
Purchase price adjustment (PPA) to Reynolds American Inc.
debt (730) (816)
========================================================== ======= =======
Adjusted net debt 37,259 39,761
========================================================== ======= =======
The Group does not provide adjusted net debt as a proportion of
adjusted earnings before interest, tax, depreciation and
amortisation (adjusted EBITDA) as part of the half year results.
The measure would not be reasonable, using six months of adjusted
EBITDA as a proportion of the period end net debt position. Group
management does not assess adjusted net debt as a proportion of
adjusted EBITDA based upon actual/periodic performance during the
year, rather assessing the estimated performance on a forecast
basis to manage the Group leverage position on a full year
basis.
Data Lake and Reconciliations
Continued
Summary of volume and revenue by category by region
Volume (unit)
U.S. AME APMEA Group
========================= =============== =============== =============== ================
Six months ended 30
June 2023 % change 2023 % change 2023 % change 2023 % change
========================= ===== ======== ===== ======== ===== ======== ====== ========
New Categories
Vapour 155 -6.5% 145 +28.6% 19 +35.0% 319 +9.0%
THP - 0.0% 6 +8.8% 6 +10.9% 12 +9.8%
Modern Oral 112 -37.7% 1,858 +39.0% 378 +49.3% 2,348 +32.7%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Traditional Oral 2.9 -17.2% 0.4 -5.3% - -% 3.3 -15.9%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Total Non-Combustibles
========================= ===== ======== ===== ======== ===== ======== ====== ========
Cigarettes 26 -12.4% 135 -0.2% 125 -9.7% 286 -5.7%
OTP - -18.3% 6 -11.4% 1 -0.9% 7 -10.4%
Total Combustibles 26 -12.4% 141 -0.7% 126 -9.6% 293 -5.8%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Memo: Cigarettes and
THP 26 -12.4% 141 +0.2% 131 -8.9% 298 -5.2%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Revenue - reported at current
rates (GBPm)
U.S. AME APMEA Group
========================= =============== =============== =============== ================
Six months ended 30
June 2023 % change 2023 % change 2023 % change 2023 % change
========================= ===== ======== ===== ======== ===== ======== ====== ========
New Categories 530 +28.1% 804 +38.9% 322 +10.7% 1,656 +29.0%
Vapour 520 +29.4% 303 +60.1% 43 +65.5% 866 +40.3%
THP - -66.2% 285 +18.9% 265 +3.0% 550 +10.7%
Modern Oral 10 -15.5% 216 +44.2% 14 +83.0% 240 +41.8%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Traditional Oral 553 -4.7% 18 +1.4% - -% 571 -4.5%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Total Non-Combustibles 1,083 +8.9% 822 +37.8% 322 +10.7% 2,227 +18.4%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Total Combustibles 4,800 -2.6% 3,734 +7.2% 2,433 +3.1% 10,967 +1.8%
Other 27 +135% 174 +6.8% 46 +13.5% 247 +15.0%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Total 5,910 -0.4% 4,730 +11.5% 2,801 +4.0% 13,441 +4.4%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Of which:
Strategic 5,581 -0.7% 3,490 +12.9% 1,462 +1.4% 10,533 +3.7%
Non-strategic 329 +5.3% 1,240 +7.5% 1,339 +7.0% 2,908 +7.0%
========================= ===== ======== ===== ======== ===== ======== ====== ========
5,910 -0.4% 4,730 +11.5% 2,801 +4.0% 13,441 +4.4%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Organic revenue - adjusted
at constant rates (GBPm)
U.S. AME APMEA Group
========================= =============== =============== =============== ================
Six months ended 30
June 2023 % change 2023 % change 2023 % change 2023 % change
========================= ===== ======== ===== ======== ===== ======== ====== ========
New Categories 505 +21.7% 726 +40.0% 334 +15.0% 1,565 +27.9%
Vapour 495 +23.0% 296 +56.5% 46 +76.6% 837 +35.5%
THP - -67.9% 217 +19.6% 273 +6.3% 490 +11.8%
Modern Oral 10 -19.7% 213 +44.0% 15 +98.1% 238 +42.0%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Traditional Oral 525 -9.5% 19 +5.7% - -% 544 -9.0%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Total Non-Combustibles 1,030 +3.5% 745 +38.8% 334 +15.0% 2,109 +15.8%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Total Combustibles 4,561 -7.4% 3,365 +6.0% 2,576 +9.1% 10,502 +0.4%
Other 25 +123% 163 0.0% 46 +15.3% 234 +9.6%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Total 5,616 -5.4% 4,273 +10.3% 2,956 +9.8% 12,845 +2.8%
========================= ===== ======== ===== ======== ===== ======== ====== ========
Of which:
Strategic 5,303 -5.7% 3,415 +13.6% 1,538 +6.7% 10,256 +0.5%
Non-strategic 313 0.0% 858 +1.9% 1,418 +13.4% 2,589 +13.7%
========================= ===== ======== ===== ======== ===== ======== ====== ========
5,616 -5.4% 4,273 +10.3% 2,956 +9.8% 12,845 +2.8%
========================= ===== ======== ===== ======== ===== ======== ====== ========
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END
IR BCGDRGXDDGXU
(END) Dow Jones Newswires
July 26, 2023 02:00 ET (06:00 GMT)
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