The shares of British American Tobacco (BAT), a favoured stock among South African asset managers, fell more than 4% yesterday on the JSE even though the stock market in London, where it is also listed, rose to just shy of its all-time highs.
BAT reported a 7.7% rise in revenue to £27.6 billion (R592bn) for the year to December 31, 2022, while operating profit was up 2.8% to £10.5bn, but diluted earnings per share fell 1.3% to 291.9 pence.
The group forecast a 3% to 5% organic constant currency growth in revenue for 2023, a year during which global tobacco industry volumes were expected to decline 2%.
Management said the push to sell more “New Category” tobacco products, such as vapes and electronic cigarettes, boosted revenue for the year.
“Driven by our strong New Category momentum (with revenue approaching £3bn), we are confident in our £5bn revenue target by 2025, and now expect New Category profitability in 2024, one year ahead of plan,” CEO Jack Bowles said in a statement yesterday.
He said the New Category business delivered strong volume, revenue and market share growth over the past year, and had become a big part of the group’s financial delivery.
“In 2022, we invested more than £2bn in New Categories to drive long-term sustainable growth, while making excellent progress in reducing operating losses by 62%,” he said.
The group claimed 22.5 million consumers of non-combustible products and revenue from these products accounted for 15% of group revenue. New Categories revenue was up 37% to £2.81bn in the past year.
The annual financial results were impacted by a number of one-off charges, but there was a 150 basis-point improvement in adjusted operating margin at current rates, and another year of 100% operating cash conversion, demonstrating how the group navigated the challenging macro-economic environment.
The dividend per share was raised 6% to 230.9p. Some £6.9bn was returned to shareholders in 2022. Adjusted diluted earnings a share increased 12.9%, or 5.8% at constant currency, at the top end of the mid-single digit guidance.
About £1.9bn in annualised savings were reported, well ahead of the original £1bn target, with £629 million in 2022.
Bowles said the environment would likely remain challenging.
The well-established multi-category brand portfolio would be leveraged. A new regional structure would enable greater collaboration and accelerated decision-making, while a new market archetype model would guide strategic choices and resource allocation.
“I am confident in BAT’s ability to deliver long-term sustainable value for shareholders,” Bowles said.
Further strong New Category revenue growth was anticipated. Earnings per share were expected to be in the mid-single figure range, including a 2% transactional foreign exchange headwind.
The group expected to sell at least 20 billion fewer cigarettes after its phased exit from 30 markets was completed.
The company was also in discussions with a joint management-distributor consortium to complete the transfer of the Russian and Belarusian businesses this year.
In the cannabis space, an investment in Organigram was complemented with a non-controlling minority stake in Sanity Group and an investment in Charlotte’s Web, which represented further exploratory steps beyond tobacco and nicotine.
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