BTI / BATS H1 2023 Earnings

British American Tobacco reported H1 2023 earnings today, July 26, before LSE open.

Top-line:
– Revenue: £13.44Bn (vs. £13.3Bn expected)
– Revenue up +2.8% (New Categories up +27.9%)
– Revenue from New Categories: 12.3% of total
Bottom-line:
– Adj. Operating Profit: £6.02Bn (exp. £5.9Bn)
– Adj. Operating Margin: 44.8% (exp. 44.4%)
– Contribution from New Categories: -£12Mn (break-even to profitability in sight)
– Adj. EPS: £1.816 (exp. £1.75)
Adj. Net debt: £37.3Bn (-2.3%)

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BAT – The US Market
Combustibles:
– Volume: -12.4% (industry volume down -8.4%)
– Revenue: -7.4% (pricing failed to compensate for volume decline)
Vapour:
– Volume -6.5% (due to the growth of “illicit” synthetic nicotine disposables is now estimated to be more than 50% of the total market)
– Revenue: +23%
Total US operating profit: £3.13Bn (down -0.2% at constant currency)

New Categories: Break-even in sight
E-cigarette (Vuse)
– Volume: +9%, Revenue: +35.5% (“2024 NGP profitability target” will mainly be delivered through e-cigarette price increases)
– Three of the five key e-cigarette markets are profitable, driven by increased scale and marketing spend effectiveness
– Vuse value share up +240 bps, reaching 38.3% in key e-cigarette markets
– Vuse extended leadership in value share (in tracked channels) by 570 bps to 46.7% in the US and leading in 36 states
Note: BAT's reported market shares are based on a self-defined subset of the overall e-cigarette market

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Modern oral tobacco/nicotine (Velo)
– Volume: +32.2%, Revenue: +42% (despite the US)
– In the US, volume declined 37.7%, with volume share down 160 bps and revenue down 19.7%. Promotional support redirected behind Vuse, instead of Velo. Awaiting the outcome of PMTA submission for new Velo product
– Outside the US, clear volume share leadership maintained, with Mini pouches and Max ranges driving strong growth
– Strong growth in new markets: Pakistan and Kenya

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Summary

BAT's business is performing pretty well outside the US. Operating profit is up +4.4% and 9.3% in AME and APMEA Regions, respectively (note: US is still 54.9% of the total adj. organic operating profit at constant currency)
BAT’s share of ITC’s post-tax results up +21.8% (£319Mn): the economic recovery in India from COVID-19, more than offsetting FX headwind