British American Tobacco reaffirms full-year guidance

(Sharecast News) - British American Tobacco reaffirmed its full-year guidance for 2024 on Wednesday, supported by a stronger second half driven by investments in its US commercial operations and innovation in its 'New Categories' portfolio. The FTSE 100 tobacco giant said it anticipated revenue and profit growth across both its combustibles and New Categories businesses in the latter half of the year.

It highlighted an improved performance in its combustibles segment, bolstered by price increases and a recovery in wholesaler inventory movements.

While US volume share remained steady, value share dipped due to geographical mix and the rollout of commercial plans.

Growth in volume and value share was more pronounced in the Africa, the Middle East, and Asia-Pacific regions.

The company reported progress in its New Categories division, particularly in vapour, heated tobacco, and modern oral products.

Its vapour brand Vuse retained global market leadership with a 40.3% value share, although US performance faced challenges from an "illicit single-use vape market".

BAT said it was advocating for tighter regulatory enforcement, noting success in Louisiana where legal vapour sales had increased.

Heated tobacco products under the Glo brand experienced revenue and profit growth in the second half, with innovations like the 'Glo Hyper Pro' driving market share gains in key regions such as Japan and Europe.

Meanwhile, "modern oral" products under the Velo brand continued to expand globally, achieving strong growth in established and new markets, including the UK and Poland.

BAT also underscored its cash generation, with operating cash flow conversion expected to exceed 90% for the year.

The firm said it aimed to end 2024 with leverage at the upper end of its 2.0 to 2.5x target range, impacted in part by a stronger dollar.

For 2024, BAT said it expected global tobacco industry volumes to decline by about 2%.

The guided for low single-digit organic revenue and adjusted profit growth, with foreign exchange headwinds impacting results.

Capital expenditure is projected to reach £600m.

BAT also reiterated its support for the proposed Canadian CCAA settlement, and expressed optimism for a resolution benefiting all stakeholders.

"We are on track to deliver our 2024 guidance, demonstrating the strength and resilience of our business," said chief executive officer Tadeu Marroco.

"Our second-half performance acceleration is driven by the phasing of New Categories innovation, the benefits of investment in U.S. commercial actions and the unwind of wholesaler inventory movements.

"Our Quality Growth imperative is delivering higher returns on more targeted investments across all three New Categories, and that prioritisation and focus is already transforming our business in Europe."

Marroco said the company was making further progress increasing profitability across New Categories, adding that he was "particularly pleased" with the improvements in heated products and 'Modern Oral'.

"In the U.S., I am encouraged that our investment approach, taken over the last 18 months to strengthen our business, is working, despite a challenging macro-economic backdrop.

"Through our commercial actions, we have invested in our portfolio and improved our executional capabilities.

"With these previously announced plans now completed, we can prioritise driving sharper execution and opening incremental white space, related to Modern Oral."

Tadeu Marroco said the company did not expect the journey to its mid-term guidance to be linear.

"Building on the strong foundations we have established, I am confident that we will deliver an improved underlying performance as we move from investment to deployment in 2025.

"In addition, we expect to have more clarity on the financial impacts of CCAA in Canada when we provide our 2025 guidance with our 2024 results in February.

"We will continue to reward shareholders through strong cash returns, including our progressive dividend and sustainable share buy-back, and we remain committed to returning to our mid-term guidance of 3% to 5% revenue and mid-single digit adjusted profit from operations growth on an organic constant currency basis by 2026."

Reporting by Josh White for Sharecast.com.