TIDMBATS
RNS Number : 7846W
British American Tobacco PLC
28 April 2021
2021 AGM: Chairman's Statement
A Strong Operational Performance During Challenging Times
28 April 2021
Dear Shareholders,
The ongoing challenges of COVID-19 mean that I am again unable
to address our AGM in person. Before turning to our performance in
2020, I'd like to make a few comments on the macro environment.
The unprecedented impact of the global pandemic has disrupted
all aspects of life around the world. While the roll-out of
vaccines is a welcome sign of a return to some semblance of
normality, our sympathies are with anyone who is suffering and who
may have lost family or friends during the crisis.
Our focus continues to be safeguarding the welfare of our
people, while ensuring that the business continues to operate
effectively. Our response to the crisis has evolved in line with
the situation, and we remain fully committed to supporting all our
stakeholders throughout the pandemic.
Our own efforts to develop a potential vaccine for COVID-19, as
well as one for seasonal flu, are being led by our US bio-tech
subsidiary, Kentucky BioProcessing. Both candidate vaccines are in
Phase 1, first-time in human trials, following approval by the US
Food and Drug Administration of the Investigational New Drug
application.
2020: A Strong Operational Performance During Challenging
Times
During 2020, the strength and agility of our business, combined
with the professionalism and resilience of our global teams and
partners, enabled BAT to continue delivering a strong operational
performance.
Overall, we delivered constant currency revenue growth of 3.3%,
above our revised 1-3% guidance range.
On a constant currency adjusted basis, profit from operations
grew by 4.8%*, with diluted earnings per share ("EPS") up 5.5%.
Operating margin grew by 100 basis points to 44.1% including the
impact of currencies.
With adjusted operating cash conversion of 103%, we have
continued to demonstrate our commitment to maximising cash to
reduce leverage and invest in the business.
We have also maintained our dividend commitment at a 65% payout
ratio, despite the challenging operating environment. The Board has
declared a dividend of 215.6p per ordinary share, an increase of
2.5% on 2019.
Importantly, GBP1.4 billion of our revenues came from our
reduced-risk, New Category products-- in 2020, representing 15%
growth at constant rates compared with 2019. With this progress,
and the momentum we generated in the second half, we are on track
to meet our GBP5 billion New Category revenue ambition by 2025.
We also accelerated the consumer adoption of our non-combustible
products**, adding 3 million in 2020 to reach 13.5 million
consumers - marking accelerated progress toward our ambition of 50
million consumers of our non-combustible products by 2030.
BAT is transforming into a high growth, multi-category consumer
goods business, with a purpose to reduce its health impact, driven
by meeting evolving consumer needs.
This is evidenced by strong market share gains, consumer
acquisition and revenue growth in our New Categories in 2020.
Our three operational priorities, to drive a step change in New
Categories; deliver value in combustibles; and build a simpler,
faster organisation, remain essential components of our
strategy.
Our ongoing investment in New Categories is supported by our
continued focus on delivering value from our combustibles business,
together with cost reduction activities.
Our organisational simplification programme, 'Quantum',
continues to streamline our ways of working and drive faster
decision making.
In turn, our strategy enables us to build A Better Tomorrow(TM)
- reducing the health impact of our business by offering a greater
choice of enjoyable and less risky products-- .
Through this corporate purpose, we will drive multi-stakeholder
value for:
-- consumers, who will have a range of enjoyable and less risky
-- choices for every mood and moment;
-- for society, through reducing the overall health and environmental impacts of our business;
-- for our employees, by creating a dynamic and purposeful place to work; and
-- for our shareholders, by delivering sustainable and superior returns.
2021 Outlook: Strong New Category Momentum; Confident in
Mid-Single Figure EPS Growth and 65% Dividend Payout Policy
Turning to this year, I am pleased to say that the business
continues to perform well, building on our accelerating momentum
from the second half of 2020. To date in 2021, we have seen:
-- Good performance across all our New Categories businesses. We
continue to see strong consumer acquisition, consumables volume
growth and market share growth. We are confident of meeting our
GBP5 billion revenue target by 2025.
-- In Japan, glo has reached year-to-date total nicotine volume
share*** of 6.2%, up 80bps on FY2020. In addition, glo continues to
gain strong traction in ENA, driven by the roll out of glo Hyper,
with excellent progress in its key markets in terms of both total
nicotine and THP category shares***.
-- In Vapour, we continue to strengthen our leadership positions
across Canada and ENA, and will complete the brand migration to
Vuse by the end of H1 2021. In the US, Vuse's year-to-date value
share has grown to 29.5%, up 4.6 percentage points on FY2020 and is
now the leader in 16 states.
-- Velo's year-to-date volume share of the US Modern Oral market
is now 17.6%, up 10 percentage points on FY2020, driven by the
launch of Velo Max, with a continued distribution build through the
first half. Meanwhile, in Europe, where we are market leaders, our
consumer-preferred Modern Oral offering is continuing to drive
volume share gains of the Total Oral category.
We are continuing to invest in New Categories, with this
weighted to H1, and to expand to new markets in all three
categories.
This is supported by good revenue growth and value share gains
in Combustibles - with strong pricing partially offset by
geographic mix as Emerging Markets recover from COVID-19.
Furthermore, the simplification of the business continues to
release funds for reinvestment in New Categories.
While COVID-19 vaccination efforts are advancing, uncertainties
around the pace of economic recovery and governments' fiscal
strategies remain. As a result, in the US, the FY 2021 volume
outlook remains uncertain, although our YTD trading performance has
been robust. In addition, we have not seen any recovery in our
Global Travel Retail (GTR) business to date.
We continue to be confident in our 2021 guidance:
-- Global tobacco industry volume expected to be down around 3%;
-- Constant currency revenue growth of 3%-5%, and continued progress towards our
New Categories revenue target of GBP5bn in 2025;
-- Mid-single figure constant currency adjusted EPS growth;
-- Continued FX headwind of around 7% on full year adjusted EPS
growth, based on current exchange rates;
-- Operating cashflow conversion in excess of 90%, Adj Net
debt(^) /Adj EBITDA(^^) around 3.0x at the end of 2021; and
-- 65% dividend pay-out ratio and growth in sterling terms.
Post COVID-19, we remain confident in our guidance of 3-5%
revenue and high single-figure adjusted diluted EPS growth at
constant currency.
It would be appropriate, of course, to comment on the FDA's
upcoming response to the menthol Citizen Petition on regulatory
product standards in the US. Any such regulation would be highly
complex and could take many years to implement.
We support regulation that is clearly founded on scientific
evidence and which considers all unintended consequences.
A Better Tomorrow(TM) : Sustainability Front and Centre
As I remarked in our 2020 Annual Report, our business has a
wider purpose that serves the interests of all stakeholders.
This is an important shift and one that is fundamental to our
Company's purpose of building A Better Tomorrow(TM) . Our
whole-of-society approach is embedded in our strong ESG foundations
and our longstanding commitment to delivering positive outcomes for
consumers, employees, shareholders and wider society.
Our commitment to this approach is further evidenced by the
ambitious ESG targets we set out in 2020, which are to:
-- Increase the number of consumers of our non-combustible products to 50 million by 2030;
-- Achieve carbon neutrality for Scopes 1 & 2 by 2030; and
-- Eliminate unnecessary single-use plastic packaging and make
all plastic packaging reusable, recyclable or compostable by
2025.
Having made excellent progress during 2020, in March this year
we announced new environmental targets, including:
-- Achieving carbon neutrality across our value chain by 2050;
-- Achieving 100% renewable electricity by 2030; and
-- Ensuring 100% of all manufacturing sites are certified by the
Alliance for Water Stewardship and all manufacturing sites to have
zero waste to landfill by 2025.
Our efforts in this regard are important signifiers of BAT's
sustainability credentials and the importance we place on reducing
our impact on the environment and on society.
We are also pleased that our commitment to high standards has
received much notable independent recognition, for example:
-- Inclusion in the Dow Jones Sustainability Indices for 19
consecutive years and the only tobacco company to be listed in the
prestigious World Index in 2020;
-- A MSCI rating of BBB;
-- CDP A List status; and
-- In March this year, BAT was named among the top three
ESG-rated FTSE 100 company by Refinitiv, a global provider of
financial market data and a subsidiary of London Stock Exchange
Group .
Board Composition
With my tenure as Chairman of this great Company concluding at
the end of the AGM, I am delighted that Luc Jobin has been
appointed by the Board to be my successor.
Luc brings a wealth of experience, including significant
financial, regulatory and consumer business acumen. Having worked
closely with him in his role as a Non-Executive Director over the
last three years, I know that BAT is well positioned for future
success with Luc as Chairman and Jack Bowles as Chief
Executive.
I am also very pleased to welcome two new Non-Executive
Directors to the Board. Karen Guerra and Darrell Thomas joined the
Company in September and December 2020 respectively.
I have no doubt that both Karen and Darrell will be assets to
the Board and to BAT.
Jerry Fowden stepped down from the Board on 1 April 2021 due to
his other commitments. I thank Jerry for his valuable contribution
to BAT and wish him the very best for the future.
Conclusion
I said last year that my successor would inherit a strong
business that is transforming, has excellent momentum and is well
placed to deliver sustainable growth for many years.
I want to take this opportunity to thank everyone at BAT, our
business partners and you, our shareholders, for your support
during the most turbulent of times.
I retire as Chairman with many fond memories and the last year,
in particular, has demonstrated the unwavering resolve of the
people in BAT. From every level in the business, right through to
our Management Board, ambition, talent, passion and enthusiasm are
what drives BAT's delivery. I look forward to the Company's
continued success.
Notes:
Market share data is at March 2021.
Current exchange rates of USD/GBP 1.383
* On an adjusted constant currency basis. Adjusting items
represent certain items which the Group considers distinctive based
upon their size, nature or incidence.
** 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 consumer tracking (utilizing studies conducted by
third parties including Kantar).
The number of Non-Combustible products consumers is used by
management to assess the number of consumers regularly using the
Group's New Category 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.
*** Volume share: 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-categorization. Sub-categories include, but are not limited to,
the total nicotine category, modern oral, vapour, traditional oral
or cigarette. Corporate volume share is the share held by BAT
Group/Reynolds (US region). Value share: The retail sales value of
the product sold as a proportion of total retail sales value in
that category. Premium share: The retail sales volume of the
premium product sold as a proportion of total retail sales volume
of premium products in that category. Nicotine share: The retail
sales volume of the nicotine product sold as a proportion of total
nicotine product volume in that category. Exit share: The retail
sales volume of the product sold as a proportion of total retail
sales volume in that category at a specific period point in
time.
(^) Adjusted Net Debt is not a measure defined by IFRS. Adjusted
Net Debt is total borrowings, including related derivatives, less
cash and cash equivalents and current investments held at fair
value, excluding the impact of the revaluation of Reynolds American
Inc. acquired debt arising as part of the purchase price allocation
process.
(^^) Adjusted EBITDA is not a measure defined by IFRS. Adjusted
EBITDA is profit for the year before net finance costs/income,
taxation on ordinary activities, depreciation, amortisation,
impairment costs, the Group's share of post-tax results of
associates and joint ventures, and other adjusting items.
-- 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.
Forward-Looking Statements
This announcement does not constitute an invitation to
underwrite, subscribe for, or otherwise acquire or dispose of any
BAT shares or other securities. 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. 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, including the projected future financial and operating
impacts of the COVID-19 pandemic.
In particular, these forward-looking statements include, among
other statements, (i) certain statements under the heading "2021
Outlook: Maintaining Mid-Single Figure EPS Growth target and 65%
Dividend Pay-out Policy", (ii) certain statements under the heading
"A Better Tomorrow(TM) : Sustainability Front and Centre", and
(iii) certain statements under the heading "Conclusion".
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 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; the
impact of market size reduction and consumer down-trading; 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; and changes in the market position, businesses,
financial condition, results of operations or prospects of the
Group.
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.
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 British American
Tobacco website www.bat.com .
No statement in this announcement is intended to be a profit
forecast and no statement in this announcement 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.
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END
AGMDKOBKOBKDOQB
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