British American Tobacco (BATS) H1 2024 earnings summary

Executive summary

• H1 2024 performance aligned with expectations, supporting full-year guidance and transformation focused on quality growth, innovation, and financial flexibility.

• New Category consumers increased by 1.4 million to 26.4 million, now 17.9% of Group revenue, with strong Modern Oral growth and innovation launches.

• U.S. performance impacted by macroeconomic headwinds, illicit vapor, and inventory movements, but commercial actions and premium brands show signs of recovery.

• Significant investments in the U.S. and New Category launches to drive future growth; share buyback program initiated, underpinned by ITC stake monetization.

• On track for H2 acceleration, supported by inventory unwind, innovation, and completed commercial initiatives.

Financial highlights

• Group revenue down 0.8% year-over-year (organic constant rate); New Category revenue up 7.4%.

• Adjusted profit from operations down 0.9%; adjusted diluted EPS up 1.3%.

• Operating margin flat at 44.9%, with New Category margin improvement offsetting FX and inflation headwinds.

• Cash flow conversion at 78% in H1, expected to exceed 90% for the year.

• Net cash from operating activities down 6.2% to £3,165m; adjusted net debt down 12.4% to £32,973m.

Outlook and guidance

• Confident in delivering FY24 guidance: low single-digit organic revenue and adjusted profit growth, including a 2% FX headwind.

• H2 expected to accelerate due to U.S. recovery, innovation, and inventory unwind.

• By 2026, targeting 3%-5% organic revenue growth and mid-single-digit adjusted profit growth.

• Net finance costs expected at £1.7bn; gross capex for 2024 at ~£600m; leverage target 2.0–2.5x net debt/EBITDA by year-end.

• Global tobacco industry volume expected down ~2%, with U.S., France, Sudan weak, but Türkiye and Mexico improving.