British American Tobacco p.l.c. (BATS) released its preliminary results for the year ended 31 December 2023, showcasing a mix of challenges and successes in its financial performance and strategic direction.
Financial Performance:
The company reported a revenue decrease of 1.3% compared to the previous year, but on an organic basis, revenue increased by 3.1%. Notably, revenue from New Categories surged by 21.0%, with Non-Combustibles now contributing 16.5% to the Group’s revenue. New Categories achieved profitability two years ahead of schedule, marking a significant milestone for the company. However, reported loss from operations was £15,751 million, impacted by a non-cash impairment charge mainly related to the U.S. business. Adjusted organic profit from operations saw a modest increase of 3.9% at constant rates, and adjusted organic diluted EPS rose by 5.2%.
Strategic Direction:
BAT reiterated its commitment to “Building a Smokeless World,” aiming to derive 50% of its revenue from Non-Combustibles by 2035. The company refined its strategy with a vision to migrate cigarette consumers to reduced-risk alternatives while responsibly managing its cigarette business. With a focus on leading in adult consumer choice, BAT highlighted its brands like Vuse, glo, and Velo. The company outlined three strategic pillars guiding its operations: Quality Growth, Sustainable Future, and Dynamic Business.
Outlook for 2024:
Despite an expected decline of approximately 3% in the global tobacco industry volume, BAT anticipates low-single-figure organic revenue growth in 2024. The company aims to continue progressing towards its £5 billion New Category revenue ambition by 2025. Despite expected currency headwinds, BAT expects low-single-figure organic adjusted profit from operations growth and operating cash flow conversion in excess of 90%. Additionally, they aim to progress towards the middle of their adjusted net debt/adjusted EBITDA corridor, while maintaining a commitment to dividend growth in sterling terms.
Dividends:
BAT declared an interim dividend of 235.5p per ordinary share for the year ended 31 December 2023, representing a 2.0% increase from the previous year. The quarterly dividends will be paid to shareholders registered on either the UK main register or the South Africa branch register and to holders of American Depositary Shares (ADSs).
Conclusion:
BAT’s preliminary results for 2023 demonstrate a mix of challenges and successes, with a focus on navigating the evolving tobacco landscape towards a smokeless future. The company’s strategic direction aims to balance growth, sustainability, and financial flexibility, while rewarding shareholders through consistent dividend growth.
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