British American Tobacco p.l.c. (BTI) Q2 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates several negative factors: declining group revenue, macroeconomic headwinds, and a decline in combustible volume. While there are positives like new category revenue growth and a share buyback program, the Q&A section highlights concerns about elasticity in U.S. combustibles and regulatory challenges. Overall, the negative aspects, particularly in the U.S. market, outweigh the positives, leading to a negative sentiment rating.
Key Financial Performance
Group Revenue GBP 12.5 billion, down 0.8% year-over-year; impacted by macroeconomic headwinds in the U.S. and wholesaler inventory movements.
New Category Revenue GBP 2.3 billion, up over 7% year-over-year; driven by strong performance from Velo in all regions.
Profit from Operations GBP 3.1 billion, down 0.9% year-over-year; affected by continued macroeconomic pressures and investment in U.S. commercial plans.
Diluted EPS GBP 1.25, up 1.3% year-over-year; benefited from lower net finance costs and tax.
Operating Margin Flat at 30.5%; improvement in new category contribution offset by inflation and transactional FX headwinds.
Cash Flow Conversion 78% in the first half; expected to exceed 90% for the full year due to continuous improvement and resource optimization.
Gross Capex GBP 600 million, above previous guidance of GBP 550 million; aimed at expanding production capacity in the Modern Oral category.
Net Finance Costs Expected to be around GBP 1.7 billion for the full year; lower than expected due to improved interest rates and cash received from ITC asset sale.
Adjusted Profit from Operations (U.S.) Down 5% year-over-year; driven by declining revenue but partially offset by efficiency gains.
Combustible Volume Declined by 6.9% on an organic basis; impacted by wholesaler inventory movements and market exits.
Modern Oral Revenue Growth Up 49% year-over-year; driven by growth across all regions and strong performance of Velo.
Vapor Revenue Growth Up nearly 3% year-over-year; strong growth in Europe and APMEA, offset by illicit products in the U.S. and Canada.
Adjusted Profit from Operations (AME Region) Up 5% year-over-year; driven by higher revenue from combustibles and new category growth.
Adjusted Profit from Operations (APMEA Region) Up 4% year-over-year; driven by strong pricing and efficiency gains.
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Operating Highlights
New Category Contribution: GBP165 million increase in new category contribution, with smokeless now accounting for 18% of group revenue.
Vuse Innovations: Launched Vuse Go 2.0 and Vuse Go Reload, addressing sustainability and safety concerns.
Velo Brand Refresh: National rollout of refreshed Velo brand expression following successful pilot in New York.
Grizzly Modern Oral Launch: National rollout of Grizzly Modern Oral initiated in June.
U.S. Market Positioning: Invested in U.S. commercial plans to strengthen portfolio and drive sustainable growth.
Expansion in APMEA: Revenue growth of 48% driven by South Korea, New Zealand, and Indonesia.
Modern Oral Market Share: Velo capturing majority of Modern Oral category growth, with 65% volume share in AME.
Operational Efficiencies: Achieved flat operating margin despite high inflation and transactional FX headwinds.
Cash Flow Conversion: Cash flow conversion of 78% in the first half, on track for over 90% for the year.
Capex Guidance: Full year gross capex expected around GBP600 million, above previous guidance.
Share Buyback Initiation: Initiated sustainable share buyback of GBP700 million in 2024 and GBP900 million in 2025.
Investment Year: 2024 is an investment year focused on strengthening U.S. business and innovation.
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Risk or Challenges
Regulatory Issues: The company is facing challenges related to the regulation of vapor products in the U.S., including the proliferation of illicit single-use vapor products and the need for more effective regulation and enforcement.
Supply Chain Challenges: Supply chain disruptions in Sudan have impacted revenue and performance, particularly in the combustibles segment.
Competitive Pressures: The company is experiencing competitive pressures from the deep discount segment and illicit products, which have negatively affected market share and revenue in the U.S.
Macroeconomic Factors: Continued macroeconomic headwinds in the U.S. are affecting overall performance, particularly in the premium segment, which has seen a decline in volume.
Inventory Movements: Wholesaler inventory movements in the U.S. have significantly impacted first-half delivery, with expectations of unwinding in the second half.
Economic Factors: The company anticipates a 4% headwind on full year adjusted profit from operations growth due to currency translation.
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Guidance & Outlook
New Category Contribution: GBP165 million increase in new category contribution, with a 10 percentage point increase in category contribution margin.
Investment Year: 2024 is an investment year for BAT, focusing on strengthening the U.S. business and enhancing innovation.
Share Buyback: Initiation of a sustainable share buyback, starting with GBP700 million in 2024 and GBP900 million in 2025.
Innovation Launches: Expecting an acceleration in new category performance driven by innovation launches in the second half.
Portfolio Actions: Investments in premium brands and expanding contractor distribution universe to improve competitive position.
Full Year Guidance: On track to deliver low-single digit organic revenue and adjusted profit from operations growth for the full year.
Capex Guidance: Full year gross capex expected to be around GBP600 million, above previous guidance of GBP550 million.
Long-term Growth Outlook: Expecting to progressively improve delivery to 3% to 5% organic revenue growth and mid-single digit adjusted profit from operations growth by 2026.
Net Finance Costs: Expecting full year net finance costs to be around GBP1.7 billion.
Cash Flow Conversion: Expecting cash flow conversion in excess of 90% for the year.
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Shareholder Return Plan
Dividend Policy: BAT is committed to a progressive dividend.
Share Buyback Program: In March, BAT re-initiated a share buyback program starting with GBP700 million in 2024 and GBP900 million in 2025.
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Key Q&A
Q:On the combustibles market, have you seen a material change in consumer elasticity in U.S. combustibles?
A:We are not seeing a massive deterioration in terms of elasticity in the cigarettes. The industry is impacted by a difficult macro environment, high inflation, and the proliferation of illegal vapor products.
Q:What is driving the acceleration in Modern Oral in the U.S.?
A:The improvement is mainly due to our brand refresh and traction seen in New York before distribution issues with competitors.
Q:Is BAT targeting dollar EPS growth instead of just constant currency EPS growth?
A:We are confident that we can drive EPS growth on current terms, but it is difficult to offset FX impacts in emerging markets.
Q:How has NGP revenue and volume performed in 1H, and should investments be directed more towards e-cigarettes?
A:The situation in AME is impacted by stock movements due to flavor bans, but we are seeing progress and should continue investing in both segments.
Q:What are the drivers of vapor volume decline outside the U.S.?
A:The decline is mainly due to new legislation in Canada limiting flavors and volumes, leading to illegal product proliferation.
Q:How do you balance revenue growth versus improving profitability?
A:Our priority is to balance top and bottom line growth by targeting investments in categories with momentum and value.
Q:What is the current PMTA pipeline for e-cigarettes in the U.S.?
A:We have received PMTAs for tobacco flavors and submitted for age-gated devices, hoping for expedited approval.
Q:What is a reasonable level of coverage for the U.S. combustibles business?
A:We are satisfied with our current coverage and have expanded our sales force and data analytics to improve performance.
Q:How much of the raw material increase was leaf costs versus FX?
A:Raw materials increased by 9-10%, with leaf costs around 14%, but we expect this to unwind by next year.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer regarding the specific timeline for enforcement of regulations on illegal vapor products and the impact of PMTA processes.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AME
APMEA
CFO
GBP
HP
ITC stake
Korea
Louisiana
Vuse Reload
acceleration category
action
capacity
category contribution
chain
combustible volume
comparator
consumer sentiment
coverage
digit
directory
discount
efficiency gain
flavor
force
group
improvement category
increase category
investment category
leaf
legislation
majority
material
place
premium segment
proliferation
reduction
regulation
share gain
tobacco
traction
type
vapor category
wholesaler inventory
BTI Transcript
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British American Tobacco p.l.c. (BTI) Q4 2025 Earnings Call Transcript
Positive2-12
The earnings call highlights strong financial metrics, especially the operating margin and cash flow projections, which are positive indicators. The Q&A reveals optimism about Modern Oral's growth in the U.S. and increased share buybacks, further boosting sentiment. However, concerns about Australia's market and regulatory challenges in Vapour markets were noted but offset by strategic investments in growth areas. Overall, the sentiment leans positive, with potential for a stock price increase of 2% to 8%.
British American Tobacco p.l.c. (BTI) Q2 2024 Earnings Call Transcript
Unknown7-25
The earnings call summary indicates several negative factors: declining group revenue, macroeconomic headwinds, and a decline in combustible volume. While there are positives like new category revenue growth and a share buyback program, the Q&A section highlights concerns about elasticity in U.S. combustibles and regulatory challenges. Overall, the negative aspects, particularly in the U.S. market, outweigh the positives, leading to a negative sentiment rating.
British American Tobacco p.l.c. (BTI) Q4 2023 Earnings Call Transcript
Positive2-8
The earnings call highlights strong financial performance, particularly in new categories with significant revenue and profitability growth. Despite challenges in the U.S. Combustibles market, BAT's strategic focus on innovation and expansion in Vapour and Modern Oral categories is promising. The Q&A reveals positive sentiment towards market strategies and shareholder returns, though some uncertainties remain. Overall, the positive aspects, including robust cash flow and strategic product launches, outweigh concerns, suggesting a likely positive stock price movement.
BTI Report
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