Smoking sales down but profits up for 2020Wednesday, April 07, 2021
BY DAVID ROSE
Although revenue declined by 0.4 per cent to £25.8 billion ($5.2 trillion) for 2020, global cigarette and smoking giant British American Tobacco plc (BAT) saw its profit attributable to shareholders climb by 12 per cent to £6.4 billion ($1.3 trillion).
The company's new categories and traditional oral products outperformed expectations with combustibles growing three per cent to £23.6 billion on a constant rate basis for its 2020 financial year (FY).
BAT's United States segment maintained its growth as revenue on a current rate basis rose by 11 per cent to £11.5 billion which was driven heavily by a nine per cent growth in combustibles and 82 per cent rise in the new categories segment which composed of vapour, tobacco heating products and modern oral nicotine pouches. This is in contrast to the other three segments which all recorded revenue declines but saw substantial double-digit gains in operating profit. This was reflected in BAT's overall operating profit which grew by 10 per cent to £10 billion ($2.04 trillion) due to the reduction in raw material costs, employee benefit costs and other operating expenses.
“Our business continues to transform during this period of unprecedented change. Our purpose — to build A Better Tomorrow by reducing the health impact of our business — has remained our north star. It continues to guide our strategic choices and the execution of our strategy,” said Chief Executive Officer (CEO) Jack Bowles in the 2020 annual report.
Even with a rise in net finance costs and lower share of profits from its associates and joint ventures, pre-tax profit and consolidated net profit still climbed by 10 per cent to £8.7 billion and £6.6 billion, respectively. Earnings per share ended the year at 280 pence with a 65 per cent dividend payout ratio (215.6 pence) and an overall eight per cent dividend yield relative to its London Stock Exchange listed price.
Total assets declined by two per cent to £137.7 billion ($28.1 trillion) while total liabilities declined by three per cent to £74.7 billion. Equity attributable to owners declined by two per cent to £62.7 billion mainly due to the exchange differences from its subsidiaries impacting the other reserves of the equity base.
With 2020 being relatively more positive for BAT, Bowles remains positive of the company's direction heading into 2021 even as Richard Burrows steps down as chairman and Luc Jobin takes over the role.
“We believe our multi-category strategy is the most effective way of appealing to the diverse preferences of adult consumers around the world while reducing the health impact of our business. We believe consumers should either stop smoking, or not start. We aim to further accelerate the growth of revenue from our new categories, reaching £5 billion in 2025. I am pleased to report that £1.4 billion of our revenues came from these products in 2020, representing 15 per cent growth compared to 2019,” said Bowles.
CARIBBEAN SUBSIDIARIES PERFORMANCE MIXED
BAT's Americas and sub-Saharan Africa segment saw revenue grow by one per cent to £4.3 billion with combustible sales growing despite the restrictive measures implemented across the segment. The vapour products in the new categories segment saw sales rise by 53 per cent to £65 million while modern oral fell by 50 per cent to £1 million. However, combustibles and overall cigarette volume declined by four per cent to 149 billion sticks.
BAT's publicly listed Caribbean subsidiaries had varied performances with the Jamaican subsidiary (Carreras) recording a 10 per cent increase in revenue to $4 billion while its Trinidad and Tobago subsidiary (West Indies Tobacco Company [WITCO]) saw revenue decline by four per cent to TT $900 million ($19.6 billion) mainly from the five-week factory closure. Despite these varied results, Carreras recorded a 12 per cent increase in net profit to $2.6 billion for the nine months while WITCO saw its fourth quarter net profit increase by five per cent, but its overall 2020 FY down by two per cent to TT $418.2 million ($9.13 billion). WITCO's exports to Caricom marginally declined with gross profit rising by 20 per cent to TT $14.7 million ($321.5 million).
Carreras' stock price has surpassed its pre-COVID-19 price on the Jamaica Stock Exchange while WITCO's post-split price hasn't recovered fully as yet. Despite BAT's stock price not recovering to pre-COVID-19 levels, it has increased by 14 per cent from its March 2020 low to 2,708 pence (£27.08).
Due to these substantial higher results, Carreras declared its highest dividend of $0.21 ($1.02 billion) with WITCO paying out a TT $0.76 (TT $192.1 million) in the first quarter. BAT paid out 53.9 pence (£1.3 billion) based on the 2020 FY performance.
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