British American Tobacco (BAT) reported higher first-half revenue and profit for the period ending 30 June 2017, driven by strong price mix, contributions from its Next Generation Products (NGP) business, and acquisitions. Revenue rose 15.7% to £X (or 2.5% at constant rates), while adjusted profit from operations increased 16.3% (3.2% at constant rates). The company highlighted good strategic momentum, with cigarette market share in key markets up 30 basis points, driven by Global Drive Brands (up 50 bps). Group cigarette volume fell 5.6%, but excluding inventory movements in Pakistan, the decline was 2.6%, with GDB volume up 2.6%.
Expansion of Next Generation Products BAT reported good progress in its NGP business, now present in 15 markets worldwide with vapour products and heated tobacco (THP). In the Japanese city of Sendai, glo continues to perform exceptionally well, reaching an estimated 8% share, with one in three smokers having purchased the product. Coverage has expanded to Tokyo, Miyagi, and Osaka, with a national rollout planned for October 2017. Initial results in Tokyo are ahead of Sendai over the same period. BAT is also present in Canada (Vancouver) and nationally in Switzerland, with encouraging early signs. To support glo expansion and meet increasing demand, investment in Neostik production capacity is taking place in South Korea and Russia.
Vapour Market Leadership BAT claims to be the largest vapour company in the world, with market leadership in the US through Vuse, and in Poland and the UK, driven by Vype and Ten Motives. Vype is now present in 10 markets, and while still immaterial in the group context, European vapour turnover grew strongly against the same period last year.
Acquisition of Reynolds American BAT completed the acquisition of the remaining balance of Reynolds American shares on 25 July 2017. Integration is underway, with work already begun to realise projected cost synergies. The acquisition creates a stronger global tobacco and NGP company with a balanced presence in high-growth emerging markets and high-profitability developed markets, including direct access to the attractive US market.
Outlook BAT expects profit growth to be weighted to the second half of the year, moderated by continued NGP rollout and a strong prior-year comparator in Ukraine. Despite a challenging environment in several markets, including Russia, the company remains confident of delivering another year of good earnings growth at constant rates of exchange.
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