British American Tobacco has reported a jump in half-yearly profit, supported by higher cigarette prices and fast-growing demand for tobacco alternatives.
With traditional smoking on the decline, BAT has been investing in next generation products like heated tobacco and vapes to sustain growth.
That, coupled with cigarette price hikes and a resumption of international travel helping duty-free trade, benefited the company.
Half-Year Profit
BAT's profit from operations on a reported basis was up 61.4% at £5.94 billion (€6.92 billion) for the six months ended June 30.
In the same period last year, the company had taken a £957 million (€1.11 billion) impairment charge related to the transfer of its Russian business.
First-half revenue at the business rose 4.4% to £13.44 billion (€15.66 billion).
'Resilient Performance'
"I’m pleased with the resilient performance of BAT in the first half of 2023 and the renewed sense of energy across the organisation," commented recently-appointed chief executive Tadeu Marroco.
"It is a challenging external environment. High inflation and slower global growth are impacting consumers and business. Yet our revenue, profit from operations and earnings are all up."
BAT said that revenue from non-combustible categories now accounts for 16.6% of total group revenue, a 180-basis-point rise on the previous year, while its Vuse and Velo brands put in a 'strong revenue performance'.
"I remain confident that New Categories will deliver a positive contribution in 2024," Marroco added. "However, we do not expect contribution growth to be linear, as levels of investment will align with the phasing of our big innovation platforms."
The company's full-year guidance remains unchanged.
Analyst Comment
Commenting on BAT's performance, Roberto Rivero, Market Analyst at Admirals said, "As expected, revenue and profit have increased year on year in what are another positive set of results for British American Tobacco.
"Whilst smoking is in long-term decline, the addictive nature of cigarettes affords tobacco companies a high degree of pricing power, allowing them to offset falling consumption by raising prices. This mechanism works similarly well in a high inflationary environment, as British American Tobacco have made clear in the first half of 2023. Higher pricing has not only helped preserve its already high profit margin, but modestly increased it.
"Investors will be particularly encouraged by the continued revenue growth emanating from next generation products. Although this division is still loss making, its losses are significantly shallower than last year. As smoking continues to decline, the future success of tobacco companies will begin to increasingly depend on this newer source of income".
Additional reporting by ESM
