Friday, February 11, 2022

British American Tobacco - 2021 Results ($BTI)

British American Tobacco (BTI, previously) reported results and gave a presentation today. Highlights:

  • We accelerated constant currency New Category revenue growth to over 50%. We reduced New Category losses for the first time, with circa £100 million improvement in profitability. And with continued strong cash conversion, we reduced leverage to below 3 times. As we said, this has given us the financial flexibility to be more active in our capital allocation - to deliver sustainable long-term value for shareholders. As a first step in our new capital allocation framework - while maintaining a growing dividend - we have announced a £2billion share buyback for 2022.
  • Vuse is the number one global vaping brand, with a value share of 34%. I am particularly pleased that in the US, Vuse delivered strong revenue and share growth - and in the second half of 2021 became profitable at the category contribution level for the first time.
  • I am delighted with the performance of our New Category brands, with each of them growing revenue by more than 40% in 2021.
  • With our continued focus on cash, we expect to generate around £40 billion of cumulative free cash flow over the next 5 years - representing more than half of our current market capitalisation.
  • In October, Vuse Solo received the first of its kind PMTA authorisation - confirming that the marketing of original flavour Vuse Solo products is appropriate for the protection of public health.
    This approval gives us further confidence in our other PMTA applications, which share the same foundational science.
  • We reduced leverage to just below 3 times and have a strong balance sheet, with a very manageable maturity profile with 90% of our debt fixed, an average maturity of 10 years and close currency matching, and maximum annual debt maturities no higher than £4billion.
  • Over the next 5 years, we are on track to generate around £40 billion of free cash flow before dividends. With strong profitability, cash conversion in excess of 90%, and leverage within our 2-3 times net debt / EBITDA corridor we now have the flexibility to be more active in our capital allocation - to deliver longterm value for shareholders. This will include: Continuing to grow the dividend, and maintaining leverage within our target corridor of 2-3 times adjusted Net Debt / adjusted EBITDA. Whilst also considering potential bolt-on M&A opportunities, and share buybacks to enhance shareholder returns.
  • Group cigarette volume was largely in line with 2020 at 637 billion sticks (2020: 638 billion sticks).

Very impressive that they are projecting $54 billion (USD) of free cash flow over the next five years, or almost $11 billion per year. As they say, that would be 51 percent of the current market capitalization, which is $106 billion at a $46 share price. So that means that BTI can probably return north of 10% to shareholders via dividends and buybacks, which is in line with our pipelines and oil sands.

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