British American Tobacco posts jump in full-year sales led by New Category products

British American Tobacco posted a big increase in full-year sales and profits with the former driven by its New category products and foreign exchange tailwinds.

Chief executive officer Jack Bowles highlighted growth at the NC unit, saying that management was confident in its ability to reach its £5bn revenue target for 2025.

He also said that the company had brought forward its target for profits in its NC products line by one year to 2024.

The company's total revenues jumped by 7.7% in adjusted terms to reach £27.66bn on a constant exchange rate basis or by 2.3% at constant rates.

At the NC unit however, revenues were ahead by 37.0% at constant rates to £2.89bn.

Profits from operations meanwhile rose 4.3% at constant rates or 11.3% in current terms to reach an adjusted £12.41bn, while at the NC unit the red ink was reduced by 61.6% to -£366m.

The adjusted operating margin widened by 150 basis points to 44.9%.

Net debt at period end was up by 7.3% on an adjusted basis to £38.13bn or 2.89 adjusted earnings before interest, taxes, depreciation and amortisation.

The full-year payout was ahead by 6.0% t 230.9p.

As regards the outlook, the macroeconomic backdrop was expected to remain challenging with global tobacco industry volumes seen declining by about 2%.

The company's revenues were seen rising by 3-5% on an organic basis at constant currencies, but impacted on a reported basis by the transfer of its units in Russia and Belarussia.

"Strong" revenue growth was anticipated in NC products, while total adjusted earnings per share growth was pegged at mid-single digits with foreign exchange expected to be broadly neutral on its full-year adjusted EPS growth.

Derren Nathan, head of equity research at Hargreaves Lansdown, said that the company's profit had done well, notwithstanding the 5.1% decline in cigarette sales volumes, thanks to cost saving and pricing.

In his opinion, it was hard to distinguish whether the fall in volumes was because smokers were feeling the squeeze from higher prices or how much came from a drive to be more healthy.

"Another year of 100% cash conversion underpins the 8% dividend yield as well as investment in new categories but we note the statement of intent around debt repayment, with improved balance sheet strength now a priority," he added.

"In the short term we see further approvals of US pre-market tobacco product applications (PMTAs) for new categories as pivotal to investor sentiment."