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Interim Management Statement For The Nine Months Ended 30 September 2015
British American Tobacco p.l.c.
Incorporated in England and Wales
(Registration number: 03407696)
Short name: BATS
Share code: BTI
ISIN number: GB0002875804
("British American Tobacco p.l.c." or "the Company")
BRITISH AMERICAN TOBACCO p.l.c.
INTERIM MANAGEMENT STATEMENT FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2015
ON TRACK FOR A GOOD YEAR
- Year to date revenue grew by 4.2% at constant rates of exchange
- Year to date revenue declined by 6.5 % at current rates of exchange
- Year to date cigarette volume from subsidiaries decreased by 1.8% to 487 billion
-
1 2
Cigarette market share in Key Markets increased by 40 bps year to date
- Global Drive Brands cigarette volume grew by 7.2% in the year to date
- Successful tender offer for Souza Cruz minorities and completion of acquisition of TDR in Croatia
Nicandro Durante, Chief Executive, commented: “The Group continues to perform very well, with a strong
third quarter. Our excellent market share growth was driven by the exceptional performance of our Global
Drive Brands whilst the increase in revenue, at constant rates of exchange, was due to strong pricing in the
majority of our markets. Performance will moderate in the final quarter partly due to a strong comparator and
the impact of the deterioration in exchange rates. There will be increased marketing investment and
geographic expansion of next generation products in Q4, however I remain confident that we are on track to
deliver another year of good earnings growth at constant rates of exchange.”
SUMMARY OF PERFORMANCE
The following provides a summary of the Group’s revenue, volume and market share, for the nine months
ended 30 September 2015.
Revenue
Group revenue for the nine months, at constant rates of exchange, grew by 4.2%. This was driven by continued
strong pricing, partially offset by negative geographic mix, growth in the low price segment in some Key
Markets and a difficult pricing environment in Australia. Excellent price mix of 6.0% for the year to date, at
constant rates of exchange, is driven by a very strong third quarter, and is expected to moderate in the
remainder of the year, partly due to a strong Q4 comparator. Significant movements in many of the Group’s
key trading currencies resulted in a 6.5% decline in reported revenue.
Volume and Market Share
The Group performed very well during the first nine months of the year. Volume was up in the third quarter by
0.4%. Volume for the nine months of 487 billion was down by 1.8% on 2014, a lower rate than the overall
market decline. Growth in many markets, including Turkey, Bangladesh, Iran, Kazakhstan, Denmark and
Mexico was more than offset by lower volume in Brazil, Russia, Egypt, Vietnam, and Italy.
Market share grew strongly, up 40 bps, notably in South Korea, Indonesia, Japan, Russia, Malaysia, Australia,
Ukraine, Pakistan, Turkey, France and the UK, underpinned by the excellent performance of the Global Drive
Brands, which grew market share by 100 bps.
1
Key Market offtake share, as independently measured by AC Nielsen
2
The Group’s Key Markets represent over 75% of the Group’s cigarette volume
The five Global Drive Brands grew volume by 7.2% in the nine months, with the third quarter higher by 9.5%.
Dunhill’s volume increased by 4.7% in the year to date, driven by a 20 bps increase in market share, with
higher volume in Indonesia, Brazil, South Africa and Hungary partially offset by South Korea and Malaysia.
Kent’s market share was marginally higher, with volume up by 2.4% in the nine months as the performance in
Iran, Turkey and Japan, more than offset lower volume in Russia.
Lucky Strike’s volume grew by 3.4% in the nine months, with increases in Belgium, France and Mexico more
than offsetting decreases in Russia and Spain, and an increase in market share of 10 bps. Pall Mall market
share was higher by 10 bps, with the nine month volume marginally lower as growth in Poland, Mexico,
Canada and Pakistan was offset by the effect of the brand migration to Rothmans in Italy. Rothmans market
share was higher by over 50 bps as volume grew by 43.2% in the year to date with strong performances in
Russia, Turkey, Ukraine, Italy, Kazakhstan, Australia, Algeria and the UK.
The segmental analysis of the volume of subsidiaries was as follows (cigarettes and cigarette equivalents):
3 months to 3 months to Variance 9 months to 9 months to Variance Year to
30.09.15 30.09.14 30.09.15 30.09.14 31.12.14
bns bns % change bns bns % change bns
Asia-Pacific 45 47 -2.7% 148 150 -1.3% 197
Americas 30 32 -6.5% 91 95 -5.1% 131
Western Europe 30 29 +1.0% 81 82 -0.7% 112
EEMEA 60 56 +6.4% 167 168 -0.8% 227
Total cigarette volume 165 164 +0.4% 487 495 -1.8% 667
Total tobacco volume 171 171 +0.0% 505 515 -2.0% 694
Trading Environment
The trading environment remains challenging due to the slower than expected recovery in the global
economy, continued pressure on consumer disposable income worldwide and significant currency headwinds.
If exchange rates stay the same for the remainder of the year the Group would have adverse transactional and
translational foreign exchange rate impacts to operating profit of approximately 6% and 12% respectively.
Industry volume decline was in line with prior year, despite the continued impact of excise driven price
increases in high volume markets. Pricing conditions are improving globally despite certain markets, notably
Australia, remaining challenging.
SHARE BUY-BACK PROGRAMME
The Group suspended, with effect from 30 July 2014, its approved on-market share buy-back programme with
a value of up to £1.5 billion. This was a result of the Group’s announcement on 15 July 2014 that it planned to
invest US$4.7 billion as part of Reynolds American’s proposed acquisition of Lorillard.
During the seven months to 30 July 2014, 23.1 million shares were bought at a cost of £795.2 million, excluding
transaction costs.
PUBLIC TENDER OFFER FOR SOUZA CRUZ
On 16 October 2015, the Group announced that it had concluded the auction related to the public tender offer
to acquire up to all of the 24.7% of Souza Cruz shares not currently owned by the Group and to delist the
company.
As a result of the auction, the Group will acquire 342,956,819 shares at a price of R$27.20 per share (the Offer
Price), representing 22.4% of Souza Cruz. The Group’s total ownership of Souza Cruz will therefore increase to
97.7%. At the Offer Price, the value of the 24.7% free float was approximately £1.7 billion.
Given the level of acceptance at the auction, Souza Cruz will now take the necessary steps to cancel its
registration as a publicly listed company. In addition, as the Group now owns over 95% of Souza Cruz a process
will be commenced to compulsorily purchase the remaining minority shares, upon which Souza Cruz will
become a wholly owned subsidiary. This is anticipated to be completed by the end of the year.
ACQUISITION OF TDR d.o.o
On 30 September 2015, the Group completed its previously announced acquisition of TDR d.o.o. and other
tobacco and retail assets (TDR) from Adris Grupa d.d. (Adris) for a total enterprise value of €550 million.
IMPERIAL TOBACCO CANADA – QUEBEC CLASS ACTION
Following the cancellation of the Order for Provisional Execution in the Quebec class action litigation on 23 July
2015, the Plaintiffs filed a motion against Imperial Tobacco Canada (ITCAN) and the Canadian subsidiaries of
Philip Morris International (PMI) and Japan Tobacco International (JTI) seeking Security in the amount of CAD
$5bn to guarantee, in whole or in part, the payment of costs of the appeal and the judgement. Following a
hearing on 6 October 2015 the Quebec Court of Appeal granted, on 27 October 2015, the Order for Security in
the amount of CAD $984 million, of which ITCAN’s share is CAD $758 million. ITCAN believes the Order for
Security is unprecedented and unjustified and intends to review its options to apply for leave to appeal this
decision to the Supreme Court of Canada and to seek, in the interim, a Stay of the Order.
INVESTMENT IN NEXT GENERATION PRODUCTS
On 22 September 2015, the Group announced the conditional agreement to acquire 100% of the CHIC Group
(subject to approval from the Polish anti-trust authority, the Office of Competition and Consumer Protection).
The acquisition of CHIC provides the Group with scale and market reach, via 800 points of sale in Poland, a
number of leading Polish e-cigarette brands, a dedicated e-liquids production facility and a modern research
and development centre.
The Group also announced the agreement of a vapour products technology-sharing term sheet with R.J.
Reynolds Tobacco Company (RJRTC), a subsidiary of the Group’s associate Reynolds American Inc. This will
provide a framework for collaboration and mutual cross-licensing of the parties’ vapour product technologies
up to 31 December 2022.
FINANCIAL POSITION
The Group has sufficient financing and facilities available for the foreseeable future.
The changes in the financing arrangements of the Group since the date of the announcement of the Half-Year
Report 2015, include the partial cancellation in September of a one-year bridge facility of £2.5 billion. This
facility is in respect of the potential tender offer to acquire up to all of the 24.7% of Souza Cruz shares which
are not currently owned by BAT, which was launched in October. The limit was reduced to £2 billion, reflecting
the devaluation of the Brazilian Real against sterling since the facility was signed.
In July 2015, the Group received £620 million from HM Revenue & Customs in connection with the Franked
Investment Income Group Litigation Order. The case concerns the treatment for UK corporate tax purposes of
profits earned overseas and distributed to the UK between 1973 and 1999. As the funds must be returned in
the event that the litigation is ultimately unsuccessful, they will be treated as deferred income until the final
outcome is known.
There have been no material events, transactions or changes in the financial position of the Group since the
Half-Year Report to 30 June 2015, other than as outlined in this statement. Further, the Board is not aware of
any material events, transactions or changes in the financial position of the Group which have occurred up to
and including 27 October 2015, being the latest practicable date before the date of the publication of this
Interim Management Statement.
On behalf of the Board
Nicola Snook
Secretary
27 October 2015
NOTES AND ADDITIONAL INFORMATION
British American Tobacco is the world's second largest quoted tobacco group by global market share, with
brands sold in more than 200 markets. We have five Global Drive Brands – Dunhill, Kent, Lucky Strike, Pall Mall
and Rothmans – and over 200 brands in our portfolio. We hold robust market positions in each of our regions
and have leadership positions in more than 60 markets.
Disclaimers
This Interim Management Statement (IMS) relates to the nine months ended 30 September 2015 and contains
information that covers the nine months and the period since the third quarter end to 27 October 2015, being
the latest practicable date before the date of the publication of this IMS.
This announcement does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or
dispose of any British American Tobacco p.l.c. shares or other securities.
This IMS contains certain forward looking statements which are subject to risk factors associated with, among
other things, the economic and business circumstances occurring from time to time in the countries and
markets in which the Group operates. It is believed that the expectations reflected in this announcement are
reasonable but they may be affected by a wide range of variables which could cause actual results to differ
materially from those currently anticipated.
Past performance is no guide to future performance and persons needing advice should consult an
independent financial adviser.
Distribution of this Interim Management Statement (IMS)
The IMS is released to the London Stock Exchange and the JSE Limited. It may be viewed and downloaded from
our website, www.bat.com
Copies of the IMS may also be obtained during normal business hours from: (1) the Company’s registered
office; (2) the Company’s representative office in South Africa; and (3) British American Tobacco Publications,
details of which are given below.
FINANCIAL CALENDAR 2016
25 February Preliminary Statement
27 April Annual General Meeting and Interim Management Statement
28 July Half-Year Report
26 October Interim Management Statement
CORPORATE INFORMATION
British American Tobacco p.l.c. is a public limited company which is listed on the London Stock Exchange and
the JSE Limited in South Africa. British American Tobacco p.l.c. is incorporated in England and Wales (No.
3407696) and domiciled in the UK.
British American Tobacco p.l.c. British American Tobacco p.l.c.
Registered office Representative office in South Africa
Globe House 34 Alexander Street
4 Temple Place Stellenbosch
London 7600
WC2R 2PG South Africa
tel: +44 20 7845 1000 (PO Box 631, Cape Town 8000, South Africa)
tel: +27 21 888 3194
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Publications
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Unit 80, London Industrial Park, Roding Road, London E6 6LS, UK
tel: +44 20 7511 7797; facsimile: +44 20 7540 4326
e-mail enquiries: bat@team365.co.uk or the Company’s Representative office in South Africa using the contact
details shown above.
ENQUIRIES:
INVESTOR RELATIONS: PRESS OFFICE:
Mike Nightingale 020 7845 1180 Will Hill / 020 7845 2888
Rachael Brierley 020 7845 1519 Anna Vickerstaff
Sabina Marshman 020 7845 1781
28 October 2015
Sponsor: UBS South Africa (Pty) Ltd
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