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British American Tobacco Reports Pretax Loss for 2023

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Andrew R. Michaud

• February 08, 2024

British American Tobacco (BAT) has announced that it incurred a pretax loss for 2023, primarily due to a write-down of its U.S. cigarette brands. Despite this setback, BAT remains confident in its growth projections for 2024.

Financial Overview

The FTSE 100 tobacco company, known for its popular brands such as Kent, Dunhill, and Lucky Strike, reported a pretax loss of £17.06 billion ($21.54 billion) for 2023. This marks a significant decline from the previous year when BAT recorded a profit of £9.32 billion. The loss can be attributed to an impairment amounting to £27.6 billion, with most of it (approximately £27.3 billion) linked to declining performance of its traditional cigarette brands in the U.S. As BAT continues to shift its focus towards smokeless products, it is facing increasing pressure on its conventional cigarette portfolio in this market.

Setbacks in the U.S.

In early December, BAT acknowledged that its performance in the U.S. had been adversely affected by smokers switching to cheaper, nonpremium brands and an increase in the use of illegal disposable vapes. As a result, the company made the difficult decision to write down several major brands including Newport, Pall Mall, Camel, and Natural American Spirit.

Adjusted Profit from Operations

Despite the challenges faced, BAT managed to achieve an adjusted profit from operations of £12.465 billion in 2023, a slight increase from £12.41 billion in the previous year. However, this figure falls slightly below the company's own forecast of £12.595 billion for adjusted operating profit.

New Categories Revenue

BAT saw growth in its new categories revenue, which rose to £3.35 billion from £2.89 billion. Nevertheless, this fell short of the company's forecast of £3.46 billion, as per the consensus provided by the company.

In summary, despite incurring a pretax loss for 2023 driven by write-downs on its U.S. cigarette brands, BAT remains optimistic about its growth prospects for 2024. The company continues to navigate the evolving tobacco landscape and focus on expanding its smokeless product offerings.

Revenue Performance and Plans for Divestment

In the financial year under review, the company recorded revenue of GBP27.28 billion, which was slightly lower than the previous year's GBP27.66 billion. The decline in revenue can be attributed to various factors, including the sale of businesses in Russia and Belarus, foreign-exchange pressures, and a decrease in cigarette volumes. However, this was partially offset by increased revenue from new categories. The company had initially forecasted revenue to be GBP27.60 billion, as indicated by consensus data.

Additionally, the company announced its plans to divest a portion of its stake in ITC, a diversified Indian conglomerate. This shareholding has been held in some form since the early 1900s and represents approximately 29.02% ownership. Chief Executive Tadeu Marroco stated that the regulatory processes required for this divestment are being actively pursued. However, no specific timeline was provided at this time.

Outlook for the Tobacco Industry and Company Strategy

BAT expects the global tobacco industry volume to decline by approximately 3% in 2024. Despite this challenging outlook, the company stands firm in its previous guidance for low single-digit organic revenue growth and adjusted operating profit growth for the fiscal year.

Looking ahead, BAT has delineated its strategic initiatives moving forward. In 2024, it plans to prioritize investment in strengthening its U.S. business, fostering innovation, and enhancing its capabilities. These investments are anticipated to impact the company's performance in the second half of the year. Subsequently, BAT aims to achieve organic revenue growth between 3-5% and mid-single-digit adjusted organic profit from operations growth by 2026 on a constant currency basis. Throughout this period, the company remains committed to providing strong cash returns to its shareholders.

Dividend Declaration

The board has declared a dividend of 235.52 pence per share, demonstrating an increase from the previous dividend of 230.9 pence.