British American Tobacco : Preliminary announcement - year ended 31 December 2017

Transformational deal marks a record year

Key financials

Full year highlights

• Successfully completed the acquisition of Reynolds American Inc. (RAI/Reynolds American) on 25 July 2017 for a total consideration of £41.8 billion in a combination of cash and ordinary shares to become the world's leading international tobacco and Next Generation Products (NGP) business.
• Continued roll-out and investment in the development of NGPs, with the national roll-out in Japan of our tobacco heating product (THP), glo achieving 3.6% national share as well as launches in five new markets combined with the continued growth of our vapour portfolio.
• Volume of cigarettes and THPs grew by 3.2%, driven by the acquisition of RAI, and fell on an organic basis by 2.6%, outperforming the market which declined by an estimated 3.5%.
• The Group's cigarette market share grew 40 basis points (bps), driven by the Global Drive Brand (GDB) portfolio, with volume up 7.6% on an organic basis with market share up, excluding the US, by 110 bps.
• Group revenue grew 37.6%, with profit from operations up 39.1%, due to the acquisition of RAI, improved revenue from the NGP portfolio, pricing and a translational foreign exchange tailwind due to the relative weakness of sterling.
• Adjusted, organic revenue grew 6.5% or 2.9% at constant rates of exchange, driven by pricing and the performance of NGP.
• Adjusted, organic profit from operations at current rates was up 7.8% or 3.7% at constant rates.
• Operating margin, at current rates, was ahead of 2016 by 30 bps at 31.9%, by 270 bps on an adjusted basis, or 40 bps on an adjusted organic basis.
• Diluted earnings per share increased by over 600% largely due to a gain of £23.3 billion related to the acquisition of RAI (see page 12 of the full announcement) and a deferred tax credit of £9.6 billion from the revaluation of the net deferred tax liability arising on the acquisition net assets to the 21% federal tax rate in the US (described on page 11 of the full announcement). On an adjusted basis the increase was 14.9%, or 9.9% on an adjusted, constant rate basis.
• Dividend per share increased 15.2% to 195.2p, payable in four quarterly dividend payments of 48.8p per share. An additional dividend of 43.6p was also paid in February 2018 - see page 35 of the full announcement.

Richard Burrows, Chairman, commenting on the year ended 31 December 2017

'The transformational deal to acquire RAI marked a record year in 2017. The Group continued to deliver on its commitment to high single figure constant currency earnings growth, substantially reinforced the long-term sustainability of that growth with the largest acquisition of a tobacco company ever completed and achieved significant success in its Next Generation Products business. This is an exciting time for the Group and the Board has confidence in the Group's ability to continue delivering sustainable growth in the years to come.'

Preliminary Announcement - year ended 31 December 2017 (1.3 mb)