BAT's 2022 Performance Report: Strong Growth in New Categories

On February 9th, British American Tobacco (BAT) released their 2022 financial report, revealing a total revenue of £27.655 billion, a year-on-year growth of 7.7%, as well as an operating profit of £10.523 billion, a growth of 2.8%. The report indicated that global cigarette growth remained consistent with the previous year, with the US market seeing a 10% increase. Additionally, the new category business, which includes electronic cigarettes, heated tobacco products, and nicotine pouches, generated £2.9 billion in revenue, representing a 40.9% year-on-year increase.

Annual report data | Image source: official websites of Baidu, Alibaba, and Tencent (BAT)

The development of a new category has surged, with a growth of 54.9% in the electronic cigarette business.

A new category sector consisting of e-cigarette products, heated tobacco products, and nicotine pouches contributed £2.9 billion to revenue in 2022, resulting in a 2.3% increase in total revenue.

The electronic cigarette business reached £1.436 billion, experiencing a growth of 54.9%; tobacco heating products accounted for £1.06 billion, a growth of 24.3%; while the chewing tobacco business generated £0.04 billion, with a growth of 45.3%.

New classification of business data | Image source: Official websites of BAT (Baidu, Alibaba, Tencent)

BAT CEO Jack Bowles has stated that the "New Category" division is expected to achieve profitability in 2024, a year earlier than previously anticipated.

According to Jack Bowles, "Our new category business has achieved strong growth in sales, revenue, and market share, and has become a significant contributor to the group's performance. In 2022, we have invested over £2 billion in the new category to drive long-term sustainable growth, while making excellent progress in reducing operating losses by 62%.

BAT forecasts that by 2025, revenue from its "new categories" division will reach £5 billion.

The US market is significantly outperforming with electronic cigarette business growth of over 60%.

In its financial report, BAT divided its primary regions into the United States, Europe (excluding Russia and Belarus), Latin America, Sub-Saharan Africa (AmSSA), and the Asia-Pacific and Middle East regions.

Image Source: Compiled by 2FIRSTS

In the United States market, the revenue for 2022 is projected to be 12.639 billion pounds, representing a year-on-year growth of 8.1%. The new categories of electronic cigarettes, THP, and nicotine pouches are expected to generate 0.949 billion pounds with electronic cigarettes alone contributing 0.913 billion pounds, representing an increase of 62.9%.

Europe's tobacco industry saw a 5.7% increase, valued at £6.346 billion (excluding Russia and Belarus). The new category, consisting of e-cigarettes, tobacco-heating products (THP), and nicotine pouches, accounted for £1.171 billion. E-cigarettes saw a significant increase of 37.9%, with revenues of £286 million. THP accounted for £537 million, and nicotine pouches for £348 million.

The Americas and sub-Saharan Africa (AmSSA) saw a growth of 10.6% to reach 4.203 billion pounds. A new category (electronic cigarettes, THPs, and nicotine pouches) reached 219 million pounds, with electronic cigarettes contributing 218 million pounds and a year-on-year growth of 55.1%.

The Asia-Pacific and Middle East regions earned £4.467 billion, marking a 6.6% growth. In the new category, £555 million was generated, with the e-cigarette business contributing £19 million and experiencing a growth of 4.3%, while the THP business contributed £523 million.

As a result of factors such as the Russian market and the closure of multiple factories, the operating profit margin has decreased by 1.7%.

In 2022, the operating profit of BAT increased by 2.8% year on year to reach 10.523 billion pounds, while the operating profit margin decreased by 1.7% year on year to 38.1%. The reason for this is as follows:

The growth of foreign exchange by 7.6% offset the impact of some one-time projects, thanks to the relative weakness of the pound against BAT's operating currency (especially the US dollar) and reduced losses in a new category.

British American Tobacco (BAT) has decided to divest its business operations in Russia and Belarus. These businesses have been listed as assets for sale, with an estimated recoverable value. However, the value has been reduced by £612 million due to impairment.

The restructuring plan for the group, Quantum, which includes withdrawing from Egypt and closing factories in the United States, Singapore, and Switzerland, has a total cost of £771 million.

The company has been accused of violating Nigeria's Competition and Consumer Protection Act and the National Tobacco Control Act, and is under investigation by the US Department of Justice (DOJ) and the Office of Foreign Assets Control (OFAC) of the US Treasury Department for alleged historical breach of sanctions, with costs amounting to £450 million.

Reference:

New Category Expansion Boosts profitability Through 2024.