British American Tobacco Releases 1H22 Report with 5.7% Revenue Growth

Tobacco companies British American Tobacco and Imperial Brands have released their half-year financial reports for 2022. BAT reported a revenue of £12.869 billion, a 5.7% increase from the previous year, and an operating profit of £5.645 billion, representing a year-on-year growth of 7.8%. The adjusted operating profit margin also rose by 0.9% to 43.9%. Meanwhile, Imperial Brands' new tobacco sector saw a revenue increase of 45.4% to £1.283 billion, although the sector still experienced a loss of £222 million, which was an improvement from the previous year's loss of 56.1%.

New tobacco categories have driven rapid growth and accelerated profit improvement. In the first half of 2022, the new tobacco category of British American Tobacco generated a revenue of £1.283 billion, a year-on-year increase of 45.4% and a 45% increase at a fixed exchange rate. This category accounts for approximately 10% of the company's total revenue. As of the first half of 2022, the number of users of this category reached 20.4 million, an increase of 2.1 million from the previous year. Looking at each category, electronic cigarettes generated a revenue of £617 million in the first half of 2022, a year-on-year increase of 55.2% and a fixed exchange rate increase of 48.2%. The sales volume of electronic pods reached 2.92 billion units (10ml/unit), an increase of 18.6% from the previous year. Excluding disposable products, the company's electronic cigarettes accounted for 34.7% of the sales market in the world's top five markets (US, UK, France, Germany, and Canada) in FY21, an increase of 1.2 percentage points. THP (heated not burned) generated a revenue of £497 million in the first half of 2022, a year-on-year increase of 38.6% and a fixed exchange rate increase of 44.2%. The sales volume of heated cigarettes reached 11 billion, an increase of 30.4% from the previous year. The company's market share in the top nine markets in the world (Japan, Korea, and European countries) increased by 1.6 percentage points to 19.6% in FY21.

British tobacco company, Imperial Brands, had a revenue of £169 million in the first half of 2022, marking a year-on-year growth of 34.2%, or 37% under fixed exchange rates. Its sales volume reached 1.77 billion packs, indicating a 10.1% increase from the previous year. Its Velo brand experienced a 0.5% decline in its market share by volume in the US, dropping to 6.7%, which was primarily attributed to the company's decreased brand promotion spending. However, the brand maintained its leading position in major Nordic countries in Europe. In terms of operating profit, the company's new tobacco segment reduced its losses by £100 million in fiscal year 2021. In 1H22, this segment achieved an operating loss of £222 million, which was a significant improvement compared to the loss of £281 million in the same period last year. The company continued to invest heavily in this segment, pumping £1.1 billion into it in the first half of 2022, compared to £496 million in the entire fiscal year 2021.

The unit price of electronic cigarettes in the United States has significantly increased, driving the release of operating profits, and the new disposable product VuseGo has achieved impressive results in the UK. Electronic cigarette sales are divided by region. In the US, revenue for 1H22 was £402 million, a year-on-year increase of 71.1%, or 59.9% at fixed exchange rates. Pod sales volume was 166 million, up 19.4% year-on-year, and pod unit prices increased by approximately 34% year-on-year at fixed exchange rates, mainly due to the company reducing product sales discounts and strong brand support for pricing. The cost of Vuse has been reduced by 17% due to automated production, and the customer acquisition cost of the product has improved by 35%. As of May 2022, Vuse had an annualized market share in the US based on sales of 36.3%, a year-on-year increase of 3.8pct mainly driven by Vuse alto products. At present, three products in the company's Vuse series have passed PMTA inspections. The company believes that relying on the same technology platform as the approved products, Vuse alto is expected to pass PMTA in the future. In Europe, revenue for 1H22 was £110 million, a year-on-year increase of 9.6%, or 11.7% at fixed exchange rates. Pod sales volume was 84 million, up 8.7% year-on-year. Due to the popularity of disposable products in Europe, the company's market share in countries such as the UK, France, and Germany has declined somewhat. In May 2022, the company launched the disposable product Vuse Go in the UK for the first time. Disposable products account for approximately 60% of sales in the UK electronic cigarette industry. As of the interim report, the company ranked third in the UK market and was rapidly approaching the second-place position. The company will accelerate promotion in other European countries in the second half of the year.

THP products experience high demand in the European market, with the release of their new product, Hyper X2, in Japan. THP sales are segmented by region, with Europe bringing in £262 million in revenue during 1H22, an 83.5% YoY increase, and an 87.5% YoY increase at a fixed exchange rate. Sales of heated tobacco products reached 6.2 billion units, a 42.6% YoY increase, with the rapid growth in Europe driven mainly by the Glo Hyper product. The Asia-Pacific and Middle East region saw a revenue of £235 million in 1H22, a 9% YoY increase, and a 15.6% YoY increase at a fixed exchange rate, with sales of heated tobacco products reaching 4.8 billion units, a 17.3% YoY increase. As of May 2022, Glo's annualized market share by sales volume in Japan was at 7.4%, a 0.6% increase from FY21. In July 2022, the company launched Hyper X2 in the Japanese market, with significant improvements in performance compared to the previous generation product X2. The company plans to continue strengthening its sales and marketing efforts in the second half of the year.

Risk factors include regulatory risks, global macroeconomic risks, and the risk of a significant increase in raw material costs.

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