British American Tobacco p.l.c. (NYSE:BTI) Q4 2023 Earnings Call Transcript
British American Tobacco p.l.c. (NYSE:BTI) Q4 2023 Earnings Call Transcript February 8, 2024
British American Tobacco p.l.c. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Tadeu Marroco: Good morning, everyone. I'm delighted to welcome you to our 2023 Preliminary Results Presentation. With me this morning is [Technical Difficulty] Finance Director and Victoria Buxton, Group Head of Investor Relations. I will begin with our financial highlights and the progress we have made against our key areas of focus this year. Javed will then take you through our financial performance in more detail. I will return to talk more about our glidepath to Building a Smokeless World, before we move to the Q&A session. With that, I would like to draw your attention to the disclaimers on Slides 2 and 3. So let's begin with our 2023 performance. Our reported results reflect the impact of the non-cash impairment charge taken mainly against our acquired U.S. brands.
We will focus on constant currency adjusted results, unless otherwise stated. I am pleased that BAT has delivered a resilient performance, in line with our guidance, reflecting the benefit of our global multi-category strategy. The breadth and scale of our global footprint, enables us to consistently deliver balanced results. This is demonstrated by our strong performances in AME and APMEA, delivering combined double-digit revenue growth offsetting the U.S. Overall, we have delivered, organic revenue up 3.1%, which excludes Russia and Belarus from both periods. Profit from operations up 3.1%, or 3.9% organically and diluted EPS up 4%, with organic growth up 5.2%. I am particularly pleased with our performance in new categories, with revenue up nearly 18%, and 21% organically, with Vuse and Velo delivering strong volume led revenue growth.
Our consumer numbers reached 23.9 million, excluding 1.5 million consumers in Russia. We added over 3 million consumers year-on-year with 1.1 million in Q4 alone. At the half year, I shared a clear set of objectives to sharpen our execution and build a more modern and agile BAT. Over the last six months, working together with our broader teams, we have made good progress across these six areas of focus. I will now share some of the highlights. First, I am delighted that we have reached new category profitability two years ahead of our original target. This has been achieved, while continuing to invest an incremental 300 million pounds in 2023 for future growth. Our new categories are meaningfully contributing to group results, as we benefit from increased scale, with strong profitability gains driven by Vuse and Velo.
We have sequentially improved our new category contribution from a peak loss of £1.1 billion in 2020, to a small profit position in 2023, reflecting a £400 million improvement last year. It's important to note that while we expect new category profitability to continue to improve each year, due to the phasing of investments, the improvement in contribution year-on-year will not be linear. We made strong progress in our top 10 new category markets, which generated about three quarters of our new category revenue in 2023, with category contribution margin now above 20%. The performance of these markets demonstrates that revenue continues to grow at pace. Gross and contribution margins are expanding strongly with scale; and absolute margin levels are moving closer to the level of our Combustibles business.
This profitability at scale give us confidence in our direction of travel as we expand our new category footprint. And it also provides a clear line of sight for our pathway to profitability in less established markets moving forward. Our second focus area has been to return our U.S. Combustibles business to consistent value growth. Our commercial plans are already starting to deliver early signs of volume and value share recovery. Our volume share is up 40 basis points since January, driven by a 160 basis points increase in the premium segment. In addition, we are delivering value share gains, up 20 basis points since January driven by a 60 basis point increase in our premium share, to reach our highest level in three years, driven by Newport and Natural American Spirit.
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