British American Tobacco (BATS)

[77ss]

......
A £25 billion write down just might not have helped...

But what has actually changed about the business? Are we not just seeing a formal recognition of existing trends?

£25bn is huge, but amortised over 30 years.....

This accounting adjustment mainly relates to some of our acquired U.S. combustibles brands, as we now assess their carrying value and useful economic lives over an estimated period of 30 years. Accordingly, we will commence amortisation of the remaining value of our U.S. combustibles brands from January 2024.

[Dod101]

......
A £25 billion write down just might not have helped...

But what has actually changed about the business? Are we not just seeing a formal recognition of existing trends?

£25bn is huge, but amortised over 30 years.....

This accounting adjustment mainly relates to some of our acquired U.S. combustibles brands, as we now assess their carrying value and useful economic lives over an estimated period of 30 years. Accordingly, we will commence amortisation of the remaining value of our U.S. combustibles brands from January 2024.

Absolutely so but what has changed is that the BATS management has decided that now is the time to remove some of the kidology that has been going on re carrying goodwill. A circa £25 billion write down is huge even by the standards of BAT so no wonder the share price has suffered. Obviously we can expect to see more of that as time goes by, probably from both the UK tobacco firms, accompanied as they hint, probably by share buybacks. In other words, managed decline. That is the sort of business that only truly dedicated income seekers should hold. That does not include me.

Dod

[Dod101]

Meanwhile Imperial Brands is down only just over 1%.

Dod

[Dod101]

I must say that I think the tobacco shares really ought to be the subject of a study. On the one hand there seems little likelihood of the dividend being cut and the metrics there are amazing. More or less 100% conversion of reported profits to cash, and development costs fairly limited so lots of spare cash to pay off debt, buyback shares etc, at least in the not too distant future.

Other side of the coin is the realisation that carrying goodwill on acquired brands for ever is unrealistic given that traditional cigarettes almost certainly have a limited life as a profitable commodity. Hence the huge write off and the then ongoing write off over the next 30 years. I would imagine that might even be accelerated. At least these write offs do not involve cash but do involve the perceived asset value of the business and hence the share price. All of which throws up very high dividend yields. Just what HYPers are looking for. I suppose the question is for how long and at what cost?

I wonder if there are previous examples of a profitable industry in decline and how it worked out? For someone like me, well into retirement and living off dividends it seems like a no brainer if I do not care about the capital. I do though and am likely to eschew these great dividends but before I start reducing my exposure I would be interested in other views on the matter.

Dod

[Tedx]

I think big baccy will see a big round of M&A activity. I mean there must be massive scope for efficiencies and reducing duplicates.

In the end, there will be only one.

[simoan]

I must say that I think the tobacco shares really ought to be the subject of a study. On the one hand there seems little likelihood of the dividend being cut and the metrics there are amazing. More or less 100% conversion of reported profits to cash, and development costs fairly limited so lots of spare cash to pay off debt, buyback shares etc, at least in the not too distant future.

Other side of the coin is the realisation that carrying goodwill on acquired brands for ever is unrealistic given that traditional cigarettes almost certainly have a limited life as a profitable commodity. Hence the huge write off and the then ongoing write off over the next 30 years. I would imagine that might even be accelerated. At least these write offs do not involve cash but do involve the perceived asset value of the business and hence the share price. All of which throws up very high dividend yields. Just what HYPers are looking for. I suppose the question is for how long and at what cost?

I wonder if there are previous examples of a profitable industry in decline and how it worked out? For someone like me, well into retirement and living off dividends it seems like a no brainer if I do not care about the capital. I do though and am likely to eschew these great dividends but before I start reducing my exposure I would be interested in other views on the matter.

Dod

The obvious example is the newspaper industry. Look at the cashflow and dividends paid out by Reach Plc in the past 5 or 6 years. Much less geared balance sheet though. Usually when a dividend yield hits 10% that's a warning sign, but as long as the debt is well managed, I don't see a problem for BATS at least maintaining that level of payment given the amount of free cash they generate.

[Dod101]

Another relevant item I picked up this morning. One of BAT's biggest shareholders, owner of about 9% of the shares, has apparently increased his stake to about 10% since the big fall in the price last week. He also owns about 6.2% in Imperial Brands. Spring Mountain Investments the investment vehicle of Kenneth Dart is the shareholder.

Dod

[idpickering]

BAT and PMI Announce Global Patent Settlement

BAT is pleased to announce that it has reached a global settlement with Philip Morris International Inc (PMI) that resolves all ongoing patent infringement litigation between the parties related to our heated tobacco and vapour products.

Patent protection is a critical component of the innovation driving BAT's strategies and the company welcomes this settlement as the best path forward for its business plans.

The settlement includes non-monetary provisions between BAT and PMI that resolve all ongoing global patent infringement litigation, encompassing all related injunctions and exclusion orders, and prevents future claims against current heated tobacco and vapour products. The settlement also allows each party to innovate and introduce product iterations. BAT is committed to continued innovation in reduced risk products to further advance Tobacco Harm Reduction.

https://www.investegate.co.uk/announcem ... t-/8020176

Ian (I hold BATS).

[idpickering]

Final Results

Summary

- Revenue down 1.3%, up 3.1% on an organic basis (at constant rates), driven by New Categories organic revenue up 21.0% (at constant rates) and resilient pricing

- Strong volume led New Category revenue growth - driven by Vuse and Velo, with revenue from Non-Combustibles now 16.5% of Group revenue, up 170 bps vs FY22

- New Categories achieved profitability in 2023 (at a category contribution level), two years ahead of original target and contributing a £398 million increase to Group profit, at constant rates of exchange

- Global settlement with Philip Morris International Inc. (PMI) that resolves all ongoing patent infringement litigation between the parties related to our Heated Products (HP) and Vapour products

- Total Combustibles organic revenue up 0.6% (at constant rates), with organic price/mix of +6.1% offset by lower volume and geographic mix mainly due to macro-economic pressures in the U.S. impacting the premium segment

- Strong performances from AME and APMEA, demonstrating the benefit our global footprint and multi-category strategy

- Reported loss from operations of £15,751m (with reported operating margin down 95.8 ppts to -57.7%) - impacted by a £27.6 billion non-cash impairment charge mainly related to our U.S. business (£27.3 billion)

- Adjusted organic profit from operations up 3.9% at constant rates, adjusted organic operating margin up 40 bps to 45.6%

- Reported diluted EPS at -646.6p; adjusted organic diluted EPS up 5.2% at constant rates

- Operating cash flow conversion 100% - organic adjusted net debt / adjusted EBITDA down to 2.6x

- Dividend growth of 2.0% to 235.52p, in line with our progressive dividend increase approach

- Continued ESG progress - 2023 MSCI rating upgraded to A (2022: BBB), achieved targets for water withdrawn and waste generated two years early

Dividends

The Board has declared an interim dividend of 235.5p per ordinary share of 25p for the year ended 31 December 2023, payable in four equal quarterly instalments of 58.8795p per ordinary share in May 2024, August 2024, November 2024 and February 2025. This represents an increase of 2.0% on 2022 (2022: 230.9p per share), and a pay-out ratio, on 2023 adjusted diluted earnings per share, of 62.7%.

The quarterly dividends will be paid to shareholders registered on either the UK main register or the South Africa branch register and to holders of American Depositary Shares (ADSs), each on the applicable record dates set out under the heading

Ex div 21 Mar 24, paid 02 May 24.

https://www.investegate.co.uk/announcem ... ts/8027584

[Dod101]

The big issues here are the impairment charges of almost £23 billion and the aim to deleverage. They speculate about selling some of their Indian operation (ITC) and in all one could be excused for seeing this as a managed shrinking of the business. In all I am glad that I have resolved to sell my remaining holding next year.

Dod

[monabri]

The results have gone down quite well with the shareprice currently up by almost 7.5%. Dividend increase is pedestrian but it (the yield) is remarkably high...compared to Imperial (how things have changed in such short time....cuedos to Stefan Bomhard of IMB ).

Share buybacks coming?

[Dod101]

The results have gone down quite well with the shareprice currently up by almost 7.5%. Dividend increase is pedestrian but it (the yield) is remarkably high...compared to Imperial (how things have changed in such short time....cuedos to Stefan Bomhard of IMB ).

Share buybacks coming?

More distributions to shareholders will come but if you read the blurb, only after deleveraging. I assume that is because of the massive impairment charges which will be affecting the Asset side of the Balance Sheet.

Dod

[mike]

Interesting nugget picked up from ADVFN.

Scion Asset Management, the Michael Burry company of the Big Short film fame (the Christian Bale character), have recently made BATS the largest part by far of their portfolio at 22%, followed by IMB at 15%.

So a close to 37% bet on UK tabacco shares.

Hopefully their antennae are as atuned as they were back in 2008.

source: https://nitter.lanterne-rouge.info/pic/orig/media%2FGGW8kh9WUAAQkbg.png

[idpickering]

British American Tobacco Initiates Multi-Billion Dollar ITC Stake Divestment

British American Tobacco Plc (BAT), renowned for its iconic Lucky Strike cigarettes, is gearing up to initiate a sell-off of a portion of its stake in its Indian partner, ITC Ltd., as early as this week, according to insiders familiar with the matter.

https://www.goodreturns.in/news/british ... ml?story=2

Ian (I hold BATS).

[idpickering]

Further to the above, and from BATS themselves, this;

Launch of Proposed Block Trade of up to 436,851,457 Ordinary Shares in ITC Limited

BAT PLC ("BAT" or the "Group") announces that its wholly-owned subsidiary Tobacco Manufacturers (India) Limited ("TMI") intends to sell up to 436,851,457 ordinary shares (the "Block Trade Shares") in ITC Limited ("ITC") to institutional investors by way of an accelerated bookbuild process (the "Block Trade"), subject to customary closing conditions. The Block Trade Shares represent up to c.3.5 per cent of ITC's issued ordinary share capital.

ITC is a valued associate of BAT in an attractive market with long-term growth potential where BAT benefits from exposure to the world's most populous market. BAT's initial investment in ITC dates back to the early 1900s and the two companies have a longstanding, mutually beneficial relationship.

As one of India's leading FMCG enterprises, ITC has delivered significant value for its shareholders and BAT continues to be fully supportive of ITC's management team, performance and strategy.

Following completion of the proposed Block Trade, BAT will remain a significant shareholder of ITC, with a c.25.5 per cent holding.

BAT intends to use the net proceeds of the Block Trade to buy back BAT shares over a period ending December 2025, starting with £700m in 2024. We will continue to allocate operating cashflow to fund investment in our transformation and to further deleverage.

Going forward the key elements of capital allocation at BAT will include:

· Continued investment in our transformation

· Progressive dividends

· Continued deleverage to a new range of 2-2.5x adjusted net debt / adjusted EBITDA.

· Sustainable share buybacks

https://www.investegate.co.uk/announcem ... s-/8083585

This has obviously gone down well, with BATS being up 3% as I type.

Ian (I hold BATS).

[idpickering]

Completion of Block Trade of 436,851,457 Ordinary Shares in ITC Limited

Further to our announcement on 12 March 2024, BAT PLC ("BAT or the "Group") has completed the block trade of 436,851,457 ordinary shares (the "Block Trade Shares") in ITC Limited ("ITC") to institutional investors by way of an accelerated bookbuild process (the "Block Trade"). The Block Trade Shares represent c.3.5 per cent of ITC's issued ordinary share capital.

Net proceeds from the Block Trade amount to INR 166.9bn (approximately £1.5bn at current exchange rates). As indicated in our announcement made on 12 March 2024, BAT intends to use the net proceeds to buy back BAT shares over a period ending December 2025, starting with £700m in 2024. This will enable the allocation of operating cashflow to fund investment in our transformation, continue to deleverage towards our new target range of 2-2.5x adjusted net debt / adjusted EBITDA, while also maintaining a progressive dividend and supporting a sustainable share buyback.

https://www.investegate.co.uk/announcem ... s-/8084731

Ian (I hold).

[idpickering]

Notice of Annual General Meeting 2024

The Company announces that it has published its Notice of Annual General Meeting 2024 (the "AGM Notice 2024") on its website. Ahead of the Annual General Meeting 2024 (the "AGM") to be held on 24 April 2024, the following documents are being mailed and made available to its shareholders (as applicable) today, 14 March 2024:

https://www.investegate.co.uk/announcem ... gm/8087505

Ian.

[idpickering]

Share Buy-Back Programme

As previously announced on 13 March 2024, BAT today commences its programme to buyback BAT ordinary shares (the "Programme") using proceeds from sale of 436,851,457 ordinary shares in ITC Limited. The final net proceeds received by the BAT Group were £1.57bn and the Programme will buy back £1.60bn of BAT ordinary shares starting with £700mn in 2024 and with the remaining £900mn in 2025. The Programme will commence on 18 March 2024 and will end no later than 31 December 2025.

The purpose of the Programme is to reduce the issued share capital of the Company. The purchased shares will be cancelled. The Company has entered into an agreement with UBS AG London Branch ("UBS") to enable the purchase of Ordinary Shares for the initial stage of the Programme. UBS will purchase the Company's ordinary shares as principal and the Company will purchase such number of ordinary shares from UBS in accordance with the terms of the engagement.

https://www.investegate.co.uk/announcem ... e-/8091552

Ian (I hold).

[idpickering]

AGM Statement.

https://www.investegate.co.uk/announcem ... nt/8154599

Ian,