British American Tobacco burned by currency swings

On a reported basis, revenue rose 57% to £11.6bn thanks to the acquisition of Reynolds American, though on an adjusted pro forma basis, as if Reynolds had been owned the year before, revenue fell 6.4%, but would have been up 1.9% but for the impact of currency movements. The impact of forex was an 8% headwind in the period that is estimated to be 5-6% for the full year, based upon the current foreign exchange rates.

Adjusted profit from operations fell 5.4% to £4.8bn due to the currency affect, up 2.4% without. Adjusted, diluted earnings rose 2.1% to 137.2p at reported rates, and 10.4% at constant currencies.

Cigarettes and THP volumes dropped 2.2% to 348bn, including 3bn of THP, with the wider industry estimated to be down 3-4% in the first half the year, the company said.

There has been a recent slowdown in the THP category in some markets, including Japan and South Korea, but chief executive Nicandro Durante said he remained confident of exceeding £1bn of reported revenue in next-generation products (NGP) in 2018 as a range of new launches a planned to "re-energise growth" in THP in the second half of the year.

The rise in underlying revenue in the first six months of the year was driven by a better price mix, with a 4% gain on cigarettes and THP, which is expected to strengthen in the second half of the year from the unwinding of the impact of Pakistan's excise change last year and trade inventory movements in Gulf countries.

Durante said the cigarettes and THP portfolio had outperformed thanks to an increase in market share of 40 basis points and said he expect the tobacco price mix to strengthen in the second half of the year.

"Our strategy is to continue to grow our combustible business while investing in the exciting potentially reduced risk categories of THP, vapour and oral. As the group expands its portfolio in these categories, we will continue to drive sustainable growth," he said, adding that the performance of Reynolds since acquisition was "encouraging".

"We anticipate another good year of adjusted earnings growth at constant rates of exchange."

Adjusted cash generated from operations tripled to £2.95bn but the group's enormous net debt pile remained little moved at £48.5bn after the Reynolds deal.

BAT will pay its next quarterly dividend payment of 48.8p in August, as part of a previously announced interim dividend of 195.2p per share payable in four equal instalments.