British American Tobacco’s Results Exceed Expectations – With Profits Supported By Reduced Risk Products

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British American Tobacco PLC (LON:BATS)’s half-year results have come in a little above market expectations. Revenues were up by 3.7%, driven by growth in New Categories of 45%.

Underlying operating profits of £5,645m were 4.9% ahead of the prior year and the group generated £3,221m of cash during the period. The stock edged 1% higher in early markets.

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British American Tobacco's Earnings

Steve Clayton, fund manager at HL Select:

“These results show a solid performance from BAT, with New Categories of potentially reduced risk products now contributing 15% of revenues. Profits are being supported by lower losses in these new products, which more than halved during the period.

The group looks to have held or increased market share in its key markets, whilst recruiting new consumers for its potentially reduced risk products. The group say they are on track for the full year and reiterated their commitment to growing the dividend in sterling terms. The group have taken a £950m charge against the exit from their business in Russia, but this won’t impact materially on cash flow.

Tobacco will always be a controversial industry, but BAT is making tangible progress toward a future where its products are less harmful. In the meantime, the group’s ability to churn out reliable cash flows and dividends remains unimpeded and with debts falling away the financial appeal of the group is improving.”

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