By Geoffrey Smith
Investing.com -- Shares in British American Tobacco (LON:BATS) fell to their lowest in over a year on Thursday as a weak outlook for its core sectors forced it to suspend share buybacks.
"Given our incremental investment plans in 2023 to further accelerate our transformation, and in light of the uncertain macro environment, higher interest rates, outstanding litigation and regulatory matters, the Board has decided to prioritize strengthening the balance sheet," chief financial officer Tadeu Marroco said in a statement, adding that this would allow it to hit its debt reduction target faster.
Net debt rose to over £38 billion (£1 = $1.2148) by the end of last year, net finance costs rising by over 10% to £1.64B, as the company had to refinance maturing debts at higher interest rates.
BAT will still increase its dividend by 6% to 230.9p a share, which equates to a yield of over 9% at Wednesday's closing price.
Operationally, BAT said it was making good progress in its transition away from traditional tobacco products to new-generation ones, whose share of total revenue rose to 14.8% from 12.4% in 2021. The company is also producing fewer cigarettes but making more money on each one - although it noted a slowdown in the key U.S. market in the course of the year. The adjusted operating margin rose 90 basis points on the year, pushing earnings per share 5.8% higher to 371.4p.
Even so, the global tobacco industry remains under pressure as more people turn away from smoking. The group expects global volumes to shrink by 2% this year, limiting it to organic sales growth of between 3% and 5% in constant currencies. It expects earnings per share to grow around 5%, with most of that growth coming in the second half. Sterling's rebound from its 2022 lows is expected to generate a 2% headwind on this year's reported numbers.
By 05:20 ET (10:20 GMT), BAT stock was down 5.6% in London, its lowest since January last year.