British American Tobacco plc (BAT) has published its annual report for the year ended December 31, 2020, which indicates not only strong resilience in the face of Covid-19, but also gives notice of an exciting breakthrough in developing a potential vaccine for Covid-19.
Revenue per geographic region after adjusting for currency exchange rates
|United States||11 473||10 373|
|Asia-Pacific and Middle East||4 537||5 153|
|Americas and sub-Saharan Africa||3 772||4 261|
|Europe and North Africa||5 994||6 090|
|25 776||25 877|
|Profit for the year||6 564||5 849|
|Comprehensive profit after tax, exchange differences and other||3 622||2 126|
Revenue growth, somewhat offset by Covid-19 headwinds, was driven by New Categories (products that don’t burn tobacco, but deliver nicotine to the user) and Combustibles.
Intangible assets of £115.3 billion (2019: £118.8 billion) comprise 83.8% (2019: 84.2%) of total assets of £137.7 billion (2019: £141 billion).
Borrowings are £44 billion (2019: £45.4 billion) and finance costs are £1.7 billion (2019: £1.6 billion). Total trade and other payables are again sitting at £10.8 billion (2019: £10.8 billion).
BAT sells to 150 million consumers, including 13.5 million non-combustible product consumers, in over 180 markets and has more than 55 000 employees.
It acknowledges the serious health risks attached to tobacco products and encourages smokers to switch to “scientifically-substantiated reduced-risk alternatives”. BAT is “transforming into a consumer-centric multi-category consumer products business”.
Independent auditor’s report
The auditor, KPMG LLP, confirms that the financial statements give a true and fair view of the group and company’s affairs as at December 2020.
Key audit matters include the risk of material misstatement in the financial figures.
Significant risks are:
- The 2017 acquisition of Reynolds American Inc resulted in goodwill of £32.7 billion (2019: £33.8 billion) and trademarks of £68.8 billion (2019: £71 billion). Significant auditor judgement is required in considering any impairment and in evaluating the fair value of these intangible assets.
- The group is subjected to a large number of claims, including class actions, with the most significant risk relating to Canada. Provision will be made at such time as an unfavourable outcome is expected.
BAT joins drive to develop a Covid-19 vaccine
BAT’s US biotech subsidiary Kentucky BioProcessing (KBP) is a world leader in “using tobacco plants to express, extract and purify proteins for use as vaccines and other pharmaceuticals”.
This includes transforming tobacco plants into “biomanufacturing plants” that produce proteins which would not otherwise be produced. The extracted protein is purified for pharmaceutical and commercial applications.
The tobacco plant that is used, Nicotiana benthamiana, is not used in the production of more traditional tobacco products. According to BKP it has a number of characteristics that make it ideal for “biomanufacturing recombinant proteins”.
KPB is developing a potential vaccine for Covid-19.
In 2020 it cloned a portion of Covid-19’s genetic sequence and developed a potential antigen.
This was then injected into the tobacco plants to result in a purer form of the antigen on harvesting. When harvested, the plant is crushed to create a green-juice slurry, from which the protein is extracted.
The US Food and Drug Administration (FDA) approved the new drug application in December 2020, and the vaccine candidate, KPB-201, is progressing through the Phase 1 study. This is an officially registered trial, NCT04473690. If successful, KPB-201 will progress to the development programme that will fully assess its safety and efficacy.
KBP claims that: “Using plants to create complex products means the process can be done faster and less expensively compared to traditional methods that involve animals, yeast, bacteria, cold storage requirements and other means.”
According to the Vaccine Tracker website, KPB-201 has since progressed to Phase 2 Clinical Trials.
There are 180 participants in the trial. They will participate in the study for approximately one year from the first dose. The estimated study completion date is March 23, 2022.
Latest developments, post balance sheet
In March 2021 BAT made its first investment in cannabis, with a capital injection of C$221 million (R2.6 billion) to acquire a 19.9% equity interest in Organigram, a Canadian producer of high quality medical and recreational cannabis.
Read: Marijuana is going global at a rapid pace (Mar 15)
BAT and Organigram have entered into a product development collaboration agreement. This will entail establishing a ‘Centre of Excellence’ to focus on developing the next generation of cannabis products.
BAT’s share price has risen 12.32% over the last 12 months, and is now sitting at R570.70 a share.
* Curson owns shares in BAT.