British American Tobacco plc (“BAT”) (BTI) was one of the Fund’s first investments in 2005. The position has grown to become the Fund’s second largest stock holding, behind Reynolds American Inc. All along the way, BAT’s very capable management team has driven the operating margin up from the high 20s to mid-30s, doubled free cash flows to well over GBPii 3 billion per year, and raised the dividend by a 12% compounded annual growth rate. Shareholders of BAT have been rewarded nicely with an 18% average annual return since October 2005. BAT remains an important core holding for the Fund because it has historically been a dependable cash generator, particularly during times of uncertainty, the most prominent of which is presently unfolding in its home country. “Brexit” was a surprise to many and it is likely that in the U.K. business world there will be many winners and losers as a result of it. An immediate visible impact was the fall in the value of the pound sterling in June 2016, which could be net beneficial to BAT’s bottom line, as the company sells its products in dozens of overseas markets. Enhanced international consumer consumption power that comes with stronger local currencies versus the pound sterling could help promote overall sales growth. Another reason we remain investors in BAT is that it has an extremely modest equity compensation plan for executives, which contributes to extremely low Look Through Expenses.
From David Winters (Trades, Portfolio)' Wintergreen Fund 2016 Semi-Annual Report.
