British American Tobacco reports FY 2024 results amid transformation to a smokeless future

British American Tobacco p.l.c. (BAT) has released its financial results for the year ended December 31, 2024, reflecting a year of transformation and strategic investment. The company continues to push toward its ambition of becoming a predominantly smokeless business by 2035, despite facing macroeconomic headwinds, regulatory challenges, and shifts in global tobacco industry trends. While BAT’s overall revenue performance showed a decline, the smokeless product segment recorded strong growth, reinforcing the company’s long-term commitment to innovation in nicotine alternatives.

How Did British American Tobacco Perform Financially in 2024?

British American Tobacco reported total revenue of £25.87 billion, a 5.2% decline compared to the previous year. This drop was primarily due to the sale of its businesses in Russia and Belarus in 2023 and adverse foreign exchange (FX) translation impacts. However, on an organic constant-currency basis, revenue increased by 1.3%, demonstrating resilience in the company’s core operations. The company also achieved a turnaround in profit from operations, posting £2.74 billion, in contrast to a £15.75 billion loss in 2023. The significant improvement was attributed to lower amortization and impairment charges, although a £6.2 billion provision was set aside for a proposed settlement in Canada.

BAT’s smokeless product growth contributed to this positive momentum, with its New Categories revenue rising by 8.9%. Meanwhile, its traditional combustibles segment faced volume declines of 8.9%, reflecting broader industry shifts. Despite these challenges, adjusted profit from operations rose by 1.4%, supported by strong performance in the Americas and Asia-Pacific, Middle East, and Africa (APMEA) regions.

Is British American Tobacco’s Smokeless Strategy Paying Off?

British American Tobacco has been aggressively transitioning its business model toward smokeless product growth, as evidenced by the addition of 3.6 million adult consumers to its New Categories portfolio. The total smokeless user base now stands at 29.1 million, marking a 14% year-on-year increase. Smokeless products now account for 17.5% of BAT’s total revenue, up from 16.5% in 2023.

Despite these gains, the company continues to face challenges, particularly in the vapour segment. In the U.S., where the illicit single-use vapour market has been expanding, British American Tobacco saw a 0.8% decline in vapour revenue due to a lack of regulatory enforcement on unauthorized products. However, the company maintained its leadership in the legal vapour market, holding a 50.2% value share in closed-system consumables. The modern oral category, including nicotine pouches, delivered exceptional growth, with a 51.0% increase in revenue at constant exchange rates. This segment, particularly strong in Europe, saw British American Tobacco expand its leadership position, securing a 64.7% market share in key European markets.

What Challenges Does British American Tobacco Face in the Traditional Combustibles Market?

BAT’s traditional combustibles business remains under pressure due to changing tobacco industry trends, including increased regulation, higher excise taxes, and evolving consumer preferences. The company reported an 8.9% decline in cigarette sales volume, with total cigarette and heated product (HP) volume at 505 billion sticks. While British American Tobacco implemented price increases to counterbalance declining sales, total combustibles revenue fell by 6.4%, though on an organic basis at constant exchange rates, revenue grew marginally by 0.1%.

The U.S. market was particularly challenging, with cigarette volume declining by 10.1%, exceeding the industry-wide decline of 8.4%. The presence of illicit vapour products and increased competition from deep-discount brands contributed to the downturn. However, BAT’s premium brands, including Newport and Natural American Spirit, performed well, gaining 50 basis points in premium segment market share.

What Regulatory and Market Risks Lie Ahead for BAT?

Looking forward, British American Tobacco expects to navigate increased regulatory and fiscal pressures, particularly in markets such as Bangladesh and Australia. In Bangladesh, the government has introduced higher excise taxes and VAT, while in Australia, stricter tobacco regulations set to take effect in April 2025 could further impact combustibles sales. Despite these obstacles, BAT forecasts 1% revenue growth at constant rates in 2025, with 1.5-2.5% adjusted profit from operations growth.

Regulatory scrutiny in the vapour sector remains a significant concern. While British American Tobacco is encouraged by the U.S. Food and Drug Administration’s increased enforcement actions against illegal single-use vapour products, the company continues to advocate for stricter regulations to ensure fair competition in the market. British American Tobacco is also actively engaged in legal proceedings, including a case filed with the U.S. International Trade Commission aimed at curbing unfair competition from unauthorized vapour brands.

How Is British American Tobacco Managing Shareholder Returns and Sustainability Commitments?

British American Tobacco remains committed to delivering strong shareholder returns despite the industry’s evolving landscape. The company announced a 2.0% increase in its dividend, reaching 240.24 pence per share, alongside a £900 million share buy-back plan for 2025. Free cash flow remained strong at £7.9 billion, underscoring the company’s financial resilience.

On the sustainability front, British American Tobacco reaffirmed its commitment to building a smokeless world, launching Omni, a global initiative aimed at accelerating the transition away from cigarettes. The company has also set ambitious environmental targets, including achieving a 42.6% reduction in Scope 1 and 2 greenhouse gas emissions compared to its 2020 baseline. British American Tobacco received a Triple-A rating from CDP for its environmental disclosures on climate change, water security, and forest conservation.

What’s Next for BAT’s Business Transformation?

BAT’s FY 2024 results reflect both the opportunities and challenges inherent in its transformation strategy. While the company continues to face pressures in the combustibles segment, the smokeless product growth trajectory remains strong, bolstered by increasing consumer adoption of modern oral and vapour products.

The company is optimistic about returning to its mid-term growth targets of 3-5% revenue growth and 4-6% adjusted profit from operations growth by 2026. However, success will depend on navigating regulatory complexities, strengthening enforcement against illicit products, and capitalizing on its expanding smokeless portfolio. As British American Tobacco accelerates its transition, the coming years will be critical in determining whether its vision of a predominantly smokeless future can be fully realized.