Release date: February 13, 2025; before the LSE opening
Consensus ahead of the release: +0.9% revenue and +1.3% operating profit growth in FY24; acceleration in financial delivery to +2.8% revenue and +2.3% operating profit growth in FY25
Results
– Reported revenue down -5.2%, driven by the sale of businesses in Russia and Belarus in September 2023 and translational FX headwinds; Organic revenue up +1.3%, driven by New Categories revenue (+8.9%)
– Total combustibles revenue up +0.1%, as price/mix of +5.3% was offset by 5.2% lower volume
– Reported operating profit of £2,736 million, including a provision of £6.2 billion in respect of the proposed Canadian settlement (for further details: Tobacco: Canadian Settlement)
– Adjusted operating profit up +1.4%, driven by AME and APMEA
– New Categories (NC) contribution increased by £251 million; NC margin: 7.1% (vs. 0% in FY23)
– Reported EPS: 136.0p; adjusted EPS up +3.6%
– FCF: £7,901 million; adj. net debt / EBITDA down 0.13x to 2.44x (2.75x excluding the provision held at fair value in Canada)
– Dividend growth of 2.0% to 240.24p; £900 million share buy-back planned in 2025
Key Highlights
– 29.1 million smokeless consumers (+up 3.6 million vs. year-end 2023); smokeless account for 17.5% of revenue (+1.0 ppt vs. FY23)
– Improved finanical delivery in H2 2024, driven by the phasing of NC innovation and the benefits of commercial investment and unwinding of wholesaler inventory movements in the US
– Significant regulatory & fiscal headwinds in Bangladesh (BAT’s biggest volume market) and Australia; acceleration in illicit trade driven by tax increases; impact: ~1% on FY25 revenue, ~2% on FY25 operating profit
– Shift from investment to deployment in FY25 with commitment to return to mid-term guidance of 3-5% revenue and 4-6% adjusted operating profit growth in 2026
Highlights: Categories
– Cigarettes: Volume down -8.9% (-5.0% on an organic basis) to 505 billion sticks. Industry decline of c. 2%. Volume growth in Turkey, Brazil, Indonesia, Pakistan, Venezuela and Mexico more than offset by lower volume in the U.S., Sudan (supply chain disruptions), Bangladesh and market exits (notably in Africa). Adj. revenue up +0.1%. Strong pricing, most notably in Bangladesh, Brazil and Turkey more than offset negative geographic mix (driven by the U.S.), with an overall price/mix of +5.3%
– Vapes: Volume down -5.9% and adj. revenue down -2.5% due to the lack of enforcement against illegal flavoured disposable vapes in the U.S. and the province of Québec, Canada
– Heated tobacco: Volume down -0.3% and adj. revenue up +5.8%. Volume share loss of 40 bps to 16.7% in Top-9 markets. Category volume growth of +12% (vs. +13% in 2023), mainly due to slower growth in key European markets. Volume share gains in Poland and the Czechia, and stabilisation in Italy, offset by heightened competitive activity in Japan and South Korea. veo, non-tobacco consumables range, continues to outperform peers
– Nicotine pouches: Volume up +56.1% and adj. revenue up +53.2%. 7.4 million users with increased average daily consumption. Leadership position maintained outside the US. Strong volume (+234%) and revenue (+223%) growth in the U.S. driven by refreshed Velo brand expression and Grizzly roll-out.
Highlights: Regions
– USA (53% of operating profit): Combustibles volume down -10.1%, driven by macro-economic pressures affecting consumer affordability and growth of illicit disposable vapes. Combustibles revenue down -4.1%, smokeless revenue up +0.5%. Overall revenue down -3.4%, operating profit down -3.5%.
– Americas and Europe (AME): Combustibles volume down -2.1%, revenue up +3.5%. Smokeless revenue up +8.6%. Overall revenue up +4.9%, operating profit up +7.5%.
– Asia-Pacific, Middle East and Africa (APMEA): Combustibles volume down -7.3%, revenue up +3.6%. Smokeless revenue up +11.6%. Overall revenue up +5.4%, operating profit up +7.5%.
2025 Guidance
– Revenue growth of c.1%
– Operating profit growth of 1.5-2.5% (adjusted for Canada), including a c.1.5% transactional FX headwind and broadly flat translation FX (performance to be H2 2025 weighted)
– Global tobacco industry volume: down c.2%.
– Net finance costs: ~£1.8 billion (adjusted for Canada)
– Operating Cash Flow conversion in excess of 90%, with gross capital expenditure of £650 million
– Deleveraging (adjusted for Canada) to 2.0-2.5x adjusted net debt/adjusted EBITDA corridor by 2026
Summary
In the new nicotine products portfolio, VELO’s performance is stellar, but vape and heated tobacco volume decline is concerning. Moreover, declining US cigarette volume (-10.1%), revenue (-3.4%) and operating profit (-3.5%) continue to put pressure on BAT’s results. Performance elsewhere is strong (operating profit +7.5%), but BAT warns about FY25 headwinds in Australia and Bangladesh.
Considering that BAT shares are up +50% from its April 2024 low, better news are needed for further price appreciation. Nevertheless, we also need to note that the market reaction (i.e. BAT down -9.4% at the time of writing) is exacerbated by the strong print ahead of the FY24 results. With the price momentum gained through breaking above £30 (on no fundemental news), BAT was overbought ahead of the FY24 Results (RSI: 90).
