Ahead of the H1 2025 results (to be released on July 31, 2025), BAT provided an interim business update on June 3, 2025 (Tuesday).
Key Highlights:
– H1 2025 revenue slightly ahead of guidance: 1%-2% revenue growth and 1.5%-2.5% operating profit in FY25
– 2025 as a deployment year: H2 2025 weighted perfromance, mainly driven by the roll-out of New Category (NC) innovations in key markets from the middle of 2025
– U.S. expected to return to revenue and profit growth in H1 and FY25 despite -9% decline in combustible industry volume (-11% decline excluding the deep discount segment), driven by strengthening combustibles delivery and Velo Plus performance; BAT gaining share through Natural American Spirit and Lucky Strike (fastest growing U.S. combustible brand)
– Strong global growth from Velo in Modern Oral, the fastest growing NC segment
– Continued strong performance in AME; APMEA impacted by excise and regulatory challenges in
Bangladesh and Australia (as previously guided)
– Low-single digit H1 2025 NC revenue growth, with the impact of illicit Vapour products in the U.S. and Canada partly offsetting Velo performance; accelerating H2 2025 NC revenue to a to mid-single digit in FY25, driven by deployment of innovations in key markets; further improvement in NC contribution margin. Double-digit NC revenue growth in FY25, excluding the impact of the U.S. and Canada vape markets
Combustibles: Return to growth in U.S. and continued resilience in AME; robust pricing YTD
– Group volume share in top markets -10bps, value share -10bps
– U.S. value share +10bps; volume share +10bps (+60bps excluding deep discount where BAT is not present); U.S. expected to return to revenue and profit growth in H1 and FY25 – both overall and for combustibles only. Lower gas prices in the U.S. support spending on cigarettes
– Resilient AME financial performance led by Brazil, Türkiye and Romania; APMEA performance impacted by material excise increases and regulatory headwinds in Bangladesh and Australia
Nicotine pouches: Strong growth and volume share gains
– Volume share +270bps to 14.3% of Total Oral and +350bps to 29.7% of Modern Oral in top markets
– Strong double-digit revenue growth, driven by industry growth and volume share gains
– Strong trial and retention rates for VELO Plus in the U.S., driving total volume share of Modern Oral +550bps to 11.9% and triple-digit revenue growth. VELO Plus is now available in more than 110k stores in the U.S., representing 80% weighted distrubition (i.e. total category revenue). VELO Plus will be available in 130k stores by the end of 2025. Three new VELO Plus variants to be launched in the U.S. No manufacturing capacity constraints for VELO Plus
– Continued leadership in AME, with strong financial performance in Scandinavia, the UK and Poland
Heated tobacco: targeted innovation roll-out to drive acceleration in H2 2025
– Volume share in top markets -90bps, driven by a highly competitive environment in Japan and the
continued phase-out of legacy, super-slims platform
– AME volume share -10bps, with continued share growth in Poland, Czech Republic and Spain, and a stable share performance in Italy, offset by competitive dynamics in Germany and Romania
– Encouraging performance from glo Hilo launch in Serbia, doubling previous trial to conversion rates. New heating system (2-piece device), consumable and display are breakthrough improvements for glo Hilo: +50% increase in new consumers from competition and cigarettes
– Low-single digit revenue growth in H1 2025 with H2 acceleration driven by the phased roll-out of glo Hilo in key markets
Vapes: illicit vape headwinds persist in U.S. and Canada
– Impacted by the proliferation of illicit vape products in the U.S. and Canada (with U.S. legal industry volume down mid-teens YTD)
– 70% of the £9 billion U.S. vape market is illicit. No firm plan to commercialize a synthetic vape product in the U.S. for the time being. Newly acquired synthetic PACHA vape products will be test marketed to better understand the segment
– VUSE continues to be the global value share leader; global value share in top markets flat with continued global leadership in tracked channels: U.S. value share flat, AME +10bps, driven by Europe +40bps (fastest growing brand in rechargable segment)
– Mid-teens revenue decline in H1 2025, mostly driven by illicit vape headwinds in U.S. and Canada
– Improved H2 revenue performance, driven by the phased roll-out of premium Vuse Ultra (encouraging results in fist launch market, Canada) and continued targeted resource allocation
Other Highlights:
– Confident in delivering mid-term algorithm of 3-5% revenue growth and 4-6% operating profit growth in 2026
– Partial monetisation of ITC stake enabling increased financial flexibility. ITC is still as a strategic investment, not a financial investment. BAT maintains 2 Board positions
– Strong cash generation with balanced capital allocation; deleveraging to 2.0-2.5x with progressive dividend and sustainable share buy-backs (increased to £1.1 billion in 2025)
FY25 Guidance:
– Global tobacco industry volume: down c.2%
– Group revenue growth: 1%-2% for both H1 2025 and FY25 (previously c.1%, at constant rates)
– NC revenue growth: Low-single digit in H1 2025; accelerating to mid-single digit in FY25
– Operating profit growth: 1.5%-2.5% in FY25 (H2-weighted, including a c.1.5% transactional FX headwind; 65% of which are due to Japan, Turkey and Nigeria)
– Translational FX headwind: c.4% on half-year and full-year operating profit
– Net finance costs: c.£1.8 billion, subject to FX and interest rate volatility
– Operating cash flow conversion: in excess of 90%, gross 2025 CAPEX of c.£650 million
– Leverage: progress towards 2.0-2.5x adjusted net debt/EBITDA target corridor by end 2026
Summary:
BAT’s H1 2025 Trading Update statements are mostly as expected. There are three pieces of encouraging developments: H1 revenue slightly ahead of guidance, U.S. returning to revenue/profit growth and VELO reaching 11.9% share in the U.S. Balancing these three, key problems persist elsewhere: rampant illicit vape market in U.S. & Canada, underperformance in heated tobacco and challenges in the key APMEA markets (Bangladesh & Australia). Overall, the update should be neutral on BAT shares (i.e. should not affect the underlying momentum).
