BAT Reaffirms 2026 Outlook and Announces £1.3bn Share Buy-Back

BAT sticks to plan, boosts buy-backs, and leans into the U.S. recovery

British American Tobacco has reaffirmed its 2026 outlook and announced a £1.3 billion share buy-back for FY26. The trading update points to steady FY25 delivery, stronger U.S. momentum, and accelerating New Category growth in the second half. It is not a fireworks update, but it is tidy execution with clearer signs of improvement where it matters.

The headline: c.2% revenue growth and c.2% adjusted profit from operations growth for FY25 (both at constant currency), plus a commitment to sustainable buy-backs and progressive dividends alongside deleveraging. For a sector wrestling with regulation, illicit trade and FX headwinds, that mix of discipline and cash returns will reassure many income-focused investors.

Key takeaways investors should care about

• FY25 outlook intact – c.2% revenue and c.2% adjusted profit from operations growth at constant rates.
• New Category momentum – double-digit revenue growth in H2, driving mid-single digit growth for the full year.
• U.S. turning up – stronger revenue and profit helped by combustibles and an excellent Velo Plus performance.
• Illicit vapour being challenged – early signs of Federal and State enforcement support recent U.S. Vuse volume and revenue improvement.
• Cash machine still humming – operating cash conversion above 95% again in FY25; leverage targeted within 2.0-2.5x by end 2026.
• Capital returns – £1.3 billion buy-back flagged for FY26, alongside progressive dividends.

At-a-glance guidance and numbers

Metric	Guidance/Update
FY25 Group revenue growth (constant currency)	c.2%
FY25 adjusted profit from operations growth (constant currency)	c.2% (incl. c.1% transactional FX headwind)
H2 New Category revenue	Accelerating to double-digit growth
FY25 New Category revenue	Mid-single digit growth
Vuse FY25 revenue	Down high-single digit (vs. -13% in H1)
Operating cash flow conversion	In excess of 95% in FY25
Net finance costs (FY25)	c.£1.8 billion
Gross capital expenditure (FY25)	c.£650 million
Leverage target	2.0-2.5x by end 2026
Share buy-back	£1.3 billion in FY26
FX headwind on APFO / EPS (FY25)	c.3% APFO, c.4% adjusted diluted EPS
2026 “growth algorithm”	+3-5% revenue, +4-6% APFO, +5-8% adj. diluted EPS (expect lower end in 2026)

What’s driving the U.S. upswing

BAT calls out “strong U.S. revenue and profit momentum” led by better combustibles delivery and Velo Plus, which is on track for full-year profitability at the category contribution level. In share terms, U.S. value share is up 20bps with volume share flat. That is modest, but directionally positive given a tough backdrop.

The crucial line is enforcement. BAT sees early signs of Federal and State action against illicit vapour products, which has coincided with improved Vuse volumes and revenue in the U.S. If that trend continues, the legal category could recapture lost ground, lifting pricing power and margins. Caution is sensible – they still expect Vuse FY revenue to be down high-single digit – but the second half is clearly better than the first.

New Categories: where the growth is

New Categories (Heated Products, Vapour and Modern Oral) are accelerating in H2 and remain central to BAT’s “Quality Growth” mantra – more profit from the most profitable markets and segments.

Modern Oral – Velo’s stand-out showing

• Volume share in top Modern Oral markets up 590bps to 31.8%; total oral up 460bps to 15.9%.
• Strong double-digit revenue growth globally, with continued leadership in AME.
• In the U.S., Velo Plus delivered triple-digit revenue growth and lifted Modern Oral volume share by 920bps to 15.6%; positive full-year category contribution expected.

This is the brightest spot. Modern Oral is the fastest-growing New Category and typically carries attractive unit economics once scale is reached. Velo Plus profitability is a milestone that should help group margins over time.

Vapour – Vuse stabilising, premiumisation early signs

• Global tracked-channel leadership maintained; value share in top markets up 10bps, driven by the U.S. (+70bps).
• Canada remains pressured by illicit vapour, dragging AME value share -50bps.
• Vuse Ultra – a premium platform – showing encouraging early results in Canada, Germany and France.
• FY Vuse revenue still down high-single digit, but meaningfully better than -13% in H1.

Premium “Vapour Done Right” is a sensible angle. If enforcement squeezes illicit disposable volumes and retailers rationalise ranges, premium closed systems like Vuse Ultra could gain share and value. For now, improvement is early, not mission accomplished.

Heated Products – glo Hilo moves upmarket

• FY revenue broadly flat as BAT reallocates resources ahead of glo Hilo launches.
• Volume share in top heat-not-burn markets down 1.2ppts, with Japan still highly competitive and legacy super-slims being phased out.
• glo Hilo launched in Japan (Sept), Poland (Oct) and Italy (Nov); more roll-outs planned in 2026.

BAT is repositioning toward premium heated products with glo Hilo. That likely caps near-term share while they pivot, but it aligns with the profit-first strategy. 2026 becomes the key proving ground.

Combustibles: resilient, with regional divergence

Group value share in top markets is flat, with volume share down 10bps. The U.S. and AME (Americas and Europe) are the profit anchors, supported by strong delivery in Brazil, Türkiye and Mexico. APMEA is softer, with material fiscal and regulatory headwinds in Bangladesh and Australia – roughly a c.-1% drag on revenue and c.-2% on adjusted profit from operations growth as previously guided.

Translation: the core cigarette franchise is holding up where it matters to cash, with targeted reinvestment into the higher-return smoke-free lines.

Cash, leverage and returns: the real backbone

Operating cash conversion above 95% in FY25 signals disciplined working capital and capex control. Net finance costs are guided at c.£1.8 billion and capex at c.£650 million. Despite FX headwinds (c.3% on adjusted profit from operations and c.4% on adjusted diluted EPS), BAT expects leverage to land within 2.0-2.5x by end 2026.

On capital returns, the £1.3 billion FY26 buy-back sits alongside progressive dividends. That is a clear vote of confidence in cash generation and the balance sheet trajectory.

Jargon buster in 60 seconds

• Adjusted profit from operations (APFO) – operating profit excluding certain items to show underlying performance; BAT also presents some measures “adjusted for Canada” due to the August 2025 litigation settlement structure.
• Constant currency – removes translation effects of FX to show like-for-like growth.
• Leverage – adjusted net debt divided by adjusted EBITDA; target is 2.0-2.5x by end 2026.
• New Categories – smoke-free products: Heated Products (HP), Vapour, and Modern Oral (nicotine pouches).
• Category contribution – a profitability measure before certain items and FX, after allocating direct category costs.

My take: steady now, optionality building for 2026

Positives: U.S. momentum, Velo Plus profitability, and improving Vuse trends as enforcement ramps up. Cash generation remains excellent, and the step-up to a £1.3 billion buy-back next year underlines management’s confidence.

Negatives: APMEA headwinds persist, heated products lost share during the pivot to glo Hilo, and FX will bite FY25 reported results. Vuse still posts a high-single digit revenue decline for the year, and management guides 2026 to the lower end of its algorithm ranges.

Net-net, this is a pragmatic update. BAT is executing through a choppy market, prioritising profitable growth, and returning substantial cash to shareholders. If U.S. illicit vapour pressure continues to ease and Hilo’s premium push lands, 2026 could look cleaner than today’s cautious framing suggests.

What to watch next

• U.S. enforcement cadence and retailer compliance – key for Vuse share, mix and margins.
• Velo Plus share and profitability durability in the U.S. – can triple-digit revenue growth moderate to something still healthy?
• glo Hilo roll-outs and early repeat usage in premium segments – particularly Japan and Italy.
• APMEA regulatory and fiscal developments in Bangladesh and Australia.
• FX and interest rate sensitivities versus the c.£1.8 billion net finance cost guide.

Bottom line: a solid, confidence-building set of messages with a meaningful buy-back kicker. Not flashy, but clearly moving in the right direction.