Right then. British American Tobacco (BAT) just dropped a significant update that’ll have shareholders and market watchers leaning in. Today’s RNS is packed with upgraded guidance, strategic shifts, and a chunky shareholder return – classic BAT, but with some compelling twists.
Headline Grabbers: Upgraded Guidance & £1.1bn Buyback
BAT isn’t just treading water; it’s signalling confidence. Two things leap out:
- Revenue Upgrade: Full-year revenue growth is now expected at 1-2%, slightly ahead of previous guidance (c.1%). This isn’t explosive, but in the current climate, it’s a solid nudge upwards.
- Shareholder Cash Splash: The real headline is the £1.1 billion share buyback for 2025. That’s a material increase and a clear signal of BAT’s confidence in its cash generation and commitment to returning capital. Combine this with their progressive dividend policy, and shareholders have tangible reasons to smile.
Breaking Down the Performance: Regions & Categories
Digging deeper, the story is one of regional divergence and category transformation:
Regional Highlights: US Resurgence vs. APMEA Headwinds
- US: The Comeback Kid. Crucially, BAT expects both revenue and profit growth in the US for H1 and the full year. This turnaround is driven by:
- A strengthening Combustibles performance (stabilising share, gains in premium brands like Natural American Spirit/Lucky Strike).
- An “excellent” launch of Velo Plus Modern Oral pouches, driving triple-digit revenue growth and significant share gains.
- AME (Africa & Middle East): Steady as She Goes. Continued strong performance, led by markets like Brazil, Türkiye, and Romania.
- APMEA (Asia-Pacific, Middle East, Africa): Feeling the Pinch. As previously flagged, performance is hampered by material excise hikes and regulatory challenges, particularly in Bangladesh and Australia.
New Categories: Velo Soars, Vuse Fights Illicits, glo Prepares for Lift-Off
BAT’s “New Categories” (Vapour, Modern Oral, Heated Products) remain central to its future. The picture here is mixed but promising:
- Velo (Modern Oral): Injecting Rocket Fuel. This is the standout star. Global volume share is surging (+270bps in key markets), driven by the US launch of Velo Plus and leadership in AME. Expect strong double-digit revenue growth here.
- Vuse (Vapour): Battling the Black Market. Global value share leadership remains, but the category is significantly hampered by the “proliferation of illicit Vapour products” in the US and Canada. This drags H1 revenue down mid-teens. H2 expects improvement with the roll-out of the new premium Vuse Ultra device.
- glo (Heated Products): Gearing Up for H2. Performance YTD reflects a tough Japan market and legacy product phase-out. The spotlight is on the encouraging launch of glo Hilo in Serbia (doubling trial-to-conversion rates). Expect low-single digit H1 growth, accelerating in H2 as glo Hilo rolls out in key markets.
Overall New Categories Outlook: Low-single digit revenue growth in H1, accelerating to mid-single digit for the full year. Strikingly, excluding the US/Canada Vapour impact, New Categories would be delivering double-digit growth.
The “Deployment Year” & Path to 2026
CEO Tadeu Marroco repeatedly calls 2025 a “deployment year,” with performance “H2 weighted.” What’s driving this?
- The phased roll-out of key innovations (Velo Plus scaling, Vuse Ultra, glo Hilo) is timed for the second half.
- Their “Quality Growth focus” means prioritising investment in the largest profit pools, improving New Category contribution margins.
The end goal? BAT expresses confidence in hitting its mid-term algorithm in 2026: 3-5% revenue growth and 4-6% adjusted profit from operations growth. Today’s upgrade is a step towards that.
Financial Firepower & Flexibility
BAT’s balance sheet story is strong:
- Cash Generation: Expects operating cash flow conversion >90% again in 2025. This is a cash machine.
- Capital Allocation: The £1.1bn buyback headlines a balanced approach: deleveraging (targeting adjusted net debt/EBITDA of 2-2.5x by end-2026), progressive dividend, and sustainable buybacks.
- ITC Monetisation: The partial sale of its stake in Indian giant ITC has demonstrably “increased financial flexibility,” underpinning the enhanced shareholder returns.
The Bottom Line
This is a confident update from BAT. Upgrading guidance in the current environment is noteworthy. The £1.1bn buyback is a substantial, shareholder-friendly move signalling belief in their cash flow. While challenges persist (illicit vapes, APMEA excise), the US turnaround and Velo’s stellar performance are significant positives. The “deployment year” narrative sets the stage for an innovation-driven H2 and a clear runway towards their 2026 growth targets. For investors, the combination of upgraded guidance, strong cash returns, and a path to sustainable growth makes this RNS a decidedly positive step.
Standard legalese applies: Forward-looking statements involve risks. See the full RNS for details. This isn’t advice, just analysis. 😉
