20-F: British American Tobacco Navigates Complex Market, Focuses on Smokeless Transition in 2024

British American Tobacco's 2024 performance reflects resilience amid global economic challenges, with a strategic emphasis on transitioning to smokeless products.

Summary

• British American Tobacco (BAT) reported a 5.2% decline in total revenue for 2024, amounting to £25.867 billion, largely due to the sale of its Russian and Belarusian businesses and currency headwinds.
• The company's 'New Categories' segment, comprising Vapour, Heated Products, and Modern Oral products, showed strong performance, achieving profitability two years ahead of schedule.
• Smokeless product revenue accounted for 17.5% of the Group's total revenue.
• BAT is actively working with stakeholders to promote Tobacco Harm Reduction, aiming for a 'Smokeless World' where smokers switch to less risky alternatives.
• The company declared a dividend of 240.24p per ordinary share and launched a £1.6 billion share buy-back programme.
• BAT's refined strategy focuses on three pillars: Quality Growth, Sustainable Future, and Dynamic Business.
• The company is investing in its U.S. business and new product development, while thoughtfully extracting value from its combustibles franchise.
• BAT aims to be a predominantly smokeless business by 2035.

Sentiment

Score: 7

Explanation: The document presents a cautiously optimistic outlook, highlighting progress in New Categories and a commitment to transformation, but acknowledges challenges in the U.S. market and the impact of the sale of Russian and Belarusian businesses.

Positives

• New Categories achieved profitability two years ahead of schedule.
• Strong performance in AME and APMEA regions, growing total revenue (excluding Russia and Belarus and foreign exchange).
• The company is making progress towards its ambition of being a predominantly smokeless business by 2035.
• The company is actively engaging with stakeholders to promote Tobacco Harm Reduction.
• The company is demonstrating a commitment to sustainable shareholder returns through dividends and share buy-backs.

Negatives

• Total Group revenue declined by 5.2%, largely due to the sale of businesses in Russia and Belarus and currency headwinds.
• The U.S. business faced challenges due to macro-economic conditions and illicit single-use nicotine products.
• Cigarette volumes in the U.S. declined at pace.

Risks

• Continued economic and political volatility globally.
• High interest rates and inflation.
• Persistent cost-of-living pressures.
• Rapid evolution of markets and changing consumer behaviors.
• Challenges presented by illicit trade across the industry.
• Need for more appropriate regulation and enforcement to tackle illicit trade issues.
• Potential for ongoing volatility in the operating environment.

Future Outlook

The company is cautiously optimistic about the year ahead, focusing on delivery and innovation across global markets. They aim to maximize opportunities in tobacco and nicotine as consumer preferences evolve, with a strong emphasis on transitioning to smokeless products.

Management Comments

• Our corporate purpose is being lived by thousands of colleagues globally.
• Our refined strategy is enabling us to navigate transformation with focus, enhanced execution and resilience.
• 2024 was a pivotal year in BAT's transformation with a real focus on investment for future growth.
• We set a compelling ambition to be a predominantly Smokeless business by 2035, driven by our refined strategy, and this is already paying dividends.
• The foundations we have in place are strong.
• Strategic delivery and deployment are where we will focus our efforts to create A Better Tomorrow.
• I am encouraged that our investment approach is strengthening our business, despite a challenging macro-economic backdrop and the continued prevalence of illicit single-use nicotine products.
• I believe we have the right strategy to drive us forward to greater success.
• The future is bright for BAT. I am excited about the difference we can make, and the potential we have to Build a Smokeless World and drive A Better Tomorrow.

Industry Context

The global nicotine market is rapidly evolving, with a shift towards smokeless alternatives. BAT's multi-category approach positions it to capitalize on this trend, while also managing its combustible cigarette business responsibly.

Comparison to Industry Standards

• The document does not provide specific comparisons to other companies or projects. It focuses on BAT's internal performance and strategy.

Management Changes

Legal Proceedings

• The document mentions ongoing litigation in Canada, with a pathway to an agreement of all parties.
• The document mentions various legal proceedings or claims pending or may be instituted against the Group.

Related Party Transactions

• The document mentions transactions with associates and joint ventures, primarily related to the sale and purchase of cigarettes and tobacco leaf, and the provision of IT services.

Stakeholder Impact

• Shareholders: Potential for sustainable returns through dividends and share buy-backs.
• Employees: Focus on creating a diverse, inclusive, and people-oriented workplace.
• Customers: Offering a range of products to meet evolving consumer preferences.
• Suppliers: Working with suppliers to raise standards and drive sustainable practices.
• Creditors: Maintaining a solid investment-grade credit rating target.

Next Steps

• Continued investment in brands and prioritizing adult consumer preferences.
• Focus on delivery and innovation across global markets.
• Maximizing opportunities in tobacco and nicotine as consumer preferences evolve.
• Complete the remaining £900 million of the share buy-back programme in 2025.

Key Dates

Keywords

British American Tobacco, BAT, tobacco, nicotine, New Categories, Smokeless products, Vapour, Heated Products, Modern Oral, Traditional Oral, combustibles, financial results, annual report, 20-F, investment, share buy-back, dividend, sustainability, Tobacco Harm Reduction, regulation, global market