British American Tobacco Working Towards A 'Smokeless World'

On Wednesday, December 6, 2023, British American Tobacco plc (BATS) experienced roughly a 7% decline following its strategy update. The cigarette maker announced its intention to devalue certain US cigarette brands by £25 billion, in alignment with its vision to create a smokeless world. This move is part of the company's broader strategy to actively encourage smokers to switch to safer nicotine alternatives, with the goal of deriving 50% of its earnings from non-combustibles by 2035.

Building on this announcement, British American Tobacco is making strategic investments to accelerate its transformation. These investments will strengthen its U.S. business, drive global innovation in Heated Products, and enhance capabilities supporting its overall strategic objectives. Despite ongoing macro-economic pressures in the U.S., the company anticipates low-single-digit growth in revenue and adjusted profit from operations in 2024, with a progressive improvement to 3-5% revenue growth and mid-single-digit profit growth by 2026.

In its trading update, British American Tobacco highlights key achievements:

• Vuse value share in Vapour increased by 100bps to reach 36.8% globally, with significant growth to 46.0% in the U.S.
• Velo in Modern Oral achieved strong volume-led revenue growth, contributing to a 110bps increase in volume share to 8.5%.
• Glo's performance in 2023 faced challenges, resulting in a slowdown in organic volume and revenue growth.
• Despite industry pressures, combustibles showed signs of recovery in the U.S., with a 50bps improvement between January and October.
• BAT emphasizes its commitment to financial flexibility, expecting close to 100% operating cashflow conversion in 2023 and progress toward a 2.7x adjusted net debt/adjusted EBITDA leverage by year-end.

Read the full announcement here. 

"We will continue to reward shareholders through our strong cash returns, including our progressive dividend, and, once the middle of our leverage range is reached, we will evaluate all opportunities to return excess cash to our shareholders", Tadeu Marroco, Chief Executive said.