Smoke clears for BAT

British American Tobacco (BAT) managed to return to profit in its 2024 financial year, but the company’s sales and revenue continue to struggle.

In its preliminary results for the year ended 31 December 2024, BAT described 2024 as an “investment year”.

The company has been undergoing a transformation as it attempts to become a “smokeless business” by 2035.

The tobacco giant added 3.6 million adult consumers to its smokeless products in 2024, which now account for 17.5% of group revenue.

However, BAT’s revenue is down 5.2% compared to 2023, although the company explained that this is due to the sale of its businesses in Russia and Belarus in September 2023 and forex headwinds.

The company’s organic revenue, which excludes the impact of forex hits, was up 1.3%, largely driven by its new categories, which grew revenue by 8.9%.

Despite the hit to its revenue, BAT reported a profit from operations of £2.74 billion (R63.29 billion), up significantly from a loss of £15.75 billion (R363.79 billion) in 2023.

The company noted that 2024’s profit included a provision of £6.2 billion (R143.22 billion) for its proposed settlement in Canada, while 2023 was negatively impacted by one-off impairment charges largely in the US.

BAT also reported strong cash flow, with £7.9 billion (R182.49 billion) in free cash flow.

However, BAT is not out of the woods yet, as the move towards smokeless products has affected the company’s sales of combustibles.

Volumes in this segment dropped by 9%, especially in the US, due to declining demand and illegal vapour products.

The company explained that revenue was down 3.4% in the US as cigarette pricing and New Categories growth of 4.6% were more than offset by a 10.1% lower cigarette volume. 

The cigarette industry’s volume was 8.4% lower on a sales-to-wholesaler basis due to continued macroeconomic pressures on consumer spending and the lack of enforcement against illicit single-use vapour products.

“The growth of illicit single-use Vapour products continues to negatively impact the legal market with industry volumes in rechargeable closed systems down around 9%,” the company explained.

BAT estimates that illicit vapour products make up nearly 70% of the US vapour market.

However, CEO Tadeu Marroco said he is confident that the investment actions taken in 2024 are the right way forward for BAT.

“Our foundations are strong, and we will continue to reward shareholders through our strong cash returns, including our progressive dividend and sustainable share buy-back,” he said.

The company plans to buy back £900 million (R20.79 billion) of shares in 2025.

In addition, BAT’s dividend to shareholders will grow by 2% to 240.24 pence (R55.46) per share.

The company’s outlook for 2025 is disappointing, as BAT expects the global tobacco industry’s volume to be down around 2%.

BAT forecasts only 1% revenue growth at constant rates for the 2025 financial year as it navigates increased excise and VAT in Bangladesh and new tobacco regulations in Australia.