BAT’s new categories fuel growth despite overall revenue dip

British American Tobacco (BAT) on Thursday said its overall revenue dipped 5.2 per cent due to divestments and currency headwinds, but the company’s burgeoning New Categories segment, encompassing vapour, heated tobacco, and oral products, emerged as a significant growth driver, fueling a 1.3 per cent organic revenue increase.

BAT also reported a £6.2 billion hit from a long-running lawsuit in Canada, and warned of “significant” headwinds in Bangladesh and Australia in 2025.

Health risks associated with tobacco and smoking alternatives have been under regulatory scrutiny for several years, and cigarette makers are facing several challenges globally from policy shifts to anti-tobacco activism.

The maker of Lucky Strike and Dunhill cigarettes and some rivals in October had neared a C$32.5bn (£18.22bn) settlement in Canada, and new vaping regulations in Australia came into force last year, in a bid to curb youth vaping.

“In 2025, while we expect significant regulatory and fiscal headwinds in Bangladesh and Australia to impact our combustibles performance, I am confident that we will progressively build on our delivery as we shift from investment to deployment,” chief executive Tadeu Marroco said in a statement.

The company expects 2025 revenue to grow about 1 per cent at constant currency rates, and performance is projected to be weighted towards the second half of the year.

Revenue for the 12 months ended December 31 was £25.87bn and adjusted profit stood at 362.5 pence per share, compared with expectations of £26.11bn and 362.2 pence, respectively, according to a company-compiled poll.

Revenue was down 5.2 per cent, primarily attributed to the sale of its businesses in Russia and Belarus in 2023, coupled with unfavorable foreign exchange rates. However, the tobacco giant highlighted a 1.3 per cent organic revenue growth at constant rates, fueled by an 8.9 per cent surge in its New Categories segment, comprising Vuse e-cigarettes, heated tobacco brand glo and Velo nicotine pouches.

The segment has seen a £251 million increase in contribution, and the category’s margin reached 7.1 per cent, a substantial 7.1 percentage point rise from the previous year.

Looking ahead, BAT plans to continue its focus on New Categories, aiming to accelerate growth and profitability in this segment. The company said it added 3.6 million adult consumers (to a total of 29.1 million) of its smokeless products, which now account for 17.5 per cent of group revenue, an increase of 1.0 ppts vs FY23.

BAT’s combustibles business demonstrated resilience with a 0.1 per cent organic revenue increase, driven by pricing strategies that offset lower volumes.

The company also announced a significant turnaround in profitability, reporting a £2.73bn profit from operations, a stark contrast to the £15.75bn loss in 2023. This improvement, however, includes a £6.2 billion provision for a proposed settlement in Canada, while 2023 was negatively impacted by one-off impairment charges largely in the US.

The company’s adjusted organic profit from operations also saw a modest 1.4 per cent increase.