British American Tobacco H2 Earnings Call Highlights

British American Tobacco (NYSE:BTI) outlined what it called “positive transformation momentum” as it reported full-year 2025 results at the top end of its guidance range, driven by resilient combustibles performance and accelerating growth in modern oral.

Chief Executive Tadeu Marroco said the group added 4.7 million smokeless consumers in 2025, bringing the total to 34.1 million, “mainly driven” by modern oral. Management also pointed to strong cash returns, including a progressive dividend and a planned increase in the 2026 share buyback to £1.3 billion, announced in December.

2025 results and adjusting items

Interim CFO Javed Iqbal said constant-currency performance landed at the top end of guidance. On an adjusted basis, group revenue increased 2.1% and adjusted profit rose 3.4%. Adjusted profit from operations grew 2.3%, while adjusted diluted EPS increased 3.4%.

Iqbal noted the reported numbers included several adjusting items, including nearly £1.6 billion primarily related to the annual amortization of U.S.-acquired trademarks, a net credit of £524 million tied to a change in the forecast outlook for the Canadian combustibles industry, and a gain of nearly £900 million from the partial monetization of BAT’s stake in ITC.

New categories: modern oral strength offsets vapor pressure

BAT said new categories revenue grew 7% in 2025, led by modern oral growth of 48%. Heated products revenue increased 1%, while vapor revenue declined nearly 9%, which management attributed largely to illicit pressures in the U.S. and Canada.

Iqbal said the company delivered “quality growth,” citing more than £200 million of gross profit growth in new categories and category contribution of £442 million. He added that the second half of 2025 marked a return to double-digit new category revenue growth.

On profitability, Marroco said new category category contribution was around 12% in 2025, up from a break-even position in 2023, but cautioned that profitability progression would not be linear as the company reinvests behind premium innovation rollouts in 2026, including glo HYLO, VELO Shift, and Vuse Ultra.

Regional performance: U.S. reset, AME resilience, APMEA headwinds

U.S. BAT highlighted a return to both revenue and profit growth in the U.S. for the first time since 2022. Iqbal said U.S. combustibles revenue increased 4.6%, supported by price mix and execution improvements, with combustibles value share up 30 basis points. U.S. new category revenue grew nearly 20%, driven by modern oral, while full-year vapor revenue was down 3.4%; management said Vuse returned to revenue growth in the second half amid early signs of enforcement actions and a competitor exit that benefited share. Overall, U.S. revenue increased 5.5% and adjusted profit rose 5.9%.

Marroco also said VELO+ reached the No. 2 position in both U.S. modern oral volume and value share since its late-2024 launch, gaining nearly 18 points of volume share and nearly 14 points of value share. He said VELO+ drove over 300% modern oral revenue growth and achieved positive category contribution within its first 12 months. BAT also cited the launch of Grizzly Modern Oral, which reached close to 2% volume share by year-end, contributing to total U.S. modern oral volume share of 25.8%.

AME. In the AME region, BAT reported revenue growth of more than 3%, with combustibles up more than 2%. New category revenue increased 4.3%, mainly driven by modern oral growth of more than 17%. Heated products revenue rose more than 6%, supported by Italy, Germany, and Ukraine, while vapor declined by more than 11% amid what the company described as limited illicit enforcement in Canada and regulatory and excise changes in several European markets. Adjusted operating profit grew nearly 10%.

APMEA. In APMEA, BAT said growth in markets including Pakistan, Nigeria, and Indonesia was more than offset by fiscal and regulatory headwinds in Bangladesh and Australia. Total revenue declined 7.2% and combustibles fell 8.3%. Adjusted profit declined 17.9%. Iqbal said the company expects performance to stabilize in 2026 as Bangladesh laps prior-year declines and Australia becomes “progressively less material” year-on-year, though still a drag.

Costs, margin, and productivity programs

Group operating margin was broadly flat at 44%, with management saying inflationary and transactional FX pressures were offset by a strong U.S. performance, higher new category profitability, and cost savings. Iqbal said BAT has delivered £1.2 billion in productivity savings since 2023, absorbing roughly £300 million of inflationary cost increases in 2025.

Looking forward, BAT is targeting a further £2 billion of productivity savings by 2030. The company also increased expected annualized savings from its “Fit to Win” program to £600 million by 2028, with roughly £500 million expected by 2027 and the remainder by the end of 2028. Iqbal said associated costs are expected to total around £600 million over the next two years, with £500 million treated as adjusting items and most costs incurred in 2026, concluding in 2027.

2026 outlook: return to the midterm algorithm, with caveats

Management said it expects to return to its “Midterm Algorithm” in 2026, targeting 3%-5% revenue growth, 4%-6% adjusted profit from operations growth, and 5%-8% adjusted diluted EPS growth. Iqbal said 2026 is expected to come in at the lower end of those ranges and be second-half weighted due to the phasing of new category investment and the build of Fit to Win savings through the year.

On new categories, BAT said it expects low double-digit revenue growth in 2026, led by VELO globally, with further improvement in category contribution. Iqbal said the company is currently assuming flat volumes for Vuse in the U.S. in 2026, citing the time needed for enforcement to have a broader impact and noting that part of second-half 2025 momentum reflected a competitor delisting that would not repeat.

On cash returns and leverage, BAT said it raised its dividend 2% and maintained an adjusted net debt to adjusted EBITDA ratio of 2.55x at the end of 2025, while aiming to return to its 2.0x-2.5x target range by year-end. Management reiterated its goal to generate more than £50 billion in free cash flow by 2030 and emphasized priorities of investing in transformation, balancing deleveraging with progressive dividends and buybacks, and selective bolt-on M&A.

About British American Tobacco (NYSE:BTI)

British American Tobacco plc (BTI) is a multinational tobacco manufacturer and nicotine products company headquartered in London. Founded in 1902 as a joint venture to commercialize tobacco products outside the United States, the company has grown into one of the world’s largest tobacco firms with a long history in manufacturing and global distribution of combustible tobacco products.

BAT’s core business remains the manufacture and sale of cigarettes and other tobacco products under a portfolio of well-known consumer brands, including Dunhill, Lucky Strike, Pall Mall, Kent and Rothmans.