British American Tobacco has a problem every year and a fix that is finally paying off. On Thursday the maker of Lucky Strike and Dunhill cigarettes lifted its annual earnings forecast, as surging demand for its Velo nicotine pouches and a strong United States performance offset a sharp decline in Asia. The company now expects full-year growth in adjusted earnings per share towards the middle of its 5% to 8% range — a step up from its earlier guidance of the lower end.
Pouches over cigarettes
The engine of that upgrade is what BAT calls its New Categories — vapour, heated products and, above all, nicotine pouches. Revenue there accelerated to 18% growth at constant exchange rates, with modern-oral pouches now the biggest of the group's newer bets. Its share of the pouch market in its top countries climbed 8.4 percentage points to 39.2%. The number of people using its smokeless products has reached 35 million. For the six months to June, adjusted earnings rose 7.9% to 164 pence per share, ahead of the 158.5 pence analysts had expected.
Investors were harder to please. The shares fell as much as 3% on the day, trading around 2.8% lower, as the market weighed a slower recovery in Asia and guidance for revenue and operating profit that BAT held at the lower end of its ranges.
Betting the business on life beyond the cigarette
The transformation comes with a human cost. BAT is pressing ahead with a sweeping, AI-driven overhaul that will cut about 5,500 jobs and shift roughly 3,500 more roles to outside firms, including the consultancy Accenture — a restructuring that spares only its biggest market, the US. It is also returning cash, with a £1.3 billion share buy-back. And it sees a fresh opening in America, where a regulatory shift could unlock a market the company values at as much as £7 billion.
Chief executive Tadeu Marroco said the first half was “in line with expectations” and that the group is “firmly on track” for its full-year targets. The direction of travel is now unmistakable: BAT is betting its future on everything except the cigarette that built it.
