- Continued strong cash conversion
- Year-to-date shares up 36%
- Increased share buy-back programme by £200 million to £1.1 billion
Shares in British American Tobacco (BATS) made early gains this morning as the FTSE 100 tobacco giant said it was on track for the full year due to a return to growth in the US - the first time since 2022.
Revenue in the US grew by 1% (3.7% on a constant rates basis) driven by a mix of combustibles and the success of its nicotine pouch brand Velo Plus (with revenue of Modern Oral up 384% to £105 million).
However, the company behind cigarette brands Dunhill, Kent, and Lucky Strike saw a fall in group operating revenue of 2.2% to £12.1 billion for the six months to 30 June, ‘negatively impacted by a foreign exchange headwind of 4%.’
NEW CATEGORY GROWTH
New Categories continued to grow with revenue up 2.4% on a constant rates basis driven by Modern Oral (up 40.6%) and Heated Products (up 3.1%) at a detriment to its traditional oral category.
Group volume fell 10.4% to 2.8 billion stick equivalents. Total revenue for the first half was £542 million down 2.4% (but flat at constant foreign exchange rates).
The company said its New Categories performance is expected to accelerate in the second half of 2025, driven by the phasing of innovation launches.
Smokeless products now represent 19.5% of total revenue for the FTSE 100 tobacco giant.
WHAT DID THE CEO SAY?
Tadeu Marroco CEO of British American Tobacco said: ‘Our first half performance is slightly ahead of expectations. 2025 is a deployment year and we are firmly on track to deliver our full year guidance.
‘We added 1.4 million consumers (to 30.5 million) of our smokeless brands. Our smokeless portfolio now accounts for 18.2% of group revenue, an increase of 70 bps (basis points) versus full year 2024.
‘I am very pleased with our performance in the US. Revenue and profit are both up for the first time since 2022 and, alongside the successful launch of Velo Plus, our combustibles volume and value share performance have returned to growth.
‘Velo continues to go from strength-to-strength in the fastest growing New Category. Our Quality Growth focus, prioritising investment in the largest profit pools, delivered higher returns, with New Category contribution up 38.6% at £179 million at constant FX (foreign exchange), and further improvement expected for the full year.’
EARLY STAGE OF SUCCESSFUL TRANSITION
Analysts at Jefferies said: ‘We would expect a gently positive share price reaction today given the reassurance regarding the strong growth potential of Velo Plus and the robust US combustibles top-line growth in the first half of 2025.
‘British American Tobacco is, in our view, at an early stage of a successful transition towards a smoke free products-centric portfolio.’
Rae Maile, analyst at Panmure Liberum said: ‘There is no doubt that Velo is doing really well, but even with all the growth it has delivered it was just 4% of group revenues in the first half year.
‘As we have warned about the over-focus on Zyn at Philip Morris, modern oral does not seem like a two-horse race but a cavalry charge with a risk that wild horses could easily disrupt the best laid plans of the generals.
‘We will be pleased when we get into 2026 and beyond, and finally we can start looking at a simpler business, with simpler reporting and fewer words in its statements, and perhaps just a few more words about where the money continues to be made.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Sabuhi Gard) and the editor (Martin Gamble) own shares in AJ Bell.
