British American Tobacco p.l.c. (BTI) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial metrics, especially the operating margin and cash flow projections, which are positive indicators. The Q&A reveals optimism about Modern Oral's growth in the U.S. and increased share buybacks, further boosting sentiment. However, concerns about Australia's market and regulatory challenges in Vapour markets were noted but offset by strategic investments in growth areas. Overall, the sentiment leans positive, with potential for a stock price increase of 2% to 8%.
Key Financial Performance
Group Revenue Increased by 2.1% year-over-year, driven by accelerated momentum in the second half of 2025.
Adjusted Profit Rose by 3.4% year-over-year, supported by strong performance in the U.S. and Modern Oral globally.
New Categories Revenue Grew by 7% year-over-year, with Modern Oral up 48%, heated products up 1%, and Vapour down 9% due to illicit pressures in the U.S. and Canada.
Combustible Revenue Grew by 1% year-over-year, with volume decline offset by robust price/mix across markets.
U.S. Revenue Increased by 5.5% year-over-year, driven by a 4.6% increase in Combustibles revenue and nearly 20% growth in New Category revenue.
AME Revenue Grew over 3% year-over-year, with Combustibles up more than 2% and Modern Oral up over 17%.
APMEA Revenue Declined by 7.2% year-over-year, impacted by fiscal and regulatory headwinds in Bangladesh and Australia.
Operating Margin Broadly flat at 44%, with inflationary and FX pressures offset by strong U.S. performance and cost savings.
Free Cash Flow On track to deliver more than GBP 50 billion by 2030, despite 2025 cash delivery being impacted by CCAA upfront payment and deferred U.S. tax payments.
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Operating Highlights
Smokeless Consumers: Added 4.7 million smokeless consumers, reaching a total of 34.1 million, driven by strong performance in Modern Oral.
New Category Revenue: Revenue grew by 7%, with Modern Oral up 48% and heated products up 1%, offset by a 9% decline in Vapour.
Premium Innovations: Launched premium innovations like Velo Shift and glo Hilo, targeting premium segments and enhancing consumer experience.
U.S. Market: Returned to revenue and profit growth for the first time since 2022, driven by stronger combustibles and Modern Oral performance.
AME Region: Revenue grew over 3%, with Modern Oral leading at 17% growth and over 60% volume share in top markets.
APMEA Region: Faced challenges with a 7.2% revenue decline due to fiscal and regulatory headwinds in Bangladesh and Australia.
Productivity Savings: Achieved GBP 1.2 billion in productivity savings since 2023, targeting GBP 2 billion by 2030.
Fit2Win Program: Expected to deliver GBP 600 million in annualized savings by 2028, with GBP 500 million by 2027.
Transformation Strategy: Focused on becoming a predominantly smokeless business by 2035, with significant progress in new categories and premiumization.
Regulatory and Enforcement Progress: Positive developments in U.S. Vapour enforcement and FDA recognition of nicotine pouches' role in harm reduction.
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Risk or Challenges
Illicit pressures in Vapour category: The Vapour category experienced a nearly 9% decline in revenue, primarily due to continued illicit pressures in the U.S. and Canada. This has negatively impacted the company's ability to grow in this segment.
Regulatory and fiscal headwinds: Fiscal and regulatory challenges in markets like Bangladesh and Australia have impacted total group revenue by around 1% and group adjusted profit from operations by around 2%. These headwinds are expected to persist into 2026.
Competitive dynamics in heated products: Heightened competition in the value-for-money segment of heated products, particularly in South Korea and Japan, has negatively affected performance. This includes challenges from the phaseout of the super-slim platform.
Macroeconomic environment in the U.S.: The U.S. macroeconomic environment remains dynamic, with potential risks to the pace of Combustibles industry volume decline, which moderated to 7.4% in 2025.
Foreign exchange and inflationary pressures: The company faced approximately GBP 300 million in inflationary cost increases and transactional FX headwinds, particularly in Turkey, Japan, and Nigeria, impacting profitability.
Illicit Vapour products in the U.S.: An estimated 7% of the U.S. Vapour industry value remains illicit, posing challenges to compliant product sales and market share.
Resource reallocation in APMEA: Strategic decisions to reduce the footprint in certain Vapour markets and reallocate resources have led to revenue declines in APMEA, particularly in heated products and Vapour.
Cost of transformation programs: The Fit2Win program, aimed at organizational streamlining and efficiency, is expected to incur around GBP 600 million in associated costs over the next two years, which could strain short-term financials.
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Guidance & Outlook
Revenue Growth: The company expects to return to its midterm algorithm in 2026, targeting 3% to 5% revenue growth, with performance being second-half weighted.
Profit Growth: The company projects 4% to 6% adjusted profit from operations growth and 5% to 8% adjusted diluted EPS growth in 2026, with profit performance expected to be second-half weighted.
New Categories: The company anticipates low double-digit revenue growth in New Categories, led by Velo globally, and further improvement in New Category contribution.
Productivity Savings: The company targets GBP 2 billion in productivity savings by 2030, with GBP 600 million of annualized incremental savings expected by 2028. Around GBP 500 million of these savings are projected to be delivered by 2027.
U.S. Market: The company expects continued growth in the U.S. market, driven by strong performance in combustibles and Modern Oral products like Velo Plus.
APMEA Region: Performance in the APMEA region is expected to stabilize in 2026, supported by recovery in Bangladesh and reduced drag from Australia.
Innovation and Product Launches: The company plans to roll out new products like Velo Shift, Vuse Ultra, and glo Hilo in 2026, targeting premium segments and enhancing competitiveness in value-for-money segments.
Regulatory and Enforcement Progress: The company is optimistic about improved regulatory and enforcement actions in the U.S., particularly in the Vapour category, which could benefit compliant products like Vuse.
Cash Flow and Shareholder Returns: The company aims to generate more than GBP 50 billion in free cash flow by 2030, with a 2% increase in dividends and a GBP 1.3 billion share buyback planned for 2026.
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Shareholder Return Plan
Progressive Dividend: The company announced a 2% increase in its dividend for 2026, continuing its commitment to progressive dividend growth.
Share Buyback Program: The company announced an increase in its share buyback program to GBP 1.3 billion for 2026, up by GBP 200 million from the previous year.
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Key Q&A
Q:What are the expectations for Modern Oral performance in the U.S. for fiscal '26?
A:The company expects continued growth in the U.S. market for Modern Oral, driven by the strong performance of Velo Plus, which has a 70% retention rate and increasing daily consumption rates. Awareness of the brand is currently at 30%, and the company is investing in capacity to support growth.
Q:Are the expectations for Modern Oral in the U.S. underpinned by FDA approval of the European Velo product or the existing Velo Plus product?
A:The expectations are mainly driven by the existing Velo Plus product. However, the company is optimistic about the FDA's pilot program for nicotine pouches, which includes Velo Max, a higher moisture product.
Q:How is New Categories profitability expected to evolve in fiscal '26?
A:The company has improved profitability in New Categories, reaching a 12% category contribution. However, 2026 will see reinvestment in premium innovations like glo Hilo, Velo Shift, and Vuse Ultra, which may impact the pace of profitability growth.
Q:What factors could result in performance reaching the middle or upper half of the guidance range for fiscal '26?
A:Performance could improve with stronger enforcement against illicit Vapour products, better macroeconomic conditions, and successful rollout of premium innovations. However, challenges like regulatory changes in Poland and illicit Vapour markets remain.
Q:How does the company view the share progression of heated tobacco in 2026?
A:The company sees areas for improvement in heated tobacco, particularly with the launch of glo Hilo and revamped consumables. Initial tests show promising results, and the company expects to strengthen its position in this category.
Q:Which New Category excites the company the most for future growth?
A:Modern Oral is the most exciting category due to its rapid growth globally, even in markets without an oral tradition. The company is optimistic about its leading brand, Velo, and the increasing adoption of nicotine pouches.
Q:Why does the company consider Australia a drag on performance, and will it exit the market?
A:Australia's market is heavily impacted by illicit products, with 65% of the combustible market being illegal. The company sees diminishing significance in this market and may eventually exit if the situation does not improve.
Q:What percentage of the U.S. volume portfolio benefits from the excise duty drawback, and what is its future scope?
A:The company does not disclose specific percentages but highlights that its U.S. combustible revenue would be positive even without the duty drawback. The drawback supports local manufacturing and export, but its impact may peak in the near future.
Q:What are the moving parts for the low double-digit New Category revenue growth guidance for '26?
A:The guidance factors in stabilization of Vapour in the U.S., challenges in illicit Vapour markets, and competitive pressures in heated tobacco. Modern Oral is expected to lead growth, supported by its strong performance and market potential.
Q:What is the outlook for U.S. combustible volumes and pricing in 2026?
A:The company expects U.S. combustible volumes to decline at a rate of 6%-7% in the long term, with pricing remaining strong due to favorable elasticity. The company is also piloting Doral in deeper discount segments to capture value.
Q:What is the company's stance on Vapour enforcement outside the U.S.?
A:The company sees varying levels of enforcement globally, with some markets like France showing strong regulation and others like the U.K. needing improvement. The company is focusing on markets with better enforcement and pulling back from less regulated ones.
Q:What is the company's approach to share buybacks in 2026?
A:The company has increased its share buyback program to GBP 1.3 billion for 2026, focusing on sustainable returns while maintaining financial flexibility and deleveraging.
Q:What is the company's CapEx outlook for 2026 and beyond?
A:CapEx is increasing in 2026, primarily for investments in Modern Oral and New Categories. The company expects CapEx levels to remain stable in the near future, supporting high operating cash conversion.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the percentage of U.S. volume benefiting from the excise duty drawback and its future scope. Additionally, they did not clarify the exact impact of Vapour enforcement actions outside the U.S. or provide precise numbers for CapEx beyond 2026.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
APMEA
Australia group
BAT
Bangladesh Australia
Category Modern
FitWin
GBP productivity
GBP saving
Interim CFO
Member
New Categories
New Category
Nigeria
Vapour
buyback GBP
category contribution
combustible
confidence delivery
delivery AME
digit category
dividend share
gain
headwind Bangladesh
item
midterm algorithm
milestone
payment
premium innovation
productivity saving
program GBP
quality category
result end
saving GBP
scale benefit
sign enforcement
track record
BTI Transcript
British American Tobacco p.l.c. (BTI) Presents at Consumer Analyst Group of New York Conference 2026 Prepared Remarks Transcript
Neutral2-18
British American Tobacco p.l.c. (BTI) Q4 2025 Earnings Call Transcript
Positive2-12
The earnings call highlights strong financial metrics, especially the operating margin and cash flow projections, which are positive indicators. The Q&A reveals optimism about Modern Oral's growth in the U.S. and increased share buybacks, further boosting sentiment. However, concerns about Australia's market and regulatory challenges in Vapour markets were noted but offset by strategic investments in growth areas. Overall, the sentiment leans positive, with potential for a stock price increase of 2% to 8%.
British American Tobacco p.l.c. (BTI) Q2 2024 Earnings Call Transcript
Unknown7-25
The earnings call summary indicates several negative factors: declining group revenue, macroeconomic headwinds, and a decline in combustible volume. While there are positives like new category revenue growth and a share buyback program, the Q&A section highlights concerns about elasticity in U.S. combustibles and regulatory challenges. Overall, the negative aspects, particularly in the U.S. market, outweigh the positives, leading to a negative sentiment rating.
British American Tobacco p.l.c. (BTI) Q4 2023 Earnings Call Transcript
Positive2-8
The earnings call highlights strong financial performance, particularly in new categories with significant revenue and profitability growth. Despite challenges in the U.S. Combustibles market, BAT's strategic focus on innovation and expansion in Vapour and Modern Oral categories is promising. The Q&A reveals positive sentiment towards market strategies and shareholder returns, though some uncertainties remain. Overall, the positive aspects, including robust cash flow and strategic product launches, outweigh concerns, suggesting a likely positive stock price movement.
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