British American Tobacco (($BTI)) has held its Q4 earnings call. Read on for the main highlights of the call.
The latest earnings call from British American Tobacco painted a picture of cautious optimism. While the company celebrated notable achievements in new category growth and financial flexibility, it also acknowledged significant challenges, particularly in the vapor market and in regions like Bangladesh and Australia. The overall sentiment reflected confidence in strategic investments and growth prospects, despite some headwinds.
Transformation Momentum and Financial Flexibility
The company reported sharpened execution and improved performance in the latter half of the year. Smokeless products accounted for 17.5% of group revenue, marking an increase of one percentage point from the previous year. Additionally, the new category contribution improved by GBP251 million, with a notable 7 percentage point rise in category contribution margin on an organic constant rates basis.
New Category Revenue Growth
British American Tobacco saw its group revenue grow by 1.3%, while new category revenue surged by 8.9%. Adjusted operating profit increased by 1.4%, and diluted EPS rose by 3.6%. Modern Oral revenue showed remarkable growth of 53% in 2024, experiencing strong performance across all regions.
Commitment to Shareholder Returns
The company’s enhanced financial flexibility has enabled it to initiate a sustainable share buyback, with leverage within the target range at 2.4 times. A progressive dividend with a 2% growth was also announced, demonstrating a strong commitment to shareholder returns.
Strong Performance in Europe
The growth in new categories allowed the European business to exceed the group’s mid-term revenue guidance. The region saw significant increases in absolute category contribution, driven by scale and efficiencies.
U.S. Market Recovery
Investments in the U.S. market have begun to yield positive results, with volume share stabilizing and plans for a return to growth in 2025. This comes despite ongoing macroeconomic pressures and challenges posed by illicit trade.
Challenges in the Vapor Market
Vapor revenue fell by 2.5% due to inadequate enforcement against illicit single-use vapes in the U.S. and Canada, which distorts competition. U.S. volumes declined by 4%, and the company warned that without stronger enforcement, illicit vapor products will continue to impact the legal market.
Impact of Market Exits and Supply Chain Issues
Organic volumes in combustibles declined by 5%, primarily due to market exits in the U.S. and supply chain disruptions in Sudan. Excluding these factors, the volume decline was at 3.5%.
Headwinds in Bangladesh and Australia
The company faces significant challenges in Bangladesh due to sharp excise increases and illicit trade, as well as in Australia from new tobacco regulations and rising illicit trade. These factors are expected to impact 2025 group revenue growth by 1% and group APFO growth by close to 2%.
Pressure from Macro and Illicit Trade in the U.S.
U.S. revenue declined by 3.4% amid ongoing macroeconomic pressures affecting affordability, and the impact of illicit vapor products on both combustibles and vapor.
Forward-Looking Guidance
Looking ahead, British American Tobacco provided guidance for 2025 and 2026, projecting a group revenue growth of around 1% for 2025, tempered by headwinds in Bangladesh and Australia. Despite these challenges, the company remains committed to achieving a 3% to 5% revenue growth and a 4% to 6% APFO growth by 2026. This optimistic outlook is supported by expectations of an improving U.S. financial performance, further growth in new categories, and significant cost efficiencies, targeting an additional GBP2 billion in savings by 2030. The company also plans to continue rewarding shareholders with progressive dividends and sustainable share buybacks.
In summary, British American Tobacco’s earnings call highlighted a blend of achievements and challenges, reflecting a sentiment of cautious optimism. The company is confident in its strategic investments and growth prospects, despite facing headwinds in certain markets. With strong financial flexibility and a commitment to shareholder returns, the company is poised for future growth.
