British American Tobacco $BATS (-0.05%) reported a 2.3% rise in annual profits to £11.28 billion ($15.36 billion) as its Velo nicotine pouch gained market share and sales of its newer e-cigarettes and heated tobacco products increased.
Velo's nicotine pouches are gaining market share from Philip Morris' Zyn $PM (-1.14%) and Altria's On! $MO (-1.01%) brand in the key US market, due in part to the higher nicotine strengths and introductory offers that BAT is using to expand the brand.
This contributed to BAT's revenue from a portfolio of newer products, including e-cigarettes and heated tobacco products, growing at double-digit rates in the second half of the year and 7% for the full year.
CEO Tadeu Marroco said in an earnings release that Velo now holds the second-largest market share in the U.S. behind Zyn and that adoption of its Vuse e-cigarette is growing despite continued pressure from unregulated products in the market.
》Highlights 《
● 4.7 million new consumers (to a total of 34.1 million) gained for our smoke-free brands
● Smoke-free products now account for 18.2% of Group sales, an increase of 70 basis points compared to financial year 2024
● Sales growth in new categories accelerated to double-digit levels in the second half of the year, with full-year growth of 7.0
● New category contribution increased by 77.1% to £442 million
● We are on track to reduce the leverage ratio to between 2.0 and 2.5 by the end of 2026, supported by continued strong cash conversion
● Dividend growth of 2.0% to 245.04 pence and share buyback worth £1.3 billion in 2026
》Outlook for 2026《
● The volume of the global cigarette industry is expected to decline by around 2%
》Lower end of our medium-term forecasts《
● 3-5% sales growth, with low double-digit sales growth in new categories
● 4-6% adjusted operating profit growth1,2 - weighted in the second half of the year
● Expected transaction-related exchange rate impact of approx. 1%
● 5-8 % adjusted growth in diluted earnings per share
● We expect a negative exchange rate effect of approx. 3% on adjusted diluted EPS growth
● Net financing costs are expected to be c. GBP 1.8 billion, subject to interest rate fluctuations
● Gross capital expenditure in 2026 will amount to approximately GBP 750 million
● Operating cash flow conversion will exceed 95%
● Leverage within our corridor of 2.0-2.5x adjusted net debt/adjusted EBITDA by year-end
● Commitment to sterling dividend growth and £1.3bn share buyback.
》Conclusion《
The conversion from traditional to new alternatives continues to progress successfully, further market share has been gained in important key markets and the forecast is for further constant growth with simultaneous debt reduction 👍🏻
