British American Tobacco p.l.c. — FY2023 Form 20-F
Reporting period: Year ended 31 December 2023. This is an annual report, not a standalone fourth-quarter filing; the supplied text does not provide clear Q4-only financial results. Financial statements are prepared under IFRS as issued by the IASB. KPMG issued an unqualified audit opinion and concluded internal control over financial reporting was effective.
Business context and strategy
BAT is a global tobacco and nicotine business operating through the U.S., Americas and Europe (AME), and Asia-Pacific, Middle East and Africa (APMEA). Its portfolio includes combustibles, traditional oral products and New Categories: Vapour, Heated Products and Modern Oral. Management refined its strategy around “Building a Smokeless World,” targeting 50% of Group revenue from non-combustibles by 2035. New Categories revenue was 16.5% of Group revenue in 2023, with 23.9 million non-combustible product consumers.
Key financial metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | £27.283bn; down 1.3% reported, up 1.6% at constant rates | £27.655bn |
| Profit/(loss) from operations | £(15.751)bn | £10.523bn |
| Adjusted profit from operations | £12.465bn; up 0.5% reported and 3.1% at constant rates | £12.408bn |
| Operating margin / adjusted operating margin | (57.7)% / 45.7% | 38.1% / 44.9% |
| Profit/(loss) for the year | £(14.189)bn | £6.846bn |
| Diluted EPS / adjusted diluted EPS | (646.6)p / 375.6p; adjusted EPS up 4.0% at constant rates | 291.9p / 371.4p |
| Net cash from operating activities | £10.714bn | £10.394bn |
| Total borrowings, including lease liabilities | £39.730bn | £43.139bn |
| Net debt | £34.640bn | £39.281bn |
| Net finance costs | £1.895bn | £1.641bn |
| Dividend per ordinary share | 235.52p, up 2.0% | 230.90p |
Revenue by region was £11.994bn in the U.S. (down 5.1%), £9.791bn in AME (up 5.4%) and £5.498bn in APMEA (down 4.0%). New Categories revenue rose 15.6% to £3.347bn; combustibles revenue fell 4.0% to £22.108bn, while cigarette volume declined 8.2% to 555 billion sticks.
Operating cash flow was strong despite the reported loss: the negative 68% cash-conversion ratio was driven by large non-cash impairment charges. Cash paid as dividends was £5.055bn. Liquidity included an undrawn £5.4bn revolving credit facility; average centrally managed debt maturity was 10.5 years. Cash and cash equivalents were £4.659bn, including £2.296bn of restricted amounts. Management reported debt maturities of about £3.2bn annually over the next two years.
Material changes versus the prior year
- A £27.3bn non-cash U.S. impairment drove the Group’s operating loss and EPS decline. The charge included £4.3bn for U.S. goodwill and £23.0bn mainly for acquired U.S. combustible brands. The impairment reflects weaker U.S. market forecasts, macroeconomic pressure, illicit single-use vapour products and menthol-ban uncertainty.
- From 1 January 2024, U.S. combustible brands previously treated as indefinite-lived will be amortised over periods not exceeding 30 years, adding an expected £1.4bn annual adjusting charge.
- The sale of the Russian and Belarusian businesses was completed in September 2023. Management cited a £456m comparative revenue headwind; the disposal generated a £159m net cash inflow.
- Reported revenue fell, but adjusted operating profit and adjusted diluted EPS grew at constant exchange rates. Foreign exchange was a 2.9% revenue headwind.
- Total borrowings declined, supported by cash generation and repayments; no share buybacks were made in 2023 as management prioritised balance-sheet deleveraging.
Outlook, commentary and risks
- Management expects approximately £550m of gross capital expenditure in 2024 and expects net finance costs to rise as debt is refinanced at higher interest rates. It says no forward-looking IFRS reconciliation is available for certain non-GAAP measures because foreign exchange, pricing and volume are too variable to estimate reliably.
- Management targets £5bn of New Categories revenue by 2025, 50 million non-combustible consumers by 2030 and 50% of revenue from non-combustibles by 2035. New Categories reached category-contribution profitability two years ahead of the original plan; this is not the same as overall Group profitability.
- Key risks include U.S. business deterioration, illicit trade, changing tobacco and nicotine regulation, product approvals, supply-chain disruption, foreign exchange and interest rates, litigation, taxation, cyber security and climate-related impacts. The proposed U.S. menthol rule remained uncertain; the administration’s stated target for a final rule was March 2024, but it was not bound by that timetable. California’s flavour ban affected U.S. sales.
- The Group reached a U.S. Department of Justice and OFAC settlement relating to historical sanctions breaches, with total payments of US$635m plus interest. A final payment of US$326m including interest was due in the first half of 2024; 2023 cash payments were £262m.
- Material contingencies include Canadian tobacco litigation and the CCAA proceedings involving Imperial Tobacco Canada. The filing says no provision was made for certain ongoing Canadian litigation because a potential settlement could not be reasonably estimated. A £145m provision was recorded for Netherlands tax disputes, including a further £70m recognised in 2023.
- The Board declared a 235.52p dividend for 2023, payable in four instalments during May 2024–February 2025. The Group affirmed it had sufficient resources for at least the next 12 months and prepared the accounts on a going-concern basis.
Important facts for investors to verify
- Review the assumptions and sensitivities behind the £27.3bn U.S. impairment, including brand useful lives, sales forecasts, discount rates and regulatory scenarios.
- Track U.S. combustible volumes, illicit vapour competition, menthol-rule developments and FDA decisions affecting Vuse and Velo products.
- Reconcile adjusted measures to IFRS results and confirm how the £1.4bn annual brand amortisation affects reported earnings from 2024.
- Monitor net debt, refinancing costs, restricted cash, upcoming maturities and cash available after dividends, U.S. settlement payments and Master Settlement Agreement obligations.
- Follow the outcome and potential financial exposure of Canadian litigation, the Netherlands tax disputes and other material legal proceedings.
- Assess progress toward New Categories profitability and stated consumer and revenue targets, alongside regulatory, product-safety and responsible-marketing risks.