Business Context and Reporting Period
Company: British American Tobacco p.l.c. (BAT)
Filing Type: 6-K (Preliminary Results Press Release)
Reporting Period: Year ended 31 December 2025
Release Date: 12 February 2026
BAT reported full-year 2025 results, highlighting accelerating momentum in its transformation strategy. The Group added 4.7 million consumers to its Smokeless portfolio, reaching 34.1 million. Smokeless products now account for 18.2% of Group revenue. Performance was driven by strong growth in the U.S. combustibles and Modern Oral categories, partially offset by regulatory and fiscal challenges in APMEA.
Key Financial Metrics
| Metric | 2025 Reported | 2025 Adjusted (Constant Currency) | YoY Change (Reported) |
|---|---|---|---|
| Revenue (£m) | 25,610 | 26,414 (+2.1%) | -1.0% |
| Profit from Operations (£m) | 9,997 | 11,936 (+0.4%) | +265% |
| Adjusted Profit from Operations (ex-Canada) (£m) | 11,628 | 11,628 (+2.3%) | N/A |
| Operating Margin (%) | 39.0% | 44.0% (Adj, ex-Canada) | +28.4 ppts |
| Diluted EPS (pence) | 349.1 | 352.8 (Adj, ex-Canada, CC) | +157% |
| Net Cash from Operating Activities (£m) | 6,342 | 6,882 (Adjusted) | -37.4% |
| Free Cash Flow (before dividends) (£m) | 4,048 | N/A | -48.8% |
| Adjusted Net Debt to Adjusted EBITDA | 2.48x | 2.55x (ex-Canada) | +0.05x |
Material Changes vs. Prior Period
- Profit Surge: Reported profit from operations increased 265% primarily due to a £708 million net credit related to the Canadian litigation settlement provision, contrasting with a £6.2 billion charge in 2024. Adjusted profit from operations (excluding Canada) grew 2.3% at constant currency.
- Revenue Dynamics: Reported revenue declined 1.0% due to a 3.1% translational FX headwind. Underlying revenue grew 2.1% at constant rates, driven by U.S. combustibles price/mix and Modern Oral growth.
- Regional Performance:
- U.S.: Revenue up 5.5% (CC); Modern Oral revenue up 310% (CC) driven by Velo Plus.
- AME: Revenue up 3.3% (CC); strong performance in Brazil, Romania, and Turkey.
- APMEA: Revenue down 7.2% (CC) due to regulatory/fiscal challenges in Australia and Bangladesh.
- Cash Flow: Operating cash flow declined 37.4% due to a £2.6 billion upfront payment for the Canadian settlement and a £678 million deferral of U.S. tax payments from 2024.
Guidance, Outlook, and Risks
2026 Outlook:
- Revenue Growth: 3-5% (constant currency), with low double-digit growth expected in New Categories.
- Adjusted Profit from Operations: 4-6% growth (constant currency), weighted to H2.
- Adjusted Diluted EPS: 5-8% growth (constant currency).
- Leverage: Target to reduce adjusted net debt to adjusted EBITDA to within 2.0-2.5x by end-2026.
- Capital Allocation: Dividend growth of 2.0% to 245.04p and a £1.3 billion share buy-back programme.
Management Commentary: CEO Tadeu Marroco expressed confidence in delivering the mid-term growth algorithm, citing strong U.S. execution and the success of Velo Plus. Vuse performance is improving but remains impacted by illicit proliferation.
Risks and Contingencies:
- Canadian Settlement: Ongoing annual payments based on net income (excluding New Categories) until the CAD$32.5 billion aggregate liability is settled.
- Regulatory/Litigation: Continued impact of illicit trade in Vapour (U.S., Canada, Australia); tax disputes in the Netherlands and Brazil; and ongoing investigations into misconduct allegations.
- FX Exposure: Expected transactional FX headwind of c.1% and translational headwind of c.3% on EPS in 2026.
Investor Verification Checklist
- Canadian Settlement Impact: Verify the sustainability of the £708 million credit and the long-term cash outflow implications of the Approved Plans (85% of net income from Canadian combustibles).
- Adjusted EPS vs. Reported: Confirm the divergence between reported EPS (+157%) and adjusted EPS (+3.4% ex-Canada) to understand underlying operational performance.
- U.S. Vapour Illicit Trade: Assess the timeline and effectiveness of federal/state enforcement actions on Vuse revenue recovery.
- APMEA Headwinds: Monitor regulatory developments in Australia and Bangladesh regarding excise taxes and illicit trade.
- Cash Flow Normalization: Review the impact of the one-off Canadian upfront payment and U.S. tax deferral on 2025 free cash flow versus 2026 expectations.