First-half revenue was up 2.9% before currency moves to £12.2bn (£12.2bn expected).
US growth was strongest at 8.5%, with pricing and duty-related rebates more than offsetting volume declines in traditional combustible products. In Asia Pacific, Middle East and Africa sales fell 6.3%, with the recovery proving slower than expected. Total revenues from smokeless products were up 26.9%.
Adjusted operating profit rose by a slightly slower 2.5% to £5.5bn.
Free cash flow increased by 85% to £2.3bn, reflecting improvements in cash management. Adjusted net debt increased by 6.1% to £32.0bn. Around half of the £1.3bn buyback program for 2026 has been completed.
2026 guidance was unchanged, pointing to the lower end of medium-term targets of 3-5% revenue growth and 4-6% adjusted operating profit growth.
The shares fell 1.0% in early trading.
Our view
First-half performance showed the growing importance of BATS’ early move into smokeless products. Total revenues from these products are far outpacing the wider business, with demand for oral pouches looking particularly strong. But traditional tobacco remains the core profit engine for now, and the cigarette business continues to lean on pricing to offset falling volumes.
That pricing power remains a strength, particularly in the US, but revenue growth was flattered by tax adjustments, and years of price rises appear to be testing smokers’ loyalty to BATS’ premium brands. Performance will need to pick up in the second half just to hit this year’s modest guidance.
That puts more weight on the long-term success of the smokeless portfolio. There is some evidence to suggest these products pose a reduced health risk compared to cigarettes, but they are coming under increasing scrutiny. For now, the regulatory tide appears to be moving in BATS’ favour, but the landscape is changing constantly, and not all decisions are likely to go the company’s way.
These products now make up a significant part of the revenue mix and are an increasingly important contributor to the bottom line, but it’s also too early to call how the long-term profitability of these products will compare with traditional tobacco. If margins are lower, that could undermine BATS’ attractive underlying operating margins, which have remained over 40% despite market challenges and higher inflation in recent years.
Consistently high cash flows do mean that the company is well-placed to make the investments necessary to keep pivoting away from cigarettes. That also supports a forward dividend yield of around 5.4%. The group also remains committed to ‘sustainable’ share buybacks.
However, it’s struggling to keep pace with distribution levels amongst some of its better-capitalised rivals. With net debt levels on the wrong side of the 2-2.5x underlying cash profit (EBITDA) target range, there’s a risk that payouts to shareholders get sidelined if balance sheet improvements aren’t delivered within the promised timelines. There can never be any guarantees.
The market has increasingly recognised BATS strong market position and leadership in new categories. That means the yield is not as attractive as it once was, putting more pressure on earnings to deliver upside. With smokeless products becoming more widely adopted, there is some scope for growth to accelerate. But regulatory risks, competition and the untested durability of the category’s long-term appeal are significant obstacles.
Environmental, social and governance (ESG) risk
The food and beverage industry tends to be medium-risk in terms of ESG, although some segments like agriculture, tobacco and spirits fall into the high-risk category. Product governance is a key risk industry-wide, especially in areas with strict quality and safety requirements. Labour relations and supply chain management are also industry-wide risks, with other issues varying by sub-sector.
According to Sustainalytics, BATS' overall management of ESG issues is strong. But we do have some concerns. The company has been consistently embroiled in tax and business ethics controversies. With tobacco being on the exclusion list of certain institutional investors, product impact is key and leaves the company open to penalties such as the £6.2bn incurred for Canadian healthcare settlements in 2025.
British American Tobacco key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.