Chief Executive’s Review
For BAT, A Better Tomorrow™ is very clear. We will work to Build a Smokeless World. The way we will do this is by switching as many smokers as we can to our smokeless products.
Chief Executive’s Review
Building a Smokeless World
Dear Stakeholders,
I was very proud to be appointed Chief Executive in May 2023. Having worked at BAT for over three decades, it was an honour to be given the opportunity to lead the business.
Despite an increasingly difficult external environment, I believe we are at a moment of enormous potential for BAT and the tobacco and nicotine sector as a whole.
In order to realise that potential, we must address a number of strategic choices.
Fundamentally, BAT today is a business built to deliver resilient performance, even during uncertain times.
Our geographical diversity and multicategory product portfolio are underpinned by long-term investments in our brands.
Combined with a culture that values delivery today while pursuing future opportunities, we are well positioned to continue delivering stakeholder value over the years to come.
Full-Year 2023 Performance
During 2023, the underlying strengths of BAT were reflected in our performance, despite a challenging environment. While total Group revenue declined 1.3%, revenue at constant currency was up 1.6%, despite the negative impact due to the sale of Russia and Belarus partway through the year.
I was pleased with the performances of AME (with revenue up 5.4%) and APMEA, although APMEA was impacted by a translational foreign exchange headwind which masked a good operating performance as revenue declined 4.0% (up 5.5% at constant rates1). As a result of a particularly difficult macro-economic environment, the U.S. was down 5.1%.
There was another strong performance from our New Categories which are now profitable at the category contribution level (two years ahead of our original plan), driven by higher revenue (up 15.6%, or 17.8% on a constant currency basis). We currently have 24 million consumers of Non-Combustible products and revenue from these products now accounts for 16.5% of Group revenue.
2023 has brought some unique challenges to the Group, including:
– Having concluded it was no longer sustainable in the current environment, I was pleased that we completed the sale of our Russian and Belarusian businesses in September 2023. As a result, we no longer have a presence in Russia or Belarus and will receive no financial gain from ongoing sales in these markets; and
– Reflecting the difficult trading environment in the U.S., uncertainty regarding the impact of the potential menthol ban and continued drag on our legal Vapour business by illicit single-use products, we have impaired certain U.S. assets (including goodwill and our combustible trademarks), recognising a non-cash charge of £27.3 billion.
In the face of significant turbulence in our operating environment, I am assured by the resilience demonstrated by the business. However, the prospect of ongoing volatility means that there is no room for complacency and this necessitates greater strategic clarity.
A Refined Strategy
As I have said before, the direction of our strategy that was laid out in 2020 remains the right one. What is required now is a clearer articulation of our vision and an improved focus on sharper execution.
The ongoing success of our New Categories business, combined with the underlying strengths of BAT, mean that we are well placed to realise our potential.
Delivering long-term, multi-stakeholder value has long been our aim. What is now required is a clearer picture of how that can create A Better Tomorrow™.
As such, we have refined our strategy to map out how we plan to deliver for stakeholders going forward. Underpinning this is a revised set of values for our employees. Further details on our strategy and values can be found on pages 14-17 our BAT Combined Performance and Sustainability Summary 2023.
For BAT, A Better Tomorrow™ is very clear. We will work toward Building a Smokeless World. The way we will do this is by switching as many smokers as we can to our smokeless products.
As a business, we are committed to becoming a predominantly smokeless business, targeting 50% of our revenue from Non-Combustibles by 2035. With a refined strategy, having refreshed my Management Board and having a new set of Group-wide values, I believe the business now clearly understands the areas we need to focus on.
These areas fall under three pillars: Quality Growth, Sustainable Future and Dynamic Business.
Quality Growth
Quality Growth marks our transition from the first stage of our transformation journey. Where our New Categories focus was weighted toward revenue growth, it will now pivot to a more balanced focus on top-line and bottom-line delivery.
Key to delivering this is a focus on brands and innovation, efficiency and margin delivery across our business. We will do this while maintaining our competitive position, and progressing our pilot launches for the long-term into categories Beyond Nicotine.
A core part of this pillar will be stabilising the performance of our U.S. business. Despite recent challenges, the U.S. remains the most profitable tobacco and nicotine market in the world and a core part of our future plans to Build a Smokeless World.
While the FDA and state level regulatory proposals have driven some uncertainty in the U.S. operating environment, our long track record of managing regulatory change gives us confidence that we will be able to navigate these issues.
Sustainable Future
The Sustainable Future pillar reemphasises our overarching goal of creating A Better Tomorrow™.
Science will continue to be a primary driver of our efforts. We will support the science behind smokeless products through more active external engagement, including with regulators. We will work to provide more consumers around the world with access to smokeless products in a responsible manner.
Of course, further embedding sustainability and integrity into all of our activities will continue to be a priority and you can read more about our efforts there on page 28 our BAT Combined Performance and Sustainability Summary 2023.
Dynamic Business
The Dynamic Business pillar highlights our commitment to strengthening our already winning organisation and ensuring we are efficient and effective in all of our operations.
By focusing here and being data-driven, we believe we can create the financial flexibility to invest in our people, our products and provide returns to our investors.
Key to delivering on our refined strategy are the thousands of people around the world who work at BAT and the culture that they operate in.
Our new Chief People Officer, Dr Cora Koppe-Stahrenberg, and I will be working closely together, to foster the kind of human-centric, skills-enabled and performance-driven organisation that is essential to driving forward our strategic agenda.
Increasing our financial flexibility is another core part of the Dynamic Business pillar. Continuing our disciplined approach to capital allocation and debt management will be crucial. Having moved into the middle of our leverage range, at 2.57 times adjusted net debt to adjusted EBITDA, we have increasing flexibility to deliver long-term value while taking into account macro-economic and regulatory developments.
Facing the Future with Confidence
Looking to the future, it is clear to me that the fundamentals of our strategy remain correct.
We have rearticulated our purpose to clarify our intention to move our business beyond cigarettes, and we will continue to address the difficult decisions that this purpose entails.
We are sharpening our executional focus to enable high quality, repeatable growth, supported by science, stakeholder engagement and with sustainability and integrity at the core.
We are an organisation ready to deliver, with operational excellence and an ability to flexibly manage our capital allocation decisions for the benefit of all stakeholders.
It is an exciting time to be part of BAT and I look forward to working with colleagues around the globe to Build a Smokeless World and drive A Better Tomorrow™.
Tadeu Marroco
Chief Executive
Notes:
1 Please refer to the Non-GAAP section from page 335 of the Annual Report and Form 20-F 2023 for the Non-GAAP measures definitions.
* Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive.
† Our Vapour product Vuse (including Alto, Solo, Ciro and Vibe), and certain products, including Velo, Grizzly, Kodiak, and Camel Snus, which are sold in the U.S., are subject to FDA regulation and no reduced-risk claims will be made as to these products without agency clearance.
Chair's Introduction
Our strategy and purpose were discussed extensively during 2023. The result of these discussions was the decision to provide greater clarity on what we mean by A Better Tomorrow™. It means we are committed to Building a Smokeless World.
Chair’s Introduction
Transformation in Action
Our strategy and purpose were discussed extensively during 2023. The result of these discussions was the decision to provide greater clarity on what we mean by A Better Tomorrow™. It means we are committed to Building a Smokeless World.
Dear Fellow Shareholders,
During 2023, the world continued to experience a period of extensive and prolonged uncertainty.
The global economy has entered an era of upheaval, as geopolitical tensions continue to destabilise economies and societies.
Cost-of-living pressures are being compounded by inflation, and this represents a significant challenge for major economies. This has resulted in re-adjustments in work habits and in consumer behaviour.
Ambiguity and uncertainty have long occupied discussions in boardrooms, but I cannot recall a time when this was so pronounced.
As always, my colleagues around the world have responded to the operating environment with resilience and resourcefulness. I would like to thank them, on behalf of the Board, for their ongoing dedication and diligence.
Leadership for the Future
In May 2023, the Board announced a change in the leadership of BAT, with Tadeu Marroco appointed as Chief Executive.
With 30 years of experience across the entire business, Tadeu was the outstanding choice to lead BAT into the next chapter of its history.
With his track record of delivering transformation, building strong teams and ensuring financial discipline, Tadeu is well placed to build on our A Better Tomorrow™ strategy that was first articulated in 2020.
Following his appointment, in June 2023 Tadeu reshaped his Management Board to support a greater focus on improved execution and operational excellence. Having also appointed a new Chief People Officer and with a new Chief Financial Officer due to join us from 1 May 2024, the Board believes the management team at BAT is well placed to execute on the strategy of the business to deliver long-term value for stakeholders.
Refining our Strategy and Purpose
In the context of a rapidly changing world, it is important that shareholders have a holistic view of BAT and our place in it.
This is the second year that we have embedded our sustainability data into our Annual Report.
Our combined Annual and Sustainability Report again represents the fullest depiction of BAT’s business strategy and performance.
Our strategy and purpose were discussed extensively during 2023. The result of these discussions was the decision to provide greater clarity on what we mean by A Better Tomorrow™. It means we are committed to Building a Smokeless World.
This is a commitment to migrate our cigarette consumers actively, sustainably and responsibly to reduced risk*†, smokeless alternatives. In so doing, BAT will deliver for consumers, investors and society, while employees will benefit from a purpose-driven business that they can feel excited about.
Built around the three pillars of Quality Growth, Sustainable Future and Dynamic Business the Board believes this refined strategy is right for the long-term success of BAT. Tadeu discusses this in more detail on page 8 of our BAT Combined Performance and Sustainability Summary 2023 and further information on the refined strategy can be found on page 14.
The refined strategy is a natural extension of the foundations that were laid in 2020 and provides clarity on what BAT intends to focus on in the years to come.
The Board has been engaged in much discussion during the year about 'what' the business should deliver in the future. It is, of course, important for shareholders to understand 'how' we have delivered this year and how we think success should be measured against the refined strategy going forward. Our Combined Annual and Sustainability Report seeks to do that, while honing our non-financial disclosures towards the reporting requirements of the EU Corporate Sustainability Reporting Directive (CSRD).
Our Values and Culture
A strategy is little without the right culture instilled across the organisation to deliver it. A truly dynamic business is one where the people within it understand the strategic aims and the expected behaviours to achieve them.
Values are an important facet of continuing to be an exciting and winning company. It is why the Board was pleased to see a set of rearticulated values being developed in parallel with the refined strategy.
Long-Term View of the Business
Despite an increasingly turbulent external environment, the fundamentals of the tobacco and nicotine sector remain attractive, and the Board believes BAT is in a strong position to realise its potential.
The growth of adult smokers seeking smokeless alternatives is a long-term, sectoral trend. There remain more than one billion adult smokers in the world and there are many jurisdictions which, with the right regulatory approach, could see smoking rates decline faster through greater acceptance of smokeless products.
With our multi-category portfolio, BAT is well placed to capitalise on this consumer shift to smokeless products while continuing to manage the combustible cigarette business in a responsible manner.
We believe that growth within the smokeless category will be driven by sustained investment in our brands and targeted innovation to respond to evolving consumer preferences and tastes. Combined with active portfolio management, we believe that continuing to invest in our brands is fundamental to sustaining BAT's performance for the future.
Dividends
Reflecting the confidence in our business and its future prospects, the Board has declared a dividend of 235.52p per ordinary share, payable in four equal instalments of 58.88p per ordinary share, to shareholders registered on the UK main register or the South Africa branch register and to American Depository Shares (ADS) holders, each on the applicable record dates.
The dividends receivable by ADS holders in US dollars will be calculated based on the exchange rate on the applicable payment dates.
Further information on dividends can be found on page 38 of our BAT Combined Performance and Sustainability Summary 2023.
Board Changes
I was very pleased to welcome Murray Kessler and Serpil Timuray to our Board this year.
Both Murray and Serpil join the Board as independent Non-Executive Directors and members of the Nominations and Remuneration Committees.
Murray possesses extensive leadership experience in growing consumer product companies and managing regulated businesses.
Serpil also brings experience in growing consumer and enterprise product companies, as well as managing global strategy, marketing, innovation and digital transformation.
I am looking forward to their respective contributions as we accelerate our strategy to build A Better Tomorrow™.
Summary and Outlook
While sustained volatility and uncertainty will continue to present challenges, we believe BAT remains well-positioned and resilient.
We are diversified by category, price point and geography. Our smokeless portfolio has been designed to take advantage of sectoral shifts. Our people are highly engaged and have a track record of delivery during uncertain times.
Additionally, our continued investment in our brands and deep understanding of our consumers position us well to capture opportunities in tobacco, nicotine and beyond, markets we believe have very attractive fundamentals.
BAT’s Board and leadership team remain focused on securing long-term, sustainable value creation, by nurturing BAT’s culture, building our brands, and delivering A Better Tomorrow™.
Luc Jobin
Chair
Notes:
* Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive.
† Our Vapour product Vuse (including Alto, Solo, Ciro and Vibe), and certain products, including Velo, Grizzly, Kodiak, and Camel Snus, which are sold in the U.S., are subject to FDA regulation and no reduced-risk claims will be made as to these products without agency clearance.
Interim Finance Director's Overview
Despite the U.S. impairment negatively impacting our reported results, the Group's operational financial performance demonstrates the resilience of the business. We are highly cash generative and remain committed to our capital allocation framework.
Interim Finance Director's Overview
Despite the U.S. impairment negatively impacting our reported results, the Group's operational financial performance demonstrates the resilience of the business. We are highly cash generative and remain committed to our capital allocation framework.
2023 has been a challenging year as we navigated a number of issues in our performance.
Our New Categories business is already profitable (at the category contribution level), two years earlier than our original plan, while our global footprint allows us to deliver on our financial priorities despite a challenging U.S. environment.
I am particularly pleased that our disciplined approach to capital allocation and debt management has brought us closer to the middle of our leverage range (at 2.6x adjusted net debt to adjusted EBITDA). We remain highly cash generative, allowing us to balance investment in the future while rewarding shareholders with a further increase in dividends (up 2.0% to 235.5p, being 25 years of annual dividend increases).
The sale of our businesses in Russia and Belarus was completed in September 2023, and due to the timing of the transaction partway through the year, this was a headwind on our comparative performance as 2023 does not include a full year's performance from those markets. Combined with a lower underlying performance as we reduced investment and focus on Russia, the comparative impact on revenue was £456 million.
During 2023, we have observed an acceleration of the decline rates in cigarette volume in the U.S., after a period of instability in market trends driven by the COVID-19 pandemic. In response to these increased decline rates, we have revised our forecast performance for the U.S. market, reflecting the ongoing difficult macro-economic environment, uncertainty regarding the impact of the potential menthol ban and continued drag on our legal Vapour business by the illicit single-use products. Accordingly, we have recognised a non-cash impairment charge of £27.3 billion, of which £4.3 billion is in respect of goodwill.
The balance of £23.0 billion mainly relates to the acquired U.S. combustibles brands of Newport, Camel, Natural American Spirit and Pall Mall which are now considered to have a useful economic life not exceeding 30 years, rather than into perpetuity, aligned with our strategy to Build a Smokeless World.
We will, therefore, be commencing amortisation of the U.S. cigarette brands (previously recognised for accounting purposes as indefinite-lived) from 1 January 2024. This non-cash charge of £1.4 billion per annum will be treated as an adjusting item.
New Categories Driving Group Revenue Growth
Total Group revenue declined 1.3% to £27,283 million in 2023 (having grown 7.7% in 2022 to £27,655 million).
However, excluding foreign exchange movements (which were a headwind of 2.9% in 2023 and a tailwind of 5.4% in 2022)on a constant currency basis, revenue was up 1.6% in 2023 and 2.3% in 2022.
This was driven by:
– New Categories revenue, up 17.8% in 2023 and 37.0% in 2022; and
– continued combustibles pricing, with Group price/mix of 7.5% in 2023 (4.6% in 2022);
and partly offset by:
– the impact of the sale of the Russian and Belarusian businesses; and
– lower combustibles volume (down 8.3%in 2023) largely due to the difficult trading in the U.S. where volume was 11.3% lower.
Profit from operations declined 250% to be a loss of £15,751 million, compared to a profit of £10,523 million in 2022, an increase of 2.8%.
The decline in 2023 was due to the impairment charges referred to earlier in respect of the U.S. (goodwill and brands). 2022 was negatively impacted by a number of other adjusting charges which did not repeat or were substantially lower in 2023.
These include the previously disclosed charges in respect of:
– The sale of the Russian (and Belarusian) business (2023: £353 million, 2022: £612 million);
– Restructuring and integration programmes, including Quantum, being a release in 2023 of £2 million from the previously recognised provision, which was a charge of £771 million in 2022;
– The agreement with the United States Department of Justice (DOJ) and the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) to resolve historical breaches of sanctions (2023: £75 million,2022: £450 million); and
– A charge in 2022 of £79 million related to the conclusion of the investigation into alleged violations of the Nigerian Competition and Consumer Protection Act and National Tobacco Control Act.
These charges were partly offset by a net credit of £167 million (2022: £460 million) in Brazil as the Group revised the calculation of VAT and excise on social contributions in prior periods following updated guidance and the conclusion of litigation.
Our operating margin was consequently 95.8 ppts lower at -57.7% in 2023 (2022: down 170 bps to 38.1%).
Excluding these significant adjusting items, and a translational foreign exchange headwind of 2.6%, on an adjusted constant currency basis (which we believe reflects the operational performance of the Group) profit from operations grew by 3.1% (2022: up 4.3%), due to the continued reduction in losses of £398 million from New Categories, which are now profitable at a category contribution level- two years ahead of our original plan.
Adjusted operating margin (at current rates) increased 80 bps to 45.7% (2022: up 150 bps to 44.9%) driven by the reduction in New Categories losses in both years, combined with the impact of the disposal of the Group's businesses in Russia and Belarus, as the margins of those businesses were lower than the Group average.
EPS Impacted by U.S. Impairment, Offsetting Resilient Operating Performance
On a reported basis, basic EPS was down 320% at -646.6p (2022: down 1.2% at 293.3p) with diluted EPS 322% lower at -646.6p (2022: down 1.3% to 291.9p), as 2023 was impacted by the impairment charges recognised in respect of the U.S.
Excluding both the adjusting items and the effect of foreign exchange on the Group’s results, adjusted diluted earnings per share, at constant rates, increased by 4.0% to 386.4p, building on the 5.8% growth in 2022. The performance in 2023 was also impacted by the timing of the sale of the Group's businesses in Russia and Belarus during the year, a negative headwind on the performance of 1.2%.
Active Capital Allocation Framework Ensures Deleverage, Investment and Investor Returns
We remain committed to our active capital allocation framework, which we expect will deliver long-term value to our shareholders, driven by our cash flow generation and deleverage plans.
These include:
– Continuing to grow the dividend;
– Maintaining our target leverage corridor of 2-3x adjusted net debt to adjusted EBITDA;
– Potential bolt-on M&A opportunities; and
– Share buy-backs to enhance shareholder returns.
The Group remains highly cash generative, realising £10.7 billion (2022: £10.4 billion) of net cash generated from operating activities. This translates to £3.3 billion (2022: £3.1 billion) of free cash flow after dividends.
This allowed for a net repayment of borrowings in the year, with total borrowings (including lease liabilities) down from £43,139 million in 2022 to £39,730 million in 2023.
Consequently, our leverage ratio has improved towards the middle of our range, with an adjusted net debt to adjusted EBITDA ratio decreasing from 2.9 times to 2.6 times.
Our liquidity profile remains strong, with average debt maturity close to 10.5 years and maximum debt maturities in any one calendar year of around £4 billion. Our medium-term rating target remains Baa1/BBB+, with a current rating of Baa2 (positive outlook), BBB+ (negative outlook), BBB (positive outlook) from Moody's, S&P and Fitch*, respectively.
In August 2023, the Group completed a tender offer to repurchase sterling-equivalent £3,133 million of bonds, including £43 million of accrued interest, reducing future refinancing risk. The Group has debt maturities of around £3.2 billion annually in the next two years. Due to higher interest rates, net finance costs are expected to increase as debts are refinanced.
25 Years of Consistent Dividend Growth
We are extremely proud of our long history of dividend growth.
2023 marks the 25th consecutive year of sterling dividend increases, with a further increase of 2.0% to 235.52p (with a dividend payout ratio of 62.7%).
Facing the Future with Increasing Confidence
Our business is well placed for the future.
With a diversified geographic and product portfolio, and a track record of delivering robust and consistent cash generation, we believe the Group is well positioned to continue to invest for future growth while navigating the near-term macro-economic uncertainties and challenges.
Javed Iqbal
Interim Finance Director
Note:
* A credit rating is not a recommendation to buy, sell or hold securities. A credit rating may be subject to withdrawal or revision at any time. Each rating should be evaluated separately of any other rating.
Our year in numbers
Our Performance Metrics
Number of Non-Combustible Product Consumers1
Cigarette and HP volume share growth (bps)
Cigarette and HP value share growth (bps)
2021: +20 bps
Vapour (mn 10ml units/pods)
HP (bn sticks)
2021:19
Cigarettes (bn sticks)
2021: 637
(Loss)/Profit from Operations (£m)
Revenue (£m)
2021: 25,684
Revenue from New Categories (£m)
2021: 2,054
Scope 1 and 2 (market-based) CO2e emissions(thousand tonnes)@◆@
% female representation in Management roles@◆@
2021: 39
% reduction in waste generated
2021: 14.1
Notes:
1. Compared to a 2020 baseline. Our near-term 2030 science-based targets comprise 50% reduction in Scope 1 and 2 and 50% reduction in Scope 3 GHG emissions. Scope 3 emissions target includes purchased goods and services, upstream transportation and distribution, use of sold products and end-of-life treatment of sold products, which collectively comprised >90% of Scope 3 emissions in 2020.
◆ 2023 (2022 for Scope 3) metrics with independent limited assurance by KPMG in accordance with ISAE (UK) 3000; see page 119 of the Annual Report and Form20-F 2023 for a full list of assured metrics.
@ Environmental and health and safety data is reported for the period 1 December 2022 to 30 November 2023. See page 115 for CO2e emissions reporting methodology.
A refined purpose:
The best choice any adult smoker can make will always be quitting combustible tobacco products completely.
For the last few years, our aim has been to build A Better Tomorrow™. This has meant working to reduce the health impact of our business by offering
adult consumers a greater choice
of enjoyable and reduced-risk*† products compared to cigarettes.
Now is the time to take a step forward.
Notes:
* Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive.
† Our Vapour product Vuse (including Alto, Solo, Ciro and Vibe), and certain products, including Velo, Grizzly, Kodiak, and Camel Snus, which are sold in the U.S., are subject to FDA regulation and no reduced-risk claims will be made as to these products without agency clearance.
A Better Tomorrow™ means Building a Smokeless World.
A smokeless world built on smokeless products where, ultimately, cigarettes have become a thing of the past.
A world where smokers have migrated from cigarettes to smokeless alternatives.
A world where Tobacco Harm Reduction is both accepted and understood.
A world where smokers make a switch to the better.
Our Refined Strategy
To accelerate the next phase of our transformation, we are committing to ‘Building a Smokeless World’. This means we will deploy our global multi-category portfolio to actively encourage smokers to switch to smokeless products – in nicotine and beyond.
Our Multi-Category Portfolio
BAT is a consumer-focussed business operating internationally. Our multi-category approach means we are well placed to provide adult consumers with products designed for every mood and moment. Our portfolio reflects our commitment to meeting the evolving and varied needs of today’s adult consumers.
Vapour products are battery-powered devices that heat e-liquids to produce an inhalable aerosol, commonly known as vapour. Although e-liquids usually contains nicotine, there is no tobacco in Vapour products.
Brands
Heated Products (HPs) comprise two main functional parts; an electronic handheld device that contains a lithium-ion battery that powers a heating chamber: and a specially designed consumable that is inserted into the device. Everything has been designed so that nicotine and flavour are released through precision heating.
Brands
Modern Oral products are pouches which contain high purity nicotine, water, and other high-quality ingredients. Consumers place the disposable pouch between their gum and upper lip, typically for around 30 minutes, during which time nicotine and flavours are released and the nicotine is absorbed through the tissues lining the mouth.
Brands
Traditional Oral products include snus and snuff. Snus is a moist form of oral tobacco originating from Sweden. It is available in loose form or as pouches. The tobacco is typically mixed with water, salt and aromas.
Brands
The Group sold 555 billion cigarette sticks and 15 billion OTP (stick equivalents) in 2023. The Group operates internationally, with 38 fully integrated cigarette manufacturing facilities in 36 markets.
Brands
U.S. Specific
Our Global Business
Our regional profile maximises opportunities for quality growth in our sector. Each of our markets is accountable for its own performance and driving growth.
Our in-depth marketplace analysis delivers insights on consumer trends and segmentation, which facilitates our geographic brand prioritisation across our regions and markets.
Consumer preferences and technology are evolving rapidly, and we are staying ahead of the curve with our digital hubs and innovation centres. We are also leveraging the expertise of our external partners and are looking forward to exciting results from our venturing initiative, Btomorrow Ventures.
Our Three Complementary Regions
Map is accurate as at 31 December 2023 and is representative of general geographic regions and does not suggest that the Group operates in each country of every region. Select a region to learn more
Select a region to learn more
U.S.
Regional revenue
Combustibles
New Categories
Traditional Oral
Other
2023 has been a challenging year in the U.S., due to the continued macro-economic environment impacting the premium sector and the growth of illicit single-use vapour products. We call on the FDA and other authorities to enforce against these products.
President and CEO (Reynolds American Inc.)
Cigarette value share change
Revenue growth in New Categories
ENA
Regional revenue
Combustibles
New Categories
Traditional Oral
Other
Across AME, we are demonstrating how a truly multi-category portfolio can deliver exceptional results - with revenue growth in all categories. Our Non-Combustibles grew strongly and now account for 17.5% of total revenue.
Regional Director
Cigarette value share change
Revenue growth in New Categories
APME
Regional revenue
Combustibles
New Categories
Traditional Oral
Other
A good performance across the region, driven by combustibles pricing and our growing New Categories portfolio, was masked by translational foreign exchange headwinds.
Regional Director
Cigarette value share change
Revenue growth in New Categories
Map is accurate as at 31 Dec 2022 and is representative of general geographic regions and does not suggest that the Group operates in each country of every region.
Our business is divided into three complementary regions, with a balanced presence in both high-growth emerging markets and highly profitable developed markets.
regions
major product
categories
employee
nationalities
employees
Our Business Model
As a global business, we strive to understand our diverse consumers, develop products to satisfy their preferences and ultimately distribute them to markets around the world.
Taking into account feedback from stakeholders also enables us to refine our strategy, deliver sustainable value and build A Better Tomorrow™.
A Better Tomorrow™ for:
As one of the most long-standing and established tobacco and nicotine businesses in the world, we have a unique view of the consumer across our product categories. This is increasingly driven by powerful data and analytics. These insights ensure that the development and responsible marketing of our products are fit to satisfy consumer preferences.
Powered by our data-driven consumer insight platform, we focus on product categories and consumer segments across our global business that have the best potential for long-term sustainable growth.
Link to Principal Risks
Tobacco, New Categories and other regulation interrupts growth strategy; Inability to develop, commercialise and deliver the New Categories strategy; Climate change and circular economy; Cyber security
World-class science is required to substantiate the quality, product safety and reduced-risk potential of our New Category products. This is crucial for building consumer and regulators' trust and encouraging adult smokers to completely switch to less risky alternatives*†.
We have an extensive scientific research programme in a broad spectrum of scientific fields, including molecular biology, toxicology and chemistry. We are transparent about our science and publish details of our research programmes on our dedicated website, www.batscience.com, and the results of our studies in peer-reviewed journals.
Link to Principal Risks
Competition from illicit trade; Tobacco, New Categories and other regulation interrupts growth strategy; Significant increases or structural changes in tobacco, nicotine and New Categories related taxes; Inability to develop, commercialise and deliver the New Categories strategy
As consumer preferences and technology rapidly evolve, we rely on our growing global network of digital hubs, innovation hubs, world-class R&D laboratories, external partnerships and our corporate venturing initiative, Btomorrow Ventures.
Driving sustainable growth is at the core of our innovation. We make significant investments in research and development to deliver innovations that satisfy or anticipate consumer preferences and generate growth for the business.
Led by our strength in developing consumer insights, each innovation helps us on our journey to build A Better Tomorrow™ by reducing the health impact of our business
Link to Principal Risks
Inability to develop, commercialise and deliver the New Categories strategy; Climate change and circular economy; Cyber security
The majority of our tobacco is sourced by BAT Group's vertically integrated Leaf Operations through direct contracts with c.91,000 farmers. The majority of the remainder is from third-party suppliers that, in turn, contract with an estimated 155,000 farmers. The vast majority of tobacco farms in our supply chain are smallholder family farms.
Beyond tobacco, we source product materials like paper and filters for cigarettes and, for our New Category products, we have a growing supply chain in consumer electronics and e-liquids. We also have a vast number of suppliers of indirect goods and services that are not related to our products, such as for IT services and facilities management.
Link to Principal Risks
Geopolitical tensions; Supply chain disruption; Inability to develop, commercialise and deliver the New Categories strategy; Injury, illness or death in the workplace; Solvency and liquidity; Foreign exchange rate exposures; Climate change and circular economy; Cyber security
We manufacture high-quality products in facilities all over the world. We also ensure that these products and the tobacco leaf we purchase are optimised for distribution and sale.
Our New Category products are manufactured in a mix of our own and third-party factories. We work to ensure that our costs are globally competitive and that we use our resources as effectively as possible.
Link to Principal Risks
Geopolitical tensions; Supply chain disruption; Disputed taxes, interest and penalties; Injury, illness or death in the workplace; Solvency and liquidity; Foreign exchange rate exposures; Climate change and circular economy
By applying modern technologies, including AI and machine learning, we ensure our products are where they are needed when they are needed.
Our products are sold around the world and distributed effectively and efficiently using a variety of distribution models suited to local circumstances and conditions.
These distribution models include retailers, supplied through our direct distribution capability or exclusive distributors, and our Direct-to-Consumer business – which has been accelerated through the deployment of owned e-commerce sites.
Link to Principal Risks
Geopolitical tensions; Tobacco, New Categories and other regulation interrupts growth strategy; Supply chain disruption; Inability to develop, commercialise and deliver the New Categories strategy; Foreign exchange rate exposures; Climate change and circular economy; Cyber security
Tobacco and nicotine products should be marketed responsibly to adults only and not designed to appeal to the underage.
Through a globally responsible approach to marketing, we seek to help raise standards and prevent under-age access, while growing our market share by encouraging adult consumers to choose our products over those of our competitors.
Our International Marketing Principles (IMP) govern our marketing across all our tobacco, nicotine and nicotine-free products and brands. They include strict requirements to be responsible, accurate and targeted at adult consumers only. Our IMP are applied even when they are stricter than local laws.
Link to Principal Risks
Competition from illicit trade; Tobacco, New Categories and other regulation interrupts growth strategy; Inability to develop, commercialise and deliver the New Categories strategy; Litigation; Foreign exchange rate exposures
We have a powerful brand portfolio that we are very proud of. This includes our combustibles portfolio and our portfolio of smokeless product brands which will contribute to Building a Smokeless World.
Our global brands are well positioned, with leading-edge insights, science and innovation behind our product pipeline.
We offer adult consumers a range of products, including combustible products, Vapour, Modern Oral and Heated Products, in markets around the world. Our range of high-quality products covers all segments, from value-for-money to premium.
Link to Principal Risks
Competition from illicit trade; Geopolitical tensions; Tobacco, New Categories and other regulation interrupts growth strategy; Supply Chain disruption; Litigation; Significant increases or structural changes in tobacco, nicotine and New Categories related taxes; Inability to develop, commercialise and deliver the New Categories strategy; Disputed taxes interest and penalties; Foreign exchange rate exposures; Climate change and circular economy
1. indicating that consumers, who switched completely to Velo or to glo, had better results for several biomarkers linked to early developmental processes of smoking-related diseases compared with smokers.
† Our Vapour product Vuse (including Alto, Solo, Ciro and Vibe), and certain products, including Velo, Grizzly, Kodiak, and Camel Snus, which are sold in the U.S., are subject to FDA regulation and no reduced-risk claims will be made as to these products without agency clearance.
* Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive.