Sparks - British American Tobacco

British American Tobacco has delivered a solid H126 performance that is in line with expectations, with management expressing confidence in delivering FY26 guidance. The headline figures are a 2.9% increase in revenue, 3.5% growth in adjusted profit from operations (excluding Canada) and 7.9% growth in adjusted diluted EPS (excluding Canada), all at constant currency.

The highlights from the results were the continued shift towards smokeless products, led by Modern Oral, while regional performance remained mixed, with the US offsetting weakness in the Asia-Pacific.

New categories revenue increased by 18% at constant currency, with the contribution margin improving by 3.3pp to 13.8%, reflecting better profitability as the business scales. Smokeless products now represent 19.8% of group revenue, an increase of 1.6pp versus FY25. Growth was driven by Modern Oral with c 66% constant currency revenue growth.

The US provided strong growth with revenue increasing by 8.5% at constant currency and adjusted operating profit increasing by 10.1%. The growth reflected strong performances across both combustibles and new categories, supported by pricing, excise duty benefits and rapid growth in Modern Oral and Vapour. Management notes that the combustibles market share has begun to stabilise.

The principal area of weakness was Asia-Pacific, Middle East and Africa (APMEA), where revenue declined by 6.3% at constant currency and adjusted operating profit fell by 16.5%. Performance was affected by regulatory changes and illicit tobacco in Bangladesh and Australia, inventory timing effects in Vietnam, lower volumes in Malaysia and increased competition for Heated Products in Japan.

There are a few changes to FY26 guidance versus the H126 trading update at the start of June 2026:

1. A further reduction in expected global tobacco industry volume to -3%, from -2.5% at the H126 trading update and -2.0% at the FY25 results.
2. Net finance costs are now estimated to be £1.65bn, down from £1.75bn at the H126 trading update and £1.8bn at the FY25 results.
3. Constant currency EPS growth adjusted for Canada is now expected to be in the middle of the 5–8% range versus the lower end previously.