British American Tobacco has lifted its growth expectations for smokeless products, a move that shows how quickly the tobacco giant is trying to rebalance its business as cigarette demand weakens across global markets.
The maker of Lucky Strike, Dunhill and Pall Mall now expects its new category products, including vapes and nicotine pouches, to deliver mid-teens sales growth this year. That marks an upgrade from its earlier forecast for low double-digit growth and puts brands such as Vuse and Velo at the centre of BAT’s next phase of expansion.
The update is important because BAT is no longer relying only on its traditional cigarette portfolio to drive long-term growth. While cigarettes remain the company’s largest revenue source, management is pushing harder into smoke-free nicotine products as consumer habits change and regulators continue to put pressure on combustible tobacco.
Velo and Vuse Lead BAT’s Smokeless Push
BAT said demand for oral nicotine products and vaping continued to support stronger sales in its new category division. Velo, its nicotine pouch brand, remained one of the standout performers, with the company pointing to strong global revenue growth. Vuse, its vaping brand, also remains a key part of BAT’s smokeless strategy.
The company has set a target to become a predominantly smokeless business by 2035. That goal is ambitious because traditional cigarettes still account for most of the group’s sales. Last year, BAT generated £20.2 billion from its cigarette business, while new category products contributed £3.6 billion. Smokeless products made up around 18% of total revenue.
The challenge for BAT is clear: its newer products are growing faster, but they are still much smaller than the cigarette business they are expected to gradually offset.
At the same time, the outlook for traditional tobacco has become more difficult. BAT now expects global cigarette industry volumes to fall by about 2.5%, compared with its previous estimate of a 2% decline. That sharper drop helps explain why investors reacted cautiously even after the company raised its smokeless sales forecast.
BAT shares fell around 4% in early trading on Tuesday, suggesting the market was focused on the pressure facing cigarettes as much as the growth coming from Velo and Vuse.
The company kept its broader financial guidance unchanged but cautious. Annual revenue growth is expected to come in at the lower end of BAT’s 3% to 5% target range. Underlying operating profit is also expected at the lower end of its 4% to 6% medium-term growth guidance.
Profit growth is expected to be stronger in the second half of the year, supported by a stabilising performance across Asia Pacific, the Middle East and Africa, as well as savings from BAT’s ongoing cost-cutting programme.
BAT also said it was closely watching developments in the Middle East. The company said there was no significant impact on the group at this stage, but warned that the wider macroeconomic and geopolitical backdrop remained uncertain and could affect consumer sentiment if volatility continues.
Chief executive Tadeu Marroco said BAT’s full-year delivery remains firmly on track. His comments point to a company trying to reassure investors that its transition strategy is progressing, even as the cigarette market becomes more challenging.
Russ Mould, investment director at AJ Bell, said the update showed demand for new category products such as vaping and heated tobacco was improving. However, he noted that investors may have expected BAT’s traditional tobacco business to stay stronger for longer.
For BAT, the latest guidance upgrade is a sign of progress, but not a complete answer to investor concerns. Velo and Vuse are growing quickly, yet cigarettes still provide the bulk of the company’s revenue and profit. The next test will be whether BAT can expand smokeless products fast enough to protect earnings as cigarette volumes continue to decline.
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