British American Tobacco (BAT) has set out an ambition to become a “predominantly smokeless” business by 2035, but the FTSE 100 giant’s latest financial figures lay bare the scale of the transition still to come. Smokeless products – including vapes and nicotine pouches – accounted for just 18% of the group’s total revenues last year, while traditional cigarette brands such as Lucky Strike, Pall Mall and Dunhill delivered the vast majority of sales.
Smokeless ambition versus cigarette reality
BAT’s annual cigarette business generated £20.2 billion in sales, dwarfing the £3.6 billion brought in by its so-called new category products, which include the Vuse vape brand and the Velo nicotine pouch. Despite the wide gap, the company is pushing ahead with plans to reach 50 million smokeless users by 2030 and to derive half of its revenue from smokeless products by 2035. It reported adding 4.7 million smokeless consumers in 2025 alone, bringing the total to 34.1 million.
The financial contribution from new categories is growing rapidly. BAT’s latest results showed a 77.1% year-on-year increase in category contribution from those products, reaching £442 million. For 2026, the company forecasts total revenue growth of 3% to 5%, with new categories expected to deliver double-digit percentage gains. Investors will be watching closely when BAT publishes its half-year results on Tuesday for any updates to that guidance.
Profitability varies sharply across the smokeless portfolio. Heated tobacco products (HTPs) – BAT’s glo™ brand – were reported to have an 81% profit margin in late 2023, far higher than e-cigarettes at 42% and nicotine pouches at 66%. The Vuse vape brand, however, has been hit by disruption from illicit disposable devices. Revenue from Vuse fell 8.6% at constant exchange rates, with volumes down 12.6%, as unregulated devices now account for an estimated 70% of US e-cigarette sales. BAT has taken legal action, with two active cases at the US International Trade Commission seeking to block imports of unregulated devices.
By contrast, the Velo nicotine pouch has been a standout performer. Modern Oral revenue jumped 48% at constant rates, with triple-digit growth in the US market, where Velo has climbed to the number-two position in both volume and value. In the UK, the nicotine pouch market is expanding rapidly. Sales were projected to reach $268.2 million in 2025, with a compound annual growth rate of 37.6% through to 2030. Sales volume grew 68% year-on-year in 2023, exceeding £170 million excluding online sales. Convenience stores have nearly doubled their nicotine pouch sales in the last twelve months. The UK market is currently led by Velo, alongside competitors such as ZYN (Philip Morris International), Nordic Spirit (Japan Tobacco) and XQS.
Demographic data from a Lancet Public Health study suggests that by 2025 about 1% of adults in Great Britain – more than 500,000 people – were using nicotine pouches. Among 16-to-24-year-olds, prevalence rose from 0.7% in 2022 to 4% in 2025, with roughly 7.5% of men in that age bracket using the product. Despite the growth, overall adult prevalence was below 0.4% in 2020-21, indicating the market is still in its early stages.
Investor scrutiny and regulatory hurdles
BAT’s push towards a smokeless future comes against a backdrop of intensifying regulatory pressure and shifting investor sentiment. Richard Hunter, head of markets at Interactive Investor, said the company is “continuing to position itself to reflect the changing landscape of smokeless products, while navigating an ever-growing number of hurdles.” He pointed to “the pressure on traditional tobacco products” driven by changing lifestyle habits and increasing regulation, noting that “several instances of governments toughening their stance on tobacco sales, especially to youngsters, adds to the burden of regulatory censure which has plagued the sector over recent years.”
Hunter also highlighted a reluctance among some investors to invest in the sector at all on ethical grounds, adding that the issues are in “sharp focus” for those looking for more progress on the group’s transition.
The regulatory landscape in the UK has shifted significantly. The Tobacco and Vapes Bill, which received Royal Assent on 29 April 2026, creates the UK’s first “smoke-free generation” by making it illegal to sell tobacco to anyone born on or after 1 January 2009. It also introduces measures to curb youth vaping, including bans on vape advertising and sponsorship, restrictions on packaging and branding appealing to children, and a retail licensing scheme for tobacco, vapes and nicotine products. BAT has publicly advocated for stricter vape regulations, including a licensing system for sales, a crackdown on sales to minors, and a ban on flavours resembling sweets, desserts or soft drinks – while arguing for the protection of fruit flavours. The company also supports mandatory pre-market testing for vaping products.
Nicotine pouches currently fall under the General Product Safety Regulations 2005, meaning there are no age restrictions on sales and lighter rules than those for tobacco products. However, discussions are underway to introduce tighter regulations, potentially aligning them with e-cigarette rules. The illicit market remains a serious problem: Trading Standards estimates that a third of all vaping products on the UK market are not compliant with regulations, and that unregulated devices have undercut BAT’s regulated vape sales.
BAT also faces legal challenges on multiple fronts. More than 100 shareholders have filed a lawsuit in the London High Court following a $635 million settlement with US authorities over alleged violations of North Korea sanctions. The lawsuit claims BAT failed to provide timely and accurate market disclosures regarding historical business operations in North Korea, involving what is alleged to be systemic breaches of international sanctions between 2007 and 2017. BAT has stated the issues were historical and limited to a subsidiary, with no admission of direct parent liability. Separately, the UK Advertising Standards Authority ruled in December 2019 that BAT must stop using public Instagram accounts to promote e-cigarettes, including influencer marketing, clarifying that social media accounts are not analogous to a company website.
On the corporate responsibility front, BAT publishes a combined annual and sustainability report and has received a range of ESG ratings. MSCI maintained an ‘A’ rating in 2025, while Sustainalytics assessed the company as medium risk with a score of 21.0 in August 2025. The company achieved ‘A’ ratings from CDP in Climate Change, Water Security and Forests in 2025, and has been named a Climate Leader by the Financial Times for the fifth successive year. ISS ESG awarded Prime Status and a top Environmental, Social and Governance Quality Score of 1 as of January 2026. BAT has also been included in the Dow Jones Sustainability Indices for 24 consecutive years and certified by Fair Pay Workplace for equal pay.
Despite these accolades, investor focus remains on financial returns. BAT operates a progressive dividend policy, with a projected yield of 5.1% noted in May 2026. Its share price has risen 33.09% over the twelve months to April 2026, outperforming the FTSE 100, yet remains around 14% below record 2017 levels. Capital allocation – including share buybacks, deleveraging and dividends – continues to be central to how the stock is viewed. As the company prepares to deliver its half-year numbers, the gap between its smokeless ambition and its cigarette-dominated present will be under the closest scrutiny.
