Big Question 4 - Why Is THR Important to BAT?

Innovation drives the human race forward, whether it be to climb the highest mountains, descend to the depths of our oceans, travel to the moon, or split the atom. While books have been published and degree courses offered on innovation, it typically boils down to three core principles:
 

• Value: solving a problem or an unmet need generating a benefit or return
• Novelty: creation of something bespoke and new to the world
• Process: a continuous activity that takes incremental steps or exponential leaps
   

For a company founded in 1902, BAT could not have imagined the disruption that would occur in the tobacco industry in the early 2010s, with the advent of Smokeless Products, and we did not want to have our own 'Kodak moment'.

A ‘win win win’ scenario 

Since the seminal publication of the UK British Doctors’ Study on smoking and health in the 1950s identified major health risks of smoking,^[5] we have conducted extensive research into the issues related to smoking and health, and developed technologies that could reduce the levels of harmful chemicals in cigarette smoke, in essence to develop a ‘safer cigarette’ and reduce the public health burden of smoking. We spent more than 40 years pursuing multiple avenues of research, including conducting R&D activities into developing and scientifically assessing a Reduced Toxicant Prototype (RTP) cigarette. 

In our view an ideal business would:

• Offer reduced-risk*^† and enjoyable tobacco and nicotine products to reduce the public health impact of smoking;
• Offer reduced-risk*^† and enjoyable tobacco and nicotine products that adult smokers, who would otherwise continue to smoke, would choose to use; and
• Create a sustainable business based on lower risk, consumer relevant, commercially relevant products.
   

While this undertaking proved to be unachievable with respect to cigarettes, a ‘win win win’ scenario arrived with the advent of Vapour Products in the early 2010s, and a new chapter began for BAT.

THR: enabling the transformation of BAT

As stated in the Research & Science Director's opening statement, our belief is that there are three dimensions that are enabling the transformation of BAT through THR:

• Smokeless Products are increasingly being accepted as scientifically substantiated lower risk*^† relative to cigarettes.
• Today we have 23.9 million adult consumers of our Smokeless Products.
• Smokeless Products can ultimately create sustainable value for our shareholders.
   

Three commercial misconceptions about Smokeless Products:

• The number of consumers of Smokeless Products has stalled.
• Smokeless Products are not commercially sustainable.
• Smokeless Products make up a fraction of tobacco companies’ business

The number of consumers of Smokeless Products is increasing

We decided on a multi-category approach to Smokeless Products as adult consumers' preferences vary across the globe, and no single product category would be sufficient to transition adult smokers who would otherwise continue to smoke. Where estimates vary depending on source, year on year. We have observed growth in each category (Figure 1) as more and more adult smokers transition, with Vapour Products being the largest category globally, followed by Heated Products and then Oral Nicotine Pouches.

Smokeless Products offer commercial sustainability

We are now in our second decade of our Smokeless Products business. In 2023, we exited with £3.35bn revenues from our Smokeless Products business and became profitable two years ahead of guidance.

While this is an important milestone, it tells only half the story as we have several markets around the world which are advancing extremely well on their profitability journey.