Financial instruments and risk management

12 Months Ended

Dec. 31, 2024

Disclosure Of Fair Value Measurement Of Assets And Liabilities [Abstract]

Financial instruments and risk management

26 Financial instruments and risk management

Management of financial risks

One of the principal responsibilities of Treasury is to manage

the financial risks arising from the Group’s underlying

operations. Specifically, Treasury manages, within an overall

policy framework set by the Group’s Main Board and Corporate

Finance Committee (CFC), the Group’s exposure to funding and

liquidity, interest rate, foreign exchange and counterparty risks.

The Group’s treasury position is monitored by the CFC which

meets regularly throughout the year and is chaired by the Chief

Financial Officer. The approach is one of risk reduction within an

overall framework of delivering total shareholder return.

The Group defines capital as net debt (note 23) and equity (note 22).

There are no externally imposed capital requirements for the

Group. Group policies include a set of financing principles that

provide a framework within which the Group’s capital base is

managed and, in particular, the policies on dividends (as a

percentage of long-term sustainable earnings) and share buy-back

are decided. The key objective of the financing principles is to

appropriately balance the interests of equity and debt holders in

driving an efficient financing mix for the Group. The Group’s

average cost of debt in 2024 is 4.9% (2023: 5.2%; excluding

adjusting items, of which the Group incurred a £151 million fair

value loss on debt-related derivatives in relation to the early

repurchase of bonds, the average cost of debt was 4.8%).

The Group manages its financial risks in line with the classification

of its financial assets and liabilities in the Group’s balance sheet

and related notes. The Group’s management of specific risks is

dealt with as follows:

Liquidity risk

It is the policy of the Group to maximise financial flexibility

and minimise refinancing risk by issuing debt with a range of

maturities, generally matching the projected cash flows of the

Group and obtaining this financing from a wide range of sources.

The Group has a target average centrally managed debt maturity

of at least five years with no more than 20% of centrally managed

debt maturing in a single rolling year. As at 31 December 2024,

the average centrally managed debt maturity was 9.5 years (2023:

10.5 years) and the highest proportion of centrally managed debt

maturing in a single rolling year was 14.8% (2023: 15.7%). Perpetual

hybrid bonds are treated as equity (note 22(d)) and therefore not

included within the debt maturity analysis.

The Group utilises cash pooling and zero balancing bank account

structures in addition to intercompany loans and borrowings to

mobilise cash efficiently within the Group. The key objectives of

Treasury in respect of cash and cash equivalents are to protect

their principal value, to concentrate cash at the centre, to minimise

the required debt issuance and to optimise the yield earned. The

amount of debt issued by the Group is determined by forecasting

the net debt requirement after the mobilisation of cash.

The Group continues to target a solid investment-grade credit

rating. Moody’s, S&P's and Fitch's current ratings for the Group

are Baa1 (stable outlook), BBB+ (stable outlook), BBB+ (stable

outlook), respectively. The Group is confident of its continued

ability to successfully access the debt capital markets for future

refinancing requirements.

As part of its short-term cash management, the Group invests in a

range of cash and cash equivalents, including money market funds,

which are regarded as highly liquid and are not exposed to significant

changes in fair value. These are kept under continuous review as

described in the credit risk section below. At 31 December 2024,

the Group had £433 million invested in money market funds

(2023: £173 million).

As part of its working capital management, in certain countries,

the Group has entered into factoring arrangements and supply

chain financing arrangements. These are explained in further detail

in note 17 and note 25.

Subsidiary companies are funded by share capital and retained

earnings, loans from the central finance companies on commercial

terms, or through local borrowings by the subsidiaries in

appropriate currencies to predominantly fund short- to medium-

term working capital requirements.

Available facilities in current year:

It is Group policy that short-term sources of funds (including

drawings under both the Group US$4 billion U.S. commercial

paper (U.S. CP) programme and the Group £3 billion euro

commercial paper (ECP) programme) are backed by undrawn

committed lines of credit and cash. Commercial paper is issued

by B.A.T. International Finance p.l.c., B.A.T. Netherlands Finance

B.V. and B.A.T Capital Corporation and guaranteed by British

American Tobacco p.l.c. At 31 December 2024, commercial paper

of £nil million was outstanding (2023: £nil million). Cash flows

relating to commercial paper that have maturity periods of three

months or less are presented on a net basis in the Group’s cash

flow statement.

At 31 December 2024, the Group had access to a £5.4 billion

revolving credit facility. With effect from March 2024, the Group

exercised the first of the one-year extension options on the

£2.5 billion 364-day tranche of the revolving credit facility, with the

second one-year extension subsequently exercised in February

2025. Effective March 2025, therefore, the £2.5 billion 364-day

tranche will be extended to March 2026. Additionally, £2.85 billion

of the five-year tranche remains available until March 2025, with

£2.7 billion extended to March 2026 and £2.5 billion extended to

March 2027.

During 2024, the Group extended short-term bilateral facilities

totalling £2.4 billion. As at 31 December 2024, £nil million was

drawn on a short-term basis with £2.4 billion undrawn and still

available under such bilateral facilities. Cash flows relating to

bilateral facilities that have maturity periods of three months or less

are presented on a net basis in the Group’s cash flow statement.

In January 2025, the Group entered into a medium-term facility of

£503 million (equivalent) which was fully drawn.

Issuance, drawdowns and repayments in current year:

–In February 2024, the Group accessed the US dollar market under

the SEC Shelf Programme, raising a total of US$1.7 billion across

two tranches;

–In March 2024, the Group repaid a £229 million bond at maturity;

–In April 2024, the Group accessed the Euro market under its

EMTN Programme, raising a total of €900 million;

–To optimise the Group’s debt capital structure using available

liquidity and to reduce gross and net debt, the Group completed

capped cash debt tender offers in May 2024, targeting series of

low-priced, long-dated GBP-, EUR- and USD-denominated

bonds, pursuant to which the Group repurchased bonds prior to

their maturity in a principal amount of £1.8 billion (equivalent); and

–In August, September and October 2024, the Group repaid

US$1.9 billion, US$1 billion and €850 million of bonds at

maturity, respectively.

Available facilities in prior year:

At 31 December 2023, the Group had access to a £5.4 billion

revolving credit facility. In March 2023, the Group refinanced the

£2.7 billion 364-day tranche of the revolving credit facility at the

reduced amount of £2.5 billion, maturing in March 2024 with two

one-year extension options, and a one-year term out option.

Additionally, £2.85 billion of the five-year tranche remains available

until March 2025, with £2.7 billion extended to March 2026 and

£2.5 billion extended to March 2027.

During 2023, the Group extended short-term bilateral facilities

totalling £2.65 billion. As at 31 December 2023, £100 million was

drawn on a short-term basis with £2.55 billion undrawn and still

available under such bilateral facilities. Cash flows relating to

bilateral facilities that have maturity periods of three months or less

are presented on a net basis in the Group’s cash flow statement.

Issuance, drawdowns and repayments in prior year:

–In January 2023, the Group repaid a €750 million bond at maturity;

–In February 2023, the Group accessed the Euro market under its

EMTN Programme, raising a total of €800 million;

–In May 2023, the Group repaid a total of US$48 million of bonds

at maturity;

–Given the refinancing levels in the medium term and to reduce

near term refinancing risks, in August 2023, the Group accessed

the US dollar market under its SEC Shelf Programme, raising a

total of US$5 billion across five tranches whilst also announcing

a concurrent capped debt tender offer, targeting a series of GBP-,

EUR- and USD-denominated bonds maturing between 2024 and

2027. Pursuant to this tender offer, BAT repurchased bonds prior

to their maturity in a principal amount of £3.1 billion; and

–In September, October and November 2023, the Group repaid

US$550 million, €800 million and €750 million of bonds at

maturity, respectively.

Currency risk

The Group is subject to exposure on the translation of the net

assets of foreign currency subsidiaries and associates into its

reporting currency, sterling. The Group’s primary balance sheet

translation exposures are to the US dollar, Euro, Australian dollar,

Indian rupee, Canadian dollar, South African rand, Indonesian

rupiah, Danish krone, Singaporean dollar and Swiss franc. These

exposures are kept under continuous review. The Group’s policy on

borrowings is to broadly match the currency of these borrowings

with the currency of cash flows arising from the Group’s

underlying operations. Within this overall policy, the Group aims

to minimise all balance sheet translation exposure where it is

practicable and cost-effective to do so through matching currency

assets with currency borrowings. The main objective of these

policies is to protect shareholder value by increasing certainty and

minimising volatility in earnings per share. At 31 December 2024,

the currency profile of the Group’s gross debt, after taking into

account derivative contracts, was 74% US dollar (2023: 72%),

14% euro (2023: 14%), 8% sterling (2023: 9%) and 4% other

currencies (2023: 5%).

The Group faces currency exposures arising from the translation

of profits earned in foreign currency subsidiaries and associates

and joint arrangements; these exposures are not normally hedged.

Exposures also arise from:

(i) foreign currency denominated trading transactions undertaken

by subsidiaries. These exposures comprise committed and highly

probable forecast sales and purchases, which are offset wherever

possible. The remaining exposures are hedged within the Treasury

policies and procedures with forward foreign exchange contracts

and options, which are designated as hedges of the foreign

exchange risk of the identified future transactions; and

(ii) forecast dividend flows from subsidiaries to the centre. To

ensure cash flow certainty, the Group enters into forward foreign

exchange contracts which are designated as net investment

hedges of the foreign exchange risk arising from the investments

in these subsidiaries.

IFRS 7 Financial Instruments: Disclosures requires a sensitivity

analysis that shows the impact on the income statement and

on items recognised directly in other comprehensive income

of hypothetical changes of exchange rates in respect of non-

functional currency financial assets and liabilities held across the

Group. All other variables are held constant although, in practice,

market rates rarely change in isolation. Financial assets and

liabilities held in the functional currency of the Group’s subsidiaries,

as well as non-financial assets and liabilities and translation risk,

are not included in the analysis. The Group considers a 10%

strengthening or weakening of the functional currency against the

non-functional currency of its subsidiaries as a reasonably possible

change. The impact is calculated with reference to the financial

asset or liability held as at the year-end, unless this is

unrepresentative of the position during the year.

A 10% strengthening of functional currencies against

non-functional currencies would result in pre-tax profit being

£94 million lower (2023: £61 million lower; 2022: £49 million lower)

and items recognised directly in other comprehensive income

being £342 million higher (2023: £273 million higher; 2022:

£445 million higher). A 10% weakening of functional currencies

against non-functional currencies would result in pre-tax

profit being £114 million higher (2023: £72 million higher;

2022: £60 million higher) and items recognised directly

in other comprehensive income being £418 million lower

(2023: £333 million lower; 2022: £543 million lower).

The exchange sensitivities on items recognised directly in other

comprehensive income relate to hedging of certain net asset

currency positions in the Group, as well as on cash flow hedges

in respect of future transactions, but do not include sensitivities

in respect of exchange on non-financial assets or liabilities.

Interest rate risk

The objectives of the Group’s interest rate risk management policy

are to lessen the impact of adverse interest rate movements on

the earnings, cash flow and economic value of the Group.

Additional objectives are to minimise the cost of hedging and the

associated counterparty risk.

In order to manage its interest rate risk, the Group maintains both

floating rate and fixed rate debt. The Group sets targets (within

overall guidelines) for the desired ratio of floating to fixed rate debt

on a net basis (at least 50% fixed on a net basis in the short to

medium term) as a result of regular reviews of market conditions

and strategy by the Corporate Finance Committee and the board

of the main central finance company. Underlying borrowings are

arranged on both a fixed rate and a floating rate basis and, where

appropriate, the Group uses derivatives, primarily interest rate

swaps to vary the fixed and floating mix, or forward starting swaps

to manage the refinancing risk. The interest rate profile of liquid

assets included in net debt are considered to offset floating rate

debt and are taken into account in determining the net interest

rate exposure. At 31 December 2024, the relevant ratio of floating

to fixed rate borrowings after the impact of derivatives was 22:78

(2023: 10:90). On a net debt basis, after offsetting liquid assets and

excluding cash and other liquid assets (including investments held

at fair value) in Canada, which are subject to certain restrictions

under CCAA protection, the ratio of floating to fixed rate borrowings

was 13:87 (2023: 2:98).

IFRS 7 requires a sensitivity analysis that shows the impact on

the income statement and on items recognised directly in other

comprehensive income of hypothetical changes of interest rates

in respect of financial assets and liabilities of the Group. All other

variables are held constant although, in practice, market rates

rarely change in isolation. For the purposes of this sensitivity

analysis, financial assets and liabilities with fixed interest rates

are not included. The Group considers a 100 basis point change

in interest rates a reasonably possible change except where rates

are less than 100 basis points. In these instances, it is assumed

that the interest rates increase by 100 basis points and decrease

to zero for the purpose of performing the sensitivity analysis.

The impact is calculated with reference to the financial asset

or liability held as at the year-end, unless this is unrepresentative

of the position during the year.

A 100 basis point increase in interest rates would result in pre-tax

profit being £13 million higher (2023: £5 million lower;

2022: £50 million lower). A 100 basis point decrease in interest rates,

or less where applicable, would result in pre-tax profit being

£13 million lower (2023: £5 million higher; 2022: £50 million higher).

The effect of these interest rate changes on items recognised

directly in other comprehensive income is not material in either year.

Following the decision taken by global regulators in 2018 to replace

Interbank Offered Rates with alternative nearly risk-free rates,

such benchmark rates were expected to be largely discontinued

after 2021.

The Group is party to the ISDA fallback protocol and in January

2022, it automatically replaced the GBP LIBOR with economically

equivalent interest rate derivatives referencing SONIA on

their reset date with the impacted derivatives maturing in

October 2023.

Credit risk

The Group has no significant concentrations of customer credit

risk. Subsidiaries have policies in place requiring appropriate credit

checks on potential customers before sales commence. The

process for monitoring and managing credit risk once sales to

customers have been made varies depending on local practice

in the countries concerned.

Certain territories have bank guarantees, other guarantees or

credit insurance provided in the Group’s favour in respect of Group

trade receivables, the issuance and terms of which are dependent

on local practices in the countries concerned. All derivatives are

subject to ISDA agreements or equivalent documentation.

Cash deposits and other financial instruments give rise to credit

risk on the amounts due from the related counterparties.

Generally, the Group aims to transact with counterparties with

strong investment grade credit ratings. However, the Group

recognises that due to the need to operate over a large geographic

footprint, this will not always be possible. Counterparty credit risk

is managed on a global basis by limiting the aggregate amount and

duration of exposure to any one counterparty, taking into account

its credit rating. The credit ratings of all counterparties are

reviewed regularly.

The Group ensures that it has sufficient counterparty credit

capacity of requisite quality to undertake all anticipated

transactions throughout its geographic footprint, while at the

same time ensuring that there is no geographic concentration

in the location of counterparties.

With the following exceptions, the maximum exposure to the

credit risk of financial assets at the balance sheet date is reflected

by the carrying values included in the Group’s balance sheet. The

Group has entered into short-term risk participation agreements

in relation to certain leaf supply arrangements and the maximum

exposure under these would be £52 million (2023: £51 million).

In addition, the Group has entered into a guarantee arrangement

to support a short-term bank credit facility with a supply chain

partner. The maximum exposure under the arrangement would

be £1 million (2023: £1 million).

Price risk

The Group is exposed to price risk on investments held by the

Group, which are included in investments held at fair value on

the consolidated balance sheet, but the quantum of such is

not material.

Hedge accounting

In order to qualify for hedge accounting, the Group is required to

document prospectively the economic relationship between the

item being hedged and the hedging instrument. The Group is also

required to demonstrate an assessment of the economic

relationship between the hedged item and the hedging

instrument, which shows that the hedge will be highly effective

on an ongoing basis. This effectiveness testing is repeated

periodically to ensure that the hedge has remained, and is

expected to remain, highly effective. The prospective effectiveness

testing determines that an economic relationship between the

hedged item and the hedging instrument exists.

In accordance with the Group Treasury Policy, the exact hedge

ratios and profile of a hedge relationship will depend on several

factors, including the desired degree of certainty and reduced

volatility of net interest costs and market conditions, trends and

expectations in the relevant markets. The sources of

ineffectiveness include spot and forward differences, impact of

time value and timing differences between periods in the hedged

item and hedging instrument.

The Group’s risk management strategy has been explained in

further detail under the interest rate risk and currency risk sections

of this note.

Fair value estimation

The fair values of financial assets and liabilities with maturities

of less than one year, other than derivatives, are assumed to

approximate their book values. For other financial instruments

which are measured at fair value in the balance sheet, the basis

for fair values is described below.

Fair value hierarchy

In accordance with IFRS 13 classification hierarchy, the following table presents the Group’s financial assets and liabilities that are

measured at fair value:

					2024				2023
	Notes	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Assets at fair value
Investment held at fair value	18	447	—	212	659	527	—	192	719
Derivatives relating to
– interest rate swaps	19	—	11	—	11	—	10	—	10
– cross-currency swaps	19	—	100	—	100	—	115	—	115
– forward foreign currency contracts	19	—	185	—	185	—	165	—	165
Assets at fair value		447	296	212	955	527	290	192	1,009
Liabilities at fair value
Derivatives relating to
– interest rate swaps	19	—	270	—	270	—	187	—	187
– cross-currency swaps	19	—	16	—	16	—	13	—	13
– forward foreign currency contracts	19	—	131	—	131	—	195	—	195
– embedded derivative relating to associates	19	—	7	—	7	—	—	—	—
Liabilities at fair value		—	424	—	424	—	395	—	395

Level 2 financial instruments are not traded in an active market, but the fair values are based on quoted market prices, broker/dealer

quotations, or alternative pricing sources with reasonable levels of price transparency. The Group’s level 2 financial instruments include

OTC derivatives.

Netting arrangements of derivative financial instruments

The gross fair value of derivative financial instruments as presented in the Group balance sheet, together with the Group’s rights

of offset associated with recognised financial assets and recognised financial liabilities subject to enforceable master netting

arrangements and similar agreements, is summarised as follows:

			2024			2023
	Amount presented in the Group balance sheet* £m	Related amounts not offset in the Group balance sheet £m	Net amount £m	Amount presented in the Group balance sheet* £m	Related amounts not offset in the Group balance sheet £m	Net amount £m
Financial assets
– Derivative financial instruments (note 19)	296	(184)	112	290	(199)	91
Financial liabilities
– Derivative financial instruments (note 19)	(424)	184	(240)	(395)	199	(196)
	(128)	—	(128)	(105)	—	(105)

Note:

*No financial instruments have been offset in the Group balance sheet.

The Group is subject to master netting arrangements in force with financial counterparties with whom the Group trades derivatives.

The master netting arrangements determine the proceedings should either party default on their obligations. In case of any event

of default, the non-defaulting party will calculate the sum of the replacement cost of outstanding transactions and amounts owed to

it by the defaulting party. If that sum exceeds the amounts owed to the defaulting party, the defaulting party will pay the balance to the

non-defaulting party. If the sum is less than the amounts owed to the defaulting party, the non-defaulting party will pay the balance to

the defaulting party.

The hedged items by risk category are presented below:

					2024
	Carrying amount of the hedged item £m	Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item £m	Line item in the statement of financial position where the hedged item is included	Changes in fair value used for calculating hedge ineffectiveness £m	Cash flow hedge reserve (gross of tax) £m
Fair value hedges
Interest rate risk
– borrowings (liabilities)	8,750	215	Borrowings	63	—
Cash flow hedges
Interest rate risk
– borrowings (liabilities)	734	—	Borrowings	(18)	(268)

					2023
	Carrying amount of the hedged item £m	Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item £m	Line item in the statement of financial position where the hedged item is included	Changes in fair value used for calculating hedge ineffectiveness £m	Cash flow hedge reserve (gross of tax) £m
Fair value hedges
Interest rate risk
– borrowings (liabilities)	5,935	110	Borrowings	(81)
Cash flow hedges
Interest rate risk
– borrowings (liabilities)	858		Borrowings	26	(362)

£363 million (2023: £380 million) of the Group’s borrowings are designated as net investment hedge instruments of the Group’s net

investments in foreign operations. In line with the Group’s risk management policies, the net investment hedge relationships are

reviewed periodically. The change in the value used for calculating hedge ineffectiveness for hedged items designated under net

investment hedge relationships is £17 million (2023: £9 million).

As at 31 December 2024, the accumulated balance of the cash flow hedge reserve was a loss of £84 million (2023: loss of £194 million)

including an accumulated loss of £268 million (2023: loss of £362 million) in relation to interest rate exposure and foreign currency

exposure arising from borrowings held by the Group, and an accumulated gain of £54 million (2023: gain of £77 million) in relation to

deferred tax arising from cash flow hedges. The remainder related to the Group’s foreign currency exposure on forecasted transactions

and cost of hedging (note 22(c)(ii)).