British American Tobacco Plc is reducing its 47,000-strong global workforce by about one-fifth as part of its sweeping plan to bring down costs and simplify operations. By the end of this year, the maker of Dunhill cigarettes will have slashed 5,500 jobs and outsourced a further 3,500, according to an internal notice seen by Bloomberg News. The numbers do not include BAT's U.S. business, which is operated through its subsidiary Reynolds American Inc.
Restructuring Details and Timeline
Most other countries where BAT operates are affected by its ongoing restructuring program. The company detailed the extent of job cuts on Monday and has pledged to make £600 million (US$793 million) of annual cost savings by the end of 2028. Shares of BAT fell as much as 1.9% in London, trimming year-to-date gains. The stock was up nearly 13% since the start of the year through Friday's close.
“Whilst the market has been aware of this savings programme, we think the scale of this workforce reduction is unexpected and could come as a surprise to investors,” Barclays analyst Pallav Mittal wrote in a note.
Drivers of the Cost-Cutting Plan
BAT is contending with falling demand for traditional cigarettes in many markets and a need to invest in and develop more sustainable nicotine alternatives, which have soared in popularity as people look for ways to quit smoking. Like its rival Philip Morris International Inc., BAT wants to generate more than half of its revenue from “smoke-free” nicotine products such as Vuse vapes and Velo nicotine pouches. Part of BAT's restructuring has involved closing traditional cigarette factories. The company has previously said it is in the process of shutting its eighth largest cigarette factory, located in South Africa, due to competition from illicit trade.
Interim Chief Financial Officer Javed Iqbal also said in February that the use of artificial intelligence and data analytic tools would also affect staffing levels. Most of BAT's planned cost savings, about £500 million, will be delivered by 2027, he said.
Outsourcing and Partnerships
BAT has partnered with Accenture to outsource a number of functions, including service centers, which typically employ large proportions of companies' overall workforces. Certain roles in the U.K., Singapore, Costa Rica, Mexico, Poland, Romania and Malaysia have since moved to Accenture, said BAT in its latest notice. Meanwhile, some roles in Pakistan have been outsourced to Systems Ltd., a Pakistani technology and business firm, it added.
“These changes affect many of our colleagues, and we are focused on supporting them through this transition with care and respect, as we position the business for the future,” Chief Executive Officer Tadeu Marroco said in a statement.
Industry-Wide Cost Pressures
Earlier this year, BAT said it was on track to meet its full-year targets even as global cigarette industry volumes decline, helped by a strong performance in the U.S. where it is making gains on rival PMI with its Velo Plus pouches. Other tobacco companies are trying to cut costs to improve productivity and free up funds to invest in growth areas, like nicotine alternatives. Imperial Brands Plc, another U.K.-headquartered company, said in May it was on track to deliver £320 million of annual cost savings by 2030. PMI, which cut its outlook in June after writing down the value of its investment in its Canadian affiliate, is more than half way through a plan to generate US$2 billion of cost savings by 2026.
