British American Tobacco plans to cut about 20 per cent of its workforce as it pursues an AI-driven overhaul to lower costs and lift profits amid regulatory challenges and delayed launches.

The maker of Lucky Strike and Dunhill cigarettes said on Monday it would cut around 5,500 jobs and move roughly 3,500 roles to third-party firms, including Accenture. The restructuring would affect around 9,000 employees in total, but excludes the U.S., the company's biggest market.

BAT, whose main profit engine, traditional tobacco, is in terminal decline and is shifting to smoking alternatives, did not say where the jobs would be cut.

It said the programme was expected to deliver £600 million ($793 million) in additional annualised savings by 2028, with £500 million targeted by 2027.

Still, its shares were down 2 per cent at 1146 GMT, underperforming the FTSE 100, which was down 0.1 per cent.

BAT had flagged in February that its new productivity drive could lead to job cuts, but the scale was a surprise, analysts said.

The share price reaction likely reflected "concerns that the business may need to take more drastic action to meet its medium-term targets", said Chris Beckett, analyst at BAT investor Quilter Cheviot.

Scale of reductions

BAT CEO Tadeu Marroco said the overhaul would make the company more agile, cost-disciplined and technology-enabled.

"These changes affect many of our colleagues and we are focused on supporting them through this transition with care and respect," Marroco said in a statement.

The company's sales and profit growth have been sluggish in recent years, often missing or only just meeting company targets and disappointing some investors. BAT has pledged to grow revenue by between 3 per cent and 5 per cent per year over the medium term.

Beckett, however, said the move reflects restructuring of its tobacco business, as well as BAT's shift to newer smoking alternatives like its Vuse vapes and Velo nicotine pouches which require less labour to produce.

The company said it had already been streamlining its manufacturing footprint over the past 18–24 months, including the previously announced closure of a factory in South Africa.

Strategy shifts

BAT predicts a 2.5 per cent drop in industry sales volumes of traditional tobacco products this year.

It is shifting towards alternatives such as Vuse vapes and Velo nicotine pouches, but it has faced setbacks and trails key rival Philip Morris International.

US regulators have taken a tough stance on approving licences for new products such as vapes, delaying launches. BAT says this has fuelled an influx of illegal Chinese products, weighing on its sales and market share.

US tobacco sales have also been hit as smokers swap to cheaper brands amid high living costs, while BAT also faces rising duties, tighter regulations and illicit trade in markets including Australia and Bangladesh.

BAT said most role changes had been confirmed with employees, with remaining consultations under way in line with local requirements.

BAT said roles transferred to third parties include positions in its Global Service Hubs in Costa Rica, Mexico, Poland, Romania and Malaysia, certain roles in Pakistan, and some digital and technology roles in Poland and Romania.