In a sweeping move to cut expenses and streamline its operations, British American Tobacco PLC (BTI.US) is reducing its global workforce of 47,000 by roughly one-fifth. According to an internal notice detailing the scale of the tobacco giant's transformation, the maker of Dunhill cigarettes will eliminate 5,500 positions and outsource a further 3,500 roles by the end of this year. These figures do not include the company's U.S. operations, which are run through its subsidiary Reynolds American.

The ongoing restructuring plan impacts most of the countries where the company conducts business, with the full extent of the job cuts to be detailed on Monday. This action follows a prior commitment from the firm to achieve annual cost savings of £600 million ($793 million) by the end of 2028.

Shares of British American Tobacco fell by as much as 1.9% in London trading, giving back some of the gains made earlier this year. As of Friday's close, the stock was up nearly 13% year-to-date.

Adapting to Market Shifts

The company is navigating declining demand for traditional cigarettes in many markets while needing to invest in and develop more sustainable nicotine alternatives, which have surged in popularity as consumers seek ways to quit smoking. Similar to its competitor Philip Morris International Inc. (PM.US), British American Tobacco aims for more than half of its revenue to come from "smoke-free" nicotine products, such as its Vuse e-cigarettes and Velo nicotine pouches.

Operational Overhaul

Part of the restructuring involves shuttering traditional cigarette factories. In January, the company stated it would close its eighth-largest cigarette factory in South Africa, citing competition from illicit trade. Earlier this year, the company forecast a 2% decline in global cigarette industry volumes for 2026.

Interim Chief Financial Officer Javed Iqbal noted in February that the use of artificial intelligence and data analytics tools would also influence staffing levels. He indicated that the majority of the planned cost savings—approximately £500 million—are targeted to be realized before 2027.

Strategic Outsourcing

British American Tobacco has partnered with Accenture to outsource numerous functions, including service centers that typically employ a significant portion of the company's total staff. The latest notice confirmed that certain roles in the UK, Singapore, Costa Rica, Mexico, Poland, Romania, and Malaysia have since been transferred to Accenture. It also added that some positions in Pakistan have been outsourced to the technology and business services firm Systems Ltd.

In a statement, Chief Executive Tadeu Marroco said, "These changes impact many of our colleagues, and as we shape the business for the future, we are focused on supporting them through this transition with care and respect."