British American Tobacco p.l.c.

Hi, everyone. I'm delighted to welcome you to our full year 2025 results presentation. With me this morning, Javed Iqbal, Interim CFO, and Victoria Buxton, Group Head of Investor Relations. I will begin with our transformation highlights. Javed will then take you through our financial results in more detail. Finally, I will return to talk more about our performance outlook and why we are confident in the pathway ahead given the clear momentum we are driving. We will then take your questions. With that, I would like to draw your attention to the disclaimers on slides two and three. So let's begin by looking at the positive transformation momentum we are driving. starting with some key highlights we added 4.7 million smokeless consumers bringing our total to 34.1 million mainly driven by our continued strong performance in modern oral this marks our strongest growth acceleration to date and position as well for 2026. we delivered 2025 group results at the top end of guidance driven by resilient delivery in combustibles and an excellent performance from Vilo in all three regions. Our discipline focus on quality growth continues to improve returns on more targeted investments, with new category contributing now up 77% at constant rates. Alongside this, we remain committed to investing behind our premium innovation launches, supporting long-term value creation. We continue to deliver strong cash returns for shareholders. In addition to our progressive dividend, in December we announced an increase to our share buyback to £1.3 billion in 2026. Looking ahead, we are confident in returning to our mid-term algorithm this year with the accelerated momentum through the second half of 2025, positioning us well for continued delivery. I am proud that we have delivered on all of our 2025 priorities, and I want to thank our teams around the world for driving these encouraging results. Our performance reflects the clear momentum we are driving as we continue to build a track record of delivery. I'd like to take a moment to highlight two areas from last year that stand out to me. First, the return to both revenue and profit growth in the U.S. for the first time since 2022. a significant milestone driven by stronger combustibles performance, a return to revenue growth in vapor in the second half, and more than all. As a result, we grew 30 base points of combustibles value share. Second, we are delivering quality growth in new categories, launching premium innovations in each category, while delivering a return to double-digit revenue growth in second half, and category contribution growth up 77% for the full year. The progress we made in 2025 reinforces my confidence in our future delivery. And with that, I will hand over to Javed to take you through our 2025 performance in more detail.

Thank you, Tadeo, and good morning, everyone. I am pleased to share that we delivered results at the top end of guidance on a constant currency basis. The performance was driven by return to growth in the U.S., a robust performance in AME, and the strength of Modern Oral globally. Our reported numbers reflect some adjusting items, including nearly 1.6 billion pounds, mainly related to the annual amortization of our U.S.-acquired trademarks, A net credit of 524 million pounds following a change in the forecasted outlook for the Canadian combustible industry. We also recognized a gain of nearly 900 million pounds from the partial monetization of our ITC stake. To give you a clear view of our underlying performance, I will focus on constant currency adjusted and where applicable adjusted for Canada metrics. You can find further detail on adjusting items and share data in the appendix. We delivered group results at the top end of guidance supported by accelerated momentum through the second half. Group revenue increased by 2.1%. Adjusted profit rose 3.4%. Adjusted profit from operations grew 2.3%. And adjusted diluted EPS was up 3.4%. Let's now turn to new categories revenue, grew by 7%, driven by outstanding growth in modern odour, which was up strongly by 48%, with heated products up 1%. This was partially offset by a nearly 9% decline in vapour, mainly due to continued illicit pressures in the US and Canada. Our second half use performance showed a clear improvement versus the mid-teens decline in age 1. supported by early signs of strong enforcement activity in the U.S. We continue to deliver quality growth with gross profit up over £200 million and category contribution reaching £442 million. This reflects our disciplined approach to return on investment, targeted investments in high-value markets, and increasing scale benefit across our portfolio. I am proud of the progress we are making, and I am particularly pleased with our accelerated H2 momentum, where we returned to double-digit new category revenue growth. Now turning to combustible, revenue grew 1%, with volume decline more than offset by continued robust price mix across markets. We delivered quality growth here too. Both gross profit and category contribution increased 2.5%. driven by a strong performance in the u.s positive price mix and continued productivity and simplification gains which i will speak to shortly our performance highlights the breadth of our global footprint with strong delivery in the u.s and ame more than offsetting fiscal and regulatory headwinds in bangladesh and australia which impacted total group revenue by around 1% and group adjusted profit from operations by around 2%. This resilience and increasing momentum in H2 reinforces our confidence in future delivery. Turning to our regions, starting with the U.S. In combustibles, we delivered a 4.6% increase in revenue with our strengthened portfolio, sharper execution, and enhanced revenue growth management. driving price mix, including excise duty drawback. Value share increased 30 basis point, with volume share down 10 basis point. In new category, revenue grew nearly 20%, driven by the success of VELO+, which delivered over 300% growth. While VAPOR revenue was down 3.4% for the full year, we are encouraged that views return to revenue growth in age 2, supported by early signs of enforcement actions. Overall U.S. revenue increased 5.5% and adjusted profit grew 5.9%, mostly driven by a strong combustible performance. Importantly, VeloPlus reached positive category contribution within its first year, underscoring the scalability of our modern oral business model. Tadeo will share more detail on the U.S. shortly. In AME, we delivered another robust performance. Revenue grew over 3%, with combustible up more than 2%, supported by strong delivery in Brazil, Turkey, and Mexico with solid pricing. New category revenue increased 4.3%, mainly driven by modern oral, which grew over 17%. We are the clear modern oral readers in the region. with over 60% volume share in top markets, selling at a premium, and strongly outperforming peers, which Tadeo will expand on later. Growth was further supported by heated products, with revenue up over 6%, driven by Italy, Germany, and Ukraine. This was partially offset by competitive dynamics in Romania, as we reallocated resources ahead of the GloHelo launch. Vapor revenue declined more than 11%, mostly impacted by the lack of illicit enforcement in Canada and regulatory and exercise changes in UK, France, and Poland. Adjusted operating profit grew by nearly 10%, driven by operating leverage and efficiency gains in combustibles, and scale benefit and resource allocation driving improved contribution across all three new categories. AME is a true multi-category region, delivering high-quality growth and demonstrating the resilience and balance of our portfolio. In APMIA, growth in key markets including Pakistan, Nigeria, and Indonesia was more than offset by fiscal and regulatory headwinds in Bangladesh and Australia. Total revenue declined 7.2%, with combustibles down 8.3%. New category revenue was down 7.6%. Strong growth in modern oral was more than offset by heightened competitive activity in heated products in the value for money segment in South Korea and Japan. Along the phase out of our super slim platform. Our vapor performance reflects strategic decisions. taken to reduce our footprint and reallocate resources away from markets where regulation and enforcement do not support a responsible, competitive landscape. Adjusted profit was down 17.9%, mainly due to challenges in Bangladesh and Australia. As we continue to navigate headwinds into 2026, we expect our performance to stabilize for the full year, supported by Bangladesh as we lap last year's decline, and with the drag from Australia becoming progressively less material year on year. Turning now to our group operating margin, which was broadly flat at 44%, we successfully offset inflationary and FX pressures through a strong U.S. performance, higher profitability in new categories, and continued cost savings. Transactional FX headwinds on adjusted profit of approximately 1% were primarily driven by Turkey, Japan, and Nigeria. At current rate, operating margin expanded by close to 10 basis point. BAT has a strong track record of disciplined and cost savings, and we continue to build on that foundation. Since 2023, we have delivered £1.2 billion in productivity savings. These efficiencies help us offset inflationary pressures and foreign exchange headwinds, while continue to fund innovations and growth in new categories. In 2025 alone, we absorbed around £300 million of inflationary cost increases in addition to transactional effects. looking ahead we remain focused on simplifying combustibles and scaling new categories targeting a further 2 billion pounds in productivity savings by 2030. in addition we now expect our fit to win program to deliver 600 million pounds of annualized incremental savings by 2028. we expect around 500 million pounds of these savings to be delivered by 2027, with the remaining benefits realized by the end of 2028. We are committed to reinvesting these savings to support further sustainable growth initiatives. Fit2Win is a transformational project that is reinventing BAT. As outlined at our 2025 half-year results, it is centered on optimizing processes and ways of working to create a leaner, faster, and more data-driven organization. Since half-year, we have made strong progress. We have expanded the program to include organizational streamlining to sharpen focus and improve speed of execution. allowing us to raise total annualized savings by a further £100 million. To unlock these benefits, we now expect around £600 million of associated costs over the next two years. As a structured time-bound program, £500 million will be treated as adjusting, including around £100 million of non-cash items. As previously guided, this spend is already underway. with the majority of costs expected to be incurred this year and concluding in 2027. Bringing it all together, earning per share increased by 3.4% as operating profit growth and lower share count was partly offset by net finance costs, our reduced share of ITC profits and tax. Our underlying tax rate was 24.5%. Our strong cash generation continues to enhance our financial flexibility. This has enabled us to announce a 2% increase in our dividend and increase our share buyback by £200 million to £1.3 billion for 2026. Alongside this, we continue to deliver to 2.55x adjusted net debt to adjusted EBITDA at the end of 2025 and we remain on track to be within our 2 to 2.5 times target range by year end while our 2025 cash delivery was impacted by the double c double a upfront payment and the prior year deferral of tax payments in the us we remain on track to deliver more than 50 billion pounds in free cash flow by the end of 2030 And we continue to focus on our capital allocation priorities, which are investing in transformation, balancing, deleveraging with progressive dividends and sustainable share buybacks, and selective bolt-on M&A to support our transformation. I am excited about the future and confident in our ability to deliver our mid-term algorithm of 3-5% revenue growth, 4% to 6% adjusted profit from operations growth, and 5% to 8% adjusted diluted EPS growth. Our return to this midterm algorithm in 2026 marks a major milestone in our transformation journey and reinforces the strength and resilience of our strategy. Our confidence is underpinned by continued growth in the U.S., robust multi-category delivery in AME, low double-digit new category revenue growth led by VLOG globally, a further improvement in new category contribution, and continued savings from our productivity programs. Although we still have more work to do, and it will take time to stabilize performance in APMIA, we will continue to invest in our premium innovations rollout. As a result, we expect 2026 to be at the lower end of these ranges and our profit performance to be second-half weighted, driven by the phasing of new category investment and as fit-to-win savings built through the year. And with that, I'll hand it back to Tadeo.

Thank you, Javed. So, moving on. Now to the positive transformation momentum we are driving. In 2023, when I became Chief Executive, I committed to sharpening our focus and execution, guided by a refined strategy and ambition to become a predominantly smokeless business by 2035. And I'm proud to say that we have made significant progress across all three strategic pillars, as we continue to build a track record of delivery. While there is still more to do, I'm confident that our focus, investment, and sharp execution are driving real momentum, as you can see from our 2025 results. Our progress underpins our confidence in sustainably delivering our mid-term algorithm, while continuing to reward shareholders with strong cash returns. I'd now like to highlight five points that demonstrate this. First, we have successfully reset our U.S. business, returning to revenue and profit growth in 2025. While the U.S. macroeconomic environment remains dynamic, the pace of combustibles industry volume decline started to moderate in 2025, down 7.4%. Against this backdrop, driven by the actions we have taken to strengthen our portfolio and sharpen execution, our U.S. combustibles business delivered strong revenue and profit growth in 2025. Driving value from our combustible business is essential to funding our transformation, and the U.S. is a key driver of this. In line with this strategy, we gained 30 base points of total industry value share. I particularly encourage that our financial performance accelerate in the second half. This positive momentum reinforces my confidence in the resilience of our U.S. combustible business and our ability to deliver sustainable value going forward. VeloPlus is the fastest growing modern auto brand and the largest modern auto value pool globally. Since launch at the end of 2024, it has already reached the number two position in both volume and value share, gaining nearly 18 percentage points of volume share and nearly 14 points of value share. And we are pleased that our share momentum has continued into the start of 2026. VilaPlus has more than doubled its consumer base and driven over 300% more than our revenue growth, capturing around 70% of industry volume growth and 80% of industry value growth in December. All of this is underpinned by a consistent repurchase rate of around 70% throughout the year. Importantly, we achieved positive category contribution within the first 12 months of launch. fully aligned with Velo's global payback profile. The total U.S. modern oil category continues to grow strongly and has already overtaken the size of the legitimate vapor category at over 2 billion pounds of revenue in 2025. VeloPlus is a great product, and these results demonstrate this in what remains a highly dynamic category. Its impressive success also highlights the broader strength of our U.S. capabilities and executional excellence, from consumer insights and branding to enhanced digital analytics and distribution enabled by a rejuvenated Reynolds. Our performance was further enhanced by the successful launch of Grizzly Modern Oro in the summer, which achieved close to 2% volume share by year-end. taking our total volume share of U.S. modern oil to 25.8%. Through this momentum, I'm delighted to announce that at the end of the year, we reached global volume share leadership in modern oil, measured across the top modern oil markets, representing around 90% of total industry revenue. Second, we are premiumizing our new category portfolio, Vilo is already the clear European leader, around six times larger than our nearest competitor. We continue to focus on consumer-led innovation to strengthen product satisfaction among adult consumers and extend Vilo's success. At the start of this year, we began the nationwide rollout of our latest innovation, ViloShift, in Sweden, following a successful pilot with key retailers and online partners. VeloShift is reshaping the modern order experience, featuring a new comfort pouch design, five distinct sensory flavors, and a differentiated X-Cant that stands out on shelf. Trading at a premium to the core Velo range, VeloShift is a red-drive incremental share in the channels where it has launched, with further market rollouts planned through 2026. These results highlight not only the strength of Velo brands, and innovation pipeline, but also the quality of our execution across European markets. We see premium vapor done right as a highly attractive, untapped segment for further value creation. VIUS Ultra is our most advanced vapor device yet, driving meaningful performance improvement for VIUS in markets where we have launched, including value share gains of nearly 80 percentage points in Canada, close to 4 percentage points in Germany and above 2 percentage points in France. As Javed highlighted, we have made proactive strategic decisions to focus our execution on the largest profit pools, with more supportive regulation and enforcement. Wills Ultra is central to this approach and I am encouraged by the strength of its early performance with further launch planned in the key markets in 2026. Our breakthrough innovation platform, Glow Hilo, introduced our first two-piece device and is designed to establish glow in the premium segment. While still early days, we are starting to drive encouraging results in priority launch markets, Japan, Poland, and Italy, with the majority of consumers new to Glow coming from both premium combustibles and the broader heated products category. We are also strengthening Glow's overall brand equity across key consumer metrics. This consumer response is translating to early volume share momentum. We are encouraged by early trial to retention rates of around 50%, providing further confidence in the platform's potential. In 2026, our focus will be on accelerating trial among premium consumers across both combustibles and heated products supported by target online and in-person activations. We will continue to scale Glorhilo through additional market rollouts in the largest heated product profit pools, where we can generate the strongest returns. Overall, we remain confident in the strength of this innovation platform and expect to progressively build share within the premium segment over time. As Jabet highlighted, the heated products category remain highly competitive, and this has impacted our 2025 performance in the value for money segment where we are present with GlowHyper. Introducing Glow Hilo into the premium space allows us to further differentiate and tier our portfolio. We see a clear opportunity to strengthen Glow's overall performance across both premium and value-for-money segments. Central to this is the launch of our next-generation Glow Hyper device from Q2. The new Glow Hyper delivers a step-change offering. Quick starts, longer started session length, new connectivity and a replaceable battery. These innovations significantly improve the consumer experience and we are also further enhancing the consumables range. Taken together, these upgrades create a much stronger proposition designed to reinforce our competitiveness in the value-for-money segment. Third, I'm proud of the strong progress we have made improving new category profitability. Since 2021, we have driven a £1.4 billion improvement in category contribution, with all three new categories contributing to this momentum. Importantly, we have achieved this while continuing to invest in our transformation to drive future sustainable growth. Our new categories are meaningfully contributing to group results, as we benefit from increased scale, reflecting traction in established markets while continuing to invest in new market launches. This is supported by more consistent and constructive regulatory frameworks, such as those in place for ModernOro in 24 markets, up from just 4 markets in 2022. We have sequentially improved our performance each year, And through our quality growth approach, we remain committed to driving sustainable profitability improvement moving forward. Fourth, I'm encouraged by the signs of positive progress we are seeing in the regulation and enforcement of new categories, especially in the U.S. While the vapor category continues to be impacted by the proliferation of illicit products, views return to revenue growth in the second half after 18 months of decline. This has been supported by increased state-level enforcement with vapor directory and enforcement legislation representing around 50% of track of the industry volume by year-end. In addition, views performance in the second half benefited from a competitor exit, further strengthening our market's position. Our recovery has also been supported by early signs of increased federal enforcement targeting borders and larger distributors, resulting in high levels of seizures and fines. Looking ahead, we are encouraged by the increased focus and funding directed towards strengthening the FDA's enforcement capabilities. We were also pleased to receive a favorable initial determination on our International Trade Commission complaint from the administrative law judge who has recommended a general exclusion order on imported illicit vapor device. We expect a final determination from the ITC in the coming weeks, which will then be subject to a 60-day presidential review. With an estimated 7% of the U.S. vapor industry value still illicit, We are hopeful the authorities will continue with enforcement initiatives in 2026. Reynolds continues to advocate for a level playing field so that adult nicotine consumers have access to high-quality, compliant vapor products. Over time, we believe VIUS is well positioned to benefit from strong enforcement at both the federal and state levels. In addition, the FDA has recently recognized the positive role that nicotine pouches can play in helping adult smokers who would otherwise continue to smoke to transition to less-risk alternatives, reinforcing their role in tobacco harm reduction. We welcome the FDA's new pilot program to streamline the PMTA review process for nicotine pouches. This is an important step towards keeping underage, appealing, illicit products out of the market, while giving responsible manufacturers a more predictable path to PMTA authorization. We are confident in the strength of our science and portfolio, and we look forward to being able to complement our existing U.S. portfolio with VeloMax, a higher moisture modern oil product in 2026, and we have increased capacity to support our sustainable growth agenda. And the final point I would like to highlight is that our financial flexibility continues to strengthen, and we remain on track to generate more than 50 billion pounds of free cash flow by 2030. VAT is a highly cash-generative business, delivering at least 100 operating cash conversions annually since 2020. 100% of operating cash conversion, reflecting our strong cash discipline and clear focus on returns and enabling us to return £34 billion of cash to shareholders over the same period. We remain committed to delivering sustainable shareholder returns with a 25-year track record of dividend growth and our sustainable share-by-back program. I am confident that we will sustainably deliver our mid-term algorithm as we are firmly committed to growing revenue sustainably and improving profitability. To conclude, we are carrying momentum into 2026, underpinned by a robust innovation pipeline, strong strategic partnerships, and confidence in our future FIT capabilities. We are executing with discipline and delivering against our priorities. At the same time, we are enhancing financial flexibility, enabling continued investment in our transformation, together with strong cash returns. I'm excited about the future for BAT and believe we are well positioned to deliver long-term, sustainable growth and value for our stakeholders. Thank you for listening. We will now be joined on stage by Victoria for the question and answer session.

Thank you, Tadeo. And good morning, everyone. If you've joined us via the webcast, you can type your question directly into the online question box. Or if you joined the call, you can press star one on your telephone keypad. Tadeo and Javed will be very happy to take your questions. And I will now hand over to the conference call operator.

Thank you. Our first question is from Andre and Ionita from Jefferies. Please go ahead, sir.

Good morning, Tadeo, Javed, and Vivian. Thank you very much for taking my questions. First of all, two questions on Modern Oral, please. Number one, what are your expectations in terms of performance in the U.S. in fiscal 26 for Modern Oral specifically? And secondly, are these expectations underpinned by the FDA approving the European Velo product for sale in the U.S., or are they mainly driven by the existing VeloPlus product? And perhaps finally, in terms of profitability, could you tell us a bit more about how you expect new categories' profitability to evolve in fiscal 26? Thank you.

Okay, André, thank you for the question. Look, we have a very strong product with VeloPlus in the US. The levels of retention has been 70% throughout the year, which is really, really a very strong rate when you compare with other offers in the market. So basically, at the back of that, we believe that the product is compact enough to continue growing in the U.S. market. It has all the indications for that. Today, we still have a low level of awareness in the brand, around 30%. And we are present now in 150 plus outlets, thousand outlets, which account for something like 93% of the total auto revenue. We are also seeing that the average daily consumption as new products start to be more satisfying for consumers in the U.S. is increasing. So it used to be around 2.8 pouch per day. Today is around 3.6 pouch per day. If you compare that with the European markets, which is around six pouts per day, you see a lot of potential growth still in the U.S. And the Nordics is 12 pouts per day. So when you pull all this together, strong products, and the dynamics of the markets evolving at the pace that it is in the U.S., so the expectation is that we will continue growing. That's why we are investing capacity, like I mentioned during my presentation. We mentioned VeloMax, which is an even higher moisture product that we have as part of the pilot. that the FDA is running. We welcome, first of all, that FDA is embracing nicotine pouch as a key category to address tobacco harm reduction in the U.S. because it's the lowest risk profile if you want. There is no inhalation, there is no tobacco, there is no smell. That is much easier for consumers of cigarettes to convert into a much lower risk profile product. So they are putting in place these pilots. We hope that for the next few months we see our products and we are cautious that other competitors will come with other products as well. And for us, there is no problem with that. But when I look outside the U.S. where everyone is free to compete, the leading brand outside the U.S. is Velo. Like we said, in Europe, our volumes in Velo are six times higher than the second largest competitor. So what we want to see in the U.S. is a level playing field. Because in a level playing field, we know that we can win. So that's the first question on Velo. In terms of profitability, we have made a very strong profitability, improvement in profitability when you compare that not long ago, back in 2023, we were just reaching break-even in this category. And today, we have a 12% category contribution. Obviously, I always said that this will not be linear year after year. Because there will be years where we are going to reinvest back in the business at the back of exciting innovations. And 2026 is one of these years. Because as I said during my presentation, we have now premium innovation in every single of those categories. So we want to roll out Glorilo. We want to roll out VeloShift. We want to carry on rolling out VEOS Ultra. So, we are not concerned about stipulating a specific pace of category growth year on year, because this will vary over time, but the trend is very clear. The category will continue to grow.

Thank you. We'll now take our next question from Fahad Baik from UBS. Please go ahead.

Good morning, guys. Thank you for taking my question. The first one is on guidance for full year 26. You've got it for the lower end of the mid-term targets. Could you maybe share factors that could, results in the performance, whether in 26 or beyond that, getting you to the middle or even upper half of the range would be helpful. And then the second question is on heated tobacco. I guess it was a tough year in 2025 from a share perspective. How do you think about share progressing through 2026, particularly as competition in the category is intensifying?

Okay. Look, I want to start with the second one first, and then we address the guidance. Yeah, we clearly see areas of improvement in our performance in heated products. What we saw throughout 26 is that the below-up, which is basically where we were present until the launch of GlorHelo later in the year, has been very competitive in some of the key markets. And that's the reason why I have just made the point today that we are coming with a revamped hyperproduct that we believe that together with revamped consumables will strengthen our position in that particular segment. So, we are very encouraged by what we have seen of the performance of this product and the initial test that we have been doing. And we believe that this will support our performance moving forward. And obviously, Glowhilo will complement that because it's the first attempt that we have done where 7% of the value of the category seats, which is the AWAP, the premium part of it. And we are extremely pleased with the performance. We are growing week after week with a level retention of 50%. And this, complemented by a revamped value for money proposition, gives us the confidence that we can revert this trend and start growing from here. Now, in terms of the guidance, I think that Javed can explain a bit more about 2026. I just want to call the attention that After two years of investing, resetting our business, the U.S. business, our innovations pipeline, BAT is ready to go back to the midterm algorithm that we have always had in the company around a 3% revenue, 5% revenue, leading to a 4% to 6% operating profits. with a kick around 1% to 2% for APS, that's the range of 528. Obviously, our targets have incorporated transaction FX. I always try to make this disclaimer about BAT's targets. But the profile of growth of this range will differ now from where we were, I would say, several years ago. because the new cut will be even more prominent on that. Out of the three to five, we have mentioned before that combustible we expect to be delivering around one to 2%. And with the U.S. being in the medium term between zero to one, and the rest of the group, the international part, I would say, the other two regions above 2%. And in 2025, We have, despite all the difficulties that we face mainly in the APMEA region, we were able to deliver 1%. And we said that Bangladesh and Australia had an impact of 1% at top line, which otherwise would be high end of this range. So I'm very confident that moving forward, we can comfortably be delivering within those range. And when you move to new categories, for the algorithm to work, we had to deliver double-digit new category. Hasn't been the case in 2025, basically because of the headwind we face in vapor. There are a number of reasons for that, but mainly related to the legal market in the West. Now we are seeing signs that the authorities, be federal or state level, are addressing. So we expect moving forward to have less of a drag and eventually even a tailwind coming from vapor that will be supportive of the category for BAT. THP we just spoke about and we expect to accelerate our growth from now on with those offers. And obviously, more than Oro, we have a leading brand now, and we expect to grow from strength to strength. So I'm very confident about being able to deliver the double-digit new category revenue growth. to deliver 1% to 2% on the combustible side. This will flow through to the 426 in terms of increasing margins that is supported by all the productivity savings that we have already mapped out until 2030. And specifically in 2026, I would like Javi to comment about.

Thank you, Tadeo. I think on 2026, specifically, if I go region by region, and then we can look at overall, In case of APMIA, as I highlighted, that we expect Bangladesh to be not a big drag, but Australia still remain a meaningful drag, which is becoming smaller and smaller every year. So in 2026, Australia will still be a drag, but will be less meaningful in 2027. Having said that, also, we will continue to invest in the rollout of premium innovations in Apnea as well, as you saw in terms of Glow Hyper. So, that will be there as well. The other thing in that area is that in case of AME, we still face headwinds from the illicit environment in vapor and also the regulation changes in Poland, which happened at the end of the year, which has made the legal vapor out of the market, which is again a drag for us. Coming to US, you have to keep in mind that comparative from 24 to 25 versus 25 to 26 is very different. We had a very good performance in 2025, so that comparatively changes. And also, we are assuming for now stable volumes in views in U.S. So we are expecting that the enforcement level, as we've seen today, will stop the decline, but we'll keep the volume overall stable. And lastly, also we highlighted in our pre-closed trading update that we are exiting certain geographies which are not adjusted, but they will have an impact on our numbers in 2026. So hope this all gives you an idea of why the lower end of 2026. But having said that, we are all very proud and confident in the business that we are entering the first year of our midterm algorithm.

Very comprehensive.

Thank you both. Appreciate it. Thank you. Our next question is from Ray from Anchor Stockbrokers. Please go ahead.

Good day, Taro, Javed, Victoria. I just want to get back to, I mean, it's quite interesting to listen to your optimism around the new categories. And I just had a quick look at the numbers. Obviously, modern oil is doing exceptionally well. You have the opportunity for wafer to at least stabilize and even tobacco. I don't know whether the jury's still out there, but I don't know if you can just talk high-level stuff here to give us an idea how do you, which of these categories give you or make you the most excited in terms of the future growth in terms of that, I mean, especially now into 2026, we talk of a double-digit revenue growth. And then just to follow up, just in Australia, I mean, it's quite interesting because I sit in this market. I mean, the legal market is now down to like $3 billion, six or less. Now, clearly, I mean, if I look at Japan, I mean, that's basically what Japan will consume in the space of seven days. So, I mean, I struggle to understand why you say it will still be a drag. Is it not in a time, you know, that you must consider to exit this market? So, I'm just curious to hear your thoughts around that. Thank you.

Okay, okay. On the new categories, obviously, modern oral is the exciting category out of the three. The pace of growth of modern oral around the world is very clear. And even in markets where there is no oral tradition, you take, for example, the UK, when we launched VILO here four years ago, the incidence of nicotine in oral was zero. and today is around 3%. Sporadically, it can go all the way to 4% in terms of use. And this is happening also in the likes of Poland. It's happening in emerging markets because it's very affordable. And like Pakistan that is doing extremely well, South Africa doing extremely well, Kenya. So there is a massive potential and we are very pleased with the fact that now we have 24 markets already that have passed legislation. The last one has actually been Argentina a few weeks ago. Portugal has just passed legislation as well. So, we see clearly a lot of potential in this category, and we are obviously very pleased that we have a leading brand in this category. In terms of tobacco heating product, it is a $9 billion revenue category, in which BAT has just below $1 billion. So, there is a lot of white space for us, and it has been more and more competitive But we have now a product that is being present in the value side of the category, if you want, on the premium side. That has never been the case before. So with Glowhilo, we are tapping a very, very – it has been an untapped subcategory within the category for BAT. And we are extremely – excited about the this possibility of to occupy some of that white space in a category that is still growing not at the same rate of a modern order obviously but it still grows at a meter mid single digit uh high single digit so and and vapor is a is a difficult category because of uh of lack of enforcement and or regulation and uh that's the reason why we have uh there is actually a difficult to compete with some of these uh illegal products or products that doesn't have a concerns in terms of responsible way of doing vapor. That's why we came with this campaign. Because you see a proliferation of device with thousands of puffs that have a very different negative risk profile than the ones that we sell. So there is no level playing field. And the reason why we are addressing a premium sub-category within vapor with the likes of ULTRA is exactly a recognition of that. We are not really competing for volume. We are competing for value and offering consumers a responsible way to do vapor. And obviously, the U.S. is the largest vapor market, so all the attention is to that. I think that has given some indications now that they understand that the root cause also of the problem is the lack of level playing field and hopefully we can see some of the pilots that they are doing now in nicotine pouching to vapor in the future as well. So that's the new categories. Australia, look, uh australia has uh as you know uh come with a since the introduction of plan packing 2012 with a very misguided and illogical regulations year after year and uh increasing excise uh at much higher than inflation to a point today that the average price of cigarettes, legal markets in Australia is more than 20, equivalent of 20 pounds, 22 pounds. And whereas the illicit products is around 6 pounds. So as a consequence of that, 65% of the combustible market now is illegal. they have, in essence, reduced the average price for consumers. And for the first time in many years, we see an uptick of incidents of smokers in Australia. Not just they decimated the tax collection, but also with this illogical regulation, they are seeing now incentivizing consumers to smoke a product that is much cheaper than the legal markets. And obviously carry on with all the criminality as we know and have seen in many different markets. Now, the impact for us is that has always been a very important market for BAT. But like Javid said, we've come to a point that becomes insignificant. So the drag in 26 will not be the same as 25. It's still a drag, but it's not be the same. And from there on, if the government carries on doing that, which seems to be heading towards 100% illegality anyway. We don't even need to take this issue leave because... The direction of travel has been very clear. If you add the vapor category that has an incidence of 9% of all the consumer and is 100% illegal today, 85% of nicotine consumption in Australia today is illegal. So it's just a question of a couple of years unless they decide to do something more reasonable.

Thank you very much. Okay, our next question is from, allow me to go from Barclays. Please go ahead.

Good morning. Thanks for taking my question. So two of them. Firstly, on the U.S. business, clearly your price mix is pretty strong at 12% plus. Can you help us understand what percentage of your U.S. volume portfolio is right now benefiting from the excise duty drawback and how much scope does it have to increase in the future given your global business? That's the first one, and then secondly, appreciate all the commentary on your NGP guidance for 2026, but your low double-digit growth, it's still, I mean, seems like you're factoring a pretty sharp normalization versus what we can see in data, especially on nicotine pouches and the e-vapor side of things. So, can you just help us understand the moving parts for your low double-digit guidance for 2026?

Okay, Javed, we'll cover your second question. On the duty drawback, this is a longstanding legislation in the U.S., to incentivize local manufacturing and promote export from the U.S. So obviously what we are doing is exactly that. Reynolds has invested more than $200 million in terms of manufacturing over the last couple of years. We have generated more than 800 jobs, and we increased our purchase of leaf in the U.S. by 65%, and today Reynolds is the number one company in terms of volume of leaf purchase in the US markets. So, we are not making disclosure specifically about the duty clawback impact, but one data point for you to consider is the fact that our revenue in combustible would have been positive independent of the duty drawback. So it's important to mention that because at the end of the day, when you go back to what I was referring to in terms of the long-term algorithm, we expect the U.S. market in terms of combustible to be declining at rates around 6% to 7%. And this should be given the elasticity that still exists in the market. the possibility for Reynolds to get to a positive revenue around 0% to 1%. In the current years, it has been more than that because the company is doing extremely well in terms of the strength of their portfolio, but also the duty drawback is helping for those in that sense as well. But independent of the duty drawback, we are positive and I feel very comfortable with the range that we have set ourselves for our long-term algorithm.

I think on the overall new category revenue guidance of loaded double teams is one thing, is one couple of points. One in the U.S., even as I explained in my presentation, that we had a negative number for the full year on views. So what we are expecting in the views numbers to be flattish. Because it will require a more meaningful and more stronger enforcement. And given a very complex and long supply chain, even those measures will take time to have a meaningful impact. So even the ITC regulation which today was talking about, if it gets passed through, it will be much later in the year when we'll see some meaningful impact. And having said that, also as I highlighted the regulations, for example, in Poland and Europe, which has put a drag on the use volume because it has made the whole illegal business negative in that number, so that's not possible to enter that market. And also the highly competitive environment we see in the BWAP segment. within the heated product portfolio, as we were talking about earlier, that competitor class will continue to be there for the short term. So if you put all these together, that's why our guidance on the low end of the teams. But having said that, we are very confident in midterm that Velo will lead the charge of new category revenue growth, being the fastest growing brand in the fastest growing nicotine category globally, including U.S., Howard said that given all these points, that's why we have guided on this front at the low teens for now.

Thank you. Our next question is from Simon Hales from Citi. Please go ahead.

Thank you. Morning today. Morning, Javid. Morning, Vivi. So a couple for me. I wonder if I could just first come back to some of those comments you just made on the U.S. business on a go-forward basis. Javid, just back to the point in terms of the base of performance. and the flat vapor expectation for 2026. I'm still just trying to square that circle, given you've had pretty strong exit rate momentum through the second half of the year. I appreciate enforcement actions in vapor aren't a straight upward line, but we're still probably going to annualize at least through the first half some of the building enforcement we saw in 2025, and that should help the vapor category, one would imagine, or the legal vapor category in the first half. So are you therefore expecting, as we come into H2 of 2026, to see your boost business down year on year to get you back to that flat guidance for the year? That's the first point. And then secondly, on the U.S., today you talked about 6% to 7% being of decline on combustibles volumes. Is that something you expect to see in 2026? And could you also perhaps talk a little bit about what you're doing in discount at the moment, the performance of Doral last year and your plans on that brand going forward?

So if I take the first one, so I think one thing which I have to highlight further on the second half performance of 2025 of views in U.S., Other than the enforcement, there is also one item which will not see repetition was the delisting of competition product in which views gained. So 63% of those consumers stayed within the closed systems. And in RCS system, views gained more than their fair share of our category. So that is one thing which is also boosting views performance in the second half. So I wouldn't be reciprocating that second half into the full year of 26. Full year of 26 is more focused and will be more dependent upon the level of enforcement we see. And as also highlighted by Tadeo, that although we have seen regulation covering 40% of the legal volume, but level of enforcement varies from state to state. So one, not having that one-off of the exit of a competition, which we gained more than fair share, and enforcement still seems to be early days. So that's why our guidance on the views comment was made by me.

Yeah, on the volume side, my comment is more, I would say, a hypothetical situation. It's not a 2026. What's happening in the U.S. market is the following. If you go back to 2020, 54%... of the nicotine users were using traditional nicotine products combustible traditional oil you go now to 2025 is 34 so the balance is happening is what's happening is the transition of these consumers to either polyusing or using solo users of becoming solo users of smokeless products, either modern oral or vapor products. So obviously, the secular decline that was related to ADC and level of incidence reduced over time around 4% will not be coming back. That's my point. So even if you see a meaningful enforcement in vapor in disposables that we know that has currently plays a role in terms of the level of decline of cigarettes, Even if we see that, even if we see improvement in the macroeconomics in the U.S., it's very hard to imagine the market going back to 4% decline because of the dynamic of the polyusers and solusers in new categories that I was referring to. So my point is that in the long run, with a meaningful growth, enforcement in disposable with microeconomics is strengthening between six to seven. I think that where we see today in the next couple of years in the scenario that we are seeing, I think that the performance in 25 around seven to eight is a more reasonable one to assume. So that's what I would assume. Now, obviously, this is overall markets. When you separate from the overall market the deeper discounts, the deeper discount has a very different dynamic. We are seeing more activity there from competitors, and as a consequence, we saw the deeper discount growing by 10% in 2024. Four or five was even higher than the 7% that they grew in 2024. So we have been piloting Doral to your question. We have been always very mindful because despite the fact that the deeper discount is growing as opposed to the general market, 95% of the value continues to be outside the deeper discount. So we are very mindful in terms of testing the product, in this case it's Doral. We did pilots in Louisiana, in West Virginia. And what we are seeing in those pilots is suggesting that we'll be able to expand Doral for other states as well, taking into consideration the source of business, the potential down trades of our own brands. We are doing that with the value in mind. We are not doing that for the sake of market share. We want to expand Doral in the states that make sense from the value point of view.

Got it. Thanks very much.

Our next question is from Richard Dalton from Goldman Sachs.

Please go ahead. Thank you. Good morning. Thanks for taking my questions. Two, please. The first one is on vapor. So, look, great news that the U.S. is starting to take some proper enforcement action against illicit vapor. But, you know, your comments point to, I suppose, a challenging environment in markets ex-U.S. So thinking about those ex-U.S. markets, Are you seeing any shifts in appetite from governments or regulators to start to enforce against that illicit segment a little bit more stringently, or does that remain very challenging? Any comments on some of your top paper markets, XUS, on that topic would be very helpful. And then the second one, sorry to come back on the duty drawback question. I appreciate you don't want to give us the exact numbers for 2025, but just sort of, I suppose, from a high-level perspective, Thinking about duty drawback into 2026, is the tailwind going to be more or less than it was in 2025, a similar level? Any high-level comments just to sort of help us triangulate on that would be very helpful. Thank you. Okay, Richard.

Look, VAPOR is – I don't think that there is a one-size-fits-all here. We know, based on our own experience, that when we have geographies where we have retail license – we have proper regulation and proper enforcement. I would say, for example, France is one of the case. You just can sell vapors in tobacco niche stores. And if you are caught selling, for example, disposable now, you have a massive fine in euros. And this helps with the discipline in the markets. And in the UK, for example, despite the fact that we have been asking for a retail license and we haven't seen the movement in that direction, there is a tobacco vaping deal being discussed as we speak, and hopefully they will address that. but the attempt to ban disposable has failed, because the manufacturers that are not responsible, they try to circumvent, in the case, these regulations. So 50% of the market is illegal today in vapor, and this is a demonstration of how difficult the governments find to either regulate, but more important, to enforce regulation in some markets. We have, you know, as much as we can, and we have promoted this Vapor Deserves Better campaign, we have been very vocal about what are the measures that government should be taking into consideration to try to discipline that. And this, with no surprise, you will see us talking about retail license, hefty fines if they got caught, a more stringent discussion in terms of age verification when you buy the product. and a negative list to avoid things like sucralose in the liquids to suit the liquids. So, there is a, in our webcast and all that, there is a plent of, but there is still a lot of work to be done on that. And as a consequence, we are trying to, as part of our resource allocation, return of investment mindset, the quality growth, which is not just about top line but also bottom line, we have been focused on more important markets, the likes of France, like I said, the likes of Germany, the likes of Italy, which is standing out from others and then pulling back in markets like Malaysia, for example, and South Korea and so on and so forth. So that's the situation on vapor. and outside the U.S. In terms of duty drawback, look, I'm not giving guidance specifically for the drawback. We see that the benefits that we generate for the economy, for example, is the driver behind as much as we can start, you know, growing employment and growing the activities and the farmers domestic in the U.S., We carry on. Obviously, this is not forever. This will be, like you suggest, a peak. And in the meantime, we are strengthening our portfolio in combustible. We are seeing the overall market decline being more supportive, which is also important for the future. And more important is us being able to create a strong position outside combustible, because I understand the concern on the combustible side, but overall nicotine in the U.S. is growing. It's growing in value and it's growing in volume. So, despite the fact that you see consistent decline in cigarettes, you see massive increase in the modern oil space, you see strong increases still in vapor, unfortunately on the illegal side, but it's very encouraging, the signs that the new administration is giving to address that. Because in untapping this potential there, there is no much concern about the direction of the cigarette. Because what we want, in essence, is exactly to migrate smokers out of cigarette towards those products. But what is needed is a level playing field.

Thank you.

Our next question from Bastian Agul from Bank of America. Good morning, Bastian from Bank of America. Thank you for taking my question. I just have a quick one on the buyback. Your net debt is close to your target 2.5, and your free cash flow in 25 was quite strong. So my question is, we're getting the buyback 1.3 billion for 2026. What kind of margin do you have to potentially increase it at some point or another during the year? I understand that your debt is Approximately 70% in dollar, so could be quite volatile on that. But just to understand the moving part on your buyback for Fujia 26. Thank you.

I think, Sebastian, thank you very much. We started a sustainable share buyback program in 2024, and we started it with $700 million. And now we are at $1.3 billion with the increase of $200 million for 2026. We remain our focus on cash and also deliver. We have to enter into our range of 2 to 2.5. And also, we want to make sure that we continue to deliver additional incremental dividend in sterling terms and continue our 25 years plus record on that front and continue a sustainable share buyback. What we want to ensure is to create more optionality for capital allocation in medium to long term for the business. So for now, I'm very comfortable with the increase we have done of 200 million from 1.1 to 1.3 for 2026. And we keep on focusing on generating cash to bring us back into our range of 2 to 2.5 and continue a sustainable buyback.

Thank you very much. Thank you. Our next question is from Damian McNeill from Deutsche News. Please go ahead.

Hi, morning everybody. Thanks for taking the questions. First question is just on US combustible and particularly on pricing. I was wondering if you could provide any more granularity on the pricing within the sub-segment that you operate in and what the sort of outlook for 26 might be for pricing given the very strong year last year? And then the second question is on capex. You've indicated a step up this year. I'm just wondering whether that level of capex is what we should be expecting for out years past 2026.

Thank you, Daniel. Look, on the capex side, we are increasing at the back of investments, mainly on the modern oil space. Most of the capex today is being reverted back to the to the to the new categories and our and giving the space for us to continue growing uh we we don't have a you know huge expectations to be much beyond the level that is currently and uh and and this is shooting as well because at that level we still can be very close to the 100 of uh Operating conversion is not a limitation, but it's just a fact that with this level of capex address, the business leads at the same time puts us in a strong position to continue having high levels of operating cash conversion, which is very helpful for the financial flexibility in capital allocation that Javed was referring to. On the U.S. combustible, look, I cannot be talking about pricing. And what I can say to you is that the price elasticity is still very benign in the U.S. when you compare the price of cigarettes vis-a-vis the average household income. Obviously, there is a dynamic there because of the specific text that when we increase the price of a pack of cigarettes, the manufacturer has a higher benefit than the consumer perceives as a price increase, which is also helpful. But what Reynolds has been doing is laddering some of our brands. We did that very successfully with Newport. We have launched Palmo Select as well, which is another laddering. And we have now Doral, like I said, in pilot phase that we probably will expect to roll out to more states. But I cannot speculate with you about future price.

Thank you.

Thank you, everyone. Thank you. That was the last question today over the phone. With this, I'd like to hand the call back over to Victoria. Over to you.

Sorry. Thank you very much, everybody, for your questions. I'm afraid that's all we have time for today. So if you put a question into the web, then the IR team will be delighted to answer the question as soon as we can.

um i'd now like to hand back to today for closing remarks okay thank you all for listening today and for your questions to close i'm confident we have the right building blocks in place to deliver our midterm algorithm supported by delivering 2025 results at the top end of guidance We will continue to reward our shareholders through strong cash returns, including our progressive dividend and sustainable share buyback, and enabling us to deliver long-term growth and value creation. Thank you again for joining us. I look forward to seeing many of you at the Cagney Conference next week, where we are presenting on the 18th of February.