British American Tobacco Industries, p.l.c.

Good morning, everyone. I'm delighted to welcome you to our 2024 Interim Results Presentation. With me this morning is Soraya Bencik, our new CFO, and Victoria Buxton, Group Head of Investors Relations. I will begin with our transformation highlights and the progress we have made against our key areas of focus over the last 12 months. Soraya will then take you through our financial performance in more detail. I will then return to talk more about our performance outlook before we move to the Q&A session. With that, I'd like to draw your attention to the disclaimers on slides two and three. So let's begin by looking at the way forward. Our first half performance is in line with expectations, and we are on track to deliver our full year guidance. In the first half of this year, we have continued to transform our business. We added 1.4 million smokeless consumers, reaching 26.4 million. Smokeless now accounts for 18% of group revenue, up 1.4 percentage points versus full year 23. Our focus on quality growth, balancing top and bottom line delivery, has driven a £165 million increase in new category contribution and close to a 10 percentage point increase in our category contribution margin. Building on this momentum, we expect another good increase in new category contribution for the full year. We are committed to rewarding shareholders with strong cash returns, and I'm pleased with our progress in enhancing financial flexibility, enabling the initiation of a sustainable share buyback. This year is a key moment in our transformation journey, as we sharpen our execution, enabling us to navigate near-term market challenges and drive our sustainable transformation. Turning to the drivers of 2024 delivery. As was previously guided, 2024 is an investment year for BAT. In the first half, we have invested to strengthen our U.S. business, accelerate innovation momentum, and enhance capabilities that support our strategic delivery. This, together with lapping a tough comparator in APMEA, means we expect an acceleration in our second half performance. I'm encouraged that our new category launchings and our first half U.S. investments are gaining traction. Together with the expected unwind of U.S. wholesale inventory movements related to the year-on-year timing of our first half price increase, I'm confident that we are on track to deliver our full year guidance. This time last year, I shared a clear set of objectives to sharpen our execution and build a more modern and agile BAT. Over the last 12 months, working together with our broader teams, we have made good progress across the six areas of focus. We will touch on some of these highlights in more detail as we go through today's presentation. While there is still more to do, we are making good progress and I'm confident that the choice we have made and actions we are taking are the right way forward for BAT. And with that, I will hand over to Soraya to take you through the detail of our results.

Thank you, Tadeo, and good morning, everyone. I'm Soraya Benchik, CFO of BAT. And before I take you through the results, I would like to introduce myself. I'm Lebanese, and having started my career in finance at Gillette and GE, I then spent many years working at BAT across Europe, Russia, Africa, and the Middle East. I have spent the last 12 years in general management, and my last four have been at Diageo, culminating in my role as president for Europe. Now, after two months back at BAT, I'm excited to join Tadeo and the team to work on the next stage of our transformation. As CFO, my focus will be on supporting BAT's transformation with financial stability and effective resource allocation. This includes driving quality growth by balancing top and bottom line performance and targeting investments to deliver better returns and consistent cash generation. I will do so by prioritizing understanding market trends and consumer needs, investing in innovation and R&D, streamlining operations for efficiencies, while managing organizational change effectively and aligning with our sustainability goals. I am passionate about transformative leadership and committed to fostering creative, inclusive, and empowered teams. Maintaining transparent and consistent communication with stakeholders is also key for me. And I really look forward to sharing insights into our performance and future outlook. with you. Now moving to our first half results. Our reported results reflect the impact of our exit from Russia and Belarus in September last year, higher amortization and impairment charges following the decision to start amortizing the U.S. acquired combustible brands from January 2024, and the gain recognized in respect of the partial sale of the group's investment in ITC. Now, to better understand the underlying performance of the business and present a like-for-like comparison, excluding Russia and Belarus, we will focus today on organic, adjusted, constant currency results, unless otherwise stated. Our group revenue was down 0.8%, while new category revenue grew over 7%. Profit from operations was down 0.9% and diluted EPS was up 1.3%. While our group results have been impacted by continued macroeconomic headwinds in the US, we have also made targeted investment choices, and these have included continued investment in our US commercial plans with related wholesaler inventory movements, and investment in new category launches globally in order to strengthen our portfolio and drive sustainable growth and value creation. As you can see, our wholesaler inventory movements in the US significantly impacted our first half delivery. Excluding these, our group revenue would be flat and profit from operations was up 0.5%. We expect these movements to unwind in the second half and have no material impact on our full year delivery. Now diving into some of the key drivers of our performance. We delivered 4.3% combustible price mix with pricing up 7.2% offset by a negative geographic mix mainly driven by the US. In addition, we achieved a flat operating margin driven by improvement in our new category contribution and our continued focus on efficiencies despite absorbing a 1.8% transactional FX headwind. Excluding the US, which I will discuss in more detail later, and the rest of the world, we delivered 4% revenue and 4.6% profit from operations growth in line with our medium-term guidance. This reflects the resilience of our multi-category portfolio and the benefit of our global footprint. Our new category revenue growth in the first half was driven by an excellent performance from Velo in all three regions. We expect an acceleration in new category performance in the second half, driven by the phasing of our innovation launches, which we will touch on in more detail later on in the presentation. I will now share more detail on our key category drivers. As usual, market shares for our top markets are available in the appendix. Starting with Vapor, the fundamentals of the Vapor category are strongly positive. The total number of Vapor consumers is accelerating, and Vapor is the largest contributor to active new category usage, capturing 65% of consumers. Vue's revenue was up nearly 3%, delivering a continued positive category contribution. There was strong revenue growth in Europe and APMIA, which was partly offset by the impact of illicit single-use paper products in the US and Canada. Vuze maintained global value share leadership and also remains the number one brand in the US. While we are losing share in the U.S. due to the continued proliferation of illicit products, we are actively working to drive more effective regulation and enforcement at the state and federal levels. In June, we submitted the age-gated Vuze Pro PMTA, and last week, we received a marketing-granted order for our Vuze Alto device and tobacco flavors, confirming that the continued marketing of these products is appropriate for the protection of public health. Outside the U.S., we maintained value share leadership in AME at 32%. Although our regional performance was impacted by the flavour ban in Quebec province and Canada, where volume has shifted to the illegal market due to lack of enforcement, our value share in Europe grew 120 basis points. We are excited about the developing opportunity in APMIA, with our revenue growing 48% driven by South Korea, New Zealand and Indonesia. In heated products, industry growth is slowing with growing polyusage. Glow's revenue was down 4%, mainly impacted by price repositioning in Japan and Italy in mid-23. And VO pipeline build at the end of 23 in certain AME markets ahead of the flavor ban on tobacco consumables. Glow has started to deliver sequential category volume share improvement in key markets since December and is stabilizing share, being down 20 basis points year-to-date at 16.8 versus 110 basis points in 2023. This has been driven by the encouraging early consumer response to our new innovations, HyperPro and improved consumables. As part of our innovation hyperpro, of our innovation pipeline, hyperpro is an important first step into the premium HP segment. As a result, we are seeing an improving performance with our June volume share up 60 basis points in Japan and up 70 basis points in Italy versus December. This is especially encouraging as we also raised consumables pricing in both markets during the period. Altogether, we drove a strong improvement in total category contribution. With the majority of HyperPro rollouts completed and Veo, our tobacco-free consumables range, now launched in 19 markets and outperforming competing products, we expect an acceleration in our second half performance. Now moving on to modern oral, the fastest growing new category where new markets with no oral tradition now account for one quarter of industry volume. In H1, revenue was up 49% with growth across all regions and a growing category contribution. Our market share continued to grow with our volume share of Modern Oral up 30 basis points. In AME, we maintained clear leadership of the Modern Oral category with 65% volume share and Velo capturing the majority of the category growth. Velo's continued performance is driven by achieving the highest consumer acquisition and conversion scores and the strongest brand power in key markets. Importantly, an AME velo's gross margin per mil is over two times that of combustibles, driving a strong increase in category contribution. In the US, we are encouraged by results from our New York pilot, featuring a refreshed velo brand expression. In H1, we rolled out nationally, returning our US performance to strong growth with revenue up 120% and reaching 7.6% of volume share in June, up three percentage points versus December. In addition, following positive consumer testing, we started the US national rollout of Grizzly Modern Oral in June. Drink some water. One of my key priorities is to ensure that as we transform, we balance top and bottom line delivery. This is demonstrated with our new category contribution now driving our contribution margin up whilst we continue to invest for our future growth. New categories are now meaningfully contributing to group results as we benefit from increased scale and efficiencies. Building on this momentum, we expect to deliver a strong year-on-year improvement in new category profitability in 2024. Now turning to combustibles. Volumes declined by 6.9% on an organic basis. This was driven by wholesaler inventory movements in the US, 2023 market exits, and supply chain disruptions in Sudan. If we exclude these one-offs, our volume was down 4.7%. Our volume share was up 30 basis points, driven by strong momentum in key combustible markets such as Brazil, Bangladesh and Pakistan. Value share decreased by 10 basis points with the impact of our US commercial actions in the US, more than offsetting value share gains in AME and APMEA, which delivered a combined increase of 20 basis points. Revenue was down 2.6% driven by the US, partially offset by resilient performance in AME and APMEA, delivering combined revenue growth of 2.2. Now turning to our regions, in the US, total revenue was down 7%, mainly driven by our combustibles performance and the impact of illicit products on the vapor category. As previously discussed, we have continued to actively invest in strengthening our portfolio, with the majority of our previously announced investment in commercial initiatives now completed in the first half. Tadeo will share more detail on this later on in the presentation. Adjusted profit from operations was down 5%, driven by declining revenue, partially offset by efficiency gains, enabling us to expand our margins by 100 basis points. Adjusting for wholesaler inventory movements, revenue was down less than 5% and adjusted profit from operations was down 2.6%. U.S. combustibles industry volume was down 10% or 9.5% on a sales to retail basis, excluding inventory movements. Beyond secular market decline, industry volume was mostly impacted by a combination of macroeconomic headwinds and increasing polyusage, particularly driven by the growth of illicit single-use vapes. Our combustibles volume declined by 13.7% ahead of industry decline, mainly driven by wholesaler inventory movements. If we exclude the deep discount segment where we are not present, industry decline was nearly 11% in line with our volume decline when adjusted for inventory movements at 11.4%. While our volume share is down year to date by 10 basis points and value share is down 30 basis points, I am pleased that our commercial plans are delivering signs of volume and value share recovery. Our volume share is up 10 basis points since the last half year, driven by a 90 basis point increase in the premium segments. In addition, we have started to recover value share, with a 20 basis point decline since last half year, led by a 20 basis point increase in our premium share, reaching our highest level in four years. Driven by this progress and adjusted for inventory moves, our combustibles contribution has recovered versus the last half year. Now looking outside the US, AME is a truly multi-category region. Smokeless products now represent 25% of regional revenues in markets where we are present and over 50% of revenue in 11 markets. This drove continued strong regional delivery. Revenues grew 5%, driven by higher revenue from combustibles, reflecting a resilient volume performance and pricing, alongside continued new category revenue growth driven by an excellent modern oral performance, which was up 47%. Excluding Canada, vapor revenues in AME were up 15%. Adjusted profit from operations was up 5%, as we continued to offset the impact of inflation with continued efficiency gains. In APMIA, we saw resilient performance against a very strong prior year comparator. Total revenue was up 2%, with combustibles revenue up 1%, driven by good pricing. partly offset by the industry decline in Australia and supply chain disruptions in Sudan. Vapor and the modern oil revenue were both up strongly, driven by geographic expansion and continued progress in emerging markets. HP revenue was impacted by our price repositioning in Japan last year. Smokeless products now represent 18% of regional revenue in markets where we are present. And adjusted profit from operations was up 4% driven by strong pricing and continued efficiency gains. Now returning to our group performance. Our operating margin was flat as we successfully offset high single-figure inflation and a nearly 2% transactional FX headwind with improving new category profitability and continued efficiency gains. Inflation was mainly related to LEAF, which we expect to ease in the second half. Turning now to EPS, we delivered organic constant currency adjusted diluted EPS up 1.3%. Our performance benefited from lower net finance costs, tax and share count, which was partially offset by our reduced share of ITC profits. Our underlying tax rate was 24.4% and we continue to expect a rate of around 25% for the full year with existing tax rates. BAT is a highly cash generative company. Our cash flow conversion of 78% in the first half puts us well on track for another year of cash conversion in excess of 90%, enabled by our continuous improvement mindset and further resource optimization. Due to the timing of leaf purchases and MSA payments, our cash flow is always second half weighted. We now expect full year gross capex of around 600 million pounds below adjusted depreciation and amortization. This is above our previous guidance of 550 million pounds as we expand production capacity in the fast growing modern oral category. We are making good progress on the leverage and expect to be within our narrow target range of two to two and a half times at year end. We have seen some improvement in the interest rate environment with lower rates and tightening credit spreads. This together with the cash we received from the ITC asset sale has resulted in lower than expected net finance costs. As a result, we now expect full year net finance costs to be around 1.7 billion pounds subject to both effects and interest rate volatility. As we continue our transformation journey, we are focused on the importance of disciplined capital allocation and strong shareholder returns. We are committed to a progressive dividend, and we are making good progress on the leverage. We are committed to a sustainable share buyback, and in March, we reinitiated a share buyback starting with 700 million pounds in 2024 and 900 million pounds next year. enabled by the monetization of a portion of our ITC stake. Looking forward, we are making targeted investment choices to drive our medium-term sustainable growth algorithm, As expected, our first half performance was impacted by continued macroeconomic pressures and investment in our commercial actions. We are confident that our second half will accelerate, and we remain on track to deliver low single-digit organic revenue and adjusted profit from operations growth, including a 2% transactional FX headwind for the fall year. Extrapolating current spot rates, we anticipate currency translation to be a 4% headwind on full-year adjusted profit from operations growth. Now, beyond 2024, we expect to progressively improve our delivery to 3% to 5% organic revenue growth and mid-single-digit adjusted profit from operations growth on an organic constant currency basis by 2026. Now, with that, I will hand back to Tadeo. Thank you.

Thank you, Soraya. I would now like to spend a few moments outlining the opportunity and pathway ahead for BAT and why we are confident we can deliver an acceleration on our second-half performance. There are four clear accelerators that we expect to drive our second-half delivery. Improving U.S. performance, innovations in all three new categories driving double-digit revenue growth for the full year. In addition, we are lapping a software comparator in AppMirror and expect a continually strong performance in AME. As a result, we remain confident in delivering our guidance for 2024. Looking at the US premium segment, we can see a clear correlation between consumer sentiment and premium segment volume trends. Historic macroeconomic shocks have had a significant impact on consumer sentiment, and this in turn has driven an accelerated decline in premium volumes. However, over time, as consumer confidence levels improve, premium volume declines typically stabilize, returning to a more normalized level. Although the U.S. market continues to evolve, we believe this further supports our outlook for improving U.S. delivery over the medium term. A key feature of our industry in recent years has been the strength of the deep discount segment, as consumers looked to make the dollar stretch further. We are now starting to see deep discount volume growth slow dramatically, with market share remaining broadly flat since the third quarter of last year. At the same time, the branded value segment has grown volume share, with BAT increasing its segment share, led by Lucky Strike. While we have not assumed a macro improvement in our full year guidance, We believe this early indication of low-end consumer recovery could provide a tailwind in the medium term. I want to share some more color on the portfolio actions we have taken and why we are confident these will drive an improving performance moving forward. In premium, we have invested in Newport SoftPak in key investment states, creating a ladder portfolio. which has driven a recovery in Newport's share of the total premium segment. This has enabled us to drive a 30% reduction in smokers switching out of the Newport brand family, resulting in an 80% reduction in low-end growth in the 19 states where Newport SoftPak has been deployed. Taking a step back, we have a balanced portfolio of brands across all price points. Through our commercial initiatives, we have driven consistent value share gains in both the premium segments with Natural American Spirit and in the branded value segments with Luck Strike. Natural American Spirit's distinctive brand positioning in the super premium segment benefits from a highly loyal consumer base. while Luck Strike, relaunched three years ago, remains the fastest-growing cigarette brand in the market. A key element of our commercial investment has been expanding our contractor distribution universe over the last 12 months to reach 88% coverage. This has significantly improved our competitive position, by offering more of our retailer partners' increased Salesforce support. This has driven a 2.3% increase in volume sharing in these newly contracted outlets, with share gains across our brands. In addition, this has led to a 1.6% decline in the deeper discount segment in these outlets. Altogether, with these previously announced commercial initiatives now in place, we are confident that our actions will drive a better second-half performance in the U.S. and further strengthen our portfolio over the medium to long term. Turning to regulation, we continue to advocate for more appropriate regulation and enforcement of new categories, especially in the U.S. vapor. During the first half, we saw an increase in enforcement action from the FDA, with increasing fines, import refusals, and seizures. In addition, the U.S. Justice Department and FDA recently announced the creation of a task force designed to harness the enforcement capabilities of multiple federal agencies to combat illicit products. However, the success of legal products is dependent on the FDA doing more to tackle illicit vapor. To support this, we continue to advocate for the publication of a PMTA list, which would provide clarity to all market participants. I am pleased that just last week the U.S. International Trade Commission announced it will investigate our patent infringement complaint against the manufacturers, distributors, and retailers of single-use illicit products. In addition, the ITC continues its investigation of our complaint against the unfair import of these illicit products. Clearly, the pressure for enforcement is building. However, much more needs to be done to drive a meaningful impact over the medium term. At the state level, vapor directory or enforcement legislation has now been passed in 13 states, meaning once implemented, 31% of the tracked vapor industry volume will be covered by state directories. In Louisiana, the first state to implement a vapor directory with significant enforcement in October 2023, we are starting to see listed product volume decline, with views auto-capturing the majority of the volume flow back into the legal segment. As a blueprint, Louisiana is a powerful example of what can be achieved. However, it's important to note that the scope of vapor directories and regulation differs materially by state, and that much more needs to be done to ensure effective enforcement of these regulations. Turning now to heated products. As Soraya shared, we are starting to see a turnaround in low performance, driven by HyperPro. With the majority of our launches now in place in the first half, we are confident we can build on this momentum through the rest of the year. The step change in performance is clear, with volume share gains in key HP markets, Japan, Italy, and Poland. Our pro device has a premium price position, and the launch of our upgraded consumables has enabled us to take price increase in key markets. Importantly, since December, our value share in these key markets is now growing faster than our volume share, reflecting the strength of our innovations and commercial actions. So what has driven this turnaround? I have been very transparent that we needed to do more to strengthen our HP performance, and this all begins with better products. Leveraging our consumer insights, Glow Hyper Pro and consumables are resonating strongly with consumers across key attributes, such as brand equity and perception. This is also driving an increasing in average daily consumption amongst Glow consumers. These launches are the first step in our enhanced innovation pipeline for heated products and are a significant driver in the progress we are making to improve Glow's category contribution. In vapor, we have started to roll out exciting innovations with significant launch plans for the second half. Views Go 2.0, our newest single-use vapor, delivers improved sensorials with superior heating technology. Importantly, this is our first device with a removable battery, which together with a device lock directly addresses key sustainability and safety concerns. We continue to upgrade our rechargeables experience with our new Views Go Reload device, which pairs with our improved Views flavors. Views Go Reload provides the flexibility and convenience of single-use products with a rechargeable device. And earlier this month, in the US, we entered the emerging zero-nicotine space with the launch of Sensa. Putting all this together, we are confident these innovations can drive and improve the views performance in the second half. In modern order, we are revigorating our US portfolio. I'm delighted by the performance of our refreshed Velo brand expression in our New York pilot, which has driven volume share up 7.2 percentage points to June versus pre-pilot levels reaching 16.5%. As a result of this success, earlier this year we commenced a national rollout of refreshed Velo. Utilizing our consumer insights, we continue to innovate to broaden our offering and appeal to both traditional oral consumers through grizzly modern oral and internationally by enhancing our flavors range. As you can see, we have exciting new innovations in market in each new category to drive our second half acceleration. I am encouraged that our new category launches and our first half commercial investments to strengthen our U.S. combustible portfolio are gaining traction, which together with the unwinding of U.S. wholesaler inventory movements, I'm confident will drive an acceleration of our group performance in the second half. As a result, we are on track to deliver our full year guidance. In conclusion, 2024 is an investment year for BAT. We are sharpening our execution to navigate near-term market challenges and set the business up for a stronger future. We will continue to reward shareholders throughout our transformation, driven by consistent cash flows, disciplined capital allocation, and strong shareholder returns. While there is more to do, Our focus on quality growth is building momentum. And I'm confident this is the right approach to ensure we deliver long-term growth and value creation. Thank you for listening. We will now be joined on stage by Victoria for the question and answer session.