British American Tobacco Industries, p.l.c.

Good morning, everyone. I'm delighted to welcome you to our 2024 Preliminary Results presentation. With me this morning is Soraya Bencik, CFO and Victoria Buxton, Group Head of Investors Relations. I will begin with our transformation highlights and the progress we have made during our investment year. Soraya will then take you through our financial results in more detail before I return to talk more about our performance outlook ahead of Q&A. With that, I would like to draw your attention to the disclaimers on slide two and three. Let's begin by looking at the positive transformation momentum we are driving, starting with some highlights. 2024 was a key moment in our transformation journey, as we sharpened our execution, enabling us to navigate near-term market challenges and deliver an improved performance in the second half. We have delivered group results in line with expectations, which Soraya will talk about in more detail. Smokeless accounts for 17.5% of group revenue, up 1 percentage point versus last year. We added 3.6 million smokeless consumers, reaching 29.1 million, mainly driven by our continued success in modern oil. Our focus on quality growth, balancing top and bottom line delivery, has driven a further improvement in new category contribution up to 151 million pounds and a seven percentage point increase in our category contribution margin on an organic constant rates basis. We are committed to rewarding shareholders with strong cash returns, and I am pleased with our progress improving financial flexibility. enabling the initiation of sustainable share buyback, continued progress on the leverage to within our target range at 2.4 times, alongside our progressive dividend with 2% growth announced today. Our foundations are solid, and I'm confident that the choices we have made and the actions we have taken through our investment year are the right way forward for BAT. I have been clear that we need to invest to strengthen our U.S. business, accelerate innovation momentum, and enhance capabilities that support our strategic delivery. While there is more to do, we are making clear progress. Our previously announced commercial plans in the U.S. are completed, and I am encouraged that our performance accelerated in the second half. Through our improved innovation ecosystem, our new category growth accelerated in the second half, driven by Glow Hyper Pro and our refreshed VeloMix in the US. Furthermore, we are excited about the Q4 launchings of our latest innovations, including VeloPlus. As previously highlighted, we do not expect the journey ahead to be linear. We will share more detail on the key drivers and assumptions behind our 2025 guidance later in the presentation. We remain committed to returning to 3-5% revenue and 4-6% APFO growth adjusted for Canada at constant rates in 2026. And with that, I will hand over to Soraya to take you through our results in more detail.

Thank you, Tadeu, and good morning, everyone. Before diving into the results and to set the context, I would like to remind you of my key focus areas. The first is to fuel our transformation by maximizing sustainable value from combustibles. The second is to drive quality growth in new categories by investing capital in a disciplined manner, targeting the largest profit pools and maintaining a laser focus on returns. The third is to strengthen our financial resilience. And even though we have reached our target debt corridor including Canada in 2024, by 2026 we aim to be within this corridor excluding Canada whilst remaining committed to our balanced capital allocation. Now with this in mind, I'd like to share our progress in 2024 as we move to the results. I am pleased to share that we delivered organic constant currency results in line with guidance. Whilst our reported results reflect a number of adjusting items, including our exit from Russia and Belarus, a provision of £6.2 billion for Canada's CCAA proposed plan, a charge in Romania in respect of an excise assessment, and a 1.6 billion gain due to the partial sale of our ICC investment. To understand the underlying performance, we will focus on organic adjusted constant currency results. More details on adjusting items are in the appendices. So in line with our guidance, group revenue grew by 1.3%, new category revenue grew by 8.9%, and adjusted operating profit rose 1.4%, and diluted EPS increased by 3.6%. So looking at some of the key drivers. Bustables price makes growth with pricing up nearly 9% offset by negative. Adjusted gross profit expanded by 400 million pounds supported by revenue growth management and new category scale benefits. Excluding the US, we delivered 5.1% revenue growth and 7.5% operating profit growth. This highlights the strength of our multi-category portfolio and resilience of our global footprint. As expected, new category revenue growth accelerated in the second half. We achieved quality growth with contribution margin rising to 7%. This reflects our targeted investment in high value profit pools, focused ROI discipline and scaling benefits across markets. I will now provide more details, and all share data is based on full year averages unless otherwise stated, and further information is again available in the appendices. Let's start with Vapor. Vapor is the largest new category globally, with consumer numbers accelerating. While category fundamentals are strong, weak enforcement against illicit single-use vapes in the US and Canada has distorted competition. Vapor revenue fell by 2.5% and growth in Europe, led by views go reload, was offset by illicit market challenges. Views remains the value share leader both globally and in the U.S., where we are demonstrating strong financial resilience. U.S. volumes declined by 4%, but they were outperforming the 9% industry decline in tract channels. But without stronger enforcement, illicit vapor products will continue to impact the legal market. In AME, we retained value share leadership at 31.5%. Gains in France, Spain, and Germany lifted value share by 100 basis points, of course, excluding Canada's losses from Quebec's flavor bar. The UK and France, however, will likely face short-term disruption from single-use vapor bands in 2025, but we are well positioned for long-term growth. In ACMIA, revenue grew 24% driven by strong momentum in South Korea and New Zealand. Moving on to heated products, In heated products, industry growth slowed, impacted by increased new category poly usage in Europe. Glow revenue was up nearly 6%, with a stronger H2 performance as expected. Growth was fueled by the continued rollout of Glow HyperPro and improved consumables, moving the brand towards premium positioning. GloPro helped improve volume share with a small decline of 40 basis points versus the 110 basis points in 2023. In Japan, pro consumables gained 110 basis points in volume share, partly offsetting the decline of legacy super slims. In AME, category volume shares stabilized with strong gains in Poland and the Czech Republic and continued improvement in Italy. Our tobacco free range VO continues to strongly outperform peers. We have driven a more balanced global performance with improved category contribution in 2024, driven by scale benefits and pricing. And last but not least, we move on to modern oral, which is the fastest growing new category. Usage and daily consumption are rising in both key and new markets, with non-traditional markets now making up 20% of industry volume. Our revenue grew 53% in Modern Oral in 2024, with strong growth across all regions, improving category contribution. Our category share increased, with volume share up 130 basis points. And in AME, we led the Modern Oral category with 65% volume share, and VLOG captured 70% of category revenue growth. This performance proves Velo is the leading brand and product in the category. In the US, our recovery was driven by a refreshed Velo expression and the launch of Grizzly Modern Oral. We gained over two percentage points in volume share, reaching 6.6% and 18% in New York in December, where this mix was first introduced. We expanded our US portfolio with VeloPlus at the end of the year, which Tadeo will discuss later. In combustibles, our volumes declined 5% organically, mainly due to the US. Market exits and supply chain issues in Sudan also affected performance. Excluding these, volume declined 3.5%. Our volume share grew by 20 basis points, with a strong performance in Brazil, Bangladesh, Mexico and Pakistan. Value share declined 20 basis points, driven by the US. Our US commercial investments in H1 helped recover volume and value share in the second half. Revenue was marginally higher with growth in AME and APMEA, led by Brazil, and in APMEA led by Brazil, Japan and Turkey, offsetting the US. Now turning to our regions, our US revenue declined by 3.4%, mainly driven by the commercial actions implemented over the last 18 months. In addition to ongoing macroeconomic pressures impacting affordability and illicit vapor products affecting both combustibles and vapor. The combustibles industry declined by around 9% on a sales to retail basis. Excluding deep discount where we are not present, the industry declined 11% while our volume was down 10.1%. 4% of the industry decline was due to new category poly usage, with illicit vapor contributing 2.5% of this. Our U.S. financial performance improved throughout the year, driven by a strong performance in combustibles versus 2023. Adjusting operating profit fell 3.5% due to lower combustible volume and commercial spending. Tadeo will provide further U.S. updates later. Moving to AME, AME is a multi-category region, with smokeless revenue now making up 24% in markets where we are present in new categories. 11 of those markets now generate over 50% of their revenue from smokeless products. Revenue grew nearly 5%, driven by higher combustibles revenue, supported by solid volume and strong pricing, and double-digit new category growth, with modern oral up 47%. Vapor revenue declined mainly due to Canada and adjusting operating profit rose 7.5% as scale benefits, new categories and cost efficiencies offset inflation. In ACMIA, growth improved in H2, and smokeless now represents 20% of revenue in markets where we are present with new categories. Total revenue grew by 5.4%, with combustibles up 3.5%, driven by pricing gains, partly offset by the declines in Australia and supply chain disruptions in Sudan. New category revenue grew nearly 9%, led by vapor and modern oil gains in emerging markets, and heated products benefiting from innovation and lapping Japan's prior year commercial plans. Adjusted operating profit increased 7.5%, supported by pricing and improved performance in Japan, asset sales, and efficiency gains. Now the group operating margin was flat as we offset inflation and forex pressures with higher new category profitability and cost savings. BAT has a strong track record in delivering cost savings. Having achieved close to 900 million pounds in savings over the last two years, we are on track to deliver more than 1.2 billion by year-end. These savings helped offset inflation and forex impacts while funding quality growth investments. In 2024, we absorbed 390 million pounds in inflationary costs and 1.1 1.1% transactional effects headwinds on adjusted operating profit. Inflationary pressures are expected to ease this year. Beyond 2025, we aim to simplify combustibles and drive scale benefits in new categories, targeting an additional £2 billion in savings by 2030. EPS grew 3.6%, gains from lower net finance costs and share count were partly offset by our reduced share of ITC profits and tax. The underlying tax rate was 24.9% and we expect around 25% in 2025 based on prevailing rates. Operating cash conversion exceeded 100% for the fifth year, reflecting our strong cash discipline. In 2025, we anticipate £650 million of gross capex and £1.8 billion net finance costs adjusted for Canada. Our debt profile is strong with 87% of our net debt fixed with average maturity of just under 10 years and close currency matching. We reduced leverage to 2.4 times, which adjusted for Canada would be 2.75 times. we expect to be back within our target leverage range of two to two and a half times post-court approval and implementation of the proposed plans by the end of 2026. We support the proposed CCAA settlement, which maximizes value for claimants while securing our continued operation in Canada. In accounting for the proposed settlement, we will continue to fully consolidate our Canadian business in accordance with IFRS. We have recognised a £6.2 billion provision in our 2024 reported results, and this is treated as an adjusting item, in line with our accounting policies. In order to ensure that the P&L reflects the economic delivery from Canada, from 2025 we will report APFO adjusted for Canada. Now, due to the uncertainty of the timing of the settlement in 2025, our non-GAAP reported numbers will remove 100% of our Canadian business, excluding new categories. with 2024 comparators provided on the same basis in the appendices. It is important to note that we will continue to fully consolidate our revenue in Canada. Subject to the settlement conclusion in 2025, From 2026, we will adjust to remove 85% of our Canadian APFO in line with the charging schedule, excluding new categories, which we will reduce to 80% five years post-settlement and 75% ten years post-settlement. After six years in CCAA protection, we are pleased to have reached this stage and our accounting treatment set out today is based on the current status of the proposed plan. We are hopeful for a swift resolution and remain committed to our capital allocation priorities. BAT is a highly cash-generative company, and we are expecting to deliver over £50 billion of free cash flow between 2024 and 2030. We remain committed to our capital allocation priorities of, firstly, reinvesting in our transformation, whilst balancing deleveraging and progressive dividends and sustainable share buybacks, and selective bolt-on M&A to accelerate our transformation. Looking ahead, we expect significant headwinds in Bangladesh and Australia. In January, the interim government in Bangladesh increased VAT and supplementary duty on over 100 essential products, including tobacco. Excise has risen sharply, coupled with above-inflationary floor price increases across all categories, which is expected to accelerate illicit trade. In Australia, new tobacco regulations representing the biggest reform since plain packaging in 2012 will come into effect from April 1st. In addition, recent ad hoc excise increases, most recently last September, are already accelerating industry volume decline. Last year, illicit trade was up 6 percentage points to 36% of industry volume, while smoking incidence has remained stable for the last five years. Combined with the vapor incidence, which is currently at 9%, this means that around 65% of nicotine usage in Australia is illicit. Looking forward, we expect this ineffective government policy to further accelerate legal industry volume decline. And coupled with the announced incremental impact of another excise increase in September, to continue to significantly fuel illicit trade. Together, we expect these two headwinds, both in Australia and in Bangladesh, to impact our 2025 group revenue growth by 1% and group upvote growth by close to 2%, with the January budget in Bangladesh being the main driver of change since our December trading update. As a result, and including these impacts, in 2025, we expect to deliver revenue growth of around 1%, supporting APFO growth of 1.5% to 2.5%, adjusted for Canada and including a 1.5% transactional FX headwind. The key drivers are an improving US financial performance, returning to growth, despite continued macro and illicit trade headwinds, another solid AME performance, and further strong growth from VLO globally. Alongside the expected launch of exciting innovations for all three new categories throughout the year, we expect to grow APFO ahead of revenue, supported by continued strong new category growth contribution and the laser focus on ROI and further cost savings. We expect our group performance to be second-half-weighted for both revenue and profit as we deploy our new category innovations throughout the year, with our first-half performance reflecting progress in the U.S., driven by combustibles and modern oil, offset by combustible headwinds, as described in APMIA, and the continued lack of enforcement in the U.S. and Canada, together with the Mexico vapor ban. As highlighted at our Capital Markets Day, we will continue to track key KPIs across all pillars to measure our transformation success. So, in summary, 2024 was an investment year, and I'm pleased to see our progress reflected in our key metrics. We have deployed dashboards across business units to enhance decision-making. These dashboards focus on our transformation to deliver long-term growth, return on investment to ensure financial discipline, and cash flow and leverage to maintain financial strength. I am confident these metrics will help us create a sustainable shareholder value. And with that, I'll hand it back to Tadeo.

So thank you, Soraya. I would now like to spend a few moments outlining the pathway ahead. BAT is transforming. With our multi-category strategy and global footprint, we are well positioned in a growing industry. I believe we have the right strategy, the right capabilities, and the right people to deliver profitable transformation. while delivering strong returns to shareholders and making progress towards our vision of building a smokeless world. At our Capital Market Day in October, I shared these 10 key reasons why I fundamentally believe in the future growth prospects of BAT. Many of the broader themes have been touched on by Soraya, and I would like now to share some additional color on our confidence in these six key areas highlighted in this slide. First, BAT is well positioned within the value of the nicotine industry growing at an accelerated pace, as consumers around the world increasingly switch to new categories. Second, we have transformed our entire innovation ecosystem. This has allowed us to step change our product portfolio based on our consumer insights. We have developed an exciting innovation pipeline across our new categories that we will deploy in a target way through 2025. As highlighted at our CMD, GloHilo is a breakthrough system that we believe will reshape the way Glo is positioned in the category, allowing us to compete effectively in the premium segment that represents over 80% of industry value. We launched our first two-piece premium device in Serbia in November. We are collecting insights and learnings, and we are encouraged by the results in the markets to date. Hilo and our new consumables, Virtu and Rivo, are resonating well with the majority of acquired consumers new to the Glow brand family. We will share further updates as we continue to roll out this exciting new platform from mid-2025. In vapor, VEWS Ultra will be our initial step in offering consumers premium vapor products, an untapped opportunity representing just 3% of vapor category value today. VEWS Ultra is a new vapor solution delivering a responsible, high quality and satisfying experience for vapor consumers and positioned VEWS as a brand that consumers can trust. Our targeted rollout plans are commencing this quarter in Canada and will continue through the year. Modern order in the U.S. continues to grow strongly, and I'm pleased by the progress we are making with our existing portfolio, as highlighted by Soraya. Looking ahead, I'm excited about our portfolio expansion with VeloPlus, which we launched at the end of last year in seven flavors and two nicotine strengths. VeloPlus is a higher moisture product and we are delivering very encouraging early results, including strong offtake driven by adult consumer demand and trial with our total volume share of board and order above 10% in the latest reading. We will continue the rollout through the first half with a full activation plan across retailer, media and digital platforms. My next reason to believe is demonstrated by the growth and delivery of our business in Europe, where more than a third of total nicotine consumers are actively using new categories. Driven by our quality growth focus, our new categories have been game changers for our delivery in Europe, as illustrated in these charts. New category growth has both enabled our European business to exceed our group mid-term revenue guidance and also enabled significant increases in absolute category contribution through scale and efficiencies. The next reason to believe is our U.S. business, which remains the cornerstone of our future. As we highlighted at our CMD, one-third of the global adult nicotine value pool is located here, with the industry continuing to grow at pace. I am encouraged that our investment approach, taken over the last 18 months to strengthen our business, is working. In combustibles, we have expanded our contracted distribution universe to 88% coverage. resulting in a 3.2% point increase in volume share in these newly contracted outlets, with share gains across our brands. In addition, this has led to a 1.2% point decline in the deeper discount segment in these outlets. In premium, we have invested in Newport SoftPak, in key investment states, creating a lettered portfolio. Alongside this, we have driven consistent value share gains in both the premium segments with natural American spirit and in the branded value segment with Lucky Strike, which remains the fastest-growing cigarette brand in the market. A key feature of our industry in recent years has been the strength of the deep discount segment, as consumers look to make their dollars stretch further. In 2024, we have seen a slowdown in deep discount volume growth. At the same time, the branded value segment has grown volume share, with BAT increasing its segment share led by Lucky Strike. While the lower-end adult consumer clearly remains under pressure, we believe these segment dynamics, alongside improved consumer confidence levels, demonstrate some early indicators of progress towards recovery, which would provide a tailwind in the medium term. Moving forward, in order to have an even sharper view of market performance, we are switching to a retail sales data share rate. with enhanced coverage, improving both decision quality and decision speed, which we expect will support us in sharpening our execution. We are beginning to see returns on our completed, previously planned investments in the U.S. as we move towards value creation. Our total volume share stabilized in 2024. Excluding the deeper discount segment where we are not present, we grew volume share by 40 basis points. It's important to note that 95% of the U.S. combustible's value pool sits outside of the deeper discount segment. And we believe we have turned an important corner with the U.S. returning to growth and look forward to continued improved delivery to our group performance in 2025 and 2026. Turning to regulation, we are encouraged by the withdrawal of a possible mental ban and freeze of previous rulemaking as the new administration reconsiders proposed regulations, including very low nicotine. In new categories, our success in Europe demonstrates our ability to effectively compete on a level regulatory playing field. And we continue to work hard to achieve this in the U.S. by advocating for more appropriate regulation enforcement, especially in vapor. During 2024, we saw an increase in enforcement action from the FDA. 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. In addition, the U.S. International Trade Commission continues to investigate our patent infringement complaint regarding these illicit products. At the state level, vapor directory or enforcement legislation has now been passed in 14 states. meaning that around 30% of the track and vapor industry volume will be covered by state directories by the end of this year. Louisiana, a powerful example of what can be achieved, shows that well-constructed regulation can work and it's paired with proper enforcement. Since implementation, the legal vapor market in Louisiana has grown volume by 33%, with a 91% reduction of single-use illicit products in tracking channels. Views Auto continues to capture the majority of the volume outflow back into the legal segment. In the meantime, nationally, illicit vapor products continue to impact the legal market. We have seen this trend accelerate legal industry declines towards the end of last year, and we expect this to continue in 2025. While we are optimistic that government engagement actions will drive a more level playing field over time, we do not expect these actions to have any meaningful impact on our near-term performance. Of course, effective regulation enforcement is not just our U.S. focus. We have significant experience and capabilities in this area built over decades to connect science, corporate, and regulatory affairs towards a sustainable future. We have created eOMNI, which brings together scientific evidence to shift broader stakeholder perception of tobacco harm reduction. We strongly believe that regulators should embrace tobacco harm reduction led by science and backed by robust enforcement to accelerate the reduction in smoking prevalence. Regulators who do not engage in this area will not only slow the pace of transformation that society needs, but we also see rapid growth in illegal products. Leveraging science and the Omni, we are pursuing a more proactive engagement approach with global regulators, with encouraging progress on regulatory change in some areas. And we will continue to amplify our message. Now, since becoming chief executive, I have been clear that building on our foundations of integrity, collaboration, and inclusivity, we will drive the culture we need to successfully transform BAT. Guided by our 2030 People Strategy, we are already making great progress. We have a highly engaged and committed workforce, and our refreshed values are resonating strongly. Our employer value proposition is attracting talent, and we are also making progress in advancing our diversity and inclusion agenda. all working towards one goal, driving a cultural transformation that enables an exciting and winning company for a better tomorrow. Finally, before we conclude, I want to share our priorities for 2025. As you can see, our first priority is our quality growth focus to ensure we roll out new innovations in a targeted way, balancing top and bottom line delivery. We are committed to driving value from our combustible business. This is key to fund our transformation and the US will be an important driver of this. We will amplify our proactive approach to regulatory affairs powered by science and the Omni. All of these will be executed with a returns focus in terms of both cash generation and continue to build a track record of delivery. In 2025, I'm confident that we will build on our investment year foundations. As Soraya has highlighted, our 2025 guidance includes significant combustible headwinds in Bangladesh and Australia. Together, these represent a 1% impact on group revenue and close to 2% on group EPFO, which is already embedded in our guidance. Looking into 2026, I'm confident that we will build on our underlying momentum through 2025 to deliver 3% to 5% revenue growth and 4% to 6% APFO growth adjusted for Canada on a constant currency basis. We expect the key drivers to include further improvement in our U.S. financial performance, supported by a less negative backdrop from industry volume, the macro environment, and more meaningful enforcement against illicit vapor. Second, quality growth driven by our new category innovations. And third, lapping the 2025 combustible headwind in Bangladesh and investments in our innovation rollout. And fourth, a step up in efficiencies with our £2 billion savings programs to 2030. While there is more to do, I'm confident that we have the right strategy, capabilities and people to deliver profitable transformation. I'm excited about the future for BAT and I believe we will deliver long-term sustainable growth and value for all our stakeholders. Thank you for listening. will now be joined on stage by Victoria for the question and answer session. Victoria, please.