British American Tobacco Industries, p.l.c.

Good morning, everyone. I'm delighted to welcome you to our 2025 Interim Results presentation. With me this morning is Soraya Bencik, CFO, and Victoria Buxton, Group Head of Investor Relations. I will begin with our transformation highlights and the progress we have made against our 2025 priorities. Soraya will then take you through our financial results in more detail. before I return to talk more about our performance outlook and why we are confident in the pathway ahead. We will then take your questions. With that, I would like to draw your attention to the disclaimers on slides two and three. Let's begin by looking at the positive transformation momentum we are driving, starting with some highlights. We have delivered group results slightly ahead of expectations, which Soraya will talk about in more detail. Smokeless now accounts for 18.2% of group revenue, up 70 base points versus last year. And we added 1.4 million smokeless consumers, reaching 30.5 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 margin up to 180 base points to 10.6% at constant rates. We continue to enhance our financial flexibility, enabling us to make progress on the leverage and reward shareholders with strong cash returns. Alongside our progressive dividends, we recently increased our 2025 share buyback by £200 million to £1.1 billion. I'm proud that we have delivered what we said we would in the first half against our 2025 priorities, as we continue to build a track record of delivery. Our quality growth focus is central to our new category's execution to ensure we roll out new innovations in a targeted way while continuing to improve our contribution margin. Driving value from our combustibles business is essential to funding our transformation, and the U.S. is a key driver of this. I'm delighted with our return to both revenue and profit growth in the U.S. for the first time since 2022, driven by combustibles and modern oil. We remain focused on our proactive approach to regulatory affairs and continue to advocate for science-led, level playing fields with robust enforcement for smokeless alternatives. In the first half, we activated OMNI in 13 markets globally, with further launches planned for the second half of the year. Importantly, all of this is executed with a strong focus on cash generation, enabling us to continue to deliver and reward shareholders with strong cash returns. I'm pleased to report a notable increase in energy and momentum across the group, and I would like to thank all our teams around the world who are driving these encouraging results. And with that, I will hand over to Soraya to take you through our H1 performance in more detail.

Thank you, Tadeu, and good morning, everyone. I am pleased to share that our results on a constant currency basis came in slightly ahead of expectations. Our reported numbers include some adjusting items, such as a £575 million reduction in our Canadian provision following an update of the forecasted market performance and a £900 million gain from the partial sale of our ITC investment. To give you a clear picture of our underlying performance, I'll focus on constant currency-adjusted metrics, and you can find more detail on the adjusting items and market share data in the appendix. In H1, we delivered a strong performance ahead of our original guidance at the upper end of our 1% to 2% revenue growth range. Group revenue was up 1.8%, adjusted gross profit rose by 3%, and adjusted profit from operations grew 1.9%, with adjusted diluted EPS increasing by 1.7%. With a stronger than expected H1, we now anticipate full-year revenue at the top end of our 1% to 2% guidance. We maintain our APFO guidance of 1.5% to 2.5%, reflecting increased investment in new categories and a stronger U.S. combustibles comparator in H2. Let's now turn to new categories. Revenue was up 2.4%, driven by an outstanding growth in modern oral, which was up over 40%, and heated products, which rose by more than 3%. This was partly offset by a 13% decline in vapor, mainly due to illicit trade in the US and Canada. we are delivering quality growth, with gross margin up 250 basis points and contribution margin up 280 basis points, reaching 10.6%. This reflects our targeted investments in high-value markets, a disciplined approach to ROI, and the benefits of scale. And I'm really proud of the progress we've made and we expect momentum to build in H2 with new category revenue growth moving into the mid-single digits for the full year. Modern Oral in AME is a fantastic example of quality growth in action. We are clear category leaders in the region with 63% volume share in top markets. And over the last four years, consumer numbers, volume and revenue have more than tripled, making modern oil our largest new category in the region by both revenue and contribution, with a gross margin already 10 percentage points above combustibles, together with the fastest payback period of just over one year. Looking forward, I am confident that modern oil will continue to be a key driver of our sustainable growth and profitability, both in AME and globally. Now turning to combustibles, revenue increased 0.8% with volume decline more than offset by strong pricing across the globe, driving a healthy price mix uplift. We delivered quality growth here too. Gross profit increased by 2.4% and contribution rose 2.2%. Helped by a strong performance in the US, favorable price mix and ongoing productivity and simplification gains. I'm especially pleased to see our US combustibles business return to growth for the first time since 2022. This demonstrates the resilience of our combustibles portfolio and strengthens our confidence in hitting our mid-term targets. Now, looking at the US, I am delighted to say we've returned to both revenue and profit growth. In combustibles, our improved portfolio and stronger execution, including enhanced revenue growth management, delivered 3.8% increase in revenue as we lapped last year's investment cycle. Volume share rose by 10 basis points and value share by 20. And excluding the deep discount segment where we are not present, our volume share was up 60 basis points. In new categories, revenue grew by 3.9%, driven by the successful launch of VeloPlus, which delivered over 380% growth in modern oral revenue. This was partly offset by a 12.3% decline in vapor impacted by ongoing illicit single-use products. Overall, U.S. revenue grew 3.7% and adjusted profit rose 3.2%, led by combustibles, though partially offset by views headwinds and investment in VeloPlus. Tadeo will share more on the U.S. shortly. AME had another solid half. Revenue rose 3.5%, with combustibles up nearly 3%, thanks to strong volumes in Brazil, Turkey, with solid pricing. New category revenue grew by 1.3%, including nearly 17% growth in Modern Oral, where we hold a 63% volume share. Offsets came from illicit vapor in Canada and evolving market dynamics post single-use vapor bans in some large markets. Heated products growth in Poland and Portugal was more than offset by the impact of resource allocation decisions in the Czech Republic, Germany, and Romania. Adjusted operating profit grew by over 10%, well ahead of revenue, driven by operating leverage and efficiency gains in combustibles, scale benefits and resource allocation in new categories, and our accounting treatment for Canada. AME is a true multi-category region, delivering quality growth. In ACMIA, fiscal and regulatory headwinds in Bangladesh and Australia outweighed good performances in Pakistan and Nigeria. Total revenue was down 4.8%, with combustibles down 7.9%. New category revenue increased 2.5%, driven by heated products growth in Japan and modern oil gains in emerging markets, partially offset by vapor, which was impacted by strategic market exits as we shifted our focus to more profitable opportunities. Adjusted operating profit was down 12.3%, mainly due to the challenges in Bangladesh and Australia. Operating margin held steady as we offset inflation and FX pressures, with a strong performance in the US, higher profitability in new categories, and continued cost savings. At current rates, operating margin grew 20 basis points. BAT has a strong track record of cost savings and we continue to build on it. Since 2023, we've delivered nearly 900 million pounds in productivity savings and are on track to exceed 1.2 billion pounds by year end. These savings help us manage inflation and foreign exchange impacts while funding innovation in new categories. In H1, we absorbed 166 million pounds in inflation-related costs and a 1% transactional FX headwind on adjusted operating profit. Looking beyond 2025, we remain focused on simplifying combustibles and scaling new categories, targeting an extra 2 billion pounds in cost of goods sold savings by 2030. And to further drive agility and savings, I'm excited to introduce our new Fit2Win program. Fit2Win is a three-year program designed to simplify the way we work, increasing agility and embedding digital decision-making. While we're still in the planning phase, we're confident it will generate around £500 million in annualized savings by the end of 2028. These savings will support our growth algorithm and fund investments that drive long-term profit and cash flow. Importantly, this is incremental to the 2 billion cost of goods sold target that we announced at our Capital Markets Day last year. We expect associated costs of £500 million over the next two years, and as a one-time investment, £350 million of that will be treated as adjusting starting in 2025 and ending in 2027. I'll share more at our full-year results in February. Earnings per share rose by 1.7%. While lower share counts supported growth, it was offset by our reduced share of ITC profits and higher net finance costs. Our underlying tax rate was 24.4%, and we expect a full-year rate of around 25%, assuming no major changes in prevailing tax rates. Translational FX was driven by sterling strength against most major global currencies, with weakening US dollar contributing around 50% of this headwind. Our strong cash generation continues to enhance our financial flexibility. We're on track to deliver more than 50 billion pounds in free cash flow by the end of 2030. and we remain focused on our capital allocation priorities, which are investing in transformation, balancing the leveraging with progressive dividends and sustainable share buybacks, and selective bolt-on M&A to support our transformation. In May, we increased our 2025 buyback by 200 million to 1.1 billion pounds, with 650 million allocated for the second half. To summarize, H1 was ahead of expectations and the momentum we're building through this deployment year gives us confidence in delivering our full year guidance. Key growth drivers include continued strength in the U.S., led by combustibles and VELO+, acceleration in new category revenue as GLOHELO and VIEWSULTRA roll out, and VELO maintains strong global momentum, and further gains in new category contribution. With a stronger than expected H1, we now anticipate full-year revenue at the top end of our 1% to 2% guidance. We maintain our APFO guidance of 1.5% to 2.5%, reflecting increased investment in new categories, a stronger U.S. combustibles comparator in H2, and a 1% to 1.5% transactional FX headwind. All of this enables us to invest more in innovation while staying firmly on track for 2026. Our H1 results show strong progress across multiple drivers, reinforcing my confidence in returning to our mid-term algorithm of 3-5% revenue growth and 4-6% operating profit growth. If we exclude the regulatory and fiscal headwinds in Bangladesh and Australia, we're already hitting the lower end of our mid-term targets, with 3% revenue growth and 4.5% operating profit growth. In addition, I'm also encouraged by the early signs of our premium innovation rollout, which Tadeo will now talk about in more detail.

Thank you, Soraya. I would like to outline our confidence in the pathway ahead. The nicotine industry is rapidly transforming and growing as adult consumers around the world are increasingly switching to new categories. We have pursued a multi-category strategy from the outset, which means we are well-placed to benefit from these consumer trends. Leveraging our world-class insights, innovation ecosystem, brand building, and distribution capabilities, we have invested to build a well-established portfolio of global brands across all three new categories. In addition, given our global footprint and with a number of our key markets still closed to smokeless alternatives, we recognize that we must continue to invest to drive value from combustibles with a well-balanced portfolio of brands across price tiers. Let me now share more detail on our new category launches. Starting with Modern Oro, the fastest growing new category by far, which is already reaching global scale. Its position on the risk continuum was supported by a recent study which demonstrated that smokers who switch completely to oral nicotine products are exposed to lower levels of toxicants, similar to those who quit. Modern oral is highly successful in both traditional oral markets and new markets with no existing oral nicotine tradition, and is also highly profitable with a fast payback, as Soraya mentioned. Following our successful launches in Pakistan and South Africa, we continue to see an exciting opportunity for modern oral in emerging markets, given its adaptability and affordability. Modenor is becoming a meaningful contributor to our group delivery, as VILU continues to grow from strength to strength. We are clear leaders in AME, close to six times the size of our closest competitor, and capturing around 60% of category growth, which highlights the further opportunity ahead. VILO is a premium product, over-indexing on value and strongly outperforming our peers across the region. Given BAT's European Modern Oral Leadership position, we have applied our know-how and capabilities to the U.S. We were already confident that with the right product, we could make performance inroads in the U.S., and that is now being realized with VILO+. In the U.S., the modern oral category value of around 2 billion pounds has already overtaken the size of the legal vapor market and is expected to almost double over the next two years. With the successful launch of VeloPlus, we have step-changed our U.S. performance and are now the fastest-growing modern oral brand. VeloPlus is driving triple-digit revenue growth and strong volume share gains. In May, Velo had gained almost 9 percentage points of share since launch. Encouragingly, the latest volume share read from July is above 17%. These results are a testament to the quality of the product, the improved strength and speed of our distribution capabilities, and our sharper execution enabled by RGM. We are excited about the opportunity ahead, and VeloPlus is already number two in volume share in 11 states, including New York and Texas, which together represent around 10% of the total US category. And importantly, after investment in the initial launch and rollout phase, we expect VeloPlus to deliver a positive category contribution for the full year 2025. In heated products, GlowHilo is a breakthrough innovation that we believe will reshape the way Glow is positioned in the premium segment, which represents over 80% of industry value. Glow Hilo has several new and innovative features, including fast ramp-up, hitting just five seconds, a personalized LED screen, and connectivity with the My Glow app, enabling customized sessions, Find My Glow, and remote locking. Along the side, new upgraded consumables with enhanced taste and satisfaction, the closest to replicating cigarettes we have ever achieved. At the end of 2024, we launched Glowhilo in Serbia. We integrated the insights and critical learnings into our rollout approach, beginning with our June city launch in Sendai. While very early days, I'm encouraged that both the consumables and device are resonating well with consumers. Glowhilo is driving improvements in consumer perception of Glow, including brand equity and appealing design. In addition, we have captured 1.5 percentage points of volume share in just a few weeks at a premium price point. Importantly, Hilo is the first time Glow will also offer a two-piece device, launching as part of the national rollout in Japan this September. We will continue to roll out Glow Hilo in a targeted way in the largest heated value pools through the second half. It's our belief that premium vapor done right is an untapped opportunity offering greater differentiation and value generation potential. Views Ultra is our initial step delivering a high quality and satisfying experience alongside a connected and highly customizable offering. Key features include a new smart pod, which automatically adjusts the device to consumers' preferred flavor settings, a clear view display to easily track battery and liquid levels, connectivity enabling Find My Vape, and a device lock further reinforce viewers' position as a brand consumer can trust. Views Ultra was launched online in Canada at the end of Q1, with a nationwide rollout from June. Initial consumer feedback has been positive. Views Ultra is driving a strong improvement in key attributes, including premium, innovative, and easy to use, capturing over 2 percentage points of value share since the nationwide launch. We have recently launched in the UK and Germany, and we will continue to roll out in a target way through the second half. Moving to the US, the largest nicotine profit pool globally and the cornerstone of our business. This is why returning to growth here has been a key focus area for me. We have invested in strengthening our portfolio, readdressing price gaps, and indexation. We have also sharpened our execution, expanding contract coverage, increasing our sales force, and improving revenue growth and management and our reward programs through enhanced digital capabilities. I'm delighted we are beginning to see value being created by the actions we have taken to strengthen our portfolio and execution. Our total volume share grew 10 basis points and value share was up 20 basis points. We are seeing broad-based value share improvement across the portfolio. Our value-for-money brand, Lux Strike, continues to be the fastest-growing U.S. combustible brand, with value share up 60 basis points. Value share in our super-premium brand, Natural American Spirit, is up 10 basis points, despite pressure on consumer wallets. And the targeted introduction of a soft pack variant has led to stabilization of the Newport brand family. I believe we have turned an important corner in the U.S. After significant investment, we are well positioned to build on this recovery and deliver a sustained contribution to the group performance in 2025 and beyond. Turning to regulation, we are encouraged that at the state level, vapor directory and enforcement legislation has now passed in 18 U.S. states, and we look forward to the implementation of these and more robust enforcement. A number of states are now demonstrating that well-constructed regulation can be effective in tackling illicit vapor with views volume returning to grow. In addition, we remain cautiously optimistic about a more proactive approach to illicit vapor enforcement at the federal level. The new administration has been clear that technically illicit vapor is a key priority, and the FDA has already taken some important first steps, updating product classifications, closing loopholes for small shipments, and seizing illicit product. While these actions have recently driven more than a 40% reduction in vapor-related shipments to the U.S., due to the long supply chain, we are yet to see any meaningful impact on the ground. As a result, we are not assuming any improvement in the legal vapor market in our 2025 guidance. As mentioned earlier, we continue to focus on sharpening execution, and our digital transformation is a key enabler. Thanks to the strong strategic partnerships, BAT is ahead of the curve. Let me share four key highlights. First, we are a global leader in cloud adoption, with 85% cloud hosting through strategic partnerships. Second, our pioneering partnership with Microsoft enabled the rapid build of our enterprise data platform, advancing our global data infrastructure through MS Fabric and next-gen technologies. This empowers a data-first, agile organization, enhancing tools like RGM and marketing spend effectiveness. Third, this year we launched our GenAI lab in Dubai, making BAT the first CPG company in the region's AI hub. We've already deployed use cases like AskOmni, AI-powered sustainability bots, and advanced consumer insight tools. And finally, we have streamlined our strategic technology partnerships, reducing IT run costs by 40% while maintaining 99.9% uptime. We will continue to drive BAT's digital transformation with our partners, fueling growth, enabling productivity, and building a more sustainable business. Our recently announced strategic partnership with Accenture is a clear example of our digital transformation in action. We are transitioning our global shared service to Accenture. This partnership gives BAT access to Accenture's cutting-edge technology ecosystem, including agentic AI solutions, and its strategic collaboration with world-leading technology companies. These capabilities will help us further to simplify our process, accelerate speed to market, upskill talent, and reduce costs over the medium to long term. In return, BAT's industry-leading expertise in supply networks will strengthen Accenture's global supply chain and operations. This is a key step in making BAT a future-ready, digitally-enabled organization powered by strategic partnerships. In conclusion, as Soraya highlighted, we are on track to deliver our full-year guidance. And looking into 2026, I'm confident that we will build on our underlying momentum with the key growth drivers, including the continued momentum in the U.S., AME and VILO, lapping Bangladesh combustibles headwinds, a further increase in new category contribution, and a step up in efficiencies with our new Fit to Win program to deliver 3% to 5% revenue growth and 4% to 6% adjusted profit from operations growth. And finally, I would like to share a few key takeaways from our results. We have returned to revenue and profit growth in the U.S., a critical milestone. Velo is the fastest growing brand in the fastest growing new category with real momentum in the US and globally. And we are increasing profitability across our new category portfolio. Our R&D ecosystem is delivering exciting premium innovations. And we continue to amplify our proactive approach to regulatory affairs to unlock new markets and create a sustainable level competitive playing field. At the same time, our digital transformation is accelerating, enhancing execution and unlocking further efficiencies and agility. All of this is executed with a cash focus, returning £17 billion to shareholders over the last three years, while continuing to deliver it. While there is more to do, I'm confident that we have the right strategy, capabilities, and people to deliver a 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. We will now be joined on the stage by Victoria for the question and answer session.