Half Year 2025 British American Tobacco PLC Earnings Call

Tadeu Marroco: Good morning, everyone. I am delighted to welcome you to our 2025 interim results presentation. With me this morning is Soraya Benchikh, 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 2 and 3. 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 basis points versus last year.

Good morning, everyone I'm delighted to welcome your Chihuahua 2025 interim results presentation.

With me. This morning is Soraya basic 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.

So what I 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.

Entry.

Let's begin by looking at the positive transformation momentum we are driving.

Starting with some highlights.

We have deliberate 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 basis points versus last year.

Tadeu Marroco: We added 1.4 million smokeless consumers, reaching 30.5 million, mainly driven by our continued success in Modern Auto. Our focus on quality growth, balancing top and bottom line delivery, has driven a further improvement in new category contribution margin, up to 180 basis 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 dividend, we recently increased our 2025 share buyback by £200 million to £1.1 billion. I am 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 categories' execution to ensure we roll out new innovations in a targeted way while continuing to improve our contribution margin.

And we added one 4 million in smokeless consumers, reaching 30.5 million, mainly driven by our continued success in modern oral.

Our focus on quality growth balancing top and bottom line delivery has driven a further improvement in new category contribution margin up 280 basis 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 dividend, we recently increased our 2025 share buyback by 200 million to 1.1 billion pounds.

I'm proud that we have delivered what we said we would in the first half against our 'twenty to 'twenty five priorities as we continue to build a track record of delivery.

Our quality grow focus is central Chihuahua, new categories as <unk> to ensure we roll out new innovations in a targeted way while continue 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.

Tadeu Marroco: Driving value from our combustibles business is essential to funding our transformation, and the U.S. is a key driver of this. I am 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 Auto. 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.

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 oral.

We remain focused on our proactive approach to regulatory affairs and continue to advocate for science labs level, playing fields with brought bursting first cement for smokeless alternatives.

In the first half we activated the harmony in 13 markets globally with further loud just blended for the second half of the year.

Importantly, all of these is executed with a strong focus on cash generation and enabling us to continue to deleverage and reward shareholders with a strong cash returns.

Tadeu Marroco: Importantly, all of this is executed with a strong focus on cash generation, enabling us to continue to deleverage and reward shareholders with strong cash returns. I am 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. With that, I will hand over to Soraya to take you through our H1 performance in more detail.

I'm pleased to report a notable increasing 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 should take us through our H one performance in more detail.

Thank you and good morning, everyone.

Soraya Benchikh: 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 will 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%.

I'm 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 pound reduction in our Canadian provision following an update of the forecast said market performance and the 900 million pound 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.

And H one 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 one 8%.

Adjusted gross profit rose by 3% and adjusted profit from operations grew one 9% with adjusted diluted EPS, increasing by one 7%.

Soraya Benchikh: 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 up-flow guidance of 1.5% to 2.5%, reflecting increased investment in new categories and a stronger U.S. combustibles comparator in H2. Let us now turn to new categories. Revenue was up 2.4%, driven by an outstanding growth in Modern Auto, 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 U.S. 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.

With a stronger than expected H, one we now anticipate full year revenue at the top end of our 1% to 2% guidance, we maintain our app for our guidance of one and a half to two and a half a cent.

Reflecting increased investment in new categories, and a stronger U S combustibles comparator in H two.

Let's now turn to new categories revenue was up two 4% driven by an outstanding growth and 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 U S 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 and disciplined approach to ROI and the benefits of scale.

Soraya Benchikh: I am really proud of the progress we have 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 Auto 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. Over the last four years, consumer numbers, volume, and revenue have more than tripled, making Modern Auto 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 Auto will continue to be a key driver of our sustainable growth and profitability, both in AME and globally.

And I'm really proud of the progress we've made and we expect momentum to build in H, two with new category revenue growth moving into the mid single digits for the full year.

Modern oral and Ami is a fantastic example of quality growth in action. We are clear category leaders in the region was 63% volume share in top markets.

And over the last four years consumer numbers volume.

Revenue have more than tripled, making modern oral 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 oral will continue to be a key driver of our sustainable growth and profitability both in Miami.

Globally.

Now turning to combustibles revenue increased 0.8% with volume declines more than offset by strong pricing across the globe driving a healthy price mix uplift, we delivered quality growth here to gross profit increased by two 4%.

Soraya Benchikh: 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 U.S., favorable price mix, and ongoing productivity and simplification gains. I am especially pleased to see our U.S. 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 midterm targets. Now, looking at the U.S., I am delighted to say we have returned to both revenue and profit growth. In combustibles, our improved portfolio and stronger execution, including enhanced revenue growth management, delivered a 3.8% increase in revenue as we lapped last year's investment cycle. Volume share rose by 10 bps and value share by 20.

And contribution rose 2.2%.

Helped by a strong performance in the U S favorable price mix and ongoing productivity and simplification game.

I'm, especially pleased to see our U S. Combustibles business returned to growth for the first time since 2022.

This demonstrates our the resilience of our combustible portfolio and strengthens our confidence in hitting Amit term targets.

Now looking at the U S.

I am delighted to say, we've returned to both the revenue and profit growth.

And combustibles, our improved portfolio and stronger execution, including enhanced revenue growth management delivered three 8% increase in revenue as we lapped last year's investment cycle.

Volume share rose by 10 basis points and value share by 'twenty.

Soraya Benchikh: Excluding the deep discount segment where we are not present, our volume share was up 60 bps. In new categories, revenue grew by 3.9%, driven by the successful launch of Velo Plus, which delivered over 380% growth in Modern Auto 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 Vuse headwinds and investment in Velo Plus. Tadeu Marroco 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 and Turkey, with solid pricing. New category revenue grew by 1.3%, including nearly 17% growth in Modern Auto, where we hold a 63% volume share.

And excluding the deep discount segment, while we are not present, our volume share was up 60 basis points.

And new categories revenue grew by three 9% driven by the successful launch of <unk>, plus which delivered over 380% growth in modern oral revenue.

This was partly offset by a 12.3% decline in paper impacted by ongoing illicit single use products.

Overall U S revenue grew three 7% and adjusted profit Rose three 2% led by combustibles, though partially offset by fewer headwinds and investments and Vito plus.

We'll share more on the U S. Shortly.

Ami 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 one 3%, including nearly 17% growth in modern oral while we hold a 63% volume share.

Offsets came from illicit vapor in Canada, and the evolving market dynamics, both single use vapor bans and some large markets.

Soraya Benchikh: 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, scaled benefits and resource allocation in new categories, and our accounting treatment for Canada. AME is a true multi-category region delivering quality growth. In APMEA, 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%.

He took products growth in Poland, and Portugal was more than offset by the impact of resource allocation decisions and the Czech Republic, Germany and Romania.

Adjusted operating profit grew by 10 by over 10% well ahead of revenue driven by operating leverage and efficiency gains in combustibles scaled benefits and resource allocation and new categories, and our accounting treatment for Canada.

Ami is a true multi category region delivering quality growth.

And ask me, a fiscal and regulatory headwinds and Bangladesh in Australia outweighed good performances in Pakistan and Nigeria.

Total revenue was down four 8% with combustibles down seven 9%.

Soraya Benchikh: New category revenue increased 2.5%, driven by heated products growth in Japan and Modern Auto 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 U.S., higher profitability in new categories, and continued cost savings. At current rates, operating margin grew 20 bps. British American Tobacco has a strong track record of cost savings, and we continue to build on it. Since 2023, we have delivered nearly £900 million in productivity savings and are on track to exceed £1.2 billion by year-end. These savings help us manage inflation and foreign exchange impacts while funding innovation in new categories.

New category revenue increased two 5% driven by hatred products growth in Japan, and modern oral gains in emerging markets.

Shelley 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 U S higher profitability of new categories and continued cost savings at current rates operating margin grew 20 basis points.

Phe has a strong track record of cost savings and we continue to build on it since 'twenty to 'twenty three with delivered nearly 900 million pounds and 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 and new categories.

Soraya Benchikh: In H1, we absorbed £166 million 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 in cost of goods sold savings by 2030. To further drive agility and savings, I am excited to introduce our new Fit to Win program. Fit to Win is a three-year program designed to simplify the way we work, increasing agility, and embedding digital decision-making. While we are still in the planning phase, we are 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.

And H, one we absorbed 166 million pounds and 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 and cost of goods sold savings by 2030.

And to further drive agility and savings I'm excited to introduce our new fit to win program.

Fit to win is a three year program designed to simplify the way we work increasing agility.

And the embedding digital decision, making.

While we're still in the planning phase, we're confident it will generate around 500 million pounds annualized savings by the end of 2028.

These savings will support our growth algorithm and fund investments and drive that drive long term profit and cash flow.

Importantly, this is incremental to the $2 billion cost of goods sold Stargate that we announced at our capital markets day last year.

Soraya Benchikh: 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 will 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 U.S. dollar contributing around 50% of this headwind. Our strong cash generation continues to enhance our financial flexibility. We are on track to deliver more than £50 billion in free cash flow by the end of 2030.

We expect associated costs of 500 million pounds over the next two years and is a one time investment 350 million pounds of that will be treated as adjusting starting and 2025 and ending in 2027.

I'll share more at our full year results in February.

Earnings per share rose by one 7%, while lower share counts supported growth. It was offset by a reduced share of ITC profits and higher net finance costs.

Our underlying tax rate was 24, 4% and we expect our full year rate of around 25%, assuming no major changes and prevailing tax rates.

Translational FX was driven by Sterling strength against most most major global currencies with weakening U S 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 and free cash flow by the end of 'twenty 30.

Soraya Benchikh: We remain focused 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. In May, we increased our 2025 buyback by £200 million to £1.1 billion, with £650 million allocated for the second half. To summarize, H1 was ahead of expectations, and the momentum we are 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 Plus, acceleration in new category revenue as Glo Hyper Pro and Vuse Go 2.0 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.

And we remain focused 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.

In May we increased our 20th twenty-five buyback by 200 million to 1.1 billion pounds with $650 million allocated for the second half.

To summarize H, one 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 envelope plus acceleration in new category revenue as glow helo and views ultra rollout and Philo maintains strong global momentum.

And further gains in new category contribution.

With a stronger than expected H, one we now anticipate full year revenue at the top end of our 1% to 2% guidance, we maintain our <unk> guidance of 1.5% to 2.5%.

Soraya Benchikh: We maintain our up-flow 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 midterm algorithm of 3% to 5% revenue growth and 4% to 6% operating profit growth. If we exclude the regulatory and fiscal headwinds in Bangladesh and Australia, we are already hitting the lower end of our midterm targets, with 3% revenue growth and 4.5% operating profit growth. In addition, I am also encouraged by the early signs of our premium innovation rollout, which Tadeu Marroco will now talk about in more detail.

Reflecting increased investments in new categories, a stronger U S combustibles comparator and H, two and the 1% to 1.5% transactional FX headwinds.

All of this enables us to invest more in innovation, while staying firmly on track for 'twenty 'twenty six.

Our H one results show strong progress across multiple drivers reinforcing my confidence in returning to our midterm algorithm of 3% to 5% revenue growth and 46% operating profit growth if.

If we exclude the regulatory and fiscal headwinds in Bangladesh in Australia were 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 today I will now talk about in more detail.

Okay.

Thank you Suraj I would like to outline our confidence in the pathway ahead.

Tadeu Marroco: 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 Oral, the fastest growing new category by far, which is already reaching global scale.

The nicotine industry is rapidly transforming and growing as odd consumers around the world increasingly switch 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 establish portfolio of global brands across all three new categories.

In addition, given our global footprint and with a number of our key market still close at two smokeless alternatives. We broke 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.

You're starting with more than Oro, the fastest growing new category by far which is a red reaching global scale.

Tadeu Marroco: 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. Modern Oral is becoming a meaningful contributor to our group delivery as Velo 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.

Its position on the risk continue was supported by a recent study, which demonstrated that smokers, who switch completely to oral nicotine products expose the true lower levels up toxicant similar to those who quit.

More than the auto is highly successful in both traditional auto markets and.

New markets with no existing auto nicotine tradition, and its also highly profitable with a fast payback as Ryan 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.

Well, the nor is becoming a meaningful contributor Chihuahua group delivery as video continues to grow from strength to strength.

We are clear leaders he Amy close to six times the size of our closest competitor.

And capturing around 60% of category growth, which highlight the further opportunity ahead.

Tadeu Marroco: Velo 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 Velo Plus. In the U.S., the Modern Oral category value of around £2 billion 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 Velo Plus, we have step-changed our U.S. performance and are now the fastest growing Modern Oral brand. Velo Plus 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%.

Video is a premium product over indexing on value and strongly opt reforming our peers across the region.

Given b a T zero peer modern auto leadership position, we have acquired our knowhow and capability to the U S.

We were we were Reds confidence that with the right product, we could make performance heroes in the U S and Perth is now being realized it with Vela plus.

In the U S. The modern oral category value of around 2 billion pulse has already overtaken the size of the legal vapor market.

And it is expected to almost double over the next two years.

With the successful launch of <unk>, plus we have step change at our U S performance and now the fastest growing modern oral brand.

<unk> is driving triple digit revenue growth and a strong volume share gains.

In may below had gained almost nine percentage points of share since launch.

Currently the latest volume share reads from July is above 17%.

Tadeu Marroco: 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. Velo Plus is already number two in volume share in 11 states, including New York and Texas, which together represent around 10% of the total U.S. category. Importantly, after investment in the initial launch and rollout phase, we expect Velo Plus to deliver a positive category contribution for the full year 2025. In heated products, Glo Hyper Pro is a breakthrough innovation that we believe will reshape the way Glo is positioned in the premium segment, which represents over 80% of industry value.

These results are a testament to the quality of the product they improve the strength and speed of our distribution capabilities and our shopper is accusing enabled by RGA.

We are excited about the opportunity ahead.

Bloods as a red number Chu in void, Michelle in 11 States, including New York, and Texas, which together represent around 10% of the total U S got degree.

And importantly, after investment in the initial launch and rollout phase, we expect the villa blows to deliver a positive contribution for the full year 2025.

In heated products glow Halo is a breakthrough innovation that we believe we are reshaping the way law is position in the premium segment.

Which represents over 80% of industry veteran.

Tadeu Marroco: Glo Hyper Pro has several new and innovative features, including a fast ramp-up, hitting just five seconds, a personalized LED screen, and connectivity with the MyGlo app, enabling customized sessions, Find My Glo, and remote locking. Alongside new upgraded consumables with enhanced taste and satisfaction, they are closest to replicating cigarettes we have ever achieved. At the end of 2024, we launched Glo Hyper Pro 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 am encouraged that both the consumables and device are resonating well with consumers. Glo Hyper Pro is driving improvements in consumer perception of Glo, including brand equity and appealing design.

Glo Halo has several new and innovative features including a fast ramp up hitting just five seconds Ah personalize Leds screen.

And connectivity with the my glow app, enabling customize it sessions find Mike law and remote locking.

Our longest sides of new upgrade the consumables with enhanced the taste and satisfaction. The closes two replicates in cigarettes, we have ever achieved.

At the end of 'twenty 'twenty, four we launched the glow Heelys Serbia.

We integrated the insights and critical learnings into a rollout approach beginning with our June city lodging Sendai.

While very early days I'm encouraged that both the consumables and device are resonating well with consumers.

Hello, Helo is driving improvements in consumer perception of law, including brand equity and appealing design.

Tadeu Marroco: In addition, we have captured 1.5 percentage points of volume share in just a few weeks at a premium price point. Importantly, Glo Hyper Pro is the first time Glo will also offer a two-piece device, launching as part of the national rollout in Japan this September. We will continue to roll out Glo Hyper Pro in a targeted way in the largest heated value pools through the second half. It is our belief that premium vapor done right is an untapped opportunity, offering greater differentiation and value generation potential. Vuse Go 2.0 is our initial step, delivering a high-quality and satisfying experience alongside a connected and highly customizable offering.

In addition, we have captured a one five percentage points of volume share in just a few weeks at a premium price point.

Importantly, Halo is the first time Glu will also offer a two piece device lodging as part of the national rollout in Japan. This September.

We will continue to rollout the blue heeler in our pocket to the way in the largest heated value pools through the second half.

It's our belief that premium vapor dawn right is an untapped opportunity offering greater differentiation and value generation potential.

Views. The ultra is our initial step delivering a high quality and satisfying experience alongside a connected and highly customizable offering.

Keep features includes as small as newer smart smart boards, which automatically adjusts the device consumers prefer the favorable settings.

Tadeu Marroco: Key features include new smart pods, which automatically adjust 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 Vuse's position as a brand consumers can trust. Vuse Ultra was launched online in Canada at the end of Q1, with a nationwide rollout from June. Initial consumer feedback has been positive. Vuse 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 U.K. and Germany, and we will continue to roll out in a targeted way through the second half.

They are viewed display to easily track battery and liquid levels connectivity, enabling find my vape and that device lock further reinforce views position as a brand consumer can thrust.

Views Ultra was launched online in Canada at the end of Q1 with a nationwide rollout on June <unk>.

Initial consumer feedback has been positive views water is driving a strong improvement in key attributes, including premium innovative and easy to use capturing over two percentage points of value share since the nation since the nationwide launch.

We have recently launching in the UK and Germany, and we will continue to roll out in a packet way through the second half.

Tadeu Marroco: Moving to the U.S., the largest nicotine profitable 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 am 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 bps, and value share was up 20 bps. We are seeing broad-based value share improvement across the portfolio. Our value-for-money brand, Luxtrike, continues to be the fastest growing U.S. combustible brand, with value share up 60 bps.

Moving to the U S. The largest nicotine profit pools 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 re addressing price gaps and indexation.

We have also sharpening 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 is a huge.

Our total volume share grew 10 basis points of value share was up 20 basis points.

We are seeing broad base at various show improvement across the portfolio.

Our value for money brand look strike continues to be the fastest growing U S combustible brands with value share up 60 basis points.

Tadeu Marroco: Value share in our super premium brand, Natural American Spirit, is up 10 bps despite pressure on consumer wallets. 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 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 this and more robust enforcement. A number of states are now demonstrating that well-constructed regulation can be effective in tackling illicit vapor, with Vuse's volume returning to grow. In addition, we remain cautiously optimistic about a more proactive approach to illicit vapor enforcement at the federal level.

Value share in our Super premium brands Natural American Spirit is up 10 basis points, despite pressure on consumer wallets.

And a targeted introduction of our softback variant has led to a stabilization of the New York 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 de lever suspended contribution to the group performance in 2025 and beyond.

Turning to regulation, we are encourage that at the state level vapor directory and enforcement legislation has now passed in 18 U S States and.

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 elicit vapor enforcement at the federal level.

Tadeu Marroco: The new administration has been clear that tackling illicit vapor is a key priority. The FDA has already taken some important first steps: updating product classifications, closing loopholes for small shipments, and seizing illicit products. 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.

The New administration has been clear that technique illicit vapor is a key priority and the FDA has already taking some important first steps.

But the dating 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 our execution and our digital transformation is a key enabler.

Thanks to the strong strategic partnerships be a teaser 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 pure nearing partnership with Microsoft enabled the rapid build of our enterprise data platform adversity, our global data infrastructure through M. S favorite fabric and Nextgen technologies.

Tadeu Marroco: Second, our pioneering partnership with Microsoft enabled the rapid build of our enterprise data platform, advancing our global data infrastructure through MS Fabric and NextGen technologies. This empowers a data-first, agile organization, enhancing tools like RGM and MARC 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 AskOmini, AI-powered sustainability bots, and advanced consumer insight tools. 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 empowers our beta first a gyro organization enhancing tools like <unk> and Marc marketing spend effectiveness.

Third this year, we are allowed to do a gen AI lab in Dubai, making their first CPG company and the Regency I hope.

We've already deployed use cases like ask harmony AI powered sustainability bots and adverse at consumer insight tools.

And finally, we have streamlined our strategic technology partnerships reduce the I T run cost by 40%, while maintaining 1990, 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 inaction.

We are transitioning our global shared service truck century.

Tadeu Marroco: 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 talents, 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 British American Tobacco a future-ready, digitally enabled organization powered by strategic partnerships. In conclusion, as Soraya Benchikh highlighted, we are on track to deliver our full-year guidance.

This partnership gives b a T assess to accenture is cutting edge technology ecosystem, including a gentle AI solutions and these strategic collaborations with world leading technology companies.

These capabilities will help us further to simplify our process accelerates speech, a market up skill talent and reduce costs over the medium to long term.

In return B, a T has industry, leading expertise and supply networks will strengthen accenture as global supply chain and operations.

This is a key step in making the ATF future ready digitally enabled organization powered by strategic partnerships.

In conclusion SRA are highlighted we are on track to deliver our full year guidance.

Tadeu Marroco: Looking into 2026, I am confident that we will build on our underlying momentum with the key growth drivers including the continuing momentum in the U.S., AME and Velo, 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. 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 U.S. and globally. We are increasing profitability across our new category portfolio. Our R&D ecosystem is delivering exciting premium innovations.

And looking into 'twenty or 'twenty six.

Confident that we will build on our underlying momentum with our key growth drivers, including the continued momentum in the U S Army and Villa.

Lapping Bangladesh combustibles headwinds.

A further increase in new category contribution.

And the step up in efficiencies with our new feature wind program.

Should deliver 3% to 5% revenue growth and 46% 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 grow from there was a critical milestone.

<unk> is the fastest growing brand in the fastest growing new category with real momentum in the U S and globally.

And we are increasing profitability across our new category portfolio.

Our R&D ecosystem is delivering exciting premium innovations.

Tadeu Marroco: 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 deleverage. While there is more to do, I am confident that we have the right strategy, capabilities, and people to deliver a profitable transformation. I am excited about the future for British American Tobacco, 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 Buxton for the question and answer session.

And we continue to trumpet defy 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.

Accelerating enhancing his acumen and unlocking further efficiencies and agility.

All of these is executed with a cash focus returning 17 billion pounds to shareholders over the last three years, while continuing to deleverage.

While there is more to do.

I'm confident that we have the right strategy capabilities and people to leave a profitable transformation.

I'm excited about the future for B, a T 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.

Yes.

Thank you today in Soraya and good morning, everyone and he joined US via the webcast you can type your questions directly into the online question box or if he has joined US on the call you compress star one on your telephone keypad.

Victoria Buxton: Thank you, Tadeu and Soraya, and good morning, everyone. If you joined us via the webcast, you can type your questions directly into the online question box. Or if you have joined us on the call, you can press star one on your telephone keypad. Tadeu and Soraya will be very happy to take your questions. I will now hand over to the operator.

Today I'll answer I'll be very happy to take your questions and I will now hand over to the operator.

Yeah.

Yeah.

Tadeu Marroco: Thank you. Our first question today comes from Simon Hales with City. Please go ahead.

Thank you.

And our first question today comes from Simon Hales with Citi.

Please go ahead.

Thank you good morning today, it's Ryan the VEB.

Analyst: Thank you. Morning, Tadeu, Soraya, and BB. Two or three for me, if possible, please. Tadeu, can we just talk a little bit more about the early performance that you are seeing from the Glo Hyper Pro launch into Japan? Obviously, you replicate in your presentation in terms of the recent share gain you are seeing. Qualitatively, what is the feedback you are getting on the ground from those Japanese consumers? How does it vary, if at all, from what you saw in the test market in Serbia? How should we think about the scale of the rollout into other key markets through the rest of the year? What percentage of your key heated tobacco markets do you expect to be in by the end of the year?

Two or three for me if possible please.

Can you just talk a little bit more about sort of the early performance you'll see.

Elo launch.

<unk>.

You said in your presentation in terms of the recent share gain you'll see qualitatively what is the feedback you're getting on the ground from those Japanese consumers how does it vary between what you saw in the test market in Serbia.

How should we think about the scale of the rollout into other key markets through the rest of the year what percentage of U K. Each tobacco bulk is do you expect to be in.

Well at the end of the year.

Analyst: Secondly, on Modern Auto, clearly a very strong performance coming through from Velo Plus in the U.S., and you referenced the further share gain that you have seen coming through into July as well. Have you seen any change in momentum for the brand as you exited the quarter and came into July, given that the biggest competitor on the ground is now back on shelf and perhaps being a little bit more aggressive in its point-of-sale promotional activity? Finally, just a quick clarification for Soraya around the Fit to Win program. I think you said that there will not be any upfront costs until 2026 for that program. There is nothing in the second half of the year. Am I right on that?

And then secondly on mono nuclear it's very strong performance coming through for dealer flush.

The U S in the restaurants.

The share gains that you've seen coming through into July as well have you seen any change in.

Momentum for the brand as you exited the quarter came into July given that.

The biggest congrats there on the ground is now back on shelf.

A bit more aggressive than each points of sale.

Promotional activity.

And then finally, just really clarification first of all in or around the fit to win.

Graham.

I think you said that there would be any upfront cost until 2026 for that program. There's nothing in the second half of the year am I right on that and I assume the 500 billion.

Analyst: I assume the £500 million target over three years is a gross savings target, and we should expect a chunk of that to be reinvested back into the business.

Charles do you take the three years is a gross savings targets, we should expect a chunk of that to be reinvested back into the business.

Okay.

Tadeu Marroco: Okay. Okay, Simon, thanks for your questions. In terms of Glo Hyper Pro Japan, the feedback has been really positive from consumers, and its portfolio was much more tailor-made from the one that we have launched in Serbia for the Japanese consumers. We have done a lot of work to get to very competitive offers because it is not just about the device. The device is clearly a massive step change from what we have been offering so far in the Japanese market and also anywhere else in the group. The consumables are also very important. We do believe that we have a new technology on the consumables that, combined with the device heating mechanism, is offering, like I mentioned in my presentation, the closest that we can get from smoking a cigarette in an HP product.

Okay Samad. Thank for your questions in terms of our Glo Helo, Japan are the feedback has been really positive from consumers and our portfolio was much more tailor made from the ones that we have launched in Serbia for their calls shook their Japanese consumers, we have a done a lot of work too.

To get to two very competitive offers because it's not just about the device the device is clearly.

A massive step change from what we have been offered so far into the Japanese market and also and anywhere else in the group, but the consumables are also very important and we do believe that we have a new technology on the consumables that are combined with a device a hidden mechanism is offering like I mentioned in my presentation.

The closest you can get from a smoking a cigarette in our HP product and these being resonating well with consumers have to remember that someday, we don't have yet the two piece device and yet we have achieved it in few weeks, 1.5% yet the premium level that we have never been.

Tadeu Marroco: This has been resonating well with consumers. You have to remember that in Sensa, we do not have yet the two-piece device, and yet we have achieved in a few weeks 1.5% at a premium level that we have never been able to compete with Glo before, in terms of consumables pricing. So it is quite exciting about that. In terms of rollout for the rest of the year, we will just start now because, like I said, September, Japan, and we will be hitting the highest profit pools in the HP category until December, but this will be just early stage. We will be probably seeing the impact of that throughout 2026. In terms of Modern Auto, we are extremely excited with Velo Plus. The brand is keeping its momentum. When we launch the brand, as any new launch in the U.S., we have a price list.

But you compete.

We'd go out before in terms of consumables pricing. So it's quite exciting about that in terms of rollout for the rest of the year. We will just start now because like I said September Japan and will be hitting their highest profit pools in the HBU category <unk> and <unk>.

Till December but these will be just early stage will be probably seen the impact of that throughout 2026.

Now in terms of modern auto Yeah. We are extremely excited with Zillow plus the brands is keeping its momentum.

And we when we launched the brand as any of the new launch in the U S. We have a price list we apply some discounts to get consumer trial, we see that once they try it the level of retention is still being kept at a very very high level at 70% of retention and we have been.

Tadeu Marroco: We apply some discounts to get the consumer trial. We see that once they trial, the level of retention is still being kept at a very, very high level at 70% of retention. We have been reducing the discount since the launch. Despite that, we carry on seeing an increase in market share and the repurchase at the point of sale. All in all, we are very, very supportive of the future growth of Velo Plus in the U.S. Today, in terms of pricing, if you strip out the leading brand, we are already over-indexed to what is left in the market. In terms of value share, based on the trend that we are seeing, we are very close to achieve the number two position.

Reducing the discounts since their launch and despite that we carry on see increasing in market share and the and the report broke repurchase are there.

Point of sale. So all in all we are we are very very supportive of the future growth of our fuel uploads and day Wes.

Today in terms of our pricing if you strip out the leading brands. We are read over index to what is left in the market.

And the <unk> and in terms of our value share based on the trends that we have seen we are very close to achieve the number two position. So we are and will be going back to a positive contribution already in 2025, which is a testament that this is a category with the right product with the right focus in the <unk>.

Tadeu Marroco: We are, and we will be going back to positive contribution already in 2025, which is a testament that this is a category with the right product, with the right focus and execution. We can have a very short payback. All in all, very excited about that. All right.

<unk>, we can have a very short payback. So all in all very excited about that so.

Alright.

Victoria Buxton: Hi, Simon. Thank you for the question. Let me give a little bit of background on Fit to Win. I think over the years, we've been very good at taking out costs from the business. Fit to Win is slightly different. It's really aimed at making the organization future-fit. We're basically reviewing a lot of our key work processes in the organization and embedding digital decision-making into our processes. We're doing a full review of indirects. We're also looking at our routes to market to ensure that they're transformed in line with business transformation that we're going through. In answer to your question, in terms of the costs, we will have some costs in 2025, but this is fully included in our guidance. The $500 million will be an annualized saving that we will reach at the end of 2028.

And thank you for the question.

Just let me give a little bit of background on fit to land I think over the years, we've been very good at taking out costs from the business fit to win a slightly different it's really aimed at.

Making the organization future fit where basically reviewing a lot of our key work processes in the organization and embedding digital and decision, making basically entire processes. We're doing a full review of indirect. We're also looking at our routes to market to ensure that they have.

Transformed in line with business transformation that went bankrupt. So in answer to your question in terms of the costs. We've already we will have some costs in 2020 five but this is fully included in our guidance and the 500 million will be an annualized savings that we will reach at the end of 2028 and yes, we are.

Victoria Buxton: Yes, we will be looking to reinvest basically to fuel the growth behind our innovations.

We'll be looking to reinvest basically to fuel the growth behind our innovations.

Thanks very much.

Analyst: Thanks very much.

Thank you.

Tadeu Marroco: Thank you. Our next question comes from the line of Damian McNeela from Deutsche Bank. Please go ahead.

Our next question comes from the line of Damian Mcnealy from Deutsche Numis. Please go ahead.

Analyst: Yeah, hi. Morning, everybody. Thank you for taking the questions. The first question really is on whether you could provide us a little bit more color on the performance of the vape business in the AME region. I think you sort of flagged some challenges in Canada and also the transition that is happening in some of the bigger markets like the U.K. I was just wondering if you could provide some thoughts on what is happening on the ground and your expectations for vape in those markets over the medium term. Then just on the U.S. vape and just some clarification on the 40% reduction in shipments that you have seen.

Yes.

Good morning, everybody. Thank you for taking the questions.

The first question really is on whether you could provide us a little bit more color on the performance of the business in the EMEA region.

You sort of flagged some challenges.

In Canada.

And also the transition that's happening in some of the bigger markets like the U K was just wondering if you could provide some thoughts on what's happening on the ground in your expectations.

For vape in those markets over the medium term.

Then just on the U S base and just some clarification on the 40% reduction in shipments that you've seen.

Okay.

Analyst: I guess it is very difficult to have any accurate number, but can you provide us with a sense of sort of what that means in terms of when we might expect to see a change on the ground in terms of illicit availability, please?

It's very difficult to have any accurate number but could you provide us with a sense of sort of.

What that means in terms of.

When we might expect to see a change on the ground in terms of illicit availability. Please.

Tadeu Marroco: Okay, Damian. Look, the performance in vaping AME has been heavily impacted by Canada. The situation in Canada, Quebec, the largest province and where most of the sales are happening, has introduced regulations banning all flavors, but the level of enforcement is basically none. We see an inundation of illegal products on top of that with these big tanks, big disposable brands, which due to the Duty of Care, we cannot even offer anything similar to that. As a consequence, we had a strong business. We still perform quite nicely on the tracked channels, but there is a hidden market that is not showing up in the tracked channels that is inundating the market and making it very hard for responsible companies to compete in a level playing field. Actually, as a consequence, the headline numbers of AME get impacted.

Okay.

The performance of a P. A mi has been.

Heavily impacted by Canada, the situation kind of kept back the largest the provinces in and where most of the series a is happening.

Has introduced regulations banning all flavors and the but the level of enforcement is basically known and and we'd see a inundation of illegal products and top of that with the these are big.

So big disposable brands.

Which.

Due to do top gear, we cannot even offer anything similar to that so as a consequence.

We had a strong business, we still performed quite nicely on the track of channels, but there is a hidden market.

That is not showing up in the track channels that is inland data in the market and making very hard for a responsible companies to compete on a level playing field. So actually it so as a consequence of the headline numbers I'll blame you get impacted but one thing that is interesting happening in Europe is that the trend moving from.

Tadeu Marroco: One thing that is interesting happening in Europe is that the trend is moving from mods to closed systems. As you imagine, when you buy mods, you are selling a device. So the entry-open unit is higher when you are selling pods in the closed system. This will translate an impact in the first moment in the top line of the business. On the other hand, this transition actually is positive for BAT in the long run. You take the U.K., for example, we have an overall share just over 10% of the vapor business, including mods. When you zoom in into the closed system, we have a 33% share. As this transition consolidates and you know that the U.K.

Modest true close systems and <unk> as you imagine when there were new I mods, who are sending a device. So then to your per unit is higher when you are selling parts in the closed system. So these will translate to an impact in the first moment in the topline of the business.

On the other hand these transition actually is positive for beauty in the long run you take U K. For example, we have an overall share just over 10% of the vapor business include a modest and when he was zoom in into the closed system, we have a 33% share so as these transition costs.

Solid data and we know that our UK has just been modest and I and the expectation that we were gonna see more and more closed system, replacing modest overtime, we should be seeing a return to growth in those markets. The same is happening in France, although for us. They are the closest one was already.

Tadeu Marroco: has just banned mods and the expectation is that we are going to see more and more closed systems replacing mods over time, we should be seeing a return to growth in those markets. The same is happening in France. Although France, the closed system was already a big chunk of the markets, and we have a very strong position in France with some close to 60% of market share. The same happened in Germany. Despite the fact there is no ban there, the consumers are naturally migrating from mods to closed systems as the closed system gets better in terms of satisfaction and is a better economic and financial equation for consumers because you do not need to buy a device. You just buy pods over time.

A big chunk of the market and we have a very strong position in France with some close to 60% market share the same happened in Germany. Despite the fact, there is no ban there the consumers are naturally migrating from modest true close system adds the call system gets better in terms of satisfaction and is a better economic and financial equation.

Consumers because you don't need to buy a device who are just by pods.

Over time, and the one way or another input interesting point that we have seen is the fact that as we've said before our idea was to explore the introduction of a premium segments like we have in H b like we're having cigarettes across vapors that is not really there and and infuse altera was our.

Tadeu Marroco: Another interesting point that we are seeing is the fact that, as we said before, our idea was to explore the introduction of a premium segment, like we have in HP, like we have in cigarettes, across vapor that is not really there. Vuse Ultra was our first attempt, and we are really encouraged to see the results that we are getting on the ground. It is early days, but we got more than 2% of value share in Canada with all this convoluted situation that I was referring to you. We will also be seeing a very strong traction in Germany, where we have just launched a few weeks ago, and we have just launched in the U.K., and we are going to continue to roll out. That is what is happening in AME and vapor.

Our first attempt and we are really encouraged to see the results that we're getting on the ground is early days, but we've got more than 2% of value share in Canada with all these convoluted situation that I was referring to you and we also be seeing a very strong traction in Germany, where we have just launched three weeks ago and there and we <unk>.

Just for launch in the U K and we're going to continue to rollout.

So that's what is happening in in AP being vapor.

Tadeu Marroco: In the U.S., it is very difficult to predict because what we are seeing on the ground is that some of these key brands, they are not being found anymore in some point of sales. They are running out of the shelves. There are so many other offers of these types of products, illegal vapor products that basically target youth with flavors like bubblegum, rainbow candy, things that absolutely should not be in the market in the first place. We are still seeing those products there. The encouraging fact on this is that the new administration, the new Secretary of HHS, the new Chair of the FDA, has been very vocal about putting as priorities the annihilation, if you want, of these non-responsible and non-conform brands.

In the U S a.

Is it is very difficult to predict because what.

What we are seeing on the ground is that some of these key brands.

They are not beads found anymore in some point of sales say are running out off of the shelves, but there is so many other offers of these type of products are illegal vapor products, that's basically targets youth with the with flavors like a bubble gum Rainbow.

Candy thinks that are absolutely shouldn't be in the market in the first place and we are still seeing those products out there.

The encouraging factor on these is <unk> is that the new administration, the new Secretary of HHS, the new chair of the FDA has been very vocal about our putting as our priorities.

The installation there if you want off these are non responsible and.

Local foreign brands and the <unk> and not just their narrative, but what we start to see on the graph the 40% reduction in our in shipment is a is a is a is one of the data points and because we know thats of some of those manufacturers. They they miss declare what they are bringing they are underway and they're undervalued they're shipped.

Tadeu Marroco: Not just the narrative, but what we are starting to see on the ground, the 40% reduction in shipment is one of the data points. Because we know that some of those manufacturers, they misdeclare what they are bringing, they undervalue their shipments. They are well aware of that. They are taking initiatives to cope with that. It is a question of consistency. From the first angle to your question, we need to see a consistently multi-agency work on that, which for the time being seems to be the case. At the same time, we need to wait because there is a long supply chain in the U.S. to see a meaningful impact. This is one side of the equation. The other side of the equation is eventually to get the FDA addressing the approval process because the root cause of all this illegality is the fact that the U.S.

And so they are well aware of that they are taking initiatives Shaw to cope with that is a question of consistency. So from the first angle to your question, we need to see a consistency multi agency work on debt, which for the time being seems to be the case and at the same time.

We need to wait because if there is a long supply.

Supply chain in the U S, you'll see a meaningful impact, but a but this is one side of the equation. The other side of the equation is eventually to get the FDA addressing the approval process was the root cause of all these illegalities. The fact that the U S consumers don't get enough with smokeless product.

Tadeu Marroco: consumers do not get enough smokeless products. That is something else that we hope that the FDA will address over time.

And that's something else that we hope that the FDA will will address over time.

Analyst: That's great. Thank you very much, Tadeu.

That's great. Thank you very much today.

Okay.

Tadeu Marroco: Thank you. Our next question comes from the line of Rey Wium with Anchor Stockbrokers. Please go ahead.

Thank you.

Our next question comes from the line of Grey Liam.

Anchor Stockbrokers. Please go ahead.

Hi, good morning, Todd.

Analyst: Good morning, Tadeu, Soraya, and Victoria. If I can just start off with the U.S. on the combustible side, it is quite a thing to see that the volume decline has sort of now eased to 7.6%. I just want to know what is your sort of indication for the remainder of the year? Is there a chance of this rate of decline to ease further, or is that pretty much where we are going to stabilize? The other question that I have is just on the very strong performance from Velo Plus in the U.S. I just want to know, obviously, you are still waiting approval for, I guess, Velo 2, if you can give us any update on that. Given that Velo Plus is already doing so well, what are you thinking around Velo 2 when that becomes available?

I am in Victoria.

Joe if I can just start with where the where the U S.

On the combustible side, yes.

It's quite you'll I think you'll see that the volume decline there sort of used to seeing a seven 6%.

I just want to know where the I mean, what is your sort of.

Indication for the remainder of the year.

Chances of August right of decline to ease further or is that pretty much way, we are going to stabilize.

The other question that I have is just on very.

Very strong performance from below plus in the U S.

No I just wanted to know obviously you are still waiting approval for I guess below two if you can give us any update on that given that below pluses already doing so well.

What are you thinking around below two win win when that becomes available.

Analyst: My last question is just a clarification because I am honestly, I am a bit confused in terms of your adjusted EPS number. You show it as 162, but I also see a number that I cannot find anywhere in the release, which is the 155.5, which excludes almost the adjustment for Canada, including currency. Maybe if you could just help us understand what is the real number that you are looking at and what you want us to focus on because the adjusted EPS on that basis is actually down 2.4% and not up. So that would be very helpful just to get some understanding of how we need to think of this one.

And my last question is just a clarification because honestly I'm a bit confused in terms of your adjusted EPS number.

Charlotte is 162.

But I also see a number that I cant find anywhere in the present and in the release, which is the 155, five which exclude the adjustments for Canada, including currency. So I mean, maybe if you could just help us understand what is the real number that you are looking at and what you want us to focus on because I mean.

But I also see a number that I cant find anywhere in the present and in the release, which is the 155, five which exclude the adjustments for Canada, including currency. So I mean, maybe if you could just help us understand what is the real number that you are looking at and what you want us to focus on because I mean.

The adjusted EPS on that basis is actually down two 4% and not up.

So that would be very helpful. Just to get some understanding of how we need to pick up. This one. Thank you. Thank you for the question sorry.

Tadeu Marroco: Thank you for the question. Soraya, we have covered the point on the adjusted EPS. In terms of volume, industry-wise, we are seeing a slight improvement compared with the previous year. It is not meaningful. The previous year, at this point in time, was overall 8.5% declined. This year, it is more on the 8%. I do not think that we will be seeing a meaningful variance to that until the end of the year. The consumers are still very stretched. The level of confidence is still low. But obviously, this has been offset partially by the fact that gas prices have been reduced. We know that there is a correlation, an inverse correlation between gas prices and sales of cigarettes in the U.S., which has been supportive of volumes more recently.

I will cover the the point on the adjusted EPS.

In terms of volume industry wise, we are seeing a slightly improvement compared with the previous year is not meaningful.

Previous year at this point in time was overall eight 5% decline this year, it's more in there on the 8% I don't think that we'll be seeing a meaningful.

The variance to that until the end of the year there are the consumers eat.

I still very stretched the level of confidence is still low but obviously this has been offset partially by the effect of gas price has bee.

Reduce it and and we note that there is a correlation inverse correlation between gas price and sales of cigarettes in the U S, which has been supportive of volume as our more recently and are there. Other big question market is in terms of how much more enforcement in the illegal vapor.

Tadeu Marroco: The other big question mark is in terms of how much more enforcement in the illegal vapor disposable products they can do in the U.S. We also know that some of the weaknesses that we see in the combustible business are related with the availability of these products in the market. Obviously, if you expect some enforcement, at least the switch out from out of combustible to these products will probably be reduced. In terms of Reynolds, we are very pleased with our performance. It shows that all the commercial plans that we put in place in the last two years are resonating with a strong performance on the ground. You can see that by the market share increase, the value share increase, our price mix has been very robust.

The disposable.

Products. They can do in the U S. But we also know that some of the weakness.

That we've seen the combustible business.

Related with the availability of these products in the market and obviously, if you expect some enforcement at least the switch out from from out of combustor towards these products will probably be reduced.

In terms of our railroads, we are very pleased with our performance.

It shows that Oh, the the commercial plans that we've put in place in the last two years is resonating with the <unk> with a strong performance on the ground you can see that by by the market share increase the value share increase our price mix has been very robust.

Tadeu Marroco: Obviously, we have taken some decisions, mainly pricing-related in 2023-2024, that make this half-year a bit more softer comparative. That is why we call the attention that the second half will be a bit more stronger compared to the U.S. combustibles in general. But overall, we feel very, very confident about keeping the momentum. Remember that we have always said for us to go back to the 3% to 5% group algorithm in terms of revenue, what we need is combustible as a group to deliver between 1% to 2%. The U.S. in that equation will come between 0% to 1%. So we are tracking well ahead of that. In the medium-long run, if we are able to at least deliver 0% to 1%, we have all the possibilities with the complement of the other two regions, which now we expect to lap Bangladesh from the next year onwards.

Obviously, we have taken some decisions in many pricing related in 2023 24 that makes these uh huh.

Half year, a bit more softer comparator, that's why we called the attention that this second half will be.

A bit more strongly the comparator for the U S combustibles in general, but overall, we feel very very comfortable.

Forget about.

Keeping the momentum and <unk> and remember that we have always said photos should go back to the 3% to 5% to a group out of it in terms of revenue what we need is combustible as a group to deliver between 1% to 2% and <unk> <unk> and a worse in that equation will come between zero to one so we are tracking well ahead of <unk>.

Debt so in the medium long run if we're able to at least that he was zero to one we have all the possibilities true with a bed with a complement of the other two regions.

Which now we expect Bachelor left in the Bangladesh from the next year onwards, and hence is going back to the likes of 2% plus new categories should get back to the Alberta. So that's the combustible side, they feel a plus <unk> <unk>.

Tadeu Marroco: Hence, it is going back to the likes of 2% plus new categories to get back to the algorithm. So that is the combustible side. The Velo Plus, the biggest differentiation of Velo Plus, obviously, the execution, the way Reynolds was able to launch a product from scratch to 135,000 outlets, that is the case today in six months, is something remarkable. On top of that is the product that brings more moisture to the market. The Velo 2.0 that you are referring to, and that is how we refer here as well, it brings even more moisture, is the ones that we have in Europe that are very successful. That is why we were highlighting the case. We do not talk much about the U.S., but the fact is that our Velo brand is almost six times higher in volume than the second place in that particular region.

It's a.

The biggest the biggest differentiation of Vela plus obviously the execution. The way we are the Reynolds was able to to launch a product from scratch two or 135000 outlets. That's the case today and in six months is a is a is something remarkable but ah <unk>, but on top of that.

The is the is the product that brings more marcia to their market and they feel a 2.0 that you are referring to and that's how we would refer he is well. It's a is it brings even more moisture is the ones that we have in Europe that is very successful. That's why we were highlighting the case, we don't talk much about our ex the U S.

But the fact is that our polo brand is almost six time higher in volume than the second place.

In there in that particular region. So this probably will be complimentary true to the Vela plus available has been so successful that this probably be complementary. He is very hard to try to predict when this gets approved and it's back to the point that I just made recently in there in the previous answer. This one are at that the FDA needs to address.

Tadeu Marroco: This probably will be complementary to the Velo Plus because Velo Plus has been so successful that this probably will be complementary. It is very hard to predict when this gets approved, and it is back to the point that I just made recently in the previous answer. This is one area that the FDA needs to address, is the rhythm of approval because there were millions of submissions done over the last five years with a handful of 25 or so MGOs given, which is basically not enough to address all the consumer needs in the U.S. because we are seeing more and more polyusers in the U.S. Hopefully, the FDA can address that. We can speed up some of this process. This guarantees that the success that we are seeing today in Velo Plus can be maintained with a pipeline of Velo that we have outside the U.S.

This is the rhythm of approval because there was millions of submissions done over the last five years with a with a you know a handful.

25 so.

M M Joe's given which is basically not enough to address all the consumer needs are in the west because we see more and more part of your users in the U S. So hopefully the FDA can address that we can speed that some of this process and this guarantee it that the success that we are seeing today. If you look at those can be maintained with a pipeline of a view.

With that we have outside the U S.

Victoria Buxton: Okay, on the EPS, basically, you are looking at 162.1, which is on the constant basis. The 155.5 that you see is on the current basis. There is an adjusting item, which is our Canadian adjustment, but Victoria and her team are happy to provide you with a full reconciliation. But the number you should be looking at is 162.1.

On the EPS basis.

Basically you're looking at 162.1, which is on a constant basis.

The 155.5 that you see is on current basis.

There is a.

And adjusting item, which is a Canadian adjustment that Victoria and her team are happy to provide you with a full reconciliation.

But the number you should be looking at 162.1.

Okay.

Okay.

Tadeu Marroco: Okay. Okay. Thank you. Thank you. Our next question comes from the line of Gaurav Jain with Barclays. Please go ahead.

Thank you.

Thank you.

Our next question comes from the line of Gaurav Jain with Barclays. Please go ahead.

Hi, good morning, good morning, Sheila.

Analyst: Good morning, Tadeu. Good morning, Soraya. Three questions from me. First, U.S. cigarette pricing was almost 12% ahead of your big competitor. There was clearly a lot of discussion around double drawback in the U.S. market and in the press releases or all these newspaper articles. Reynolds has mentioned a lot. Could you talk about how double drawback is impacting the U.S. business, how much it has changed on a year-over-year basis in terms of contribution to your portfolio? That is my question number one. Question number two is on your overall e-cigarette strategy. It seems you have exited a few markets, especially in Appnea, like Malaysia, etc., called out. Is something bigger happening in your overall global e-cigarette portfolio, the way you think about it? The last question I have is on your Velo Plus. Amazing growth in the U.S., 1.1 billion pouches in one edge.

Three questions from me.

Firstly on the U S cigarette pricing, which was almost 12%.

And a big competitor and there was clearly a lot of discussion around the world are all back in the U S market.

Lisa.

Newspaper.

Mentioned alone.

Could you talk about how that will draw back is impacting the U S business how much it has changed on a Y O Y basis in terms of contribution to your portfolio.

So that's my question number one and.

Question number two is on your overall E cigarettes strategy, which seems to have exited a few markets, especially in that <unk>.

<unk> called out.

Like something bigger happening in your overall global E cigarette.

Portfolio, but when you think about it.

And then the last question I have is on your Zillow plus so you know I mean isn't growth in the U S. You know one point.

1 billion pouches in one niche.

Analyst: If you just extrapolate these market share trends, what you are highlighting and what we see in the standard data, you could be doing like 6X this volume next year, assuming the market keeps going and you get your fair share. Do you have that kind of capacity, or will you run into capacity shortages at some point this time? Thank you.

If we just extrapolate the market share trends.

What we see in the scanner data you could literally like fixed volume next year.

Market keeps growing and Youll get your fair share.

Do you have that kind of capacity or will you run into capacity shortages at some point.

Thank you.

Tadeu Marroco: Let me start with the drawback. This is a long-standing legal framework to incentivize manufacturing in the U.S. and generate employment. That is exactly what Reynolds is doing. There is a positive impact on the top line coming from this legal framework. We would be growing anyway, independent of the duty drawback because there are three major drivers behind that. The first one, it is the more important one, is the performance itself. It is the fact that we are growing market share, value share. Our price mix is very robust. The fact that we have outperformed the market in terms of volume. If you see the overall industry, like I said, is more in the 8% to 8.5% decline. We decline less than that. All this combined, which I call performance, is better. This is the major driver.

Okay.

So let me start with a with a with a drawback.

This is a long stand.

Legal framework to incentivize.

Manufacturing in the U S and generates employment and Thats exactly what Reynolds is doing and.

So there is a positive impact on the top line coming from.

The these are these these legal framework and but we would be growing anyway independent of the duty drawback. So because there are three major drivers behind that the first one is the more important one is the performance itself is the fact that we are growing market share.

Sure our price mix is very robust. The fact that we have outperformed the market in terms of volume if you see the overall.

Three.

Like I said is more in the eight to eight and a half a cent decline our we declined less than that so all this combined with our core performance is better and this is the major driver we also.

Tadeu Marroco: We also, given what I said more recently in the previous question, are lapping a more softer competitor because we took some decisions in 2023-2024 that resulted in some inventory moves. This also contributes to the very high growth rates that you saw on the combustible level. Finally, you have the drawback that is Reynolds at the back of that, balancing out all this structural decline that we have in volumes in the U.S., compensating that through more export from the U.S. to other markets, generating more employment, and more importantly, buying more leaf as well that is supportive of the farmers in the U.S. That is about the first question. I am going to skip to the Velo Plus because I need your help to understand better the second. The Velo Plus question is all the shares that we are referring to are consumer uptake shares, not shipment shares.

Given what I said more recently in the in the previous question, we are lapping a more softer comparator because we took some decisions.

In 2023, 24 that are resulting in some inventory moves in the and this also contributes to the very high growth.

Growth rates that you saw on the compostable level and then finally you have the the drawback that AR is raynaud's at the back of that.

Balancing out all of these are a structural decline that we have in in volumes in the U S.

Compensating that grew more exports from the U S to other markets generate more employment and more importantly by more leaf as well that is supportive of the of the farmers in the U S. So that is about the the first question I had.

I'm going to skip to the Zillow plus quarters I need your help to understand better the second about the developed Blair's question.

Is are all the shares that we are referring to our consumer off take shares not shipment shares. So you are right, we are growing fast and and because we need to remember that we came from.

Tadeu Marroco: You are right, we are growing fast. We need to remember that we came from a very small position back end of last year. We barely have something like 6%, 7% of the market. Like I said, our latest number in July is already in the 17% mark. As I said, when we launched Velo Plus, the fact that we have been so entrenched in this category outside the U.S. allows us to migrate machinery and shortcut the leading time to produce those machines. We are very well equipped to the pace of growth that we are seeing in Velo Plus. We are not expecting any type of difficulty in that sense in the U.S. The second question is.

A very small position backend of last year, we barely have something like six 7% of the market like I said, our latest number in July is already in the 17% Mark and the and as I said, when we launched Vela plus the fact that we have been so interested in this category.

Outside the U S allow us to migrate machinery, and the and shortcut the leading time, George who produce those machines. So we are very well equipped to the pace of growth that we're seeing in if you look close. So we are not expect any type of of difficulty in that sensor in the U S.

And the second question is let me try and help a little bit Gaurav with the second question I think youre, referring if I understood correctly.

Victoria Buxton: Let me try and help a little bit, Gaurav, with the second question. I think you are referring, if I understood correctly, about some of the OpEx resource allocation decisions that we took. It is basically what we have had to do is prioritize, given that we are rolling out innovations in all three categories. We have a lot of innovations this year with Velo Plus in the U.S., Velo that continues globally, Vuse Ultra, and Glo Hyper Pro, which requires a lot of investment. So we have made some purely resource allocation prioritization, basically, to fund the investments in the largest profit pools. That is what it is. It is not really detracting from these markets. It is just a question of focusing our resources so we can fuel growth across all our innovations.

About some of the Acme a resource allocation decisions that we took.

It's basically what we've had to do is prioritize Kevin that we're rolling out invest.

Innovation and offering three categories.

And we have a lot of innovations this year with Philo class in the U S CLO that continuous globally.

He is altra and Clough Glower Halo, which requires a lot of investment. So he's made some purely a resource allocation prioritization basically.

To fund the investments and the largest profit pools. That's what it is it's not really on the <unk>.

Crafting from these markets. It's just a question of focusing our resources. So we can fuel growth across all our innovations.

Tadeu Marroco: Part of that is eventually moving out of, I think that you were referring to Malaysia Vapor. Yes, we had to move out of Malaysia Vapor because it is another market that lost completely the possibility of enforcement. When there is no enforcement, it is very hard to compete. If you do not have a level playing field, then you align to that, they need to be smart in the way we deploy our resources. We will make some decisions if that is the case. We try to engage with the government as soon as we can to address the regulatory environment. If we are not able to do it, we have to make our calls. Malaysia Vapor is one of those.

And part of that is eventually moving out of so I think that you are referring to Malaysia vapor, yes, we had to move out of Malaysia vapor because there's another market that lost completely the the possibility of enforcement, so and and when there is no enforcement is very hard to compete. So if you don't have a level playing field and then you.

Aligned to that they need to be smart in the way, we deploy our resource and we will make some decisions. If that's the case, we try to engage with the government as soon as we can to address the regulatory environment. If we're not able to do have to make our calls and Malaysia vapor is one of those.

Analyst: Thank you so much.

Thank you so much.

Sure.

Tadeu Marroco: Thank you. Our next question comes from Faham Baig with UBS. Please go ahead.

Thank you.

Our next question comes from Farhan bake with UBS. Please go ahead.

Good morning team. Thank you for the thorough presentation as well as the Q&A.

Analyst: Good morning, team. Thank you for the thorough presentation as well as the Q&A. A couple from me, if I may. Firstly, you have now raised top-line guidance twice in the past two months, but the EBIT outlook continues to be reiterated. Can you dive a bit deeper in where the incremental investments are being spent, which you did not budget for at the start of the year, and how you expect these investments to pay back in 2026? The second question, just can you remind us where we are on ITC hotels? I know you have given your view on this asset previously, but where are we in the process of divesting that stake, please? Thank you.

A couple from me if I may fare.

Firstly.

You have now raised topline guidance twice in the past two months, but the EBIT outlook continues to be reiterated can you can you dive a bit deeper in where the incremental investments are being spent which you did not budget for at the start of the year.

And how you expect these investments to pay back in 2026.

And the second question.

Just can you remind us where we are on ITC hotels.

I know.

You've given your view on this assets previously.

Where are we in the process of divesting that state. Please thank you.

Okay.

Soraya Benchikh: Trying to.

Tadeu Marroco: Yeah, yeah, yeah, yeah, yeah, yeah.

Hi, Dan.

Soraya Benchikh: Move on with that, yeah.

Yeah.

Tadeu Marroco: Okay. Thank you for that, Faham Baig. Firstly, I think let's say we are very, very pleased with the H1 performance. Let me take it from the top line and then talk about the EBIT guidance. The top line, if we look at the 1.8% growth, it is important to remember that we are lapping the investment in H1 in the U.S. So, if we look to the 1.8%, it really equates to 1.4% growth. That means that we are second-half weighted. Because we have got quite a lot of innovations rolling out, as we have mentioned in the presentation, I think it is also important to note that the 1.5% to 2.5% guidance in EBIT that we have not changed, even though we are at the top line of our NTO growth.

Okay. Thank you for that farm.

Firstly I think let's say, we're very very pleased with the H one performance, but I think let me take it from the top line and then and then talk about the event.

Guidance the top line, if we look at the 1.8% growth it's important to.

Remember that we're lapping the investment in H one in the U S. So if we looked at the one 8% at really quite so one 4% growth.

And that means that we are second half weighted so because we've got quite a lot of innovations and rolling out as we've mentioned in the presentation.

I think it's also important to note that the one and a half to two and a half guidance and an ebay we haven't changed even though the we're at the top line about and T L growth.

Tadeu Marroco: We have these innovations, and we are funding the rollouts there. It is not that we did not anticipate it, but we would like to retain the flexibility to increase the funding to further fuel the growth going into 2026. It is also important to bear in mind that we have had some tariff impact. It has not been significant, but we have absorbed it into our guidance. The main reason is really us to preserve the ability to increase our investments behind the innovations. The innovations, as you know, are the Vuse Ultra rollout, Glo Hyper Pro that we are rolling out the second half of this year, and obviously the continued momentum behind Velo Plus in the U.S. and Velo globally.

We have these innovations and we're funding the rollouts that it's not that we didn't anticipate it but we would like to retain the flexibility to increase the funding to further fuel the growth going into 2026.

It's also important to bear in mind that we have had some tariff impact it hasn't been significant but we have absorbed that in to our guidance, but the main reason is really.

As to preserve.

The the ability to increase our investments behind the innovations and the innovations as you know, although he is ultra rollout.

Glo Helo that we're rolling out the second half of the here and obviously the continued momentum behind Vela plus in the U S and we'll all globally.

Soraya Benchikh: Yeah.

Tadeu Marroco: I don't know if you want to add something.

Unless you want to add something that I think that is right I would just say that Ah Ah.

Soraya Benchikh: No, I think that is right. I would just say that we are in a position that we have never been in the past. As a company, we have now very, very competitive products in every single category. It is very exciting. We spoke about that in the CMD October last year, all the efforts, all the strategic partners we were leveraging. We are seeing some of those products now hitting the market. Soraya Benchikh just referred to them. It is a very strong position to be, very pleased with that. This requires more discipline in terms of investing. They will translate in the future for future drivers of growth for the company, which is supportive of our guidance moving forward in terms of top line and bottom line as well.

Is we are in a position that we have never been in the past as a company. We have now very very competitive product in every single category is very exciting.

We spoke about that in the CMT October last year, all the airports all the strategic strategic partners. We are leveraging and we are seeing some of those products now hitting the market and the <unk> and the.

So what I, just referred to them and it's a very strong position to be very pleased with that but obviously this requires more discipline in terms of our investing and the and they are trustworthy will translate in future for future drivers of growth for the company and the which is supportive of our.

Guidance moving forward.

In terms of topline and bottom line as well.

Soraya Benchikh: On the hotels, on ITC hotels, I have said before, I continue saying that strategically speaking, we do not intend to be shareholders in a hotel chain in India or outside India. The fact is that there are some bureaucratic steps that need to go through in terms of the way that our shareholders of that dates back to early 1900s. I said I gave this explanation before. Sometimes things take longer for us to be able to unlock those shares, get the right approvals in the right forums, in this case, the central bank in India, in order to be able to transact. Once we are in this position, we will be thinking about that because this will be supported for us going back to the corridor of 2.5 to 2 times by the end of 2026.

On the hotels and I'd like to see what else I have said before I continue to say that we strategically speaking, we don't intend to be shareholders in a hotel chain in India and outside India.

But the fact is that there.

There are some bureaucratic steps that's nishu go through in.

In terms of our the way that our our shareholder of AR that dates back to early <unk>.

19, <unk> hundred and.

And I said.

It gave these exploration before and and sometimes fair pinks takes longer for us should be able to.

Unlock those shares get the right approvals in the writer forums in this case the central Bank in Asia in now that you'll be able to transact and and once we are in this position you'll be thinking about that because these will be supported photos going back to the corridor of 2.5 to two times by the end of 2026.

Soraya Benchikh: We intend to use the proceeds of the hotel to leverage further the company.

So you intend to use the proceeds of the hotel to the leverage further their company.

Thank you guys.

Tadeu Marroco: Thank you, guys.

Victoria Buxton: Thank you. Our final question comes from Andre Andun with Jefferies. Please go ahead.

Thank you.

Our final question comes from Andrew <unk> with Jefferies. Please go ahead.

Analyst: Hi, good morning, Tadeu, Soraya, and Damian McNeela. Thank you for taking my questions. A couple from me, please. First, in modern oral in Europe, you were the beneficiary of a majority of category growth in H1. Could you perhaps tell us more about the actions you have taken to preserve this advantage in Europe, given competitor has been increasingly assertive on growth outside the U.S.? Second, on U.S. modern oral, I noticed Velo Plus is already in 135,000 outlets, which I think is ahead of the previous target for fiscal 2025. Are there any incremental distribution gains still to come in H2, or are you happy with the current distribution base? Thank you.

Hi, good morning today, let's Ryan DB and thank you for taking my questions.

For me please.

In modern oral in Europe, you were the beneficiary of the majority of category growth in each one could you perhaps tell us more about the actions you've taken to preserve disadvantage in Europe given.

Competitor and has been increasingly assertive on growth outside the U S. And then second on U S. Modern oral I noticed that will plant is already in our 135000 outlets, which I think is ahead of the previous target for fiscal 'twenty five.

Are there any incremental distribution gains still to come in <unk> or are you happy with the current distribution rate.

Thank you.

Victoria Buxton: Okay, thank you, Andre, for the question. In terms of Velo Plus, I will start from the second one. We are in 135,000 outlets. We are in a bit more than 9% of the value of the category. We do not really need to go much beyond that. What we are seeing is there is a lot of retailers that are buying from wholesalers because they want to have the product and not necessarily being supported directly by us. Probably, it would not be a surprise to see this number going further, but it is already what we consider an optimal number. Our focus now is actually to improve awareness of the brand because it is still low, which also demonstrates further potential for the brand and activate trial because once the consumer tries the product, like I said, the level of retention is very high.

Okay. Thank you Andrew for the question in terms of.

If you look close or was that wrong from the second one.

135000 outlets, we I'm more than a bit more than 9% of the value of their categories. So we don't really need to choose to go much beyond that but what we are seeing is a there is a lot of our retailers that are buying from a wholesaler, but they want to have the product and not necessarily as being support directly by.

And probably so it wouldn't be a surprise to see this number going further but it is a rather what we consider optimum number our focus now is actually to improve awareness of the brand causes still low which also demonstrate a further potential for the brand and the and Andi and activate trial.

Once the consumer tries the product.

I said the level of retention is very high and you have to remember that a modern aro in the U S. Average every data consumption is stripped pouches wireless theme in a in me as a region is six pouches and Sweden, which is a very mature market is 12 pouches. So there is a lot of.

Victoria Buxton: You have to remember that modern oral in the U.S., average everyday consumption is three pouches, whilst in AME as a region is six pouches, and Sweden, which is a very mature market, is 12 pouches. There is a lot of potential growth in terms of the category, provided that you give them a satisfying product, which Velo Plus seems to be addressing this right now as we speak. That is the reason why we consider the category has a potential to almost double in the next couple of years. In terms of modern oral outside the U.S., yes, there is a lot of new competitors coming in, the more established ones, but also new ones because, as I said, it is the fastest growing category. New category is also the one that ticks the box in a number of areas.

Potential growth in terms of the category.

Provide that you'll give them a satisfying product, which vela plus seats should be addressing these are right now as we speak.

And that's the reason why we are we consider that the category has the potential to almost double in the next couple of years in terms of a modern or outside the U S. Yes. There is a lot of new competitors coming in the more established one but also new ones because as I said is the fastest growing category in new category is also there weren't there.

Tick the box in a number of areas in terms of risk continue is probably one of the lowest risks evolve. It is very close to our nicotine replacement therapy. There is no inhalation in terms of affordability you cannot address the likes of emerging markets for example.

Victoria Buxton: In terms of risk continue, it is probably one of the lowest risks involved. It is very close to a nicotine replacement therapy. There is no inhalation. In terms of affordability, you can address the likes of emerging markets, for example, because there is no device involved on that. In terms of margins, if anything, even higher than cigarettes. Obviously, there is a lot of attraction there. What we are doing, you just saw one of the shots that I presented in my presentation. I was covering one of the innovations of Velo that we are launching in the market in the next coming months. This is about us keeping the momentum and being able to offer consumers more innovative products around that and also expand behind the band building. We have been doing that diligently through a number of years now.

Because there is no device are involved with on debt and the <unk> and in terms of margins are if anything even higher than cigarettes. So obviously there is a lot of attraction. There. So what we are doing you just saw one of the shots that I presented in my presentation, our score ever and one of the innovations have you looked at where you are putting in launching the <unk>.

Market in the next come off from ups and the and this is about us keeping the momentum and and being able to offer consumers more innovative product.

Around that and also expand the behind the brand building and we have been doing that diligently.

Through a number of years now and the end some of their resource allocation decisions that will have spoke about the xactly to support the growth of <unk> that is growing from frome from stretcher strength okay.

Victoria Buxton: Some of the resource allocation decisions that we have spoken about is exactly to support the growth of Velo that is going from strength to strength. Okay?

Tadeu Marroco: Well, thank you very much for your questions. I am afraid that is all we have got time for today. The IR team will answer any outstanding questions that will remain on the web. With that, I will hand back to Tadeu for closing remarks.

Okay, well. Thank you very much for your questions I'm afraid that's all we've got time for today. The IR team will answer any outstanding questions that remain on the web and with that I'll hand back to today for closing remarks, okay. Thank you all for listening today and for your questions to close we are on track for our full year guidance, having deliver H one reason.

Victoria Buxton: Okay. Thank you all for listening today and for your questions. To close, we are on track for our full-year guidance, having delivered H1 results slightly ahead of expectations. Looking to 2026, I am confident we have the right building blocks in place to deliver our mid-term outcome. We will continue to reward our shareholders through strong cash returns, including our progressive dividend and sustainable share buyback, and deliver long-term growth and value creation. Thank you again for joining us.

<unk> slightly ahead of expectations and look into 'twenty six I'm confident we have the right building blocks in place to deliver our midterm Margaret we will continue to reward our shareholders through strong cash returns, including our progressive dividend as sustainable share buy back and deliver long term growth and value creation. Thank you again for joining us.

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