Half Year 2026 British American Tobacco PLC Earnings Call

Speaker #1: Good morning, everyone. I'm delighted to welcome you to our 2026 interim results presentation. With me this morning is Javed Iqbal, Interim CFO, and Victoria Buxton, Group Head of Investor Relations.

Tadeu Marroco: Good morning, everyone. I'm delighted to welcome you to our 2026 interim results presentation. With me this morning is Javed Iqbal, interim CFO, and Victoria Buxton, Group Head of Investor Relations. I will begin with our transformation highlights. Javed will then take you through our financial results in more detail. Finally, I will return to talk more about our performance outlook and why we are confident in the pathway ahead, given the clear momentum we are building. We will then take your questions. With that, I would like to draw your attention to the disclaimers on slide two and three. Let's begin by looking at our transformation momentum, starting with some highlights from H1. Smokeless now represents 19.8% of group revenue, up 160 basis points versus last year. We added 4.1 million smokeless consumers over the last 12 months, taking the total to 35 million.

Speaker #1: I will begin with our transformation highlights. Javed will then take you through our financial results in more detail. Finally, I will return to talk more about our performance outlook and why we are confident in the pathway ahead given the clear momentum we are building.

With that, I would like to draw your attention to the disclaimers on slide 2.

Entry.

Let's begin by looking at our transformation momentum.

Starting with some highlights from H1.

Smokeless now represents 19.8% of group revenue, up 160 basis points versus last year.

We added 4.1 million smokeless consumers over the last 12 months.

Tadeu Marroco: This progress is mainly driven by modern oral industry growth, where the strength of the Velo brand continues to resonate strongly with consumers. Our H1 results were in line with expectations, supported by a strong multi-category delivery in the US, excellent Velo momentum across all three regions, and the resilient combustibles performance in the US and AME. Our discipline focus on quality growth continues to improve returns through more targeted investments, with New Category contribution up 55% at constant rates. As previously guided, we expect adjusted profit from operations to accelerate in H2, driven by improvements in AME and APMEA. Our H2 weighting will also benefit from the phasing of Fit to Win savings. Finally, we continue to generate strong cash returns.

Taking the total to 35 million.

This progress is mainly driven by Modern Auto industry growth where the strength of the Villa brand continues to resonate strongly with consumers.

Our first-half results were in line with expectations, supported by strong mood category delivery in the West.

Excellent, Villa. Momentum across all three regions.

And the resilient combustibles performance in the US and the AM.

Our disciplined focus on quality growth continues to improve returns through more targeted investments, with new category contribution up 55% at constant rates.

as previously, guided, we expect adjusted props from operations to accelerate in H2 driven by improvements in a me and AIA

Our second half waiting. We will also benefit from the phasing of future wind savings.

Tadeu Marroco: We expect to be within our two to 2.5 times target leverage corridor by year-end, while continuing to reward our shareholders with our progressive dividends and GBP 1.3 billion share buyback in 2026. I'm encouraged by the momentum we are building as we transform BAT. New categories are becoming an increasingly meaningful contributor to group performance, reinforcing our confidence in sustainable delivery moving forward. After a period of investment and transition, returning to our algorithm for the full year is an important milestone. It reflects the progress we have made in reshaping the business and provides a stronger foundation for long-term value creation. With that, I will hand over to Javed, who will take you through our financial performance in more detail.

Finally, we continue to generate strong cash returns.

We expect to be within our choo choo 2.5 times Target to leverage Corridor by year end, while continuing to reward our shareholders with our Progressive dividend and 1.3 billion pound share by back in 2026.

I'm encouraged by the momentum we are building as we transform BAT.

New categories are becoming an increasingly meaningful contributor to group performance.

Reinforcing our confidence in sustainable delivery moving forward.

After a period of investment and transition.

Returning to our algorithm, the full year is an important milestone.

It reflects the progress we have made in reshaping the business and provides a stronger foundation for long-term value creation.

With that, I will hand over to Javid.

Who will take you through our financial performance in more detail.

Javed Iqbal: Thank you, Tadeu, and good morning, everyone. I'm pleased to share that we delivered results in line with expectations on a constant currency basis. This performance was mainly driven by strong US multi-category delivery and the acceleration in new category growth. Our reported results reflect some adjusting items, the majority of which are non-cash, including approximately GBP 800 million, primarily reflecting annual amortization of our US trademarks. A GBP 370 million one-off adjustment related to Fit to Win, which around GBP 230 million is non-cash, and GBP 149 million credit following the settlement of historical litigation. To give you a clear view of our underlying performance, I will focus on constant currency adjusted and, where relevant, adjusted for Canada metrics. You can find further detail on adjusting items and share data in the appendix. We continue to build momentum in H1, reinforcing our confidence in delivering our full-year guidance.

Thank you. Good morning, everyone.

I'm pleased to share that we delivered results in line with expectations on a constant currency basis. This performance was mainly driven by strong U.S. multi-category delivery and the acceleration in new category growth.

our reported results, reflect some adjusting items, the majority of which are non-cash, including approximately 800 million pounds, primarily reflecting annual amortization of our us trademarks

A £370 million charge, £1 million of adjustments related to Fit to Win, of which around £230 million is non-cash, and a £149 million credit following the settlement of historical litigation.

To give you a clear view of our underlying performance, I will focus on constant currency, adjusted, and, where relevant, adjusted for Canada metrics.

You can find further details on adjusting items and shared data in the appendix.

Javed Iqbal: Group revenue increased by 2.9%, adjusted gross profit rose 3.8%, adjusted profit from our operations grew 3.5%, and adjusted diluted EPS was up 7.9%. Let's now turn to new categories. Revenue growth accelerated to 18%, driven by another outstanding performance from modern oral, which was up 66%. Vapor revenue increased 5.3%, driven by the US, where we returned to double-digit volume and revenue growth. This was partially offset by a decline in heated products, with glo revenue down nearly 12%, impacted by inventory movements and competitive intensity in the value segment. We continue to deliver quality growth, with gross profit up over GBP 120 million and category contribution up 55%, reaching GBP 269 million. This reflects our disciplined approach to investment and increasing scale benefits.

Revenue increased by 2.9%, adjusted gross profit Rose 3.8%, adjusted profit from our operations, grew 3.5%.

And adjusted diluted EPS was up 7.9%.

Let's now turn to new categories, Revenue, growth accelerated to 18% driven by an other outstanding performance from Modern oral which was up 66%, Vapor Revenue increased 5.3% driven by the us where we returned to double digit volume and revenue growth. This was partially offset by a decline in heated products, with glow Revenue down, nearly 12% impacted by inventory movements and competitive intensity in the value segment.

Javed Iqbal: We remain committed to investing behind profitable growth in vapor and heated products, specifically where we are becoming increasingly selective where we deploy our resources, which Tadeu will talk more about later. Now turning to combustibles. Combustible volumes was down 4.7%, with growth in Pakistan and Turkey more than offset by continued industry volume decline in other key markets and the impact of market exits in Cuba and Mozambique. Revenue grew 2.1%, driven by a robust price mix of 6.8%. Growth in the US and AME more than offset a slower-than-expected recovery in APMEA as fiscal and regulatory pressure persist. Adjusted gross profit and category contribution both grew ahead of revenue, driven by a strong performance in the US, positive price mix, and our continued focus on cost optimization. Combustible remains a powerful value engine for the group, delivering robust returns and continuing to fund our transformation.

We continue to deliver quality growth with gross profit up over 120 million pounds and category. Contribution up, 55% reaching 269 million pounds. This reflects our disciplined approach to investment and increasing scale benefits. We remain committed to investing behind port, forward profitable growth in vapor and heated products, specifically where we are becoming increasingly selective where we deploy our resources, which today will talk more about later.

Now, turning to combustibles. Combustible volumes were down 4.7%, with growth in Pakistan and Turkey more than offset by continued industry volume decline in other key markets and the impact of market exits in Cuba and Mozambique. Revenue grew 2.1%, driven by a robust price mix of 6.8%.

Growth in the US more than offset a slower than expected recovery in APMEA, as fiscal and regulatory pressures persist.

Adjusted gross profit and category contribution both grew ahead of revenue, driven by a strong performance in the US.

Positive price, mix, and our continued focus on cost optimization.

Javed Iqbal: Our resilient performance reflects the breadth of our global footprint, the strength of our portfolio, and disciplined execution. Turning to our regions, starting with the US, we delivered a strong multi-category performance, driving total revenue up 8.5% and adjusted operating profit up 10.1%. New category revenue increased by nearly 60%, driven by continued success of Velo+, which grew more than 200%, and Vuse, which returned to double-digit volume and revenue growth. In combustibles, revenue grew 5%, driven by robust price mix, including the benefits of excise duty drawback and positive trade inventory movements. Value share declined by 40 basis points, and volume share was down 80 basis points, reflecting continued industry growth in the discount segment and heightened competitive activity since Q4 last year. We have actively responded to this trend, investing behind our portfolio and further strengthening our commercial execution.

Combustible remains a powerful value engine for the Group, delivering robust returns and continuing to fund our transformation.

Our resilient performance reflects the breadth of our global footprint, the strength of our portfolio, and disciplined execution.

Turning to our regions. Starting with the us, we delivered a strong multi-category, performance driving total revenue up 8.5% and adjusted operating profit up 10.1%.

New Category Revenue increased by nearly 60%, driven by the continued success of Vuse+, which grew more than 200%, and Vuse, which returned to double-digit volume and revenue growth.

In combustibles, revenue grew 5%, driven by robust price/mix, including the benefits of excise duty drawback and positive trade inventory movements.

Javed Iqbal: As a result, we have held our volume share since January. Looking into H2, we expect an acceleration of investment to support the launch of Velo Max and Vuse flavor pods, as well as behind our combustible portfolio in a highly dynamic market. Tadeu will talk about this in more detail later. In addition, we expect our strong H1 growth to moderate in H2 as positive inventory movements do not repeat, and we lap a stronger comparator. In AME, total revenue growth 0.9%, with combustible up 2.5% and new category up 1.9%. This was partially offset by lower direct leaf sales, reflecting our continued focus on higher return, more profitable areas. Combustible revenues were driven by strong delivery in Brazil, Turkey, and Mexico and robust price mix.

Value share declined by 40 basis points and volume share was down 80 basis. Point reflecting continued, industry growth in Deep Discount segment, and heightened competitive activity since Q4. Last year, we have actively responded to this trend investing behind our portfolio, and further strengthening our commercial execution. As a result, we have held our volume share since January.

Looking into the second half, we expect an acceleration of investment to support the launch of Vuse, Velo, Max, and Vuse flavor pods, as well as support behind our combustible portfolio in a highly dynamic market today. We will talk about this in more detail later. In addition, we expect our strong H1 growth to moderate in H2, as positive inventory movements do not repeat and we lap a stronger comparator.

In AME.

Total revenue growth.

0.9%, with Combustible up 2.5% and New Category up 1.9%. This was partially offset by lower direct leaf sales, reflecting our continued focus on higher-return, more profitable areas.

Javed Iqbal: This was partially offset by our exit from Cuba and increased competitive pressures in Germany and Romania, where we have taken targeted actions to strengthen our portfolio. In new categories, modern oral revenue was up 22%, driven by the strength of our portfolio across both established oral markets in Scandinavia and newer growth markets, including UK and Poland, which now account for around 50% of our modern oral revenue in the region. Heated product revenue declined by nearly 11%. Growth in Romania and Portugal was more than offset by lower revenue in Italy and Poland due to heightened competitive activity in the value segment. Looking ahead, we expect to strengthen our value proposition with the next generation Hyper pro+ in H2. We are also encouraged by the continued momentum of glo Hilo, which is performing well in the premium segment.

Combustible revenues were driven by strong delivery in Brazil, Turkey, and Mexico, and by a robust price mix. This was partially offset by our exit from Cuba and increased competitive pressures in Germany and Romania, where we have taken targeted actions to strengthen our portfolio.

Markets in Scandinavia.

and newer growth markets, including the UK and Poland, which now account for around 50% of our modern oral revenue in the region,

Heated product revenue declined by nearly 11% in Romania. Growth in Portugal was more than offset by lower revenue in Italy and Poland, due to heightened competitive activity in the value segment.

Javed Iqbal: Vapor revenue declined 14%, mostly impacted by regulatory changes in Poland as we continue to focus our investment on larger industry value pools. Adjusted operating profit increased 1.1%, supported by continued resilience in combustibles and quality growth in Velo and Vuse. This was partially offset by investments in heated product behind our innovations rollout. We expect performance to accelerate in H2, driven by our targeted commercial actions and the benefit of the rollout of new category innovations. Turning to APMEA, where our recovery has been slower than expected. Revenue was down 6.3%, primarily driven by combustibles. While we continue to drive growth in key markets, including Pakistan and Indonesia, this was more than offset by the challenging regulatory environment and the impact of illicit volume in Bangladesh and Australia, alongside the timing of inventory movements in Vietnam.

Looking ahead, we expect to strengthen our value proposition with the next generation Hyper Pro Plus in the second half of the year. We are also encouraged by the continued momentum of glo Hilo, which is performing well in the premium segment.

Vapor revenue declined 14%, mostly impacted by regulatory changes in Poland, as we continue to focus our investment on larger industry value pools.

Adjusted operating profit increased 1.1%, supported by continued resilience in combustibles and quality growth in Vuse and Velo. This was partially offset by investments in heated products behind our innovations rollout.

We expect performance to accelerate in H2, driven by our targeted commercial actions and the benefit of the rollout of new category innovations.

Javed Iqbal: Modern oral revenue increased by 43%, driven by our first-mover advantage and category leadership across emerging growth markets. These include Japan, Pakistan, South Africa, and global travel retail, highlighting the increasing opportunity for the category and for Velo. Heated product revenue declined 13%, impacted by material inventory movements and heightened competitive intensity in the value segment in Japan. Encouragingly, glo Hilo continues to build momentum in the premium segment. With Hyper pro+ launching in Japan in Q3, we expect an improving share performance in H2. Vapor revenue declined 28%, reflecting strategic market exits and more selective resource allocation. Adjusted profit declined 16.5%, mainly due to headwinds in key combustible markets. Looking ahead, we expect further sequential performance recovery in H2, supported by our commercial actions and investments in both combustibles and new category, and a softer comparator in Australia.

Turning to APMEA, where our recovery has been slower than expected, revenue was down 6.3%, primarily driven by combustibles. While we continue to drive growth in key markets, including Pakistan and Indonesia, this was more than offset by the challenging regulatory environment and the impact of illicit volume in Bangladesh and Australia, alongside the timing of inventory movements in Vietnam.

Modern Oral revenue increased by 43%, driven by our first-mover advantage and category leadership across emerging growth markets. These include Japan, Pakistan, South Africa, and Global Travel Retail, highlighting the increasing opportunity for the category and for VO.

Heated product revenue declined 13%, impacted by material inventory movements and heightened competitive intensity in the value segment in Japan.

Encouragingly, Glo Hilo continues to build momentum in the premium segment, and with Hyper Pro Plus launching in Japan in Q3, we expect an improving share performance in H2.

Vapor Revenue declined, 28% reflecting strategic Market exits and more selective resource allocation.

Adjusted profit declined 16.5%, mainly due to headwinds in key combustible markets.

Looking ahead, we expect further sequential performance recovery in H2 supported by our commercial actions and investments in both combustibles and new category and a softer comparator in Australia.

Javed Iqbal: Turning now to our group operating margin, which was up 30 basis points to 43.7%. We successfully offset inflationary pressures with a strong performance, higher profitability in new categories and continued cost savings. At current rates, operating margin expanded by 10 basis points. We are making good progress with Fit to Win, our transformation program to build a leaner, faster, and more data-driven BAT. We have identified a further GBP 100 million of optimization savings, resulting in an incremental one-off GBP 100 million cash investment to support delivery. In addition, to further drive new category growth, we have also completed a comprehensive review of our manufacturing assets and machinery. Through this, we have identified opportunities to upgrade to more efficient next-generation technologies and state-of-the-art machinery to support future growth and productivity and to accelerate our transformation.

Turning now to our group operating margin, which was up 30 basis points to 43.7%. We successfully offset inflationary pressures with strong performance, higher profitability in new categories, and continued cost savings at current rates. Operating margin expanded by 10 basis points.

We are making good progress with fit to win our transformation program, to build a leaner faster and more data driven bet. We have identified a further 100 million pounds of optimization savings resulting, in an incremental, 1 of 100 million pound cash investment to support delivery.

In addition, to further drive new category growth, we have also completed a comprehensive review of our manufacturing assets and machinery.

Javed Iqbal: As a result, we have recognized a non-cash charge of nearly GBP 230 million in the H1. Altogether, we now expect GBP 700 million of annualized savings by 2028, with GBP 500 million to be delivered by 2027. Total one-off costs are now GBP 950 million, with GBP 840 million to be treated as adjusting. We continue to expect the majority of the cost to be incurred this year, with balance in 2027. Bringing it all together, earnings per share increased by 7.9%, as growth in operating profit was supported by 4.4% growth from earnings kickers. This outperformance was primarily driven by lower net finance cost, reflecting repayment of debt with proceeds from the partial disposal of ITC stake in May last year, and higher operating cash conversion in H1.

Through this, we have identified opportunities to upgrade to more efficient Next Generation Technologies and state-of-the-art machinery to support future growth and productivity, and to accelerate our transformation. As a result, we have recognized a non-cash charge of nearly £230 million in the first half.

Altogether, we now expect £700 million of annualized savings by 2028, with £500 million to be delivered by 2027.

Total one-off costs are now £950 million, with £8.40 million to be treated as adjusting. We continue to expect the majority of the cost to be anchored this year, with the balance in 2027.

Javed Iqbal: Looking at to full year, we now expect net finance cost to be around GBP 1.65 billion, with an underlying tax rate between 24% and 25%. As a result, we have upgraded our full-year EPS guidance, with earnings kickers expected to be moderate as we annualize the benefit of lower debt levels. Strong cash generation continues to enhance our financial flexibility and support disciplined capital allocation. We remain on track to be within our 2 to 2.5x leverage target range by year-end, and to deliver more than GBP 50 billion of free cash flow by 2030. We continue to focus on our capital allocation priorities, which are investing in transformation, balance deleveraging with progressive dividend and sustainable share buybacks, and selective bolt-on M&A to support our transformation.

Profit was supported by 4.4% growth from earnings kickers. This outperformance was primarily driven by lower net finance cost, reflecting repayment of debt with proceeds from the partial disposal of the ITC stake in May last year and higher operating cash conversion in H1, looking at to full year. We now expect net finance cost to be around £1.65 billion, with an underlying tax rate between 24% and 25%. As a result, we have upgraded our full-year EPS guidance, with earnings kickers expected to be moderate as we annualize the benefit of lower debt levels.

Strong cash generation continues to enhance our financial flexibility and support disciplined capital allocation. We remain on track to be within our 2 to 2.5 times leverage target range by year-end and to deliver more than £50 billion of free cash flow by 2030.

We continue to focus on our Capital allocation priorities which are investing and transformation.

Balance, delivering with progressive dividends and sustainable share buybacks, and selective bolt-on M&A to support our transformation.

Javed Iqbal: To summarize, H1 was in line with expectations, and we are on track to return to our midterm algorithm for the full year, with profit H2 weighted. Key drivers for H2 include mid-teens new category revenue growth, led by Velo and Vuse, driving a further improvement in New Category contribution, an acceleration in performance in AME, further sequential recovery in APMEA, and strong H1 US growth moderating due to increased investment, lapping a stronger comparator, and as positive inventory moments do not repeat. We expect H2 performance to be further supported by the positive phasing of Fit to Win benefits.

To summarize, H1 was in line with expectations, and we are on track to return to our midterm algorithm for the full year with profit second-half weighted. Key drivers for H2 include maintaining new category revenue growth, led by Vuse and Velo, and Views driving a further improvement in new category contribution.

And acceleration in performance in AME.

Further sequential recovery in Apna and STRONG. H1 US growth is moderating due to increased investment, lapping a stronger comparator, and as positive inventory movements do not repeat.

Javed Iqbal: As previously guided, we expect revenue and operating profit to be at the lower end of this range for the full year, absorbing around 1% transactional FX headwind and reflecting active investment choices, including the rollout of Velo Max and Vuse flavor pods in the US, scaling glo Hilo and glo Hyper pro+ launches, as well as increased combustible investment in the US and other key markets. Finally, we now expect full-year EPS growth to be towards the middle of our 5% to 8% range. Thank you. With that, I will hand back to Tadeu.

We expect H2 performance to be further supported by the positive phasing of Fit to Win benefits.

As previously guided, we expect revenue and operating profit to be at the lower end of this range for the full year, absorbing around a 1% transactional FX headwind and reflecting active investment choices, including the rollout of Vuse, Velo, and glo flavors in the US.

Scaling glo, Hilo, and Hyperpro Plus launches, as well as increased combustible investment in the US and other key markets. And finally, we now expect full-year EPS growth to be towards the middle of our 5% to 8% range.

Thank you. And with that, I'll hand back to Tadeu.

Tadeu Marroco: Thank you, Javed. Looking ahead, I am encouraged by the momentum we are building as we return to our algorithm and continue to transform BAT. We are entering the next phase of our journey from a position of strength, with accelerating financial delivery, increasing new category profitability, and a clear pathway to long-term growth and value creation. With that context, I want to share more detail on our progress, looking at the topics we get asked about most by you, our investors. Starting with the sustainability of our multi-category delivery in the US. Across the market, adult nicotine consumer behavior is changing in a significant way. BAT is fully aligned to where these consumers are heading, with our unique multi-category portfolio of number one or number two share positions across all categories. As a result, we are now the fastest-growing company in total nicotine.

Thank you, Javit. Looking ahead, I'm encouraged by the momentum we are building as we return to our algorithm and continue to transform BAT.

We are entering the next phase of our journey from a position of strength.

With accelerating Financial delivery, increasing your category profitability and a clear pathway to long-term growth and value creation.

With that context, I want to share more detail on our progress. Looking at the topics we get asked about most by you, our investors.

And ability of our multi-category delivery in the US.

Across the markets audit, nicotine consumer behavior is changing in a significant way.

BAT is fully aligned to where these consumers are heading, with our unique mood category portfolio of number 1 or number 2 share positions across all categories.

Tadeu Marroco: Our total nicotine volume share increased by 110 basis points year to date, fueled by new categories, with Velo driving around 90% share of modern oral value growth and Vuse delivering over 100% share of vapor value growth. My message here is clear. We believe we are the best position to win in total nicotine and continue to capture value in the world's largest nicotine value pool. I will now take you through the US by category. Starting with combustibles, where we continue to balance disciplined investment with sustainable value creation. Industry volume continued to improve in H1, declining 4.9% on a sales to retail basis. This was supported by moderating solo consumption decline trends, slowing outflow to illicit vapor, supported by regulatory enforcement actions, and the expansion of deeper discount into trade channels, which we expect the industry to lap in H2.

As a result, we are now the fastest-growing company in total nicotine.

Our total nicotine volume share increased by 110 basic basis points year to date fueled by new categories.

With VO driving around 90% share of modern auto value growth.

And views, delivering over 100% share of vapor value growth.

My message here is clear. We believe we are in the best position to win in total nicotine and continue to capture value in the world's largest nicotine value pool.

I will now take you through the US by category.

Starting with combustibles where we continue to balance discipline investment with sustainable value creation.

Industry volume continues to improve in the first half.

Bail basis.

This was supported by moderating Solos consumption decline trends.

Slowing outflow to elicit Vapor, supported by regulatory enforcement actions.

And the expansion of Deeper Discount into track channels.

Which we expect for the industrial app in the second half.

Tadeu Marroco: Our focus remains on driving value and share from our combustibles business, and we continue to deliver strong financial performance in H1, as Javed highlighted. Against this backdrop, we have seen heightened competitive activity from Q4 last year. We have already taken actions to further sharpen our portfolio management, strengthen our route to markets, and leverage digital revenue growth management capabilities. In addition, we have been actively investing to strengthen our portfolio, and we are starting to see encouraging results. Targeted investments have been supporting Newport in premium, and we have also been strengthening Camel. Together, Lucky Strike and Pall Mall Select continue to drive both volume and value share gains in branded value, which, combined with expanding our Doral brand coverage to five states, is strengthening our presence and competitiveness at the low end of the market.

Our focus remains on driving value and share from our combustible business.

And we continue to deliver strong financial performance in H1, as Javit highlighted.

Against this backdrop, we have seen heightened competitive activity since Q4 last year.

We have already taken actions to further sharpen our portfolio management, strengthen our route to market, and leverage digital revenue growth management capabilities.

In addition, we have been actively investing to strengthen our portfolio, and we are starting to see encouraging results.

Targeted investments have been supporting Newport in premium.

And we have also been strengthening Camel.

Together, it looks like in Pomo, Select continues to drive both volume and value share gains in Branded Value.

Tadeu Marroco: As a result, we have held our volume share since January, and we will continue to actively invest behind our portfolio in H2. Second, I am often asked about the regulatory enforcement landscape in the US. I am pleased that we are starting to see recent actions having an impact on irresponsible illicit operators, while also providing responsible legal manufacturers a pathway to bringing scientifically backed products to market. We are now seeing multiple government measures beginning to address the long-standing balance between the legal market and illicit operators. First, around half of vapor industry volume is now covered by state regulatory and enforcement frameworks. Second, more than 18 million unauthorized vapor products have been seized through federal enforcement agents collaboration. Third, the FDA is taking actions to improve regulatory compliance for foreign manufacturers.

Which, combined with expanding our Duro brand coverage to five states, is strengthening our presence and competitiveness at the low end of the market.

As a result, we have held our volume share since January, and we will continue to actively invest behind our portfolio in the second half.

Second, I'm often asked about the regulatory enforcement landscape in the U.S.

And I'm pleased that we are starting to see recent actions having an impact on irresponsible, illicit operators.

while also providing responsible legal manufacturers a pathway to bringing scientifically backed products to market.

We are now seeing multiple government measures beginning to address the long-standing balance between the legal market and the illicit operators.

First, around half of vapor industry 1 is now covered by state directory and enforcement Frameworks.

Second, more than 18 million unauthorized vapor products have been seized through federal, coast, and agents' collaboration.

Tadeu Marroco: attorney generals continue to increase pressure on illicit vapor sales channels and payment providers. These actions have supported the legal vapor industry return to growth in H1. We are also encouraged by the FDA's new prioritization guidance, which supports a pathway for both vapor flavors and modern oral innovation. These developments support a more level playing field. In US vapor, Vuse continues to strengthen its leadership position. We extended value share to a record 55.9% in H1, and now hold more than double the share of our nearest competitor. We will begin a phased rollout of new adult-focused Vuse flavors, broadening consumer choice and leveling the competitive playing field, starting in Q3, with distribution to approximately 25,000 outlets.

Third, the FDA is taking actions to improve regulatory compliance for foreign manufacturers.

And finally attorney, generals continue to increase pressure on illicit Vapor sales channels and payment providers.

Importantly, these actions have supported the legal vapor industry’s return to growth in H1.

We are also encouraged by the fda's new prioritization guidance, which supports a pathway for both Vapor flavors and Modern Auto innovation.

Taken together, this development, support, and a more level playing field.

In US Vapor, views continue to strengthen.

Its leadership position.

We extended value, shared to a record 55.9% in the first half.

And now, we hold more than double the share of our nearest competitor.

Building on this leadership, we will begin a phased rollout of new audit-focused Vuse flavors.

Tadeu Marroco: We will execute this expansion in a disciplined manner, upholding our high standards of product quality, retailer compliance, and underage access prevention. Distribution will be carefully targeted as we work with retailers to secure their commitment to adult-only sales, supporting category sustainability. This give us confidence in Vuse's ability to sustain growth and further strengthen its competitive advantage in the world's largest vapor market. I'm often asked about the growth opportunity ahead in modern oral globally. In the US, I'm excited about expanding our Velo portfolio in the rapidly growing markets. Velo+ continues to deliver an outstanding performance with our overall modern oral volume share now 31%, and value share nearly 26%. We are capturing around 90% of category value growth, demonstrating both the strength of the product and brand together with the effectiveness of our commercial execution.

Broadening consumer choice and leveling the competitive playing field, starting in Q3, with distribution to approximately 25,000 outlets.

We will execute this expansion in a disciplined manner, upholding our high standards of product quality, retailer compliance, and underage access prevention.

Distribution will be carefully. Targeted as we work with retailers to secure their commitment, to audit. Only sales, supporting category sustainability.

Altogether, this gives us confidence in Vuse's ability to sustain growth and further strengthen its competitive advantage in the world's largest vapor markets.

Third, I'm often asked about the growth opportunity ahead in modern oral globally.

In the U.S., I'm excited about expanding our V portfolio in the rapidly growing markets.

Nearly 26%.

Tadeu Marroco: Building on this success, we are expanding the Velo portfolio to capture a broader range of adult consumer preference, including launching some limited edition Velo+ variants. Starting Q3, we will launch Velo Max, a higher moisture product and our latest innovation in the US. This will further expand our offer across two new strengths and four new flavors, complementing our existing portfolio and providing an incremental lever of growth. Velo is the clear global number one brand in modern oral, the fastest-growing category with the lowest risk profile. We continue to expand Velo's footprint as regulatory clarity improves, with 32 markets having now adopted category regulation, more than double the number versus 2024. Our clear leadership position continues to strengthen, underpinned by strong growth across all three regions and the successful execution of our premiumization and innovation strategy. Our scale advantage continues to widen.

In addition, we are capturing around 90% of category value growth, demonstrating both the strength of the product and brand, together with the effectiveness of our commercial execution.

Building on this success. We are spending the vop portfolio to capture a broader range of other consumer preference.

Including launching some limited editions, VOP Plus variants.

And starting Q3, we will launch Velo Max.

A higher-moisture product and our latest innovation in the U.S.

This will further expand our offer, across two new strengths and four new flavors, complementing our existing portfolio and providing an incremental lever of growth.

Vuse is the clear global number one brand in modern oral.

The fastest-growing category with the lowest risk profile.

We continue to expand our Velo NGP footprint as regulatory clarity improves, with 32 markets having now adopted category regulation—more than double the number versus 2024.

Our clear leadership position continues to strengthen.

On the opinion by strong growth across all 3 regions and the successful execution of our premiumization and Innovation strategy.

Tadeu Marroco: In H1, BAT shipped 7.9 billion pouches, and across our top markets, our modern oral volume share increased by over 8 percentage points to reach 39%. We believe our superior product portfolio, supported by continuous innovation, scale, brand strength, and regulatory capabilities, will become increasingly important competitive advantage. In AME, BAT is clear category leader with 62% volume share across top markets, making us nearly seven times larger than our nearest competitor. This leadership position is underpinned by our superior brand equity scores, 40% higher than our closest competitor in Europe, supporting our premium brand positioning, and reflected in our 68.5% value share. We continue to drive strong volume-led revenue growth, and importantly, this growth is becoming increasingly broad-based.

Our scale advantage continues to widen.

In the first half, BAT shipped 7.9 billion pouches, and across our top markets, our Modern Oral volume share increased by over 8 percentage points to reach 39%.

As the category continues to grow at pace.

We believe our Superior portfolio, supported by continuous innovation scale brand strength and Regulatory capabilities will become increasingly important competitive advantage.

In AME, BAT is clearly the category leader with 63% volume share across top markets, making us nearly seven times larger than our nearest competitor.

This leadership position is underpinned by our superior brand equity scores, which are 40% higher than our closest compact competitor in Europe, supporting our premium brand positioning and reflected in our 68.5% value share.

Tadeu Marroco: Around 50% of our revenue comes from outside the Nordics, where the category continues to develop with growing incidence and consumption, supported by expanded distribution, growing category adoption, and the strength of the Velo brand. Innovation remains a key differentiator. Through Velo Shift, we are extending our premium positioning. Progress in Sweden and Switzerland is encouraging, with Shift capturing 1% of value share in Sweden and 1.5% in Switzerland within a few months of launch. Altogether, our strong momentum gives us confidence in our ability to continue driving sustainable, profitable growth and value creation in modern oral. Fourth, I am asked about our key drivers of performance improvement in heated products. We are resetting glo's performance with a sharper, more disciplined approach. Industry volume growth moderated further in H1, reflecting excise-driven disruption in Japan and continued consumer polyusage across vapor and increasingly modern oral globally.

We continue to drive strong volume-led revenue growth. And importantly, this growth is becoming increasingly broad-based.

Around 50% of our revenue comes from outside the Nordics, where the category continues to develop with growing incidence and consumption.

Supported by expanded distribution, growing category adoption, and the strength of the develop brand.

Innovation remains a key differentiator.

Through leadership, we are extending our premium positioning.

Progress in Sweden and Switzerland is encouraging, with Shift capturing 1% of the value chain in Sweden and 1.5% in Switzerland within a few months of launch.

All together, our strong momentum gives us confidence in our ability to continue driving sustainable, profitable growth and value creation in modern oral.

Fourth, I'm asking about our key drivers of performance Improvement in heated products.

We are resetting close performance with a sharper, more disciplined approach.

Tadeu Marroco: At the same time, competitive intensity has stepped up. Against this backdrop, we are focusing our investments where we see the strongest consumer opportunity and the best return potential in what remains a significant GBP 90 billion value pool. We are scaling glo Hilo to build premium growth and strengthening our value proposition with Hyper pro+. In addition, we are concentrating resources behind priority markets in a more selective way. Through this, our focus is clear. We set our performance and rebuild share momentum in H2 through innovation-led growth and disciplined execution. glo Hilo is beginning to demonstrate the benefits of our premiumization strategy. Launches across nine target markets, covering around 70% of industry volume. This provides a strong platform for future scale, with around half of consumers new to the glo platform. In addition, we are strengthening glo's brand equity as we establish our presence in the premium segment.

Industry volume growth moderated further in the first half, reflecting excise-driven disruption in Japan and continued consumer product usage across vapor and increasingly more than oral globally.

At the same time, competitive intensity has stepped up.

Against this backdrop, we are focusing our investments where we see the strongest consumer opportunity and the best return potential in what remains a significant £9 billion value pool.

We are scaling Glo, Hilo, to build premium growth and strengthening our value proposition with Hyper Pro Plus.

In addition, we are concentrating resources behind priority markets in a more selective way.

Through this, our focus is clear. We set our performance and rebuild. Share momentum in H2 through Innovation lead growth and discipline execution.

Growth is beginning to demonstrate the benefits of our premiumization strategy.

Form for future scale with around, half of consumers, new to the globe.

Tadeu Marroco: This is translating into tangible commercial progress, with volume share increasing across key markets and particularly strong momentum in Poland. We continue to focus on scaling glo Hilo through generating trial, targeting consumers of premium combustibles and heated products, while building awareness to unlock further growth. Finally, bringing it all together. As we build on our momentum, we see a clear pathway to improved growth in 2027. Our delivery will be supported by four key drivers. First, continued strong new category revenue growth led by continued momentum in modern oral, US-led vapor delivery, and a more targeted approach in heated products. Second, consistent combustibles delivery supported by further recovery in APMEA and targeted investment to sustainably drive combustibles value and share globally. Third, continued strong profit conversion reflecting improving new category returns and ongoing cost savings.

In addition, we are strengthening Glo's brand equity as we establish our presence in the premium segment.

Speaker #1: particularly strong momentum in Poland. We continue to focus on scaling Glow Hilo through generating trial targeting consumers of premium combustibles and heated product while building awareness to unlock further growth.

This is translating to tangible, commercial progress with volume share increasing across key markets, and particularly strong momentum in Poland.

Speaker #1: And finally, bringing it all together, as we build on our momentum, we see a clear pathway to improve it growth in 2027. Our delivery will be supported by four key drivers.

Speaker #1: First, continued strong new category revenue growth led by continued momentum in modern auto US led vapor delivery and a more target approach in heated products.

Speaker #1: Second, consistent combustibles delivery supported by further recovered in a upmere and target investment to sustainably drive combustibles value and share globally. Third, continued strong profit conversion reflecting improving new category returns and ongoing cost savings.

Speaker #1: And fourth, EPS accreation from share buybacks, lower finance cost and continued strong cash generation. To conclude, by focusing investment on our highest return opportunities, we are delivering quality growth through our multi category portfolio supported by sharper execution, enhanced capabilities and discipline resource allocation.

Tadeu Marroco: Fourth, EPS accretion from share buybacks, lower finance costs, and continued strong cash generation. To conclude, by focusing investment on our highest return opportunities, we are delivering quality growth through our multi-category portfolio, supported by sharper execution, enhanced capabilities, and disciplined resource allocation. Through this, we are driving higher returns and building a more resilient business. At the same time, we are enhancing financial flexibility, enabling continued investment in our transformation together with delivering strong cash returns. I am confident in our strategy, our execution, and that BAT is well-positioned to deliver long-term value for our shareholders. Before we move to Q&A, let me leave you with some of the key themes shaping BAT's next phase of growth and value creation. We look forward to sharing more at our Capital Markets Day in September.

Speaker #1: Through this, we are driving higher returns and building a more resilient business. At the same time, we are enhancing financial flexibility enabling continue investment in our transformation together with delivering strong cash returns.

Speaker #1: And I'm confident in our strategy, our execution and that BAT is well positioned to deliver long-term value for our shareholders. Before we move to Q&A, let me leave you with some of the key teams shaping BAT's next phase of growth and value creation.

Speaker #1: We look forward to sharing more at our capital markets day in September. Thank you for listening. And I will now hand over to Victoria to introduce the questions and answer session.

Tadeu Marroco: Thank you for listening, I will now hand over to Victoria to introduce the questions and answer session.

Speaker #2: Thank you today and Javed and good morning everyone. If you've joined us via the webcast, you can type your questions directly into the online question box or if you joined the call, you can press star one on your telephone keypad today and Javed will be very happy to take your questions and I will now hand over to the conference call operator.

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

Speaker #3: Thank you. The first question is from Andre and from Jeffries. Please go ahead.

Operator: Thank you. The first question is from Andrei Andon-Ionita from Jefferies. Please go ahead.

Speaker #4: Hi, good morning. It's Tadeu Javed and Victoria and thank you very much for for taking my questions. two for me please. firstly on US e-vapor do you see the illicit enforcement tailwind continuing into early H2 and also for the launch of views ultra and H2 could you give us a bit more color as to what we should expect in terms of number of outlets targeted and the types of flavors that we should expect to see on the market.

Andrei Andon-Ionita: Hi. Good morning, Tadeu, Javed, and Victoria, thank you very much for taking my questions. Two for me, please. Firstly, on US e-vapor, do you see the illicit enforcement tailwind continuing into early H2? Also, for the launch of Vuse Ultra in H2, could you give us a bit more color as to what we should expect in terms of number of outlets targeted and the types of flavors that we should expect to see on the market? Then on US combustibles, you registered +5% top line growth in H1, significantly ahead of the US combustibles framework of value flat to +1% growth. How should we think in the context of this H1 performance about the US combustibles algo for the full year 2026? Thank you very much.

Speaker #4: and then on US combustibles you registered plus 5% topline growth in H1 significantly ahead of the US combustibles framework of value flat to plus 1% growth.

Speaker #4: How should we think in the context of this H1 performance about the US combustibles algo for the full year 26? Thank you very much.

Speaker #1: Okay, thank you Andre for the question. I'll start with the combustible numbers. yeah, you hide rightly point out that the 5% performance in H1 is well ahead of what the algorithm would suggest.

Tadeu Marroco: Okay. Thank you, Andrei, for the question. I will start with the combustible numbers. Yeah, you rightly point out that the 5% performance in H1 is well ahead of what the algorithm would suggest. We highlight the fact that we had some trade movements that has been beneficial in H1 that will be unwind H2. I will tell you that this equates for something close to 2% of the 5%. Underlying performance actually is more of a 3%. Clearly, we have a momentum in the H1. Duty drawback is part of the 3%, but it is not a major part of it. Most of the performance is organic performance. Let us put it that way. Obviously, as we highlighted in the presentation, we intend to continue to invest behind our portfolio, as we progress in the second half of the year.

Speaker #1: we highlight the fact that we had some trade movements that has been beneficial H1 that will be unwinding H2. I will tell you that these are great for something close to 2% of the five.

Speaker #1: if you so underline performance actually is a is a is more of a of a 3%. clearly we we have a a momentum in the H1.

Speaker #1: duty clawback is part of the 3% but it's not a major part of it. most of the performance is is organic performance. Let's put it that way.

Speaker #1: Obviously as we highlighted in the presentation we intend to invest continue to invest behind our portfolio as we progress in the second half of the year.

Speaker #1: we are clearly seeing the dynamic of the low discount segment in the US continue to grow and and we try to to to become more competitive in that space as well.

Tadeu Marroco: We are clearly seeing the dynamic of the low discount segment in the US continue to grow. We have tried to become more competitive in that space as well. I would expect to see a more moderate performance in the second half of the year, particularly in combustible in the US. That should reflect in a number that will be much closer to the algorithm, maybe a bit still higher than the 0 to 1 that we have, but not as high as we see in the first half of the year. That is the combustible part. On the vapor part, it is very encouraging. What we are seeing from the state's enforcement is 50%. It is the first time that we saw the legal vapor market coming back, on a very modest base.

Speaker #1: So you I would expect to see a more moderate performance in the second half of the year particularly in combustible in the US that should reflect in a number that will be much closer to the to the algorithm maybe a bit still higher than the the what 0 to one that we have but not as high as we see in the in the first half of the year.

Speaker #1: So that's the the combustible part. The the on the on the vapor part it's very encouraging what we are seeing from the states enforcement is 50% is the first time that we saw the legal vapor market coming back on a very modest base but still we have seen the last few years a decline of legal legal markets year after year we it's hard to predict exactly what happens next I would suggest without the initiatives that I highlight during the presentation that we could expect to see at least a a similar type of environment.

Tadeu Marroco: Still, we have seen the last few years a decline of legal markets year after year. It is hard to predict exactly what happens next. I would suggest with all the initiatives that I highlight during the presentation, that we could expect to see at least a similar type of environment. I do not think that will be, I would say, significant. I am more encouraged by the prioritization guidance from the FDA because these allow the legal American manufacturers to offer substantiated, high-quality products for adult nicotine smokers in the US. This translates into our ability to bring back flavors in the market and having a more level playing field. Because you cannot forget the fact that from one side, there is an element of enforcement that is important and there is clearly, mainly from the state levels, an uptick on enforcement levels.

Speaker #1: I don't think that will be I would say significant I'm more encouraged by the by the prioritization guidance from the FDA because these allow the legal American manufacturers to offer substantiated high quality products for audit nicotine smokers in the US.

Speaker #1: And these translates into our ability to bring back flavors in the market and and having a more level playing field because you cannot forget the fact that from one side there is an element of enforcement that is important and and and there is clearly mainly from the state levels an uptick on enforcement levels but the root cause of illegality is not just about our lack of enfor is about a lack of level playing field.

Tadeu Marroco: The root cause of illegality is not just about a lack of enforcement, it is about a lack of level playing field. Having a higher level playing field will be also very important. I would expect to continue to see some more traction from the legal vapor market.

Speaker #1: And and having a high level playing field is will be also very important. So I would expect to to continue to see some more traction from the legal vapor market.

Speaker #1: In terms of your question on flavors and how we roll Yeah, how we roll out. we mentioned that that will be basically in two phase.

Operator: Flavors and how we roll out

Tadeu Marroco: Yeah. How we roll out. We mentioned that that would be basically in two phase. In Q3, we'll be reaching out 25,000 outlets. Why we are doing that way, because we have been very thoughtful in the way that we are rolling out flavors back in the market. We want to make sure that retailers do the ID scan before they sell the product to make sure that we have no youth accessing these products. There is a commitment and a compliance methodology that we are putting in place, and that's the reason we are very thoughtful in the way that we are rolling this out. The idea should go in Q3 with 25,000. In Q4, there is another round of 25,000, but we will be building from there. Okay?

Speaker #1: we are we are in Q3 will be reaching out 25,000 outlets. And why we are doing that way because we have been very thoughtful in the way that we are rolling out flavors back in the markets.

Speaker #1: we want to make sure that retailers do the the ID scan before they sell the product to make sure that we have no UF assessing this product there is a commitment and and a compliance methodology that we are putting in place and that's the reason we are very thoughtful in the way that we are rolling this out.

Speaker #1: So the idea is to go in the Q3 with 25,000 in Q4 there is another round of 25,000 but we'll be building from there.

Speaker #1: Okay.

Speaker #4: Thank you.

Andrei Andon-Ionita: Thank you.

Speaker #3: The next question is from Faham Bakes from UBS. Please go ahead.

Operator: The next question is from Faham Baig from UBS. Please go ahead.

Speaker #4: Good morning team. thank you for taking my questions. as well a couple from me as well. starting with nicotine pouches. in the US could you maybe help us with the the the the speed of launching Velomax in terms of the distribution stores as well as the likely economics compared to Velo Plus.

Faham Baig: Good morning, team. Thank you for taking my questions as well. A couple from me as well. Starting with nicotine pouches in the US, could you maybe help us with the speed of launching Velo Max in terms of the distribution stores as well as the likely economics compared to Velo+. Of course, you've now seen competition launching their own improved versions of nicotine pouch products. How have you seen this impacting competitive and category dynamics thus far? The second question is on full year 2026 guidance. Maybe if you could just help elaborate on some of the moving parts that you expect to see in H2, in terms of how the 2.9% organic sales growth develops. What could maybe see it do better, what could maybe see it do worse, and what are the key items that you're going to be monitoring?

Speaker #4: and and and and and and of course you've now seen competition launching their their own improved versions of nicotine pouch products. how have you seen this impacting competitive and category dynamics thus thus far?

Speaker #4: the second question is is is on full year 26. guidance. maybe if you could just help elaborate on on some of the moving parts that you expect to see in in the second half in terms of how how the 2.9% organic sales growth develops what what could maybe see it do better what could maybe see it do worse and what are the the key key key items that you're going to be monitoring.

Speaker #1: Okay. Okay. Faham. Look on the nicotine pouch we are well we have a very wellestablished network from Velo Plus in the US. It's a we'll be launching Velomax in that and it's just a question of the normal time that takes to distribute in a continental country like the US.

Tadeu Marroco: Okay. Fahm, look, on the nicotine pouch, we have a very well-established network from Velo+ in the US. We'll be launching Velo Max in that. It's just a question of the normal time that it takes to distribute in a continental country like the US. This will be probably faster than what took us to do in terms of Velo+, because we have now a well-established network. That was not necessarily the case when we first introduced Velo+, takes some time to get to where we are with Velo+. The idea is to use Velo Max as a complement to Velo+. Commercially speaking, we'll be considering our competitor's position, obviously, and we want to make the product as competitive as product, give the chance for consumers to try the product.

Speaker #1: So this will be you know probably faster than what took us to do in terms of Velo Plus because we have now a wellestablished network that was not necessarily the case when we first introduced Velo Plus but takes some time to you know to to to get where we are with Velo Plus but the idea is to use Velomax as a complement to Velo Plus.

Speaker #1: And and commercially speaking we are we'll be you know considering our competitors position obviously and and and we want to make the product as competitive as product give the chance for consumers to try the product we believe that is an an even enhanced product because like I said it has a a higher moisture and a different strengths and not necessary is a is a is a is a is a very diff is is it will be I think that will be addressing some consumer needs that not necessarily Velo Plus is currently positioned for when we think about for example higher levels of strengths and obviously also different flavors.

Tadeu Marroco: We believe that is an even enhanced product, like I said, has a higher moisture and different strengths. I think that we'll be addressing some consumer needs that not necessarily Velo+ is currently positioned for when we think about, for example, higher levels of strengths and obviously also different flavors. That's the reason why we say that distinct flavors will complement the portfolio. We feel very, I would say, obviously are very supportive of Velo, very good about the product that we have in the market. It's a competitive market. Obviously, there is no doubt that will become more competitive. We see the strength of Velo+ supporting all these new launch from competition. I do believe that I will still be a very strong brand.

Speaker #1: That's the reason why we say that that distinct flavors will complement the the portfolio. We feel very very I would say support we obviously are very very supportive of of Velo very good about the perfor the product that we have in the markets is a competitive market obviously there is no doubt that will become more competitive we see the strength of Velo Plus supporting all these new launch from compet competition and and I do believe that there will be still I will still be a very strong brand.

Speaker #1: We are now leaders in 11 states in the US. And so we have a a a retention rates of 7%. This hasn't changed. The all the growth of the category to basically in the first half is coming from Velo Plus.

Tadeu Marroco: We are now leaders in 11 states in the US, we have a retention rates of 7%. This hasn't changed. All the growth of the category to basically in H1 is coming from Velo+. Independent of the launch that we have seen so far, I do believe that we have all it takes with the capabilities we have built and the product that we have, and now complemented by Velo Max, all the conditions support the position that we have in the market. In terms of the building blocks for H2 of the year, and obviously APMEA, we expect to be better performance in H2 than in H1. It's clearly a recovery story. H1 2026 for APMEA was already better than the H2 2025.

Speaker #1: Independent of the launch that we have seen so far, I I do believe that we have all it takes with the capability we have built and the and the product that we have and now complement by Velo Max all the conditions to support the the position that we have in the markets.

Speaker #1: So in terms of the the building blocks for for the second half of the year, and obviously at Mia we expect to be better performance in the second half than in the first half.

Speaker #1: it's clearly a recovery story. H1 2026 for Mia was already better than the H2 2025. H2 2026 will be better than H1 2026 because we will be lapping more softer comparator if you want in place like Australia for example if you remember well they implement a very draconian regulation that accelerates exponentially the illicit trade in Australia in the second half of last year will be lapping that.

Tadeu Marroco: H2 2026 will be better than H1 2026 because we will be lapping more softer comparative, if you want, in places like Australia, for example. If you remember well, they implement a very draconian regulation that accelerates exponentially. They illicit trade in Australia in the H2 of last year. We'll be lapping that, so this will be more positive. Clearly, there will be the driver for the H2, and that's why we say that H2 weighted mainly because of the performance in APMEA. AME, we have been investing heavily behind mainly combustible and HP, and we expect also to have some improvement in the H2. The US, we just spoke about the US, so I don't expect the 5% to carry on in combustible for the rest of the year because of the investments we need to do in the portfolio of combustible.

Speaker #1: So this will be more positive. So clearly there will be the driver for for the second half and that's why we say that a second half weighted mainly because of the performance at Mia.

Speaker #1: AME we have been investing heavily behind mainly combustible and HP. And we expect also to to have some improvement in the second half. And and the US we just spoke about the US.

Speaker #1: So I don't expect the 5% to carry on in combustible for the rest of the year. And and because of the investments we need to do in the in the portfolio of combustible.

Speaker #1: And all in all that's the reason why I expect a a a more positive second half overall for the group and leading to a full year in terms of top line in the low end of our range.

Tadeu Marroco: All in all, that's the reason why I expect a more positive H2 overall for the group, leading to a full year in terms of top line in the low end of our range. You want to add something?

Speaker #1: You want to add something?

Speaker #2: I think and similarly the same will be the case for the building blocks for the F4 line as well. As we guided that we see a very strong performance in the US but we will see more stronger performance from AME and APMIA versus H1.

Javed Iqbal: I think that similarly, the same will be the case for the building blocks for the bottom line as well. As we guided that we see a very strong performance in the US, we will see a more stronger performance from AME and APMEA versus H1, slightly less performance in US. If you add this all both together, we are again at the lower end of our algorithm for the full year. That is the first time we are entering the algorithm. Two, as I highlighted earlier, that EPS guidance, we will see the overall impacts slow down over the full year, we will see strong kicker. That is why we have guided on the upgrade of our EPS guidance to the mid of the range.

Speaker #2: And slightly less performance in US. So if you add those old both together then we are again at the lower end of our algorithm for the full year and but is the first time we are entering the algorithm and two as I highlighted earlier that APS guidance we will see the overall impacts slow down over the full year but we will see strong kicker that is why we have guided on the upgrade of our EPS guidance to the mid of the range.

Speaker #1: Just on the point Jar I want to complement on the on the because I received some questions about the low end of the range we we are here thinking about the long-term sustainability of the algorithm and we are doing the right investments for the business for the sustainable growth of the business.

Tadeu Marroco: Just on the point, Javed, I want to complement, because I received some questions about the low end of the range. We are here thinking about the long-term sustainability of the algorithm. We are doing the right investments for the business, for the sustainable growth of the business. We have to invest in combustible in the US, in some other key markets as well. We have to invest in this excellent performance that we have in Modern Oral across the world. We are resetting our HP business, which also requires investments with the launch of glo Hilo. We obviously have an opportunity in vapor in the US that we haven't seen in many years. We are doing the right things for the business for the long run.

Speaker #1: We have to invest in combustible in the US in some other key markets as well. We have to invest in this excellent performance that we have in modern oral across the world.

Speaker #1: We are resetting our HP business which also requires investments with the launch of Glow Hilo so and we are always obviously have an opportunity in vapor in the US that we haven't seen in in many years so we are doing the right things for the business for the long run and and as we always said this is a year to go back to the algorithm and we position in the low end to create us the possibility to make the right investments to make these a sustainable story moving forward and I'm very confident that that will be the case.

Tadeu Marroco: As we always said, this is a year to go back to the algorithm and reposition in the low end to create us the possibility to make the right investments to make this a sustainable story moving forward, and I'm very confident that that will be the case.

Speaker #3: Thank you Javid and Tadeu. Our next question is from David Roo from Morgan Stanley. Please go ahead.

Victoria Buxton: Thank you, Javed and Tadeu.

Operator: Our next question is from David Roux from Morgan Stanley. Please go ahead.

Speaker #4: Thanks very much. morning Tadeu and Javid. my first question is just on combustibles. At the the trading updates in June I think the business sort of downgraded its expectation for glo the global cigarette industry volumes from minus 2% to minus 2.5%.

David J Roux: Thanks very much. Morning, Tadeu and Javed. My first question is just on combustibles. At the trading updates in June, I think the business sort of downgraded its expectation for the global cigarette industry volumes from -2% to -2.5%. I think at the time you noted this was predominantly driven by Bangladesh. It now seems the business has lowered its assumption again to now -3%. What is driving this latest sort of reduction in the outlook for cigarette volumes for the industry? Has Bangladesh deteriorated further or you're now seeing broader weakness across other markets? Then my second question is just on Velo in the US. I guess it's a two-part question.

Speaker #4: I think at the time you noted this was predominantly driven by Bangladesh. It now seems the business has lowered its assumption assumption again to now minus 3%.

Speaker #4: what is driving this latest sort of reduction in the outlook for cigarette volumes for the industry has Bangladesh deteriorated further or you now seen broader weakness across other markets?

Speaker #4: And then my second question is just on on Velo in the US. I guess it's a it's a two-part question. but if we take a step back I mean following up following the rollouts of Velo Max through the rest of this year how many SKUs across strengths and flavors do you expect to have across the total Velo platform by the end of this year versus say where we are today?

David J Roux: If we take a step back, following the rollouts of Velo Max through the rest of this year, how many SKUs across strengths and flavors do you expect to have across the total Velo platform by the end of this year versus, say, where we are today? The second part of this is, your key competitor in the US, on nicotine pouches, recently received a modified grant order to market using a reduced harm claim. Do you think this modified grant order really moves the needle in terms of marketing, and is this something that you'll be pursuing for Velo? Thank you.

Speaker #4: And then the second the second part of this is your key competitor in the US on nicotine pouches recently received a modified grant order to to market using a a reduced harm claim.

Speaker #4: Do you think this modified grants order really moves the needle in terms of marketing and is this something that you'll be pursuing for Velo?

Speaker #4: Thank you.

Speaker #1: Okay. So let's address the first the combustible question. The two and a half to three is basically Brazil driven. We had a massive excise shock in Brazil.

Tadeu Marroco: Okay. Let's address first the combustible question. The two and a half to three is basically Brazil-driven. We had a massive excise shock in Brazil. The price is coming to place on the 1st of August. This is really a meaningful price increase, excise-driven. Obviously, this will have implications in the size of the market, and it's a big market. Like Bangladesh is also a big market, but it's basically Brazil-driven. On Velo, we have already three strengths in Velo+. We have another two now strengths. We're going to have a total of five strengths in Velo. Obviously, this is the position we are today. What encourage us in terms of this prioritization guidance from the FDA is that we'll be able, with more certainty, to bring more innovative products to the market in due time. Which hasn't been really the case for many, many years.

Speaker #1: The price is coming to place on the first of August. This is really a meaningful price increase excise driven. And and obviously this will have implications in in the size of the market and is a big market like Bangladesh is also a big market but it's basically Brazil driven.

Speaker #1: on on Velo with the we we have already three strengths in Velo Plus. We have another two now strengths. So we're going to have a total of five strengths in in Velo.

Speaker #1: and obviously this is the position we are today. what encourage us in terms of this prioritization guidance from the FDA is that we'll be able with more certainty to bring more innovative products to the market in due time.

Speaker #1: So which hasn't been really the case for many many years. You know that we have been filing PMTAs and and being there for for a long long time.

Tadeu Marroco: You know that we have been filing PMTAs and being there for a long time. This is about to change with the new guidance. For the time being, we're going to be with the launch of Velo Max with five different strengths with the Velo family, moving from as stands today. In terms of your comments on the questions on PM, first of all, I think that the MRTP for Modern Oral is welcome as a category. I don't think that there is any major commercial benefit for any particular, I would say, SKU or product in the market. We do have in our applications for Velo, MRTP applications as well. We might be in a position to receive one of those in due time.

Speaker #1: And and this is about to change with the the new guidance. So for the time being we're going to be with the launch of Velo Max with five different strengths with the Velo family moving from as as as as stands today.

Speaker #1: In terms of your comment on the questions on and PM yeah I first of all I think that MRTPA for modern oral is welcome as a category.

Speaker #1: I don't think that there is any major commercial benefits for any particular I would say SKU or or product in the market. We do have in our applications for Velo MRTPA applications as well.

Speaker #1: So we might be in a position to to receive one of those in the in due time. But I I it's less about the commercial opportunity in the market but more about what it means for from the advocacy of the category many coming from a from a market like the US with the FDA I think that is very important as you know we have been very very ahead in terms of discussions with a number of stakeholders in order to proper regulate the category because we see the category as the as as as the lowest risk category within the new categories if you want because there is no inhalation there is no tobacco is the closest you can get to any RT any RT any RT any RT type of products and we have now 32 markets like I mentioned my presentation modern oral regulated a number of those markets sits in Europe which is also very important and and events like that with the MRTPAs being you know delivered by FDA is is very positive overall.

Tadeu Marroco: It's less about the commercial opportunity in the market, but more about what it means from the advocacy of the category, mainly coming from a market like the US with the FDA. I think that is very important. As you know, we have been very ahead in terms of discussions with a number of stakeholders in order to properly regulate the category, because we see the category as the lowest risk category within the new categories, if you want, because there is no inhalation, there is no tobacco. It's the closest you can get to any NRT type of products. We have now 32 markets, like I mentioned in my presentation, more than are regulated. A number of those markets sits in Europe, which is also very important. Events like that, with the MRTPs being delivered by FDA, is very positive overall.

Speaker #1: It's less about the commercial impact in the local market. It's more about the advocacy of the category outside even outside the US.

Tadeu Marroco: It's less about the commercial impact in the local markets, more about the advocacy of the category, even outside the US.

Speaker #4: Very clear. Thank you.

David J Roux: Great. Yeah. Thank you.

Speaker #3: Thank you. Our next question is from Damian McNeela from Deutsche Deutsche Bank. Please go ahead.

Operator: Thank you. Our next question is from Damian McNeela from Deutsche Bank. Please go ahead.

Speaker #2: Yeah. morning. Thank you. thanks for taking the questions. a few for me firstly just on the new categories portfolio I think you've made the decision to exit some markets in vape and reprioritized in heated.

Damian McNeela: Yeah. Morning. Thank you. Thanks for taking the questions. A few from me. Firstly, just on the new categories portfolio, I think you've made the decision to exit some markets in vape and reprioritized in heated. Can you just indicate whether that work is now complete or whether there are still markets that you're looking at around the viability of those categories? Is the first question. Second question is, can you provide a bit more information on what specifically is happening in the German combustibles market, with regards to increased competition, and if there is anything you can do, or what you are doing, to combat that increased competition? The last one is just to follow up on Faham's question earlier. Are you able to provide any indication of relative pricing for Velo Max in the US when it launches, please?

Speaker #2: can you just sort of indicate whether that work is now complete or whether there are sort of still markets that you're looking at around the viability of of those categories?

Speaker #2: is the first question. Second question is can you provide a bit more information on what specifically is happening in the German combustibles market with regards to sort of increased competition and if there is anything you can do to sort of or what you are doing to sort of combat that increased competition.

Speaker #2: And then the last one is just to follow up on Faheem's question earlier. are you able to provide any indication of relative pricing for Velo Max in the US when it launches please?

Speaker #1: Okay. Yeah. It starts for the last no the price we are we are not giving any indication of price of Velo Max. on Germany what we have seen over the last few couple of years mostly is the increase in trade labels brands in the German market.

Tadeu Marroco: Okay. Yeah. To start for the last, no, the price, we are not giving any indication of price of Velo Max. On Germany, what we have seen, over the last few couple of years mostly, is the increase in trade label brands in the German market. More recently, this growth has more stabilized. This has created some, I would say, down-trading pressures in the market that we obviously had to react to that. We are not seeing the growth at the pace that we were seeing before in trade label brands. It seems that we are coming now to a more stable situation. That's what has been the dynamic over the last couple of years. Let's put it that way. More recently, 18 months, I would say. In terms of-

Speaker #1: more recently this growth has more stabilized. And but this has created some some I would say down trading pressures in in the in the markets that we obviously have to react to that.

Speaker #1: we are not seeing the growth at the pace that we were seeing before in trade labels. It seems that we are coming out more to a more stable situation.

Speaker #1: But that's what has been the dynamic over the last couple of years. Let's put in that way. More recently 18 months I would say.

Speaker #1: in terms of vapor exits and refocus on HP. Yeah. The HP yeah the the the vapor markets we we mainly we decide to leave markets in Asia where we don't see either proper regulatory environment and or enforcement.

Javed Iqbal: Vapor exits and refocus on HP.

Tadeu Marroco: Yeah, the HP. Yeah. The vapor markets, mainly we decide to leave markets in Asia, where we don't see either a proper regulatory environment and/or enforcement. As a consequence, there is no financial return for a legal company like BAT, because we have to compete with illegal products, which there is no level playing field if you want. We decide to pull out of a number of markets that we have entered in the first place when they have regulated with an expectation that regulation would be made compliant. This was not the case. We have to accept that, given that we will be constantly looking for best return for our investments in terms of resource allocation, we make the call to pull out. That's why you see the vapor numbers in APMEA in particular, negative as a consequence of these exits.

Speaker #1: so and as a consequent there is no financial return for for for a company a legal company like BAT because we have to compete with the legal products which there is no level playing field if you want.

Speaker #1: so we decide to to to pull out of a number of markets that we have entered in the first place. When they have regulated with an expectation that regulation would be made compliant we we this was not the case.

Speaker #1: We have to accept that and then given the that we will be constantly looking for best return for our investments in terms of resource allocation we make the call to pull out.

Speaker #1: So that's why you see the the the vapor numbers in up me in particular negative as a consequence of these exits in AME is more a consequence of a a a a change in legislation in Poland that basically make completely not viable to to be present in in the vapor market anymore.

Tadeu Marroco: In AME, it's more a consequence of a change in legislation in Poland that basically make completely not viable to be present in the vapor market anymore. Also in the UK, that with the change in the policies, again, another market that is very difficult to assess compliance. The latest numbers that I saw there is showing a very strong presence of illegal products in the UK market. This is something that we'll be continuing reassessing, I have to say. I'll tell you that most of it, we have already act on. There will be probably some impact still coming across the H2 of this year. As we lap this for next year, always become less evident about these market exit decisions. Okay?

Speaker #1: And and also in the UK that with the change in the in the in the policies again another market that is very difficult to assess compliance.

Speaker #1: the latest numbers and that I saw there is is showing a very very strong presence of a illegal products in the UK market. So this is something that will be continuing reassessing.

Speaker #1: I have to say I'll I'll I'll tell you that most of it we have already act on. There will be probably some you know impact is still coming across the H2 of of this year.

Speaker #1: And as we lack this for next year onwards become less evident about this market exit decisions. Okay.

Speaker #4: Yeah. Thank you. Very clear.

Damian McNeela: Yeah. Thank you. Very clear.

Speaker #3: Thank you. Our next question is from Palav Meetal from Barclays. Please go ahead.

Operator: Thank you. Our next question is from Pallav Mittal from Barclays. Please go ahead.

Speaker #4: Good morning team. thank you for taking my questions. how are technical issue earlier so apologies if I missed it. but firstly starting on the US combustibles business volumes are better and price mix to the touch lower versus what we were expecting.

Pallav Mittal: Good morning, team. Thank you for taking my questions. Had a technical issue earlier, so apologies if I missed it. Firstly, starting on the US combustibles business, volumes are better and price mix is a touch lower versus what we were expecting, and I think in your comments you said duty drawback is not a major part of it in terms of the mix. Can you quantify the volume that are seeing a benefit from the duty drawback, and is it sequentially increasing or has that now stabilized? That's the first one. Then secondly, on your vapor business, in Europe, it has been under pressure over the last couple of years, and recently you highlighted issues in Poland, et cetera. How should we think about that European vape business in the medium term?

Speaker #4: And I think in your comment you said duty drawback is not a major part of it in terms of the mix. Can you quantify the volume that has seen a benefit from double duty drawback and is it sequentially increasing or has that now stabilized?

Speaker #4: So that's the first one. And then secondly on your vapor business in Europe it has been under pressure over the last couple of years and recently you've highlighted issues in Poland etc.

Speaker #4: But how should we think about that European vape business in the medium term?

Speaker #1: Okay. On the on the vapor in Europe yes the major drag for the numbers are related to Poland. And we have been in in strong positions in place like Germany which is a very very important vapor pool the views ultra for example is making big inroads there.

Tadeu Marroco: Okay. On the vapor in Europe, yes, the major drag for the numbers are related to Poland. We have been in strong positions in places like Germany, which is a very important vapor pool. The Vuse Ultra, for example, is making big inroads there. In other markets like France, Spain, we have a lot of competition coming to the markets, we also have a very strong pipeline that will reach the market in H2. We feel confident in our ability to sustain our leadership position in vapor in Europe, in the markets that we have selected to participate. That's the first one. On the combustible, as I mentioned, overall, the industry, I would talk about the industry first. We have seen a reduction in the levels of decline.

Speaker #1: In other markets like France Spain we have a lot of competition coming to the markets but we also have a a very strong pipeline that we'll reach the market H2.

Speaker #1: So we feel confident in our ability to sustain our leadership position in vapor in Europe in the markets that we have select to participate.

Speaker #1: so that's that's the first one. On the combustible as as I mentioned the the overall the the the the the industry I'll talk about the industry first.

Speaker #1: We have seen a a reduction in the levels of decline and as I I as I make the point in my presentation a lot of that has to do with the growth of the low end of the re of the of the segment of the category.

Tadeu Marroco: As I make the point in my presentation, a lot of that has to do with the growth of the low end of the segment, of the category, that actually, if anything, it's growing. It's not declining, it's growing. Continuing to grow. We see less migration out of cigarettes towards the illegal vapers, and for basically two reasons. One is, the accessibility, the availability of these products get more constrained when you have more states passing legislation, which is the case now of 50% where the volume is sold. Also the fact that we have more solo consumption combustibles, that they don't want to migrate to the vapor side. This overall is creating a dynamic that is more favorable than in the past.

Speaker #1: That actually if anything is grow it's not decline it's growing continue to grow. And and we see less migration out of cigarettes to us the illegal vapors and and for basically two reasons.

Speaker #1: One is the the the accessibility availability of these products get more constrained when you have more states passing legislation which is the case now of 50% where the volume is sold.

Speaker #1: And and all all all also the fact that we have more solo users combustibles that they don't want to to migrate to the vapor side.

Speaker #1: So these overall is creating a dynamic that is more favorable than in the past. it's hard to predict how it goes moving forward because if anything we still have to see the the the correlation with oil price and the and the conflict that is happening in the Middle East and how this could impact oil price because we know that there is a correlation between oil price and and consumption of cigarettes in the US.

Tadeu Marroco: It's hard to predict how it goes moving forward, because if anything, we still have to see the correlation with oil price and the conflicts that is happening in the Middle East and how this could impact oil price. We note that there is a correlation between oil price and consumption of cigarettes in the US. We haven't seen this yet in the H1, but it's difficult to predict in the H2. Obviously, what we'll be doing and will be reflecting our top-line numbers, we will be increasing our competitiveness to be able to answer the fact that the lower end of the market is growing. This is one element that will have an implication the H2.

Speaker #1: We haven't seen this yet in the H1 but it's difficult to predict in the second half of the year. and and obviously what we'll be doing and we'll be reflecting our top line numbers we will be increasing our competitiveness to be able to answer the fact that the lower end of the market is growing.

Speaker #1: So this is one element that we'll have an implication the second half of the year. The other element like I mentioned before is the is the inventory movements that has an impact around the 2% of revenue that will be lapping the second half of the year.

Tadeu Marroco: The other element, like I mentioned before, is the inventory movements that has an impact around the 2% of revenue that will be lapping the H2. It's not a reflection of the underlying performance, if you want, of the H1. That's the main reason why, in the case of US, we expect to be H1 skewed in terms of performance as opposed to the rest of the group that will be H2 skewed because of the performance of APMEA improving and AME improving, more than offsetting the moderation that we'll be seeing in the US in the H2.

Speaker #1: so it's not a reflection of the underlying performance if you want of the of the first half of the year. That's the main reason why in the case of US we expect to be H1 skewed in terms of performance as opposed to the rest of the group that will be H2 skewed.

Speaker #1: because of the performance of up me improving and AME improving more than offsetting the moderation that will be seeing the US in the second half.

Speaker #1: And we don't want ant anecdotal anecdotal drawback. yeah in the first half was a was a not very meaningful and and in the second half we I will not be giving guidance about duty grow growback but is this will be part of the of the of the you know elements that will be taken into consideration when we put in place our plans.

Javed Iqbal: And we don't-

Tadeu Marroco: The duty drawback, in H1 was not very meaningful. In H2, I will not be giving guidance about duty drawback, this will be part of the elements that will be taken into consideration when we put in place our plans.

Speaker #4: Thank you.

Javed Iqbal: Thank you.

Speaker #1: Okay.

Speaker #3: Thank you. Our next question is from Ray View from Anchor Stock Brokers. Please go ahead.

Tadeu Marroco: Okay.

Operator: Thank you. Our next question is from Rey Wium from Anchor Stockbrokers. Please go ahead.

Speaker #4: Yes. Could I try to so if it's Victoria if I may just start off I say Victoria actually look brilliantly in red. So there's an opening there.

Rey Wium: Good day, Tadeu, Javed and Victoria. If I may just start off by saying Victoria actually looks brilliantly in red so there's an opening there. I just want to get back to the guidance. Very strong performance on EPS, up 5.5%. If I look at your guidance, you talk about EPS middle of the range, that brings it basically 6.5%. You talk about translation, in fact -2% to 3%. That brings us back to sort of an adjusted EPS around about 4%. Am I more or less correct doing that assumption? Actually overall implies a bit of a slowdown in the EPS growth for the year. Within that, you mentioned obviously the US will be a bit slower and the other two regions will be a bit stronger. I just want to know whether that summary is spot on.

Speaker #4: just I just want to get back to the guidance. very strong performance on on hidden on on EPS up 5.5%. Now if I look at your your guidance you've talked about EPS middle of the range.

Speaker #4: So of of so that brings it basically 6.5%. You talk about translation impact negative 2 to 3%. So so that brings us back to sort of a adjusted EPS around about 4%.

Speaker #4: am I more or less correct doing that assumption? So so actually overall implies a bit of a slowdown in the EPS growth for the year.

Speaker #4: and within that you mentioned obviously the US will do it slower and the other two regions will be a bit stronger. I just want to know whether that summary is is is spot on.

Speaker #1: I think if you look at the profit performance of H1 and our guidance for the full year so actually it will move in the right direction which means it will have more positive impact on EPS.

Javed Iqbal: I think if you look at the profit performance of H1 and our guidance for the full year, it will move in the right direction, which means it will have more positive impact on EPS. You are right that once we take into account the FX impact, our adjusted EPS would be in the range of 4.5%, which is, just for a reminder, is one of the best EPS performance of BAT in recent years. We are very confident, and as I highlighted earlier, that it is mainly driven by the kickers below operating profit, mainly net finance costs and also the cash conversion. We do get benefit for being a high cash generative business. Even in H1, we are delivering a high cash conversion and we are on target to remain deliver above 95% conversion for the full year.

Speaker #1: But US you're right that once we take into account the FX impact our adjusted EPS would be in the range of 4 4 and a half which is just for a reminder is one of the best EPS performance of BAT in the recent years.

Speaker #1: And we are very confident. And as I highlighted earlier that it is mainly driven by the kickers below operating profit mainly net finance cost.

Speaker #1: And also the cash conversion and we too get benefit for being a high cash generative business. And even in H1 we are delivering a high cash conversion and we are on target to remain deliver above 95% conversion for the full year.

Speaker #1: But yes you are right that our adjusted EPS would be more than 4% around 4.5. On a current on the current basis yes.

Javed Iqbal: Yes, you are right that our adjusted EPS would be more than 4%, around 4.5%.

Victoria Buxton: On a current basis.

Victoria Buxton: On a current basis, yes.

Speaker #4: Yeah. Yeah. And and it's just also on that the the new category growth I mean you guide for for mid teams growth. So you had 18% in in the first half so I just want to get a feel of do you expect an improvement in in the heated products you know which was down 12% then obviously I'm I just curious about you know the growth in in vapor whether we can probably see a little bit of an acceleration there.

Rey Wium: Yeah.

Rey Wium: Yeah. Just also on that, the new category growth, I mean your guide for mid-teens growth. You had 18% in the H1. I just want to get a feel of, do you expect an improvement in the heated product, which was down 12%? Obviously, I'm just curious about the growth in vapor, whether we can probably see a little bit of an acceleration there.

Speaker #1: Yeah look on on vapor obviously we'll have the views flavors come in the market but remember that I said that would be a phased approach.

Tadeu Marroco: Look, on vapor, obviously, we will have the Vuse flavors coming in the market, remember that I said that would be a phased approach, most of the impact we'll be feeling in 2027. We also have to take into consideration that we'll be lapping the exit of one competitor in the US that happened in the H2 of last year. That's the dynamics around the vapor. In HP, I'm not expecting anything meaningful changing from the financial point of view. I do expect us to recover share from now until the end of the year with all the actions that we are putting in place.

Speaker #1: So most of the impact will be is feeling in 2027. We also have to take into consideration that we'll be lapping the exit of one competitor in the US that happened in the second half last year.

Speaker #1: And so that's the dynamics around the vapor. in HP I I'm not expect anything meaningful changing from the financial point of view. I do expect us to recover share from now until the end of the year with all the actions that we are putting in place.

Speaker #1: And and and Vilo which is mainly the reason why we are calling in the mid teens we'll be lapping a much stronger comparator in the second half because remember that in the first half of this year we were we had basically launch Vilo Plus at the end of 24.

Tadeu Marroco: Velo, which is mainly the reason why we are calling in the mid-teens, we'll be lapping a much stronger competitor, in the H2, remember that in the H1 of this year, we had basically launched Velo Plus at the end of 2024. They were still building up in the H1 of 2025. We just lapped this H1 now in 2026. They have a very strong numbers in terms of volume, in terms of revenue, triple digits in the US. Obviously, when it comes to the H2 of the year, they are lapping a much stronger H2 of 2025. That's the only reason why we are saying mid-teens in the full year.

Speaker #1: They were still building up in the first half of 25. So we just lapped this half year now in 26. So we they have a very very strong numbers in terms of volume in terms of revenue triple digits in the US.

Speaker #1: And obviously when when it comes to the second half of the year they are lapping a a much you know stronger second half of 25.

Speaker #1: That's that's the only reason why we are we are saying meet teams in the in the in the in the full year.

Speaker #4: Excellent. Thank you.

Rey Wium: Excellent. Thank you.

Speaker #3: Thank you. And our final question today is from Richard Patton from Goldman Sachs. Please go ahead.

Operator: Thank you. Our final question today is from Richard Felton from Goldman Sachs. Please go ahead.

Speaker #5: Thanks. Good morning. Thank you for for squeezing me. And two questions for me please. the first one on US vapor specifically. As we think about the competition between views and the elicit segments what are the gaps as it relates to flavors devices and price points and which of those gaps can you now close as a result of the FDA prioritization guidance?

Richard Felton: Thanks. Good morning. Thank you for squeezing me in. Two questions from me, please. The first one, on US vapor specifically. As we think about the competition between VUSE and the illicit segments, what are the gaps as it relates to flavors, devices, and price points? Which of those gaps can you now close as a result of the FDA prioritization guidance?

Speaker #5: I suppose

Speaker #1: Okay. Look you want you you you want to to to ask another question. So let's let's finish here. You have another question or just.

Tadeu Marroco: Okay.

Richard Felton: George?

Tadeu Marroco: You want to ask another question. Let's finish here. You have another question or it's just?

Richard Felton: Yeah. Sorry. That was the first one. Second one was on free cash conversion. Obviously a little bit stronger than we normally see from BAT in H1. Question is, what are the drivers of that? Is it just phasing between periods, or does that point to potentially better cash conversion on a full-year basis too? Thank you.

Speaker #5: Yeah yeah sorry sorry but that that that was the the first one. Second one was was on free cash conversion. obviously a little bit stronger than we would we normally see from BAT and H1.

Speaker #5: the question is what are the drivers of that? Is it just phasing between periods or does that point to potentially better cash conversion on a full year basis too?

Speaker #5: Thank you.

Speaker #1: Okay. On the vapor Javed covered the the free cash flow. on the vapor side obviously we are more interested on the on the channel no because you probably saw that in our in my slide that we talk about elicit presence in channels track channels being 12%.

Tadeu Marroco: Okay. On the vapor, Javed covered the free cash flow. On the vapor side, obviously, we are more interested on the channel, because you probably saw there in my slide that we talk about illicit presence in channels, track channels being 12%, but it is just 2% of the size of the illegal, because most of the sales of illegal is done via independents and vape stores. It's not just about the flavors, it's about they bring to market big device, big tanks device, with a massive number of puffs that we'll never be allowed to do. It's not just a question of FDA approving, because we as a responsible company, we never commercialize any Vuse product in the world with more than 10ml in terms of cartridge.

Speaker #1: This is just 2% of the size of the illegal. Because most of the sales of illegal is is is done via independent and vape stores.

Speaker #1: And it's not just about the flavors it's about they bring to market you know big device big tanks device with a massive number of pups that we'll never be allowed to do.

Speaker #1: And it's not just a question of FDA approving because we as a responsible company we never commercialize any views product in the world with more than 10 ml in terms of cartridge that equates to something like 4,000 pups.

Tadeu Marroco: That equates to something like 4,000 puffs, because as you puff more and more, the metal degrades and contaminates the liquid that you inhale. It's a bad vapor. They don't care about that, those illegal players. You go out there and you buy 10,000 puffs and 20,000 puff device. In my last market visit in the US, I saw one of 100,000 puffs device. Obviously this has financial benefits when you consider the cost per puff of this device. I will never be able to compete there. This is a gap that needs to be closed by enforcement, because clearly they shouldn't be in the market in the first place because it doesn't bring any type of benefit health-wise, if not the contrary.

Speaker #1: Because the as you puff more and more the metal degrades in contaminates the liquid that you inhale. So it's a bad vapor. And and they don't care about that those illegal players.

Speaker #1: So you you go out there and you buy 10,000 pups and 20,000 pups device I I in my last market in the US I saw one of 100,000 pups device and obviously this has financial benefits when you consider the the the the cost per puff of this device.

Speaker #1: I'll never be able to compete there. And this is a gap that needs to be closed by enforcement because clearly this shouldn't be in the market the first place.

Speaker #1: Because it doesn't bring any type of benefit healthwise if not the contrary. So what we be closing the the the the play field is on the convenient stores channels where the we haven't been able to be present with flavors since 2021 January 2021.

Tadeu Marroco: What we be closing the playfield is on the convenience stores channels, where we haven't been able to be present with flavors since January 2021. We'll be back. It's a very important channel as well. More important, it's a channel where we feel very confident about our ability through the retailers to check IDs before selling these products, where it not necessarily happens when you indiscriminately start selling in independent stores and other type of stores. I think that in that channel, we'll be closing the gap substantially. We'll be competitive. Now, the impact of this in the overall illicit market, we have to wait and see. I don't want to do a proper estimation on that now.

Speaker #1: We'll be back. It's a it's a very important channel as well. And more important is a channel where we feel very confident about our ability through the retailers to check IDs before selling these products.

Speaker #1: We're not necessarily happens when you you indiscriminate start selling in independent stores and and other type of stores. So I think that this in that channel we'll be closing the gap substantially.

Speaker #1: We'll be competitive. Now the impact of these in the overall elicit market we have to to wait and see I don't want to to do a proper estimation on that now.

Speaker #1: Yeah. And I think on the cash conversions two points from my side. One is because of the lower net financing cost as I highlighted earlier.

Javed Iqbal: Yeah. I think on the cash conversions, two points from my side. One is because of the lower net financing cost, as I highlighted earlier, which was due to the debt repayment from the proceeds of ITC. More importantly also, I think I'm very proud of the work the finance team keeps on doing with our commercial colleagues to keep focus on cash as much as we do on profit. Hence, that focus on cash has delivered higher cash, which makes me very confident that for the full year, we will be delivering another year of more than 95% cash conversion for the full year.

Speaker #1: Which was due to the debt repayment from the proceeds of ITC. But more importantly also I think I'm very proud of the work the finance team keeps on doing with our commercial colleagues to keep focus on cash as much as we look do on profit.

Speaker #1: So hence that focus on cash has delivered higher cash which makes me very confident that for the full year we will be delivering another year of more than 95% cash conversion for the full year.

Speaker #2: Yeah. I I I wouldn't that so much more that that will be a much better than previous year because we have a a a track record of a very strong cash conversion.

Tadeu Marroco: Yeah. I wouldn't add so much more that will be much better than previous year because we have a track record of a very strong cash conversion. The performance in H1 just give us more confidence that it can be another year of a very strong delivery in that place.

Speaker #2: The performance in H1 just give us more confidence that can be another year of a very strong you know delivery on that in that place.

Speaker #5: Thank you very much.

Richard Felton: Thank you very much.

Speaker #3: Thank you. With this I'd like to hand the call back over to Victoria for any additional or closing remarks. Over to you man.

Operator: Thank you. With this, I'd like to hand the call back over to Victoria for any additional or closing remarks. Over to you, ma'am.

Speaker #6: Thank you. Well thank you very much for all the questions from from the telephone lines. I'm afraid we are out of time and therefore will not be able to get to the online questions.

Victoria Buxton: Thank you. Well, thank you very much for all the questions from the telephone lines. I'm afraid we are out of time, and therefore will not be able to get to the online questions, but the IR team will respond directly to those who sent questions in. Now I'd like to hand back to Tadeu for closing remarks.

Speaker #6: But the IR team will respond directly to those who sent questions in. and now I'd like to hand back to Tadeu for closing remarks.

Speaker #1: Okay. Thank you all for listen today and for all your questions. And then just to close our H1 results were in line with our expectations and we are on track to deliver our full year guidance with EPS now expect to be towards the middle of our 5 to 8% range.

Tadeu Marroco: Okay. Thank you all for listening today and for all your questions. Just to close, our H1 results were in line with our expectations, and we are on track to deliver our full-year guidance, with EPS now expected to be towards the middle of our 5% to 8% range. We'll 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. I look forward to seeing many of you in September at our Capital Markets Day.

Speaker #1: We'll 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.