BTI - Earnings call transcript Q2 2022 | British American Tobacco p.l.c.

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Jack Bowles

Good morning, everyone, and welcome to our 2022 interim results presentation. I'm Jack Bowles, Chief Executive of BAT and with me this morning is Tadeu Marroco, our Group Finance and Transformation Director.

Before I start the presentation, I take it that you have all seen the disclaimers on slide two and slide three.

As usual, once Tadeu and I have taken you through the presentation, there will be an opportunity to ask questions. I would like to take a few moments here to express our deep concerns and sadness for everyone affected by the conflict in Ukraine.

their work remain transfer people focused in and to Russian our we continue Russia we business, on safeguarding we towards of the local employ While employment. future our X,XXX our extremely an able. we'll update as undertaking This progress is soon complex as provide and an on we're Thank you.

billion cigarettes environment half Turning increasingly we in have XXXX. and GBPX XXXX, say In results. delivering growing lower-risk in we while now smokers, At results. to transforming challenging are same are this both shareholder momentum built proud am are the year, our progress that we alternatives to driving our proud interim priorities. time, successfully for buyback. robust we ESG the an navigating transforming macro to same the superior with delivering our first other I making I'm that at excellent our while from on time business business returns an and strong of the dividend

the of again in We the in right products. launches all GBPX.X We to milestone have This reduction been of alone. Category a New products brands in billion has global with in noncombustible in Category a brands. by and revenues a with new product have more strong three demonstrates the strong driven This of three New total performance constant increase investment importance than losses, of first million markets. multi-category half great drive Categories, XX% consumers by New delivered strategy, now continued XX% all global over and grew New our we XX Categories in reached currency a alongside a

including with carbon-neutral towards achieving progress the make ESG towards to And ambitions carbon-neutral we facilities, and continue work XX targets added our by operations for our half. first also XXXX in continue good operating certified two have first up margin half, X.X%, XX time, results with At points and delivered same constant basis by EPS X.X% rate. adjusted we X up Scope revenue group X. at robust improvement the and in We the

may current challenges we is there XX% our high benefit already low levels driven recognize, pricing the business. ahead, of plan we by successfully gross navigating our full-year margins are We our by pricing environment, with While power, underpinned be from and at achieved. of the resilience cost This of input macro inflation. present

by XXXX, addition schedule. These have and enabled In year savings And GBPX.X dividend total adding million reached in over of to shareholders GBPX.X this Since have the far efficiencies us to XX Russia, return delivering Quantum is compound in our with billion through ahead million. non-combustible we last months and X.X of cash reaching a of excluding base so a buyback. our results XX%, rate XX.X XX million we added consumer grown in alone. June, the million consumers,

of XXXX are We consumers million XX of in our confident non-combustible products. targets

now than represents the we Over a XX% revenues This in first by XXXX. is Category group we than XX.X% of New last the year revenue half XXXX. points X on grown top Non-combustible grew is in this increase by the XX%. three And higher XX%. CAGR of percentage have This in years, delivered we more revenue. of of

losses follows XX% GBPX half. and in in the We real we billion on business to This momentum reduction have Category on in deliver revenue XX% year. reduction are New than more well New delivered drove first last track We our the XXXX. our for target Category

prices portfolio and enables global brands continue across Our to strengthen, to devices increase both Velo us consumables. three in and the glo Vuse, which

total we the of Categories. have Importantly, and in a already first half countries more the improvement profitable two-thirds scale than our of from nine profit New At increased year, came efficiencies.

us puts in excellent new in transformation. will to route deliver same profitability New we'll expansion, and continuing to we're launches not invest continue invest linear this the also XXXX. to position by time, our Category profitabilities an At the in and to be While geographic

We half, center spend technology Shenzhen. we have our opened doubled our global design R&D first we preferences. and In since science, development in address device additional Backed an by innovation. XXXX, are consumer pace accelerating of developing to the

heating Now our Hyper. take our significantly range dedicated largest boost consumers of glo smaller our XX at XX aspects lighter through in with with XX with developed induction all last maximum you was key an platform improved model we market its to deliver heating device upgraded consumables customizable launched our a With satisfaction. latest was options. heart, let button glo a Japan, hyper and delivering me innovations. of new THP have week successful together

six the offers We months price. for speed a to a our market number category second in Vuse just this in In glo half. XX,XXX Vuse of Vuse the Go premium months, is launch. in plans May. agility. disposable fastest increased over and rollout after in launched available is in flavors we great have Go fast yet example disposable approaching our Taking XX three new UK hyper Already our six product and Vapour, just ambitious two Go, stores UK at currently the speed launch

rapid have a in We second the Europe half. plan rollout for market

our youth in to device X+ app my a vape Canada. enhance find In and prevention, subscription connected in its access launched May ePod dedicated bluetooth with is direct options. addition, first-to-market we Vuse own lock device ePod X+

This sold and ePod of recent consumers' our of already MAX range, our and half While pouches still and early introduced performance launch. X+ have days trial our new embedding of mini to has more devices encouraging launches With higher which volume cans are Velo, driving and conversion complements recyclable respectively. further very demonstrating our category brands. than we Canada in to-date commitment since is all been in feedback rollout the new-to-the-world ESG

Tadeu is near that £X will pipeline this impact items assets. were delivering more accelerated same cover commitments. impacted our number the was in impairment of fueling later. are significant a from And our Russian Our more financial billion time, an Reported we faster a of of transformation. detail at on innovation one-off results by The

Now looking numbers. at adjusted our

significant category have six increased from from pressure US power in excess And EPS position new the in by operating expect the energy macro generation. industry in driven our now our cash in new strong X% and organization. billion basis we X.X% on £X.X year-end. at and volumes. in delivered are and almost billion environment. our £X.X elasticity, benefit a revenue navigate by performance we're good transforming months In change up points successfully and global manage XX%; leveraging the current our of by to the no of inflationary We successfully continuity of achieve we have increase the strong despite to a continues. agility, category our reduction summary They robust operating our With are We Profit category operation margin pricing increased cost new These further group that margin. ensuring to This our financial BAT up end-market annualized up pace. current in Through losses, X.X%; results demonstrate Quantum, we're and ability has in earlier progress growth savings with XX supplies. achieved nearly pressure. momentum

geographic further half second launches for We both and investment have expansion. plans product new strong

that demonstrate in we the progress While are more making we these there understand do transformation. results that strong our is to

confident now will Tadeu. are hand over year to delivering We in I on full guidance. our

Tadeu Marroco

demonstrates faster more share in on I'm detail our our how half Jack. you, first delighted transformation Thank action. to performance

investigations provision results held our £XXX reported billion including into the impacted OFAC million of of for legit Quantum. an were of now sanctions; number a and Our by £X items, breach close business which sale; non-cash one-off restructuring asset is a to historical in charge impairment project of of driven as by and recognized respect Russian classified DOJ

the currency mix revenue down on first adjusted detail stated. current performance In delivered X%. driven headwind by volume from business in X.X% a of of operational absorbing ex-Russia of pressures Combustible understand we performance. US lower in following year FX. movements. by on our drove the can We growth growth combustible of unless delivered a of be transactional To our prices a the inventory combustible XX% share the and Further performance, our results, of key last in volume will strong expect and next August macro fuel resilient from these industry value on pricing, we Profit project. constant continued the nearly X%, reduce EPS, to price X.X%, Iran half, and robust a while appendix. X.X%, year sale up drivers new of better high and category operations combination continued basis. current adjusted business the completion was at growth the focus X.X found This impacted including With reflecting in percentage was currency or year-on-year X.X% otherwise

the last exceeded volume of conversion. to before year, particularly on our brands flow first growth I'm of dividends that pricing the best actively our the the packaging. in category use award Vuse at and targets. substantial of all cash us take of global pleased each strong body in Transformation with was free by clear for for focus all billion equity time Europe continued All new categories £X.X of three ahead categories. group well for is our XXXX enabling growing revenue drive is three our the three ESG focus which sustainability cash illustrating growth, won supported Our gold a Awards this of science sustainable contributing brands, to

XX This new Italy, and than our of and will glo our based continues. with harmful it cigarettes XX% studies to first-of-a-kind construction less are and the toxicology capability have innovation shows less. hub third-party scientific XX% over clinical also percentage Vuse strong components enhanced XX in innovation science own Vuse We be that on Trieste XXX for by data, further where and state-of-the-art and to glo for studies between

category covered, was losses billion whilst first investing in by reduced more As we improvement one-third pricing. time profitability with of scale at XX% have and Jack this the in the has driven increase half same the in period. new efficiencies Two-thirds by £X.X than our already driven by

we on focus to strong COGS effectiveness the the in reduction continue made half. growth profitability spend marketing management, first levers, have progress and We three and revenue

reduction continue improved the driven We across further establishing improved business, Marketing to Effectiveness by and automation delivered productivity can Spend in and on we have Having consumer New of have of savings, £XXX all we profitability. periods, the retention margins cost Through where around building invest We invested deliver our significantly acquisition Vuse XX% three categories. increased achieved. trade in more million further scale. our already the reduced and we are tools, now growth Category

meaningfully category Our on contribute is our The to of this now all to expected a as new three of both global improvement we device and brands allowed category has strength our in us increase has profitability. increasing consumables. reducing driven And and improving, spend scale, incremental algorithm top requirements. is our effectiveness to new investment With strong growing results. starting growth our line pricing marked

performance and extend Turning Category closed has now our Disposables we to countries. continued category share five closed Europe, our Vapour, Germany system and XX.X% markets, markets excluding value leadership value in growth the top now X.X in vapour Growth vapour position these rapid to strongly have our points, is the UK, continue is share New the reflected achieving expanded XX% to vapour by detail. disposables in markets. in percentage which up across despite the share growth of grew vapour all disposables, category the the share in driven of both Vuse In total accelerated, disposables. close in the with In growth value in and France systems. our key three

the the Go our continue the of the systems. on leadership the gains share, position price in year, last in momentum with Vuse Vuse fast launch closed Canada, to in planned with from continue further number strong the in segment positioning. new In to disposable launch disposable were we tracked And In extend UK, broadly already in share value vapour two approaching share with premium US Vuse existing Vuse rapidly Go, the April, of Vuse in to Vuse we other delighted value to reaching value for accretion, build we Vuse year-to-date we across In UK with is scale. five half. markets rollouts are offering Alongside leadership Go the for devices the ePod drive in a had XX% take-back is with X+. scheme our expected rolling that the announce once at portfolio. top out More very responded little Europe, seeing reached cannibalization are second have UK. channels. ambitious of Go, We margin

the controls continued share reach in points, embedding retailer In addition, we by X.X to driven have our programs, prevention strong access governance percentage our youth training success education Hyper. XX.X percentage nine including in In top markets full standards. THP place, of the up was and volume glo

THP XX.X points. of around share Russia, stick, per strong X.X%. of our exceeds grew share of volume the our glo's XX year-to-date XX%. Europe, markets. THP the business share cigarettes, In half in points. drive many global glo profit up represents reaching Japan year-to-date of with in growth momentum combustible glo Japan, points driving share continues THP grew key percentage with nearly countries, our all at and up growth. which to revenue a Excluding should nicotine and sales, share cigarette percentage, total gross total category glo margin now Hyper our basis gained glo's basis reached industry X.X In In of higher volume XX share share XX.X% Both

we the Velo our plans highly launched maintained have X% as the highly US, share of Oral, value. on vapour much half. investment share and glo down XX focus fast-growing only In nicotine We it week in volume international with opportunity. competitive, category. outside represents Oral Modern our Hyper XX% of competitive continued this position US, larger still total Modern the leadership for excited rollout we we are Japan have In the a last in and rapid have was category second volume industry The remains around main US environment to

This US, product a submitted our our volume Oral well Modern international Oral share category competitor more range. market. we have for established and Switzerland, in Category heavy markets In percentage in largest will New the points, Sweden, Modern future for down was In the Velo We opportunities world's the remain PMTA ensure are prepared category. X.X share of discounting. Sweden, the year-to-date Norway, to due superior in leaders Denmark we

oral continue of grow continued of However, Modern Oral category. strong to growth the our total reflecting share the

Velo and the has newer We UK, share progress Modern was with are Oral awarded close Product Velo XX% in strong volume markets. the also share leadership making with Year. to reached of In

affordable We in the we at end reduced markets, Africa, to emerging Velo last continue In an offering to alternative pilot test see for South Johannesburg, city the an attractive cigarettes. opportunity of risk launched year. in

We expansion selected have trial and now organized Johannesburg. test, retail chains the phase second of to guided in the entered with

encouraging We results. seeing are early

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THP disposal XX% up a business. true up a nearly revenue Turning our region regional revenue revenue by Noncombustible by over value revenue total revenue driven now Japan, in from and was was grew markets a regions. was Combustible in up we African further already as XX the excellent XX duty-free to share transforming South X% Vuse Profit of Combustible revenue XX% business the of revenue America up began pricing. XX% was This performance the up APME, as was X% largely mainly revenue South impact of Europe year. Value the strong Strong was by strong to our result and AMSSA, down in Category Iran. in Africa. offset over revenue accounts XX%. the X%. initiatives basis mainly Category -- and due low by up mainly region driven and Combustible in multi-category of markets Profit Europe, X.X%. close Iranian revenue volume the Recovery driven sale to in was was change of particularly up South and basis total by X.X%, New cost-saving the savings driven continues revenue in contributor driven more Bangladesh In was driving driven revenue. performance rapidly in August continued Pakistan, New up regional by Turkey points. total a up from points, Ukraine by and to with cost of offset Combustible New for regional X% down conflict Australia share are basis of to post-COVID. Canada by than slow the in was Russia than Mexico, terms and X.X% and the growth normalize was growth pace. in XXXX growth XX%, XX Canada, Brazil. the decline key In and Germany. Profit down more points, Quantum. Quantum. share at is close Category and impacted was strong revenue in XX%, to the excise In last benefit grew very as value

is The as Turning growth the performance. pricing now well as in to business and US. share value an excellent well continued New with combustibles performing strong Category

New disposables. by for Vapour This up over to basis and one continued grew the of share points position synthetic despite Vuse number XX% up nicotine was delivered in XX.X% XX%. to drove Category Vuse Significant up by the the revenue US. Vuse vapour growth XX%; growth XXX brand value driven Velo

XX a basis full We down share This volume net January. the volume the of last year-to-date a volume Reynolds industry was points following period. industry normal the stock global macro year. June half includes sequentially the of year-to-date the monthly the prices still prior of our to the of in consumer partially decline is down consumption In by more factors around the including by the versus year second a Spirit. have the in first implementation American Natural This will year decline since second XXXX basis brands and inventory phasing year prior our unwinding XX.X% return build of -- share impact SAP inventory effect combustible offset results from the and and US year combustible the reversal premium reflects of points post-COVID. points, volume in to rollout. in Value offset a half, inventory expect was movements industry with supported reflect half. our of the XX reflecting movements. This grown ahead in our share means increase inventory of full Overall of by softer up basis platform. unwinding comparator full of Newport declined the XX the by SAP XX% results patterns strength benefit additional combustible fuel we higher in Combustible

X.X%, more from of driven pricing, strong continued the by profit material was was operations by strong offset X.X%. Continued XX% price/mix around volume Combustible efficiency was profitability, a and factory rationalization. in Category salesforce New up and improvement decline. than Adjusted revenue down from gains

adjusted XXX XX by and new operating expanded operating basis up the was was points in points up XX.X%. margin strongly As basis basis category US current incremental despite rate to a further Group also margin an investment. result, adjusted on

headwind point or observed due We on a of margin headwind X.X% dollar. mainly the a the US XX transactional to also strength to basis FX profit

With first time. reduction margin New New the £XXX for supported in the Category million Category expansion the losses,

This total This delivering brings savings billion further continued margin to half. quantum In drive of the productivity first the reaching in group Quantum, annualized operating half. to second savings further have in simplification just over expected savings with XX.X%. we resulted million £XXX addition efficiency in through £X.X

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debt XX% other against finance hard increased, and fixed over is weakening at currencies. driven of the costs by of rates, rates While our higher interest net sterling major

rate As on around tax costs billion we an net to XX% based of rates. a result £X.X current finance underlying now closer full expect with be tax year to

adjusted tailwind for free we to Finally, full we cash currency flow first the XX%, on strong EPS around be X% of a full half. year flow, around X% rates, spot transactional growth. headwind We year the of translation extrapolating current conversion expect FX in of and delivered a expect of £X.Xbillion and cash

is the driven working always is due by purchases to towards the and flow across capital this payments, cash timing weighted second our half leaf While years, of on ahead MSA business. of continued prior the focus

year We to deliver depreciation debt £XXX of adjusted full gross in-line year FX EBITDA million, continue expect CapEx net to on three within adjusted and corridor. times current broadly continue to we two with amortization. our rates, expect adjusted to Based to full

year of over excess deliver on are of operating generate five free cash billion and another well of conversion XX% flow next years. We cash to expect track the to in £XX

dividends, has £X.X very generation shareholders, billion including return the cash our am strong through half. with Overall, in I our billion Our enabled £X.X pleased and to share-buyback. performance us first billion to from £X.X

remain While there maybe further we challenges vigilant. ahead,

navigating current X% confident are figure business, of closing with growth. are timing you, our of guidance mid-single the will to remarks. hand and Russian am revenue for I macro X% of of We track that, transfer I the successfully Thank back to EPS and Jack our the deliver that his growth on to environment, and irrespective we

Jack Bowles

you, Thank Tadeu.

making in progress. we So, summary, are strong

savings deliver by: set continued in we the with Categories. combustible are strong are robust we growth and continuing Categories, we Quantum our business, driven continued and at We on strong in time, our by New New years ago, cash to great At are successfully same results, generation. momentum of delivering improving operational transforming the pace resilience profitability financial three driven priorities the and business

well Our driven our underway, is multi-category faster strategy. by transformation

We are our on delivering Purpose.

at ESG open core. for will I to by We listening. create high better this BAT a will Thank multi-category, our all am stakeholders. tomorrow questions. with its a a to value for led, confident growth, public health up consumer transforming impact building CPG, now reduced on And I are and you

Operator

line first from the go ahead. of The Please from comes Instructions] [Operator Richard question Felton Sachs. Goldman

Richard Felton

taking for my you Thank morning. Good question. Yes.

-- think down I volume US XX.X%. see

about obviously, quantify of comp are But you you're of think reasons volume your were industry impact the to gas XX% movements return combustibles don't why able historically? HX? obviously, there that's various about weighed highlighted industry US the first So the That's years, on you declines, inventory a to those we if rising, what impact year. base, lapping the volume Then, inventory phasing. this think performance tough for you've phasing net Are prices the after. New X% and next the that as I've are think X% in we're declines a used you to should few question, to over follow-up got for any volumes it seeing on Categories my

Jack Bowles

Okay.

So, part. I'll in previous Tadeu happening the take the in in the average in volume as take always will second industry US, to the a I the calls, I have to mean, order the see always first what's US. part. consider said three-year you

course, market much that, of the to and the we of the market three-year see basis, half in impact due has of softer of years in was some a last a now year taxation on in the there at of overall you in the are end been course, seeing potential that the US is you the has year. terms first end year. passed. happened trend, there And of But movements look stock that two especially, stronger the a lot the post-COVID the Of where at last market things if in --

we we growing points in in are our results. July consider price are of is, share. of we portfolio Three, you the premium have robust portfolio. recovery see down and Two, But all acceleration have don't to or what see that one, think trading the a in extremely a industry. very our I in down currently trading bit brands strong You

So, we step-by-step. to have go

We e-cigarettes. we're consumers in taking have in is The X% generated e-cigarettes that's Categories, the New good money because and a especially profit more increase US. making of

that but the softer comparator of think be I is the year, the half second have So, to in we prudent.

an have consider they in which And position bps, XX we to at Value terms New come. in we US. by the number. on grow of the Tadeu? market. are US share growing that good same know, strong is to on as continue we numbers strong And the a very as combustible. Categories both is have extremely We in very time, the We'll

Tadeu Marroco

Yes.

of numbers year stocks with were point In about have number and market the we back last delivered end the at beginning increase, forth. so the at the the that the year so in of of you of terms of built – price market, the happened we on a remember brands increase compared the that that of the uncertainties and some terms ahead to made the and of tax at the

So said half And year. that some say the This happening in already would HX. the – that we year. happened will XX% in XX% there market to unwind the unwinds some that the of that I between be of of the this partially would of was first happened you consider that the half

January XX down. points we half although by the increased declined a since that you mentioned, we basis year XXXX, have other compared share like we we The and so recovering full take the with But have average already is fact have we month-on-month, the that. have – our if market share been XX basis of points market

attribute So the I think that half difference. to you could

Jack Bowles

of share also value and the since pricing you So the terms the in bps of have beginning if there strong is year XX we across increase a industry. want from

perform we're a in that think US. continue very position good I in very to to well the

profit As I said, we're I mean by growing X%.

Richard Felton

question giving for And my the question looks on New quick your gross second you margins Category a for towards It like making is business us and our is bit breakeven you. Thank target progress vapour. disclosure you're more but Great. thank contribution. on my on

below vapour, I about at margin long a to Modern my start on which XX% that at mind Oral the THP Now XXXX, back gross way stage of if your you were making cast CMD is or your quite said business. you that

you've vapour are those taking possible where with today? on on give progress good you. in yet? made efficiency, Is about you're gross COGS you're update other pricing. for it Now since line margins, Is talking margins trade businesses it an us to then category Thank your new

Jack Bowles

first details. yes. I you more before Tadeu will Yes, give mean

get to people is three we is years strong would able what think be terms a of ago I categories. new that thought important position in not

absolutely demonstrated to of go. revenue year the that than categories of last first year growth of time the we XX last of brands. first million with half year losses than new at of very and We growth – demonstrating more the year, with number in year, we've XX% are driving XX% have have are million the the same in a strong we of and half the which of the half of consumers first with that And reduced £XXX And way better XX% that our a the the even is in in growth X was we multi-category, a total by million. now capable in XX%

that terms very think to our effective XXXX. board and consumer of profitability only acquisition that all are in terms I not categories, at demonstrates making deliver are So very pace our take we the in now our are we targets costs three in able COGS, well very the we that sure we that for this and of pricing meet we effective across

Tadeu Marroco

new the pleased whole. Richard, are progress in really categories a as with the we

the ahead of we in the for been terms our time of first the three have holistic in In well seeing like presentation, revenue that view all volume of growth on highlighted categories. we

growth the at the XX% XX% XXXX. a closed revenue of back we when have We

very a continued So the at growth pace. accelerated

half year In is gross this overall, on full margin of X%. terms of in the likes increase the the with compared

which revenue margin as of is of ahead have growth categories grown gross very the pleased. three well we So the

a we management. back progress the – been of growth revenue we of doing vapour at strong So terms in have

are price. taking We

We are reducing device. discounts on

quoted. the the on hard that the working the are that presentation, trade we we highlighted margins in COGS, automation We

consumable that So we the quoting you we device XX% side. the the the Today discounts out more on – on are are on XX%. strip if you you

three track not are of on leverage have we the And are we to those allow against progressing been with So levels And categories to to operating across have improvements all now categories. XX%. of progress us will trying in of we scale in that overall, foundations. on a just in we business terms has a this level but get the that now passed creating keep and already investment and these vapour margin

Jack Bowles

is has add, in on saw motoring extremely months Consumer years have the half is And categories. you launches with increased categories, to in different I extremely come. the pipeline place not across think And few in his we getting these base, innovation may also the of the top development strong. a have very, very innovation also speed in of saw presentation, through pipeline doubled But as innovation of objectives the really only that dramatically. our that terms and all different three that strong. in put strong you second terms the and development taking that And I we're if we're R&D we'll for that pricing new referred – across in position. of the investment of Tadeu we board and last And that

well financials acquisition balancing to the the the the year. consumer in accelerate half is act the between and and working So continue very we'll of second

Richard Felton

much. very you Thank Perfect.

Operator

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

Gaurav Jain

morning, Good Jack. Good morning, Hi. Tadeu.

me. from questions three So

Jack Bowles

morning. Good

Gaurav Jain

which in three also are if then look now two, are companies, And the are look mid-teens years. last I their at your I of NGPs has in the at over overall low at reducing industry, you EPS if revenue losses. thought see leaders as other and been delivery NGP to of today growth So XX%

have Why accelerate your at growth wouldn't are in XX margin your repurchases which why share in, to growth layered point of clearly out improvement points the Slide next You is low time some -- three the once mid-teens EPS wouldn't EPS to happening. years? --

Jack Bowles

terms for performance our of the three you that terms recognizing business up all, And I the of are Well, last robust in in of years. very in profitability And scaled thank financials forward. moving say must And the yet -- move we time. first have strong have that a a strong categories. our reality is of I think But business kickers, certain very, of but number the continue we mean, it of the at will have more bit to take we a and forward. little I we very end day new the

Tadeu Marroco

on allocation framework the that's that any what are of the capital Yes. result in year. And in see given Gaurav, consider ourselves. year, back about the year-end to beginning XXXX look spoke we want the circumstances we we

something have recognized in have buyback. And is we past. We this value the the done share clearly of

mainly go ambition company. we the to reserves some to on space this transformation know that but accelerate also important the create have do restarted now as be that the some beyond the program, to in we will that that bolt-ons well want have M&A We equity space of so to you

dividend want times three two the to growth within the down pay debt keep to corridor. also We in base sterling and we keep so to can

how of on in the used because this of is Reynolds because will have the not to that any we as be reality year group it is to past we part those kickers the given as have So, subsidiary. to translates, today high the now see effects and the all consider

part So the operating the it's profit group. of of

have impact. to transformation. means relevant be are right. very our start future this to new for in business. the transformation of group of the it's so we chapter This absolutely to difficult now going are a calling And we But that category we that faster that will more results you're speculate transformation the sound journey It through terms the

that going see to more new we said our in by that and will progress revenue impacted the make group exactly You're that we we categories. see

line bottom by more new make categories. we impacted progress in Our the

side is This we the ahead already news. continue this allocation we will the something and And on we going in do what's before. have decisions said might is the new happened have not see kicker future. we that considering capital that So to

Jack Bowles

we're we're a of cash first of and a buyback also £X.X half we I as So speak in the very share mean And doing we at have conversion. billion level year. the £X Step-by-step. high billion

Gaurav Jain

Thank Sure. you.

Now US the the question my is market. e-cigarette in on dynamics second

value of this XX, number given disposables Slide the industry XX%. have on share you So

if the chunk So months? months on we to And nicotine of is this percentage big what nicotine? be FDA from XX market the clamp this have six the over next all move flavored? a this synthetic of could you will down synthetic to And this

Jack Bowles

in synthetic nicotine. That do the Well, you cannot nicotine there thing there. mean, yes, different flavors without I is, synthetic I good elements One all are because are -- they mean, was past. the

says nicotine the synthetic Now that the FDA. the remits is in of FDA

dynamic are to related So that. start activities to trade starting all positions and now the we'll implementation. The their terms place extremely also to of and some take is in in in they US control put

have everybody that people vaping the now. we US US we that Vuse we're leaders more in leaders successful there be in that which So more is the states XX is to with and important thought Vuse we not in would is think to are that consider the what US with the a in that great. coming brand That I strong very that is are than

are crisis. continues the EVALI the leaders to and There We grow. market was the

Of course the market recovered. has

growing it's X%, in of take there. by year, Now are beginning we X% and to the positions the since continuing

in and is would category, I more something is disposable brings the by addressed say that and So the And to category us we're without we're our the started good And leadership. has which people continuing benefit will way flavors is to the follow which news pricing. that FDA to to are that leader where is turn we of taking on a increase also. by pricing, the very lot competition a

new US. new of the terms in the Remember the acceleration XX% represents that categories of than of an potential categories the all yeah. in in market it's US So more already

categories. is of that a strong terms So extremely market in new is already it

Gaurav Jain

market last my the again question Vuse. on of strength And given the and is US

price plus XX%. cigarette So mixers look your

some You have lost share.

rather volume drive cigarettes growth? Now you pricing you and to share higher let growth take as really the overall EBIT and if do from execute pricing well volume swing Vuse or need less and on U.S. your Vuse's lose Vuse as share, continues to EBIT gain take so and well would you

Jack Bowles

Yeah.

and of the three for as value change in strong you priorities our business. always for very step company on simplifying combustibles that the much thank we very recognizing said position First have and combustible I the business in all, is a categories new

the we look bit Where value share share in bps between growing XX balancing losing the terms that. US I'm I'm the of than right two. bottom, the that a in we now. end act with a upper X% with is mean, of Lucky at of at and at the of And very the value We that combustibles, is also of have share. are the more I are little in concerned very premium our portfolio. not pleased the we and Strike strong brand is now market On always we very strong have the brands growing

a have a US always in we But and allows I good that, So what extremely pricing is tools said that us have go granular. the pricing strategy we visibility. to

the the call always at look and pricing the we leadership, when situation. and between do e-cigarettes we the when So have I'm competitive going to

your last e-cigarette also. made competition acquisition continue even the position we of reduce that consumer the our terms increase have you and I is US is think automation that grow profitability demonstration XX to your the the our in And pricing. in that pricing months can following COGS in through

But So, extremely you to I think we're that, good where I always and positive trends adapt think in very a us. the are situation analyze that market. have the for

Gaurav Jain

lot, Jack. a Thanks

Jack Bowles

you Thank very much.

Operator

go SBG question Wium next ahead. of the line Rey from from Securities. The comes Please

Rey Wium

I hope Tadeu, you – in I questions. terms in three Jack, know mean, I just next-generation product the to basically this well? want margin. are I Hello, have want improvement just to address

reduced look it at XX%. by So losses have been if we the

you by slope about glide of by to terms profitable in XXXX. if – be the XXXX, in – we talk still a So I think aggregate can aim said

that continues So this So my growth just that trend maybe more vapour if bit to a as question. a earlier. the looks need like is it the me And of be to disposables? may it you spend in a in – first risk there of that's result

second I The one just...

Jack Bowles

Sorry, first for because know always with the three start is then difficult let's question I'm questions and you French me.

let's step. by So step go

is question related first to? your So

Rey Wium

the to slope. I know sort just want glide of

Jack Bowles

yes. Yes,

that environment. few a yes. this that not On years dynamic – existing one very even a you to were ago. Thank on is have you. always These categories so consider Okay,

good we So very our different to performance related have a categories.

in Two we years same of in is the money were expand in our worldwide we Europe. of THP XX% our ago of to the is and to automating total to of as and seen terms We go continue pipeline the the pricing. order in nowhere we going we are that market to the spend better market THP same in At taking be position. money are acquisition. we're costs improving COGS consumer at time are innovation But doing much we're the time,

We nowhere. are

have we Now share. terms in in XX% of average

will as the price competition space continue bit to So discounting. is acquisition of will me cost stronger gives a the do the to well positioned. invest more better. will operate do They be to base But I is launches. will is think of sleep. able But continue we're not money. and target to that, to They continue much the And That consumer I very XXXX.

it go. as take we'll So we

year back grow the acquisition of getting first altogether the First of losses is year and categories. categories innovations by of and acquisition and accelerating to growth. in and space year our quite £XXX muscle, But of new half three million. three and traction me And our consumer the categories. half in the the you consumer the launch on in this more of we to revenue reduced about last year in we to XX% cost XX% be the terms terms of of year have saw last blood reduction growth fast for the able the on This positions the efficiency are nicely. in the full first the in gives in year the order

that's million half in X.X year the consumers I stellar of additional. and that the think first

So records and last year. of breaking we're results even

Rey Wium

Then the on Excellent. to combustible. just

as Australia, So I'm such you Brazil, markets do to address looks that? me plan have of share curious just it Mexico. you in bit to a How pressure

Jack David

Yes.

when our that in look is a a that the at playing you of see what combustible, terms that extremely portfolio I first What all, have you in of And that very position. robust think it's is are of strong. top elasticities you position favor. our on is

a and the created back in a as a recovered vacuum there course, a we taxation and changed there to year. and Australia lose is last such increase here share share of the very of specific in Australia in in of whereby So value has industry we're That fought now. your was terms you market example were pricing. issues share. position of bit scale bit strong little related will We Australia some and

in have the position there. we we that think I Australia leaders strong very are So a and

is of terms our share In still Brazil, stellar.

normal. benefited and And We market we share in than closed Brazil. XX% of have the are where illicit from reduction the more environment that's was very the COVID

on a you Now back of pandemic. the bit are post the

And is a Brazil. is very, to there of. our have reality a have rebalancing The nothing -- of rebalanced very but strong we be we in in Australia So concerned business with Drive Brands portfolio market. to are efficiencies and in and market that terms Global of of that through we have launches lot in our coming sales force we route rearticulated a have bit

Rey Wium

I regarding treatment the just want And Russia of Belarus. clarify, and know just want to to --

a discontinued as operation. it treating You're

So I just the we Russia want to clarify -- XXXX, for from that need modeling correct? and half first Belarus well of the of whole purposes, remove XXXX to and the

Tadeu Marroco

not Russia. treated of being discontinued still operations. No. this is control operation have as in We the

the in business. are process We of transferring the

buyer, So there carry it and over and that take means business that find we can new are trying options the buyer on. a local to to execute

the the as a we which the because to attributing revalue environment. a the very you had value happening what's right we difficult are sale that it's have that or new to is consequence as on as complex circumstance put we communicated and for given transfer a now we assets know business the -- on X, on held have so based to IFRS intention was vision already And

transfer business that that still until control impairment the is keep of the So fully is basically you business. value for there we their see those sale, no assets the discontinued but are us now reassessing of operation because we

Rey Wium

Okay.

being So XXXX it's in just Russian will the XXXX? to and operations you numbers in until sold FY the keep clarify,

Tadeu Marroco

as providing until we in from view strip it's been 'XX, we But a business where it's organic part start them and sell that do the we once the base of then the numbers. kind until of Yes, well. sold we

Jack Bowles

big very a and situation. situation complex very a It's

Tadeu Marroco

of done how way the By of in see kind hence XXXX a 'XX. the group anymore if the rush it have the and on appendix, transferred will no the that, you there appendix see of base have we you will the presentation, if of in you like business the be if numbers, picture looks

the see the on You underlying can appendix. numbers

Rey Wium

retrospectively. need Yes. we triggered That's to my whether what question actually strip Russia out

Tadeu Marroco

It's you. for just reference a

Jack Bowles

this clarity and understanding terms and in in table everybody to more mean similar I see with of trends was absolutely you as are give the But that to without.

Rey Wium

very you, much. Thank

Operator

the ahead. final from of Societe line Please Generale. The from go Jon comes Leinster question

Jon Leinster

good Hi, I've Yes, gentlemen. as please. morning three well or got two questions

Jack Bowles

Everybody one morning, one. slowly go three questions this so has by

Jon Leinster

Xs. Analysts only do in things

lot previous to driven in from a we a product some the driven are discounting the sort of device increases, price everybody plus competitors, margins? period number. -- been seeing the that or clearly in the but mix decline yourselves back trade the level Going change XX% very that question strong there's including a of in and a vape general and Is is by price

Jack Bowles

both. It's a of bit

of consumer the recognized think have more products brand are I then consumers. when reduces you that effective, your of the of acquisition cost that the repertoire because efficient part and your is by you you a situation. add? which continuing suddenly better pricing grow we're Also on all good. is to Tadeu more then And our positions. is much want there And in to are different

Tadeu Marroco

And our doing major Yes. are exactly what of And the market. to the Look now massive vapour it's numbers. the US of we we in we in scale. is a a said phase going are course weight do. And in we US, for were

the used all have we need to don't the discount the we in past device. So on that

in put we we also device place than the now, that less these new we So, revenue we on have taking tools vapour. in there for digital because used cigarette growth much in discount to. are all And is pricing have also categories we

competitive the are, the And based the we in in where granular landscape. terms second we So, on we index market. as very at player be XXX speak prices, to can of the we increase

the in competitive pricing exactly this in and of to that margins a happening clearly a much taking negotiations have point at lower strong in margins you a translates moving are and move of from the of for our as more all key discounts this a is example is we what power revenue helps combination. It's time. percentage to away go revenue us performance terms the allowing US leadership from with back for the seeing. into are US us When pay So, this accounts. margins strength is all to trade this and outside you in position front reducing that allow margin specific and that's reflecting to And

Jack Bowles

good we in continue lower the more Yes, very COGS and and consumer moment in I to efficiency the mean better of terms plus pricing acquisition cost are at brands. equation and move we'll strong that's forward. more margins

Jon Leinster

of compare to? And sort margins are cigarettes? would out to what how particularly just interest, And other moving of you trade fields, level that of

Jack Bowles

what And improvements some on is Of will cigarettes. have course, the But trade there that risk than element normal that other margins also important that to on other higher and more a categories on see pay these conversion time. are we'll related on is But are very than is pay time cigarettes taxes to you much that. regular because we a the you you is, much see basis happen will reduced remember that is in that take products. which

in So terms financial the of the that delivery. works in also equation

multi-category through having are more it's acquisitions consumer This that years categories pricing. XX%. beginning different different you at that now it to and take out and three the is -- in approach end taking I XX%. moments, and year we're ago other last us But the for think look there is, when consumer we year today, consumers the year need do what's there. are COGS we grew extremely you portfolios. day, pricing at in able the half very and comparable efficiency said we grew geographies different important complex establish was XX planning of at which to companies three million It to we And three and categories. We're

have half because forward of innovations do and extremely understand the exactly year. showed during of the reduction I it of nonetheless we that, the we a the we of that in and all yes. categories. have portfolio to and to new we think cost the have start lot extremely, XX% is that's So, combustible our us pricing we play in you can to additional a are a want through tools in to But that next lot works powerful of in that responding consumers That for we And well-balanced second discounting period. in have coming the a more, how we full innovation that moving losses presentation reduce

last really and So Pivotal the in that's momentum. momentum right momentum XXXX. where acceleration we're have we accelerating XXXX, on going year, the the that accelerating year on in

Jon Leinster

up follow to on Just that.

anywhere there's the of number NGP in -- half, be will in you Just think a expect launches of the that second level the half do -- decline given first half? I in the that second you losses near in the considerable

Jack Bowles

guidance and balancing on that Well take we second give the balanced are year. that it deliver spoke and sure that in we step-by-step. the corridors our the Where the of we'll act not we terms in about. with launches We're we will financial going the of actively half give make supporting investment for new to financials. guidance these way algorithm And

Jon Leinster

a cost a lastly, £XXX And clearly will be at million cash you Okay. that the investigation. U.S. charge for some made Presumably point?

Jack Bowles

was for take that We're to -- reasons. we'll it decided provision. stands able from there. it position to a a in prudent We be as it matter, very to obvious not about that not absolutely speak take And

Tadeu Marroco

have. fact is is in the to that the It of at two a might Yeah. point is of corridor no three this that our impact time, but independent this kept

Jon Leinster

All right.

Thank much. Okay. you very

Jack Bowles

prudent approach. A accounting

Tadeu Marroco

Thank you very much.

Operator

are further questions. no There

So closing host, remarks. some back the I your to for hand will call

Jack Bowles

must the and confident extremely results is that is guidance. our I'm today. results. that delivering say thank the year us Well, taking I what for are very time that full show these business you extremely robust transforming important much in with we

It's by our also our profitability that With XXXX combustible the new way. great to very pathway we have, strong are for category new our the transformation and on growth led And well is the track targets. category we momentum and business. on a

we clear be there, and new we're and powered is categories our in rapidly categories by it's that and BAT three and very only combustibles categories. to stakeholders. consumers that established migrating, the ESG take commitment determination going or were it's demonstrates categories. smokers to had ethos are cost We consumers we extremely business to And a the have new to We from one to for stakeholders, promotions year billion the to the two our year all from that continue in advertising This other. make delivering the information want to move of new seriously. for We we migrate, of Last packs new extremely that our the to profitability, category The to ones all seriously. and have consumers with our be changing acquisition the the one billion. I margins, take to people carrying our

We that. are do growing And at pace. we'll to continue

So I'm a different we'll do of comes excited where so. half that very we continue in all XXXX, first a combustible. of and nutshell, categories the about extremely back on XXXX grew the future And the in to BAT including strong

it's So simplifying, about in new about about change categories. the in It's business. combustible. It's value step

growing are in we value share the So first one.

XXXX, went we'll say we will is than bigger £X.X billion was that growth more in then new in do change last billion step now we As we said, deliver -- on billion category, and £X year, XXXX, we £X.X did to in XX% a that XXXX XX% base in and that.

your So very last the with us much years. patience thank for you three in

think I very call not I position it call to it of move springboard even getting strong will into which foundation forward. would a a we're I

you much listening. So for very thank

British American Tobacco p.l.c. (BTI) 28 Jul 222022 Q2 Earnings call transcript