British American Tobacco p.l.c. Q2 FY2021 earnings call

• Strong progress against key financial focus areas with over £900M savings from Quantum and £1B annualized savings earlier than expected.
• New Categories achieved revenue growth, share gains, and fastest consumer numbers growth. On track to reduce 2021 losses and reach £5B revenue and profitability by 2025.
• Transforming BAT to a high-growth multi-category consumer-led CPG with reduced public health impact and ESG at core.
• Building strong global brands like Vuse glo and Velo, driving digitalization across the business.
• Scale is critical for New Categories, with automation and Quantum savings enabling further investments in New Categories.

In the first half, BAT delivered over £900 million of total savings from Quantum, with £1 billion of annualized savings expected 12 months earlier. New Categories saw excellent revenue growth, share gains across all three, and fastest growth in consumer numbers to date. New Categories are on track to reduce full year losses in 2021 with a clear pathway to £5 billion revenue target and profitability by 2025. Revenue contribution from New Categories is a significant portion, with momentum driving scale.

• Reaffirmed full-year revenue guidance of 5% plus.
• Expect New Category losses to reduce in 2021 with a clear pathway to profitability by 2025.
• Capital allocation flexibility increases as leverage target at year-end is approached.

• Currency transaction effects impacting EPS.
• Potential headwinds from excise changes in markets like Australia.
• Competition in device launches and market dynamics in New Categories pose risks.

Q: On cash returns and capital allocation, what's the approach?

A: Jack Bowles says they'll review at year-end, are true to dividend, and will invest in the business.

Q: On Vuse trade margins, any improvement?

A: Tadeu Marroco explains margins vary by country/channel, e-commerce has fantastic margins, and renegotiation with key accounts is improving margins.

Q: On guidance slowdown in 2H, how is it viewed?

A: Jack Bowles talks about strong momentum and higher comparators in 2H.

Q: On US market pricing and share, your thoughts?

A: Jack Bowles discusses price elasticity, brand resilience, and digital tools for pricing decisions.

Q: On glo device launches, future outlook?

A: Jack Bowles mentions innovation, market share growth, and consumer loyalty.

Q: On vapor category costs and profitability, details?

A: Tadeu Marroco talks about margins, scale, and cost of goods sold impact.

Q: On emerging markets growth and price/mix, insights?

A: Tadeu Marroco discusses recovery from COVID, pricing trends, and illicit trade impact.

Q: On dividend and buyback, plans?

A: Jack Bowles and Tadeu Marroco talk about capital allocation review at year-end and shareholder value creation.

Q: On Modern Oral in US and APME, strategy?

A: Jack Bowles discusses consumer acquisition, geo expansion, and regulatory engagement.

Q: On Japan tax increases and THP revenue, thoughts?

A: Tadeu Marroco talks about tax absorption and COGS impact.

Q: On THP investment mode and price/mix, timeline?

A: Jack Bowles and Tadeu Marroco discuss consumer acquisition, brand building, and market expansion.

Q: On NGP investments and losses, details?

A: Tadeu Marroco talks about investment phases, listing fees, and reduction in losses.

Q: On Btomorrow Ventures and cigarette pack messaging, details?

A: Jack Bowles discusses venture capital role and consumer messaging to switch to NGP portfolio.