British American Tobacco p.l.c. Q2 FY2024 earnings call

• 2024 is an investment year for BAT. In the first half, it invested to strengthen the U.S. business, accelerate innovation momentum, etc., and expects second half performance to accelerate. • New category accounts for 18% of group revenue, up 1.4 percentage points vs full year '23. New category contribution increased by GBP165 million and contribution margin rose nearly 10 percentage points. • In vapor, fundamentals are positive with strong revenue growth in Europe and APMEA, but affected by illicit products in U.S. and Canada. • In heated products, glo started to improve volume share driven by new innovations like Hyper Pro. • In Modern Oral, it's the fastest-growing new category with 49% revenue growth in H1 across all regions.

Group revenue was down 0.8%, while new category revenue grew over 7%. Profit from operations was down 0.9%, and diluted EPS was up 1.3%. Combustible volumes declined by 6.9% on an organic basis. New category revenue in Modern Oral grew 49% in H1. Vapor had strong revenue growth in Europe and APMEA but was impacted by illicit single-use vapor products in the U.S. and Canada. Glo revenue in heated products was down 4% mainly impacted by price repositioning and pipeline build, but started to show sequential category volume share improvement since December driven by new innovations.

• First half performance is in line with expectations and on track to deliver full year guidance. • Expects second half performance to accelerate and new category contribution to increase further for the full year. • Full year expected low-single digit organic revenue and adjusted profit from operations growth, including a 2% transactional FX headwind. • Beyond 2024, expects to progressively improve delivery to 3% to 5% organic revenue growth and mid-single digit adjusted profit from operations growth on an organic constant currency basis by 2026.

• Macro-economic headwinds in the U.S. impact group results. • Proliferation of illicit single-use vapor products in U.S. and Canada affects vapor segment performance. • Uncertainty in regulatory environment, such as FDA approval progress for vapor products.

Q: Rashad Kawan asked about the elasticity of the U.S. combustible market and the reason for the acceleration of Modern Oral in the U.S.

A: Tadeu Marroco said the U.S. combustible market is affected by a difficult macro environment and proliferation of illegal vapor products. For Modern Oral, the improvement is mainly due to the new brand expression, and there may also be some help from competitors' distribution issues.

Q: Gaurav Jain asked about the FX guidance, investment direction of heated tobacco and e-cigarettes.

A: Soraya and Tadeu responded on relevant contents.

Q: Richard Felton asked about the drivers of vapor business outside the U.S. and the balance between new category revenue and profit.

A: Tadeu said vapor business outside the U.S. was affected by regulatory impact in Canada, and Soraya said the priority is to balance top and bottom line growth by targeting investments in categories with momentum and value.