BTI

Overall Transformation Progress

• Added 4.1 million new smokeless consumers in the last 12 months, bringing total smokeless consumers to 35 million globally. Velo is the clear global #1 Modern Oral brand, with 7.9 billion pouches shipped in H1 2026 and 39% volume share across top markets (up over 8 percentage points year-over-year).
• The Fit2Win transformation program has been updated: annualized savings are now targeted at GBP 700 million by 2028 (GBP 500 million by 2027), with total one-off costs of GBP 950 million, most to be incurred in 2026.
• The company holds #1 or #2 share positions across all nicotine categories in the U.S., and is the fastest-growing total nicotine company in the market, with total nicotine volume share up 110 basis points year-to-date.

U.S. Business Update

• Combustibles: Heightened competitive activity in the deep discount segment since Q4 2025 pushed volume share down 80 basis points in H1, but the company has held volume share steady since January after implementing targeted investments and portfolio adjustments across premium, branded value, and low-end segments. H1 growth was supported by one-off positive inventory movements that will not repeat in H2.
• Regulatory & Vapour: Recent U.S. federal and state enforcement actions against illicit vapour operators, combined with new FDA regulatory guidance, have created a more level playing field, supporting the legal vapour market's return to growth in H1. Vuse holds a record 55.9% U.S. vapour value share (more than double the nearest competitor), and will launch new adult-focused flavours in a phased rollout starting Q3 2026.
• Modern Oral: Velo holds 31% U.S. Modern Oral volume share and captures ~90% of category value growth. The new Velo Max innovation will launch in Q3 to complement the existing Velo Plus portfolio, expanding to 2 new strengths and 4 new flavors to meet broader consumer preferences.

Global Category Strategy

• Modern Oral: The fast-growing, lowest-risk new category now has regulated market access in 32 markets (double 2024 levels). BAT holds 62% volume share (68.5% value share) across top AME markets, 7x larger than the nearest competitor, with 50% of AME Modern Oral revenue now coming from outside the Nordics, showing broad-based growth. Innovation such as Velo Shift has gained early share in launch markets.
• Heated Products: The company is resetting glo performance with a more disciplined, selective investment approach focused on premium growth. Industry growth has moderated due to excise disruption and shifting consumer poly-use, but the company is scaling the premium glo Hilo SKU across 9 key markets (covering ~70% of industry volume) and launching the next-generation Hyper Pro+ to drive share momentum in H2.
• Capital Allocation: Priorities are investing in transformation, balance sheet deleveraging, progressive dividends, sustainable share buybacks, and selective bolt-on M&A. The company expects to reach its 2-2.5x leverage target by year-end 2026, and has a GBP 1.3 billion share buyback planned for 2026.

• Full year 2026 group revenue and adjusted operating profit are expected to come in at the lower end of the company's target range, absorbing ~1% transactional FX headwind and reflecting planned strategic investments in new category launches and combustible portfolio competitiveness.
• Full year adjusted diluted EPS growth guidance has been upgraded from the prior 5% to 8% range, and is now expected to be towards the middle of the 5% to 8% range. After accounting for FX translation impacts, adjusted EPS is expected to come in around 4% to 4.5% on a current currency basis, which management notes is one of BAT's strongest EPS performances in recent years.
• Full year new category revenue growth is expected to be mid-teens, with growth led by Velo and Vuse, and H2 growth moderated by lapping a stronger 2025 H2 comparator for Velo Plus in the U.S.
• Adjusted operating profit is expected to accelerate in H2 2026, driven by performance improvements in AME and APMEA, and the phasing of Fit2Win cost savings. The U.S. will see moderated H2 growth after strong H1 results, as positive one-off inventory movements do not repeat and the company increases investment for new product launches.
• APMEA is expected to deliver a sequential performance recovery in H2 2026, supported by commercial actions and a softer comparator from 2025 H2 regulatory changes in Australia.
• Full year cash conversion is expected to exceed 95%, in line with the company's historical track record of strong cash generation. The company remains on track to deliver more than GBP 50 billion of cumulative free cash flow by 2030.

By Product Segment:

1. New Categories: Revenue grew 18% year-over-year, accelerating from prior periods. Modern Oral (led by Velo) delivered 66% revenue growth, driven by strong consumer demand. Vapour revenue grew 5.3%, with double-digit growth in the U.S. partially offset by declines from strategic market exits. Heated products (glo) revenue declined nearly 12%, impacted by inventory movements and heightened competitive intensity in the value segment. Category contribution grew 55% to GBP 269 million, and New Categories now represent 19.8% of total group revenue, up 160 basis points year-over-year.

2. Combustibles: Volume declined 4.7% year-over-year, with growth in Pakistan and Turkey offset by industry declines in most key markets and exits from Cuba and Mozambique. Revenue grew 2.1% year-over-year, driven by a robust 6.8% price/mix effect. Adjusted gross profit and category contribution grew ahead of revenue, supported by cost optimization and strong U.S. performance. Combustibles remains the group's core value engine, contributing 80.2% of group revenue.

By Region:

• U.S.: Total revenue grew 8.5%, adjusted operating profit grew 10.1%. New Category revenue grew nearly 60% (Velo Plus up over 200%, Vuse returned to double-digit growth); Combustible revenue grew 5% on positive price mix and inventory movements.
• AME: Total revenue grew 0.9% (Combustibles up 2.5%, New Categories up 1.9%). Adjusted operating profit grew 1.1%, with Modern Oral up 22% partially offset by Vapour declines from regulatory changes in Poland and Heated Product declines in value segment markets.
• APMEA: Total revenue declined 6.3% (driven by Combustible headwinds from regulation, illicit trade, and inventory timing), adjusted profit declined 16.5%. Modern Oral grew 43% on first-mover advantage across emerging growth markets.

• Heightened competitive intensity in the U.S. deep discount combustible segment and the global new category value segment has pressured share, requiring increased investment to maintain competitiveness.
• Persistent regulatory and fiscal pressure across APMEA markets, combined with high levels of illicit trade (particularly in Bangladesh and Australia), has resulted in slower-than-expected recovery in the region.
• Regulatory changes in markets such as Poland and the U.K. have made vapour market participation unviable, leading to strategic exits that near-term pressure results.
• A large excise shock in Brazil implemented in August 2026 has led management to downgrade the global cigarette volume outlook from -2.5% to -3% for 2026.
• Illicit vapour operators in the U.S. sell unregulated, high-puff devices that do not meet compliance standards, creating an unlevel playing field that cannot be fully addressed by regulatory changes alone, requiring continued enforcement action.
• Geopolitical risk from the Middle East conflict could impact oil prices, which correlates with cigarette consumption levels in the U.S. market.

Q: U.S. Combustibles delivered 5% H1 2026 revenue growth, far above the 0-1% full year algorithm. What should we expect for full year U.S. Combustibles performance? How will illicit enforcement progress and Vuse flavor rollout proceed in H2? / A: Around 2% of the 5% H1 growth comes from one-off positive inventory movements that will unwind in H2, leaving underlying organic growth of ~3%. Management expects a much more moderate H2 performance that will be close to the 0-1% algorithm, with continued investment to improve competitiveness in the growing deep discount segment holding share steady. Enforcement against illicit vapour is expected to continue at similar levels, with the FDA's new regulatory guidance creating a more level playing field that supports ongoing legal vapour growth. Vuse flavors will roll out in two phases: 25,000 outlets in Q3, and another 25,000 in Q4, with compliance checks for age verification built into the rollout.

Q: What is the distribution timeline and competitive outlook for Velo Max in the U.S.? What are the key moving parts for full year 2026 organic growth, and what could drive upside or downside? / A: Velo Max will leverage Velo Plus's existing U.S. distribution network, so rollout will be faster than the original Velo Plus launch. It is positioned as a complement to Velo Plus, addressing unmet consumer demand for higher strengths and new flavors. Despite competitor launches, Velo Plus has retained 7% market share and captured almost all U.S. Modern Oral category growth in H1, and management expects Velo's strong position will hold. APMEA and AME are expected to deliver stronger H2 performance than H1, with APMEA benefiting from lapping the 2025 H2 Australian regulatory shock, while U.S. growth will moderate. The full year result will land at the lower end of the guidance range as the company invests for long-term sustainable growth, with EPS lifted to the mid-range by lower net finance costs.

Q: What drove the latest downgrade to the global cigarette volume outlook from -2.5% to -3%? What impact will a competitor's recent modified risk tobacco product (MRTP) grant have for Velo, and will BAT pursue MRTP status for Velo? / A: The latest downgrade is driven by a large new excise increase in Brazil, a major global market, which took effect August 1 2026 and will significantly reduce near-term industry volume. After Velo Max launches, the combined Velo platform will have 5 total strengths, with new SKUs expected to expand the addressable market. Management notes that an MRTP grant for a competitor is positive for the Modern Oral category overall, particularly for global regulatory advocacy, and BAT already has pending MRTP applications for Velo. Management does not expect the grant to move the needle meaningfully for near-term competitor share.

Q: Is the process of exiting non-viable Vapour markets and refocusing Heated Products complete? What is the outlook for European Vapour in the medium term? / A: Most strategic market exits have already been completed, with primarily residual impacts expected in H2 2026. Exits were concentrated in Asian markets that failed to implement enforceable regulation, creating no path to returns for a legal operator, plus Poland following adverse regulatory changes and the U.K. due to high illegal penetration. In Europe, BAT holds a strong leadership position, with Vuse Ultra performing well in Germany and a strong innovation pipeline launching in H2 2026 across key markets like France and Spain. Management remains confident in sustaining its position in selected European Vapour markets.