British American Tobacco Full Year 2025 Earnings Call - Modern Oral Surge and U.S. Combustibles Drive Return to Growth, Setting Up Midterm Algorithm in 2026

Tadeu, Chief Executive, British American Tobacco (BAT): Good morning, everyone. I’m delighted to welcome you to our full year 2025 results presentation. With me this morning, 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 driving. We will then take your questions. With that, I would like to draw your attention to the disclaimers on slides two and three. Let’s begin by looking at the positive transformation momentum we are driving. Starting with some key highlights. We added 4.7 million smokeless consumers, bringing our total to 34.1 million, mainly driven by our continued strong performance in Modern Oral.

This marks our strongest growth acceleration to date and position us well for 2026. We delivered 2025 group results at the top end of guidance, driven by resilient delivery in combustibles and an excellent performance from VELO in all three regions. Our disciplined focus on quality growth continues to improve returns on more targeted investments, with new category contributing now up 77% at constant rates. Alongside this, we remain committed to investing behind our premium innovation launches, supporting long-term value creation. We continue to deliver strong cash returns for shareholders. In addition to our progressive dividend, in December, we announced an increase to our share buyback to GBP 1.3 billion in 2026. Looking ahead, we are confident in returning to our Midterm Algorithm this year, with the accelerated momentum through the second half of 2025, positioning us well for continued delivery.

I’m proud that we have delivered on all of our 2025 priorities, and I want to thank our teams around the world for driving these encouraging results. Our performance reflects the clear momentum we are driving as we continue to build a track record of delivery. I’d like to take a moment to highlight two areas from last year that stand out to me. First, the return to both revenue and profit growth in the U.S. for the first time since 2022. A significant milestone driven by stronger combustibles performance, a return to revenue growth in vapor in the second half, and modern oral. As a result, we grew 30 basis points of combustibles value share.

Second, we are delivering quality growth in new categories, launching premium innovations in each category, while delivering a return to double-digit revenue growth in the second half and category contribution growth up 77% for the full year. The progress we made in 2025 reinforces my confidence in our future delivery. And with that, I will hand over to Javed to take you through our 2025 performance in more detail.

Javed Iqbal, Interim CFO, British American Tobacco (BAT): Thank you, Tadeu, and good morning, everyone. I’m pleased to share that we delivered results at the top end of guidance on a constant currency basis. The performance was driven by return to growth in the US, a robust performance in AME, and the strength of modern oral globally. Our reported numbers reflect some adjusting items, including nearly GBP 1.6 billion, mainly related to the annual amortization of our US-acquired trademarks. A net credit of GBP 524 million, following a change in the forecasted outlook for the Canadian combustible industry. We also recognized a gain of nearly GBP 900 million from the partial monetization of our ITC stake. To give you a clear view of our underlying performance, I will focus on constant currency, adjusted, and where applicable, adjusted for Canada metrics. You can find further detail on adjusting items and share data in the appendix.

We delivered group results at the top end of guidance, supported by accelerated momentum through the second half. Group revenue increased by 2.1%, adjusted profit rose 3.4%, adjusted profit from operations grew 2.3%, and adjusted diluted EPS was up 3.4%. Let’s now turn to new categories revenue, grew by 7%, driven by outstanding growth in Modern Oral, which was up strongly by 48%, with Heated Products up 1%. This was partially offset by a nearly 9% decline in Vapor, mainly due to continued illicit pressures in the U.S. and Canada. Our second half U.S. performance showed a clear improvement versus the mid-teens decline in H1, supported by early signs of strong enforcement activity in the U.S.

We continue to deliver quality growth, with gross profit up over GBP 200 million and category contribution reaching GBP 442 million. This reflects our disciplined approach to return on investment, targeted investments in high-value markets, and increasing scale benefit across our portfolio. I am proud of the progress we are making, and I’m particularly pleased with our accelerated H2 momentum, where we returned to double-digit new category revenue growth. Now turning to combustible. Revenue grew 1%, with volume decline more than offset by continued robust price mix across markets. We delivered quality growth here, too. Both gross profit and category contribution increased 2.5%, driven by a strong performance in the U.S., positive price mix, and continued productivity and simplification gains, which I will speak to shortly.

Our performance highlights the breadth of our global footprint, with strong delivery in the US and AME, more than offsetting fiscal and regulatory headwinds in Bangladesh and Australia, which impacted total group revenue by around 1% and group adjusted profit from operations by around 2%. This resilience and increasing momentum in H2 reinforces our confidence in future delivery. Turning to our regions, starting with the US. In combustibles, we delivered a 4.6% increase in revenue, with our strengthened portfolio, sharper execution, and enhanced revenue growth management, driving price mix, including excise duty drawback. Value share increased 30 basis points, with volume share down 10 basis points. In new category, revenue grew nearly 20%, driven by the success of VELO+, which delivered over 300% growth.

While vapor revenue was down 3.4% for the full year, we are encouraged that Vuse returned to revenue growth in H2, supported by early signs of enforcement actions. Overall, U.S. revenue increased 5.5%, and adjusted profit grew 5.9%, mostly driven by a strong combustibles performance. Importantly, VELO+ reached positive category contribution within its first year, underscoring the scalability of our modern oral business model. Tadeu will share more detail on the U.S. shortly. In AME, we delivered another robust performance. Revenue grew over 3%, with combustibles up more than 2%, supported by strong delivery in Brazil, Turkey, and Mexico, with solid pricing. New category revenue increased 4.3%, mainly driven by modern oral, which grew over 17%.

We are the clear Modern Oral leaders in the region, with over 60% volume share in top markets, selling at a premium, and strongly outperforming peers, which Tadeu will expand on later. Growth was further supported by heated products, with revenue up over 6%, driven by Italy, Germany, and Ukraine. This was partially offset by competitive dynamics in Romania as we reallocated resources ahead of the glo HYLO launch. Vapor revenue declined more than 11%, mostly impacted by the lack of illicit enforcement in Canada and regulatory and excise changes in UK, France, and Poland. Adjusted operating profit grew by nearly ten percent- 10%, driven by operating leverage and efficiency gains in combustibles and scale benefit and resource allocation, driving improved contribution across all three new categories. AME is a true multi-category region, delivering high-quality growth and demonstrating the resilience and balance of our portfolio.

In APMEA, growth in key markets, including Pakistan, Nigeria, and Indonesia, was more than offset by fiscal and regulatory headwinds in Bangladesh and Australia. Total revenue declined 7.2%, with combustibles down 8.3%. New category revenue was down 7.6%. Strong growth in modern oral was more than offset by heightened competitive activity in heated products in the value-for-money segment in South Korea and Japan, along the phaseout of our Super Slim platform. Our vapor performance reflects strategic decisions taken to reduce our footprint and reallocate resources away from markets where regulation and enforcement do not support a responsible competitive landscape. Adjusted profit was down 17.9%, mainly due to challenges in Bangladesh and Australia.

As we continue to navigate headwinds into 2026, we expect our performance to stabilize for the full year, supported by Bangladesh as we lap last year’s decline, and with the drag from Australia becoming progressively less material year-on-year. Turning now to our group operating margin, which was broadly flat at 44%. We successfully offset inflationary and FX pressures through a strong U.S. performance, higher profitability in new categories, and continued cost savings. Transactional FX headwinds on adjusted profit of approximately 1% were primarily driven by Turkey, Japan, and Nigeria. At current rate, operating margin expanded by close to 10 basis points. BAT has a strong track record of disciplined and cost savings, and we continue to build on that foundation. Since 2023, we have delivered GBP 1.2 billion in productivity savings.

These efficiencies help us offset inflationary pressures and foreign exchange headwinds, while continue to fund innovations and growth in new categories. In 2025 alone, we absorbed around GBP 300 million of inflationary cost increases in addition to transactional effects. Looking ahead, we remain focused on simplifying combustibles and scaling new categories, targeting a further GBP 2 billion in productivity savings by 2030. In addition, we now expect our Fit to Win program to deliver GBP 600 million of annualized incremental savings by 2028. We expect around GBP 500 million of these savings to be delivered by 2027, with the remaining benefits realized by the end of 2028. We are committed to reinvesting these savings to support further sustainable growth initiatives. Fit to Win is a transformational project that is reinventing BAT.

As outlined at our 2025 half-year results, it is centered on optimizing processes and ways of working to create a leaner, faster, and more data-driven organizations. Since half year, we have made strong progress. We have expanded the program to include organizational streamlining, to sharpen up focus and improve speed of execution, allowing us to raise total annualized savings by a further GBP 100 million. To unlock these benefits, we now expect around GBP 600 million of associated costs over the next 2 years. As a structured time-bound program, GBP 500 million will be treated as adjusting, including around GBP 100 million of non-cash items. As previously guided, this spend is already underway, with the majority of costs expected to be incurred this year and concluding in 2027.

Bringing it all together, earnings per share increased by 3.4%, as operating profit growth and lower share count was partly offset by net finance costs, our reduced share of ITC profits, and tax. Our underlying tax rate was 24.5%. Our strong cash generation continues to enhance our financial flexibility. This has enabled us to announce a 2% increase in our dividend and increase our share buyback by GBP 200 million to GBP 1.3 billion for 2026. Alongside this, we continue to deliver to 2.55 times adjusted net debt to adjusted EBITDA at the end of 2025, and we remain on track to be within our 2-2.5 times target range by year-end.

While our 2025 cash delivery was impacted by the CCAA upfront payment and the prior year deferral of tax payments in the U.S., we remain on track to deliver more than GBP 50 billion in free cash flow by the end of 2030. We continue to focus on our capital allocation priorities, which are investing in transformation, balancing deleveraging with progressive dividends and sustainable share buybacks, and selective bolt-on M&A to support our transformation. I am excited about the future and confident in our ability to deliver our Midterm Algorithm of 3%-5% revenue growth, 4%-6% adjusted profit from operations growth, and 5%-8% adjusted diluted EPS growth. Our return to this Midterm Algorithm in 2026 marks a major milestone in our transformation journey and reinforces the strength and resilience of our strategy.

Our confidence is underpinned by continued growth in the US, robust multi-category delivery in AME, low double-digit new category revenue growth led by VELO globally, a further improvement in new category contribution, and continued savings from our productivity programs. Although we still have more work to do, and it will take time to stabilize performance in APMEA, we will continue to invest in our premium innovations rollout. As a result, we expect 2026 to be at the lower end of these ranges and our profit performance to be second half weighted, driven by the phasing of new category investment and as Fit to Win savings built through the year. And with that, I’ll hand it back to Tadeu.

Tadeu, Chief Executive, British American Tobacco (BAT): Thank you, Javed. So moving on now to the positive transformation momentum we are driving. In 2023, when I became Chief Executive, I committed to sharpening our focus and execution, guided by a refined strategy and ambition to become a predominantly smokeless business by 2035. I’m proud to say that we have made significant progress across all three strategic pillars as we continue to build a track record of delivery. While there is still more to do, I’m confident that our focus, investments, and sharp execution are driving real momentum, as you can see from our 2025 results. Our progress underpins our confidence in sustainably delivering our Midterm Algorithm, while continuing to reward shareholders with strong cash returns... I’d now like to highlight five points that demonstrate this. First, we have successfully reset our U.S. business, returning to revenue and profit growth in 2025.

While the U.S. macroeconomic environment remains dynamic, the pace of combustibles industry volume decline started to moderate in 2025, down 7.4%. Against this backdrop, driven by the actions we have taken to strengthen our portfolio and sharpen execution, our U.S. combustibles business delivered strong revenue and profit growth in 2025. Driving value from our combustible business is essential to funding our transformation, and the U.S. is a key driver of this. In line with this strategy, we gained 30 basis points of total industry value share. I’m particularly encouraged that our financial performance accelerate in the second half. This positive momentum reinforces my confidence in the resilience of our U.S. combustible business and our ability to deliver sustainable value going forward. VELO+ is the fastest-growing Modern Oral brand in the largest Modern Oral value pool globally.

Since launch at the end of 2024, it has already reached the number 2 position in both volume and value share, gaining nearly 18 percentage points of volume share and nearly 14 points of value share. We are pleased that our share momentum has continued into the start of 2026. Velo+ has more than doubled its consumer base and driven over 300% Modern Oral revenue growth, capturing around 70% of industry volume growth and 80% of industry value growth in December. All of this is underpinned by a consistent repurchase rate of around 70% throughout the year. Importantly, we achieved positive category contribution within the first 12 months of launch, fully aligned with Velo’s global payback profile.

The total U.S. Modern Oral category continues to grow strongly and has already overtaken the size of the legitimate vapor category at over GBP 2 billion of revenue in 2025. Velo+ is a great product, and these results demonstrate this in what remains a highly dynamic category. It’s impressive. Its impressive success also highlights the broader strength of our U.S. capabilities and executional excellence, from consumer insights and branding to enhanced digital analytics and distribution, enabled by a rejuvenated Reynolds. Our performance was further enhanced by the successful launch of Grizzly Modern Oral in the summer, which achieved close to 2% volume share by year-end, taking our total volume share of U.S. Modern Oral to 25.8%.

Through this momentum, I’m delighted to announce that at the end of the year, we reached global volume share leadership in Modern Oral, measured across the top Modern Oral markets, representing around 90% of total industry revenue. Second, we are premiumizing our new category portfolio. VELO is already the clear European leader, around six times larger than our nearest competitor. We continue to focus on consumer-led innovation to strengthen product satisfaction among adult consumers and extend VELO’s success. At the start of this year, we began the nationwide rollout of our latest innovation, VELO Shift, in Sweden, following a successful pilot with key retailers and online partners. VELO Shift is reshaping the modern oral experience, featuring a new comfort pouch design, five distinct sensory flavors, and a differentiated X count that stands out on shelf.

Trading at a premium to the core VELO range, VELO Shift is already driving incremental share in the channels where it has launched, with further market rollouts planned through 2026. These results highlight not only the strength of VELO brand and innovation pipeline, but also the quality of our execution across European markets. We see premium vapor done right as a highly attractive, untapped segment for further value creation. Vuse Ultra is our modest, most advanced vapor device yet, driving meaningful performance improvement for Vuse in markets where we have launched, including value share gains of nearly 80 percentage points in Canada, close to 4 percentage points in Germany, and above 2 percentage points in France. As Javed highlighted, we have made proactive strategic decision to focus our execution on the largest profit pools, with more supportive regulation and enforcement.

Vuse Ultra is central to this approach, and I’m encouraged by the strength of its early performance, with further launch planned in the key markets in 2026. Our breakthrough innovation platform, glo HYLO, introduced our first two-piece device and is designed to establish glo in the premium segment. While it’s still early days, we are starting to drive encouraging results in priority launch markets, Japan, Poland and Italy, with the majority of consumers new to glo, coming from both premium combustibles and the broader heated products category. We are also strengthening glo’s overall brand equity across key consumer metrics. This consumer response is translating to early volume share momentum.... We are encouraged by early trial to retention rates of around 50%, providing further confidence in the platform’s potential.

In 2026, our focus will be on accelerating trial among premium consumers across both combustibles and heated products, supported by targeted online and in-person activations. We will continue to scale glo HYLO through additional market rollouts in the largest heated product profit pools, where we can generate the strongest returns. Overall, we remain confident in the strength of this innovation platform, and expect to progressively build share within the premium segment over time. As Javed highlighted, the heated products category remain highly competitive, and this has impacted our 2025 performance in the value for money segment, where we are present with glo Hyper. Introducing glo HYLO into the premium space allow us to further differentiate our tiered portfolio. We see a clear opportunity to strengthen glo’s overall performance across both premium and value for money segments.

Central to this is the launch of our next generation glo Hyper device from Q2. The new glo Hyper delivers a step change offering: quick start, longer started session length, new connectivity, and a replaceable battery. These innovations significantly improve the consumer experience, and we are also further enhancing the consumables range. Taken together, these upgrades create a much stronger proposition designed to reinforce our competitiveness in the value for money segment. Third, I’m proud of the strong progress we have made in improving new category profitability. Since 2021, we have driven a GBP 1.4 billion pounds improvements in category contribution, with all three new categories contributing to this momentum. Importantly, we have achieved this while continuing to invest in our transformation to drive future sustainable growth.

Our new categories are meaningfully contributing to group results as we benefit from increased scale, reflecting traction in established markets, while continuing to invest in new market launches. This, supported by more consistent and constructive regulatory frameworks, such as those in place for modern oral in 24 markets, up from just four markets in 2022. We have sequentially improved our performance each year, and through our quality growth approach, we remain committed to driving sustainable profitability improvement moving forward. Fourth, I’m encouraged by the signs of positive progress we are seeing in the regulation and enforcement of new categories, especially in the U.S. While the vapor category continues to be impacted by the proliferation of illicit products, Vuse returned to revenue growth in the second half after 18 months of decline.

This has been supported by increased state-level enforcement, with vapor director and enforcement legislation representing around 50% of tracked industry volume by year-end. In addition, Vuse’s performance in the second half benefited from a competitor exit, further strengthening our market position. Our recovery has also been supported by early signs of increased federal enforcement, targeting borders and larger distributors, resulting in high levels of seizures and fines. Looking ahead, we are encouraged by the increased focus and funding directed towards strengthening the FDA’s enforcement capabilities. We were also pleased to receive a favorable initial determination on our International Trade Commission complaint from the administrative law judge, who has recommended a general exclusion order on imported illicit vapor device. We expect a final determination from the ITC in the coming weeks, which will then be subject to a 60-day presidential review.

With an estimated 7% of the U.S. vapor industry value still illicit, we are hopeful the authorities will continue with enforcement initiatives in 2026. Reynolds continues to advocate for a level playing field, so that adult nicotine consumers have access to high-quality, compliant vapor products. Over time, we believe Vuse is well positioned to benefit from strong enforcement at both the federal and state levels. In addition, the FDA has recently recognized the positive role that nicotine pouches can play in helping adult smokers, who would otherwise continue to smoke, to transition to less risk alternatives, reinforcing their role in tobacco harm reduction. We welcome the FDA’s new pilot program to streamline the PMTA review process for nicotine pouches. This is an important step towards keeping underage appealing, illicit products out of the market, while giving responsible manufacturers a more predictable path to PMTA authorization.

We are confident in the strength of our science and portfolio, and we look forward to being able to complement our existing US portfolio with VELO Max, a higher moisture modern oral product in 2026, and we have increased capacity to support our sustainable growth agenda. The final point I would like to highlight is that our financial flexibility continues to strengthen, and we remain on track to generate more than GBP 50 billion of free cash flow by 2030. BAT is a highly cash-generative business, delivering at least 100% operating cash conversion annually since 2020, 100% of operating cash conversion, reflecting our strong cash discipline and clear focus on returns, and enabling us to return GBP 34 billion of cash to shareholders over the same period.

We remain committed to delivering sustainable shareholder returns with a 25-year track record of dividend growth and our sustainable share buyback program. I’m confident that we will sustainably deliver our Midterm Algorithm as we are firmly committed to growing revenue sustainably and improving profitability. To conclude, we are carrying momentum into 2026, underpinned by a robust innovation pipeline, strong strategic partnerships, and confidence in our future fit capabilities. We are executing with discipline and delivering against our priorities. At the same time, we are enhancing financial flexibility, enabling continued investment in our transformation together with strong cash returns. I’m excited about the future for BAT, and believe we are well positioned to deliver long-term sustainable growth and value for our stakeholders. Thank you for listening. We’ll now be joined on stage by Victoria for the question and answer session.

Victoria Buxton, Group Head of Investor Relations, British American Tobacco (BAT): Thank you, Tadeu, and good morning, everyone. If you’ve joined us via the webcast, you can type your question 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, and I will now hand over to the conference call operator.

Speaker 5: Thank you. Our first question is from Andrei Andon-Ioanita from Jefferies. Please go ahead, sir.

Andrei Andon-Ioanita, Analyst, Jefferies: Good morning, Tadeu, Javed, and Victoria. Thank you very much for taking my questions. First of all, two questions on modern oral, please. Number one, what are your expectations in terms of performance in the U.S. in fiscal 2026 for modern oral specifically? And secondly, are these expectations underpinned by the FDA approving the European VELO product for sale in the U.S., or are they mainly driven by the existing VELO+ product? And perhaps finally, in terms of profitability, could you tell us a bit more about how you expect new categories’ profitability to evolve in fiscal 2026? Thank you.

Tadeu, Chief Executive, British American Tobacco (BAT): Okay, Andrei, thank you for the question. Look, we have a very strong product team with VELO+ in the U.S. The levels of retention has been 70% throughout the year, which is really, really a very strong rate when you compare with other offers in the market. So basically, at the back of that, we believe that the product is competitive enough to continue growing in the U.S. market, has all the indications from that. Today, we still have a low level of awareness in the brand, around 30%, and we are present now in 100-plus thousand outlets, which account for something like 93% of the total oral revenue.

We are also seeing that the average daily consumption, as new products start to be more satisfying for consumers in the US, is increasing. So it used to be around 2.8 pouches per day. Today, it’s around 3.6 pouches per day. If you compare that with the European market, which is around six pouches per day, you see a lot of potential growth is still in the US, and in the Nordics, it’s 12 pouches per day. So when you pull all this together, a strong product and the dynamics of the market evolving at the pace that it is in the US, the expectation is that we will continue growing. That’s why we are investing capacity, like I mentioned during my presentation.

We mentioned VELO Max, which is an even higher moisture product that we have in as part of the pilot that the FDA is running. We welcome the, first of all, that FDA is embracing nicotine pouch as a key category to address tobacco harm reduction in the U.S., because it’s the lowest risk profile, if you want. There is no inhalation, there is no tobacco, there is no smell. That is much easier for consumers of cigarettes to convert into a much lower risk profile product. So they are put in place these pilots. We hope that for the next few months, we see our products, and we are cautious that other competitors will come with other products as well.

And, and for us, there is no problem with that. But when I look outside the US, where everyone is free to compete, the leading brand outside the US is VELO. Like we said, in Europe, we, our volumes in VELO are six times higher than the second-largest competitor. So what we want to see in the US is a level playing field, because in a level playing field, we know that we can win. So that’s the first question on VELO. In terms of profitability, we have made a very strong improvement in profitability when you compare that not long ago, back in 2023, we were just reaching break even in this category, and today we have a 12% category contribution.

Obviously, I always said that this will not be linear, year after year, because there will be years where we are gonna reinvest back in the business at the back of exciting innovations, and 2026 is one of these years, because, as I said during my presentation, we have now premium innovation in every single of those categories. So we want to roll out glo HYLO, we want to roll out VELO Shift, we want to carry on rolling out Vuse Ultra. So we are not concerned about stipulating a specific pace of category growth year on year, because this will vary over time, but the trend is very clearly, the category will continue to grow.

Javed Iqbal, Interim CFO, British American Tobacco (BAT): ... Thank you. We’ll now take our next question from Fahad Baig from UBS. Please go ahead.

Fahad Baig, Analyst, UBS: Good morning, guys. Thank you for taking my question. The first one is on guidance for full year 2026. You’ve guided for the lower end of the midterm targets. Could you maybe share factors that could result in the performance, whether in 2026 or beyond that, getting you to the middle or even upper half of the range, would be helpful? And then the second question is on heated tobacco. I guess it was a tough year in 2025 from a share perspective. How do you think about share progressing through 2026, particularly as competition in the category is intensifying?

Tadeu, Chief Executive, British American Tobacco (BAT): Okay, thank you, Fahad. Look, I want to start with the second one first, and then we address the guidance. Yeah, we are. We clearly see areas of improvement in our performance in heated products. What we saw throughout 2026 is that the below WAP, which is basically where we were present until the launch of glo HYLO later in the year, has been, you know, very competitive in some of the key markets. And that’s the reason why I have just made the point today that we are coming with a revamped Hyper product that we believe that together with revamped consumables, will strengthen our position in that particular segment.

So we are very encouraged by what we have seen of the performance of this product and in initial tests that we have been doing. We believe that this will support our performance moving forward. Obviously, glo HYLO will complement that, because it’s the first attempts that we have done in the where 7% of the value of the category sits, which is the AWAP, the premium segment part of it, which is. We are extremely pleased with the performance. We are growing week after week with a level of retention of 50%, and this, complemented by a revamped value for money proposition, gives us the confidence that we can revert this trend and start growing from here.

Now, in terms of the guidance, I think that Javed can explain a bit more about 2026. I just want to call the attention that after two years of investing, resetting our business, the U.S. business, our innovations pipeline, BAT is ready to go back to the Midterm Algorithm that we have always had in the company around 3%-5% revenue, leading to 4%-6% operating profit, with a kick around 1%-2% for EPS. That’s the range of 5-8. Obviously, our targets have incorporated the transactional effects. I always try to make this disclaimer about BAT’s targets. And...

But the profile of growth of this range will differ now from where we were, I would say, several years ago, because the new category will be even more prominent on that. Out of the 3-5, we have mentioned before that combustibles we expect to be delivering around 1%-2%, and with the US being, you know, in the medium term, between 0-1, and the rest of the group, the international part, I would say, the other two regions above 2%. In 2025, we have, despite all the difficulties that we face, mainly in the APMEA region, we were able to deliver 1%, and we said that Bangladesh and Australia had an impact of 1% at top line, which otherwise would be high end of this range.

So I’m very confident that moving forward, we can comfortably be delivering within those range. And, and when you move to, to new categories, for the algorithm to work, we had to deliver double-digit new category. Hasn’t been the case in 2025, basically because of the headwind we face in vapor. There are a number of reasons for that, but mainly related to the legal, market in the US, that now we are seeing signs that, the authorities, be federal or state level, are addressing. So we expect, moving forward, to have, less of a drag and eventually even a tailwind coming from, from vapor that will be support of the category for BAT. THP, we just spoke about, and, we expect to accelerate our growth from now on with those offers.

And obviously, Modern Oral, we have a, you know, a leading brand now, and we expect to grow from strength to strength. So I’m very confident about being able to deliver the double-digit new category revenue growth, to deliver 1%-2% on the combustibles side. This will flow through to the 4%-6% in terms of increasing margins that is supported by all the productivity savings that we have, rather mapped out until 2030. And, and I specifically in 2026, I would like Javed to comment about.

Javed Iqbal, Interim CFO, British American Tobacco (BAT): Thank you, Tadeu. I think on 2026, specifically, if I go region by region, and then we can look at overall, in case of APMEA, as I highlighted, that we expect Bangladesh to be a, not a big drag, but Australia still remain a meaningful drag, which is becoming smaller and smaller every year.

Tadeu, Chief Executive, British American Tobacco (BAT): ... So in 2026, Australia will still be a drag, but will be less meaningful in 2027. Having said that, also, we will continue to invest in the rollout of premium innovations in APMEA as well, as you saw in terms of glo Hyper. So that will be there as well. The other thing is, in that area, is that in case of AME, we still face headwinds from the illicit environment in vapor, and also the regulation changes in Poland, which happened at the end of the year, which has made the legal vapor out of the market, which is again, a drag for us. Coming to U.S., you have to keep in mind that comparator from 2024 to 2025 versus 2025 to 2026 is very different. We had a very good performance in 2025, so that comparatives changes.

And also we are assuming for now, stable volumes in Vuse in U.S. So we are expecting that the enforcement level, as we’ve seen so today, will stop the decline, but we’ll keep the volume overall stable. And lastly, also, we highlighted in our pre-close trading update that we are exiting certain geographies which are not adjusted, but they will have an impact on our numbers in 2026. So hope this all gives you an idea of why the lower end of 2026. But having said that, we are all very proud and confident in the business that we are entering the first year of our Midterm Algorithm.

Fahad Baig, Analyst, UBS: Very comprehensive. Thank you both. Appreciate it.

Speaker 5: Thank you. Our next question is from Rey Wium from Anchor Stockbrokers. Please go ahead.

Rey Wium, Analyst, Anchor Stockbrokers: Good day, Tadeu, Javed, Victoria. I just wanna get back to... I mean, it is quite interesting to listen to your optimism around the new categories. And I just had a quick look at the numbers. Obviously, Modern Oral is doing exceptionally well. You have the opportunity for Vapor to at least stabilize and heated tobacco. I don’t know whether the jury is still out there, but I don’t know if you can just talk high-level stuff here. To give us an idea, which of these categories give you or makes you the most excited in terms of the future growth, in terms of that, I mean, especially now into 2026, we talk of a double-digit revenue growth?

Just to follow up, just on Australia, I mean, it’s quite interesting because I sit in this market. I mean, the legal market is now down to, like, 3 billion sticks or less. Now, clearly, I mean, if I look at Japan, I mean, that’s basically what Japan will consume in the space of 7 days. So I mean, I struggle to understand why you say it will still be a drag. Is it not at a time, you know, that you must consider to exit this market? So I’m just curious to hear your thoughts around that. Thank you.

Tadeu, Chief Executive, British American Tobacco (BAT): Okay. Okay. On the new categories, obviously, Modern Oral is the exciting category out of the three. The pace of growth of Modern Oral around the world is very clear. And even in markets where there is no oral tradition, you take, for example, the U.K., when we launched VELO here four years ago, the incidence of nicotine in the oral was zero, and today is around 3%, sporadically, it can go all the way to 4% in terms of use. And this is happening also in the likes of Poland. It’s happening in emerging markets because it’s very affordable, and like Pakistan that is doing extremely well, South Africa doing extremely well, Kenya.

There is a massive potential, and we are very pleased with the fact that now we have 24 markets already that have passed legislation. The last one has actually been Argentina, a few weeks ago. Portugal has just passed legislation as well. We see clearly a lot of potential in this category, and we are obviously very pleased that we have a leading brand in this category. In terms of tobacco heating product, is a GBP 9 billion revenue category in which BAT has just below GBP 1 billion.

So there is a lot of white space for us, and it has been more and more competitive, but we have now a product that is being present in the value side of the category, if you want, on the premium side, that one has never been the case before. So with glo HYLO, we are tapping a very, very, it has been an untapped subcategory within the category for BAT, and we are extremely excited about this possibility to occupy some of that white space in a category that is still growing, not at the same rate of Modern Oral, obviously, but it still grows at a mid-single digit or high single digit. So...

Vapor is a difficult category because of lack of enforcement and or regulation, and that’s the reason why we have. There is actually a difficult to compete with some of these illegal products or products that doesn’t have concerns in terms of a responsible way of doing vapor. That’s why we came with this campaign, because you see a proliferation of device with thousands of puffs that have a very different negative risk profile than the ones that we sell. So there is no level playing field. And the reason why we are addressing a premium subcategory within vapor, with the likes of Vuse Ultra, is exactly our recognition of that.

We are not really competing for volume, we are competing for value and offering consumers a responsible way to do vapor. Obviously, the U.S. is the largest vapor market, so all the attention is to the FDA that I think that has give some indications now that they understand that the root cause also of the problem is the lack of level playing field. And hopefully, we can see some of the pilots that they are doing now in nicotine pouch into vapor in the future as well. So that’s the new categories....

Australia, look, Australia has, as you know, since the introduction of plain packaging in 2012, with very misguided and illogical regulations year after year, and increasing excise at much higher than inflation, to a point today that the average price of cigarettes legal markets in Australia is more than twenty equivalent of GBP 20, GBP 22, and whereas the illicit products is around GBP 6. So as a consequence of that, 65% of the combustible market now is illegal. They have, in essence, reduced the average price for consumers, and for the first time in many years, we see an uptick of incidents of smokers in Australia.

Not just they decimated the tax collection, but also with this illogical regulation, they are seeing now incentivizing consumers to smoke a product that is much cheaper than the legal market, and obviously carry on with all the criminality, as we know, have seen in many different markets. Now, the impact for us is that has always been a very important market for BAT, and. But like Javed said, we’ve come to a point that becomes insignificant. So the drag in 2026 will not be the same as 2025. It’s still a drag, but it’s not be the same.

And from there on, if the government carries on doing that, which seems to be heading towards 100% illegality anyway, we don’t even need to take this issue lightly, ’cause the direction of travel has been very clear. If you add the vapor category, that has an incidence of 9% of adult consumer and is 100% illegal today, 85% of nicotine consumption in Australia today is illegal. So it’s just a question of, you know, a couple of years and unless they decide to do something more reasonable, no?

Javed Iqbal, Interim CFO, British American Tobacco (BAT): Thank you very much.

Speaker 5: Okay, our next question is from Pallav Mittal from Barclays. Please go ahead.

Pallav Mittal, Analyst, Barclays: Good morning. Thanks for taking my question. So two of them. Firstly, on the US business, clearly your price mix is pretty strong at 12% plus. Can you help us understand what percentage of your US volume portfolio is right now benefiting from the excise duty drawback? And how much score does it have to increase in the future given your global business? That’s the first one, and then secondly, appreciate all the commentary on your NGP guidance for 2026. But your low double-digit growth, it still, I mean, seems like you’re factoring a pretty sharp normalization versus what we can see in data, especially on nicotine pouches and the e-vapor side of things. So can you just help us understand the moving parts for your low double-digit guidance for 2026?

Tadeu, Chief Executive, British American Tobacco (BAT): Okay, Javed, will cover your second question. On the duty drawback, this is a long-standing legislation in the U.S. to incentivize local manufacturing and promote export from the U.S. So obviously, what we are doing is exactly that. Reynolds has invested more than $200 million in terms of manufacture over the last couple of years. We have generated more than 800 jobs, and we increased our purchase of leaf in the U.S. by 65%, and today, Reynolds is the number one company in terms of volume of leaf purchase in the U.S. market. So we are not making disclosure specifically about the duty drawback impact, but one data point for you to consider is the fact that our revenue in combustible would have been positive independent of the duty drawback.

So it’s important to mention that, because at the end of the day, if you—when you go back to what I was referring to in terms of the long-term algorithm, we expect the U.S. market, in terms of combustible, to be declining at rates around 6%-7%, and this should be given the elasticity and the that is still exists in the market, the possibility for Reynolds to get to a positive revenue around 0%-1%. In the current years, it has been more than that, because the company is doing extremely well in terms of the strength of the portfolio, but also the duty drawback is helping for those in that sense as well.

But independent of the drawback, we are positive, and I feel very comfortable with the range that we have set ourselves for our long-term algorithm.

Javed Iqbal, Interim CFO, British American Tobacco (BAT): I think on the overall new category revenue guidance of loaded double teens is one thing, one couple of points, one in the U.S. Even I, as I explained in my presentation, that we had a negative number for the full year on Vuse. So what we are expecting in the Vuse numbers to be flattish, because it will require a more meaningful and more stronger enforcement, and given a very complex and long supply chain, even those measures will take time to have a meaningful impact. So even the ITC regulation, which today was talking about, if it gets passed through, it will be much later in the year when we’ll see some meaningful impact.

Having said that, also, as I highlighted the regulations, for example, in Poland and Europe, which has put a drag on the Vuse volume because it has made the whole illegal business on a negative in that number, so that’s not possible to run, enter that market. And also the highly competitive environment we see in the vapor segment within the heated product portfolio, as we were talking about earlier, that competitiveness will continue to be there for the short term. So if you put all these together, that’s why our guidance on the low end of the teens. But having said that, we are very confident in midterm that Velo will lead the charge of new category revenue growth, being the fastest-growing brand in the fastest-growing nicotine category globally, including US.

I always said that given all these points, that’s why we have guided on this front at the low teens for now.

Simon Hales, Analyst, Citi: Thank you.

Speaker 5: Our next question is from Simon Hales from Citi. Please go ahead.

Simon Hales, Analyst, Citi: Thank you. Morning, Tadeu, morning, Javed, morning, VV. So a couple from me. I wonder if I could just first come back to some of those comments you just made on the U.S. business on a go-forward basis. Javed, just back to the point in terms of the vapor performance and the flat vapor expectation for 2026. I’m still just trying to square that circle, given you’ve got pretty strong exit rate momentum through the second half of the year. I appreciate enforcement actions in vapor aren’t a straight upward line, but we’re still probably going to annualize at least through the first half some of the building enforcement we saw in 2025, and that should help the vapor category, one would imagine, or the legal vapor category in the first half.

So are you therefore expecting, as we come into H2 of 2026 to see your, your boost business now down year-on-year to get you back to that flat guidance for the year?

Javed Iqbal, Interim CFO, British American Tobacco (BAT): Yeah.

Simon Hales, Analyst, Citi: And then secondly, on the U.S., today, you talked about 6%-7% being the normal helpful run rate of decline on combustibles volumes.

Javed Iqbal, Interim CFO, British American Tobacco (BAT): Mm-hmm.

Simon Hales, Analyst, Citi: Is that something you expect to see in 2026? And could you also perhaps talk a little bit about what you’re doing in discount at the moment, the performance of Doral last year, and your plans on that brand going forward?

Javed Iqbal, Interim CFO, British American Tobacco (BAT): Okay. Mm-hmm.

Tadeu, Chief Executive, British American Tobacco (BAT): Yeah.

Javed Iqbal, Interim CFO, British American Tobacco (BAT): Okay.

Tadeu, Chief Executive, British American Tobacco (BAT): So if I take the first one, so I think one thing which I have to highlight further on the second half performance of 2025 of Vuse in U.S., other than the enforcement, there is also one item which will not see repetition, was the delisting of competing product in which Vuse gained. So 63% of those consumers stayed within the closed systems, and in RCS system, Vuse gained more than their fair share of our category. So that is one thing which is also boosting Vuse performance in the second half. So I wouldn’t be replicating that second half into the full year of 2026. Full year of 2026 is more focused and will be more dependent upon the level of enforcement we see.

As also highlighted by Tadeu, that although we have seen regulation covering 40% of the legal volume, but level of enforcement varies from state to state. So, one, not having that one-off of the exit traffic competition, which we gained more than fair share, and enforcement, it still seems to be early days, so that’s why our guidance on the Vuse comment was made by me. Yeah, on the volume side, my comment is more, I would say, hypothetical situation, no? It’s not a 2026. What’s happening in the US market is the following: If you go back to 2020, 54% of the nicotine users were using traditional nicotine products, combustible, traditional oral. You go now to 2025, it’s 34%. So the balance is happening is...

What’s happening is the transition of these consumers to either polyusing or using solo users of—becoming solo users of, smokeless products, either modern oral or vapor products. So obviously, the secular decline that was related to ADC and level of incidence reducing over time, around 4%, will not be coming back. That’s my point. So even if you see a meaningful enforcement in vapor, in disposables, that we know that has currently plays a role in terms of the level of decline of cigarettes, even if we see that, even if we see improvement in the macroeconomics in the U.S., it’s very hard to imagine the market going back to 4% decline because of the dynamic of the polyusers and solo users in new categories that I was referring to.

My point is that, in the long run, with a meaningful enforcement in disposable, with macroeconomics strengthening between 6-7, I think that where we see today, in the next couple of years, in the scenario that we are seeing, I think that the performance in 2025, around 7-8, is a more reasonable one to assume. That’s what I would assume. Now, obviously, this is overall market. When you separate from the overall market, the deeper discount has a very different dynamic. We are seeing more activity there from competitors, and as a consequence, we saw the deeper discount growing by 10% in 2024, 4 or 5. It was even higher than the 7% that they grew in 2024.

So we have been piloting Doral, to your question. We have been always very mindful, because despite the fact that the deeper discount is growing, as opposed to the general market, the 95% of the value continues to be outside the deeper discount. So we are very mindful in terms of testing the product. In this case, it’s Doral. We did pilots in Louisiana, in West Virginia, and what we are seeing in those pilots is suggesting that we’ll be able to expand Doral for other states as well... take into consideration the source of business, the potential downtrades of our own brands. We are doing that with the value in mind. We are not doing that for the sake of market share.

We want to cap, to expand oral in the States, that makes sense from the value point of view.

Speaker 5: Got it. Thanks very much. Our our next question is from Richard Felton from Goldman Sachs. Please go ahead.

Richard Felton, Analyst, Goldman Sachs: Thank you. Good morning. Thanks for taking my questions. Two, please. The first one is on vapor. So look, great news that the U.S. is starting to take some proper enforcement action against illicit vapor. But you know, your comments point to, I suppose, a challenging environment in markets ex-U.S. So thinking about those ex-U.S. markets, are you seeing any shifts in appetite from governments or regulators to start to enforce against that illicit segment a little bit more stringently, or does that remain very challenging? Any comments on some of your top vapor markets, ex-U.S., on that topic will be very helpful. And then the second one, so sorry to come back on the duty drawback question.

I appreciate you don’t want to give us the exact numbers for 2025, but just sort of, I suppose from a high level perspective, thinking about duty drawback into 2026, is the tailwind gonna be more or less than it was in 2025, a similar level? Any high-level comments just to sort of help us triangulate on that would be very helpful. Thank you.

Tadeu, Chief Executive, British American Tobacco (BAT): Okay, Richard. Look, vapor is... I don’t think that there is a one-size-fits-all here. We know, based on our own experience, that when we have geographies where we have retail license, we have proper regulation and proper enforcement. I would say, for example, France is one of the case. You just can sell vapor in tobacconist stores, and this helps with the discipline in the market.

In the U.K., for example, despite the fact that we have been asking for a retail license and we haven’t seen the movement in that direction, there is a tobacco vapor bill being discussed as we speak, and hopefully they will address that. But the attempts to ban disposable has failed because the manufacturers that are not responsible try to circumvent these regulations. So 50% of the market is illegal today in vapor, and this is a demonstration of how difficult the governments find to either regulate, but more important, to enforce regulation in some markets.

We have, you know, as much as we can, and we have promoted this Vapor Deserves Better campaign. We have been very vocal about what are the measures that government should be take into consideration to try to discipline that. And this with no surprise, you see us talking about retail license, hefty fines if they got caught, a more stringent discussion in terms of age verification when you buy the product, and a negative list to avoid things like sucralose that in the liquids, to sweet the liquid. So there is, in our webcast and all that, there is plenty of. But there is still a lot of work to be done on that.

And as a consequence, we are trying to, as part of our resource allocation, return of investment mindset, the quality growth, which is not just about top line, but also bottom line, we have been focused on and more important markets, the likes of France, like I said, the likes of Germany, the likes of Italy, which is standing out from others, and then pulling back in markets like Malaysia, for example, and South Korea, so on, so forth. So that’s the situation on vapor and outside the US. In terms of duty drawback, look, we... I’m not giving guidance specifically for the drawback.

There is we see that the benefits that we are generate for the economy, for example, is the driver behind, as much as we can start to, you know, grow employment and growing the activities in the farmers, domestic in the U.S., we carry on. Obviously, this is not forever. This will be, like you suggest, a peak. And in the meantime, we are strengthening our portfolio in combustibles. We are seeing the overall market decline being more supportive, which is also important for the future. And more important is us being able to create a strong position outside combustibles. Because I understand the concern on the combustibles side, but overall, nicotine in the U.S. is growing. Is growing in value and is growing in volume.

So despite the fact that you see consistent decline in cigarettes, you see massive increase in the modern oral space, you see strong increases still in vapor, unfortunately, on the illegal side, but it’s very encouraging, the signs that the new administration is giving to address that. Because in untapping this potential there, there is no much concern about the direction of the cigarette, ’cause what we want, in essence, is exactly to migrate smokers out of cigarette towards those products. But what is needed is a level playing field.

Speaker 5: ... Thank you. Honorable Turner. Our next question from Bastian Agu from Bank of America.

Bastian Agu, Analyst, Bank of America: Good morning, Bastian from Bank of America. Thank you for taking my question. I just have a quick one on the buyback. Your net debt is close to your target, 2.5, and your free cash flow in 2025 was quite strong. So my question is, with adding the buyback GBP 1.3 billion for 2026, what kind of margin do you have to potentially increase it at some point or another during the year? I understand that your debt is approximately 70% in dollars, so could be quite volatile on that. So but just to understand the moving part on your buyback for full year 2026. Thank you.

Javed Iqbal, Interim CFO, British American Tobacco (BAT): I think, Bastian, thank you very much. We started a sustainable share buyback program in 2024, and we started it with GBP 700 million, and now we are at GBP 1.3 billion with an increase of GBP 200 million for 2026. We remain our focus on, cash and also deliver. We have to enter into the eligible range of 2-2.5. And also, we want to make sure that we continue to deliver additional incremental dividend in the sterling terms and continue our 25 years+ record on that front, and continue a sustainable share buyback. What we want to ensure is to create more optionality for capital allocation and medium to long term for the business.

For now, I’m very comfortable with the increase we have done of GBP 200 million, from GBP 1.1 billion to GBP 1.3 billion for 2026, and we keep on focusing on generating cash to bring us back into our range of 2-2.5, and continue a sustainable buyback.

Bastian Agu, Analyst, Bank of America: Thank you very much.

Javed Iqbal, Interim CFO, British American Tobacco (BAT): Yeah.

Speaker 5: Thank you. Our next question is from Damian McNeela from Deutsche Numis. Please go ahead.

Damian McNeela, Analyst, Deutsche Numis: Hi. Morning, everybody. Thanks for taking the questions. The first question is just on US combustible and particularly on pricing. I was wondering if you could provide any more granularity on the pricing within the sub-segments that you operate in, and what the sort of outlook for 2026 might be for pricing, given the very strong year last year? And then the second question is on CapEx. You’ve indicated a step up this year. I was just wondering whether that level of CapEx is what we should be expecting for out years past 2026.

Tadeu, Chief Executive, British American Tobacco (BAT): Thank you, Daniel. Look, on the CapEx side, we are increasing at the back of investments, mainly on the Modern Oral space. Most of the CapEx today is being reverted back to the new categories and our and giving the space for us to continue growing. We don’t have, you know, huge expectations to be much beyond the level that is currently. This is suiting us well, because at that level, we still can be very close to the 100% of operating conversion.

It’s not a limitation, but it’s just a fact that, with this level of CapEx, address the business needs, at the same time, it puts us in a strong position to continue having high levels of operating cash conversion, which is very helpful for the financial flexibility and capital location that, Javed was referring to. On the US combustible, look, I cannot be talking about pricing, and, What I can say to you is that, the price elasticity is still very benign in the US, when you compare the price of cigarettes vis-a-vis the average in household income.

Obviously, there is a dynamic there because of the specific tax, that so when we increase the price of a pack of cigarettes, the manufacturer have a, a higher benefit than the consumer perceive as a price increase, which is also helpful. And, but what Reynolds has been doing is laddering some our brands. We did that, very successfully with Newport. We have launched Pall Mall Select, as well, which is another laddering. And, we have now Doral, like I said, in pilot phase, that we, we probably, we expect to, to, to roll out to, to more states. But I cannot speculate with you about future price.

Damian McNeela, Analyst, Deutsche Numis: Thank you.

Speaker 5: Thank you, everyone. Thank you. It appears that was the last question today over the phone. With this, I’d like to hand the call back over to Victoria. Over to you.

Victoria Buxton, Group Head of Investor Relations, British American Tobacco (BAT): Sorry. Thank you very much, everybody, for your questions. I’m afraid that’s all we have time for today. So if you put a question into the web, then the IR team will be delighted to answer the question as soon as we can. I’d now like to hand back to Tadeu for closing remarks.

Tadeu, Chief Executive, British American Tobacco (BAT): Okay. Thank you all for listening today and for your questions. To close, I’m confident we have the right building blocks in place to deliver our Midterm Algorithm, supported by delivering 2025 results at the top end of guidance. We will continue to reward our shareholders through strong cash returns, including our progressive dividend, the sustainable share buyback, and enabling us to deliver long-term growth and value creation. Thank you again for joining us. I look forward to see many of you at the CAGNY conference next week, where we are presenting on the eighteenth of February.