British American Tobacco Aktie

Good morning, everyone. I'm Victoria Buxton, Group Head of Investor Relations. And with me this morning are Tadeu Marroco, our Chief Executive; and Javed Iqbal, our Interim Chief Financial Officer.

Welcome to our 2026 first half pre-close conference call. I hope that you are all well, and I would like to thank you for taking the time to join us this morning. Before we begin, I need to draw your attention to the cautionary statement regarding forward-looking statements as well as the notes and disclaimer contained in the trading update.

Unless stated otherwise, our comments will focus on constant currency adjusted measures, which include adjustments related to the profit from our Canadian combustibles business and average year-to-date share data is to March 2026 versus full year 2025 average.

I will now hand over to Tadeu with a reminder that as always, there will be an opportunity to ask questions later in the call.

Thank you, Victoria. Good morning, everyone, and welcome. We continue to drive momentum in 2026 and remain firmly on track to deliver our full year guidance. I would like to begin with our four key takeaways from today's update. First, we expect to deliver strong revenue and profit growth in the U.S. supported by ongoing combustibles delivery, growth in Vapour and an excellent performance in Modern Oral.

We are now the fastest-growing company in total nicotine, reflecting the strength of our multi-category portfolio and execution in the world's largest value pool. Our broad-based momentum, together with the FDA's recent prioritization guidance improving market access for scientifically substantiated reduced risk products reinforces my confidence in our sustainable financial delivery.

Second, we expect New Category revenue growth to accelerate to mid-teens in H1 and for the full year, driven by Modern Oral in all three regions. A return to growth in Vapour for the first time in 2 years and continued traction with our innovation rollouts across New Categories.

Third, we expect further improvement in New Category contribution, driven by Modern Oral and Vapour fully aligned with our quality growth discipline. And finally, we remain on track to reach our net debt to EBITDA leverage target of 2 to 2.5x by year-end while continuing to deliver sustainable shareholder value through our progressive dividend and a sustainable share buyback program with GBP 1.3 billion underway into 2026.

So let's start with New Category dynamics. The global nicotine industry continues to transform and grow as adult smokers increasingly switch to New Categories. Effective regulation and enforcement are critical to supporting sustainable New Category growth and advancing tobacco harm reduction.

We continue to engage proactively and on an evidence led basis with key stakeholders including government, health authorities and regulators to help shape effective regulatory enforcement frameworks for new categories. The tobacco harm reduction journey is already well advancing markets such as Japan, Sweden and the U.S., where the FDA has been at the forefront of recognizing the risk continuum.

We welcome the FDA's recently published prioritization guidance as an important step toward effective enforcement and expanding market access for responsible industry players. We have long advocated for increased enforcement and a return to a regulated marketplace that is not overrun with illicit products, providing a clear and consistent pathway for scientifically substantiated less risky products to reach the market will support continued progress towards Smokeless America.

We are reviewing the guidance in full assessing its implications and engaging with the FDA on implementation, while actively evaluating our commercial and resource allocation priorities. Leveraging Reynold's significant U.S. scale, precision execution, deep trade relationships, strong operations footprint and expanding digital capabilities puts us in a unique position to capitalize on this opportunity, drive growth and capture outsized value in the U.S.

We are actively preparing our future Modern Oral and Vapour portfolio for markets. Execution is scheduled to begin in H2 with a phased and disciplined rollout, balancing speed with rigor. We are scaling operational readiness and leveraging new regulatory pathways to accelerate delivery over time. Importantly, we remain committed to a science-led approach to ensure responsible and sustainable growth.

Reaching the scientific review stage of the PMTA process represents a meaningful quality threshold, and we believe this approach can support a more level playing field more target enforcement against bad actors and greater transparency across the industry. We are confident in the strength of our science and portfolio. Through our continued participation in the Modern Oral PMTA pilots, we see a clear pathway to marketing authorizations for our leading higher moisture products.

Additionally, we are encouraged that the Center for Tobacco Products has indicated it intends to use the learnings from this program to inform a broader replicable approach to expedite review beyond the Modern Oral category. Our sustainable growth in the expanding nicotine industry is driven by six core capabilities.

These are underpinned by over 120 years of tobacco industry expertise, enhanced by our leading science, technology and strategic partnerships. By leveraging our deep cross category insights, world-class science and stewardship, unique R&D ecosystem, global distribution, regulatory expertise and digital capabilities.

We have built a well-established and differentiated portfolio of global brands with premium products offerings across all three new categories. Modern Oral is by far the fastest-growing new category globally and the lowest risk containing 99% fewer toxicants when compared to cigarettes. We expect industry revenue to almost triple by 2030, with Velo outpacing category growth. Modern Oral is already a meaningful and growing contributor to group revenue and profit, supported by high levels of profitability and fast payback.

This year, we expect to deliver strong double-digit revenue growth as Velo extends our category volume share leadership gaining 740 basis points year-to-date to reach 38.2% across top Modern Oral markets. In the U.S., Velo Plus the fastest-growing Modern Oral brand has strengthened its #2 share position and continues to drive material share gains.

Year-to-date, we gained 10.4 percentage points of total volume share of Modern Oral to reach 28.4% and 9.9 percentage points of total value share reach 23.1%.

Encouragingly, Velo Plus is capturing 100% of category value growth year-to-date and has already achieved category share leadership in seven states. As a result, we expect strong U.S. Modern Oral financial performance this year. These excellent results reflect the strength of our products, branding and distribution capabilities, underpinned by a consistent 70% repurchase rate since launch at the end of 2024.

In AME, we are the clear category leader selling at a premium price point and strongly outperforming competitors at close to 6x the scale of the nearest peer and we continue to capture over 60% of category growth, highlighting the further opportunity ahead.

Our latest innovation Velo Shift is designed to reshape the modern or experience with a new comfort pouch design, five new distinct sensory flavors and the differentiated [ excan ] designed to stand out on the shelf. Trading at a premium to the core Velo range, Velo Shift is delivering incremental share gains in Sweden and early traction in Switzerland, supporting a target rollout strategy with further market expansion through 2026.

We are global leaders in Vapour, which remains the largest new category in terms of number of adults consumers and continues to demonstrate strong conversion effectiveness. Vuse continues to extend global value share leadership in tracked channels across top markets, up 1.3 percentage points to reach 44.4%. While the Vapour category continues to be impacted by the proliferation of illicit products, we are encouraged by continued performance recovery in the U.S., the world's largest Vapour market.

Year-to-date, Vuse has gained 4.2 percentage points of value share to reach 56%, driving positive volume and revenue growth in H1.

This recovery has been supported by a competitor exits last year, which benefited the second half and significant progress on state level enforcement which built through 2025 with Vapour directory and enforcement legislation covering around 50% of the industry by December versus just 8% in January. We now expect U.S. vapor to deliver double-digit revenue growth in H1 and full year.

Looking forward, we are confident that Vuse is well positioned to benefit from strong enforcement over time at both federal and state levels. In AME, while our value share declined 1.5 percentage points, we maintained European leadership and continue to build a premium segment through Vuse Ultra. We expect revenue delivering H1 to be adversely impacted by regulatory headwinds in the U.K. and Poland.

In APMEA, our performance will reflect the lapping of prior year strategic exits from markets where regulation and enforcement do not support a responsible level and competitive playing field. Altogether, we expect mid-single-digit revenue growth in H1 and full year driven by the U.S. In heated products, gross volume share was down 1.6 percentage points in top markets mainly driven by Japan, with APMEA down 2.1 percentage points.

In EMEA, volume share was down 70 basis points. While there is more work to do, our focus is clear. Delivering innovation-led performance improvement in the largest profit pools. We have streamlined our commercial footprint to accelerate scale with glo Hilo in priority markets, and initiated a hyper platform reset with Hyper Pro in the value segment.

We expect headline delivery to be adversely impacted by material inventory movements in Japan and continued competitive intensity in the value segment in key markets. As a result, H1 and full year revenue is expected to be down low double digits with an improvement in H2 share performance driven by greater glo Hilo scale and phased Hyper Pro Plus rollouts.

Glo Hilo is designed to establish glo in the premium segment, which represents over 70% of industry value. We continue to focus on generating trials, targeting premium consumers in the combustibles and HP spaces through online and in-person activations.

This is translating into premium share progress in key markets, reaching 2.6% in Japan, 8.8% in Poland, 1.5% in Italy and 1.1% in Romania in March. Glo Hyper Pro Plus further strengthens our value proposition, delivering meaningful upgrades to the consumer experience and reinforce competitiveness in the value segment offering quick start, longer standard session length and connectivity. We are rolling out in Q2 in Italy, Romania and Greece with broader expansion planned through the second half to markets, including Japan.

Turning to combustibles. While our volume share in top markets was down 30 basis points with value share down 20 basis points, we continue to deliver a resilient financial performance, offsetting volume declines with robust price mix and efficiency gains. Our U.S. value share declined 20 basis points and volume by 80 basis points, driven by growth in the deeper discount segment and heightened competitive activity in Q4 2025.

Since January, we have held share as we continue to actively invest in our brands, increasing target promotions across all price tiers and expanding Doral in key states where the deep discount segment is more active. The pace of industry decline has moderated, down by around 5% year-to-date on a sales to retail basis, mainly driven by deep discount brands.

Our portfolio continues to deliver value growth driven by our target commercial activities in the more profitable segments of the market. This is resulting in sustained positive momentum in both revenue and profit growth in H1. We expect our U.S. combustibles performance to be first half weighted as we lap a stronger prior year comparator in the second half, and we continue to invest in target commercial activities to drive sustainable value.

In AME, we have continued to deliver a resilient financial performance with robust pricing driving revenue and operating profit growth, led by strong delivery in Brazil and Turkey. We have also taken actions to strengthen our portfolio in Germany and Romania. In APMEA, while progress has been slower than previously anticipated in H1, we expect a sequential improvement versus H2 2025 and our performance to stabilize through the year.

Bangladesh remains a dynamic environment ahead of the upcoming budget. And while Australia continues to be a headwind, the drag is reducing year-on-year. Within our traditional portfolio, we expect a resilient H1 combustible performance to be partially offset by lower direct leaf sales versus the prior year reflecting our continued focus on higher return, more profitable areas.

Turning to cash. BAT is a highly cash-generative business with operating cash conversion expected to exceed 95% again in 2026, reflecting our strong cash discipline and a clear focus on returns. Due to the timing of leaf repurchase and MSA payments, our cash flow is always second half weighted.

Our financial flexibility continues to improve, and we are on track to deliver more than GBP 50 billion in free cash flow by the end of 2030. We continue to focus on the deleveraging, and we expect to be within our target 2 to 2.5x adjusted net debt to adjusted EBITDA range by year-end. As we transform, I remain committed to delivering sustainable shareholder returns through our progressive dividend which dates back 27 years and a sustainable share buyback program.

To conclude, before we move to Q&A, our full year guidance remains firmly on track, led by continued U.S. delivered and New Category momentum. We continue to expect an H2 weighted group profit driven by stabilizing our performance in APMEA and the increasing realization of Fit2Win savings through the year.

We are making good progress with our Fit2Win program and remain on track to deliver GBP 600 million of annualized savings by 2028, with GBP 500 million expected to be delivered by the end of 2027. We are closely monitoring developments in the Middle East. There is no significant impact on the group at this stage and we have comprehensive business continuity plans in place to manage cost and supply chain pressures.

However, the broader macroeconomic and geopolitical backdrop is dynamic, increasing the risk of volatility in consumer sentiment should uncertainty persist. While there is more to do, I'm confident that the choice we have made and the actions we are taking position BAT well for the future. I'm excited about the opportunities ahead and confident in our ability to deliver long-term sustainable growth and value for our shareholders.

Thank you for listening. Javed and I will now be very happy to take your questions.

[Operator Instructions] The first question is from Andrei Andon from Jefferies.

Two for me, please. Firstly, in the release today, you cited some down-trading trends in H1 '26 in U.S. combustibles. Could you perhaps give us a bit more color on how you expect these trends in U.S. combustibles to evolve in H2 '26?

And then secondly, in U.S. next-generation products, where is the company at the moment in terms of production capabilities for Velo Max and also for age-gated flavored vapes? And then could you also perhaps give us an indication about the expected timing of these innovations as to when they hit the market and then when we could potentially be seeing a tailwind from these innovations?

Yes, thank you Andrei for the question. On the U.S. combustible, what we saw at the end of last year was a very, very, I would say, intense competitive activity in the market. And on top of a lot of the activations of brands in the deeper discount throughout 2024 -- 2025, sorry. So the reflection on the share that you see in our numbers now in H1, in reality, materialized from these activities that happened more in Q4 last year. And since January, we start taking actions on that.

One of those is related to the rollout of Doral, where it makes sense. I always said that we have been very thoughtful in terms of how to deploy Doral because 95% -- 93% of the value of the category combustible seats outside the deeper discount. And we were very, very conscious not to promote a value destruction movement within our own portfolio. But we are confident with the pilots that we have done that there are opportunities to expand Doral in a value accretive basis, and we are doing this right now.

We also have been much more active in terms of promotions to cope with this intense activity that we saw in the market. And our shares a consequence has been stable since January. So I'm not expecting to see any different trend for the rest of the year. So I would expect the share to be stable at the back of all the initiatives that we have been taking on the combustible side.

In terms of the next generation, obviously, we have very, I would say, supportive of the latest movement done by the FDA. It's clearly is a regulatory pathway that should help to restore more balance regulated markets, reducing the impact of illicit products over time. As you know, we have always consistent advocate for strong enforcement and the progression to scientific review represents a meaningful quality threshold with a more level playing field. So we are actively engaged with the FDA, like I mentioned in my opening here.

And the idea is to bring Velo Max, as we said before, to the market. We should be in a position to do that by summer. The idea is to do between August, September. And we are also enhancing our age verification controls targeting high compliance retail environments and maintaining a clear audit focused position in order to activate flavor Vapour commercialization in order to ensure a responsible growth aligned with the regulatory expectation.

So we expect to see some flavors in Vuse in Q3 this year. And that's one of the reasons why, together with the higher levels of enforcement that is already happening at the state level, but now with the FDA now willing to publish a list of products that should be allowed in the market that should be contributing to enforcement as well on top of allowing products in scientific review. And we do have flavors vapor products in scientific review.

We are at the back of that raising our expectations some of performance of vape in the U.S. to double digit, which should translate into mid-digit growth for the group for the first time in the last 2 years, which is quite favorable for the whole New Category momentum.

I think just one addition that in terms of the question on capacity, we have done enough capacity investments across U.S. supply chain footprint. So we don't foresee any challenge of supplying the continuous growth of Velo Plus or any future launches in the second half of this year. So there is no capacity challenge we foresee right now.

Our next question is from Faham Baig from UBS.

Team, hope you can hear me clearly. I have two questions as well. Firstly, on your expectations on the FDA guidance on enforcement priorities. Could you maybe remind us of how you assess the size of this opportunity, particularly in Vapour, we were, as you said earlier, the illicit products currently dominate?

And the second question, is really on guidance. You've clearly delivered a strong start to the year, especially in New Categories. Could you maybe expand on your assumptions regarding the potential impact from Middle East uncertainties in the second half? And whether this is a conservative assumption given the limited disruption you have seen thus far.

Okay. Look, on the Vapour market, we always saw, and we have assessed, that the vast majority of the Vapour market in the U.S. is dominated by the irresponsible illegal players. And we always quote a number close to 7%. This hasn't changed. This translates into a number around GBP 7 billion of value related to that.

And we clearly see that states have passed some legislation, and remember that I referred to 50% of the Vapour market today sits in states where some sort of legislation has passed, but they vary among states. For those that have implemented a very comprehensive enforcement tools with directors and with fines and were clearly enforcement in place we clearly saw a decline in the illegal market and the consequence return to growth of the legal markets in a more meaningful way.

And this is very encouraging because even those states that hasn't been as comprehensive legislation, we can always refer back to those that has been more successful. So they are open to legislate and they'll probably be taking measures as we go along to improve even further.

So this is very supportive at federal level now with publishing a very clear list of products that are in the discretion of the FDA not to enforce, which are basically in scientific reviews or MGOs that they have in place, we will allow, for example, products that we are still seeing traditional channels be taking out completely.

So these are very supportive. Obviously, the more important measure on this is allowing the responsible players that have a products and scientific review to introduce in a responsible manner, some flavors back to the market with improves the level playing fields and emerging regulatory mechanisms such as the supplemental PMTAs provide also opportunities to expand portfolios more efficiently.

So these are all very positive and the size of the price, like I said, is very high. In terms of the guidance, we are -- what we are -- the reason why we are keeping the low end, we refer to the Middle East. You rightly point out that what I said, and we declared that in the trade update. We haven't seen a meaningful impact so far.

Remember that in terms of supply chain costs, 2/3 of our costs are either labor or leaf related that not immediately get impacted by the high energy cost of freight cost. But on the other hand, our major concern is impact on consumer sentiment. And despite the fact that we haven't seen any material change in that direction.

So far, we are all aware that there is correlation between gas price, for example, and sales of cigarettes in the U.S. And this is a watch out that we have to see how we progress through the year. And I'm not sure if I would call conservative. I think that we are sticking to what we said in terms of guidance. We have delivered exactly what we said and the scenario is still very uncertain in that direction.

The other element for -- that I mentioned is the fact that [ Air ] recover is not as fast as we first thought. We expect the region to stabilize throughout the year. And so H1 in '26 will be better than H2 '25. And the H2 '26 will be better than H1 '26. But -- and it's a drag. It's still a drag for 2026 which we don't expect to be the case anymore in '27 onwards. And that's the reason why we are keeping the guidance, which is exactly what we said.

We'll now turn to our next question from Pallav Mittal from Barclays.

A couple of questions. Firstly, on APMEA. So I mean, you have mentioned the performance is sequentially better, but it has been slower progress than expected. So can you just help us understand which markets have been worse versus your expectation? And then what gives you this confidence that you can stabilize the operations in the second half? That's the first one.

And then secondly, on heat-not-burn, low double-digit decline for the full year. Is it fair to assume -- does the change from low single-digit, mid-single-digit decline earlier to this low double-digit sort of guidance is mainly due to the issues in Japan destocking. And can you also comment within by whether Europe heat-not-burn is growing? Or is that declining as well?

Let me address the heat-not-burn and then I touched on the APMEA. Yes, heat-not-burn our underlying performance, which is a share loss of 1.6 percentage points. It's basically a consequence of the fact that we had launched glo Hilo just at the very end of last year. That's the first thing.

So we didn't have the presence in the premium subcategory as we do now. And also that we saw a much increased competitive activity and mainly in the value side of the category where we were pretty much present and dominant with the hyper pro.

And just now that we are now updating our offer in that particular subcategory. So we expect, as a consequence, to see share improvement in HP as we move along throughout the year. Hilo is doing the role that they were supposed to do, and this is growing in every single market that we have launched and the new hyper pro device, and together with consumers, will give us what we believe a very strong position on that.

Obviously, we are also taking some measures in terms of coping with this competitive activity with more discounts that end up impacting also the top line of the category. But the major driver behind this low double-digit decline is related to the adjustment in stocks in the main distributor in Japan. I don't think that will be a -- it will be a one-off, but it will not be a rebound in the second half. So this will carry on throughout the year, and that's the reason behind the low double-digit revenue decline in HP.

Now in terms of APMEA, we -- Bangladesh is the market that is already suffering the consequence of a massive excise hike last year, in a way, it's not a big surprise. We also need to see how the government will address the budget season that is coming out in a few weeks' time.

And but we are seeing a lot of softness in the market to a point that our global cigarette forecast now has reduced to -- from 2% to 2.5% is exactly Bangladesh driven. And obviously, we're exposed of it because of the leadership position that we have in Bangladesh.

And this is the major reason for a lower pace of recovery. As we come along the second half, we'll be lapping big issues that we face in Australia, that most of the decline we saw last year happened in the second half. So the comparator will be much softer compared with the first half of this year.

And on top of that, we still -- we are seeing good progress in other markets in APMEA that give us the confidence to see stabilization as we go along through the year.

Sure. If I can just squeeze one more in. A question on Vuse in the U.S. So clearly, at the full year results, you were talking about flattish expectations for the full year.

So now given that you are expecting double-digit growth, is it mainly due to the new product launches that you were highlighting could come in the third quarter? Or is the underlying market sort of improving?

No. The underlying market is actually improving. The level of enforcement that we are seeing from the state levels mainly is really having a favorable impact and give us some confidence that combined with the new offers we've come to the market as we go along. But remember that this year will be more the last quarter of the year.

But -- so we will not be the driver behind the double-digit expectation but will be helpful, obviously. But the underlying performance is the one that is supporting that.

We will now take our next question from Emanuele Sartori from Kepler Cheuvreux.

I have just two, please. So the first one on New Categories, and particularly U.S. Modern Oral, can you help us bridge the acceleration between volume and pricing? I'm pleased to see that Velo Plus driving very strong share gains, but how much of the expected mid-teens new categories revenue growth is volume-led versus pricing?

Or is there any promotional normalization? And especially in the U.S., just trying to see are you seeing value share converging towards volume share? Or there's still a meaningful gap and a strong promotional activity?

And my second one then will be on the global cigarette industry volume that you now see down 2.5% compared to the previous guidance at 2%. I hear you mentioned Bangladesh. Are you just -- is that the main driver? Or are there any key drivers behind the update?

Thank you for the question. So in the last one, yes, it's basically Bangladesh. The major reason behind this revised guidance for the global combustible business. On Velo Plus, I would say that most of the growth is volume driven, and we have -- remember that we have started Velo with the price index to the leading brand that's 65% because we need to activate the brand, and we need to generate trial.

And today, we sit between 90% to 95% of the price index. And obviously, this also has helped us to reduce the gap between market share and value share. I quote both of them in my script. We are in 28-ish in terms of market share, 23-ish in terms of value share. So it's much closer than it was before. But I have to say that most of the driver behind is the revenue generation is volume driven. The performance are pretty strong on a weekly basis.

If I just may add a follow-up there. Do you have any target in mind on market share in U.S. Modern Oral in the next?

Look, I think that -- the more exciting part of this category is the growth of the category as a whole. And this is a category that I have been saying that for a while. The potential of growth in terms of incidence growth and also average daily consumption growth is really -- is expressive in the U.S. because in terms of every average daily consumption, we see in the Nordics an average of 8 to 10 pouches -- 12 pouches in the Nordics in the likes of Sweden, and we see something like 6 to 8 in Europe.

And today, it's still 3.6 pouch per day on in the U.S. So we know that as the category gets better products and now with the pilot and the latest guidance from the FDA, you'll probably be seeing overall better products in the U.S. market. We expect the category to carry on growing and growing very fast.

And that's what will be behind our expectation to see the category to triple by 2030. That's for me is more important. We have taken leadership worldwide of the category. So Velo is the leading brand worldwide, with 38% category share in the major markets. And we have all the possibility to carry on in that leading position. And that's for me what's important and being -- having the fastest growing brand in the fastest-growing category of new categories in the world today.

[Operator Instructions] Our next question is from Bastien Agaud, Bank of America.

You just talked about both consumer and the difference between Europe and the U.S. Just on Europe, do you -- I mean the category growth that you see, is it no more driven by a slight increase in pouch consume per consumer? Or do you still manage to grow the consumer base?

And the second part of my question is since the U.S. should have better quality product, as you mentioned. Do you think that over the long term, the potential for the U.S. in terms of pouch consume per consumer it's possible that it can be higher than in Europe.

Sorry, can you repeat the second question?

Sure. Is it possible that number of pouch consume per consumer in the U.S. could be higher than in Europe over the long term, given that we should have a higher quality product in the U.S. -- yes.

I see. I see. I see what I mean. Okay. Look, just to address your first point, there is an increase in the base of consumption in the U.S. And actually, that's what is behind our numbers of noncombustible users that we have this target of 50 million, reach 50 million by 2030, we are well on track on that. And if you see the amount of users that we grew last year.

We saw a lot of that coming from Modern Oral specifically in the U.S. So clearly, there is an expansion of the base, not just the everyday consumption. If you go back when we launched Velo Plus where the early date concern was around 2.6 pouch, today is 3.6 pouch. So it's not the major driver behind it. The driver is actually the base of [indiscernible] of consumers. So that's the first thing. The second thing, the U.S., like the Nordics is a market where traditional auto was already present.

And when I say that Europe has an average of 6 pouch per day, there are a number of markets in Europe that has no oral tradition, like the U.K., for example, which is part of that. So in Sweden, there was a world tradition is a 12 pouch per day. So it wouldn't be impossible to imagine that U.S. that has a traditional oral base to go beyond Europe at 6 pouch per day. So if I have to guess, I would say something between what Europe is today and Sweden is today.

And we will now take our final question today from Simon Hales from Citi.

Two or three for me, if you don't mind, please. Firstly, today, obviously you said with regards to the Middle East, you haven't seen any significant impact to date. I suppose where you have potentially seen some impact is probably around the duty-free business.

Am I right to assume that's what you mean by no significant impact so far? Or have you seen any impact in changing or changing consumer behavior in the U.S. as a result of the movement in gas prices we've seen? So that's the first question.

Secondly, on the U.S., obviously, you've talked about the rollout, the selective rollout of Doral in the deep discount segment. How do we think about that as we move into the second half? Is the more you're going to do there? Or do you think you've made the selective rollout that you need to do?

And then just the final question was around profitability on the New Categories business, particularly U.S. for Velo and Vuse as we look forward, given that you're hopefully going to have Velo Max in the market in the second half at some point, some these flavors on Vuse. We expect to see some impact on profitability? From those products.

Okay. So the first point, just to be very clear, we haven't seen any impact so far in terms of the U.S. consumer behavior as a consequence of the higher price of gas. I was just referring that the past records.

Now if you go back, we saw some correlation around higher gas price and a more soft consumption. And that's the, I would say, watch out that we have to bear in mind. You're absolutely right. The biggest impact has been duty-free that end up impact APMEA as well. It's one of the reasons why we have seen some of the big cover, not be as speed as we first thought.

And obviously, some costs in the supply chain, which is more related to freight and some of these energy costs that start to flow through some of the raw material, which is not really at this point, meaningful for the business.

And given my point about most of the cost sits within labor and leaf, we don't see a major impact on the cost side this year. The only watch out is on the consumer confidence and hence, these previous correlation that we saw before. But again, it's still to be materialized. We haven't seen this yet. So that's the first point.

The second one, the rollout of Doral will be accelerated or not depending on the economics. As we have some price increase in some states, for example, we turn into a position where it becomes more feasible from our perspective to launch a deeper discount. So I would expect the rollout to states to carry on in the second half of the year. We are already seeing -- we had the two pilots in last year. We are now rolling out in additional six states.

And I wouldn't discount to roll out to more states as we go along, depending on the economics of all that. And obviously, it's not just about the Doral activation but also how we activate the rest of our portfolio. And -- but my point before is that we don't expect to see any further deterioration of our share position given the reaction that we have read start taking.

And lastly, in terms of the profitability, we don't see major change in terms of gross margin. If we have read a very, very healthy gross margin business in Vapour in the U.S., not just at the gross margin level, but EBITDA level. So these will be very accretive in terms of overall category contribution. And Velo Max also will have a dynamic which will be similar to Velo Plus on a per pouch base. So we are not expecting to see and we just probably be benefiting for more volume because this will be complementary to our portfolio in terms of the offers.

And I think that we'll be working on that direction of strengthening our portfolio of Modern Oral in the U.S. which is exactly what we want. I always get questions about, well, are you concerned about the competitive, the higher level of competitive in Modern Oral market in the U.S.?

And the answer is no because I have faced out this competition outside the U.S. And we have been able to carry on leading the category outside the U.S. So I don't see why there is no reason of not achieving that in the U.S. if we have the right level playing field. So I welcome that. And of course, we are very confident in the portfolio that we have.

This was the last question today. With this, I'd like to hand the call back over to Tadeu for any additional closing remarks. Over to you, sir.

Okay. Thank you for joining us today and for your questions. I'd like to leave you with this key message. The first, our U.S. business continues to drive strong revenue and profit growth driven by a truly multi-category performance.

This broader based momentum together with FDA recently published prioritization guidance providing a clear and consistent pathway for scientifically substantiated less risky products to enter the market, reinforce my confidence in our sustainable future delivery.

Second, our New Categories are gaining traction. We expect revenue growth to accelerate to mid-teens to both H1 and the full year, led by Modern Oral and the return to growth in Vapour for the first time in 2 years, alongside further improvement in profitability.

Third, we are on track to achieve our 2 to 2.5x net debt-to-EBITDA leverage target by year-end while continuing to deliver sustainable shareholder value through our progressive dividend and sustainable share buyback program.

And finally, while there is more to do with this momentum, I'm confident that we are -- we will sustainably deliver our midterm algorithm.

Thank you again for joining us, and I look forward to update you further at our half year results on July 3. And I hope many of you will join us at our Capital Markets Day at our U.S. headquarters in Winston-Salem at the end of September.

Hi, everyone. Thanks for joining us today. It's a pleasure to welcome British American Tobacco to CAGNY this year. Joining us today are Tadeu Marroco, Chief Executive Officer; and David Waterfield, President of Reynolds American. Also, please join me in thanking them for their sponsorship of the lunch following their presentation today.

Now it's been an exciting time for BAT as the company continues to invest in a smoke-free future while continuing to deliver solid organic top and bottom line growth and strong shareholder returns. Overall, BAT's momentum in new categories and strong execution with their combustible portfolio has driven strong free cash flow generation, which has allowed the company to return impressive levels of cash to shareholders in the form of dividends and share buybacks. And with that, I'm going to turn it over to the team to hear more about the company's transformation journey. Thank you.

Thank you. Thank you very much, Bonnie. So it's a real pleasure to be here with you today at CAGNY, and I'm delighted to share the exciting opportunity ahead for BAT. I'm joined today here by David Waterfield, President of Reynolds America, who will outline the significant opportunities ahead in our largest region. The U.S. is the cornerstone of BAT's strategy and is essential to delivering our group purpose of building a better tomorrow. Growing tomorrow is how we translate the ambition into sustained value creation in the U.S. With that, I would like to draw your attention to the disclaimers on Slide 2 and Slide 3.

Okay, so BAT is transforming, driven by our ambition to be a predominantly smokeless business by 2035. Today, I will take you through why we are uniquely positioned to win in the growing nicotine industry, driven by our global multi-category portfolio of leading brands and world-class capabilities with further significant white space opportunities ahead. David will then highlight why we are in pole position to win in the U.S., the world's largest nicotine value pool. Altogether, this gives me confidence that we will deliver sustainable long-term value and cash returns to our shareholders.

The nicotine industry is transforming and growing. In our addressable markets, we expect total industry revenue to grow at around a 4% CAGR over the next 5 years. This is increasingly driven by double-digit growth in new categories and underpinned by resilient low single-digit growth in combustibles. Within new categories, nicotine pouches are the fastest-growing category by far. We expect the nicotine pouch industry revenue to almost triple by 2030, creating a materially larger, highly attractive value pool, and I will return to this in a few minutes. We continue to see smokers increasingly switch to new categories. This is offsetting the decline in combustibles as smokers look for less risk alternatives and to unlock consumer moments, which has been lost due to the regulatory restrictions. We are committed to actively encouraging adult smokers who would otherwise choose to continue to smoke, to make a full switch to smokeless alternatives.

Poly-use for many smokers is part of a transitional period where those consumers move towards a complete switch away from cigarettes. Over the last 5 years, total poly-use has doubled and new category poly-use has increased by 5x as consumers choose different categories to match different moods and moments during their day. Importantly, these consumers generate almost double the revenue of a new category Solo user, driving 80% of total new category revenue growth. And as new categories gain traction, every daily consumption also rises as the products become part of a consumer's routine. These industry trends highlight the importance of our global multi-category strategy.

BAT has over a decade of multi-category experience, giving us deeper insights into consumers whose preference vary by market and moment. Cigarette taste profiles and strengths also differ by country, which influences which category a consumer will most likely adopt. And regulation is not homogeneous globally. This affects not only which products are legally available for consumers, but also communication freedom and excise levels. BAT has taken a consumer-led multi-category approach from the outset. While initially more complex and costly to execute, it has proven to be the right strategy. We have significantly invested in our science and R&D capabilities. Together with leveraging our brand-building expertise and global distribution reach, this enable us to maximize our opportunity to switch smokers who would otherwise choose to continue to smoke to drive harm reduction and create value.

There is also a significant white space opportunity to reach consumers in markets currently inaccessible for new categories. Today, all 3 new categories are regulated in markets that account for only 30% of global combustibles volumes. Meanwhile, in another 30%, these categories are either banned or not commercially viable. Almost all of today's accessible volume sits in just 5 markets where BAT is already well established in combustibles with strong brands, route to market capabilities and local expertise. And in the case of India, we benefit from our unique position as the only international player with a long-standing relationship with the market leader, ITC, through our associate investments. This is why we are working hard to elevate the role of new categories in delivering tobacco harm reduction with governments and regulators around the world to support the creation of fit-for-purpose regulatory and enforcement frameworks across new categories.

This will not only unlock significant further growth opportunities for BAT, but also supports our ambition to build a smokeless world. And BAT has built leading global positions across all 3 new categories. Our progress with Velo, Vuse and glo demonstrates the strength of BAT's innovation capabilities, operational excellence, proven brand building and marketing expertise, all executed at scale. In combustibles, we have a well-balanced portfolio of global and local heritage brands, which continue to deliver long-term value growth and fund our transformation. Now let's take a look to each category in more detail. Velo is the fastest-growing brand in the fastest-growing new category. Consumer numbers, volume and revenue have tripled over the last 3 years. And I'm delighted that in Q4 2025, Velo achieved global volume share leadership in our top markets, which accounts for approximately 90% of industry revenue, a significant milestone for Velo and BAT.

This has been driven by our continued success in Europe and the outstanding performance of Velo Plus in the U.S. Looking ahead, we expect nicotine pouch industry revenue to nearly triple by 2030 and Velo to outpace this given our strong global momentum. We expect industry growth to be driven by rising incidents, increased average daily consumption and attractive adult consumer demographics. Take each of these in turn. Adult consumer incidents across our top markets is low at just under 4%, but growing fast, having doubled over the last 4 years. Incidents vary significantly between more established oral tobacco markets like Sweden, close to 10% and newer markets like Poland at around 2%, growing rapidly.

Average daily consumption also varies by market maturity, with Sweden at around 12 pouch per day and Poland at around 4 pouch per day. Finally, the category benefits from a younger adult consumer age demographic relative to cigarettes with close to 50% of adult nicotine pouch consumers under the age of 30. We expect these drivers to underpin future category growth as consumers are increasingly drawn to the convenience, satisfaction, affordability and lower risk profile of nicotine pouches. In Europe, we are a clear category leader with close to 6x the volume share of our nearest competitor. Velo has a premium brand position with our value share at 68%, 5 percentage points above our volume share. This is supported by Velo's product superiority, achieving average brand equity scores around 40% higher than our closest competitor.

Nicotine pouches are our largest new category in the region by revenue. And the category is also highly profitable with gross profit per unit already 3x higher than combustibles and with a category contribution margin of 40%. Nicotine pouches also have the fastest payback period of all the new categories at only 12 months post launch. And based on the weight of evidence, nicotine pouches sit at the lower end of the tobacco risk continuum compared to smoking with less than 1% of the levels of certain key toxicants found in cigarette smoke. The category's potential to contribute to public health benefits is being increasingly recognized by governments and regulators around the world. There are now 24 countries with bespoke regulatory frameworks, up from only 4 in 2022. In the U.S., senior public health officials recognize the reduced risk potential of the category.

And in September 2025, the FDA launched a pilot program to accelerate the PMTA process for nicotine pouches. This will potentially enable a wider variety of authorized products to enter the market. This positive position is supported by the current low rates of underage usage, which based on data from the most recently published U.S. National Youth Tobacco survey is less than 2%. Put together, nicotine pouch are rapidly becoming one of the most powerful levers of our sustainable transformation. Turning to Vapour, the largest new category by consumer numbers and our largest revenue terms with GBP 1.5 billion delivered in 2025. Vuse is the global value share leader with 39% share, gaining 60 basis points last year in top markets. While the legal industry has recently been impacted by a lack of effective regulation and enforcement, we are seeing early signs of progress in key markets such as the U.S. that could open up a meaningful white space opportunity.

David will talk more about that -- about this fact later. In addition, we see premium Vapour done right as a highly attractive untapped segment for further value creation. Our latest innovation, Vuse Alto is our most advanced Vapour device yet. We started our target rollout last year, focused on largest profit pools and have already achieved meaningful value share gains in markets, including Canada, Germany and France. I'm pleased by the strength of this early performance with further launch planned in key markets in 2026. And turning to Heated Products, where we continue to sharpen our focus on the largest and most attractive profit pools. This is an estimated GBP 9 billion category growing high single digits annually with over 70% of the value concentrated in the premium segment. Enabled by our enhanced innovation ecosystem, we are establishing a premium position with our breakthrough innovation glo Hilo.

While 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. Looking ahead, we see a clear opportunity to strengthen glo's overall performance through consumer-led innovation, and we remain disciplined in our rollout approach. Maximizing value from combustibles is key to funding our transformation. The category remains a large and highly profitable value pool. Our strong portfolio of global and heritage brands is well balanced across price tiers with a broad geographic footprint and an integrated global supply chain.

Our growth algorithm is resilient as robust pricing and mix benefits have offset volume decline, supported by our digital revenue growth management tools. With our proven track record of driving efficiency and simplification, together with our focus on optimizing operational agility, I'm confident in the resilience of our combustible business and our ability to deliver sustainable value going forward. Our sustainable growth is in the expanding nicotine industry is driven by 6 core capabilities. These are built over 120 years of tobacco industry experience, enhanced by latest technology and science, leveraging the combined strengths of BAT and our strategic partners. We believe these 6 capabilities, together with our leading brands and global footprint, position us to win in today's transforming marketplace. First, we have transformed our insights and foresight capability fueled by a decade of multi-category experience.

We now have actionable insights to address current consumer moments. These are supported by a deeper understanding of poly-usage together with foresights to guide our future innovation pipeline. We've also significantly scale up and integrated our digital insights globally to enhance decision quality and execution speed. And we have embedding AI across the full insights value chain, accelerating decision-making and improving capital efficiency. Second, our world-class science and stewardship capability is based on many years of scientific research. This has enabled scientific evidence that supports our new category products having between 90% to 99% lower toxicant levels compared to cigarette smoke.

And studies indicate a substantial reduction in exposure to key harmful components that, in many cases, are close to quitting. With more than 270 peer-reviewed studies and over 9,400 patents, we believe we have one of the strongest evidence based in the industry, underpinning our science and providing a key competitive advantage. Third, over recent years, BAT has developed a very unique global R&D ecosystem. We have built 4 state-of-the-art innovation centers where we work collaborative with our strategic partners, BYD and Smoore together with over 50 development and open innovation partners. Combined with our decades of experience in tobacco leaf science, blending, liquids and flavors, this ecosystem give us a clear competitive edge, enabling us to accelerate the development of our innovation pipeline and introducing winning new products at speed. Fourth, our global multi-category portfolio is supported by the breadth of our distribution and retail reach across 140 markets.

Our brands are available to all nicotine consumers across 11 million retail outlets, double the coverage of large-cap CPGs, driving over 150 million daily consumer touch points. Importantly, 80% of these outlets are in convenience and traditional channels, making it more challenging and costly for competitors to replicate. Fifth, BAT has many decades of experience and expertise, successfully operating in complex regulatory environments. As I have already highlighted, effective regulation is critical to supporting sustainable new categories growth and our tobacco harm reduction agenda. We are proactively engaging in an evidence-based dialogue with key stakeholders, including governments, health authorities and regulators to help shape effective regulatory and enforcement frameworks for new categories. This is why we launched Omni in 2024, a compendium of both BAT and third-party world-class objective science as our go-to authority on tobacco harm reduction.

While I'm encouraged by the recent regulatory progress in nicotine pouches and in the U.S., we are clear that much more needs to be done to support tobacco harm reduction globally. And finally, we are significantly strengthening our digital and AI capabilities, enabling greater agility, efficiency and clarity. Let me highlight 4 areas of progress. First, with enhancing the consumer experience through a full connected digital ecosystem across glo Hilo and Vuse Ultra. Second, we have strengthened our consumer intelligence with AI-powered insights, synthetic segmentation and advanced analytics to deliver deeper, faster and more predictive intelligence. Third, we are advancing our commercial execution, deploying next-generation digital B2B platforms and AI-driven capabilities that support compliance, accuracy and operational excellence.

And fourth, we are embedding enterprise-wide digital and AI training to accelerate decision-making and support long-term sustainable growth. Together, these advancements provide a robust digital foundation for our future. Collectively, these 6 core capabilities combine it with our global leading brands of fundamental drivers for our sustainable transformation. Now let me play you a short video that brings this to life.

[Presentation]

To conclude, the nicotine industry is transforming and growing. BAT is uniquely positioned to win driven by our global multi-category portfolio of leading brands and world-class capabilities. I'm excited about the future for BAT, and I'm confident that we will sustainably deliver our midterm financial algorithm of 3% to 5% revenue growth, 4% to 6% adjusted profit from operations growth and 5% to 8% adjusted diluted EPS growth. We have a strong track record of cash returns with over 25 years of dividend growth alongside our sustainable share buyback. And I'm confident we will continue to create sustainable value for our shareholders. With that, I will hand over to David to talk about the opportunities ahead for Reynolds in the U.S. Thank you very much.

Thank you, Tadeu. Good morning, everyone. It's good to be here with you today to share why BAT is in pole position to win in the U.S. with our Reynolds American business. Reynolds' role is clear: deliver a winning performance and turn opportunity into sustained financial returns. The U.S. is the most valuable nicotine market in the world. And with more than 60 million adult nicotine consumers, it is the cornerstone of BAT's strategy. As U.S. adult smoker preferences continue to evolve, Reynolds is well positioned with the broadest multi-category portfolio of smokeless products. Our portfolio, combined with our scale, disciplined execution, digital capabilities and talent give us real competitive strength in this market.

Over the past year, we've delivered sustainable value growth in combustibles, expanded distribution of Velo Plus nicotine pouches, the fastest-growing brand in the fastest-growing category and gained meaningful Vapour share with Vuse as enforcement actions accelerated against illegal disposable products. The actions we took to reenergize the U.S. business in 2024 are working. We're seeing tangible results, and we've shown we can innovate, execute and compete diligently. Looking ahead, we see significant upside, and we'll continue to invest in our differentiated portfolio and U.S. operations to deliver quality growth. Now let me share more details. A look at the U.S. nicotine volumes tells the story of an industry undergoing a profound transformation. Total industry volumes have grown above 6% CAGR since 2023 as declining cigarette volumes have been more than offset by growth in Vapour and oral products.

As a result, the total U.S. nicotine revenue pool estimated at GBP 42 billion in 2025 is projected to keep growing above a 4% CAGR through to 2030. The U.S. represents 1/3 of the global value pool and sits at the forefront of industry transformation. This sizable contestable space is being driven by nearly 40 million adult consumers who are choosing alternative products like Vapour and nicotine pouches or using products across all categories. And Reynolds is positioned not just to participate in this evolving market, but to innovate, compete and win as a key driver of BAT Group's mission to build a smokeless world.

With Reynolds as its cornerstone, BAT is in pole position to win in the world's most valuable nicotine market. The combination of BAT's global expertise and innovation capabilities with Reynolds massive U.S. scale, precision execution, deep trade relationships, a strong operations footprint and expanding digital capabilities creates a unique position to drive growth and capture outsized value in the U.S. market. Combined, these strengths power the broadest multi-category portfolio in the U.S., a portfolio fully aligned to where adult nicotine consumers are heading. Reynolds operates at true scale. with a well-established commercial footprint across 185,000 contracted retail accounts. Over the past year, we've made a step change in our U.S. capabilities, expanding our digital reach to engage more than 17 million age verified adult nicotine consumers and investing in manufacturing capacity to meet increasing demand.

And Velo Plus is a strong proof point. It shows how our manufacturing, sales and marketing capabilities can deliver at scale in a highly competitive segment. In just 18 months, Velo Plus reached 93% weighted distribution, built a base of 5 million adult nicotine consumers and exited 2025 with 24% volume share. As I said at the start, Reynolds has a clear mandate: deliver winning performance and turn opportunity into sustained financial returns. As the cornerstone of BAT's strategy, we are essential to achieving a better tomorrow and growing tomorrow is how we deliver that purpose in the U.S. Growing tomorrow means investing in America by investing in growth that strengthens our competitive position and drives attractive returns. We are committing GBP 2.5 billion by 2030 to support U.S. growth for the long term. These investments build capability, expand scale and are expected to add more than 2,000 new jobs across Reynolds and our supply network.

And it's already happening. Over the past year, we invested GBP 150 million in our U.S. manufacturing operations and added 1,000 jobs to scale Velo Plus. We're also continuing to invest in evidence-based harm reduction science, expanding our smokeless pipeline and leveraging the global BAT network to accelerate innovation. And the impact extends beyond our business. Reynolds was the largest purchaser of U.S. tobacco leaf from American farmers in 2025. Growing tomorrow means we're committed to value creation across the board, strong returns for our shareholders, meaningful careers for our people and jobs that support the American economy. Across the U.S. market, adult nicotine consumer behavior is changing in a significant way. Today, 65% of adult consumers have interacted with or migrated to new categories and 53% of adult smokers are now poly-using across formats.

Reynolds multi-category portfolio is aligned to where adult smokers are heading. And you can see the impact of that alignment in our adult nicotine consumer share -- consumer leadership. Reynolds is #1 in total adult nicotine consumers with nearly 22 million choosing our products. We're also leading in a number of adult nicotine consumers purchasing our smokeless and new category products, driven by our proven brand building and scale. And every category in our portfolio is performing. In combustibles, we have returned to value share growth. The strength in combustibles continues to fund our momentum in new categories. In Vapour, Vuse is back to growth, leading in 37 states and gaining 2 percentage points of value share. Vuse remains the clear leader in the legal U.S. Vapour marketplace. In nicotine pouches, Velo continues to accelerate. It is now the fastest-growing brand in the category and the second largest brand in the market.

The strength of our multi-category portfolio is translating into share momentum. Reynolds total nicotine volume share increased by over 100 basis points between December 2024 and December 2025, with smokeless categories driving the growth. Vapour and oral increased more than 300 basis points over the same period. Together, our combustible Vapour and nicotine pouch brands are driving growth, supporting both near-term performance and long-term value creation. Let's take a closer look at each category. Starting with combustibles. Reynolds is competing from a position of strength. Our portfolio plays in more than 90% of the revenue pool and over 95% of the profit pool, excluding deep discount.

Our leading brands, Newport, Camel, Natural American Spirit, Lucky Strike and Pall Mall give us the flexibility and breadth to compete whether adult smokers are up-trading or down trading. And in a GBP 27 billion category that remains the largest -- the single largest U.S. nicotine revenue pool, that matters. We've taken actions to sharpen our portfolio management, strengthen our route to market and leverage digital revenue growth management capabilities. And we're seeing the results. Our total U.S. value share increased by 30 basis points, driven by the strength of our premium and popular segment brands. In the above weighted average price segment, which accounts for nearly 60% of the industry, we grew our value share by 50 basis points. Importantly, revenue and category contribution improved year-on-year with both accelerating in the second half of 2025.

And the U.S. growth opportunities in new categories is significant. Vapour and oral together represent a GBP 15 billion revenue pool today, and that pool is expected to grow to GBP 20 billion to GBP 25 billion by 2030. Behind that growth is a dynamic base of roughly 40 million adult nicotine consumers with migration rates that continue to accelerate. This isn't theoretical demand. It's real movement and it's happening at scale. To capture the opportunity in this market, companies need 3 things: strong brands, deep capabilities and meaningful scale. And that's exactly what we bring. We have credible reasons to believe new category growth will continue.

We already lead in legal U.S. Vapour with views, and we're building real momentum in nicotine pouches, mirroring the success we've delivered in other markets around the world. And while regulation is outside of our control, we're seeing material progress. The regulatory process is starting to become more efficient and enforcement against illegal products is increasing. In the U.S. Vapour market category, we clearly see the urgent need, how urgent the need for enforcement is. The Vapour revenue pool is sizable at an estimated GBP 10 billion, but the legal market can't fully participate due to the surge of illegal noncompliant disposables. This remains the category's single biggest headwind. Reynolds has continuously called for strong enforcement against illegal industry actors. And in 2025, we saw meaningful actions at both the federal and state level.

Federally high-level authorities oversaw nationwide operations, seizing millions of illegal vapes. At the state level, there was also progress with an expansion of state directory laws and enforcement programs. By December 2025, nearly 48% of the tracked legal Vapour industry was covered by state directories or active enforcement, up from 8% a year earlier. Against this backdrop, our Vapour brand Vuse has remained resilient. Vuse consolidated its category leadership, reaching a record value share of nearly 52% and Vuse volume performance returned to growth in the second half of last year, strongly supported by states with effective enforcement. So progress has been made and the picture remains clear. Effective enforcement is essential to keep illegal noncompliant products off the shelves.

Protecting the integrity of the U.S. Vapour category is a priority. Importantly, Congress has strengthened the FDA's authority and funding, allocating at least $200 million for enforcement and expanding the agency's powers to seize and destroy illegal imports. Reynolds will also continue to pursue legal action where needed, including efforts to protect our patents. In August, we received a favorable initial ITC ruling on a patent infringement case and now await the outcome of the full process. We are advocating for a level playing field, and we will protect our rights to ensure adult nicotine consumers have access to high-quality compliant Vapour products. I'd like now to turn to the fastest-growing category in the U.S. nicotine market, nicotine pouches.

In 2025, almost 16 million adult nicotine consumers use nicotine pouches. It's a 63% increase in just 2 years, and it's still accelerating. By 2030, we expect nicotine pouches to become the second largest adult nicotine consumer pool in the U.S., approaching 25 million adult consumers. Volume and revenue pools tell the same story. Both have more than doubled since 2023, and we expect significant growth to approximately GBP 7 billion revenue pool by the end of the decade. And Reynolds is well positioned to win. Launched in December 2024, Velo Plus delivered a 290% volume growth year-on-year and reached 24% volume share nationally. Importantly, nearly 30% of nicotine pouch adult consumers have tried the brand and 71% of them have come back, an exceptional repeat purchase rate. And Velo Plus underlying growth metrics are even more encouraging.

In 2025, the brand doubled its active adult nicotine consumer base from 2.5 million to 5 million. And that momentum allowed Velo Plus to capture 46% of the industry's volume growth and 45% of the value growth, both well above its current category share. And notably, Velo Plus' contribution to both industry volume and value growth showed a marked acceleration as we exited 2025. Velo is now the clear #2 nicotine pouch brand nationally. We're encouraged by Velo Plus' performance and continue to advance a strong pipeline of FDA submissions. In late 2025, the agency launched a new fast-track process to more efficiently review nicotine pouch premarket tobacco applications.

And a new product, Velo Max is in scope. Inspired by our leading global products, Velo Max features higher moisture levels, we are confident in the strength of our submissions and the opportunity Velo Max presents here in the United States. So let me bring this all together. In terms of financial delivery and the value Reynolds is creating for the group. Each category has a clear role to play for delivering value in combustibles and creating value in new categories. And that balance puts us in a strong position to deliver today while positioning the business for future growth. In 2025, Reynolds delivered 5.5% revenue growth and 5.9% profit growth, driven by a strong combustibles performance, price/mix realization and continued momentum in new categories.

Profitably transforming our business is the key focus. Over the past 4 years, we've improved our gross margin by roughly 8 percentage points, establishing the U.S. business as a margin expansion engine for BAT, and we expect this trend to continue. By the end of the decade, we are confident in our path to reach a gross margin between 75% and 78%. The important takeaway is this, Reynolds is delivering sustainably -- sustainable value today while growing an even more profitable future-ready portfolio for tomorrow.

In closing, I'd encourage you to see Reynolds American through a lens of growth. We're positioned to win in the U.S., the world's most valuable nicotine market in the world. Reynolds is the cornerstone of BAT's strategy, and we are in pole position to win. And how will we do that? Through the combined expertise and capabilities of BAT and Reynolds, through an unmatched multi-category portfolio of leading brands, through disciplined execution at scale, through a sustained commitment to invest GBP 2.5 billion in our U.S. operations and through talented people who lead responsibly and deliver results. And to learn more about how we're transforming and winning, Tadeu and I would like to invite you to BAT's 2026 Capital Markets Day this September in Winston-Salem, North Carolina, the home of Reynolds. Thank you, and please join us for lunch after the Q&A.

All right. Thank you. And thanks again for sponsoring lunch today. We really appreciate it. There's going to be a quick breakout before the lunch, and they'll take a couple of questions. Thanks again.

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 2 and 3. So 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 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 years 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 Vapour 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 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.

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 U.S., 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 U.S. 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 Vapour, mainly due to continued illicit pressures in the U.S. and Canada. Our second half use 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 U.S. 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 U.S. 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 Plus, which delivered over 300% growth. While Vapour 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 combustible performance. Importantly, Velo Plus 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 Combustible 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 Hilo launch.

Vapour revenue declined more than 11%, mostly impacted by the lack of illicit enforcement in Canada and regulatory and excise changes in U.K., France and Poland. Adjusted operating profit grew by nearly 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 Vapour 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 FX. 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 Fit2Win 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.

Fit2Win 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 our 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 delever to 2.55x adjusted net debt to adjusted EBITDA at the end of 2025, and we remain on track to be within our 2x to 2.5x 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. And 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% to 5% revenue growth, 4% to 6% adjusted profit from operations growth and 5% to 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 U.S., 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 Fit2Win savings build through the year.

And with that, I'll hand it back to Tadeu.

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. And 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 focused 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 accelerated 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 Plus 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 #2 position in both volume and value share, gaining nearly 18 percentage points of volume share and nearly 14 points of value share. And we are pleased to -- that our share momentum has continued into the start of 2026.

Velo Plu 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 Vapour category at over GBP 2 billion of revenue in 2025. Velo Plus is a great product. And these results demonstrate this in what remains a highly dynamic category. Its impressive. It's 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 6x 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 hexagonal can 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 Vapour Done Right as a highly attractive untapped segment for further value creation. Vuse Ultra is our most advanced Vapour 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 Hilo, introduced our first showpiece device and is designed to establish glo in the premium segment. While 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 target online and in-person activations. We will continue to scale glo Hilo 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 Hilo into the premium space allow us to further differentiate our tier -- our 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 starts, longer started session length, new connectivity and a replaceable battery. These innovations significantly improved 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 improving New Category profitability. Since 2021, we have driven a GBP 1.4 billion improvement 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 4 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 Vapour 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 Vapour directory and enforcement legislation representing around 50% of tracked industry volume by year-end.

In addition, Vuse 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 Vapour 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. Vapour 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 Vapour 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 U.S. portfolio with Velo Max, a higher moisture Modern Oral product in 2026, and we have increased capacity to support our sustainable growth agenda.

And 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 will now be joined on stage by Victoria for the question-and-answer session.

Thank you, Tadeu, and good morning, everyone. [Operator Instructions] Tadeu and Javed will be very happy to take your questions and I will now hand over to the conference call operator.

Our first question is from Andrei Andon-Ionita from Jefferies.

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 '26 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 Plus 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 '26?

Okay, Andrei, thank you for the question. We have -- look, we have a very strong product with Velo Plus 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 150-plus outlets, 1,000 outlets, which accounts 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 U.S. is increasing. So it used to be around 2.8 pouch per day. Today is around 3.6 pouch per day. If you compare that with the European market, which is around 6 pouch per day, you see a lot of potential growth still in the U.S. and the Nordics is 12 pouch 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 U.S. So the expectation is that we will continue growing. That's why we are investing in capacity, like I mentioned during my presentation.

We mentioned Velo Max, which is even higher moisture product that we have 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 smelt 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 for us, there is no problem with that. But when I look outside the U.S. where everyone is free to compete, the leading brand outside the U.S. is Velo. Like we said, in Europe, our volumes in Velo are 6x higher than the second largest competitor. So what we want to see in the U.S. 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 profitability to -- improvement in profitability when you compare that not long ago, back in 2023, we're just reaching breakeven 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're going to 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 Hilo. 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.

We'll now take our next question from Faham Baig from UBS.

The first one is on guidance for full year '26. You've guided for the lower end of the midterm targets. Could you maybe share factors that could result in the performance, whether in '26 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?

Okay. Thank you, Faham. Look, I'm going to start with the second one first, and then we address the guidance. Yes, we clearly see areas of improvement in our performance in Heated Products. What we saw throughout '26 is that the below WAP, which is basically where we were present until the launch of glo Hilo later in the year has been 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. And we believe that this will support our performance moving forward. And obviously, glo Hilo will complement that, because it's the first attempt that we have done in the -- where 7% of the value of the category sits, which is the AWAP, the premium part of it, which is -- and 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 2 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 a 3% revenue, 5% revenue, leading to a 4% to 6% operating profit with a kick around 1% to 2% for EPS. That's the range of 5% to 8%.

Obviously, our targets have incorporated the transactional FX. I always try to make this disclaimer about BAT's target. 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% to 5%, we have mentioned before that Combustible, we expect to be delivering around 1% to 2%. And with the U.S. being in the medium term between 0% to 1% and the rest of the group, the international part, I would say, the other two regions above 2%. And 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 will be high end of this range.

So I'm very confident that moving forward, we can comfortably be delivering within those range. And when you move 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 Vapour. There are a number of reasons for that, but mainly related to the illegal market in the U.S. that now we are seeing signs that the authorities, be federal or state level addressing. So we expect moving forward to have less of a drag and eventually even a tailwind coming from Vapour that will be supportive 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 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% to 2% on the Combustible side. This will flow through to the 4% to 6% in terms of increasing margins that is supported by all the productivity savings that we have already mapped out until 2030.

And specifically in '26, I would like to Javed to comment about.

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 not a big drag, but Australia still remain a meaningful drag, which is becoming smaller and smaller every year. So in 2026, Australia will still be a drag, but will be less meaningful in '27. 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 where we'll be there as well.

The other thing in that area is that in case of AME, we still face headwinds from the illicit environment in Vapour and also the regulation changes in Poland, which happened at the end of the year, which has made the legal Vapour out of the market, which is again a drag for us.

Coming to U.S. You have to keep in mind that comparative from '24 to '25 versus '25 to '26 is very different. We are -- we had a very good performance in '25, 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 that 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 I hope this all gives you an idea 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.

Our next question is from Rey Wium from Anchor Stockbrokers.

I just want to get back to -- I mean, it's 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 Vapour 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 how do you -- 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, you talk of a double-digit revenue growth?

And then just a 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, 6 billion 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 do you say it will still be a drag. Is it not a time that you could consider to exit this market? So I'm just curious to hear your thoughts around that.

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 4 years ago, the incidence of nicotine and 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. So 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. So 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, it 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 has never been the case before.

So with glo Hilo, we are tapping a very, very -- has been an untapped subcategory within the category for BAT. And we are extremely excited about this possibility of 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 -- high single digit, so.

And Vapour is a difficult category because of lack of enforcement and/or regulation. And that's the reason why we have -- there is actually difficult to compete with some of these illegal products or products that doesn't have concerns in terms of responsible way of doing Vapour. 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 Vapour with the likes of Vuse Ultra, is exactly a recognition of that. We are not really competing for volume. We are competing for value and offering consumers a responsible way to do Vapour. And obviously, the U.S. is the largest Vapour market. So all the attention is to the FDA that I think that has given 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 Vapour in the future as well. So that's the New Categories.

Australia. Look, Australia has, as you know, come with -- since the introduction of plain packaging in 2012 with a 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 cigarette legal market in the Australia is more than 20 -- 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 incidence 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'll come to a point that becomes insignificant. So the drag in '26 will not be the same as '25. It's still a drag, but it's not been 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 leave because the direction of travel has been very clear. If you add the Vapour 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 a couple of years and unless they decide to do something more reasonable.

Our next question is from Pallav Mittal from Barclays.

So, two of them. Firstly, on the U.S. business, clearly, your price mix is pretty strong at 12% plus. Can you help us understand what percentage of your U.S. volume portfolio is right now benefiting from the excise duty drawback? And how much scope does it have to increase in the future given your global business? That's the first one.

And then secondly, I 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-Vapour side of things. So can you just help us understand the moving parts for your low double-digit guidance for '26?

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 manufacturing 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 #1 company in terms of volume of leaf purchase in the U.S. market.

So we are not making disclosure specifically about the duty clawback 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, 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% to 7%. And this should be, given the elasticity and that still exist in the market, the possibility for Reynolds to get to a positive revenue around 0% to 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.

I think on the overall New Category revenue guidance of low double teens is one thing is one -- a couple of points. One, in the U.S., even 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.

And 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 negative in that number, so that's not possible to enter that market.

And also the highly competitive environment we see in the BWAP 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 U.S. However said that, given all these points, that's why we have guided on this front as the low teens for now.

Our next question is from Simon Hales from Citi.

So a couple for 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 Vapour performance and the flat Vapour expectation for 2026. I'm still just trying to square that circle given you've had pretty strong exit rate momentum through the second half of the year. I appreciate enforcement actions in vapour 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 Vapour category, one would imagine or the legal Vapour category in the first half.

So are you, therefore, expecting as we come into H2 of 2026 to see your Vuse business down year-on-year to get you back to that flat guidance for the year? That's the first point.

And then secondly, on the U.S. today, you talked about 6% to 7% being the normal run rate of decline on Combustibles volumes. 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?

Okay. 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 competition 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 reciprocating that second half into the full year of '26. Full year of '26 is more focused and will be more dependent upon the level of enforcement we see.

And 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 of a competition, which we gained more than fair share. And enforcement still seems to be early days. So that's why our guidance on the Vuse comment was made by me.

Yes. On the volume side, my comment is more, I would say, hypothetical situation. It's not a 2026. What's happening in the U.S. market is before. 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 is 34%. So the balance is happening -- what's happening is the transition of these consumers to either poly using or using solo users of becoming solo users of smokeless products, either Modern Oral or Vapour products. So obviously, the secular decline that was related to ADC and level of incidents reducing over time around 4% will not be coming back. That's my point.

So even if you see a meaningful enforcement in Vapour 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 poly users and solo users in New Categories that I was referring to.

So my point is that in the long run, with a meaningful enforcement in disposable with macroeconomics is strengthening between 6% to 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 '25 around 7% to 8% is a more reasonable one to assume. So 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 2025 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, taking into consideration the source of business, the potential down trades 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 expand Doral in the states where that makes sense from the value point of view.

Our next question is from Richard Felton from Goldman Sachs.

Two, please. First one is on Vapour. So look, great news that the U.S. is starting to take some proper enforcement action against illicit Vapour. But 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 Vapour markets ex U.S. on that topic would be very helpful.

And then the second one, 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 going to be more or less than it was in 2025 at a similar level? Any high-level comments just to sort of help us triangulate on that would be very helpful.

Okay, Richard. Look, Vapour is -- I don't think that there is a one size fits all here. There are -- 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 Vapours in tobacconist stores. And if you are caught selling, for example, disposable now, you have a massive fine in euros. And this helps with the discipline in the market.

And 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 Vapour bill being discussed as we speak. And hopefully, they will address that. But the attempt to ban disposable has failed because the manufacturers that are not responsible, they try to circumvent in the case these regulations. So 50% of the market is illegal today in Vapour, 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 -- as much as we can, and we have promoted this Vapour deserves better campaign, we have been very vocal about what are the measures that government should be taking into consideration to try to discipline that. And this, with no surprise, you will 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 lease to avoid things like sucralose in the liquids to sweet the liquids.

So there is -- in our webcast and all that, there is a 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 focus on 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 and so on and so forth. So that's the situation on Vapour and outside the U.S.

In terms of duty drawback, look, I'm not giving guidance specifically for the drawback. There is -- we see that the benefits that we generate for the economy, for example, is the driver behind as much as we can start to 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 Combustible. 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 Combustible, because I understand the concern on the Combustible side, but overall nicotine in the U.S. is growing. It's growing value and is growing volume.

So despite the fact that you see consistent decline in cigarettes, you see massive increase in the Modern Oral space, you see a strong increase still in Vapour, 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 not much concern about the direction of the cigarette, because what we want in essence, is exactly to migrate smokers out of cigarettes towards those products. But what is needed is a level playing field.

Our next question from Bastien Agaud from Bank of America.

Bastien from Bank of America. I just have a quick one on the buyback. Your net debt is close to your target GBP 2.5 billion, and your free cash flow in '25 was quite strong. So my question is regarding 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 dollar. So could be quite volatile on that. So -- but just to understand the moving parts on your buyback for full year '26.

I think, Bastien, 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 delever. We have to enter into the range of 2 to 2.5. And also, we want to make sure that we continue to deliver additional incremental dividend in sterling terms and continue our 25 years plus record on that front and continue a sustainable share buyback. What we want to ensure is to create more optionality for capital allocation in medium to long term for the business.

So 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 to 2.5 and continue a sustainable buyback.

Our next question is from Damian McNeela from Deutsche Numis.

First question is just on U.S. combustible and particularly on pricing. I was wondering if you could provide any more granularity on the pricing within the subsegments that you operate in and what the sort of outlook for '26 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 outer years past 2026.

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 giving the space for us to continue growing. We don't have huge expectations to be much beyond the level that is currently. And 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 allocation that Javed was referring to.

On the U.S. combustibles, look, I cannot be talking about pricing. And we -- what I can say to you is that the price elasticity is still very benign in the U.S. when you compare the price of cigarette vis-a-vis the average household income. And obviously, there is a dynamic that because of the specific tax that when we increase the price of a pack of cigarettes, the manufacturer have 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 of 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 probably will expect to roll out to more states. But I cannot speculate with you about future price.

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.

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 today for closing remarks.

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 and 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 18th of February.

Good morning, everyone. I'm Victoria Buxton, Group Head of Investor Relations. And with me this morning are Tadeu Marroco, our Chief Executive; and Javed Iqbal, our Interim Chief Financial Officer. Welcome to our 2025 Full Year Pre-Close Conference Call. I hope you're all well, and I'd like to thank you for taking the time to join us this morning.

Before we begin, I need to draw your attention to the cautionary statement regarding forward-looking statements as well as the notes and disclaimer contained in the trading update. Unless otherwise stated, our comments will focus on constant currency adjusted measures, which include adjustments related to profit from our Canadian Combustibles business. And average year-to-date share data is to September 2025 versus full year 2024 average.

I will now hand over to Tadeu with a reminder that as always, there will be an opportunity to ask questions later on in the call.

Thank you, Victoria. Good morning, everyone, and welcome. We remain firmly on track for full year results and now expect to deliver around 2% revenue and adjusted operating profit growth. I would like to begin with four key takeaways from today's update. First, I'm particularly pleased that our U.S. business has continued to deliver positive momentum in the second half, driven by ongoing combustibles delivery and an excellent Velo Plus performance. As the world's largest nicotine value pool, the U.S. is an important growth engine for our business.

Second, we expect an acceleration in our New Category revenue growth to double-digit in the second half, driven by Modern Oral across all three regions and recent improvement in U.S. vapor. We expect to deliver mid-single-digit New Category revenue growth for the full year. Third, we expect New Category contribution growth to accelerate in H2, driven by our quality growth discipline. Together, this reinforce our confidence in delivering our midterm algorithm in 2026.

And finally, I remain fully committed to achieving our 2 to 2.5x net debt-to-EBITDA leverage target for the full year 2026, while delivering sustainable shareholder value through our progressive dividend and a sustainable share buyback program with GBP 1.3 billion announced for 2026.

Let's start with New Category dynamics. The global nicotine industry is growing and rapidly transforming, with adult smokers increasingly switching to new categories. We are well positioned to benefit from these consumer trends, leveraging our world-class insights, enhanced innovation ecosystem, brand building and regulatory expertise and distribution capabilities. We have invested to build a well-established and differentiated portfolio of global brands with premium product offerings across all three new categories. Modern Oral is by far the fastest-growing New Category globally and is highly profitable with a fast payback. It is now our second largest new category and is becoming a meaningful contributor to our group delivery as Velo continues to go from strength to strength.

We expect to deliver double-digit revenue growth for the full year as Velo continues to gain volume share, up 590 basis points to 31.8% across top modern oral markets. It's also positioned as the lowest risk new category containing 99% less toxicants when compared to cigarettes. A recent peer-reviewed clinical study confirmed that oral nicotine pouch can deliver nicotine quickly and effectively to satisfy smokers.

In addition, the FDA has recently recognized the positive role that nicotine pouches can play in helping adults transition away from combustibles, reinforcing their role in tobacco harm reduction. We are also encouraged that the FDA has committed to providing accurate, science-based information about the relative risks of different nicotine products in order to combat consumer misconceptions that may prevent switching to reduced harm products. We welcome the FDA's new pilot program to streamline the PMTA review process for nicotine pouches. We are confident in the strength of our science and portfolio, and we look forward to being able to launch our leading high moisture modern oral products in the U.S. market.

In the U.S., the Modern Oral category value is expected to almost double over the next 2 years, and has already overtaken the size of the legitimate vapor category at around GBP 2 billion. Velo Plus is the fastest-growing U.S. modern oral brand. It has already reached the #2 volume and value share category position, gaining 15 percentage points of volume share since launch. Encouragingly, despite the heightened competitive promotional activity we have seen in the last few months, our latest volume share is 21.9% in October, up from 6.9% in November last year, prior to the launch of Velo Plus.

Velo Plus has continued to drive triple-digit U.S. Modern Oral revenue growth in H2. And importantly, we remain confident that it will deliver positive category contribution for the full year. These results reflect the strength of our products, branding and distribution capabilities and the sharper execution that a rejuvenated Reynolds is delivering.

In AME, we are clear leaders, selling at a premium price and strongly outperforming our peers across the region. We are close to 6x the size of our closest competitor and continue to capture around 60% of category growth, highlighting the further opportunity ahead. Our latest innovation, Velo Shift, was recently launched in key accounts and online in Sweden. It's a premium product designed to reshape the modern oral experience with a new comfort pouch design, five new distinct sensory flavors and a differentiated hex can design to stand out on the shelf. Velo Shift is driving incremental share in channels where it has been launched with a full national rollout planned for January and further market rollouts planned during 2026.

In Heated Products, our year-to-date performance reflects a transitional period ahead of key innovation rollouts. glo's volume share was down 1.2 percentage points in top markets, primarily driven by heightened competitive pressures in the value for money segment in Japan and the continued strategic phaseout of our legacy super-slims platform. In AME, volume share was down 60 basis points with continued strong performance in Czech Republic, Spain and Portugal, more than offset by competitive dynamics in Germany, Italy and Romania as we reallocated resource ahead of the launch of glo Hilo.

Our new breakthrough innovation platform, glo Hilo, includes our first two-piece device and is designed to establish glo in the premium segment, which represents over 80% of industry value. In September, we launched nationally in Japan with a 360-degree target marketing campaign, including a new flagship store in Central Tokyo, immersive pop-up experience with digital art collaborations and strong retail visibility through convenience store takeovers. We are focused on driving trial, targeting premium consumers in the combustibles and HP spaces through online and in-person activations. Early performance indicators are positive with an increase in brand awareness together with emotional and functional imagery resonating strongly with consumers. We are encouraged by early trial to retention rates around 50% from both smokers and HP consumers.

While the Heated Products category remains highly competitive, we are confident in the strength of this innovation and expect to progressively gain share in the premium space over time. In line with our quality growth strategy, we are focused on rolling out glo Hilo in the largest Heated Product profit pools where we can generate the strongest returns. We launched it in Poland in October, in Italy in November, and will continue the market rollout next year. Altogether, we expect broadly flat glo revenue growth for the full year.

Vapor remains the largest new category in terms of number of adult consumers and continues to demonstrate strong conversion effectiveness. Vuse maintained global value share leadership in tracked channels across top markets at 38.3%, up 10 basis points versus full year '24. While the vapor category continues to be impacted by the proliferation of illicit products, we are encouraged by early signs of performance recovery in the U.S., where Vuse has returned to volume and revenue growth in recent months after 18 months of decline and gained 70 basis points of value share year-to-date to reach 50.4%.

This has been supported by early signs of increased federal enforcement targeting borders and larger distributors, leading to increased seizures and fines together with enforcement at state level with vapor directory enforcement legislation now enacted in 18 states, representing around 50% of tracked industry volume. While we estimate around 70% of U.S. vapor industry value is illicit, over time, we believe Vuse is well positioned to benefit from stronger regulatory enforcement at both the federal and state levels.

We are 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. In AME, our value share in tracked channels declined 50 basis points, mainly driven by the impact of illicit headwinds in Canada. Early consumer response to the phased rollout of our new premium product has been strong with Vuse Ultra gaining nearly 80% value share in rechargeable consumables in Canada, close to 5% in Germany and 2% in France in October, reflecting the appeal of its differentiated offer supported by position the Vuse brand as Vapor Done Right.

While we expect a high single-digit revenue decline for the full year, this is a clear improvement versus the mid-teens decline in H1, primarily driven by the early signs of enforcement actions in the U.S. The full year performance will also be impacted by a strategic decision to reduce our footprint and reallocate resources away from markets where regulation enforcement do not support a responsible level and competitive playing field.

Turning to combustibles, where we have continued to offset volume declines with robust price and mix and efficiency gains. We expect an improving H2 revenue performance led by the U.S. In our top markets, volume share declined by 10 basis points and value share was flat, with U.S. gains offset by APMEA and heightened competitive activity in some AME markets. While the U.S. macroeconomic environment remains dynamic, the pace of industry decline has improved versus prior years, down around 8% year-to-date on a sales to retail basis. Against this backdrop, I'm delighted that our U.S. combustibles business is expected to deliver both revenue and profit growth this year for the first time since 2022.

In the U.S., our commercial actions, portfolio investments and sharper execution has driven value share growth of 20 basis points with flat volume share. In AME, we have continued to deliver a resilient combustibles performance with robust pricing driving revenue and operating profit growth led by strong delivery in Brazil, Turkey and Mexico. We are also taking targeted actions to rejuvenate key portfolio offers in Germany and Romania. In APMEA, growth in key markets, including Pakistan, Nigeria and Indonesia is expected to be more than offset by previously guided fiscal and regulatory headwinds in Bangladesh and Australia. Both markets are seeing significant double-digit industry volume declines year-to-date.

In Bangladesh, January's interim budget introduced a broad-based increase in VAT and supplementary duties alongside the largest ever hike in minimal cigarette pricing, materially impacting consumer affordability. In Australia, years of excise increases above inflation now compounded by sweeping regulatory reforms, the most extensive since plain package rules in 2012 are accelerating industry volume declines in the legal market. We expect these ineffective policies to further erode the legal market and fuel illicit trade, which already accounts for over 85% of nicotine usage when combined with illegal vapor use.

Worryingly, these policies have also driven a return to growth in smoking incidents for the first time in 20 years by establishing a lower tier of affordable illicit cigarette offers and a more than 50% reduction in government excise collection over the last 5 years. As a result, there has been a significant rise in criminality in addition to the increased burden of associated enforcement costs as widely reported in the media. Together, we continue to expect these headwinds to impact full year group revenue growth by around 1% and group adjusted operating profit growth by around 2%.

Turning to cash. BAT is a highly cash-generative business with operating cash conversion expected to exceed 95% again in 2025, reflecting our strong cash discipline and a clear focus on returns. Our financial flexibility continues to improve, and we are on track to deliver more than GBP 50 billion in free cash flow by the end of 2030. We continue to focus on the deleveraging, and we expect to be within our target 2x to 2.5x adjusted net debt to adjusted EBITDA range by year-end 2026. Our progress has been further supported by the partial disposal of our ITC Hotels stakes last week. As we transform, I remain committed to delivering sustainable shareholder returns through our progressive dividend, which dates back over 25 years and the sustainable share buyback program, including GBP 1.3 billion announced for 2026 starting in January.

To conclude before we move to Q&A, we are making good progress and remain firmly on track for full year delivery. Looking ahead, while there is more to do, I'm confident that the strategic choice we have made and the investment actions we are taking are the right way forward to BAT. I'm excited about the future and confidence that we will return to our midterm algorithm of 3% to 5% revenue growth and 4% to 6% adjusted profit from operations growth, with 2026 expect to be at the lower end of this range as we continue to invest to drive sustainable financial delivery and transformation.

Our confidence is underpinned by continued growth in the U.S., accelerating New Category revenue growth led by Velo globally, and the rollout of our premium innovations in the largest profit pools, continued robust delivery in AME, lapping Bangladesh combustibles headwinds, further improvement in New Category contribution, and stepping up efficiencies delivered by our new Fit to Win program in addition to the GBP 2 billion cost of goods sold savings targets announced at our Capital Markets Day. Moving forward, we expect all going to drive 5% to 8% adjusted diluted EPS growth. Therefore, to better align our guidance with investor returns from 2026, we will be guiding to revenue and adjusted diluted EPS growth at constant rates on an annual basis.

Thank you for listening. Javed and I will now be very happy to take your questions.

[Operator Instructions] And our question is from Andrei Andon-Ionita from Jefferies.

A couple for me, please. First of all, in U.S. Modern Oral, you have alluded to a positive category contribution for fiscal '25. Beyond that, how do you expect profitability to evolve as you continue to gain scale there? And then the second question for me is in U.S. combustibles, the share gains have continued into H2. Could you give us a bit more color in terms of the key dynamics driving this? And how much is attributable to a better end market versus BAT's improved execution in the U.S. market?

Okay. Look, the U.S. Modern Oral, absolutely, we are expecting to close the year already in the positive territory in terms of category contribution. Obviously, moving forward, as I said in my introduction, we are expecting a very strong growth of the new categories. And we'll be leveraging our operational efficiencies and the volumes and the brand in that environment. We have made huge progress over the last year in terms of positioning ourselves as a second player in the market.

And I just give you some interesting headlines. If you take Velo outside the U.S., our category margin is already equivalent to the group margin. So we have a group margin around 44%. If you go for Velo outside the U.S., it's 39% at category level, not talking about gross margin. As a percentage, I'm talking about category margin. So obviously, the U.S. is just turning positive in the first year, which indicates how fast is the payback around Modern Oral category. And I don't see any reason why over time, we cannot get to those levels.

In terms of combustible, our performance is a bit of everything that you just referred to. We are seeing slightly more supportive market. The level of decline has reduced a bit compared with the previous year despite the fact that low-income consumers are -- the consumer confidence is still very low in the U.S., but we are seeing some support coming from oil price mainly, and this could be a factor. And we haven't -- although despite the fact that we are seeing encouraged signs in terms of enforcement in the vapor, still some way to go to make a potential impact on combustible, but this might happen in the future, but it hasn't explained the performance of 2025 clearly.

And I think that the performance is attributed more to what we have done in Reynolds over the last few years. And I mentioned about the commercial activities that we have put in place in terms of coverage, in terms of increasing our sales force, increasing our database of consumers, reach out direct to consumers, improve our competitiveness in the market through our laddering in some brands. So there's a lot to do with that. We also have some benefits coming from the door-to-door bag generates more employment in the U.S. And Reynolds now is the largest buyer of leaf in the U.S. market, just to give some insights on that. So I think that is a combination of all, and that's the reason why we are very positive about the momentum can carry on for the next years.

Our next question is from Faham Baig from UBS.

I have two as well. The first one on glo Helo. Could you maybe talk a bit more about the early consumer sourcing signals you're seeing in Japan and Poland, whether from existing glo users, competitive products or combustibles? And what early learnings gives you the confidence as you sort of plan broader rollouts in 2026? Any share figures that you can share here would be much appreciated. And my second question on FY '26, you've guided towards the lower end of your midterm growth algorithm. As you look into next year and maybe even beyond, what are the key drivers or variables that could help you migrate toward the upper half of that range?

Okay. Thanks, Faham. Look, I'm very excited about glo Hilo. I think that we have a fantastic product. It resonates quite nicely with consumers. The level of retention is -- and I mentioned that in my introduction, is 50%, which is quite high. It's obviously a big change in terms of what we have had in the market, trying to establish a real truly premium brand. In Japan, that is, as you know, a very highly competitive market. We have achieved 1% of market share with glo Hilo. It's about 2% of the premium segment. In Poland that the brand health indicators of glo is very -- is even stronger than in Japan. We have already achieved 1% in a much shorter period of time. And in Italy that we have been very -- in a month or so, we have achieved 0.5%. So all those are very good early indications of glo Hilo, which is a demonstration that we really have a differentiated offer in the market.

Obviously, glo as a whole, we have to look after that. We have to look also to our platform Hyper as we go along because we see a lot of competitive activities in many of these markets in the BWAP as well. And this will demand extra investments behind glo in 2026. So -- but we are really, really positive about the prospects of glo Hilo, and us being able to establish a credible offer in the premium segment where most of the value sits.

In terms of our guidance, well, look, at the end of the day, we are -- as you know, we have -- in terms of revenue, we have just guided around 2%. Obviously, if we're not for Bangladesh, Australia, this number will be around 3%. For next year, we expect to lap Bangladesh, not necessarily Australia because this misguided policy will probably carry on. And we also have some exit markets to lap like Mozambique. And as you know, we have the expectation to leave Cuba as well. And that's the reason why we are getting -- guiding to the low end of the range. Obviously, in terms of PFO already shows that we expect operating margin continue to be accretive for the group next year. The low end is basically our desire to keep investing behind these innovative products. That, in my view, is the best momentum that we have ever had.

Velo Shift is doing extremely well in Sweden. And we want to roll out this premium innovation of Velo elsewhere. Velo Plus, obviously, we have to carry on investing in the brand behind the brand. glo Hilo, we just spoke about. Vuse Ultra is doing extremely well in Germany and France and Canada, and we want now to roll out this premium offering vapor to other markets. So that's the reason why we are guiding the low end of the range.

I would say on the sensitivity side, the U.S. vapor market is so huge and the legality is still so big that any type of a further crack down, be from the federal level, or the state level or the ITC that I just referred to in my opening, this could result in an upside. But it's too early days for us to call on that. Hence, the guidance that we are giving right now.

Our next question is from Damian McNeela from Deutsche Bank.

First question is just back on the U.S. Vuse performance. Clearly, it's pleasing that we're back in volume and revenue growth. I was wondering if you could provide a little bit more color on the sort of -- on a state level performance and whether that performance is concentrated or the positive performance is concentrated on a small number of states or whether you're seeing a more broad-based improvement for the brand across the U.S. is the first question. And then the second one is just on -- I think previously, you've talked about sort of running pilots with Doral in deep discount. I was just wondering if you could provide an update on, a, how that's going; and b, whether there's plans to expand that pilot of Doral, please?

Okay. So Damian, look, on the Vuse U.S., we clearly see a better performance on the states that have implemented directory. And as I said before, the levels of legislation varies by state. There are some that are going deeper than others. And hence, our level of performance also varies. But I would say, overall, it's -- we have an upside around 7% that we are seeing around those states with a range of high and lower depending on which state and this particularity of the legislation. So what we expect in next year is that vapor in the U.S. will not be a drag anymore in our New Category numbers. Now from not being a drag to be an engine of growth depends on how much more we can see in terms of enforcement. And hence, I'm trying to be cautious here when I guide for 2026.

Doral, we are in two states with Doral. And we are being very thoughtful in how we roll out Doral across the states in the U.S. and being very thoughtful about the source of business in order to avoid any type of cannibalization with our own brands, which will be detrimental for the financial or the margins of the company. We expect to carry on rolling out Doral in some further states next year. And this will be a consequence of a price increase eventually. And then if the case to launch Doral in a way that doesn't compromise our contribution margins are favorable. And then we carry on rolling out. So there are in the plans expectations that we can carry on rolling out Doral, but like I said, in a measured and thoughtful way.

Our next question is from Philip Spain from JPMorgan.

I had two, please. The first one was just on the guide for 2026. I appreciate your comments on the profit, why you're guiding towards the lower end. But just wondered if you could provide a bit more color on why for the top line, you're also expecting at the lower end? And also wondering how much of a benefit you expect the drawback in the U.S. to be for your top line next year as well -- isn't using that more next year?

And then my second question is just on the -- going back to the illicit vape crackdown in the U.S. I just wondered in terms of what you're seeing in terms of consumers where -- in states where the enforcement is occurring, what they're switching back to and if they're mostly switching back into the legal vapor options or if they're switching more into pouches or back into cigarettes as well? Just kind of interested to hear that shape.

Okay. Yes, the guidance -- on the top line of the guidance, like I mentioned to you before, we will be exiting some markets like Mozambique and we have a desire to exit the Cuban market, like we have said before. And obviously, this doesn't trigger any type of organic adjustment. And we are also expecting Australia to carry on with this misguided policy towards the 100% legality, if you want, of the use of nicotine. They are already 85%. So these are -- this needs to be offset by, obviously, the momentum that we have in the U.S. by the new categories that we are now expecting to go back to double digits next year as opposed to this year that has been mid-single digits, like I said before. And eventually, there will be a potential upside depending on the circumstance of the -- mainly on the vapor illegal market in the U.S. So that's basically what is triggering the guidance for 2026 on the top line.

Obviously, the operating profit, like I said, will be impacted by our desire to keep investing for the long term of the business, not to make 1 year looking brilliantly. I would -- obviously, I could have delivered much higher number in 2026, but this would be the wrong call for the business in the long term. So now that we have very competitive products in every single category, like I said before.

In terms of in vapor, -- the crackdown that we are seeing in some of the states, we are not seeing a return to cigarettes. What we are seeing is basically a return to legal vapor market and also some of the pouches where the flavors are still there. Because one thing that we would like to see happening in the U.S. is not just about the crackdown on the illegality of the market, but reestablishing flavors in vapor back in the market because that's the root cause of why the traction of vapor illegal was there in the first place. The reason why this illegal vapor market in the U.S. went up so much is basically the absence of flavors in the legal market. And eventually, the FDA could consider in the approval process to reestablish that at the back of a age-verified gate, for example, be in the device or be in the trade.

So that's our hope that this could materialize. But as this is not there yet, what we'll be seeing is that probably some of these users of vapor illegal that don't find the product anymore migrating more towards the pouch and some of them going to the legal vapor, like I said, but not in its totality. Okay?

Maybe could I just add one follow-up to that final point? In your conversations with the FDA, are they being more open towards introducing flavors in the legal vapor market again?

I think that they understand that the major root cause is this absence of the flavors. And -- but it's up to them and how they proceed on that. But I think that, obviously, we have some previous files of a device with technology that prevents -- that allows age verification, and that could be one route. But I don't have any further information on that. I note that they understand the problem.

Our next question comes from Rey Wium from Anchor Stockbrokers.

Just a question around the rollout of glo Hilo. You mentioned, obviously, full rollout in Japan in September and then October, November for Poland and Italy. I'm just curious how long will this rollout take place. Will you be able to get like a full-scale rollout, let's say, by the end of 2026? Or are there any capacity constraints around the product availability?

Yes. We expect to make big progress in 2026. We are not seeing constraints in terms of product availability. Obviously, every time you get into a new market, very different from the pouches where the payback is very fast. In HP, it takes longer. But like I said, we are entering a premium segment of HP, which means higher margins, which is positive for us. But we have to do it in a way that is also considered our resource allocation decisions in everything that we see out there in terms of the other categories and the other geographies as well. But definitely, we expect to make a big progress in terms of rollout in 2026.

So is it fair to assume that THP will probably be the slowest growing unit of the three new categories?

Well, look, if you consider the glo Hilo, we expect to carry on growing. But overall, glo is not just about Hilo, it's about Hyper. We know that it's very competitive in the BWAP, like I said. And hence, our objective for next year is to stop the share decline in the category and stabilize and start to come back to growth. That success looks like as a glo as a family at the back of an increase in glo Hilo moving forward.

Good. And maybe just a quick follow-up, talk about the combustible business. You indicated an improvement into the second half. So is this just a marginal improvement on the first half? I mean the first half revenue, I think, in constant currency was up 0.8%. So I just want to get sort of an idea of the improvement that you expect in the combustibles in the second half.

Yes. You have to consider that the first half, we were lapping a very easy comparator from the first half of 2024. But even that, I still -- we are still expecting an improvement in the second half compared with the first half. It will be a marginal improvement, but considering that the comparator is much harder in the second half of '24 is a very good momentum.

Our next question is from Morayo Adesina from Barclays.

Apologies if I missed this earlier. I was just wondering if you could quantify the benefit that you've seen from the duty drawback.

Look, we are not quantifying the benefit. What I'm saying to you is that our performance will still be positive in terms of revenue of combustible, excluding the drawback. Obviously, there is an element there that is helping with the results that we have achieved in H1 will be the same for the full year. For next year, we expect to see some further accretion coming from the drawback. But more important that our underlying numbers will still be positive given the fact that we are growing value share in the U.S. market at the back of all the commercial activities that we have done.

Our next question is from Bastien Agaud from Bank of America.

Bastien from Bank of America. I have one on Velo -- Velo pricing. So in Europe, the product is priced at a premium over your main competitor. And I understand that you have not received PMTA yet for Velo in the U.S. But going forward, if we should expect pricing for Velo in the U.S. in case you receive PMTA for the product, should we expect to trade in line with your main competitor at a premium or continue to price the product at a slight discount compared to the competitors?

Look, as you would expect, I cannot be making inference or discussions about future pricing. What I can say to you is that our Velo product can confirm that it is positioned at a premium price outside the U.S. The introduction of Velo Plus has been done with a discount, which is normal because when you introduce a product to get some traction in key accounts and with their consumers and the fact that we always knew that this would be a very competitive product and hence, we need trial. We applied some discount to the price list. And what we happened is that we have been reducing this discount throughout this 1 year of Velo. But I cannot comment on you about future pricing strategy.

There are no further questions on the call. And with that, I'd like to hand the call back over to Tadeu for his closing remarks.

So thank you for joining us today and for your questions. I'd like to leave you with this key message. First, our U.S. business has continued to deliver strong growth in the second half, and I'm encouraged by the sustained momentum resulting from the commercial actions we have taken in combustibles. This reinforce my confidence for future delivery. Second, our new categories are gaining traction. We expect full year revenue growth to accelerate to mid-single digits, led by Velo Plus in the U.S. and supported by recent improvement in U.S. vapor alongside accelerated improvement in profitability. And third, I remain fully committed to achieving our 2x to 2.5x net debt-to-EBITDA leverage target for the full year 2026, while delivering sustainable shareholder value through our progressive dividend and a sustainable share buyback program with GBP 1.3 billion announced today for 2026.

Finally, with this momentum, I'm confident that we will sustainably return to our midterm algorithm next year. Thank you again for joining us, and I look forward to update you further at our full year results on February 12 and at the CAGNY Conference the following week.

Good morning, everyone. I'm delighted to welcome you to our 2025 interim results presentation. With me this morning is Soraya Benchikh, CFO; and Victoria Buxton, Group Head of Investor Relations.

I will begin with our transformation highlights and the progress we have made against our 2025 priorities. Soraya will then take you through our financial results in more detail, before I return to talk more about our performance outlook and why we are confident in the pathway ahead. We will then take your questions.

With that, I would like to draw your attention to the disclaimers on Slide 2 and 3. Let's begin by looking at the positive transformation momentum we are driving.

Starting with some highlights. We have delivered group results slightly ahead of expectations, which Soraya will talk about in more detail. Smokeless now accounts for 18.2% of group revenue, up 70 basis points versus last year. And we added 1.4 million smokeless consumers reaching 30.5 million, mainly driven by our continued success in Modern Oral. Our focus on quality growth, balancing top and bottom line delivery has driven a further improvement in new category contribution margin up 280 basis points to 10.6% at constant rates.

We continue to enhance our financial flexibility enabling us to make progress on the leverage and reward shareholders with strong cash returns. Alongside our progressive dividends, we recently increased our 2025 share buyback by GBP 200 million to GBP 1.1 billion.

I'm proud that we have delivered what we said we would in the first half against our 2025 priorities as we continue to build a track record of delivery. Our quality growth focus is central to our new categories execution to ensure we roll out new innovations in a target way while continue to improve our contribution margin. Driving value from our combustible business is essential to funding our transformation and the U.S. is a key driver of this.

I'm delighted with our return to both revenue and profit growth in the U.S. for the first time since 2022, driven by combustibles and modern oral. We remain focused on our proactive approach to regulatory affairs and continue to advocate for science-led level playing fields with robust enforcement for smokeless alternatives.

In the first half, we activated Omni in 13 markets globally, with further launches planned for the second half of the year. Importantly, all of this is executed with a strong focus on cash generation, enabling us to continue to deleverage and reward shareholders with strong cash returns. I'm pleased to report a notable increase in energy and momentum across the group.

And I would like to thank all our teams around the world who are driving these encouraging results.

And with that, I will hand over to Soraya to take you through our H1 performance in more detail.

Thank you, Tadeu, and good morning, everyone. I'm pleased to share that our results on a constant currency basis came in slightly ahead of expectations. Our reported numbers include some adjusting items such as a GBP 575 million reduction in our Canadian provision following an update of the forecasted market performance and the GBP 900 million gain from the partial sale of our ITC investment.

To give you a clear picture of our underlying performance, I'll focus on constant currency adjusted metrics, and you can find more detail on the adjusting items and market share data in the appendix. In H1, we delivered a strong performance ahead of our original guidance at the upper end of our 1% to 2% revenue growth range. Group revenue was up 1.8%. Adjusted gross profit rose by 3% and adjusted profit from operations grew 1.9% with adjusted diluted EPS increasing by 1.7%.

With a stronger-than-expected H1, we now anticipate full year revenue at the top end of our 1% to 2% guidance. We maintain our APFO guidance of 1.5% to 2.5%, reflecting increased investment in new categories and the stronger U.S. combustibles comparator in H2.

Let's now turn to new categories. Revenue was up 2.4%, driven by an outstanding growth in Modern Oral, which was up over 40% and Heated Products, which rose by more than 3%, this was partly offset by a 13% decline in Vapour mainly due to illicit trade in the U.S. and Canada.

We are delivering quality growth with gross margin up 250 basis points and contribution margin up 280 basis points, reaching 10.6%. This reflects our targeted investments in high-value markets, a disciplined approach to ROI and the benefits of scale. And I'm really proud of the progress we've made, and we expect momentum to build in H2 with new category revenue growth moving into the mid-single digits for the full year.

Modern Oral in AME is a fantastic example of quality growth and action. We are clear category leaders in the region with 63% volume share in top markets. And over the last 4 years, consumer numbers, volume and revenue have more than tripled, making Modern Oral our largest new category in the region by both revenue and contribution with a gross margin already 10 percentage points above combustibles, together with the fastest payback period of just over 1 year. Looking forward, I am confident that Modern Oral will continue to be a key driver of our sustainable growth and profitability, both in AME and globally.

Now turning to combustibles. Revenue increased 0.8% with volume decline more than offset by strong pricing across the globe, driving a healthy price mix uplift. We delivered quality growth here, too. Gross profit increased by 2.4% and contribution rose 2.2%, helped by a strong performance in the U.S., favorable price mix and ongoing productivity and simplification gains. I'm especially pleased to see our U.S. combustibles business return to growth for the first time since 2022. This demonstrates our -- the resilience of our combustibles portfolio and strengthens our confidence in hitting our midterm targets.

Now looking at the U.S., I am delighted to say we've returned to both revenue and profit growth. In combustibles, our improved portfolio and stronger execution, including enhanced revenue growth management delivered 3.8% increase in revenue as we lap last year's investment cycle. Volume share rose by 10 basis points and value share by 20. And excluding the deep discount segment where we are not present, our volume share was up 60 basis points. In new categories, revenue grew by 3.9%, driven by the successful launch of Velo Plus which delivered over 380% growth in Modern Oral revenue. This was partly offset by a 12.3% decline in paper impacted by ongoing illicit single-use products.

Overall, U.S. revenue grew 3.7% and adjusted profit rose 3.2% led by combustibles, though partially offset by Vuse headwinds and investments in Velo Plus. Tadeu will share more on the U.S. shortly.

AME had another solid half Revenue rose 3.5% with combustibles up nearly 3%, thanks to strong volumes in Brazil, Turkey, with solid pricing. New category revenue grew by 1.3%, including nearly 17% growth in Modern Oral, where we hold a 63% volume share. Offsets came from illicit vapour in Canada and evolving market dynamics, post single-use vapour bans in some large markets. Heated Products growth in Poland and Portugal was more than offset by the impact of resource allocation decisions in the Czech Republic, Germany and Romania.

Adjusted operating profit grew by over 10%, well ahead of revenue driven by operating leverage and efficiency gains and combustibles, scale benefits and resource allocation in new categories and our accounting treatment for Canada. AME is a true multi-category region, delivering quality growth.

In APMEA, fiscal and regulatory headwinds in Bangladesh and Australia outweighed good performances in Pakistan and Nigeria. Total revenue was down 4.8% with combustibles down 7.9%. New category revenue increased 2.5%, driven by Heated Products, growth in Japan, and Modern Oral gains in emerging markets, partially offset by vapour, which was impacted by strategic market exits as we shifted our focus to more profitable opportunities. Adjusted operating profit was down 12.3%, mainly due to the challenges in Bangladesh and Australia.

Operating margin held steady as we offset inflation and FX pressures with a strong performance in the U.S., higher profitability in new categories and continued cost savings. At current rates, operating margin grew 20 basis points.

BAT has a strong track record of cost savings, and we continue to build on it. Since 2023, we've delivered nearly GBP 900 million in productivity savings and are on track to exceed GBP 1.2 billion by year-end. These savings help us manage inflation and foreign exchange impacts, while funding innovation in new categories. In H1, we absorbed GBP 166 million in inflation-related costs, and a 1% transactional FX headwind on adjusted operating profit. Looking beyond 2025, we remain focused on simplifying combustibles and scaling new categories, targeting an extra GBP 2 billion in cost of goods sold savings by 2030.

And to further drive agility and savings, I'm excited to introduce our new Fit2Win program. Fit2Win is a 3-year program designed to simplify the way we work, increasing agility and embedding digital decision-making. While we're still in the planning phase, we're confident it will generate around GBP 500 million in annualized savings by the end of 2028. These savings will support our growth algorithm and fund investments that drive long-term profit and cash flow.

Importantly, this is incremental to the GBP 2 billion cost of goods sold target that we announced at our Capital Markets Day last year. We expect associated costs of GBP 500 million over the next 2 years, and there's a onetime investment, GBP 350 million of that will be treated as adjusting starting in 2025 and ending in 2027. I'll share more at our full year results in February.

Earnings per share rose by 1.7%, while lower share count supported growth, it was offset by our reduced share of ITC profits and higher net finance costs. Our underlying tax rate was 24.4%, and we expect a full year rate of around 25%, assuming no major changes in prevailing tax rates. Translation FX was driven by sterling strength against most major global currencies with weakening U.S. dollar contributing around 50% of this headwind.

Our strong cash generation continues to enhance our financial flexibility. We are on track to deliver more than GBP 50 million in free cash flow by the end of 2030. And we remain focused 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 in May, we increased our 2025 buyback by GBP 200 million to GBP 1.1 billion, with GBP 650 million allocated for the second half.

To summarize, H1 was ahead of expectations and the momentum we're building through this deployment year gives us confidence in delivering our full year guidance. Key growth drivers include continued strength in the U.S., led by combustibles and Velo Plus, acceleration in new category revenue as glo Hilo and Vuse Ultra rollout and Velo maintains strong global momentum and further gains in new category contribution.

With a stronger-than-expected H1, we now anticipate full year revenue at the top end of our 1% to 2% guidance. We maintain our APFO guidance of 1.5% to 2.5% of reflecting increased investments in new categories, a stronger U.S. combustibles comparator in H2 and the 1% to 1.5% transactional FX headwind. All of this enables us to invest more in innovation while staying firmly on track for 2026.

Our H1 results show strong progress across multiple drivers, reinforcing my confidence in returning to our midterm algorithm of 3% to 5% revenue growth and 4% to 6% operating profit growth. If we exclude the regulatory and fiscal headwinds in Bangladesh and Australia, we're already hitting the lower end of our midterm targets with 3% revenue growth and 4.5% operating profit growth. In addition, I'm also encouraged by the early signs of our premium innovation rollout which Tadeu will now talk about in more detail.

Thank you, Soraya. I would like to outline our confidence in the pathway ahead. The nicotine industry is rapidly transforming and growing as added consumers around the world are increasingly switch to new categories. We have pursued a mood category strategy from the outset which means we are well placed to benefit from these consumer trends, leveraging our world-class insights, innovation ecosystem, brand building and distribution capabilities, we have invested to build a well-established portfolio of global brands across all 3 new categories.

In addition, given our global footprint and with a number of our key markets still close to smokeless alternatives, we recognize that we must continue to invest to drive value from combustibles with a well-balanced portfolio of brands across price tiers.

Let me now share more detail on our new category launches. Starting with Modern Oral, the fastest-growing new category by far, which is already reaching global scale. Its position on the risk continue was supported by a recent study which demonstrated that smokers who switch completely to oral nicotine products exposed to lower levels of toxicants similar to those who quit. Modern Oral is highly successful in both traditional oral markets and new markets with no existing oral nicotine tradition and it's also highly profitable with a fast payback, as Soraya mentioned.

Following our successful launches in Pakistan and South Africa, we continue to see an exciting opportunity for Modern Oral in emerging markets given its adaptability and affordability. Modern Oral is becoming a meaningful contributor to our group delivery as Velo continues to grow from strength to strength. We are clear leaders in AME close to 6x the size of our closest competitor and capturing around 60% of category growth, which highlights the further opportunity ahead. Velo is a premium product over indexing on value and strongly outperforming our peers across the region. Given BAT's European Modern Oral leadership position, we have applied our know-how and capabilities to the U.S.

We were already confident that with the right product, we could make performance in roads in the U.S. and that is now being realized with Velo Plus. In the U.S., the Modern Oral category value of around GBP 2 billion has already overtaken the size of the legal vapour market and is expected to almost double over the next 2 years. With the successful launch of Velo Plus, we have a step change in our U.S. performance and are now the fastest-growing Modern Oral brands. Velo Plus is driving triple-digit revenue growth and strong volume share gains. In May, Velo had gained almost 9 percentage points of share since launch. Encouragingly, the latest volume share read from July is above 17%.

These results are a testament to the quality of the product, the improved strength and speed of our distribution capabilities and our sharper execution enabled by RGM. We are excited about the opportunity ahead and Velo Plus is already #2 in volume share in 11 states, including New York and Texas, which together represent around 10% of the total U.S. category. And importantly, after investment in the initial launch and rollout phase, we expect Velo Plus to deliver a positive category contribution for the full year 2025.

In Heated Products, glo Hilo is a breakthrough innovation that we believe will reshape the way Glo is positioned in the premium segment, which represents over 80% of industry value. Glo Hilo has several new and innovative features, including fresh ramp up, hitting justified second, a personalized LED screen and connectivity with the myglo app, enabling customized sessions, find my glo and remote locking.

Along beside new upgraded consumables with enhanced taste and satisfaction, the closest to replicate cigarettes we have ever achieved. At the end of 2024, we launched glo Hilo in Serbia. We integrated the insights and critical learnings into our rollout approach, beginning with our June city launch in Sendai. While very early days, I'm encouraged that both the consumables and devices are resonating well with consumers. Glo Hilo is driving improvements in consumer perception of glo, including brand equity and appealing design.

In addition, we have captured 1.5 percentage points of volume share in just a few weeks at a premium price point. Importantly, Hilo is the first time glo will also offer a 2-piece device launching as part of the national rollout in Japan this September. We will continue to roll out glo Hilo in a targeted way in the largest Heated value pools through the second half.

It's our belief that premium vapour done right is an untapped opportunity, offering greater differentiation and value generation potential. Vuse Ultra is our initial step, delivering a high-quality and satisfying experience alongside the connected and highly customizable offering. Key features include a small new smart pods, which automatically adjusts the device to consumers preferable favor settings, a clear view display to easily track battery and liquid levels, connectivity enabling find my vape and the device lock further reinforce Vuse position as a brand consumer can trust.

Vuse Ultra was launched online in Canada at the end of Q1 with a nationwide rollout from June. Initial consumer feedback has been positive. Vuse Ultra is driving a strong improvement in key attributes, including premium, innovative and easy to use capturing over 2 percentage points of value share since the nationwide launch. We have recently launched in the U.K. and Germany, and we will continue to roll out in a target way through the second half.

Moving to the U.S., the largest nicotine property pool globally and the cornstone of our business. This is why returning to growth here has been a key focus area for me. We have invested in strengthening our portfolio, readdressing price gaps and indexation. We have also sharpened our execution, expanding contract coverage, increasing our sales force and improving revenue growth and management and our reward programs through enhanced digital capabilities.

I'm delighted we are beginning to see value being created by the actions we have taken to strengthen our portfolio and execution. Our total volume share grew 10 basis points and value share was up 20 basis points. We are seeing broad-based value share improvement across the portfolio. Our value for money brand, Lucky Strike continues to be the fastest-growing U.S. combustible brands with value share up 60 basis points. Value share in our super premium brands, Natural American Spirit is up 10 basis points despite pressure on consumer wallets. And the targeted introduction of a soft pack variant has led to stabilization of the Newport brand family. I believe we have turned an important corner in the U.S. After significant investment, we are well positioned to build on this recovery and deliver sustained contribution to the group performance in 2025 and beyond.

Turning to regulation. We are encouraged that at the state level, vapour directory and enforcement legislation has now passed in 18 U.S. states and we look forward to do the implementation of these and more robust enforcement. A number of states are now demonstrating that well constructive regulation can be effective in tackling illicit vapour with Vuse volume returning to growth. In addition, we remain cautiously optimistic about a more proactive approach to illicit vapor enforcement at the federal level. The new administration has been clear that tackling illicit vapor is a key priority, and the FDA has already taken some important first steps updating product classifications, closing loop holes for small shipments and seizing illicit products.

While these actions have recently driven more than a 40% reduction in vapour-related shipments to the U.S. due to the long supply chain, we are yet to see any meaningful impact on the ground. As a result, we are not assuming any improvement in the legal vapour market in our 2025 guidance.

As mentioned earlier, we continue to focus on sharpening execution, and our digital transformation is a key enabler. Thanks to the strong strategic partnerships, BAT is ahead of the curve. Let me share 4 key highlights. First, we are a global leader in cloud adoption with 85% cloud hosting through strategic partnerships. Second, our pioneering partnership with Microsoft enabled the rapid build of our enterprise data platform, advancing our global data infrastructure through MS fabric and next-gen technologies. This empowers our data-first agile organization enhancing tools like IGM and marketing spend effectiveness.

Third, this year, we launched our GenAI lab in Dubai, making BAT the first CPG company in the region's AI hub. We've already deployed use case like Ask Omni, AI-powered sustainability bots and advanced consumer insight tools. And finally, we have streamlined our strategic technology partnerships, reducing IT run costs by 40%, while maintaining 99.9% uptime.

We will continue to drive BAT's digital transformation with our partners, fueling growth, enabling productivity and building a more sustainable business. Our recently announced strategic partnership with Accenture is a clear example of our digital transformation in action. We are transitioning our global shared service to Accenture. This partnership gives BAT access to Accenture's cutting-edge technology ecosystem, including Agentic AI solutions and the strategic collaboration with world-leading technology companies.

These capabilities will help us further to simplify our process, accelerate future markets, upskill talents and reduce costs over the medium to long term. In return, BAT's industry-leading expertise in supply networks, we will strengthen Accenture's global supply chain and operations. This is a key step in making BAT a future-ready, digitally enabled organization powered by strategic partnerships.

In conclusion, as Soraya highlighted we are on track to deliver our full year guidance. And looking into 2026, I'm confident that we will build on our underlying momentum with the key growth drivers, including the continued momentum in the U.S., AME and Velo, lapping Bangladesh combustibles headwinds, a further increase in new category contribution and a step-up in efficiencies with our new feature win program to deliver 3% to 5% revenue growth and 4% to 6% adjusted profit from operations growth.

And finally, I would like to share a few key takeaways from our results. We have returned to revenue and profit growth in the U.S., a critical milestone. Velo is the fastest-growing brand in the fastest-growing new category with real momentum in the U.S. and globally. And we are increasing profitability across our new category portfolio. Our R&D ecosystem is delivering exciting premium innovations. And we continue to amplify our proactive approach to regulatory affairs to unlock new markets and create a sustainable level competitive playing field.

At the same time, our digital transformation is accelerating, enhancing execution and unlocking further efficiencies and agility. All of this is executed with a cash focus, returning GBP 17 billion to shareholders over the last 3 years while continuing to deleverage. While there is more to do, I'm confident that we have the right strategy, capabilities and people to deliver a profitable transformation. I'm excited about the future for BAT, and I believe we will deliver long-term sustainable growth and value for all our stakeholders.

Thank you for listening. We will now be joined on the stage by Victoria for the question-and-answer session.

Thank you Tadeu and Soraya, and good morning, everyone. [Operator Instructions] And I will now hand over to the operator.

And our first question today comes from Simon Hales with Citi.

Two or 3 for me, if possible, please. Tadeu, can you just talk a little bit more about sort of the early performance that you've seen from the glo Hilo launch into Japan. Obviously, you referenced it in your presentation in terms of the recent share gain you're seeing. Qualitatively, what is the feedback you're getting on the ground from those Japanese consumers. How does it vary at all from what you saw in the test market in Serbia? And how should we think about the scale of the rollout into other key markets through the rest of the year? What percentage of your key Heated tobacco markets do you expect to be in by the end of the year?

And then secondly, on Modern Oral, clearly, a very strong performance coming through from Velo Plus in the U.S. and you referenced the further share gain that you've seen coming through into July as well. Have you seen any change in momentum for the brand as you exited the quarter and came into July, given that the biggest competitor on the ground is now back on shelf and perhaps being a little bit more aggressive in its point-of-sale promotional activity?

And then finally, just really a clarification for Soraya around the Fit2Win program. I think you said that there won't be any upfront costs until 2026 for that program. There's nothing in the second half of the year. Am I right on that? And I assume the GBP 500 million target over 3 years is the gross savings target, and we should expect a chunk of that to be reinvested back into the business?

Okay. Simon, thanks for your questions. In terms of glo Hilo Japan, the feedback has been really positive from consumers. And its portfolio was much more tailor made from the ones that we have launched in Serbia for the Japanese consumers. We have done a lot of work to get to very competitive offers because it's not just about the device. The device is clearly a massive step change from what we have been offering so far into the Japanese market and also anywhere else in the group. But the consumables are also very important. And we do believe that we have a new technology on the consumables that's combined with the device heating mechanism is offering, like I mentioned in my presentation, the closest we can get from smoking a cigarette in HP product.

And this being resonating well with consumers. Have to remember that Sendai, we don't have yet the 2-piece device. And yet, we have achieved it in few weeks, 1.5% at a premium level that we have never been able to compete with glo in terms of consumables pricing. So it's quite exciting about that. In terms of rollout for the rest of the year, we will just start because, like I said, September, Japan, and we'll be hitting the highest profit pools in the HP category until December, but it will be just early stage. We will be probably seeing the impact of that throughout 2026.

Now in terms of Modern Oral, yes, we are extremely excited with Velo Plus. The brand is keeping its momentum. And when we launch the brand as any new launch in the U.S. We have a price list, we apply some discounts to get consumer trial. We see that once the trial, the level of retention is still being kept at a very, very high level at 70% of retention and we have been reducing the discount since the launch. And despite that, we carry on seeing increasing in market share and the repurchase at the point of sale. So all in all, we are very, very supportive of the future growth of Velo Plus in the U.S.

Today, in terms of pricing, if you strip out the leading brand, we are over-indexed to what is left in the market. And in terms of value share based on the trend that we are seeing, we are very close to achieve the #2 position. So -- we are -- and we'll be going back to a positive contribution already in 2025, which is a testament that this is a category with the right product with the right focus and execution, we can have a very short payback. So all in all, very excited about that. So Soraya?

Simon, thank you for the question. Just let me give a little bit of background on Fit2Win. I think over the years, we've been very good at taking out costs from the business. Fit2Win is slightly different. It's really aimed at making the organization future fit. We're basically reviewing a lot of our key work processes in the organization. and embedding digital decision-making basically into our processes. We're doing a full review of indirects. We're also looking at our routes to market to ensure that they are transformed in line with the business transformation that we're going through.

So in answer to your question in terms of the cost -- we've already -- we will have some costs in 2025, but this is fully included in our guidance. And the GBP 500 million will be an annualized saving that we will reach at the end of 2028. And yes, we will be looking to reinvest basically to fuel the growth behind our innovations.

Our next question comes from the line of Damian McNeela from Deutsche Numis.

The first question really is on whether you could provide us a little bit more color on the performance of the vape business in the AME region. I think you sort of flagged some challenges in Canada and also the transition that's happening in some of the bigger markets like the U.K. I was just wondering if you could provide some thoughts on what's happening on the ground and your expectations for vape in those markets over the medium term?

And then just on the U.S. vape and just some clarification on the 40% reduction in shipments that you've seen. I guess it's very difficult to have any accurate number. But can you provide us with a sense of sort of what that means in terms of when we might expect to see a change on the ground in terms of illicit availability, please?

Okay. Damian look, the performance in vaping in AME has been heavily impacted by Canada. The situation in Canada, Quebec, the largest province and where most of the sales is happening, has introduced regulations banning all flavors and -- but the level of enforcement is basically none. And we see inundation of illegal products on top of that with the big tanks, big disposable brands, which due to top care, we cannot even offer anything similar to that. So as a consequence, we had a strong business. We still performed quite nicely on the tracked channels, but there is a hidden market that is not showing up in the tracked channels that is inundating the market and making it very hard for responsible companies to compete in a level playing field. So actually -- so as a consequence, the headline numbers of AME get impacted.

But one thing that is interesting happening in Europe is that the trend moving from mods to closed systems. And as you imagine, when you buy mods, you're selling a device, so the NTO per unit is higher when you are selling pods in the closed system. So this will translate an impact in the first moment in the top line of the business. On the other hand, this transition actually is positive for BAT in the long run.

You take U.K. for example, we have an overall share just over 10% of the vapour business, including mods. And when you zoom in into the closed system, we have a 33% share. So as this transition consolidates and you know that U.K. has just banned mods and the expectation is that we're going to see more and more closed system replacing mods over time, we should be seeing a return to growth in those markets.

The same is happening in France. Although France the closed system was already a big chunk of the market, and we have a very strong position in France with some close to 60% of market share. The same happened in Germany despite the fact there is no ban there. The consumers are naturally migrating from mods to closed system as the closed system gets better in terms of satisfaction and it's a better economic and financial equation for consumers because you don't need to buy a device, you just buy pods over time.

And another interesting point that we are seeing is the fact that, as we said before, our idea was to explore the introduction of a premium segment like we have in HP, like we have in cigarettes across vapour that is not really there. And Vuse Ultra was our first attempt, and we are really encouraged to see the results that we are getting on the ground. It's early days, but we got more than 2% of value share in Canada with all these convoluted situation that I was referring to you. And we'll also be seeing a very strong traction in Germany where we have just launched few weeks ago. And we have just launched in the U.K., and we're going to continue to roll out. So that's what is happening in vapour.

In the U.S., it's very difficult to predict because what we are seeing on the ground is that some of these key brands, they are not being found anymore in some point of sales. They are running out of the shelves. But there is so many other offers of these type of products, illegal vapour products, that's basically target youth with flavors like bubble gum, rainbow candy, things that are absolutely shouldn't be in the market in the first place. And we are still seeing those products there. The encouraging fact on this is that the new administration, the new Secretary of HHS, the new chair of the FDA has been very vocal about putting as a priorities, the [ anniculation ] if you want, of this nonresponsible and nonconformed brands. And not just the narrative, but what we start seeing on the ground, the 40% reduction in shipment is one of the data points.

And because we know that some of those manufacturers, they misdeclare what they are bringing. They undervalue their shipments. So they are well aware of that. They are taking initiatives to cope with that. It's a question of consistency. So from the first angle to your question, we need to see a consistently multi-agency work on that, which, for the time being, seems to be the case. And at the same time, we need to wait because there is a long supply chain in the U.S. to see a meaningful impact. But this is one side of the equation. The other side of the equation is eventually to get the FDA addressing the approval process because the root cause of all these illegality is the fact that the U.S. consumers don't get enough smokeless products. And that's something else that we hope that the FDA will address over time.

Our next question comes from the line of Rey Wium with Anchor Stockbrokers.

If I can just start off with the U.S. on the combustible side, it's quite heartening to see that the volume decline has sort of now eased to 7.6%. I just want to know whether -- I mean, what is your sort of indication for the remainder of the year? Is there a chance of this rate of decline to ease further? Or is that pretty much where we are going to stabilize?

The other question that I have is just on -- I mean, a very strong performance from Velo Plus in the U.S. Now I just want to know, obviously, you are still waiting approval for, I guess, Velo 2, if you can give us any update on that? And given that Velo Plus is already doing so well, I mean, what are you thinking around Velo 2 when that becomes available?

And my last question is just a clarification because honestly, I'm a bit confused in terms of your adjusted EPS number. You show it as 162p, but I also see a number that I can't find anywhere in the release, which is the 155.5p which exclude or make the adjustment for Canada, including currency. So I mean, maybe if you could just help us understand what is the real number that you are looking at and what you want us to focus on? Because I mean, the adjusted EPS on that basis is actually down 2.4% and not up. So that will be very helpful just to get some understanding of how we need to think of this way.

Thank you, Rey, for the question. Soraya will cover the point on the adjusted EPS. In terms of volume, industry-wise, we are seeing a slightly improvement compared with the previous year. It's not meaningful. Previous year at this point in time was overall 8.5% decline. This year, it's more on the 8%. I don't think that we'll be seeing a meaningful variance to that until the end of the year. There are -- the consumers are still very stretched. The level of confidence is still low. But obviously, this has been offset partially by the fact of gas price has been reduced. And we know that there is a correlation, inverse correlation between gas price and sales of cigarettes in the U.S., which has been supportive of volumes more recently.

And the other big question mark is in terms of how much more enforcement in the illegal vapour disposable products they can do in the U.S. because we also know that some of the weakness that we see in the combustible business are related with the availability of these products in the market. And obviously, if you expect some enforcement, at least the switch out from -- out of combustible toward these products will probably be reduced.

In terms of Reynolds, we are very pleased with our performance. It shows that all the commercial plans that we put in place in the last 2 years is resonating with a strong performance on the ground. You can see that by the market share increase, the value share increase. Our price/mix has been very robust. Obviously, we have taken some decisions, mainly pricing related in 2023, 2024 that makes this half year a bit more softer comparator. That's why we call the attention that the second half will be a bit more stronger comparator for the U.S. combustibles in general. But overall, we feel very, very confident about keeping the momentum. And remember that we have always said for us to go back to the 3% to 5% group algorithm in terms of revenue, what we need is combustible as a group to deliver between 1% to 2% and the U.S. in that equation will come between 0% to 1%. So we are tracking well ahead of that.

So in the medium and long run, if we are able to at least deliver 0% to 1%, we have all the possibilities to -- with the complement of the other 2 regions, which now we expect to lap Bangladesh from the next year onwards. And hence, going back to the likes of 2% plus new categories to get back to the algorithm. So that's the combustible side.

The Velo Plus, it's -- the biggest differentiation of Velo Plus, obviously, the execution, the way we are -- the Reynolds was able to launch a product from scratch to 135,000 outlets. That's the case today in 6 months is something remarkable. But on top of that is the product that brings more moisture to the market. And the Velo 2.0 that you are referring to, and that's how we refer here as well, it brings even more moisture is the ones that we have in Europe that is very successful. That's why we were highlighting the case. We don't talk much about ex the U.S., but the fact is that our Velo brand is almost 6x higher in volume than the second place in that particular region.

So this probably will be complementary to the Velo Plus. Velo Plus has been so successful that this probably will be complementary. It's very hard to predict when this gets approved. And it's back to the point that I just made recently in the previous answer. This is one area that the FDA needs to address is the rhythm of approval because there was millions of submissions done over the last 5 years with a handful of 25 so MGOs given, which is basically not enough to address all the consumer needs in the U.S. because we are seeing more and more poly users in the U.S. So hopefully, the FDA can address that. We can speed up some of this process. And this guarantee that the success that we are seeing today in Velo Plus can be maintained with the pipeline of Velo that we have outside the U.S.

Okay. On the EPS, basically, you're looking at 162.1p, which is on the constant basis. The 155.5p that you see is on current basis. There is an adjusting item, which is our Canadian adjustment, but Victoria and her team are happy to provide you with a full reconciliation. But the number you should be looking at is 162.1p.

Our next question comes from the line of Gaurav Jain with Barclays.

Three questions from me. So first is on your U.S. cigarette pricing, which was almost 12% ahead of your big competitor, and there was clearly a lot of discussion around double drawback in the U.S. market and in the press releases or all these newspaper articles, Reynolds was mentioned a lot. So could you talk about how double drawback is impacting the U.S. business? How much it has changed on a Y-o-Y basis in terms of contribution to your portfolio? So that's my question number one.

And question number two is on your overall e-cigarette strategy, it seems you have exited a few markets, especially in APMEA, like Malaysia, etc, called out. So is like something bigger happening in your overall global e-cigarette sort of portfolio, the way you think about it?

And then the last question I have is on your Velo Plus. So amazing growth in the U.S., 1.1 billion pouches in 1H. And if we just extrapolate these market share trends, what you are highlighting and what we see in the scanner data, you could be doing like 6x this volume next year, assuming the market keeps growing and you get your fair share. So do you have that kind of capacity? Or will you run into capacity shortages at some point of time?

Okay. So let me start with the drawback. This is a long-standing legal framework to incentivize manufacturing in the U.S. and generate employment. And that's exactly what Reynolds is doing. And so there is a positive impact on the top line coming from this legal framework. And -- but we would be growing anyway independent of the duty drawback. So because there are 3 major drivers behind that. The first one is the more important one is the performance itself. It's the fact that we are growing market share, value share, our price mix is very robust. The fact that we have outperformed the market in terms of volume. If you see the overall industry, like I said, it is more in the 8% to 8.5% decline. We declined less than that. So all this combined, which I call performance is better. And this is the major driver.

We also, given what I said more recently in the previous question, we are lapping a more softer comparator because we took some decisions in 2023, 2024 that resulted in some inventory moves, and this also contributes to the very high growth rates that you saw on the combustible level. And finally, we have the drawback that is Reynolds at the back of that balancing out all the structural decline that we have in volumes in the U.S., compensating that through more exports from the U.S. to other markets, generate more employment and more importantly, buying more leaf as well that is supportive of the farmers in the U.S. So that's about the first question.

I'm going to skip to the Velo Plus because I need to -- you have to understand better in the second. But the Velo Plus question is all the shares that we are referring to are consumer offtake shares, not shipment shares. So you are right, we are growing fast. And -- because we need to remember that we came from a very small position back end of last year. We barely have something like 6%, 7% of the market. Like I said, our latest number in July is already in the 17% mark. And as I said, when we launched Velo Plus, the fact that we have been so entrenched in this category outside the U.S. allow us to migrate machinery and shortcut the leading time to produce those machineries. So we are very well equipped to the pace of growth that we are seeing in Velo Plus. So we are not expecting any type of difficulty in that sense in the U.S. And the second question is...

Let me try and help a little bit, Gaurav, with the second question. I think you're referring, if I understood correctly, about some of the APMEA resource allocation decisions that we took. It's basically what we've had to do is prioritize given that we're rolling out innovations in all 3 categories. And we have a lot of innovations this year with Velo Plus in the U.S. Velo that continues globally, Vuse Ultra and glo, glo Hilo, which requires a lot of investment. So we've made some purely resource allocation prioritization basically to fund the investments in the largest profit pools. That's what it is. It's not really detracting from these markets. It's just a question of focusing our resources so we can fuel growth across all our innovations.

And part of that is eventually moving out of -- so I think that you were referring to Malaysia vapour. Yes, we had to move out of Malaysia vapour because it's another market that lost completely the possibility of enforcement. So -- and when there is no enforcement, it's very hard to compete. So if you don't have a level playing field and then you align to that, they need to be smart in the way we deploy our resource, and we will make some decisions if that's the case. We try to engage with the government as soon as we can to address the regulatory environment. If we are not able to do, we have to make our calls and Malaysia vapour is one of those.

Our next question comes from Faham Baig with UBS.

A couple from me, if I may. Firstly, you have now raised top line guidance twice in the past 2 months, but the EBIT outlook continues to be reiterated. Can you dive a bit deeper in where the incremental investments are being spent, which you did not budget for at the start of the year? And how you expect these investments to pay back in 2026?

And the second question, just can you remind us where we are on ITC hotels? I know you've given your view on this asset previously. But where are we in the process of divesting that stake, please?

Thank you for that, Faham. Firstly, I think let's say, we're very, very pleased with the H1 performance. But I think let me take it from the top line and then talk about the EBIT guidance. The top line, if we look at the 1.8% growth, it's important to remember that we're lapping the investment in H1 in the U.S. So if we looked at the 1.8%, it really equates to 1.4% growth. And that means that we are second half weighted. So because we've got quite a lot of innovations rolling out, as we've mentioned in the presentation. I think it's also important to note that the 1.5% to 2.5% guidance in EBIT that we haven't changed, even though we're at the top line of our NTO growth. We have these innovations, and we're funding the rollouts there.

It's not that we didn't anticipate it, but we would like to retain the flexibility to increase the funding to further fuel the growth going into 2026. It's also important to bear in mind that we have had some tariff impact. It hasn't been significant, but we have absorbed it into our guidance. But the main reason is really us to preserve the ability to increase our investments behind the innovations. And the innovations, as you know, are the Vuse Ultra rollout, glo Hilo that we're rolling out the second half of this year and obviously, the continued momentum behind Velo Plus in the U.S. and Velo globally. I don't know if you want to add something?

No, I think that is right. I would just say that we are in a position that we have never been in the past. As a company, we have now very, very competitive product in every single category. It's very exciting. We spoke about that in the CMD October last year, all the efforts, all the strategic partners we are leveraging. And we are seeing some of those products now hitting the market. And Soraya just referred to them, and it's a very strong position to be, very pleased with that. But obviously, this requires more discipline in terms of investing, and they will translate in future for future drivers of growth for the company and -- which is supportive of our guidance moving forward in terms of top line and bottom line as well.

On the hotels, on the ITC hotels, I have said before, I continue saying that we -- strategically speaking, we don't intend to be shareholders in a hotel chain in India or outside India. But the fact is that there are some bureaucratic steps that needs to go through in terms of the way that our shareholder of -- that dates back to early 1900s. And I said -- gave this explanation before. And sometimes things take longer for us to be able to unlock those shares, get the right approvals in the right forums, in this case, the Central Bank in India in order to be able to transact. And once we are in this position, we'll be thinking about that because this will be supported for us going back to the corridor of 2.5 to 2x by the end of 2026. So we intend to use the proceeds of the hotel to deleverage further the company.

Our final question comes from Andrei Andon with Jefferies.

A couple from me, please. First, in Modern Oral in Europe, you were the beneficiary of the majority of category growth in H1. Could you perhaps tell us more about the actions you've taken to preserve this advantage in Europe given competitor has been increasingly assertive on growth outside the U.S.?

And then second, on U.S. Modern Oral, I noticed Velo Plus is already in 135,000 outlets, which I think is ahead of the previous target for fiscal '25. Are there any incremental distribution gains still to come in H2? Or are you happy with the current distribution base?

Okay. Thank you, Andrei, for the question. In terms of Velo Plus, I will start from the second one. We -- in 135,000 outlets, we are in more than -- a bit more than 9% of the value of the category. So we don't really need to go much beyond that. But what we are seeing is there is a lot of retailers that are buying from wholesalers but they want to have the product and not necessarily is being supported directly by us. And probably -- so it wouldn't be a surprise to see this number going further, but it is already what we consider an optimum number. Our focus now is actually to improve awareness of the brand because it's still low, which also demonstrates a further potential for the brand and activate trial because once the consumer tries the product, like I said, the level of retention is very high.

And you have to remember that Modern Oral in the U.S. average daily consumption is 3 pouches, whilst in AME as a region is 6 pouches and Sweden, which is a very mature market, is 12 pouches. So there is a lot of potential growth in terms of the category, provided that you give them a satisfying product, which Velo Plus seems to be addressing this right now as we speak. And that's the reason why we consider that the category has a potential to almost double in the next couple of years.

In terms of Modern Oral outside the U.S., yes, there is a lot of new competitors coming in, the more established one, but also new ones because, as I said, it's the fastest-growing category, new category is also the one that ticked the box in a number of areas is in terms of risk continue is probably one of the lowest risks involved. It's very close to a nicotine replacement therapy. There is no inhalation. In terms of affordability, you can address the likes of emerging markets, for example, because there is no device involved on that. And in terms of margins, if anything, even higher than cigarettes. So obviously, there is a lot of attraction there.

So what we are doing, you just saw one of the charts that I presented in my presentation, I was covering one of the innovations of Velo that we are putting -- launch in the market in the next couple of months. And this is about us keeping the momentum and being able to offer consumers more innovative products around that and also spend behind the brand building. And we have been doing that diligently through a number of years now. And some of the resource allocation decisions that we have spoken about is exactly to support the growth of Velo that is going from strength to strength, okay?

Okay. Well, thank you very much for your questions. I'm afraid that's all we've got time for today. The IR team will answer any outstanding questions that remain on the web. And with that, I'll hand back to Tadeu for closing remarks.

Okay. Thank you all for listening today and for your questions. To close, we are on track for our full year guidance, having delivered H1 results slightly ahead of expectations. And looking to 2026, I'm confident we have the right building blocks in place to deliver our midterm algorithm. We will continue to reward our shareholders through strong cash returns, including our progressive dividend and sustainable share buyback and deliver long-term growth and value creation. Thank you again for joining us.

Okay. Good morning, everybody. Welcome to this fireside chat, welcoming on stage Tadeu Marroco, Chief Exec of BAT. I'm Damian McNeela, I'm analyst at Deutsche Bank. So I think we'll start off today, if you don't mind, you've been in your role for a couple of years now and a great deal happened over that time.

Can you sort of give us some insight into the sort of the key areas of progress that BAT has made in that time and particularly over the last 12 months?

Yes, sure. So thank you for having me here first. Yes, we have over a huge amount of progress over the last couple of years and basically backed by a new management team and a refreshed strategy. So when I came in as a CEO, I was very clear that we need to sharpen the execution and focus on key areas. So our -- we refreshed the strategy with 3 pillars. The first one is quality growth. And within the quality growth, we were able to rebuild the whole innovation ecosystem, leveraging very exclusive external partners knowledge that allows us to be now in the verge of being launching a breakthrough platform in HP as well as Vuse Ultra that we have just started to roll out. And we have now a very strong innovation pipeline for the medium and long term.

We also managed to get New Categories profitability back on track 2 years earlier than the target that we had originally. And obviously, we brought back U.S. business to growth after 3 years. And after a series of commercial plans and drive also by Velo Plus launch that was -- and has been a success. So this on the quality growth on the sustainable future, we launched Omni, which is basically a manifesto to promote the debate around tobacco harm reduction and based on scientific evidence -- and this has been a very strong tool to open up doors with different stakeholders, policymakers, private and public sector and media in general.

And finally, on the dynamic business, we enhanced our financial flexibility at the back of very strong cash generation. We also make a divestment of a small minority shares in ITC. And then we have reestablished the buyback program last year with GBP 700 million. We have just announced a revised number for this year of GBP 1.1 billion. And we got our leverage back to the corridor that we were aiming for between GBP 2 billion and GBP 2.5 billion in the back of last year. And after the Canadian CCAA settlement, we expect to be within this range by the end of next year.

So all in all, very good progress that creates the -- laid the foundation for us to be able to deliver per guidance in 2025 as we just confirmed yesterday in the trade update. And in 2026, at the back of U.S. growth back to growth at the back of Velo doing exceptionally well, not just in the U.S. but outside the U.S., AME continue to perform well and lapping some difficult markets that we have this year like Bangladesh, plus a cost agenda that we have put in place, a new one that's starting next year of GBP 2 billion between '26 and 2030. We are well on track to be able to deliver our midterm guidance of 3% to 5% revenue and 4% to 6% operating profit.

Yes. Okay. I think you mentioned that, obviously, the U.S. has been a challenge. But yesterday, you did announce pretty decent results in U.S. combustibles. Can you sort of talk about the backdrop that you're seeing at the minute for the general sort of combustible space in the U.S., but also what's driving -- what's underpinning that sort of improved performance that you're delivering?

Yes, U.S. is a truly multi-category market today. We have approximately 55%, 57% of our smokers poly using and is 1/3 of the nicotine value pool, global value pool. So it's the cornerstone of the group at the end. So what we have done over the last 18 months is basically put in place a number of commercial plans to tackle our competitiveness in combustible. We have to correct some price index. We have to ladder some brands like a [indiscernible] to support our consumers. We had to increase our coverage at the back of a 10% increase in sales force. So we moved from 82% to 88% coverage.

We have invested in data, so we could do proper and enhanced revenue growth management, but also direct-to-consumer with loyalty and award programs. So all that translates into a stable slightly growth market share, value share like we announced yesterday. If you strip out the deeper discount where we are not present, actually, we have a very sound growth in terms of share of 60 basis points, and we are very pleased with that.

Obviously, being now a truly multi-category is important to be competitive in the other categories as well. So Modern Oral, with the launch of Velo Plus, we are very satisfied now that we have a product that we can fight in that segment. And the product is doing extremely well and the levels of trial and retention are very high. And we saw in a very short period of time, a lot of traction. And this is quite important because it's the fastest nicotine category growth in the U.S. today. So to be competitive and having an offer like Velo Plus in that market is quite important.

Obviously, the Vapor is not a neglectable business. It's a GBP 9 billion revenue business. And the problem in that segment, in particular, is the illegal flavor disposables, and -- which accounts for something like 7%. So we had headwinds on that because all the growth is happening in that space where we cannot compete. So there is no level playing field at the moment in that.

So Vuse is leading in tracked channels, but in the legal market that if anything, is shrinking, which represents a headwind for us. But we are cautiously optimistic with the new administration that there will be some levels of enforcement at the federal level. That's our expectation. And probably the FDA will be addressing that because we have now a new leadership at HHS, but also FDA CTP, and they are talking about tackling the problem in a more effective way. So we look to that with more optimism.

But also, we are seeing movement from the states. We have now 17 states that have passed legislation in terms of established directories and enforcement. And when you look to states like Louisiana and Kentucky, we can see clearly a reduction in legal products and as a consequence, resurgence of the legal products and Vuse leading that. So all in all, we are well established in the 3 categories between combustible, vapor and modern oral. And vapor, as soon as we have some meaningful impact on enforcement will be a big boost for us.

Yes. And on that point on enforcement, I think there's been a shift in language, I think, from FDA and government agencies. But have you seen any real evidence of any change in the level of enforcement that's going on at the minute? Or is that something that's still to come, do you think?

It is still to come because they are all very new in their new roles. I think that is natural that they are taking some time even to understand the dynamic. I don't think that the FDA alone can do much. There will be a need to have a multi-agency task force on that. They need to work with customs because a lot of these products come from the ports, but they are all imported -- mainly from China.

They need to work with DOJ to address, for example, very specific distributors. There are not many that are responsible for all the distribution across the country. And also, they probably need to address the approval system that they have today that clearly is not working because the U.S. consumers today is the last to experience all these innovative products, which could be exactly the opposite.

Yes. And Vuse outside the U.S. is performing pretty well. Can you sort of talk about some of the sort of market dynamics that are happening outside the U.S. for Vuse?

Yes. Outside the U.S., what we are seeing is that rechargeable device are back to growth. And this positions Vuse very well because with the latest innovations that we have introduced at the back end of last year, we are now very competitive also in the rechargeable segment. And our market share, for example, [indiscernible] in France is 57%. In the U.K., it's 35%. Vuse is doing extremely well in places like Poland, like Spain.

And we have just launched Vuse Ultra in Canada, which is our attempt to create a more premium subcategory within vapor. So there is a lot to go still, but we believe that we are well positioned outside the U.S. to keep growing and keep leading the market.

Yes. I think at the CMD last year, you highlighted the depth of the innovation that is happening across the entire organization. And in particular, one of the areas that's been one of your focuses is improving the heated tobacco offer. Can you talk about the advances that you've made in the new Hilo product and what the expectations are for the second half when you sort of go to market more broadly?

Yes. Hilo is clearly a breakthrough for Glo. And for the first time, we have an offer to be able to address the AWAP, the above weighted average price subcategory within heated product, which accounts for 80% of the value. So far, we haven't developed any platform in Glo that could allow us to participate of this more, I'd say, a premium part of the category. So we have now a new platform with a new completely renewed heating mechanism.

We have renew consumables that translates into a much more satisfaction. And actually, I think that is the closest you can get from -- moving from cigarettes towards this category of heated products. We also have a new display that is very interactive and a connected device that will be very unique to the market.

So when you pull all this together, we think that we have a very strong offer, competitive offer that we have been testing in Serbia since the end of last year with very good results, encouraging results. We have 50% more consumers to the Glow franchise. A lot of them coming from FMC cigarettes.

That's what we want to promote the conversion from smokers to these products because of the profile of risk. And -- but also from competition. So we will be rolling out in the main key value pools starting now in June throughout the second half of the year. And our expectation is to be able to make inroads in that premium side of the category where 80% of the value sits.

Yes. You mentioned in your sort of opening answer the importance of the pouch category and Velo is the market leader outside of the U.S. Can you just talk about some of the sort of the key dynamics in perhaps the traditional markets where Velo is obviously very strong, some of the newer markets as well outside the U.S. for Velo?

Yes. We are seeing nicotine pouch growing not just in traditional oral market, but also in markets that has no oral tradition at all. Today, 20% of the volume sits outside of the oral traditional markets. And the levels of average daily consumption and incidents are still growing. So you have a place like, for example, U.S., where because of the lack of satisfaction of current offers and Velo Plus that should change this dynamic with a product with more moisture that we see that resonates well outside the U.S.

The average daily consumption is still 2.5 pouch. So there is a massive space to grow when you consider that the U.K. that is a known oral tradition is between 5 to 6 pouches. And when you go to the Nordics, which is a more traditional oral market, it is 9 to 11 pouches. So you can see how much potential there is in the U.S. as soon as the consumers will get a more satisfying product.

So this is a category that we are seeing, and we are very satisfied with that because it's the closest you can get from a nicotine replacement therapy in terms of risk profile. There is no inhalation. It's very affordable because you have a number of markets in the world today, for example, that you sell cigarette by stick because of affordability. They don't need to pay the device.

You can sell a sachet with few pouches, for example. And that's the reason why we have a launched in place like Pakistan and South Africa is getting also a lot of traction. So you can socialize the tobacco harm reduction agenda even for markets where affordability might have been a problem.

And can you talk a little bit about the sort of the profit profile that you're seeing from your next-gen products and how that contributes into your sort of medium growth -- medium-term growth ambitions?

Yes. The final objective is to replicate the levels of profitability we have in cigarette in these new products. And Modern Oral in nicotine pouch, if anything, the levels of profitability is even higher than the ones that we have in cigarettes. And HP is -- when you are dealing with the more premium segments that I was referring to is, again, you can easily replicate the margins that you see in cigarettes.

And vapor is not as much as the cigarettes at this point in time. And that's the reason why we are trying to create more of this premium subcategory within vapor, even though we are in that category not to compete with a very volume low price offers, but we want to differentiate ourselves and Vuse Ultra is exactly an attempt in that direction.

Yes. And in terms of the sort of -- you mentioned again sort of the Omni, the launch of Omni and it's sort of -- it does feel that BAT is sort of changing the way it approaches the narrative around who the organization wants to be. Can you sort of just talk a little bit more about what Omni is trying to do and perhaps give us a few examples of where that sort of really sort of resonated with some key stakeholders.

Yes. Omni is an attempt for us, first of all, to be a bit more proactive in the way that we engage in terms of tobacco harm reduction; and b, it's an attempt to avoid the bias between that's what BAT is saying and because what we do with Omni is basically public, a number of research done not just by BAT and -- but also third-party research that confirm in a scientific basis, the evidence that the noncombustion has a much different level of risk profile, much lower risk profile compared with combustion because there is a lot of misunderstanding around the nicotine and because the culprit of the health problems generate sits on the combustion of the product.

So when you move this towards offering, those consumers that want to keep using nicotine an alternative without combustion, then you really reduce substantially the risk profile. So that's what Omni tries to achieve and trigger in that sense, a debate with regulators and different stakeholders around that. The fact is that regulators that don't embrace tobacco harm reduction, in essence, what they are doing is postponing the conversion of cigarette smokers towards these new products and also open up the door for illegal products because we still see a number of markets today where none of these products, unfortunately, can be commercialized, but it's inundated by illegal products.

So we also showcased those cases in the Omni, where examples of markets that has done this properly. For example, Sweden is the one that in Europe has embraced oral 2 decades ago and will be the first one probably to achieve what they call smoke-free country with the level of incidents today sitting at 5.3% following WTO, if you are 5% or lower, you are considered smoke-free country.

And as a consequence of that, for example, lung cancer per capita is the lowest in Europe. If you translate that into Europe statistics, it's 3.5 million lives that would be saved in 10 years' time. So in the opposite of the spectrum, you have countries like Australia that ignore all that, basically ban vapor where 9% of the population is vaping. So it's basically all illicit. And at the same time, they are making inroads in the legal market of combustible with new regulations and massive ad hoc excise that just move consumption away from the legal markets towards the illegal markets.

So today, 75% of nicotine consumption in Australia is illegal. So that's a good example of how not to do things. So we are trying to illustrate all those in Omni. So we launched in the U.K. last year. We have just rolled out in place like Pakistan, like Italy, Croatia, Japan. And whenever we launch in those particular local markets, we see a lot of interest from private, public sector, policyholders and also media in general, which is exactly what we want.

Yes. And I guess sort of it does lead on to the next question I was going to ask, which is around regulation. And my question would be around -- obviously, you've highlighted Australia has been a way of not to do it. Are there any examples of where you think the sort of the regulators have got it right and which are -- provide the sort of the blueprint for other companies or countries to follow?

Yes. We spoke about Sweden that clearly is working nicely, and you don't need epidemiological studies. Like I said, is evidence is there. And we have even markets like U.K., for example, that has been adopting a very progressive way of stimulating the conversion from cigarette to vapor. There is an issue about enforcement there that they are trying to address now. And because I think that things like retail license, for example, to avoid minimum age participation in that category is important to be implemented with the proper enforcement.

We have places like New Zealand that have adopted a legislation that has reduced substantially the incidents of smokers in the market in supporting vapor, for example. And Japan, half of their consumption today is in heated products, which has, again, a very, very lower risk profile compared with cigarettes. And we have here in Europe, markets like Italy that has embraced, for example, the multi-category with proper regulation, regulating nicotine pouch properly, stipulating, for example, maximum level of nicotine, minimum age to purchase and proper -- they have a proper retail license system as well.

And so there are more and more examples. We have been -- since Chile now open up for vapor because they thought that has been inundated by illegal market in Chile. So we are -- and even the U.S., when we see the FDA, they always are very supportive of the tobacco harm reduction. And they have publicly said that nicotine is not the culprit of the health hazards that cigarette brings, and they believe on the risk continuum. So there are more and more evidence that supports the adoption of tobacco harm reduction in a way to address the problems related to cigarettes.

Yes. And just sort of if we look at the combustibles business, I mean, clearly, at the start of the year, we had sort of Bangladesh and the new excise increases there, and you've sort of touched on the high levels of excise in the reforms in Australia. Can you just talk about the impact that they've had on the combustibles business, but also then talk about the areas where the combustibles business is performing well outside the U.S.

Yes. Yes, Bangladesh was a very unique situation because they have not just increased massively the excise and the minimum price in cigarettes, but they have increased duties and VAT and a number of other items. And as you could imagine, with the affordability of population, and this is translating into a massive volume decline, and we expect something like 15 billion sticks reduction because we see this consumption migrate towards areas that probably the government will be very keen to do something about, which is illegal products and so on.

So Bangladesh is one of these -- we spoke about Australia because of these few thought measures that they have been implementing. They are about to introduce another ad hoc increase in September that on top of a very draconian regulation that they have implemented since 2012. Consumption, though is pretty much the same, 14% of output consuming cigarettes. They are just moving from legal markets towards the illegal markets.

But we also have markets where consumption and the business is still in a very favorable way. For example, Brazil has been addressing the problem with illicit for some time. At certain stage, the illegal market in Brazil went up for more than 50%. Today is well below 40%. So it's in the 35%. And this translates into the legal markets being supported by that. And we see some other markets as well in Europe with very stable levels of consumption of cigarette.

Yes. Last week, you announced a small sell-down in the stake of ITC. And I guess you were asked on the call yesterday, but I think it's a worthwhile question repeating is, is the stake in ITC a strategic stake? Or is it a financial stake?

We consider this as a strategic stake and because, first of all, it's India. So it's India because of the size of the market, because of the demographics, because the socioeconomic expectation that we're having in India when a new project, for example, GDP per capita growth. And the fact that ITC is a brilliant outstanding company in India. They have a massive distribution power. They are a leader in cigarettes. So we have a multilayer, multi-years, multi-decade relationship with ITC. We have commercial relationships with them in the leaf department. We have in the IT side as well.

And we are very optimistic that in certain stage, we will open up for new categories. And we would like to preserve them a relevant stake in ITC as a consequence of that, to work with them with having the products that we have developed outside India at certain stage in India in partnership with ITC. So that's why I mentioned that the Board will be making decisions about our stake in ITC. But clearly, we see this more strategic, and we want our desires to continue to be a relevant shareholder in ITC.

Yes. Okay. And one of the things that sort of that sell-down aided you to do is to sort of increase the buyback, as you mentioned. Can you just talk a little bit more about the moving parts of getting the net debt into the 2 to 2.5x range? And then what we should expect in terms of shareholder returns when you get there?

Yes. I think, first of all, is what to highlight that from 2023, by the time we get to the end of 2025, there will be more than GBP 17 billion returned back to shareholders from BAT. So -- and this is a combination of a progressive dividend policy, and we reaffirm that. So we carry on continuing to increase our dividend in sterling terms. It's a consequence also of the buyback that we have just restarted in 2024, and we are now moving to GBP 1.1 billion, and we said that will be a sustainable buyback moving forward.

Now we also want to have flexibility to pay down debt and to do some bolt-on acquisitions like Velo Plus Villous that we have done last year. So any particular year, when we establish back our midterm algorithm of 3% to 5% revenue, 4% to 6% operating profit, you would expect on our free cash flow to be around GBP 80 billion. So GBP 5.5 billion of that will be paid around dividends.

And then you have the balance, which will be a combination of the buyback and continue to pay down debt and having the flexibility to do some M&A acquisitions, bolt-ons, mainly on the patent side to strengthen our position in the new category space. So we believe that we have always needed to preserve the corridor of 2.5 to 2 by the end of next year.

And remembering that we have a headwind to face in terms of this ratio as soon as the Canadian settlement is being signed, which we expect to be the case in the next -- in the second half of this year. So -- and the reason why we sold the stake in -- we did an extra divestment is exactly to support that and to support this flexibility. So I think that's where we get to next year, probably the leverage will not be a major issue anymore for us.

Yes. Okay. That's very clear. If we just sort of turn a bit to current trading. Yesterday, obviously, we had a good update from you. you're expecting revenue to grow slightly faster, I think, underpinned by the good U.S. performance, but you kept your adjusted operating profit growth guidance the same, consistent as it was previously. Can you just talk a bit about some of those moving pieces within that and why that stayed the same?

Basically, because today, this is a deployment year that we said. So we had an investment year in 2024. We have this year the opportunity to start rolling out innovations that we have never had the chance before, premium vapor product, a breakthrough device in HP, Velo Plus that is doing extremely well. We didn't want to compromise that. So that's the only reason. So we have a more supportive revenue, but we want to keep investing for the long and medium and long term of the business. So that's basically the reason.

And then given the sort of the investments that you're making and the acceleration you're expecting in the second half, can you talk about the confidence you've got in being able to sort of get back to the sort of medium-term growth ambitions that you've set?

Yes. The growth -- when you go to 2026, we expect to build on this revamp of the U.S. situation that we have managed to get to. So, like I said, we expect to go back to -- after 3 years, go back to profit and the top line -- positive top line in 2025. So we want to build on that in '26. There is no reason why not to expect that AME continues their excellent performance that they have demonstrated over the last few years.

We'll be lapping problematic markets like Bangladesh, for example. for next year. We have this -- with the cost agenda that -- with a new intention of an additional GBP 2 billion of savings from '26 to '30 that kicks off next year. And obviously, we expect Velo to continue to grow in the U.S. and outside the U.S. And Velo by the end of this year will be very material for our numbers as well by the time we close the year.

And is it worth sort of just clarifying your expectations for the improvement in U.S. illicit backdrop within that sort of achieving that target?

Yes. This is not factoring in. And -- but like I said, I'm cautiously optimistic that in between the states legislation now that we are seeing now, the 17 states that I referred to is equivalent to 1/3 of the vapor market in the U.S. that has some sort of legislation in terms of directories and enforcement with different various degrees. I would say the blueprint is the Louisiana, Kentucky, where you're already seeing a very meaningful impact in the illicit and the counterbalance to that, an increase in legal vapor.

And -- so we expect this to carry on in other states, and we expect to see some federal actions on that. If that happens, it will be a plus for us to build on. But we cannot rely necessarily on that. And that's why we are trying to guide without necessarily counting on those initiatives.

Yes. No, that's pretty understandable. And in terms of -- I think, as you said, '24 was an investment year. This year is a deployment year. We should start to see the benefits in '26. How do you feel about the sort of the business or the shape of the business as we move kind of beyond '26, 2030, moving towards that 2035 ambition?

I think that we are -- with this innovation ecosystem that we have just -- I just referred to and our positions in key geographies because we are really a truly global company with a very strong presence in the U.S. When you, for example, launch a product like we did in December with Velo Plus and a few months later, you are in more than 100,000 outlets just demonstrates how powerful is the distribution from Reynolds in the U.S.

So we have a very strong presence in the U.S. We have a global presence across the world, and we have a presence even in India through our associates. So we'll be building on that geography to mitigate eventually some headwinds that is natural to happen in one point in time. But we'll be building on that. And with this renewed innovation pipeline and the strength that we are now trying to get to in heated product that is a $9 billion category in which we have just one.

So there is a lot of white space for us to go, plus the fast having, in my view, the best product in the fastest-growing new category that is out there, which is nicotine pouch with Velo and build on that, plus our vapor business that is a leading brand that also have at the back of a proper enforcement, a lot of opportunities to grow. So we see completely feasible our possibility to get in a decade to the 50%.

And in terms of -- I think at the CMD, sort of one of the things that I took away from it was you're trying to be a much broader consumer type business with things like RAI and some of the investments you're making elsewhere. Can you talk about how they fit into that sort of longer-term vision for the organization?

Yes. It's important also to not shut the doors to beyond nicotine space for us because at the end of the day, you should be thinking about BAT as a kind of stimulant company where nicotine is one of those. Obviously, for the next 3, 4 years, the focus will always be nicotine, but there's so much business opportunity there. But we are trying to learn basically. We are trying to learn in the space of well-being stimulation. We are trying to learn in the space of cannabis.

That's why we make that investments in Organigram. And Organigram as a company is moving out of combustible to noncombustible use of cannabis as well. And we are learning a lot from them. So I think that those investments at this point in time is basically for us to build an optionality and learn more for the future. But the medium term is pretty much focused on the nicotine space.

And is there anything that you sort of see out there that would be interesting that isn't currently in the portfolio?

Well, look, we keep looking, but the fact is that the size of the price for us in all fronts in pursuing our purpose of converting smokers out of cigarettes towards these products that we have now the possibility to offer them that we didn't have in the past because today, we have the technology to do it, and we have consumers' mindset pretty much supporting that movement. And you see this in a number of other industries as well. And we cannot give up that.

So the focus really for us is that how we convert them, making this massive positive impact on society, at the same time, increase the sustainability of the company moving forward. And this is resonating nicely with our major stakeholders, which is our employees as well. They are all arriving in the office and excited about being able to make a change, a positive impact as well.

One of the questions I get asked a lot is, how is the nicotine space going to look in 5 to 10 years' time? And I find it very difficult to answer with any real conviction. Have you got a better answer for people?

Look, nicotine is highly addictive and it's not without risk because if you have cardiovascular issues, blood pressure, you shouldn't be using like you shouldn't be using other type of stimulants. And so that's the reason why it should be sold for adults. It's not a product that should be in the hands of underage. And -- but clearly, it's a stimulant that attract a lot of consumers.

And today, the good news on that is that with the caveat of the risk that I was referring, and they should be aware of all that so they can make their mind, there are clearly ways to use it in a much safer way than before, which we have never done before. So this is creative space for nicotine in the future that probably you will be seeing more and more because it's a stimulant that has been used now for decades and will be the case moving forward.

Yes. So you're not sort of indicating that pouches are going to be the biggest, most important category. It's going to be multi-category across -- it depends on the market.

Yes. Look, I think personally that pouches can be a highlight of this future because like I said before, it's affordable. It's the lowest risk of all of those categories but there is no inhalation, the closest you can get from nicotine replacement therapy. And I think that this can resonate and we are seeing that with a number of consumers even in nontraditional oral markets. So if I had to make a kind of a prediction, I would say that the relevance of nicotine pouch is -- will be much higher than the others. And the good news is that we are very well positioned. BAT is very well positioned in that space.

Yes. Well, I think on that positive note about the strength of Velo and your place and pouches, I think we'll leave it there. Thank you very much, Tadeu. Thank you very much, everybody.

Thank you.

Good morning, everyone. I'm Victoria Buxton, Group Head of Investor Relations. And with me this morning are Tadeu Marroco, our Chief Executive; and Soraya Benchikh, our Chief Financial Officer. Welcome to our 2025 First Half Pre-Close Conference Call. I hope you're well, and I'd like to thank you for taking the time to join us this morning.

Before we begin, I need to draw your attention to the cautionary statement regarding forward-looking statements as well as the notes and disclaimer contained in the trading update. Unless stated otherwise, our comments will focus on constant currency adjusted measures, which include adjustments related to the profit from our Canadian Combustibles business. All share data is year-to-date average to March 2025 versus full year 2024 average.

I will now hand over to Tadeu with a reminder that, as always, there will be an opportunity to ask questions later on in the call.

Thank you, Victoria. Good morning, everyone, and welcome. Our revenue performance year-to-date is slightly ahead of our previous guidance, and we now expect to deliver full year revenue growth of 1% to 2%, supporting 1.5% to 2.5% adjusted profit from operations growth in 2025.

I'd like to begin with 4 key takeaways from today's update. First, I'm very pleased that we expect to return to revenue and profit growth in the U.S. for the first half and the full year, driven by strengthening Combustibles delivery and an excellent Modern Oral performance led by the successful Velo Plus launch.

Second, I'm excited about the New Categories innovations we are rolling out in a targeted way as part of our deployment year and which we expect to accelerate our H2 revenue performance.

Third, I'm encouraged by our Quality Growth progress, balancing top and bottom line delivery and prioritizing investments to the largest profit pools. Through this, we expect to continue to improve New Category contribution margin in the first half and full year.

And lastly, I'm pleased that we continue to enhance our financial flexibility, driven by strong cash conversion and the recent partial monetization of our ITC stake, enabling an increased share buyback to GBP 1.1 billion in 2025. Our financial discipline will also drive further cost savings and smart reinvestment. Together, this underpin our commitment to delivering our midterm algorithm in 2026.

Let's start with Combustibles, where we have continued to offset volume declines with robust price/mix and efficiency gains. Volume and value share in top markets are down 10 basis points, respectively, with gains in the U.S. offset by APMEA and heightened competitive activity in key AME markets. The U.S. macro environment remains challenging.

In addition, the ongoing proliferation of illicit single-used flavored vapor products is continuing to impact the pace of combustibles industry volume decline. As a result, industry volume remains under pressure, down around 9% year-to-date on a sales to retail basis and down around 11%, excluding the deep discount segment where we are not present. Within this context, I'm delighted that we expect our U.S. Combustibles business to return to both revenue and profit growth in the first half.

Our commercial actions, investments in our portfolio and improved execution are driving improved volume and value share performance, both up 10 basis points. Excluding the deep discount segment we are not present, we gained 60 basis points of volume share driven by Natural American Spirit and Lucky Strike, which remains the fastest-growing U.S. Combustibles brand.

Overall, we are encouraged by the continued traction of our investments, which we expect to drive a return to U.S. financial growth for the first time in 3 years. In AME, we have continued to deliver resilient Combustibles performance with robust pricing driving revenue and operating profit growth, led by strong delivery in Brazil, Turkey and Romania.

In APMEA, growth in key markets, including Pakistan, is expected to be more than offset by the excise and regulatory headwinds in Bangladesh and Australia, as previously highlighted. Both markets are seeing significant industry volume declines year-to-date.

In Bangladesh, consumers have been stretched following an increase in VAT and supplementary duties across a broad range of products and services in January's unprecedented interim budget, alongside the largest-ever annual increase in the minimum price of cigarettes. As a result, tobacco has been one of the sectors most affected.

In Australia, sustained excise increase above inflation for many years, alongside new tobacco regulations representing the biggest reform since plain packaging in 2012, are accelerating industry volume declines ahead of another planned excise increase in September.

As a result, we expect this ineffective government policy to further accelerate legal industry volume decline and continue to significantly fewer illicit trades, which already represents over 75% of nicotine usage. Together, we continue to expect these headwinds to impact 2025 group revenue growth by around 1% and group APFO growth by around 2%.

Moving to New Categories. In Modern Oral, Velo continues to deliver an excellent performance, and we expect a strong double-digit revenue growth. Velo continues to gain volume share, up 360 -- 350 basis points to 29.7% in top markets across this fast-growing category. I'm excited by the successful launch of Velo Plus in the U.S., driving triple-digit revenue growth and strong market share gains.

Velo Plus reached close to 12% volume share in April, driving almost 15% share of total Modern Oral in the U.S., up from 6% last year. Launched in late 2024, Velo Plus is now available in around 110,000 outlets, representing over 80% of the Modern Oral value pool. These results are a testament to both the quality of the product and also the improved strength and speed of our distribution capabilities. And I want to thank our U.S. and Velo teams for their ongoing dedication to driving this momentum.

We believe our continued leadership in AME with 64% volume share of the Modern Oral category reflects our superior portfolio with continued strong financial performances in Scandinavia, the U.K. and Poland, and we have more innovations planned for H2.

In Heated Products, we expected low single-digit revenue growth in H1. glo's volume share was down 90 basis points in top markets, impacted by a highly competitive environment in Japan and the continued phaseout of our legacy super-slims platform alongside actions we have taken in AME to focus resource allocation in the largest profit pools.

In AME, volume share was down 10 basis points with continued strong performance in Poland, Czech Republic and Spain and a stable share performance in Italy, offset by competitive dynamics in Germany and Romania. We are encouraged by the early performance of our new premium glo Hilo range, including our first 2-piece device in Serbia, and continue to gain consumer insights and critical learnings ahead of its phased rollout in key markets through the second half, which we expect to drive an acceleration in our performance.

In Vapour, Vuse continues to be impacted by the proliferation of illicit vapor products in the U.S. and Canada. Vuse maintained its global value share leadership in tracked channels across top markets. While we had U.S. value share leadership at 50%, legal industry volumes are down mid-teens year-to-date.

While we are cautiously optimistic regarding recent leadership change at FDA and CTP, it is still early days. We do not expect any meaningful impact from federal or state regulation and enforcement actions on our 2025 performance. Looking ahead, we are encouraged that at the state level, vapor directory and enforcement legislation has now been passed in 17 states, and we look forward to the implementation of these and more robust enforcement.

In AME, our value chain in tracked channels was up 10 basis points. The impact of illicit headwinds in Canada was more than offset by growth in Europe, up 40 basis points, where we are the fastest growing in the rechargeable segment, which returned to growth last year. Altogether, we expect our Vapour revenue to decline by mid-teens in H1, driven mostly by continued illicit headwinds and our sharp focus on the largest profit pools.

We expect an improved H2 revenue performance driven by the phased rollout of our new premium vapor product, Vuse Ultra, and continued target resource allocation. We have been rolling out Vuse Ultra in Canada since the end of Q1, and we are encouraged by the early consumer response to our differentiated, connected and highly customizable offering.

Altogether, we expect low single-digit New Categories revenue growth in H1, impacted by illicit vape in the U.S. and Canada. For the full year, we expect an acceleration to mid-single-digit growth, mainly driven by the rollout of New Category innovations in key markets from the middle of the year. Excluding the impact of the U.S. and Canada vapor markets, we expect double-digit revenue growth for the full year.

Turning to cash. BAT is a highly cash-generative business, and we expect to deliver operating cash conversion in excess of 90% again in 2025, reflecting strong cash discipline and a laser focus on returns. I'm pleased with our progress in increasing financial flexibility, driven by continued strong cash flow generation and the recent completion of a partial monetization of our stake in ITC, enabling us to increase our share buyback by GBP 200 million to GBP 1.1 billion in 2025.

Due to the time of leaf purchase and MSA payments, our cash flow is always second half weighted. We continue to focus on deleveraging, and we expect to be back within our target of 2 to 2.5x adjusted net debt to adjusted EBITDA range by the end of 2026.

To conclude before we move to Q&A. We are making good progress, led by a return to growth in the U.S. and excellent momentum in Modern Oral globally. While there is still more to do, I'm certain that the choice we have made and the actions we are taking are the right way forward. Our year-to-date revenue performance is slightly ahead of our previous guidance. We are now on track to deliver 1% to 2% revenue growth and 1.5% to 2.5% adjusted profit from operations growth for the full year with a second half weighting.

Our guidance for 2025 includes our current assessment that we expect a minimal direct impact from enacted tariffs. While the situation remains fluid and negotiations are ongoing, we continue to closely monitor developments. And in the U.S., specifically, we benefit from a majority locally sourced supply chain and domestic manufacturing production, and we are working on mitigating actions to minimize any potential impact as necessary.

We also continue to closely monitor the evolution of the macroeconomic policy on consumer demand and purchasing patterns, both in the U.S. and globally. And while it's still early days, to date, we have not seen any material change to preexisting consumer trends.

I'm excited about the future for BAT and confident that we will return to our midterm algorithm in 2026. We are committed to delivering long-term sustainable growth and value for all our stakeholders while rewarding shareholders through strong cash returns, including our progressive dividend and sustainable share buyback.

Thank you for listening. Soraya and I will now be very happy to take your questions.

[Operator Instructions] And our first question comes from James Edwardes Jones from RBC.

Tadeu, is there any significance in the change of wording around the dividend? I think previously, you referred to being committed to increasing the dividend in sterling terms, and that has changed to a progressive dividend. Should we read anything into that?

No, not really. It's exactly the -- that's exactly the meaning about progressive dividend in our view. It's about continued growing dividend in sterling terms.

And up next, we have a question from Gaurav Jain from Barclays.

So a couple of questions from me. So the first is that you have upgraded your revenue growth guidance from 1% to 2%, but your New Category revenue guidance is below what consensus was. Now I know that you never gave a guidance for New Category revenue earlier. But would you be able to help us bridge the gap, like where exactly is the upgrade to full year revenue coming from?

Yes, it's -- the Combustible business is doing better, mainly in the U.S. from what we were originally expecting. And that's the reason why we are changing from circa to 1% to 2%. This is not flowing through to the bottom line because we want to make sure that we have the right resource to carry on, on the deployment plans that we have set ourselves for 2025.

And Gaurav, if I can just add a little bit of color on New Categories. I mean the upgrade in NTO is primarily the U.S. Combustibles doing better. But in New Categories, although we have a decline in Vapour, we have very, very strong growth in Velo pretty much everywhere. So I think in that headline number, there is a mixture of a very strong performance of Velo in the U.S. and internationally as well as -- but unfortunately, it's offset by the decline that we're seeing in Vapour.

My second question is on interest expense. So your interest expense guidance is unchanged even though pound has strengthened. So of course, it impacts your reported financials, but then it helps you on the debt side and interest expense. And then you have also sold some ITC stakes, so you have received some cash from it, about GBP 1 billion you're using to delever. So why isn't the interest expense guidance not changing?

The interest expense? The -- you are referring to the interest expense of GBP 1.8 billion?

Yes, exactly.

This is the net finance costs, why is it reduced? Why is it still the same?

Yes, it's still the same. It's still the same, Gaurav, of GBP 1.8 billion.

Yes. So my question is, why isn't it becoming better? Because the pound has appreciated, it should have a beneficial impact on interest expense. And then the ITC stake still has also netted you some cash. So your leverage is lower, so your interest expense should have been coming down.

Yes. But look, this is all rounded numbers. And we just concluded the operations in ITC. The refinance costs are a bit higher than what we had planned before. So there is still a lot of volatility, as you can see in the market in terms of 10-years bond in the U.S. and all that.

And so there is -- we are taking a more cautious approach to repeat what we have said before in terms of interest rate. And if there is any variance, we will update this in [ due term ]. But at this point in time, it's a rounded number, around GBP 1.8 billion. And we don't want to -- we don't see the need to change that.

No, we haven't changed the forecast, Gaurav. And the ITC sale, we've just actually completed now. So it hasn't had a significant impact on the net finance costs.

Sure. And then my final question is on the ITC stake, whatever is left now. So how should we think about it? And of course, the lower the stake becomes, the bigger the argument that it is a financial stake and not a strategic stake. So how should investors think about the ITC stake?

No. The ITC stake is still for us a strategic investment. It's not a financial investment. And I explained this in the past is India is -- because of the size of the market, the demographics, the potential GDP per capita growth that we are seeing, the fact that ITC is a very well-oiled and run company and the leader in distribution, leader in tobacco, in cigarettes, so we -- and we have a multilayer relationship with ITC coming back for many years. And we, as you know, we have some interparty relations with them in leaf, in IT. And we have an expectation that new category can be a big factor in the Indian market in the future. And we want to preserve, as a consequence, a relevant stake in ITC.

So we keep our 2 Board Directors. So we have influence on the Board. And what we did is the bank Board from time to time assess all the circumstance we have in terms of our capital structure. Obviously, there was an opportunity now to increase the buyback, we think the company is very undervalued; and at the same time, create some more buffers for us to cope with the Canadian settlement that will happen, in our view, in the second half of the year. And this is a -- will be a headwind for us in terms of the leverage numbers, as you know, because the settlement means that all the cash trapped there will have to be paid down to the plaintiff.

So this is basically a decision to allow us to have financial flexibility to beef up a bit more the buyback and at the same time, ensure that we get to the leverage corridor that we are aiming for between 2 to 2.5 by the end of next year.

And from UBS, we now Faham Baig with our next question.

I'll stick with 2 questions, please. I want to go back to Velo Plus in the U.S. What data points provide you with confidence that Velo Plus' share momentum can be maintained post pricing normalizing and the leading brand fully returning back on shelf?

The key indicator is the try and retention. The levels of retention is very high. And we are seeing a very good response from consumers in different geographies within the U.S. and different types of consumers. We have just now about to launch a new variance of Velo Plus with 3 mg that was not in the market before. So we are quite confident that we can keep the momentum for the future.

And the second question sort of sticks with this sort of synthetic nicotine products. We noticed you recently acquired a flavored disposable vapor brand in the U.S. I appreciate it was a fairly small acquisition, but are you able to maybe share the plans to commercialize the product? And also what you estimate the current size of the disposable vapor category is in the U.S. and your share in that category?

Yes. Look, the marketing -- the vapor market in the U.S., we estimate to be around $9 billion in revenue, and 70% of that is the illegal flavored products. And so we made this acquisition, which is an attempt actually to understand a bit more the dynamics of these markets.

There is no firm plan for us to commercialize the product at this point in time. We will be piloting this product in the next few months and understand the dynamic in terms of cannibalizations and source of business and making a final call in terms of how we position that in our portfolio. And obviously, we are also looking for some measures with, I would say, moderate optimism with the new administration that could bring some more enforcement to the market that today has been dominated by products that shouldn't be in the market in the first place.

So the legal side of vapor is unfortunately reducing by mid-teens, and that's exactly what is driving the Vuse performance because we don't have a level-playing field today in the U.S. because the, unfortunately, the vapor category that is growing is exactly in the space of these illegal flavored products and not the legal closed systems where we are present with Vuse.

And up next, we have a question from Rey Wium from Anchor Stockbrokers.

I just want to get back to the guidance. So you upped the revenue guidance, but yet the EBIT guidance is pretty stable. So that implies a bit of a margin squeeze. So I was just wondering, it looks like what I can read between the lines that the U.S. business should be doing quite better on the margin side. So where is the -- or what is behind this guidance of a reduced margin? Is it mainly because of APMEA that's been very bad?

No. Just talking about the APFO in the second half of the guidance that we put, I think the important thing to understand here is that our margin is not guided lower. What is we don't have a flow-through because this is, as we said, this is our deployment year. So we're second half weighted in terms of rolling out the innovations.

So basically, we didn't want to jeopardize or compromise the investments behind the rollouts because we're rolling out glo Hilo in the second half. We continue to roll out Velo Plus and then we have Vuse Ultra. But our margins will be expanding both on New Categories on contribution margin and gross margin level. So that's primarily the reason why there hasn't been flow-through from the NTO upgrade, slight upgrade, to the APFO line. It's purely because of the reinvestment in the second half, even though the upgrade is primarily driven by the Combustibles. I hope that's clear. But in terms of margin, we're not guiding down.

Okay. I just want to get back to the U.S. It looks like the U.S. performance is pretty strong on the Combustibles side. So you talk about a 10 basis point market share gain. So I just wanted to know, if you talk about the overall market still down 9%, so are we, for a change, going to see maybe your volumes looking a little bit better than the overall market given the market share gain? So yes, so that's my first -- yes?

Okay, okay. Go ahead, yes.

No, no, I'll ask a follow-up after you answered the question.

Okay. No, look, you have -- first of all, we -- the performance in the Combustible is a consequence of all these investments that we call commercial plans over the last 18 months, 2 years. Just as a reminder, we have done -- we create a laddering of brands, mainly the Newport. We increased the coverage from 83% to 88% in the market. We increased our sales force by 10%. We work on the price relativeness to make it more competitive as well and bringing back the competitors that we have lost in 2021. So we are -- and we have invested a lot in terms of data as well and direct to consumer and with reward programs and so on and revenue growth management.

So this is a consequence of all those measures that have been put in place. But one thing that we cannot lose perspective is that we are not present basically in the deeper discount. And the size of decline in the deeper discount is actually higher than the full industry. So by the time -- we spoke about around 9% of the industry decline, the deeper discount -- actually, excluding the deeper discount, the decline is around 11%.

So you have to compare our Reynolds volume against that reality. And in that case, we expect to perform better than the industry, excluding the deeper discounts. But the overall industry is -- get impacted by these elements where Reynolds is not present. I hope that is clear.

Excellent. And then just a final one. Maybe if you can just give us a little bit more color about the -- where your focus will be on the rollout of glo Hilo in the second half of the year. Presumably, it's first on the list will be Japan, but I just want to hear from you what the plans are.

Well, yes, we are not disclosing. But you would expect when, as we spoke about being focused on the biggest value pools, so -- and these are these markets, like you said, in your reference. And -- but we will be targeting those high-value markets for HP in the second half of the year.

And from JPMorgan, we now have Philip Spain with our next question.

Just firstly, just going back to the U.S. Combustibles performance, given, I suppose, the volume decline is still implied to be in the high single-digit range, in terms of what's offsetting that to get back to revenue growth, can you just talk through how much pricing you've taken versus the mix side as well that could be benefiting?

And then just on the Velo as well in the U.S., how are you feeling about capacity here given the very strong growth over the last few months? And is there a need to invest to add more capacity? Or are you happy with what you have at the moment?

Okay. I'll start with Velo, we are happy with the capacity we have. Remember that BAT being a global organization, we were able to mobilize machinery from outside the U.S. and onshore in the U.S. So we have a very good capacity installed now in our factory in Tobaccoville in the U.S., where we are producing -- from where we are producing Velo. So this is not a constraint for us.

And your second point, the pricing has been strong in the U.S. because the affordability is still there when you compare the price of cigarette vis-à-vis consumer average price in the U.S. Obviously, consumers are more under pressure because of the macroeconomics and the flourish of these illegal vapor products that have an impact on combustible. But we are also seeing some better performance in brands like Newport, which explains a bit of the value increase that we are seeing there, which helps with the top line as well.

And we now move on to the question from Bastien Agaud from Bank of America.

We have recently seen an improvement at the industry level in U.S. Combustibles, whether consumer sentiments remain soft and the share of lease, it seems to have increased. So what's driving this slight improvement since a few months? That's my first question.

Yes, the U.S. is a -- remember that the oil price has -- gas price has reduced substantially in some states in particular and not everywhere, but in some states. And there is always this correlation in the sense that reduction in gas price is more supportive of sales of cigarettes. So this is one of the mixed indications.

From one side, consumer confidence, you are right, hasn't -- is still in the low. But on the other side, the gas price has improved in the sense that has reduced and give some more support for sales of cigarettes. So this is -- but it's early days. We haven't seen impact on the tariffs on our previous trends, like I referred to in my opening. And -- but we had to wait for a bit more months to see how this pan out. The full year guidance is still around more or less what we have seen in the previous year.

Okay. Perfect. And I have a second one on transactional FX for 2026. Now given the weak dollar compared to last year, do you expect to have any, I would say, less negative headwind to this year, 1.5% starting next year on your margin?

Sorry, the transactional FX that you're talking about is for this year?

No, for next year, do you expect any improvement compared to this year?

I think this year, it's important to note that in our numbers, we have 1.5%, let me start with that, 1.5% of transactional FX. And where this is coming from? 65% is really coming from our key markets, Turkey, Nigeria and Japan. So do we expect an easing of this next year? We expect similar levels. Really, that's what we will be looking at in our forecast. But this is what's driving primarily the 1.5% transactional FX that we have included within our numbers this year.

And our next question now comes from Rashad Kawan from Morgan Stanley.

Just a couple for me, please. So on the U.S., first of all, combustibles, you had some inventory headwinds, obviously, in the first half last year that you're cycling through this first half. Are there any inventory moves to be aware of this year? Otherwise, is it fair to assume volumes will be significantly better than industry declines in the first half given the comp base here?

And I appreciate you said positive revenue in U.S. Combustibles in H1. I wasn't sure for the full year, are you saying positive revenue for Combustibles or for the U.S. as a whole?

So you're right, you're going to have a benefit on the inventories because we are not -- we are back to normality this year. So the comparator last year will translate into a better volume performance than you would otherwise expect. And my comment about going back to top line growth is not just for the full half year, but also for the full year in combustible and the overall company as well.

We now take a question from Simon Hales from Citi.

So just a couple from me, please. Tadeu, can you just go back to the heated tobacco category a little bit and talk about your confidence in glo Hilo as we look into the rollout for the second half? What data points have you seen from the consumer feedback in Serbia over the last few months versus perhaps when you updated us back at the full year results? So just interested in any anecdotal incremental confidence you've got there.

And then secondly, just on Velo in the U.S., I think you said in your opening remarks that you're now in outlets covering, I think, 80% of the value pool. Would you expect to see that close to 100% by the end of the year?

Okay. Okay, on glo Hilo, this is clearly a breakthrough for glo in terms of our platform. And because we have a new heating mechanism, we have a new consumables that brings much more satisfaction. We have a new display. So -- and we have connectivity. So it's a number of areas of improvement compared with the current platform that we have in the market, despite the fact that we don't have the [ Optimum ] portfolio that we'll be launching in the second half in the different other markets.

In Serbia, the pilot that we have done with the portfolio that we have currently, we are already seeing a 50% increase in new consumers from the previous glo platform coming from FMC and competition. And remember that this will be the first time ever that we'll be able to participate in the above WAP, the above-weighted price segment of HP, which is where 80% of the value sits because we're going to have our 2-piece device, and we'll be able to position the consumables in a price segment that we haven't had the chance to do before. So when you pull all this together, this translates into the excitement that we have about the launch of this new platform.

When we -- in terms of Velo, today, we have 110,000-outlets presence. We expect to be around 130,000 outlets. And with that, a big chunk of the value of the category will be covered. We will be satisfied to get to this level by the end of the year.

As there are currently no further questions in the queue, I would now like to hand the call back over to you, Tadeu, for any additional or closing remarks.

Okay. Thank you for joining us and for your questions. I hope that you -- we will take away this key message from today. First, we are committed to driving value from our Combustible business, which is key to funding our transformation. The U.S. is an important driver of this, and I am encouraged that we are returning to growth there for the first time in 3 years. We have continued to deliver robust combustible pricing across all 3 regions.

In New Categories, I'm delighted with the successful launch of Velo Plus in the U.S. and continued strong growth of Velo globally. We expect our New Category revenue growth to accelerate in H2 as we roll out exciting innovations in key markets alongside a further improvement in profitability. With this momentum, I'm confident that we will return to our midterm algorithm in 2026.

Thank you again for joining us, and I look forward to updating you further at our half year results on July 31.