Hello, and welcome to the BAT Half-year Pre-close Trading Update. My name is Jess and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero on your telephone keypad and you will be connected to an operator. I will now hand you over to your host, Mike Nightingale, Head of Investor Relations, to begin today's call. Thank you. Good morning, everyone. I'm Mike Nightingale, Head of Investor Relations, and with me this morning is Tadeu Marroco, our Finance and Transformation Director. Welcome to our 2021 First Half 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 contained in the trading update. I will now hand over to Tadeu, who will say a few short words on current trading before opening it up to questions. Unless otherwise stated, our comments will focus on constant currency adjusted measures and volume share data to April 2021. Thank you. Thank you, Mike. Good morning, everyone, and welcome. Our performance year-to-date shows that we are transforming BAT and building a better tomorrow. This is reflected in our acceleration top-line growth. We are investing in building strong, fast-growing international brands in each segment, rapidly accelerating our reach and consumer acquisition, thanks to our digitalization and our multi-category consumer-centric approach, supported by the right resources and products in our agile organization. Our consumer acquisition for non-combustible products has further accelerated. At 1.4 million in quarter one to reach nearly 50 million consumers, and we are now selling our new category products in 74 markets across 53 countries. This is driving continued strong growth in new category volume and revenue, with market share gains across all three categories in all key markets. Capitalizing on this good momentum, we have further increased investment in new categories. This is fueled by continued value growth in our combustible portfolio and increased savings driven by Quantum. Our transformation will deliver value to all our stakeholders. ESG is already deeply embedded in our organization and is reflected in our targets. GBP 5 billion new category revenue by 2025, 50 million consumers of non-combustible products, and carbon neutrality on Scopes 1 and 2 by 2030, and Scope 3 by 2050. We are confident of delivering these ambitions. Beyond the consistent delivery of our strong performance, I'm particularly proud that Vuse has been independently validated by Vertis as the first global carbon neutral vape brand. This is a significant achievement and is testament to BAT's deep and longstanding commitment to being a responsible business, reducing our impact on society, and creating brands with purpose. With clear momentum in the business, we continue to expect 2021 to be a pivotal year. New category revenue growth is accelerating. We have a clear pathway to new category profitability by 2025, and we expect our leverage will reduce to around 3 x by year-end. In our new category business, Vuse is approaching global leadership in vapor, driven by the continued strengthening of our number one position in four out of the top five vapor markets, with value share growth in all five. In MENA, Vuse is the fastest-growing in value share, while at the same time migrating from Vype to Vuse. Both ePen 3 and ePod have gained share year-to-date across the three largest vapor markets in Europe, driven by our consumer-led insights, superior product portfolio, and award-winning marketing campaigns and digital engagement. In Canada, we continue to strengthen our leadership position, capitalizing on last year's brand migration, led by ePod, gaining a 28.5% in point share year-to-date versus full year 2020 to reach 74.7% share. In the U.S., the vapor market has returned to year-on-year growth. Vuse continues to go from strength to strength and is closing the gap on the number one brand with leadership in 16 states. Vuse Alto has achieved a year-to-date value share of 27.2%, up 6.9% points versus full year 2020. Total Vuse family value share is now at 29.8% year-to-date. Device volume share leadership continues in all our top five markets, a good lead indicator for sustainable consumable growth going forward. Overall, with Vuse, we are building the leading and the most trusted vaping brand worldwide, a global brand with a clear consumer-led purpose. In THP, Hyper continues to be our most successful launch yet, driving a positive THP category performance at a group level across all key metrics. In Japan, we have grown 80 basis points year-to-date versus full year 2020 to reach total nicotine volume share of 6.2% and have captured close to 1/3 of category growth. Consumable volume growth is strong. We are continuing to invest in consumer acquisition. The increased investment, together with the partial absorption of excise, all due to the disproportionate impact of the excise harmonization on our products, will be reflected in the first half THP revenue growth in AME. In MENA, which represents more than 1/2 of global THP industry volume, Hyper continues to drive strong volume share growth. In Russia, glo Hyper drove a near doubling of category share versus full year 2020 to reach 17.2% year-to-date. In Ukraine, our category share increased 7.7 percentage points to 18.7% year-to-date, and in Romania, we reached 21.8% category share year-to-date, up 6.2% versus full year 2020. This performance was supported by encouraging early results in key launch markets in Western Europe, including Italy, where our category share reached 10.3%. Glo is now rolled out in 21 markets, of which 18 have launched Hyper, with further rollouts planned over the remainder of the year. In Modern Oral in the U.S., the launch of our broader range of products acquired from Dryft under the Velo brand has driven strong volume share gains in the period, up strongly by 6 percentage points from December to 14.6% in April in a competitive market. We remain on track for unconstrained U.S. production capacity to be reached around mid-year. Outside the U.S., we continue to consolidate our market leadership position. We are driving strong share momentum in the total oral category across Scandinavia as the Modern Oral segment continues to expand rapidly. Our year-to-date volume share in Modern Oral in Sweden is up 3.8% - 57.6%. In Norway, our year-to-date volume share is up 1.2% versus full year 2020 to 63.3%. Finally, in Denmark, our share of total oral grew 4.1 percentage points to 79.5% year-to-date. Our share of Modern Oral was down from a very high base to 89.8%. Our local brands, Zippo and Lyft, have been migrated to our global brand Velo during 2021, with the full migration complete by early 2022. Turning now to our combustible business. Our performance is strong, and we continue to generate the value to invest in our accelerating new category performance. We continue to extract costs, rationalize and simplify our combustible portfolio, and strategic brands represent around 2/3 of our volume. Value and volume share are both up 10 basis points across our T40 markets. Combustible pricing remains strong despite a strong year of pricing in 2020. This is partially offset by negative geographic mix as emerging markets, which account for around 25% of our revenue, recover from the impact of COVID last year. In addition, we now do not expect a recovery in global travel retail until 2022. We continue to expect full-year global industry volume to be down around 3%. In the U.S., value share was up 40 basis points, while premium share also grew by 40 basis points, driven by the continued strength of Newport and Natural American Spirit, reflecting no accelerated down trading within our portfolio. The industry volume outlook in the U.S. remains unclear due to the continuing macroeconomic and fiscal uncertainties. However, a continued strong pricing environment is driving robust revenue growth despite a very strong prior year comparator. Overall, the momentum across the business is strong. As stated in our release this morning, we have upgraded our constant currency revenue growth to above 5%, ahead of our 3%-5% guidance range. We remain firmly on track to deliver mid-single digit adjusted diluted EPS growth in constant currency, despite an increased transaction FX headwind. Our further increased investment in new categories is weighted to the first half of this year, capitalizing on the momentum we generated over 2020, and this will be reflected in our H1 operating margin. For the full year, we continue to expect that the drag from our new category business will reduce as revenue growth and gross margin contribution begin to more than offset investment increases. Associate income, given that our share of results are reported one quarter in arrears, will continue to reflect the impact of the COVID environment in India on ITC. Applying current foreign exchange spot rates as at June 4th, first half and full year 2021 adjusted dilute EPS growth would face a currency translation headwind of around 80%. In addition, we expect a continued negative impact of circa 2% from transactional FX on adjusted profit for both periods, which we do not strip out from our constant currency numbers. Turning now to the balance sheet. We remain on track to reduce our leverage to around circa 3x adjusted net debt to adjusted EBITDA by the year-end. We continue to expect strong full-year operating cash conversion in excess of 90%, with this weighted to the second half due to the phasing of excise and MSA payments relative to the prior year. In summary, the business is performing very well. At 3:00 P.M. this afternoon, Kingsley Wheaton, our Chief Marketing Officer, Dr. David O'Reilly, our Director of Scientific Research, and Jenny Graeber, Head of ESG, will be presenting at the Deutsche Bank Global Consumer Conference. We will be highlighting how our multi-category strategy, R&D, science, and strong ESG foundations are driving the transformation of our business. You'll be able to access the webcast on bat.com, and I will leave it to our presenters to give more detail around our progress in these important areas and how they are central to our purpose of building a better tomorrow. In conclusion, we continue to focus on the health and well-being of our employees through the pandemic. I would like to thank our teams and our partners for the continued strong delivery of our business, in line with our strategy in such challenging times. With increasing consumer acquisition driven by accelerated digitalization, this has allowed us to further accelerate the transformation of our business. We are successfully building our enterprise of the future, supporting our ambition to become a high-growth, multi-category consumer products company, rapidly growing our new categories and encouraging smokers who would otherwise continue to smoke to switch completely to scientifically substantiated reduced risk alternatives. We have a clear vision to transform our portfolio, our structure, our culture, and our ways of working, accelerated through our QUEST program, a clearly defined framework to create the enterprise of the future. This will create sustainable value for all our stakeholders. Thank you. I will now open the call to questions. If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted loudly as you will be advised when to ask your question. Once again, that's star one if you would like to ask a question. The first question comes from the line of Richard Felton from Goldman Sachs. Please go ahead. Good morning. Thanks for taking a question. My first one is on your guidance. Obviously, you're guiding for better revenue growth than previously, but that's not flowing through to better constant currency EPS growth. I know you mentioned various moving parts in your statement, in your prepared remarks, but could you maybe help us understand the main reason why that stronger revenue growth isn't leading to stronger constant currency EPS growth? That's my first question. My second one is on Vuse. Obviously, very strong market share gains year -to -date. I understand that discounts and promotions are part of the process to build a brand and expand your consumer base. My question is how loyal or how sticky is the consumer base once those discounts and promotions are rolled back? Thank you. Richard, look, your first questions. The volume recovered and share growth in emerging markets is better than we first expect. Particularly BAT, is doing extremely well in places like Bangladesh, Pakistan, Vietnam. This, with the continued robust performance in the U.S., despite a challenging comparator of 2020, is generating good pricing and robust volumes in combustible. There is an element in combustible that is better. Then for sure, the momentum we are leaving in the new categories is translating also in a stronger revenue line. That's the reason why, first of all, we have upgraded our guidance to above 5%. There are three major factors why we are still keeping the mid-single digit EPS. The first one, we obviously are trying to continue to invest even more in new categories. We always said that. We always said that as soon as we have traction, we have the right products, and we see this happening in the markets, that we would be keen to invest even more behind that momentum. That's exactly what's happening. We are investing even more than we first thought in the new categories. Just to be clear, for the full year, the losses from our new categories business will reduce. That's the point that we made at the beginning of the year and is still valid, which means that as revenue growth and gross margin contribute, begin to more than offset investments increase, you'll see the reduction. We have reached the peak of loss in 2020, and from now on, we expect the business to be accretive in terms of earnings. The second factor is the geographic mix and the deterioration of the geographic mix in comparison with what we first thought. We always expect to be having a geographic mix impact in 2021. The fact is that we have three elements here. One is the recovery in emerging markets, like I said, in places like Bangladesh, is much better than we first thought. We are doing extremely well, and for sure, the contribution in places like Bangladesh is not the same like in places like the U.S., for sure. The second one, we had reassessed our global travel retail, and now we are not expecting to come back in 2021 anymore. We are moving all the expectation of recovery from global travel retail for 2022. Finally, we had recent news in terms of excise in Australia, which are very good for the long term of the business, but will prevent us to have excise windfall in 2021. This also translates into the operating margin for this year and the profit for this year. Third, although we have always said that we would expect a transaction FX around 2% in the beginning of the year, this got slightly worse recently. I want to remind everyone in the call that transaction FX for BAT is not stripped out from our numbers, so it's part of our numbers. When we guide mid-single digit figure, for example, at constant base, it incorporates all the transaction FX hits. This was, if anything, slightly worse than the beginning of the year. These are the three major factors why you are not seeing this flow through from the top line to the bottom line of the business. Okay? The second question is around the Vuse. What we try to do, and we learned that in different markets, is once we get our device on the hands of consumer, they love the product, and they stick to it. Most of the promotions that we, and the consumer investments in terms of acquisition, is happening on the device side in the different markets, not that much in terms of consumables. In reality, we have already started recovering price in consumers in some markets as part of our path to profitability. What we are seeing is that the level of loyalty in our base is very strong. Now we are seeing more and more of that happening in our subscription model. We are very pleased with the performance in e-commerce since last year. We have invested over the last 12 months to strengthen our position in e-commerce. We expect to achieve close to GBP 100 million of revenue sales via e-commerce. We are now getting close to 20,000 subscriptions there. Every time you have a subscription in terms of margins, this means 3x higher margins than the normal retails when we sell the products. That's part of the strategy. This has to do with our opinion in terms of the flavors that we are building. For sure, the U.S. is more restricted because of the PMTA process. Outside the U.S., we can deploy a strong expertise in terms of flavors. It's not just about the device itself, it's the whole ecosystem and, for sure, all the marketing and the digital acquisitions that we are making throughout the period. We are very happy in the performance of the global health indicators of Vuse, and that's one of the reasons, for sure, that is behind the performance that you are seeing. Great. Thank you very much. The next question comes from the line of Shanna Sundarsan from Morgan Stanley. Please go ahead. Hello, good morning, everyone. Thanks for the presentation, Tadeu. Just a few questions from my side. Could you just give us probably a bit more clarity on the operations you're doing on the NGP side to reduce the losses? I understand the investments keep peaking up. It's about GBP 450 million in 2020, probably higher this year. Could you just give us some semantics on the cost savings again for NGP? Secondly, in terms of emerging markets, could you just give us some idea about how overall in other markets like South Africa, et cetera, how is the COVID lockdown or post-lockdown era coming up for you? Are you seeing rising illicit trade, down-trading, excise tax changes, et cetera? Some commentary around how emerging market consumer is playing out, please. Thank you. On the NGP, we have a very thorough strategy for passive profitability. Just as a reminder, in the Modern Oral space, if anything, the margins are already higher than the cigarettes. If anything, we expect this to increase over time as we gain more and more scale. There is not much to be concerned in terms of margin at all in terms of Modern Oral. On THP, we have today higher margins than cigarettes. We expect to see some headwinds in terms of excise, because we don't believe that some markets have a sustainable level of excise incidence at this point in time. We would expect to see some of the excise to go up. On the other hand, given the fact that most of our consumables are leveraging in the manufacturing equipments that we have for cigarettes, we believe that we can accelerate the reductions of cost and make our products very similar in terms of cost for the cigarette products that we have in the group. There are opportunities for us to reduce further our consumables cost of goods sold and offset some of these potential headwinds and net end up with margins. That again, will be, if anything, slightly higher than the ones that we have in cigarettes. Vapor is the category that we have an opportunity to increase margins. We will be doing that. First of all, leverage on the trends that we are seeing in the market, moving everywhere, we are seeing that. The movement from open system to closed systems, this is definitely will increase margins. The other trend that comes at the back of that is less sales in vapor stores and more sales in traditional stores. Why it is important? Because the trade margin in vape stores are really, really high compared with the traditional key accounts. As you see this migration, one of the reasons why margins in vape is not as high as the others is exactly the trade margins. Just building on that, the performance that I was just referring to in terms of the e-commerce is another lever that we are pulling in order to increase profitability. That's why we invest not just in e-commerce, but within e-commerce, the subscription, which is even more profitable than a normal sales via e-commerce. Finally, we have also the cost of goods sold. As you gain scale, for example, with the latest round of negotiations with our major supplier, we were able to automate some of the lines that used to have manual works with a massive reduction in terms of costs that's starting back to the product moving forward. It will be a combination of all these factors. As I mentioned before, we are now in a position taking leadership in a number of markets where our negotiation power with some of the key accounts is in a much better position. With that, we are able now to negotiate, for example, lower trade margins or moving trade margins from front to back, paying more by performance as opposed as a percentage of revenue, for example, which was the case in the past. When you pull all those things together, we are very clear in the way that we have to improve profitability, and these are already materializing in our numbers. In terms of, i s it okay, the NGP, or can I move on to the emerging markets? No, you can continue. Okay. On the emerging markets, we are seeing overall a recovery. When we talk about the markets being around 3% down, emerging markets in itself will be even better than that at the back of COVID last year. What we are seeing is a mixed bag in terms of emerging markets. We are not seeing big excise increases happening. A part of Indonesia that had a plan of excise increase that started even before the pandemic and continued so afterwards, and Russia that had implemented a big excise increase early in the year. We are not seeing this really happening in other markets. We just had, for example, the Bangladesh budget discussion happening. There is no surprise in terms of excise in that space. In terms of illicit, we have situations like Brazil where the illicit actually reduced as a consequence of not just more enforcement, but also lockdowns in places like Paraguay, where we know that most of the illicit comes from, which is reflecting a higher volume and continue reflecting this year, higher volume in the duty paid market. We have difficult situations like South Africa. The illicit trade, specifically in South Africa, is worse than it was before the pandemic. The government now is trying to address the issue like they did before. We are very optimistic that they can reverse this trend as they did just before the pandemic was going the right direction. With the pandemic, you know that we had this period of time we couldn't even sell any product for months in South Africa last year, and this disrupted substantially the market, and the market is still trying to get to terms with that. We expect then that the levers that the government had pulled before they can act now to bring it to the situation we had before the pandemic. Thanks, Tadeu. Just one follow-up on that. Any downtrading or any comments around brand loyalty for you or market share for you on the NGPs? We don't see downtrading because we are not seeing actually big excise increase, like I said. For sure, when you have place like Brazil, for example, where there is a lot of illicit now coming to duty-paid markets, you come in the low end of the market, which is natural, overall, you see some mixed deterioration in terms of portfolio. This is a natural consequence of you capturing back volume from illicit. Illicit, if anything, overall, worldwide, is slightly reducing in 2021 compared with 2020. Great. Thank you very much. The next question comes from the line of Gaurav Jain from Barclays. Please go ahead. Hi. Good morning, Tadeu. Thanks for taking my questions. I have three questions. One is, can you please update us on the U.S. e-cigarette PMTA process, how you are thinking about it? We are seeing FDA issue all these warning letters. I think they have now issued 122 warning letters, which covers 1.25 million SKUs. Is that leading to a lot of consolidation in the market? Okay. Do you want to ask one by one? Yes. Okay. Sure. Okay. Yeah. On the story in the PMTA, on May 20th, the FDA posted its long-promised public PMTA list of new categories, the Deemed product. Currently on the market for which a PMTA was submitted to FDA by September the 9th in last year. All our current market Deemed products are listed, but the list does not characterize the status of the FDA review of PMTA clearance. That's the first thing. The second, like you said, they have issued additional warning letters since the last time we spoke. More recently, an additional 12 companies, totaling 124 companies now, have received letters, which equates to something like 1.2 million products. We should be start to seeing the implications of that in the market. One other area that the FDA probably thinking to act on that relates to some loopholes that they have currently. You know that when they, for example, introduced the flavors ban early last year, they left behind the disposable. You still see disposable with flavors there, and these are major concerns, even though because of the youth access to that, and we are aware that the FDA is concerned of that, and we expect them to take initiatives on that as well. As well as these synthetic nicotine products. In summary, asking in your question, I think that we will be start to seeing some of the impact of those enforcements that has become more and more vocal from the FDA. We expect them now to address those loopholes that are still there in the market. Thank you. My second question is on these patent lawsuits that you have with Philip Morris. You have lost some of those, like you lost in the U.K. You have also recently won at the ITC in the U.S. How should we be thinking about these patent lawsuits and where these will lead to? Well, look, at the end of the day, we are not used to that. Our industry was not used to that. We are now moving towards electronics with all this device, and it's not something that is new for electronics industry, for example. In this particular case that you are referring to, we are in dispute with Philip Morris. We believe that they are infringing some of the patents that we have in the U.S. At the end of the day, we have invested a lot of money behind our generational products, and we want to compete fairly, and that's why we took some actions. We expect some more details of that to come later in September, to have a final call on that case. I think that is a natural process of us trying to protect from what we saw or what we believe that they are infringing in our patents. We are aware that they are also challenging us in other parts of the world. Like I said, I think there is a dynamic that we need to start getting used to see in this industry. That was not the case before. I cannot comment. Thank you very much. Yeah. Sorry for interrupting you. My last question was on growth. Yes. You have given a lot of market share data in different countries. Would you be able to share what we should expect for volume growth and revenue growth in heat not burn, in tobacco heated products for you in 1H 2021? Look, I will not be giving specific guidance on volumes. Because we have given a lot of numbers between the release itself and my comments at the beginning. One other information to put some colors on it. We are growing quite nicely in the EMEA markets. In Russia, for example, from the beginning of the year, we have captured 50% of the growth of the country. In Ukraine, we have captured 35%. In Italy, we have captured 30%. It definitely is a game changer for us, the introduction of Hyper, and it's the first induction technology product in the market. We are very strong in flavors. Some of these European markets, you have between 15%-45% of the THP market in flavors. We are, like I said, really strong in terms of our consumables. This puts us in a very strong position to continue to grow further. That's exactly what we expect. You'll see some more definitive numbers in a month time or so when we publish our half-year results. We are growing sequentially from half-year to half-year, and we expect to continue to do that until the end of the year as well and have an enclosing with a very strong performance easy. Okay. Thank you, Tadeu. Okay. Cheers. Before we go to the next question, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. The next question comes from the line of James Edwardes Jones from RBC. Please go ahead. Yeah. Morning. Very quick one. You might have said this before and I've missed it, but can you tell us what the year-on-year growth in NGP sales in total was, please? NGP sales total loss? Sorry, I didn't understand the question. The year-on-year growth in NGP sales. Year-on-year growth in NGP. No, we haven't provided this number. We are basically providing market share, category shares, but we are not targeting specifically a particular number. We are not publishing that. For sure that in a 1.5 month t ime, you'll be seeing the numbers as we close the half year results. Overall, we are growing revenue, and we are growing volume, not just in THP, but across the other categories as well. This is just a pre-close update. Very useful one except for that. Thank you. Okay. There are no further questions in the queue. I'll now hand call back to you, Tadeu, for closing remarks. Okay. In summary, I would like first of all to thank you all. We are accelerating our transformation with increased investments, capitalizing on our growing momentum in new categories. Now we have the products. We used to have two major roadblocks in terms of new categories. One was our performance in THP. We have now Hyper. That is a step change from that perspective. We also have a less competitive product in Modern Oral in the U.S. With the acquisition of Dryft the end of last year, we are able now to compete. We have the products in place. We are heading to scale. We are present in many markets like you saw before, and we are getting more and more traction. We are acquiring consumers very fast, and the next phase of this journey will be to build this strong global powerful brand to leverage on digitalization. Growing momentum in new categories is clearly there, and this together with our stronger business performance, is reflected in our upgraded group revenue growth guidance for 2021. I'm very excited by the future opportunities for BAT. Our confidence is reflected in our continued commitment to our 65% dividend payout policy, and we are building a better tomorrow. Thank you again for joining us today. We look forward to speaking to you over the next couple of days, and of course, in July at our interim. If you have any further questions, please contact the IR team at BAT. Thank you.