Financial Data and Key Metrics Changes - Group revenue decreased by 0.8%, while new category revenue grew over 7% [35] - Profit from operations was down 0.9%, and diluted EPS increased by 1.3% [35] - Adjusted profit from operations was down 5%, but efficiency gains allowed for a 100 basis point margin expansion [18] Business Line Data and Key Metrics Changes - Smokeless products accounted for 18% of group revenue, up 1.4 percentage points year-on-year [3] - Modern Oral revenue increased by 49%, with market share growing by 30 basis points [14] - Combustibles volume declined by 6.9% on an organic basis, primarily due to wholesaler inventory movements [16] Market Data and Key Metrics Changes - In the U.S., total revenue was down 7%, mainly driven by combustibles performance and the impact of illicit products on the vapor category [46] - AME region saw smokeless products represent 25% of regional revenues, driving strong regional delivery [48] - Vapor revenue in AME grew by 15%, while total vapor revenue was up nearly 3% globally [37][40] Company Strategy and Development Direction - The company is focused on balancing top and bottom line delivery while investing in innovation and R&D [33] - Full year gross capex is expected to be around GBP600 million, reflecting an increase to expand production capacity in the Modern Oral category [22] - The company aims to deliver low-single digit organic revenue and adjusted profit from operations growth for the full year [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering full year guidance despite macroeconomic pressures [5][28] - There are signs of improving consumer sentiment and potential stabilization in the U.S. market [25][67] - The company anticipates an acceleration in second half performance driven by new category launches and unwinding of inventory movements [91] Other Important Information - The company is committed to a sustainable share buyback, starting with GBP700 million in 2024 [51] - The cash flow conversion rate was 78% in the first half, with expectations of exceeding 90% for the full year [50] - The company is actively advocating for better regulation and enforcement of new categories, especially in the U.S. vapor market [56][87] Q&A Session All Questions and Answers Question: On combustibles market and consumer elasticity - Management noted that the decline in premium volumes is correlated with consumer sentiment and macroeconomic pressures, including high inflation and interest rates [66][67] Question: On EPS growth and currency impact - Management expressed confidence in driving EPS growth on a constant currency basis, despite structural FX headwinds [102][103] Question: On vapor performance outside the U.S. - The decline in vapor volume was attributed to regulatory impacts in Canada, while other markets like New Zealand and Korea showed strong growth [108][109] Question: On balancing revenue growth and margin expansion - Management emphasized the importance of targeted investments in categories with momentum to balance top and bottom line growth [110][111] Question: On poly-usage and conversion rates - Management clarified that vapor accounts for 65% of consumption in the new no-combustibles space, with both vapor and heated tobacco showing growth potential [114] Question: On PMTA pipeline and future approvals - Management highlighted the successful approval of several PMTAs and ongoing efforts to secure additional approvals for new products [128]
BAT(BTI) - 2024 Q2 - Earnings Call Transcript