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News Release

26 July 2023

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Half-Year summary
  • Revenue up 4.4% (being +2.6% at constant FX), driven by New Categories (revenue up 26.6%, at constant FX) - good progress towards our £5 billion New Category target by 2025
  • Revenue from Non-Combustibles now 16.6% of Group revenue, up 180 bps vs FY22
  • Continued strong revenue performance of Vuse and Velo - commercial plans activated for glo, launch of glo Hyper X2 Air a first step in an enhanced innovation pipeline
  • New Categories financial delivery significantly improved - contributing £201 million increase to Group profit as losses reduce, on track to achieve our New Category profitability target in 2024
  • Combustible pricing remains strong - good revenue performances in AME and APMEA offset the U.S., demonstrating the benefit of our global footprint
  • Sequential performance improvement in our U.S. premium combustibles volume share in 2023 - with sharper portfolio management driving early signs of stabilisation
  • Reported profit from operations up 61.4% (with reported operating margin up 1,560 bps to 44.2%) - as prior period impacted by charges related to Russia/Belarus, the U.S. DOJ/OFAC provision and Quantum
  • Adjusted profit up 3.6% at constant FX, adjusted operating margin up 40 bps to 44.3%
  • Reported diluted EPS up 118% to 176.0p; adjusted diluted EPS up 5.3% at constant FX
  • Restructured Management Board - driving sharper execution, greater collaboration and agility
  • Further strengthened sustainability delivery, building on Double Materiality Assessment1, including increased collaboration across our value chain to drive progress towards our sustainability targets, including Scope 3 emissions and biodiversity
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“Having been in my new role for 10 weeks, I’m pleased with the resilient performance of BAT in the first half of 2023 and the renewed sense of energy across the organisation.

It is a challenging external environment. High inflation and slower global growth are impacting consumers and business. Yet our revenue, profit from operations and earnings are all up.

We are making great progress in New Categories. Revenues are up by 29% and we are now close to breakeven, with consumers of Non-Combustible products up by 1.5 million versus FY 2022 . While it’s encouraging to see continued good performance in Vapour and Modern Oral, we recognise more work is required in heated tobacco.

I remain confident that New Categories will deliver a positive contribution in 2024. However, we do not expect contribution growth to be linear, as levels of investment will align with the phasing of our big innovation platforms.

While more focus is required in the U.S., our sequential performance improvement in the critical premium U.S. combustibles business since January 2023 is encouraging.

These results are thanks to the hard work by BAT people around the world. To help ensure we continue to deliver, the recently announced Management Board structure is designed to enhance our strategic capabilities and further embed the collaborative and inclusive culture I want to see everywhere across the Group.

While more needs to be done, I’m excited by BAT's future. Our full-year guidance remains unchanged.”

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For six months to 30 June 2023

Reported Adjusted2 Adjusted Organic3
Vs 2022
Vs 2022
Vs 2022
Cigarette and THP volume share flat
Cigarette and THP value share -50 bps
Non-Combustibles consumers4 24.0m +1.5m
Revenue (£m) £13,441m +4.4% £13,441m +2.6% +2.8%
Revenue from New Categories (£m) £1,656m +29.0% £1,656m +26.6% +27.9%
Profit from operations (£m) £5,935m +61.4% £6,020m +3.6% +2.7%
Category contribution - New Categories (£m)5 -£12m -90.7% -97.6%
Operating margin (%) +44.2% +1,560 bps +44.8% +40 bps flat
Diluted EPS (pence) 176.0p +118% 181.6p +5.3%
Net cash generated from operating activities (£m) £3,375m +4.8%
Adjusted cash generation from operations (£m) £1,965m -7.8%
Cash conversion (%) +56.9% -3,070 bps +72.4% -520 bps
Borrowings6 (£m) £42,169m -6.0%
Adjusted Net Debt (£m) £37,259m -2.3%

The use of non-GAAP measures, including adjusting items and constant currencies, are further discussed from page 50 of the full announcement, with reconciliation from the most comparable IFRS measure provided.

1. Although financial materiality has been considered in the development of our Double Materiality Assessment ("DMA"), our DMA and any related conclusions as to the materiality of sustainability or ESG matters do not imply that all topics discussed therein are financially material to our business taken as a whole, and such topics may not significantly alter the total mix of information available about our securities.
2. See page 28 of the full announcement for discussion on adjusting items.
3. Organic measures exclude the performance of businesses sold (including the Group's Russian and Belarusian businesses as those are held-for-sale) or acquired, or that have an enduring structural change impacting performance that may significantly affect the users' understanding of the Group's performance in the current and comparator periods to ensure like-for-like assessment across all periods.
4. Internal estimate, see page 44 of the full announcement.
5. This represents an improvement in New Categories contribution as losses reduced by 94.4% (or 90.7% at constant rates of exchange).
6. Includes lease liabilities.

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We continue to embed sustainability in our business and across our value chain guided by our focus on materiality*. In the first half we made particular progress in our collaboration with key supply partners:

  • Climate Change: With Scope 3 emissions representing over 90% of the Group's GHG emissions, we have continued to strengthen our supplier engagement to drive emission reduction towards our targets and further build resilience in our supply chain. In H1 2023, we engaged with over 600 suppliers, representing over 90%1 of our purchased goods and services emissions, for them to participate in the 2023 CDP Supply Chain programme. This level of engagement presents a threefold increase vs prior year (FY2022: over 200 suppliers).
  • Biodiversity: We have launched a new Biodiversity Operating Standard to support our Group commitments on reducing our impact on forests and natural ecosystems. This provides guidance on due diligence and traceability to help protect biodiversity in our tobacco supply chain, including the use of traceable wood that is Deforestation and Conversion-Free2 and Biodiversity Management Plans3.
  • Human Rights and Farmer Livelihoods: As part of the work we do with over 80,000 of our directly contracted farmers in enhancing their livelihoods, we have further developed our Living Income Guidance and training for directly contracted farmers, in order to help them implement tailored improvement plans.
*Refer to page 48 of the full announcement for a full description of key terms and definitions.
1. Excluding Russia and Belarus. More details about changes to the Group related to Russia and Belarus are available on page 15 of this document.
2. Deforestation and Conversion-Free (DCF) refers to the sourcing or production of a commodity that does not cause or contribute to deforestation or conversion of natural ecosystems.
3. Biodiversity Management Plans (BMP) are implementation plans for conserving, restoring and enhancing areas of high biodiversity value.
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  • Global tobacco industry volume expected to be down c.3.0% partly due to the U.S., Pakistan and uncertainty over Russia/Ukraine.
  • Organic constant currency revenue growth of 3-5% and continued strong progress towards £5 billion New Category revenue in 2025.
  • Mid-single figure constant currency adjusted EPS growth, including continued expectation of c.2% transactional FX headwind.
  • Expected translational foreign exchange headwind of 3% on full year adjusted diluted EPS growth.
  • Operating cash flow conversion in excess of 90%.
  • Progress towards the middle of our 2-3x Adjusted net debt/Adjusted EBITDA corridor*.
  • Commitment to dividend growth in sterling terms and our long-term 65% dividend pay-out ratio*.
*at constant rates of exchange

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This announcement contains certain forward-looking statements, including "forward-looking" statements made within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.

In particular, these forward-looking statements include, among other statements, statements regarding the Group's future financial performance, planned product launches and future regulatory developments and business objectives (including with respect to sustainability and other environmental, social and governance matters), as well as: (i) certain statements in the Half-Year summary and the Chief Executive Statement (both on page 1^); (ii) certain statements in the Group Operating Review (pages 2 to 4^); (iii) certain statements in the Category Performance Review (pages 5 to 6^); (iv) certain statements in the Regional Review section (pages 7 to 9^); (v) certain statements in the Other Financial Information section (pages 10 to 13^); (vi) certain statements in the Other Information (including Dividends) section (pages 14 to 18^); (vii) certain statements in the Notes to the Unaudited Interim Financial Statements section (pages 28 to 42^), including the Liquidity and Contingent liabilities and financial commitments sections; and (viii) certain statements in the Other Information section (pages 43 to 46^).

These statements are often, but not always, made through the use of words or phrases such as "believe," "anticipate," "could," "may," "would," "should," "intend," "plan," "potential," "predict," "will," "expect," "estimate," "project," "positioned," "strategy," "outlook," "target" and similar expressions. These include statements regarding our intentions, beliefs or current expectations concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the economic and business circumstances occurring from time to time in the countries and markets in which the British American Tobacco Group (the “Group”) operates.

All such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and other factors. It is believed that the expectations reflected in this announcement are reasonable, but they may be affected by a wide range of variables that could cause actual results and performance to differ materially from those currently anticipated. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking statements are uncertainties related to the following: the impact of competition from illicit trade; the impact of adverse domestic or international legislation and regulation; the inability to develop, commercialise and deliver the Group’s New Categories strategy; adverse litigation and dispute outcomes and the effect of such outcomes on the Group’s financial condition; the impact of significant increases or structural changes in tobacco, nicotine and New Categories related taxes; translational and transactional foreign exchange rate exposure; changes or differences in domestic or international economic or political conditions; the ability to maintain credit ratings and to fund the business under the current capital structure; the impact of serious injury, illness or death in the workplace; adverse decisions by domestic or international regulatory bodies; changes in the market position, businesses, financial condition, results of operations or prospects of the Group; direct and indirect adverse impacts associated with Climate Change and the move towards a Circular Economy; and Cyber Security caused by the heightened cyber-threat landscape, the increased digital interactions with consumers and changes to regulation.

A review of the reasons why actual results and developments may differ materially from the expectations disclosed or implied within forward-looking statements can be found by referring to the information contained under the headings “Cautionary statement”, "Group Principal Risks" and "Group Risk Factors" in the 2022 Annual Report and Accounts and Form 20-F of British American Tobacco p.l.c. (BAT). Additional information concerning these and other factors can be found in BAT's filings with the U.S. Securities and Exchange Commission (SEC), including the Annual Report on Form 20-F and Current Reports on Form 6-K, which may be obtained free of charge at the SEC's website, and BAT’s Annual Reports, which may be obtained free of charge from the BAT website

No statement in this announcement is intended to be a profit forecast and no statement in this communication should be interpreted to mean that earnings per share of BAT for the current or future financial years would necessarily match or exceed the historical published earnings per share of BAT. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. The forward-looking statements reflect knowledge and information available at the date of preparation of this announcement and BAT undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on such forward-looking statements.

All financial statements and financial information provided by or with respect to the U.S. or Reynolds American are initially prepared on the basis of U.S. GAAP and constitute the primary financial statements or financial records of the U.S./Reynolds American. This financial information is then converted to International Financial Reporting Standards as issued by the IASB and as adopted for use in the UK (IFRS) for the purpose of consolidation within the results of the Group. To the extent any such financial information provided in this announcement relates to the U.S. or Reynolds American it is provided as an explanation of, or supplement to, Reynolds American’s primary U.S. GAAP based financial statements and information.

Our Vapour product Vuse (including Alto, Solo, Ciro and Vibe), and certain products including Velo, Grizzly, Kodiak, Camel Snus and Granit, which are sold in the U.S., are subject to FDA regulation and no reduced-risk claims will be made as to these products without Agency clearance.

^ of the full announcement


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