British American Tobacco (JSE:BTI) News - AGM 2022 - Chairman's Address

British American Tobacco p.l.c.
Incorporated in England and Wales
(Registration number: 03407696)
Short name: BATS
Share code: BTI
ISIN number: GB0002875804
("British American Tobacco p.l.c." or "the Company")

British American Tobacco p.l.c.

28 April 2022


AGM 2022
Chairman’s address



Good morning ladies and gentlemen. Welcome to BAT’s 2022 Annual General Meeting.

This is the first time we have been able to meet in person since 2019. This was
before the COVID-19 pandemic, before the restrictions and lockdowns, and before
all the consequences this virus has had on people and businesses around the
world.

And three years ago, few people would have imagined the prospect of conflict
unfolding so close to home, as it has with such devasting effect in Ukraine.

We continue to follow developments in Ukraine with deep concern. First and
foremost, our thoughts are with everyone affected by this conflict. Our priority
remains the safety and wellbeing of our people in Ukraine and across the wider
region.

We are providing all the support and assistance we can to our colleagues. This
includes relocation and temporary accommodation as well as financial support.
This constitutes a significant commitment to support humanitarian efforts. Our
businesses bordering Ukraine also continue to provide assistance to the
humanitarian relief effort.

We join together as one company to call on all leaders and governments to find a
peaceful and sustainable resolution to this tragic conflict, and to do so
through the power of dialogue and diplomacy.

The efforts of our people during this international crisis and that of the
pandemic have been nothing short of extraordinary. They have worked tirelessly
to deliver strong results across the business in 2021 and are continuing to do
so this year.

2021 was undeniably a pivotal year for BAT. A year of accelerated delivery,
important strategic progress and continued transformation.

Three years ago, Jack and his management team set a very clear trajectory for
the Group. A direction defined by our purpose to reduce the health impact of our
business by offering a greater choice of enjoyable and less risky?† products to
consumers while also reducing our environmental and social impacts. This
continues to be underpinned by key metrics designed to demonstrate the speed and
scale of BAT’s transformation. For example:

   -   Last year we generated over £2 billion in New Category revenues, ensuring
       we are on track to meet our 2025 target of £5 billion;
   -   Having increased our consumer base of non-combustible products** by 4.8
       million to 18.3 million, we are on track to reach 50 million consumers of
       non-combustible products by 2030; and
   -   Since 2017, we have reduced our Scope 1 and 2 carbon emissions by over 42%
       as we aim for carbon neutrality across our operations by 2030 and net zero
       across our value chain by 2050.

The progress we have made on these important targets form part of our ongoing
transformation as a business.

Of course, this transformation will not happen overnight, yet the progress we
have made, and are making, is substantial. It is remarkable that non-combustible
products now account for 12% of Group revenue, up from just 4% in 2017.

Indeed, it is also the case that in some focus markets, such as Japan, Sweden
and the UK, around 40% of our revenue now comes from non-combustible products.

As we have a very clear purpose of reducing the health impact of our business, I
am often asked ‘why don’t you just stop selling cigarettes?’. To my mind, this
is a very clear yet complex issue.

Beyond the contribution of combustible value streams to drive our portfolio
transformation, we have witnessed first-hand the unintended consequences of a
de-facto sales ban. In South Africa, for example, the market simply turned to
illicit traders to fulfil consumer demand. The result being that funds are
diverted away from Government and public services as illicit products step in to
meet demand, and states’ tax revenue completely dries up.

As a consequence, our aim is to actively encourage consumers to migrate to less
risky?† products in our multi-category portfolio.

Driving value from our combustibles business remains a priority to fund the
investment in our New Category products and in the science behind them, in order
to deliver greater progress on tobacco harm reduction.

In addition, through our combustible products, we also make smokers aware of our
New Category portfolio. In 2021, one billion packs of our combustible products
included information about our New Category alternatives to proactively
encourage adult smokers to switch.

Unfortunately, many governments around the world have yet to sufficiently enact
clear policies. Policies that would encourage those 1.1 billion adults globally
who continue to smoke to switch completely to scientifically substantiated,
reduced-risk?† alternatives.

We call on regulators and policy makers to implement harm reduction policies
that would provide adult consumers with access to less risky?† alternatives to
smoking.

Of course, delivering sustainable shareholder value is another core component of
Group strategy. In tandem with growing the business, much work has been done to
deleverage the balance sheet and generate cash. We continue to be highly cash
generative and expect to deliver cumulative free cashflow of around £40 billion
pre dividends over the next five years. Success in this area over recent years
provides the flexibility to adopt a more active capital allocation framework to
deliver long-term value for shareholders. This includes:

   -   Continuing to grow the dividend;
   -   Maintaining our target leverage corridor of 2-3x adjusted net debt /
       adjusted EBITDA;
   -   Exploring potential bolt-on M&A opportunities; and
   -   Deploying share buybacks to enhance shareholder returns.

The Board will prioritise capital allocation opportunities each year in-line
with this longer-term active capital allocation framework, while continuing to
take into account macro and fiscal influences, as well as potential regulatory
and litigation outcomes.

As a first step, shareholders will have seen that we announced a dividend
increase in 2021 of 1.0% to 217.8p and a £2 billion share repurchase programme
for 2022.

OUTLOOK

Turning to our 2022 outlook, I am pleased to say that the business continues to
perform well in the context of a challenging macro backdrop, as we are building
on our strong momentum from 2021, a pivotal year in our transformation journey.

On 9 March we announced that we had suspended all business and manufacturing
operations in Ukraine. On 11 March, following a review of our presence in
Russia, we concluded that BAT’s ownership of the business in Russia was no
longer sustainable in the current environment. As a result, we have initiated
the process to rapidly transfer our Russian business in full compliance with
international and local laws.

As announced on 11 March, we considered it prudent to revise our 2022 guidance
in light of the continuing uncertainty related to Ukraine and Russia and the
possible indirect impact on the rest of the Group, including inflationary
pressures on our supply chain and on consumers.

Accordingly, we continue to expect full year constant currency Group revenue
growth of 2% to 4% and mid-single figure constant currency adjusted* diluted EPS
growth, with growth second-half weighted.

We are continuing to make strong progress in our drive for a step change in New
Categories. Let me highlight a few recent achievements:

   -   Our consumer base of non-combustible products increased by a further 1.1
       million, to 19.4 million in Q1 2022.
   -   In vapour, we continued to further strengthen our global value share
       leadership position, with overall year-to-date value share up 1 percentage
       point, to 35.9%, versus Full Year 2021. Vuse in the U.S. is now value
       leader in 31 States, up from 26 at the end of 2021.
   -   In THP, glo continues to gain strong traction, driven by the success of
       glo Hyper, growing category volume share*** 1.1 percentage points to reach
       19.2% year-to-date.
   -   In modern oral, Velo’s year-to-date volume share of the category is now
       32.9%, as we continue to extend our leadership position in Europe.

This continued strong momentum demonstrates the power of our multi-category
strategy. As we enter our period of faster transformation, New Category
performance will be an increasingly important driver of Group growth. In
addition, while we are continuing to increase investment in our transformation,
we also expect Group profit growth to be driven by further reductions in New
Category losses.

This strong performance is supported by our continued focus on value through
combustibles, with year-to-date value share up 10bps. We are also well on track
to deliver at least £1.5bn of annualised savings from our simplification
programme Quantum by the end of 2022.

In the U.S., year-to-date value share is up 20bps, with year-to-date volume
reflecting the unwinding of prior year inventory movements, as previously
announced. The outlook for industry volume remains difficult to forecast given
rapidly rising gas prices, ongoing macro uncertainties and a strong prior year
comparator.

At BAT we support regulation that is clearly founded on scientific evidence and
which considers all unintended consequences. Regarding the FDA’s upcoming
response to the menthol Citizen Petition on regulatory product standards in the
U.S., it is clear that any such regulation would be highly complex and could
take many years to define and implement.

With respect to our medium-term guidance, we remain confident of delivering 3-5%
constant currency Group revenue growth, and high-single figure EPS growth, along
with delivering on our target of £5 billion New Category revenue, and achieving
profitability by 2025.

Turning to the composition of our Board, I am delighted to welcome Krishnan
Anand, who joined the Board as an independent Non-Executive Director and member
of the Nominations and Remuneration Committees on 14 February 2022.

I would also like to thank Dr Marion Helmes who will be standing down as a Non-
Executive Director at the conclusion of this Annual General Meeting, having
served on the Board since 2016.

Ladies and gentlemen, before we move to the Resolutions, let me thank my fellow
Directors on the Board, our Chief Executive, Jack Bowles and his management
team, along with colleagues around the world for their outstanding contribution
to delivering a strong set of results in 2021.

It is through their hard work, resilience and focus in very testing conditions
that BAT is so well positioned to continue generating sustainable value growth
for shareholders and A Better TomorrowTM for all stakeholders in the years
ahead.

I am very proud of our teams across the world and very proud to be the Chairman
of BAT.

Notes:

Year-to-date market share data is at end of February 2022.

* On an adjusted constant currency basis. Adjusting items represent certain items which the Group
considers distinctive based upon their size, nature or incidence.

** The number of consumers of non-combustible products is defined as the estimated number of Legal
Age (minimum 18 years) consumers of the Group’s Non-Combustible products. In markets where regular
consumer tracking is in place, this estimate is obtained from adult consumer tracking studies
conducted by third parties (including Kantar). In markets where regular consumer tracking is not in
place, the number of consumers of non-combustible products is derived from volume sales of
consumables and devices in such markets, using consumption patterns obtained from other similar
markets with consumer tracking (utilizing studies conducted by third parties including Kantar).

The number of non-combustible products consumers is used by management to assess the number of
consumers regularly using the Group’s New Category products as the increase in non-combustible
products is a key pillar of the Group’s ESG Ambition and is integral to the sustainability of our
business.

The Group’s management believes that this measure is useful to investors given the Group’s ESG
ambition and alignment to the sustainability of the business with respect to the non-combustibles
portfolio.

*** Volume share: The number of units bought by consumers of a specific brand or combination of
brands, as a proportion of the total units bought by consumers in the industry, category or other
sub-categorization. Sub-categories include, but are not limited to, the total nicotine category,
modern oral, vapour, traditional oral or cigarette. Corporate volume share is the share held by BAT
Group/Reynolds (US region). Value share: The retail sales value of the product sold as a proportion
of total retail sales value in that category. Premium share: The retail sales volume of the premium
product sold as a proportion of total retail sales volume of premium products in that category.
Nicotine share: The retail sales volume of the nicotine product sold as a proportion of total
nicotine product volume in that category. Exit share: The retail sales volume of the product sold as
a proportion of total retail sales volume in that category at a specific period point in time.
? Based on the weight of evidence and assuming a complete switch from cigarette smoking. These
products are not risk-free and are addictive.
† Our products as sold in the U.S., including Vuse, Velo, Grizzly, Kodiak and Camel Snus, are
subject to Food and Drug Administration (FDA) regulation and no reduced-risk claims will be made as
to these products without FDA clearance.

Forward-Looking Statements

This announcement does not constitute an invitation to underwrite, subscribe for,
or otherwise acquire or dispose of any BAT shares or other securities. 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. 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,
including the projected future financial and operating impacts of the COVID-19
pandemic.

In particular, these forward-looking statements include, among other statements,
certain statements under the heading “OUTLOOK”.

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 to differ materially
from those currently anticipated.


Sponsor: Merrill Lynch South Africa (Pty) Ltd t/a BofA Securities

Date: 28-04-2022 12:56:00
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