British American Tobacco PLC at Deutsche Bank dbAccess Global Consumer Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : Thank you, Tadeu. (Conference Instructions) So that was a very helpful opening set of comments, Tadeu. You've set out your stall in various ways. You talked about in terms of the strategy, it's not about what, it's about the how. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 07, 2023 / 7:15AM, BATS.L - British American Tobacco PLC at Deutsche Bank dbAccess Global Consumer Conference But there's a few things to read in between the lines there. So I'm just going to come a very simple, straightforward question to start with. I think most people would agree that in this room at least that Jack's departure was probably a surprise to most of us. Could you just tell us why the Board acted and why they chose to appoint you?

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : Right. That was very helpful. My second question is around the strategy. And you did a very good job in your release yesterday of putting people like me in their place around the purpose of the business and the strategy of the business. Better tomorrow is your purpose, which is to reduce the health impact of your business on society. But your strategy, the way to deliver that is to transform the portfolio by encouraging adult smokers to switch to less risky alternatives. And you are relying on that strategy. But there are questions around that in terms of the share price performance, the valuation of the stock. Could you just expand a little bit as to why you believe the strategy is the right one, given where the valuation is, the stock price, et cetera?

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : Okay. Before I move on, I got one more big picture question, but you referenced something there in terms of vaping and about regulation in vaping. I'd just like to come back to that. Could you talk about regulations, one thing? We probably agree that that will potentially hope to get to the right place at some point in the future. But could you talk about enforcement of the regulation and whether that will follow through once the regulation is hopefully in the right place?

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : Okay. I've got one big picture question. I am going to delve a little bit into yesterday's release. And then we'll revert back to other types of questions. So just before we go into the release of yesterday, I said to somebody I was talking to yesterday that there was a subtle shift in the wording of your statement yesterday. There wasn't a subtle shift, it was a very clear shift in terms of the wording of your statement. It feels like you are being more open, more aware of some of the pressures that business is facing, which every business faces. Could you just talk a little bit about the philosophy around being -- it appears to be, and evidence is more open about the challenges the business is facing?

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : Agree with that. Okay. Two or three questions around yesterday's release before we move on. So the first one is on the US combustibles situation. I think you referenced you've got a long road ahead of yourself, ahead to get that business in a better place. And your value share was down 40 basis points. My recollection is you've tended to talk about value rather than volume share in the US. So that was quite a big data point for me. Could you talk a little bit about what you're going to do there and perhaps reference it in the context of the US consumer because not only in a tobacco context, but something that's emerged through yesterday. And I'm sure we'll continue to follow through today from this conference is there is a focus on where is the US consumer generally, how healthy are they or et cetera, et cetera.

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : That was a very helpful answer. Even more impressive because the fire alarm has gone off. And I'm mildly panicking but we'll crack on until something.

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : So let's talk about California, flavor bans. Market's been weak, but there's lots of illicit trade. And there's legacy stock. There're neighboring states having increased volume. Can you give us a stab of what the underlying picture is in California?

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : Okay. Just one more relating to yesterday, glo. Is the issue just about the product? And you talked about a pipeline there or is there an execution element where the brand is?

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : Okay. And in the context of that, still pretty comfortable with breakeven in next generation products in 2024?

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : Okay. Talking of the algorithm, you got into 3%to 5% top-line growth this year. Inflation is still pretty high. Obviously, organic growth doesn't adjust for FX. You haven't got that element. So given inflation is so high, shouldn't we be thinking more, shouldn't the market be thinking nearly 5% than 3%? Could you comment a little bit around that.

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : Very hot on the transactional FX, but I always forget it as well. So good point well made. I once wrote a very boring note about transactional FX about eight years ago, which nobody ever read. But anyway. Right, capital allocation. Based on your comments yesterday, my read was it was pretty clear. You're looking to be at 2.5 times before the Board thinks about share buybacks again. Could you confirm or correct my interpretation of what you said (multiple speakers)

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : And the 2.5, that's under your definition of what leverages is rather than being adjusted for a rating agency? Just how you describe it.

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : You referenced Canada with a four-year timeframe when it might even be longer than that. Look, I know you don't know, but it can't go on for another four years surely. Will there'll be some resolution relatively soon?

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : Okay, right. I want to ask about ITC. You hold it for strategic reasons, which I suspect relate to the Indian market opening up and the ownership structures and all that stuff changing. If that's wrong, please correct me. Hasn't happened, probably isn't going to happen. In the meantime, you get very marginally diluted each year by the way the rumination structures work at ITC. The stocks had a tremendous run, ITC stock. There's a decent amount of value there. It complicates the business. You probably don't get credit for it. It will help your leverage, just do the trade.

Question: Gerry Gallagher - Deutsche Bank AG - Analyst : That was an annoyingly good answer, and you properly put me in my place there. Right, we've got 15 seconds to go. Unless there's any questions from the audience, we will cut it off there. So Tadeu, CEO of BAT, thank you very much for your time.