British American Tobacco - Investing in BAT

Transformation driving
sustainable growth

Delivering growth by reducing harm and expanding our portfolio

Our corporate purpose is to build A Better Tomorrow™. Reducing the health impact of our business, by encouraging those smokers who would otherwise continue to smoke to switch completely to scientifically-substantiated, reduced-risk alternatives^*†, is the greatest contribution we can make to society. This means growing our New Categories business as fast as possible and developing opportunities Beyond Nicotine to consolidate our position as a high growth, multi-category consumer products company.

Revenue growth in the global nicotine industry is accelerating through the development of New Categories, which offer reduced- risk alternatives to combustible products^*†.

To capitalise on this growth, our established consumer-centric, multi-category strategy is activated on a global scale, leveraging our insights on consumer satisfaction, innovation needs and taste. We are building strong global brands, specifically positioned in each target consumer segment. In addition, we are taking a disciplined approach to our Beyond Nicotine strategy to further drive our transformation and long-term business sustainability.

We have set ourselves ambitious targets to reach 50 million consumers of our non-combustible products by 2030, with revenue reaching £5 billion (and profitability) from New Categories by 2025. These ambitions will be met through the delivery of our three clear strategic priorities:

To drive a step change in New Categories, to accelerate growth supported by increased investment;
To generate value through Combustibles, to provide the capabilities and funding; and
To simplify the Group, to create a stronger, faster, more agile organisation.

* 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 FDA regulation and no reduced-risk claims will be made as to these products without agency clearance.

50mn Non-Combustible product consumers targeted by 2030

£5bn New Categories revenue targeted by 2025

1.1bn consumers in global combustibles market with potential to convert to reduced-risk products^*†

12% Group revenue from Non-Combustibles

Reducing the health and environmental impact of our business

Creating value for all our stakeholders

Our work to reduce the health and environmental impact of the business will drive growth and create shared value, delivering results that simultaneously benefit shareholders and wider society.

We will continue to create a stronger BAT by:

focusing on excellence in environmental management;
delivering a positive social impact; and
adhering to robust corporate governance.

This builds on our strong ESG foundations including our status as:

the first tobacco company to produce a Sustainability Report in 2001;
publication of a Human Rights focus report in 2020, the first of its kind by a tobacco company to be aligned with the UN framework of Human Rights reporting;
named in the Dow Jones Sustainability Indices for 21 consecutive years; and
named third highest ESG-rated FTSE 100 company by Refinitiv in 2020^.

Our commitments are anchored in challenging targets, against which we will track and share the progress of our transformation – including achieving Net Zero across our supply chain by 2050.

Meanwhile, our ‘delivery with integrity’ programme is focussed on ensuring that our ethical standards are never compromised for the sake of results.

^ A rating, whether by Refinitiv or any other organisation, is not a recommendation to buy, sell or hold securities. A rating may be subject to withdrawal or revision at any time. Each rating should be evaluated separately from any other rating. In addition, the criteria used in ratings may differ among ESG rating organisations. Companies may also supply different information to such organisations (or none at all) and this lack of consistency may impact rankings. Companies may also supply different information to such organisations (or none at all) and this lack of consistency may impact rankings.

21^st consecutive year in the Dow Jones Sustainability Indices

Net Zero across the supply chain (scope 3) by 2050

Carbon Neutral Scope 1 and Scope 2 (CO₂e emissions) by 2030

100% of plastic packaging capable of being reusable, recyclable or compostable and unnecessary single-use plastic removed by 2025

Creating the Enterprise of the Future

Leveraging proven expertise and developing new capabilities to deliver our ambitions

Our New Category portfolio benefits from decades of insights and expertise that have driven our No.1 global revenue position in combustibles (ex China). This combined with increased investment behind new capabilities gives us confidence that we can deliver our medium to long-term ambitions.

Our three global New Category brands leverage the benefits of our world class R&D and our manufacturing, distribution, marketing and brand building capabilities, which are supported by our unrivalled global footprint across 175+ markets, with more than 11 million points of sale, reaching more than 150 million consumers daily.

Together with our long-standing experience operating within complex regulatory, legal and fiscal frameworks, these provide BAT with a compelling competitive advantage to drive portfolio growth and transformation within the wider tobacco industry.

Through Project Quantum, our ongoing business simplification and efficiency programme, we aim to achieve a minimum of £1.5 billion of annualised savings by the end of 2022 to invest in new capabilities. Building on Quantum’s success to date, Quest will accelerate our organisational and business transformation programme, driving next generation innovations:

new digital capabilities;
empowering our people; and
enhancing our future sustainability.

Through Quest, we are creating the Enterprise of the Future.

We are attracting new senior talent from a diverse range of industries globally to further enhance our capabilities, which will enable us to deliver on our growth ambitions over the medium to long-term.

18.3mn consumers of our non-combustible products

£1.5bn annualised savings targeted by 2022

>11mn points of sale

>175 markets in which we operate

>150mn daily consumer interactions

Continuing our track record of delivery

Commitment to deliver returns and cash to shareholders

We are confident in our growth outlook, and have a proven track record of performance whatever the external environment.

Over the last 10 years, we have delivered 9% adjusted diluted EPS (at constant rates) and a 6% dividend CAGR and are confident in our medium-term targets of 3-5% revenue growth, increased operating margin and high-single digit adjusted EPS growth (at constant rates).

This will be driven by:

accelerated New Category revenue growth;
continued value growth in combustibles; and
business simplification to eliminate cost and improve returns, to become a stronger, simpler, more agile organisation.

With strong profitability and >90% operating cash conversion and leverage at c.3x adjusted net debt / adjusted EBITDA, we have adopted a more active capital allocation framework to deliver long-term value for shareholders. This will include:

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

High Single Digit medium-term adjusted diluted EPS growth target (at cc)

3-5% medium-term revenue growth target (at cc)

>90% operating cash conversion targeted annually

9% adj. diluted EPS average growth (at cc) over 10 years

6% dividend CAGR over 10 years

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Investing in BAT

Transformation driving sustainable growth