British American Tobacco P.l.c. · LSE:BATS
British American Tobacco P.l.c — FY2022 Earnings Presentation
60 slides from British American Tobacco P.l.c's earnings presentation, February 2023
Slide 1: New Category Acceleration Drives Profitability Forward to 2024
New Category Acceleration Drives Profitability Forward to 2024 Preliminary Results 2022 Jack Bowles – Chief Executive | Tadeu Marroco – Finance and Transformation Director
Slide 2: Important Information
Important Information The information contained in this presentation in relation to British American Tobacco p.l.c. (“BAT”) and its subsidiaries has been prepared solely for use at this presentation. The presentation is not directed to, or intended for distribution to or use by, any person or entity
Slide 3: Important Information (continued)
Important Information Forward-looking Statements (continued) 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 obtain
Slide 4: We are Delivering on Our Three Priorities
We are Delivering on Our Three Priorities A Step Change in New Categories Combustible Value Growth Simplify the Company 4
Slide 5: On Track to Achieve 50m Non-Combustible Consumers by 2030
We are Well on Track to Achieve 50m Consumers of Non-Combustible Products by 2030 22.5m 30% 22.5 2018-2022 CAGR 18.3 13.5 10.5 8 2018 2019 2020 2021 2022 Consumers of Non-Combustible products* Source: Company data. * See Appendix A6. 5
Slide 6: £5bn New Category Revenue by 2025
…and £5bn New Category Revenue by 2025 2.9bn 33% 2,894 2018-2022 NC Revenue CAGR Non-Combustible 2,054 % of Group Revenue 14.8% 1,443 +2.4 ppts* 1,255 917 2018 2019 2020 2021 2022 Source: Company data. *Growth versus FY21. 6
Slide 7: We Have Built Two Billion Pound Global Brands
We Have Built Two, Billion Pound Global Brands* Vuse #1 glo Outpacing Velo #1 in 15 markets Global value share** category growth^ in Europe^^ * Vuse and glo FY22 revenue. **Vapour value share across Top 5 markets : US, Canada, UK, France, Germany. T5 represent 88% of Vapour industry revenue (recharg
Slide 8: Embedding ESG Across Our Brands
… and We are Embedding ESG Across Our Brands IMPROVING PACKAGING REDUCING DEVICE TAKE-BACK RECYCLABILITY CARBON SCHEME OPTIMISING REDUCING SUPPORTED BY PRODUCT DESIGN PLASTIC SCIENCE FOR CIRCULARITY See Appendix A5. 8
Slide 9: Accelerating our ESG Agenda across the Business
We are Accelerating our ESG Agenda across the Business E S G 33 36 % % 41 100 % % 1 100 st % 2022 Renewable Operations Female Identified child Chief SoBC training highlights energy sites AWS representation in labour incidents Sustainability & Compliance use* certified** management resolved^ Officer
Slide 10: Transforming at Speed in Our Established Markets
We are Transforming at Speed in Our Established Markets Non-Combustible products revenue % FY22* SWE JPN UK POL NOR 74% 52% 46% 43% 41% EUROPE** ~20% FRA DEN ITA US CAN 41% 40% 38% 17% 15% * Revenue from Non-Combustible products as a % of total revenue in each respective market. ** Reflects Group’s
Slide 11: Driving Strong Improvement in Category Contribution
… Driving Strong Improvement in Category Contribution New Category Contribution (£bn) 2020 2021 2022 -0.4 While investing -1.0 -1.1 >£2bn in 2022 +£0.7bn* New Category Profitability Now Expected in 2024 * Improvement versus FY20 at constant rates at category contribution level: Profit from operation
Slide 12: Combustible Value Growth Continues to Fuel our Transformation
Combustible Value Growth Continues to Fuel our Transformation Group Adjusted Revenue Value Share SKU Profit From Operations Growth* Growth*** Rationalisation Growth** 2.7% 5.2% +20 bps -26% CAGR CAGR p.a. SKUs (2018-22) (2018-22) (2018-22) (vs 2018) * On a constant rate basis. See Appendix A2. See A
Slide 13: £1.9bn Annualised Savings Achieved through Simplification
… Alongside £1.9bn Annualised Savings Achieved through Simplification £1,884m +£629m £1,255m +£595m £660m 2020 2021 2022 Significantly Outperforming Our Initial £1bn Target 13
Slide 14: Driving Strong Cash Delivery
…Driving Strong Cash Delivery Free Cash Flow pre dividends* £8.0bn 8,049 £7.5bn £7.3bn 7,295 7,447 c. 30% of market cap returned through £6.5bn dividends to shareholders 6,519 2019 2020 2021 2022 4 consecutive years of at least 100% Operating Cash Conversion** 14 * Free Cash Flow before payment of d
Slide 15: Attracting New Capabilities to Accelerate Transformation
We Continue to Attract New Capabilities to Accelerate Our Transformation 3,000+ new capability hires Senior hire turnover* since 2019 below market norm** 47% Female* Market Norm (within 2yrs of hire): 35% - 40% 33% 26% 1,091 Hires in Hires in 569 1,050 2015-2016 2019-2020 703 2019 2020 2021 2022 Rec
Slide 16: Continued Strong Momentum in 2022
With Continued Strong Momentum in 2022 2022 highlights Step Change in New Categories +37% £0.6 bn Revenue growth* Contribution improvement** Combustible Value Growth +4.6% Flat Combustibles Cigarette Price/Mix*** Value Share^ Simplify the Company £1.9bn £8.0bn Annualised Quantum Free Cash Flow^^ sav
Slide 17: 2022 Delivering on Guidance
2022 Delivering on Guidance Finance and Transformation Director – Tadeu Marroco
Slide 18: In 2022, We Continued to Transform and Deliver
In 2022, We Continued to Transform and Deliver… Transforming Delivering robust Successfully our business financial results navigating the macro-environment 18
Slide 19: 2022 Reported Results Impacted by One-off Items
2022 Reported Results Impacted by One-off Items* +7.7% Group Revenue -170 bps Group Operating Margin Reported results most significantly impacted by impairment of Russian and Belarusian assets, +2.8% restructuring charges and Profit from Operations -1.3% Diluted EPS other litigation * Results presen
Slide 20: Adjusted Results Demonstrate Our Resilience
Adjusted Results Demonstrate Our Resilience +2.3% +4.6% Flat £8.0bn Group Combustibles Cigarette & THP Free Cash Flow*** Revenue* Price/Mix** Value Share^ +37% + 150 bps +4.3% +5.8% New Category Adjusted Operating Adjusted Profit Adjusted Diluted Revenue* Margin^^ from Operations* EPS* Share growth
Slide 21: Our Multi-Category Strategy is Working
Our Multi-Category Strategy is Working… >25% Revenue Growth* Across All Three New Category Brands *** • Revenue* up +44% • Revenue* up +27% • Revenue* up +46% • Volume up +14% • Volume up +26% • Volume up +22% • Category Share** 35.9% • Category Share** 19.4% • Category Share** 30.4% Growth FY22 ver
Slide 22: Vuse Extending Global Leadership
Vuse Extending Global Leadership** + 250bps • Vapour revenue up 44%*, ahead of 14% Value share volume growth growth FY22 vs FY21 • Vuse extends US leadership; leading in 35 states with total Vapour value share of 40.9%, up 8.4 ppts 35.9% 33.5% • Continued value share leadership of closed systems***
Slide 23: Modern Disposable Segment Accelerating Vapour Category Growth
Modern Disposable Segment Accelerating Total Vapour Category Growth Vuse Go Total Vapour +30% • Positioned with premium pricing • Very limited cannibalisation • Already #2 value share in the UK, FRA, GER, SA • Take-Back scheme for devices Modern Disposables +158% • Youth Access Prevention controls R
Slide 24: glo Continues to Make Category Share Gains
glo Continues to Make Category Share Gains + 140 bps • glo revenue up 27%* with sequential growth Volume share growth accelerating in H2 FY22 vs FY21 • glo consumables outpacing industry volume growth 1.7 times 19.4% 17.9% • glo pricing increased while maintaining volume share of THP category 12.4%
Slide 25: glo Hyper X2 Delivering Positive Early Results in Japan
glo Hyper X2 is Delivering Positive Early Results in Japan • Already reached 1 million device sales • Added c.400k+ new consumers • Building positive sentiment driven by design, style, usability and colours • Further price laddering with New Lucky Strike consumables range launched in Nov’22 • Velo c
Slide 26: Velo's European Leadership Continues
Velo’s European Leadership* Continues; now Unlocking Emerging Markets 69% Volume share • Modern Oral revenue up 46%** ahead of stable volume growth of 22% FY22 vs FY21 • Velo’s European volume share leadership in 69.5% 68.8% Modern Oral stable at 69%* 65.7% 62.1% • Velo remains volume share leader i
Slide 27: Pakistan is Already our Third Largest Velo Market
Pakistan is Already our Third Largest Velo Market* Consumer-centric Engaging digital Innovations driving Fast scale up with local positioning approach growth production 7x Revenue growth since 2020** 2020 2021 2022 340k Velo consumers +30m audience reach Flavours delivering +20% sales Lowest Velo CO
Slide 28: Exploring Opportunities Beyond Nicotine
And we are Exploring Opportunities Beyond Nicotine… SCIENCE R&D M&A* + + Connecting our ecosystem to amplify USA CAN GER the sum of the parts Building an Ecosystem of Capabilities * M&A in 2022 refers to a non-controlling minority stake in Sanity Group and an investment in Charlotte’s Web. 28
Slide 29: Combustibles Delivered a Resilient Performance
Combustibles Delivered a Resilient Performance Flat -20 bps +10 bps Combustibles Combustibles US Value Share* Value Share* Volume Share* -5.2 % +4.6 % -0.6 % Combustibles Combustibles Combustibles Volume Price/Mix** Revenue*** Financials growth FY22 versus FY21 * Share growth versus FY21. Cigarette
Slide 30: All Four Regions Contributing to Results
All Four Regions Contributing to Results New Category Combustible Adjusted Profit FY2022 Revenue* Revenue* Value Share** from Operations* Europe +7.0% +42.7% -10bps +7.5% APME +7.7% +10.1% +10bps +3.0% AmSSA +4.7% +47.5% -60bps +4.3% US -2.8% +51.6% +10bps +3.5% Group +2.3% +37.0% Flat +4.3% Financi
Slide 31: US: Excellent Vuse Performance Offset by Macro Headwinds
US: Excellent Vuse Performance Offset by Macro Headwinds in Combustibles • Total Nicotine value share 37.2% up 40bps** +52 -2.8 +10 • Vuse value share leadership at 41%*** • Leader in 35 states % % bps • 46% revenue growth* • Strong category contribution growth New Category US Total Revenue Growth*
Slide 32: US: 2023 Performance Expected to be H2 Weighted
US: 2023 Performance Expected to be H2 Weighted Strong Macro-Economic Headwinds in 2022 Early Signs of Recovery for 2023 Record high 8% 9.1% Gas prices +30% -2% Avg. 2022 vs. inflation Avg. 2022 Peak June 22 stabilising avg. 2021 Dec 22 vs. Dec 21 Source: Oxford Economics Source: U.S. Energy Informa
Slide 33: Strong Group Operating Margin Expansion
Strong Group Operating Margin Expansion: Successfully Offsetting Increasing Inflation +1.5 pts + 150 bps Margin Margin Improvement** improvement 2021 Adjusted Price/mix* and Incremental Transactional FX 2022 Adjusted Operating Margin Operational Efficiencies New Categories Operating Margin** (Rest o
Slide 34: Building a Commercially Sustainable New Category Business
…While Building a Commercially Sustainable New Category Business Scale benefits Reduced 60% £578m 2022 c. Cost of Goods Key profit Pricing, Lower Trade Improvement in drivers New Category Margins** & Data c. 40% Analytics contribution* Powered by RGM & MSE*** On Track to Deliver New Category Profita
Slide 35: Quantum Delivered £1.9bn Annualised Savings 2020-2022
Quantum Delivered £1.9bn Annualised Savings 2020-2022 with £629m Delivered in 2022 Alone Quantum 1 Quantum 2 Quantum 3 Digitally-enabled Fit-for-Future commercial capabilities New global Simpler Leaner Leveraging design processes HQ GBS principles End Market Operating Model Revenue Growth Marketing
Slide 36: EPS Growth up 5.8% at Top End of Guidance
EPS* Growth up 5.8% at Top End of MSF Guidance +5.8% +12.9% + 5.8% Adjusted diluted EPS* growth 2021 Adjusted Net Associates Taxation Non- Diluted 2022 at FX 2022 at profit from finance controlling number constant impact current operations costs interests of shares FX FX * Adjusted diluted EPS at co
Slide 37: Continued Strong Operating Cash Conversion
Continued Strong Operating Cash Conversion Strong Operating Cash Short Term Bond Maturity Leverage Reduced to 2.9x Conversion* Profile Adjusted net debt / £ in billions adjusted EBITDA** 103% 104% 100% 4.2 4.4 3.26 2.5 2.99 2.89 FY20 FY21 FY22 FY20 FY21 FY22 Due'23 Due'24 Due'25 £1.8bn Hybrid Bond**
Slide 38: Unprecedented Global Interest Rate Environment
2022 Saw an Unprecedented Global Interest Rate Environment Policy rate forecasts Forecast % Fed funds target rate 5 ECB deposit rate 4 Bank of England Bank Rate 4.0% BAT average 3 cost of debt 2 1 0 -1 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Source: Oxford Economics/Haver Analytics 38
Slide 39: Active Capital Allocation Framework for 2023
We are Maintaining an Active Capital Allocation Framework for 2023 Cash Flow Investing Litigation/ in our Fiscal/Regulatory Transformation outcomes Free Cash Flow* Growing Leverage Bolt-On Share Dividend within 2-3X** M&A Buybacks +6% Dividend Growth and Further Deleverage * Free cash flow before di
Slide 40: FY 2023 Group Guidance
FY 2023 Group Guidance 3-5% 2023 performance reflects Organic Revenue Growth* (Excluding Russia/Belarus)** expectations of: • Incremental New Category investment Mid Single Figure • Rising interest costs Adjusted Diluted EPS Growth*** • H2’23 weighted US performance • c.2% transactional FX headwind
Slide 41: 2022 Continued Delivery in a Challenging Macro-Environment
2022 Continued Delivery in a Challenging Macro- Environment 2022 highlights Transforming our +37% £0.6 bn business Revenue growth* Contribution improvement** Delivering robust +2.3% +5.8% financial results Revenue growth* Adjusted diluted EPS growth*** Successfully navigating £1.9 bn +150 bps the ma
Slide 42: Taking BAT Strategy to the Next Level
Taking BAT Strategy to the Next Level Chief Executive – Jack Bowles
Slide 43: New Categories are Accelerating
New Categories are Accelerating We are delivering… Strong momentum in New Categories Increasing investment • 33% revenue CAGR last 4 years • >£2bn New Category investment 2022 • Losses reduced by c.£600m in 2022* • Increased investment expected in 2023 • Inflection point in model … and getting fit f
Slide 44: Nicotine Industry Revenue Growth Forecast at +3.5% CAGR
Nicotine Industry Revenue Growth Forecast at +3.5% CAGR 3.5 % CAGR £111 £107 £104 £96 £100 130m CAGR New Category Consumers By 2025 CAGR 2021 2022 2023 2024 2025 Total Nicotine Industry Revenue (Bn)* Combustibles + Traditional Oral New Categories With c.75% Industry Growth from New Categories Source
Slide 45: Driven by Growing Interaction with New Categories
Driven by Growing Interaction with New Categories % of daily smokers interacting with New Categories 35.0% 26.4% 12.2% 7.9% 5.2% 2.7% 2019 2022 2019 2022 2019 2022 Established New Category Markets* All other Combustibles Markets Global Differing by New Category Market Maturity Source: KANTAR Inciden
Slide 46: Supported by NC Shift across Demographics
….and Supported by NC Shift across Demographics Increased New Category Usage by Age Cohort in Established NC Markets (%) Adult nicotine Across Top markets* NC Established Markets** consumers NC > 25% of Nic 15% 16% 22% 27% 55% 55% 62% 72% Min legal 85 84 78 73 45 45 38 28 age-30 FMC Solus*** 2019 20
Slide 47: New Category Poly-Usage is Increasing Fast
New Category Poly-Usage* is Increasing Fast Strong Vapour + THP CAGR** Net of poly-usage* poly-usage* growth 87 Total NC c.5m (+60% CAGR**) 18% 74 60 62 Vapour 16% 51m 55 54 Vapour 41 43 5.0 m 21m 26 THP 25% THP 21 6.5m 17 13 10 11 MO 73% Modern 7 Poly-Usage Oral 3 12 NC 83% 4.0m 6 10 4.2m 2 2019 20
Slide 48: Taking BAT Strategy to the Next Level: Fit For Growth
We are Taking BAT Strategy to the Next Level Fit For Growth Optimal Regional & Guide Strategic Choices Comprehensive DRBU Realignment* and Resource Allocation Market Review STEP-CHANGE IN NEW CATEGORIES From 4 to 3 Regions 6 market archetypes c.30 Expected market exits From 16 to 12 DRBUs New operat
Slide 49: Optimal Regional & DRBU Realignment
Leading to an Optimal Regional & DRBU Realignment Pre Quantum Fit for Quantum 1-3 Growth Global Global Global 4 Regions 4 Regions 3 Regions 28 DRBUs 16 DRBUs 12 DRBUs With c.30 Expected Market Exits, and >20bn Fewer Cigarettes 49
Slide 50: Guiding Strategic Choices Through Market Archetypes
Guiding Strategic Choices & Resource Allocation Through Market Archetypes 1 2 3 4 5 6 Drive NC & Market Combustibles Drive Drive NC & Simplify & Extract Multi-category Protect Archetype Value Growth Combustibles Maximise Value Value from Growth Combustibles & Prepare for NC Value & Grow NC from Comb
Slide 51: Getting Fit for High Quality Sustainable Growth
Getting Fit for High Quality Sustainable Growth New Operating Accelerated Model for Shared Product and Service Marketing Delivery Highly Global Efficient & Further Process Effective Simplification DRBU Local & End Markets Globally Developed, Locally Deployed 51
Slide 52: We are building A Better Tomorrow
We are building A Better Tomorrow TM From To Multi-Category CPG Cigarettes Nicotine & Beyond* Declining Volume Growing Volume Growing Value & Value 50 million consumers of Carbon neutral £5bn New Category Revenue Non-Combustible** operations Net zero value chain <1% waste from direct operations 2025
Slide 53: Full Year 2022: Q&A
Full Year 2022: Q&A Jack Bowles – Chief Executive | Tadeu Marroco – Finance and Transformation Director
Slide 54: Group Results excluding Russia/Belarus – FY22
Group Results excluding – Russia/Belarus – FY22 Total Group excluding Group excluding Growth excluding Group Growth Russia/Belarus Russia/Belarus Russia/Belarus FY22 v FY21 FY22 FY21 FY22 v FY21 Volume 581bn 608bn -4.5% -4.2% FMC & THP (£ Millions) (£ Millions) Revenue* 25,460 25,011 +1.8% +2.3% NC
Slide 55: Vuse value share across Top 5 Markets
Vuse value share across Top 5 Markets* Continued closed system momentum across Key Vapour Markets** (88% of Industry Revenue (rechargeables and disposables) US Canada UK France Germany 65.1% 57.7% 88.0% 91.8% 86.7% 62.0% 81.4% 37.6% 36.6% 49.1% 45.2% 45.8% 35.4% 42.8% 38.4% 10.7% 9.1% 14.3% 1Q22 2Q2
Slide 56: glo share of Cigarettes + THP across Key Markets
glo share of Cigarettes + THP across Key Markets* glo volume share across key markets** (80% of THP Industry Revenue) Japan Italy South Korea Poland Czech Rep +0.6 ppts +0.8 ppts +0.6 ppts +2.2 ppts +1.3 ppts YTD YTD YTD YTD YTD 2.8% 2.1% 2.1% 3.8% 2.5% 7.5% 2.5% 7.5% 3.3% 1.6% 1Q22 2Q22 3Q22 4Q22 1
Slide 57: Velo: Continued International Leadership
Velo: Continued International leadership* Velo Volume Share Across Key Markets** (80% of Industry Revenue) USA Sweden Norway Denmark Switzerland 93.8% 92.1% 93.6% 63.3% 63.5% 91.4% 87.2% 86.7% 66.1% 58.9% 22.5% 57.6% 7.2% 60.1% 20.1% 12.4% 4.9% 9.6% 1.6% 1.4% 1Q22 2Q22 3Q22 4Q22 1Q22 2Q22 3Q22 4Q22
Slide 58: Top BAT Market Volume Share Movements (1)
Top BAT Market Volume Share Movements* (1) SOM FY22 Movement SOM FY22 Movement Market Market (%) (ppt) (%) (ppt) 39.9 (0.5) Greece 12.7 0.5 Australia 84.5 (1.0) Hungary 24.1 (0.6) Bangladesh 24.9 (0.3) Italy 17.8 0.0 Belgium 71.9 (2.0) Japan 20.1 0.0 Brazil 46.3 (1.0) KSA 27.7 0.4 Canada 96.4 (0.4)
Slide 59: Top BAT Market Volume Share Movements (2)
Top BAT Market Volume Share Movements* (2) SOM FY22 Movement SOM FY22 Movement Market Market (%) (ppt) (%) (ppt) Romania 50.4 (1.0) Taiwan 11.4 0.1 Russia 23.6 0.1 UK 8.2 0.2 South Africa 65.8 (0.2) Ukraine 26.7 0.2 South Korea 12.0 (0.2) USA 34.1 (0.3) Spain 10.3 0.3 Switzerland 32.8 (0.4) 59 * Cig
Slide 60: Appendix: Definitions
Appendix A1: Adjusting (Adj.) Adjusting items represent certain items which the Group considers distinctive based upon their size, nature or incidence. A2: Constant currency Constant currency – measures are calculated based on the prior year's exchange rate, removing the potentially distorting effec
British American Tobacco p.l.c. — FY2022 Earnings Presentation on 6ix