British American Tobacco P.l.c. · LSE:BATS
British American Tobacco P.l.c — CAGNY February 2022
52 slides from British American Tobacco P.l.c's conference presentation, February 2022
Slide 1: Faster Transformation
Building a Better Tomorrow TM Faster Transformation CAGNY February 2022 Jack Bowles | Chief Executive Kingsley Wheaton | Chief Marketing Officer Tadeu Marroco | Finance and Transformation Director 1
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
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: Faster Transformation
Building a Better Tomorrow TM Faster Transformation CAGNY February 2022 Jack Bowles | Chief Executive Kingsley Wheaton | Chief Marketing Officer Tadeu Marroco | Finance and Transformation Director 4
Slide 5: Building A Better Tomorrow
Building A Better TomorrowTM 1 2 3 We have built a With strong brands We are committed high growth >£2bn and proven to shareholder New Category capabilities... returns… business ... …we are confident in …driven by …with the greatest £5bn New Category financial discipline opportunity to revenue & & s
Slide 6: A Step-Change In New Categories
Our 2019 Commitment A Step-Change In New Categories Combustible Simplify the Value Growth Company 6
Slide 7: A Step Change in New Categories
A Step Change in New Categories New Category Adult Consumers of Non- Revenue* Combustible Products** >£2bn 18m 32% 31% CAGR CAGR Doubled Non-Combustible Revenue – accelerating to 12% of Group Revenue 7 CAGR growth over 2018-2021. * At Constant rates. See Appendix A2. ** See Appendix A6.
Slide 8: Supported by Combustible Value Growth
Supported by Combustible Value Growth Combustible Combustible Group Revenue Growth* Value Share Growth Revenue Growth* >3% +20bps >5% Per Annum CAGR Average CAGR 8 Growth over 2018-2021. * At Constant rates. See Appendix A2
Slide 9: And a Simplified Organisation
And a Simplified Organisation Rationalised Reduced Savings Delivered Combustible SKUs* Business Units** 12 months early** -30% -40% £1.3bn 9 *SKU rationalisation 2017-2021. ** Business units 2018-2021 and Quantum savings 2019-2021
Slide 10: We delivered the Pivotal Year in 2021
We delivered the Pivotal Year in 2021 Accelerating New Reducing New Category De-levered to c. 3x adj. Category revenue losses** net debt/adj. EBITDA*** growth 51% c.£100m 2.99x Revenue Reduced Leverage growth* losses** Enabling more active capital allocation Including £2bn Share Buyback in 2022 * Co
Slide 11: Faster Transformation
We are now entering the next phase of our journey New Category revenue New Category Active capital growth and consumer contribution to profit allocation for long- acquisition* growth** term shareholder value Faster Transformation 11 * Constant rate growth. See Appendix A2. Target market for acquisit
Slide 12: We are on track for £5bn New Category revenue and profitability by 2025
We are on track for £5bn New Category revenue and profitability by 2025 2017* 2021 2025 +44% CAGR +25% CAGR £0.5bn £2.1bn £5bn BAT New Category Revenue 12 * on a representative basis, including a full 12 months of results from US acquisition Reynolds.
Slide 13: Driven by strong share growth across our Global Drive Brands
Driven by strong share growth across our 3 Global Drive Brands 33.5% Value Share 18.1% Volume Share 34.7% Volume Share # 1 2 3 CAN UK FRA GER # JPN ITA UKR POL # 1 SWE NOR # US GER ROM CZE 2 RUS # 3 DEN SWZ US # SK Share relates to FY21 share. Vapour value share and THP and Modern Oral volume share.
Slide 14: Our transformation journey has accelerated
Our transformation journey has accelerated Non-Combustible products revenue % SWE JPN UK NOR US RUS 2020 63% 42% 28% 27% 13% 7% 2021 72% 47% 38% 33% 14% 14% 14 Note: % Revenue by market FY 2020, 2021
Slide 15: With additional opportunities Beyond Nicotine
With additional opportunities Beyond Nicotine Consumer 17 investments Areas closed to date Target areas: BOOST Health and Functional Science Sustainability Technology Wellness Products – e.g. Focus, Energize FOCUS & Relax Strategic collaborations, • R&D collaboration • Associate CALM partnerships in
Slide 16: Addressing our core ESG challenges
Addressing our core ESG challenges H Reducing the HEALTH impact of our business E S G Excellence in Delivering a Robust corporate ENVIRONMENTAL positive GOVERNANCE management SOCIAL impact Creating value for all our stakeholders 50 million consumers of £5bn New Category Carbon neutral Net zero value
Slide 17: Well on our way to building A Better Tomorrow
Well on our way to building A Better TomorrowTM Our Purpose Our Commitment To provide adult consumers To reduce the with a wide range of enjoyable and less risky health impact* products* of our business To encourage adult smokers to switch completely to scientifically-substantiated reduced-risk alte
Slide 18: Strong brands and proven capabilities
2 Strong brands and proven capabilities - Confident in our 2025 New Category targets 18
Slide 19: Our multi-category strategy is unique and delivering
Our multi-category strategy is unique and delivering Consumer Consumer Digital Insights Moments Multi-Category Portfolio Consumer Centricity Digitally Product Embedded Satisfaction RGM* Product Index Boundaries Consumer-Centric Multi-Category model 19 * Revenue Growth Management
Slide 20: Greatest opportunity to deliver tobacco harm reduction
And offers the greatest opportunity to deliver tobacco harm reduction Opportunity to Consumers reduce harm* Market taste MULTI- Commercial profiles CATEGORY opportunity STRATEGY Resilience Regulation to regulation Maximises ability to switch smokers, deliver harm reduction and create value 20 * Base
Slide 21: Based on a deep understanding of consumer needs
Based on a deep understanding of consumer needs 1 IDENTITY 2 SATISFACTION 3 REDUCED RISK * Primary • Authentic Tobacco drivers • Premium / Status Taste / Balance • Reduced harm to Self • Modern / Style • Engaging & • Personal Hygiene c.70% • Innovation / Progression Familiar Ritual • Social Consider
Slide 22: Which vary by category
Which vary by category 1 IDENTITY 2 SATISFACTION 3 REDUCED RISK * Primary 35% 30% 12% drivers 23% 20% 17% c.70% 16% 15% 27% THP Vapour Modern Oral 4 AFFORDABILITY 5 FLAVOUR EXPLORATION 6 CONVENIENCE Secondary 5% 5% drivers 11% 14% 18% 9% c.30% 8% 8% 23% 6 Drivers of New Category Conversion 22 Source
Slide 23: We have built three Global Drive Brands
We have built three Global Drive Brands 23
Slide 24: We are embedding ESG in our brands
We are embedding ESG in our brands Focus areas Focus areas Focus areas 24 Source: Company data. Focus areas shown above demonstrate our ESG ambitions for each brand. For more detail on our environmental targets, see Appendix A5.
Slide 25: And driving ESG throughout the business
And driving ESG throughout the business Excellence in Delivering a Robust ENVIRONMENTAL positive GOVERNANCE management SOCIAL impact Carbon-smart >350,000 human Launched new farming rights training training on IMP and programme attendances YAP compliance focused on reducing emissions1 delivered in o
Slide 26: With further strong ESG recognition
With further strong ESG recognition BBB 26.8 91 /100 Supply Chain Top 20 20th consecutive year of DJSI inclusion 26
Slide 27: Extensive Scientific Substantiation supports our products as Reduced Risk
Extensive Scientific Substantiation supports our products as Reduced Risk* Emissions : - 90% >30 yrs of studies show Emissions : - 99%1 Snus is much less risky than to - 95%2 smoking Toxicology : even less Toxicology : - 99%1 Toxicology : - 95%2 harmful than Snus3 We believe Modern Oral Our data is
Slide 28: Governments and institutions are recognising the role of THR
Governments and institutions are recognising the role of THR and responsible regulation 28 Public Health England became the UK Health Security Agency and Office for Health Improvement and Disparities in 2021.
Slide 29: We are leveraging our strengths to accelerate our transformation
We are leveraging our strengths to accelerate our transformation Deep Consumer Insights – Unique Multi-Category One Size Does Not Fit All Portfolio * FMC: Factory Made Cigarette. Source: Volumes split based on BAT internal estimates of industry (Top 40 markets,. excluding China, India) Index based o
Slide 30: Leveraging Digital Capabilities
Leveraging Digital Capabilities 14.2m 64m 3.4bn # 1 in Contactable Adult Total own Potential media reach from Strategic Branded +600m New Category Consumers e-comm visits** partnerships search traffic Increase in adult across T5* for Vuse social followers X3 Profitability +42% +26% v Traditional ret
Slide 31: Strong products are driving improved conversion rates
And strong products are driving improved conversion rates BAT’s active consumers who have stopped regular smoking1 Dec 20 Dec 21 Category5 Conversion2 In the Top 5 THP markets3 44% 52% 53% Conversion2 In the Top 5 Vapour markets4 45% 51% 41% Source: Monthly Kantar tracker data. 1 Active Consumers –
Slide 32: Strong share growth across all Categories
This is driving strong share* growth across all 3 Categories 2021 FY’21 vs. FY’20 2021 FY’21 vs. FY’20 2021 FY’21 vs. FY’20 32.5% +7.6pp 21.2% +1.8pp 11.7% +4.1pp US JPN US 80.4% +34.3pp 19.3% +10.7pp 59.6% +5.8pp CAN RUS SWE 16.9% +2.1pp 12.8% +8.7pp 92.6% -1.3pp UK ITA DEN 45.7% +14.2pp 20.9% +9.9
Slide 33: Successfully prioritising our investments
And successfully prioritising our investments 1 Consumer & Commercial N. America & W. Europe Northern Europe Central & Eastern Europe Opportunity Predominantly Vapour Oral Mixed Usage* 2 Product Satisfaction Index (PSI) Japan & SK 3 Regulatory & Tax/Excise Predominantly Environment THP 4 Distributio
Slide 34: In the US, the focus is vapour
In the US, the focus is vapour THP Modern Oral 1% 0% • Large pool of adult nicotine Vapour 7% consumers • Vapour is the largest New Category Trad. Oral 10% Combustibles • Vapour is expected to be the key 83% driver of New Category value growth over next 5 years* US Industry Nicotine value* by Catego
Slide 35: Vuse has closed a 27 percentage point share gap in just 2 years
Vuse has closed a 27 percentage point share gap in just 2 years 54.4 50.7 Competitor 1 42.7 (27.2) (32.1) (13.6) 36.0 (0.1) +7.6 ppts 35.9 Value share growth 29.1 FY21 V FY20 20.2 23.5 22.3 15.9 8.8 5.1 Disposables Jan 20 Dec 20 Dec 21 35 Value share of total vapour (closed systems) – monthly share
Slide 36: Whilst also achieving profitability in H2 2021
Whilst also achieving profitability* in H2 2021 £326m 50% Revenue £235m £217m CAGR £166m Profitable in H2 2021 H1' 20 H2' 20 H1' 21 H2' 21 H1' 20 H2' 20 H1' 21 H2' 21 Revenue (£m) Category Contribution (£m) 36 Source: Company data. * New Category Profitability at category contribution level: Profit
Slide 37: The transformation is happening in ENA
The transformation is happening in ENA 2021 New Categories Revenue as % of Total Revenue (Selected markets account for >90% of ENA New Category Revenue) 56% 53% 48% 2021 14% 38% 32% 32% 28% 26% 26% 26% 23% 2020 8% 19% 14% 10% 2019 5% ENA FIN KAZ SWE GBR POL NOR AUT ITA DNK FRA UKR CZE RUS CHE 37 Not
Slide 38: Vuse – Value share leader in ENA
Vuse – Value share leader in ENA Vuse #1 Brand in 7 markets* UK FRA GER BEL SWZ DEN CZE Upgraded & Optimised Portfolio 12 E-Comm & 99% Retention 14 Social Media Platforms Achieved in on Vuse Priority Markets** Improved Consumer Experience & Exclusive Digital Services 14 markets migrated from Vype to
Slide 39: glo – Step change with Hyper in ENA
glo – Step change with Hyper in ENA Step change in THP glo national volume share of glo Revenue** £m Performance with total nicotine* market +167% Approaching Hyper Launch c.2% 2% vs FY20 c.10bn sticks RUS ITA UKR GRE POL HUN 364 in 2021 glo national volume share of THP category 136 c.20% c.15% +195
Slide 40: Velo – the clear category leader in ENA
Velo – the clear category leader in ENA Velo Revenue* £m BAT has leadership position in 46% 15 of 17 vs FY20 ENA markets 269 BAT 2021 volume share of Modern Oral 185 in key markets 116 60% 93% 64% SWE DEN NOR 92% 72% 2019 2020 2021 SWZ CZE 40 Note: Source for market/segment share data is Retail Audi
Slide 41: Our multi-category strategy is driving our transformation
Our multi-category strategy is driving our transformation Consumer Consumer Digital Insights Moments Multi-Category Portfolio Consumer Centricity Digitally Product Embedded Satisfaction RGM* Product Index Boundaries Consumer-Centric Multi-Category model 41 * Revenue Growth Management
Slide 42: Committed to shareholder returns through financial discipline & strong cash flow
3 Committed to shareholder returns through financial discipline & strong cash flow 42
Slide 43: In summary we have delivered our Pivotal Year in 2021
In summary we have delivered our Pivotal Year in 2021 Accelerating New Improving New Category De-levered to c. 3x adj. Category revenue growth profitability net debt/ adj. EBITDA^ • 51% Revenue growth* • c.£100m reduction in • 104% Operating cash New Category losses*** conversion • +4.8m Consumers o
Slide 44: Delivering robust results alongside our transformation
Delivering robust results alongside our transformation +6.9% +4.3% +20bps £7.4bn Group Combustibles Cigarette & THP Free Cash Flow*** Revenue* Price/Mix** Value Share^ +51% -0.3% +5.2% +6.6% New Category Combustibles Adjusted Profit* Adjusted Diluted Revenue* BAT Volume from Operations EPS* 44 Share
Slide 45: Reduced losses from New Categories driven by growing scale
Together with c.£100m reduced losses* from New Categories driven by growing scale Improved Trade • Vuse Trade Margins improved by 31% Margin** • Further scale benefits Reduced Cost of • c.£220m productivity savings*** delivered in 2021 Goods • Vuse Cost of Goods reduced by 22% driven by automation •
Slide 46: Delivering the Enterprise of the Future
: Delivering the Enterprise of the Future Quantum Unleash Empowered Shaping Technology & Delivery Innovation Organisation Sustainability Digital Over £1 Bn Total To become a Faster and simpler World-class science Acceleration in Savings technology- organisation; backing our digital, analytics & Deli
Slide 47: We have successfully de-levered driven by strong cash flow
We have successfully de-levered driven by strong cash flow Continued Strong Operating Cash Reduced Leverage to c.3x Conversion* 4.00 -0.4x 101% Avg** Avg 104% 103% 100% 3.51 97% 3.26 2.99 2018^ 2019 2020 2021 2018 2019 2020 2021 Operating Cash Conversion % Adjusted Net Debt / Adjusted EBITDA*** 47 *
Slide 48: We are committed to shareholder returns with £2bn 2022 buyback
We are committed to shareholder returns with £2bn 2022 buyback Cash Flow c.£40bn 5 Year Investing Litigation/ Cumulative in our Fiscal/Regulatory Free Cash Transformation outcomes Flow*** Free Cash Flow* Growing Leverage Bolt-On Share Dividend within 2-3X** M&A Buybacks Active Capital Allocation Fra
Slide 49: Delivering shared stakeholder & shareholder value
Delivering shared stakeholder & shareholder value £5bn New Category Beyond Cumulative 3-5% Group High-Single revenue and Nicotine free cash Revenue Figure profitability by opportunities generation Growth** EPS^ growth 2025* c.£40bn*** Medium term outlook * Profitability at category contribution leve
Slide 50: Transforming BAT into a Multi-Category CPG
Transforming BAT into a Multi-Category CPG with greater societal acceptance From To Multi-category CPG Cigarettes Nicotine & Beyond* And And Declining Volume Growing Volume Growing Value & Value Building A Better TomorrowTM 50 *Beyond refers to Wellbeing & Stimulation Beyond Nicotine. Expected targe
Slide 51: Faster Transformation
Building a Better Tomorrow TM Faster Transformation CAGNY February 2022 Jack Bowles | Chief Executive Kingsley Wheaton | Chief Marketing Officer Tadeu Marroco | Finance and Transformation Director 51
Slide 52: Appendix
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
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