British American Tobacco P.l.c. · LSE:BATS
British American Tobacco P.l.c — Investor Day (March 2019)
44 slides from British American Tobacco P.l.c's investor day presentation, Mar 14, 2019
Slide 1: Investor Day | 14 March 2019
——EEE BRITISH AMERICAN TOBACCO Investor Day | 14 March 2019 * ae RANSFORMIN ACCELERATING DELIVERY —
Slide 2: U.S. | A Growing Business for an Exciting Future
U.S. | A GROWING BUSINESS FOR AN EXCITING FUTURE RICARDO OBERLANDER | PRESIDENT AND CEO U.S.
Slide 3: 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 4: 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 to be filed on 15 March 2019 and Current Reports on
Slide 5: Ricardo Oberlander, President & CEO
RICARDO OBERLANDER PRESIDENT & CEO - RAI 28Yrs to edit Master title style Click Industry Americas Europe & Regional Director Asia Focus Americas experience Head of General Multi-- GDB Presenter Manager, Name Brand Regional France Marketing Portfolio 24
Slide 6: Our way forward
Our way forward 1 We are confident in our multi-category strategy and brand portfolio 2 Our combustible market will remain large and profitable 3 The Oral Tobacco market is highly profitable and beginning to transform 4 We are excited about Vuse, Alto, and the evolving Vapour category 5 Next phase o
Slide 7: Our Strategy for Growth
RANSFORMING isis to) ACCELERATING DELIVERY a
Slide 8: Key trends are driving adult tobacco consumer choice
Key trends are driving adult tobacco consumer (ATC) choice Changing Value and Seeking Freshness Digital Demographics Values Alternatives and Flavour Connectivity The demographic ATCs increasingly ATCs are looking Across tobacco, Connected profile of the care about origin for alternatives flavour tas
Slide 9: Our sustainable strategy is underpinned by our choices
Our sustainable strategy is underpinned by our choices Ensuring our SUSTAINABLE LEADERSHIP A business POSITION: BUILT ON VALUE A focus on A winning WINNING BRANDS ATC PROFILE With a MULTI- CATEGORY Maximising profitability in Innovating in Accelerating growth in portfolio: COMBUSTIBLES SMOKELESS VAP
Slide 10: Our winning multi-category portfolio
Our winning multi-category portfolio
Slide 11: Our results prove the success of our multi-category strategy
Our results prove the success of our multi-category strategy Goal: Lead the overall tobacco products market over the long term and deliver sustainable value growth to BAT’s shareholders GROWTH METRICS 130 135 126 112 100 189 198 210 143 100 2014 2015 2016 2017 * 2018 Adjusted Income (indexed on 2014
Slide 12: We are confident that our pipeline will unlock future value
We are confident that our pipeline will unlock future value NEW OPPORTUNITIES FOR GROWTH, EXPANSION AND INNOVATION ACROSS THE PORTFOLIO:
Slide 13: The U.S. Tobacco Products Market
The U.S. Tobacco Products Market
Slide 14: A substantial, dynamic and growing multi-category market
A substantial, dynamic and growing multi-category market TOBACCO PRODUCTS IS A £32bn MARKET U.S. Tobacco Revenue Category Breakdown, 2018 U.S. Tobacco Market Revenue (bn) CAGR +3% £31.5 Vaping £29.0 £30.0 £30.3 £2.6 Smokeless £1.5 £1.9 £1.8 Combustibles £2.6 £2.8 £3.0 £2.4 Combustibles £25.9bn £25.1
Slide 15: Category Review: Combustibles
Category Review COMBUSTIBLES
Slide 16: U.S. combustibles market remains large and highly profitable
Despite a continued and slow decline in volumes, the U.S. combustibles market remains large and highly profitable VALUE HAS REMAINED STRONG: DECLINES EXPECTED TO STABLISE: THE DRIVERS ARE KNOWN: Combustibles Industry Price Mix % Combustibles Industry Volume Decline Drivers of YoY Decline (shipments
Slide 17: We have a clear understanding of the drivers of volume change
We have a clear understanding of the drivers of volume change U.S. CIGARETTE INDUSTRY VOLUME DRIVERS, 2018 +2.6% --1.9% --3.5% to- -4.5% --4.2% --0.2% --0.7% --0.3% --4.7% * Impact of SET * Gasoline to Q1 only, * 3% annual list prices expected three quarters price increase to be ~20% of lap FY (assu
Slide 18: Our combustibles brand portfolio is ideally configured to compete
Our combustibles brand portfolio is ideally configured to compete and capture value in the U.S. U.S. BUSINESS IS WINNING IN VALUE: VALUE GROWTH ACROSS U.S. DRIVE BRANDS: U.S. DB Value Share of Total Combustibles NAS has shown impressive market share gains, 36.3% growing in 49 states, with a 162 ASU3
Slide 19: Our Drive Brands continue to gain in market share
Our Drive Brands continue to gain in market share STR SHARE OF MARKET STR SHARE OF MARKET CHANGE, 2017-18 U.S. Premium Drive Brands Marlboro 2017 2018 Change 2.4% 2.6% +20 bps 42.8% 42.7% 42.4% 42.2% 14.2% 14.3% +10 bps 25.2% 24.9% 8.3% 8.3% 0 bps 24.4% 23.7% Marlboro 42.4% 42.2% -15 bps 2015 2016 2
Slide 20: Our brands index favourably in both margin and price mix
Across the portfolio, our brands index favourably in both margin and price mix PREMIUM POSITIONING OF OUR BRANDS: ROBUST PRICE MIX VS INDUSTRY U.S. Drive Brands Average Pack Price, 2018 Combustibles Price Mix 12.0% £5.77 Industry U.S. Portfolio £5.02 8.8% Marlboro £4.86 6.4% 6.0% 5.2% 5.4% £4.80 4.4
Slide 21: And favourably in adult tobacco consumer demographics
And favourably in adult tobacco consumer demographics HIGH ASU35 SHARE OF U.S. BRANDS: DIVERSE ETHNIC PROFILE: We grew 170 bps over the last year Ethnic Profile of ATCs, 2018 42.5% African- 40.8% Caucasian American Hispanic Other 38.9% 38.2% 37.0% Industry 64% 13% 16% 7% 35.2% 34.0% 34.6% 68% 5% 17%
Slide 22: We continue to strengthen relevance among ASU35
We continue to strengthen relevance among ASU35 41
Slide 23: More about menthol…
More about menthol… A STRONG POSITION: Superior adult smoker understanding Strong marketing capabilities Strong brand equity and differentiation Experience from other countries High brand loyalty among core franchise Believe in science-based regulation Lower menthol loading on best selling styles Ag
Slide 24: Category Review: Oral
RANSFORMING isis to) ORAL ACCELERATING DELIVERY —
Slide 25: The Oral segment is 10% of the U.S. tobacco market
The Oral segment is 10% of the U.S. tobacco market U.S. ORAL SEGMENT BREAKDOWN, 2018 8% Vapour 95% Moist 4% 82% Snus Cigarettes Oral 1% 10% Modern Oral Source: Company data
Slide 26: Oral tobacco is well-established and continues to grow
Oral tobacco is well-established and continues to grow STRONG GROWTH IN THE CATEGORY: WITH AN ATTRACTIVE ATC PROFILE: Oral Tobacco Industry Revenue (bn) Adult Oral Tobacco Consumers Index to Adult Smokers CAGR £3.0 +7.8% £2.8 Age 85 £2.6 £2.4 Income 150 College 135 › ASU35 › More Affluent › More Edu
Slide 27: In traditional oral, we continue to see share gains
In traditional oral, we continue to see share gains TOTAL ORAL CONTRIBUTING GRIZZLY GROWING SHARE: A HIGH MARGIN BUSINESS: STRONG PROFIT: Grizzly Value Share of Moist Gross Profit Margin, U.S. Oral Portfolio U.S. Oral Gross Profit Margin 28.0% 78.8% 27.5% 75.2% 73.0% 73.6% 25.9% 26.2% 25.4% 70.9% 79
Slide 28: Shifting trends creating new oral category opportunities
Shifting trends and adult tobacco consumer preferences are creating new oral category market opportunities TRADITIONAL ORAL EXPANDING ORAL BOUNDARIES › Homogenous Demographics › Multiculturalism › Skews Rural & Blue Collar › Rise of Female Work Force › Visceral Masculinity › Masculinity Redefined ›
Slide 29: Our expanding product pipeline in the oral category
Our expanding product pipeline positions us as a leading innovator in the oral category EXISTING Segment EMERGING Segment INCLUDES TOBACCO LEAF LEAF FREE TOBACCO POUCHES NICOTINE POUCHES
Slide 30: Camel SNUS | Reinforcing our category leadership
Camel SNUS | Reinforcing our category leadership › Potential to launch first MRTP advertising in the category to add a relative risk benefit for adult smoker consideration › Contemporized retail and brand activation campaign to increase awareness and trial Potentially Reduced Risk Product Communicat
Slide 31: High confidence in our Modern Oral products
High confidence in our Modern Oral products OVERALL LIKING AND PURCHASE INTENT KEY PRODUCT MEASURES 37% 33% 34% VELO Zyn On! Appearance 36% 28% 34% (%T2B) Uniqueness 51% 42% 41% (%T2B) 62 Expectations (%Exceeded) 36% 24% 26% 57 55 Satisfying Experience 69% 57% 56% (%T2B) VELO Zyn On! Recommend to AT
Slide 32: VELO | White Nicotine Pouch Offering
VELO | White Nicotine Pouch Offering Neat & Unique Choice Available in a 4mg and 2mg Pouch › Product testing validated superior performance versus competitors, including current market leader › Planned summer geographic rollout with disruptive campaign, digital activation, and ATC engagement platfor
Slide 33: Category Review: Vaping
RANSFORMING isis to) Category Review VAPING ACCELERATING DELIVERY —
Slide 34: The U.S. vaping market is still forming
The U.S. vaping market is still forming A FORMING CATEGORY… … WITH CLEAR OPPORTUNITY FOR GROWTH: Vapour Value Share of Total U.S. Vapour Industry Revenue (bn) Tobacco Products Market, 2018 Vaping, £2.6 8% £1.9 £1.8 £1.5 Traditional 2015 2016 2017 2018 tobacco, 92% During the last 5 years, there have
Slide 35: We anticipate consolidation of the market due to the PMTA deadline
We anticipate consolidation of the market due to the PMTA deadline ~$1.0bn CONTESTABLE SPACE GOING FORWARD: 2021/2 Now Future › We anticipate PMTA will be a significant hurdle for many current players, opening up contestable space › We have a strong track record of successful management of regulator
Slide 36: In vaping, Vuse continues to grow contribution
In vaping, Vuse continues to grow contribution STRONG REVENUE GROWTH YEAR-ON-YEAR: - - Vuse Revenue Index 234 › Consistent revenue growth 195 › +19% volume growth despite Vibe market withdrawal and competitive moves 151 › Alto phased expansion began in Sep-18 100 › Vibe market re-entry began in Oct-
Slide 37: We are confident in the future potential for Vuse
We are confident in the future potential for Vuse Share of Consumable Kits (Monthly), 2018-19 - Vuse 69.2% ALTO 68.4% Juul 57.6% 55.2% 53.2% 51.7% 48.0% 49.0% 46.1% 46.8% 47.5% 42.7% 34.5% 27.7% 29.3% 21.0% 23.3% 20.2% 17.4% 16.9% 15.3% 13.8% 14.2% 12.5% 11.1% 9.9% 10.6% 8.8% 4.6% 5.2% 1.4% 2.4% Feb
Slide 38: Strong early performance for Alto
Strong early performance for Alto CONSISTENT OFF TAKE GROWTH THROUGH DISTRIBUTION EXPANSION: ALTO Share of Consumable Kits, 2018-19 - ALTO Share of Cartridges and ml, 2018-19 - 10.6% 6.9% 8.8% 5.5% 4.0% 5.2% 4.6% 3.0% 3.1% 2.5% 2.4% 1.8% 1.8% 1.3% 1.4% 0.8% 0.7% 0.3% Sep Oct Nov Dec Jan Feb Sep Oct
Slide 39: Alto's product testing results indicate its competitive strength
Alto’s product testing results indicate its competitive strength OVERALL LIKING AND PURCHASE INTENT PERFORMANCE AND DERIVED IMPORTANCE 66% Alto JUUL 55% Very consistent vapour 77% 56% Cartridges are long lasting 92% 75% 81 79 Long lasting battery 84% 77% A quiet draw 88% 70% Latest in vaping technol
Slide 40: We have exciting marketing plans to engage adult tobacco consumers
We have exciting marketing plans to engage adult tobacco consumers Pack Inserts
Slide 41: Summary and Outlook for the U.S.
Summary and Outlook for the U.S.
Slide 42: Next phase of integration into the global enterprise has commenced
Next phase of integration into the global enterprise has commenced 1 $400M synergies are well on track 2 We are aligning strategic agendas across the Group 3 We are establishing global Centers of Excellence in the U.S. 4 Marketing practices, insights, R&D, and product pipeline are being aligned
Slide 43: Our outlook is strong
Our outlook is strong A T R A C K R ECO R D O F S U C C ES S CO N F IDENC E I N T H E F U TU R E #1 in Premium Growth Profitability of the U.S. Market #1 in Menthol Continued Growth in Vapour #1 in ASU30 Share Innovative Modern Oral Products Ready to Expand #1 in Growing Moist Segments Exciting Pipe
Slide 44: We will be a leader in the transformation of the U.S. market
We will be a leader in the transformation of the U.S. market into the future Power of BAT Group Strong Regulatory Capabilities Proven Multi-Category £ Strategy Focus on Driving Value
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