British American Tobacco P.l.c. · LSE:BATS
British American Tobacco P.l.c — Morgan Stanley Consumer Retail Conference 2008
32 slides from British American Tobacco P.l.c's conference presentation, November 2008
Slide 1: Morgan Stanley Consumer Retail Conference
Morgan Stanley Consumer Retail Conference New York November 2008
Slide 2: Important information
Important information This presentation has been prepared by British American Tobacco p.l.c. ("British American Tobacco") for information purposes only and does not constitute, or form part of any offer or invitation to acquire, or any solicitation of any offer to acquire any securities of British A
Slide 3: Ben Stevens, Finance Director
Ben Stevens Finance Director
Slide 4: Agenda
Agenda Overview of the Group Group strategy - Growth - Productivity - Responsibility - Winning organisation 2008 performance Summary Questions & answers
Slide 5: World's most international tobacco group
World’s most international tobacco group Over 300 brands Focus on Global Drive Brands + Vogue & Viceroy 180 markets Leadership in over 50 markets Almost 54,000 employees $42 bn gross turnover $16 bn net turnover $4.8 bn profit from operations Market capitalisation – currently numbe
Slide 6: Major competitors
Major competitors 2007 World Market Share % (Proforma) PMI 15.7 BAT Subs / Assoc 13.6 3.6 17.2 JT 11.0 Imperial 6.0 CNTC 39.1 Altria 3.4 Others 11.0 On a proforma basis (i.e., adding in the full year impact of acquisitions), the Big 4 have a combined global market share of nearly 50% Source: Compa
Slide 7: Strategy for shareholder value
Strategy for shareholder value ACHIEVE VISION LEADERSHIP OF THE GLOBAL TOBACCO INDUSTRY GROWTH PRODUCTIVITY RESPONSIBILITY STRATEGY WINNING ORGANISATION
Slide 8: Growth strategy
Growth strategy Increase our volume and value share of the global tobacco market through organic growth and M&A Key Priority Mergers and Segments Innovation Markets Acquisitions and Brands
Slide 9: BAT Global Drive Brands
BAT Global Drive Brands • Masculine • Full Flavour • ASU30 • Premium Lights • ASU30 • Innovative product (3-Tek, Mintek, Nanotek) • Perfectionist in tobacco • Top end of the tobacco spectrum • International VFM • Modern classic • ATUU30/Unisex • Full Flavour/Lights • Total Tobacco Satisfaction via F
Slide 10: Global Drive Brands volume
Global Drive Brands 161 146 136 Volume (Billions) 125 113 114 116 93 100 78 85 9.5% CAGR +17% 9m 7 08 99 00 01 02 03 04 05 06 07 0 20 20 19 20 20 20 20 20 20 20 20 9m Global drive brands sales volumes have grown consistently Source: Company’s financial results
Slide 11: Global Drive Brands: volume growth index
Global Drive Brands: volume growth index 200 British American Tobacco 180 160 140 120 Japan Tobacco 100 Philip Morris 80 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Advertising Principles International Marketing Standards Base 100: 1997 Source: Company estimates and competitors’ published
Slide 12: Innovation − formats − packaging
Innovation There will be a continuous emphasis on developing and rolling out brand and product innovations, focusing on GDBs: − formats e.g. Kent Nanotek − packaging Re-sealable − menthol Kool Boost − charcoal Kent 3Tek − social acceptance Vogue Arome − limited edition packs Lucky Strike Window Pa
Slide 13: Priority markets
Priority markets Eastern Europe Far East North Africa Middle East
Slide 14: Mergers & acquisitions
Mergers & acquisitions Looking for deals that make strategic and financial sense Likely to be bolt on rather than transformational deals During 2008 - Tekel cigarette assets and - Scandanavisk Tobakskompagni cigarette business, certain snus and RYO interests
Slide 15: Productivity strategy
Productivity strategy Effectively deploy our global resources to increase profits and generate funds to reinvest in our business Smart Cost Marketing Capital Management Efficiency Effectiveness
Slide 16: Productivity initiatives 2003 – 2007
Productivity initiatives 2003 – 2007 Cumulative savings, 2003 2004 2005 2006 2007 £m Overheads & indirects 64 153 256 355 455 Supply chain 27 120 226 374 551 Total 91 273 482 729 1,006 Factory Footprint 2003 2004 2005 2006 2007 Cigarette factories 72 67 64 52 47 Countries 61 58 55 45 40 Annualised s
Slide 17: Productivity savings goal: 2008 – 2012
Productivity savings goal: 2008 – 2012 Productivity savings a significant driver of profit growth Some drop through to the bottom line Balance reinvested in the business Target of a further £800m by 2012 - Savings from supply chain, overheads & indirects - Supply chain efficiencies - Back of
Slide 18: Earnings to Cash
Earnings to Cash 2004 2005 2006 2007 Total ’04 - ’07 Attributable Profit (£ bn) 2.8 1.8 1.9 2.1 8.6 Adjusted Earnings (£ bn) 1.7 1.9 2.0 2.2 7.8 Free Cash Flow (£ bn) 1.3 1.6 1.5 1.7 6.1 FCF to Adj. Earnings 81% 84% 76% 77% 78% In the last 4 years, the cumulative ratio of free cash flow to net pro
Slide 19: Use of funds
Use of funds £ bn 2003 2004 2005 2006 2007 Total ’03 - ’07 Free Cash Flow (1.6) 1.3) 1.6) 1.5) 1.7) 7.7) Dividends Paid (0.8) (0.8) (0.9) (1.0) (1.2) (4.7) Share buy-back (0.7) (0.5) (0.5) (0.5) (0.8) (3.0) Sub Total 0.1) (0.1) 0.2) 0.0) (0.3) 0.0) Other net flows (1.9) 0.2) (0.1) 0.0) 0.2) (1.6) Ne
Slide 20: Financial policies
Financial policies Board commitment to investment grade ratings Liquidity: to maintain minimum of £1bn in cash and committed facilities Maturity profile has an average maturity of 5 years Gross interest cover targeted between 5 and 9 times Dividend policy is to distribute 65% of long term
Slide 21: Financing plan / liquidity
Financing plan / liquidity £1.75bn committed Group revolving credit facility Strong cash flows and cash balances Smooth maturity profile Almost all debt is unsecured with a limited use of leasing Credit ratings Moody’s S&P Fitch Long term rating Baa1 BBB+ BBB+ Short term rating P-2 A-2 F2
Slide 22: Responsibility strategy
Responsibility strategy Continue to balance our commercial objectives with the expectations of a broad range of stakeholders, thus ensuring a sustainable business Standards of Business Sensible Harm Business Principles Regulation Reduction Conduct
Slide 23: Winning organisation strategy
Winning organisation strategy Ensure we have the right people and the right working environment to deliver our Vision. Great Place Outstanding to Work People From To A loose federation An integrated global enterprise
Slide 24: Future expectations
Future expectations Top line growth Productivity savings • Volume growth • Overheads • Pricing • Indirects • Mix improvements • Supply chain Operating profit growth of 6% p.a. on average Financial efficiencies • Share buy backs • Others High single digit earnings growth Distributing 65% of sustainab
Slide 25: Earnings per share growth
Earnings per share growth 17% 17% % Growth 11% 11% 10% 10% 9% 8% 4% 2000 2001 2002 2003 2004 2005 2006 2007 2008 YTD 9 months Source: Company’s financial results
Slide 26: Earnings per share
Earnings per share 108.5 98.1 96.0 89.3 82.0 76.6 66.5 69.2 61.8 pence 56.9 52.3 9.6% CAGR +17% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2007 2008 YTD 9 months The target of high single figure earnings growth has been delivered Source: Company’s financial results
Slide 27: Dividends per share
Dividends per share 66.7 55.9 47.0 41.9 pence 38.8 35.2 32.0 26.2 29.0 22.1 18.6 12.4% CAGR +19% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2007 2008 Interim dividend Targeting a 65% payout ratio in 2008 Source: Company’s financial results
Slide 28: In previous economic downturns…
In previous economic downturns… Tobacco is not recession proof… … but recession resistant Our geographic diversity mitigates risk Consumers are loyal to their brands Switching where they buy not what they buy High unemployment may lead to changing behaviour Balanced portfolio covering
Slide 29: Nine months 2008 headlines
Nine months 2008 headlines Sales volume - Group 524 bn +4% - Global drive brands 136 bn +17% Revenue - As reported £8,704m +19% - Constant currencies £7,944m +9% Profit from operations (excluding exceptionals) - As reported £2,755m +20% - Constant currencies £2,520m +10% Adjusted diluted EPS
Slide 30: FT Global 500 – BAT progression
FT Global 500* – BAT progression Ye ar 2001 2002 2003 2004 2005 2006 2007 2008 0 50 85 100 117 131 150 140 166 200 205 186 250 300 350 348 400 450 Rank 500 *By market capitalisation as at end of March each year Source: Financial Times
Slide 31: In summary
In summary: Significant global business Geographically diversified to mitigate risk Leadership position in more than 50 markets Clearly articulated strategy that works Powerful brand portfolio Innovative business developing new propositions Improving margins through brand mix and produ
Slide 32: Morgan Stanley Consumer Retail Conference
Morgan Stanley Consumer Retail Conference New York November 2008
British American Tobacco p.l.c. — Morgan Stanley Consumer Retail Conference 2008 on 6ix