British American Tobacco P.l.c. · LSE:BATS
British American Tobacco P.l.c — FY2017 Earnings Presentation
38 slides from British American Tobacco P.l.c's earnings presentation, Feb 22, 2018
Slide 1: Preliminary Results 2017
Preliminary Results 2017 22nd February 2018
Slide 2: Preliminary Results 2017 - Nicandro Durante, CEO
Preliminary Results 2017 22nd February 2018 Nicandro Durante Chief Executive Officer
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
Important Information Additional Information Additional information concerning these and other factors can be found in BAT’s and Reynolds American Inc.’s (“RAI”) filings with the U.S. Securities and Exchange Commission (“SEC”), including RAI’s most recent Annual Reports on Form 10-K, Quarterly Repor
Slide 5: 2017 – A Transformational Year
2017 – A Transformational Year Strong Consistent Delivery to Shareholders Reynolds American Acquisition Completed +634% +15% +10% +15% › World’s leading tobacco and nicotine company › Direct access to the world’s most profitable market (ex-China) › Strong combined portfolio of growing brands EPS Cur
Slide 6: …And an Eventful Year
…And an Eventful Year Excise and Pricing FDA Quebec Class Action US Tax Reform Excise Shocks GCC RUS PAK MYS › Excise shocks in key › An opportunity › Quebec Court of Appeal › Corporate tax rate reduced markets › First recognition of the risk hearing November 2016 from 35% to 21% › Illicit trade gro
Slide 7: RAI Deal Already Delivering Value
2017 – RAI Deal Already Delivering Value Cost Synergies Integration NGP Opportunities “We are combining the 2017 - $70+mn › Integration progressing well capabilities of both organisations › Firm plans for delivery of cost savings Total cost synergy split at least $400mn to enhance our global R&D › E
Slide 8: Industry leading Portfolio of Brands and Products
2017 – Industry leading Portfolio of Brands and Products Strategic Global Brands Potentially Reduced-Risk Products (PRRPs) Global US Oral NGP THP Vapour Brands Brands Products
Slide 9: Strong Combustible Brand Performance
2017 – Strong Combustible Brand Performance +40bps GDBs US Drive Brands +0.2% +X% +30bps +0.2% +20bps +20bps +40bps +30bps +10bps -20bps +20bps -10bps +XX% +XX% +110bps* +40bps* GDBs now 54% of total group volume (ex.US) Strong performance in premium Strong performances in Brazil, Pakistan, Tu
Slide 10: Unique Portfolio of Potentially Reduced-Risk Products
2017 – Unique Portfolio of Potentially Reduced-Risk Products Oral THP NGP Vapour Products Pouches Loose Pouches Carbon e-THP Hybrid Closed Open Closed Open Tip
Slide 11: Outstanding Performance of glo in Japan
2017 – Outstanding Performance of glo in Japan Strong Market Share Performance Capacity Growing Rapidly 4.10% 2017* 2018* Devices 5mn Units 25mn Units 3.30% Consumables 15bn Sticks 52bn Sticks 2.40% 1.80% Strong Innovation Pipeline Oct-17 Nov-17 Dec-17 Jan-18 Capsules glo national share at 4.1% af
Slide 12: glo Geographical Expansion
2017 – glo Geographical Expansion glo in South Korea glo in Other Countries glo in 2018 Communications restrictions impacting 1.00% consumer understanding Vapour already a significant category, 0.70% 0.69% despite currently being banned +14 0.60% 0.44% Regulation under review 0.29% 0.11% 0.18%
Slide 13: Good Progress on our Vapour Journey
2017 – Good Progress on our Vapour Journey Strong Market Position and Improving Profitability Leadership Positions in Key Markets Global share* 6% Consolidated leadership position in France, Germany, Italy and Poland* Vype and 10 Motives achieved record 40% share of retail Vype offtake volume
Slide 14: Growing Oral Potentially Reduced-Risk Product Opportunity
2017 – Growing Oral Potentially Reduced-Risk Product Opportunity American Snuff Company - US Snus – Norway and Sweden 9.9% 10.3% 34.4% 9.5% 33.7% 8.6% 33.1% 33.4% 32.4% 6.4% 31.9% 5.5% 4.2% 3.0% 2012 2013 2014 2015 2016 2017 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 ASC Market Share in the US Nation
Slide 15: A Transformational Year
2017 – A Transformational Year The world’s leading tobacco and nicotine company Outstanding results from glo Combustible business continues to outperform Delivering on our commitment of high single figure constant adjusted EPS growth
Slide 16: Preliminary Results 2017 - Ben Stevens, Finance Director
Preliminary Results 2017 22nd February 2018 Ben Stevens Finance Director
Slide 17: Deal Marks Record Year (mn)
2017 – Deal Marks Record Year (mn) RAI Key Reported Adjusted Adjusting Revenue £20,292 37.6% £20,034 35.8% Profit from Operations £6,476 39.1% £7,993 45.8% Associates £24,209 -£23,288 £1,012 Tax £8,113 -£9,620 -£2,107 Diluted EPS 1,830.0p 634% 284.4p 14.9%
Slide 18: Deal Marks Record Year
2017 – Deal Marks Record Year Current Constant Adjusted Organic Revenue £15,712mn 6.5% 2.9% Adjusted Organic Profit from Financials £5,910mn 7.8% 3.7% Operations Adjusted Diluted EPS 284.4p 14.9% 9.9% Volume Cigarettes & THP Organic 647bn - 2.6%
Slide 19: EEMEA
2017 – EEMEA Constant Current Adjusted Revenue £3,773mn 0.6% 4.4% Adjusted Profit from £1,265mn -1.9% 3.9% Operations Main drivers Offset by Volume - 228bn sticks -3.4% GDBs - 136bn sticks +9.9% Market Share +30bps
Slide 20: ASPAC
2017 – ASPAC Constant Current Adjusted Revenue £4,320mn 1.3% 5.7% Adjusted Profit from Operations £1,674mn 2.7% 7.7% Main drivers Offset by Volume - 193bn sticks -1.3% GDBs - 85bn sticks +1.5% Market Share +60bps
Slide 21: AMERICAS
2017 – AMERICAS Constant Current Adjusted Revenue £3,178mn 10.8% 9.0% Adjusted Profit from Operations £1,288mn 9.9% 7.1% Main drivers Offset by Volume - 107bn sticks -5.0% GDBs - 46bn sticks +10.9% Market Share Flat
Slide 22: WER
2017 – WER Constant* Current* Adjusted Revenue £3,902mn 0.9% 7.6% Adjusted Profit from Operations £1,456mn 4.9% 12.3% * Organic Main drivers Offset by Volume - 122bn sticks +1.7% GDBs - 82bn sticks +8.9% Market Share +30bps
Slide 23: Adjusted Operating Margin Up 270bps
2017 – Adjusted Operating Margin Up 270bps +2.50% -0.70% + 1.10% -0.20% 39.90% 37.20% 37.60% 2016 Adjusted Underlying NGP Investment 2017 Organic WER Acquisitions RAI Impact 2017 FY Adjusted Margin Improvement Adjusted Margin Margin
Slide 24: Adjusted Diluted EPS Growth Drivers
2017 – Adjusted Diluted EPS Growth Drivers -11.4p +9.9% +14.9% -20.1p +1.0p +0.0p +82.3p -27.1p +12.3p 272.1p 284.4p 247.5p Adjusted Adjusted Profit Net Finance Associates Taxation NCI Change in Adjusted FX Impact Adjusted Diluted EPS Cost Number of Diluted EPS Diluted EPS 2016 Shares 2017 Constant
Slide 25: Adjusted Cash Generated from Operations (mn)
2017 – Adjusted Cash Generated from Operations (mn) £550 £93 £1,397 96.1%* Operating Cash Flow Conversion £767 £156 £1,004 £1,675 £7,993 £167 £3,282 Adjusted Non Cash Items Working Capital RAI MSA Payment Net Capex Pension fds - S'fall Net Interest Tax Dividends to NCI Adjusted Cash Operating Profit
Slide 26: Financing / Shareholder returns
2017 – Financing / Shareholder returns Key Metrics 2017 4.0x pro-forma and 5.3x Net debt/EBITDA Returning to the higher accounting basis, targeting end of 1.5x – 2.5x around 3.0x by end 2019 Payout ratio 65% 69% Seeking medium-term Credit ratings confirmed Credit Rating recovery to BBB+/Baa1 at BBB+
Slide 27: Financial Summary
2017 – Financial Summary Volume Financials Adjusted Revenue Adjusted Profit Adjusted Diluted EPS* Volume -2.6% c c c +3% +4% +10% Constant currency Constant currency Constant currency * Non - Organic GDB Volume Share +8% Corporate Share GDB Share US Drive Brands c c c +40bps +110bps +40bps +XX% +XX%
Slide 28: A Transformational Year
2017 – A Transformational Year Largest acquisition of a tobacco company ever completed NGP business delivering growth Significant investment in NGPs RAI acquisition reinforces long-term sustainability of delivery Delivering on our commitment of high single figure constant adjusted EPS growth
Slide 29: Preliminary Results 2017
Preliminary Results 2017 22nd February 2018
Slide 30: Supplementary Slides
Supplementary Slides 22nd February 2018
Slide 31: Reconciliation of IFRS to Adjusted Numbers (mn)
2017 – Reconciliation of IFRS to Adjusted Numbers (mn) Reported RAI Other Adjusted Adjusting Adjusting Revenue £20,292 37.6% -£258 £20,034 35.8% Profit from Operations £6,476 39.1% £763 £754 £7,993 45.8% Net Finance Costs £1,094 £153 £52 -£889 Associates £24,209 -£22,195 -£2 £1,012 Profit Before Tax
Slide 32: Reported EPS Growth Drivers (pp)
2017 – Reported EPS Growth Drivers (pp) 8.80 23.10 22.70 7.50 6.20 5.40 3.40 8.70 467.40 1,830.00 1,135.40 249.20 Reported Diluted Gain on Disposal Deferred Tax Release of DTL Growth in Profit RAI Inventory Finance Cost M&A RAI Brand 3rd Party Other 2017 Reported EPS 2016 of RAI Impact on US Tax fro
Slide 33: Reconciliation Reported to Adjusted EPS (pp)
2017 – Reconciliation Reported to Adjusted EPS (pp) 22.80 14.30 17.00 1,131.00 1,830.00 7.50 476.20 284.40 2017 Diluted Earnings per Effect of restructuring and Effect of Amortisation of Effect of Other Adjusting Effect of Effect of Adjusting Items Effect of Adjusting Items Adjusted Diluted Earnings
Slide 34: 2018 – New Regional Structure
2018 – New Regional Structure EUROPE & NORTH AFRICA ENA United States US ASIA-PACIFIC & MIDDLE EAST APME AMERICAS & SUB-SAHARAN AFRICA AmSSA
Slide 35: 2018 – New Regional Structure – Key markets
2018 – New Regional Structure – Key markets AMERICAS & SUB-SAHARAN AFRICA EUROPE & NORTH AFRICA ASIA-PACIFIC & MIDDLE EAST AmSSA ENA APME AmSSA ENA APME Argentina Colombia Algeria Netherlands Australia Malaysia Belgium Poland Brazil Mexico Bangladesh New Zealand Czech Republic Romania Canada Nigeria
Slide 36: Top BAT Market Share Movements (1)
Top BAT Market Share Movements* (1) SOM FY17 Movement SOM FY17 Movement Market Market (%) (ppt) (%) (ppt) Argentina 23.7 0.1 France 17.3 (0.5) Australia 40.3 1.1 GCC 29.6 1.1 Bangladesh 65.5 7.1 Germany 19.9 0.7 Belgium 26.0 (0.3) Indonesia 6.8 (0.1) Brazil 79.3 (0.7) Italy 18.8 0.0 Canada 48 (0.2)
Slide 37: Top BAT Market Share Movements (2)
Top BAT Market Share Movements* (2) SOM FY17 Movement SOM FY17 Movement Market Market (%) (ppt) (%) (ppt) Netherlands 24.9 (0.6) South Korea 13.8 (0.4) New Zealand 70.5 0.2 Spain 11.3 1.0 Pakistan 71.0 0.4 Switzerland 37.5 (0.3) Poland 28.7 0.5 Taiwan 10.4 0.4 Romania 54.4 0.6 Turkey 22.4 0.7 Russia
Slide 38: Preliminary Results 2017
Preliminary Results 2017 22nd February 2018
British American Tobacco p.l.c. — FY2017 Earnings Presentation on 6ix