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: Combustibles: winning through focus and sharpened execution
Combustibles: winning through focus and sharpened execution Chris Sijtsma Group Head of Combustibles
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 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: Chris Sijtsma
CHRIS SIJTSMA GROUP HEAD OF COMBUSTIBLES 10 years Regional 30 years Marketing Director Group Head of Area Director Industry Trade Marketing Central Europe Europe, Africa, and Distribution experience Middle East
Slide 6: In 2018 Combustibles account for 86% of duty-paid industry revenue
1 In 2018 Combustibles account for 86% of duty-paid Tobacco and New Categories Industry revenue 2 Combustible category remains dynamic with significant opportunity for further value growth 3 Group market share growth of 106bps over the last 3 years, with Drive Brands growth of 385bps 4 We have a gre
Slide 7: 150,000,000 adult consumers choose our brands, every day
150,000,000 ADULT CONSUMERS CHOOSE OUR BRANDS, EVERY DAY Source: company data, BAT Combustibles volumes including US & T40 ADC Track 2018 | Note: BAT only owns the Camel and Natural American Spirit brands in the United States
Slide 8: BAT is the leading and the only growing international tobacco company
BAT is the leading and the only growing international tobacco company SHARE OF MARKET, %. FY’18 SHARE OF MARKET, %. Jan’16 vs Dec’18 (T40 incl US – FMC only) (T40 incl US – FMC only) +106 26.9 25.8 bps 15.4 Jan’16 Dec’18 -63 bps -86 bps Source: T40 Retail Audit data including US and excluding Iran,
Slide 9: BAT volume performance is consistently better than the industry
BAT volume performance is consistently better than the industry +268 bps +277 bps +160 bps +194 bps average BAT T40 vs. Duty Paid FMC Industry T40 volume performance +69 bps 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 Duty Paid FMC Industry T40 Volume vs LY (%) 0.4 -0.3 BAT FMC T40 Volume vs LY (%) -1.9 -1.7 -2
Slide 10: Strong drive brands powered by innovation
Strong drive brands powered by innovation DRIVE BRANDS MARKET SHARE PERFORMANCE FY’18 vs FY’17 (bps) (T40 incl US – FMC only) +192 ~ ~ +34 bps +19 bps +18 bps +119 bps +33 SHARE WITHIN US SHARE WITHIN US SHARE WITHIN US +17 +20 bps +9 bps ~ YTD 2018 vs. 2017 Source: T40 Retail Audit data including U
Slide 11: Drive brands share grows in all regions
Drive brands share grows in all regions REGIONAL OFF - TAKE DRIVE BRANDS MARKET SHARE CHANGE | Jan’16 vs Dec’18 (T40 incl US - FMC only) ENA +454 bps Dec’18 vs Jan’16 USA +60 bps Dec’18 vs Jan’16 APME AMSSA +194 bps +1184 bps Dec’18 vs Jan’16 Dec’18 vs Jan’16 Source: T40 Retail Audit data including
Slide 12: BAT is leading amongst cigarette brand trialists
BAT is leading amongst cigarette brand trialists BAT AND KEY COMPETITION T40 DYNAMIC SPACE SHARE TREND (ex. US) 30.6% 29.7% +140bps 30.2% 28.3% 28.5% 29.1% -150bps Drive Brands ASU30 share +230bps -100bps 2018vs2016 12.7% 11.7% 11.7% 2016 2017 2018 Source: Track T40 excluding USA, 2016-2018. Dynamic
Slide 13: A portfolio of high equity brands
A portfolio of high equity brands COMPETITIVE EQUITY POSITION Drive brands Vs. Marlboro ABOVE ABOVE ABOVE Vs. Marlboro Vs. Winston Vs. Marlboro Vs. L&M Vs. Chesterfield MARKET EQUITY INDEX MARKET EQUITY INDEX MARKET EQUITY INDEX MARKET EQUITY INDEX MARKET EQUITY INDEX BELOW PARITY ABOVE ABOVE ABOVE
Slide 14: Brand building @ BAT
Brand building @ BAT CONSUMER FIRST BRANDS WITH SCALE Building winning and sustainable brand equity WORLD CLASS TRADE READY FOR REGULATION MARKETING AND DISTRIBUTION Note: Consumers refer to adult tobacco consumers
Slide 15: Our portfolio & brand positioning is driven by superior consumer understanding
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Our portfolio & brand positioning is driven by superior consumer understanding OUTER-DIRECTED Dunhill RANK RECOGNITION Newport Rothmans Natural American Spirit Camel Lucky Strike ASSURANCE AFFILIATION PERFECTION CAMARADERIE REWAR
Slide 16: We stretch our brands to be relevant to different geographies and consumer segments
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION We stretch our brands to be relevant to different geographies and consumer segments RUSSIA: NANO ROMANIA: DS & F&S TURKEY: DS & KS CHILE: CORE – PRM & VFM JAPAN: SS
Slide 17: We stretch our brands to be relevant to different geographies and consumer segments
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION We stretch our brands to be relevant to different geographies and consumer segments GERMANY MEXICO JAPAN INDONESIA COLOMBIA
Slide 18: Focus growth segments are in the heart of our strategy
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Focus growth segments are in the heart of our strategy, powered by innovations 83% >90% Focus growth segments account for of switchers and trialists of BAT brand activities focus on strategic segments NFF F&S SLIMMER THE BEST NEW
Slide 19: Drive brands performance in key growth segments is ahead of industry benchmark
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Drive brands performance in the key growth segments is ahead of the industry benchmark FOCUS GROWTH SEGMENTS SHARE CHANGE Average 2018 vs 2016 NFF SLIMMER F&S Future innovation BAT drive brands share of +214bps +155bps +143bps pl
Slide 20: BAT offers superior and differentiated product experiences
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION BAT offers superior and differentiated product experiences NUTTY SMOKEY COFFEE-LIKE SWEET a HAY-LIKE BREAD-LIKE WOODY
Slide 21: Enduring commitment to quality
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Enduring commitment to quality Existing processing techniques Unique & differentiated BA BAT proprietary processing a product techniques experiences Combustibles R&D Centre
Slide 22: Building brands at scale
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Building brands at scale 63% 444 19% Drive brands % share of BAT FMC volume 128 Drive brands FMC volume, (Bn Sticks) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Company data. Volumes data is
Slide 23: Top ranking brands globally
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Top ranking brands globally TOP 20 GLOBAL FMC BRANDS RANKING BY VOLUME (bn) -- 1999 (Excluding China, India and US) GLOBAL FMC BRAND 20.2 22.1 21.3 VOLUME RANKING #18 #15 #13 Source: Company data: internal estimates
Slide 24: Top ranking brands globally
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Top ranking brands globally TOP 20 GLOBAL FMC BRANDS RANKING BY VOLUME (bn) -- 2008 (Excluding China, India and US) GLOBAL 63.3 FMC 61.6 BRAND 37.3 26.0 29.9 VOLUME RANKING #12 #7 #5 Source: Company data: internal estimates
Slide 25: Top ranking brands globally
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Top ranking brands globally TOP 20 GLOBAL FMC BRANDS RANKING BY VOLUME (bn) -- 2018 (Excluding China, India and US) RANK WITHIN US Volume #2 31.7bn #3 18.4bn #6 5.8bn 127.2 99.4 70.1 GLOBAL FMC 49.9 40.4 BRAND 29.9 26.0 VOLUME RA
Slide 26: Improve focus and execution
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Improve focus and execution SKUs RATIONALISATION TREND % % Reduction vs. 2016 % SKUs vs. 2016 3 10% SKU 10 reduction over 2 years 100 97 90 2016 2017 2018 Source: Company data. Brand Family Group considered as proxy for SKUs
Slide 27: And leverage efficiencies
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION And leverage efficiencies DRIVE BRANDS REVENUE & GROSS MARGIN GROWTH RATES, KEY HIGHLIGHTS INDEXED TO 2016, excluding US 125 Revenue Gross Margin 116 Revenue growth CAGR of +7.9% 110 Gross Margin CAGR of +11.6% 106 Revenue
Slide 28: World-class Trade Marketing and Distribution
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION World‐class Trade Marketing and Distribution GLOBAL REACH DIRECT COVERAGE QUALITY RETAIL ACTIVATION Available Total direct to store in share of volume Quality Retail >11mn coverage Activation outlets 53% Source: Company data. Dir
Slide 29: Regulation challenge remains but we are well prepared
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Regulation challenge remains but we are well prepared TRACK PLAIN MENTHOL & TRACE PACKAGING BAN
Slide 30: What did we learn in Canada
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION What did we learn in Canada 1 Total menthol segment share of 14% with BAT leading the segment with 82% segment share 2 The vast majority – 99% - of ex-menthol smokers remained in FMC post menthol ban 3 We haven’t seen any substan
Slide 31: Menthol ban in Canada – situation prior to the ban
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Menthol ban in Canada – situation prior to the ban 2016 CORPORATE SHARE OF 2016 SHARE OF MENTHOL 2016 MENTHOL CATEGORY MARKET, % SEGMENT, % 14% Total Menthol 5% 13% 4% Traditional Menthol 48.1 82% 35.9 15.8 Total Menthol 10% Caps
Slide 32: Menthol ban in Canada – consumers remained within FMC
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Menthol ban in Canada – consumers remained within FMC MENTHOL SEGMENT IS HIGHLY 99% OF SMOKERS KEY HIGHLIGHTS CONCENTRATED STAY IN FMC 14% share of market of Traditional 1% Switched menthol & Capsule segment out of FMC in Canad
Slide 33: Menthol ban in Canada – no material industry impact post ban
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Menthol ban in Canada – no material industry impact post ban BAT SHARE GROWTH BY 50bps FROM NO IMPACT ON DUTY-PAID - VOLUME DUE TO THE MENTHOL BAN 2016 TO 2018 2018 Group Share of Market, % Total Industry Shipments Quarterly vs S
Slide 34: Despite regulation, we have always delivered consistent growth over time
CONSUMER FIRST BRANDS WITH SCALE WORLD CLASS TM&D READY FOR REGULATION Despite regulation, we have always delivered consistent growth over time 444 CAGR 18 VS 04 73 +9.3% CAGR 18 VS 04 128 371 +7.9% Strategic Combustible brands FMC volume, (Bn Sticks) 2004 2005 2006 2007 2008 2009 2010 2011 2012 201
Slide 35: Success stories from around the world
SUCCESS STORIES FROM AROUND THE WORLD…
Slide 36: Rothmans in Russia
Rothmans in Russia | leading BWAP through NFF, Slimmer and F&S F&S # FMC BRAND ROTHMANS SOM PERFORMANCE (%) 11.5 Fastest #1 #2 9.0 growing 7.4 DEMI FMC market share BIGGEST 5.3 BRAND FMC BRAND 3.4 1.9 0.4 Source: Retail Audit 2012 2013 2014 2015 2016 2017 2018
Slide 37: Pall Mall in Saudi Arabia
Pall Mall in Saudi Arabia | #1 brand in the market driven by NFF 4bn 1st YEAR AFTER LAUNCH > sticks #1 CLEAR MARKET LEADER NFF FMC 12.8% 23.3% 12.6% BRAND Source: IMS volumes, Retail Audit
Slide 38: Lucky Strike in AMSSA
Lucky Strike in AMSSA | Leading F&S growth 85 OF GROWTH DRIVEN BY F&S % LUCKY STRIKE SOM PERFORMANCE (%) 5.1 +70bps 5.0 4.8 ASU30 Index 4.5 4.3 161 4.2 +9 vs.2015 Jan ‘17 Dec ‘18 Source: Retail Audit, Track 2018
Slide 39: Kent in Turkey
Kent in Turkey | Fastest growing brand driven by NFF and Slimmer FASTEST GROWING BRAND IN THE MARKET KENT SOM PERFORMANCE 10.1 #1 ASU30 Share +490bps 15.9% IN ASU 30 5.2 Source: Retail Audit, Track 2018 Jan ‘17 Dec ‘18
Slide 40: Rothmans in Nigeria
Rothmans in Nigeria | #1 brand with growth driven by F&S IN # ASU30 ROTHMANS VOLUME (BNS) 5.2 ASU30 Index F&S GROWTH 4.6 109 0.7bn 1.7 3.2 +16 vs. PY Source: BI volumes shipments 2018, Track 2018 2015 2016 2017 2018 FY
Slide 41: Dunhill in Brazil
Dunhill in Brazil | #1 brand in Premium driven mainly by NFF SOS in Premium 2018 PERFORMANCE % ASU30 #1 CARLTON TO DUNHILL MARKET GROWTH RESILIENCE 126 13.9 NFF Brand 9.4 In Market SHARE INDEX VS MARKET 8.9 SoM - BR 9.4 Source: Retail Audit , Track 2018 2008 Dec ‘18
Slide 42: NAS: a key brand in our US portfolio
NAS | A key brand in our US portfolio with a distinctive product & unique taste differentiation FASTEST GROWING Natural American Spirit BRAND IN PREMIUM NAS SOM PERFORMANCE (%) 6.0 2.7% +3% 3.7% CPTO 4.2 SOM VOLUME GROWTH, YOY share Source: STR, internal data ASU35 AS 21-24
Slide 43: Newport: a leading US brand driven by F&S and format differentiation
Newport | A leading US brand driven by F&S and format differentiation #2 IN THE US H I G H C O N S U M E R L O Y A L T Y, SOLID MARKET SHARE GROWTH D R I V E N B Y F O R M AT D I F F E R E N T I AT I O N NEWPORT SOM PERFORMANCE (%) 14.3 12.7 +160bps 153 80% 59% of consumers are of Newport ASU35 inde
Slide 44: In 2018 Combustibles account for 86% of duty-paid industry revenue
1 In 2018 Combustibles account for 86% of duty-paid Tobacco and New Categories Industry revenue 2 Combustible category remains dynamic with significant opportunity for further value growth 3 Group market share growth of 106bps over the last 3 years, with Drive Brands growth of 385bps 4 We have a gre