British American Tobacco P.l.c. · LSE:BATS
British American Tobacco P.l.c — Citi Investor Visit, Tokyo, March 2010
64 slides from British American Tobacco P.l.c's conference presentation, March 2010
Slide 1: Asia Pacific Region Overview
Asia Pacific Region Overview March 2010
Slide 2: Agenda
Agenda • Review of Group Strategy • BAT in Asia Pacific • Outlook • Summary
Slide 3: Group Strategy
Group Strategy ACHIEVE LEADERSHIP OF THE GLOBAL TOBACCO INDUSTRY GROWTH PRODUCTIVITY RESPONSIBILITY Organic Smart cost Business management principles Innovations Marketing efficiency Standards of Mergers & Capital business Acquisitions effectiveness conduct WINNING ORGANISATION Gre
Slide 4: Agenda
Agenda • Review of Group Strategy • BAT in Asia Pacific • Outlook • Summary
Slide 5: BAT's Asia Pacific Region
BAT’s Asia Pacific Mongolia Region South Korea China Afghanistan Japan Pakistan Taiwan BAT locations India Bangladesh Hong Kong & BAT office and Macau factory BAT office only Vietnam Sri Our areas and markets Lanka Malaysia South Korea Cambodia PNG Malaysia – Malaysia, Brunei, Indonesia Singapore do
Slide 6: We compete in a heavily regulated Region
We compete in a HK/Macau and Mongolia: heavily regulated Region Ad hoc excise increases Regulation % % Taiwan: Guidance expected on Level UOP Vol Mongolia permitted words and phrases on pack e.g. product Low 5% 10% and brand story. DPRK Pakistan China Moderate 46% 54% Bangladesh Japan South Korea Hi
Slide 7: Impressive result in Asia Pacific over last 5 years
Impressive result in Asia Pacific over last 5 years (incl Japan & Bentoel) 190 Volume 185 3300 NTO* 3270 (bn sticks) (GBP’mn) 180 180 3100 173 2900 169 170 2717 164 2700 +3.0% +3.8% +5.9% +7.1% +2.1% 160 +3.4% 2500 +4.2% 2320 2335 2300 2249 +5.4% +5.4% +4.8% 150 2100 140 1900 2005 2006 2007 2008 200
Slide 8: Asia Pacific is a major contributor to the Group
Asia Pacific is a major contributor to the Group Volume (2009) Profits (2009) AME AME 18% ASPAC 16% ASPAC 25% 26% E Europe 9% E Europe 18% Americas W Europe W Europe 21% Americas 22% 18% 27% Source: BAT 2009 Annual Report
Slide 9: Summary: BAT in Asia Pacific
Summary: BAT in Asia Pacific Sizeable, well-balanced presence in the Region Substantial footprint: factories in 14 end-markets Successful results despite operating in heavily regulated markets Strong volume and profit contributor to the Group Intimate market knowledge and decades of experi
Slide 10: Agenda
Agenda • Review of Group Strategy • BAT in Asia Pacific • Outlook • Summary
Slide 11: Asia Pacific Region: Huge population, growing economies
Asia Pacific Region: Huge population, growing economies… 56%of the world’s population Larger economy than the EU by 2011 Asia Pacific GDP 23 21 19 17 U S D T rillions Exc China Inc China 15 EU Population ~ 2.4 bn ~ 3.8 bn 13 Asia Pacific % of Global Pop. ~36 % ~ 56% 11 Source IMF, October 2009 9 7 5
Slide 12: GDP recovery expected in 2010
GDP recovery expected in 2010 10% GDP Growth 2009-2010 8% 6% 4% 2% 0% Bangladesh Australia Indon esia China Vietnam Malaysia Japan Pakistan Korea Taiw an New Zealand -2% -4% -6% -8% 2009 2010 GDP growth returns in 2010 (from a lower base)
Slide 13: Unemployment expected to improve, but marginally
Unemployment expected to improve, but marginally; consumer spending patterns likely to lag Average Unemployment 2009-2010 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% an rea s ia in a ta n n a li a a m and esi wa tn a Jap la y Ko Ch k is s tr Tai eal on V ie Ma Pa Au In d wZ Ne Source: Frontier Strategy Group
Slide 14: Vast wealth disparities across the region, reflected in pricing levels
Au 10,000 20,000 30,000 40,000 50,000 0 st ra li Ja a Si p Per Capita GDP ($) ng an Ho ap o Ne ng re w K o Z ng ea la n Ko d r Ta e a i M wa al n a Th ysia ai la n Ch d In do in a Ph ne ili sia pp in es PN V Per capita GDP ie G tn Pa am k reflected in pricing levels C ist am a n Ba bo ng di N ew lad
Slide 15: Recent pricing activities
Recent pricing activities 1st Half 2009 2nd Half 2009 2010 Year-to-date Australia New Zealand South Pacific Malaysia Singapore Japan South Korea Pakistan Bangladesh Sri Lanka Vietnam Cambodia Mongolia Taiwan Hong Kong/Macau China Indonesia GTR
Slide 16: Agenda
Agenda • Review of Group Strategy • BAT in Asia Pacific • Outlook • Summary
Slide 17: In Summary…
In Summary… Major presence in Asia Pacific Significant growth driver for the Group Consistently deliver impressive results despite ongoing challenges Strong platform to deliver growth Asia Pacific will continue to be a key area of focus - Growing population - Economic recovery - Pricing op
Slide 18: YOKOSO!! Citi Investor Visit, Tokyo, March 2010
YOKOSO!! CITI INVESTOR VISIT, TOKYO, MARCH 9 2010
Slide 19: Agenda
AGENDA External Environment Impact Of Recent Political Change on Tobacco Tobacco Industry Key Trends Key Opportunities BAT Performance BAT Vision and Strategy Leading Growth Consumer, Brands, Innovation Winning Organisation
Slide 20: The External Environment
BRITISH AMERICAN TOBACCO The External Environment
Slide 21: Japan Economy: Long uncertain road
JAPAN ECONOMY: Long uncertain road Experienced sharpest recession in 2008-09 from global financial crisis Major contraction in 2009 GDP recovery led by government stimulus and net export recovery (inventories) Public debt approaching 200% of GDP Source: Statistics Bureau, Cabinet office and
Slide 22: Ageing Declining Population
AGEING DECLINING POPULATION Population at its peak (127mn), set to decline sharply after 2013 Population will be 90 mn in 2050 Ageing Population Pressure on labour, health, pension Immigration Policy
Slide 23: Consumer Confidence: New Low
CONSUMER CONFIDENCE: NEW LOW Uncertain future – Unemployment, wages, pension Extremely price and budget conscious behaviour especially families and older shoppers Luxury goods flat/declining Consumer spending declining
Slide 24: Tobacco
BRITISH AMERICAN TOBACCO Tobacco
Slide 25: Ministry of Finance is a dominant influence in the tobacco industry
MINISTRY OF FINANCE is a dominant influence in the tobacco industry Tobacco Business Law (1985) Maintain stable fiscal revenues Fostering the sound development of the tobacco industry Production and purchase of domestically produced leaf tobacco Abolition of Tobacco Monopoly Owns 50.1% o
Slide 26: Regulatory Environment
REGULATORY ENVIRONMENT Regulation is benign by international standards June 2004 ratification of the FCTC: OOH ceased & press restricted in Sept 2004 (TV/radio already banned) Larger (30%) on-pack rotating health warnings implemented July 2005 Freedom to communicate and consumer contact re
Slide 27: Regulatory Environment
REGULATORY ENVIRONMENT Societal courtesy and manners are key drivers rather than health PPS and Juvenile smoking are key areas of societal, governmental focus
Slide 28: Regulatory: Vending
REGULATORY: VENDING Roll out of Age Verification in Vending Machines in July 2008 Y80bn (approx. $800mn) industry investment Taspo card adoption lower than expected (37.1%: as of Jan ‘10) Significant changes to buying habits and consumption
Slide 29: Regulatory: Pricing
REGULATORY: PRICING Cigarette Prices very low by first world standards Mainstream ~ $3.00 Premium ~ $3.20 Cigarette prices are fixed, promotions closely controlled: De facto price control by the Ministry of Finance Requires pre-approval for any changes No consumer discounting is permit
Slide 30: New Government After 50 Years
NEW GOVERNMENT AFTER 50 YEARS
Slide 31: DPJ Agenda: From Bridges to People
DPJ AGENDA : FROM BRIDGES TO PEOPLE Independence from Bureaucracy The end of wasteful spending Social agenda Childrearing and Education Pensions and Medical care Employment and the Economy Very healthy aging society Non fossil fuel energy - clean energy Asia focus (along with the U
Slide 32: Implication for Tobacco Industry
IMPLICATION FOR TOBACCO INDUSTRY Fork in the road Pricing freedom is key TIOJ concern with big excise increases Industry profit pool can grow significantly Smaller more profitable industry Bigger prize .. greater competition Japan will continue to be a major market globally
Slide 33: Tobacco Market And BAT Performance
Tobacco Market And BAT Performance
Slide 34: Industry and Excise Trend
INDUSTRY AND EXCISE TREND wha BRITISH AMERICAN 1.0% -2.2% -20% -4.0% -25% -29% -44% -38% -44% -5.1% TOBACCO 350 7 r 2.5 JAPAN 302 294 286 274 261 300 + 237 + 2.0 250 1 | rT 15 200 > i + 1.0 100 + n + 0.5 50 + Ol 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 [J indusrty =O Excise 2000 | 2001 |
Slide 35: Key Players SOM Trend
3 KEY PLAYERS SOM TREND Data Source: BATJ Estimate
Slide 36: BAT a Consistent Superior Performer
BAT A CONSISTENT SUPERIOR PERFORMER BAT shows resilience, outperforming the industry Focused strategy delivering superior performance Data Source: BATJ Estimate
Slide 37: Solid Performance for BAT despite challenging business environment
SOLID PERFORMANCE FOR BAT … despite challenging business environment Consumer led innovation (e.g. thread, capsule) Cost driven manufacturer’s price increase Productivity savings Data Source: BATJ Estimate
Slide 38: Mix and Innovation Drive Margins
MIX AND INNOVATION DRIVE MARGINS Focus on accelerating premium growth has been key to mitigate lack of price freedom Breakthrough innovation offers opportunity to capture premium margins Kool Boost (capsule) priced at ¥10 premium to core range leveraged BAT average price Data Source: BATJ Esti
Slide 39: Focusing and Winning in key Segments
Focusing and Winning in key Segments
Slide 40: Strong Performance in ASU30
STRONG PERFORMANCE IN ASU30 ( ) indicates index vs. total share Data Source: BATJ Estimate
Slide 41: BAT Over-performing in Menthol
BAT OVER-PERFORMING IN MENTHOL ( ) indicates index vs. total share Data Source: BATJ Estimate
Slide 42: Continue to Drive Menthol Through Innovations
CONTINUE TO DRIVE MENTHOL THROUGH INNOVATIONS Strong portfolio in premium and mainstream Menthol segments with Kool and Kent Develop and lead new segments: Capsules, Nano, Flavours Achieve leadership in Menthol through innovations 1st world capsule 1st world menthol thread Packaging inno
Slide 43: BAT Growing in Ultra Low Tar
BAT GROWING IN ULTRA LOW TAR ( ) indicates index vs. total share Data Source: BATJ Estimate
Slide 44: BAT in Ultralights Segment
BAT IN ULTRALIGHTS SEGMENT Biggest segment in the market with 32.7% of total market size BAT will continue to grow with its core brand - Kent Strong innovation pipeline 1st Ultra Low Tar Menthol 1st triple filter technology 1st pellet technology 1st thread product 1st KSSS (Nano) S
Slide 45: BAT Over-performing in Premium
BAT OVER-PERFORMING IN PREMIUM ( ) indicates index vs. total share Data Source: BATJ Estimate
Slide 46: Untapped Opportunity in Female Segment
UNTAPPED OPPORTUNITY IN FEMALE SEGMENT Data Source: BATJ Estimate
Slide 47: Over-trading in Most Important Channel
OVER-TRADING IN MOST IMPORTANT CHANNEL Data Source: BATJ Estimate
Slide 48: Vision: fastest growing tobacco company in Japan
“To be the fastest growing tobacco company in Japan, recognized for its passion for innovations and outstanding people.”
Slide 49: Group and Japan strategy framework
Region Group Japan Growth Productivity Responsibility 9 Consumer, Segments 9Fit For Purpose 9Shaping Environment Japan Organisation 9Brand Portfolio 9IMS2 9 Sustained focus on 9Leader in Innovation overheads / supply chain 9Responsible retailing efficiency 9World class TM&D 9Leveraging global scale
Slide 50: Leadership
LEADERSHIP Region Group Japan Growth 9 Consumer, Segments Japan 9Brand Portfolio 9Leader in Innovation 9World class TM&D
Slide 51: Brands: Kool and Kent
BRANDS driving the business KOOL Lead Menthol KENT Lead Low Tar
Slide 52: Kool: Growth Driven by Innovations
KOOL: GROWTH DRIVEN BY INNOVATIONS (Source: TIOJ as of Dec’09) Fastest growing menthol brand for 4 consecutive years Leader in innovations in menthol. 1st capsule in the world 1st flavour capsule in the world Strong innovations pipeline going forward Data Source: BATJ Estimate
Slide 53: Fastest Growing Menthol in Japan
FASTEST GROWING MENTHOL IN JAPAN Data Source: BATJ Estimate
Slide 54: Only Premium Brand to Grow Volume
ONLY PREMIUM BRAND TO GROW VOLUME Data Source: BATJ Estimate
Slide 55: Kent is a Key Player in Low Tar
KENT IS A KEY PLAYER IN LOW TAR Source: TIOJ Data Source: BATJ Estimate
Slide 56: Kent Growth Platform
KENT GROWTH PLATFORM A High-Tech, Low Tar brand A progressive yet affordable Low Tar offer Taste delivery technologies for great taste A leading Low Tar Menthol brand The most innovative product range in its category The modern way to smoke Compact, sleek, high performance product and pa
Slide 57: Consumer: Who They Are, What They Want
CONSUMER foresights & insights WHO THEY ARE Segmentation and Behaviour WHAT THEY WANT Choice drivers KEY OUTPUTS Performance trackers
Slide 58: Consumer, Consumer, Consumer!
CONSUMER, CONSUMER, CONSUMER! PRESEARCH + RESEARCH + TRENDS Immersion Insights Behavioral Presearch Co-creation (breaking the mold) Competitor Profiling Channel Influence (trade leverage) Brand Dialogue (CDF progression) Conversion Co Creation
Slide 59: Innovation: Winning Hearts and Minds
INNOVATION winning hearts & minds CONSUMER NEEDS Relevant products WIDE-OPEN IDEATION Unparalleled innovations
Slide 60: Company Geared by Ideas
COMPANY GEARED BY IDEAS MATERIALS CONSUMER INSIGHTS INGREDIENTS MARKET TRENDS TECHNOLOGIES SHAPES EXTERNAL PARTNERS BRAND STRATEGY
Slide 61: Winning Organisation
Region Group Japan Growth 9 Consumer, Segments Japan 9Brand Portfolio 9Leader in Innovation 9World class TM&D Winning Organisation Talent, Capability, Culture
Slide 62: Talent and Leadership
TALENT AND LEADERSHIP Fit for purpose organisation Right Capabilities Alignment Leadership at all levels Japanese talent for leadership positions in Japan and the Group Culture that inspires initiative and innovation
Slide 63: Innovation, Brands, Consumers; Driving Margins; Talent, Culture, Alignment
INNOVATION, BRANDS, CONSUMERS DRIVING MARGINS TALENT, CULTURE, ALIGNMENT
Slide 64: Important Information
Important Information This presentation has been prepared by British American Tobacco Japan ("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 Am
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