British American Tobacco P.l.c. · LSE:BATS
British American Tobacco P.l.c — H1 2023 Earnings Presentation
44 slides from British American Tobacco P.l.c's earnings presentation, 2023
Slide 1: Resilient performance, renewed energy, full-year guidance on track
Resilient performance, renewed energy, full-year guidance on track Interim Results 2023 Tadeu Marroco – Chief Executive | Javed Iqbal – Interim Finance Director
Slide 2: 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 3: 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 and Current Reports on Form 6-K, which may be obtain
Slide 4: Resilient H1 performance, on track for Full Year
Resilient H1 performance, on track for Full Year Group New Category Profit from Operations / Earnings per Revenue Revenue Operating Margin Share +61.4% Reported +4.4% +29.0% £5,935m +118% £13,441m £1,656m +15.6ppts 176.0p 44.2% Adjusted Constant +2.6% * +3.6%** Currency £13,201m +26.6 %* £5,850m +5.
Slide 5: As we continue to transform rapidly
As we continue to transform rapidly >30% Non-Combustibles revenue in 23 markets 16.6% Non-Combustibles 23 as a % of Group revenue 16 in H1’23 9 * 4 4 Jun'19 Jun'20 Jun'21 Jun'22 Jun'23 Number of markets* Reaching >30% Non-Combustibles revenue in 23 markets *Number of markets with over 30% Non-Combus
Slide 6: With Non-Combustibles revenue significantly higher in many markets
With Non-Combustibles revenue significantly higher in many markets Our Non-Combustible products revenue % H1’23* FRA AUS EST JPN UK DEN POR SLO ITA POL KAZ LIT SWE FIN GUA LAT D REP NOR GRE ICE CZE SLK UAE >30% >40% >50% >70% 6 * Revenue from Non-Combustible products as a % of total revenue in each
Slide 7: 10 weeks as Chief Executive
10 weeks as Chief Executive Interim Results 2023 Tadeu Marroco – Chief Executive
Slide 8: Refreshed Management team: aligned, focused, energised
Refreshed Management team: aligned, focused, energised Tadeu Marroco PhotoChief Executive Delivering Growth Enabling Growth Director, Legal Chief Operating Affairs & General Finance Director Director, Talent, Director, Research Chief Strategy & (Interim) Culture & Inclusion & Science Officer Counsel
Slide 9: Reinforcing the power of our winning culture
Reinforcing the power of our winning culture Seeing first-hand how our colleagues around the world are shaping an inclusive culture Passionate teams and Tour of the Warsaw Global seamless operation at Business Services Hub. RGM* the Reynolds Operation in action and simplification of Centre supply ch
Slide 10: We need to evolve to accelerate our transformation
We need to evolve to accelerate our transformation Our unique set of strengths … Deep cross-category Global footprint consumer insights Proven multi-category Established U.S. multi- strategy category business Strong cash driving Leading brands sustainable dividend 10
Slide 11: My immediate areas of focus are...
My immediate areas of focus are… 1 Sharpen execution 2 3 4 5 6 Drive Consistent U.S. Significantly Lead Enhance profitability in Combustibles strengthen THP responsible financial New Categories value growth New Category flexibility development Collaborative and inclusive culture 11
Slide 12: 1. Sharpening execution: Disciplined application of Market Archetypes
1 2 3 4 5 6 1. Sharpening execution: Disciplined application of Market Archetypes 1 2 3 4 5 6 Combustibles Drive Drive NC & Drive NC & Simplify & Multi- Value Growth Combustibles Protect Maximise Extract Value Category & Prepare for Value & Grow Combustibles Combustibles from Growth NC* NC Value Val
Slide 13: Improving delivery in key markets
1 2 3 4 5 6 Improving delivery in key markets Bangladesh Poland H1’23 performance H1’23 performance Combustibles New Categories Market share Combustibles value glo share** +130bps to 88.3% +1.3ppts to 32.5% Revenue* Combustibles +16% New Category +44% Gross Margin* Combustibles +6% New Category >100
Slide 14: 2. Continuing to improve New Category profitability
1 2 3 4 5 6 2. Continuing to improve New Category profitability New Category contribution (£bn) Non-linear Profitability* 2021 2022 H1’23 progression 2020 2024 • Innovation phasing -0.4 -1.0 • Geographic -1.1 expansion and market openings +£1.1bn* On track to deliver New Category profitability* in 2
Slide 15: Vapour profitability a key driver of our performance
1 2 3 4 5 6 Vapour profitability** a key driver of our performance H1’23 Gross Margins Vapour Gross Margin* % progression 68% 58% THP* 49% Combustibles 40% 40% Gross72% Margin 32% Modern Oral Combustibles Gross68% Margin Combustibles FY19 FY20 FY21 FY22 1H23 Building sustainable multi-category profi
Slide 16: 3. Driving consistent U.S. Combustibles value growth
1 2 3 4 5 6 3. Driving consistent U.S. Combustibles value growth Pricing Portfolio Price Assortment Architecture Revenue Growth Management (RGM) Customer Activation Investment Sharpening our execution through data-driven commercial plans 16
Slide 17: Delivering early signs of U.S. Combustibles recovery
1 2 3 4 5 6 Delivering early signs of U.S. Combustibles recovery Activating focused plans to drive … implementing carefully and thoroughly consistent value… will take time YTD’23 v H1’22 YTD’23 v H2’22 May’23 v Jan’23 YTD’23 v H1’22 YTD’23 v H2’22 May’23 v Jan’23 Volume share* Value share* -40bps -1
Slide 18: 4. Significantly strengthening THP
1 2 3 4 5 6 4. Significantly strengthening THP GLOBAL DEVICE GLOBAL INNOVATION glo Hyper X2 Air is a first step in DEVELOPMENT CENTRE CENTRE our enhanced innovation Opened Sep. 2022 – Shenzhen, China Opens Dec. 2023 – Southampton, UK pipeline over the next 18 months Speed of conversion INNOVATION HU
Slide 19: Accelerating innovation cadence across New Categories
1 2 3 4 5 6 Accelerating innovation cadence across New Categories DEFINE DISCOVERY DEVELOP DEPLOY Set consumer*-driven Rapid cycles Accelerated scale- Mass production & innovation direction of innovation up and launch and product (technologies readiness optimisation and products) Priority NC Valida
Slide 20: 5. Lead responsible New Category development
1 2 3 4 5 6 5. Lead responsible New Category development Science & Proactive Innovation Driven Engagement Regulatory foresights Multi-Category portfolio and engagement Advocate for optimal Research-driven product regulatory and fiscal development frameworks Evidence-based by reducing the Promote enf
Slide 21: 6. Enhancing financial flexibility
1 2 3 4 5 6 6. Enhancing financial flexibility Increasing agility in the near term… …To drive long-term value creation P&L • Accelerate investment in transformation • Sustainable multi-category growth • Drive consistent combustibles value • Growing financial returns • Navigate regulatory development
Slide 22: Rewarding shareholders with a growing dividend
1 2 3 4 5 6 Rewarding shareholders with a growing dividend Allocation of free cash flow* Making good progress towards middle of 2-3x adj. net debt to adj. EBITDA** £8.0bn £7.3bn £7.5bn 1.0 £6.5bn 21bn 2.6 2.6 2.0 3.51 1.9 3.26 £ 2.99 2.89 cash returned to shareholders 4.6 4.7 4.9 4.9 2019 2020 2021
Slide 23: H1 results – Confident in FY23 guidance
H1 results – Confident in FY23 guidance Interim Results 2023 Javed Iqbal – Interim Finance Director
Slide 24: Javed Iqbal – Values and focus
Javed Iqbal – Values and focus 27+ years career at BAT My focus areas and working style • Diverse roles and locations • Proud of my/BAT values and heritage • Director, Digital and Information • Respect and empowerment • Area Director, Middle East, South Asia • Sharpen resource allocation and North A
Slide 25: Adjusted results demonstrate continued delivery
Adjusted results demonstrate continued delivery Organic Group Adjusted Adjusted Diluted Revenue* Operating Profit** EPS** Key performance drivers +2.8% +3.6% +5.3% • New Category revenue*** +26.6% • Combustibles volume –5.8% • Cigarette price/mix^ +6.0% 12.5 12.8 5.8 176.3 167.4 • +£201m New Categor
Slide 26: Delivering strong New Category revenue momentum
Delivering strong New Category revenue momentum 33% 2019-2023 New Category revenue 27% CAGR H1’23 NC 3,267 revenue growth 2,454 1,698 * 1,335 1,049 12 months to 12 months to 12 months to 12 months to 12 months to Jun 2019 Jun 2020 Jun 2021 Jun 2022 Jun 2023 New Category revenue* (£m) Confident in de
Slide 27: Clear Vapour leadership with Vuse
Clear Vapour leadership with Vuse** Vapour revenue up 36%* + 240bps Value share HY23 vs FY22 • Vuse extends U.S. leadership*** • Value share 46.7%, +5.7 ppts • Leading in 36 states 38.3% 35.2% 31.6% • Continued progress driving profitability^ • Positive contribution 3 of 5 key markets 23.6% • Vuse G
Slide 28: Activating commercial plans with glo
Activating commercial plans with glo glo revenue up 10%* - 110 bps Volume share HY23 vs FY22 • Activating commercial plans in highly competitive markets in Japan and Italy 19.6% 18.2% • Continued good momentum in key AME 16.5% THP markets, including: • Poland and Czech Republic • Enhancing our innov
Slide 29: Velo continues to drive total oral share growth
Velo continues to drive total oral share growth Modern Oral (MO) revenue up 42%* +70bps Volume share HY23 vs FY22 • Velo remains clear AME volume share leader** • Velo is the largest oral nicotine pouch brand in Sweden^ 8.1% 7.1% • Unlocking EM opportunities 6.2% • Continued growth in Pakistan • Inc
Slide 30: Combustibles: Our global footprint offsets U.S.
Combustibles: Our global footprint offsets U.S. Combustibles revenue** growth by region and globally 9.1% • YTD Volume share* +10bps • YTD Value share* -40bps 5.0% • Combustible revenue** +0.2% • Price/Mix*** +6.0% 0.2% • Outside the U.S., strong brands and AME APMEA U.S. Group sharp execution drivi
Slide 31: Strong performances in AME and APMEA
Strong performances in AME and APMEA Organic Adjusted Organic New HY2023 Revenue* Organic New Category Profit from APFO^ Revenue** Category Revenue* Operations*** Revenue** AME +9.1% +10.3% +35.9% +40.0% +7.8% +4.4% APMEA +9.8% +9.8% +15.0% +15.0% +9.3% +9.3% U.S. -5.4% -5.4% +21.7% +21.7% -0.2% -0.
Slide 32: U.S. combustibles industry impacted by continued macro-economic pressures
U.S. combustibles industry impacted by continued macro-economic pressures H1’23 drivers of industry volume decline H1’23 BAT volume*** and drivers -8.4%* Industry BAT adjusted SAP roll-out Consumer macro volume California Share volume inventory BAT volume Secular Elasticities impacts Poly-usage** de
Slide 33: U.S. commercial plans driving combustibles stabilisation; Continued strong Vuse performance
U.S. commercial plans driving combustibles stabilisation; Continued strong Vuse performance BAT volume share of premium stabilising • Our commercial plans are starting to work • Growing premium share • Newport and Natural American Spirit – key drivers • Strong performance from Lucky Strike 44.1% • n
Slide 34: California: Still adjusting across all categories post-flavour ban
California: Still adjusting across all categories post-flavour ban California Outstanding Vuse BAT Combustibles performance 45% volume exposure 60% volume exposure >85%* 100% Total volume retention Total volume retention vs pre-ban vs pre-ban Multi-category portfolio and agile commercial response dr
Slide 35: Good margin expansion: Successfully offsetting increasing NC investment and inflation
Good margin expansion: Successfully offsetting increasing NC investment and inflation +0.9ppts* % % Improvement in Traditional business and New Categories contributing to Operating Margin performance in HY23 partly offset by transactional FX * On an adjusted current rate basis. See Appendix A1. 35
Slide 36: Solid EPS growth of +5.3%
Solid EPS growth of +5.3%* +8.5% +5.3% +5.3% Adjusted diluted EPS* growth * Adjusted diluted EPS at constant rates. See Appendices A1 & A2. 36
Slide 37: Continued strong cash generation driving leverage reduction
Continued strong cash generation driving leverage reduction Strengthening our balance sheet alongside Strong Operating Cash Conversion* a manageable maturity profile Expecting another year of strong Making good progress towards middle of operating cash conversion >90%* 2-3x adj. net debt / adj. EBIT
Slide 38: Dynamic and flexible approach to capital allocation
Dynamic and flexible approach to capital allocation Cash Flow c.£40bn Investing Litigation/ 5 Year in our Transformation Fiscal/Regulatory outcomes Cumulative Free Cash Flow*** Free Cash Flow* Growing Leverage Bolt-On Share Dividend middle 2-3x** M&A Buy-Backs Committed to sustainably returning cash
Slide 39: On track to deliver full-year 2023 guidance
On track to deliver full-year 2023 guidance • Continued strong New Category revenue growth* 3-5% • Organic performance expected to be H2 weighted • U.S. commercial plans driving early signs of stabilisation Organic Revenue Growth* • U.S. SAP-related inventory phasing in H1’22 (Excluding Russia/Belar
Slide 40: Resilient H1 performance, on track for FY23 guidance
Resilient H1 performance, on track for FY23 guidance Building on strong foundations… With more to do… We have the right strategy Fixing areas of under-performance through sharpened execution • Drive consistent U.S. combustibles delivery Resilient financial performance, while • Strengthen THP continu
Slide 41: Half Year 2023: Q&A
Half Year 2023: Q&A Tadeu Marroco – Chief Executive | Javed Iqbal – Interim Finance Director
Slide 42: Appendix: Group Results excluding Russia/Belarus – H1'23
Appendix: Group Results excluding – Russia/Belarus – H1’23 Group excluding Group excluding Growth excluding Total Russia/Belarus Russia/Belarus Russia/Belarus Group Growth H1’23 H1’22 H1’23 v H1’22 H1’23 v H1’22 Volume 278.5bn 290.5bn -4.1% -5.2% FMC & THP (£ Millions) (£ Millions) Revenue* 12,845 1
Slide 43: Appendix: Our category market shares in key markets
Appendix: Our category market shares in key markets* value share of Total volume share of volume share of THP volume share of volume share of Vapour Combustibles+THP Total Oral Modern Oral H1’23 Change H1’23 Change H1’23 Change H1’23 Change H1’23 Change YTD vs. FY22 YTD vs. FY22 YTD vs. FY22 YTD vs.
Slide 44: Appendix
Appendix A1: Adjusting (Adj.) Adjusting items represent certain items which the Group considers distinctive based upon their size, nature or incidence. A2: Constant currency Constant currency – measures are calculated based on the prior year's exchange rate, removing the potentially distorting effec
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