British American Tobacco P.l.c. · LSE:BATS
British American Tobacco P.l.c — Paris DB Consumer Conference 2018
36 slides from British American Tobacco P.l.c's conference presentation, Jun 12, 2018
Slide 1: Paris DB Consumer Conference
Paris DB Consumer Conference 12th June 2018 Nicandro Durante Chief Executive Officer
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 filed on 15 March 2018 and Current Reports on Form 6
Slide 4: We have delivered consistent EPS growth
We have delivered consistent eps growth 300 Adj^ EPS CAGR 9.8% p.a Reported Adj EPS DPS CAGR 11.9% p.a 250 Reported DPS 200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1966 1971 1999 2003 2005 2012 2017 First Health First Health Advertising
Slide 5: Confidence in the delivery of HSF EPS is unchanged
Confidence in the delivery of HSF EPS is unchanged DRIVERS OF EARNINGS GROWTH MID HIGH -1-2% +3-5% +50-100 SINGLE SINGLE bps (on average over the yrs) FIGURE FIGURE Volume- Share growth Revenue Operating margin Profit EPS in a declining industry GROWTH GROWTH GROWTH GROWTH NGP impact 5
Slide 6: A more sustainable business
A more sustainable business ▪ Combustible business continues to outperform ▪ The US remains a great opportunity ▪ NGPs – we have the strategy and products to win Confident of continued delivery of High Single Figure constant currency EPS growth 6 6
Slide 7: Pricing remains robust
Pricing remains robust Organic price mix (inc THP) remains within a historic 4-6% range Price Mix 8.0% 7.0% 6.0% 5.0% 4-6% 4.0% 3.0% 2.0% 1.0% 0.0% 2011 2012 2013 2014 2015 2016 2017 7 Source: Company data
Slide 8: BAT volume continues to outperform the industry
BAT volume continues to outperform the industry Volume trends remain in line with historical levels 0.0% -0.5% BAT -1.0% Average -1.4% -1.5% -2.0% Industry Average -2.5% -2.2% -3.0% -3.5% 2011 2012 2013 2014 2015 2016^ 2017^ Industry Vols* BAT Vols 8 * BAT estimate, ^BAT Vols adjusted for the impact
Slide 9: The US remains a great opportunity
The US remains a great opportunity US volumes remain robust 2018 Industry YOY % Change Historical Industry YOY % change -0.1% -1.3% -2.3% -2.4% AVG -3.2% -3.6% -3.8% -3.6% -3.9% AVG -4.2% -4.6% -5.3% -5.3% -6.1% -7.7% -7.4% -8.4% Jan Feb Mar Apr May* 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Slide 10: Combustibles – from strength to strength driven by our strong portfolio and innovation
Combustibles – from strength to strength driven by our strong portfolio and innovation Market share Innovation^ GDB Share* +160bps Innovation volume 4 times bigger vs 2010 US Drive Flat Brands Share Innovations | 1 in every 3 cigarettes sold Group Market +40bps Share* 59% of GDB volume carries an in
Slide 11: Nicotine consumer pool continues to grow
Nicotine consumer pool continues to grow 6mn 8mn NGP consumers 366 ADDED 359 362 IN 2017 355 354 357 351 351 346 345 347 3mn 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 11 Number of consumers T40 markets excl. US, source: Company data
Slide 12: Consumers are segmenting
Consumers are segmenting Modelled NGP preponderance by 2020 Predominantly Vapour (>66%) Predominantly THP (>66%) Mixed 12
Slide 13: We have the right strategy
We have the right strategy Vapour Oral THP ▪ Longer-term margin upside ▪ Highly profitable ▪ Margin enhancing ▪ New consumers ▪ Broad category ▪ Greatest opportunity in markets with ▪ New behaviours ▪ ASU35 US leader ▪ High menthol LOWER ▪ High tobacco affinity HIGHER TOBACCO TOBACCO AFFINITY AFFINI
Slide 14: Vapour offers new revenue opportunities
Vapour offers new revenue opportunities Incremental revenue More profit per consumer £Mns UK NTO evolution £78 £95 1.2x 317zl 371zl 1.2x €67 €166 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2.5x Combustibles (Duty Paid) Vapour ’17 Annualised GM realisation per consumer Base
Slide 15: BAT no 1 globally in vapour
BAT no 1 globally in vapour … ▪ Consumables growing +29% vs SPLY ▪ Vuse growing volume and value, following double digit ▪ Device sales stable growth in 2017 ▪ ePen cartridge monthly sales run rate at record high ~1m ▪ Vibe recall progressing well with the majority of displaced units volume moving t
Slide 16: THP - consumer & market profiles determine initial growth rates
THP - consumer & market profiles determine initial growth rates Factors favouring faster rates of THP growth: ▪ Lower strength preferences in FMC ▪ High importance of modernity & style in FMC brand choice ▪ Restrictions on or low prevalence of vapour ▪ High affordability of premium in ASU30 Japan 21
Slide 17: glo continues to perform well
glo continues to perform well glo in Japan glo in other countries SoM SoC 19.7% 19.9% 19.9% 18.7% S KOREA ▪ glo share is at 0.8% vs. 0.4% in Q4 2017 due to 16.6% national expansion 13.9% 4.2% 4.2% 4.3% 11.9% 4.0% ▪ 6.6% share of THP category. Sales reached a new 3.3% monthly record of 56mn 2.6% 5.9%
Slide 18: As THP expands beyond Early Adopters, growth rate slows down
As THP expands beyond Early Adopters, growth rate slows down In Japan, further expansion is to more conservative consumer segments and adoption will be slower Diffusion curve for innovative categories INNOVATORS EARLY EARLY LATE LAGGARDS ADOPTERS MAJORITY MAJORITY 18
Slide 19: Driving adoption in THP
Driving adoption in THP BAT Strategy Device price is one of the key barriers for category entrants Managing device affordability Helping conversion ▪ 20 – 30% COGs reduction (LE‘18 vs. YE’17) ▪ Benefit transfer to Consumers ▪ Consumers who opt into Hypercare / conversion program qualify for discount
Slide 20: Product Portfolio & Pipeline
Product Portfolio & Pipeline David O’Reilly Group Scientific and R&D Director
Slide 21: Multi-Platform Consumer Product Offerings
Multi-Platform Consumer Product Offerings THP Vapour Oral Tobacco & Nicotine NRT The BAT Group does not own all brands referred to in this presentation in all markets e.g. BAT is the owner of the Camel and Natural American Spirit brands in the United States only. 21
Slide 22: THP
H AMERICAN BACCO HP T
Slide 23: THP: glo family grows
THP: glo family grows glo series glo series Mini neo ▪ Premium look and feel ▪ Premium look and feel ▪ Higher consumer satisfaction ▪ Duo treatment, sleeker yet ▪ Streamlined profile ▪ Introducing capsule offerings organic feel ▪ Reduced weight ▪ New flavour territories ▪ New colour range
Slide 24: 2018/19 THP pipeline is strong
2018/19 THP pipeline is strong 2018 2019 24
Slide 25: Vapour – ePen3
Vapour – ePen3
Slide 26: Time to seriously raise the bar – Vype ePen3
Time to seriously raise the bar – Vype ePen3 Mod satisfaction in pod system ACM Nic/puff Nic salts Cotton wick for better taste 8.0 130 All day charge 3.8 68 Competitor 1* 6.0 109 Extensive flavours and nicotine range Competitor 2** 2.4 120 *blu and **JUUL Source: BAT+RAI R&D lab testing
Slide 27: ePen3: Strong proposition validated in research and in situ
ePen3: Strong proposition validated in research and in situ Acquisition Conversion Retention ✓ 71% purchase intent ✓ 47% actual FMC reduction ✓ 57% predominant nicotine product use ✓ 25% share of all VIP device sales ✓ 90% adoption ✓ 40% solus use Impact and Satisfaction also increasing The amount o
Slide 28: ePen3: High quality vapour
ePen3: High quality vapour Cigarette ePen 1R6F combined vs Air (adjusted for time) 30 Down-Reg 25 Not Sig 25 Up-Reg p-value cut 20 -log10 (adjusted p-value) -log10 (adjusted p-value) FC cut 20 15 15 10 10 5 5 0 0 -10 -5 0 5 10 -2 -0 2 4 6 8 log2 (fold-change) log2 (fold-change) Cigarette v Vapour [H
Slide 29: Vapour – iSwitch
H AMERICAN BACCO iSwitch Vapour —
Slide 30: A new beginning – for smokers to change for good
A new beginning – for smokers to change for good The New Vype iSwitch Performance Purity ▪ Strong sensorials ▪ No dry puffs ▪ High aerosol mass ▪ Very low toxicity and particle size Satisfaction Unique technology ▪ Higher nicotine/puff ▪ New to world exclusive tech ▪ Nicotine salts ▪ IP protected Th
Slide 31: Vype iSwitch Science – our cleanest ever aerosol
Vype iSwitch Science – our cleanest ever aerosol Cleanest vapour seen so far Cigaretteb ePenb iSwitchc 30 Down-Reg 30 Not Sig 25 Not Sig p-value cut 25 Up-Reg 25 p-value cut 20 -log10 (adjusted p-value) -log10 (adjusted p-value) -log10 (adjusted p-value) FC cut 20 20 15 15 15 10 10 10 5 5 5 0 0 0 -1
Slide 32: USA FDA Filings
USA FDA Filings Eclipse v2 SE under scientific review Camel Snus MRTPA under scientific review - TPSAC Meeting likely in Q3/4 glo SE filed and under scientific review MRTPA on glo still scheduled for July 2020
Slide 33: A strong strategy and a multi-platform portfolio of combustible and potentially reduced risk products
A strong strategy and a multi-platform portfolio of combustible and potentially reduced risk products underpinned by leading science BAT has a leading portfolio of products to win in every consumer category and segment Behind every product platform is a strong pipeline of innovation and scientific s
Slide 34: A winning strategy
A winning strategy * ▪ We are outperforming in combustibles ▪ The US remains a great growth opportunity ▪ We have the right strategy and products to win in NGPs *The BAT Group does not own all brands referred to in this presentation in all markets e.g. BAT is the owner of the Camel and Natural Ameri
Slide 35: Paris DB Consumer Conference
Paris DB Consumer Conference 12th June 2018
Slide 36: Appendix
Appendix A1: Adjusting (Adj.) In the reporting of financial information, the Group uses certain measures that are not required under IFRS, the generally accepted accounting principles (“GAAP”) under which the Group reports. The Group believes that these additional measures, which are used internally
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