British American Tobacco P.l.c. · LSE:BATS

British American Tobacco P.l.c — Investor Day (October 2018)

92 slides from British American Tobacco P.l.c's investor day presentation, Oct 16, 2018

  1. Slide 1: Analyst Briefing

    Analyst Briefing 16th October 2018 Nicandro Durante 1

  2. 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

  3. 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

  4. 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 250 200 Reported DPS 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 b

  5. Slide 5: A proven strategy

    A proven strategy WORLD'S BEST AT SATISFYING CONSUMER MOMENTS IN TOBACCO AND BEYOND oF ° om

  6. Slide 6: A winning strategy

    A winning strategy FMC THP Oral Vapour HIGH LOW TOBACCO TOBACCO AFFINITY AFFINITY 6

  7. Slide 7: 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 Number of consumers T40 markets excl. US, source: Company data 7

  8. Slide 8: A proven strategy

    A proven strategy W I N I N COM B U ST I B L ES WI N IN NON‐ COMBU ST I BLES WIN IN HIGH GROWTH MARKETS PROAC TIVE REGULATORY ENGAGEMENT 8

  9. Slide 9: BAT continues to outperform the industry: 2014-2017

    BAT continues to outperform the Industry: 2014‐2017 BAT vs Industry Volume Big‐4 Market Share Evolution BAT Organic Revenue Growth 2014‐17 2014‐17 2014‐17 5% 5% 140 4% Ave. ‐1.0% 3% 3% 20 ‐30 ‐2.2% Industry ‐80 2014 2015 2016 2017 Source: BAT Internal Estimates (Organic) Nielsen RMS data T40 markets

  10. Slide 10: Winning in Non-Combustibles

    Winning in Non‐Combustibles Built a £2bn Potentially Reduced Risk Products business in 3 years Our revenue is now bigger than some… ~£2.0bn £2 Billion RRP NTO Revenue Qualifies for FTSE 250 companies Source: Company data 10

  11. Slide 11: Winning in Non-Combustibles

    Winning in Non‐Combustibles Built a ~£1bn Next Generation Products business in 3 years 0.1 5X £0.5bn 2X £0.9bn 2016 2017 2018* * estimate 11

  12. Slide 12: A growing sustainable business

    A growing sustainable business C O M B U S T I B L E F U N DA M E N TA L S S T R O N G ; BAT C O N T I N U ES TO O U T P E R F O R M F DA R EG U L AT I O N M A N AG EA B L E P R R P S A G R EAT O P P O R T U N I T Y M A R G I N G R OW T H A N D D E ‐ L E V E R AG I N G ; A N D I N V ES T I N G I N P

  13. Slide 13: Market concerns

    Market concerns “Combustible volumes and pricing are under pressure, can the business sustain LT profit growth?” “US cigarette market volumes are under increased pressure, share is not growing, will results in the US match those of the past?” “How can FDA regulation not be a negative for the industr

  14. Slide 14: Market concerns - Agenda today

    Market concerns ‐ Agenda today “Combustible volumes and pricing are under pressure, can the business sustain LT profit growth?” “US cigarette market volumes are under increased pressure, share is not growing, will results in the US match those of the past?” “How can FDA regulation not be a negative

  15. Slide 15: Combustibles

    Combustibles Kingsley Wheaton 15

  16. Slide 16: Addressing concerns - What we will show you

    Addressing concerns ‐ What we will show you “Combustible volumes and pricing are under pressure, can the business sustain LT profit growth?”  Industry volume and pricing is robust  BAT continues to outperform the industry  Combustible business model remains sustainable 16

  17. Slide 17: Powerful & Sustainable BAT Global Brands (GDSBs)

    “Our Combustibles Story” Powerful & Sustainable BAT Global Brands (GDSBs) 17

  18. Slide 18: 6 Key Areas to Discuss

    6 Key Areas to Discuss 1 2 3 Industry & BAT Pricing A Proud History Volume Trends Environment Of Innovation 4 5 6 Quality of Our Regional Powerful, Winning Share Growth Performance Brands 18 BAT estimate, BAT Volume adjusted for the impact of acquisitions (except RAI), Source: Company data

  19. Slide 19: BAT Volume Outperforms the Industry

    BAT Volume Outperforms the Industry Industry & BAT Volume (FMC+THP) 2011 2012 2013 2014 2015 2016 2017 H1 2018 CAGR ‐0.5% (2011 – H1 18) ‐1.0% BAT ‐1% to ‐2% ‐1.5% ‐2.0% INDUSTRY ‐2% to ‐3% ‐2.5% ‐3.0% UNDERLYING VOLUME DECLINE : (a) INDUSTRY ‐2% to ‐3% (b) BAT ‐1% to ‐2% Source : BAT Estimates (Ind

  20. Slide 20: Consistently Delivering Mid-Plus Single Figure Price Mix

    ...Whilst Consistently Delivering Mid‐Plus Single Figure Price Mix Average Price Mix 2012 to 2018 : 5.6% 8.0 2018 FY Price Mix 7.0 expected > 5.5% 6.0 5.0 4.0 3.0 6.8 6.2 5.8 5.8 5.4 5.5 2.0 4.1 1.0 0.0 2012 2013 2014 2015 2016 2017 2018 2011 ‐ 2017 Organic ‐ Excluding RAI BAT Price Mix (%) : 2012 –

  21. Slide 21: Powered by our long-standing Innovation DNA

    Powered by our long‐standing Innovation DNA Triple Filter Capsules Double Capsule Triple Capsule (3Tek) 1998 2003 2005 2007 2012 2014 2015 2018 Resealable Pack KS Super Slims Tube Filter Tube + Capsule 21

  22. Slide 22: Driving the BAT Portfolio Transformation Story

    Driving the BAT Portfolio Transformation Story GDSBs now 62% of BAT Volume GDSBs drive BAT Performance ……Powered by Innovation 55% +170 62% +900bps in 8 Years Innovation as % of GDSB Share GDSB volume +110 +100 +120 32% +90 +90 +40 +30 +80 +40 +50 +40 +20 +10 +40 +10 BAT Share 2010 H1 2018 2010 2011

  23. Slide 23: 'Quality Share' Growth Track Record

    ‘Quality Share’ Growth Track Record GDSB PREMIUM ASU30 INNOVATION STRATEGIC SEGMENTS MARKET SHARE SHARE SHARE SHARE RANK* F&S, SLIMS, NFF SHARE 200 L3Y CAGR (2014‐17) 100 bps 30bps 20 bps 1 st 70 40 50 bps bps YTD 170 70 30 1 st 120 30 2018 vs 2017 FY bps bps bps 20 bps 50 bps 23 Source: Company Dat

  24. Slide 24: Delivering Across Regions

    Delivering Across Regions USA ENA NTO: +1.8%* NTO: +1.3% Value Share: +20bps Value Share: Flat Premium SoS: +20bps Premium SoS: Flat GDSB Share: Flat GDSB Share: +190bps AMSSA APME NTO: +2.9% NTO: +5.6% Value Share: ‐20bps Value Share: +90bps Premium SoS: +50bps Premium SoS: +120bps GDSB Share: +710

  25. Slide 25: Well Balanced Across OECD/Non-OECD

    And Well Balanced Across OECD/ Non‐OECD % Contribution to BAT OECD Non‐OECD Volume 34% 66% Weighted Average Price (pack of 20s) £3.76 £1.28 UOP 66% 34% ‘Source: Company Data 2017 at current rates inclusive of full year US volumes and financials.’ 25 *Weighted Average Price: Cigarettes & THP consumab

  26. Slide 26: Today, £50Bn Portfolio Growing at Double Digit CAGRs

    Today, £50Bn Portfolio…. Growing @ Double Digit CAGRs £5.8bn £7.3bn £6.7bn £12.7bn £7.8bn CPTO CPTO CPTO CPTO CPTO £5.3bn £2.8bn £1.1bn CPTO CPTO CPTO NTO Growth (L3Y) 8.3% 26 Source: GDSB Company Data

  27. Slide 27: OF LONDON

    OF LONDON RMED Co, wo "Sey WORLD'S BEST AT SATISFYING — CONSUMER MOMENTS IN TOBACCO, AND BEYOND DUNHILL TOBACCO OF LONDON LTD ' GAM 27

  28. Slide 28: US Market Overview

    US Market Overview Ricardo Oberlander 28

  29. Slide 29: Addressing concerns - What we will show you

    Addressing concerns ‐ What we will show you “US cigarette market volumes are under increased pressure, share is not growing, will results in the US match those of the past?”  US industry volumes are improving and pricing is good  BAT is growing value share  The Vapour category is small relative t

  30. Slide 30: USA market size

    USA market size 50% : Open Systems 50% : Closed Systems £ 31 Bn £ 3.4Bn £ 3.4Bn ORAL VAPOUR COMBUSTIBLES 30 BAT estimate, BAT Volume adjusted for the impact of acquisitions (except RAI), Source: Company data *Estimated industry NTO 2012‐2017

  31. Slide 31: Portfolio positioned to capture multi-category repertoire

    Portfolio positioned to capture multi‐category repertoire Regain Vapor Leadership Take NAS to the Next Level Reinforce Menthol Leadership Accelerate ASU35 Momentum Maintain Value Leadership Accelerate Growth for Leadership 31

  32. Slide 32: FMC shipments improving to full-year outlook of -4.3%

    FMC shipments improving to full‐year outlook of ‐4.3% vs. H1 of ‐5.3% U.S. Historical Volume Change External Factors impacting 2018 volume change: ‐0.10% • California SET -0.2% • 27% rise in gasoline cost since 2016 ‐2.30% ‐2.40% ‐3.20% AVG • Vaping -0.7% ‐3.80% ‐3.60% ‐3.7% ‐4.20% ‐4.30% ‐4.60% ‐8.

  33. Slide 33: Change in gasoline prices highly correlated to industry volume

    Change in Gasoline prices highly correlated to industry volume Cigarette Industry Volume Change vs. Gasoline Prices Total FMC Volume Gasoline Prices 1 ‐40 0 R2 = 0.63 ‐30 Total FMC Volume – 3mo Rolling Avg ‐1 % Change Gasoline Prices ‐20 ‐2 ‐10 ‐3 0 ‐4 10 ‐5 20 ‐6 ‐7 30 ‐8 40 Mar‐14 Sep‐14 Mar‐15 Se

  34. Slide 34: Cig industry STR volume drivers - outlook for 2018

    Cig industry STR volume drivers – outlook for 2018 +2.6% ‐1.5% ‐0.7% ‐4.2% ‐0.2% ‐0.3% ‐4.3% * Impact of SET * Gasoline prices to Q1 only, three * Price increases expected to be ~20% quarters of lap higher YOY 2017 Incremental Incremental Macroeconomic Fuel Prices Vapor Growth (2) 2018 EST SET Prici

  35. Slide 35: Robust Price Mix in Combustibles

    Robust Price Mix in Combustibles Source: Company data. (LE) Latest estimate 35

  36. Slide 36: U.S. combustible brand gross margins are very strong

    U.S. combustible brand gross margins are very strong Combustible Margin/Mille – Index to Low End Premium Low End Share Brands Leader 695 508 440 414 228 100 $5/mille on 2018 industry volume is worth $1.2B or GBP 900 M 0.10 Share for 2018 with average GM $94/mille is worth $22M or GBP 17M Source: Com

  37. Slide 37: Premium segment resilient, low price segment gaining

    Premium segment resilient, low price segment gaining from downtrading linked to gas prices Cigarette Price Tiers: Share of Market YOY Change Value For Money 17% Low End 8% 76% Value for Premium Money Source: Company data 37

  38. Slide 38: RAI share evolution

    Share evolution YTD 2018 vs FY 2017 +0.6 RAI ALTRIA ITG ‐0.1 NB3 ‐0.2 ‐0.4 RAI Premium Share +0.2 Value Share +0.2 GDSB Share 0.0 38 Source : Shipment to Retailers

  39. Slide 39: Oral Tobacco: Size & Growth

    ORAL Tobacco: Size & Growth Oral Tobacco Consumers Oral Tobacco NTO ($B) Index to Adult Smokers CAGR 7.1% 8.6% Age 85 % Male 161 5.1 Income 150 3.4 College 135 2.4 2012 2017 2022E • Affluent • More Educated Growth category • Experiential • Growing in urban centers BAT estimate, Source: Company data

  40. Slide 40: Oral Tobacco: Performance of Grizzly

    ORAL Tobacco: Performance of Grizzly Strong Value Share Growth Winning in the Key Moist Segments Leading ADU35 Profile 28.0 Wintergreen 27.5 48 48 26.2 25.9 WG Share of Industry Grizzly Share of WG 25.4 Pouch 46 21 Pouch Share of Industry Grizzly Share of Pouch 2014 2015 2016 2017 2018 14% YOY Brand

  41. Slide 41: Oral Tobacco: Attractive Opportunity & Near-term Pipeline

    ORAL Tobacco: Attractive Opportunity & Near‐term Pipeline Grizzly Grizzly • Continue driving value with consumer • Strengthen category leadership • Implement extended product use relevant programming research to validate product appeal • Launch first MRTP advertising in the • Maintain leadership pos

  42. Slide 42: Managing FDA Impact

    Managing FDA Impact Dr. J. N. Figlar 42

  43. Slide 43: Addressing concerns - What we will show you

    Addressing concerns ‐ What we will show you “How can FDA regulation not be a negative for the industry and BAT?”  The process is evidence based, complex and will take a long time  We support evidence‐based regulation  The vapour category needs tighter regulation  The FDA proposals are manageable

  44. Slide 44: FDA Engagements

    FDA Engagements Positive Meetings Cigarette / Smokeless Provisional Examples Vapor Change / Marketplace Examples CDER Lozenge / Vapor Examples Transformation Agenda Encouraged Rulemaking Discussed Scientific Review process 44

  45. Slide 45: Submission Types

    Submission Types Exemption Requests “Minor” modifications (tobacco additives only) 60 Days (EX) Product Quantity Change SE Changes to product quantity 90 Days (PQCSE) Products either have the same characteristics as those marketed on/before February 15, 90 Days Substantial Equivalence (SE) 2007 or h

  46. Slide 46: Our FDA approach is yielding results

    Our FDA approach is yielding results SE Exemptions FDA Engagements 100 20 80 83 15 60 16 40 10 12 20 5 1 0 0 2009 - 2015 2016 - Current 2009 - 2015 2016 - Current Substantial Equivalence Determined 30 26 20 Positive Camel Snus TPSAC Meeting 10 4 0 2009 - 2017 2018 - Current Provisional SEs Regular S

  47. Slide 47: Future - Rulemaking Process

    Future – Rulemaking Process Future Step Step Step Step Step Step Step Step Step One Two Three Four Five Six Seven Eight Nine Preparation OMB Review Publication Determination Preparation OMB Review Publication Initiating Public of Final, of Final, of Final, Whether a of Proposed of Proposed of Propos

  48. Slide 48: Future - Rulemaking Process

    Future – Rulemaking Process Future Step Three Preparation of Proposed Rule Proposed Rule Proposed Rule Optional Procedures to Help Prepare a Optional Procedures to Proposed Rule: Help Prepare a Proposed Rule:  Advance Notice  Advance Notice of Proposed Rulemaking of Proposed Rulemaking (ANPRM)  N

  49. Slide 49: Recent Announcements/Industry Meetings/Compliance Letters

    Recent Announcements/Industry Meetings/ Compliance Letters  Commissioner has serious concerns about Youth Appeal, particularly flavors  Useful meeting with Commissioner outlined our response to letter and how to address Youth appeal  Compliance Letter (Alto) is a routine enforcement requirement 

  50. Slide 50: Vapour

    VAPOUR Ricardo Oberlander Tadeu Marroco 50

  51. Slide 51: Addressing concerns - What we will show you

    Addressing concerns ‐ What we will show you “Barriers to entry in vapour are low, how can the tobacco incumbents win?”  Vapour is small, but a significant, profitable opportunity  BAT is performing well in the US and in the rest of the world  Vuse Alto and Vype ePen3 are great products and are sh

  52. Slide 52: Vapour Global

    Vapour Global Vaping Global Footprint BAT Footprint High incidence Medium incidence Low incidence >3% : US, Canada, W . Europe 1‐3% : Russia E. Europe <1% : Africa & Latin America Presence in 14 markets +20 Countries US UK FRA CAN POL GER ITA BHR 2017 2020 NTO £5Bn £7‐8Bn COL KWT GRE IRE Adult Vapou

  53. Slide 53: The vapour business is additive

    The vapour business is additive Alone Outside with At Home VAPOUR 5% Others 22% 8% £Mns NTO evolution COMBUSTIBLES 78% 18% Home With Others 70% THP 22% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Alone COMBUSTIBLES At Office / Out of Home 78% Combustibles (Duty Paid) Vapour Dual Quit

  54. Slide 54: Building the Strongest Vapour Portfolio

    Building the Strongest Vapour Portfolio Reassuringly Refined Exceeding High Familiar Flavor Expectations Performance Simple Intuitive Effective solo ciro vibe alto Despite Vibe Recall, VUSE Shipments up 20% vs. SPLY, GM > 40% 54

  55. Slide 55: Adult vapour users and smokers say VUSE Alto is a winner

    Competitive Adult Vapour users and Adult smokers say VUSE Alto is a winner VUSE Alto test results among adult smokers and vapour users: Satisfaction on Key Measures Majority of respondents claim Alto tastes better than competitive pod‐mods 86% 2/3 of committed to future purchase of Alto 81% 80% 78%

  56. Slide 56: Unsolicited social chatter supports VUSE Alto research

    Unsolicited social chatter supports VUSE Alto research Performance, silent draw, satisfaction, design & value equation “Makes absolutely no crackling noise” “Hits smoother than any other compact system I’ve used” “This isn't cheap by any means, but when compared to Juul, it's actually a pretty good

  57. Slide 57: Vapour - Other markets

    BRITISH AMERICAN VAPOUR — Other markets

  58. Slide 58: Vaping represents a margin opportunity

    Vaping represents a margin opportunity POTENTIAL GM PER CONSUMERS (Index) OPPORTUNITIES TO FURTHER DRIVE SCALE PRODUCT 100 130 SATISFACTION SIMPLICITY & 100 190 CONVENIENCE TRUST & 100 210 CREDIBILITY Based on average annual individual consumption. Sources: Vype online consumer surveys; 58

  59. Slide 59: EPEN3 promising results proving potential to drive conversion

    EPEN3 promising results proving potential to drive conversion EPEN3 OUTSCORES COMPETITORS IN KEY ATTRIBTUES A FUTURE‐FIT MARKETING MODEL DRIVING RESULTS OUT‐OF‐HOME 44% TRADITIONAL RETAIL PUBLIC RELATIONS / PRODUCT 49% EARNED MEDIA SATISFACTION 54% NON‐RETAIL ACTIVATION 4.6 SIMPLICITY & 4.5 CONVENIE

  60. Slide 60: EPEN3 promising results proving potential to drive strong conversion

    EPEN3 promising results proving potential to drive strong conversion ON TRACK TO ACHIEVE 70% WD 82% 57% 43% ACROSS VAPE SHOPS & TRADITIONAL RETAIL ePen3 Active Predominant Solus Conversion to Usage Usage Usage Ratio 13 Cartridge / Device 4 Comp 3 Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk Wk

  61. Slide 61: Canada EPEN3 shows strong early results

    Canada EPEN3 shows strong early results, after 11 weeks COMPETITIVE REACHING FULL POTENTIAL AWARENESS CONSTANT GROWTH DISPOSITION ROS will accelerate at POS Devices/week ePen3 Comp 1 11 40% 42% +20% 33% 33% WEEK‐ON‐WEEK 3.1 1.9 W1 W2 W3 w4 w5 w6 w7 w8 w9 w10 w11 66% Claimed regular usage* Aware Purc

  62. Slide 62: Leveraging leadership to build multi-category capabilities

    Leveraging leadership to build Multi‐category capabilities CATEGORY LEADERSHIP WITH OVER 50% VALUE SHARE FULLY LEVERAGE CHIC RETAIL NETWORK FOR GLO ACTIVATION THROUGH DIFFERENTIATED PRODUCT PORTFOLIO NTO (£Mn) 10% 35.3 32.2 2016 2018 Source: Company data.. 62

  63. Slide 63: An Exciting Innovation Pipeline for 2018 and beyond

    An Exciting Innovation Pipeline for 2018 and beyond Vype ePen3 Vype iSwitch PureTech Blade Compact Powerhouse World‐first technology Vype ePod Vype eLiquids High performance Flavour & satisfaction ‘Pod‐Mods’ system technologies 63

  64. Slide 64: Vaping is an exciting growing opportunity for BAT

    Vaping is an exciting growing opportunity for BAT NTO and GM accretive Robust consumer validation underpinning current & future pipeline Step change in Marketing Activation to follow consumer path with new capabilities More stringent/science based regulation and enforcement are expected & welcome 64

  65. Slide 65: THP

    cd BRITISH AMERICAN TOBACCO THP Paul Lageweg

  66. Slide 66: Addressing concerns - What we will show you

    Addressing concerns ‐ What we will show you “The THP category and glo has stalled in Japan and shown limited results elsewhere, how can you succeed in THP?”  THP is a significant, profitable opportunity, but it remains small compared to cigarettes  Category growth has slowed, but glo is performing

  67. Slide 67: Focused THP investment in markets with the largest potential

    Focused THP investment in markets with the largest potential THP Industry Global Footprint & Performance Glo Footprint & Performance 14 markets > 90% of global THP volume 2016 2017 2018 0.01 bn 2.2 bn 6.9 bn Fast THP Growth Markets: National Launches 4.4% SOM  0.8% SOM  Medium THP Growth Markets:

  68. Slide 68: Poly-Usage Becoming the Key Consumer Dynamic

    Poly‐Usage Becoming the Key Consumer Dynamic Dualists not always ‘on a journey’ to solus Consumer moments are key Poly‐usage growing NGP only, 13% Outside with Poly‐users among all NGP Alone Others consumers At Home Home with Others 23% 19% 13% FMC only, 65% Dualist FMC & NGP Q4'17 Q2'18 QTD 22% At

  69. Slide 69: Glo is Winning in the Next Growth Segment

    Glo is Winning in the Next Growth Segment Key smoker segments for THP Glo superior within Considerates Glo leads in high potential segment • Style/modernity THP • Experimentation Penetration Trend‐Seekers • Innovation • Flavour 70% — Main source of switch‐out Competitive Advantage: low THP — Very dy

  70. Slide 70: Neo Launch is Adding to Continuous Value Share Growth

    Neo Launch is Adding to Continuous Value Share Growth Neo Growing Fast Neo Further Enhances Margins Continued Glo Share Growth Blended Index to 30.0% Competition 25.8% 24.8% 25.0% Solus £385 £425 140 Share of 25.0%23.2% 24.4% Annual GM Contribution THP NTO 20.5% 20.7% 21.1% per user Share of THP Dua

  71. Slide 71: Leading on Digital Activation in Japan

    Leading on Digital Activation in Japan Digital Ecosystem Data Platform Unique QR Code Glo attracts more consumers than Connecting All Online & Enabling Automated Enabling Personalized Offline Touchpoints Consumer Engagement CRM Rewards Program competition # of in‐switchers RETAIL DIGITAL Index Index

  72. Slide 72: South Korea Relaunch - Early Signs are Very Encouraging

    South Korea Relaunch – Early Signs are Very Encouraging Total Brand Relaunch ‐ Back to Growth 0.78 0.74 Relaunch Area 0.67 0.63 0.60 0.57 0.62 0.52 0.52 0.51 Market Share 0.56 Non‐ Relaunch Area 0.51 W‐4 W‐3 W‐2 W‐1 W1 W2 W3 W4 W5 W6 W7 W8 W9 W10 New Activation Model: Consumer Focused, Digitally Ena

  73. Slide 73: European Markets: Strong Momentum

    European Markets : Strong Momentum as We Fine‐Tune and Scale‐up our Marketing Model Bucharest Moscow Turin Share of THP Share of THP Share of THP 13% GROWING MONTHLY 6% GROWING MONTHLY 6% GROWING MONTHLY Pilot & scale‐up of social selling Ramping up CRM capabilities Ramping up CRM capabilities model

  74. Slide 74: An Exciting Innovation Pipeline for 2019

    An Exciting Innovation Pipeline for 2019 LEPs & Series 3 Customisation Capsules Higher & Satisfaction Flavours 74

  75. Slide 75: Coming Soon - Tobacco Fusion Technology

    Coming Soon ‐ Tobacco Fusion Technology 75

  76. Slide 76: Margin & Leverage

    Margin & Leverage Ben Stevens 76

  77. Slide 77: Addressing concerns - What we will show you

    Addressing concerns ‐ What we will show you “Is 50‐100bps of margin growth a realistic deliverable, given future NGP investment requirements?”  Underlying margin growth has been robust  We are confident we can fund our PRRP investment and grow margin “How can you reach the net debt/EBITDA target o

  78. Slide 78: Consistent underlying Operating Margin improvement

    Consistent underlying Operating Margin improvement Adjusted Operating 0.7% 0.5% ‐0.6% ‐0.9% 0.2% Margin Increase Components of Operating Margin change: Underlying Combustibles & Oral 5‐year average 2.1% 1.4% 1.5% 1.4% 1.5% 1.3% ‐0.4% ‐0.3% ‐0.6% ‐0.2% ‐0.1% ‐0.7% ‐2.1% ‐0.2% ‐2.4% Transactional FX N

  79. Slide 79: Confident in future margin growth of 50-100bps on average

    We remain confident in future margin growth of 50‐100bpts on average Medium Term 5‐Yr Average 2018 Illustrative Illustrative Underlying Combustibles & Oral 1.5% 1.0% to 1.5% NGP ‐0.5% to ‐1.0% ‐1.5% +£500m NGP investment impact 79

  80. Slide 80: BAT is highly cash generative

    BAT is highly cash generative Free Cash Flow % Adjusted Earnings* MSA timing adjustment 24% 86% 90% 81% 82% 80% 73% 64% 60% 2011 2012 2013 2014 2015 2016 2017 Average * Adjusted profit attributable to shareholders at reported FX 80

  81. Slide 81: 65% Dividend Pay-out ratio, 15% of Adjusted Net Earnings for debt paydown

    With a 65% Dividend Pay‐out ratio, 15% of Adjusted Net Earnings* is available as cash to pay down debt Adjusted Net Earnings* Free Cash Flow @ 80% › ~15% of Adjusted Net Earnings available for debt paydown Dividends @ 65% › Additional £1.4bn Net Cash Flow in 2018 to reduce Net Debt following early M

  82. Slide 82: Good progress on deleveraging partly offset by FX

    Good progress on deleveraging partly offset by FX NET DEBT / ADJUSTED EBITDA DRIVERS 2017 Closing* 4.0x  FX movements +~0.2x  Underlying deleveraging at consistent FX rates ‐0.4x 2018 Outlook 3.8x ‐ 3.9x  Incremental 2018 NGP investments +0.1x  EBITDA growth  Debt reduction driven by operating

  83. Slide 83: Currency composition of Net Debt & Adjusted EBITDA

    Currency composition of Net Debt & ADJUSTED EBITDA Net Debt ADJUSTED EBITDA Other, 1% EUR, 13% GBP, 24% EUR, 12% Other, 36% GBP, 2% USD, 63% USD, 51% GBP USD EUR Other GBP USD EUR Other  The Net Debt / EBITDA metric is impacted by FX from timing (Income Statement vs Balance Sheet rates) and mix 83

  84. Slide 84: Analyst Briefing

    Analyst Briefing 16th October 2018 Jack Bowles 84

  85. Slide 85: 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 250 200 Reported DPS 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 b

  86. Slide 86: Market concerns

    Market concerns “Combustible volumes and pricing are under pressure, can the business sustain LT profit growth?” “US cigarette market volumes are under increased pressure, share is not growing, will results in the US match those of the past?” “How can FDA regulation not be a negative for the industr

  87. Slide 87: A growing sustainable business

    A growing sustainable business C O M B U S T I B L E F U N DA M E N TA L S S T R O N G ; BAT C O N T I N U ES TO O U T P E R F O R M F DA R EG U L AT I O N M A N AG EA B L E P R R P S A G R EAT O P P O R T U N I T Y M A R G I N G R OW T H A N D D E ‐ L E V E R AG I N G ; A N D I N V ES T I N G I N P

  88. Slide 88: A bright future

    A bright future wes. PALLMALL © a , cAileg : Newport” louse 88

  89. Slide 89: Analyst Briefing

    Analyst Briefing 16th October 2018 Jack Bowles 89

  90. Slide 90: Questions

    Questions 90

  91. Slide 91: 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

  92. Slide 92: 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

British American Tobacco p.l.c. — Investor Day (October 2018) on 6ix