British American Tobacco
Ben Stevens – Finance Director
Deutsche Bank Conference, June 2014
Winning strategy with proven track record
• Consistently executed strategy
• Challenging trading conditions
in recent years
• High single figure constant
earnings growth delivered
• Sustainable business model
• Well positioned for continued
success
A winning formula
Developing markets driving growth
Strong brands driven by innovation
Continuous margin improvement
Commitment to shareholder returns
A winning formula
Developing markets driving growth
Strong brands driven by innovation
Continuous margin improvement
Commitment to shareholder returns
A strong geographic footprint
Volume
NTO/Mille
NTO CAGR
split %
(relative)
(08-13)
Developing
71%
1.0x
+7.5%
Developed
29%
1.8x
+3.2%
Developed markets – source of current profits
Developing markets – driver of future profits
Source: Company internal data, NTO at current rates
Developing markets - long term growth opportunity
Adult Middle Class
3400
3200
3000
2800
2600
2400
2200
2000
millions
millions
Adult Population
2013
2023
% of World
Consumption Spend
50
1600
1400
1200
1000
800
600
400
200
0
40
30
20
10
0
2013
2023
2013
2023
By 2023
+350m adults
Adult Middle Class
doubles +700m adults
Consumption spend
grows to 40% of world
+ £12,000bn
2+ x Russia
4+ x Russia
2 x North America
Source: World Bank & Oxford Economics – includes India & China
… and BAT is well positioned for the future
Strong, growing positions in key
developing markets
Investing in new opportunities
BAT Market Share in Top 10 Developing Markets
by volume
China
21.4%
6.5%
Indonesia
India (ITC)
Philippines
Turkey
80.0%
0.6%
20.5%
Vietnam
Morocco
32.1%
Brazil
Ukraine
Bangladesh
China
0.1%
Russia
Indonesia
Philippines
77.7%
18.3%
45.3%
Myanmar
A winning formula
Developing markets driving growth
Strong brands driven by innovation
Continuous margin improvement
Commitment to shareholder returns
A strong, growing international brand portfolio…
Global Drive Brands
(including Rothmans)
+7.8% p.a.
130
International Brands
GDB+IBs
+1.8% p.a.
+5.4% p.a.
CAGR 2002-2013
GDB and Cigarette Volume – 2009-2013
GDB volume
120
110
100
Cigarette
volume
90
2009
2010
2011
2012
2013
… driven by Innovations…
Innovations rollout since 2009
GDB share growth
100
(including Rothmans)
Jan 12 – Dec 13 Exit Shares
Number of markets
80
60
40
AsPac
+110bps
Americas
+460bps
W Europe
+ 80bps
EEMEA
+170bps
Group
+150bps
20
Source: AC Nielsen Retail Audit
0
09 10 11 12 13
Capsules
09 10 11 12 13
Reloc
11 12 13
Additive Free
12 13
Tubes
… which deliver results…
2.3
5,000
4,000
2.1
3,000
T40 share
1.9
2,000
2,500
1.7
1,000
2,000
0
1,500
Q1 2013
1,000
500
Q3 2013
Q4 2013
Q1 2014
Russia volume (mn)
1,400
0
700
Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q31,200
13 Q4 13 Q1 14
600
1,000
Rothmans Demi-Slims growing strongly
in Russia
500
Q2 2013
Tubes launched in 14 markets
Strong global share growth driven by Reloc
800
Tubes volume (mn)
800
400
600
300
Additive Free volume (mn)
200
100
400
200
Capsule volume Americas
0
0
Q1 11
Q3 11
Q1 12
Q3 12
Q1 13
Q3 13
Global market leader in Additive Free
Recent launches: Brazil and Mexico
Q1 14
Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14
Pall Mall Capsules driving growth in the Americas
… and strong share growth
+40bps
300
Premium
Share
+80bps
200
Corporate
Share
+10bps
+60bps
+20bps
+20bps
+40bps
+10bps
100
0
2010
Source: AC Nielsen Retail Audit
2011
2012
2013
2014 Q1
Product innovation is sustainable
• Quality products (44% superior, 97% parity or better)
• Better products taste better, consumers will pay more
• Differentiated taste and flavour will become increasingly important
• Visibly differentiated innovations with consumer USP
• Vertically integrated business a competitive advantage
• 75% of leaf needs purchased directly from our contracted farmers
• Relationships with farmers enable us to grow the leaf we require
• BAT well placed given likely future regulatory trends
• More standardised packaging
• Ingredients restrictions
And further growth opportunities exist in NGPs
•
•
•
•
Volume remains <1% of WE consumption
Industry growth rates have slowed
Consumer behaviour evolving rapidly
Products in development – eCigs, medicinal and HnB
Category is a growth opportunity
A winning formula
Developing markets driving growth
Strong brands driven by innovation
Continuous margin improvement
Commitment to shareholder returns
Excellent margin progression…
38.1%
37.1%
35.5%
£400m
profit
delivery
33.2%
31.3%
2009
2010
Source: Company’s financial results, all years restated for IAS19
2011
2012
2013
… with continuing opportunities for growth
• Factory Footprint – 67 factories closed since 2000
• Complexity reduction – packaging rationalisation and standardisation,
reduced pack formats
• Pricing – price mix in the range of 5-8%, premium share growth (+150 bps
since 2010)
• OneSAP / TaO
Confident of improving margin by 50-100 bps per year
Driven by a single global operating model
OneSAP driving margin
• Single instance of SAP drives standardisation of operating model
• Shared Services and Centres of Expertise:
• Increased value added activities
• Enable End Markets to focus on Brands, Trade, Regulation and Talent
OneSAP rollout progress
• Asia complete June 2014 - 28% of our volume on TaO
Malaysia: September 2012
Australasia: October 2013
South Asia: January 2014
• Next: Western Europe / Centre
• Complete by 2017
EEMEA
Americas
A winning formula
Developing markets driving growth
Strong brands driven by innovation
Continuous margin improvement
Commitment to shareholder returns
Committed to growing earnings and dividends…
216.6
207.5
CAGR in dividends 13% p.a.
194.6
CAGR in EPS 11% p.a.
175.7
153.0
128.8
Div per share
Adj EPS
Payout ratio
57.9
29.0
32.0
114.2
83.7
66.2
38.8
35.2
99.5
98.1
75.8
69.2
66.5
142.4
126.5
108.5
89.3
61.8
134.9
41.9
47.0
55.9
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
50%
52%
53%
56%
55%
53%
57%
61%
65%
65%
65%
65%
65%
66%
Commitment to raising dividend in Sterling terms
Source: Company’s financial results as published
2012 EPS not restated for IAS19
… and returning cash to shareholders
£bn, Current FX
2009
2010
2011
2012
2013
Total
Free Cash Flow
2.6
3.2
3.3
3.3
3.4
15.8
Dividends Paid
1.8
2.1
2.4
2.5
2.6
11.4
Share Buy-Back
0.0
0.0
0.8
1.3
1.5
3.6
Total Shareholder Returns
1.8
2.1
3.2
3.8
4.1
15.0
69%
66%
97%
115%
121%
95%
Total Shareholder Returns as % of FCF
£15bn returned to shareholders since 2009
Driving a strong TSR performance
Growth in the value of a hypothetical £100 holding over 5 years
300
263.9
Valur of Hypothetical £100 holding
250
237.0
226.7
197.7
199.9
200
188.4
161.4
156.2
150
131.1
148.3
143.3
119.8
100
50
0
Dec 08
Dec 09
Dec 10
Dec 11
British American Tobacco
Dec 12
FTSE100
Dec 13
Jun 14
Q1 Trading
• Volume improving
• Pricing on track
• Continued good share growth
• Premium share again grew faster than corporate share
• GDBs continued to perform well
• Innovations double digit volume growth
• Adverse FX – translational and transactional
• Remain confident of high single figure earnings growth on a
constant currency basis
Business is performing well
A winning strategy
• A powerful brand portfolio
• World leading innovations
• Geographic diversity
• Fully integrated supply chain
• Margin growth opportunities
• Committed to shareholder
returns
Proven strategy continues to deliver
British American Tobacco
Ben Stevens – Finance Director
Deutsche Bank Conference, June 2014