Multi-Category strategy delivers growth in difficult times
Interim Results 2020
Jack Bowles - Chief Executive | Tadeu Marroco - Finance Director
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Among the key factors that could cause actual results to differ materially from those projected in the forward-looking statements are uncertainties related to the following: the impact of competition from illicit trade; the impact of adverse domestic or international legislation and regulation; changes in domestic or international tax laws and rates and the impact of an unfavourable ruling by a tax authority in a disputed area; adverse litigation and dispute outcomes and the
effect of such outcomes on the Group's financial condition; changes or differences in domestic or international economic or political conditions; the impact of
the COVID-19 pandemic; adverse decisions by domestic or international regulatory bodies; the impact of market size reduction and consumer down-trading; translational and transactional foreign exchange rate exposure; the impact of serious injury, illness or death in the workplace; the ability to maintain credit ratings and to fund the business under the current capital structure; the inability to develop, commercialise and rollout New Categories; and changes in the market position, businesses, financial condition, results of operations or prospects of the Group.
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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 26 March 2020 and Current Reports on Form 6-K, which may be obtained free of charge at the SEC's website, http://www.sec.gov, and BAT's Annual Reports, which may be obtained free of charge from the British American Tobacco website www.bat.com.
Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. Readers are cautioned not to place undue reliance on such forward-looking statements.
Additional Information
All financial statements and financial information provided by or with respect to the US or Reynolds American Inc. ("RAI") are initially prepared on the basis of U.S. GAAP and constitute the primary financial statements or financial records of the US business/RAI. This financial information is then converted to International Financial Reporting Standards as issued by the IASB and as adopted by the European Union (IFRS) for the purpose of consolidation within the results of the BAT Group. To the extent any such financial information provided in this presentation relates to the US or RAI it is provided as an explanation of, or supplement to, RAI's primary U.S. GAAP based financial statements and information.
Our vapour product Vuse (including Alto and Vibe), and certain oral products including Grizzly, Granit, Camel Snus, Kodiak and Velo, which are sold in the US, are subject to the Food and Drug Administration (FDA) regulation and no reduced-risk claims will be made to these products without agency clearance.
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of BAT for the current or future financial years would necessarily match or exceed the historical published earnings per share of BAT.
Audience
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2020 H1 RESULTS: Our Multi-Category strategy delivers growth in difficult times
Delivering revenue, profit and earnings growth* in exceptional circumstances Multi-Category consumer acquisition drives revenue and share growth** Excellent Combustibles value and volume share growth
Navigating COVID supported by our diverse geographic footprint
Committed to delivery and our 65% dividend pay-out ratio
Share growth versus FY19. Source: Company data | 4 | |||||||
* On an adjusted, constant rate basis. See Appendix A1 & A2 ** Tracked share metrics | ||||||||
Building A Better Tomorrow
A Defining Corporate Purpose | Good Progress in 2020 | ||
Non-Combustibles now 10% of revenue
Additional 2.7m* Non-Combustibles consumers
Invested additional £250m** in New Categories
Set ambitious 2025 environmental targets
Set ambitious 2030 Carbon Neutrality target
To reduce the health impact of our business by offering a greater choice of enjoyable and less risky products for our consumers
* Growth over last 12 months. ** Marketing Investment | 5 | |||||||
Delivering for Today & Investing in the Future
Clear Commercial Priorities | Good Progress in 2020 | |
STEP-CHANGE IN
NEW CATEGORIES
COMBUSTIBLE VALUE
GROWTH
SIMPLIFY THE COMPANY
Growing share* in New Categories
New Category revenue** +12.7%
Cigarette price/mix*** +8.5% Group revenue** +2.4%
Quantum savings c.£240m YTD
Navigating COVID with agility
Stronger, Simpler, Faster Commitment to Deliver
Our people have gone above and beyond to deliver growth
Share growth versus FY19. Source: Company data | 6 | |||||||
* Volume share in THP, Value share in Vapour.. ** On an adjusted, constant rate basis. See Appendix A1 & A2. *** Price/mix defined in Appendix A4 | ||||||||
H1 2020 RESULTS: Delivering for Today
Results demonstrate real resilience during COVID
REPORTED | ADJUSTED | |
H1 2020 | H1 2020 | |
@ Current rates | @ Constant rates* | |
Revenue | +0.8% | +2.4% |
New Category Revenue | +14.7% | +12.7% |
Operating Margin | +550 bps** | +80 bps*** |
Profit From Operations | +16.4%** | +3.3% |
Diluted EPS | +22.7%** | +6.6% |
* On an adjusted, constant rate basis. See Appendix A1 & A2 . | 7 | |||||||
** Prior period affected by charge in respect of the Quebec class action in Canada. *** Current rate growth | ||||||||
H1 2020 RESULTS:
A strong performance in a challenging environment
+50bps +20bps +40bps
Corporate | Corporate Value | Strategic Cig+THP | |
Volume Share | Share | Value Share | |
+12.7% +2.4% +3.3%
New Category | Group | Adjusted Profit* from |
Revenue* | Revenue* | operations |
Share growth versus FY19. Source: Company data
* On an adjusted, constant rate basis. See Appendix A1 & A2
-6.3%
-5.3% (excl GTR)
BAT Volumes
(FMC+THP)
+6.6%
Adjusted Diluted
EPS*
8
Successfully navigating a challenging environment
COVID revenue* headwind c.4% H1; c.3% expected FY
Developed Markets | Emerging Markets | ||
(c.75% of Group revenue) | (c.25% of Group revenue) | ||
Consumption resilient; | Volume impacted by | ||
stable to slightly higher | lockdown severity & duration | ||
› | Good pricing | › Deeper lockdown in some | |
› | Little evidence of | markets | |
accelerated downtrading | › Reduced illicit trade in others | ||
› South Africa sales ban | |||
Volume share +30bps | Volume share +70bps | ||
New Categories
Category growth slowed; now recovering
- Face-to-faceconsumer activation restricted
- Switch to Digital comms
- E-commercerevenue up >2x
Growing share**
Global Travel Retail (GTR) substantially impacted
Share growth versus FY19. Source: Company data | 9 | |||||||
*Adjusted Revenue on a constant rate basis. See Appendix A1 & A2 | ** Volume share in THP, Value share in Vapour.. | |||||||
NEW CATEGORIES: Driving a Step-Change
Investing in Non-Combustible consumer acquisition in New Categories
Leveraging our digital capabilities
Growing our overall share** in New Categories
Share growth versus FY19. Source: Company data | 10 | |||||||
* On an adjusted, constant rate basis. See Appendix A1 & A2. ** Volume share in THP, Value share in Vapour.. | ||||||||
New Categories: Consumer acquisition drives growth
+2.7m
(vs H1 2019)
Non-Combustible
product Consumers
#1
Vapour Device
Sales***
+12.7%
New Category
Revenue*
UP2x
E-commerce
Revenue*
+£250m
Additional
Investment**
UP2x
Speed of
Innovation^
Share growth versus FY19. Source: Company data | 11 | |||||||
* On an adjusted, constant rate basis. See Appendix A1 & A2. ** Marketing Investment. *** Volume share of devices: US and Canada, share of starter kits UK, France: and Germany ^ Prototype to product | ||||||||
New Categories: Successfully pivoting to digital during COVID
Strong momentum in social media across New Categories
33% 89%
Share of Social Media | Share of Social Media | ||
Engagement in Vapour | Engagement in Mod. Oral | ||
x1.5 | Social | X | Social |
Mentions | Mentions | ||
2.8 | |||
H1 2020 vs SPLY | H1 2020 vs SPLY |
Source: BAT Internal Estimates : Social Media Listening Analytics
Hyper
Highest interest THP
launch
x1.9 Social
Mentions
Post Hyper Launch (Q2'20 vs SPLY)
12
VAPOUR: Delivering a Step-Change
6.1m vapour consumers
Vuse/Vype growing value share in all key markets
Industry returning to growth in all key markets
13
Vapour: Vuse/Vype driving strong growth
+2.1m
(vs H1 2019)
Vapour
Consumers
26%
Value Share
in T5 Markets
+39%
Vapour
Revenue*
UP3x
Strategic Brand
Value Share in T5**
+70%
US Vapour
Revenue*
UP 3x
Vuse Alto US Value Share**
Number of consumers growth versus HY19. Number of consumers includes poly-users unless otherwise indicated. Source: Company data | 14 | |||||||
* On an adjusted, constant rate basis. See Appendix A1 & A2 . ** growth over last 12 months | ||||||||
Vapour: Vuse/Vype growing share* in all key markets
Industry returning to growth in all key markets
Vapour Industry Value | Vuse/Vype | |||
12m | 3m | YTD Value | YTD | |
change | change | share | vs FY 19 | |
-17% | +20% | 26.0% | +10.4pp | |
+73% | +38% | 35.0% | +11.0pp | |
+24% | +17% | 13.0% | +1.8pp |
+21% | +25% | 26.6% | +9.4pp | ||
-11% | +2% | 45.8% | +10.0pp | ||
T5 Markets recovered to 76% of prior year peak value** | |||||
* Value share. Company data. Share growth YTD share v FY19. **Top 5 vapour markets offtake value | Note: US(Vapour) - Jun Marlin Vapour Consumables Value Share; Canada - Jun Scan Data Vapour Value Share; UK - Jun | 15 | |||
accounting for 80% of vapour revenue. US industry based on volume. Growth over last 12 months | Nielsen Vype Value Share; France - Jun Strator Vapour Value Share; Germany - Jun Nielsen Vapour Value Share; | ||||
(May '20 vs. Jun '19).
Vapour: Vuse/Vype is No.1 in device sales
Leading indicator of future growth
#1 | #1 | #1 | #1 | #1 |
47% 70% 36% 70% 44%
Vype/Vuse Volume Share of Device / Starter Kits (Latest available month)
Note : (1) USA & Canada : Volume Share of Device (Jun'20) (2) UK & France : Volume Share of Starter Kits (Jun'20) (3) Germany : Volume Share of Starter Kits (May'20) | 16 | |||||||
Vapour: Vuse brand consolidation grows share
Canada value share at 44%* post Vype to Vuse migration
Value Share
+9%pts
Accelerating post migration
Online
Sales
+54%
VS. Q1'20
Vuse | JUUL | IQOS | ||||||||
Retention | Vuse | |||||||||
66% | Migration | |||||||||
100% | ||||||||||
Vuse | ||||||||||
56% | ||||||||||
Within Vuse | 44% | |||||||||
Consumer | 27% | |||||||||
91% | 3% | 3% | ||||||||
Awareness | ||||||||||
Dec'19 Jan'20 Feb'20 Mar'20 | Apr'20 May'20 Jun'20 |
Vuse growing share of total nicotine post migration
* Latest weekly Value share. Note: Company data - Consumables $ Share of Value by brand. Retention and consumer data based on internal consumer data tracker . | 17 | |||||||
THP: Delivering a Step-Change
Growing volume share in Japan and ENA
Strong early results from Hyper
Delivering improved satisfaction
Pivoting to digital activation
Note: Company data - Improved satisfaction based on +30% tobacco stick with device delivery based on consumer testing data. | 18 | |||||||
THP: Growing volume share in Japan and ENA
+70bps
to 18.9%
Japan Total Nicotine
Volume Share
0.7%
glo Hyper Japan
June Share
5.4%
glo Japan
June Share
2.8%
glo Moscow June Share
Jun | YTD vs. | ||
YTD | FY 19* | ||
5.3% | +0.3pp | ||
2.3% | +1.3pp | ||
Moscow | |||
0.2% | +0.1pp | ||
0.7% | +0.5pp |
THP revenue down -12%* due to:
- Japan excise harmonisation
- glo Sens underperformance
THP Volume share growth v FY19. Japan - Jun CVS-BC Vol. Share of FMC+THP+Hybrid; Russia - Moscow Jun IMS est. Vol. Share of FMC+THP; Italy - Jun Nielsen Vol. Share of FMC+THP; Ukraine - May Nielsen RMS Vol. Share of | 19 | |||||||
FMC+THP; *On an adjusted, constant rate basis. See Appendix A1 & A2 | ||||||||
THP: glo Hyper delivers improved satisfaction
Induction heating and larger stick format
Tobacco Satisfaction
Taste and Flavour
Device
Stick
Conversion Rates
++
++
+
++
++
+30% More Tobacco + King Size
New Flavours & Capsules
Fast Ramp up with Boost Button
Premium King Stick Format
50% Conversion
Sources consumer data: company data based on brand launch monitor, CCC offtake data, social media listening, CVS share, ecommerce, glo stores and D2C consumer data. Conversion rates based on device penetration | 20 | |||||||
relative to share at latest weekly share. | ||||||||
THP: Continued growth* in Japan supported by glo Hyper
+5.9%
glo
June Exit Share*
1.3%
glo Hyper
June Exit Share*
37%
glo Hyper
New Consumer
Acquisition
50%
UP 2X
Conversion
Rate
Hyper
launch
H1 Exit
5.4%
5.9%
4.7% | H1 Exit |
0.7% | 1.3% |
Dec'19 Jan'20 Feb'20 Mar'20 | Apr'20 May'20 Jun'20 | |||
Total Glo | Hyper | |||
H1 Digital launches; H2 Full launches in Japan, Russia, Romania, Italy and Germany
* Volume share. Chart source: CVS Offtake | 21 | |||||||
Sources consumer data: company data based on brand launch monitor, CCC offtake data, social media listening, CVS share, ecommerce, glo stores and D2C consumer data. Conversion rates based on device penetration | ||||||||
relative to latest weekly share. | ||||||||
MODERN ORAL: Delivering a Step-Change
Strong revenue* growth in a fast-growing category
Strengthening leadership in Scandinavia**
Volume share growth in US, but limited by portfolio gaps
Share growth versus FY19. Source: Company data | 22 | |||||||
* On an adjusted, constant rate basis. See Appendix A1 & A2. ** EPOK and LYFT brands | ||||||||
Modern Oral: 71% growth* in an exciting category
#1
Scandinavia
Volume Share
+71%
Modern Oral
Revenue*
+3.6ppts
-300bps L3Mths
US Modern Oral
Share
Portfolio gaps limiting share growth in US
Encouraging pilots in
APME & AMSSA
- COVID impacting activations
Volume share | YTD vs. | ||
Jun YTD | FY 19** | ||
9.3% | +3.6pp | ||
3.9% | +1.7pp | ||
72.6% | +17.1pp | ||
53.4% | +7.1pp | ||
14.2% | +3.1pp |
* Constant currency revenue growth. Volume Share growth YTD share v FY19. See Appendix A1, A2. Scandinavian volume share relates to EPOK and LYFT brands. ** Volume share v FY19. US(MO) - Jun Marlin Vol. | 23 | |||||||
Share of Total Modern Oral; Sweden - Jun Nielsen Vol. Share of Total Oral; Denmark - Jun Nielsen Vol. Share of Total Oral; Switzerland - Jun Scan Data excl. Co-op Vol. Share of Total Oral (SPAR & Top CC data | ||||||||
missing from Jun); Norway - Jun Nielsen Vol. Share of Total Oral; | ||||||||
Modern Oral: Leadership in Scandinavia
Volume Share of |
Total Oral |
4.5 |
62% |
Share in |
Modern Oral |
1.4 |
Mar'19 Jun'19 Sep'19 Dec'19 Mar'20 Jun'20 |
LYFT/EPOK |
Share of total oral in retail, % |
Volume Share of | Volume Share of | |
Total Oral | Total Oral | |
14.7 | 74.3 | |
67% | 95% | |
Share in | Share in | |
Modern Oral | Modern Oral | |
8.6 | ||
Mar'19 Jun'19 Sep'19 | Dec'19 Mar'20 Jun'20 | Mar'19 Jun'19 Sep'19 Dec'19 Mar'20 Jun'20 |
EPOK | LYFT/EPOK | |
Share of total oral in retail, % | Share of total oral in retail, % |
Source : Nielsen retail RA June 2020, NCT R3M June 2020, NO Dunhumby | 24 | |||||||
NEW CATEGORIES: Driving a Step-Change
Adding 2.7m Non-Combustible product consumers
Delivering 12.7% revenue* growth in a challenging environment
Investing an additional £250m**
Successfully pivoting to digital during COVID
Growing share*** in Vapour and THP, with strong revenue growth in Modern Oral
Share growth versus FY19. Source: Company data | 25 | |||||||
* On an adjusted, constant rate basis. See Appendix A1 & A2. ** Marketing Investment *** Volume share in THP, Value share in Vapour | ||||||||
COMBUSTIBLES: Value and volume share growth
Excellent global value and volume share growth, with strong pricing
Driving revenue* and value share growth in the US
Value and volume share growth in every region
Growing value share in Developed Markets and volume share in Emerging
Markets
Share growth versus FY19. Source: Company data * On an adjusted, constant rate basis. See Appendix A1 & A2 | 26 | |||||||
The BAT Group does not own all brands featured in this presentation in all markets, e.g. BAT is the owner of Camel and Natural American Spirit in US only | ||||||||
Combustibles: Delivering excellent share growth
+50bps
Corporate Volume
Share
+2.2%
Combustibles
Revenue*
+20bps
Corporate Value
Share
+8.5%
Cigarette
Price/Mix
+40bps
Strategic Brand Value Share
66%
Strategic Brand
Share of Group
Combustible volume
Share growth versus FY19. Source: Company data | 27 | |||||||
* On an adjusted, constant rate basis. See Appendix A1 & A2 | ||||||||
Combustibles: Well balanced portfolio
Driving value growth and strong pricing
Premium
36%
of Group CPTO*
Mid
19%
of Group CPTO*
VFM^
45%
of Group CPTO*
Source: Company internal estimates at constant rates. The BAT Group does not own all brands featured in this presentation in all markets, e.g. BAT is the owner of Camel and Natural American Spirit in US only. *Estimated | 28 | |||||||
consumer price turnover (CPTO) Combustible Strategic Brands FY 2019. | ||||||||
Combustibles: a strong performance
Winning in all market types and key segments
Key Segments | DMs (c.75% revenue) | EMs (c.25% revenue) | |||
Driving growth | Driving value growth | Driving volume growth | |||
+100bps | 70 | ||||
Freshness and | 50 | ||||
stimulation | |||||
Slimmer | +170bps | 20 | 30 | 30 | |
+30bps | Flat | ||||
Corporate Share | Share in Developed | Share in Emerging | |||
Non full | Markets | Markets | |||
flavour |
Volume share change | Value share change |
FMC share change YTD 2020 vs FY 2019 | 29 | |||||||
Driving revenue growth in the US
US Corporate Volume Cigarette Share 35%, Newport Share 15%
+10%
US Revenue and
Operating Profit
Growth*
+76%
US New Category
Revenue*
+30bps
US Value Share
+10%pts
US Vapour
Value Share growth
Strong Brands Driving Value Share Growth
Higher Pricing Ahead of Peers enabled by Revenue Growth Management
Cigarette industry volume up +0.8%; FY outlook c.-2.5%
YTD vapour value share up c.1.5x
Share growth versus FY19. Source: Company data | 30 | |||||||
* On an adjusted, constant rate basis. See Appendix A1 & A2 | ||||||||
Multi-Category Strategy: Total Nicotine share in the US up 70bps
US Nicotine Industry Value by Category
THP | |
Modern Oral 0.0% | |
1.0% | |
Vapour | |
5.5% | |
Cigarettes | |
Traditional | 83.0% |
Oral | |
10.5% | US Nicotine |
Industry Value
by Category
BAT Growing Share of Total Nicotine
35.9% +70bps
US Nicotine Value | US Nicotine Value | |
Share | Share Growth |
33.6% +60bps
US Nicotine Volume | US Nicotine Volume | |
Share | Share Growth |
Share growth versus FY19. Source: Company data | 31 | |||||||
H2: COVID uncertainty remains
Navigating COVID with Agility
- Little evidence of accelerated downtrading to date in DMs
- Lockdown restrictions slowly easing
- All factories now fully reopened
- BCPs maintain supply continuity
South Africa
Sales Ban Maintained
- Court hearing delayed to August
- We have a strong case
- Planning for a positive outcome
GTR Substantially
Impacted
- Planning for some recovery end Q4
COVID Uncertainty
Remains
- Planning for sequential recovery through H2
- Environment remains uncertain
Share growth versus FY19. Source: Company data. BCP: Business Continuity planning | 32 | |||||||
South Africa cigarette and alcohol ban
A strong Q1 performance - Court hearing in August
Strong Q1 Performance
+10%
Volume vs. SPLY
Avg Daily Consumption
-38%
Daily consumption
An Illicit Market
100%
Total market is illicit
Group Impact
-£25m
Adjusted profit from operations per month
Illicit Price Spike
- 300%
Government Revenue Lost
-£340m
Tobacco Excise and VAT*
Share growth versus FY19. Source: Company data | 33 | |||||||
*Industry-wide | ||||||||
2020 H1 RESULTS: Our Multi-Category strategy delivers growth in difficult times
Delivering Revenue, Profit and Earnings Growth* in exceptional circumstances Multi-Category consumer acquisition drives revenue and share growth** Excellent Combustibles value and volume share growth
Navigating COVID supported by our diverse geographic footprint
Committed to delivery and our 65% dividend pay-out ratio
Share growth versus FY19. Source: Company data | 34 | |||||||
* On an adjusted, constant rate basis. See Appendix A1 & A2 ** Tracked share metrics | ||||||||
Delivering for today & investing in the future
STEP-CHANGE IN NEW
CATEGORIES
COMBUSTIBLE VALUE
GROWTH
SIMPLIFY THE COMPANY
Unique Multi-Category Strategy
Investing in our Global Brands
Strong brands and pricing
Broad based share growth
Agile organisation, resilient supply
chain, embracing digital
Focus on cost control and
investing in the future
35
Tadeu Marroco |
Finance Director
H1 2020 RESULTS:
Delivering for today & investing in the future
Delivering revenue* growth in a challenging environment
Releasing funds to support the growth agenda
Realising the benefits of Quantum Phase 1
Generating cash to de-lever the balance sheet
Committed to dividend growth and our 65% pay-out ratio
* On an adjusted, constant rate basis. See Appendix A1 & A2 | 37 | |||||||
REVENUE: Growth in a challenging environment
Revenue* +2.4%, absorbing c.-4% H1 COVID headwind
- Combustible revenue* +2.2%
- New Category revenue* +12.7%
Strong cigarette price/mix** +8.5%
- Volume and value share gains of +50bps; +20bps
-
5.6% Strategic brand combustible revenue* growth
(66% of Group volume) - Strong US performance with revenue* +9.7%
Total Revenue* £bn
12.4
+2.4%
12.1
H1'19H1'20
* On an adjusted, constant rate basis. See Appendix A1 & A2. **Price/mix defined in Appendix A4 | 38 | |||||||
PRICING: Continued strong price/mix* +8.5%
› Strong, balanced brand portfolio |
Cigarettes Price / Mix
› Revenue growth management |
› Elasticity & affordability remain robust |
› >80% pricing achieved YTD |
› Little evidence of accelerated downtrading to date |
› Strong H1 pricing, benefitting from 2019 rollover |
› Lapping a strong price/mix comparator in H2 |
9.2%
7.0%
8.5%
H1'19 FY19 H1'20
* Price/mix defined in Appendix A4 | 39 | |||||||
REGIONS: Value share** growth in all regions
Regional performance reflects contrasting EM/DM COVID impacts
Adjusted | Value | Adjusted Profit from | ||||
Revenue* | Share** | Operations* | ||||
US | +9.7% | +30bps | +9.6% | |||
ENA | +3.0% | +10bps | +2.9% | |||
APME | -10.5% | +20bps | -6.9% | |||
AMSSA | -0.9% | +50bps | -3.6% | |||
Group | +2.4% | +20bps | +3.3% |
*Adjusted and constant rate basis. See Appendix A1-A2. **Value share of cigarettes (APME: cigs+THP) v FY19 | 40 |
Source: Company data
MARKETS: Contrasting EM/DM COVID impacts
DMs (c.75% revenue) | EMs (c.25% revenue) |
H1 Industry Volume | H1 Industry Volume |
GER | +3.7% | BRA | +7.8% |
USA | +0.8% | RUS | -2.6% |
JPN | -3.9 | % | VNM | -8.8% |
ITA | -4.0% | MEX | -14.4% |
Source: Company data | 41 | |||||||
OPERATING MARGIN:
Releasing funds to support the growth agenda
New Categories investment +c.£250m; margin +80bps
+0.8 | |||||
4.0 | -2.7 | ||||
-0.5 | 43.7% | ||||
42.9% | |||||
+80bps | + | £250m | |||
New Category | |||||
Marketing | |||||
Investment | |||||
2019 Adjusted | Pricing and Operational | Incremental New | Transactional FX | 2020 Adjusted | |
Operating Margin | Efficiencies | Categories | Operating Margin* |
* On an adjusted current rate basis. See Appendix A1. | 42 | |||||||
QUANTUM: Realising the benefits of Phase 1
80% of Phase 1 savings realised; c.£300m expected savings for FY20
Phase 1 Completed:
Ahead of schedule
Organisational re-design
Simplification and agility New ways of working
Phase 2 Underway:
Operational efficiency
Route to market focus Supply chain productivity
80% Phase 1
savings realised
~£240m
in H1 2020
Phase 2
~£700m
2021-22
Expected savings
£1bn
2020-2022
Expected savings
Supporting investment and
continued delivery
On track to deliver Phase 1 savings of £300m
43
EPS*: Strong growth up +6.6%
H1 EPS* growth benefitting from:
- Good contribution from associates
- Reduced H1 underlying tax rate 25.0%
FY EPS* considerations:
- H2 associate income reflecting COVID
- FY underlying tax rate slightly lower than previous guidance of 25.5%
- FX translation headwind of c.2.5%
* Adjusted, diluted, EPS at constant rates. See Appendix A1 and A2. | 44 | |||||||
CASH AND DELEVERAGE:
Strong liquidity position >90% operating cash conversion
Strong H1 Operating Cash | Strengthened Liquidity | Manageable Maturity | |||
Flow Conversion | in H1 | Profile | |||
80% | £ in billions | 3.9 | £ in billions | ||
7.2 | |||||
3.4 | £ | ||||
70%* | |||||
66% | € | ||||
1.9 | 3.3 | ||||
3.0 | 2.6 | ||||
73%* | |||||
$ | 2.3* | ||||
1.0 | |||||||||
USD: April 2020 EUR: April 2020 GBP: June 2020 | Due H2'20 Due'21 | Due'22 | Due'23 | ||||||
7, 10 & 30 year 4.5 & 8 year 8 year bonds | |||||||||
bonds | bonds | ||||||||
H1'18 | H1'19 | H1'20 | |||||||
Cash generation led by | £3.9bn | Bond issuance | 8.9yr | Average Maturity | |||||
£4.8bn | 12-18 month Bi-laterals | 88:12 | Fixed:Floating | ||||||
Combustibles | £6.0bn | Renewed RCF: 1 & 5 year term | 59:24:11:6 | $:£:€:Other | |||||
21 banks; No financial covenants | * Repaid in July 2020 | ||||||||
* H1 2018 normalised for MSA impact in 2018. H1 2020 normalized for US excise deferral and COVID related inventories.
45
Committed to dividend growth & 65% pay-out ratio
CAPITAL
DISCIPLINE | ALLOCATION |
PRIORITIES | |
c.£650m Capex = Depreciation* | Deleverage (Adj Net debt/Adj EBITDA**) |
• Around 3x expected by end 2021 | |
• 1.5x-2.5x long term corridor | |
Working Capital efficiencies | Dividend |
• 65% pay-out ratio growth in GBP | |
£1bn Quantum savings expected 2020-2022 | BAT Ventures; partnerships/small |
scale M&A |
*Adjusted **Adjusted Net Debt to Adjusted EBITDA | 46 | |||||||
On track to deliver FY 2020 Guidance
Demonstrating resilience through COVID challenges
1-3% | Mid Single | Continue to |
Revenue* | Figure | De-leverage |
EPS Growth^ |
* Adjusted Revenue on a constant rate basis. See Appendix A1 & A2 | 47 | ||||||||
^Adjusted Diluted EPS on a constant rate basis. See Appendix A1 | & A2 | ||||||||
Jack Bowles |
Chief Executive
2020 H1 RESULTS: Our Multi-Category strategy delivers growth in difficult times
Delivering revenue, profit and earnings growth* in exceptional circumstances Multi-Category consumer acquisition drives revenue and share growth** Excellent Combustibles value and volume share growth
Navigating COVID supported by our diverse geographic footprint
Committed to delivery and our 65% dividend pay-out ratio
Share growth versus FY19. Source: Company data | 49 | |||||||
* On an adjusted, constant rate basis. See Appendix A1 & A2 ** Tracked share metrics | ||||||||
Delivering for Today & Investing in the Future
Clear Commercial Priorities | Good Progress in 2020 | |
STEP-CHANGE IN
NEW CATEGORIES
COMBUSTIBLE VALUE
GROWTH
SIMPLIFY THE COMPANY
Growing share* in New Categories
New Category revenue** +12.7%
Cigarette price/mix*** +8.5% Group revenue** +2.4%
Quantum savings c.£240m YTD
Navigating COVID with agility
Stronger, Simpler, Faster Commitment to Deliver
Our people have gone above and beyond to deliver growth
Share growth versus FY19. Source: Company data | 50 | |||||||
* Volume share in THP, Value share in Vapour.. ** On an adjusted, constant rate basis. See Appendix A1 & A2. *** Price/mix defined in Appendix A4 | ||||||||
H1 2020 RESULTS:
A strong performance in a challenging environment
+50bps +20bps +40bps
Corporate | Corporate Value | Strategic Cig+THP | |
Volume Share | Share | Value Share | |
+12.7% +2.4% +3.3%
New Category | Group | Adjusted Profit* from |
Revenue* | Revenue* | operations |
Share growth versus FY19. Source: Company data
* On an adjusted, constant rate basis. See Appendix A1 & A2
-6.3%
-5.3% (excl GTR)
BAT Volumes
(FMC+THP)
+6.6%
Adjusted Diluted
EPS*
51
We are Building A Better Tomorrow
10% Non-Combustibles Revenue and 11.6mn Consumers Today
50mn Non-Combustible Product Consumers by 2030*
£5bn New Category Revenue by 2025*
Carbon Neutral by 2030*
To reduce the health impact of our business by offering a greater choice of enjoyable
and less risky products for our consumers
We remain committed to our medium-term guidance post-COVID
* ESG ambitions | 52 | |||||||
Appendix
ESG awards and recognition
2016 | 2017 | 2018 | 2019 | 2020 |
BBB
Europe
CLIMATE: A-
WATER: B
No.1
Ranking
A | A | BBB | |
World leader | World leader | ||
World leader |
50 most | |||
CLIMATE: A- | CLIMATE: B | CLIMATE: A | sustainable |
companies | |||
WATER: A- | WATER: B- | WATER: B | |
Leader | |||
92% |
Best place to work
for LGBT+
FTSE top 5 ranking for
Modern Slavery Statement
Advancing non-animal testing
Best eBook for Science & Technology Report
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 a re-translation, at the prior year's exchange rates, of the current year's results of the Group and, where applicable, its segments.
A3: Share metrics
Volume share: The number of units bought by consumers of a specific brand or combination of brands, as a proportion of the total units bought by consumers in the
industry, category or other sub-categorisation. Sub categories include, but are not limited to, the total nicotine category, modern oral, vapour, traditional oral or cigarette. Corporate volume share is the share held by BAT Group/Reynolds (US region).
Value share: The retail sales value of the product sold as a proportion of total retail sales value in that category.
Premium share: The retail sales volume of the premium product sold as a proportion of total retail sales volume of premium products in that category.
Nicotine share: The retail sales volume of the nicotine product sold as a proportion of total nicotine product volume in that category.
Exit share: The retail sales volume of the product sold as a proportion of total retail sales volume in that category at a specific period point in time.
A4: Price/Mix
Price mix is a term used by management and investors to explain the movement in revenue between periods. Revenue is affected by the volume (how many units are
sold) and the value (how much is each unit sold for). Price mix is used to explain the value component of the sales as the Group sells each unit for a value (price) but may
also achieve a movement in revenue due to the relative proportions of higher value volume sold compared to lower value volume sold (mix).
A5: Environmental Targets
Targets cover: climate change, water and waste, sustainable agriculture. Full details are available from the ESG Report https://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DOAWWEKR/$file/BAT_ESG_Report_2019.pdf.
A6: Non-Combustible consumers
The number of consumers of Non-Combustible products is defined as the estimated number of Legal Age (minimum 18 years) consumers of the Group's Non-Combustible products. In markets where regular consumer tracking is in place, this estimate is obtained from adult consumer tracking studies conducted by third parties (including Kantar). In markets where regular consumer tracking is not in place, the number of consumers of Non-Combustible products is derived from volume sales of consumables and devices in such markets, using consumption patterns obtained from other similar markets with consumer tracking (utilising studies conducted by third parties including Kantar).
The number of Non-Combustible products consumers is used by management to assess the number of consumers regularly using the Group's New Category products as the increase in Non-Combustible products is a key pillar of the Group's ESG Ambition and is integral to the sustainability of our business.
The Group's management believes that this measure is useful to investors given the Group's ESG ambition and alignment to the sustainability of the business with respect to the Non-Combustibles portfolio.
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British American Tobacco plc published this content on 31 July 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 July 2020 07:15:04 UTC