British American Tobacco : Presentation script (0.2mb)

Deutsche Bank Global Consumer Conference 2021

Presentation Script

Tuesday 8 June, 16.00hrs CET

Presenters:

Kingsley Wheaton, Chief Marketing Officer

David O'Reilly, Director of Scientific Research

Jennie Galbraith, Head of Environment, Social and Governance

Kingsley Wheaton:

Hello everyone, I am Kingsley Wheaton, Chief Marketing Officer at BAT and I am here with David O'Reilly - Director of Scientific Research and Jennie Galbraith - our Head of ESG.

We are all delighted to be here to share with you how we are transforming BAT to create value for all our stakeholders.

Central to our transformation is our multi-category portfolio, which has significant potential to reduce harm and create value.

We are building consumer-led global brands: brands with purpose These brands are founded on the strength and depth of BAT's:

Industry leading multi-category R&D and science And our strong ESG foundations

Our purpose, A Better Tomorrow, is 'to reduce the health impact of our business'. We want to encourage smokers who would otherwise continue to smoke, to switch completely to scientifically-substantiated reduced risk alternatives. Given the health impact of cigarettes, that is the greatest contribution that we can make to society. And, in so doing, it will drive long-term, sustainable growth of our business.

So, as we win, society wins

To succeed, we must deliver value to all of our stakeholders. BAT has a long track record of strength in ESG. It is already deeply embedded in our organisation and our people. DJSI inclusion over the last 19 years is recognition of our consistent performance - And we are proud that we are the only tobacco company in the World Index

We have set ourselves stretching targets £5bn of New Category revenue by 2025

50 million consumers of non-combustible products by 2030

Scope 1 & 2 carbon neutrality by the same year, and Scope 3 by 2050 And a broad range of environmental targets by 2025

So, BAT is transforming. From a company that is growing revenue and value, yet with declining industry volumes and a harmful societal impact.

To a high growth, Multi-category, Brand led, Consumer Products company. Growing New Category volumes, revenue and value, Encouraging consumers of combustible products to switch and in so doing, reducing our impact on public health

The business of today defines itself not by the products we sell, but by the consumer needs we meet.

We have a unique consumer-centric,multi-category model. Led by the consumer, this model leverages our well-established. Strong consumer reach and global presence cross-category consumer insights, deep understanding of product satisfaction, detailed market opportunity mapping and increasing digital and technology savvy. These capabilities, taken together, give us a unique competitive advantage

We have clear priorities for each brand. Vuse's share momentum sets us on course to become the world's largest vapour brand, allied to a clear path to profitability. glo Hyper is our most successful tobacco heating product to date, closing the satisfaction gap with peers. We aim for glo to be the fastest growing THP brand.

Our leading Modern Oral products in Europe have global appeal. Whilst the Dryft acquisition has transformed our portfolio in the US. Again, our ambition is clear - Global Leadership with Velo.

Our strong global brands underpin our confidence in delivering shared stakeholder and shareholder value.

Post-COVID we expect constant currency Revenue growth of 3-5%

EPS growth in high-single figures

Targets that work in tandem with our Non-combustible consumer, New Category Revenue and profitability ambitions. So, what is it that makes us confident in our delivery?

Our multi-category approach means that we are uniquely positioned Not only does this give us the greatest potential reduce harm

But it also gives us the biggest opportunity to create sustainable, long-term value for our business and our stakeholders

So, why is that?

First, Consumers are not homogeneous, with different preferences by geography, and even across moods and moments, we see poly-usage between the New Categories Second, cigarette taste strengths vary by country, meaning different cigarette alternatives will have different appeal to smokers in different countries

Lastly, the regulatory landscape is varied. Which affects which products are legal, our ability to communicate with consumers and excise levels.

This is why our strategy was built around a multi-category approach from the outset. To provide smokers the greatest opportunity to switch.

We offer the broadest range of reduced-risk tobacco and nicotine alternatives and therefore, we maximise:

Our opportunity for harm reduction

The commercial opportunities to drive growth And the highest resilience to regulatory shift

And this multi-category opportunity is very significant. In just 5 years New Category consumers have more than doubled, with industry revenue up strongly. And we expect further strong growth in the next 5 years and beyond

We are growing our share of that opportunity, from zero in 2015 to 17% today….with

more to come. It is important to remember that with 1.1bn smokers globally, our £5bn revenue target for 2025 is just a milestone. We have a significant runway of growth for many years to come.

And that growth is accelerating. In the first quarter of this year we added another 1.4 million non-combustible product consumers, reaching nearly 15 million globally

The transformation of our business is clear. Around 15% of our revenue in developed markets already comes from reduced risk products. And over the last 3 years, our combustible volume has fallen by 13%, while still generating the value to provide the resources to invest in our transformation and deliver strong financial results

We are capitalising on our strong momentum by continuing to build global consumer- led brands with purpose. Our in depth consumer insights guide us as to why consumers move from cigarettes to New Categories

Three key consumer motivation areas account for most of the decision to switch:

A satisfying consumer experience,

Scientific substantiation of reduced risk

And powerful, global, trusted brands that fit consumers' values

BAT is uniquely positioned to attract the greatest number of smokers. Our progressive approach to innovation ensures we are 'narrowing the compromise bridge' for those that make the switch to alternatives. Whilst we offer exciting brands with genuine purpose it's essential to have all three of these to create a fast-growing business which will ensure sustainable long term growth.

Our momentum in brand power is translating into strong share growth across all New Categories. As we announced in our pre-close statement today:

Vuse is growing share across all of its Top 5 markets

glo continues to build share in Japan, while glo Hyper is also seeing great traction in ENA - notably in Russia, Ukraine, Romania and Italy and

Velo is driving share growth in Modern Oral in the US as we roll out the products acquired through Dryft

Overall, our brands are getting stronger and stronger.

That's important because consumers interact with and buy brands - not platforms, categories or products This is evidenced by the increase in brand equity right across our portfolio and that reassures us that we are on the right pathway to create three leading global brands.

Vuse is one example of how we are driving our brand equity higher. Driven by award winning campaigns and digital engagement, we are building the leading and the most trusted vaping brand worldwide. And, as part of this, we are very proud that Vuse has been certified as the world's first global carbon neutral vapour brand.

For glo, the launch of Hyper has been our most successful to date due to our first-to- world induction heating technology. This technology has many advantages including a faster ramp up time, satisfaction and consumer control. It has allowed us to close the satisfaction gap with peers. And we continue to make excellent progress with our work to substantiate the reduced risk nature of glo, which Dr David O'Reilly will talk about in more detail

Meanwhile, the acquisition of Dryft has transformed our portfolio in the US modern oral market

With the enhanced Velo range now available nationwide. Our targeted marketing and consumer engagement activity has already driven Velo brand awareness to parity with the market leader

We are very excited about each of our three global brands, leading brands with genuine purpose, that will make a difference.

We are leveraging our world-class innovation capabilities. Over the last 7 years, we have already seen our devices and consumables transform, driven by consumer insights and continued investment behind science and R&D. One can only imagine what the new category offers will look like in 2025 and 2030, never mind beyond.

As we announced at our investor day in March last year, expansion beyond nicotine is the next logical step on our portfolio journey. We aim to meet unmet consumer needs with a portfolio of the future, that aligns with BAT's capability footprint.

As we explore beyond nicotine, we are building an ecosystem of new capabilities. Working within clear parameters, we are taking a collaborative, agile approach to minority stakes and partnerships and bolt on M&A.

B Tomorrow Ventures was established to explore and develop new science, technologies and capabilities, in nicotine and beyond and has completed 12 investments to date.

Earlier this year, we launched a pilot of our first CBD vaping product, Vuse CBD Zone, in Manchester, UK.

We also entered a strategic R&D collaboration with Organigram, a leading licensed Canadian cannabis producer, following an acquisition of 19.9% of the company. While it is early days in Beyond Nicotine, it has an exciting future, enabling revenue growth beyond reduced-risk tobacco and nicotine.

To conclude. The transformation at BAT is accelerating we are pivoting from a business that defines itself, not by the product it sells, but by the consumer needs that it meets. A transformation that is driven by new capabilities partnered with our core strengths. 21st century capabilities in brand building, route to consumer, technology, data, analytics and digital all play their role.

We are confident in delivering against our clear targets and transforming our business to build A Better Tomorrow. Our commitment to reducing the health impact of our business is core to our Purpose at BAT. And World class science underpins this commitment and Dr David O'Reilly will now take you through our work in more detail

Dr David O'Reilly:

With 1.1 billion people continuing to smoke globally despite the associated health risks. Tobacco Harm Reduction must continue to be a public health priority.

A key part of this is to ensure widespread understanding of where the harm associated with smoking comes from. Evidence shows that most of the harm is from the products of combustion, not nicotine.

Something that is recognised by the FDA and the Royal College of Physicians. For smokers who do not want to quit, nicotine delivered without combustion can significantly reduce risks and, as suggested by the RCP, avoid the harm associated with smoking.

Nicotine is a naturally occurring substance that is extracted and purified for use in alternative products. It can cause dependence, which is one of the reasons people find it difficult to give up smoking. Whilst not risk free it is worth emphasising two things:

Nicotine is not a known carcinogen

And nicotine and smoking are not the same thing

However, there is still a lot of education to do. A recent survey amongst US physicians found that the majority "strongly agreed" that nicotine directly contributed to the development of cancer and chronic obstructive pulmonary disease.

In 2001 the US National Academy of Sciences' Institute of Medicine published its seminal report 'Clearing the Smoke'. It laid out a weight of evidence approach to scientifically