Investor Update November 2009 (241 kb) - British American Tobacco

British American
Tobacco
Investor update
November 2009
www.bat.com

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NOT FOR DISTRIBUTION INTO THE UNITED STATES OF AMERICA
1

Agenda
� Business overview
� Group strategy update
� Key highlights
� Financial overview
� Summary
2

BAT Overview
� A leading global tobacco company by global market share
� Market cap of £39.2bn as of November 4, 2009
� Clear and consistent business strategy
� Strong cash flow and liquidity position
� Excellent geographic diversity
� Leadership position in more than 50 markets
� Decline in mature markets offset by growth in emerging markets
� Powerful portfolio of leading brands
� Strong brands matched to market requirements
� Four Global Drive Brands: Lucky Strike, Kent, Dunhill, Pall Mall
3

Major Competitors
BAT*
PMI
JTI
Imperial
CNTC
Others
*BAT excludes associates
2008 World Market Shares %
5.4
12.9
11.1
15.7
15.1
39.8
More than 70% of
the world market
excluding China
4

Excellent geographic diversity with
exposure to growing emerging markets
Profitability by region 2008* Volumes by markets** 2008
14%
20%
13%
32%
21%
Europe Asia-Pacific
Latin America Africa & M East
America-Pacific
Source: 2008 report and accounts
* Profit from operations excluding unallocated costs,
exceptional items, restructuring costs and gains on disposals
76%
24%
Developed Markets
Developing Markets
Source: Internal company analysis
** Countries are allocated to developed and developing
markets based on the World Bank’s categorisation
5

Business Strategy
VISION
STRATEGY
GROWTH PRODUCTIVITY
� Organic Growth
- Key Segments & Brands
- Innovation
- Priority Markets
� Mergers & Acquisitions
WINNING ORGANISATION
� Great Place to Work
- Leadership
-Culture
ACHIEVE
LEADERSHIP OF
THE GLOBAL
TOBACCO INDUSTRY
� Smart Cost
Management
- Supply Chain
- Overheads & Indirects
� Marketing Efficiency
� Capital Effectiveness
RESPONSIBILITY
� Business
Principles
� Outstanding People
-Talent
- Learning
� Standards of
Business Conduct
� Sensible Regulation
� Harm Reduction
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Volume (Billions)
Growth: Global Drive Brands
200
180
160
140
120
100
80
60
40
20
0
78
85
Pall Mall Dunhill Kent Lucky Strike
93 100
Source: Internal company analysis
10.1% CAGR
113
114
125
146
161
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
187
136 142
2008 Q3
2009 Q3
7

Growth: Innovation
� There is a continuous emphasis on developing and rolling out brand and
product innovations, focusing on GDBs:
� formats e.g. Kent Nanotek
� packaging Re-sealable
� menthol Kool Boost
� charcoal Kent 3Tek
� limited edition packs Lucky Strike Window Pack
Global Drive Brands: Dunhill, Kent, Pall Mall, Lucky Strikes
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Mergers & Acquisitions
� Solid track record of strategic acquisitions:
� STK Cigarette & Snus business in Denmark 2008
� Tekel in Turkey in 2008
� Bentoel in Indonesia in 2009
� BAT continues to explore M&A opportunities which provide
a good strategic fit and meet relevant financial criteria
9

Productivity savings goal: 2008 – 2012
� A significant driver of profit growth
� Some drop through to the bottom line
� Balance reinvested in the business
� Target of a further £800mn by 2012
� Past savings of £1bn over 5 years in 2007
� Savings from supply chain, overheads & indirects
� Supply chain efficiencies
� Back office integration
� Management structures
10

Responsibility Strategy
� Business principles rolled out in all markets
� Corporate Social Responsibility reporting covering 40 countries
accounting for over 70% of our volume
� Ongoing stakeholder dialogue
� External recognition: e.g., inclusion in the Dow Jones Sustainability
Index, 2009 UK Business in the Community Corporate Responsibility
Index
� Publication of a sustainability report
11

Regulation update
� WHO’s Framework Convention on Tobacco Control
(FCTC) in force, ratified by over 160 governments
� Further tobacco control and tobacco-related
regulation will happen, driven by the FCTC and
domestic regulation, such as:
� Product e.g. product design requirements
� Packaging e.g. graphic health warnings on packs
� Promotion e.g. consumer communication restrictions
� Purchase e.g. product display restrictions
� Place e.g. public place smoking bans
� Price e.g. excise increases
� May impact overall sales volume and the cost of doing
business
12

Tobacco Litigation Update
� Historical
� Largest litigation threat in USA
� Overwhelming majority of cases in industry’s favour
� Healthcare recoupment cases
� Canada
� Nigeria
� Class Actions
� Individual Cases
13

Financial policies
� Liquidity : maintain minimum of £1bn in cash
and committed facilities
� Maturity profile : average maturity of 5 years
� Gross interest cover : between 5 and 9 times
� Dividends : distribute 65% of long term
sustainable earnings
� Share repurchase : £750mn in 2007, £400mn in 2008
currently suspended
14

Ratings update
� Ratings strategy:
� Target Baa1 / BBB+
� No lower than Baa2 / BBB
� Ratings affirmed after the Bentoel acquisition
Moody’s S&P Fitch
LT Rating Baa1 BBB+ BBB+
ST Rating P-2 A-2 F2
Outlook Stable Stable Stable
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£ mn
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
Debt maturities as at 4 th November 2009
-
2010
2011
2012
Average Group maturity Maturity Profile = 5.3 yrs
2013
2014
2015
2016
2017
Bonds Bank Facilities
2018
2019
2022
2024
2029
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Market Access & Liquidity
� Good access to bank market
� £ 1.75bn un-drawn committed credit facilities
� Refinanced € 700mn committed facilities in July 2009 to 2012
� All major bond markets available
� GBP, EUR, USD
� Re-established ECP programme in 2009
� Strong cash flow & cash balance
17

Liability Management Exercise
� On 4 th Nov BNP Paribas announced a tender of the
outstanding BAT EUR & GBP 2013s
� New longer-dated EUR & GBP issues planned, to be led by
Barclays Capital, BNP Paribas, RBS and SG CIB subject to
market conditions
� This exercise aims to reduce the debt maturity spike in
2013, extend the maturity of our debt portfolio and take
advantage of current long-term rates
18

Financial Highlights
£mn FY2007 FY2008 2008H1 2009H1
Volume (Bns) 684 715 334 349
External NTO 10,018 12,122 6,454 6,780
Operating Profit 3,002 3,717 1,757 2,164
Operating Profit Margin 30% 31% 27% 32%
EBITDA* 3,316 4,118 1,926 2,418
EBITDA Margin 33% 34% 30% 36%
Net Debt 5,665 9,852 7,329 9,587
* EBITDA is adjusted to exclude exceptional items
19

Profit from operations
Regions FY2007 FY2008
£mn £mn
Europe 842 1,213
Asia Pacific 672 804
Latin America 681 759
Africa Middle East 467 536
America Pacific 446 515
Total 3,108 3,827
Unallocated Costs -106 -110
Profit (Excluding exceptional items) 3,002 3,717
Exceptional items -98 -145
Profit from operations 2,904 3,572
20

Profit from operations
Regions 2008H1 2009H1
£mn £mn
Asia Pacific 456 557
Americas 516 579
Western Europe 334 509
Eastern Europe 199 183
Africa Middle East 252 336
Total 1,757 2,164
Unallocated Costs 0 0
Profit (Excluding exceptional items) 1,757 2,164
Exceptional items -33 -53
Profit from operations 1,724 2,111
21

Cash Flow
£mn FY2007 FY2008 2008H1 2009H1
Operating Cashflow 2,935 3,986 1,528 1,723
Net interest paid -280 -280 -125 -307
Tax paid -866 -943 -455 -517
Dividends paid to minorities -173 -173 -79 -112
Restructuring -190 -312 -74 -82
Dividends from associates 285 326 153 143
Free cash flow 1,711 2,604 948 848
Dividends paid to shareholders -1,198 -1,393 -954 -1,241
Share buy back -750 -400 -137
Purchase of Bentoel -300
Purchase of Tekel -873 -867 -12
Purchase of ST -1,243 190
Other Net Flows 152 -227 -117 -151
Net cash flow -85 -1,532 -1,127 -666
22

Summary
� Leading Global Tobacco Company by global market share
� Clear and consistent strategy that continues to deliver
� Excellent geographical diversification in both developed and
emerging markets
� Powerful portfolio brands
� Strong cash flow and liquidity positions
� Solid management track record of integrating and managing
assets
23