British American Tobacco Debt Investor Update London, 7 March 2013 1
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BAT overview Second largest listed company by global market share One of the largest consumer brand companies globally Market cap of 67.1bn as of 1 March 2013 Clear and consistent business strategy Excellent geographic diversification Leader in innovations Strong cash flow and credit metrics Powerful portfolio of leading brands 3
A proven strategy which continues to deliver! 4
Operating in a highly consolidated market World Market Share 2012 % Cumulative PMI 16.0 16.0 BAT Subs JT Imperial 12.0 8.6 5.1 28.0 36.6 41.7 74% of the world market excluding China CNTC 42.5 84.2 Others 15.8 100.0 Note: BAT s figures exclude associates volumes. Others include Altria, KT&G, Eastern, Gudang Garam and Djarum, amongst others. Source: Internal company analysis and public company disclosure filings duty paid market only. 5
Our strengths A powerful brand portfolio World leading innovations GDBs Source: Internal company analysis. VFM = Value for money 6
Growth Global Drive Brands Global drive brands Volume: 49 billion, up 2% Share +0.1 ppt in T40 Strong growth in Indonesia, South Africa, Malaysia Innovations account for 73% 250 200 150 100 50 0 GDB volumes 2002-2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Volume: 67 billion, up 1% Share is flat Strong performance in Russia, Ukraine and Azerbaijan Innovations driving growth GDB volume: 232 billion +3% Total international brands: 377 billion +2% Organic premium volume -1% Organic below-premium volume -2% 7
Growth Global Drive Brands Global drive brands Volume: 33 billion, up 11% Share +0.2 ppt in T40 Growth in Western Europe and Americas Capsule markets driving growth 250 200 150 100 50 0 GDB volumes 2002-2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Volume: 83 billion, up 3% Share +0.1 ppt in T40 Strong performance in Pakistan Southern Europe impacting volume GDB volume: 232 billion +3% Total international brands: 377 billion +2% Organic premium volume -1% Organic below-premium volume -2% 8
Our strengths A powerful brand portfolio World leading innovations Geographic diversity 25% Fully integrated supply chain - Leaf sourcing - Distribution Science-based R&D Source: Internal company analysis 9
Improving operating margin Significant driver of profit growth Savings from supply chain, overheads & indirects Targeting 50 to 100 basis points improvement a year Margin improvements across all regions Source: BAT 10
External landscape: Regulation WHO s Framework Convention on Tobacco Control (FCTC) in force, ratified by over 170 governments Further tobacco control and tobacco-related regulation has happened, driven by the FCTC and domestic regulation, such as: - Product e.g. product design, ingredients & reporting requirements - Packaging larger warnings, plain packaging & restrictions on pack design - Promotion consumer communication restrictions - Purchase product display restrictions - Place indoor and outdoor public place smoking bans - Price excise increases May impact overall legal sales volume and the cost of doing business May impact our ability to compete with both legitimate and illicit competitors 11
External landscape: Strategic Litigation Litigation threat originated in USA - Minority shareholding in Reynolds American - Indemnification provided in respect of B&W cases Limited litigation outside USA Today most active jurisdiction is Canada Types of cases: - Healthcare recoupment cases - Class actions - Individual cases - Other 12
Financial Highlights mn FY2012 FY2011 % Change Volume (bns) 694 705-2 GDB volume (bns) 232 226 +3 External NTO 15,190 15,399-1 External NTO (constant rates) 15,999 15,399 +4 Adjusted Operating Profit 5,681 5,519 +3 Adjusted Operating Profit Margin 37.4% 35.8% Adjusted Operating Profit (constant rates) 5,970 5,519 +8 EBITDA* 6,066 5,966 +2 EBITDA Margin 39.9% 38.7% Net Debt 8,473 7,928 +7 Net Debt/EBITDA* 1.4x 1.3x Source: BAT 2012 Preliminary Announcement. * EBITDA is on an adjusted basis 13
Profit from Operations Region 2012 2011 mn mn % Change Asia-Pacific 1,666 1,539 +8 Americas 1,415 1,441-2 Western Europe 1,186 1,228-3 Eastern Europe, Middle East and Africa 1,414 1,311 +8 Adjusted profit from operations 5,681 5,519 +3 Adjusting Items -269-798 Profit from operations 5,412 4,721 +15 Source: BAT 2012 Preliminary Announcement. 14
Cash Flow mn FY2012 FY2012 Adjusted profit from operations 5,681 5,519 Non cash items 430 515 Increase in working capital -282-141 Net capital expenditure -742-566 Operating cash flow 5,087 5,327 Pension funds shortfall funding -164-140 Net interest paid -429-469 Tax paid -1,496-1,447 Dividends paid to non-controlling interests -259-275 Restructuring costs -228-217 Dividends from associates 748 547 Free cash flow 3,259 3,326 Dividends paid to shareholders -2,538-2,358 Share buy-back -1,258-755 Net investment activities -43-311 Other net flows -57-93 Net cash flow -637-191 Source: BAT 2012 Preliminary Announcement. 15
Ratings Update & Financial Policies Ratings strategy: Target Net Debt/Adj. EBITDA of 1.5x-2.5x S&P Moody s Fitch LT Rating A- A3* A- ST Rating A-2 P-2 F-2 Outlook Stable Stable Stable Financing principles: - Strong centre liquidity - Average debt maturity of at least 5 years - 20% of total debt maturing on a rolling 12-month basis - Distribute 65% of long term sustainable earnings Share buyback programme of 1.5bn for 2013 * Upgraded from Baa1 on 12 th March 2013 16
Maturity profile As at 1 March 2013 Source: Internal company analysis Access to undrawn 2bn Group RCF matures Dec-15 17
Q&A Thank you! 18