British American Tobacco Debt Investor Update Presentation, March 2015 Ben Stevens Finance Director 1
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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 3
Preliminary results 2014 - summary Financials Volume Current Revenue 14.0bn Profit 5.4bn Margin 38.7% EPS 208.1p Cigarettes -8.4% 2.8% -1.4% 667bn -7.2% 0.5pp -3.9% Constant 4.4% 0.5pp 7.9% Total Tobacco 694bn GDBs 278bn Total IBs 397bn -1.3% 5.8% 3.0% A strong performance in a tough environment 4
Proposed offer for Souza Cruz BAT has filed a request to register a public tender offer to acquire up to all of the 24.7% of Souza Cruz shares which are not currently owned by BAT and to delist the company, representing a cost of 2.3bn for BAT in the event of a 100% take-up. Proposed offer for Souza Cruz in Brazil The offer is still subject to prior approval by the Brazilian securities regulator. Upon approval, a formal offer can be made by BAT which will remain subject to the satisfaction of certain conditions precedent, including acceptance of the offer by two-thirds of the holders of free float shares that qualify for the auction. Bridge financing is in place. 5
Maintain investment in Reynolds Intended $4.7bn investment in our associate Reynolds American to maintain our 42% holding in the new enlarged company US remains an important market and is the largest profit pool outside China Deal would make Reynolds a clear No.2 All shareholder approvals have now been obtained and Reynolds is currently waiting for FTC approval. The deal remains on track to complete in the first half of the year. Bridge financing is in place. 6
Rating and financial policy Target Net debt/adj. EBITDA of 1.5x-2.5x Financing principles: Strong centre liquidity Average debt maturity of at least 5 years (currently 6.7 years) 20% of total debt maturing on a rolling 12-month basis Distribute 65% of long term sustainable earnings 795mn of shares bought back to end July, now suspended due to Reynolds and potential Souza Cruz transaction to 2017 S&P Moody s Fitch LT Rating A- A3 A- ST Rating A-2 P-2 F-2 Outlook Stable Stable Stable 7
Regulation and litigation 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 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 Litigation: Litigation threat originated in USA Minority shareholding in Reynolds American Indemnification provided in respect of B&W cases Today most active jurisdiction is Canada Types of cases: healthcare recoupment cases, class actions, individual cases and other Other 8
Debt maturity profile 1,400m 1,200m Weighted average years to maturity 6.72 Total issues 25 EUR GBP USD CHF 1,000m 800m 600m 400m 200m 0m 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2029 2034 2040 Access to undrawn 3bn Group RCF matures May 2019 with two one-year extension options 9