investing for growth · barclays global consumer staples conference | september 2017 • winston...

Investing for GrowthBarclays Global Consumer Staples Conference

Boston | September 2017

2 |

Disclaimer

Certain statements in this presentation

constitute or may constitute forward-looking

statements. Any statement in this

presentation that is not a statement of

historical fact including, without limitation,

those regarding the Company’s future

expectations, operations, financial

performance, financial condition and

business is or may be a forward-looking

statement. Such forward-looking statements

are subject to risks and uncertainties that

may cause actual results to differ materially

from those projected or implied in any

forward-looking statement. These risks and

uncertainties include, among other factors,

changing economic, financial, business or

other market conditions. These and other

factors could adversely affect the outcome

and financial effects of the plans and events

described in this presentation. As a result,

you are cautioned not to place any reliance

on such forward-looking statements. The

forward-looking statements reflect knowledge

and information available at the date of this

presentation and the Company undertakes no

obligation to update its view of such risks and

uncertainties or to update the forward-looking

statements contained herein. Nothing in this

presentation should be construed as a profit

forecast or profit estimate and no statement

in this presentation should be interpreted to

mean that the future earnings per share of

the Company for current or future financial

years will necessarily match or exceed the

historical or published earnings per share of

the Company. This presentation has been

prepared for, and only for the members of the

Company, as a body, and no other persons.

The Company, its directors, employees,

agents or advisers do not accept or assume

responsibility to any other person to whom

this presentation is shown or into whose

hands it may come and any such

responsibility or liability is expressly

disclaimed. The material in this presentation

is not provided for tobacco product

advertising or promotional purposes. This

material does not constitute and should not

be construed as constituting an offer to sell,

or a solicitation of an offer to buy, any

tobacco products. The Company’s products

are sold only in compliance with the laws of

the particular jurisdictions in which they are

sold.

Barclays Global Consumer Staples Conference| September 2017

Oliver TantChief Financial Officer

4 | Barclays Global Consumer Staples Conference | September 2017

Investing to drive quality growthQuality Growth Supports Shareholder Returns

Investment delivering improved share across priority markets

Investment supports stronger medium-term revenue growth

Underpins 10% growth in dividend

Realising the NGP opportunity

£

5 |

Strengthen Portfolioright brands

Develop Footprintright markets

Drive Cost

OptimisationEmbed Capital

Discipline

Maximise sustainable shareholder returns

Our Strategy

• Radically simplify

• Invest in Asset Brands

• Develop blu & e-vapour

technologies

• New adjacencies

• Simplify operating model

• Lean manufacturing

• Control of overheads

• Maximise cash conversion

• Robust capital allocation

– Investment

– Dividend

– Debt repayment

• Prioritise growth

opportunities

• Quality share focus

• Sustain investment

Market repeatable

model

Quality Growth from Tobacco Maximisation and Consumer Adjacencies

Barclays Global Consumer Staples Conference | September 2017


Winning with brands that

matter in markets that

matter

Realising the

NGP opportunity

7 |

5000

31702500

FY13 Now Target

Strengthen portfolio: migrations and SKU rationalisation


More simplification and focus, more quality

Percentages based on reported net revenue

65 migrations with c. 95% retention

249

200184

125

FY13 FY15 FY16 Target

No. of brands

26%

50%

20%

51% 57% 60% 75%

Growth & Specialist Brands % of net revenue Example: Spain – Brooklyn to West

SKU Rationalisation

37% 50%

8 |

Strengthening our Portfolio

• Growing share of strongest equities

• +270bps since 2013

• Share growing excluding migrations

5.4% 5.7%

7.2%7.7% 8.1%

2013 2014 2015 2016 HY17

Growth Brand Share %

Increasing share in strongest equities


9 |

Develop Footprint


How we evaluate growth opportunities

Attractiveness Attainability

• Market size & profitability

• Affordability & pricing

• Macro environment

• Regulation

• Strength of portfolio

• Customer relationships

• Distribution capabilities

Where to invest How to win

10 |

Investing in markets that matterS

tick P

rofita

bili

ty

Stick Affordability

USA

Germany

UK

Indonesia

Argentina

UkrainePhilippines

Japan

Australia

Brazil

Data Source: IMB data; Euromonitor 2015

Bubble size represents market size in billion stick equivalent

Saudi

Arabia

• Significant difference in revenue

per stick between most and least

profitable markets

• Focus on quality share growthItaly

Where to Invest…

Japan

Russia


Spain

France

IMB Growth markets

Non-IMB markets

IMB Returns markets

11 |

• £300m additional investment in FY17

• Investing to grow quality share

• Simple and consistent framework

• Clear investment hurdle rates


How to Win…MRM provides framework for investment choices

Delivering improved share in priority markets


Share growth in priority markets

Continued growth in Winston, Kool

Fine Cut driving share; FMC improving

Investment around MRM supports share growth

Continued JPS growth

Rationalisation; News growth; price investment

Markets growing volume share on MQT basis

Growing share of convenience channel

JPS growth & benefits from broader distribution

Share of FMC stabilising, FCT remains to be addressed

West growing share; excise & macro challenges

Rationalisation & distribution benefits; price investment

Markets with improving volume share trend on MQT basis

Volume Share Trend Volume Share Trend

Investment Driving Quality Share Growth

Representing c. 70% of Tobacco Adjusted Operating Profit

13 |

USA: Delivering Against Strategy


Sustained investment in Winston & Kool

Media campaign

New pack design Select blend launch Activations

Online presence Price investment

• Enhancing distribution; 169,000

retailers

• New Winston select blend

launch

• New activation initiatives

• Price investment optimised

• Strong performance in Mass

Market Cigars

• FDA developments

14 |

USA Premium Cigarette Portfolio

Consistent Growth in Winston & Kool


• Winston & Kool growing

retail volume & share

• Discount premium

segment in growth

• Address decline in

Maverick

Continuing positive share momentum

Source: MSAi Retail Partnership Database;

2.01%

2.14%

2.25%2.29%

2.40%

2.26%

1.71%

1.84% 1.82%

1.88% 1.91%

1.87%

Oct-15 Oct-16 Jul-17

15 |

UK


Leading in a challenging market

New coverage model

30% more calls

+61k listings

+13k outlets

Brand solutions

Key account focus On price strategy

L&B Blue : 2x10 pack

+2%

share in

grocery

40.8%

Sep Dec Mar Jun Jul

FY16 FY17

42.1%

Market share based on Moving Quarterly Total

ITG Share of Market MQT

16 |

Germany


Consumer activation

Improving share led by FCT

FCT share gains

JPS Blue Stream launch

22.2%

Sep Dec Mar Jun Jul

FY16 FY17

22.8%



17 |

11278

34

2015 2016 2017

17%22% 24%

Q2 16 Q1 17 Q2 17

KA share of volume

Russia


Driving performance in growth segments

SKU reduction

New Coverage Model Key Account investment

Investment in P&S

70%

+30% outlets

+17k POS

+200 Reps

6.8%

Sep Dec Mar Jun Jul

FY16 FY17

7.4%



18 |

Brand Migration Enhancing Growth


Parker & Simpson growth supports stronger portfolio

• 50bps growth over 18 months

• Driven by organic growth & BS migration

Oct 13 Apr 14 Oct 14 Apr 15 Oct 15 Apr 16 Oct 16 Apr 17

P&S Balkan Star1.28%

1.35%

Parker & Simpson Share Progression

Queen

SizeCrushball

Migrations to build scale

Initiatives to build equity

Balkan Star to Parker & Simpson



Video

20 |

JapanContinuous growth with investment


Targeted distributionField Force Expansion

Consumer-led Portfolio Digital Activation

FY16 FY17

Headcount

+15%55% of market

in 5 regions

0.7%

Sep Dec Mar Jun Jul

FY16 FY17

0.9%



21 |

ItalyInvestment in activation and distribution


4.5%

Sep Dec Mar Jun Jul

FY16 FY17

4.7%



Channel ExpansionDavidoff Activation

JPS Distribution Build Growing blu

+1,000 Outlets+30 Cities

13,000 Outlets

92%

97%

OCT MAR

Weighted Distribution


Winning with brands that

matter in markets that

matter

Realising the

NGP opportunity

23 |

Developing New Consumer ExperiencesStrong technology and brand credentials

23 |

IP licensing of 1st

generationAcquired bluAcquired

eNT

Acquired Dragonite

Acquired Supersmoker

Established Fontem

Ventures

• Intellectual

property

• Technical

knowhow

• Separate

business

• HQ in Amsterdam

• Hon Lik inventor

of e-cigarettes

• Ruyan ‘1st gen’ IP

• Investment $75m

• Market leading

US EVP brand

• Key part of LOR

& RAI asset

acquisition

• Included SkyCigs

brand in the UK

• Nicotine delivery

technology

• Enforcement of lP

with major

competitors

• Royalty income >

cost of Dragonite

2011 2012 2014 2015 2015 2016/17


24 |

Developing New Consumer ExperiencesOur future: realising the NGP opportunity


• EVP is the largest long-term opportunity

• Greater optionality: device, flavour, nicotine

• FY18 – further acceleration of activities

• Developing our product offering

• Expanding our market footprint

25 |

Capital Discipline: Best in Class Cash ConversionConsistent improvement in cash conversion

Average2011-13

2013 2014 2015 2016

95%

Cash Conversion

97%

91%

86%

82%

Operating Margin

• £600m cost optimisation

by FY20 supports best in

class margins

• Consistent cash

performance supports

investment, deleverage &

shareholder returns


43% 43%44%

46%47%

FY12 FY 13 FY 14 FY 15 FY 16

26 |

The Growth ‘Algorithm’


Increased investment adds to dividend sustainability

• Investment supports higher revenue growth

• Higher % of EPS growth from top-line

• Sustains higher level of EPS growth

• Reinforces 10% dividend commitment

What does the investment deliver?

Revenue

Growth

EPS

Growth

1%

4%

4%

8%

Medium-term guidance

Dividend

Growth

10%

27 |

FTSE 100

Growing DividendCompelling growth, more cover, higher yield


5.4%

4.0%

3.7%

3.7%

3.9%3.9%

Bubble size relate to dividend yield


Investing to drive quality growthQuality Growth Supports Shareholder Returns

Investment delivering improved share across priority markets

Investment supports stronger medium-term revenue growth

Underpins 10% growth in dividend

Realising the NGP opportunity

£

investing for growth · barclays global consumer staples conference | september 2017 • winston...

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