evolution consumer conference presentation

Evolution Consumer Conference, Edinburgh March 2011

Evolution Consumer Conference 2011

10th March 2011

Ralph Edmondson, Head of Investor Relations, & Brian Fleming, Tobacco Utilization Manager


15%

15%

12%

5%

7%

+2.1

-2%

-5% 0% 5% 10% 15%

DPS

Adj EPS

Operating margin ppts

Adjusted Profit

Revenue

GDBs

Volume

Delivering growth in challenging times


76.689.3

98.1108.5

128.8

153.0

175.7

41.9 4755.9

66.2

83.7

99.5114.2

2004 2005 2006 2007 2008 2009 2010

Adj EPS (pence) Div per share (pence)

CAGR 2004 to 2010:Adjusted EPS 15%Dividends per share 18%

Delivering growth in challenging times

Contents

Leaf Supply Chain ScopeLeaf Industry DynamicsLeaf Supply Chain CapabilitiesSustainability AgendaInnovation Agenda

Brian Fleming, Tobacco Utilization Manager


Research Grow Purchase Pack Deploy

Leaf

+ 200,000 farmers

+ £1.0bn annual spend 1000 containers at seaat any one time

+ 50 source markets

+ 50 ports going to 45 factories

450,000 tons sourced

+ 300 different grades

Leaf supply chain scope


17 BAT & 3 Associates Leaf Operation accounting for circa 80% of the Group requirements.

45% Domestic / 55% Exports

Chile

BrazilPeru

Venezuela

Mexico

USA

Zimbabwe

Nigeria

Congo

Kenya

Uganda

BAT Subsidiaries

Associates

Uzbekistan

Fiji

China

VietnamMalaysia

Indonesia

CambodiaSri Lanka

BangladeshIndia

Pakistan

BAT leaf operations


Vertical integration (% Volume)

BAT PMI JTI

BAT has a higher percentage of vertical integration amongst industry competitorsCompetitors have changed position from 2008 with vertical integration in countries such as BrazilTobacco purchases by type have a direct correlation to the overall portfolio mix of the different competitors

Source: British American Tobacco Estimates, Philip Morris International /Japan Tobacco International investor releases & financial reports

2008 2010 2008 2008 2010

Purchase by Type

0%

100%

BAT PMI JTI

Other

OR

BY

FCV

2010

Leaf: Vertical integration


1,7001,7501,8001,8501,9001,9502,0002,0502,1002,1502,2002,2502,300

2004 2005 2006 2007 2008 2009 2010LE 2011 LECrop Year

020406080100120140160180200

Unsold Stocks Supply Est. Demand

Sup

ply

-M

illio

ns o

f Kilo

s gr

een

WU

S -M

illions of Kilos strip

10 yr Av. Supply.

Source: Universal leaf Tobacco Reports & British American Tobacco Estimates

Flue Cured Virginia – Supply Trend Excluding -China


550

600

650

700

750

800

850

900

2004 2005 2006 2007 2008 2009 2010LE 2011LE

Crop Year

0102030405060708090100

Unsold Stocks Supply Est. Demand

WU

S -M

illions of Kilos strip

Sup

ply

-M

illion

s of

Kilo

s gr

een

10 yr Av. Supply.

Source: Universal Leaf Tobacco Reports & British American Tobacco Estimates

Burley – Supply Trend Excluding -China


Supp

ly -

Mill

ions

of K

ilos

gree

n WU

S -Millions of K

ilos strip

10 yr Av. Supply.

Price Index - Food and Tobacco

70

80

90

100

110

120

130

140

150

160

Food Price IndexTobacco Price Index

Food Price Index 100 90 82 78 78 78 78 79 86 91 100 122 155 121 152

Tobacco Price Index 100 95 87 84 78 74 75 76 79 75 82 79 103 108 127

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Food & Agriculture Organisation / British American Tobacco Estimates

Industry dynamics – Food & Tobacco


Established in 1974 for agronomy research in tobacco, for Souza Cruz's (Brazil) to develop technology packages.

Recognised Centre of Excellence for the BAT Group and established as a global capability in 2010.Linked to Global Research & Development and Blending Innovations Centre

Global Leaf Research and Technology

Leaf Research and Technology


Global Leaf Research & Technology provide technology platform and seed breeding capability.

Good Agricultural Practices cascaded to farmers utilising dedicated leaf technical staff

Farmer base selected, trained and provided with appropriate inputs to produce the required quality of Tobacco in the most effective and efficient manner.

Seedlings

Harvesting Curing

Seed BreedingInputs

Research andTechnology

Growing Grading

Leaf growing


Brazil

South Africa

USA

UK

Turkey

Malaysia

Leaf purchasing capability embedded in Global Leaf Pooling organisation

Management of suppliers (internal and external) is essential to ensure effectiveness

Global grading system to ensure consistency

All purchase plans optimised through Global Leaf Pooling planning system

Geographically spread team with experience and specific tobacco expertise

Leaf purchasing


Blend Demand

Leaf Inventory

TransformDemand

MasterBlend

Review Recommendations & Manage Performance:• Demand Review• Purchase Review• Sales & Inv. Review• Review GLP KPIs

Demand Review

Demand Review

Purchase Review

Purchase Review

Sales &Inventory Review

Sales &Inventory Review

Business Review

Business Review

Local Allocation

Lot Succession

Global Sourcing

Plan Inventory & Deployment

Plan & Manage Logistics

Crop PlansGlobal Allocation

Capabilities

End to End PlanningStock ManagementCost OptimisationLeaf Quality & IntegrityDeployment

Delivering

Improved speed to marketLower durationsComplexity reductionOptimal leaf & blend cost. Guaranteed product quality

S&OP

Global Leaf Pooling


Regulation Agricultural Landscape

Article 9: Regulation of contents of tobacco products

Article 10: Regulation of tobacco product disclosures

Article 17: Provision of support for economically viable alternative activities

Article 18: Protection of the environment and health of persons

Socio-economic: Social Responsibility in Tobacco Production

Soil & water: Degradation of soil structure and water management-key focus of Good Agricultural Practices

Forest: BAT has influenced the planting of over 400 million trees

Biodiversity: Agricultural impact – Biodiversity Partnership

Leaf sustainability


Leaf a consumer differentiation opportunity?- 4 different major types of tobacco- 300 different grades of tobacco- +50 different sourcing locations- Decades of experience.

Leaf innovation


Vertical integration is still a point of difference even though major competitors are adopting a similar model

Core capabilities through the leaf supply chain provide competitive advantage

Decades of operating in the leaf business provides experience and knowledge

Major future challenges as regards pressure on agricultural landscape and regulation

Summary


Evolution Consumer Conference 2011

10th March 2011

Ralph Edmondson, Head of Investor Relations, & Brian Fleming, Tobacco Utilization Manager

evolution consumer conference presentation

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