investing for growth · barclays global consumer staples conference | september 2017 • winston...
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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
6 | 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
Barclays Global Consumer Staples Conference | September 2017
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
Barclays Global Consumer Staples Conference | September 2017
9 |
Develop Footprint
Barclays Global Consumer Staples Conference | September 2017
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
Barclays Global Consumer Staples Conference | September 2017
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
Barclays Global Consumer Staples Conference | September 2017
How to Win…MRM provides framework for investment choices
Delivering improved share in priority markets
12 | Barclays Global Consumer Staples Conference | September 2017
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
Barclays Global Consumer Staples Conference | September 2017
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
Barclays Global Consumer Staples Conference | September 2017
• 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
Barclays Global Consumer Staples Conference | September 2017
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
Barclays Global Consumer Staples Conference | September 2017
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%
Market share based on Moving Quarterly Total
ITG Share of Market MQT
17 |
11278
34
2015 2016 2017
17%22% 24%
Q2 16 Q1 17 Q2 17
KA share of volume
Russia
Barclays Global Consumer Staples Conference | September 2017
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%
Market share based on Moving Quarterly Total
ITG Share of Market MQT
18 |
Brand Migration Enhancing Growth
Barclays Global Consumer Staples Conference | September 2017
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
Market share based on Moving Quarterly Total
19 | Barclays Global Consumer Staples Conference | September 2017
Video
20 |
JapanContinuous growth with investment
Barclays Global Consumer Staples Conference | September 2017
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%
Market share based on Moving Quarterly Total
ITG Share of Market MQT
21 |
ItalyInvestment in activation and distribution
Barclays Global Consumer Staples Conference | September 2017
4.5%
Sep Dec Mar Jun Jul
FY16 FY17
4.7%
Market share based on Moving Quarterly Total
ITG Share of Market MQT
Channel ExpansionDavidoff Activation
JPS Distribution Build Growing blu
+1,000 Outlets+30 Cities
13,000 Outlets
92%
97%
OCT MAR
Weighted Distribution
22 | Barclays Global Consumer Staples Conference | September 2017
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
Barclays Global Consumer Staples Conference | September 2017
24 |
Developing New Consumer ExperiencesOur future: realising the NGP opportunity
24 | Barclays Global Consumer Staples Conference | September 2017
• 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
Barclays Global Consumer Staples Conference | September 2017
43% 43%44%
46%47%
FY12 FY 13 FY 14 FY 15 FY 16
26 |
The Growth ‘Algorithm’
Barclays Global Consumer Staples Conference | September 2017
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
Barclays Global Consumer Staples Conference | September 2017
5.4%
4.0%
3.7%
3.7%
3.9%3.9%
Bubble size relate to dividend yield
28 | 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
£