"The material in this presentation is provided for the purpose of giving information about us to investors and is not provided for tobacco product advertising, promotional or marketing 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 of our tobacco products. Our products are sold only in compliance with the laws of the particular jurisdictions in which they are sold". Managing the challenges in EEMEA Andrew Gray
Turkey - challenges & opportunities
1% population growth rate Strong GDP growth 8th biggest cigarette market Highest ASU30 High incidence of 37.2% population in Europe 73.3 mn 8.1 % 16.4 mn smokers 5.3 mn smokers
Open to trial Large industry profit pool Crossroad between Political stability 16% GBP1.4bn NTO Europe & the East switching GBP9.4 bn CPTO Acquisition - integration & capability
Tekel asset deal – USD1.76bn Cost synergies – Delivered Integration – Flawless execution within 9 months Competitive scale – Second biggest FMCG company, 2,000 employees, strong platform for stakeholder engagement
High quality Increased reach with DSS Flexibility and capacity Enhanced consumer Low manufacturing cost communication Competitive Growing regional export hub Effective Efficient distribution Production Route To Market External challenges
Extreme excise hikes Accelerated regulation 71% MCE increase in 2009 Reduced contestable 55% Price increase in Regulatory Board space 10 Months vs. 6.5% inflation Total PPS Ban Increased cost of doing business 78% Total tax burden Graphical Health Warning DNP - from 7% to 12% Retail Regulation Inflow to Western Cities Price repositionings 10-1-10 Declining consumption Channel costs Ingredients Disclosure Low segment product costs Compliance costs Market dynamics
-6 bn sticks
-8.4 bn sticks
+6.6 bn sticks
Price segments Industry segment profile
• Reduction of total consumption • Growth of illicit trade Stabilise decline and grow
Effective engagement to avoid further Secure critical mass and expand shocks contestable space Activate plan to reduce DNP & inflow to West
Sustainable Premium Insights to create and lead new and mid price growth segments Innovation pipeline – Kent and Lucky Strike Convertibles (Balanced portfolio) Leverage DSS footprint Favourable socio-economic trends
Efficient End to End Fully exploit factory capacity and supply chain capability (Leverage on the structure) Continued productivity savings
Global focus on a key strategic market Winning Organisation Engaged and motivated team Excellence in Execution Driving growth in premium & mid price
Launched in December Now in the Market…..16th of May
Russia at a glance
40% 36,2% 36,8% 36,8%
30% 25,7% 25,9% 25,5%
20% 20,1% 20,6% 19,6%
9,6% 10% 9,4% 9,4%
8,7% 8,3% 7,4 others
0% Jan’09 Jan’10 Dec’10
Largest country in Europe 2nd largest market in in the world Population is 141,5 mln Shipments 376.2 Bn sticks GDP: 1,480 bn $ at PPP International brands 138.6 Bn sticks Inflation (consumer price): 9,1% Premium + 50.1 Bn sticks Regulatory: getting tougher Industry NTO 4.1 Bn GBP - 2014 PPS ban is expected Key market trends: Ï low tar, slimming, premium Excise incidence: 23,7% BAT SOM 20,6 % Ï* Kent 5,1 % Ï
Source: Economist Intelligence Unit, US Energy Information Administration *Nielsen Dec’10; comparison vs SPLY; BAT internal resource BAT Russia 2010 results
BAT share growth in the 2nd half of 2010 is mainly driven by Kent and innovation
Source: Retail Audit, National (February 2011) – Volume Shares * – Data based on new AC Nielsen panel and extrapolation as of January 2011 BAT Russia 2010 results
Share Performance – Top 5 Winners and Losers
Source: Retail Audit, National (February 2011) – Volume Shares * – Data based on new AC Nielsen panel and extrapolation as of January 2011 BAT Russia 2010 results
MOSCOW BAT has regained leadership in JTI & Gallaher Moscow from September 2010, BAT BAT market share is 1.1 p.p ahead of
PMI JTI and 3.6p.p ahead of PMI.
PREMIUM SEGMENT
PMI BAT continues to build leadership in the BAT premium segment driven by record-high Kent performance (2010 exit share of 5.1%), grown almost 4p.p share from JTI & Gallaher April 2010.
Source: Retail Audit, National (February 2011) – Volume Shares * – Data based on new AC Nielsen panel and extrapolation as of January 2011 BAT Russia 2010 results
Kent is indisputable leader in the premium segment, and # 1 winner in market share growth in 2010
KENT
Parliament
Marlboro
Source: Retail Audit, National (February 2011) – Volume Shares * – Data based on new AC Nielsen panel and extrapolation as of January 2011 BAT Russia 2010 results
Kent market share growth is driven by: - # 1 share in Premium ASU 30 segment - # 1 share in Premium Lights segment - Leading position in key ASU 30 retails channels - Consistent and relevant Innovation offers