British American Tobacco PLC in Tobacco (World)

BRITISH AMERICAN TOBACCO PLC IN TOBACCO
(WORLD)
September 2018
SCOPE OF THE REPORT
Scope
 This report profiles British American Tobacco (BAT), the world’s second Disclaimer
largest tobacco company, excluding the Chinese National Tobacco Much of the information in this
briefing is of a statistical nature and,
Corporation (CNTC). while every attempt has been made
to ensure accuracy and reliability,
 BAT and Euromonitor International volumes for tobacco product sales Euromonitor International cannot be
sometimes differ slightly. This is because annual reports often refer to held responsible for omissions or
errors.
shipment data, while Euromonitor International tracks retail sales. In addition, Figures in tables and analyses are
the inclusion of associates' shares, private label, duty-free, fine cut, cigar and calculated from unrounded data and
may not sum. Analyses found in the
heated tobacco sales within cigarettes may also impact figures. Finally, annual briefings may not totally reflect the
reports only include the sales contributed by an acquired company from the companies’ opinions, reader
discretion is advised.
exact date of acquisition, while Euromonitor International coverage assumes a
full-year contribution from acquisitions. British American Tobacco
(BAT) is the world’s second
 All figures are Euromonitor International sourced, except where BAT is quoted
largest international tobacco
as the source. company, with a prominent
position in most regions, and a
Tobacco presence in each tobacco
category. BAT’s recent
USD785.6 billion acquisition of Reynolds
American Inc (RAI) and
continued investment in next-
generation vapour products
Smoking Cigars and Smokeless Vapour puts the company in a good
Cigarettes strategic position for future
Tobacco Cigarillos Tobacco Products
USD701.9 growth.
USD28.5 USD24.7 USD12.8 USD17.7
billion
billion billion billion billion
© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 2

STRATEGIC EVALUATION
COMPETITIVE POSITIONING
OPERATIONS
MARKET ASSESSMENT
GEOGRAPHIC AND CATEGORY
OPPORTUNITIES
BRAND STRATEGY
Key company facts
British American Tobacco Plc (BAT) 2017  BAT has a volume share of over 30% in
Headquarters London, UK more than 30 countries around the world,
Asia Pacific, Middle East and including large markets such as Brazil,
Africa, Western Europe, Eastern Pakistan, Bangladesh and Malaysia.
Regional involvement
Europe, Australasia, Latin  The company has its largest regional shares
America, North America in Latin America and Australasia, and its
Cigarettes, cigars and cigarillos, smallest in Asia Pacific and North America.
Category involvement smoking tobacco, smokeless  In July 2017, BAT completed a deal to
tobacco, vapour products acquire the remaining 57.8% of Reynolds
World cigarettes volume American Inc (RAI) that the company did not
11.8%
share 2017 already own, for USD49.4 billion. The deal is
World cigarettes volume to make BAT the world’s largest listed
2.0%
growth 2016-2017 tobacco company.
BAT: Cigarettes Market Share by Region  BAT’s Global Drive Brands (GDB) are
2016/2017 Dunhill, Kent, Lucky Strike, Pall Mall and
50 Rothmans. Other international and local
brands operated by the company include
% volume share
40
30
Vogue, Viceroy, Kool, Peter Stuyvesant,
Craven A, Benson & Hedges, State Express
20
555 and Shuang Xi.
10
 BAT’s key potentially reduced-risk products
0
World Asia Austra- Eastern Latin MEA North Western include Vype, Vuse and Glo in NGPs and
Pacific lia Europe America America Europe EPOK, Granit, Grizzly and Camel Snus in
2016 2017 Oral.

Key company facts: cigarette volume sales

Financial assessment: acquisitions boosted performance in 2017
 BAT achieved revenue (sales) growth of 37.6% BAT: Financials 2016-2017 (Year End December)
and adjusted operating profit growth of 39.9% in Organic
2017, though excluding acquisitions the increase GBP million % y-o-y
2016 2017 % y-o-y
was considerably lower. Performance was mainly growth
growth
driven by the purchase and consolidation of RAI, Revenue (exc
pricing, growth in NGPs and the continued 14,751 20,292 37.6 2.9
taxes)
weakness of sterling. Adjusted operating
5,480 7,993 39.9 3.7
 Group cigarette volume rose by 3.2%; however, profit
excluding acquisitions, volume fell on an organic Operating margin
31.6 31.9 +30 bps -
basis by 2.6%. Nevertheless, this was still better (%)
than the industry average. Notably, from 2017, Cigarette volume
665 686 +3.2 -2.6
BAT started including sales of heated tobacco sales (billion sticks)*
sticks within overall cigarettes performance. Source: BAT Annual Report
Note: *Including heated tobacco units
 GDBs progress further and now account for over
BAT: Performance Index 2013-2017
50% of all cigarette sales, excluding the US, an 140
increase from around 30% in 2010. 130
Index 2013 = 100
 In 2017, the company continued to optimise its 120

manufacturing footprint, and by the end of the 110
year had 45 cigarette factories in 42 countries. 100
The facility in Malaysia was closed, while the one 90
in Germany was refocused, partially to NGPs. 80
Factory expansion connected with NGPs was 2013 2014 2015 2016 2017
Revenue Profit from operations
also undertaken in Romania and South Korea.

Volume and profit analysis by region
BAT: Regional Volume Trends  In Asia Pacific, volume in 2017 was below that of 2016
2016/2017 at 193 billion sticks, as an increase in Bangladesh was
250 offset by declines in Japan, Malaysia, Pakistan and
200
South Korea. Glo was launched in Japan, reaching
Billion sticks
3.6% market share for December 2017, however, this

150 was not enough to offset decline in combustibles
mentioned above. The stronger profit performance
100 was partly due to transactional foreign exchange
50
tailwinds.
 In the Americas, cigarette volume was down by 5.0%,
0 as higher volume in Mexico was more than offset by
Asia Pacific Americas Western Europe EEMEA
downtrading and industry contraction in Brazil and
BAT: Regional Profit from Operations Argentina and growth of illicit trade in Chile. The
2016/2017 positive profit performance was due to the
2,000 considerable growth in revenue.
1,600  In Western Europe, cigarette volume was up by 1.7%
GDP million
1,200
in 2017, or down 0.8 on an organic basis, driven by the
contribution of the Bulgartabac assets and higher
800
volume in Spain, Romania, Portugal, Poland and
400 Hungary, offsetting performance in Italy and Greece.
0  In EEMEA, volume declined by 3.4%, as growth in
Asia Pacific Americas Western EEMEA
Europe Nigeria, GCC, Turkey and Algeria was more than
2016 2017 offset by reductions in Ukraine, South Africa, Russia
Source: BAT Annual Report and Iran.

Volume and profit analysis: US
 After RAI’s acquisition in 2017, BAT is now treating the US as a

stand-alone region. The company’s US business includes the second
largest tobacco company in the country, the Santa Fe Natural
Tobacco Company (producing Natural American Spirit), the American
Snuff Company, as well as other business units - R.J. Reynolds
Vapour and Niconovum USA.
 In 2017, BAT records suggest that in the period since RAI’s
acquisition the cigarette volume was 36 billion sticks. The main
growth engines were Newport and Natural American Spirit, which are
the fastest growing premium brands in the US according to the
company. In additional, Camel benefited from its menthol range,
while Pall Mall suffered from intense price competition in the
economy segment.
 Moist snuff volume was 3.2 billion stick equivalents in the period
since the acquisition, due to the overall performance of Grizzly.
 In the immediate future, the vapour assets of the company will play a
crucial role in achieving growth. BAT’s Vuse product is a top- selling
Source: BAT Annual Report
device, however, the spectacular performance of the category leader
in the US, JUUL, poses a serious strategic threat.
 By the end of 2017, the integration of RAI and BAT was still
underway. Therefore, the first year when meaningful comparisons
could be made will be 2018.

BAT: half-year 2018 performance in tobacco and NGP
 On representative basis (as if BAT owned RAI BAT: Volume Sales by Region Half-Year Ending June
and other acquisitions from 1 January 2017) 2018 (Cigarettes and HTP)
adjusted revenue, at constant rates, increased
by 1.9%, driven by robust price mix. Adjusted %y-o-y % y-o-y
profit, on the other hand, grew 2.4% at constant H1
Billion Sticks growth growth
rates, partly offset by NGP investments. 2018
actual adj.*
 In Asia Pacific and Middle East, volume was up
3.5% driven by Pakistan, Bangladesh and HTP Asia Pacific and Middle East 116.0 +3.5 +3.5
performance in Japan, partly offset by lower Americas and Sub-Saharan
industry volume in GCC and Malaysia. 77.0 -5.9 -5.9
Africa
 In the Americas and Sub-Saharan Africa,
volume was 5.9% lower, driven by higher levels Europe and North Africa 116.7 -2.6 -3.9
of illicit in Brazil and South Africa and declines
USA 38.6 - -5.5
in Mexico, Canada, Colombia and Venezuela.
 In Europe and North Africa, volume fell 2.6%, Cigarettes 345 +10.0 -3.1
or 3.9% on representative basis, as growth in
Total (Cigarettes and HTP) 348.3 +11.0 -2.2
Turkey and North Africa was offset by
Source: BAT Half-Year Report 2018
developments in Russia, Ukraine, Italy and Note: *As if BAT owned RAI and other acquisitions since 1 January 2017
France.
 In USA, volume was 5.5% lower compared to  Despite the recent slowdown of heated tobacco in Japan
HY2017 on representative basis, which is in and South Korea, BAT remains confident of achieving
line with the industry average according to BAT. GBP1 billion in NGP revenue in 2018.
The company expectation is for a 5% industry  BAT claims leadership in closed systems in the UK and
decline for the full year. Germany, while Vuse is a significant player in the US.

SWOT: British American Tobacco Plc

STRENGTHS WEAKNESSES
Global Drive Brands Geographic balance Cigarette volume decline OTP weakness
 All GDBs, except  BAT is very evenly  Aided by acquisitions,  The company’s OTP
Dunhill, achieved distributed around the BAT registered an volume fell by 6.9% to
significant growth in world. The company’s impressive performance 10.3 billion sticks
shipment volume in recent acquisition of RAI in 2017, which also equivalent in HY2018,
2017, according to BAT. in the US consolidates continued in HY2018. marking yet another
Pall Mall volume rose even further BAT’s However, on reduction for the
the most, 14.8%, strong foundation for representative basis, the category. BAT is third in
although, on organic future growth. overall decline in the global smoking
basis the increase was cigarettes in HY2018 tobacco rankings behind
6.4%. was 3.1%. JTI and Imperial.
OPPORTUNITIES THREATS
Mergers/acquisitions Next-generation progress Litigation Plain packaging

 In 2017, BAT acquired  BAT continues to invest  BAT is more exposed to  BAT is especially
the remaining 57.8% of heavily in vapour potential litigation than vulnerable to the effects
RAI it did not own, products. The company its three international on premium-priced
getting direct access to hopes to generate more competitors, due to RAI, brands of plain
the US market. BAT than GBP5.0 billion in although the threat packaging in Australasia
also strengthened its 2022 and the NGP seems to have lessened and Western Europe.
position in the Balkans business to break even with the lack of success Plain packaging around
by acquiring the leading by the end of 2018. of product liability the world will be a major
brands of Bulgartabac. lawsuits. concern in the future.

OPERATIONS
MARKET ASSESSMENT
OPPORTUNITIES
BRAND STRATEGY
BAT versus the global cigarettes market
BAT vs World Cigarettes Market 2012-2017

3.0
2.0 A
% y-o-y volume growth
1.0
D
0.0
B C
-1.0
-2.0
E
-3.0
-4.0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
World BAT
A: Lower industry B: BAT cigarette C: In contrast to D: BAT continues E: BAT

volume in key volume declines the world volume, to outperform the outperforms the
markets, particularly more than global BAT records global market world market for a
Russia, Brazil, market despite a growth in 2015 because of strong third year in a row,
Turkey and Ukraine, positive volume related to improved performance by its aided by growth
offsets growth in performance in the sales in Asia, GDBs, with from acquisitions
developing countries EEMEA region in EEMEA and Rothmans and continued
such as Bangladesh, countries such as Western Europe, providing the strong performance
Indonesia and the Iran, Ukraine and due to the TDR largest growth of GDBs in multiple
Middle East region. Turkey. acquisition. contribution. markets.

BAT in context: global companies 2017
 The companies recording notable Top 10 Global Companies: Volume 2017 and
volume growth in 2017 were CNTC, Growth 2016-2017
2,500 15
BAT, Gudang Garam (GG), KT&G and
Retail cigarette volume

Eastern Co (E Co). CNTC returned to 2,000 10
(million sticks)
% y-o-y growth
growth after two years of decline. GG
1,500 5
and E Co are entirely affected by
developments in their home markets, 1,000 0
where population growth is contributing
500 -5
to increasing volume sales. The recent
tax increases in Indonesia and Egypt 0 -10
suggest that growth will be moderated CNTC PMI BAT JTI IB Altria RAI GG KT&G E CO
in the future. KT&G’s performance is Volume (million sticks) % y-on-y growth
attributable to export increases.

Big Four Multinationals: Cigarettes in World 2017
 In 2017, all the big four international
companies, except BAT, had a difficult % share y-o-y change Key factor
year and recorded volume falls Lower volumes in Asia, Eastern
PMI 14.2 -20 bps
because of the continuing contraction Europe and MEA
of major markets in all regions, except Acquisitions and Global Drive
BAT 11.8 +50 bps
the Middle East and Africa. JTI was Brands gains
severely affected, since its home Decline in the home market,
market - Japan - suffered an JTI 8.4* +10 bps
Japan, stability internationally
unprecedented 12.9% year-on-year Global share of market relatively
drop, partly caused by migration to IB 3.7 -10 bps
stable aided by Growth Brands
heated tobacco products.
Note: *includes the acquisition of Mighty in the Philippines

Big four companies compared: sales and profits
The Big Four Tobacco Companies: Sales and Profits  BAT was by far the strongest performer in
Performance Compared 2016-2017 terms of growth, mainly due to the
(Most recent reported full year; half-year results for Imperial acquisition of RAI in the US. BAT’s organic
Brands) sales growth in 2017 was 2.9%, and the
(USD million unless stated otherwise) organic currency adjusted profit was 3.7%.
Sales 2016 2017 2016-2017  PMI’s net revenues grew largely due to
price increases, while adjusted operating
PMI (y/e Dec 2017) 26,685 28,748 7.7
income was up also because of better
BAT (y/e Dec 2017) 14,751 20,292 37.6 pricing, which was partly offset by higher
JT(y/e Dec 2017)* 2,143 2,140 -0.2 marketing, administration and research
costs and unfavourable currency.
IB (hy/e Mar 2018)** 3,716 3,531 -5.0
 JTI’s 2017 sales performance was nearly
Currency adjusted operating income flat, on a year-on-year basis, which was
PMI (y/e Dec 2017) 10,815 11,503 6.4 better than Imperial but worse compared to
BAT and PMI. Robust pricing both at home
BAT (y/e Dec 2017) 5,480 7,993 39.9 and in international markets was a key
JT(y/e Dec 2017)* 587 585 -0.3 factor supporting the company’s top line.
 Imperial’s performance was affected by
IB (hy/e Mar 2018)** 1,667 1,533 -3.2
industry declines impacting important
Source: Company annual and interim reports
Notes: *JPY billion company markets globally, as well as by
**GBP million mix pressures and lower Fontem IP
royalties.

Big four companies compared: margins and volumes
The Big Four Tobacco Companies: Operating Margins PMI still leads
and Volumes Compared  Considering the four major companies’ volumes
(Most recent reported full year; half-year results for as a single market, there is no disputing the
Imperial Brands) current leader, despite the stated ambitions of
2016 2017 2016-2017 BAT and JTI to be the global number one. If it is
Operating margin* % % ppts +/- assumed that Imperial Brands will double its
half-year results in order to account for the full-
PMI (y/e Dec 2017) 41.8 41.0 -0.8 year volumes, PMI still holds 35% of the top
BAT (y/e Dec 2017) 37.2 39.9 2.7 four’s volumes. BAT’s share is 31%; JTI - 22%
and IB - 11%. However, like is not quite being
JT (y/e Dec 2017) 27.7 26.2 -1.5
compared with like, since JTI and Imperial
IB (hy/e Mar 2018) 44.9 43.4 -1.5 include cigarette equivalents to account for
Billion Billion sales of fine cut tobacco, while, as of 2017, BAT
Cigarette volumes % growth started to count heated tobacco as part of
sticks sticks
PMI 813 762 -6.3 overall volumes as well.
Operating margins - Imperial rules
BAT** 665 686 3.2
 Imperial's USP in the global tobacco business is
JT*** 505 491 -2.7 that, despite being the smallest of the four in
IB*** (HY2018) 126 124 -2.1 volume terms, the company's higher proportion
Source: Company annual and interim reports of OTP in its sales mix means that it is able to
Notes: *Based on “adjusted” sales and profits achieve higher operating margins than its rivals,
**Cigarettes including tobacco heating products
***Cigarette equivalents including fine cut tobacco at 43.4%, compared with PMI - 41%, BAT -
39.9% and JTI - 26.2%.

Cigarettes: regional share comparisons in 2017
 The major international manufacturers dominate all regions but Asia Pacific, where CNTC leads, and the
Middle East and Africa (MEA), where Eastern Co is the leading cigarette company.
 BAT and PMI are the only companies with strength in all regions. JTI is strong in Europe but weak in North
America, Latin America and Australasia.
 The most strategically important positions are PMI’s leading role in Asia Pacific (exc China) and PMI and
BAT in the Middle East and Africa.
• PM USA: 40.8% • PMI: 38.5% • PMI: 28.0% • BAT: 43.2%
• RAI: 31.9% • JTI: 20.6% • JTI: 25.3% • PMI: 39.8%
• IB 8.5% • BAT: 18.2% • BAT: 23.6% • JTI: 2.1%
• BAT: 5.3% • IB: 14.9% • IB: 10.4%
North Western Eastern Latin

America Europe Europe America
• Eastern: 15.3% • BAT:41.6% • CNTC: 66.4% • PMI: 21.8%

• BAT: 12.9% • IB: 29.2% • PMI: 7.0% • BAT: 17.4%
• BAT: 5.5%
• PMI: 12.8% • PMI: 26.2% • JTI: 4.3% • JTI: 13.6%
• IB: 6.6% • GG: 2.1% • GG: 6.7%
• JTI: 5.6% • ITC: 1.8% • ITC: 5.7%
Australasia Asia Pacific
MEA Asia Pacific
(excl China)
The pictures represent the leading brand in the region

Cigarettes: BAT’s rank in top countries

Fine cut tobacco: regional share comparisons 2017
 Based on the 100 markets analysed by Euromonitor, BAT accounts for 15.5% of the global fine cut tobacco
market by volume, making it the third biggest player after Imperial Brands and Japan Tobacco Inc. BAT is
in the top three in four of the seven world regions, according to Euromonitor’s classification, though its
15.2% share of Western Europe is the most significant in terms of revenue generation since the region
accounts for three quarters of total fine cut world value, amounting to USD22.6 billion in 2017.
• IB: 26.9% • IB: 26.7% • IB: 33.8% • STG: 20.3%

• JTI: 16.1% • JTI: 18.6% • BAT: 19.5% • Republic: 18.0%
• BAT: 15.5% • BAT: 15.2% • PMI: 13.7% • RAI: 10.5%
• PMI: 12.5% • PMI: 13.6% • JTI: 11.9% • PMI: 8.6%
• IB: 6.9%
World Western Europe Eastern Europe North America
• Coimexpor: 19.1% • STG: 24.8% • IB: 60.8% • Piangjai: 16.1%

• Tabacalera Sarandi: • IB: 16.2% • BAT: 31.5% • Taru Martani: 15.9%
18.6% • JTI: 11.0% • JTI: 2.6% • Surapayanak: 11.7%
• BAT: 14.5% • BAT: 5.8% • Von Eicken: 4.9%
• PMI: 4.2% • Mac Baren: 4.8%
Latin America MEA Australasia Asia Pacific
The pictures represent the leading brand in the region

Smoking tobacco: BAT’s rank in top countries

OPERATIONS
MARKET ASSESSMENT
OPPORTUNITIES
BRAND STRATEGY
OPERATIONS
Operations: recent developments
Optimisation of supply chain and manufacturing locations BAT: Recent Factory Activities
 Over the last decade, BAT has considerably reduced the total Country Notes
number of its factories. In 2017, it owned 45 cigarette facilities
in 42 countries, compared to 49 factories in 41 countries in Romania Expansion by 2022
2008 and 67 factories in 57 countries in 2004. US Acquired 2017
 The most recent activities (see table), reveal how BAT
Malaysia Closed 2017
responds to local volumes fluctuations and innovation
demands, while remaining cost effective. Germany Refocused 2017
 In 2017, BAT has announced that the continued optimisation of Brazil Closed 2016
manufacturing facilities and improvement of the entire supply
chain’s efficiency was a major focus, which will continue to be Iran New factory
among the key company priorities in 2018. In an important
announcement in 2018, BAT also announced its intention to Cuba New factory
invest EUR800 million over the years to 2022 in its factory in Croatia Acquired 2015
Romania, to support the expansion of glo across Europe.
 BAT also benefits from its own Integrated Work Systems, a South Korea, Factory expansions
programme designed to maximise equipment efficiency. The Poland,
system has delivered real benefits in the form of improved Bangladesh
productivity, lower maintenance costs and reduced waste,
according to the company.
 New investments in factory expansions in the near future are
likely to be primarily related to next-generation product
developments.

OPERATIONS
BAT: factory footprint in 2017
Source: Company reports

OPERATIONS
BAT: historic acquisition, merger and joint venture activity
• 2008 Former Turkish state company acquired in one of the world’s biggest
markets. 10 years later PMI still leads the market.
• 2009 Skandinavisk Tob (ST), manufacturer of Prince in Scandinavia.
Also snus company Fiedler & Lundgren AB.
Third largest company in Indonesia, behind local company Gudang
Garam and PMI (Sampoerna).
• 2010 Sale of Belgium-based distribution business, Lyfra NV, for EUR16 million.
• 2011 Second largest cigarette company in Colombia; enabled BAT to move to

second place in the country.
• 2011 BAT establishes Nicoventures Ltd to develop and commercialise
innovative regulatory-approved nicotine products.
• 2012 BAT acquires CN Creative, a UK-based company specialising in the
development of electronic cigarette technologies.
• 2013 Joint venture in Myanmar with IMU Enterprise Ltd (IMU) (part of SWH
Group) to manufacture and market Group’s brands.
• 2015 TDR, the leading independent cigarette manufacturer in Central Europe,
with a market-leading position in Croatia.
• 2015 Raises stake in Souza Cruz to 92% to give it full control of the Brazilian
market leader.

OPERATIONS
BAT becomes a major US player through RAI
Recent game changing acquisitions in the US

 The acquisition of Lorillard by RAI in 2015 changed the face
of the US cigarettes market. As part of the deal, RAI had to
sell the brands Winston, Kool, Salem and Maverick to
Imperial Brands, while BAT paid USD4.7 billion to maintain
its 42% stake in the enlarged and substantially stronger
company. Notably, RAI took over Newport, Lorillard’s crown
jewel, which further strengthens its competitive positioning.
 In November 2016, BAT proposed to buy the 57.8% share of
RAI it did not already own for USD47 billion. The deal was
US: Company Shares of
finalised in July 2017 for a total USD49.4 billion after the Cigarettes 2017
approval of BAT and RAI shareholders.
 BAT claims that the acquisition helped create a stronger
global tobacco and next-generation products company. Work
has already begun to realise the projected cost synergies of
USD400 million (USD70 million achieved by the end of 2017)
and ensure a smooth integration, according to BAT.
 The acquisition is to create the world’s largest listed tobacco
company and means that the new combined portfolio
includes three of the US’s four best-selling cigarette brands -
Newport, Camel and Pall Mall - and also VUSE, one of the
popular vapour products devices in the country. Altria RAI Imperial Brands Liggett Vector Others

OPERATIONS
BAT’s only associate company left: ITC Ltd in India
 After the acquisition of RAI, the number of BAT’s principal

associate companies (ie companies where it does not have a
majority shareholding) was reduced to one - ITC Ltd (ITC) in India.
In 2017, the group’s interest in ITC decreased from 29.89% to
29.71%, as a consequence of ITC issuing ordinary shares under
the company’s Employee Share Option Scheme. This resulted in a
gain of GBP29 million.
 ITC is currently the 11th largest cigarette manufacturing company
in the world by volume, accounting for some 63 billion sticks. In
2017, it had a 76.9% market share in India, where the total retail
market value for cigarettes is estimated to be USD11.9 billion.
India: Company Shares in
 The Indian cigarettes market is very concentrated, with the top
Cigarettes 2017
three companies holding over 93% share of the market. Godfrey
Phillips India Ltd is currently second with 7.1 billion sticks and VST
Industries Ltd comes third, with 6.3 billion.
 ITC also owns the top three best-selling brands in the market and
has six brands in the country’s top 10 cigarette list.
 In 2017, India witnessed the introduction of a new tax regime,
which involved bringing several previous taxes such as VAT, cess
and state tax under one national tax regime, named goods and
services tax (GST). This resulted in a higher tax for cigarettes, with
further increases possible in the immediate future. ITC Godfrey Phillips VST Industries Others

OPERATIONS
Potential for access to China with CNTC joint venture
CTBAT International Ltd Joint venture with China’s state tobacco company
operates from Hong Kong  Like the other major international tobacco manufacturers, BAT
lacks a significant footprint in the vast Chinese market. However,
the company has taken steps to improve its prospects.
 In August 2013, a joint venture between subsidiaries of the
China National Tobacco Corporation and BAT - CTBAT
International - began business operations from a Hong Kong
base.
 The new corporation owns the global international trademark for
the cigarette brand State Express 555, and will manage it on an
ongoing basis both inside and outside China. The new entity also
CTBAT owns the international
owns the worldwide rights, outside China, for the brand Shuang
rights of Shuang Xi (outside
Xi.
China) and State Express 555
 Shuang Xi (perhaps better known outside China as Double
Happiness) is the second largest brand in China, with annual
sales of 147 billion sticks. State Express 555 is a considerably
smaller brand which accounts for 4.5% of market volume in
Vietnam, equivalent to around 3.5 billion sticks.
 Despite inauspicious precedents, CTBAT will hope that it can
successfully internationalise the domestic appeal of Shuang Xi
and BAT, in particular perhaps, will hope that State Express 555
can build a greater presence in the Chinese market.

OPERATIONS
TDR acquisition in Croatia: strengthening central europe footprint
 In 2015, BAT acquired TDR and other tobacco and retail assets from Croatia: Cigarette Market Shares
Adris Grupa for EUR550 million. At the time, TDR was the leading 2014/2017
independent cigarette manufacturer in Central Europe, with a market
% volume 2014 2017
leading position in Croatia and presence in both Bosnia-Herzegovina
and Serbia. The acquisition added immediate scale to BAT’s Adris Grupa 56.3 -
operations and allowed the company to grow significantly throughout
the region. The facility in Kanfanar is nowadays a major regional hub. PMI 26.8 31.4
 In 2014, TDR had a 56.3% share of the 5.8 billion stick Croatian BAT 5.3 55.4
home market with its main portfolio brands - Ronhill, York, Benston
JTI 4.3 8.9
and Walter Wolf. As of 2017, BAT accounts for close to 2.8 billion of
the total 5.1 billion sticks market, or 55.4%. Imperial 4.8 2.1
 In Bosnia-Herzegovina, with a total market of 6.2 billion sticks in
2014, TDR controlled 28.0% of cigarette sales, mainly through York Ronhill: One of TDR’s strongest
and Ronhill, with BAT’s presence being minimal, at less than 1%. In brands is migrating to Dunhill
2017, post acquisition, BAT’s market share stood at 22.2%, or nearly across the region
1.1 billion sticks.
 Serbia is the largest of the neighbouring markets and the only one in
which BAT had a significant share in 2014, of 16.1%. The new
combined entity managed to grow to 23.7% in 2017, or 3.1 billion
sticks, with Ronhill and Pall Mall being among the main brands.
 As part of a substantial migration activity in the region, TDR brands
are migrating to the BAT portfolio. These include Ronhill to Dunhill,
York to Pall Mall, Benston to Rothmans and Walter Wolf to Lucky
Strike.

OPERATIONS
Acquisition of major Bulgarian brands: growing on the balkans
 In April 2017, BAT reached an agreement with the Bulgarian Bulgaria: Company Shares of
cigarette manufacturer Bulgartabac to acquire some of its Cigarettes 2017
leading brands (ie Victory, Eva Slims and GD) in a deal worth
USD106 million.
 Notably, the deal also included retail and distribution assets
in Bulgaria and in the wider Adriatic region, which
strengthened further BAT’s position in the Balkans, following
the acquisition of TDR in 2015. The Bulgarian authorities
approved the deal in mid-2017.
 This made BAT the market leader in Bulgaria with 40.5%
BAT Karelia Tobacco PMI
share of cigarettes in volume terms.
JTI King's Tobacco Imperial Brands
 In 2017, Victory was number three brand, with 9.9% market
share, while Eva Slims was fourth with 8.3% and GD - 14th
Victory, Eva Slims and GD were acquired
with 2.2%.
by BAT in 2017
 The leading economy brand of Bulgartabac, Sredets, moved
under the umbrella of Rothmans in 2018. Furthermore, the
local Sredets Rothmans increased to BGN5.10 per pack,
compared to Rothmans priced at a more competitive
BGN4.90 per pack. Over the forecast period, other legacy
local brands such as Victory and Eva Slims are also expected
to migrate to GDBs such as Lucky Strike and Vogue and be
produced in other countries.

OPERATIONS
Acquisition of Ten Motives: growing the next-generation business
 In 2016, BAT acquired 100% of Ten Motives,

a UK-based e-cigarette business with strength Part of the product range offered by Ten Motives
in traditional grocery and convenience
channels.
 In December 2017, BAT claimed to hold 40%
share of the measured UK retail in vapour
products, which predominantly comprises of
distribution channels such as co-ops, off-
licences, independents and convenience
stores, driven by the continued growth of Vype
and the acquisition of Ten Motives.
 Ten Motives supplies e-cigarettes to Tesco,
Sainsbury’s, WHSmith, The Co-op and
directly to consumers through two websites
and six retail outlets.
 The website offers a huge variety of e-
cigarette devices, e-liquids, refills and
accessories.
 The product range includes BAT’s Vype
variants but also e-liquids and devices that are
not owned by BAT, such as Innokin, Aspire
and Joyetech, among others.

OPERATIONS
MARKET ASSESSMENT
OPPORTUNITIES
BRAND STRATEGY
MARKET ASSESSMENT
Regional positioning and growth prospects
BAT: Presence in Cigarettes 2017 and Growth Prospects 2017-2022 by Region

2
Middle East and Africa
0
Latin America
% volume CAGR
-2 Western Europe
Asia Pacific
-4
North America
Eastern Europe
-6
-8
Australasia
-10
-500 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
Market size 2017 (billion sticks)
Note: Bubble size indicates company volume share of the region
 BAT has its biggest shares in Latin America and Australasia, in both of which it is the market leader.
However, both regions are projected to see considerable volume decreases over the forecast period, with
Australasia, in particular, impacted by declining prevalence and strict control measures, including plain
packaging.
 BAT has a 5.5% market share in the largest region in the world, Asia Pacific, which accounts for 22% of the
group’s revenue. In 2017, volume and pricing in Bangladesh played a key role in maintaining BAT’s position
in the region.
 With a 12.9% share, BAT is the biggest of the multinationals in the only growth region, the Middle East and
Africa.

MARKET ASSESSMENT
Category comparison
BAT: Tobacco Presence 2017 and Growth Prospects 2017-2022 by Category

4
Moist snuff
3
% value CAGR
2
Smoking tobacco
1 Cigarettes
-1
0 100 200 300 400 500 600 700 800 900
Market size 2017 (USD billion)
Note: Bubble size shows BAT volume share of category
 Excluding CNTC, BAT is second to PMI in the global cigarettes market and third in smoking tobacco after
JTI and Imperial Brands. BAT’s 11.8% market share in cigarettes is the company’s most strategically
important position.
 Moist snuff shows good potential for the forecast period; however, BAT’s current share of the category is
just below 1%. RAI, on the other hand, is ranked second in moist snuff, with a 25.8% global market share,
so the acquisition will immediately turn BAT into a major category player.
 The rising significance of vapour products is likely to play a central role in the wider tobacco context in the
years to come, but for the moment cigarettes remains the category of primary importance.

OPERATIONS
MARKET ASSESSMENT
OPPORTUNITIES
BRAND STRATEGY
GEOGRAPHIC AND CATEGORY OPPORTUNITIES
Category growth comparisons into the future
Tobacco Product Volume Growth by  OTP prospects better than cigarettes but
Category 2017-2022 vapour products have the greatest potential
110
 One of the challenges facing predominantly
cigarette-orientated companies in driving value
growth, in addition to substantial volume
105
declines, is the fact other tobacco products are
the ones that are forecast to grow over 2017-
2022.
Index 2017 = 100
 Growth for vapour products is forecast at some

100 147% by value over the five years to 2022. This
forecast takes into account the strong potential
of HNB products, a category in which BAT
participates, with glo.
95  Value growth forecasts (in constant currency
terms) for the other categories to 2022 are a
0.3% decline for cigarettes, 13.9% growth for
smoking tobacco, 16.1% growth for moist snuff
90
2017 2018 2019 2020 2021 2022
and 21.0% growth for cigars and cigarillos.
Cigarettes Cigars and cigarillos  Strategically speaking, BAT’s recent expansion
Smoking tobacco Moist snuff in the US, combined with the increasing focus
Note: Prospects for vapour products are the strongest at +147% value growth on vapour products, shows the company’s
over 2017-2022 (volume figures for vapour not available due to the product’s stable foundation for future growth.
specificities)

BAT: market positioning for growth in cigarettes
Top 10 Markets Outlook 2017-2022 BAT % Volume Share 2017

8
Egypt
Bangladesh 61.9
6 Turkey 22.4
Indonesia
% constant value CAGR
4 Turkey Bangladesh Russia 22.1

2 US
Germany 19.7
0 Russia
Germany China
Japan 11.5
-2
Indonesia 6.9
-4
India
-6
Egypt 5.3
-8 Japan India 0.3 (76.9*)
-10 China 0.0
-11 -9 -7 -5 -3 -1 1 3 5
US 0.0 (35.6**)
% volume CAGR
Notes: *Through its associate company ITC
Note: Bubble size indicates volume market size in 2017 **Through the acquisition of RAI
 The chart indicates the cigarette volume and value outlook for the world’s 10 largest markets until 2022.
 BAT holds a top three volume share ranking in six of these - Bangladesh, Russia, Japan, Turkey, Germany
and Egypt - and has a dominant share in Brazil and Pakistan, countries that are in the top 20. BAT also has
access to significant portions of the US and Indian markets through RAI and ITC. The recent acquisition of
RAI is likely to move BAT to the number two position in the very profitable US market in 2018.
 Egypt and Bangladesh are the only markets projected to see both value and volume growth over the
forecast period, while Japan and Russia are expected to decline the most, signalling potential issues in the
immediate future.

BAT in fine cut tobacco: stable global share
 BAT is the world’s third largest fine cut tobacco company by volume, with a global share of 15.5%
compared with Imperial, 26.9%, and JTI, 16.1%. JTI overtook BAT in 2016.
 During the review period, BAT’s OTP performance has followed a downward trajectory. In the most recent
HY2018 company performance review, significant drops were reported, mainly attributed to reductions in
the US and competitive pricing in France and Hungary.
 Some of BAT’s GDBs have fine cut variants, that are popular in the European markets. These a particularly
appealing among downtrading or dual-use smokers who look for familiarity in fine cut.
BAT: Fine Cut Tobacco Share and Volume Growth by Region 2016-2017
35 20
30 10
% y-o-y volume growth

% volume share 2017
25
0
20
-10
15
-20
10
5 -30
0 -40
World Asia Pacific Australasia Eastern Europe Latin America Middle East and North America Western Europe
Africa
Share Volume growth

Cigarillos: lucrative OTP category in the US and Europe
Top 10 Cigarillos Markets in 2017:  The US is the global leader of the cigarillos
Current and Future Volume and Value Outlook category. The Family Smoking Prevention and
Volume Value Tobacco Control Act bans the sale of flavoured
Volume Volume cigarettes in the country, however, flavoured
Country difference difference
2017 2022 cigarillos remain legal. These products are often
2017-2022 2017-2022
criticised as enticing minors to use tobacco
USA 5,508 6,564 19% 22%
products. Hence, a possible extension of the
Germany 3,003 2,716 -10% -7% flavour ban, though not imminent at the moment,
could impact the category.
Spain 1,815 1,735 -4% 3%
 In the EU the restrictive nature of the EUTPD
France 1,173 933 -21% -1% presents an opportunity for cigarillos. Being
Hungary 543 514 -5% 2% exempt from the regulation, cigarillos are seen as
a potential substitute for the banned flavoured
Italy 345 357 4% 6% cigarettes as well as downtrading smokers. In
Netherla countries like the UK, where plain packaging was
307 314 2% 5% also introduced in a separate regulation, cigarillos
nds
United are also exempt.
269 278 3% 5%  BAT is currently ranked 11th in cigarillos
Kingdom
Russia 241 255 6% 39% worldwide, but should be able to leverage the
company’s GDB brands to establish a significant
Belgium 202 188 -7% -3% presence in key growth markets.
Note: Volume is in million units  The two most important cigarillo categories are
flavoured and price fighters cigarillos and account
for 68% of the total world sales in volume terms.

BAT in smokeless tobacco: US business to boost future prospects
RAI: US Volume and Share Performance in  BAT is currently present in the largest snus
Moist Snuff 2012-2017 market in Europe - Sweden - where it held a
9.4% volume share in 2017. However, since
25,000 37
the acquisition of Fiedler & Lundgren in 2008,
36 the company has not made significant gains
% volume share
20,000
in Scandinavia.
35
 The world’s largest smokeless tobacco
Tonnes
15,000
34 market is the US, to which BAT got direct
33
access in 2017, through the acquisition of
10,000
RAI. In 2017, RAI was ranked second with a
32 34.4% volume share, behind Altria.
5,000
31  In contrast to the declining US cigarettes
market, US moist snuff retail volume was flat
0 30
2012 2013 2014 2015 2016 2017
in 2017, but grew 13.1% over 2012-2017.
 RAI owns Grizzly, a leading moist snuff
BAT Moist Snuff Shares and Ranking 2017 brand in the US, with 32% share of the
market in 2017.
Country % volume Rank Notes
share
Sweden 9.4 3 Only EU country where
Grizzly - the top-selling US-
snus is legal style moist snuff BAT
US - As of mid-2017 BAT owns RAI, acquired through RAI
which accounts for 36.5% of the
World 0.9
profitable US moist snuff market.

BAT: regional shares and leading brands in cigarettes in 2017
 BAT is the leading tobacco company in two of

Asia Pacific 5.5% (5.5%) ▲▼ the world’s seven regions - Australasia and Latin
America. BAT is also the biggest of the top four
Australasia 41.6% (40.9%) ▲ tobacco manufacturers in the Middle East and
Africa, where the Egyptian Eastern Co leads.
Eastern Europe 23.6% (22.4%) ▲  In 2017, the company’s volume share grew in
Australasia, Eastern and Western Europe, and
declined in Latin America and the Middle East
Latin America 43.2% (45.2%) ▼
and Africa. Its share in Asia Pacific and North
America remained unchanged; however, the
Middle East and addition of RAI’s product range will significantly
12.9% (13.4%) ▼
Africa boost the company’s performance in North
America from 2018 onwards.
North America 5.3% (5.3%) ▲▼  BAT’s Global Drive Brands are Dunhill, Kent,
Lucky Strike, Pall Mall and Rothmans, while Key
18.2% (18.0%) ▲ Strategic Brands comprise the cigarette volumes
Western Europe of State Express 555 and Shuang Xi, associated
with the joint venture with CNTC in China.
Note: % share refers to the company’s share of cigarette volumes by region,  BAT’s other principal international brands
figure in brackets refers to share in 2016; brand image indicates leading BAT include Vogue, Viceroy, Kool, Peter Stuyvesant,
brand per region.
Craven A, Benson & Hedges and John Player
▲▼ arrows refer to direction of growth
Gold Leaf.

Chile: double-digit growth of illicit cigarettes in BAT’s stronghold
Chile: Cigarettes Market Size and Illicit  Chile is one of BAT’s Latin American bastions, where
Trade Volumes 2012-2017 the company holds a commanding 95.4% share of
16 3 the market, turning it into a virtual monopoly with PMI
Duty-paid (billion sticks)
Illicit trade (billion sticks)

Chile accounting for most of the remaining small
12
2 share of retail volume sales.
8  In 2017, the cigarettes category continued to suffer
1
from the rise of illicit trade, with illicit cigarettes
4 recording double-digit growth to account for nearly
one fifth of overall volume sales. Illicit trade mainly
0 0 comprises counterfeit and smuggled cigarettes.
2012 2013 2014 2015 2016 2017
Duty-paid market size Illicit trade volume
 A key factor behind the expansion of illicit trade is the
significant difference between the price of cigarettes
Chile: Company Shares of Cigarettes in Chile and neighbouring countries. According to
2017 industry sources, the level of contraband from Bolivia
and Paraguay has been steadily growing.
 Other important recent developments that affected
the Chilean market include a sharp increase in
average unit price per stick and consumer migration
from cigarettes to RYO tobacco.
 Last year, BAT migrated its Belmont variants to the
Kent brand, thus increasing its presence in the
premium segment.
BAT PMI Others

Bangladesh: significant volume growth and new competition
Bangladesh: BAT Volume and Total  In 2017, BAT remained the dominant company in
Market Value 2017-2022 cigarettes, achieving a 61.9% share of the market
500 60 in volume terms and seeing the strongest share
400 50 gains of 580 basis points among the major players
Billion sticks
in the country.
BDT billion
40
300
30  BAT has an extensive distribution network in
200 Bangladesh, with a robust in-house logistics
20
100
department reaching 1.4 million retail outlets and
10
working closely with around half of them.
0 0
2012 2013 2014 2015 2016 2017  Affordable high-tar brands are most popular in the
BAT volume Market value country, due to their rich flavour and perceived
good value for money. BAT's Derby brand in
Bangladesh: Cigarettes Company Shares particular saw strong growth at the end of the
in 2017 review period, partly due to the strategic launch of
Derby Special.
 Notably, in 2018, Dhaka Tobacco Industries, which
is owned by the Akij Group, was acquired by JTI.
By being one of the few markets globally where the
overall category is forecast to see growth in both
volume and value terms, future involvement of
tobacco multinationals and intensifying competition
is very likely.
BAT Akij Group Others

US: RAI acquisition opens up promising opportunities
 The US is currently the fourth biggest cigarettes US Cigarettes Market Forecast

market in the world in volume terms and the largest 2017-2022
one in value, excluding China. In 2017, cigarette 300 100
volume sales declined by 3.7%, to 252.7 billion sticks, 250
while value sales declined by 0.7% to reach USD93.8 95
Billion sticks
USD billion
200
billion.
150 90
 Volume sales are forecast to decline by an annual
100
average 2.7% over the forecast period. One of the 85
reasons for this is the expected increase in public 50
smoking bans. In terms of value, however, the 0 80

2017 2018 2019 2020 2021 2022
predicted CAGR to 2022 is 0.6%. Therefore, the
Volume Value
country remains hugely attractive for international
tobacco manufacturers, as its total market value is US Vapour Products Forecast
larger than the next three biggest world markets 2017-2022
combined. 16
 In the quickly rising vapour category, the US is 12

forecast to show significant growth. In 2016, vapour
USD billion
products fell under the FDA’s regulatory purview, 8
which made certification prohibitively expensive for
4
smaller prayers. As a result, the category is expected
to move from being fragmented to being highly 0
consolidated in the hands of major tobacco 2017 2018 2019 2020 2021 2022
companies. In 2017, JUUL Labs with its closed vaping Heated tobacco products Open vaping systems
system JUUL dominated the market. Closed vaping systems

US: profitability and affordability make the market irresistible
 In the recent years, tobacco multinationals Selected Markets Affordability

have focused on investing in markets that and Earnings per Cigarette Smoker 2017
matter. Plotting affordability against 5000
revenue (tax inclusive) generated by Australia
individual smokers gives sense of the
Revenue per
4000 USA
smoker
relative attractiveness of global markets.
3000 United Kingdom Italy
 This exercise clearly illustrates the Japan
reasoning behind the recent moves of BAT
USD
2000 Germany
and Imperial in the US. Not only is the US Turkey Russia France
Indonesia
among the most profitable markets, but is Brazil
1000 India Spain South Korea
among the most affordable ones, implying Argentina
further potential for pack price increases. 0
Ukraine Affordability
As a reference, tobacco companies are Philippines
earning up to 20 times more from each US -1000 -1 0 1 2 3 4 5 6
smoker than from consumers in India. Packs at average price per average hourly wage
Note: Bubble represents relative market size
 The acquisition of RAI gives BAT the
country’s second, third and fourth most RAI’s Best Performing Brands in the US
popular brands, which jointly account for
over 30% of the category in volume terms.
 The biggest asset of the company is
Newport, with a 15.6% market share in
2017. Altria’s Marlboro, however, remains
the best-selling brand, with a 38.7% share.

Global tobacco opportunities: state and private companies
Global Cigarettes Volume 2017 New volumes - what is available?

 Expansion by acquisition has been the primary
Up to 1 trillion sticks are instrument of growth for the major tobacco companies.
potentially available to the
leading companies Now that the industry has become more consolidated
2.3 billion sticks than ever, what is still available amounts to one trillion
sticks, excluding Altria and RAI. This is a significant

number, exceeding the sales of the current number
one, excluding CNTC, PMI.
 Over 10 countries have major state-owned tobacco
companies, accounting for around 40% of world
cigarette consumption, although, excluding CNTC, the
figure is nearer 5%.
 The global top 10 also includes the domestically-
orientated Indonesian kretek manufacturer Gudang
Garam (75 billion sticks), the South Korean
multinational KT&G and the Egyptian Eastern Co (73
billion sticks each).
 The other biggest potential acquisition targets are the
Indian ITC, with 63 billion sticks, and the Vietnam
2.1 billion sticks
National Tobacco Company (46 billion sticks). There
are also state tobacco enterprises in Tunisia, Iran,
Chinese monopoly Big four manufacturers Others
Lebanon and Libya.

Next-generation products
 BAT claims to have invested more than USD1 billion in the last five World Tobacco Market
years in order to build the fundamentals of its next-generation Category Value Share
products business. The company believes that its current strategy 2017/2022
puts it in a good position to capture a significant share of the current 100%
as well as the future vapour market.
 The latest Euromonitor International data suggest a notable change
in the category balance for the 5-year period to 2022. The growing
95%
importance of vapour products is at the centre of this shift. While in
2017, the total value of vapour was USD17.7 billion, by 2022 the
figure is forecast to reach USD43.9 billion, at constant currency.
Value share
 BAT’s CEO, Nicandro Durante, claims that BAT has made a 90%
significant progress with its differentiated strategy of developing and
marketing a range of next-generation tobacco and nicotine products
across both vapour and tobacco heating categories, and will 85%
continue to invest in the company’s R&D capabilities.
 In vapour products, BAT is expanding geographically, with Vype now
available in multiple markets. BAT claims leadership in Poland and
80%
the UK, where the acquisition of Ten Motives has played a vital role.
In the US, the Vuse range is among the key vapour brands.
 In heated tobacco products, which are classified in a separate
category under vapour products in the Euromonitor International 75%
2017 2022
system, BAT has been active since December 2016, when the
company launched glo in Japan, followed by an international Cigarettes Cigars and cigarillos
Smoking tobacco Smokeless tobacco
expansion. Vapour products

BAT in vapour products: Offers in all categories
Closed and Open Vaping Systems Tobacco Heating Products
 In December 2016, BAT entered the heated tobacco

 BAT’s vapour product, Vype, was first launched in category by launching the glo device in Sendai,
the UK in 2013, and has been growing its market Japan. The national roll-out of the product followed in
share ever since. By 2018, the product range has October 2017. BAT claimed a 4.3% market share for
expanded to include six devices, as well as e-liquid glo in HY2018. Notably, vapour accounts for 20% of
flavours, including a nicotine-free option. the total tobacco market in Japan.
 Currently, the markets where Vype is available  In August 2017, BAT Korea also launched glo,
include France, Germany, Italy, Poland, Colombia, making it the second Asian market for the product. In
Guatemala, Kuwait, Bahrain and the Philippines. HY18, glo achieved 6.4% market share, according to
 The acquisition of RAI added the Vuse range to BAT.
BAT’s portfolio, comprising of the Vuse Solo and  Glo is also being sold in Croatia, Russia, Canada,
Vuse Vibe tank devices. In 2018, the company Romania, Switzerland and Italy, with several
recalled all Vuse Vibe units after consumer additional launches planned for the second half of
complaints regarding malfunctioning batteries. 2018 and early 2019.

BAT: other potentially reduced risk products
Vype Pebble Glo iFuse Camel snus
 Another product in BAT’s vapour portfolio is Vype Pebble, launched in December 2016. This is a small
portable device that is easy to use and carry around. The technology was developed together with an
external partner.
 BAT has also launched a novel product, iFuse, that heats a nicotine-containing liquid into an inhalable
vapour, which then passes through a tobacco section, releasing tobacco flavour to the consumer. The test
market for the product is Romania. The specific features of iFuse puts it in a unique situation where it can
be considered as a hybrid between vapour and heated tobacco devices.
 In December 2017, the US FDA filled for substantive scientific review six modified risk tobacco products
(MRTP) applications submitted by RAI for Camel Snus Products (Camel Snus Frost, Camel Snus Frost
Large, Camel Snus Mellow, Camel Snus Mint, Camel Snus Robust, Camel Snus Winterchill). After the
public comment period has passed the meeting of the Tobacco Products Scientific Advisory Committee
(TPSAC) will take place on 13-14 September 2018. However, after TPSAC’s rejection of two of the three
modified risk claims for PMI’s HTP product, IQOS, the hopes of marketing Camel as a safer alternative to
cigarettes have been diminished.

OPERATIONS
MARKET ASSESSMENT
OPPORTUNITIES
BRAND STRATEGY
BRAND STRATEGY
Multinational brands by price band
Main International Brands Global Rankings exc China 2017  In 2017, BAT’s GDB cigarette and heated
tobacco portfolio showed combined growth
of 10% (7.6% organic) to reach 357 billion
sticks, according to the company. These
PMI BAT JTI Imperial products play a vital role in BAT’s growth-
driven strategy and now account for over
50% of all cigarettes and heated tobacco
Marlboro Pall Mall Winston sticks the company sells, excluding the US.
(1) (3) West (25)
(2)  One of BAT’s strategic advantages is the
Rothmans fact it has three brands in the world’s top 10
L&M (4) (5) Davidoff
Mevius (7) (29) list by volume, excluding China, one more
Chesterfield than PMI and BAT, which have two each.
Kent (8)
(10)
Camel  Although BAT’s local and regional brands
JPS (30)
Parliament Dunhill (11) portfolio sales declined in 2017, these
(16) (12) products continue to play an important role
Gauloises in key company markets, such as Brazil,
Bond Street Lucky LD (14) (32)
(18) Strike (17) Vietnam, Pakistan, Bangladesh and Japan.
 Elsewhere, PMI’s brands attaining growth
Key: Premium
were Chesterfield and Philip Morris, while
Mid-priced Economy
Winston remained the best-selling JTI
Note: All the brands sometimes appear in other price bands for strategic reasons. All international brand. Imperial Brands
rankings refer to retail volume sales only. CNTC is not included because its major brands, continues to lack presence in the world’s top
though in the global top 10 by volume, are not spread internationally.
20 brands list.

BRAND STRATEGY
Global Drive Brands: positioning and strategy in 2017
Pall Mall is economy positioned in most major markets, and is BAT’s biggest brand. Shipment
volume in 2017 was up 14.8% (6.4% on organic basis), according to the company, with growth in
GCC, Nigeria and Poland offsetting drops in Chile and Russia. Company estimates show market
share was up 20 bps.
Kent is BAT’s most popular premium brand, and is viewed by the company as its engine of
innovation. Kent’s volume in 2017 was up 11.2%, driven by Japan, partially attributed to glo,
Turkey and Brazil, offsetting decline in Iran, as reported by BAT.
Dunhill is regarded by BAT as its “premium international brand”. In 2017, Dunhill volume
decreased by 5.9%, according to the company, driven by developments in Indonesia, Malaysia
and GCC, as well as industry contraction in South Korea.
Lucky Strike is a mid-priced, iconic brand labelled as “the true and original American cigarette”. Its
market share grew by 20 bps, with volume up 12.2%, according to BAT, due to growth in Indonesia
and Spain more than offsetting lower volumes in Argentina and Egypt.
Rothmans was officially added to the GDB portfolio in 2014. After years of under-investment, the
brand, which has been repositioned as a value for money offering, has seen spectacular growth,
with another increase of 14.3% in 2017, caused by strong performances in Russia, Poland,
Nigeria and Colombia, offsetting lower volumes in Kazakhstan and Egypt, according to BAT.

BRAND STRATEGY
Selected brands by price band and volume 2017
Premium
51 10 7
68
billion billion billion
billion
Mid-price
39 12 9 9 5
billion billion billion billion billion
Economy
99 78 33 24 12 11
billion billion billion billion billion billion

BRAND STRATEGY
BAT: selected cigarette brands by country rankings in 2017

BRAND STRATEGY
Innovation in combustibles and brand activity
 Innovations, defined by BAT as “any Group-manufactured cigarette containing non-standard features such
as slims, capsules, Reloc or tubes”, are a vital part of the company’s brand strategy.
 In 2017, the growth across these products was 11.6%, as reported by BAT, due to the success of tube
filters and capsules, which account for 37% of the company’s cigarette shipment volumes.
Additive-free Closure/fresh-seal
Lucky Strike, in particular, has been a Re-sealable Reloc packs have been
success in additive-free, with multiple highly successful for BAT. The majority of
roll-outs in Latin America and Europe. Dunhill’s volume comes in re-sealable
packaging.
Filter Stick and pack size
Tube filters across the GDB portfolio Larger pack sizes remain key,
drove much of the innovation growth. particularly in Pall Mall variants. Also,
according to BAT, a growing number of
Kent’s HD range tube technology was sticks in the GDB range are sold in
particularly successful. slimmer formats.
Capsule Special edition

BAT is the market leader in capsules. BAT remains an avid employer of special
Back in 2015, there was a substantial edition packaging to retain consumer
push in the category, including novel engagement and encourage brand
flavours and double capsules products. switching, particularly in the economy
and value for money segments.

BRAND STRATEGY
Pall Mall’s performance in its top 10 markets
Growth in volume Actual volume  Pall Mall is the third biggest cigarettes brand in
Country volume terms globally, excluding China, after Marlboro
growth 2016-2017 sales 2017
(PMI) and Winston (JTI), overtaking L&M (PMI) in
Pakistan 8.4%  16.6 billion 2017. According to BAT, for more than 115 years, its
core proposition has been centred on offering adult
Germany -0.5%  6.7 billion smokers around the world a combination of value and
high quality.
Chile -8.6%  5.5 billion
 In 2017, BAT’s annual report showed impressive
Uzbekistan -5.9%  5.3 billion volume growth figures for Pall Mall, 14.8% (or 6.4% on
organic basis). The table on the left shows the year-
Russia 0.7%  5.3 billion on-year movements in the brand’s largest markets.
 In the first six months of 2018, Pall Mall’s market
Mexico 8.4%  4.6 billion share grew by 30 bps, according to BAT. Volume was
up 46.6% due to the inclusion of RAI, which
Venezuela 1.3%  3.6 billion
represents a 20.9% rise on representative basis, due
Poland 8.2%  2.4 billion to positive performance in Pakistan, GCC and Egypt.
South
7.8%  2.3 billion
Africa
Pall Mall’s plain package in
Romania 2.4%  2.2 billion the UK opposed to the
brand pack in Russia
Note: The table excludes Pall Mall’s sales in the US, counted towards
RAI during 2017, which represented 19.6 billion sticks.

BRAND STRATEGY
Rothmans: fastest cigarette volume growth in the world
Rothmans Volume and Global Rank

2010-2017
90 80
80 70
70 60
Billion sticks
Global rank
60
50
50
40 Flagship Capsule
40
30
30
20 20
10 10
0 0
2010 2011 2012 2013 2014 2015 2016 2017
Volume Global rank (inc chinese brands) Demi and Superslims
 When Rothmans International merged with BAT in 1999, its eponymous leading brand was viewed as
something of an outmoded, stuffy local brand with limited appeal in the newly enlarged BAT portfolio.
Subsequently, Rothmans was repositioned as an economy product, resulting in the brand moving up from
outside the global top 50 international brands to number 16 in 2017, and number five if Chinese brands are
excluded, having become one of BAT’s five Global Drive Brands.
 In the first six months of 2018, Rothmans’s market share continued to grow, increasing by an additional 80
bps and volume up 34.4% driven by Russia and Malaysia and further aided by migrations in Poland, Brazil
and Colombia, according to BAT.

BRAND STRATEGY
Kent: growing in the premium segment
Kent: Global Volume and Brand Share  According to BAT, Kent symbolises progress
2012-2017 through technology in the cigarettes
80 1.8 category, and stands out as the most
70 1.6 innovative and forward-looking brand. In
60 1.4 2017, the company reported a volume
Billion sticks
% global share
1.2
50 increase of 11.2%, primarily due to positive
1.0
40 performance in Japan, partially due to glo,
0.8
30 Turkey and Brazil.
0.6
20 0.4  BAT employs technological terms for some
10 0.2 of its filter-led sub-brand variants, including
0 0.0 Kent Surround Taste System, Kent Infina 3
2012 2013 2014 2015 2016 2017 Tek, Kent Nanotek Superslims and Kent HD.
Global Volume % Global Share
 The Surround "Taste System” has
Filter Superslims Capsule perforations around the circumference of the
filter allowing for the escape of smoke
particles, thereby creating a "lighter" taste.
 In the first six months of 2018, BAT reported
that Kent’s market share increased by 50
bps, while volume was up 8.7%, mainly due
to glo’s growth in Japan and higher market
share and volume in Turkey and Brazil.
Kent Surround Kent Infina 3 Kent Nanotek Kent Convertibles
(crimped filter) Tek (carbon (superslims) (menthol capsule)
filter)

BRAND STRATEGY
Dunhill: the only GDB in decline
 Dunhill, the roots of which can be traced back Dunhill: Global Volume and Brand Share
a century ago, is regarded by BAT as its 2012-2017
“premium international brand”, and is often 60 1.2
positioned at an above-premium price point. 50 1.0
% global share
 Dunhill’s main markets include South Korea,
Billion sticks
40 0.8
Brazil, Malaysia, South Africa and GCC. It is 30 0.6
also a prominent brand in the travel retail
20 0.4
segment.
 According to BAT, Dunhill volume decreased 10 0.2
by 5.9%, in 2017, with market share 0 0.0

2012 2013 2014 2015 2016 2017
marginally down as well, driven by the
economic situation affecting consumers’ Global volume % Global share
purchasing power in Indonesia and continued

down-trading in Malaysia and GCC. Closure Superslims Capsule
 In the first six months of 2018, Dunhill
volumes fell by 9.3%, despite strong
performance in South Africa and Brazil,
according to BAT. The excise changes in
GCC continue to have a serious effect on
overall Dunhill volume figures. Other markets
where the brand’s volume decreased were
Indonesia and South Korea. Dunhill Reloc Dunhill Nanocut Dunhill Switch
(re-sealable pack) (superslims) (menthol capsule)

BRAND STRATEGY
Lucky Strike: steady growth since 2016
 Lucky Strike is another iconic BAT Lucky Strike: Global Volume

brand, part of the company’s GDB and Brand Share 2012-2017
portfolio, which legacy dates back to 45 0.8
1871 and stands for the true and original 40 0.7

American cigarette, according to BAT. 35 0.6
% global share
Billion sticks
30
 Western Europe is a particularly strong 0.5
25
region for Lucky Strike, with Germany, 20
0.4
Spain and France accounting for over a 15
0.3
quarter of the brand’s world volumes in 10 0.2
2017. Argentina and Chile are other key 5 0.1
markets for Lucky Strike in volume 0 0.0
terms. 2012 2013 2014 2015 2016 2017
Global volume % Global share
 In 2017, Lucky Strike shipment volume
grew by 12.2%, which was mainly driven Filter Capsule
by Indonesia and Spain, while Argentina
and Egypt accounted for notable
reductions.
 In the first six months of 2018, the
brand’s volume performance increased
by 2% due to Indonesia, Colombia and
Japan, while lower volume was
registered in France, according to BAT. Lucky Strike Lucky Strike Lucky Strike
Flow Filter Double Click Click 4 Mix

FOR FURTHER INSIGHT PLEASE CONTACT
Ivan Genov
Analyst, Drinks & Tobacco
ivan.genov@euromonitor.com
Twitter: @IvanIGenov
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BRITISH AMERICAN TOBACCO PLC IN TOBACCO

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 2

Key company facts

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Key company facts: cigarette volume sales

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 5

Financial assessment: acquisitions boosted performance in 2017

 In 2017, the company continued to optimise its 120

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 6

Volume and profit analysis by region

3.6% market share for December 2017, however, this

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 7

Volume and profit analysis: US

 After RAI’s acquisition in 2017, BAT is now treating the US as a

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 8

BAT: half-year 2018 performance in tobacco and NGP

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 9

SWOT: British American Tobacco Plc

Mergers/acquisitions Next-generation progress Litigation Plain packaging

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 10

BAT versus the global cigarettes market

BAT vs World Cigarettes Market 2012-2017

A: Lower industry B: BAT cigarette C: In contrast to D: BAT continues E: BAT

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 12

BAT in context: global companies 2017

Retail cigarette volume

in the future. KT&G’s performance is Volume (million sticks) % y-on-y growth

attributable to export increases.

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 13

Big four companies compared: sales and profits

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 14

Big four companies compared: margins and volumes

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 15

Cigarettes: regional share comparisons in 2017

North Western Eastern Latin

• Eastern: 15.3% • BAT:41.6% • CNTC: 66.4% • PMI: 21.8%

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 16

Cigarettes: BAT’s rank in top countries

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 17

Fine cut tobacco: regional share comparisons 2017

• IB: 26.9% • IB: 26.7% • IB: 33.8% • STG: 20.3%

World Western Europe Eastern Europe North America

• Coimexpor: 19.1% • STG: 24.8% • IB: 60.8% • Piangjai: 16.1%

Latin America MEA Australasia Asia Pacific

The pictures represent the leading brand in the region

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 18

Smoking tobacco: BAT’s rank in top countries

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 19

Operations: recent developments

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 21

BAT: factory footprint in 2017

Source: Company reports

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 22

BAT: historic acquisition, merger and joint venture activity

• 2011 Second largest cigarette company in Colombia; enabled BAT to move to

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 23

BAT becomes a major US player through RAI

Recent game changing acquisitions in the US

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 24

BAT’s only associate company left: ITC Ltd in India

 After the acquisition of RAI, the number of BAT’s principal

© Euromonitor International TOBACCO: BRITISH AMERICAN TOBACCO PLC PASSPORT 25

Potential for access to China with CNTC joint venture