Business Update Debra Crew, President and COO R.J. Reynolds Tobacco - - PowerPoint PPT Presentation
Business Update Debra Crew, President and COO R.J. Reynolds Tobacco Company Reynolds American Inc. Sept. 7, 2016 1 Our transformation journey Key 2016 YTD accomplishments Progress on operating companies businesses and brands
Reynolds American Inc.
Debra Crew, President and COO R.J. Reynolds Tobacco Company
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Our transformation journey
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Forward-looking information
This presentation contains forward-looking information. Future results or events can be impacted by a number of factors that could cause actual results to be materially different from our projections. These factors are listed in RAI’s second-quarter 2016 earnings release and in the company’s SEC filings. Except as provided by federal securities laws, RAI is not required to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Web and Social Media Disclosure RAI’s website, www.reynoldsamerican.com, is the primary source of publicly disclosed news, including our quarterly earnings, about RAI and its operating companies. RAI also uses Twitter to publicly disseminate company news via @RAI_News. It is possible that the information we post could be deemed to be material information. We encourage investors and others to register at www.reynoldsamerican.com to receive alerts when news about the company has been posted, and to follow RAI on Twitter at @RAI_News.
All brand references are for RAI’s operating companies’ brands
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Reported vs. adjusted
RAI management uses ‘adjusted’ (non-GAAP) measurements to set performance goals and to measure the performance of the overall company, and believes that investors’ understanding of the underlying performance of the company’s continuing operations is enhanced through the disclosure of these metrics. ‘Adjusted’ (non- GAAP) results are not, and should not be viewed as, substitutes for ‘reported’ (GAAP) results. A reconciliation of GAAP to Adjusted results is at the end of this presentation.
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Key YTD accomplishments
dividend increase of 27.8% in 2016
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Underlying competitive strengths
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Current industry dynamics
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Distinctive brands driving growth
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Strength in cigarettes
42% 55% 73% 93%
ASU30 Share Menthol Volume Premium Volume Drive Brand Volume
Source: MSA, Inc. shipments to retail, six months ended June 30, 2016. ASU30 share - Tracker FY 2015
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Strong across all key areas
Premium Value Menthol Non-menthol
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Source: MSA, Inc. shipments to retail
Newport – accelerated growth
+0.6 +0.3 +0.4 +0.5 +0.6 +0.5 12 13 14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Share of market
(ppt. change from prior year)
percent
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Solid Newport growth across U.S.
OPPORTUNITY SOM: 4.4% Menthol: +.2 Non Menthol: +.2 EMERGING SOM: 9.1% Menthol: +.3 Non Menthol: +.2 Core SOM: 21.6% Menthol: +.4 Non Menthol: +.2
TOTAL US SOM: 13.9% Menthol: +.4 Non Menthol: +.2
Source: MSA, Inc. shipments to retail, YTD16 vs. YTD15, six months ended June 30.
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Trade-marketing impact
Pre-Deal 2Q16 Retail contracts 150,000 200,000
80% 90%
60% 70%
Adult smoker engagements per year 2 million 4 million
2 million
Newport database of adult smokers 5 million 10 million
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Enhanced in-store presence
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Delivering on Lorillard transaction objectives
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Source: MSA, Inc. shipments to retail – six months ended June 30, 2016, Tracker.
Share of market
8.2% 7 8 9 2012 2013 2014 2015 YTD16
Camel – positioned to thrive
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Source: MSA, Inc. shipments to retail, six months ended June 30, 2016 and company estimates.
awareness, trial
proposition
market share
Pall Mall – focused on equity
50 55 60 65 70 75 80 85 902010 2011 2012 2013 2014 2015 YTD16
Net Sales per Unit Share of Market
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Share of market
Natural American Spirit – tipping point
2.1% 1 2 2012 2013 2014 2015 YTD16
Source: MSA, Inc. shipments to retail – six months ended June 30, 2016, Tracker.
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Below nat’l avg. SOM 2.0 - 3.0 share SOM > 3.0 share
City NAS SOM Boulder, CO 13.9% San Francisco, CA 10.2% Portland, OR 9.1% Asheville, NC 7.7% Austin, TX 7.2% New York, NY 5.0%
Source: MSA, Inc. shipments to retail – six months ended June 30, 2016.
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Share of market
pouch leadership
Grizzly – focused on growth
30.7% 26 28 30 32 2012 2013 2014 2015 YTD16
Source: MSA, Inc. shipments to retail – six months ended June 30, 2016.
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fired tobacco
Wintergreen
Dark Mint part of our vision to transform tobacco
Grizzly portfolio expanded
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BASE: 21+ Adult tobacco or e-cigarette consumers Source: Tracker FY 2015
Adult Smokers 21+ 2012 2013 2014 2015
Trial - Vapor 37% 49% 58% 62% Loyal (Vapor Only) 3% 5% 6% 7%
Innovation essential for vapor growth
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products with potential to reduce risk to market
environment
recognizes risk continuum and offers greatest potential to improve public health
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Prepared for vapor leadership
‒ Created Jan. 2016 to drive speed-to-market for leading-edge products
‒ World-class vapor expertise and capability ‒ Competitive advantage in tobacco transformation ‒ Agreement signed Dec. 1, 2015
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VUSE – expanding market leadership
VUSE blu Logic MarkTen NJOY
Source: MSA, Inc. shipments to retail – six months ended June 30, 2016.
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Current Platform
VUSE evolution
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Leading-Edge Innovation
VUSE innovation – VUSE VIBE
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Best-in-class merchandising and marketing support
position
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Leading-edge products - ZONNIC
‒ 40-count gum package ‒ 10-count mini-lozenges
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Leading-edge products - CORE
additional activities
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Strongest portfolio dynamics in U.S. industry
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EPS
+14.9%
$3.05 $1.08 Net Income
RAI’s YTD performance
+49.5%
$4,361 Operating Margin
+5.8ppt.
123.6% $1,549 45.6%
Adjusted GAAP
Year-to-date period is the six months ended June 30. Reconciliation of GAAP to Adjusted results in Appendix 1
Operating Income
+56.8%
Adjusted YTD16 vs. YTD15
$7,557 $2,785
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Attractive dividend
2004 2006 2008 2010 2012 2014 3Q16
– Up more than 280 percent since 2004
$1.84* $0.48
*3Q16 annualized
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Full-year earnings guidance*
* July 26, 2016. Reconciliation of GAAP to Adjusted results in Appendix 1. RAI’s management cannot estimate on a forward-looking basis the impact of certain income and expense items on its reported EPS because these items, which could be significant, are difficult to predict and may be highly variable. As a result, RAI does not provide a corresponding reported measure for, or reconciliation to, its adjusted EPS guidance.
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Delivering outstanding total shareholder return
Since 2004 …
Through Aug. 31, 2016 Source: Bloomberg
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Summary
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Appendix 1 2016 2015 Operating Net Diluted Operating Net Diluted Income Income EPS Income Income EPS Reported (GAAP) results 7,557 $ 4,361 $ 3.05 $ 5,057 $ 2,317 $ 2.10 $ Reported (GAAP) results include the following: Gain on divestitures (4,861) (3,023) (2.11) (3,499) (1,466) (1.33) Implementation costs 28 18 0.01 104 66 0.06 Engle Progeny cases 61 38 0.02 111 70 0.06 Debt and financing costs (1)(2)
0.11
0.04 2003 NPM Adjustment Claim
(43) (0.04) Tobacco Related and Other Litigation
11 0.01 Transaction-related costs
43 0.04 Total adjustments (4,772) (2,812) (1.97) (3,281) (1,281) (1.16) Adjusted (Non-GAAP) results $ 2,785 $ 1,549 $ 1.08 $ 1,776 $ 1,036 $ 0.94
(1) For the six months ended June 30, 2016, debt and financing costs of $155 million are presented net of an income tax benefit of $88 million. (2) For the three and six months ended June 30, 2015, debt and financing costs of $18 million and $38 million, respectively, are presented net of an income taxbenefit of $11 million and $22 million, respectively. Six Months Ended June 30,
REYNOLDS AMERICAN INC.
Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) Results
(Dollars in Millions, Except Per Share Amounts) (Unaudited) RAI management uses "adjusted" (Non-GAAP) measurements to set performance goals and as a means to measure the performance of the overall company, and believes that investors' understanding of the underlying performance of the company's continuing operations is enhanced through the disclosure of these metrics. "Adjusted" (Non-GAAP) results are not, and should not be viewed as, substitutes for "reported" (GAAP) results.
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