Delivering our Transforming Tobacco ambition
We are a leading, multi-category consumer goods company that provides tobacco and nicotine products to hundreds of millions of adult consumers worldwide.
We are transforming tobacco
For decades, we have built our business on successfully meeting the preferences of adult smokers with world-famous cigarette brands, superior blends and market-leading innovations.
We have been satisfying consumers, delivering shareholder value and creating valued employment for over a century. However, we are entering the most dynamic period of change our industry has ever encountered.
An unprecedented confluence of technology, societal change and public health awareness has created a unique opportunity: the opportunity to make a substantial leap forward in our long-held ambition to provide our consumers with potentially reduced-risk tobacco and nicotine choices.
Our acquisition of Reynolds American Inc. (RAI) in July 2017, which has transformed both the scale and geographic reach of our business and our portfolio of potentially reduced-risk products, now positions us perfectly to capitalise on this ambition.
We call this ambition Transforming Tobacco and we are fully committed to leading this transformation.
The advent of new and better consumer technologies meant that, in 2012, we articulated a new vision – to be the best at satisfying consumer moments in “tobacco and beyond” – with consumers right at the centre of our strategy.
We were clear then, as we are now, that we would build our business based on outstanding products, informed consumer choice and a drive towards a reduced-risk portfolio. More choice, more innovation, potentially less risk.
It is widely accepted that most of the harm associated with tobacco is caused by inhaling the smoke produced by the burning of tobacco. That is why we are dedicated to the development and sale of a range of potentially reduced-risk products that provide the enjoyment of smoking without burning tobacco.
Since 2012, together with RAI, we have invested approximately US$2.5 billion in the growth of our range of NGPs. We have also significantly increased the size of our existing oral tobacco business with the addition of more snus and moist snuff brands in the US.
Our commitment to leading and accelerating this transformation is also demonstrated by the changes we are making in how we run our business – including our NGP activities being integrated into the heart of the company across all functions and across all geographies.
While we cannot be certain whether or how many smokers will switch to potentially reduced-risk products, we are committed to making a range of high-quality, innovative products as widely available as practicable to address the varied preferences of our consumers.
We believe that by doing this, and working with regulators to establish supportive regulatory regimes, many millions of smokers will increasingly make the choice to switch.
This transformation is larger than just BAT. Lasting change will only be achieved by a combination of the commitment and product investment from companies like BAT and the support of regulators through the establishment of sensible regulation promoting a spectrum of potentially reduced-risk products.
We also need the objective and balanced support of public health bodies, politicians, media and academics in driving informed choice and consumer trust.
If we can all work successfully together we can drive a triple win. Our consumers will have a range of potentially safer choices; society could benefit from real progress in tobacco harm reduction; and our shareholders will own an even more sustainable and profitable business.
The investments we have made are now delivering tangible results. Thanks to our commitment, we are now able to provide an unrivalled suite of potentially reduced-risk products that can address the many and varied preferences of today’s more demanding consumers.
Today, we have industry-leading products in vapour; in tobacco heating products; in oral tobacco (including snus and moist snuff); and in our tobacco-free nicotine pouches. This is just a beginning. We aim for far more.
These products offer genuine choices to consumers searching for alternatives to traditional cigarettes.
This investment has been driven by our firmly held belief that our consumers are not all the same and so will need a range of different products to meet their varied and constantly evolving preferences. However, this is just the start. To lead this transformation we must win the technology race, so our R&D investment, led by hundreds of scientists across the world, is predominantly focused on developing our pipeline of potentially reduced-risk products.
All of the progress we have made to date gives us confidence to set clear ambitions for our future. By the end of 2018 our objective is to generate over £1 billion revenue from NGPs and by 2022 to have increased that figure fivefold to £5 billion.
Taken together with the growing revenue from our oral tobacco business, we fully expect that by 2030 a very significant percentage of Group revenue will be generated by potentially reduced-risk products. These aims will not be easy to reach, but, with a combination of commitment and investment, we believe they are achievable.
Even with these ambitious objectives, it is clear that conventional cigarettes will remain a key part of our business for many years to come and will continue to provide a vital source of investment for our NGPs.
We often get asked why we don’t just stop selling cigarettes. In short, we don’t believe this would be commercially sensible or practical: the ongoing consumer demand for these products would either transfer straight to our competitors or, more worryingly, the black market and in many markets there are still real regulatory obstacles to launching NGPs.
That is why alongside our commitment to the transformation of our business, we also remain fully committed to our combustible tobacco business during this transformation.