Annual Report 2009 Directors’ Report: Business Review from the Chairman Performance and Strategy

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Annual Report 2009 Directors’ Report: Business Review from the Chairman Performance and Strategy FROM THE CHAIRMAN We have a clear and consistent strategy “and an excellent management team that will maintain sustainable growth and build shareholder value.” Richard Burrows Chairman 02 British American Tobacco Annual Report 2009 Directors’ report: Business review From the Chairman www.bat.com/annualreport2009 Performance and strategy Dear Shareholder, Historical total shareholder return performance 2009 was a remarkable year to join May I also extend my warmest thanks on British American Tobacco. While many behalf of all shareholders to my predecessor, Growth in the value of a hypothetical £100 holding over five years companies have struggled in the harsh Jan du Plessis, who led the Board so skilfully FTSE 100 comparison based on 30 trading economic climate and international markets over the past five years. He set an exemplary day average values. have wavered, I find myself with the great standard of Chairmanship and is a tough £ British American Tobacco privilege of being Chairman of a business act to follow. I know I speak for everyone FTSE 100 Regional review that continues to deliver excellent results and at British American Tobacco in wishing him 400 has a well established strategy for achieving continued success. 300 sustainable growth. Jan’s time here has certainly been a period 200 Revenue rose by 10 per cent at constant of impressive value creation for shareholders. 100 rates of exchange and by 17 per cent to Over the past five years, British American 0 £14,208 million at current rates. Adjusted Tobacco has achieved a compound annual Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 profit from operations increased by 10 per growth rate of 15 per cent in earnings per cent at constant rates of exchange and by share and 19 per cent in dividends per share. Financial review 20 per cent to £4,461 million at current rates. Over the same five year period, our total Five year dividend per share The benefit from the translation of our results shareholder return has been 175 per cent 1 January 2005 to 31 December 2009 into sterling was £355 million. compared to 35 per cent for the FTSE 100. PENCE These fine figures resulted in adjusted diluted In summary, I am delighted to be here 99.5 earnings per share growing by 19 per cent and optimistic about the future for British to 153.0p. American Tobacco. We have a well established company in one of the more resilient industries. 47.0 The Board has recommended a final Indeed, as an outsider, I have been struck by dividend of 71.6p per share, an increase both the broad stability of the tobacco sector of 16 per cent, which will be paid on Governance and the opportunities for growth within it. 6 May 2010 to shareholders on the register at 12 March 2010. This takes the total dividend There are signs that the global economy is 05 06 07 08 09 for the year to 99.5p, an increase of 19 per beginning to improve, although unemployment, cent, and maintains our target of paying out which is an important influence on our 65 per cent of sustainable earnings in dividends. business, may continue to rise in developed markets. We have a very clear strategy and It is to the credit of all our people that excellent management, with a well balanced HIGHLIGHTS British American Tobacco has had yet portfolio of brands. Our unrivalled geographic another successful year and I am delighted Group financial spread mitigates risk for shareholders and will statements with the performance of our executive team. help us maintain sustainable growth and build At the end of 2009, Jimmi Rembiszewski, shareholder value. +19% our outstanding and long-serving Marketing Director, retired and was succeeded by ADJUSTED DILUTED EARNINGS Jean-Marc Lévy. Jean-Marc, who was PER SHARE GROWTH FOR 2009 previously Regional Director, Western Richard Burrows Europe, has been succeeded by Jack Bowles. Chairman My fellow Non-Executive Directors have financial statements Parent Company played an important role in constructively +15% challenging our strategy and ensuring that COMPOUND GROWTH RATE the Group is very well governed. My thanks OVER THE LAST FIVE YEARS, BASED to them for their help and support in my ON ADJUSTED DILUTED EARNINGS new role. PER SHARE Shareholder information Directors’ report: Business review British American Tobacco Annual Report 2009 03 PERFORMANCE AND STRATEGY PAGE Chief Executive’s review 06 Paul Adams, Chief Executive, reviews the Group’s performance in 2009 against the corporate strategy and discusses the industry outlook and our competitor landscape. Measuring our performance 08 We have a wide range of measures and indicators by which the Board assesses performance compared to the Group’s strategy, including our key performance indicators and other business measures. Our strategy 12 Our vision is to achieve leadership of the global tobacco industry. Our strategy to deliver our vision is based on growth, productivity, responsibility and building a winning organisation. Key Group risk factors 32 This section describes the main risk factors that may affect the British American Tobacco Group’s businesses, identifies their potential impact on the Group and outlines the principal activities in place to manage the risk. 04 British American Tobacco Annual Report 2009 Directors’ report: Business review Performance Group financial Parent Company Shareholder From the Chairman and strategy Regional review Financial review Governance statements financial statements information 05 Annual Report 2009 British American Tobacco British American Tobacco www.bat.com/annualreport2009 Directors’ report: Business review CHIEF EXECUTIVE’S REVIEW The importance of a consistent business “strategy that delivers in bad times as well as good has never been more amply demonstrated than over the past year.” Paul Adams Chief Executive Sustainable growth in troubled times These cost savings enabled the Group to OUR STRATEGY The first decade of the 21st century has been offset the impact of higher leaf prices and characterised by both boom and bust and, other input costs due to adverse foreign in 2009, the world found itself in the grip exchange rates, and our overall operating of the deepest global recession since the margin increased from 30.7 to 31.4 per cent ACHIEVE LEADERSHIP OF THE 1930s. Tough times indeed, with investors in the year. GLOBAL TOBACCO INDUSTRY and consumers alike looking for stability In further support of our £800 million target, amid the turmoil of financial uncertainty we have initiated a major programme to help and rising unemployment. GROWTHPRODUCTIVITY RESPONSIBILITY us take better advantage of our global scale The importance of a consistent business and simplify and accelerate the execution of strategy that delivers in bad times as well our strategy. WINNING ORGANISATION as good has never been more amply Sustainability agenda demonstrated than over the past year. While Sustainability, for us, means business our volume was up 1 per cent, our revenue sustainability, as well as being green. in constant currency improved by 10 per cent, In 2009, we continued to focus on our due to favourable pricing conditions and the established agenda of harm reduction, the resilience of our Global Drive Brands (GDBs) – Our strategy to deliver our vision is based marketplace, our supply chain, our impact Dunhill, Kent, Lucky Strike and Pall Mall – on growth, productivity, responsibility on the environment and our people, and our which grew by a combined 4 per cent. and building a winning organisation. corporate culture. Our 2009 Sustainability VISION: To achieve leadership of the global Acquisitions continue to play a part in our Report will be published in May 2010 (read the tobacco industry. growth strategy. Tekel and Skandinavisk report online at www.bat.com/sustainabilty). Tobakskompagni (ST), both acquired in mid- GROWTH: Increasing our volume and The right working environment 2008, were fully integrated into the Group in value share of the global tobacco market We conduct a global employee opinion survey 2009, contributing to our overall growth in through organic growth and mergers and every two years. The last one, in 2008, found volumes. During 2009, we acquired Bentoel acquisitions. that 87 per cent of our people were proud in Indonesia, giving us a stronger position PRODUCTIVITY: Effectively and efficiently to be associated with our organisation and in the fourth largest cigarette market in the deploying our global resources to increase 90 per cent said they understood how their role world and enabling us to enter the distinctive profits and generate funds to reinvest in contributed to the achievement of the Group’s ‘kretek’ segment. our business. strategy. The next survey will be held in 2010. Productivity driving profit RESPONSIBILITY: Balancing our commercial Industry outlook objectives with the expectations of a broad Productivity savings represent released Global economy range of stakeholders, thus ensuring a resources that can be reinvested in the While most commentators are forecasting sustainable business. business and drive profit growth. Savings in improving economic conditions in 2010, supply chain, general overheads and indirect WINNING ORGANISATION: Ensuring we unemployment is likely to worsen in costs amounted to £239 million in 2009. We have the right people and the right work developed countries and we would expect environment to deliver our vision. are firmly on track to achieve our £800 million some level of adverse consumer response in per year savings target by 2012. 06 British American Tobacco Annual Report 2009 Directors’ report: Business review From the Chairman www.bat.com/annualreport2009 Performance and strategy these markets. However, some developing competitors, representing anything up to GROUP NUMBERS 2009 markets have been less affected by the global 12 per cent of world consumption. That’s recession and are likely to see a measure a black market estimated at up to 660 billion of economic recovery and lower levels of cigarettes a year, losing governments up to unemployment in the year ahead.
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