BRITISH AMERICAN TOBACCO A consistent strategy for building shareholder value ANNUAL REPORT 2009 BRITISH AMERICAN TOBACCO ANNUAL REPORT 2009 British American Tobacco continued to deliver sustainable growth and had another very successful year. Group revenue was 17 per cent higher (10 per cent at constant rates of exchange). Group profit from operations was 15 per cent up, 20 per cent on adjusted profit from RESULTS AT A GLANCE operations (10 per cent at constant rates). Group volume from subsidiaries, at 724 billion, was up by 1 per cent. Adjusted diluted earnings per share were 19 per cent higher and GROUP RESULTS 2009 dividends for the year also increased by 19 per cent. £ MILLION PENCE GROSS TURNOVER BASIC EARNINGS PER SHARE (including duty, excise and other taxes) 40,713 13 7. 0 +20% +11% REVENUE ADJUSTED DILUTED 14,208 EARNINGS PER SHARE 153.0 +17% +19% PROFIT FROM OPERATIONS 4,101 DIVIDENDS PER SHARE 99.5 +15% +19% ADJUSTED PROFIT FROM OPERATIONS 4,461 +20% BILLIONS BILLIONS GROUP CIGARETTE VOLUMES, GROUP CIGARETTE VOLUMES, EXCLUDING ASSOCIATES 724 INCLUDING ASSOCIATES 907 +1% -1% TOTAL SHAREHOLDER RETURN 10 YEAR EARNINGS PER SHARE FTSE 100 – 1 January 2007 to 31 December 2009 Adjusted diluted EPS The FTSE 100 comparison is based on three months’ average values. PENCE 153.0 ANNUAL % 30 British American Tobacco 15.5% 56.9 00 -30 Median (1.3)% -60 00 01 02 03 04 05 06 07 08 09 ■ Upper quartile ■ Lower quartile Cautionary statement The Business review and certain other sections of the Annual Report contain forward-looking statements which are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. OUR VISION Our vision is to achieve leadership of the global tobacco industry in order to create shareholder value. OUR STRATEGY From the Chairman From the Chairman From the Chairman From the Chairman www.bat.com/annualreport2009 www.bat.com/annualreport2009 www.bat.com/annualreport2009 www.bat.com/annualreport2009 GROWTH PRODUCTIVITY RESPONSIBILITY WINNING ORGANISATION Performance Performance Performance Performance and strategy and strategy and strategy and strategy ACHIEVE LEADERSHIP OF THE ACHIEVE LEADERSHIP OF THE ACHIEVE LEADERSHIP OF THE ACHIEVE LEADERSHIP OF THE GLOBAL TOBACCO INDUSTRY GLOBAL TOBACCO INDUSTRY GLOBAL TOBACCO INDUSTRY GLOBAL TOBACCO INDUSTRY GROWTH PRODUCTIVITY RESPONSIBILITY GROWTH PRODUCTIVITY RESPONSIBILITY GROWTH PRODUCTIVITY RESPONSIBILITY GROWTHPRODUCTIVITY RESPONSIBILITY WINNING ORGANISATION WINNING ORGANISATION WINNING ORGANISATION WINNING ORGANISATION Regional review Regional review Regional review Regional review Increasing our volume and value share of the global tobacco market Effectively and efficiently deploying our global resources to increase Balancing our commercial objectives with the expectations of a broad Ensuring we have the right people and the right work environment through organic growth and mergers and acquisitions. £14,208 million profits and generate funds to reinvest in our business. £239 million range of stakeholders to ensure a sustainable business. £112 million to deliver our vision. 87% Organic growth comes from increasing our revenue from our existing business. REVENUE We continually seek to increase the productivity of our business. The savings SAVINGS IN SUPPLY CHAIN, Because our products pose real risks to health, we strongly believe that our OUR RESEARCH AND DEVELOPMENT Our business spans some 180 markets and employs more than 60,000 people OF EMPLOYEES PROUD TO BE OVERHEADS AND INDIRECT COSTS EXPENDITURE IN 2009 ASSOCIATED WITH OUR BUSINESS, To achieve organic growth, we focus on key market segments that offer the which are generated are a source of operating profit growth and revenue for business must demonstrate responsibility in everything it does. Our commitment worldwide. We work hard to make sure that we have a workplace culture that WELL AHEAD OF THE GLOBAL FMCG best long-term prospects, including premium and international brands. Financial review reinvestment in the business. Financial review to responsible behaviour is integral to our sustainability agenda. This addresses Financial review allows people to thrive and reach their potential. BENCHMARK Financial review key business-related social, environmental and economic impacts in ways that We also aim to optimise the performance of our Global Drive Brands – Dunhill, Our focus is on smart cost management, marketing efficiency and capital Attracting, developing and retaining talent is central to our ambition to be aim to build value for all our stakeholders, including shareholders. Kent, Lucky Strike and Pall Mall – and seek opportunities for profitable volume effectiveness. This includes reducing unnecessary complexity to save costs a winning organisation. We aim to develop leaders with a clear vision for the growth in the value-for-money and low-price segments. We see innovative and using our cash and other assets more effectively. Our Business Principles and our Standards of Business Conduct set out what business who will motivate those around them. Fostering a confident culture products that offer consumers meaningful, value-added differentiation as key we require of our companies and employees in terms of responsible corporate that embraces change and innovation is also central to our strategy, as is Integrated global enterprise to organic growth. behaviour and personal integrity. ensuring continuous improvement throughout the Group. We are saving money by turning a multinational business operating in over Strategically important and financially attractive mergers and acquisitions can 180 markets into an integrated global enterprise that can take better advantage We support tobacco regulation that balances the preferences of consumers with Our reputation as an employer provide us with further growth opportunities. of its scale. the interests of society, establishes an open-minded approach to harm reduction Given the nature of our industry, a strong and clearly differentiated reputation Governance Governance Governance Governance as a policy and enables our businesses to continue to compete and prosper. as a world-class employer is critical to our long-term business sustainability. Our Sustainable growth Greater integration across our supply chain is helping us to reduce costs, increase Harm reduction is an important element of our strategy. employees come from very diverse cultures and backgrounds, and we benefit In 2009, Group volumes from subsidiaries were 724 billion, up 1 per cent, speed to market and improve effectiveness. We are also reducing our overheads from the breadth of new ideas and experiences they bring. mainly as a result of the acquisitions made in 2008. and indirect costs (anything other than leaf, wrapping materials, cigarette Sustainability making machinery and labour). Our sustainability agenda comprises five key goals that include all areas of Our employer proposition, known as ‘Bring Your Difference’, was launched With our strong brand portfolio and an overall brand mix that is broadly the Group strategy and is integral to delivering it. The goals cover developing to existing employees in 2009 before being used as part of our recruitment balanced between premium, mid-price and low-price, combined with reduced risk products, the way we operate in the marketplace, responsible campaigns. The proposition aims to describe British American Tobacco as an our wide geographic spread, we continue to be very well placed to deliver Group financial Group financial management of our supply chain, addressing our environmental impacts Group financial employer, how we create opportunities for individuality to be recognised and Group financial sustainable growth. statements statements statements statements and developing our employees within a great workplace culture. how we encourage people to perform at their best. financial statements financial statements financial statements financial statements Parent Company Parent Company Parent Company Parent Company Building retailer relationships (main picture) An integrated, global supply chain (main picture) A British American Tobacco Russia trade representative A farmer in Rio Grande do Sul state, Brazil, attends to Responsible leaf growing (main picture) A confident workplace culture (main picture) confirms an order with an independent retailer in Moscow. tobacco leaf in a curing barn. The raw materials used We work with around 250,000 farmers worldwide, Employees at our factory in Cachoeirinha, Brazil, We work closely with our retail partners to ensure that at in our products are sourced globally and supplied to the who supply all the leaf we buy, to promote high performing a daily exercise routine before the start of all times they can offer the products our consumers want Group’s factories using the latest distribution methods environmental and work place standards. We have their shift. We are committed to creating a confident to buy, at the right price and quantity, and with the and technologies, ensuring timely delivery and constant programmes in place to help build a sustainable supply workplace culture that embraces change and innovation, quality they expect. quality control. chain, benefiting