Annual Report 2009 - British American Tobacco

OUR STRATEGY
ACHIEVE LEADERSHIP OF THE
GLOBAL TOBACCO INDUSTRY
GROWTH PRODUCTIVITY RESPONSIBILITY
WINNING ORGANISATION
Our strategy to deliver our vision is based
on growth, productivity, responsibility
and building a winning organisation.
VISION: To achieve leadership of the global
tobacco industry.
GROWTH: Increasing our volume and
value share of the global tobacco market
through organic growth and mergers and
acquisitions.
PRODUCTIVITY: Effectively and efficiently
deploying our global resources to increase
profits and generate funds to reinvest in
our business.
RESPONSIBILITY: Balancing our commercial
objectives with the expectations of a broad
range of stakeholders, thus ensuring a
sustainable business.
WINNING ORGANISATION: Ensuring we
have the right people and the right work
environment to deliver our vision.
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
The first decade of the 21st century has been
characterised by both boom and bust and,
in 2009, the world found itself in the grip
of the deepest global recession since the
1930s. Tough times indeed, with investors
and consumers alike looking for stability
amid the turmoil of financial uncertainty
and rising unemployment.
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. While
our volume was up 1 per cent, our revenue
in constant currency improved by 10 per cent,
due to favourable pricing conditions and the
resilience of our Global Drive Brands (GDBs) –
Dunhill, Kent, Lucky Strike and Pall Mall –
which grew by a combined 4 per cent.
Acquisitions continue to play a part in our
growth strategy. Tekel and Skandinavisk
Tobakskompagni (ST), both acquired in mid-
2008, were fully integrated into the Group in
2009, contributing to our overall growth in
volumes. During 2009, we acquired Bentoel
in Indonesia, giving us a stronger position
in the fourth largest cigarette market in the
world and enabling us to enter the distinctive
‘kretek’ segment.
Productivity driving profit
Productivity savings represent released
resources that can be reinvested in the
business and drive profit growth. Savings in
supply chain, general overheads and indirect
costs amounted to £239 million in 2009. We
are firmly on track to achieve our £800 million
per year savings target by 2012.
These cost savings enabled the Group to
offset the impact of higher leaf prices and
other input costs due to adverse foreign
exchange rates, and our overall operating
margin increased from 30.7 to 31.4 per cent
in the year.
In further support of our £800 million target,
we have initiated a major programme to help
us take better advantage of our global scale
and simplify and accelerate the execution of
our strategy.
Sustainability agenda
Sustainability, for us, means business
sustainability, as well as being green.
In 2009, we continued to focus on our
established agenda of harm reduction, the
marketplace, our supply chain, our impact
on the environment and our people, and our
corporate culture. Our 2009 Sustainability
Report will be published in May 2010 (read the
report online at www.bat.com/sustainabilty).
The right working environment
We conduct a global employee opinion survey
every two years. The last one, in 2008, found
that 87 per cent of our people were proud
to be associated with our organisation and
90 per cent said they understood how their role
contributed to the achievement of the Group’s
strategy. The next survey will be held in 2010.
Industry outlook
Global economy
While most commentators are forecasting
improving economic conditions in 2010,
unemployment is likely to worsen in
developed countries and we would expect
some level of adverse consumer response in
06 British American Tobacco Annual Report 2009 Directors’ report: Business review