Measuring our performance - British American Tobacco

Measuring our performance
2008
2009
2010
128.8p +19%
153.0p +19%
175.7p +15%
(annual %)
30
10
-10
-30
-50
-70
5
-10
-25
Upper quartile Lower quartile
(annual %)
20
Upper quartile Lower quartile
British American Tobacco Annual Report 2010
Business review
We have a wide range of measures and indicators by which the Board assesses
performance compared to the Group’s strategy. To ensure management’s focus
is aligned with the interests of our shareholders, our KPIs are reflected in our
management incentive schemes. Although our other business measures are
not directly included in management’s incentives, we believe they improve the
quality of our business and contribute to shareholder value, particularly over
the long term.
Shareholder value
Key performance indicators (KPIs)
Earnings per share
This is our adjusted diluted EPS – the detail of the calculation
and the adjustments made are explained in note 7 to the financial
statements. Our target is to grow adjusted diluted earnings per
share at the rate of high single-figures per annum, on average,
over the medium to long term.
Pence
+15%
Total shareholder return – annual %
The Group’s strategy is focused on increasing shareholder value,
which is measured using Total Shareholder Return (TSR) compared
to the FTSE 100 Index and also to the Fast Moving Consumer Goods
(FMCG) peer group. The FMCG comparator group is reviewed
annually to ensure that it remains both relevant and representative.
TSR is measured according to the return index calculated by
Datastream, on the basis of all companies’ dividends being
reinvested in their shares. The return is the percentage increase
in each company’s index over a three year period.
The target is to show an above average performance in the long
term, compared to the two comparator groups, based on a three
year average.
FTSE 100 – 1 January 2008 to 31 December 2010
The FTSE 100 comparison is based on three months’ average values
British American Tobacco 14.7%
Median 0.5%
FMCG group – 1 January 2008 to 31 December 2010
The FMCG group comparison is based on three months’ average values
British American Tobacco 14.7%
Median 3.0%
7
Business review Corporate governance Financial statements Other information

8 British American Tobacco Annual Report 2010
Business review
Measuring our performance (continued)
Growth
Key performance indicators (KPIs)
Revenue growth
This figure is calculated as the revenue of the Group after the
deduction of any duties, excise and other taxes, as published
in the Group income statement.
Our target is to grow revenue, on average over the medium
to long term, by 3-4 per cent per annum.
£ million %
2008
2009
2010
Billion
2008
2009
2010
%
2009
2010
12,122 +21%
14,208 +17%
14,883 +5%
187 +16%
195 +4%
208 +7%
25.0
25.3
+5%
Global Drive Brand (GDB) volume
GDB volumes are calculated as the total volumes of the four brands
– Dunhill, Kent, Lucky Strike and Pall Mall – sold by our subsidiaries.
Our target is to achieve high single-figure growth, on average, over
the long term.
+7%
Group’s share of key subsidiary markets
This is our retail market share in the Group’s Top 40 markets
which covers around 80 per cent of the volumes of subsidiaries.
The information used in this calculation is based on publicly
available information and internal company analysis.
Our target is to continue to grow market share.
Business measures
Share growth in key segments
This is our overall share of volume in the Group’s Top 40 markets
in three key segments: Adult Smokers Under 30 (ASU30), Premium
and Fresh Taste.
Our target is to maintain or grow our share of volume in each
segment each year on an organic basis.
2009
ASU30
2010
2009
Premium
2010
2009
Fresh Taste
2010
2009
ASU30
2010
2009
Premium
2010
2009 29
Fresh Taste
2010 30
25.2
26.1
26.5
26.7
25.9
26.9
Strategic segment volume
This is our total volume sales in the Group’s Top 40 markets in three
key segments: Adult Smokers Under 30 (ASU30), Premium and
Fresh Taste.
Our target is to maintain or grow total volume in each segment each
year on an organic basis.
Billion
183
179
182
177
Our key strategic segments no longer include the Lights segment.
Our Menthol segment has been renamed Fresh Taste and now includes
Menthol and Mint, although this does not affect the reported share
and volume figures for the segment and the comparisons with 2009.

Productivity
Key performance indicators (KPIs)
Adjusted profit from operations
Profit used in this assessment is the adjusted profit from operations
of the Group’s subsidiaries – adjusted for the items shown as
memorandum information on the Group income statement.
The Group’s target is to grow adjusted profit from operations on
average by 6 per cent per annum.
£ million %
2008
2009
2010
3,717 +24%
4,461 +20%
4,984 +12%
Overheads and productivity savings
Overheads are calculated as the total costs of all subsidiaries,
less variable costs and less all marketing investment.
Productivity savings are the savings in supply chain, overheads
and indirect costs (anything other than leaf, wrapping materials,
cigarette-making machinery and labour).
A specific target is set each year to contribute to the £800 million
savings target set for 2012. The £800 million target was reached
in 2010, two years ahead of plan.
Cash flow – free cash flow
Free cash flow is defined as net cash from operating activities
(including dividends from associates, restructuring costs and
taxation) less net interest, net capital expenditure and dividends
to minorities.
A specific target is set each year for free cash flow. The target for
2010 was exceeded.
£ million
2008
2009
2010
2,604 +52%
2,630 +1%
3,240 +23%
+12%
+23%
Business measures
2008
2009
2010
2008
2009
2010
British American Tobacco Annual Report 2010
Business review
Operating margin
This is the percentage of adjusted profit from operations divided
by revenue.
Our target is to increase operating margin to at least 35 per cent
by 2012.
86
30.7
31.4
92
33.5
Free cash flow as a percentage of adjusted earnings
This measures our free cash flow as a ratio of the adjusted
diluted earnings.
Our target is to maintain the percentage figure in the mid-80s.
%
101
9
Business review Corporate governance Financial statements Other information

10 British American Tobacco Annual Report 2010
Business review
Measuring our performance (continued)
Winning organisation
Business measures
‘Your Voice’ employee opinion survey
We collect views from employees through our ‘Your Voice’
survey once every two years to help us measure our progress
in employee engagement.
Our target is to achieve more positive scores than the other Fast
Moving Consumer Goods (FMCG) companies in our comparator
benchmark group in all areas. In 2010, scores in all categories were
more positive than the FMCG benchmark, and we either maintained
or improved on our 2008 score in eight of the 11 categories.
Responsibility*
Business measures
Dow Jones Sustainability Indexes
The Indexes track the economic, environmental and social
performance of leading companies based on the integration
of sustainability into their businesses.
Our target is to achieve a higher score than the sector average in a
minimum of 14 out of 18 categories. In 2010, we achieved a higher
score in 17 categories.
Group energy use
This measure tracks Group energy use in gigajoules per million
cigarettes equivalent.
Our target is to reduce energy use by 6.7 per cent by 2012 from
our 2007 base.
2007 base
2010
11.82
11.14
Waste to landfill
This measure tracks Group waste sent to landfill in tonnes per million
cigarettes equivalent.
Our target is to reduce waste sent to landfill in tonnes per million
cigarettes equivalent by 12 per cent by 2012 from our 2007 base.
2007 base
2010
0.018
0.025
2009
2010
2010
2002 base
2010
2000 base
Tonnes per million cigarettes equivalent Percentage of waste recycled
2010
2009
2010
0.85
0.27**
4.15
0.37
0.38*
Water use
This measure tracks Group water use in cubic metres per million
cigarettes equivalent.
Our target is to reduce water use by 48 per cent by 2012 from
our 2002 base.
Cubic metres per million cigarettes equivalent
4.85
Carbon dioxide equivalent (CO 2 e)
CO 2 e is largely derived from energy consumption and we track this
in tonnes per million cigarettes equivalent.
Our target is to reduce Group CO 2 e by 50 per cent by 2030 from
our 2000 base.
Gigajoules per million cigarettes equivalent Tonnes CO 2 per million cigarettes equivalent
* 2010 figures exclude performance data from our acquisition in Indonesia
Lost Workday Case Incident Rate (LWCIR)
The LWCIR is a standard health and safety measure that helps us
measure working days lost through injury on a consistent basis
year-on-year.
Our global aim is to have an LWCIR of 0.2 by the end of 2012.
The local target set for all of our companies is zero accidents.
LWCIR: Lost workday cases through injury x 200,000 ÷ total hours worked
* Excludes Indonesia
** Includes Indonesia
1.38
Recycling
This measure tracks the total percentage of Group waste re-used
or recycled against total waste generated.
Our target is to recycle more than 85 per cent of waste generated
in each year.
83.3
85.2
For more information visit
www.bat.com/sustainability