British American Tobacco
Annual Report Assessment
Louis Toussaint
BUS 220_Financial Accounting_Assignment 2
Word Count: 1524
#100096382
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Table of Contents
Introduction: ........................................................................................................................................... 3
Financial: ................................................................................................................................................. 3
Ratio Analysis: ......................................................................................................................................... 5
Sustainability and Governance: .............................................................................................................. 6
Reflective Statement: ............................................................................................................................. 7
Conclusion: .............................................................................................................................................. 7
Bibliography: ........................................................................................................................................... 8
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Introduction:
British American Tobacco is one of the world’s leading groups in the tobacco industry sector along with Phillip
Morris, Imperial Tobacco and few others. Ever since 1902 British American Tobacco has progressively cut itself
a very sure part of the tobacco industry with its portfolio of 200 brands sold in over 180 markets. Moreover,
BAT has also achieved to trade throughout the “turbulences of the 20 th century, including wars, revolutions
and nationalisations”1 thanks to their approach to marketing and their business model built around customers.
Their business strategy is based on four key points: Growth, Productivity, Winning Organisation and
Responsibility. Growth as in consumer-led, Productivity as in effectively deploying resources and Responsibility
as in acting ethically at all times.
Financial:
British
American
Tobacco
currently holds 13% of the
tobacco global market shares
in direct competition with
Imperial
Tobacco,
Phillip
Morris and others.
Figure 1
Moreover, as shown in the graph
on the right, British American
Tobacco’s actual shares have
gone up since 2009 from an
average of 1.6 to an average of
2.9 in 2012, and even 3.34 in
2013. The main reason for the
growth in the tobacco market,
despite tougher regulations on
packaging and sudden increases
in excise rates, is driven by
population growth and increasing
disposable income, quite simply.2
Figure 2
3
British American Tobacco Gearing
If one were to compare British American Tobacco’s degree
Net Gearing (%)
63.92
Gross Gearing (%)
71.53
of leverage to another company, Imperial Tobacco for
Debt Ratio
51.14
example, one would notice that British American Tobacco’s
Debt-to-Equity Ratio
0.42
Net Gearing (64) to this day is lower than Imperial
Tobacco’s Net Gearing (74). This means that
Imperial
Imperial Tobacco Gearing
Net Gearing (%)
73.76
Tobacco is a riskier company, in the sense that it is “more
Gross Gearing (%)
80.13
vulnerable to downturns in the business cycle” 3 and that
Debt Ratio
67.42
Imperial Tobacco is more likely to struggle servicing its
Debt-to-Equity Ratio
0.51
debts than British American Tobacco.
Figure 3 Figure 4
On the right is a graph showing past
finances and, as one can see, sales have
increased ever since 2007, growing from
10’000 to almost 20’000 million pounds.
It could strike as strange given the
restrictions concerning plain packaging
(no aesthetically appealing cigarette
packs) introduced in 2000, but the
development of the tobacco market in
Indonesia and South Korea4, as well as
its
investments
concepts
in
allowed
the
e-cigarette
British
American
Figure 5
Tobacco to develop its sales growth.
Assets £(M)
2012
Reporting date
31
Dec 31
Dec 31
Dec 31
Dec 31
Dec
2012
2011
2010
2009
2008
Tangible assets
3,201
3,047
3,117
3,010
3,076
11,710
11,992
12,458
12,323
12,318
Total non-current assets 18,141
18,624
19,203
18,508
18,809
3,498
3,608
3,261
3,177
2,423
2,482
2,344
2,532
27,119
27,860
26,614
27,551
Intangible
goodwill
assets
and
Inventory / Work in
4,026
progress
Trade
and
other
2,741
receivables
Total of all ASSETS
27,327
2011
2010
2009
2008
A simple proof, or visual display
for the growth in sales revenue
can be seen in the five year
asset section of British American
Tobacco’s financial statement.
As shown in the table, Tangible
Assets went up from 3,076£ (M)
in 2008 to 3,201£ (M) in 2012,
Figure 6
4
so did Inventory and Trade.
Equity £(M)
2012
2011
2010
2009
2008
that equity was clearly raised between
Share Capital
507
506
506
506
506
2008 and 2010, but only to drop back by
Minority Interests
307
307
342
299
271
Retained earnings
2,253
2,636
3,190
2,168
1,578
Share premium account
3,916
3,913
3,910
3,907
3,905
Other Equity
796
1,112
1,600
1,032
955
Total EQUITY
7,779
8,474
9,548
7,912
7,215
Taking a look at this graph one can also say
2012. An explanation for the drop in overall
equity could be because of the Daric Smith
case in 2010, in which allegations were
made against B&W Investments from
where the defendants “participated in a
conspiracy to fix or maintain the price of
cigarettes sold in the US”5. The charges were dismissed in March 2012 under prejudice.
Figure 7
Ratio Analysis:
Analysing and comparing different ratios for different companies is the surest way to assess the company’s
performance. In this section ratios such as EPS (earnings per share), ROCE or Price to Earnings Ratios.
Earnings per Share
250
Looking at the difference in earnings per share
for British American Tobacco and Imperial
Tobacco one can clearly see that British
200
American Tobacco’s earnings ratio is higher than
150
Imperial Tobacco, which means that a higher
100
ratio of their net income has been earned by
50
shares of common stock.
0
British American Tobacco
Imperial Tobacco
Figure 8
The P/E ratio or price per earnings ratio displays a
company’s current share price in comparison to its pershare earnings. In other words, it informs investors of
potential return growth of earnings. In the graph on the
right, one can observe that Imperial Tobacco has the
highest P/E ratio while British American Tobacco only
Price/Earnings Ratio
30
25
20
15
10
5
0
British American Imperial Tobacco Lorillard Tobacco
Tobacco
Figure 9
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rates in between Imperial Tobacco and Lorillard Tobacco, with an E/P Ratio of 16.28
ROCE Ratio
0.25
The ROCE Ratio is used to compare companies
in terms of profitability based on the amount of
capital used. In the case of British American
0.2
Tobacco and Imperial Tobacco, the first
0.15
company has a way greater ROCE ratio, which
0.1
means that British American Tobacco does a
0.05
better job at deploying its capital.
0
British American Tobacco
Imperial Tobacco
Figure 10
Dividends per Share Ratio
In the graph on the right one can see that British American
140
Tobacco has a leading dividends per share ratio compared
135
to Imperial Tobacco, which means that the management
of British American Tobacco believes that its growth can
130
125
120
be sustained and the profit distribution to its shareholders
115
is also viable. The way the dividends per share ratio works
110
is to present a “sum of declared dividends for every
105
ordinary share issued”.
British American Tobacco
6
Imperial Tobacco
Figure 11
Sustainability and Governance:
To begin with, British American Tobacco portrays a very solid and ethically correct marketing strategy. There is
no marketing to under age consumers, there are no product placements, whether in films, TV shows or plays
and there are no clear links made to celebrities or sport athletes nor to professional, social or sexual success. 7
Moreover, British American Tobacco has taken an active part in fighting against illicit tobacco trade and fake
cigarettes. Measures such as entering in a cooperation agreement with the European Union, or the creation of
an Anti-Illicit Trade Intelligence Unit help to tackle such problems.
Furthermore, British American Tobacco strives to reduce Carbon Emissions by developing its five-year targets
for CO2, energy and water use. It has already decreased its total CO2 production by 41% since 2000 and its
water use by 22% since 2007. British American Tobacco also invests in the exploration of renewable and low
carbon energy options as well as developing new products with reduced nicotine and tobacco risks. British
6
American Tobacco works hand in hand with scientists, researchers and public health professions in the aim to
“secure widespread support for tobacco harm reduction”. 8 As seen, British American Tobacco doesn’t focus
only on profitability and revenue growth, but on responsibility and ethical behaviour.
As far as governance goes, since British American Tobacco is a company that deals on an international scale,
diversity is promoted in order to meet the needs of consumers, customers, suppliers and stakeholders alike.
As an example, British American Tobacco has 64 different nationalities working at the global headquarters in
the UK, as well as support for career development for female managers and diversity in the senior
management teams. Since 2012 the “number of women in senior roles remained steady at 32%” and an effort
to provide equal opportunities to every employee and strong policies against discrimination has been made.
British American Tobacco has put in place an on-going survey for employees to share concern and/or
satisfaction and since 2011 (every two years) over 42,000 employees took part in the program, which was
translated in 48 different languages. Needless to say British American Tobacco promotes employee
engagement and every employee remains well informed of internal strategy.
Reflective Statement:
Through the Financial Accounting course basic accounting methods, principles and rules were presented, as
well as certain accounting analysis skills. This report compiled all the techniques and knowledge learned in
order to present a viable, concise presentation of a company to a potential investor. Annual reports including
all financial statements were looked at, analysed and explained, and on-web in-depth research was carried
out. It must be said that in order to complete this report I had to combine analysing and processing skills to
accounting skills, which was a new experience. The intensive research helped to complete the report but the
occasional misunderstanding of the directions proved to be a setback.
Working as a group has shown to be a valuable experience, and utilizing modern resources such as Facebook,
Google Groups and other websites has opened our eyes on other learning and working possibilities.
Conclusion:
Although tobacco and cigarettes are known to be health impairing commodities, British American Tobacco
shows extraordinary willingness to promote responsibility within the industry. The financial report clears
states that British American Tobacco is a leading company in the tobacco market, and its history, experience
and renowned brand names make it a safe investment. Even with economic crises, deteriorating environments
and growing, limiting policies and legislations, British American Tobacco continues to grow, benefit and
produce.
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Bibliography:
1
British American Tobacco.com. BAT, Web Page 2, 20 Dec. 2012.
<http://www.bat.com/ar/2012/downloads/batannualreport2012.pdf>.
2
"Global Tobacco Market." British American Tobacco.com. BAT, n.d. Web. 3 Dec.
2013. <http://www.bat.com/group/sites/uk__3mnfen.nsf/vwPagesWebLive/
DO6Z2EUD>.
3
"Dividend Per Share - DPS." Investopedia. ValueClick Inc, n.d. Web. 13 Oct.
2011. <http://www.investopedia.com/terms/g/gearingratio.asp>.
4
"Repeat Update: British American Tobacco." London South East Alliance News. LSE
Limited, n.d. Web. 23 Oct. 2013.
<http://www.lse.co.uk/AllNews.asp?code=s8tjf71r&headline=REPEAT_UPDATE_British_Americ
an_Tobacco_Sees_Slight_Sales_Increase_Over_9_Months>
5
British American Tobacco.com. BAT, Web Page 179, 20 Dec. 2012.
<http://www.bat.com/ar/2012/downloads/batannualreport2012.pdf>.
6
"Dividend per Share - DPS." Investopedia. ValueClick Inc, n.d. Web. 10 Aug.
2011. <http://www.investopedia.com/terms/d/dividend-per-share.asp>.
7
"Marketing." British American Tobacco.com. BAT, n.d. Web. 3 Dec. 2013.
<http://www.bat.com/group/sites/uk__3mnfen.nsf/vwPagesWebLive/
DO52EKDZ?opendocument&SKN=1>.
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British American Tobacco.com. BAT, Web Page 23, 20 Dec. 2012.
<http://www.bat.com/ar/2012/downloads/batannualreport2012.pdf>.
Figures Web Source:
Figure 1: http://www.bat.com/group/sites/uk__3mnfen.nsf/vwPagesWebLive/DO6Z2EUD
Figure 2: http://www.wikinvest.com/stock/British_American_Tobacco_(LON:BATS)
Figure 3: http://shares.telegraph.co.uk/fundamentals/?epic=BATS
Figure 4: http://shares.telegraph.co.uk/fundamentals/?epic=IMT
Figure 5: http://www.4-traders.com/BRITISH-AMERICAN-TOBACCO-4001163/financials/
Figure 6: http://www.bat.com/ar/2012/downloads/batannualreport2012.pdf Financial Statement
Figure 7: http://www.bat.com/ar/2012/downloads/batannualreport2012.pdf Financial Statement
Figure 8, 9, 19, 11: Excel –
http://shares.telegraph.co.uk/fundamentals/?epic=BATS
http://shares.telegraph.co.uk/fundamentals/?epic=IMT
http://quotes.wsj.com/LO
http://markets.ft.com/research/Markets/Tearsheets/Forecasts?s=BATS:LSE
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