Leadership commitment – communicating from the top? A N N U A L R E P O R T 2 01 0 British American Tobacco 2010 Annual Report Consumer Goods United Kingdom DELIV ER ING GROW TH THROUGH IN NOVATION 4 British American Tobacco Annual Report 2010 Business review British American Tobacco Annual Report 2010 Business review 5 Chief Executive’s review Business review “ In 2010 we grew market share, grew our leading international brands and achieved significant productivity savings that were well ahead of our targets.” Paul Adams Chief Executive “ As markets start to come out of the recession, we are now armed with a stronger portfolio and are ready to take advantage of further growth opportunities.” Nicandro Durante Chief Executive (from 1 March 2011) Corporate governance A strong business in a tough marketplace The strength of our companies worldwide and the success of our tried and tested Group strategy have enabled us to achieve very good growth through a volatile year, marked by economic uncertainty. Some emerging markets are now showing strong economic growth and even developed markets are returning to growth, yet unemployment remains stubbornly high in many parts of the world and disposable incomes are still under pressure. So it’s still a tough marketplace but our results show the true quality of our business. Our geographic diversity and strong positions in markets that have been least affected by the global recession continue to play a part in our success. However, the real story is the strength of our brands, the innovative products we bring to market and the quality of our people. In 2010 we grew market share, we grew our leading international brands in our most important markets and we achieved significant productivity savings that were well ahead of our established targets. Our organic revenue in constant currency also rose 3 per cent, despite a decline in organic volume of 3 per cent. Our brands are strong and growing in market share Our brands are performing well and I believe that this shows the true vitality of the Company. Collectively, our Global Drive Brands (GDBs) – Dunhill, Kent, Lucky Strike and Pall Mall – grew by 7 per cent, reflecting the successful launch of product innovations in key markets and brand migrations. What’s pleasing is that we are growing market share where it matters most. Our overall share in our Top 40 markets grew by 30 basis points to 25.3 per cent – a really encouraging result. Productivity enabling growth Our structural cost base has seen big changes over the past couple of years and this will continue. This is not just belt tightening, we are reconfiguring our structural costs as a result of refining our manufacturing footprint and developing new global systems that reduce local duplication of effort and resources. Productivity savings in the supply chain, general overheads and indirect costs amounted to £327 million in 2010 and helped us achieve an overall operating margin increase from 31.4 to 33.5 per cent. This means we have achieved our £800 million per year productivity savings target for 2012 two years ahead of schedule. I can see our ability to reduce costs continuing, especially as we exploit new global systems and processes. So we’ve made good progress on costs and there’s more to come. Delivering sustainable growth Our sustainability performance is also very important to us. It’s all about creating shared value – how we can create economic value in a way that also creates value for our stakeholders. The work we have done in this area, not just in 2010 but over the last decade, has been recognised through external benchmarking such as the UK’s Business in the Community Corporate Responsibility Index and the Dow Jones Sustainability Indexes. We have also received very good feedback on our Sustainability Reports and, in some cases, we have surprised independent assessors, including some who are critical of our business, with the openness and transparency of our reporting and the way we integrate sustainability with our business priorities and our strategy. We continue to make progress on our sustainability agenda – not just our impact on the environment and our people, but also the way we conduct our operations in the marketplace and throughout our supply chain. Our focus on the consumer means that we have continued to invest in our brands and the development of product innovations to drive growth, while we also invest in the longer term to ensure the business is fit to meet future challenges. This includes having the research and development capability to support our investigation into innovative products and our efforts to develop potentially reduced-harm prototypes. Handing over This report marks the end of an extremely enjoyable, often challenging and always interesting seven year period for me as Chief Executive. My successor, Nicandro Durante, has much to look forward to. I know he will quickly make the role his own and his drive for success will help to ensure the continued growth of this excellent business. I retire from the Company satisfied with the progress we have made and confident about its future. I’m clearly going to miss it. I’m tremendously proud of what we’ve achieved and I can only thank my colleagues in the company – all 60,000 of them – for what we’ve achieved together. I wish them, Nicandro and the whole business well for the future. Paul Adams Chief Executive Our strategy Our strategy is designed to deliver our vision and, as a result, build shareholder value. It is based on growth, funded by productivity and delivered by a winning organisation that acts responsibly at all times. A strategy for growth I am delighted to take on my role at a time when the opportunities for growth continue to be strong. There’s no doubt that we have our work cut out to match or exceed the success of the past few years but I know that we have the right business model, the right products and the right people, with the strongest innovations anyone in our industry has at their disposal. Our strategy certainly won’t change, although we may talk about it in a slightly different way. Our business model and balanced strategy add value to all aspects of our business and we believe this sets us apart from our competitors. We still think that delivering growth is the key to achieving our vision to lead the global tobacco industry. This means placing an even greater focus on growth and ensuring that it drives everything we do. Our growth is funded by productivity and delivered by a winning organisation that acts responsibly at all times. Strengthening our business In 2010 we strengthened our brands, we strengthened our innovations and we increased market share. We also made good progress on our sustainability agenda and very good progress on reducing costs. Financial statements Our vision To achieve leadership of the global tobacco industry. Our strategy for growth aims to increase our market share, with a focus on our Global Drive Brands. Our commitment to productivity provides the resource we need to invest in our brands and grow share in our key markets, helping us to increase profit. Being a winning organisation ensures that we attract, develop and retain the people we need to deliver growth. Our companies and people act responsibly at all times and we seek to reduce the harm caused by our products. Growth Productivity Winning organisation Responsibility Other information We grew share in our Top 40 markets and I believe that as markets start to come out of the recession, we are now armed with a stronger portfolio than we had before and are ready to take advantage of further growth opportunities. The key indicators are moving in the right direction, demonstrating the strength of our business. You can read more about our strategy at: www.bat.com/strategy pp 4-5 At British American Tobacco, sustainability is communicated as a significant feature of the business operations and central to the group strategy. In this report, there is a CEO handover and it is interesting that sustainability is referred to in both the outgoing and incoming CEO’s strategy. This demonstrates the leadership commitment to the issue and it is clear through the strategy diagram that ‘responsibility’ is a central element of the group strategy. This is then reported consistently throughout the report. 26 Integrated thinking in reporting
