Economic performance

EC1 Direct economic value generated and distributed

Fully reported

Component Comment 2015 (£m) 2016 (£m) 2017* (£m)
Direct economic value generated
a) Revenues Net sales plus revenues from financial investments and sales of assets 42,052 48,248 59,083
Economic value distributed
b) Operating costs Payments to suppliers, non-strategic investments, royalties and facilitation payments (6,106) (7,061) (9,616)
c) Employee wages and benefits Total monetary outflows for employees (current payments, not future commitments) (2,206) (2,407) (2,786)
d) Payments to providers of capital All financial payments made to the providers of the organisation’s (3,376) (3,585) (5,602)
e) Payments to government Excise and other taxes (29,225) (33,538) (37,400)
f) Community investments Voluntary contributions and investment of funds in the broader community (includes donations)
 
(11.1) (8.3) (18.7)**
Economic value retained (calculated as 'Economic value generated' less 'Economic value distributed')
  Investments, equity release, etc. 1,128 1,649 3,660
* In line with our financial reporting at 2017 Annual Report, all data includes Reynolds American Inc. (RAI)
** Together with RAI, we invested a total of £18.7 million in cash, and a further £14.3 million in in-kind charitable contributions and corporate social investment (CSI) projects in 2017.
 

As one of the world’s most international businesses, our economic contribution stretches from a local to a global level.

We sell brands in more than 200 markets worldwide, with 45 cigarette factories based in 42 countries. Our Group employs over 55,000 people, and we pay over £2.6 billion each year to employees in wages and benefits. We also have many more people indirectly employed through our supply chain, including suppliers, contractors, distributors and retailers. This includes over 350,000 tobacco farmers in 34 countries; 1,500 suppliers of non-agricultural direct product materials in 77 countries; and 30,000+ indirect suppliers in over 150 countries.

EC2 Financial implications and other risks and opportunities for the organisation’s activities due to climate change

Partially reported

Senior governance of climate change issues

As part of overall corporate governance, climate change risks and opportunities are kept under review by senior management, including the Board Audit Committee and Regional Audit and CSR Committees. Below is an overview of climate-related risks and opportunities and the Group’s approach to managing these.

Summary of approach

Climate change could affect many aspects of our business, including the availability of tobacco leaf, water, energy and other raw materials. There are also potential risks from policy and regulation. These include, but are not limited to, tighter emissions reduction targets at facilities, future costs of carbon, minimum vehicle efficiency standards, increase in taxes for polluting vehicles, increase in fuel tax and mandatory carbon trading/management schemes. In addition, we believe there are financial implications associated with the risks identified.

While the long-term risks of climate change create a challenge, they also present an opportunity for us: if we consider a longer timeframe in our decision making, we can take steps today that will make us more competitive in the future. We also believe there are opportunities and financial incentives in climate change policy and regulation, such as emissions trading, carbon market, tax credits and tradeable allowances.

We are committed to reducing our environmental impact across our supply chain and operations. Evolving risks and opportunities around sustainable agriculture make the environmental impact of farming practices a key part of our approach to Sustainable Agriculture and Farmer Livelihoods. Reducing our operational environmental impact continues to be an important topic for our business, and one we closely monitor and aim to deliver reductions in our environmental impact against long-term targets.

In our tobacco leaf supply chain, we invest over £60 million each year in Leaf Research and Development and supporting farmers through our Extension Services. This helps to enhance farmer livelihoods and increases their resilience to the impacts of climate change, as well as other social and economic challenges. Read more about this in our 2017 Sustainable Agriculture and Farmer Livelihoods Focus Report .  

For our own operations, our long-term targets to cut carbon dioxide equivalent (CO2e) emissions by 55% by 2025 and by 80% by 2050 from our year 2000 baseline are in line with UK Government targets. We have already made significant progress, having achieved a 46% CO2e reduction in 2017 from our 2000 baseline.

In 2016, we developed a new set of operational environmental targets for 2025, as well as continuing to focus on our long-term goal to cut carbon dioxide equivalent (CO2e) emissions by 80% by 2050 from our year 2000 baseline. Our focus in 2017 has been to identify opportunities for each of our business functions to play a role in achieving these targets, as well as adapting to changes in our business. We’re currently working on identifying opportunities for achieving further reductions against our targets and believe our new focus on increasing the ratio of renewable energy will help contribute towards this.

Additionally, while our manufacturing processes are less water intensive than many industries, we understand the reality of increasing water scarcity in some parts of the world and this has led us to expand the scope of our water risk assessments. Previously only conducted at our strategic, high-risk sites, these assessments were completed by all our factories and green-leaf threshing sites in 2017.

Over the recent years, we have conducted a number of studies, including a review of potential physical impacts and annual incremental costs, and a stakeholder dialogue session to explore the potential for British American Tobacco to utilise opportunities from financial incentives. Building on these, in 2018, we plan to review the measurement and reporting of our Scope 3 emissions, and to conduct environmental life-cycle assessments across our products.

We’re also carefully considering our Independent Stakeholder Panel’ s suggestion to conduct a new analysis on climate change impacts in tobacco growing, and to provide more detail in future reports on how we’re working to understand, mitigate and increase farmers’ resilience to these impacts.

You can view our other key environmental targets and performance for energy, water and waste on the Environment  page.

EC3 Coverage of the organisation’s defined benefit plan obligations

Partially reported

Details of our retirement benefit scheme can be found in our 2017 Annual Report .

EC4 Financial assistance received from government

Not reported – information not collated at Group-level

We are a global business with brands sold in more than 200 markets. Therefore, collating details of financial assistance received from governments around the world, such as in the form of tax relief, credits or incentives, would be an extremely complex calculation which we are currently unable to report.

EC7 Development and impact of infrastructure investments and services supported

Fully reported

As an international business, with brands sold in more than 200 markets, we play an important role in countries around the world. Many of our companies have built close ties with the communities in which they operate and we have a long-standing approach to corporate social investment (CSI).

In 2017, 64% of our reporting markets had CSI activities and invested a total of £18.7 million in cash, and a further £14.3 million in in-kind charitable contributions and CSI projects in 2017 (including Reynolds American Inc. (RAI), our US subsidiary acquired in July 2017). Much of this work focuses on investment in local infrastructure projects, such as clean water and sanitation, energy, healthcare, technology, education and transport.

With a tobacco leaf agricultural supply chain covering 35 countries across North America, Latin America, Asia and Europe, our commercial investment of over £60 million each year in our Leaf Research & Development (R&D) and supporting farmers through our Extension Services of expert field technicians also makes an important contribution to rural farming communities.

Through our Leaf R&D, we develop new and innovative farming technologies and techniques which are rolled out to farmers as part of comprehensive agri-support packages. This includes adapting and developing mechanised solutions and curing technologies to help farmers scale up production, reduce manual labour and minimise health and safety risks; as well as to address environmental issues, such as deforestation, by reducing wood fuel use. Examples include soil tilling and fertilising machines; transplanting tools; automated harvesters; automated curing systems for alternative biomass fuels; and innovative designs for curing barns to minimise wood fuel consumption. 

Our network of expert field technicians provides on-the-ground Extension Services support, technical assistance and capacity building for all our 90,000+ directly contracted farmers. The services range from agreeing contracts at the beginning of each growing season, which mean a guaranteed income for farmers, to providing guidance and support around soil preparation, growing seedlings and cultivating other crops.

Throughout the year we also run regular farmer training programmes focused on issues such as human rights, health and safety, soil and water management, and business and financial management skills. Supporting farmers in this way helps to enhance their livelihoods and increases their resilience to the impacts of climate change, as well as other economic and social challenges.

Below you will find some examples of these investments and the impacts on communities and local economies. Please also see EC8 for details of our economic impact assessments and SO1 for details of our community impact assessments.

  • We have developed new varieties of tobacco seeds, that offer greater yields and higher quality, as well as resistance to diseases. Currently, over 60% of tobacco leaf grown by our farmers is from these varieties, contributing to an increase in yields of up to 20% compared to traditional strains.
  • Over 90% of our farmers grow other crops, including fruit, vegetables, maize, cotton and soy bean. This mixed agricultural landscape helps preserve soil health, while also enhancing food security and providing additional sources of income.
  • We have adopted and expanded a ‘floating’ seedbed system based on hydroponics, which reduces water use for growing seedlings. It also enables safer and more efficient application of agrochemicals, contributing to a significant reduction in overall usage. It is now used by all our farmers in Latin America and is being introduced in our other leaf operations around the world.
  • In Brazil, our Sustainable Farm programme provides business training focused on environmental, social and financial management issues. And our Novos Rurais programme provides entrepreneurial training and opportunities for young people to receive financial support for setting up new agricultural businesses. Since 2012, it has empowered over 2,200 young people and enabled the creation of almost 800 new businesses in farming communities. The programme was recognised in 2017 by the Food and Agriculture Organization of the United Nations, which awarded it a Certificate of Good Practice for Sustainable Rural Development.
  • Through our Probaho programme in Bangladesh, over 170,000 people a day now benefit from better access to safe drinking water, thanks to the 65 new water filtration plants we’ve installed. An independent impact measurement study, by the global consultancy Nielsen and published in 2017, found that this has reduced the number of people suffering from waterborne diseases, from 32% down to only 0.3%.
  • Another project in Bangladesh is Deepto, which, since 2011, has brought solar power to 16 remote villages with no electricity. Nielsen found that 65% of beneficiaries reported that they have started new income-generating activities, such as basket weaving and sewing, since getting solar power in their homes. Before Deepto, over 70% of schoolchildren faced problems keeping up with their schoolwork, due to not having sufficient light to study in the evenings. Over 84% now have more time to study, which is helping to improve their school performance. Villagers also feel much safer going outside at night, which is benefiting the community.
  • In Pakistan, the water filtration plants we’ve installed in the Punjab province, are helping to provide easy access to clean drinking water for an estimated 2.8 million people. In Khyber Pakhtunkhwa, the main tobacco growing region, we’ve partnered with the provincial government to provide villages that have never had access to electricity before with solar energy kits. These, so far, have helped to improve the lives of over 6,000 people. Also, together with the local organisation Green Medical Services, our mobile doctor units provide free healthcare to over 70,000 rural people each year.
  • In Sri Lanka, we have helped over 70% of our farmers to upgrade their curing barns to an automated system. The new barns are quicker and more efficient, reducing the amount of rice paddy husks needed as a fuel to cure 1kg tobacco from 5.9kg to 4.4kg – which ultimately saves the farmers time and money.
  • Also in Sri Lanka, our Sustainable Agriculture Development Programme focuses on tackling rural poverty by helping families become more self-sufficient and economically independent through maximising the use of their home gardens for organic cultivation of vegetables and other crops. Since its launch in 2006, the programme has benefited over 75,000 people from 19,000 families and has resulted in an 116% increase in beneficiaries’ average household monthly income.
EC8 Significant indirect economic impacts, including the extent of impacts

Fully reported

Our companies commission operational and economic impact assessments or studies on an ad hoc basis to meet local business needs. The assessments undertaken in 2017, and their findings, are described in below:

Angola

Our company commissioned an independent consultancy, ECONEX, to assess BAT’s impact on the Angolan economy in terms of its fiscal contribution and employment opportunities created. The results showed BAT’s operations in the country support the creation of over 26,000 jobs, which corresponds to 0.3% of Angolan employment.  BAT’s overall fiscal contribution to the Angolan economy is equal to 0.1% of the GDP in the country.

Romania

In late 2017, BAT Romania commissioned an independent third party, Civitta, to perform an economic footprint analysis of BAT’s operations in Romania over the past 20 years. It involves research into the contribution BAT has had to the Romanian economy and society through all our activities, including our manufacturing site, trade distribution and marketing, and shared services. The results are currently being analysed and will be published later in 2018.

Sri Lanka

BAT in Sri Lanka commissioned an independent third party, PepperCube Consultants, to conduct an economic impact study of its operations in the country. The study showed, in the previous year, an estimated 70,000+ jobs were created, supporting over 277,000 livelihoods. Additionally, the industry generated an income of LKR 144 billion (£732 million), with a contribution of LKR 102 billion (£519 million) to the Government’s revenue.

EC9 Proportion of spending on local suppliers at significant locations of operation

Not reported – information not collated at Group-level

We do not currently measure the proportion of spending on locally based suppliers as this would be an extremely complex calculation. We are a global business and have contracts with global suppliers, although the delivery and invoicing of goods and services often takes place locally, making it difficult to categorise spend as ‘global’ or ‘local’. Our companies use the most appropriate supplier for goods and services, taking into account numerous factors such as meeting our minimum standards for health and safety, capability and capacity to supply, quality, location, price, speed of delivery and various other criteria, including local regulations and social issues.

max
large
medium
small
mobile