Economic performance

EC1 Direct economic value generated and distributed

Fully reported

Component Comment 2014 2015 2016
Direct economic value generated
a) Revenues Net sales plus revenues from financial investments and sales of assets £43,331m £42,052m £48,248m
Economic value distributed
b) Operating costs Payments to suppliers, non-strategic investments, royalties and facilitation payments £6,791m £6,106m £7,061m
c) Employee wages and benefits Total monetary outflows for employees (current payments, not future commitments) £2,343m £2,206m £2,407m
d) Payments to providers of capital All financial payments made to the providers of the organisation’s capital £4,100m £3,376m £3,585m
e) Payments to government Excise and other taxes £29,985m £29,225m £33,538m
f) Community investments Voluntary contributions and investment of funds in the broader community (includes donations)
 
£13.9m £11.1m £8.3m
Economic value retained (calculated as 'Economic value generated' less 'Economic value distributed')
  Investments, equity release, etc. £98m £1,128m £1,649m

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 44 factories based in 42 countries. Our Group employs around 50,000 people, and we pay over £2.4 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 two million retailers, over 90,000 contracted tobacco farmers, mainly in countries in Africa, Asia and Latin America and over 70,000 non-agricultural suppliers in more than 80 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 vehicle 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. In 2006, assisted by the consultancy company Environmental Resources Management (ERM), we conducted a study concentrating on key leaf operations, factories and global impact areas such as direct materials supply, business travel and freight. The headline outcome from this study was that climate change could potentially bring physical impacts affecting our companies, with annual incremental costs in the range of £50 million to £100 million (Group revenue in 2016 was £48,248 million).

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 set us up to be more competitive in the future.

We also believe there are opportunities in climate change policy and regulation, such as emissions trading, carbon market, tax credits, financial incentives and tradeable allowances. In 2011, we held a stakeholder dialogue session to explore the potential for British American Tobacco to utilise the opportunities of these economic incentives for our business.

We are working to address both our immediate environmental impacts and the likely environmental pressures on the business in the future. This involves risk assessments, performance management and making our operations more efficient.

Our key focus areas are minimising energy consumption, reducing our carbon footprint, and securing the resources we need for the long term. To assess our environmental efficiency, we set targets relative to the volume of cigarettes we produce.

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 47% CO2e reduction from our 2000 baseline.

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 2016 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 longstanding approach to corporate social investment (CSI). These CSI activities often support local infrastructure projects that can benefit wider communities. In 2016, 66% of our reporting markets had CSI activities and over the last five years we’ve invested around £60 million in CSI projects.

Tobacco growing is the most significant part of our supply chain. We buy more than 400,000 tonnes of tobacco each year from over 90,000 contracted farmers and third party suppliers, mainly in developing countries and emerging economies in Africa, Asia and Latin America. In some of these countries, access to basic infrastructure and resources, such as health services, clean water, sanitation, energy and technology, can be a challenge.

The farmers we work with are crucial to the success of our business and if they do well, we do well – so we provide on-the-ground advice and support to our contracted farmers around the world through our dedicated Extension Services for contracted farmers and our newly launched Sustainable Agriculture and Farmer Livelihoods (SAFL) programme focused on meeting the needs of rural communities. This support focuses on a recognised internal framework covering the five ‘Capitals’ which are key to sustainable and thriving rural communities:

Financial Capital: profitable farms and stable incomes

We are helping our farmers to optimise the profitability of their businesses, with tobacco grown alongside other crops in mixed agricultural landscapes. We guarantee to buy a certain amount of tobacco from our farmers each year. This gives them a regular income, enabling them to invest in their farms and build more successful businesses. We also provide seeds that offer greater yields, quality and resistance to diseases and drought. These can lead to better returns for the farmers and higher quality leaf for our products.

Natural Capital: the natural resources upon which farming and landscapes rely

This includes providing guidance and techniques on preserving soil and water health, such as crop rotation, mulching, ‘green manure’, irrigation, drainage and the reduced use of pesticides, as well as reducing water use through new techniques and technologies such as drip irrigation. We are also helping farmers to preserve natural forests through afforestation programmes, which provide a sustainable source of wood for curing, and by finding locally available, alternative fuels such as rice paddy husks and candlenut shells.

Physical Capital: basic infrastructure needed for viable places to live and work

We provide our farmers with access to technology and invest in community projects to help ensure tobacco growing areas remain viable places to live and work. Examples include new seed varieties developed by our global agronomy centre; ‘floating trays’ for producing seedlings; innovative technologies for irrigating crops; and mechanised equipment to help with harvesting.
Through our CSI programmes we invest in local infrastructure projects in rural communities. For example, in Bangladesh, our company provides more than 11,000 rural people their first access to electricity at home and the use of mobile phones, as well as installing 53 water filtration plants that purify water for around 170, 000 people a day, providing much needed clean drinking water in 14 districts.

Human Capital: skills, knowledge, labour and human rights

Our expert field technicians provide advice and support for all of our farmers, helping them to run successful and profitable farms. We also provide training and capacity building through farmer clubs, field days, workshops and manuals for our farmers and their communities, covering issues such as child labour, the safe use of chemicals and occupational health issues, such as green tobacco sickness.

We also have a number of CSI programmes focused on empowering rural communities through training and support. For example, for over 10 years our business in Sri Lanka has a programme working with poor rural families, teaching them agricultural skills, enhancing their knowledge and providing resources such as seeds, plants and poultry, as well as training in beekeeping, mushroom cultivation and goat-rearing. It is designed to help the families become more self-sufficient and economically independent, while also maximising their land use, providing them with a more nutritional diet and empowering women. It is independently audited against the project objectives, which the programme continues to exceed each year.
In the last 10 years, the programme has benefited over 75,000 people from 19,000 families and has played an important role in helping the Sri Lankan Government to alleviate poverty.

Social Capital: resources and ‘safety nets’ for self-sufficiency and resilience

We are working to build farmer networks by helping them to share best practice and become more self-sufficient. The regular training, workshops and seminars we run, help to facilitate networks among our farmers’ communities. In some countries, we go beyond this by establishing formal farmer clubs or forums as part of wider community projects. For example, we have established over 50 farmers clubs in Bangladesh in partnership with the Government which provides knowledge to farming communities and combines classroom training with practical field learning.

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 2016, and their findings, are described in more detail below:

Nicaragua

Our company commissioned a think tank, called Fundies, to assess BAT’s impact on the Nicaraguan economy in terms of its fiscal contribution. The results showed BAT’s overall fiscal contribution to the economy is equal to 2.5% of the total fiscal income to the Government. In terms of the fiscal industry contribution in Nicaragua, beer is the highest, followed by cigarettes.

Spain

Our company in Spain commissioned third parties, Mesa del Tabaco, CEOE - an employers organisation representing more than 1.2m Spanish companies, AFI – School of Finance and IPSOS – the polling, knowledge and learning organisation, to conduct research on the economic contribution of the tobacco sector in the country. The research found:

  • 60,963 jobs are generated by the tobacco industry in Spain;
  • The tobacco industry contributes 5% of the total tax collection for Spanish Government;
  • €7.1 billion (£5.53 billion) is collected in tobacco excise contributions by the Government;
  • €2 billion (£1.56 billion) is collected as VAT on tobacco by the Government, which equates to 3.7% of the total tax collection;
  • Spain is among the five biggest European producers of tobacco leaf; and
  • Loss of revenue from illegal tobacco products amounted to €1.01 billion (£790 million), which is 7.5% of total budgeted revenue in 2014.

South Africa

In 2016, BAT South Africa commissioned a study by Quantec Research to assess the direct contribution of BAT to the South African economy, as well as its indirect and induced impacts. The results of the study conducted by Quantec Research in 2016 show that for BAT South Africa.

The total economic impact constitutes only a fraction of its total contribution to the South African economy. Additionally, total production stimulus to the South African economy, including purchased goods and services, amounted to R34.26 billion (GBP £2,15 bn). The study also showed that BAT South Africa:

  • Employed 2,187 people nationally with a total wage bill of R1,18 billion (GBP £74m);
  • Generated R14.49 billion (GBP £913m) tax income for National Treasury;
  • Supports 72,279 full-time equivalent jobs;
  • Contributes labor income to the value of R5.84 billion (GBP £368m);
  • Raises R18.75 billion (GBP £1.18 bn) in tax revenues for the National Treasury;
  • Contributes R18.39 bn (GBP £1.16bn) to total national GDP.
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.

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