british american tobacco p.l.c. annual report 2008 - Measuring our performance
Revenue growth
Revenue for 2008 grew by 21 per cent compared to the long-term target of growing revenue, on average over the medium to long term, by 3 to 3.5 per cent per annum.
Excluding the acquisitions made during 2008, the growth in revenue was 17 per cent. 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.
Global Drive Brand volume
A key strength of the Group is its diversified Global Drive Brands (GDBs) portfolio. The growth of the 4 GDBs – Dunhill, Kent, Lucky Strike and Pall Mall – is therefore a key driver of the Group’s strategy. In 2008, GDB overall volume grew by 16 per cent to 187 billion, compared to 10 per cent growth in 2007. Our target is to achieve high single figure growth.
GDB volumes are calculated as the total volumes of the 4 brands sold by our subsidiaries. More information about the GDBs and their individual performances is provided in the section 'Our Strategy – Growth'.
Group's market share amongst key players
The Group subsidiaries’ market share amongst key players of global volumes, excluding China, grew from 20.5 per cent to 21.4 per cent. When the volumes of associate companies are included, the share grew from 27.4 per cent to 27.5 per cent.The target is to continue our growth of the share of global volume as compared to other global players.
Share of global volume is calculated as the volumes sold by all international players, namely Philip Morris International, Japan Tobacco, Imperial Group and previously, Gallaher and Altadis.The information used in this calculation is based on publicly available information and internal company analysis.
Profit from operations excluding adjusting items
The Group’s long-term target is to grow, on average, operating profit by 6 per cent per annum. For 2008 it was 24 per cent, compared to 7 per cent growth in 2007.
Profit used in this assessment is the profit from operations of the Group’s subsidiaries, excluding any adjusting items – the items shown as memorandum information on the Group income statement.
Cash flow
The Group’s free cash flow in 2008 was £2,604 million, up £893 million from 2007. The change in free cash flow for the year is described in the Financial review.
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.
Earnings per share
Adjusted diluted earnings per share (adjusted diluted EPS) has grown at an average of 11 per cent per annum since the beginning of 2002. This compares favourably to the target of growing at the rate of high single figures per annum, on average, over the medium to long term. Adjusted diluted EPS grew by 19 per cent in 2008 (2007: 11 per cent).
Adjusted diluted EPS is the best measure to assess the underlying performance of the business as it excludes all significant distortions (exceptional items, trademark amortisation and one-off items) – defined as adjusting items. The detail of the calculation and the adjustments made are explained in note 7 on the accounts.
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 target is to show an above average performance in the long term, compared to the 2 comparator groups, based on a 3 year average.
TSR performance combines both the share price and dividend performance of the Company during the performance period, as set against the 2 comparator groups. 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 3 year period. On the TSR measure, the Company ranked seventh out of the FTSE 100 group of companies while it ranked second in the peer group of international FMCG companies. The Group has achieved a top quartile performance in both of these categories since 1999. See the Remuneration report for more information.
A number of other business measures, financial and non-financial, are monitored and assessed frequently to ensure that the Group’s strategy is delivered. Although these are not included in management’s incentives, we believe that these business measures contribute to the success of the Group, particularly over the long term. Under Our strategy we have therefore included our performance against some of these business measures relating to the 4 elements of our strategy.
