british american tobacco p.l.c. sustainability report 2010 - Economic performance

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Sustainability Report 2010
EC1 Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments
ComponentComment2010 Response
Direct economic value generated
a) RevenuesNet sales plus revenues from financial investments and sales of assets £44,588m
Economic value distributed
b) Operating costsPayments to suppliers, non-strategic investments, royalties and facilitation payments£7,251m
c) Employee wages and benefitsTotal monetary outflows for employees (current payments, not future commitments)£2,550m
d) Payments to providers of capitalAll financial payments made to the providers of the organisation’s capital£2,910m
e) Payments to government £30,220m
f) Community investmentsVoluntary contributions and investment of funds in the broader community (includes donations) for both LBG criteria and statutory reporting criteria£15.4m
g) Economic value retained (calculated as Economic value generated less Economic value distributed)Investments, equity release, etc. £1,641.6m
EC2 Financial implications and other risks and opportunities for the organisation’s activities due to climate change

Climate change is one of the greatest global environmental challenges we face today. Addressing its impacts requires governments, businesses and individuals to all take responsibility. 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 (annual net revenue of the Group is £14,883 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 plan to hold a stakeholder dialogue session to explore the potential for British American Tobacco to utilise the opportunities of these economic incentives for our business.

Our approach is to assess and reduce our environmental impacts by increasing efficiency in our operations and making smarter choices in our supply chain.

To reduce our carbon footprint, we address our energy use, our waste to landfill and our business travel. We are also beginning to explore opportunities for generating and purchasing renewable energy. The challenge is in identifying when, where and what renewable energy sources will become economically viable, so we also intend to research low-carbon fuel options to deploy in the interim. In 2011, we are planning to hold a stakeholder dialogue session to further explore the opportunities of renewable energy.

EC3 Coverage of the organisation's defined benefit plan obligations

This information is in our 2010 Annual Report Opens in new window.

EC4 Significant financial assistance received from government

This information is more relevant locally and we do not collate global data on it.

EC5 Range of ratios of standard entry level wage compared to local minimum wage at significant locations of operation

This information is more relevant locally and we do not collate global data on it.

EC6 Policy, practices and proportion of spending on locally based suppliers at significant locations of operation

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, capability and capacity to supply, quality, location, price, speed of delivery and various other criteria, including local regulations and social issues.

EC7 Procedures for local hiring and proportion of senior management hired from the local community at significant locations of operation

We have an aspiration for a 70:30 ratio of local to expatriate senior managers in each business unit. Currently over half of our regions have achieved this goal. It is also our long-term aim to have succession plans in place for every senior role with at least one local successor ready in the short term and two local successors identified for long-term development.

Succession plans for key roles remain stretched mainly as a result of reorganisations over recent years. However, we were successful in redeploying talented employees during these reorganisations and filled many key roles with internal candidates.

For further details of our succession management data, please see the people and culture section.

We are committed to providing equal opportunities to each prospective and current employee. Our Group Employment Principles state that we will not discriminate in hiring, promotion or retirement decisions on the grounds of race, colour, gender, age, social class, religion, smoking habits, sexual orientation, politics or disability. Rather, we match the requirements of the job to the ability and potential of the individual. You can read a full version of our Employment Principles at www.bat.com/ principles Opens in new window.

EC8 Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in-kind, or pro bono engagement

This information is more relevant locally and we do not collate global data on it.

EC9 Understanding and describing significant indirect economic impacts, including the extent of impacts

Our companies commission economic impact studies on an ad hoc basis to meet local business needs. In 2010, three of our subsidiaries reported commissioning assessments on how they contributed to the longer-term prospects for economic development in Australia, Pakistan and Poland.

Our company in Australia commissioned two studies, conducted by PricewaterhouseCoopers Australia, to assess Australia’s illegal tobacco market and the economic contribution of the tobacco industry in Australia. The first study included research into the economic contribution of the legitimate tobacco industry in Australia and showed that in 2008 its sales represented a contribution of A$3.6 billion (£2.14 billion) to Australia’s GDP. In 2008/9, A$5.62 billion (£3.34 billion) was collected in excise revenues of tobacco products, representing 2 per cent of Australia’s taxation revenue.

The second study showed that around 73,000 jobs are directly or indirectly created by the tobacco industry in the country. However, it also highlighted the negative economic impacts of the use of tobacco products, with increased health and other social costs. Health costs associated with tobacco use in Australia are estimated to be A$318 million (£189 million) per year.

In 2010, our company in Pakistan commissioned an update to its 2008 study by Neilson research agency to evaluate employment created, revenue generated, taxation and wider economic contributions within the Northwest Frontier Province (NWFP). Key highlights showed that the tobacco industry generated employment (direct and indirect) among 80,000 farmers, and an income of PKR 8.5 billion (£64.6 million). In the manufacturing sector, it created direct and indirect employment of 70,000 people, generating a total income of PKR 10 billion (£75.9 million). In the distribution and retailing sector, direct and indirect employment was generated for 200,000 people, with an income of PKR 12 billion (£91.1 million). The industry’s contribution to the government in duty and taxes was valued at PKR 50 billion (£379.7 million).

Our company in Poland commissioned a study, carried out by the Polish Employers Organisation, on the tobacco sector within the national economy of Poland. The study shows that the tobacco industry directly employs more than 60,000 people in agriculture and tobacco processing and is an indirect supporter of more than 500,000 jobs for 120,000 retailers and wholesalers. In 2009, the tobacco industry generated 9.1 per cent of the annual tax revenue of the Polish state budget.

In 2010, an independent economic impact assessment was carried out by NKC Independent Economists on ‘The role of burley and tobacco in African economies and the expected impact of a decline in the crop’s production’. The report shows that more than 3.6 million people in Malawi, Mozambique, Uganda, Zambia and Zimbabwe are directly dependent on tobacco production for their livelihoods. A minimum of 12 million people are directly and indirectly affected by developments in the countries’ tobacco sectors.

The report was conducted in response to recommendations to restrict or prohibit the use of ingredients in tobacco products by the World Health Organisation’s Framework Committee on Tobacco Control. You can read more about this in the marketplace section.