british american tobacco p.l.c. sustainability report 2010 - Product responsibility

PR1 Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of significant products and services categories subject to such procedures

All tobacco products pose real and serious risks to health.

Risk awareness among consumers is constantly reinforced by health warnings on primary packaging mandated by the majority of governments. Our approach to tobacco harm reduction is to pursue the research, development and test marketing of innovative tobacco products that will have consumer acceptability, and will be recognised by the scientific and public health communities and regulators as posing reduced risks to health. For more information, please see the harm reduction section of this Report.

In the context of possible product deterioration or contamination, our companies follow a common approach to assuring product integrity. This seeks to minimise the risk of product integrity issues arising, through risk assessment and controls across our product design and supply chain, and to ensure the appropriate response capability should a product integrity issue arise through incidents within or beyond our control.

PR2 Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services, by type of outcomes

Save as reported elsewhere in these GRIs, no instances were reported by our companies in 2010.

PR3 Type of product and service information required by procedures, and percentage of significant products and services subject to such information requirements

Where health warnings on packaging are not required by local laws or regulations, our Health Warnings on Cigarette Packaging policy requires Group companies to comply with any voluntary codes in force or, in the absence of these, to follow Group guidelines in placing an appropriate health warning on primary packaging.

PR4 Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labelling, by type of outcomes

See also PR6 and PR7 for details of our voluntary International Tobacco Products Marketing Standards.

In 2010, the following matters were reported by our companies:

• In Brazil, Souza Cruz received fines of BRL 415,800 (£152,946) and BRL 524 (£193) respectively pursuant to two infraction notices issued by the standards authority in relation to samples of a ‘roll your own’ tobacco product, claiming that the average product weight was less than acceptable. In one further case, Souza Cruz awaits the authority’s final decision. 
• Souza Cruz is disputing nine infraction notices issued by the health authority for alleged breach of packaging laws based on allegations that the packaging differs from that previously notified and/or that it contains a prohibited advertising message. In each case, the health authority’s decision is pending and no fines have been imposed to date. It is also disputing two further infraction notices, one of which claims that insufficient space is devoted to pictorial health warnings and the other of which alleges that consumers were not sufficiently informed of increases in tar, nicotine and carbon monoxide levels. In both cases, the health authority’s decision is pending.
• Our company in Costa Rica was prosecuted (together with another tobacco company) for using language other than Spanish in terms included on its product packaging. The company successfully defended the charge, but was found liable for providing misleading information by its use of the term ‘lights’. The company’s challenge to the decision was rejected and it has now commenced an appeal. In the meantime a fine of CRC 2,497,000 (£3,074) has been imposed.

£ equivalent based on the same average currency conversion rates as used for the Group Income Statement in our Annual Report 2010.

PR5 Practices related to customer satisfaction, including results of surveys measuring customer satisfaction

For several years, our companies have commissioned an independent customer satisfaction survey among key distribution and retail partners, providing feedback on service quality and other aspects of our business relationship. In 2010, the survey was enhanced to include new methodologies, providing greater focus and allowing it to be coordinated globally by an independent research agency.

The survey covers several of our largest markets. In each market, it benchmarks British American Tobacco against our major local tobacco competitor and the Fast Moving Consumer Goods (FMCG) supplier considered the best locally in serving the same retailers.

Quality of our service is covered across key areas including:

• Trade marketing support;
• Product distribution;
• Products; 
• Overall quality; and
• Customer engagement.

The most recent results for 2010 rate British American Tobacco as the best company overall in 16 of 31 markets surveyed. We were also identified as the best overall company on trade marketing support in 17 of 31 markets surveyed. Full results can be viewed at www.bat.com .

In addition to the global survey, our companies are also encouraged to adopt consumer feedback mechanisms such as call centres, websites and mail response suited to the local environment.

PR6 Programmes for adherence to laws, standards and voluntary codes related to marketing communications, including advertising, promotion and sponsorship

In 2001, we collaborated with other international tobacco companies to establish a set of voluntary International Tobacco Products Marketing Standards (IMS) and in 2007 we updated them, in response to stakeholder dialogue and without the collaboration of the rest of the industry. Our updated Standards include, for example, further procedures for adult verification and responsible use of new media such as the internet and other electronic messaging.

The Standards require that marketing activities should not be aimed at, or particularly appeal to, youth, and not feature celebrities or link tobacco with sporting, professional, social or sexual success. They also state that advertising should not appear in printed publications unless at least 75 per cent of readers are verified as adults and that all marketing materials must carry a health warning as well as the health warnings on product packs.

Group companies must report annually on their level of adherence with the Standards. Adherence by our companies is monitored by our regional audit and CSR committees and updates reported to our Board CSR Committee. For information on adherence to our International Marketing Standards, please see the marketplace section of this Report and PR7.

To download the Standards in full, go to www.bat.com/marketingstandards .

PR7 Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion and sponsorship, by type of outcomes

In 2010, six of our companies reported instances of non-adherence to our IMS. Four of these were resolved, so that by the end of 2010, all our companies, except those in Indonesia and Germany, reported full IMS adherence. The market in Indonesia is very lightly regulated and we comply with the law. However, we aim for full IMS adherence by March 2012, two years after taking control of the merged business. The non-adherence reported by our company in Germany related to the size of health warnings on some promotional items. A review of materials in use will take place to ensure the display of health warnings is prominent.

Local adherence to our IMS is currently reported through an annual self-assessment exercise, monitored by our CSR governance bodies. We recognise the need to tighten controls, so from 2011 we will carry out IMS audits of sample markets in two regions each year.

For 2010, our companies reported the following matters:

• In Belarus, our company was fined BYR 1,750,000 (£380) for breach of advertising law, based on the wording of inserts included with point of sale materials. The inserts have since been removed from the materials.
• In Brazil, Souza Cruz continues to defend a prosecution for alleged unlawful practices in the advertising of tobacco products brought by the prosecuting authority on the instance of an anti-tobacco organisation. In another case, brought by the health authority, Souza Cruz is alleged to have breached advertising laws through its promotion of a music festival. Both cases are pending resolution.
• In 2010, Souza Cruz defended a number of claims brought by consumers alleging misleading advertising practices and breach of advertising law in relation to promotional campaigns. Of seven claims involving complaints that promotional lighters were unavailable in accordance with the terms of a promotion, six were successfully resolved in Souza Cruz’s favour while the seventh is pending judgement. In a further two claims, in which consumers complained that they were unable to purchase cigarettes without paying also to receive an MP3 player offered as part of a product tie-in, one was successfully resolved in favour of Souza Cruz, while the other remains pending resolution. 
• In Colombia, our company is contesting a fine of COP 5,000,000 (£1,705) imposed by the trade and industry authority for allegedly supplying consumers with incorrect information in relation to the duration of a promotion.
• Our company in the Czech Republic was fined CZK 80,000 (£2,713) in a case brought by the state authority against it and other tobacco companies claiming that the depiction of a cigarette in point-of-sale materials is a breach of the law on advertising. The promotional materials in question have been removed.
• In France, our company’s appeal continues against a case relating to whether illustrations included on cigarette packs are prohibited advertisements. Our company in France also continues to defend three cases brought against it by an anti-tobacco organisation for alleged breach of advertising laws, arising from an advertisement displayed at a temporary tobacco shop at a fair, the distribution of free biodegradable ashtrays, and advertisements for Dunhill cigars published in a specialist cigar magazine. In all three cases, the claims were rejected at first instance, but are under appeal.
• Our company in Germany continued to defend three cases brought against it by German consumer organisations for alleged breach of advertising laws. Two claims arise from features published in magazines featuring, in one case, certain of the company’s brands and, in the other, snus. In the first case, the court decided against the company and ordered it to refrain from similar activity in the future, although no fine or penalty was imposed. The second case remains pending resolution. The third claim arises from an advertisement on a university campus and remains pending resolution.
• Our subsidiary in Lithuania was fined LTL 7,500 (£1,862) by the tobacco and alcohol regulatory authority for alleged breach of advertising law in relation to the design of point of sale materials. The authority’s decision is under appeal. 
• Our company in Mexico continues to defend four injunction orders from the health authority arising from advertisements featured in adult magazines. Its defence is based on a lack of clarity over the definition of ‘adult magazine’ and the matter is pending resolution. 
• Our company in Sweden paid a fine of SEK 400,000 (£35,962) following its unsuccessful defence of the consumer ombudsman’s claim for breach of a binding injunction to remove certain point-of-sale material. 
• Our company in Switzerland is defending a claim for breach of the unfair competition legislation based on an allegation that a price promotion lasted longer than permitted under the law.
• Our company in Turkey was fined TRY 56,000 (£24,052) and TRY 280,000 (£120,259) respectively for alleged promotion of the company and its brands in a press statement on anti-illicit trade and on a recruitment website. It successfully contested a fine imposed by the advertising authority for alleged promotion of the company and its brands on the company website. It is contesting three similar alleged breaches of advertising laws in relation to the supply of consumer information on request and the use of the corporate logo on company vehicles.

£ equivalent based on the same average currency conversion rates as used for the Group Income Statement in our Annual Report 2010.

PR8 Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data

In 2010, no material instances were reported by our companies.

PR9 Monetary value of significant fines for non-compliance with laws and regulations concerning the provision and use of products and services

Our company in Turkey is contesting a claim by the tobacco regulatory authority for the alleged sale of product without the required sales certificates.