Building the Enterprise of the Future Performance Summary 2020

Scroll to our 2020 Overview

Chief Executive’s Review

Building A Better Tomorrow™
and Delivering Growth in a Challenging Environment
I am delighted that adoption has accelerated across all three of our New Categories in 2020 and that 13.5 million consumers are now choosing our non-combustible products.

Chairman's Introduction

A Strong Operational Performance
During Challenging Times
The strength of the business, combined with the professionalism and resilience of our global teams have enabled us, in 2020, to deliver a strong operational performance during challenging times.

Finance and Transformation Director's Overview

We continue to deliver against our financial objectives, despite the unprecedented challenges arising in 2020. This allows us to continue to reward shareholders with growth in dividends while deleveraging and investing in A Better Tomorrow.

Our Purpose

To reduce the health impact of our business by offering a greater choice of enjoyable and less risky products

We are clear that combustible cigarettes pose serious health risks. The only way to avoid these risks is not to start or to quit. However, we encourage those who would otherwise continue to smoke to switch completely to scientifically-substantiated, reduced-risk alternatives.*†

In order to deliver this, BAT is transforming into a truly consumer-centric multi-category consumer products business.

*Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive.

Our products as sold in the US, including Vuse, Velo, Grizzly, Kodiak, and Camel Snus, are subject to FDA regulation and no reduced-risk claims will be made as to these products without agency clearance.



Our purpose
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The Foundations of our Evolved Strategy

Strong Foundations
Our wide range of capabilities make us exceptionally well-placed for future growth:
  • our unique global marketing and distribution reach;
  • our track record of R&D and innovation;
  • our decades’ worth of consumer insights and brand-building expertise; and
  • our New Categories business aims to generate £5bn in revenue in 2025.
marker
>180

markets in which we operate

consumers
>150m

daily consumers interactions

sales
>11m

point of sale across over 180 markets

Satisfying Consumer Tastes and Moments
20 years ago
combustible products fulfilled a multitude of consumer moments

For decades, combustible products satisfied a need for sensorial enjoyment for many individuals. While occasions for tobacco consumption are now reduced, new opportunities have arisen:

  • new products provide us with an opportunity to capture, in a focused way, the lost consumer moments previously associated with tobacco; and
  • evolving and fragmenting consumer needs provide us with opportunities for additional growth in a variety of new categories.
strategy chart
A Developing Portfolio

A wider portfolio of products that offer sensorial enjoyment for different moods and moments will allow us to capture the consumer moments previously associated with tobacco use, as well as satisfy new evolving consumer needs, through:

  • scientifically-substantiated, reduced-risk tobacco and nicotine products;
  • building the brands of the future; and
  • ultimately, a portfolio of products beyond nicotine that leverages our proven expertise.
strategy chart
Parameters to Guide Growth Opportunities

Our new growth opportunities will capitalise on our core business strengths, creating clear boundaries for our portfolio development:

  • reducing the health and environmental impacts of our business;
  • leveraging our global marketing reach and scale;
  • building on our knowledge of delivery platforms and technology;
  • relying on our experience in managing complex regulatory and scientific matters; and
  • meeting stringent strategic and financial metrics.
strategy chart
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Short-Term Deliverables to Fuel A Better Tomorrow™

Our purpose is to build A Better Tomorrow™ by reducing the health impact of our business through offering a greater choice of enjoyable and less risky products* for our consumers. To accelerate this, we must become a stronger, simpler and faster organisation, which will be achieved through the delivery of three short-term priorities.

deliverables 1
Ensure a Step Change in New Categories Performance

Over the years, consumer moments that used to be satisfied by cigarettes have been replaced by other products.

Read More
Drive Value From Combustibles

Our ambition is to increasingly transition our revenues from cigarettes to New Categories over time.

Read More
Simplify the Business

Our ongoing simplification programme, Project Quantum, is expected to realise £1 billion of savings through simplification and efficiencies by 2022.

Read More


*Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive.

Our Consumer-Centric Multi-Category Portfolio

BAT is a leading consumer-centric, multi-category consumer goods business dedicated to stimulating the senses of adult consumers worldwide. Our portfolio reflects our commitment to meeting the evolving and varied needs of today’s consumer who seeks sensorial enjoyment for different moods and moments.

Strategic portfolio
Our Reduced-Risk Portfolio (Non-Combustibles)*†

Handheld, battery-powered devices that heat a liquid (called an e-liquid, usually containing nicotine) and creates a vapour to be inhaled.


27

markets where our vapour products are currently available


Download PDF
Brands

THPs do not burn tobacco, so no smoke (which is a key source of toxicants) is produced. Research indicates that by heating tobacco rather than burning it, THPs have the potential to be reduced-risk compared to smoking.


20

markets where our THPs are currently available


Download PDF
Brands

This is our most recent innovation across oral products – offering consumers a satisfying experience with a range of different flavours. Two formulations are available: one containing lower levels of tobacco, and one that contains nicotine but no tobacco.


23

markets where our modern oral products are currently available


Download PDF
Brands

Traditional Oral products do contain tobacco, but there is no burning. There is strong epidemiological evidence, from countries such as Sweden, that switching completely to snus can reduce risk compared to smoking.


5

markets where our traditional oral products are currently available


Download PDF
Brands


Combustibles

The Group sold 638 billion cigarette sticks and 20 billion OTP (stick equivalents) in 2020. The Group operates in over 180 markets, with 45 fully integrated cigarette manufacturing facilities in 43 markets.


5

markets where our traditional oral products are currently available


Download PDF
Brands

*Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive.
Our products as sold in the US, including Vuse, Velo, Grizzly, Kodiak, and Camel Snus, are subject to FDA regulation and no reduced-risk claims will be made as to these products without agency clearance

Our Global Business

BAT’s marketplace analysis delivers insights regarding consumer trends and segmentation, which ultimately facilitates our geographic brand prioritisation across over 180 markets. Our business is divided into four regions with a balanced presence in both high-growth emerging markets and highly profitable developed markets.

Click a region to find out more

Global map
Revenue by region

Hover over graph to reveal

£25.8bn

Total revenue

Revenue by product category

Hover over graph to reveal

£25.8bn

Total revenue

Our Business Model

Our global business understands our diverse consumers, develops products to satisfy their preferences and ultimately distributes them across over 180 markets.


Six key enablers support us in turning powerful insights into products that provide enjoyment to our consumers, while engagement helps our key stakeholders benefit from our sustainable growth.

IP / Technology
£300mn+

R&D expenditure

7

R&D / Product centre sites

Environmental
370,000tn

of Leaf

2,568 GWh

energy consumed

4.03m

cubic metres of water withdrawn

Manufacturing
79

BAT-owned manufacturing facilities

45

cigarette factories

Social
84,000+

contracted farmers

c30,000

Suppliers

180+

Markets

Financial
£600mn+

annual capital expenditure

£426mn

additional investment in New Categories

BBB+/Baa2

credit rating

Human
55,000+

employees globally

1,500+

R&D specialists


A credit rating is not a recommendation to buy, sell or hold securities. A credit rating may be subject to withdrawal or revision at any time. Each rating should be evaluated separately of any other rating.

business model business model
A better tomorrow for...

Environmental

  • 37.4% reduction in Scope 1 and 2 CO2e emissions (since 2017)
  • Over 99% of wood fuel used for curing from sustainable sources
  • 76% of tobacco hectares with best practice soil and water management plans
  • 22.5% reduction in water withdrawn (since 2017)
  • 21.4% reduction in waste to landfill (since 2017)

Social

  • £41bn tax paid to governments
  • 38,000+ human rights farmer training sessions, with over 390,000 attendances in 2020

Financial

  • 7% dividend growth (CAGR since 2010)
  • 5.5% growth in adjusted diluted EPS at constant currency in 2020
  • 103% operating cash conversion in 2020
  • 3.3% increase in revenue (at constant currency)

Social

  • Among world’s top 10% ESG performers in Dow Jones Sustainability Index (DJSI)


Financial

  • +15% revenue from New Categories (vs 2019)
  • +20 bps in Cigs + THP value share with +30 bps in Cigs + THP volume share (vs 2019)

Social

  • 11m number of outlets
  • 13.5m Non-Combustible consumers
  • 100% adherence to Youth Access Prevention Guidelines

Human

  • 30% reduction in lost workday cases (vs 2019)
  • Proportion of women in management roles grew to 38%
  • Accredited as Global Top Employer by the Top Employers Institute
  • Employee engagement index 7% higher than FMCG comparator group in latest ‘Your Voice’ survey

Accelerating the Enterprise of the Future

Building the Enterprise of the Future is about ensuring we have the organisational flexibility to implement and operationalise our growth strategy – simplifying the business and speeding up decision-making. Quest is an organisational transformation programme, built around five pillars, designed to deliver the Enterprise of the Future at enhanced speed.

Quest
Deliver
Quantum

Project Quantum is our ongoing simplification programme that is fuelling New Category investment and delivery against our financial guidance.

Across the business, we are looking at how BAT can become a simpler, faster and stronger organisation. This will support our ambition to build A Better TomorrowTM for employees, consumers, shareholders and society.

Through restructuring and right-sizing parts of the business to reflect our new priorities, improving ways-of-working to speed up decision-making and simplifying processes, we are focusing our efforts in a more targeted way to respond to emerging opportunities and deliver future growth.

Unleash
Innovation

Our New Categories business requires us to build on our rich history of leveraging our insights on consumer satisfaction and taste preference, which enables us to continually innovate to meet their needs.

Across our portfolio and our supply chain, we are using data-driven insights and foresights, and leveraging state-of-the-art technologies to ensure we are building the brands of the future. This means delivering the experiences and the products consumers want, when they want them.

By combining our existing global talents with the best skills available externally, we will execute consumer-led innovation more quickly, with even better coordination between our supply chain and R&D.

Empowered
Organisation

Our talented teams around the world are being empowered through a new ethos that is responsive to constant change, embodies a learning culture and is dedicated to continuous improvement.

Attracting and retaining an increasingly diverse workforce and providing a welcoming, inclusive working environment are key drivers of our transformation journey.

By creating a simpler, more connected business we will set the context for our teams and trust their expertise. We will foster an environment where teams can challenge ideas. Once in agreement, we will commit collectively, collaborate and hold each other accountable to deliver.

Shaping
Sustainability

We are moving ourselves from a business where sustainability has always been important, to one where it is front and centre in all that we do.

Our commitment to reduce the health impacts of our business – by providing a range of less risky products* – is central to our corporate purpose. We are committed to doing this openly and transparently, engaging with an ecosystem of scientists, regulators and policy makers to ensure our corporate strategy continues to take account of their views.

We will continue to deliver world-class science relating to reduced-risk products* while advocating for appropriate standards and regulations. This will continue to be underpinned by excellence in all other environmental, social and governance (ESG) measures.


*Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive.

Our products as sold in the US, including Vuse, Velo, Grizzly, Kodiak, and Camel Snus, are subject to FDA regulation and no reduced-risk claims will be made as to these products without agency clearance

Technology &
Digital

We will continue to drive digital transformation to unlock commercial value across the entire value chain.

Data analytics are being used to ensure the right decisions are being made at the right time. Throughout our supply chain and our corporate functions, we are applying modern technologies, making analytics available at the touch of a button and freeing up valuable time and resources that can be released and reinvested for future growth.

We are also providing our people access to a range of tools and platforms designed to upskill them in agile ways of working, innovation and design-thinking – enabling them to become more productive, connect more effectively with internal and external colleagues, solve problems quickly and spot opportunities.

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