The Dynamic Business pillar envisages a future-fit, data-driven organisation; ensuring we are efficient and effective in all of our operations.
This will ensure that we deliver financial flexibility to invest in our business, people and products to win in a fast changing environment and deliver superior returns to our investors.
An Exciting and Winning Company
A Better Tomorrow™
Delivering our refined corporate strategy requires a renewed people strategy, one that is human-centric, enables high performance and accelerates the building of skills and capabilities for multi-category growth.
Recognising that it is our people who will deliver our refined strategy, we took the opportunity during 2023 to revise our corporate values.
Operational Excellence
Focus areas
Delivering on our refined corporate strategy and Building a Smokeless World will require greater focus on our global execution. This includes getting the U.S. back to growth, where and how we allocate resources at a regional and market level, and driving greater productivity while reducing complexity.
Capital Effectiveness
Capital Effectiveness is a key focus of delivering a Dynamic Business to Build a Smokeless World.
The key objective is to unlock
shareholder value by optimising access, utilisation and return of capital resources.
Notes:
* Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk free and are addictive.
† Our Vapour product Vuse (including Alto, Solo, Ciro and Vibe), and certain products, including Velo, Grizzly, Kodiak, and Camel Snus, which are sold in the U.S., are subject to FDA regulation and no reduced-risk claims will be made as to these products without agency clearance.
Capital Effectiveness is a key focus of delivering a Dynamic Business to Build a Smokeless World.
The key objective is to unlock shareholder value by optimising access, utilisation and return of capital resources.
The key initiatives include:
– maximise our cash generation;
– invest in the right opportunities;
– optimise the return on our investments;
– reduce our debts; and
– generate sustainable returns.
Our active capital allocation framework considers the continued investment in our transformation, the macro environment, potential future litigation and regulatory outcomes.
The Board continuously reviews our capital allocation priorities including both internal and external opportunities and stakeholders while considering the uncertain macro environment, foreign exchange fluctuations and higher interest rates.
Maximising cash generation is an essential
component in our capital allocation decisions.
Our commitment:
To generate c.£40 billion of free cash flow before dividends over the next five years.
Our record:
The Group has generated around £8 billion of free cash flow in each year since 2020.
As we continue to build A Better Tomorrow™, the Group seeks to optimise the return on our investments and seeks to invest in the right opportunities.
Our commitment:
To continue to actively assess investments, be it for acquisition or disposal, both internally and externally, to maximise our delivery and provide the right infrastructure for the BAT of tomorrow.
Our record:
The acquisition of Reynolds American Inc. impacted our capital base. We have improved our adjusted return on capital employed consistently from 8.3% in 2018 to 9.9% in 2022, with a further improvement to 10.9% in 2023, partly due to the impairment recognised and discussed on page 239 of the Annual Report and Form 20-F 2023.
Total borrowings (which includes lease liabilities) decreased to £39,730 million in 2023 (2022: £43,139 million).
Our commitment:
To retire debt in a sustainable manner, reducing our risk of refinancing and net finance cost exposures, while driving to our medium-term debt rating target of Baa1/ BBB+/BBB+ by Moody's/S&P/Fitch.
Our record:
Since the acquisition of Reynolds American Inc. in 2017, we have consistently reduced our borrowings from £49.1 billion to £39.7 billion at 31 December 2023.
Generating shareholder value, via sustainable returns,
is an integral part of our strategic ambition.
Our commitment:
Progressive increase in dividend – in £ terms, by reference to the Group’s dividend policy which is to pay dividends of 65% of long-term sustainable earnings. Please refer to the dividend policy on page 287 of the Annual Report and Form 20-F 2023.
Our record:
In the last three years, we have returned:
– £5.1 billion (2022: £4.9 billion; 2021: £4.9 billion) via dividends; and
– £2.0 billion via share buy-backs in 2022.
Since 2019, we have returned a total of £26.2 billion to shareholders.