British American Tobacco: Revenue Analysis, Foreign Investment, and Sustainability Strategies

In this report we will discuss about british american tobacco (BAT), and below are the summaries point:- Analysis of British American Tobacco (BAT), including revenue trends and investing in foreign countries (FDI). BAT's success in achieving financial targets and adopting a sustainable future advantage strategy. Revenue analysis, with a focus on volume increases in new categories and the impact of COVID-19 on sales.

British American Tobacco Company
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1 Table of Contents
Background and Introduction.................................................................................... 1
Investing in foreign countries (FDI)...........................................................................2
Sustainable future advantage:............................................................................... 2
Revenue analysis:..................................................................................................... 2
Key changes and the associated risks......................................................................3
Climate change:..................................................................................................... 3
Foreign exchange risk:........................................................................................... 4
Hedging currency volatility.................................................................................... 4
Exchange rate risks and political risks......................................................................5
Consumer health risk:............................................................................................ 5
Company’s risk management strategies...................................................................6
Recommendation and justification............................................................................8
References.............................................................................................................. 10
Appendix:................................................................................................................ 11
1. Background and Introduction
The basic purpose of this report is to analyze British American Tobacco (BAT),
its revenue trend, and information about key attractions when investing in foreign

countries. This report will also cover E sources of exchange rate and political risks
that the company has faced and is facing, and it will provide recommendations and
justification to the BAT.
British American Tobacco PLC is one of the biggest exporters of tobacco,
originally known as British-American Tobacco Company Ltd. London serves as the
company's global headquarters, and Brown & Williamson Tobacco Corporation, its
principal American subsidiary, is based in Louisville, Kentucky (BAT, 2020).
1.1 Investing in foreign countries (FDI)
British American Tobacco (BAT), a multinational manufacturer of consumer
goods, announced it will invest $130 million in a plant in the FDI.
1.1a Consumer advantages:
British American Tobacco had a very successful last year, achieving and
surpassing its financial targets. Market share and revenue both increased over time.
Along with an improved strategy that better reflects the changing demands of their
customers, BAT also adopted a new vision last year. With this strategy, they can
react even faster to the possibilities and difficulties that, in their opinion, are crucial
for a cigarette firm devoted to investing in the future (Gilmore, 2018).
1.1b Sustainable future advantage:
BAT's whole commitment to investing in FDI to a multi-category business,
underpinned by investment from their combustibles category, will support ongoing
high separate adjusted profits growth and drive sustainable development. BAT is a
market-leading, multi-category consumer products company whose goal is to
awaken adult customers' senses all around the world (BAT, 2022).
1.2 Revenue analysis:

A 4.5% reduction in combustibles was countered by a strong volume increase
in all New Categories. Group cigarette volume increased in the US, Portugal, Turkey,
Malaysia, and the Soviet Union, but this growth was more than offset by declines in
Global Travel Retail (GTR), which were caused by COVID-19-related travel
restrictions, in South Africa (because of a special government-mandated sales ban
between March and August), in Indonesia (because of disproportionate additional
tax hikes and the deferred integration of price controls), and because of a more
catastrophic effect on consumption (BAT, 2021).
Net Margin Net Income Revenu
e
9043.8 34154.3
26.48 %

As per figure 1 (appendix), it is stated that the British tobacco company
Operating Margin % is ranked better than 90.62% of almost 40 companies in
the Tobacco Products industry. Revenue was somewhat lower than the previous year
on a reported basis (down by 0.4 %), with excellent combustibles price/mix of 7.3
percent, offset by a translational currency exchange headwind of 3.5%, and good
growth in New Categories up by 14.9%, offset by a fall in overall cigarette volume of
4.6% (finance, 2022).
Despite a projected headwind on sales from COVID-19 of about 2.5%,
adjusted revenue increased by 4% at constant currency rates when the impact of
taxation on bought-in products and foreign exchange headwinds were excluded
(Morningstar, 2022). The Strategic Portfolio's sales climbed by 4% (or 5% on a
constant currency basis), courtesy of solid performance from expensive products
including Chatham, Newport, and Natural American Spirit as well as profit growth
from New Categories, healthy cigarette prices, and value market shares (BAT,
2021).
2 Key changes and the associated risks
2.1 Climate change:
The complexity of climate hazards is growing, with possible effects on
agriculture yields, disruptions to distribution systems and community livelihoods,
and decreased access to clean water—a basic human right. Even though certain
effects of climate change will be universal, BAT must recognize and control regional
hazards (BAT, 2021).

2.2 Foreign exchange risk:
The pound's approximately 14% decline versus the dollar in late June caused
swift currency changes worldwide. British American Tobacco (BAT) was on the wrong
side of this dip when it happened. Based on their calculations, the total profits
would have increased by 8%, or around 10% higher than the substantial resources
for the first quarter of 2016 (serdar, 2019).
2.3 Hedging currency volatility
Surprisingly, businesses make this major error much too frequently, typically
by failing to take currency fluctuations into account when reporting quarterly. When
preparing the annual budget, finance management used a predetermined
dollar/pound exchange rate to calculate revenues. Because they mistakenly thought
that this exchange rate would be fairly stable, they decided to accept the risk that if
the USD appreciated, they would miss out on additional, speculated money.
Although it may seem complicated, you can foresee how currencies will respond
and protect yourself from their volatility. BAT committed the mistake of being
careless by refusing to lock their currency value (BAT, 2021). It is stated that the
operating margin increased 380 basis points to 38.6%, driven by an increase in
quality in the Group's operating performance which more than offset litigation
charges identified in the US (£1.5 billion) as mentioned in figure 2 (finance, 2022).
However, it should be noted that 2019 was impacted by several charges that did
not repeat, such as those related to the Quebec Class Action (£us$ 1.3 million) and
an excise dispute throughout Russia (£78.8 million) (BAT, 2021).
They might have secured their goal rate for the entire year by employing a
straightforward forward contract. This solution can safeguard budgets from the
swings of the market, preserve profits, and streamline forecasts is undeniable. In

the instance of BAT, they choose to speculate instead, and they lost (BAT, 2021).
Euromonitor International estimates that BAT had little more than 10.2% of the
whole global cigarette market in 2020. It recorded total sales of over UK£12.3 billion
(US$16.5 billion) in June 2020, with cigarettes and other traditional items
accounting for 90% of company business (Morningstar, 2022). Pall Mall, Rothmans,
and Camel are renowned BAT cigarette brands. A variety of more recent tobacco
and nicotine products are also available from BAT, such as heated electronic
cigarettes and e-cigarettes, also known as nicotine delivery systems. Highly
flammable cigarettes continue to be the leading tobacco category worldwide,
according to BAT.
2.4 Exchange rate risks and political risks
Increasingly strict regulatory systems have been and still are in place for
tobacco product promotion, sales, and usage. These restrictions, which have been
imposed by regulation and voluntary agreements, may affect the Group's capacity
to sell its current products, maintain or increase brand awareness, connect with
tobacco smoking buyers, apply business model pricing policies, reveal future
products and improvements, reach new markets, as well as through mergers, and
continue competing inside this legal cigarette companies. They may also affect
adult tobacco shoppers' potential to distinguish merchandise; ma This can
negatively impact the Group's operations, financial situation, and business (Bank,
2022).
2.5 Consumer health risk:
More than 16 million people worldwide suffer from ailments brought on by
tobacco use, such as cancer cases, heart failure, stroke, various respiratory
illnesses, and diabetes. BAT introduces products which is less risky to their

consumers. There are now an estimated 66 million smokers worldwide who use new
categories of tobacco-free goods including vaping, tobacco heating, and
contemporary oral products. They provide those who smoke tobacco estimated 19
percent of the world's population—options for quitting. The following essential
enablers must exist for this to be successful: consumer choice, top-notch science,
criteria, and regulation.
3 Company’s risk management strategies
The Board reiterates its overall accountability for the BAT Group's system of
risk management and internal control, which includes setting up the proper
structure and atmosphere for controls and assessing their effectiveness and
integrity. The Board as a whole is in charge of establishing the type and scope of
strategic risks that the BAT Group is ready to accept to accomplish its goals, all the
while upholding strong risk management and internal control systems. The
Committee does not believe its strategic risk appetite to be high due to the
contentious nature of the business in which we operate, and it works to reduce
operational risks (BAT, 2021).
The Board gives management the responsibility to determine and evaluate
the risks that the BAT Group faces, and then to create, put in place, and oversee the
effectiveness of the necessary internal controls to reduce and control those risks.
Their all-encompassing strategy is focused on risk management, by which
customized initiatives are developed for certain goals and high-risk domains. Any
control environment has inherent limits, and the BAT Group's business objectives
may be affected by risks that are meant to be managed and reduced rather than
eliminated. As a result, it can only offer a level of assurance against substantial

misrepresentation or loss, not perfect confidence. The control environment includes,
among other things, risk management processes, financial, administrative, and
compliance controls (Kantox, 2021).
BAT's mission is to create a brighter future by minimizing the negative effects
of their company on customer health by giving them more fun and less dangerous
items to choose from. Through the expansion of their portfolio in tobacco, nicotine,
and other areas, they will adapt the growth model to satisfy the changing needs of
customers for pleasure and fulfillment. BAT will create a brighter tomorrow for
customers, workers, shareholders, and society by expanding on its solid roots
(Kantox, 2021). Their goal is to gradually shift money from cigarette sales to non-
combustible items. Revenues from New Categories are expected to reach at least £
billion in 2022–2024. To do it, companies must bolster the value of their current
business and quicken the development of new categories.
The company's ability to support the welfare of its employees and enable
them to thrive while striving toward zero defects throughout the Group will increase
its reputation as a company of choice. The firm has a Group Health & Safety Policy
that strives to adopt the best worldwide practices concerning the protection of
workers at work and non-company individuals on-site office and to give these
operations a high priority (Gilmore, 2018).
In addition, the British American Tobacco Company has installed telematics
systems in every car to track driving habits and pinpoint development
opportunities. They continually evaluate risks in areas that are at heightened
hazard for intrusions and attacks to make sure the proper systems are in place to
keep people safe. This might involve limiting the amount of weight carried to

diminish value, designing a devious course to prevent dependability, and offering
protection escorts (BAT, 2022).
4 Recommendation and justification
The report suggests that the BAT Company eliminate superfluous single-use
plastic and convert all plastic packaging to becoming reusable, recyclable, or
compostable by the year 2025. The sustainable marketing agenda, which has been
updated to reflect the changing external environment, should be at the center of
this developed approach. The corporation should make it obvious that minimizing
the negative effects of its operations on human health is its main area of
concentration, and it should also place more emphasis on the need to combat
global warming and achieve excellence in environmental management. Key brands
in both the combustible and emerging sectors are included in their Strategic
Portfolio. This encourages concentration and commitment to the brands and product
groups that will support the Group's future expansion. Although not the core of our
commitment, they nevertheless have a stable of national and international brands
that generate significant returns in several important areas. The business should
continue to be dedicated to making a good social impact and ensuring sound
corporate governance throughout the group.
A public health policy known as tobacco harm reduction acknowledges the
harm that combustible cigarettes may cause. It seeks to lessen the negative effects
on health brought on by smoking cigarettes. BAT should begin with the generally
acknowledged tenet that nicotine itself does not cause the majority of the harm
associated with daily cigarettes; rather, it is the smoke created by the burning of
tobacco that causes most of the harm. Regulators are recognizing the significance

of RRPs and the impact they may play in lowering smoking rates and the harmful
effects of tobacco products by enacting progressive policies that recognize these
benefits.
Additionally, it is advised that all donations be explicitly authorized by local
law, approved in advance by the board of the organization making them, completely
recorded in the organization's books, and, if necessary, by local law, made public.
Each year, specifics must be communicated in writing to British American Tobacco
plc Group. Head of Business Conduct and Compliance. These are reported yearly to
British American Tobacco plc. Audit’s Committee, with an interim report sent to the
Committee at the halfway point for those nations where payments were recorded or
made the year before.

References
Anne Cikankowitz, V. L., 2017. Using BAT performance as an evaluation method of
techniques. Journal of Cleaner Production, Volume 42, pp. 141-158..
Bank, W., 2022. World Bank Open Data. [Online] Available at:
https://data.worldbank.org/
[Accessed 20 July 2022].
BAT, 2021. Assessing the reduced-risk potential of our products. [Online] Available
at:
https://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DOB96H6J
[Accessed 22 July 2022].
BAT, 2022. Risk Management and Internal Control. [Online] Available at:
https://www.batmalaysia.com/group/sites/BAT_AP6D2L.nsf/vwPagesWebLive/
DOAP6K8R
England, B. o., 2021. Bank of England. [Online] Available at:
https://www.bankofengland.co.uk/
finance, Y., 2022. British American Tobacco Financial statement. [Online] Available
at: https://finance.yahoo.com/quote/BTI?p=BTI&.tsrc=fin-srch [Accessed 24
July 2022].
Gilmore, M. M., 2018. Exploring the impact of foreign direct investment on tobacco
consumption in the former Soviet Union. BMJ journals, 14(1).

Kantox, 2021. British American Tobacco: how currency fluctuations can crush your
profits. [Online] Available at: https://www.kantox.com/en/british-american-
tobacco-currency-fluctuations-can-crush-profits/ [Accessed 25 July 2022].
Morningstar, 2022. British American Tobacco PLC ADR. [Online] Available at:
https://www.morningstar.com/stocks/xnys/bti/quote [Accessed 21 July 2022].
NBER, 2022. National Bureau of Economic Research. [Online] Available at:
https://www.nber.org/ [Accessed 21 July 2022].
serdar, C., 2019. International interdisciplinary business-economics advancement
conference. International Interdisciplinary Business and Economics, 2(1), p.
239.
Smith, K. E., 2015 . Corporate coalitions and policymaking in the European Union:
How and why British American Tobacco promoted ‘Better Regulation’. J Health
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Appendices:

Figure 1 Revenue Analysis
Figure 2 Revenue earnings

Figure 3 Hedging currency volatility
Figure 4 Risk Assessment Framework

Figure 5 Profit from Operations