Evaluating CSR, Sustainability, and Financial Performance at BAT

This report provides a critical evaluation of British American Tobacco's corporate social responsibility (CSR) and sustainability policies, alongside an analysis of its financial performance. It examines the company's approach to CSR, focusing on its commitment to reducing smoking habits, supporting tobacco farmers, and maintaining high ethical standards. The report also discusses the importance of the triple bottom line (people, planet, profit) for BAT and the company's efforts to innovate and develop less harmful tobacco products. Furthermore, the report analyzes BAT's financial performance, highlighting key financial ratios and trends in revenue, profit, and cash flow. The analysis indicates a generally favorable financial performance, with significant growth in net profit and cash inflows, although some challenges in operational efficiency are noted. The report concludes by emphasizing the need for BAT to continue investing in sustainable practices and product innovation to ensure long-term success and meet its corporate social responsibilities.

Running head: STRATEGIC AND OPERATION MANAGEMENT
Strategic and Operation Management
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Introduction.................................................................................................................................. 2
Discussion................................................................................................................................... 2
Developing Sustainability and CSR Policies.............................................................................2
Triple Bottom Line....................................................................................................................3
Innovation and Product Development......................................................................................4
Financial Performance of the company....................................................................................4
Conclusion................................................................................................................................... 9
Reference.................................................................................................................................. 10
Appendix.................................................................................................................................... 11

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Introduction
The main purpose of this assignment is to analyze the policies of Corporate Social
Responsibility of a company. Corporate Social Responsibility (CSR) can be defined as the
various policies which are followed by the business in order to ensure that the activities of the
business do not affect the environment or the social well-being of the society (Schwartz, 2017).
In other words, CSR policies requires the companies to take responsibility for all the activities of
the company and also incur certain costs which will be for the well-being or promotion of the
society (Crane, Matten & Spence, 2013).
Nowadays most of the business have to prepare CSR reports in order to show the
society and the shareholders that the company is making investments for the betterment of the
society and not just going after profits. In addition to this, companies also prepare sustainability
reports which shows if the business is using sustainable resources for meeting the production
requirements of the company (Schaltegger, Hansen & Lüdeke-Freund, 2016).
Overview of the Company
The company which has been selected for this assignment is British American Tobacco
Company. The company is engaged in the production of tobacco products such as cigarettes.
The company has operations in more than 180 countries and is regarded to be market leading
brand (British American Tobacco - Annual reporting., 2018). The four largest selling brands of
the company is Dunhill, Lucky strike, Pall Mall and Kent.
Discussion
Developing Sustainability and CSR Policies
In todays world, it is very important for every business to formulate a plan which looks
after the corporate responsibilities of the business. A company exists in a society for the overall
development of the society as per the meaning of CSR principles, therefore the company should
invest in the overall development of the society in which the business operates. In addition to
this research also shows that a company which has efficiently followed CSR principles have
been rewarded with good reputation and high market value of shares for the business.
Corporate Governance may be defined as the management initiative to act in an ethical
manner and be accountable for the same to the users of the financial statement and the society
at large (Tricker & Tricker, 2015). Every company needs to have its corporate governance
policies and prepare a statement on the same which is to be disclosed with the financial
statement of the company.

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In the case of British American Tobacco Company which is engaged in the manufacture
and selling of tobacco goods. As the company is engaged in the manufacture of tobacco which
is not good for health therefore there is an increased responsibility on the company to ensure
that the company follows sustainable practices and takes their corporate social responsibility
seriously. As per the financial statements of the company the company has been following a
strong policy regarding sustainability. The vision of the company is that though the core product
of thee company will remain combustible tobacco, however the company will be focusing on
long term sustainability which can be achieved by transforming its current tobacco business.
The sustainability of products is a key area for the group strategy and plays a vital role in
all aspects of the business (Silvius & Planko, 2017). As per the report developed by the
management of the company. three areas which is significant to the business and also the
stakeholders are given below:
 The company is actively engaged in reducing the smoking habits of the people by only
offering to sell cigarettes to adults. The products of the company which are offered to the
public are a range of potentially reduced- risked products.
 The company is committed to provide a proper livelihood for the farmers who are
engaged in farming for tobacco leaves for the business.
 In addition to the above two points, the business is focused on maintaining high ethical
standards and promote transparency.
The company in order to survive the various changes which are occurring in the market
needs to adopt a specific strategy which can help the business to overcome such changes. With
the advent of new technologies and market changes, the company is planning to drive towards
a reduced risk portfolio.
Triple Bottom Line
Triple Bottom Line is a concept which was developed by John Elkington in1994 which
deals with the three bottom lines of economic development, maintaining environmental quality
and also adhering to the social responsibility of the business (Savitz, 2013). In simple word, it
deals with the three aspect which the business should consider which are meeting the needs of
the people and the society, looking after the environment by applying sustainable processes,
adhering to environmental protection rules and the profit aspects which all companies strive for
in activities or operations (Henriques & Richardson, 2013). The concept makes it clear that the
overall development of any business does not solely depend on the profit of the business but
other key factors as well such as environment and responsibility towards the society. Triple
bottom line approach helps businesses to take decisions for long-term business nature based

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on this approach (Henriques, 2013). In the case of British American Tobacco company also
needs to implement this approach so as to ensure that the business is not only driving towards
profits but also looking after the needs of society and environment.
Innovation and Product Development
In order to achieve some degree of success in the sustainability and CSR policies of the
company, British American Tobacco company needs to completely transform its products which
can suit to the market requirements. The company has to move ahead from traditional
combustible cigarettes to advanced tobacco products which do not cause that much damage to
the health of the people. Such type of changes can only be achieved if there is a combination of
commitment and product investment from the companies. The company need to introduce
products which have reduced risks towards the health of the consumers. As per the
management, if the company can successfully implement the above mention changes than the
customers of the company will have a range of potentially safer choices and the society can
progress from such tobacco risk reduction program of the business. This will be ensuring that
the business becomes sustainable and profitable in the long run.
As per the annual reports of the company, the company has already made some
investments in such respects and the results which the investments are showing are quite
favorable. The company has been able to develop products such as tobacco heating products,
oral tobacco products and tobacco free nicotine pouches. Such new innovative products which
are introduced by the company helps to provide genuine products which are smokeless and an
excellent alternative to the traditional cigarettes which affect the health of the consumers. The
changes in the products is just the first step which the business is planning to further develop so
that the consumers of the company have a variety of choices when it comes to tobacco
products. The company is planning to make further investments in research and developments
so that the business can further develop products which are safe to the customers. All these
activities of the business are aimed towards attaining sustainability and also meet the needs of
Corporate social responsibility of the company (Beckmann, Hielscher & Pies, 2014).
Financial Performance of the company
The financial performance of the company has been good in recent years which is
shown by the financial statements of the company. The profit from operations of the company
grew by 39.1% which was represented by sales revenue generation of £ 6,476 million. This was
due to the inclusion of RAI which was acquired by the business in 2017(British American
Tobacco - Annual reporting., 2018). The raw materials and other consumables increased by
19.7% which was represented by a figure of £ 4,520 million in 2017. The adjusted profit from

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operation at constant rates of the business has also increased by 39.9% which represented by a
figure of £ 7,665 million which was mainly due to the acquisition of the business of RAI. The
cash flow of the company has also increase from the previous year which shows that the
company is performing well. The cash and cash equivalents has increased from a deficit of £ 79
million in 2016 to about £ 1,171 million in 2017. This shows a significant rise in the cash inflows
of the company which can be attributed to the significant amount which is generated from cash
from financing activities of business (Saeidi et al., 2015). The cash generated from financing
activities has increased from £ 4,229 million in 2016 to about £ 14,759 million which is
significant increase in the value of cash generated. This increase in cash from financing
activities of the business is mainly due to debt movements and as a result of the financing which
is undertaken for acquisition of RAI.in addition to this, the dividends paid in 2017 also increased
to £ 3,465 million which was just £ 2,910 million in 2016 (British American Tobacco - Annual
reporting., 2018). This signifies that the company’s performance in terms of profit have improved
from the previous year’s results. There has been a significant increase in the dividend per share
of the company as well. In addition to this, the amount of debt which is shown in the financial
statements of the company has also increased from previous year figure which is mainly due to
the acquisition requirement of RAI during the year. The net profit which was earned during the
year has significantly increased in 2017 which shows a figure of £ 37,704 in 2017 and the same
was £ 4,839 in 2016 (British American Tobacco - Annual reporting., 2018). The net profit of the
company has increased more than five times of the profit figure of 2016. This displays the
performance of the company in 2017 which is significantly more as compared to previous year.
The current assets of the company has increased from the previous year, however the working
capital of the company for the current year is negative which suggest that there is a liquidity
requirement in the company (Flammer, 2015). The cash balance of the company is also
favorable. It can be said that the overall financial performance of the company is favorable and it
suggest that the company is growing.

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Particulars 2017 2016 2015 2014
Total Revenue 20292 14751 13104 13971
Materials & Consumables Used 4520 3777 3217 3088
Net Profit 37704 4839 4522 3393
Total Assets 141038 39773 31515 26167
Total equity 61026 8406 5032 5814
Gross Profit Margin 0.223 0.256 0.245 0.221
Net Profit Margin 1.858 0.328 0.345 0.243
Return on Assets 0.267 0.122 0.143 0.130
Return on Equity 0.618 0.576 0.899 0.584
Profitability Ratios
2017 2016 2015 2014
0.223
0.256
0.245
0.221
Gross Profit Margin
Figure 1: (Chart Showing Gross Profit Margin)
Source: (Created by Author)
As per the above table, the gross margin of the company has decreased in 2017 which
is 0.223 and the same was 0.256 in 2016. This suggest that the business is facing some
problems in operations of the business. However, the net profit margin has shown an increase
from previous year and is favorable. The return on assets and return on equity is also showing
favorable results and shows the growth of the company

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2017 2016 2015 2014
0.000
0.050
0.100
0.150
0.200
0.250
0.300
Return on Assets
Figure 2: (Chart Showing Return on Assets)
Source: (Created by Author)
Particulars 2017 2016 2014 2015
Total Assets 141038 39773 31515 26167
Total equity 61026 8406 5032 5814
Total Liabilities 80012 31367 26483 20353
Current Assets 13966 12359 9814 9132
Current Liabilities 15544 11856 9006 8769
Finance Costs 0 0 0 0
Operating Profit 6476 4655 4557 4546
Current Ratio 0.898 1.042 1.090 1.041
Debt-to-Equity Ratio 1.311 3.732 5.263 3.501
Debt Ratio 0.567 0.789 0.840 0.778
Equity Ratio 0.433 0.211 0.160 0.222
Solvency Ratio
The solvency ratio reflects the liquidity of the business which as per the current ratio has
decreased significantly which is a matter of concern for the business. the debt equity ratio has
reduced which is a positive sign for the business as it signifies reduction in debts. The equity
ratio has also increased from previous year estimates.

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2017 2016 2014 2015
0.000
0.200
0.400
0.600
0.800
1.000
1.200
Current Rati o
Figure 3: (Chart Showing Current Ratio)
Source: (Created by Author)
Particulars 2017 2016 2014 2015
Inventory 5864 5793 4247 4133
Trade Receivables 4053 3884 3266 2768
Trade Payables 1058 1040 5937 5524
Cost of Goods Sold 4520 3777 3217 3088
Sales Revenue 20292 14751 13104 13971
Inventory Turnover Ratio 0.771 0.652 0.757 0.747
Payables Turnover Ratio 4.272 3.632 0.542 0.559
Receivables Turnover Ratio 5.007 3.798 4.012 5.047
Efficiency Ratio
The inventory turnover ratio of the business shows that the estimate has increased
which is a favorable sign for the business. The above ratio reflects the efficiency of the business
in its operations.

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2017 2016 2014 2015
0.550
0.600
0.650
0.700
0.750
0.800
Inventory Turnover Ratio
Figure 4: (Chart Showing Inventory Turnover ratio)
Source: (Created by Author)
Conclusion
Thus, from the above discussion it is clear that British American Tobacco company have
a strong developed policy towards sustainability and Corporate social responsibility. The above
discussion makes it clear that for a business to survive in the changing environment where
emphasis is on health and safety and sustainable development, a company needs to formulate
appropriate strategies so that they can satisfy such requirements and at the same time meet the
expectation of the shareholders of the company through its CSR policies. In addition to this, the
above discussion also reveals the financial position of the business and shows that the financial
performance of the company is excellent.

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Reference
Beckmann, M., Hielscher, S., & Pies, I. (2014). Commitment strategies for sustainability: how
business firms can transform trade‐offs into win–win outcomes. Business Strategy and the
Environment, 23(1), 18-37.
British American Tobacco - Annual reporting. (2018). Bat.com. Retrieved 6 April 2018, from
http://www.bat.com/annualreport
Crane, A., Matten, D., & Spence, L. (2013). Corporate social responsibility in a global context.
Flammer, C. (2015). Does corporate social responsibility lead to superior financial performance?
A regression discontinuity approach. Management Science, 61(11), 2549-2568.
Henriques, A. (2013). CSR, sustainability and the triple bottom line. In The Triple Bottom
Line (pp. 48-55). Routledge.
Henriques, A., & Richardson, J. (Eds.). (2013). The triple bottom line: Does it all add up.
Routledge.
Saeidi, S. P., Sofian, S., Saeidi, P., Saeidi, S. P., & Saaeidi, S. A. (2015). How does corporate
social responsibility contribute to firm financial performance? The mediating role of
competitive advantage, reputation, and customer satisfaction. Journal of Business
Research, 68(2), 341-350.
Savitz, A. (2013). The triple bottom line: how today's best-run companies are achieving
economic, social and environmental success-and how you can too. John Wiley & Sons.
Schaltegger, S., Hansen, E. G., & Lüdeke-Freund, F. (2016). Business models for sustainability:
Origins, present research, and future avenues.
Schwartz, M. S. (2017). Corporate social responsibility. Routledge.
Silvius, G., & Planko, J. (2017). Sustainability in Business. In Sustainability in Project
Management (pp. 25-38). Routledge.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices.
Oxford University Press, USA.

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Appendix

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