About

2012

www.bat.com

WHATS INSIDE

Who we are p2

How we work p4

Growing our business p6

adult nds 's d l r o w our bra of the c e s hoos r e k o m s

At British American Tobacco we have a unique mix of people from many cultures and backgrounds. We are one of the worlds most international businesses, with a responsible approach to doing business from crop to consumer.

1 in 8

4,721m
profit from operations in 2011

markets where our brands are sold

180

cigarettes sold in 2011

705bn

Consumers and marketing p8

What matters p10

Looking to the future p12

Our people p14

About us

AMERICAS
Volume (billion) Revenue (m) Employees Share of Group revenue 143 3,558 16,661 23%

Who we are
In 2011 we supplied around 180 markets with 705 billion cigarettes. These were produced at 46 factories in 39 countries.
Our business isnt about getting more people to smoke, or encouraging those that do to smoke more. Its about really understanding and meeting the different proles and preferences of adult tobacco consumers. We do this by investing in our brands and our people and through product innovations. We are the only tobacco business with a signicant interest in tobacco growing, providing agronomy support to around 70 per cent of the farmers we purchase leaf from. We also invest heavily in research and development, which involves not only product innovations, but also research into potentially reduced-risk products. Our balanced brand portfolio is designed to meet key consumer needs and we have a successful marketing strategy based on innovation, consumer choice and acting responsibly at all times.
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www.bat.com/aboutus

cigarette factories in 39 countries

46

WESTERN EUROPE
VOLUME (billion) Revenue (m) Employees Share of Group revenue 135 3,600 12,138 23%
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Visit our country or area websites www.bat.com/global

ASIA-PACIFIC
VOLUME (billion) Revenue (m) Employees Share of Group revenue 191 4,251 15,351 28%

EASTERN EUROPE, MIDDLE EAST & AFRICA

VOLUME (billion) Revenue (m) Employees Share of Group revenue 236 3,990 12,115 26%

Our leading brands

Our four leading brands are Dunhill, Kent, Lucky Strike and Pall Mall. We call them our Global Drive Brands. Dunhill offers a range of premium and super-premium cigarettes and cigars at the top end of the market and is sold in more than 120 countries. Kent is our largest premium brand and is sold in more than 75 markets. Launched in 1871, Lucky Strike is now sold in more than 60 countries. Pall Mall was introduced in 1899 and is now sold in more than 110 markets around the world. We have many other leading international and local brands, including Vogue, Viceroy, Kool, Rothmans, Peter Stuyvesant, Benson & Hedges and State Express 555.

Delivering shareholder value

100 108
HYPOTHETICAL 100 HOLDING INVESTED IN 2006

VALUE AT THE END OF 2011 IF INVESTED IN THE FTSE 100

266
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VALUE AT THE END OF 2011 IF INVESTED IN BRITISH AMERICAN TOBACCO

www.bat.com/investors

Our business delivers consistent shareholder return, driven by our well-established strategy. An investor who put 100 into our shares at the end of 2006 would have seen this grow to 266 by the end of 2011. This compares to 108 if the same 100 was invested into the FTSE 100 over the same period.

How we work
In the factory we constantly strive for more efficiency to better meet our objectives. Each day on the factory floor presents its own challenges, and these can be technical or related to our people. But I enjoy finding the right solutions so that we can continue to satisfy our retail customers and meet their needs. Alexis Santschi, Production Area Manager, Switzerland

Sourcing
We work with tobacco farmers and other suppliers to promote high ethical, environmental and workplace standards. We manage our supply chain responsibly and engage with our suppliers to help address their social, environmental and economic impacts.
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www.bat.com/sourcing

Distribution
We work with our retail partners to ensure they can profitably meet consumer needs. Our routes to market allow us to quickly roll out innovations on a global scale and to fully meet consumer demand. Our direct to store sales (DSS) are often the most effective way of serving retailers and building business partnerships.
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www.bat.com/distribution

Production
Manufacturing tobacco products is a large-scale operation and we have 46 cigarette factories in 39 countries. As well as tobacco leaf, we purchase a wide variety of other goods and services from suppliers and we encourage continuous improvements in business practices, efficiency, quality, innovation and corporate responsibility.
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www.bat.com/production

Innovation
We make significant investment into the development of our innovations and into research and development. These innovations vary across our brands and markets, and our approach enables our companies to adapt their offerings to local preferences. We also invest heavily in our efforts to develop potentially reduced-risk products.
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www.bat.com/innovation

Consumers
We recognise that our business revolves around our consumers and our brands. We invest in gathering comprehensive insights into smokers preferences and buying behaviour. This information helps us offer product innovations that are relevant to adult consumers tastes, attitudes, pockets and purchasing patterns.
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www.bat.com/consumers

Marketing
We have a successful marketing strategy based on innovation, responsibility and consumer choice, and our balanced brand portfolio is designed to meet key consumer needs. Our marketing is driven by an excellent understanding of the consumer and by sticking to the marketing fundamentals that are appropriate to our products.
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www.bat.com/marketing

Growing our business

OUR GROUP VISION AND STRATEGY
Our vision

Sustainability underpins our business, and for us its all about shared value creating value for our shareholders, as well as being in the best interests of our stakeholders.
As a business we are operating in a challenging and changing landscape; in the face of this it is all the more important that we focus on achieving sustainable growth. Responsibility is integral to everything that we do and is especially important to a business such as ours, where our products pose real and serious risks to health. Our determination to act responsibly spans the whole business, from our commitment to addressing the issues of child labour and working with farmers, to looking at how we can reduce the risks of our products and lessen our environmental impact. But we recognise that our business starts with our consumers and our brands, and our balanced portfolio is designed to deliver continued growth. We have a great portfolio of brands sold across diverse markets, comprising not only our Global Drive Brands and other international brands, but also strong local brands. Balanced across consumer segments and price points, and backed by industry-leading innovations, we are condent that our brands will remain relevant to adult tobacco consumers and continue to grow.

Growth

Productivity

Winning organisation

Responsibility

Leading our industry Our vision is to achieve leadership of the global tobacco industry, not just in volume and value, but also in the quality of our business. To be industry leaders we must continue to demonstrate that we are a responsible tobacco Group with outstanding people, brands and products. Our consistent strategy is based on growth, funded by productivity, and delivered by a winning organisation that acts responsibly at all times. Our balanced strategy adds value at every stage of our operations, including working directly with tobacco farmers, having our own manufacturing capabilities and investing in research and development.
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www.bat.com

10 years

in the Dow Jones Sustainability Index

Harm reduction We will strive to bring commercially viable, consumer acceptable reduced-risk products to market.

Marketplace We will take a lead in upholding high standards of corporate conduct within our marketplace.

In Sri Lanka we have been committed to investing in local communities for the past 60 years. Through our Sustainable Agricultural Development Programme I spearhead a project covering 12 districts of Sri Lanka and supporting over 10,600 of the poorest families. The project aims to eradicate poverty, which is both a national and global priority. Senaka De Fonseka, CSR Manager, Sri Lanka

OUR SUSTAINABILITY

AGENDA

Our sustainability agenda aims to build value for our shareholders and other stakeholders by addressing our social, environmental and economic impacts. This means delivering shareholder returns and doing the right thing by our stakeholders and the environment. This concept of sustainable value underpins all of our sustainability activities. We believe that by taking action to address our impacts today, we will help our business to thrive in the future.
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www.bat.com/sustainability

Environment of We will actively address the impact t. men iron env ral natu the our business on

Supply chain We will work for positive social, environmental and economic impacts in our supply chain.

People and culture We will work to ensure we have the right people and culture to meet our goals.

Consumers and marketing

Working in marketing at British American Tobacco means working in an exciting environment in constant evolution, and with colleagues who are passionate about building brands and product innovations that excite our consumers. Cristina Saura Boza, Marketing Management Trainee, Spain

Our business is about offering adult tobacco consumers high quality brands that they will want to choose over those of our competitors.
Successful marketing is the bedrock of growth for any fast moving consumer goods business and we are no exception. We dont mean selling smoking to boost the number of people in the world who smoke or the amount they smoke. We mean growing our share of the large number of adults who choose to be tobacco consumers. We invest in positioning our high quality brands competitively for the adults whove decided they do want to smoke. And weve shown that through focus, intelligence, responsiveness and a high priority on responsibility, we can successfully build our brands and win consumers away from competitor brands.

markets where we are the leader

50+

How do we market products when we cant advertise?

We see it as marketing for a new era. Our approach starts with really understanding the different proles of our consumers. We begin by gathering comprehensive insights into their preferences and buying behaviour, then invest in developments that are truly relevant to tobacco consumers. Finally, we ensure that we are able to meet consumer demand at the point of sale.

Responsibility is key We believe that for a business like ours responsible marketing is paramount. Thats why we have our voluntary International Marketing Standards (IMS). Sticking to these standards gives us a consistent and principled approach to marketing around the world. This means there are many things we dont do. Top of the list is that we dont market to the underage. We dont do product placements in lms, plays or TV programmes, or link our product brands to celebrities or to sporting, professional, social or sexual success. Nor do we promote our products through social media. And all of our consumer

packaging carries a visible health warning, even where the law doesnt require it. An innovative approach Our packaging and product innovations allow us to continue to generate consumers interest and meet their preferences. Our packaging innovations include Dunhill Reloc (the re-sealable pack that keeps the contents fresher), compact packs, side-opening packs, packs that open like wallets and waterproof packs. Our product innovations include menthol capsules contained in lters, such as Lucky Strike Click & Roll, Kent Convertibles, Pall Mall Click On and charcoal lters.

Retailer relationships Building relationships with retailers is an important part of our trade marketing activities. We work with our retail partners to ensure they can protably meet the expectations of adult smokers with regards to availability, pricing and brand quality. We place as strong an emphasis on being a high quality supplier to the trade as we do on working to ensure high standards among our own suppliers. And we make a special effort to understand and develop joint programmes with global retail partners in order to reach tobacco consumers in key channels.

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What matters
As well as seeking to reduce the impact of tobacco use on public health, we face a wide range of issues that affect not only our operations, but also our suppliers and our consumers.
We actively seek to address these issues both in the way we work and through positive interactions with governments and regulators. We support appropriate regulation of our industry that maintains a balance between consumer preferences and the interests of society, while allowing us to compete commercially as a business. However, we believe regulations that are too stringent can have unwelcome and unexpected consequences for both consumers and governments.

200,000+
farmers supplying us around the world

THE RIGHT TO CHOOSE

ustry have Some critics of our ind should move out rs me far t suggested tha wever, tobacco of tobacco growing. Ho part of the farming is an important many countries. in my agricultural econo emerging Many farmers are from tobacco because ose cho and es economi soi r ls. Farmers can it grows well in poore very small plots m earn good yields fro m to use the the g win of tobacco, allo crops, such earnings to grow other as food.
MORE ONLINE AT

www.bat.com/leaf

I have been growing tobacco for 17 years. Through growing tobacco I have been able to earn the money to educate my children and build houses on my land. And I can care for my family, especially when they are sick. All of this is possible because of the help and support I get from British American Tobacco extension services. Ronald Osubia, tobacco farmer in Hoima, Uganda

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yOUTH SMOKING

PREVENTION

We believe that tobacco products are only suitable for adult consumers and we do not want children to smoke. Our companies around the world work with retailers in the battle against underage smoking. We run or support programmes including proof-of-age schemes and training to help shop staff spot underage buyers and refuse to sell to them.
MORE ONLINE AT

www.bat.com/ysp

ILLICIT TRADE DISPLAY BANS

A growing problem The illicit trade in tobacco products is big business and includes both counterfeit products and genuine cigarettes that are smuggled across borders. Cigarettes are among the most commonly traded products on the black market. This is due to high profit margins, relative ease of movement and low detection rates and penalties. The main drivers for the growing trade in illicit cigarettes are economic cheaper cigarettes for consumers and easy profits for the smugglers and counterfeiters. However, fake cigarettes can mean no quality control, while smuggled cigarettes cost governments billions in lost excise and taxes. Legitimate retailers, often small or family businesses, are also damaged as smugglers and criminals steal their trade. We believe that tackling illicit trade requires cooperation and understanding between tobacco companies, governments and international bodies. What were doing As a business we work to combat illicit trade. Our companies around the world are committed to doing everything they reasonably can to minimise the risk of their products being diverted into illicit trade channels. Our Anti Illicit Trade Intelligence Unit works hand-inhand with law enforcement agencies worldwide to gather and share intelligence, monitor the destruction of seized products and machinery and analyse suspect fake cigarettes in our laboratories.
MORE ONLINE AT

Tobacco products are already banned from display in shops in a few countries around the world. However, retail display bans can be costly and difficult to implement for retailers. Driving legitimate sales under the counter also blurs the line between legal and illegal products, playing into the hands of criminals.
MORE ONLINE AT

www.bat.com/displaybans

PLAIN PACKAG

ING

We believe we are entitled to use our packs to distinguish our products from those of our competitors. Generic packaging would make it easier for criminals to counterfeit tobacco products, increasing the already large black market. This could reduce governments tax revenue and disrupt efforts to tackle organised crime.
MORE ONLINE AT

www.bat.com/plainpackaging

www.bat.com/illicittrade

Illicit cigarettes: price? whos paying the

WATCH OUR VIDEO

ONLINE AT

www.bat.com/th

eman

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Looking to the future

Our research and development principally focuses on tobacco harm reduction, but also explores the development of new products and innovations. Our current research focuses both on developing potentially reduced-risk tobacco products whether combustible (such as cigarettes) or smokeless and the science required to assess them.
Weve had a research and development centre in the UK for more than 50 years. In that time weve focused on understanding cigarette smoke chemistry, identifying its toxicants, understanding smoking behaviour and trying to develop products with lower levels of toxicants in the smoke. Harm reduction We believe that a one product fits all approach cant achieve tobacco harm reduction, so our approach is to make available a range of reduced-risk tobacco and nicotine products for adult consumers. There are many challenges in this: the science is complex; collaboration is needed between scientists, tobacco companies and regulators; products need to meet consumer expectations; and we need a regulatory framework that supports tobacco harm reduction. But we are committed to meeting these challenges. Collaboration Alongside this, were engaging with the scientific and public health communities to try to build more widespread support for this broader approach to tobacco harm reduction. We publish research in peer-reviewed journals and on our dedicated science website, present our findings and views at scientific conferences and we seek to collaborate with others particularly members of the academic and public health communities to improve the breadth and quality of our research.

Not an ordinary filter

R&D is about discovery, understanding and providing solutions through knowledge and innovation. The work is exciting and I sometimes feel a bit like a detective, researching fundamental processes in the tobacco plant to learn how toxicants are formed and trying to work out ways to prevent it from happening. Susie Davenport, Plant Production and Field Evaluation Manager, UK

Cigarette filters as we would recognise them today have been commonly used for more than 50 years. And here at British American Tobacco were constantly looking for innovative filter technologies that might be capable of reducing the amount of toxicants in cigarette smoke. For example, we are currently testing a novel nanoporous activated carbon that is a more efficient adsorbent than any carbon we currently use in the filters of our commercial cigarettes. And we are also testing an ion-exchange resin similar to that used in water filters, which we have customised for potential use in our cigarette filters.

13

166m
spent on resea development rch and in 2011

Visit our website written specifically for scientists with an interest in tobaccorelated research and related disciplines.

www.bat-science.com

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Our people
+ 0 0 56,0
em e ldwid r o w ployees
Our employees come from many cultures and backgrounds, and our business benets from the breadth of ideas and experiences they bring.
Having such a diversity of people who support each others success creates a unique mix. Our differences are balanced by a common view on our industry we support personal choice and the freedom to choose and that philosophy runs throughout our business. Being free to discuss and debate means we develop our business in exciting ways and give individuals their voice. Empowering teams creates fresh ideas and different experiences, keeping us sharp, innovative and ahead of the game. For more than a century we have built a reputation as a leading fast moving consumer goods company, and we put a strong emphasis on empowering our people, promoting entrepreneurship and innovation. We have impressive and inspiring leaders who genuinely care about our people and will support them in the difference they make. We take them to new places professionally and geographically and open their mind to new ideas.

15

I have had the opportunity to not only get an in-depth view of departments across the organisation, but also to work with retailers in the field. All of this has given me a brilliant base to acquire an understanding of the company, the market and relevant stakeholders. Svenja Khlke, Brand Executive, Germany

The best thing about British American Tobacco is the open culture and the promotion of diversity. Its a comfortable and fun place to work in and the support and encouragement I get from everyone drives me to succeed. Kawshika Abeykoon, Administrative Coordinator, Sri Lanka

Rewarding careers As youd expect from a leading global business, we offer highly competitive rewards for success, invest heavily in training and development, and offer truly international career opportunities. We want our employees to feel rewarded by the challenge of their roles, career opportunities and positive team relationships. We regularly compare ourselves to other multi-national businesses targeting the same pool of world-class talent. This enables us to maintain an attractive salary and benets package. If youre in search of a challenge and want a career that will truly inspire you, British American Tobacco may be the company for you. Visit our careers website to nd out more.

www.bat-careers.com

It is rewarding to see how we are finding ways of creating profitability and growth even with the constantly changing external environment. I face new challenges each day which helps me to learn and develop. Young-Jae Song, Marketing Finance Executive, BeNeLux

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You can find out more about all of the topics covered in this booklet (and more) on our global website

www.bat.com
www.bat.com/annualreport
Find out how we are delivering growth in revenue and profit. Read our 2011 Annual Report online or download a PDF. You can also watch exclusive video content.

www.bat.com/sustainability
Marking our 11th year of social reporting, our 2011 Sustainability Report looks at our five key areas of sustainability and describes how were preparing for the future.

About science, for scientists, by scientists, offering a look at the work of our Group R&D teams and their research into potentially reduced-risk products.

Visit our careers website to find out what its like to work with us and how to contact your local British American Tobacco office about career opportunities.

www.bat-science.com

www.bat-careers.com

www.bat.com/health
At British American Tobacco we have long accepted that smoking is a cause of serious diseases, and we know it can be hard to quit.

www.bat-ingredients.com
Find out more about what goes into our products, including information on ingredients and other materials used in cigarettes, cigars, snus and other tobacco products.

www.batbiodiversity.com
Our Biodiversity Partnership with three conservation NGOs the Earthwatch Institute, Fauna & Flora International and The Tropical Biology Association and the projects it supports around the world.

www.bat.com/global
Find a complete list of our country and area websites, as well as links to our specialist websites.

References in this publication to British American Tobacco, we, us, and our when denoting opinion refer to British American Tobacco p.l.c. and when denoting tobacco business activity refer to British American Tobacco Group operating companies, collectively or individually as the case may be. All performance figures exclude associate companies and relate to 2011 unless otherwise stated.

This booklet has been printed in the UK by Pureprint, a CarbonNeutral company using their pureprint and alcofree environmental printing technology. The paper used for this booklet is Amadeus 50% Recycled Silk, comprising 25% post-consumer and 25% pre-consumer waste, and 50% virgin wood fibre sourced from sustainable forests independently certified according to the rules of the Forest Stewardship Council. This document is recyclable.

We would like to thank all of the British For more copies of this booklet, the British American Tobacco people who made this American Tobacco p.l.c. Annual Report 2011 hsitcontact: irB eht ,telkoob s iht fo se ipoc erom roF booklet possible. or Sustainability Report 2011, please 1 1 0 2 t r o p e R l a u n n A . c . l . p o c c a oT naciremSusie A KawshikabAbeykoon, Davenport, British American Tobacco Publications, : t c a t n o c e s a e l p , 1 1 0 2 t r o p e R y t i l i b a n i a t s u S r o Senaka De Fonseka, Dinesh Dharmadasa, Unit 80, London Industrial Park, Roding Road ,snoitacilbuP occ aboTFoet, nacirMiriam emA hsHiller, itirB Charlotte Hulsenbeck, Cees London E6 6LS, United Kingdom daoR gnidoR ,kraP lairtSvenja sudnI n odnoL ,Ronald 08 tinUOsubia, Khlke, Telephone: +44 (0)20 7511 7797 m o d g n i K d e t i n U , S L 6 6 E n odnAlexis oL Christina Papadam, Santschi, Email: bat@team365.co.uk 7977 1157 Cristina 02)0( 44 + : e n o h p e l e T Young-Jae Song. Saura Boza and ku.oc.563maet@tab :liamE Editorial team Mike Butcher and Paula Smedley
Designed and produced by Flag. Photography by David Hares, Mike Abrahams and John Gibbons.