BRITISH AMERICAN TOBACCO p.l.c. (the
"Company")
Annual Report for the Year Ended 31
December 2023
In compliance with Listing Rule
9.6.1 and Disclosure Guidance and Transparency Rule ("DTR") 4.1,
the Company announces that the following documents have been
published on its website: www.bat.com/annualreport:
·
Annual Report and Form 20-F 2023 (the "Annual
Report 2023"); and
·
Combined Performance and ESG Summary
2023.
These documents have been submitted
to the National Storage Mechanism and will shortly be available for
inspection via the following link:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
In addition, in accordance with
Section 203.01 of the New York Stock Exchange Listed Company
Manual, the Company announces that it filed its Annual Report on
Form 20-F 2023 (the "Form 20-F 2023") with the Securities and
Exchange Commission on 9 February 2024. The Form 20-F 2023 included
audited financial statements for the year ended 31 December
2023. The Form 20-F 2023 will shortly be available on the
Company's website at www.bat.com/annualreport and also online at
www.sec.gov.
The Annual Report 2023 and other
ancillary shareholder documents will be mailed and made available
to shareholders on 14 March 2024. Investors have the option
to receive a hard copy of the Company's complete audited financial
statements, free of charge, upon request, by contacting the
below:
United Kingdom
|
British American Tobacco
Publications
|
Telephone: +44 20 7511
7797
Email: bat@team365.co.uk
|
South Africa
|
The Company's Representative
Office
|
Telephone: +27 21 003
6712
|
United States
|
Citibank Shareholder
Services
|
Telephone: +1 888 985 2055
(toll-free)
Email:
citibank@shareholders-online.com
|
This announcement should be read in
conjunction with the Company's Final Results announcement which was
released to the market on 8 February 2024. Together these
constitute the material required by DTR 6.3.5R to be communicated
to the media in unedited full text through a Regulatory Information
Service. This material is not a substitute for reading the full
Annual Report 2023. Page numbers and cross-references in the
extracted information below refer to page numbers in the Annual
Report 2023. The following disclosures are set out in the
appendices to this announcement:
·
Appendix A: Group Principal Risks (pages 121 to
128 of the Annual Report 2023);
·
Appendix B: Related Party Disclosures (pages 284
and 285 of the Annual Report 2023); and
·
Appendix C: Directors' Responsibility Statement
(page 193 of the Annual Report 2023).
C Dhokia
Deputy Secretary
9 February 2024
Enquiries:
British American Tobacco Media Centre
+44 (0)20 7845 2888 (24 hours)
│@BATPlc
Investor Relations
Victoria Buxton: +44 (0)20 7845
2012
Amy Chamberlain +44 (0)20 7845
1124
John Harney: +44 (0)20 7845
1263
Jane Henderson +44 (0)207845
1117
APPENDIX A
"GROUP PRINCIPAL RISKS
Overview
The Principal Risks that may affect
the Group are set out on the following pages.
Each risk is considered in the
context of the Group's strategy and business model, as set out in
this Strategic Report beginning on page 2 and page 18. On the
following pages is a summary of each Principal Risk, its potential
impact and management by the Group. The Group defines the Principal
Risks as those assessed with a high impact and probable likelihood.
Additionally, "Supply Chain Disruption", "Cyber Security",
"Litigation" and "Solvency and liquidity" risks are also recognised
as Principal Risks; they are not assessed as having high impact and
probable likelihood but are material to the delivery of the Group's
strategic objectives.
The Group has identified risks and
is actively monitoring and mitigating these risks, including those
related to climate change and other sustainability matters. This
section focuses on those risks that the Directors believe to be the
Principal Risks to the Group. Not all of these risks are within the
control of the Group and other risks besides those listed may
affect the Group's performance. Some risks may be unknown at
present. Other risks, currently regarded as less material, could
become material in the future. Clear accountability is attached to
each risk through the risk owner.
The risks listed in this section and
the activities being undertaken to manage them should be
considered in the
context of the Group's internal control framework. This process is
described in the section on risk management and internal control in
the corporate governance statement from page #. This section should
also be read in the context of the cautionary statement
on page 386. A summary of all the risk factors (including the
Principal Risks) which are monitored by the Board through the
Group's risk register is set out in the Additional Disclosures
section from page 353.
Assessment of Group Principal Risks
During the year, the Directors
carried out a robust assessment of the Principal Risks,
uncertainties and emerging risks facing the Group, including those
that could impact delivery of its strategic objectives, business
model, future performance, solvency or liquidity.
Leading in Sustainability is a core
component/key building block of our corporate strategy and
sustainability risk factors are embedded across the Group's risks
in accordance with how risks are managed within the
Group.
Continued progress was made to
further embed both climate-related and other
sustainability risks into the Group Risk Management
Framework.
Key risk initiatives include the
introduction of the Group's inaugural Sustainability risk register
and the development of a Climate Diagnostic Tool. Sustainability
risks are assessed on a residual risk basis and are reviewed
biannually and evaluated in terms of their relevance and
materiality to the business, in accordance with the Group's risk
management methodology. The Climate Diagnostic Tool will enable
better understanding of the climate change impact to the Group's
physical property locations and subsequent business interruption.
These emphasise the Group's commitment to understand, mitigate, and
manage risks that could impact the organisation as a whole, BAT's
stakeholders and the wider environment.
The viability statement on 129
provides a broader assessment of long-term solvency and liquidity.
The Directors considered a number of factors that may affect the
resilience of the Group. Except for the risk "Injury, illness or
death in the workplace" which is not considered to be sufficiently
material to impact the Group's overall viability assessment, the
Directors also assessed the potential impact of the Principal Risks
that may impact the Group's viability.
Risks
Competition from illicit
trade
Increased competition from illicit
trade and illegal products - either local duty evaded, smuggled,
counterfeits, or non-regulatory compliant, including products
diverted from one country to another.
Time frame
Short-/medium-/long-term
Strategic impact
Quality Growth/Sustainable
Future
Key Stakeholders
Consumers, Society, Shareholders
& Investors
Considered in viability
statement
Yes
Impact
Erosion of goodwill, with lower
volumes and/or increased operational costs (e.g. track and trace
costs) and reduced profits.
Reduced ability to take price
increases.
Investment in trade marketing and
distribution is undermined and the product is
commoditised.
Counterfeit products (especially in
New Categories) and other illicit products could harm consumers,
damaging goodwill, and/or the category (with lower volumes and
reduced profits), potentially leading to misplaced claims against
BAT, further regulation and a failure to deliver the corporate
harm reduction objective.
Breach of legislation, criminal
offences, contract breaches under the EU Cooperation Agreement,
allegations of facilitating smuggling and reputational damage,
including negative perceptions of our governance.
Existence of illicit trade reduces
our ability to reduce the health impact of our
business, it undermines policies of state governments with respect
to underage tobacco users and creates basis for
inappropriate regulation.
Mitigation activities across all categories
Dedicated Anti-Illicit Trade (AIT)
teams operating at regional and country levels; internal
cross-functional levels; compliance procedures, toolkit and best
practice shared.
Active engagement with key external
stakeholders.
Cross-industry and multi-sector
cooperation on a range of AIT issues.
Regional AIT strategy supported by a
research programme to further the understanding of the size and
scope of the problem.
AIT Engagement Teams (including a
dedicated analytical laboratory and a forensic and compliance team)
work with enforcement agencies as appropriate.
Geopolitical
tensions
Geopolitical tensions, civil unrest,
economic policy changes, global health crises, terrorism and
organised crime have the potential to disrupt the Group's
business in multiple markets.
Time
frame
Short-/medium-term
Strategic impact
Quality Growth/Sustainable Future
Key Stakeholders
Society, Our people, Shareholders
& Investors
Considered in viability statement
Yes
Impact
Potential injury or loss of life,
loss of assets and disruption to supply chains and normal
business processes.
Increased costs due to more complex
supply chain and security arrangements and/or the cost of building
new facilities or maintaining inefficient
facilities.
Lower volumes as a result of not
being able to trade in a country.
Higher taxes or other costs of doing
business as a foreign company or the loss of assets as a
result of nationalisation.
Reputational damage, including
negative perceptions of our governance and protection of our people
and our ESG credentials. Disruption to the supply chain impacts our
ability to reduce the health impact of our business.
Mitigation activities across all categories
Physical and procedural security
controls are in place, and regularly reviewed in accordance with
our Security Risk Management process, for all field force and
supply chain operations, with an emphasis on the protection of
Group employees.
Globally integrated sourcing strategy
and contingency sourcing arrangements are in place.
Security risk modelling, including
external risk assessments and the monitoring of geopolitical and
economic policy developments worldwide.
Insurance coverage and business
continuity planning, including scenario planning and testing, and
risk awareness training.
Geopolitical assessment and
monitoring by the Group Security Centre of Excellence and regions
inform the Business Continuity Management organisation plans and
responses to geopolitical
risks, including readiness of Crisis
Management Teams at all levels.
Tobacco, New Categories and
other regulation interrupts growth strategy
The enactment of, proposals for, or
rumours of, regulation that significantly impairs the Group's
ability to communicate, differentiate, market or launch its
products, and/or the lack of appropriate regulation for New
Categories.
Time
frame
Short-/medium-/long-term
Strategic impact
Quality Growth/Sustainable Future
Key Stakeholders
Consumers, Society, Shareholders
& Investors
Considered in viability statement
Yes
Impact
A lack of acceptance or rejection of
Tobacco Harm Reduction as a tobacco control policy could
prevent a balanced regulatory framework for New Categories.
Restricted ability to sell and communicate New Categories could
lead to failure of the harm reduction objective and loss of
confidence in the Group's ESG performance. Lack of appropriate
regulation and its enforcement may impact our opportunity for
quality growth and affect our ability to develop an outstanding
pipeline of new products. Disproportionate regulations for New
Categories, such as questionable regulatory classifications or
total bans, that may not be science-based and/or risk-proportionate
and that neither recognise unintended consequences nor respect
legal rights (e.g. wrong regulatory classifications or total bans).
Reduced ability to make scientific claims and compete in future
product categories and make new market entries. Erosion of brand
value through commoditisation and the inability to launch
innovations may negatively affect our ability to generate value
growth. Regulation with respect to bans or severe restrictions on
menthol flavours, product design & features and nicotine levels
may adversely impact individual brand portfolios. Reduced
consumer acceptability of new product specifications, leading to
consumers seeking alternatives in illegal markets or irresponsible
operators exploiting regulatory loopholes. Shocks to share price on
rumours of, or the announcement or enactment of, restrictive
regulation (e.g. sales ban to future generations). Failure to
deliver appropriate and proportionately costed Extended Producer
Responsibility (EPR) schemes.
Mitigation activities across all categories
Establishment of Regulation and
Science Committee, the objectives of which are to review the
execution of the Group's regulatory, corporate, and science
strategies, monitor the regulatory and science landscape,
prioritize key regulatory and science initiatives and resource
allocation.
Engagement and alignment across the
Group to drive a balanced global policy framework for combustibles
and New Categories.
Stakeholder mapping and
prioritisation, developing robust compelling advocacy materials
(with supporting evidence and data) and regulatory engagement
programmes.
Regulatory risk assessment of
marketing plans to ensure decisions are informed by an
understanding of the potential regulatory environments.
Advocating the application of
integrated regulatory proposals to governments and public health
regulators and practitioners based on the harm reduction
potential of New Categories.
Development of an integrated
regulatory strategy that spans conventional combustibles and
New Categories.
Training and capability programmes
for End Markets to upskill Corporate and Regulatory Affairs
managers on combustible and New Categories regulatory engagement,
including product knowledge.
Direct access to online portal
providing latest position and advocacy material for End Market
engagement on combustibles and New Categories.
Working to define a sustainable EPR
model and markets negotiating to implement effective EPR
schemes.
Please refer to the to the description of the tobacco and
nicotine regulatory regimes under which the Group's businesses
operate set out from page 375
Supply Chain
disruption
Disruption to the global supply
chain that may impact our ability to manufacture products or supply
our consumers.
Time frame
Short-
Strategic
impact
Quality Growth/Sustainable Future/Dynamic Business
Key
Stakeholders
Consumers, Our people, Shareholders
& Investors
Considered in viability
statement
Yes
Impact
Disruption to the global supply chain
may impact all aspects of our business and impede our
ability to manufacture products and supply our
consumers.
Disruption to supply chain can lead
to volume shortfalls and inability to supply markets, increased
replacement or/and rebuild costs consequently leading to reduced
profit and reputational damage. This may affect our ability to
reinvest into New Categories and deliver our Tobacco Harm Reduction
commitment.
Loss of one or more key facilities or
suppliers may cause loss of life and injuries. It may also lead to
societal dislocation resulting in population migration and loss of
key skills.
Our supply chain could be negatively
impacted by events arising from, but not limited to natural
disasters, man-made accidents, cyber incidents.
Mitigation activities across
all categories
Group-wide business continuity plans
(BCP) and contingency sourcing plans (CSP) in compliance with the
new Business Continuity Management standard, are in
place.
All factory CSPs are regularly
updated, reviewed and desktop simulations conducted to ensure
compliance with the Group's policy.
BCPs and disaster recovery plans for
logistics providers are in place.
Unrest and Evacuation plans are in
place.
Existence of insurance cover for
Property Damage and Business Interruption.
Appropriate technical and
organisational cyber security measures are in place.
Litigation
Product liability, regulatory or
other significant cases (including investigations) may be lost or
settled resulting in a material loss or other
consequence.
Time
frame
Short-/medium-/long-term
Strategic impact
Quality Growth/Sustainable future
Key Stakeholders
Shareholders &
Investors
Considered in viability statement
Yes
Impact
Damages and fines, negative impact
on reputation (including ESG credentials), disruption and loss
of focus on the business.
Consolidated results of operations,
cash flows and financial position could be materially affected by
an unfavourable outcome or settlement of pending or future
litigation, criminal prosecution or other contentious action, or by
the costs associated with bringing proceedings or defending
claims.
Inability to sell products as a
result of an injunction arising out of a patent infringement action
against the Group may restrict growth plans and
competitiveness.
Potential share price
impact.
Sustainability-related litigation
could also result in a reduction in the investor base due to
sustainability and sustainability-related concerns.
Mitigation activities across all categories
Consistent litigation and patent
management strategy across the Group.
Expertise and legal talent
maintained both within the Group and external partners, including
for New Categories and sustainability-related matters.
Ongoing monitoring of key
legislative and case law developments related to our
business.
Delivery with Integrity compliance
programme.
Driving the litigation strategy in
relation to key regulatory issues.
Central management of strategic
litigation impacting key regulatory processes.
Developing expert analysis on
efficacy of various regulatory proposals.
Please refer to note 31 on page 286 in the Notes on the
Accounts for details of contingent liabilities applicable to the
Group.
Significant increases or
structural changes in tobacco, nicotine and New Categories related
taxes
The Group is exposed to unexpected
and/or significant increases or structural changes in tobacco,
nicotine and New Categories related taxes in key
markets.
Time
frame
Short-/medium-/long-term
Strategic impact
Quality Growth/Sustainable Future
Key Stakeholders
Consumers, Society, Shareholders
& Investors
Considered in viability statement
Yes
Impact
Consumers reject the Group's
legitimate tax-paid products for products from illicit sources or
cheaper alternatives.
Reduced legal industry
volumes.
Reduced sales volume and/or
portfolio erosion leading to inability to invest in, develop,
commercialise and deliver New Category products.
Partial absorption of excise
increases leading to lower profitability.
Mitigation activities across all categories
Formal pricing and excise
strategies, including Revenue Growth Management using a data
science-led approach, with annual risk assessments and contingency
plans across all products.
Pricing, excise and trade margin
committees in markets, with global support.
Engagement with relevant local and
international authorities where appropriate, in particular in
relation to the increased risk to excise revenues from higher
illicit trade.
Portfolio reviews to ensure
appropriate balance and coverage across price
segments.
Monitoring of economic indicators,
government revenues and the political situation.
Inability to develop,
commercialise and deliver the New Categories
strategy
Risk of not capitalising on the
opportunities in developing and commercialising successful, safe
and consumer-appealing innovations.
Time
frame
Short-/medium-/long-term
Strategic impact
Quality Growth/Sustainable Future/Dynamic
Business
Key Stakeholders
Consumers, Society, Shareholders
& Investors
Considered in viability statement
Yes
Impact
Failure to deliver Group strategic
imperative, 2025 growth ambition and 2030 consumer
targets.
Potentially missed opportunities,
unrecoverable costs and/or erosion of brand, with lower
volumes and reduced profits.
Reputational damage and recall costs
may arise in the event of defective product design or
manufacture.
Loss of market share due to
non-compliance of product portfolio with regulatory
requirements or inability to engage on our science, leading to
a negative shift in sentiment and confidence in Group
products.
Loss of investor confidence in ESG
performance.
Failure to deliver our corporate
purpose of harm reduction.
Mitigation activities across all categories
Focus on product stewardship to
ensure high-quality standards across the portfolio.
Brand Expression, which sets out how
our brand expresses itself (including through its logo, name,
product, packaging, etc.) deployed to lead End Markets via
activation workshops and best practices shared.
Generating sufficient IP to develop
competitive and sustainable products.
Accelerating digital and consumer
analytics along with data management platforms for enhanced
methodologies, insight generation and line of sight across the
Group.
R&D is accredited to ISO9001
standard and laboratories are accredited to ISO17025 for key
methods.
Internal and external communications
about BAT's science through publications and engagement. Quality
assurance reviews undertaken with key science suppliers to ensure
appropriate standards in
place.
Disputed taxes, interest and
penalties
The Group may face significant
financial penalties, including the payment of interest, in the
event of an unfavourable ruling
by a tax authority in a
disputed area.
Time
frame
Short-/medium
term
Strategic impact
Quality Growth/Sustainable
Future
Key Stakeholders
Shareholders &
Investors
Considered in viability statement
Yes
Impact
Significant fines and potential legal
penalties.
Disruption and loss of focus on the
business due to diversion of management time.
Impact on profit and
dividend.
Mitigation activities across all categories
End Market tax committees.
Internal tax function provides
dedicated advice and guidance, and external advice sought
where needed.
Engagement with tax authorities at
Group, regional and individual market
level.
Injury, illness or death in
the workplace
The risk of injury, death or ill
health to employees and those who work with the business is a
fundamental concern of the Group
and can have a significant effect on our
operations.
Time
frame
Short-term
Strategic impact
Quality Growth/Sustainable Future/Dynamic
Business
Key Stakeholders
Our people
Considered in viability statement
No
Impact
Serious injuries, ill health,
disability or loss of life suffered by employees and the people who
work with the Group.
Exposure to civil and criminal
liability and the risk of prosecution from enforcement bodies and
the cost of associated legal costs, fines and/or
penalties.
Interruption of Group operations if
issues are not addressed promptly.
High staff turnover or difficulty
recruiting employees if perceived to have a poor
Environment, Health and Safety (EHS) record.
Reputational damage to the Group and
negative impact on our ESG
credentials.
Mitigation activities across all categories
Risk control systems in place to
ensure equipment and infrastructure are provided and
maintained.
EHS strategy aims to ensure that
employees at all levels receive appropriate EHS training and
information.
Behavioural-based safety programme to
drive operations' safety performance, culture and closer to zero
accidents.
Analysis of incidents undertaken
regionally and globally by a dedicated team to identify increasing
incident trends or high potential risks that require coordinated
action.
Global monthly Health & Safety
(H&S) Committee established, formed by senior members from the
H&S and Operations Sustainability leadership
team.
Solvency and
liquidity
Liquidity (access to
cash and sources of finance) is essential to maintaining the Group
as a going concern in the short-term (liquidity)
and medium-term (solvency).
Time frame
Short-/medium-term
Strategic impact
Quality Growth/Sustainable
Future/Dynamic Business
Key Stakeholders
Shareholders &
Investors
Considered in viability statement
Yes
Impact
Inability to access the Group's cash
resources and to fund the business under the current capital
structure resulting in missed strategic opportunities or inability
to respond to threats.
Decline in our creditworthiness and
increased funding costs for the Group.
Requirement to issue equity or seek
new sources of capital.
Reputational risk of failure to
manage the financial risk profile of the business,
resulting in an erosion of shareholder value
reflected in an underperforming share price.
Inability to mitigate accounting and
economic exposures.
Economic loss as a result of
devaluation/revaluation of assets (including cash) valued or held
in local currency, and additional costs as a result of paying
premiums to obtain hard currency.
Failure to appropriately engage with
investors' and lenders' sustainability criteria and concerns may
impact BAT's counterparty availability, credit ratings, access to
funding, or may result in an increase in the cost of
funding.
Exposure to the cannabis sector may
lead to regulatory and legal risk, reputation and compliance issues
restricting bank and/or investor access.
Mitigation activities across all categories
Group policies include a set of
financing principles and key performance indicators, including the
monitoring of credit ratings, interest cover, solvency and
liquidity with regular reporting to the Corporate Finance Committee
and the Board.
Controls in place to ensure full
compliance with Sanctions regimes.
Plans implemented to manage the risk
in key geographies.
The Group targets an average
centrally managed debt maturity of at least five years with no
more than 20% of centrally managed debt maturing in a single
rolling year.
At 31 December 2023, the Group had
access to a £5.38 billion revolving credit facility. In March 2023,
the Group refinanced the £2.7 billion 364-day tranche of the
revolving credit facility at the reduced amount of £2.5 billion,
maturing in March 2024 with two one-year extension options, and a
one-year term out option. Additionally, £3.0 billion of the
five-year tranche remains available until March 2025, with £2.85
billion extended to March 2026 and £2.5 billion extended to March
2027.
Liquidity pooling structures are in
place to ensure that there is maximum mobilisation of cash
liquidity within the Group.
Going concern and viability support
papers are presented to the Board on a regular
basis.
Continued review of UK money
laundering legislation and cannabis policy with financial
partners.
Foreign exchange rates
exposures
The Group faces translational and
transactional foreign exchange (FX) rate exposure for earnings/cash
flows from its global businesses.
Time frame
Short-/medium-term
Strategic impact
Short-/medium-term
Key Stakeholders
Shareholders &
Investors
Considered in viability statement
Yes
Impact
Fluctuations in FX rates of key
currencies against sterling introduce volatility in reported
earnings per share (EPS), cash flow and the balance sheet driven
by translation into sterling of our financial results and
these exposures are not normally hedged.
The dividend may be impacted if the
payout ratio is not adjusted.
Differences in translation between
earnings and net debt may affect key ratios used by credit rating
agencies.
Volatility and/or increased costs in
our business, due to transactional FX, may adversely impact
financial performance.
Mitigation activities across all categories
While translational FX exposure is
not hedged, its impact is identified in results
presentations and financial disclosures; earnings are restated
at constant rates for comparability.
Debt and interest are matched to
assets and cash flows to mitigate volatility where possible and
economic to do so.
Hedging strategy for transactional
FX is defined in the treasury policy, a global policy approved
by the Board.
Illiquid currencies of many markets
where hedging is either not possible or uneconomic are
reviewed on a regular
basis.
Climate Change and Circular
Economy
Direct and indirect adverse impacts
associated with climate change and the move towards a circular
economy.
Time frame
Short-/medium-/long-term
Strategic impact
Quality Growth/Sustainable
Future
Key Stakeholders
Consumers, Society, Shareholders
&
Investors
Considered in viability statement
Yes
Impact
Direct physical risks to BAT
agricultural, manufacturing, operational and logistic processes may
lead to reduced production capability, delays, volume shortfalls,
disruption of energy supply (and other utilities) and business
interruption.
Extreme temperatures and pollution
could be harmful for employees, creating health and safety
risks.
Failure to adequately manage supply
chain risks associated with transitional and operational impacts
(of climate change particularly) may cause increased volatility in
supply volume, quality or cost of raw materials and services
necessary for the effective and efficient operation of BAT's
business across its value chain.
GHG emissions can indirectly increase
costs of supply and delivery.
Punitive actions against the Group or
ability to sell products in key markets, due to failure to comply
in an effective, competitive or economic manner with evolving
regulations and requirements relevant to business operations,
products and supply chain, and reporting.
Technology risk increase due to
write-offs and early retirement of existing assets. Additional
cost required to deploy new practices and processes.
Poor ESG ratings by investors or
platforms/indices used by them may lead to reduced access to
capital, increased cost of capital or impact the share
price.
Loss or damage to reputation may
reduce market share and revenue, due to customers and/or consumers
having a reduced or negative perception of BAT and its
products in comparison to its competitors, or of specific
products/product categories overall.
Negative impact upon the attraction,
retention and motivation of skilled employees and
contractors.
Inadequate waste management can
increase negative public opinion on BAT and cause potential damage
to brand value from loss of consumer trust, increased costs in
jurisdictions where waste management is costly and/or
insufficient.
Failure to adequately manage Group
sustainability priorities like climate change, protection of
natural resources and forest, human rights in leaf supply chain may
restrict suppliers willing to do business with
BAT.
Mitigation activities across all categories
The Group has a well-established
Environmental Sustainability Committee and Operations
Sustainability Forum. Sustainability matters overall, and climate
change and circular economy specifically, are under the governance
remit of the Audit Committee.
Life Cycle Assessment is used in the
development and approval processes for new products to understand
and improve their climate change and circular economy
impacts.
Monitoring of climate change- and
circular economy-related governmental policy and regulations, and
taking proactive actions to meet and/or surpass it.
Working to mitigate climate change
impacts and optimise circular economy alignment across the value
chain by designing for the reuse and recycling of end-of-life
products and increasing the use of recycled and environmentally
preferable materials. Compliance assessment tool covering all
significant touch points related to employee health and safety and
environmental impact.
Circular economy strategy, Business
Continuity and Contingency Sourcing plans.
Supplier Code of Conduct which
defines the minimum standards expected for suppliers, including the
requirement of adoption of BAT environmental procedures.
2023 review of future ESG reporting
requirements and frameworks, globally, and increasing alignment
with them, ahead of required timescales.
Ongoing increase in the reporting of
sustainability information in the Group's Combined Annual and
Sustainability Report and accompanying ESG Performance Data Book,
including public provision to financial actors of information
required by investors for their own sustainability
reporting.
Internal and external goals and
targets related to the risks and opportunities posed by climate
change and circular economy to the Group's business and wider
society, along with comprehensive programmes for review of progress
against these goals.
Climate change- and circular
economy-related objectives, targets and metrics publicly reported
and externally assured and integrated into personal performance
objectives of those functionally responsible for their
delivery.
Driving innovation and collaboration
through Btomorrow Ventures.
Cross-functional and cross-industry
engagement on sustainability
topics.
Cyber
Security
Inability of the organisation to
defend against an intentional or unintentional action that results
in loss of confidentiality, availability or integrity of systems
and data.
Time frame
Short-/medium-/long-term
Strategic impact
Quality Growth/Sustainable
Future/Dynamic
Business
Key Stakeholders
Consumers, Society, Our People,
Shareholders &
Investors
Considered in viability statement
Yes
Impact
Loss or theft of confidential
business information, when used alone or in conjunction with any
other available information reduces the impact of BAT business
strategy, investments and commercial operations.
Personal data breach incidents that
result in the disclosure of personally identifiable data resulting
in legal, reputational, and regulatory compliance
impacts.
Disruption to BAT's business
operations that impacts R&D facilities, manufacturing,
distribution or technology services resulting in business
interruption and/or impacts to health & safety.
Inappropriate use of technology
systems to enable fraud, or theft of product, technology, or
monetary resources.
Loss of digital trust resulting in
brand damage and a loss of consumer trust.
A cyber incident experienced by a
third party partner or supplier resulting in business interruption,
supply chain disruption, loss of company data or provides access or
transmission of malicious activity from the supplier to
BAT.
Mitigation activities across all categories
The group implements physical,
technical and administrative safeguards to mitigate risks of a
cyber security incident, including security measures, such as
defensive technologies, encryption, authentication, backup and
recovery systems, to protect the confidentiality, integrity and
availability of IDT systems and networks.
The Group's cyber security processes
are regularly reviewed and updated to ensure these remain effective
and aligned with our business objectives, regulatory obligations
and industry standards.
Regular training and awareness
programmes provided to Group employees and contractors on cyber
security best practices and procedures and adherence to our
SoBC.
Vendor management processes in place,
including due diligence and contractual obligations, to ensure that
third-party service providers adhere to BAT's cyber security
requirements and standards.
Development of business continuity
plans to ensure that the Group can promptly respond to any
potential or actual cyber security incident and minimise their
impact on the business.
Engagement with external assessors,
consultants, auditors and other third parties to provide
independent assurance and recommendations on cyber security
matters.
Engagement with relevant
stakeholders on cyber security matters and being prepared to
disclose any material cyber security risks or incidents in a timely
and transparent
manner.
Viability Statement
The Board has assessed the viability
of the Group taking into account the current position and principal
risks, in accordance with provision 31 of the UK Corporate
Governance Code 2018. Whilst the Board believes the Group will be
viable over a longer period, owing to the inherent uncertainty
arising due to ongoing litigation and regulation, the period over
which the Board considers it possible to form a reasonable
expectation as to the Group's longer-term viability (that it will
continue in operation and meet its liabilities as they fall due) is
three years.
In making this assessment, the Board
considered the Group's:
-
strong cash generation from operating activities;
-
access to, and ability to raise, external sources of financing,
including the removal, in prior years, of any financial covenants
in such credit facilities; and
- the
current macro-economic environment, including the impact of
inflation and higher interest rates.
This assessment included a robust
review of the Group's operational and financial processes, (which
cover both short-term financial forecasts and capacity plans) and
the Principal Risks (as indicated on pages 117 to 121) that may
impact the Group's viability. These are considered, with the
mitigating actions, at least once a year. The assessment included a
reverse stress test of the principal risks and did not identify any
individual risk, based upon a prudent annual forecast, that would,
if arising in isolation and without mitigation, impact the Group's
viability within the three-year confirmation period. Furthermore,
the Board recognised that even if all the principal risks arose
simultaneously, given the underlying strong free cash flow
generation before the payment of dividends (2022: £8.0 billion),
the Group would be able to undertake mitigating actions to meet the
liabilities as they fall due. The assessment also reviewed the
potential impact of inflation on the Group's delivery and the
impact of climate-related risks and concluded that these, including
the potential cost implications and noting the mitigating actions,
would not impact the Group's viability (see discussion commencing
on page 70 with respect to TCFD).
The Board noted that the Group has
access to a £5.7 billion credit facility (2022: undrawn), US (US$4
billion) and Euro (£3 billion) commercial paper programmes (2022:
£27 million drawn) and £3.0 billion of bilateral agreements which
may be utilised to support the Group's ability to operate. However,
the Group is subject to inherent uncertainties with regards to
regulatory change and litigation, the outcome of which may have a
bearing on the Group's viability. The Group maintains, as referred
to in note 31 in the Notes on the Accounts 'Contingent Liabilities
and Financial Commitments,' that, whilst it is impossible to be
certain of the outcome of any particular case, the defences of the
Group's companies to all the various claims are meritorious on both
law and the facts. If an adverse judgment is entered against any of
the Group's companies in any case, an appeal may be made, the
duration of which can be reasonably expected to last for a number
of years.
APPENDIX B
"RELATED PARTY DISCLOSURES
The Group has a number of
transactions and relationships with related parties, as defined in
IAS 24 Related Party Disclosures, all of which are
undertaken in the normal course of business. Transactions with
CTBAT International Limited (a joint operation) are not included in
these disclosures as the results are immaterial to the
Group.
Intercompany transactions and
balances are eliminated on consolidation and therefore are not
disclosed.
Transactions and balances with
associates relate mainly to the sale and purchase of cigarettes and
tobacco leaf. The Group's share of dividends from associates,
included in other income in the table below, was £559 million
(2022: £438 million; 2021: £392 million).
|
2023
£m
|
2022
£m
|
2021
£m
|
Transactions
|
|
|
|
- revenue
|
523
|
494
|
524
|
- purchases
|
(178)
|
(190)
|
(123)
|
- other income
|
560
|
441
|
393
|
- other expenses
|
(6)
|
(1)
|
(6)
|
Amounts receivable at 31
December
|
48
|
51
|
48
|
Amounts payable at 31
December
|
(4)
|
(4)
|
(3)
|
In November 2023, the Group
announced the signing of an agreement for a further investment in
Organigram. At 31 December 2023, the proposed investment of
CAD$125 million (approximately £74 million) was subject
to customary conditions, including necessary approvals by the
shareholders of Organigram, which was given on 18 January 2024. On
24 January 2024, BAT made the first tranche investment of
CAD$42 million (£24 million), acquiring a further
12,893,175 common shares of Organigram at a price of CAD$3.22 per
share. Subject to certain conditions, the remaining 25,786,350
shares subscribed for shall be issued at the same price in two
further equal tranches by the end of August 2024 and February 2025
respectively. Based on Organigram's outstanding share capital at
the end of 2023, this investment will increase the Group's equity
position from c.19% to c.45% (restricted to 30% voting rights) once
all three tranches have been completed.
In addition, as mentioned in note
27, in 2023, the Group also acquired 20% of DeFloria for
£8 million and increased its ownership in Steady State LLC
from 5.76% to 10.8% for £4 million. In October 2023, a further
investment of £8 million was made in Steady State LLC by way
of a convertible loan note.
During 2023, the Group acquired a
further 1.31% in Hrvatski Duhani d.d., at a cost of less than
£1 million, following the acquisitions in 2022 (3.3% at a cost
of £1 million) and 2021 (2.7% at a cost of
£1 million).
In 2022, as mentioned in note 27,
the Group made a £32 million investment in exchange for 16% of
Sanity Group GmbH and made
a non-controlling investment in
Steady State LLC for £4 million.
During 2022, the Group increased its
ownership of a wholesale producer and distributor operating in the
agriculture sector based in Uzbekistan, FE 'Samfruit' JSC
to 45.40% for £1 million. In 2021, the Group increased its
ownership to 42.61%, for £1 million.
In November 2022, the Group invested
in Charlotte's Web via a convertible debenture of £48 million
which is currently convertible into a non-controlling equity stake
of approximately 19.9%.
In 2021, the Group made a capital
contribution in Brascuba Cigarrillos S.A. at a cost of £6 million.
There was a capital reduction in CTBAT International Limited of
approximately US$171 million with funds remitted prorata to
investors in 2021.
On 5 October 2021, PT Bentoel
Internasional Investama Tbk (Bentoel) announced its intention to
delist from the Indonesia Stock Exchange and go private by
conducting a Voluntary Tender Offer (VTO). As part of this, in two
phases in November and December 2021, the Group acquired an
additional 0.2% of shares in Bentoel from independent shareholders
at a cost of £4 million and terminated the total return swap
(as explained in note 32).
As explained in note 15, in 2022 the
Group provided a temporary liquidity facility to the main UK
pension fund. As at 31 December 2023 this facility was
undrawn.
The Group and Organigram also
entered into a Product Development Collaboration Agreement
following which a Centre of Excellence has been established to
focus on developing the next generation of cannabis products with
an initial focus on cannabidiol (CBD).
As a result of the implementation of
the EU Single-Use Plastic Directive in certain EU countries, the
Group, along with other tobacco manufacturers, established Producer
Responsibility Organisations for the management of the Extended
Producer Responsibility obligations relating to tobacco product
butt filter waste collection. The costs incurred by the Group in
relation to this waste disposal is included in note
6(l).
The key management personnel of
British American Tobacco consist of the members of the Board of
Directors of British American Tobacco p.l.c. and the members of the
Management Board. No such person had any material interest during
the year in a contract of significance (other than a service
contract) with the Company or any subsidiary company. The term key
management personnel in this context includes their close family
members.
|
2023
£m
|
2022
£m
|
2021
£m
|
The total compensation for key
management personnel, including Directors, was:
- salaries and other short-term
employee benefits
|
17
|
19
|
18
|
- post-employment
benefits
|
1
|
1
|
1
|
- share-based payments
|
13
|
17
|
16
|
|
31
|
37
|
35
|
The following table, which is not
part of IAS 24 disclosures, shows the aggregate emoluments of the
Directors of the Company.
|
Executive
Directors
|
Chairman
|
Non-Executive Directors
|
Total
|
|
|
2023
|
2022
|
2021
|
2023
|
2022
|
2021
|
2023
|
2022
|
2021
|
2023
|
2022
|
2021
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Salary; fees; benefits; incentives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- salary
|
1,644
|
2,129
|
2,119
|
|
|
|
|
|
|
1,644
|
2,129
|
2,119
|
|
- fees
|
|
|
|
688
|
670
|
727
|
1,059
|
1,027
|
1,045
|
1,747
|
1,697
|
1,772
|
|
- taxable benefits
|
395
|
449
|
420
|
17
|
59
|
55
|
31
|
78
|
2
|
443
|
586
|
477
|
|
- short-term incentives
|
1,650
|
3,761
|
4,128
|
|
|
|
|
|
|
1,650
|
3,761
|
4,128
|
|
- long-term incentives
|
1,371
|
7,888
|
3,399
|
|
|
|
|
|
|
1,371
|
7,888
|
3,399
|
|
Sub-total
|
5,060
|
14,227
|
10,066
|
705
|
729
|
782
|
1,090
|
1,105
|
1,047
|
6,855
|
16,061
|
11,895
|
|
Pension; other emoluments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- pension
|
248
|
320
|
318
|
|
|
|
|
|
|
248
|
320
|
318
|
|
- other emoluments
|
2
|
6
|
6
|
|
|
|
|
|
|
2
|
6
|
6
|
|
Sub-total
|
250
|
326
|
324
|
|
|
|
|
|
|
250
|
326
|
324
|
|
Total emoluments
|
5,310
|
14,553
|
10,390
|
705
|
729
|
782
|
1,090
|
1,105
|
1,047
|
7,105
|
16,387
|
12,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
"
APPENDIX C
"RESPONSIBILITY OF DIRECTORS
Statement of Directors' Responsibilities in Respect of the
Annual Report and the Financial Statements
The Directors are responsible for
preparing the Annual Report and the Group and Parent Company
financial statements in accordance with applicable law and
regulations. Under company law, directors must not approve the
Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Parent Company
and the Group for that period.
Under applicable law, directors are
required to prepare the financial statements in accordance with
UK-adopted international accounting standards and applicable law.
The Directors have elected to prepare the Parent Company financial
statements in accordance with UK Accounting Standards and
applicable law, including FRS 101 'Reduced Disclosure Framework'.
In preparing these Group financial statements, the Directors have
also elected to comply with International Financial Reporting
Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
In preparing each of the Group and
Parent Company financial statements, the Directors are required
to:
-
select suitable accounting policies and then apply them
consistently;
- make
judgements and estimates that are reasonable, relevant, reliable
and prudent;
- state
whether Group financial statements have been prepared in accordance
with UK-adopted international accounting standards;
- state
whether, for the Parent Company financial statements, applicable UK
Accounting Standards have been followed, subject to any material
departures disclosed and explained in the those
statements;
- assess
the Group and Parent Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and
- use
the going concern basis of accounting unless the Directors either
intend to liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do
so.
The Directors are responsible for
keeping adequate accounting records that are sufficient to show and
explain the Parent Company's transactions and disclose with
reasonable accuracy at any time the financial position of the
Parent Company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They are responsible
for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and
regulations, the Directors are also responsible for preparing a
Strategic Report, Directors' Report, Directors' Remuneration Report
and Corporate Governance Statement that comply with applicable law
and regulations.
The Directors are responsible for
the maintenance and integrity of the Annual Report included on the
Company's website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
n accordance with Disclosure
Guidance and Transparency Rule (DTR) 4.1.16R, the financial
statements will form part of the annual financial report prepared
using the single electronic reporting format under DTRs 4.1.17R and
4.1.18R. The auditor's report on these financial statements
provides no assurance over whether the annual financial report has
been prepared in accordance with those requirements.
Directors' Declaration in Relation to Relevant
Audit Information
Having made appropriate enquiries,
each of the Directors who held office at the date of approval of
this Annual Report confirms that:
- so far
as he or she is aware, there is no relevant audit information
of which the Company's auditors are unaware; and
- he
or she has taken all steps that a Director ought to have taken in
order to make himself or herself aware of relevant audit
information and to establish that the Company's auditors are aware
of that information.
Responsibility Statement of the Directors in Respect of
the Annual Financial Report
We confirm that to the best of our
knowledge:
-
the financial statements, prepared in accordance
with the applicable set of accounting standards, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the
consolidation taken as a whole; and
- the
Strategic Report and the Directors' Report include a fair review of
the development and performance of the business and the position of
the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
Forward looking statements
This document contains certain
forward-looking statements, including "forward-looking" statements
made within the meaning of the U.S. Private Securities Litigation
Reform Act of 1995. These statements are often, but not always,
made through the use of words or phrases such as "believe,"
"anticipate," "could," "may," "would," "should," "intend," "plan,"
"potential," "predict," "will," "expect," "estimate," "project,"
"positioned," "strategy," "outlook", "target" and similar
expressions. These include statements regarding our intentions,
beliefs or current expectations concerning, amongst other things,
our results of operations, financial condition, liquidity,
prospects, growth, strategies and the economic and business
circumstances occurring from time to time in the countries and
markets in which the Group operates.
In particular, these forward-looking
statements include, among other statements, statements regarding
the Group's future financial performance, planned product launches
and future regulatory developments, as well as: (i) certain
statements in the Overview section (pages 2 to 13), including the
Our Global Business section, the Chair's Introduction, Chief
Executive's Review and Interim Finance Director's Overview; (ii)
certain statements in the Our Strategy section (pages 14 to 27),
including the Our Strategic Navigator section, the Strategic
Summary section and the Investment Case section; (iii) certain
statements in the Quality Growth section (pages 28 to 39),
including the Strategic Pillar overview; (iv) certain statements in
the Dynamic Business section (pages 40 to 29), including certain
statements in the Strategic Pillar Overview section, the Financial
Performance Summary section, the Treasury and Cash Flow section and
the going concern discussions; (v) certain statements in the
Sustainable Future section (pages 60 to 129), including the Leading
in Sustainability & Integrity section, Sustainability
highlights section, our material topics, TCFD reporting and Our
approach to Taskforce on Nature-related Financial Disclosures
(TNFD) section; (vi) certain statements in the Notes on Accounts
(pages 215 to 311), including note 12(b)(iv); and (vii) certain
statements in the Other Information section (pages 330 to 406),
including the Additional Disclosures and Shareholder Information
sections.
All such forward-looking statements
involve estimates and assumptions that are subject to risks,
uncertainties and other factors. It is believed that the
expectations reflected in this announcement are reasonable, but
they may be affected by a wide range of variables that could cause
actual results and performance to differ materially from those
currently anticipated.
Among the key factors that could
cause actual results to differ materially from those projected in
the forward-looking statements are uncertainties related to the
following: the impact of competition from illicit trade; the impact
of adverse domestic or international legislation and
regulation; the inability to develop, commercialise and deliver the
Group's New Categories strategy; the impact of Supply chain
disruptions; adverse litigation and dispute outcomes and the effect
of such outcomes on the Group's financial condition; the impact of
significant increases or structural changes in tobacco, nicotine
and New Categories related taxes; translational and transactional
foreign exchange rate exposure; changes or differences in domestic
or international economic or political conditions; the ability
to maintain credit ratings and to fund the business under the
current capital structure; the impact of serious injury, illness or
death in the workplace; adverse decisions by domestic or
international regulatory bodies; changes in the market position,
businesses, financial condition, results of operations or
prospects of the Group; direct and indirect adverse impacts
associated with Climate Change and the move towards a Circular
Economy; and Cyber Security caused by the heightened
cyber-threat landscape, the increased digital interactions with
consumers and changes to regulation. Further details on the
principal risks that may affect the Group can be found in the
'Group Principal Risks' section of the Strategic Report on pages
121 to 128 of this document. A summary of all the risk factors
(including the principal risks) which are monitored by the Board
through the Group's risk register is set out in the Additional
Disclosures section under the heading 'Group Risk Factors' on pages
353 to 374.
Past performance is no guide to
future performance and persons needing advice should consult an
independent financial adviser. The forward-looking statements
reflect knowledge and information available at the date of
preparation of this document and the Group undertakes no obligation
to update or revise these forward-looking statements, whether as a
result of new information, future events or otherwise. Readers are
cautioned not to place undue reliance on such forward-looking
statements.
No statement in this document is
intended to be a profit forecast and no statement in this document
should be interpreted to mean that earnings per share of BAT for
the current or future financial years would necessarily match or
exceed the historical published earnings per share of
BAT.
A review of the reasons why actual
results and developments may differ materially from the
expectations disclosed or implied within forward-looking statements
can be found by referring to the
information contained under the headings "Cautionary statement",
"Group Principal Risks" and "Group Risk Factors" in the Annual
Report 20232 and Form 20-F of British American Tobacco p.l.c.
(BAT). Additional information concerning
these and other factors can be found in the Company's filings with
the U.S. Securities and Exchange Commission ("SEC"), including the
Annual Report on Form 20-F filed on 2 March 9 February 20234 and
Current Reports on Form 6-K, which may be obtained free of charge
at the SEC's website, www.sec.gov, and the Company's Annual Reports, which may be obtained free
of charge from the Company's website www.bat.com.
Although financial materiality has
been considered in the development of our Double Materiality
Assessment (DMA), our DMA and any conclusions in this document as
to the materiality or significance of sustainability or ESG matters
do not imply that all topics discussed therein are financially
material to our business taken as a whole, and such topics may not
significantly alter the total mix of information available about
our securities.