Financial Planning and Control
Section 1: Overview
This research project has taken up for analysis and presentation of a study on the financials of BRITISH AMERICAN TOBACCO PLC
A Financial Overview of the Company:
Section 1 of the study paper presents a financial overview of the company to familiarise the readers with the Company being the subject of our study under this research project.
Size of the Company:
Formed in the year 1902, based at London, British American Tobacco plc (BAT) is engaged in the production and Sale of cigarettes and related tobacco products worldwide. BAT is holding 15.1 percent of the market share as the second largest cigarette manufacturer (excluding China) next to Phillip Moris of the United States which holds 16.4 percent. Some of the world famous cigarettes are being offered by this company in more than 180 countries. The company’s gross turnover stood at ? 23,984 million for the year 2005 as against ? 11,229 million for the same year of Imperial Tobacco Group Plc occupying the fourth position globally.
British American Tobacco Plc being one of the most successful companies in the FTSE100 has been paying a return on the shareholders’ funds at an average rate of 26.7 percent for the last five years as compared to the average for the FTSE of 1.4 percent. The company’s profits before Taxation stood at ? 2,588 million for the year 2005 and the company made a dividend payment of 47 pence per share as compared to 41.90 pence paid for the year 2004.
Contributing billions of dollars as tax revenue to almost all governments in the world, tobacco industry is comprised of products like cigarettes, cigars, RYO (roll your own) tobacco, pipe tobacco, snuff and chewing tobacco. Of these different products, cigarette is the major constituent using 80 percent of the world tobacco. Health Promotion campaigns, policy changes of various governments and continued litigations on public health and other issues against manufacturers pose the greatest threats for the industry. In spite of these negative forces the tobacco stocks grow healthier and the international corporations dealing in tobacco products seem to make huge profits.
Risks facing the firm:
Possessing potential health hazard the industry has been the subject of prolonged litigations which is the major risk factor for the growth of the industry. Frequent changes in the policies governing the regulation of the industry owing public pressure by various major governments is another risk factor which the industry has been facing through the period after 1990. Especially for BAT there are 3,867 product liability cases filed by or on behalf of individuals still pending in various US courts as of December 2004.
Although BAT manufactures cigarettes in the UK, since the company sells most of its products in other countries around the world, its market share is less as compared to Gallaher and Imperial tobacco that control around 80 percent of the UK cigarette market.
Considering the retail prices the UK tobacco market account for ? 12.6 billion as of the year 2005. Of the different segments of the market the cigarettes occupy a significant 90 percent of the total retail volume with Fine cut roll your own tobacco at 5 percent. Cigars and rolling papers are at 4 percent and 1 percent respectively. The price levels of cigarettes show varying trends throughout EU making the market a disorderly one.
For the information of the readers the abridged version of the Profit and Loss Account and the Balance Sheet of BAT for the year 2005 is appended below:
Profit and Loss Account:
Year 2005 ? m
Year 2004 ? m
Gross turnover including duty and taxes
Less: Duties and Taxes
Net Revenue from operations
Staff Expenses, pension fund, Salaries and other expenses
Other Administrative Expenses
Profit before taxes
Taxes and other adjustments for extraordinary items
Profit after taxes
Year 2005 ? m
Year 2004 ? m
Total Equities and Liabilities
Thus this section, while discussing the cigarette industry in general with respect to its market perspective, risks and magnitude, it also details the overall financial view of the British American Tobacco plc about which this research project will provide more analysis in the ensuing sections. This section makes known that the company BTA is the world’s second largest manufacturer of cigarette next to Philip Moris of USA. BTA is closely followed by Japan Tobacco occupying the third position. Imperial Tobacco and Gallaher of UK are in the fourth and fifth position respectively. This section also gives a bird’s eye view of the financial position of BTA for the year 2005.