British American Tobacco (LON:BATS)

QUOTE AND NEWS
Motley Fool  May 31  Comment 
The company's first-mover advantage is about to be put to the test.
The Economic Times  May 29  Comment 
The demand for chief data officers is up substantially and we expect the momentum to continue in the next year," said James Agrawal, MD, BTI Consultants.
Motley Fool  Mar 18  Comment 
Tobacco giants may have passed muster with antitrust regulators, but the deal's price tag could still rise.
Reuters  Mar 17  Comment 
British American Tobacco (BAT) said demand for its "glo" tobacco heating device overwhelmed supply in its Japan test marketing, as global cigarette giants shift focus to the new product category amid declining smoking population.
Motley Fool  Mar 10  Comment 
The tobacco giant wants to quadruple the markets it sells in, but it won't be so easy as all that.




 

British American Tobacco (LSE: BATS, AMEX:BTI) is the second largest quoted global tobacco company by market share, and with operations in over 180 markets, it is the "most international" tobacco company in the world.[1] The Company's brand portfolio consists of over 300 brands, namely, Dunhill, Kent, Lucky Strike and Pall Mall, and includes ready-made cigarettes, cigar, roll-your-own, pipe, and smokeless tobacco products [2]. British American Tobacco was founded in 1902 through a joint venture between the Imperial Tobacco Group (IMT-LN) and the American Tobacco Company (USA) [3]. The company earned £14.2 billion in revenue and £4.5 billion in net income in 2009.[4]

Despite the company's international presence, it does not currently directly sell cigarettes or other tobacco products in the United States. Instead, British American Tobacco indirectly sells Pall Mall and other brands through Reynolds American (RAI) in the United States, a company of which British American Tobacco has 42% ownership following a deal with R.J. Reynolds Tobacco Holdings, Inc. in July 2004. [5] However, British American Tobacco does have the largest market share in over fifty geographic markets and has the most significant sales in Europe, which make up about 40% of the company's revenue. [6]

As British American Tobacco sells tobacco products it is affected to a large degree by exogenous factors, notably tobacco litigation and smoking bans. The prevalence of public smoking bans in the United States only affects the company through its ownership of Reynolds American; however, many European countries, including France, Germany, Italy, Spain, and the United Kingdom, have enacted laws that prohibit smoking in various public places.[7] Given that about 40% of sales are in Europe, this trend threatens the sale of tobacco products.

Company Overview

British American Tobacco is one of the five largest tobacco companies in the world. Although it manages and sells over 300 brands, the Company considers Dunhill, Kent, Lucky Strike, and Pall Mall to be its four Global Drive Brands.

Major Brands[8]

  • Dunhill - 41 billion cigarettes sold
  • Kent - 61 billion cigarettes sold
  • Lucky Strike - 26 billion cigarettes sold
  • Pall Mall - 68 billion cigarettes sold

Geographic Regions[9]

  • Asia-Pacific - 23% of net sales
  • Americas - 22% of net sales
  • Western Europe - 27% of net sales
  • Eastern Europe - 11% of net sales
  • Africa and Middle East - 16% of net sales

Business Growth

FY 2009 (ended December 31, 2009)[4]

  • Net revenue increased 17% to £14.2 billion. The company attributes the growth to increases in sales volume in all four of its major brands.
  • Net income increased 12% to £4.5 billion.

Trends and Forces

Ongoing tobacco litigation and smoking bans in countries throughout the world threaten British American Tobacco

Although there are 30 states, in addition to Puerto Rico and Washington D.C., which have state laws that require smoke-free workplaces, restaurants, or bars, British American Tobacco currently has no direct sales in the United States, so the Company is not directly affected by American smoking laws [10]. However, British American Tobacco has a 42% ownership stake in Reynolds American[5], and many countries throughout the world in which BATS does conduct operations have enacted laws that limit smoking in public places. In Europe, France, Germany, Italy, the United Kingdom, and others have all passed laws which ban smoking in bars, restaurants, and other public places [11].

Related to smoking bans is the general rate of tobacco consumption in countries throughout the world, which is influenced to a large extent by factors exogenous to BATS' marketing. Anti-smoking groups, government officials, health agencies and other non-governmental organizations all attempt to discourage smoking by advertising the health risks of cigarettes and other tobacco products. These groups have been successful in the United States, as smoking rates among adults have decreased by more than 50% since the 1960s; however, British American Tobacco does not currently sell products in the U.S. market. Moreover, smoking rates in the developing world, which is the source of more than 50% of BATS' revenue, have been increasing by 3.4% per year [12].

Exchange rate movements have a significant impact on British American Tobacco

Given the international nature of British American Tobacco and its presence in over 180 markets, the company is forced to conduct its operations in many different currencies. British American Tobacco benefited from these movements over the past two fiscal years; however, exchange rate movements are exogenous to the Company's performance. Moreover, the Company's operations in emerging economies makes it is susceptible to sudden stops that lead to rapid devaluation of a country's currency and reduces demand.

Competition

British American Tobacco has five major competitors in the tobacco industry, they are:

  • China National Tobacco Company: The largest cigarette company in the world, China National Tobacco Company is owned and managed by the Chinese government, and sells 1.5 trillion cigarettes annually, all in China.
  • Philip Morris International (PM): Philip Morris is best known for its Marlboro brand and is the best selling cigarette brand in the world.
  • Japan Tobacco International (JAPAF): This company owns and manages three of the top five intentional cigarette brands, Winston, Camel, and Mild Seven, as well as other cigarette brands and tobacco products.[13]
  • Altria Group (MO): Altria sells brands such as Marlboro, Copenhagen, Skoal and Black & Mild, through its four operating companies, Philip Morris USA, U.S. Smokeless Tobacco Company, and John Middleton. In addition to cigarettes and tobacco products, Altria sells premium wines through Ste. Michelle Wine Estates and has a 25.8% ownership stake in SABMiller.[14]
  • Imperial Tobacco Group (IMT-LN): The company has sales in over 160 countries and a portfolio of brands, led by Davidoff.[15]

References

  1. British American Tobacco
  2. British American Tobacco, "Our Brands"
  3. British American Tobacco, "Our History"
  4. 4.0 4.1 BATS 2009 Annual Report pg. 109
  5. 5.0 5.1 Reynolds American Inc.
  6. British American Tobacco. Who We Are.
  7. BBC News. Smoking Curbs: The Global Pictures
  8. BATS 2009 Annual Report pg. 15-16
  9. BATS 2009 Annual Report pg. 4
  10. American Nonsmokers' Rights Foundation. How Many Smokefree Laws?
  11. BBC News. Smoking Curbs: The Global Pictures
  12. World Health Organization. Smoking Statistics
  13. Japan Tobacco International. Our Brands.
  14. Altria. Our Companies and their Brands
  15. Imperial Tobacco. Group at a Glance.
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