BAT is the 2nd largest baccy manufacturer in the universe, with a market portion of 22.1 % and more than 300 trade names in its portfolio. BAT holds robust market places in each of its parts and has leading in more than 50 of the 180 markets where it does concern. The company processes some 660 million kg of baccy foliage and bring forthing some 853 billion coffin nails in 2004. Due to the habit-forming nature of baccy merchandises, BAT ‘s merchandises enjoy a built in high degree of demand, and the company ‘s huge array of popular trade names mean that it is in a place to systematically take advantage of this demand. The strong market place of the company is a cardinal strength for BAT.
BAT is really good diversified geographically. The company operates through 81 mills in 64 states. However, the company ‘s largest market, Europe accounts for merely 41.4 % of its cyberspace grosss. Geographically balanced in its operations, BAT is non overly dependant on any of its operating parts. The America-Pacific part accounted for 21.3 % of the company ‘s cyberspace grosss in 2004 ; while the Asia-pacific part accounted for 13.1 % . In 2004, Africa and the Middle East contributed 12.4 % of BAT ‘s cyberspace grosss and Latin America contributed another 11.8 % . The company has strong market place in North America, Western Europe and Eastern Europe, three of the strongest markets for baccy merchandises in the universe. However, this has non stopped BAT from spread outing into emerging markets like China where the sheer size of the smoke population presents a important chance for the company. The company ‘s broad geographical spread has provided it growing chances in diversified markets.
Control over baccy foliage
BAT ‘s baccy foliage concern is big, with the group buying about 517,000 dozenss of foliage baccy yearly. Auxiliary companies operate leaf turning plans through which they provide direct agronomy support to husbandmans if it is non otherwise available.
BAT purchases on norm about 65 % of its foliage through these plans, chiefly through straight contracted husbandmans. In 2004, BAT ‘s subordinate companies operated 22 foliage plans in 22 states, covering about 254,400 hectares under cultivation. This gives the company an assured supply of baccy foliage and insulates it from demand and monetary value fluctuations for baccy foliage.
Worsening operating profitableness
Despite a 31.7 % addition in entire grosss during 2004, the operating net income of the company increased a mere 1.0 % over financial 2003. As consequence, the company ‘s operating borders decreased from 7.4 % to 5.6 % . Net income from the America-Pacific part was & A ; lb ; 795 million, a lessening of & A ; lb ; 200 million from the same period last twelvemonth. This was the consequence of lower net incomes in Canada and Japan. In Latin America, net incomes from Brazil were somewhat down from 2003 due to take down volumes necessitating higher selling disbursals.
Net incomes in Chile besides declined. These diminutions in profitableness were farther accentuated by the interlingual rendition of US, Canadian and Latin American consequences into lbs sterling. The diminution in net income in these two operating parts caused the overall profitableness of the company to worsen and this reflects ill on the company.
Falling grosss from major runing sections
Three of the company ‘s five operating parts witnessed worsening grosss during 2004. Net grosss from the America-Pacific part reached & A ; lb ; 2294 million in 2004, a lessening of 35.6 % from financial 2003. At the same clip, the Asia-Pacific part ‘s cyberspace grosss declined by 4.6 % . Latin America, which accounts for 11.8 % of the entire grosss, witnessed a 2.5 % diminution in grosss during 2004. In the Asia Pacific part, the company witnessed a diminution in Indonesia and Malaysia while in the America-Pacific part, Imperial Tobacco Canada witnessed worsening volumes and deteriorating gross revenues mix. In Latin America, regional gross revenues volume at 148 billion was down by 2 billion chiefly as a consequence of increased force per unit area from turning illicit trade. Falling grosss from major runing sections could take to a loss of market portion for BAT.
Decreasing runing hard currency flows
For financial twelvemonth 2004, BAT ‘s hard currency flow from operations was & A ; lb ; 2677 million, a lessening of 14.0 % from 2003. The free hard currency flow for the company was & A ; lb ; 2412 million, 10.4 % less than the free hard currency flow in 2003. The diminution in the company ‘s operating hard currency flow and free hard currency flow is mostly attributable to an addition in working capital demands. Worsening hard currency flows from operations are declarative of the company ‘s hapless hard currency direction.
Light coffin nails
The demand for baccy merchandises with lower nicotine content has been lifting in the past few old ages due to increasing wellness concerns. As a consequence, most baccy companies have shifted focal point from fabricating strong coffin nails to fabricating ‘lighter ‘ 1s, with low nicotine content. Sing the fact that big adult females smoking population nowadayss chances for growing, most baccy companies have introduced light coffin nails for the market. BAT has a strong place in the market for light coffin nails and these are marketed under some of the company ‘s strongest trade names. The company can therefore leverage the turning popularity of light coffin nails to increase its gross revenues volumes.
Market potency in China
China is potentially a immense market for BAT. While the bulk of the market remains under the control of China National Tobacco ( CNTC ) , a province baccy monopoly, there is a turning demand for international trade names in China in all merchandise classs. With 2003 volumes of 1.75 trillion coffin nail sticks ( tierce of the entire planetary market ) , China is the big volume award for all the international big leagues, who presently have hardly a bridgehead in the market. However, of all major international participants, BAT is the best-placed every bit far as taking advantage of this is concerned since, the Cardinal Government of China and the relevant authorities sections approved the Group ‘s strategic investing in China in the twelvemonth 2004. The new mill is being established by BAT in a joint venture with China Eastern Investments Corporation, and will make a fabrication capacity of 100 billion coffin nails ( State Express 555 and other trade names ) per twelvemonth. The venture will besides let BAT to administer and sell its trade names all over China.
Rising popularity of smokeless baccy
The universe market for smokeless baccy is worth an estimated $ 2 billion of which the US histories for about 65 % , followed by Sweden with gross revenues of $ 480 million in 2003. Other markets with a strong smokeless baccy tradition include India, Algeria, Pakistan, South Africa and Norway. The European market for snus has been witnessing increasing gross revenues. Norway and Sweden particularly bask a lively snus market, with gross revenues increasing quickly over the past few old ages as consumers turn to reduced-risk nicotine ingestion. During the five old ages ended 2004, Sweden ‘s market for snuff increased by 30 % . In May 2005, BAT started test-marketing smokeless snus for the first clip and the company has put two of its best-known trade names ( Lucky Strike and Peter Stuyvesant ) behind it. With the market for snus increasing in Europe, the company ‘s largest market, BAT could hold found a new country for growing.
Increasing wellness concerns
Due to increasing wellness concerns worldwide, there has been a general diminution in the consumer penchant for baccy merchandises. While active smoking leads to a figure of respiratory and bosom complaints, even inactive smoke has been proven to do certain diseases. The frequence of consumers who have suffered irreparable harm to their wellness is easy increasing as besides the incidence of such people taking coffin nail companies to tribunal for punitory amendss. BAT is no exclusion to this, and should this tendency continue, it may be the individual largest factor taking to a diminution in the company ‘s grosss.
Major coffin nail makers like BAT, which are capable to pending cases deserving one million millions of dollars, are confronting competition from smaller makers who are non capable to judicial proceeding. The bigger companies are being forced to put aside significant sums of their net incomes to pay for amendss they might hold to pay in future. Smaller companies are seeking to take advantage of this by binding up with each other and offering very-low priced but choice baccy merchandises. As a consequence, they are deriving market portion from established participants who can non afford to monetary value their merchandises below a certain degree, in order to keep the premium image of their merchandises.
Contraband and forge coffin nails
BAT is besides threatened by the increased handiness of contraband and forgery coffin nails. The company plans to undertake this by working in partnership with authoritiess. It is playing a major function in The Global Business Leaders Alliance Against Counterfeiting, a group whose purpose is to increase political consciousness of the hazards and impact of forgery. The company has besides been sing falling growing volumes because of the planned action taken to curtail the supply of duty-free merchandises. Approximately 15 % of all coffin nails sold in the UK are expected to be bootleg / forgery. In 2002-03, the company ‘s Benson and Hedges trade name accounted for 19 % of all ictuss of illicit coffin nails made by the UK imposts. Of these, 90 % were counterfeit. The company has besides witnessed forgery merchandises in East European and Asiatic markets. Since these coffin nails are cheaper ( due to non being taxed ) , an addition in the handiness of such illicit coffin nails could strip BAT of possible clients.