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Executive Summary:

British American Tobacco Bangladesh Company Limited started its business as a corporate
identity of British American Tobacco Group, which was previously known as Bangladesh
Tobacco Company and after liberation it renamed itself as British American Tobacco. The Food
and allied industry is very competitive with intense intra industry rivalry among the companies.
The threats of new entrants, threats of substitute are very low. Power of buyer is quite low but
suppliers groups are enjoying the benefit of strong and favorable bargaining power. British
American Tobacco Bangladesh Company has a bit abnormality in the recent years. They have
declared a large number of dividends and have created a leap in the flow. We have seen the
growth rate to fall and the retention rate as well. However the performance of the company in the
overall industry was a big success. In the time of recession the firm has shown promise in their
performance, which indicates a lower level risk involved in the security with high return.


British American Tobacco Bangladesh is one of the biggest MNC as well as company in
Bangladesh. It is well known for selling best quality cigarettes and covering maximum share
among the smokers in our country. But as cigarettes is a controversial product, BATB has to
maintain a lot of strict rules and regulations from paying the highest tax to the government to
conducting massive CSR Activities to maintain its Corporate Image. Therefore my project will
be A Comparative Study on CSR Activities and Its Impact on the Corporate Image which
will look at the CSR portfolio of British American Tobacco Bangladesh along with
investments in those areas and also look at the corporate brand communication tool used
by the company along with the total cost. It will then measure the visibility and acceptability
of those CSR initiatives among the general public. The project will finally suggest where
BATB should be investing more on CSR to create and maintain a better and effective CSR
Portfolio. Before we discuss the research, we need to take a look at the regulatory restrictions of
BAT Bangladesh.
Objective of the study:

The objective of the study is to apply the theoretical knowledge in the practice field. Therefore
the objective behind conducting this study is as follows:

The main objective of this report is to find out the companys overall position through its
annual report
To find out the prospect of the company for investment decision making
To conclude some findings and some possible recommendation for an investor who
wants to invest in the share of BAT Bangladesh.

Methodology of the Report:

We have collected the necessary and relevant data from different secondary sources. These
sources are mentioned below

Annual report of the British American Tobacco Bangladesh Company Limited 2008-
Different websites
Records from DSE library
Interview with investor.

Industry Analysis: We do industry analysis because we believe it helps us to isolate investment

opportunities that have favorable return-risk characteristics. We are doing it as part of our three-
step, top-down plan for valuing individual companies and selecting stocks for inclusion in our
portfolio. There are 12 industry category are listed in the stock market in Bangladesh. As per the
industry analysis we also concentrated on the five major categories of industries. They are

1. Bank
2. Engineering
3. Food & Allied
4. Pharmaceuticals & Chemicals
5. Textile
Cross sectional industry performance:

Cross sectional analysis consist of the overall condition of different industry. To find out the
rates of return among different industries varied during a given time period, we compared the
performance of alternative industries during a specific time period. In the below graph we can
see the conditions of the industries at a glance. Here Pharmaceuticals and Chemicals have the
highest statue among the other industries on the basis of EPS.The EPS ratio on the particular
companies of Pharmaceuticals and Chemicals industry has higher average rate then the
companies of other industries.

Industry Return On Equity

Bank 0.44
Engineering 0.30
Food & Allied 0.10
Pharmaceuticals & Chemicals 0.20
Textile 0.11

On the perspective of the ROI Bank has the utmost advantage. The return for equity is higher in
the bank sector. Comparatively the profit for Bank on an overall basis is higher than other
Industry performance over time: The industry performance takes different shape over the time
of its activity. It is not necessary for the industry to perform at the same pace every year. Thus, as
over the time analysis shows an easier way to realize the actual growth or decline the food
industry, the graph shows an elaborate performance condition. Due to the decrease in the profit
margin of different companies in the year of 2009 the graph has taken a negative dive. So the
industry as a whole has declined in the last except the preceding years.

Performance of the company within industry: Even though the profit margin of the industry as
an aggregate measure has taken a declining position, The British American Tobacco continued
its growth. If we look at the graph below we can say it with certainty. The reason for this
difference is that, BATBC didnt follow the pattern of food industry. As a part of tobacco
industry, its value stands apart from the overall industry.
The business cycle and the industry sectors:

Economic trends can and do affect industry performance. By identifying and monitoring key
assumptions and variables, we can monitor the economy and gauge the implications of new
information on our economic outlook and industry analysis. Recall that in order to beat the
market on a risk-adjusted basis, we must have forecasts that differ from the market consensus
and we must be correct more often than not.


Higher inflation is generally negative for the stock market, because it causes higher market
interest rates, it increases uncertainty about future prices and costs, and it harms firms that cannot
pass their cost increases on to consumers. Although, some industries benefit from inflation but
food sector is excluded from them.

The graph bellow shows the Graphical presentation of the effect:

Year Inflation Inflation % EPS EPS %

2009 9.11 17.684
2010 8.9 -2.31% 22.292 26.06%
2011 5.42 -39.10% 27.048 21.34%
2012 6.26 15.50% 12.516 -53.73%

Interest rate: High interest rate is often good for several industries. Risk and the return depend
highly on it. Based on the different bank rate for corporate short term and long term loan, the
average of interest for interest sector is 13%.

International Economics: Bangladesh food industry deals with large number of exporting
business in the international market. Hence, it brings a lot of foreign currency. For instance
BATBC exports quality leaf to its parent company which is grown in.
Policies and regulation:

Smoke-free environments: Bangladesh has a complete smoking ban in healthcare facilities and
educational facilities. Smoking is also banned in other workplaces and public places, however
the law allows for designated smoking areas.

Warning labels: Warnings are text-only and cover 30 percent of the front and back of packages.
Warnings are not applied to smokeless tobacco products.

Tobacco taxes: Tobacco taxes in Bangladesh are below the rate recommended by the World
Bank (from 65 percent to 80 percent of retail price) that is commonly present in countries with
effective tobacco control policies. Bidis in particular are available at very low prices.

Evaluating the industry life cycle: Life cycle means the normal stages that a product passes
through: research and development, growth, expansion, maturity, saturation, and decline. In the
research stage, there are no sales at all. In the growth stage, sales are slow and often need to be
supplemented by heavy sales and advertising efforts. In the expansion stage, sales may grow
more rapidly. In the maturity stage, sales start slowing down as most people who might want the
product already has it. In the saturation stage, everyone who wants the product has it, and there
are few opportunities for increasing sales. In the decline stage, sales fall and the product
eventually becomes obsolete.
The overall growth of the economy in Bangladesh is 6.2%. And compare to that the profit
margin for food industry has risen to 21% in a year. By considering the last few years earning
per share of food industries and as well as the tobacco industry, we found the gradually increase
in the earning per share. So, we assume that this industry still is on its mature growth stage.

Financial Statement Analysis:

Income Statement

2012 2011 2010 2009 2008

Gross Turnover 100.00% 100.00% 100.00% 100.00% 100.00%
Supplementary duty and VAT 68.09% 69.11% 68.49% 68.49% 68.62%
Net turnover /Sales 31.91% 30.89% 31.51% 31.51% 31.38%
Cost of sales 20.82% 19.82% 22.15% 29.19% 29.40%
Gross profit 11.10% 11.08% 9.36% 2.32% 1.98%
Operating Expenses 5.82% 6.03% 5.92% 0.00% 0.00%
Net operating profit before Interest and
5.28% 5.04% 3.44% 2.32% 1.98%
Net finance income 0.06% 0.17% -0.12% 0.00% 0.00%
5.34% 5.21% 3.32% 0.00% 0.00%
Workers profit participation fund 0.27% 0.26% 0.00% 0.00% 0.00%
Profit before Tax 5.07% 4.95% 3.32% 1.86% 1.53%
Current tax 1.44% 1.44% 1.11% 0.75% 0.51%
Deferred tax -0.12% -0.16% 0.10% 0.08% 0.23%
profit after tax transfer to revenue
3.76% 3.67% 2.11% 1.03% 0.79%
Earnings per share 0.00% 0.00% 0.00% 0.00% 0.00%
Balance sheet

2012 2011 2010 2009 2008

Non-Current assets
Property, plant and equipment 32% 35% 46% 54% 62%
Current assets
Inventories 30% 27% 28% 28% 27%
Trade and other receivables 4% 9% 4% 7% 6%
Advance, deposits and prepayments 18% 13% 11% 2% 2%
Cash and Cash equivalents 17% 17% 11% 8% 4%
Total Current Assets 68% 65% 54% 46% 38%
Total Assets 100% 100% 100% 100% 100%
Share Capital 5% 6% 7% 8% 9%
Revenue reserve 37% 39% 33% 23% 21%
Capital Reserve 1% 1% 1% 3% 3%
Proposed final dividend 2% 3%
Tax Holiday reserve 2%
43% 45% 41% 36% 37%
Non-current liabilities
Deferred liability (gratuity) 2% 2% 3% 5% 5%
Deferred Tax liability 3% 4% 6% 6% 6%
Obligation under finance lease 0% 0% 0% 0% 0%
5% 6% 9% 12% 12%
Current liabilities
Creditors and accruals 33% 33% 37% 38% 37%
Provision for corporate tax 19% 15% 13% 3% 2%
Bank overdraft 0% 0% 0% 0% 1%
Short term Bank loans 52% 48% 50% 52% 51%
Total equity and liabilities 100% 100% 100% 100% 100%

Statement of Cash flow

2012 2011 2010

Cash flow from operating activities:
Collection from distributors, leaf export and
others 55,088,259 45,346,821 38,142,226
Payment for costs and expenses (15,102,417) (12,893,748) (10,367,305)
Supplementary duty and vat paid (36,832,044) (30,568,019) (25,932,877)
Cash generated from operation 3,153,798 1,885,054 1,842,044
Interest tax paid (623,061) (517,245) (277,510)
Interest (paid)/ Income 32,213 76,212 (45,573)
2,562,950 1,444,021 1,518,961
Cash flows from investing activities
Acquisition of property, plant and equipment (836,202) (271,211) (231,467)
Proceeds from sale of property, plant and
equipment 20,876 692 8,692
Net cash used in investing activities (815,326) (270,519) (222,775)
Cash flows from financing activities
Net short term bank loan received/(repayment) (800,000)
Net proceeds from obligator under finance lease 10,015 5,549 (5,104)
Dividend paid (1,435,940) (418,288) (179,514)
Net cash used in financing activities (1,425,925) (412,739) (984,618)
Net increase/(decrease) in cash and cash
equivalents for the year 321,699 760,763 311,568
Cash and cash equivalent at the beginning of the
year 1,678,466 917,703 606,135
cash equivalent at the end of the year 2,000,165 1,678,466 917,703
Analysis of Financial Ratio

2012 2011 2010 2009 2008

Information for Ratio analysis
Net Sales 17576490 14030386 11933459 11025381 9260514
Average Equity 4,847,837 3,909,165 3,004,446 2,633,325 2,679,818
Net Income 2,068,566 1,668,778 798,971 361,583 232,882
Average Assets 14,266,713 14,447,672 9,964,750 7,241,551 3,467,542

ROE 43% 43% 27% 14% 9%

ROA 14% 12% 8% 5% 7%
ROS 12% 12% 7% 3% 3%

Internal liquidity Ratios

1. Current ratio 1.31 1.35 1.08 0.88 0.74
2. Quick ratio 0.74 0.79 0.52 0.34 0.22
3. Cash ratio 0.32 0.35 0.23 0.15 0.07

Operating Profitability Ratios

Gross profit margin 34.78% 35.86% 29.70% 7.36% 6.30%
Operating profit margin 16.55% 16.33% 10.91% 7.36% 6.30%
Net profit margin 11.77% 11.89% 6.70% 3.28% 2.51%

Operating Efficiency Ratios

Total Asset Turnover 1.23 0.97 1.20 1.52 2.67 Times
Net Fixed Asset Turnover 4.61 4.05 3.23 2.69 2.14 Times
Equity Turnover 3.63 3.59 3.97 4.19 3.46 Times

Solvency Ratios
i. Receivables Turnover 25.67 24.55 28.71 23.32 Times
1. Average Receivable Collection Period 14 15 13 16 Days
ii. Inventory Turnover 3.64 3.63 3.86 5.16 Times
2. Average Inventory Processing Period 100 101 95 71 Days
iii. Payables Turnover Ratio 3.19 2.90 2.89 3.75 Times
3. Cash Conversion Cycle Payables
Payment Period 114 126 126 97 Days

Internal liquidity Ratios: In internal liquidity ratios there are Current ratio, Quick ratio and
Cash ratio which shows the condition of the liquidity of the organization in terms of liquidity.
They have a progressive state in the years to come.

Operating Profitability Ratios: Before 2007 their annual report used to show the operating
expenses under cost of sales, as a result the gross profit margin is significantly lower in 2005 and
2006 compare to the rest. However if we analyze the table the fact reveal that, the turnover
across last 5 years has increased tremendously. The reason behind this might be an increase in
the per unit selling price of their consumer product. Whatever the fact is, their Net Income tends
to increase gradually and for the last two years maintaining a sustainable position.

Operating Efficiency Ratios: This is an indicator for managements performance in the

operations of business. The main emphasis remains on the utilization of the organizations
resources. There are two categories for evaluation this portion. In addition the calculation is also
done on the basis of equity as well. BATBC also has a progressive trend in this portion as well

Solvency Ratios: The Account receivable turnover on an average is low (ranges from 0.02-
0.06).That mean company face trouble in collection receivable. In last year it is to low, this is not
expected. Comparatively it was good in 2008 of 0.06 but with high collection period. This
situation indicates high risk of bad debts and so the higher the expenses of collections and
decreases the liquidity of the firm. Company should be concerned about the sales policy to be
more efficient
Risk Analysis:

Business risk: Sales Variability is the prime determinant of earnings variability. In turn, the
variability of sales is mainly caused by a firms industry and is largely outside the control of

2008 2009 2010 2011 2012

Sales 29,508,675 34,994,149 37,869,293 45,414,187 55,074,651

Mean 40572191
Variance 98646966937510.00
SD 9932117.95
Sales Volatility 0.24

Analysis of Growth Potential:

2008 2009 2010 2011 2012

Operating income after tax 232,882 361,583 798,971 1,668,778 2,068,566
Dividend 30% 30% 70% 240% 300%
Retention Rate 70% 70% 30% -140% -200%
ROE 9% 14% 27% 43% 43%
Growth Rate 6.08% 9.61% 7.98% -59.77% -85.34%

The analysis of sustainable growth potential examines ratios that indicate how fast a firm should
grow. Analysis of a firms growth potential is important for both lenders and owners. Creditors
also are interested in a firms growth potential because the firms future success is the major
determinant of its ability to pay obligations, and the firms future success is influenced by its
growth. The growth of business, like the growth of any economic entity, including the aggregate
economy, depends on

1. The amount of resources retained and reinvested in the entity, and

2. The rate of return earned on the resources retained and reinvested.

Due to the high rate of dividend declared the growth has decreased in the present year. It has also
affected the retention rate.

Comparative Analysis: The importance of ROE as an indicator of performance makes it

desirable to divide the ratio into several components that provide insights into the causes of a
firms ROE or any changes in it. This breakdown of ROE into component ratios is generally
referred to as the DuPont system. To begin, the return on equity (ROE) ratio can be broken down
into two ratios that we have discussednet profit margin and equity turnover. This breakdown is
an identity because we have both multiplied and divided by net sales. To maintain the identity,
the common equity value used is the year-end figure rather than the average of the beginning and
ending value.

2012 2011 2010 2009 2008

Profit Margin 0.117689 0.11894 0.066952 0.032796 0.025148
Total Asset Turnover 1.462323 1.404678 1.484294 1.460699 1.335314
Financial Leverage 2.328416 2.203201 2.447602 2.770814 2.727628
ROE 0.40072 0.368095 0.243235 0.132734 0.091594

It shows that BATBC generally increased their profit margin in the last two years. However for
higher financial leverage last years performance was better.
Company Analysis:

Nature of the company and stock:

1. BATBC a public limited company incorporated in Bangladesh.

2. BATBC is a food and beverage types of company.

3. It is listed in the Stock Exchange Securities.

4. BATBC have category A share in the stock market.

Influence of the economic and industry condition:

Different organizational strategy:

In case of BATBC we see that, it has been able to maintain a unique product at a premium cost
that a customer will pay willingly. It has been serving the mass people of the country. As the
production is in a large scale we can say it is having economies of scale. It is frequently trying to
bring new products for the customers. It has a much diversified product line with frequent
research and development to improve product quality and to offer innovative products according
to customers taste. So, they are mainly following the Differentiation strategy rather than Cost
Leadership. Besides the brand value of BATBC has made the customers less price sensitive as
they emphasize more on the brand value.

SWOT Analysis:


1. Strong brand image.

2. Adequate financial resources.
3. Well thought of by buyers
4. An acknowledged market leader.
5. Well conceived functional area strategies.
6. Insulated from strong competitive pressures.
7. Proven management.
8. Better manufacturing capability.
9. Superior technological skills.
10. Strong distribution network.


1. Lack of advertisement.
2. Higher overall unit costs relative to key competitors.


1. Serve additional customer group.

2. Enter new markets and segments.
3. Expand product line to meet broader range of customer needs.


1. Restriction imposed by the government.

2. Entry of lower-cost foreign competitors
3. Rising sales of substitute product
4. Lack of raw materials


The profit margin was fairly consistent throughout the years.

The Company pays dividend consistently in fact pays in an increasing trend every year.
The Company has no chance of being bankrupt.
The Company was successful to bring down noncurrent liabilities to a minimum level.
The Companys liquidity is not enough over the years. Liquidity Ratios show that
BATB is not in a good position as standard to meet its current obligation.

The industry average of price earnings ratio is 12.44, if we compare it with the BAT Bangladesh
we find that since 2007 its EPS is above industry average. And in 2012 their EPS has climbed to
34.48 approximately, so the earning multiplier is Tk429 (=12.4434.48). But during that period,
December 9, 2012, market value of its share was Tk409. As earning per share is increasing and
that gives a positive aspect for the existing shareholders to hold their shares. Any new investor
will want to include BAT Bangladeshs share in their portfolio.


From the commons size balance sheet it is understood that the inventory is not so high at this
moment compare to Companys historical data. But the company should always be careful so
that inventory does not pile up. Rise of operating cost, supplementary duties and surcharge on
both raw materials and finished products, stiff competition from smuggled cigarettes and lack of
protection from the law of the land led the turnover of the company to fall. It resulted that the
profitability of the company slipped downwards sharply. BATB should create pressure on
Government on smuggled cigarette issue as.From the trend analysis it is seen that the value ratios
are better in case of BATBC. BATBC gives good dividend and earnings per share are also good.
The company always keeps its shareholders happy but the company should remember that their
main job is to increase shareholders wealth not only offering high dividend.


In the end it is only fair to mention that British American Tobacco is a multination Corporation
with strong brand value. In this study we have showed that the condition of the entire industry of
security market in Bangladesh. In compare to that the total security market and industry in
particular, food sector has a different position in the market. To be precise in the time of the
recession the food sector remained unchanged in the security market. The security condition for
BATBC is also holds promising return compared to the security market. It is highly noticeable
that the stock of BATBC has higher return with lower risk. So, it would be wise to add this stock
in the portfolio. Beside that the Z-score shows that the managements ability to compete and the
brand value along with it makes quite promising for the cautious investors.