History of BAT

British American Tobacco Bangladesh (BATB) is one of the pioneer cigarette manufacturers in the world.

The company was formed at the turn of the 20th century with the objective of establishing a worldwide

business. Today British American Tobacco sells the leading brands in over 30 markets covering 102

countries, has more than 200 brands worldwide, employs more than 55,000 people and produces some

2 billion cigarettes every day. British American Tobacco Bangladesh Company Limited is one of the

largest private sector enterprises in Bangladesh, incorporated under the Company’s Act 1913 on 2nd

February 1972. BAT has over the decades consistently invested in Bangladesh market through

Bangladesh Tobacco Company (BTC). Thus BTC has always been on the business of manufacturing and

marketing different brands that meet the standards found everywhere in the world. British American

Tobacco has been in business for more than 100 years, trading through the turbulence of wars,

revolutions and nationalizations as well as all the controversy surrounding smoking.

The business was formed in 1902, as a joint venture between the UK’s Imperial Tobacco

Company and the American Tobacco Company founded by James ‘Buck’ Duke.

Despite its name, derived from the home bases of its two founding companies, British American

Tobacco was established to trade outside both the UK and the USA, and grew from its roots in

dozens of countries across Africa, Asia, Latin America and continental Europe.

BAT was ‘born international’, and have developed over a century’s expertise in operating locally

in diverse cultures around the world.

Operational performance analysis (Taka ‘000)

Net income 2009 = 34.48

EPS = -------------------------------------------- 2008 = 27.81

Share outstanding 2007 = 13.32

2006 = 6.03

2005 = 3.88

NOPAT = EBIT (1- tax rate)

2009 = 1745067.6

2008 = 1374286.2

2007 = 781197.6

2006 = 487150.2

2005 = 350272.8

Net operating working capital = Operating current asset – Operating current liability

2009 = 2,181,135

2008 = 1,977,647

2007 = 509,100

2006 = 383,705

2005 = -81,434

Total operating capital = net operating capital + operating long term asset

2009 = 5990186

2008 = 5440450

2007 = 4207264

2006 = 4489128

2005 = 4236423

EVA = NOPAT – Cost of capital

2009 = 1086147.14

2008 = 775836.2

2007 = 318398.56

2006 = 6653.88

2005 = 115734.2

NOPAT

ROIC = -------------------------------

Total operating capital

2009 = 29.13%

2008 = 25.26%

2007 = 18.56%

2006 = 10.85%

2005 = 8.26%

Dividend decision theory

1) Cash dividend : Dividend pay on face value2) Stock dividend : Dividend pay by giving stock3) Dividend in kind : Dividend pay not in cash or stock may be product of the

company.

Three theories of investor preference:

1) The dividend irrelevance theory : The theory that a firm’s dividend policy has no effect on either its value or its cost of capital

2) The bird in the hand theory.3) The tax preference theory.

Some other theories

1) Signaling hypothesis: The theory that investors regard dividend changes as signals of management’s earning forecasts.

2) Clientele effect: The tendency of a firm to attract the type of investor who like its dividend policy.

3) Free cash flow hypothesis

Factors affecting dividend decision

1. Stability of Earnings. The nature of business has an important bearing on the dividend policy. Industrial units having stability of earnings may formulate a more consistent dividend policy than those having an uneven flow of incomes because they can predict easily their savings and earnings. Usually, enterprises dealing in necessities suffer less from oscillating earnings than those dealing in luxuries or fancy goods.

2. Liquidity of Funds. Availability of cash and sound financial position is also an important

factor in dividend decisions. A dividend represents a cash outflow, the greater the funds and the

liquidity of the firm the better the ability to pay dividend. The liquidity of a firm depends very

much on the investment and financial decisions of the firm which in turn determines the rate of

expansion and the manner of financing. If cash position is weak, stock dividend will be

distributed and if cash position is good, company can distribute the cash dividend.

3. Needs for Additional Capital. Companies retain a part of their profits for strengthening their

financial position. The income may be conserved for meeting the increased requirements of

working capital or of future expansion. Small companies usually find difficulties in raising

finance for their needs of increased working capital for expansion programmes. They having no

other alternative, use their ploughed back profits. Thus, such Companies distribute dividend at

low rates and retain a big part of profits.

4. Trade Cycles. Business cycles also exercise influence upon dividend Policy. Dividend policy

is adjusted according to the business oscillations. During the boom, prudent management creates

food reserves for contingencies which follow the inflationary period. Higher rates of dividend

can be used as a tool for marketing the securities in an otherwise depressed market. The financial

solvency can be proved and maintained by the companies in dull years if the adequate reserves

have been built up.

5. Government Policies. The earnings capacity of the enterprise is widely affected by the

change in fiscal, industrial, labour, control and other government policies. Sometimes

government restricts the distribution of dividend beyond a certain percentage in a particular

industry or in all spheres of business activity as was done in emergency. The dividend policy has

to be modified or formulated accordingly in those enterprises.

6. Taxation Policy. High taxation reduces the earnings of he companies and consequently the

rate of dividend is lowered down. Sometimes government levies dividend-tax of distribution of

dividend beyond a certain limit. It also affects the capital formation. N India, dividends beyond

10 % of paid-up capital are subject to dividend tax at 7.5 %.

7. Legal Requirements. In deciding on the dividend, the directors take the legal requirements

too into consideration. In order to protect the interests of creditors an outsiders, the companies

Act 1956 prescribes certain guidelines in respect of the distribution and payment of dividend.

Moreover, a company is required to provide for depreciation on its fixed and tangible assets

before declaring dividend on shares. It proposes that Dividend should not be distributed out of

capita, in any case. Likewise, contractual obligation should also be fulfilled, for example,

payment of dividend on preference shares in priority over ordinary dividend.

8. Past dividend Rates. While formulating the Dividend Policy, the directors must keep in mind

the dividend paid in past years. The current rate should be around the average past rat. If it has

been abnormally increased the shares will be subjected to speculation. In a new concern, the

company should consider the dividend policy of the rival organization.

9. Ability to Borrow. Well established and large firms have better access to the capital market

than the new Companies and may borrow funds from the external sources if there arises any

need. Such Companies may have a better dividend pay-out ratio. Whereas smaller firms have to

depend on their internal sources and therefore they will have to built up good reserves by

reducing the dividend pay out ratio for meeting any obligation requiring heavy funds.

10. Repayments of Loan. A company having loan indebtedness are vowed to a high rate of

retention earnings, unless one other arrangements are made for the redemption of debt on

maturity. It will naturally lower down the rate of dividend. Sometimes, the lenders (mostly

institutional lenders) put restrictions on the dividend distribution still such time their loan is

outstanding. Formal loan contracts generally provide a certain standard of liquidity and solvency

to be maintained. Management is bound to hour such restrictions and to limit the rate of dividend

payout.

Steady dividend at higher level

Financial Analysis for Dividend

Sales growth Taka ‘000

2009 2008 2007 2006 2005

55074651 45414187 37869293 34994149 29508675

Net income growth Taka ‘000

2009 2008 2007 2006 20052068566 1668778 798971 361883 232882

Capital expenditure Taka ‘000

2009 2008 2007 2006 2005Capex 3809051 3462803 3698164 4105423 4317857

DPS Taka ‘000

2009 2008 2007 200699.5 83.7 66.2 55.9

EPS Taka ‘000

2009 2008 2007 2006 200534.48 27.81 13.32 6.03 3.88

Growth rate by dividend and Dividend policy of the company

BAT gives cash dividend to their shareholders.

2009-2008 2008-2007 2007-2006+19 +26 +18

Recommendation

Actually British American Tobacco is the market leader of tobacco industry in Bangladesh. They

are giving higher rate of dividend to their shareholders. Their dividend rate is gradually increased

year to year. Their dividend giving style is cash dividend.

So, their decision is feature their all operational performance and financial activities.

Conclusion

BATB’s goals are to grow the brands and the value of the business, to improve productivity and

to embed the principles of corporate responsibility around the Group. BATB’svision is to lead

the tobacco industry through growth, productivity and responsibility. BATB’s high quality

brands are chosen by one in eight of the world's smokers. Conducting BAT’s business with

honesty, integrity and transparency is not only the right thing to do, but is also critical to the

continuing development of a business that is responsible, successful and sustainable in the long

term. BATB’s Standards of Business Conduct express the high standards of business integrity

that we require from it’s employees worldwide. As such, they play a key role in the British

American Tobacco Group strategy. BATB’s recognize that our business starts with our

consumers and our brands. It’s not about encouraging people to start smoking or to smoke more,

but about meeting the preferences of adults who have chosen to consume tobacco, and

differentiating our brands from their competitors.

Reference

1) Annual Report

2) http://www.freemba.in/articlesread.php?artcode=488&stcode=10&substcode=30

3) http://www.bat.com/