The main purpose of this assignment is to analyze the policies of Corporate Social Responsibility of a company. Corporate Social Responsibility (CSR) can be defined as the various policies which are followed by the business in order to ensure that the activities of the business do not affect the environment or the social well-being of the society (Schwartz, 2017). In other words, CSR policies requires the companies to take responsibility for all the activities of the company and also incur certain costs which will be for the well-being or promotion of the society (Crane, Matten & Spence, 2013).
Nowadays most of the business have to prepare CSR reports in order to show the society and the shareholders that the company is making investments for the betterment of the society and not just going after profits. In addition to this, companies also prepare sustainability reports which shows if the business is using sustainable resources for meeting the production requirements of the company (Schaltegger, Hansen & Lüdeke-Freund, 2016).
Overview of the Company
The company which has been selected for this assignment is British American Tobacco Company. The company is engaged in the production of tobacco products such as cigarettes. The company has operations in more than 180 countries and is regarded to be market leading brand (British American Tobacco – Annual reporting., 2018). The four largest selling brands of the company is Dunhill, Lucky strike, Pall Mall and Kent.
In todays world, it is very important for every business to formulate a plan which looks after the corporate responsibilities of the business. A company exists in a society for the overall development of the society as per the meaning of CSR principles, therefore the company should invest in the overall development of the society in which the business operates. In addition to this research also shows that a company which has efficiently followed CSR principles have been rewarded with good reputation and high market value of shares for the business.
Corporate Governance may be defined as the management initiative to act in an ethical manner and be accountable for the same to the users of the financial statement and the society at large (Tricker & Tricker, 2015). Every company needs to have its corporate governance policies and prepare a statement on the same which is to be disclosed with the financial statement of the company.
In the case of British American Tobacco Company which is engaged in the manufacture and selling of tobacco goods. As the company is engaged in the manufacture of tobacco which is not good for health therefore there is an increased responsibility on the company to ensure that the company follows sustainable practices and takes their corporate social responsibility seriously. As per the financial statements of the company the company has been following a strong policy regarding sustainability. The vision of the company is that though the core product of thee company will remain combustible tobacco, however the company will be focusing on long term sustainability which can be achieved by transforming its current tobacco business.
The sustainability of products is a key area for the group strategy and plays a vital role in all aspects of the business (Silvius & Planko, 2017). As per the report developed by the management of the company. three areas which is significant to the business and also the stakeholders are given below:
The company in order to survive the various changes which are occurring in the market needs to adopt a specific strategy which can help the business to overcome such changes. With the advent of new technologies and market changes, the company is planning to drive towards a reduced risk portfolio.
Triple Bottom Line is a concept which was developed by John Elkington in1994 which deals with the three bottom lines of economic development, maintaining environmental quality and also adhering to the social responsibility of the business (Savitz, 2013). In simple word, it deals with the three aspect which the business should consider which are meeting the needs of the people and the society, looking after the environment by applying sustainable processes, adhering to environmental protection rules and the profit aspects which all companies strive for in activities or operations (Henriques & Richardson, 2013). The concept makes it clear that the overall development of any business does not solely depend on the profit of the business but other key factors as well such as environment and responsibility towards the society. Triple bottom line approach helps businesses to take decisions for long-term business nature based on this approach (Henriques, 2013). In the case of British American Tobacco company also needs to implement this approach so as to ensure that the business is not only driving towards profits but also looking after the needs of society and environment.
In order to achieve some degree of success in the sustainability and CSR policies of the company, British American Tobacco company needs to completely transform its products which can suit to the market requirements. The company has to move ahead from traditional combustible cigarettes to advanced tobacco products which do not cause that much damage to the health of the people. Such type of changes can only be achieved if there is a combination of commitment and product investment from the companies. The company need to introduce products which have reduced risks towards the health of the consumers. As per the management, if the company can successfully implement the above mention changes than the customers of the company will have a range of potentially safer choices and the society can progress from such tobacco risk reduction program of the business. This will be ensuring that the business becomes sustainable and profitable in the long run.
As per the annual reports of the company, the company has already made some investments in such respects and the results which the investments are showing are quite favorable. The company has been able to develop products such as tobacco heating products, oral tobacco products and tobacco free nicotine pouches. Such new innovative products which are introduced by the company helps to provide genuine products which are smokeless and an excellent alternative to the traditional cigarettes which affect the health of the consumers. The changes in the products is just the first step which the business is planning to further develop so that the consumers of the company have a variety of choices when it comes to tobacco products. The company is planning to make further investments in research and developments so that the business can further develop products which are safe to the customers. All these activities of the business are aimed towards attaining sustainability and also meet the needs of Corporate social responsibility of the company (Beckmann, Hielscher & Pies, 2014).
The financial performance of the company has been good in recent years which is shown by the financial statements of the company. The profit from operations of the company grew by 39.1% which was represented by sales revenue generation of £ 6,476 million. This was due to the inclusion of RAI which was acquired by the business in 2017(British American Tobacco – Annual reporting., 2018). The raw materials and other consumables increased by 19.7% which was represented by a figure of £ 4,520 million in 2017. The adjusted profit from operation at constant rates of the business has also increased by 39.9% which represented by a figure of £ 7,665 million which was mainly due to the acquisition of the business of RAI. The cash flow of the company has also increase from the previous year which shows that the company is performing well. The cash and cash equivalents has increased from a deficit of £ 79 million in 2016 to about £ 1,171 million in 2017. This shows a significant rise in the cash inflows of the company which can be attributed to the significant amount which is generated from cash from financing activities of business (Saeidi et al., 2015). The cash generated from financing activities has increased from £ 4,229 million in 2016 to about £ 14,759 million which is significant increase in the value of cash generated. This increase in cash from financing activities of the business is mainly due to debt movements and as a result of the financing which is undertaken for acquisition of RAI.in addition to this, the dividends paid in 2017 also increased to £ 3,465 million which was just £ 2,910 million in 2016 (British American Tobacco – Annual reporting., 2018). This signifies that the company’s performance in terms of profit have improved from the previous year’s results. There has been a significant increase in the dividend per share of the company as well. In addition to this, the amount of debt which is shown in the financial statements of the company has also increased from previous year figure which is mainly due to the acquisition requirement of RAI during the year. The net profit which was earned during the year has significantly increased in 2017 which shows a figure of £ 37,704 in 2017 and the same was £ 4,839 in 2016 (British American Tobacco – Annual reporting., 2018). The net profit of the company has increased more than five times of the profit figure of 2016. This displays the performance of the company in 2017 which is significantly more as compared to previous year. The current assets of the company has increased from the previous year, however the working capital of the company for the current year is negative which suggest that there is a liquidity requirement in the company (Flammer, 2015). The cash balance of the company is also favorable. It can be said that the overall financial performance of the company is favorable and it suggest that the company is growing.
As per the above table, the gross margin of the company has decreased in 2017 which is 0.223 and the same was 0.256 in 2016. This suggest that the business is facing some problems in operations of the business. However, the net profit margin has shown an increase from previous year and is favorable. The return on assets and return on equity is also showing favorable results and shows the growth of the company.
The solvency ratio reflects the liquidity of the business which as per the current ratio has decreased significantly which is a matter of concern for the business. the debt equity ratio has reduced which is a positive sign for the business as it signifies reduction in debts. The equity ratio has also increased from previous year estimates.
The inventory turnover ratio of the business shows that the estimate has increased which is a favorable sign for the business. The above ratio reflects the efficiency of the business in its operations.
Conclusion
Thus, from the above discussion it is clear that British American Tobacco company have a strong developed policy towards sustainability and Corporate social responsibility. The above discussion makes it clear that for a business to survive in the changing environment where emphasis is on health and safety and sustainable development, a company needs to formulate appropriate strategies so that they can satisfy such requirements and at the same time meet the expectation of the shareholders of the company through its CSR policies. In addition to this, the above discussion also reveals the financial position of the business and shows that the financial performance of the company is excellent.
References
Beckmann, M., Hielscher, S., & Pies, I. (2014). Commitment strategies for sustainability: how business firms can transform trade?offs into win–win outcomes. Business Strategy and the Environment, 23(1), 18-37.
British American Tobacco – Annual reporting. (2018). Bat.com. Retrieved 6 April 2018, from https://www.bat.com/annualreport
Crane, A., Matten, D., & Spence, L. (2013). Corporate social responsibility in a global context.
Flammer, C. (2015). Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach. Management Science, 61(11), 2549-2568.
Henriques, A. (2013). CSR, sustainability and the triple bottom line. In The Triple Bottom Line (pp. 48-55). Routledge.
Henriques, A., & Richardson, J. (Eds.). (2013). The triple bottom line: Does it all add up. Routledge.
Saeidi, S. P., Sofian, S., Saeidi, P., Saeidi, S. P., & Saaeidi, S. A. (2015). How does corporate social responsibility contribute to firm financial performance? The mediating role of competitive advantage, reputation, and customer satisfaction. Journal of Business Research, 68(2), 341-350.
Savitz, A. (2013). The triple bottom line: how today’s best-run companies are achieving economic, social and environmental success-and how you can too. John Wiley & Sons.
Schaltegger, S., Hansen, E. G., & Lüdeke-Freund, F. (2016). Business models for sustainability: Origins, present research, and future avenues.
Schwartz, M. S. (2017). Corporate social responsibility. Routledge.
Silvius, G., & Planko, J. (2017). Sustainability in Business. In Sustainability in Project Management (pp. 25-38). Routledge.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
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