Transparency Shows Responsibility

“Nowadays, there are five Serbs who work in our London headquarters, appointed to very responsible roles for the Company, globally. This is the best indicator that Serbian Managers may be accordingly successful when compared to colleagues from more than 180 countries where BAT operates. These are really the attributes we are proud of.” S. Lazovic

British American Tobacco (BAT) was formed in 1902 as a joint venture between the UK’s Imperial Tobacco Company and the American Tobacco Company was founded by James “Buck” Duke. In spite of his name, deriving from the basis of the names of both Companies being the founders, British American Tobacco was established with the objective of trading in tobacco products even beyond the United Kingdom and United States. In following decades it was developing in tenths of countries in Asia, Africa, Latin America and continental Europe. BAT was “born international” and was developing based on one century long tradition in local business operations, along with the elements of diverse cultures throughout the world.

Nowadays, the Company represents the world’s most international Tobacco Group, which operates in more than 180 countries. Along with its 13% global market share and leader’s positions in more than 50 markets, BAT is the second-largest quoted global tobacco Group. The Company employs more than 55.000 people and owns 46 tobacco factories in 39 countries. In 2011, BAT sold 705 billion cigarettes and contributed with more than 30 billion UK pounds to the budgets of the countries where operates. The Company is present in Serbia for the last 16 years, and it privatized Vranje Tobacco Company in 2003. In this period, BAT has invested more than 200 million Euros in Serbia, out of which 115 million Euros were invested in the purchase and modernization of Vranje factory. As a result of these investments, some leading global brands of the Company are proudly produced today in Vranje.

At closing stages of the calendar year, we have spoken with Srdjan Lazovic, the Director for Corporative and Regulatory Affairs of British American Tobacco South East Europe d.o.o. on preceding experience, business environment in Serbia as well as the plans for the next year.

Mr Lazovic, where did you study and which schools did you attend?

I finished all schools in Belgrade, Ivan Gundulic Primary School in Novi Beograd, XII Belgrade Secondary School and the Faculty of Economics, module in Marketing during the undergraduate studies, and International Trade at Post-Graduate Studies.

Being the winner of St. Sava Award granted for the best students in Serbia, you were offered the job in the Government of Serbia in 2002. What were you exactly doing in the Government? How did it happen, and why did you decide to move to BAT?

Should anyone say to me during my schooling, particularly after the immediate end of my formal education that I would be working in the state administration, I would be thinking of such person to be not normal. In any case, the first job, at the beginning of 2002 was in a newly formed Department for European Integrations of the Ministry for International Economic Relations, just owing to the result of the abovementioned award.

It was during the time when Goran Pitic was the Minister and late Zoran Djindjic was the Prime Minister. In fact, this Department was the nucleus of the European Integration processes in Serbia, it set up the foundations of that process in Serbia. Nowadays, in view of that time spread, I am really proud of the fact that I was one among few pioneers of that process in Serbia.

After formation of next Government in March 2004, the Department itself developed into the Office for European Integrations which was, and it is also nowadays, the central place of European Integration processes in the Government of the Republic of Serbia. I was in charge of economic part of the integration process into EU at both posts. After four years and with slowing down the formal path of Serbia into EU caused, above all, by political reasons such were unsettled relations between Serbia and Montenegro, Kosovo issue and the ballast of cooperation with The Hague, I did understand that I was slowly loosing the initial enthusiasm and energy in the state administration, thus I have evaluated that it was the time to taste the reverse of the medal, namely to take my crack in business.

You have been in BAT since 2005, which positions have you been appointed to at this Company so far? Which are your current responsibilities in BAT?

I started as the Manager for corporate and regulatory affairs for former Yugoslavia and Albania, and since 2008 I am at the position of the Director for corporate and regulatory affairs and the member of the Company’s Management Board. In addition to that, I was also in charge of legal and security departments within the Company for a certain period of time. Nowadays, I am at the position of the Director for corporate and regulatory affairs for CEFTA Region and the member of our Company’s Board of Directors in Serbia.

Are you engaged in some other business circles, associations in addition to BAT?

Yes, maybe too much (laugh). I am the member of the Board of Directors of the Foreign Investors Council, the leading business association that brings together foreign companies with business operations in Serbia, I am also the member of the Board Of Directors of Red Star Basketball Club, the member of the Board of Serbian Branch of respectful International Advertising Association, the member of Board of Business Leaders Forum and the member of the Serbian Association of Managers as well as the Serbian Public Relations Association.

You are the first winner of the Award of Excellence as the Best Young Manager in Serbia that was conferred in 2009 by the Serbian Business Journalists Association and the Serbian Chamber of Commerce. What has this Award meant for you up to the present professional career?

Probably, it will look like a cliché, but it has meant a lot, because it has been the signal that I am following the proper path. It has simultaneously been the outstanding obligation to proceed with the same, if not, even better results. That Award had its own connotation, because it came from journalists. Being aware of the fact how much your colleagues, the journalists, may know to be the critical, that recognition did mean that we did have, and we still do have, the great cooperation. Finally, the award was also the recognition for the BAT, and for my previous employer, namely the Government of Serbia.

BAT has already been present in Serbia for 16 years. What are your experiences at the Serbian market up to the present?

We started as the representative office in 1996 and the major milestone was in 2003 when privatization of Duvanska Industrija Vranje took place. Based on that, the Company has become one among the most important foreign investors in Serbia, and, up to date, the biggest UK investor in the country. The Serbian market has very significant position in our business operations in the South-East Europe, and that was the reason to bring such decision to privatize Vranje factory. So far, the experiences in Serbia are mixed. Still, we are not accomplishing the desirous financial results due to a number of external factors, mostly the ones that we cannot influence upon, or we may have partial influence on. On the other hand, there are also elements that we are extremely satisfied with, for example, the fact that talented people from Serbia represent the invaluable resource for the whole BAT Group. In last nine years more than 30 colleagues of mine went to work to BAT branch offices abroad – from Azerbaijan, Czech Republic, Germany to the headquarters in London.

What has been the amount of BAT investments in Serbia, so far?

Since privatization of the factory, we have invested in Serbia more than 200 million Euros, out of which 115 million Euros were invested in the purchase and modernization of the factory in Vranje. Thanks to these investments, nowadays, BAT is the largest UK investor in Serbia and in our Vranje factory some of the leading global brands of the Company are produced. In addition, BAT is also one of the biggest tax payers in Serbia, because we contribute with more than 100 million Euros annually into the Serbian state budget, mostly through excise and VAT.

How would you appraise the overall business climate in Serbia?

Since the arrival to Serbia, we endeavor our efforts in having the constructive dialogue with the Government, and the talks on all issues and open communication in the past did lead to impressive results in some areas. We are of the opinion that such relation is of vital importance to both sides, in particular when taking into account the importance of tobacco industry for the state budget.

Namely, the excise revenues are one of the most important sources for the Serbian budget, and Serbia is a specific market in that sense. For example, the revenue percentages from excise and VAT that originates from tobacco products range between two and three percents in the EU member states, while such figure has amounted approximately to 14 percents in Serbia for 2012.

In this respect, Serbia is the leading country in Europe with the percentage of tobacco contribution into the state budget.Even more important, the revenues from tobacco in the state budget escalates from one year to another one, thus in view of 94 billion dinars in last year, this year has been projected to be over 110 billion dinars from excise and VAT.

To conclude, our experience in the previous period speaks that there is progress in business environment in Serbia, but the situation is not ideal yet, it is additionally burdened by economic crisis that prevails in last few years.

How does BAT contribute to the business climate?

BAT is one of the founders and the member of the Management Board of the Foreign Investors Council (FIC), the leading international business association in Serbia. Based on the Council activities, the Company endeavors its efforts to improve the business climate in the country in order to attract new foreign investors.

Our most important formal contribution is the so called White Book issued every year, which contains concrete recommendations addressed to the Government with an aim to improve the business climate in Serbia.

We always emphasize that the predictability of regulatory environment, together with the political and macro-economic stability of the country, are of crucial significance for further foreign investments in Serbia. As a company, BAT has always been the truth Ambassador of Serbia and promoted Serbia as an attractive investment destination at all international Forums we have been invited to present our experiences from Serbia and we will continue with this practice in future for sure.

How do you comment the newly adopted Excise Law?

The excise policy is of crucial importance for business operations of tobacco companies, both globally and here in Serbia. Having in mind significant portion of the state revenues in Serbia which are coming from tobacco, the tobacco excise policy has also a vital role for the state as well.

We are of the opinion that last amendments Excise Law, adopted just few days ago in the Parliament, are a step to right direction, because, based on it, we are gradually approaching EU in the area of taxation of tobacco products.

So, the calendar of further harmonization with EU in next four years is a solid one. Any deviations through additional increase in newly adopted rates, namely the calendar, might immediately result in appearance of illegal market and, consequently, the decrease of state revenues. Therefore, the counter-effect would be only achieved, affecting both the industry and the State budget as well.

Additional positive element of the newly passed Law is its predictability in the sense of excise calendar being defined until 2016. In such manner, we are in a position to plan our business operations in Serbia in the next several years. To conclude, although it predicts serious increases in excise rates every six months, throughout next four years, we trust that we speak of a good Law, at the end of a day. Now, it is of crucial importance, both for the state and for the industry to adhere to the agreed calendar, because any deviation from it would result in market distortion along with simultaneous decrease in state revenues coming from tobacco.

Illegal trade in cigarettes is one of major problems of tobacco industry. How do you fight against such phenomena, and what is the situation like in Serbia?

Having in mind the dimension of this problem, both in EU and globally, the cooperation with the states wherein we operate is of the utmost importance. Each cigarette package sold beyond the legal market is automatically the loss for the state budget. In that sense, when we speak of European region, the essential step for us has been signing of the Agreement on Cooperation with the European Commission (OLAF) in 2010, which foresees the proactive and joint efforts against the illicit trade of tobacco products.

The Agreement is an exceptional step for BAT as the Group because it represents the significant addition to the work we have been dedicated to in the past years and which we continue to do on the daily basis in global fight against illicit trade. Until recently, we did not have major problems in Serbia when illegal tobacco products are in question.

However, taking into account that the excise in this calendar year, and consequently the prices have risen three times, namely 50 dinars in average, along with the overall fall in purchase power of the general population, a new phenomenon has arisen – the sale of cut tobacco at green markets, streets, even via Internet. Such sale of cut tobacco is against the laws of the Republic of Serbia, thus we appeal the relevant state authorities to stop this phenomenon as soon as possible. By illegal sale of cut tobacco both industry and the Government are losing, because it is the case of grey economy, which has increased significantly in the past few months.

You know EU because you have worked for years in European integrations, although on the side of the State. How much is Serbia harmonized with EU when tobacco products are in question?

In spite of numerous prejudices and mistakes, Serbia, in fact, is already harmonized with EU when speaking of the major part of tobacco related regulations. In some spheres, such as advertising of tobacco products, the regulation is even more severe here than the practice prevails in numerous EU state members.

In the area of excise, we are coordinated with EU, taking into consideration the mixed excise system defined by EU as well as in the methodology of calculating the minimal excise. Further necessary harmonization is required when it comes to the amount of the minimum excise, which is still in Serbia far away from the minimum requirements of the Union. The new Excise Law, I have already spoken of, is exactly the step towards gradual harmonization with EU in this area.

To what extent has the Law on protection of citizens from exposure to tobacco smoke and its enforcement influenced your company’s business operations and consumption of tobacco products?

Beyond all question the new Law on protection of citizens from exposure to tobacco smoke has had a certain influence, however, the downturn trend was also caused by other factors that occurred at the same time, such as price increases which came as a result of the increased excise duties, or decline in the general population’s purchasing power.It is very difficult to tell to what extent, translated into percents, the smoking ban policy has influenced decline in the market.

What I would like to emphasize is that BAT does not oppose the regulation. On the contrary, BAT always supports and advocates for balanced regulations, which are, as such, applicable in practice.

We were witnessing many laws passed in our parliament in the course of the last ten years, sometimes partially, sometimes never implemented.That is why we believe that the Law on protection of citizens from exposure to tobacco smoke is a good example of a law that provides a balanced solution with no negative impacts on some other industries.

If you look at the effects of total smoking bans in public spaces, many examples around the globe show that even the most rigorous public place smoking restriction did not cause any outstanding negative effect on consumption of tobacco products.

However, the real damage from all such radical solutions was felt in the hospitality industry which registered a dramatic revenue decline, which again resulted with increased unemployment in that sector.

BAT, being a responsible company, fully supports total smoking ban in cultural, health and educational institutions, as well as in public transportation, but, in our opinion, some compromise solution should be found for other spaces like restaurants and bars, attended prevalently by adult persons. In this context a compromise goes for balanced regulation, applicable in practice that would meet the needs of both smokers and non-smokers, and such is exactly the recently passed Serbian law regulating this area.

What is your opinion about the announced potential introduction of additional restrictions regarding smoking in public places?

As I have already emphasized, the Law on protection of citizens from exposure to tobacco smoke represents a compromise solution which, first of all, provides an opportunity of choice. For example, at the EU level does not yet exist a unique directive regulating the area of smoking in public spaces, thus most of the EU member states, which are also signatories of the UN Framework Convention on Tobacco Control, have laws that are more or less similar with the Serbian law.Therefore, to this respect, Serbian legislation is harmonized with the respective EU guidelines. What represents a problem for us, being a large investor, is the tendency of the changes of the laws a year or two after the coming into force of the existing regulation. This indicates insufficiently predictable regulation environment, which is of key relevance for the investors, both domestic and foreign.

Another very important law that restrains business operation of tobacco industry in Serbia is the Law on Advertising (of tobacco products). To what extent does that law differ from the same laws in Europe and what results does it generate?

In this area Serbia has for many years been even more restrictive than a number of the EU member states.On the other hand, lack of clarity in some provisions of the current law sometimes caused confusion in the market since there was no consistency in their implementation by the relevant state bodies. We are strongly interested for defining of certain open issues that we, as the industry and the state, had to face in this area during the last few years.

The Draft Law on Advertising, although it introduces additional restrictions in advertising of tobacco products, gives indications that improvements will be achieved in comparison to the existing law by defining precisely all such issues that both the state authorities and the tobacco industry had to face in practice. This would ensure a predictable environment, but also the level playing field for all industry players. Predictable regulatory environment, together with the consistent implementation from the relevant state bodies, in the area of advertising, are a precondition for successful positioning of every brand, not only in the tobacco sector.

What business results does BAT register in the last year, in Serbia and globally? To what extent has the economic crisis influenced the business operations of BAT in Serbia and in the region?

The economic crisis has undoubtedly had an impact, both in Serbia and globally. In Serbia, 2012 was characterized by huge increases of excise duties which resulted in price increases, which, combined with decline in purchasing power, to some extent, made some consumers to downtrade and opt for more affordable products. Still, with an adequate strategy in place and the very well focused portfolio, we promptly addressed these challenges so, overall, we can be satisfied with the results in Serbia for 2012.

Globally speaking, the BAT’s business remains at an outstanding level and the results are very encouraging, although the external environment is still full of, often unpredictable, challenges. This is yet another confirmation of our Group’s successful strategy.

Do you plan new investments in Serbia and in which segments of operation?

Of course we do. Since the competition never sleeps it would be naïve to disclose our plans in the media before their implementation. In any case, the public will be timely informed on them, when the moment comes.

The basis of your company’s development strategy at the international level goes for growth, productivity and responsibility. How is this being implemented in Serbia?

Serbia does not differ from the rest of the BAT world, therefore, each activity has to be in line with our global and regional strategy. We have achieved considerable results in Serbia, in each segment of our strategy. Our global drive brands have registered growth of market share in Serbia this year, thus establishing a very good basis for the coming years, which will certainly be dynamic.

Your company invests significant funding into corporate social responsibility projects and in assistance to the local community. Can you name some of the most relevant?

British American Tobacco was one of the pioneers of the corporate social responsibility (CSR) in Serbia. Together with some other socially responsible companies, BAT founded the Business Leaders Forum, the leading CSR organization in the country. In clear confirmation of our CSR efforts in Serbia so far, BAT has received many awards, both at the national and the local level. We have implemented numerous CSR projects, out of which I would like to highlight those that I believe have made a difference, both for the local community and for the entire country.

First of all, for eight years now, BAT has been awarding the best small entrepreneur in the Pcinjski district, in which our production plant is located.In cooperation with the Serbian Chamber of Commerce, the Regional Agency for Development of Economy and Entrepreneurship and the Vranje Association of Entrepreneurs, BAT provides support to the most successful small enterprises of the Pcinjski district in order to additionally encourage economic and social development of this part of Serbia, which, we must admit, is insufficiently developed.Another campaign that makes us particularly proud is Youth Smoking Prevention campaign, which had excellent results. Being a responsible tobacco company, BAT categorically opposes minors smoking, because we believe that cigarettes should be accessible exclusively to adult smokers, informed about all negative effects of smoking, and well aware of potential risks caused by smoking.

In accordance with this, BAT carried out activities focusing at training and raising the awareness of retailers, through personal contacts, various printed materials, brochures. One of the results of this campaign is the fact that sticker “We do not sell tobacco to those under 18” can be seen on almost every news-stand in Serbia.

Few years ago, in cooperation with the Belgrade Cultural Network, we carried out “Butt Litter Campaign” at the Belgrade Beer Fest. The objective of this campaign was to make the smokers change their behavioral pattern related to negligent disposing of cigarette stubs.

My personal favorite among those activities is the last year’s donation of two apartments, worth EUR 80,000 to socially most deprived families, victims of the Kraljevo earthquake. And in the future, in accordance with our capacity, we will continue investing in the community where we live and work.

What do you expect from the Government in terms of improvement of the business environment in the coming year?

For every investor, predictability of the regulation environment, as well as political and macroeconomic stability of a country is of crucial importance.Therefore, that is exactly the area where we expect further progress on the Serbian government’s side in the next year. This implies structural reforms, a new arrangement with the IMF, transparency of the overall business environment, further elimination of unnecessary bureaucracy at all levels, continued fight against corruption, obtaining of the date for starting of negotiations with the EU. We are fully aware that it is easy to say and very difficult to realize in practice. However, each step the Government makes to that direction within the next year will have our unreserved support and will be an additional step forward that will show that Serbia is an attractive investment destination.

What are your prognoses of the business climate in 2013?

Having in mind the crisis affecting the Euro zone, on which our economy is linked on, nobody should have unrealistic expectations for 2013. Therefore, the focus should be on the GDP growth, keeping inflation within the projected limits, nailing down the budget deficit and the unemployment rate, as well as restraining of excessive volatility of the national currency.

If you had such an opportunity, what would you alter in your previous career?

Many things, for sure. Undoubtedly, alongside of numerous successes I’ve had so far in my career, I have learned much more from the failures. It is similar to sports. Still, as Churchill once said, if we are torn in between the past and the present, we should understand that we have just lost the future. That is why it is so important for me to drew important lessons for the future from mistakes I undeniably made on positions of considerable accountability I held in the previous period.

Are you a smoker?

Yes. Dunhill, of course.

How do you spend your leisure time? Do you have favorite places? A hobby?

Alongside with BAT and all those professional associations where I am engaged with, my most important “role” is definitely the role ofhusband and daddy of two boys. Since I became father for the second time two months ago, real leisure time is difficult to find. I am doing my best to spend every free moment with my family and with close friends.I love to attend the Red Star’s basketball matches, we like to spend our weekends somewhere outdoors, most frequently on the mount Kosmaj. I adore skiing, although this year, because of the recent “enlargement” of the family, it will be very difficult to realize as a family vacation, perhaps it may be a long ski weekend with friends.