[Intl-tobacco] Broughton speech at BAT annual meeting

[Robert Weissman]

RNS Number:6029U
British American Tobacco PLC
16 April 2002


                      Speech by Martin Broughton, Chairman
             at the British American Tobacco Annual General Meeting
                           16 April 2002 at 11.30am


Good morning, ladies and gentlemen, and welcome to your Annual General
Meeting, held this year at a new venue.  We have brought the date
forward to reflect our faster reporting schedule, and the Queen
Elizabeth II Conference Centre was unable to accommodate the change.  I
hope you enjoy this new venue, where it's likely we will also be next
year.

As many of you will know, this is our Centenary year, when I believe we
can look back not only on 100 years of enterprise, endeavour and,
indeed, excellence but also on recent results that truly highlight the
qualities of your company. 2001 was another year of growth - in profits,
earnings, dividend, and brand strength.

It was a year which I believe has proved the wisdom of listing British
American Tobacco as a 'stand alone' tobacco company in 1998; has
demonstrated that our strategy for building shareholder value is
working; and has affirmed our commitment to corporate social
responsibility, openness and accountability.

Before reviewing performance, however, let me welcome your new
Directors, and pay tribute to those who have left us.

Paul Adams is now Managing Director, following Ulrich Herter's
retirement at the end of last year.  Already, Paul is demonstrating the
skills, vision and energy that I am confident will drive the business
forward.


Paul Rayner is now Finance Director, following Keith Dunt's retirement
at the year end.  Paul was previously Chief Operating Officer for
Australasia.  We welcome his skills and insights.

I also welcome Antonio Monteiro de Castro, who joined your Board last
month. Antonio remains Regional Director, Latin America and the
Caribbean, which he has been for six years, and brings valued experience
to your Board of a Region that is a vital part of the Group's success.

I sincerely thank Keith Dunt, Bill Ryan, who retired last year as Deputy
Managing Director, and of course Ulrich Herter for their superb
contributions over many years.  All three have given your business
outstanding leadership and I am sure you will join me in wishing them
well in their retirement.

Centenary

Your business has come a long way since that extraordinary US
entrepreneur, Buck Duke, arrived in the UK just over a century ago, with
the technology that would enable mass cigarette production, with the
all-powerful American Tobacco Company in his control and a plan to
corner the UK market. With the immortal words:

"Hello boys, I'm Duke from New York, come to buy your business", he
triggered the trade war with Imperial Tobacco that was settled in 1902
with the birth of a new joint venture - British-American Tobacco - that
has today grown to be bigger than both its parents.

As we celebrate our Centenary, it is fascinating to note the total
shareholder value returned by your business since it first listed on the
London stockmarket in 1912, a decade after operations began.

Measured against the only equity fund with durability as long as our
own, since 1912 the average annual total return from British American
Tobacco has been 12.6 per cent a year, compared to 11.4 per cent from
the overall UK market. Our out-performance has been most notable in the
last four decades.

Now, I don't know if any of you have personally held your shares that
long but I believe it demonstrates the inherent strengths of your
company.

Business Review

Since we listed as a 'stand alone' tobacco company in 1998, we have had
a remarkable three years.

In 2001, operating profit was up by 8 per cent to almost £2.8 billion.
In the three years, we have taken operating profits up by a powerful 79
per cent. Earnings per share last year were up 9 per cent - an increase
in the three years of 34 per cent.



In terms of total shareholder return, we have not only performed in
those
Three years in the top quartile of the FTSE 100, but we are 6th of the
28 leading global consumer goods companies against whom we benchmark
ourselves. This peer group includes many major household names, such as
Coca Cola, Diageo, Gillette, Heinz, Nestle and, of course, Philip
Morris.

At a time when stock markets reflect many uncertainties, your Board is
proposing a final dividend of 22.3p per share, making a total for the
year of 32p per share.  That is an increase of 10 per cent on last year,
and of 33 per cent over the past three years.  Despite the rise in our
share price, I still ask myself where else can you get an almost 5 per
cent yield, and a confident expectation of good dividend growth?

In 2001, our global drive brands together grew by over 10 per cent. They
all posted record volumes, and the highest ever market shares in most
key markets.

Lucky Strike had another record year, with volumes up a further 4 per
cent. Kent's global volume was up 5 per cent, with much faster growth in
several markets, of which Russia was the most striking success.

Dunhill grew 14 per cent last year to the highest volume in its history,
with South Korea deserving particular mention, while Pall Mall grew by
21 per cent. Brown & Williamson achieved one of the most successful US
cigarette brand launches of the past decade with their launch of Pall
Mall Filter.

Overall, our shift of the brand mix towards the growing, more profitable
parts of the business - International and Premium Brands, Lights, and
the Adult Smokers Under 30 segment - has helped to enhance Group margins
by almost 60 per cent in three years - a transformation in the quality
of our business.

It has been a year of excellence on other fronts too.  Our corporate web
site bat.com has gone from strength to strength, offering new share
price charting and webcasting of our quarterly Results, so that all
shareholders can effectively attend our Quarterly Results presentations.
It has been ranked in the top three FTSE 100 sites in one of the most
detailed and comprehensive surveys yet, published in the Financial
Times.

We have also continued to focus on e-commerce, developing projects that
take advantage of the opportunities afforded by web technology.  During
2001, we pulled them all together under one banner, Wired for £ 1 - a
web-enabled British American Tobacco.


In September, we and the other major tobacco companies launched the
first industry-wide International Tobacco Marketing Standards, covering
all aspects of marketing from print, billboards and electronic media, to
promotions, packaging and sponsorship.  In many parts of the world, the
Standards 'raise the bar' above current laws or industry codes.

Pensions

I should also mention the successful merger last year of the British
American Tobacco and Rothmans International UK pension funds, following
great care and consultation by the Trustees to satisfy themselves that
it is in the interests of all members.

You will have seen the recent reports of pension schemes in
difficulties. Many companies are abandoning final salary schemes, others
face concerns about their future liabilities, and there is debate on
whether the new FRS 17 accounting standard has contributed to the woes.

Our combined scheme remains one of the best in the UK, and quite
possibly the best.  It is non-contributory for employees, the fund is in
surplus, the merger has enhanced many of the already high level of
benefits, and the company has no present intention of changing its UK
arrangements.

FRS 17 is not mandatory until next year, but there is preliminary
information in your Report and Accounts, which shows that on a global
basis we have a tiny deficit.  The key point is that while this new
accounting standard provides an interesting snapshot, it does not
accurately reflect the true funding position of Group retirement
schemes. These of course continue to be scrupulously monitored by the
Trustees and their advisors.

Last month we featured amongst the '100 Best Companies to Work For' in
the annual Sunday Times survey of UK companies.  The results bore out
our own global staff surveys last year, where our people showed much
more satisfaction than employees of other high performing companies,
especially on the ways that we live our Guiding Principles - open
mindedness, strength from diversity, freedom through responsibility, and
enterprising spirit.

This is a fitting point to give sincere thanks to all our people for
their tremendous commitment and effort.  As we look to the future, I see
a Group with talent, a strong and cohesive culture, and still buzzing
with the great spirit of enterprise so evident in our origins, that has
brought us successfully through 100 years.

Regulation

Last year we again emphasised our commitment to working with governments
for sound and fair regulation of our industry - regulation that can help
to reduce the impact of tobacco on public health, while ensuring that
adult consumers can continue making informed choices about a legal
product, and that under age smoking is prevented.

Our message is that constructive dialogue and co-operation between
governments and the legitimate tobacco industry can bring a 'win-win'
scenario - one of gradually declining total consumption for health
ministries, higher tax collection for finance ministries, potentially
reduced exposure products for consumers and less tobacco smuggling and
counterfeiting, with improved law and order for us all.

But governments and regulators must ask themselves a key question.
Essentially, it is:  With prohibition not an option, who would you
prefer to manage the tobacco industry?  Is it well run, tax-paying
companies who work hard to manage a risky product responsibly, or is it
counterfeiters, organised criminals trafficking in 'illegal' cigarettes
and back-door salesmen supplying children?

It's a simple question, and one you might think has an obvious answer,
but if governments attack and exclude the legitimate industry - as the
World Health Organisation continues to do - tobacco will increasingly be
pushed into the hands of rogue producers and criminals.  This brings the
'lose-lose' scenario - one of chaotic markets with counterfeiting and
smuggling, falling tax revenues, adulterated products, rising youth
smoking and far less ability for governments to address the public
health impacts.

We are not out to increase the number of smokers, but to compete fairly
for a valuable share of the existing market.  We can indeed foresee
health authorities achieving gradually decreasing world volumes, while
well-run tobacco companies continue to build sustainable value.

We aspire to be the first to launch successfully a new generation of
tobacco products with critical mass appeal, that over time will be
recognised by scientific and regulatory authorities as posing
substantially reduced risks to health.  There would be very little point
in developing a product that does not appeal to consumers just to be
able to claim a technological success.  But equally there may be little
merit in developing a product that might appeal to consumers without a
consensus about what changes to the product regulators might accept as
reducing risks.  Co-operation with governments and regulators can pave
the way.

The real progress that's possible in the 'win-win' scenario will not
come out of suspicion and conflict but from dialogue with companies such
as ours who are well placed to help deliver real solutions.

A fundamental tenet of good regulation is that the regulated are part of
the process.  The World Health Organisation continues to exclude our
industry from meaningful dialogue on its proposed Framework Convention
on Tobacco Control.

But much of the negotiation is now focusing on what individual
governments want. We hope that governments will acknowledge that
consultation is part of good regulatory practice and that, over time, we
will be able to put our commitment and knowledge of the product and its
consumers towards shared regulatory goals wherever we operate.

Reporting to Society



Last year, I announced that your Board had committed the Group to social
reporting, perhaps better described as reporting to society.

The aim is to help companies to listen and respond to their
stakeholders' reasonable expectations of corporate social
responsibility, and to demonstrate progress over time against objective
standards of accountability.  Managing the many issues and discussing
them with stakeholders is not new to us.  What is new for us is to adopt
such a systematic, independently-run and externally verified process for
stakeholder dialogue and reporting.

We embarked on the process last year and, by June, will be publishing
the first British American Tobacco Report to Society, to be followed by
local reports from the first 13 participating Group companies.

We will be amongst the 15 per cent or so of FTSE 100 companies reporting
on social performance, of whom fewer than half say they follow global
benchmarks.

We are working to demanding standards including AA1000, a process
standard established by the Institute of Social and Ethical Accounting
covering the way that social reporting is carried out; we are being
guided by the Global Reporting Initiative recently endorsed by the
United Nations; and we are requiring external verification across all
participating companies by Bureau

Veritas Quality International.

Our external advisors say it is unusual for a company to embed reporting
to society quite so thoroughly.  I believe this indicates our commitment
and seriousness. We have also established a Governance structure at all
levels, including a Corporate Social Responsibility Committee of the
Board, chaired by Ken Clarke, which now sits alongside the Audit,
Remuneration and Nominations Committees.

The stakeholder dialogue aims to enable listening, learning, more mutual
understanding and solution-seeking.  The Reports to Society aim to be
candid and inclusive.  And although to some extent it is an experiment,
it is not a 'one-off' exercise.  We will hold dialogue and report again
next year, and more of our companies will join the continuous reporting
cycles over time.

I cannot predict whether reporting to society will indeed reduce
conflict, or encourage the industry's strongest critics to engage with
us in seeking real solutions. But I know that we are sincere and genuine
in seeking to build bridges.  This is not about 'window dressing'.  It
is about building acceptance and trust, as well as ensuring best
practice in every way that we do business.



I hope and believe that over time it will help us to balance the very
different expectations of our many stakeholders and to balance those
expectations with our proper commercial goals.   As part of the
continuing dialogue, we will very much welcome your comments on the
first Report, which will be sent to you in June.

Current trading and prospects

I usually try at the AGM to give shareholders some information about the
Board's view of the Group's likely performance for the year ahead.

We announced in December that we expect Group volumes to be some 2-3 per
cent lower this year, although we remain confident of delivering
earnings growth in high single figures.  This year our AGM comes a
little before our first quarter results. However, I can say at this
stage that volumes are running a little below expectations, but that, at
current rates of exchange, we see no reason to change our earnings
expectation.

Enquiries:

British American Tobacco Press Office
Dave Betteridge, Scott Hailstone, Ann Tradigo
Tel:  +44 (0)20 7845 2888