[Intl-tobacco] "Business is booming!" says head "Merchant of Death" at BAT General Mtg

[Robert Weissman]

From: Anna White <awhite@essential.org>

Dear Friends,

For your reading pleasure, here is the text of Chairman Martin
Broughton's speech to the British American Tobacco Annual General
Meeting today. There are lots of quotable quotes here, such as, under
"Regulation":

     "Some health policy makers show signs of having been
     =91captured=92 by narrowly based, vociferous anti-tobacco
     activists, who are sometimes even funded by the regulators
     they are lobbying. I would ask a single-interest pressure
     group that operates in this peculiar mode: whom exactly do you
     represent, and to whom are you accountable?"

When BAT's complains so vehemently about us so-called "vociferous,
unaccountable, regulator-funded, single-interest pressure" groups, it's
a sure sign that our efforts are hurting BAT's current/future profits
and helping public health. So congrats to all, and keep up the good
work!

********************************************
       Speech by Martin Broughton,
Chairman at the British American Tobacco
Annual General Meeting held on 21 April 2004
********************************************

This is my last AGM as Chairman of your company before retiring in June.
So for me, it is a somewhat poignant occasion. I hope you will allow me
to use the occasion for a brief look back with pride at your company=92s
very real achievements. For me, it has been a remarkable experience and
a privilege to have been able to serve this outstanding business for 33
years and to lead it through the past decade of change and progress.

2003 was another year when your company continued to deliver shareholder
value through its strategy of growth, productivity and responsibility.
We won the bid for ETI in Italy, our drive brands achieved double-digit
growth and we announced an excellent potential deal for the business in
the USA. Improved productivity helped us to grow profit margins for the
fifth year running and we achieved further recognition for our approach
to corporate responsibility.

I am sure you will wish to join me in welcoming Jan du Plessis to the
new role he will take up as Non-Executive Chairman from 1 July. With Jan
as Chairman of your Board, with Paul Adams as Chief Executive, with
Antonio Monteiro de Castro as Chief Operating Officer and with Paul
Rayner as Finance Director, I have every confidence that your company
will make yet more progress in the hands of an outstanding team.

I should also like to thank Harald Einsmann, who retires at this AGM,
for his support and wisdom as a Non-Executive Director for the past five
years. He has brought us valued insights from his wide experience in the
FMCG sector.

Corporate governance

Before reviewing performance, I feel obliged to touch on the subject of
corporate governance, which some parties seem at risk of turning into a
major industry in its own right. You may remember that last year I
expressed concerns about some of the Higgs proposals on corporate
governance. It is good to report that after further consultation with
the investor and corporate community, the resulting Combined Code,
published in the autumn, was sensible and addressed many of industry=92s
concerns.

Much time and thought was given to developing the new Code, which now
establishes best practice, while not imposing restrictive practices =96
and I=92m pleased to be able to report that your company complies with it.
But it now seems that some views that were ultimately rejected in the
discussions may be resurfacing, as if unwilling to accept that two years
of careful review have indeed produced a good outcome. A great benefit
of the new Combined Code, for both investors and companies, is that it
solves the problem of a plethora of separate, often conflicting codes.
But just as the new Code is starting to bed in, the National Association
of Pension Funds =96 which fully signed up to it =96 has published a 72-pag=
e
Corporate Governance Policy that takes us off down the =91plethora=92 path
again.

The NAPF says its policy would only add =91minimal=92 further requirements
beyond the Code. We find this suggestion astonishing. Why would you need
72 pages to cover =91minimal=92 further requirements? Anyway, daft as some
of those further requirements are, that=92s not the point =96 the point is
that the new Combined Code should be given a chance to work as Sir Bryan
Nicholson and others have recently made clear. In our view, the NAPF
would do itself and the whole investment community a great service by
withdrawing its Corporate Governance Policy and allowing the new and
agreed Combined Code a proper chance to do just that.

Electronic voting

I would also like to highlight a significant change in the way we are
conducting today=92s meeting. As you will have seen in the Notice of
Meeting, voting this year will be by a poll rather than the traditional
show of hands. This is in line with the recently published Myners Report
and is now recommended best practice.

Your Board has adopted this approach as we believe that attendance at
meetings can be unrepresentative and that the voting instructions of all
shareholders should be taken into account, not just those of
shareholders able to attend the meeting. Voting on a poll is more
equitable but until now, poll voting was cumbersome and could lead to a
delayed result. However, the introduction of electronic voting enables
results to be obtained almost at once and this can be achieved with the
=91VoteNow=92 electronic voting system developed by our Registrars, Lloyds
TSB. I will explain more later about =91VoteNow=92 and how we can all make
it work for us today.

2003 business review

Let me turn now to your company=92s performance. In 2003, operating profit
was up by 4 per cent at over =A32.7 billion and net cash generation rose
by nearly 30 per cent to over =A31.5 billion. Earnings per share were up
by 4 per cent, making a total increase of 51 per cent since your company
listed as a stand-alone tobacco business in 1998. Your Board is
recommending a final dividend of 27p, taking the year=92s total to 38.8p
per share. This 10 per cent increase takes total dividend growth to over
61 per cent since 1998.

In terms of total shareholder return, we have delivered just under 30
per cent per annum on average over the last three years, placing us
amongst the very highest performers of both the FTSE 100 and our
international peer group of leading fast moving consumer goods
companies.

In 2003, we increased Group volumes by almost 15 billion cigarettes,
about half of this from organic growth. Our international brands are now
bringing in over a third of our volume. Both local and international
brands grew last year, with our global drive brands delivering 13 per
cent.

The star was Pall Mall, now powering ahead as a truly global brand. It
doubled its growth of the previous year with a leap of 32 per cent,
breaking the 30 billion volume barrier with a particularly sparkling
performance in Italy. Kent delivered organic growth for the fourth year
running with 14 per cent, building on innovations like the new menthol
range in Japan. Lucky Strike had a difficult year, hit by lower industry
volumes in Germany and France, but it grew share in several countries
and looks better placed for this year. Dunhill had another record year,
growing 8 per cent to almost 33 billion. Its popularity continued to
surge in South Korea and it built on brand rejuvenations in Australia,
Malaysia, South Africa and Taiwan.

It was another successful year for acquisitions. We bought operations in
Peru and won a large holding in the Serbian privatisation. But the big
acquisition news was Italy, where we won the keenly contested bidding
for the privatisation of Ente Tabacchi Italiani, giving us number two
position in the second largest tobacco market in the European Union.

I know some have questioned whether we overpaid for ETI. We said at the
time that we had looked carefully at the numbers, at synergies we can
achieve and importantly, at the long term prospects. ETI has over a
quarter of Italy=92s cigarette market and 40 per cent in cigars. We were
bidding for a revitalising company with rising profits. Now, four months
in, everything we have seen gives us yet more confidence that our price
was right. I am convinced you will see that this is a great investment
for shareholders.

In the USA, the proposal to combine Brown & Williamson=92s US businesses
with RJR in a new listed company, Reynolds American, offers an excellent
prospect for a more competitive foothold in the world=92s most profitable
cigarette market. We will have 42 per cent of a stronger and more
sustainable business with an enhanced brand portfolio. Investors will be
able to value our US interests more transparently and have welcomed the
fact that B&W will be indemnified for all existing and future US tobacco
litigation. Of course, the deal is subject to regulatory and competition
authority clearances, but we are optimistic that these will be achieved
and it is on track for completion this summer.

Responsibility and transparency

Last year, following stakeholder dialogue supported by the Institute for
Business Ethics, we developed and published our Group-wide Statement of
Business Principles. Our three overarching Principles, Mutual Benefit,
Responsible Product Stewardship and Good Corporate Conduct, are
supported by 18 Core Beliefs and form the basis on which we expect our
businesses to be run in terms of responsibility.

We also published our long-held Standards of Business Conduct, which
require high standards of business integrity from our employees
worldwide across many important areas such as conflicts of interest,
bribery and corruption, political contributions and contraband. No
manager has the authority to order or approve any action contrary to the
Standards and we make it clear that they must never be compromised for
the sake of results.

In this context, it was pleasing to see the DTI conclude its three-year
investigation into allegations of the Group=92s involvement in tobacco
smuggling, with the announcement that it had found no evidence of
illegal activity and that no further action would be taken. We work
actively with governments and customs authorities to help them eliminate
smuggling and we have always maintained that our companies acted
legally.

In the Business in the Environment Index of Corporate Environmental
Engagement, we are again in the =91Premier League=92 of companies scoring
more than 95 per cent. We were again selected for the 2004 Dow Jones
Sustainability Indices. We won the Stakeholder Communication Award in
the new PricewaterhouseCoopers Building Public Trust Awards and our
web-based Social Report won the Electronic Media category in the UK
Sustainability Reporting Awards run by the Association of Chartered
Certified Accountants.

If you have not yet had a chance to visit our website, this seems a good
time to do so. It has again been ranked best of the FTSE 100 in the
Webranking survey published in the Financial Times and only this month,
won top prize for communications with private investors against stiff
competition in the annual Best Practice Website Awards of the UK
Investor Relations Society.

Regulation

But as I leave the Group, I have one area of regret for =91unfinished
business=92. British American Tobacco genuinely seeks to work with
governments to achieve sound and fair regulation that can help to reduce
the impact of tobacco on public health, can tackle under age smoking and
can also ensure that adult consumers are allowed to continue making
informed choices about a legal product.

Yet in some countries, our companies are denied even the fair hearing
from regulators that this constructive position merits. I believe that
this Group, which is working to define and live by corporate
responsibility in more meaningful ways than many other businesses have
so far attempted, deserves a great deal better. Some health policy
makers show signs of having been =91captured=92 by narrowlybased, vociferou=
s
anti-tobacco activists, who are sometimes even funded by the regulators
they are lobbying. I would ask a single-interest pressure group that
operates in this peculiar mode: whom exactly do you represent, and to
whom are you accountable?

Any regulator can see openly whom we represent. We stand for our
consumers, who should not be criminalised or made to suffer social
exclusion; for this industry=92s commercial partners, accounting for
millions of jobs; for our shareholders, who have a right to expect that
we will be granted the representation available to other industries; for
our employees, who work hard to manage our business responsibly; and for
concepts that matter in making laws, such as justice, balance and
avoiding perverse outcomes.

Yet for tobacco, policy making can flout accepted good regulatory
practice. Laws can go far beyond what is reasonable and can seem to be
=91cut and pasted=92 from pressure group proposals with little basis in
sound science, cost/benefit or even basic notions of a fair society. An
example is the growing use of graphic image=92 health warnings, which
threaten our intellectual property rights on the pack and can offend and
harass consumers =96 yet in fact give them no more information than the
print warnings.

If regulators are =91captured=92 by lobbies driven by narrow and
unrepresentative interests, consumers who choose to smoke =96 and pay
ever-increasing taxes to do so =96 will have every right to ask if their
governments have let them down. Our Core Beliefs, strongly endorsed by
stakeholders in dialogue, are these: we believe in regulation that
balances the interests of all sections of society, including tobacco
consumers and the tobacco industry, and we believe that our industry
should have a voice in the formation of government policies affecting
it.

And I do see some growing understanding that tobacco =96 this challenging,
risky, yet legal and enduringly enjoyable product for its consumers =96 is
simply not going to vanish. Many governments welcome support from our
companies in achieving more appropriate tobacco marketing, in tackling
under age smoking, accommodating non-smokers and smokers alike and in
appropriately reinforcing the message that smoking poses risk to health.
If this constructive approach is allowed to replace suspicion and
conflict, I have no doubt that, over time, we will be able to put our
commitment and knowledge more widely into achieving successful outcomes
for governments, for consumers and for this responsible business.

Decade of transformation

Last year=92s successes for the business are, I believe, the latest steps
on a remarkable journey to growth and transformation that is by no means
over. Reflecting on the past decade gives me enormous pride in what our
people have achieved, since we took the first steps towards becoming a
newly revitalised tobacco business, determined to take the international
opportunities presented to us by a changing world. Indeed, in that
decade, we have grown our worldwide market share by 50 per cent and have
more than doubled our operating profit.

In 1994 American Tobacco was acquired, completing our global ownership
of Lucky Strike and Pall Mall. We described this as =93confirming our
commitment to tobacco=94 and the move coincided with our investment drive
into the newlyopening markets of Eastern Europe. You need only look
today at the expansion of our businesses in Russia, Hungary or Romania
and at the string of successful market entries that followed, to see
that we were right in foreseeing growth from economic liberalisation,
falling trade barriers and growing consumer choice, for those with the
enterprise and experience to pursue it.

In 1995 we set a challenging vision of regaining leadership of the
global tobacco industry within 10 years =96 a goal now within our reach,
both quantitatively and qualitatively through leadership in corporate
responsibility and innovation.

In 1996 we reshaped the business internally to forge one unified global
business out of four separate companies, enabling us to focus more
strongly on the competition.

In 1997 we heralded more market entries and acquisitions by acquiring
Cigarerra La Moderna, in the largest foreign investment yet made in
Mexico.

In 1998 the financial services businesses were demerged and we listed on
the London stock market again, for the first time in decades, as a
stand-alone tobacco business.

This was rapidly followed in 1999 by the hugely successful Rothmans
merger, bringing us stronger positions in strategically important
markets and enhancing our brand portfolio. We said the merger was a
major step towards our leadership vision and would play to our proven
strengths. I think you will agree today that it has done just that.

In 2000, we restructured our Canadian investment, effectively swapping
the non-tobacco interests for full ownership of Imperial Tobacco Canada.

In 2001 we launched the first industrywide International Tobacco
Marketing Standards, =91raising the bar=92 above existing laws or codes in
many parts of the world. We also began new ventures in Turkey, Vietnam,
Egypt, South Korea and Nigeria =96 where today our business is a
particularly outstanding success. In 2002, we celebrated our Centenary
and today we are able to report total shareholder return of 13.3 per
cent per annum over the last decade, compared to 6 per cent for the FTSE
100 as a whole. That decade of transformation has worked well for
shareholders. It has also been a great ten years for our consumers, in
terms of enhanced choice of high quality brands, and for our employees
in terms of growth and morale.

Back in the early 1990s, we were seen as a =91cash cow=92 for a diversified
conglomerate. We had no global drive brands and were not well structured
to take on the competition. Many believed the tobacco business was in
terminal decline. What a change I see today! There is a buzz of purpose
and energy everywhere I go in the Group. Our people, as well as
investors, have ample evidence that our business is sustainable and that
through growth, productivity and responsibility, it can go from strength
to strength.

Current trading and prospects

Looking ahead, we expect our real momentum to continue, although
exchange rates this year could have an adverse effect on profit growth
when translated into sterling. We can, of course, be affected by
particular circumstances in individual countries. This year, one example
will be Canada, where market factors are likely to impact profitability.
However, taking the global view, we remain confident in our ability to
build our brands, to generate growth and to demonstrate how a
responsible tobacco company should be run in the 21st century.

Our people

At AGMs, I always like to thank our people for their hard work and
dedication. This year it is a special thank you, offered with my pride
and affection for this outstanding international family. Our employee
surveys tell us that our people have high levels of satisfaction
compared to employees of other high performing companies. I too have
gained tremendous satisfaction from working amongst such talent and
energy. I will always remember the special culture that makes us what we
are. As a colleague once said, if BAT was a club, you would be willing
to pay good money to join it. I shall certainly miss it.

My sincere thanks to all our people, everywhere, and may their
endeavours long be rewarded by the further achievements that they
undoubtedly deserve.

For additional copies or further information contact Corporate and
Regulatory Affairs
Tel +44 (0)20 7845 1245
Fax +44 (0)20 7845 2127
or via IR@bat.com
http://www.bat.com
British American Tobacco
Globe House, 4 Temple Place, London WC2R 2PG

---------------------------------------
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Essential Action
P.O. Box 19405
Washington, DC 20036
Tel: +1 202-387-8030
Fax: +1 202-234-5176
Email: tobacco@essential.org
http://www.essentialaction.org/tobacco