Speech by Richard Burrows, Chairman at the British American Tobacco p.l.c. 2013 Annual General Meeting
25 April 2013
Good morning ladies and gentlemen. Welcome to your Annual General Meeting and welcome back to this historic venue.
Your company’s proven strategy continues to deliver. In 2012, strong operating profit growth was achieved through good pricing and improved efficiency, leading to an increase in operating margin of 160 basis points to 37.4 per cent. Revenue, because of adverse exchange rates during the year, was down 1%.
We grew our underlying market share globally and our continued success in innovations drove our Global Drive Brand volumes up by 3 per cent. Our Global Drive Brands are a success story and today account for a third of our global volumes.
Difficult trading conditions persist in many parts of the world, not least southern Europe. Our resilience is thanks to our strong geographic diversity, underpinned by a portfolio of more than 200 brands. Put simply, we offer quality products to suit not only widely differing consumer preferences, but also across a range of price points.
Overall, we achieved a 7 per cent increase in adjusted diluted earnings per share to 207.5 pence.
You will be voting today on a final dividend of 92.7 pence per share, taking the total for the year to 134.9 pence, an increase of 7 per cent and maintaining our target of paying out 65 per cent of underlying earnings in dividends.
Our share buy-back continues this year, increased by £250 million to £1.5 billion.
Turning now to the first three months of this year, I’m pleased to report that that the good momentum achieved in 2012 continues. Revenue is up and the Global Drive Brands continue their good performance. It is a good start to the year.
Your company has a proud history and, we believe, a bright future.
In these historic surroundings we can recall that this Company was founded in 1902 and is going from strength to strength today. British American Tobacco is now present in 180 countries and is providing jobs for more than 55,000 people directly and many more indirectly.
We always strive to act with integrity and responsibility – attributes we believe are necessary for a sustainable future.
That future depends on us satisfying consumers, both with a portfolio of superior cigarette brands and a range of new nicotine-based products for smokers.
Our continued success in the immediate future however is firmly rooted in the tobacco business, but we are determined to develop smoke-free, reduced-harm nicotine products that will have the same appeal to smokers as their favourite cigarettes. That way, consumers will be satisfied, public health is likely to improve, and our business will continue to grow.
These are exciting times. As our Chief Executive says in our new Sustainability Report, we are beginning to write the next chapter in our long history.
We see these nicotine products as an important growth area for us. We have to start small, finding our way in what is largely uncharted scientific and regulatory territory, but in the medium to long term, the revenues could be material.
Our subsidiary Nicoventures is preparing to launch its first nicotine inhalation product in the UK and through our recent acquisition of CN Creative, another British company, we are now exploring the development of electronic cigarettes.
The key here is that the scientific community widely agrees that it is the toxicants in tobacco and tobacco smoke, not the nicotine, that cause the majority of tobacco related diseases.
Of course, there are many other issues rightly demanding attention on our sustainability agenda – from the welfare of tobacco farmers to protecting the environment and helping to prevent children from smoking.
The marketing of our products around the world is governed by local laws and regulation and, importantly, by our own marketing principles which in many cases are more restrictive on our management than the local laws.
Following a recent update, these principles are now designed to meet the demands of modern communications. So, for example, it shouldn’t surprise you that we would only use digital media if proper age verification is possible. Just as before, we aim for 100 per cent compliance with our Principles and we will publish our record.
We also work with retailers on age verification schemes and our fight against the illegal tobacco trade plays an important role too. The black market is where youngsters have easy access to cheap cigarettes with no age controls. Never think tobacco smuggling and counterfeiting is a victimless crime.
As regards social and environmental matters, independent external benchmarking of our performance is important to us. One example is the Dow Jones Sustainability Index in which we have now appeared for 11 years running.
And we were ranked in the top quartile of the world’s largest companies in a study on transparency in corporate reporting carried out by Transparency International, a leading anti-corruption organisation.
Finally, let’s turn to people.
My sincere thanks to Sir Nick Scheele, our Senior Independent Director, and to Robert Lerwill, Chairman of the Audit Committee, who are standing down today after each serving eight years on the Board.
Your new Senior Independent Director is Christine Morin-Postel, who joined us in 2007 and has extensive public company director experience. Unfortunately, due to a family bereavement Christine cannot be with us today.
I am pleased to welcome to the Board Dr Richard Tubb, a retired US Brigadier General and one of the longest serving White House physicians. He is a prominent and well respected expert in tobacco harm reduction – underscoring our commitment to social responsibility, science and next generation products.
On behalf of all shareholders, my thanks to Chief Executive, Nicandro Durante, the rest of the Board, management and employees the world over. It has been another great year and something to be proud of.
And to you, our shareholders, I am grateful for your continued loyalty and participation.