uk bat.com - Speech by Jan du Plessis, Chairman at the British American Tobacco 2005 Annual General Meeting
News release
Speech by Jan du Plessis, Chairman at the British American Tobacco 2005 Annual General Meeting
28 April 2005
This is my first AGM as Chairman of your company and may I say that, on taking over the hot seat, I feel very good about what I have found. The Group is in good shape, our strategy is demonstrating its strength and I am greatly impressed by the talent and energy of our people around the world, as they build on the tremendous momentum achieved since British American Tobacco listed as a stand-alone tobacco company on the London Stock Exchange in 1998.
2004 was a year of solid progress. Your company continued to deliver shareholder value through its strategy of focusing on growth, productivity and responsibility, delivered by a winning organisation. The Reynolds American deal was completed, there was excellent progress in the new business in Italy, we made big inroads into improved productivity and further embedded our approach to corporate responsibility.
But before reviewing last year’s performance, let me welcome your three new Non-Executive Directors and pay tribute to those who have left us. The sudden death of K.S. Wong in February shocked us all. KS was a valued member of your Board and his passing is a great loss. I’m sure you will wish to join me in expressing sincere condolences to his family.
Admiral Bill Owens stepped down last year on becoming Chief Executive of Nortel Networks and, of course, Martin Broughton retired as Chairman to take up the joystick at British Airways. I would particularly like to thank Martin for his outstanding contribution to the Group over a career spanning more than 30 years.
It’s my pleasant task to introduce to you Piet Beyers, Robert Lerwill and Sir Nicholas Scheele. Piet is an Executive Director of Richemont and a Non-Executive Director of Remgro, with extensive marketing and management experience in the food, drinks, luxury goods, tobacco and advertising industries. Robert’s career has spanned Finance Director positions at WPP Group and Cable & Wireless and he was recently appointed Chief Executive of Aegis Group. Nick has joined us after a long and distinguished career with Ford Motor Company, most recently as President and Chief Operating Officer, and is Chancellor of Warwick University.
I am delighted to welcome them and the broad range of skills and valuable insights they bring to your Board.
2004 business review
Let me now turn to your company’s performance last year.
Operating profit was up by 2 per cent at over £2.8 billion and, stripping out the effects of foreign exchange, would have been up by 7 per cent. Pre-tax profit was up 20 per cent at almost £1.9 billion and earnings per share were up 10 per cent, reflecting, amongst other factors, the higher operating profit and the share buy-back programme you have authorised.
At a time when shareholders are increasingly seeking income, your Board is recommending a final dividend of 29.2p, increasing the year’s total by 8 per cent to 41.9p per share. Since 1998, dividends have grown by about 75 per cent, representing compound annual growth of 9.7 per cent.
Over the last three years, we have delivered total shareholder return of more than 20 per cent a year on average, against 2.4 per cent for the FTSE 100. If you have held your shares for five years, that return is even greater: a remarkable 29 per cent a year, making you some four times better off than if you had put your money in an index tracker. I am sure you will agree that your shareholding has proved a pretty good investment. We remain firmly focused on building sound and sustainable shareholder value for many years to come.
2004 was not, however, all plain sailing. Although several markets performed strongly, developments in some key markets, notably Canada, Japan, France and Germany, adversely affected the Group’s performance.
Our global drive brands, Dunhill, Kent, Lucky Strike and Pall Mall, grew by 2 per cent overall, following several years of 8 to 9 per cent growth. Steep tax rises in certain markets reduced overall industry volumes, affecting Dunhill and Luckies. But Kent was up by 10 per cent in its fifth consecutive year of growth, to reach a new record volume of 33 billion, and Pall Mall gained share across all regions, continuing to build its position as a truly global brand.
In geographic terms, four regions delivered results in line with strategy, to offset significant declines in America-Pacific. In short, progress during the year was underpinned by the Group’s geographical diversity and the fundamental strength of our brands and strategy.
The landmark Reynolds American transaction in the USA, combining R.J. Reynolds with the US business of Brown & Williamson, was completed successfully, giving the Group a stronger presence in the world’s most profitable cigarette market. Integration is going well and our 42 per cent shareholding has a market value of almost 5 billion dollars.
Our new Italian business, British American Tobacco Italia, successfully completed its first year. It now has a market share of about 30 per cent in one of the EU’s most profitable markets and profit was ahead of expectations.
We made good progress in enhancing productivity – finding smart ways to be prudent with costs. We saved £89 million in overheads and indirect costs, on top of £64 million the year before, and have now raised our target to be saving £320 million a year by the end of 2007. We have also reduced our factory and logistics costs by £240 million in the last two years and expect to increase these supply chain savings further.
Transparency and accountability
Last year we produced our third Social Report and we will issue our fourth in July. As before, it will be published on our website bat.com, which in 2004 was, for the third year running, ranked as best website of the FTSE 100 in the Financial Times Webranking survey.
External bodies continue to endorse our approach to transparency, accountability and responsible management of the business. We were again selected as the only tobacco company in the Dow Jones Sustainability Indices, along with our Malaysian subsidiary. We won the PricewaterhouseCoopers Building Public Trust Award for reporting on executive governance and remuneration, following the previous year’s award for stakeholder communication. As shareholders, you may also be pleased to see your company featured by the UK Department of Trade and Industry in its best practice guide on corporate governance, entitled ‘Building Better Boards’.
The UK Business in the Community organisation ranked us amongst the ‘Top Companies that Count’ in its Corporate Responsibility Index. The assessors gave us scores of 100 per cent in areas such as disclosure, corporate values, business conduct and addressing labour rights in the supply chain, and ranked our environmental management as outstanding. Internationally, the United Nations Environmental Programme and the SustainAbility organisation ranked us fourth best in the world in non-financial reporting.
2004 was a year of solid progress. Your company continued to deliver shareholder value through its strategy of focusing on growth, productivity and responsibility, delivered by a winning organisation. The Reynolds American deal was completed, there was excellent progress in the new business in Italy, we made big inroads into improved productivity and further embedded our approach to corporate responsibility.
But before reviewing last year’s performance, let me welcome your three new Non-Executive Directors and pay tribute to those who have left us. The sudden death of K.S. Wong in February shocked us all. KS was a valued member of your Board and his passing is a great loss. I’m sure you will wish to join me in expressing sincere condolences to his family.
Admiral Bill Owens stepped down last year on becoming Chief Executive of Nortel Networks and, of course, Martin Broughton retired as Chairman to take up the joystick at British Airways. I would particularly like to thank Martin for his outstanding contribution to the Group over a career spanning more than 30 years.
It’s my pleasant task to introduce to you Piet Beyers, Robert Lerwill and Sir Nicholas Scheele. Piet is an Executive Director of Richemont and a Non-Executive Director of Remgro, with extensive marketing and management experience in the food, drinks, luxury goods, tobacco and advertising industries. Robert’s career has spanned Finance Director positions at WPP Group and Cable & Wireless and he was recently appointed Chief Executive of Aegis Group. Nick has joined us after a long and distinguished career with Ford Motor Company, most recently as President and Chief Operating Officer, and is Chancellor of Warwick University.
I am delighted to welcome them and the broad range of skills and valuable insights they bring to your Board.
2004 business review
Let me now turn to your company’s performance last year.
Operating profit was up by 2 per cent at over £2.8 billion and, stripping out the effects of foreign exchange, would have been up by 7 per cent. Pre-tax profit was up 20 per cent at almost £1.9 billion and earnings per share were up 10 per cent, reflecting, amongst other factors, the higher operating profit and the share buy-back programme you have authorised.
At a time when shareholders are increasingly seeking income, your Board is recommending a final dividend of 29.2p, increasing the year’s total by 8 per cent to 41.9p per share. Since 1998, dividends have grown by about 75 per cent, representing compound annual growth of 9.7 per cent.
Over the last three years, we have delivered total shareholder return of more than 20 per cent a year on average, against 2.4 per cent for the FTSE 100. If you have held your shares for five years, that return is even greater: a remarkable 29 per cent a year, making you some four times better off than if you had put your money in an index tracker. I am sure you will agree that your shareholding has proved a pretty good investment. We remain firmly focused on building sound and sustainable shareholder value for many years to come.
2004 was not, however, all plain sailing. Although several markets performed strongly, developments in some key markets, notably Canada, Japan, France and Germany, adversely affected the Group’s performance.
Our global drive brands, Dunhill, Kent, Lucky Strike and Pall Mall, grew by 2 per cent overall, following several years of 8 to 9 per cent growth. Steep tax rises in certain markets reduced overall industry volumes, affecting Dunhill and Luckies. But Kent was up by 10 per cent in its fifth consecutive year of growth, to reach a new record volume of 33 billion, and Pall Mall gained share across all regions, continuing to build its position as a truly global brand.
In geographic terms, four regions delivered results in line with strategy, to offset significant declines in America-Pacific. In short, progress during the year was underpinned by the Group’s geographical diversity and the fundamental strength of our brands and strategy.
The landmark Reynolds American transaction in the USA, combining R.J. Reynolds with the US business of Brown & Williamson, was completed successfully, giving the Group a stronger presence in the world’s most profitable cigarette market. Integration is going well and our 42 per cent shareholding has a market value of almost 5 billion dollars.
Our new Italian business, British American Tobacco Italia, successfully completed its first year. It now has a market share of about 30 per cent in one of the EU’s most profitable markets and profit was ahead of expectations.
We made good progress in enhancing productivity – finding smart ways to be prudent with costs. We saved £89 million in overheads and indirect costs, on top of £64 million the year before, and have now raised our target to be saving £320 million a year by the end of 2007. We have also reduced our factory and logistics costs by £240 million in the last two years and expect to increase these supply chain savings further.
Transparency and accountability
Last year we produced our third Social Report and we will issue our fourth in July. As before, it will be published on our website bat.com, which in 2004 was, for the third year running, ranked as best website of the FTSE 100 in the Financial Times Webranking survey.
External bodies continue to endorse our approach to transparency, accountability and responsible management of the business. We were again selected as the only tobacco company in the Dow Jones Sustainability Indices, along with our Malaysian subsidiary. We won the PricewaterhouseCoopers Building Public Trust Award for reporting on executive governance and remuneration, following the previous year’s award for stakeholder communication. As shareholders, you may also be pleased to see your company featured by the UK Department of Trade and Industry in its best practice guide on corporate governance, entitled ‘Building Better Boards’.
The UK Business in the Community organisation ranked us amongst the ‘Top Companies that Count’ in its Corporate Responsibility Index. The assessors gave us scores of 100 per cent in areas such as disclosure, corporate values, business conduct and addressing labour rights in the supply chain, and ranked our environmental management as outstanding. Internationally, the United Nations Environmental Programme and the SustainAbility organisation ranked us fourth best in the world in non-financial reporting.
NGOs: dialogue or refusal to engage?
Many external bodies strongly endorse the way our social reporting is centred on engaging with stakeholders in dialogue. The dialogue is certainly bringing us valuable insights into what stakeholders expect of us in living by our Business Principles – Mutual Benefit, Responsible Product Stewardship and Good Corporate Conduct – and it is helping us to focus on what really are the key issues in managing our business responsibly.
This year I joined the dialogue, getting to grips with supply chain topics in Kenya. I believe everyone present felt it was constructive to extend the UK dialogue overseas, so that both UK and local stakeholders could explore things ‘on the ground’ from all perspectives. I was impressed by the willingness of the many stakeholders who took part to engage candidly, to build two-way learning and to seek solutions.
I am therefore disappointed that some of our most vocal UK-based critics continue to decline invitations to dialogue. I appreciate that dialogue takes time and effort, which NGOs can find hard to commit. But I question whether it is always wise for NGOs to refuse dialogue, yet commit the resources they do have to attacking multinational companies – often the very companies that are working hardest to address their concerns.
Some of these criticisms seem to stem from an ideology that big business can rarely, if ever, do any good. Yet as Kofi Annan, the UN Secretary General, said about achieving sustainable development: “It is only by mobilising the corporate sector that we can make significant progress.”
I agree that alienating business is not the pathway to sustainable development, and I speak as someone with a fair understanding of – and passionate interest in – the development issues facing Africa.
I am sure that everyone here today would agree, as I do, that it is right and necessary to address poverty, lack of skills, lack of social infrastructure and lack of opportunity – huge problems for many developing countries. However, this vast and complex challenge needs an integrated range of constructive inputs – from governments, communities, NGOs, development organisations and, of course, from business.
Contributions of multinational business
It is often overlooked that the presence of multinational businesses in developing nations is making real contributions to local development goals. It is helping governments to build on all three pillars of sustainable development – economic, social and environmental. A lasting way to tackle poverty is by steadily creating employment, economic security and self-sufficiency. Ultimately, only economic growth can provide the means to pay for environmental improvements and social progress.
It is frequently multinational companies that introduce skills, training and international standards, for example in labour practices, reducing environmental impacts, improving workplace safety and providing community support.
For example, British American Tobacco’s programmes with farmers in 22 countries – from whom we buy two thirds of our leaf – aim to help them become skilled farmers overall, not only skilled tobacco farmers. We provide training in crop management, safer ways of working and good environmental practice, and pay farmers promptly at prices that aim to ensure them a fair profit.
In Sri Lanka, our business has pioneered a pension scheme for farmers, where none previously existed. The British American Tobacco Nigeria Foundation is working to reduce poverty through community projects to build sustainability. We helped to establish the Elimination of Child Labour in Tobacco-Growing Foundation, now making real inroads against child labour in more than ten countries. Our Biodiversity Partnership with four major NGOs is supporting community conservation projects, and is also helping us to enhance our own management systems in biodiversity conservation and forestry.
Confrontation or co-operation?
The key point is that few companies seeking to embrace today’s changing ideas of corporate responsibility can do so without constructive engagement, dialogue and partnerships. May I therefore thank those NGOs who do come to dialogue and who work alongside us in projects on the ground, recognising that they can help companies in many ways.
That’s why our door is open, including to our critics. We genuinely seek to listen and find solutions. Like any large organisation, I am sure we deserve criticism from time to time. We take well-founded rebukes seriously and work to put right things that really are wrong, and where we have a mandate to do so.
To those who criticise yet refuse to engage, I ask: is your insistence on confrontation rather than co-operation really the best way to achieve your own goals?
I find it ironic that companies that do embrace CSR are not only criticised by some NGOs, but also by serious business commentators who argue that the only proper goal of companies is the honest and legal pursuit of profit. It has been argued that the most important book on corporate responsibility is Adam Smith’s 18th century ‘Wealth of Nations’, in which he wrote: “it is not from the benevolence of the butcher…or the baker that we expect our dinner, but from their regard to their own interest”. In other words, the case is strongly put that business achieves far more for society by being left to pursue enlightened commercial self interest than by attempting to embrace any other ways of serving society.
Getting CSR right is therefore not easy, especially for businesses like ours in controversial sectors. However, criticisms will not deter us from working to balance our responsibilities to all our stakeholders, including our shareholders, who have entrusted us with the management of their business.
The real risk is that frequent and sometimes ill-founded attacks on large and committed companies will scare off those companies with limited resources and who fear that they can only lose by embracing CSR. Yet it is often smaller businesses, and local businesses in developing countries, that should focus most on raising standards.
There may be some anti-business campaigners whose agenda is not served by business acting responsibly. But I cannot believe that this is what those who really seek progress actually want.
Harm reduction
There is one further topic I would like to touch on briefly before ending.
We are often asked by stakeholders: can you make a cigarette that causes less harm? We are certainly pursuing this actively in our research and development work on reduced-exposure products.
However, the scientific challenges are considerable, and they require constructive engagement with governments and their regulatory advisors, not least about how measures of reduced harm might be established.
Some regulators are concerned that encouraging such products may discourage consumers from quitting. Some are simply reluctant to engage in discussions with the tobacco industry.
However, we are starting to see some emerging scientific and regulatory opinion that reduced-exposure products should be encouraged.
We therefore seek to work constructively with governments and their external advisors to help set new standards for tobacco regulation that focus on harm reduction, while preserving informed adult choice and a competitive business environment.
Current trading and prospects
Finally, turning to what traditionalists would consider to be our real business, the AGM usually presents an opportunity for comment on our prospects for the current year. Given that we will be announcing the first quarter’s results next week, it would not be appropriate for me to make any comments today on our prospects for 2005.
Let me assure shareholders, however, that our long term goal remains to grow earnings per share, on average, by high single figures and to pay out at least half our earnings in dividends. We look forward to the future of your company with confidence.
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
British American Tobacco
Globe House, 4 Temple Place, London WC2R 2PG
Many external bodies strongly endorse the way our social reporting is centred on engaging with stakeholders in dialogue. The dialogue is certainly bringing us valuable insights into what stakeholders expect of us in living by our Business Principles – Mutual Benefit, Responsible Product Stewardship and Good Corporate Conduct – and it is helping us to focus on what really are the key issues in managing our business responsibly.
This year I joined the dialogue, getting to grips with supply chain topics in Kenya. I believe everyone present felt it was constructive to extend the UK dialogue overseas, so that both UK and local stakeholders could explore things ‘on the ground’ from all perspectives. I was impressed by the willingness of the many stakeholders who took part to engage candidly, to build two-way learning and to seek solutions.
I am therefore disappointed that some of our most vocal UK-based critics continue to decline invitations to dialogue. I appreciate that dialogue takes time and effort, which NGOs can find hard to commit. But I question whether it is always wise for NGOs to refuse dialogue, yet commit the resources they do have to attacking multinational companies – often the very companies that are working hardest to address their concerns.
Some of these criticisms seem to stem from an ideology that big business can rarely, if ever, do any good. Yet as Kofi Annan, the UN Secretary General, said about achieving sustainable development: “It is only by mobilising the corporate sector that we can make significant progress.”
I agree that alienating business is not the pathway to sustainable development, and I speak as someone with a fair understanding of – and passionate interest in – the development issues facing Africa.
I am sure that everyone here today would agree, as I do, that it is right and necessary to address poverty, lack of skills, lack of social infrastructure and lack of opportunity – huge problems for many developing countries. However, this vast and complex challenge needs an integrated range of constructive inputs – from governments, communities, NGOs, development organisations and, of course, from business.
Contributions of multinational business
It is often overlooked that the presence of multinational businesses in developing nations is making real contributions to local development goals. It is helping governments to build on all three pillars of sustainable development – economic, social and environmental. A lasting way to tackle poverty is by steadily creating employment, economic security and self-sufficiency. Ultimately, only economic growth can provide the means to pay for environmental improvements and social progress.
It is frequently multinational companies that introduce skills, training and international standards, for example in labour practices, reducing environmental impacts, improving workplace safety and providing community support.
For example, British American Tobacco’s programmes with farmers in 22 countries – from whom we buy two thirds of our leaf – aim to help them become skilled farmers overall, not only skilled tobacco farmers. We provide training in crop management, safer ways of working and good environmental practice, and pay farmers promptly at prices that aim to ensure them a fair profit.
In Sri Lanka, our business has pioneered a pension scheme for farmers, where none previously existed. The British American Tobacco Nigeria Foundation is working to reduce poverty through community projects to build sustainability. We helped to establish the Elimination of Child Labour in Tobacco-Growing Foundation, now making real inroads against child labour in more than ten countries. Our Biodiversity Partnership with four major NGOs is supporting community conservation projects, and is also helping us to enhance our own management systems in biodiversity conservation and forestry.
Confrontation or co-operation?
The key point is that few companies seeking to embrace today’s changing ideas of corporate responsibility can do so without constructive engagement, dialogue and partnerships. May I therefore thank those NGOs who do come to dialogue and who work alongside us in projects on the ground, recognising that they can help companies in many ways.
That’s why our door is open, including to our critics. We genuinely seek to listen and find solutions. Like any large organisation, I am sure we deserve criticism from time to time. We take well-founded rebukes seriously and work to put right things that really are wrong, and where we have a mandate to do so.
To those who criticise yet refuse to engage, I ask: is your insistence on confrontation rather than co-operation really the best way to achieve your own goals?
I find it ironic that companies that do embrace CSR are not only criticised by some NGOs, but also by serious business commentators who argue that the only proper goal of companies is the honest and legal pursuit of profit. It has been argued that the most important book on corporate responsibility is Adam Smith’s 18th century ‘Wealth of Nations’, in which he wrote: “it is not from the benevolence of the butcher…or the baker that we expect our dinner, but from their regard to their own interest”. In other words, the case is strongly put that business achieves far more for society by being left to pursue enlightened commercial self interest than by attempting to embrace any other ways of serving society.
Getting CSR right is therefore not easy, especially for businesses like ours in controversial sectors. However, criticisms will not deter us from working to balance our responsibilities to all our stakeholders, including our shareholders, who have entrusted us with the management of their business.
The real risk is that frequent and sometimes ill-founded attacks on large and committed companies will scare off those companies with limited resources and who fear that they can only lose by embracing CSR. Yet it is often smaller businesses, and local businesses in developing countries, that should focus most on raising standards.
There may be some anti-business campaigners whose agenda is not served by business acting responsibly. But I cannot believe that this is what those who really seek progress actually want.
Harm reduction
There is one further topic I would like to touch on briefly before ending.
We are often asked by stakeholders: can you make a cigarette that causes less harm? We are certainly pursuing this actively in our research and development work on reduced-exposure products.
However, the scientific challenges are considerable, and they require constructive engagement with governments and their regulatory advisors, not least about how measures of reduced harm might be established.
Some regulators are concerned that encouraging such products may discourage consumers from quitting. Some are simply reluctant to engage in discussions with the tobacco industry.
However, we are starting to see some emerging scientific and regulatory opinion that reduced-exposure products should be encouraged.
We therefore seek to work constructively with governments and their external advisors to help set new standards for tobacco regulation that focus on harm reduction, while preserving informed adult choice and a competitive business environment.
Current trading and prospects
Finally, turning to what traditionalists would consider to be our real business, the AGM usually presents an opportunity for comment on our prospects for the current year. Given that we will be announcing the first quarter’s results next week, it would not be appropriate for me to make any comments today on our prospects for 2005.
Let me assure shareholders, however, that our long term goal remains to grow earnings per share, on average, by high single figures and to pay out at least half our earnings in dividends. We look forward to the future of your company with confidence.
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
British American Tobacco
Globe House, 4 Temple Place, London WC2R 2PG
