British American Tobacco - Speech by Richard Burrows, Chairman at the British American Tobacco p.l.c. 2012 Annual General Meeting

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Speech by Richard Burrows, Chairman at the British American Tobacco p.l.c. 2012 Annual General Meeting

26 April 2012

Good morning ladies and gentlemen and welcome to your Annual General Meeting.

And welcome to our new venue. This fine and historic building is, I hope you agree, very acceptable. The ceiling by Rubens from 1636 is magnificent.

Interestingly that century also witnessed soaring tobacco taxes and rampant smuggling. Some things never change, it seems.

Business performance

Moving firmly back to the present, I’m pleased to report that 2011 was another very good year for your company as our proven strategy continued to deliver growth, despite the continued economic stagnation in many markets.

Overall industry volume declined again last year, but our global volumes were virtually unchanged, down just 0.4 per cent, and importantly we again grew market share.

That growth is spear-headed by innovation and by speed of execution as we roll out product innovations and formats that really appeal to our consumers.

Innovations – including our re-sealable packs and menthol capsules - already account for more than 35 per cent of Global Drive Brand volumes. And be assured that we have many more innovations in the pipeline.

Last year we further addressed our cost base, helping to achieve a substantial increase in operating margin from 33.5 to 35.8 per cent.

Overall our revenue rose by 7 per cent, profit from operations grew by 11 per cent and earnings per share improved by 11 per cent to 194.6 pence.

And you will be voting on a final dividend of 88.4 pence, taking the total for the year to 126.5 pence, an increase of 11 per cent and maintaining our target of paying out 65 per cent of underlying earnings in dividends.

And finally the increase in our share buy-back, which the Board believes is strongly in shareholders’ interests - to a value of £1.25 billion this year - has been agreed.

Further impressions

This is my third AGM. Taking stock, I can tell you your company is in good shape.

Wherever I go I see great energy – there is a real sense of drive and confidence coupled with quality in execution.
Quality comes in many forms and I want to focus just now on our determination to reduce the harm caused by smoking.

Science is important to us and last year we created a new Management Board position of Group Scientific Director.

We also spent £166 million on research and development in 2011, making us one of Britain’s top investors in R&D. I visited our Cambridge biotechnology laboratories and saw some of that investment in action.

So where is this leading? We expect continued growth in our current cigarette business.

But we also want to be able to offer a choice of reduced toxicant cigarettes and build our business in new categories such as low-toxicant smokeless tobacco and approved nicotine products.

Remember it’s the smoking that creates the serious risk to health, not nicotine.

Nicoventures, a stand-alone company in our Group, is exploring the development of nicotine products that, subject to regulatory approval, will provide smokers with a safer alternative to cigarettes that they actually want to use.

If it is successful this will also meet the objectives of some leading public health professionals and make commercial sense for us and to you, our shareholders.


I think it still surprises some people that we are not automatically against regulation. Why would we be when smoking is bad for you?

We support, for example, raising to 18 the legal age for the sale of cigarettes in countries where it is lower or even non-existent, we want tougher laws against smugglers and agree all packs should carry appropriate health warnings.

But bigger and bigger health warnings don’t tell consumers anything they didn’t know – it’s just the equivalent of shouting at them even louder and louder. Not surprisingly, real life evidence suggests they are not effective.

A 2010 report for the Department of Health concluded that the introduction of graphic health warnings in England had no impact on smoking rates or the number of cigarettes smoked.

The display ban which started in larger stores here this month is an ineffective game of ‘tobacco hide and seek’ at the counter that isn’t going to stop people smoking either - but it is frustrating for consumers and retailers alike.

That’s why we, retail groups and other like-minded organisations stood together against the measure.

Campaigners push for regulations that have no scientific basis and frankly make no difference to adult or under-age smoking.

I think you then have to question whether plain or generic packaging will ever achieve government health objectives to reduce smoking.

In this country, plain packaging is now a live issue. The Government says it has an open mind and has started to consult widely. We hope it will.

We hope it doesn’t follow Australia - the only country in the world to insist on what amounts to the theft of our intellectual property. It’s a move that we and others are challenging in court.

At the heart of the pro-plain packaging campaign is the belief that removing logos and colours from packs will give children “one less reason to start smoking.”

But we believe plain packaging – because it’s a gift to the black market – will actually make cigarettes easier for children to buy.

How? Generic packaging would make packs even easier to counterfeit, further fuelling the illegal market where there are no age controls.

A recent Canadian study showed that, while contraband tobacco accounted for about 14 per cent of all cigarettes smoked by adults, they accounted for 43 per cent of those smoked by school-age children. That’s shocking. Contraband tobacco really is a trap for young people.

Add to this that decades of research shows young people start smoking because of friends and family influence, and you begin to see plain packaging is plainly misconceived.

So, what’s the real answer? Smoking prevention and quitting initiatives alone are not going to resolve the public health question. We need a broader approach – one that accepts many adults are going to continue using tobacco and nicotine products. That means developing reduced risk products as I described earlier. That means co-operation between industry and regulators for the public good.

I strongly encourage stakeholders to learn more about our approach to harm reduction in our Sustainability Report and on our website


Turning now to people, let me mention Ann Godbehere, a Canadian, who joined your Board as a Non-Executive director in October last year. Ann, who has many years’ experience in senior roles in financial services, is a member of our Nominations and Remuneration Committees and is becoming a member of our Audit Committee today.

It was Nicandro Durante’s first year as Chief Executive and I want to thank him and his management board for outstanding leadership.

And it is to the great credit of all our 56,000 people worldwide that your company continues to grow and I warmly thank everyone for their energy, drive and enthusiasm.

Once again, thank you, shareholders with us today, for your continued loyalty.

Today’s trading update

Before we move on to the Resolutions, a quick update on how the Group has performed in the first three months of this year.

In our interim management statement this morning we reported good revenue growth of 6 per cent at constant rates of exchange, revenue growth of 4 per cent at current rates of exchange and a 6 per cent rise in Global Drive Brand volumes. Overall organic volumes from subsidiaries increased by 0.7 per cent. It’s a strong start to another year of anticipated good earnings growth.


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