British American Tobacco Regulatory News (BATS)

28 Apr 2005 12:02

British American Tobacco PLC28 April 2005 Speech by Jan du Plessis, Chairman at the British American Tobacco Annual General Meeting held on 28 April 2005 Good morning, ladies and gentlemen, and welcome to your Annual General Meeting. This is my first AGM as Chairman of your company and may I say that, on takingover the hot seat, I feel very good about what I have found. The Group is ingood shape, our strategy is demonstrating its strength and I am greatlyimpressed by the talent and energy of our people around the world, as they buildon the tremendous momentum achieved since British American Tobacco listed as astand-alone tobacco company on the London Stock Exchange in 1998. 2004 was a year of solid progress. Your company continued to delivershareholder value through its strategy of focusing on growth, productivity andresponsibility, delivered by a winning organisation. The Reynolds American dealwas completed, there was excellent progress in the new business in Italy, wemade big inroads into improved productivity and further embedded our approach tocorporate responsibility. But before reviewing last year's performance, let me welcome your three newNon-Executive Directors and pay tribute to those who have left us. The suddendeath of K.S. Wong in February shocked us all. KS was a valued member of yourBoard and his passing is a great loss. I'm sure you will wish to join me inexpressing sincere condolences to his family. Admiral Bill Owens stepped down last year on becoming Chief Executive of NortelNetworks and, of course, Martin Broughton retired as Chairman to take up thejoystick at British Airways. I would particularly like to thank Martin for hisoutstanding 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 SirNicholas Scheele. Piet is an Executive Director of Richemont and aNon-Executive Director of Remgro, with extensive marketing and managementexperience in the food, drinks, luxury goods, tobacco and advertisingindustries. Robert's career has spanned Finance Director positions at WPP Groupand Cable & Wireless and he was recently appointed Chief Executive of AegisGroup. Nick has joined us after a long and distinguished career with Ford MotorCompany, most recently as President and Chief Operating Officer, and isChancellor of Warwick University. I am delighted to welcome them and the broad range of skills and valuableinsights 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 outthe effects of foreign exchange, would have been up by 7 per cent. Pre-taxprofit was up 20 per cent at almost £1.9 billion and earnings per share were up10 per cent, reflecting, amongst other factors, the higher operating profit andthe share buy-back programme you have authorised. At a time when shareholders are increasingly seeking income, your Board isrecommending a final dividend of 29.2p, increasing the year's total by 8 percent 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 morethan 20 per cent a year on average, against 2.4 per cent for the FTSE 100. Ifyou have held your shares for five years, that return is even greater: aremarkable 29 per cent a year, making you some four times better off than if youhad put your money in an index tracker. I am sure you will agree that yourshareholding has proved a pretty good investment. We remain firmly focused onbuilding sound and sustainable shareholder value for many years to come. 2004 was not, however, all plain sailing. Although several markets performedstrongly, developments in some key markets, notably Canada, Japan, France andGermany, adversely affected the Group's performance. Our global drive brands, Dunhill, Kent, Lucky Strike and Pall Mall, grew by 2per cent overall, following several years of 8 to 9 per cent growth. Steep taxrises in certain markets reduced overall industry volumes, affecting Dunhill andLuckies. But Kent was up by 10 per cent in its fifth consecutive year ofgrowth, to reach a new record volume of 33 billion, and Pall Mall gained shareacross all regions, continuing to build its position as a truly global brand. In geographic terms, four regions delivered results in line with strategy, tooffset significant declines in America-Pacific. In short, progress during theyear was underpinned by the Group's geographical diversity and the fundamentalstrength of our brands and strategy. The landmark Reynolds American transaction in the USA, combining R.J. Reynoldswith the US business of Brown & Williamson, was completed successfully, givingthe 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 ofalmost 5 billion dollars. Our new Italian business, British American Tobacco Italia, successfullycompleted its first year. It now has a market share of about 30 per cent in oneof the EU's most profitable markets and profit was ahead of expectations. We made good progress in enhancing productivity - finding smart ways to beprudent with costs. We saved £89 million in overheads and indirect costs, ontop 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 andlogistics costs by £240 million in the last two years and expect to increasethese supply chain savings further. Transparency and accountability Last year we produced our third Social Report and we will issue our fourth inJuly. As before, it will be published on our website bat.com, which in 2004was, for the third year running, ranked as best website of the FTSE 100 in theFinancial Times Webranking survey. External bodies continue to endorse our approach to transparency, accountabilityand responsible management of the business. We were again selected as the onlytobacco company in the Dow Jones Sustainability Indices, along with ourMalaysian subsidiary. We won the PricewaterhouseCoopers Building Public TrustAward for reporting on executive governance and remuneration, following theprevious year's award for stakeholder communication. As shareholders, you mayalso be pleased to see your company featured by the UK Department of Trade andIndustry in its best practice guide on corporate governance, entitled 'BuildingBetter Boards'. The UK Business in the Community organisation ranked us amongst the 'TopCompanies that Count' in its Corporate Responsibility Index. The assessors gaveus scores of 100 per cent in areas such as disclosure, corporate values,business conduct and addressing labour rights in the supply chain, and rankedour environmental management as outstanding. Internationally, the UnitedNations Environmental Programme and the SustainAbility organisation ranked usfourth 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 onengaging with stakeholders in dialogue. The dialogue is certainly bringing usvaluable insights into what stakeholders expect of us in living by our BusinessPrinciples - Mutual Benefit, Responsible Product Stewardship and Good CorporateConduct - and it is helping us to focus on what really are the key issues inmanaging our business responsibly. This year I joined the dialogue, getting to grips with supply chain topics inKenya. I believe everyone present felt it was constructive to extend the UKdialogue overseas, so that both UK and local stakeholders could explore things 'on the ground' from all perspectives. I was impressed by the willingness of themany stakeholders who took part to engage candidly, to build two-way learningand to seek solutions. I am therefore disappointed that some of our most vocal UK-based criticscontinue to decline invitations to dialogue. I appreciate that dialogue takestime and effort, which NGOs can find hard to commit. But I question whether itis always wise for NGOs to refuse dialogue, yet commit the resources they dohave to attacking multinational companies - often the very companies that areworking hardest to address their concerns. Some of these criticisms seem to stem from an ideology that big business canrarely, if ever, do any good. Yet as Kofi Annan, the UN Secretary General, saidabout achieving sustainable development: "It is only by mobilising thecorporate 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 andnecessary to address poverty, lack of skills, lack of social infrastructure andlack 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 indeveloping nations is making real contributions to local development goals. Itis helping governments to build on all three pillars of sustainable development- economic, social and environmental. A lasting way to tackle poverty is bysteadily creating employment, economic security and self-sufficiency.Ultimately, only economic growth can provide the means to pay for environmentalimprovements and social progress. It is frequently multinational companies that introduce skills, training andinternational standards, for example in labour practices, reducing environmentalimpacts, 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 skilledfarmers overall, not only skilled tobacco farmers. We provide training in cropmanagement, safer ways of working and good environmental practice, and payfarmers promptly at prices that aim to ensure them a fair profit. In Sri Lanka, our business has pioneered a pension scheme for farmers, wherenone previously existed. The British American Tobacco Nigeria Foundation isworking to reduce poverty through community projects to build sustainability.We helped to establish the Elimination of Child Labour in Tobacco-GrowingFoundation, now making real inroads against child labour in more than tencountries. Our Biodiversity Partnership with four major NGOs is supportingcommunity conservation projects, and is also helping us to enhance our ownmanagement systems in biodiversity conservation and forestry. Confrontation or co-operation? The key point is that few companies seeking to embrace today's changing ideas ofcorporate responsibility can do so without constructive engagement, dialogue andpartnerships. May I therefore thank those NGOs who do come to dialogue and whowork alongside us in projects on the ground, recognising that they can helpcompanies in many ways. That's why our door is open, including to our critics. We genuinely want tolisten and find solutions. Like any large organisation, I am sure we deservecriticism from time to time. We take well-founded rebukes seriously and work toput 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 onconfrontation rather than co-operation really the best way to achieve your owngoals? I find it ironic that companies that do embrace CSR are not only criticised bysome NGOs, but also by serious business commentators who argue that the onlyproper goal of companies is the honest and legal pursuit of profit. It has beenargued that the most important book on corporate responsibility is Adam Smith's18th century 'Wealth of Nations', in which he wrote: "it is not from thebenevolence of the butcher...or the baker that we expect our dinner, but fromtheir regard to their own interest". In other words, the case is strongly putthat business achieves far more for society by being left to pursue enlightenedcommercial self interest than by attempting to embrace any other ways of servingsociety. Getting CSR right is therefore not easy, especially for businesses like ours incontroversial sectors. However, criticisms will not deter us from working tobalance our responsibilities to all our stakeholders, including ourshareholders, who have entrusted us with the management of their business. The real risk is that frequent and sometimes ill-founded attacks on large andcommitted companies will scare off those companies with limited resources andwho fear that they can only lose by embracing CSR. Yet it is often smallerbusinesses, and local businesses in developing countries, that should focus moston raising standards. There may be some anti-business campaigners whose agenda is not served bybusiness acting responsibly. But I cannot believe that this is what those whoreally 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 lessharm? We are certainly pursuing this actively in our research and developmentwork on reduced-exposure products. However, the scientific challenges are considerable, and they requireconstructive engagement with governments and their regulatory advisors, notleast about how measures of reduced harm might be established. Some regulators are concerned that encouraging such products may discourageconsumers from quitting. Some are simply reluctant to engage in discussionswith the tobacco industry. However, we are starting to see some emerging scientific and regulatory opinionthat reduced-exposure products should be encouraged. We therefore seek to work constructively with governments and their externaladvisors to help set new standards for tobacco regulation that focus on harmreduction, while preserving informed adult choice and a competitive businessenvironment. 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 thecurrent year. Given that we will be announcing the first quarter's results nextweek, it would not be appropriate for me to make any comments today on ourprospects for 2005. Let me assure shareholders, however, that our long term goal remains to growearnings per share, on average, by high single figures and to pay out at leasthalf our earnings in dividends. We look forward to the future of your companywith confidence. Let us now move to the formal business of today's meeting. ENQUIRIES David Betteridge, Teresa La Thangue, Emily Brand British American Tobacco Press Office +44 (0) 20 7845 2888 (24 hours) This information is provided by RNS The company news service from the London Stock Exchange