| Wed 28 Apr 2010, 13:45 | | BTI - British American Tobacco p.l.c. - 2010 AGM speech |
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BTI
BTI
BTI - British American Tobacco p.l.c. - 2010 AGM speech
British American Tobacco p.l.c.
Incorporated in England and Wales
(Registration number: 03407696)
Short name: BATS
Share code: BTI
ISIN number: GB0002875804
("British American Tobacco p.l.c." or "the Company")
2010 AGM speech
Good morning ladies and gentlemen. All your directors are here and we welcome
you to your Annual General Meeting.
2009 was a remarkable year to join British American Tobacco and I feel
privileged to be Chairman.
While many companies have taken a beating in the deepest global recession
since the 1930s, your company lifted revenue by 17 per cent and profit from
operations by 20 per cent.
And you will be voting today on a final dividend of 71.6 pence per share,
raising this year`s total dividend by 19 per cent to just under one pound per
share.
This will maintain our target of paying out 65 per cent of sustainable
earnings in dividends.
Excellent results don`t happen by chance: they are the outcome of a well tried-
and-tested strategy.
That strategy has delivered growth in both good economic times and bad.
Look at the last decade. You will see earnings per share and dividends per
share grew every year without exception to achieve a compound annual growth
rate of almost 12 per cent for earnings and almost 15 per cent for dividends.
And our total shareholder return of 26 per cent per annum compares very
favourably with the FTSE100 as a whole which yielded under one per cent.
As I said, 2009 was a remarkable year and it rounded-off a remarkable decade.
As you would expect, as the new man, I have been getting out of the Boardroom
to see first-hand how the business operates.
In the last month alone I have visited Turkey, Brazil and Indonesia and these
visits have helped me to appreciate the great strength that comes from the
geographic diversity of your business.
Some two-thirds of revenue and about 60 per cent of profit come from emerging
economies. This bodes well for the future as many of these countries appear
to be bouncing back from the downturn faster than most developed economies.
There is diversity too in our brand portfolio. Broadly speaking we have one
third of global volume in premium, one third in mid-price and one third in
value-for-money brands.
That`s a good place to be. It means we have a brand or brands to match most
consumers` pockets.
Kent, Pall Mall, Dunhill and Lucky Strike - our Global Drive Brands - lead the
way and their upward trajectory continues: a very respectable 4 per cent
growth in volumes last year.
Successful innovations are helping to drive that growth. It`s great to see
brands becoming more interesting and contemporary.
To mention three recent innovations - our consumers love re-sealable packs
that keep their cigarettes fresh, they enjoy capsule technology that offers
extra menthol flavour just when they want it, and the look and feel of the
super-slim, king-size Kent Nanotek have boosted the brand.
My career in the international drinks industry taught me many things, not
least being the importance of having the right products in the right stores
and not being out-of-stock: in other words, distribution capability.
At the heart of this are good, mutually beneficial relationships with our
substantial cross-section of trade partners - distributors and retailers
alike.
British American Tobacco`s Direct Store Sales system of distribution is very
good. It now covers more than half of global volumes and gives our own
salespeople important, direct relationships with retailers large and small.
It`s not just revenue that has produced the returns you have seen over the
past decade. There is also a sharp focus on making the business more
efficient.
In 2009 our operating profit margin reached 31.4 per cent and is clearly
benefiting from significant efficiency savings worldwide together with
improved revenue from higher pricing.
Our target is at least 34 per cent by 2012 and we are confident that the
current five-year productivity savings target of GBP800 million per annum by
2012 will help to deliver it.
So your business is in great shape, it has grown in the midst of a deep global
recession and the economic outlook is now starting to improve again.
But there is an ever present risk that shows no sign of diminishing and could
worsen. I am talking about the global illegal trade in tobacco products.
Cigarettes are probably the most smuggled legal product in the world and
organised crime is increasingly involved.
Weapons, drugs and people traffickers - and also terrorist groups - are
attracted by the easy profits from untaxed booty. They are definitely not
deterred by weak criminal penalties.
Anything up to 660 billion cigarettes a year pass through the hands of
smugglers, counterfeiters and local tax evaders worldwide
Estimates say that governments worldwide lose up to GBP26 billion a year in
unpaid taxes.
Our industry probably loses GBP3 - GBP6 billion a year in revenue and sees
brands and jobs undermined.
But the greatest damage is caused through the encouragement of youth smoking
because black market vendors will sell shamelessly to the under-age.
Your company works very closely with law enforcers and is very vocal in its
support of a draft World Health Organisation protocol designed to drive better
international co-operation against illicit trade.
But we are concerned that other new regulation, sponsored by the WHO, will
cause the black market to increase.
The WHO`s Framework Convention on Tobacco Control is already guiding member
governments to hide tobacco products from view in shops and to consider
forcing tobacco companies to sell cigarettes in plain packs.
This year, one focus of the FCTC is ingredients in tobacco products. Baseless
restrictions or bans could change the taste of many popular brands.
We believe none of these moves will lead to less smoking nor deter under-age
smoking. But we fear they will grow the amount and availability of illicit
cigarettes.
Think about it. Concealing cigarettes in shops will help blur the distinction
between legal and black market cigarettes. And plain packs will be so much
easier to counterfeit.
And changing the taste of favourite brands will simply drive smokers into the
arms of the criminal suppliers who will not be so constrained.
In Ireland, my home country, I read that some smokers prefer the taste of
counterfeit brands. Maybe they are stronger than the EU allows legal
manufacturers to sell.
Gangs in Ireland get children to sell cigarettes door-to-door on housing
estates and community notice boards frequently offer cheap cigarettes.
With a display ban in place and cigarette taxes through the roof, is it any
wonder that more than 25 per cent of cigarettes smoked in Ireland are
contraband?
Is it any wonder that adult smoking incidence is up from 23 to 29 per cent -
back to where it was six years ago?
In Britain a new law introduces a retail display ban from October next year.
You may have seen this week that tobacco companies, including ours, and
worried retailers are seeking a judicial review of the law in the High Court.
But there is a better way. Governments can consult with the legal and
responsible part of the tobacco industry to shape sound regulation that can
help to reduce the impact of smoking on public health while also avoiding the
chaos of tobacco markets run by criminals.
British American Tobacco can help support retailers to block illegal sales to
children, fight illicit trade, set standards for appropriate marketing and
support thousands of jobs and pay valuable taxes.
One of my first visits as Chairman-designate was to the Group`s laboratories
in the UK where work continues to address the many challenges around
developing and assessing a potentially less risky cigarette.
It may surprise you to know that we employ experts not just in smoke chemistry
but also in clinical research, genetics, biochemistry and microbiology.
We are still a long way from producing a less harmful cigarette but I was
impressed by the dedication of our scientists and their world-class
laboratories.
One of our scientists explained to me that it is painstaking work because it
is ground-breaking work. "It`s not rocket science," he said. "It`s much,
much harder than that." And I believe him.
Doing the right thing is important to us in British American Tobacco - no
matter how tough the challenge - and I can assure you we are completely
committed to harm reduction.
Of course it is to the great credit of all our people that British American
Tobacco continues to thrive and I thank everyone, everywhere, for their
energy, vision and hard work.
There are many individuals I should pay particular tribute to.
There`s the Executive team of Paul Adams, Ben Stevens and Nicandro Durante
together with the Management Board.
And there`s Jimmi Rembiszewski, our outstanding and long-serving Marketing
Director who retired last year.
He joined the business in 1991 and played a major role in its transformation -
developing our Global Drive Brands, our innovation and our world class trade
marketing.
He will be a hard act to follow but we have the right man for the job in Jean-
Marc Levy who was previously Regional Director, Western Europe.
I also extend my warmest thanks on behalf of all shareholders to my
predecessor Jan du Plessis who led the Board so skilfully over five years and
set an exemplary standard of Chairmanship.
I know I speak for everyone in wishing Jan continued success.
And I thank my fellow Non-Executive Directors for their help and support in my
new role. They play an important role in continuing to constructively debate
our strategy and ensure that the Group is very well governed.
Finally I want to mark the passing of The Honourable Patrick Best who retired
as a Director of B.A.T Industries in 1984. He had worked for Wiggins Teape
and became a member of the Board in 1976.
Before we move on to the Resolutions, an update on how the Group has traded
during the first three months of this year.
Earlier today we published our interim management statement and Paul Adams
commented that our consumers are clearly finding economic conditions difficult
and volumes suffered as a result of market size declines.
However, there was continued pricing momentum and good growth in market
shares, leading to solid revenue growth and we remain on track for the year.
Ladies and gentlemen, I want to conclude today by saying that we are going
forward with momentum as a well established business driven by a winning
strategy with excellent management and committed employees.
I turn now to the Resolutions.
Nicola Snook
Company Secretary
British American Tobacco p.l.c.
Globe House
4 Temple Place
London
WC2R 2PG
28 April 2010
Sponsor: UBS South Africa (Pty) Ltd
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