30th Apr 2008 11:58
British American Tobacco PLC30 April 2008 Speech by Jan du Plessis, Chairman at the British American Tobacco p.l.c. Annual General Meeting held on 30 April 2008 I am delighted to report that, in 2007, your company delivered anotherimpressive set of results. Revenue and profit were up, our global drive brandsagain achieved strong growth, we have made excellent savings from our initialfive-year productivity drive and we have delivered earnings per share growthabove our medium to long term target. I will today outline why I believe that our latest performance is not just a runof good fortune. I believe it demonstrates the strength of a consistent andresponsibly implemented strategy that should reassure shareholders in theseturbulent times. First, however, it has been a year of changes to your Board, and I would like topay tribute to three outstanding Directors who have reached retirement. Ken Clarke is your longest serving Director, who has been with us since welisted on the London Stock Exchange as a free-standing tobacco company 10 yearsago. I am sure Ken is as well known to you as our Deputy Chairman and SeniorIndependent Director as he is to millions of people as the popular, jazz-lovingformer Government Minister. He is also widely respected by his colleaguesacross all parties in the House of Commons. I would particularly like to thankKen for his work as the first Chairman of our CSR Committee and as a consistentchampion of our commitment to corporate responsibility. Going forward, his role will be split three ways. Thony Ruys will be Chairmanof the Remuneration Committee, Karen de Segundo will chair the CSR Committee andthe role of Senior Independent Director will pass to Sir Nick Scheele. Paul Rayner has made an exceptional contribution as Finance Director since 2002. He joined Rothmans in 1991 as Finance Director of the Australian group and,after our merger with Rothmans in 1999, became Chief Operating Officer of themerged business across Australasia. Paul's contribution to financial disciplinein the Group - driving operating efficiencies and improved cash flows - has madea huge contribution to the high regard in which we are held today within theinvestment community. He will leave a considerable gap by returning toAustralia for family reasons and our sincere good wishes go with him. Hissuccessor, Ben Stevens, brings in-depth knowledge of our business to the role,following seven years on the Management Board, most recently as RegionalDirector Europe. Antonio Monteiro De Castro, who stood down in December, has given us fouroutstandingly successful years as Chief Operating Officer. He joined your Boardsix years ago, initially as Regional Director, Latin America and the Caribbean. His 18-year career with the Group also included being President of Souza Cruz,our large Brazilian subsidiary. Antonio leaves many friends in the businessworldwide and has made a tremendous contribution through his wide businessknowledge and experience. He is quite an act to follow, but I am confident thathe is ably succeeded by Nicandro Durante, whose 27-year career with us has alsoincluded being President of Souza Cruz and serving on the Management Board asRegional Director, Africa and the Middle East. On your behalf, I would like to thank Ken, Paul and - in his absence - Antonio,for their tremendous service over so many years. We also welcome two Non-Executive Directors who joined your Board in October.Christine Morin-Postel has held several senior executive positions, includingChief Executive of Societe Generale de Belgique, and has served on the ExecutiveCommittee of the Suez Group in France. She is also a Non-Executive Director of3i Group and Royal Dutch Shell. Karen de Segundo joined us after a long career at Shell, which included beingthe first woman to run a Shell country business, in Uruguay, and she was,amongst other roles, Chief Executive, Renewables and President, Hydrogen, ofShell International. Her Non-Executive Directorships include Lonmin and Aholdand she is a member of General Electric's Eco Advisory Board. I appreciate the insights that these two highly experienced Directors arealready bringing to your Board's deliberations. 2007 performance Your company's performance in 2007 again demonstrates consistent application ofour strategy - based on growth, productivity, responsibility and developing thebusiness as a winning organisation. Revenue was up 3 per cent and each region delivered profit growth, raisingoverall operating profit, before exceptionals, by 11 per cent to £2.9 billionand adjusted diluted earnings per share by 11 per cent to 108.5 pence. Althoughoverall volumes were down slightly, volume of our premium brands grew, with ourglobal drive brands, Dunhill, Kent, Lucky Strike and Pall Mall, collectivelygrowing by 10 per cent. Both Kent and Pall Mall broke through the 50 billion volume mark. Kent againraced ahead, growing by 19 per cent to become our best-seller at 54 billion,while Pall Mall rose 10 per cent to 51 billion. Dunhill was up 6 per cent at 35billion and Lucky Strike achieved a second year of growth to reach 23 billion.Our global drive brands have doubled their volume since 1999 and now account for24 per cent of our volume worldwide. While organic growth is a key part of our growth strategy, inorganic growththrough mergers and acquisitions also plays a part. However, we have oftenstressed that we will not buy just anything at any price simply to boost volume. We are willing to wait patiently for opportunities that are financiallyintelligent and strategically attractive, with the right fit to our strategy,geography and portfolio. Our last major acquisition was in 2003, when we won the bidding for ETI, theItalian state-owned tobacco business, giving us number two position in theEuropean Union's second largest tobacco market. A five year wait for similaropportunities finally bore fruit in February, when we announced two significanttransactions at sensible prices that offer prospects for attractive financialreturns. We have agreed to acquire the cigarette and certain snus and roll-your-ownbusinesses of Skandinavisk Tobakskompagni, in exchange for our current 32 percent stake in the company and £1.1 billion in cash. By turning our shareholdingin a diversified group into full control of a very profitable tobacco business,we believe we will greatly strengthen our position in the Nordic countries.Subject, of course, to regulatory approvals, the deal brings us cigarettevolumes of 30 billion across Poland, Denmark, Norway and Sweden, the premiumbrand Prince and roll-your-own tobacco sales across Europe. It also brings intothe Group the smokeless snus business, Fiedler & Lundgren, who alreadymanufacture snus for us and have an annual volume of 16 million tins. We also made the winning bid of £860 million when the Turkish Governmentauctioned the cigarette assets of Tekel, its state tobacco business. This willtransform our position in the world's eighth largest cigarette market, boostingour market share in Turkey five-fold to 36 per cent and giving us a strongerplatform to grow our international brands. I am confident that both transactions represent well-placed investment ofshareholders' funds and are an excellent fit to our goal of creating long termshareholder value. Speaking of patience and long term goals, you may like to know that our archivesrecord a Board discussion in 1932 about a proposal for the British-AmericanTobacco Company Limited - and I quote from the Minutes - to 'undertake themanagement of the Turkish Tobacco Monopoly... at an estimated annual expense of£10,000'. It was thought this might be 'a satisfactory arrangement'. I thinkthe modern arrangement is better - and well worth a wait of 76 years - albeitthat things have become rather more expensive. Productivity Last year we completed our initial five-year productivity programme, focused onreducing costs and complexity and making savings in the supply chain, whichincludes streamlining our manufacturing footprint. During the five years, wehave removed or relocated over 400 billion sticks of manufacturing capacity,equivalent to over half our annual production volume. For overheads andindirects, our initial target was to save £200 million, but as we continued tomake inroads we doubled this target to £400 million. We have actually saved£455 million in overheads and indirects and over £550 million in supply chaincosts. To have saved over a billion pounds from the annual costs of running yourbusiness, compared to five years ago, is a major achievement that shows how wellthe Group has driven the productivity element of our strategy. But we are notticking the box and saying 'job done'. We have now set a new target to save afurther £800 million over the next five years. Productivity savings of course contribute to growth in profit, offeringimmediate benefit to shareholders. But an important point is that these savingsalso reflect our focus on the long term. They release funds to reinvest in thebusiness for the future. This enables us to drive the performance of our brandsthrough innovations that our consumers value, to continue investing in researchtowards reduced harm products, to streamline our distribution as a world-classsupplier to the trade, to run programmes to reduce our environmental impacts andto invest in developing our people. I believe that our most recent performance is not only good news forshareholders today, but is the result of consistent application of strategiesaimed at shaping our business for the long term. Sustainability Let me offer some examples that I believe illustrate the actions of a businessthat focuses on the quality of its operations and takes a long term view ofsustainability. Last year we recruited some 350 graduates globally as management trainees andover a thousand managers attended our international management developmentprogrammes. There is, of course, no immediately measurable return frominvesting in our people. But I think you see something of the outcome in ourmost recent employee opinion survey, where 90 per cent of our people say theyare proud to be associated with British American Tobacco and 92 per cent saythey understand how their individual roles contribute to achievement of theircompany's strategy. It is notable that we have grown our global drive brands by 62 per cent over thelast five years, while of course observing not only the laws on tobaccomarketing, but also our own strict International Marketing Standards, which gobeyond the law in several countries. Looking to the future, we updated ourStandards last year to include, for example, more procedures for adultverification and responsible use of newer channels of consumer communication.Our companies have until the end of June this year to be applying the updatedStandards in full. Reducing our environmental impacts is by definition a long term task, requiringsteady commitment to continuous improvement. I am proud to say that we haveworked for many years to monitor and control our use of energy and water, ourcarbon dioxide and our waste. We are one of the few companies to have beenincluded in Business in the Community's Environment Index since it began, andour most recent ranking places us in the highest performance band with severalscores of 100 per cent, including for environmental audit and stewardship. Asyou will see on our website, www.bat.com, we continue to set clear targets forreducing our impacts over time, including halving our carbon dioxide equivalentby 2030. A feature of these uncertain economic times is the rising cost of raw materialsand commodities, including agricultural commodities, with food prices, forexample, rising steeply around the world. With tobacco leaf as our major rawmaterial, you may wonder how we are coping with these pressures. Leaf pricesare certainly rising on the world market, not least as the dollar falls againstthe currencies of several leaf-growing countries, pushing up the dollar price ofleaf that's traded internationally. We are of course not immune from this. However, our direct relationships withsome 200,000 farmers in 19 countries give us a distinct competitive advantage.Two thirds of our leaf is bought through these direct local contracts, makingour purchasing very well-balanced between leaf bought in local currencies andleaf bought for dollars on the world market. We achieve security of supply andpredictability, while the farmers benefit from fair and guaranteed local pricesand the full agricultural support service that we provide. We have also movedto managing our leaf inventory on a fully integrated, global basis, furtherimproving our ability to forecast our needs, to be nimble in matching demand andsupply, and to manage costs by freeing up large sums of working capital. We also continue with our work towards products that may help to reducetobacco-related harm to health - a major part of our responsibility strategy.Last year, we extended to Canada our test marketing of the smokeless tobaccoproduct snus. A growing number of health experts, such as the UK's RoyalCollege of Physicians, recognise certain smokeless tobacco products as much lessharmful than cigarettes. We continue our efforts to gain wider regulatory andconsumer acceptance of snus. We are also working towards reduced harm products that are smoked, although thisposes vast scientific challenges. Of course, we cannot do this on our own andconstructive co-operation with other scientists is important. To help us buildstronger links with the scientific community and to increase transparency aboutour own work, we have this week launched a new website, www.bat-science.com,offering an open door to our scientific papers and research programmes. It isanother step on a journey that may be long, but to which we are committed. Last year we were again selected, for the sixth year running, as the onlytobacco business in the Dow Jones Sustainability Indexes, increasing our overallscore to 83 per cent. It is worth noting that the rigorous annual assessmentfor these indices does not only focus on social and environmental performance,but on how well a business is integrating strategies for sustainability overall. It includes important areas such as corporate governance and risk management,where our scores are high. Managing our balance sheet Last but certainly not least, we are committed to careful management of ourbalance sheet. This has enabled us to serve our shareholders well with cashreturns. Over the last five years, we have returned £7.6 billion in cash toshareholders, £4.7 billion of this in dividends and the rest through the sharebuy-back programme - a tribute to the strength of your business. In line with our determination to maintain our credit rating in tight creditmarkets, and in recognition of the financing requirements arising from theSkandinavisk Tobakskompagni and Tekel acquisitions, we have reduced the sharebuy-back programme for the time being from £750 million to £400 million a year. Since we announced these acquisitions, we have successfully completed two newbond issues, raising almost £1.5 billion, an excellent outcome given currentmarket conditions. As you know, we are phasing in an increase in the proportion of sustainable netearnings paid out in dividends, from at least 50 per cent to 65 per cent for2008. You will be asked to vote today on a final dividend of 47.6 pence,raising this year's total dividend by 18 per cent to 66.2 pence per share. You have seen an excellent total shareholder return over recent years. If youhad put £100 into British American Tobacco over the five years to the end of2007, and had held it through all the stock market ups and downs, thecombination of share price growth and steadily rising dividends would haveincreased the value of your £100 investment by £294, compared to growth of £89for the same sum invested in a FTSE 100 index tracker. Steady course In stormy times, there is no room for complacency on the part of any company.However, we have been in business for 106 years and have learned a great dealabout withstanding rough conditions. While we cannot do much to influence theweather, you can be confident that we will continue to place a sustained focuson steering a steady course for many years to come. Let me end by extending my sincere thanks to all our employees worldwide, andparticularly to the executive management team, who are vital to helping us steerour future course and whose loyalty, commitment and energy have put yourbusiness in such good shape today. Enquiries British American Tobacco Press OfficeDavid Betteridge / Kate Matrunola / Cat Armstrong+ (44) 0 20 7845 2888 (24 hours) Investor RelationsRalph Edmondson / Sharon Woodcock+44 (0) 20 7845 1180 / 1519 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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