AGM Statement

British American Tobacco PLC
15 April 2003

                      Speech by Martin Broughton, Chairman
             at the British American Tobacco Annual General Meeting
                             held on 15 April 2003

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

In 2002, we celebrated a century of success and saw another year of progress,
despite the global economic difficulties. We achieved impressive growth in our
drive brands, showed our resilience in highly competitive markets and saw our
latest investments in South Korea, Nigeria and Turkey laying solid foundations
for future growth.  We continued to deliver strongly in terms of total
shareholder return, remaining one of the top performers of the FTSE 100 and of
our international peer group of leading consumer goods companies.

But before reviewing the year's performance, let me welcome your new
non-Executive Director, Dr Ana Maria Llopis and pay tribute to Johann Rupert,
who unfortunately is unable to be with us today, but retires at this AGM.

Dr Llopis brings with her a wealth of experience in consumer marketing, finance
and Information Technology gained from Procter & Gamble, Banesto and as a
Non-executive Director of Reckitt-Benckiser.  We are delighted to welcome her
professional experience and the further Spanish and Latin American perspective
she will be able to contribute.

I sincerely thank Johann Rupert for his tremendous contribution since joining
your Board at the merger with Rothmans in 1999.  The merger is now something of
a case study in how to make global mergers a real success and we owe much to
Johann for his vital support throughout.

I should also like to pay tribute to Sir Duncan Oppenheim, our former Chairman
who died this year aged 98.  He joined the business in the 1930s, pioneered
management training in the 1950s and as Chairman until 1966, was instrumental in
our expansion in Latin America, the US and the Far East.  He was a remarkable
man with a keen interest in the arts - his own work was shown at the Royal
Academy - and whose involvement in the International Chamber of Commerce and
what is now the CBI did much to put us on the map as a leading UK-based
business.

We also mark the passing of Gerald Dennis, who retired in 1990 as Deputy
Chairman after 13 years as a Director of B.A.T Industries.  Gerald is remembered
not least for his major contribution to the company's Community Affairs
programme.

Corporate Governance

A feature of recent months has been the continuing debate on corporate
governance. This is my first opportunity to comment on the Higgs proposals for
changes to the Combined Code of the UK Listing Authority.

We support the general thrust of the proposals and are pleased to see a clear
definition of 'independence' for Non-executive Directors - an improvement on the
need to grapple with perhaps a dozen definitions.  But Higgs suggests that only
independent Non-executives, as defined, should be able to serve on Audit
Committees.  Independence cannot easily be legislated.  It has much to do with
an attitude of mind.  I believe we would suffer a notable loss if Jan Du
Plessis, as Richemont Group Finance Director, were not thought sufficiently '
independent' to serve on our Audit Committee because he represents a significant
shareholder.   Jan brings significant financial experience to his role - itself
a specific Higgs recommendation - and anyone who might view his insights as less
than independent is not living in the same world as I am.

Higgs allows for companies to 'Comply or Explain', stating why any different
structures are good governance in a company's particular circumstances.  This is
perfectly sensible.  But it is worth recalling Cadbury's laudable concept: that
"standards of corporate governance cannot be achieved by structures and rules
alone" and it should be made clear that frequently to explain is to comply.

Care needs to be taken to avoid a situation where 'Comply or Explain' becomes '
Comply or Disdain'.  There are a few features of the report that need to be
changed if it is to be taken seriously by the corporate sector.  The Chairman
has a clear responsibility for Board succession planning and the effective
working of the team - a point emphasised by Cadbury.  The proposal that a
Chairman should not chair the Nominations Committee, as I and most other
chairmen do, is simply ridiculous.  Similarly the suggestion that no
Non-executive should sit on all three Board Committees, or that only in
exceptional circumstances should a Non-executive Director remain for more than
six years, fly in the face of common sense.

The proposals need careful review before such restrictive practices are granted
the term 'best practice'.

Business Review

In 2002, our operating profit, at constant exchange rates, was up by 3 per cent
to over £2.8 billion - reduced to just under £2.7 billion only by weak
currencies against a very strong pound in translating our results to sterling.

Earnings per share were up by 8 per cent, bringing an increase over the last
five years of 44 per cent.  At a time when shareholders are searching hard for
solid income, your Board is recommending a final dividend of 24.5p, making a
total for the year of 35.2p per share - up 10 per cent on last year and 47 per
cent over the past five years.  We have also started an on-market share buy-back
programme under your authority.  This will further help to enhance earnings
while leaving plenty of cash for the right kind of opportunities coming out of
further consolidation in the industry.

Our global drive brands have sustained the pace of the last 3 years, achieving
impressive overall growth of 8 per cent.  Dunhill raced ahead with 22 per cent
growth to a record volume of over 30 billion, more than doubling its volumes in
Korea.  Lucky Strike fell back due to our planned reduction in duty free sales
but performed strongly in key markets and should be well placed for growth this
year.  Pall Mall grew volumes by 16 per cent and Kent turned in another record
year with 5 per cent growth, becoming a major force in Russia.

To give you just a few of our companies' success stories:- against fierce
competition, Brown & Williamson grew market share for three strategic brands,
Kool, Pall Mall and Misty.  Indeed, Kool grew more share than any other premium
US brand.  Latin America turned in a striking profit of almost £400 million
despite harsh economic conditions and weak currencies.  Our new company in
Nigeria is almost ready to open its new factory, on time and on budget, whilst
achieving 70 per cent market share through imports, while British American
Tobacco Ukraine turned a 15 million dollar loss into significant profits in 3
years, taking a 30 per cent share for its local brand, Prilucky Osoblivy.  More
generally, we also continue to focus on increased use of e-business, as we seek
to unlock the trapped value throughout our entire supply chain by managing it on
an integrated basis.

We have now published Social Reports in 14 countries, based on international
dialogue with some 350 stakeholder groups and our companies in a further 20
countries are now joining the process.  We are encouraged by the reception for
our first reports, with many stakeholders beginning to recognise that tobacco
and corporate social responsibility can, and surely must, go together.  We
became the first tobacco company selected for the Dow Jones Sustainability
Index, scored on economic, social and environmental performance, and were
delighted to be awarded 'best first-time social reporter' in the Sustainability
Reporting awards run by the UK Association of Chartered Certified Accountants.

We have again been highly ranked in the Business in the Environment Index of
corporate environmental engagement, this year reaching what is called the '
Premier League' of companies scoring over 95 per cent - just 18 companies of
some 200 assessed.  Our score is due to our continuing hard work in cutting
energy and water consumption and recycling more of our waste.

Meanwhile our website www.bat.com was rated the UK's best corporate website in
the comprehensive Webranking survey published in the Financial Times.  I hope
many of you visit the site, especially its user-friendly Investor section, which
has enabled us to win two awards from the Investor Relations Society - for best
practice in communications with private investors and analysts.  Last year a
successful innovation was the web version of our Social Report. As a result, we
have decided to build this year's Social Report entirely on bat.com.  It should
be published around the end of June and shareholders will receive a summary
along with the half year Results.

CSR Governance and Business Principles

We have consistently stressed that our social reporting is not about PR and '
spin'.  It reflects our serious commitment to embed the principles of Corporate
Social Responsibility widely across the Group.  We are establishing a global CSR
Governance structure of local Committees to complement the Regional and Board
Committees.  This means all our companies, not only those adopting social
reporting, will be assessed globally on corporate social responsibility
performance.

Why do we put such emphasis on corporate responsibility as a pillar of our
strategy alongside growth and productivity?  The answer is simple.  A group of
our size does have real responsibilities and we should demonstrate how we are
living up to them, so that we can continue to adapt and prosper in a changing
world.  And of course our product, while legal and enjoyed by millions, does
pose risks to health and is vulnerable to crude manufacture by illegal traders,
which makes it all the more important that the legitimate industry is managed
responsibly.  I believe our social reports and stakeholder dialogue are helping
to spread shared understanding of this.

What is not so simple, however, is achieving understanding of what our direct
responsibilities are and where it is not appropriate or possible for us to act.
As expectations of large companies dramatically increase, there is a real need
for clarity on the moral, legal, political and commercial boundaries of
business.  This has been the focus of our stakeholder dialogue at the corporate
Centre this year, with the Institute for Business Ethics helping us to consult
stakeholders on developing a set of Group-wide Business Principles.  These
should help to demonstrate our core beliefs more explicitly and illuminate the
areas of our responsibility and those where it is accepted that we can only
contribute in partnership with others, or have no proper mandate to act.

Overseas investment

You will have seen the protestors calling on us to exit from our investment in
Burma, because of their concerns about human rights under the country's military
regime.

We are sincere in saying that we greatly respect concerns about human rights.  I
think I can vouch that all of us here today respect human rights and are
disturbed if they are violated anywhere.  That is why, in line with the
responsibilities appropriate to a business, we acknowledge the importance of
human rights in our global Employment Principles, which are aligned with the
Core and Fundamental Conventions of the International Labour Organisation.

The key question, though, is can a business extend a commitment to human rights
far beyond the workplace?  Many stakeholders understand that however successful
or large a company is, it cannot interfere in telling governments how they
should run countries.  We are a business and our influence can be far less than
some stakeholders assume.  We cannot campaign on issues that are for the
diplomatic or political community.  What our companies can do is operate to high
standards of business practice and corporate social responsibility.  This is
how, over time, business can contribute to a more positive future by spreading
best practice in areas such as honest trading, fair employment, good
environmental management and community support.

Indeed, I believe that well run companies can be beacons of stability in
turbulent environments.  We have stayed in Latin American countries through
political upheaval and even the armed conflict between the UK and Argentina.  We
work daily in Zimbabwe, a country struggling under enormous pressures, to run a
sound business giving decent employment and security to our people and our
suppliers.

If you think this is easy, I can tell you it is not.  Burma is in great economic
turmoil, but we have no plans to exit.  If you were to ask our local company's
500 employees if they think we should leave, I do not think you would hear what
you hear from the Burma Campaign, which says our business should sack all its
people and close its factory.  I question whether this perspective has anything
useful to add to employment matters.

If we tried to judge the moral acceptability of governments as criteria for
doing business, we would almost certainly find moral objections to a great many
countries.  We have three core criteria.  Is doing business in a country lawful?
  Our companies will not operate in any country where doing so is unlawful.
Secondly, can a business be managed to our standards and accountabilities?  Some
of our companies must operate in ventures with a government stake, but we still
require them to observe our high standards of business integrity and not to
compromise these for the sake of results.  And thirdly, it is our duty to
consider whether a business is commercially viable.  Profound economic problems
can sometimes make this a tough call.  But our investments are judged on our
proper criteria, balancing all our responsibilities, and not on misdirected
demands by campaign groups.

Security

As we meet here today, the Iraq war and its aftermath cannot be far from our
minds.

Our top priority has been the security of employees and their families.  Our
team in Dubai, covering 13 Middle East countries, immediately set up crisis
management systems which were so successful that other international companies
asked for their advice.  The team worked closely to UK and US government advice,
but often pre-empted it by rapidly closing offices, moving people to safe havens
and ensuring that employees and their families were not separated.  While all
other business issues were put in second place, excellent co-operation with
suppliers and distributors has enabled our business in the Middle East to keep
going safely and sensibly, with no significant loss of production and continuing
distribution.

I am proud of the way Security adds real value by being an integral part of our
business, rather than working on its fringes.  One example is its help in
preventing supply chain losses in certain parts of the world through advanced
technology.  Nineteen of our companies now have smart tracking on distribution
vehicles using satellite and similar communications.  Steps like these have also
seen us become a respected insurance risk, attracting lower premiums.

Contraband and counterfeit

Security also plays a major part in the battle against contraband and
counterfeit.  Fair global estimates of the illicit trade put it at over 300
billion cigarettes a year, of which about 100 billion counterfeits emerge from
China alone.

We are determined to help governments and law enforcers to tackle this trade.
We have signed cooperation agreements with Customs in several countries,
including the UK, to help increase seizures of illicit product.  Co-operation
with the Chinese tobacco authorities brought raids last year on some 300 illicit
production sites and the destruction of over 300 million counterfeits of our
brands alone.

Many of our companies are also helping governments to raise consumer awareness
of the economic damage and criminality behind illicit products, helping to get
wrongdoers prosecuted and in some countries helping to fund enhanced border
controls.

Steps we have taken in our operations include banning second-hand sales of our
manufacturing equipment to ensure it cannot fall into wrong hands.  Last year we
destroyed over 250 cigarette making and packing machines.  We have always sought
to be selective about our customers, and last year we significantly restricted
supplies to wholesale duty-free markets, the area most vulnerable to diversions
out of the legitimate supply chain.  This ultra-caution on supply has
contributed to a one-off hit on our volumes and profit but is worth it.

Win-win

The illicit trade damages government revenues and threatens law and order.  But
in the face of rhetoric from anti-tobacco activists, it is worth re-stating that
it also damages our business.  It steals our sales, harms our brands, undermines
our investment in distribution networks and undermines the regulatory regimes
that govern the legitimate industry.

High cigarette taxes and tax differentials between countries - for example the
UK at over £3.60p tax in a pack price of £4.60p and Belgium at less than half
this - are big incentives to the illicit traffickers, who include criminal
gangs.  Government import bans, often to protect local monopolies, help to
create markets for such people to exploit.  Along with enforcement, governments
can act by co-operating to reduce tax differentials and by lifting barriers to
legitimate trade - the opposite of the swingeing taxes and tobacco trade
restrictions advocated by some anti-tobacco activists.

Governments must consider whether they want the industry to slip into the hands
of traffickers and criminals, or to be run by legitimate, tax-paying companies
working to manage a risky product responsibly.  Many governments recognise that
'Big Tobacco' is 'Responsible Tobacco'.  The win-win for governments and for us
comes from working together to squeeze out the rogue producers and to halt
falling tax revenues, chaotic markets, and the burgeoning of unregulated
products.

At this year's World Economic Forum we joined Procter & Gamble, Gillette,
Unilever and other leading manufacturers to begin building a global alliance
against counterfeit.  Speakers including the World Customs Organisation called
for partnerships amongst companies, governments and law enforcement agencies.
To tackle all forms of contraband, including counterfeit, it is vital that
governments and regulators do not exclude companies like ours, but harness our
co-operation, our knowledge of the supply chain and our experience of effective
tax and enforcement regimes.

'Lights' and low tar

Another area where renewed co-operation could help governments and consumers is
the currently topical issue of 'Lights' cigarettes.  Public health authorities
and tobacco control advocates are calling for bans on 'Lights' descriptors on
the grounds that consumers may be misled by them.  A US state court has even
gone so far as awarding $10 billion against Philip Morris on a claim that in
marketing 'Lights', it committed consumer fraud.

Yet over the years, the low tar programme has been an outstandingly successful
example of cooperation between governments and tobacco manufacturers.  Average
sales weighted tar levels have fallen dramatically over 50 years and many
smokers now prefer a lighter taste.  'Lights' descriptors help consumers who
choose light cigarettes because of taste, to recognise their preferred brand.

There is no longer a public health consensus that low tar cigarettes reduce some
of the health risks of smoking.  Today's very low tar brands have not been
popular for long enough to enable epidemiological studies to be conducted yet.
However, it is noticeable that the recent EU Tobacco Directive lowered the 'tar
ceiling' to 10 mg on health grounds.

Our companies can help governments in ensuring sensible consumer information and
we are encouraging them to do so.  Our scientists are also contributing research
on the amount of smoke that consumers may take from cigarettes of different tar
levels.  This must surely be a better way forward than the kind of slugging it
out in the courts we have just seen in Illinois.

Litigation

Meanwhile there has been an encouraging development in US litigation generally.
In a case involving State Farm Insurance, the Supreme Court has issued guidance
to State courts about punitive damages.  It has instructed them that punitive
damages should not exceed a single digit ratio to compensatory damages and that
multiple punitive awards for the same alleged conduct should be avoided.  In the
light of this sensible guidance, tobacco and other US industries may surely now
hope for more common sense in an environment where punitive awards, in some
State courts at least, can stray into the realms of fantasy.

Current trading and prospects

Before I move to a brief word on current prospects, let me thank all our people
worldwide for their hard work and dedication in a challenging year.  Our
independent employee opinion surveys tell us our people rate our companies
highly as employers and that we are better than many at nurturing talent.  We
are committed to keeping it this way.

There is no doubt that this will be a challenging year for all businesses - the
Iraq war, exchange rate fluctuations and the downbeat state of the world
economy.  But we entered the year in a strong competitive position and have
begun the year in line with expectations.  We should see more progress with our
drive brands, a renewed focus on being smart about costs and more engagement
with our stakeholders.  We remain committed to continuous improvement in
everything we do and firmly focused on creating shareholder value.

Enquiries:



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