AGM Statement

British American Tobacco PLC
2 May 2001

                     Speech by Martin Broughton, Chairman
            at the British American Tobacco Annual General Meeting
                             held on 2 May 2001.

Good morning, ladies and gentlemen, and welcome to today's Annual General
Meeting.

The year 2000 was our first full year of operating as the enlarged British
American Tobacco Group following the merger with Rothmans. It was a record
year, and one that I believe demonstrates that we have the strategy, the
brands, the leadership, the people and the focus to sustain our performance,
and to deliver further growth and long term value.

But before going into the year 2000 performance in more detail, let me first
welcome your two new Directors, and pay a special tribute to those who will be
retiring this year.

Thys Visser has joined us as a Non-executive Director. He is Vice Chairman and
Chief Executive Officer of Remgro Limited, the South African investment
company previously known to you as the Rembrandt Group, which has a
significant holding in British American Tobacco. We welcome the wealth of
experience that Thys brings to your Board.

We also welcome Paul Adams, who will become Deputy Managing Director on the
retirement of Bill Ryan next month, before succeeding Ulrich Herter as
Managing Director when Ulrich retires at the end of the year.

Paul joined British American Tobacco ten years ago after a considerable
international career in marketing. He has served us as Regional Director Asia
Pacific, and Regional Director Europe. It is an understatement to say that in
taking over from Ulrich as Managing Director, Paul has a hard act to follow.
But I am highly confident that he has the right blend of skills and experience
to take the business forward.

Ulrich Herter and Bill Ryan are true doyens of our industry. Ulrich has been
Managing Director for nine years and has given your business outstanding
leadership, and Bill of course joined us with the merger, after ten years as
Rothmans Chief Executive. In their long careers, both have made a major impact
on the tobacco industry. I would particularly like to thank Ulrich and Bill
for their huge contributions to making the merger such a success.

As I said, Bill retires next month and Ulrich at the end of the year. I think
you will agree that shareholders have much to thank them for.

Business Review

The year 2000 saw us highly focused on the smooth integration of the two
businesses.

I believe the record results speak for themselves. Record revenues, record
volumes, and record profits - up 27 per cent to over two and a half billion
pounds.

Many markets delivered excellent performances, we have met our objectives of
achieving growth in international brands and improving our margins, and the
savings that we promised from the merger are ahead of plan.

The growth in international brands - in a year when the world market was
generally stable - merits particular mention. As you know, a key element of
our strategy is to change the mix of our portfolio in favour of premium
international brands. Last year the proportion of international brands in our
portfolio rose to over 30 per cent, and our four drive brands - Lucky Strike,
Kent, Dunhill and Pall Mall - together increased their sales by 7 per cent.
Lucky Strike was up by an impressive 11 per cent, becoming our international
brand best-seller.

The merger integration is exceptionally well advanced, with cost savings
coming through faster, and at more than we envisaged. Savings last year were
approximately £230 million.

Large corporate mergers are often criticised - with some justification - for
failing to deliver their predicted benefits. I believe we can truly say that
our merger with Rothmans is different, and that this is a company that
delivers on its promises.

Rationalisation programmes are difficult for everyone, but we have certainly
not achieved the savings by 'slash and burn'. Where there have been closures
or reductions, we have taken great care to examine all options, and ensure
that our people are treated fairly. Last year we closed several factories,
including in Australia, Malaysia, South Africa, Switzerland and the UK.

New ideas and projects have now started to flow from Imagine and Evolution,
the teams we set up to brainstorm and develop e-commerce and technology
innovations. Many possibilities are emerging for capturing value and 'live'
projects now include Promost, a global merchandising procurement exchange on
the world wide web, and Sparesfinder.com, a 'virtual warehouse' that is
enabling our companies around the world to source and share manufacturing
spare parts.

Our corporate web site bat.com has continued to attract a rising number of
visitors, reaching over 50,000 a month from 100 countries by the year end. An
independent survey published in two magazines, Financial Director and
Accountancy Age, ranked bat.com as one of only five FTSE 100 sites meriting a
'gold star' for excellence, and praised its 'openness and honesty
....particularly when tackling sensitive issues'. It is encouraging that the
survey found bat.com providing 'as much information as any investor would
require'.

Of course, it has not all been plain sailing. Intense price competition caused
further difficulties in the US, but Brown & Williamson's actions to reduce
costs and stabilise the business will enable them to remain competitive.

That we have succeeded in so much in a year of tremendous change is a tribute
to all our people, all of whom I thank sincerely. Many thousands of
contributions world wide have helped to put the Group in the good shape that I
can report to you today.

Adjusted earnings per share were up by 11 per cent to 57.87 pence. In line
with our commitment to pay at least half of sustainable net earnings to
shareholders, your Board has proposed a final dividend of 20 pence per share,
making a total for the year of 29 pence per share, an increase of 11 per cent.

Pensions

Shareholders who are also members of our UK pension arrangements may well have
recently received some information about our proposal to merge the British
American Tobacco and Rothmans International UK pension funds. Members should
note that the high level of benefits provided by each of the existing
arrangements would be maintained under the proposal; indeed, the Group has
signalled that the detailed proposal will contain suggested benefit
improvements in relation to active members, pensioners and deferred pensioners
of both pension funds.

It is expected that the Group's detailed proposal will be finalised and put to
the Trustee of each scheme in June. The Trustees will then need time to
consider the detailed proposals in conjunction with their independent legal
and actuarial advisers. The Trustees will only agree to the proposal if they
are satisfied that the proposal is in the interests of their respective
members.

Litigation

In US litigation, we - along with many analysts - see an encouraging trend.

The US tobacco industry defendants in the Engle case in Florida had a colossal
$145 billion punitive damages award made against them last summer. But there
are so many issues in Engle that can be argued at appeal that I remain very
confident the US industry defendants will eventually prevail.

The US Department of Justice claim was weakened significantly last autumn,
when the trial judge rejected two of the three statutory bases of claim.

'Third party payor' suits, where bodies such as labour unions have attempted
to claim health care costs for their members, continue to be dismissed, and
claims brought by foreign governments in the US have been getting similar
short shrift in the courts.

The underlying number of individual cases filed continues to go down, and the
change in the US administration may produce a less confrontational political
climate.

UK Health Committee

I spoke last year about the House of Commons Health Select Committee inquiry
into the tobacco industry and the health risks of smoking. As you know, we
co-operated fully, and when the Committee reported in June, it was good to see
that at least some of our constructive suggestions were adopted.

When the Committee chose to turn its attentions to allegations about smuggling
made by a journalist and an anti-tobacco group, Ken Clarke and I gave clear
explanations of the realities. These are outlined in our paper Smuggling: Our
View, which many of you will have.

You will recall that at last year's AGM, Rupert Pennant-Rea informed you that
your Board had instructed the law firm, Allen & Overy, to advise it in the
light of the serious allegations that had been made about the company. He said
the findings would be reported to an independent sub-committee of
non-Executive Directors, then to the Board, which would decide how best to
report to shareholders.

As you know, since Allen & Overy started their work, the Secretary of State
for Trade and Industry announced last October the start of an investigation
under Section 447 of the Companies Act 1985. This is a confidential
investigation, with which the company is complying fully. As we said at the
outset, it would not be appropriate for the company to comment during the
course of the DTI's work, so we have nothing further to add today. However, in
the light of this statutory investigation, the independent sub-committee and
the Board have decided to stay this work by Allen & Overy.

Share price

This time last year, we were disappointed that our real value was not
reflected in the share price. Since last year's AGM, it has risen by 60 per
cent.

The transition from a bull to a bear market has produced wide price
fluctuations. The bursting of the 'dot.com bubble' brought a welcome
appreciation of traditional 'old economy' virtues. When it became apparent
that the markets' expectations of the so-called 'new economy' companies could
not be met, we saw a dramatic flight to 'defensive' quality stocks, such as
ours. A year ago, our stock was deeply unfashionable. By the end of 2000, it
was being hailed as one of the star performers of the year.

In reality, nothing fundamental had changed in your company. We continued to
generate cash, to deliver earnings growth, and to ensure the success of the
merger. Stock markets can be fickle short term, but over the long term these
virtues are valued.

When your Directors meet institutional investors and analysts, we continue to
highlight the value in the business, to explain our strategy and, above all,
to demonstrate our capacity to deliver improved earnings, generate cash
strongly, and create real and sustainable shareholder value.

Regulation

Of course, we face challenges in the regulatory environment, particularly from
the more impassioned critics of our industry, some of whom have a vested
interest in refusing to acknowledge that a tobacco company can even
contemplate being socially responsible.

This seems to me an unfortunate position for our critics to adopt, because it
closes off real opportunities for dialogue and progress in the very areas
where they express concern.

Last year, building on our commitment to being part of the solutions, we
outlined a framework for sensible regulation of our industry - a radical yet
workable agenda for progress.

We reiterated our willingness to help governments in preventing under-age
smoking; in ensuring that people are appropriately informed of the health
risks; in identifying potentially lower risk tobacco products; in ensuring
appropriate tobacco marketing standards; in developing approaches to public
smoking to accommodate both smokers and non-smokers; in ensuring orderly
tobacco markets, and in putting in place the public checks and balances to
ensure that tobacco companies are sensibly regulated.

Much of this work was headlined 'Real Progress for the Real World'.

The real world we see is one where people have smoked tobacco for centuries.
Today, with universal awareness of the health risks, a billion adults in the
world choose to smoke. Governments globally earn about ten times more revenue
from tobacco than shareholders. The industry supports 100 million jobs.
Tobacco is legal, and no governments, and even no serious campaigners, seek
prohibition.

In the real world, we can, for example, co-operate extensively with
governments, parents, teachers and NGOs in programmes to prevent under age
smoking. Last month, we and the other two largest international tobacco groups
launched a long-term drive to tackle youth smoking globally, reinforced with a
well-researched TV advertising campaign now running in 38 European countries.

Additionally, in the UK, we are helping to fund a national programme to make
the Citizencard proof-of-age card more widely available. This has been warmly
welcomed by the Government. Our support has led to Citizencard becoming
Britain's fastest-growing proof-of-age card.

Further afield, last October in Kenya, we launched a global partnership called
Eliminating Child Labour, with international trade unions and the tobacco
growers' association. It will help tobacco farmers to achieve best practice in
line with international conventions, building on excellent programmes
supported by our companies in countries such as Brazil and Mexico.

If the goal of regulation is to tackle the real issues in workable ways, then
we support it, and are committed to helping it work.

Unfortunately, some regulators and legislators remain deaf to the call for
co-operation, or - if they hear it in private - seem to fear it may be '
politically incorrect' to respond publicly.

Yet the question I put to them is simple. What, in the real world, is the
alternative?

Is it to hound the large, well-run, and responsible industry out of existence?
Because the pursuit of that goal will surely lead to perverse and unintended
outcomes.

Unintended consequences

If regulators cannot - or will not - work with 'responsible tobacco', the
product, and the billion adults who choose to use it, will not simply go away.
Nor will the thousands of farmers who wish to grow tobacco. The product would
fall increasingly into the hands of rogue producers - who are already
profiting from disorderly market conditions where sensible regulation has been
lacking - and criminal groups who would distribute it.

In the bizarre world of tobacco regulation, we already see some perverse
outcomes.

Tax increases are often designed to reduce consumption. Yet every excise
increase is seen by counterfeiters as an increase in profit margin.
Counterfeit is highly lucrative and brings an insidious consequence - the
involvement of criminal syndicates. The illegal profit on a single
container-load of fake brands has been estimated at as much as £1.5 million.
In the UK alone last year, the counterfeit flood is thought to run to billions
of cigarettes.

We work actively with governments and law enforcers to help combat the
problem, liaising in efforts to find and shut down counterfeit operations. But
these efforts can only stem the tide; the fundamental problem can only be
stamped out by governments realising that taxation used as a blunt instrument
against tobacco creates far more problems than it solves.

The EU Directive on Tobacco Control embodies a great deal of strange
regulation. Its ban on exports of products above an EU tar and nicotine
ceiling will have no impact on health overseas, yet will cost thousands of EU
jobs. It seeks mandatory lower tar and nicotine yields, yet aims to ban
descriptors which help consumers to recognise lower yield products, and which
have helped the consumer trend towards using them. The entire Directive has a
dubious legal basis, and has been characterised throughout by the lack of a
proper regulatory impact assessment.

The EU also seeks to impose the graphic images such as diseased lungs that now
appear on cigarette packets in Canada. We have been deeply disturbed by
reports in Canada of children collecting these images, and swapping them in
playgrounds like Pokemon cards. It is hard to imagine that this is what the
legislators had in mind.

Of course our industry should be regulated, as all significant industries are.
What we seek is balance, a regulatory perspective that is broader than the
dug-outs of the most committed 'antis', and a more open mind towards helping
everyone to find the reasonable middle ground, and avoid the unintended
consequences.

WHO

As you know, we have long sought meaningful dialogue with the World Health
Organisation on its proposed Framework Convention on Tobacco Control.

Last year, we called for the WHO to accept the need to include tobacco
stakeholders in the debate. But apart from a sham 'public hearing' in Geneva,
little appears to have changed.

Many of the proposals go beyond the WHO's health mandate, with potentially
major impacts for financial, tax, employment, agriculture, trade, and legal
policy. The WHO's lack of consultation with all stakeholders flies in the face
of the customary approach by UN bodies to policy formation, and we regret that
it continues.

But as the serious negotiations begin, it is clear that they could take many
years. There is a long way to go, and behind the WHO's rhetoric governments
will now have more opportunities to shape the outcomes, and to ensure that
their sovereignty is not undermined or their domestic priorities ignored. At
some point, we believe it will be difficult for the WHO to continue ignoring
the views of tobacco stakeholders. We offer an open door to dialogue, along
with our support to governments for soundly-based, national regulatory
solutions.

Social Reporting

I would now like to say a few words about Social Reporting, an important
process to which your Board has committed the Group.

Social Reporting is a systematic process that enables companies to listen and
respond to the reasonable demands of stakeholders, and enables them
objectively and openly to demonstrate progress in their performance against
accepted standards of corporate social responsibility.

It is a relatively new discipline, responding to increasing demands in society
for accountability and transparency.

Social Reporting is not something we can do alone - indeed, that would defeat
much of the purpose. On a similar model to financial accounting, it includes
both internal audit and external verification, with public reports to accepted
standards of accountability. A range of expert external organisations will
guide us.

Social Reporting is new to us, but managing the underlying issues is not. We
believe we have an excellent track record. However we are approaching it with
an open mind, a real desire to listen, and serious commitment.

Current trading and prospects

At the Annual General Meeting, I usually provide shareholders with some
information concerning the Board's view of the Group's likely performance for
the year as a whole. We have clearly made a sound start to 2001, with
operating profit before exceptional items up 10 per cent in the first quarter.
For the full year, we expect to achieve a good increase in both operating
profit and adjusted earnings per share, the two key measures of our financial
progress.

I spoke earlier about our capacity to create real and sustainable shareholder
value.

As an example of the growth opportunities that exist for us, I am delighted to
be able to announce that British American Tobacco and the Chinese Government
are currently in discussions with a view to the establishment of a new joint
venture company in China.

In anticipation of a positive outcome to these discussions, the Chinese
Government has granted its approval for the signing of an agreement this
month, which will secure our rights to use land for building a factory at
Mianyang in Sichuan Province. The size of the site should provide us with the
opportunity to build a business of significant scale.

There is obviously some way to go on this exciting development and we will be
providing more information in due course, as the project progresses.

China is not only the largest tobacco market but, with over 300 million
smokers, it actually represents one third of the entire world cigarette
market. British American Tobacco has a long history of involvement in China,
without which it would have been difficult, if not impossible, to achieve this
significant breakthrough.

The Chinese Government has done an excellent job in modernising the sector,
and we believe we can help the Chinese tobacco industry to develop still
further and participate fully in the global market.