AGM Statement

British American Tobacco PLC
26 April 2007



                       Speech by Jan du Plessis, Chairman
             at the British American Tobacco Annual General Meeting
                             held on 26 April 2007


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

When we met last year, I was able to report our best year since British American
Tobacco listed on the London Stock Exchange as a stand-alone tobacco company in
1998. We have now followed that with another strong year.  Profits and earnings
are up, we have enjoyed excellent growth in revenues and volumes, and there has
been a highly impressive performance from our four global drive brands.

Once again, our consistent approach to balancing the four elements of our
strategy - growth, productivity, responsibility and a winning organisation - has
continued to deliver substantial shareholder value.  Your total shareholder
return over the last five years is an outstanding 26 per cent a year on average,
compared to 7 per cent for the FTSE 100 as a whole, making £100 invested in
British American Tobacco worth £314, against £141 for the same money in an index
tracker.

As well as reviewing how your business performed last year, I will today be
touching on a serious issue that I believe is of great importance to the future
of your company, and which I strongly believe should be actively addressed by
governments everywhere - the multi-billion pound criminal trade in contraband
and counterfeit tobacco products.

First, however, I would like to pay tribute to Rupert Pennant-Rea, who retires
as one of your longest serving Directors at the end of this meeting.  Rupert
joined B.A.T. Industries as a Non-Executive Director in 1995 and has served on
your Board since British American Tobacco p.l.c. listed in 1998.  We will miss
his wise counsel and I am sure you will join me in thanking him sincerely for
his service over the last 11 years.


2006 business review

Let me now make a few remarks about our performance last year.

In 2006, your company delivered on every financial measure, including
outstanding organic growth.

Volumes were up 2 per cent for the second year running, revenues were up 5 per
cent, profit from operations was up 7 per cent on a like for like basis at
nearly £2.8 billion and earnings per share increased by 10 per cent.

Our global drive brands, Dunhill, Kent, Lucky Strike and Pall Mall, achieved an
impressive growth of 17 per cent.  Kent grew by 16 per cent to 45 billion and
Pall Mall had another excellent year with 40 per cent growth to 46 billion.
Dunhill and Lucky Strike were also on the up again.  After a patchy 2005,
Dunhill grew by 6 per cent to 33 billion and Luckies, after some slow years,
perked up to grow again, reaching 22 billion.  The global drive brands now
account for over a fifth of Group volumes.

It was also pleasing to see positive results well spread across our regions.
Europe, Asia-Pacific, Latin America and Africa & Middle East all achieved
volume, revenue, profit and global drive brand growth.  Inevitably, however, it
wasn't all perfect scores.  America-Pacific suffered from volume and profit
declines in Canada, where growth of illicit trade has played a notable part in
the difficulties, but this was balanced by strong growth in profit and market
share in Japan.

Our associate companies also grew volume by 4 per cent and profits were up at
both Reynolds American and ITC in India.  Our share of associates' post-tax
results, excluding exceptional items, was up 10 per cent at £431 million.

Overall, it was again a year when the good geographic spread of your business
continued to be a source of growth and competitive advantage.

We also continued to reduce our overhead and indirect costs and to make savings
in the supply chain, particularly through manufacturing rationalisation.  In the
last four years, cumulative savings have reached £729 million a year, of which
over a third was achieved in 2006.  We will maintain our focus on costs and, on
completion of the current 5 year programmes, will announce a further 5 year
target in a year's time.

We are also maintaining our focus on returning cash to shareholders.  You will
be asked to vote today on a final dividend of 40.2 pence, increasing the year's
total dividend by 19 per cent to 55.9 pence per share.  We are also proposing to
increase the proportion of sustainable net earnings paid out in dividends from
at least 50 per cent to 65 per cent by 2008, and to increase the share buy back
programme from about £500 million to £750 million a year.

Last year we were again selected, for the fifth year running, as the only
tobacco business in the Dow Jones Sustainability Indices.  It is also very
encouraging to be highly ranked amongst the Top 100 companies in the UK's
Business in the Community Corporate Responsibility Index, with a score of 93 per
cent.

You can be confident that we will continue to ensure that we manage our business
responsibly and provide, wherever we can, leadership in corporate responsibility
for a business in a controversial sector.


Illicit trade

We have said before that in several areas of tobacco regulation, we believe we
have common goals with the public health community.

One of these is in product regulation, where both we and several public health
stakeholders feel strongly that the potential for harm reduction through
innovative products must not be overlooked in public health policy.  I spoke
about this last year and it is a theme to which we will no doubt return in
future.

Today, however, I will focus on another key area where well-defined public
policy can do much to address a significant global problem - the illicit tobacco
trade.

As investors, you probably look at our performance compared to that of our
competitors, and I believe you will be reassured.  But the less comfortable news
is that you may be looking in the wrong direction.  One of our largest global
competitors today, now in fourth place behind Philip Morris, ourselves and Japan
Tobacco, is a growing body of criminals who are turning the illicit trade in
tobacco products into a lucrative global industry.

This trade involves large volumes of smuggled genuine tobacco brands and
counterfeits and, in a few parts of the world, local manufacturers who manage to
persuade local judges that they don't need to pay tobacco taxes.

The illicit trade is not only big business, but it's growing.  It is very hard
to quantify but, faced with the growing threat, we have developed research
methods to estimate its extent in each of our markets.  Our research indicates
that over 6 per cent of all cigarettes consumed in the world today, some 320
billion, do not have the relevant taxes paid on them; in other words, that
global illicit volumes now exceed the combined volumes of Imperial and Altadis.

Worse, this trade is increasingly becoming dominated by organised crime, with
official concerns that it has links to terrorism.  Interpol, the international
police organisation, notes that gangs behind illegal drugs, arms and people
trafficking are also involved in the illicit cigarette and alcohol trade.


Taxes drive illicit trade

Why is the illicit trade growing?  The answer rests fundamentally with
governments.  Excessive tax increases give a lucrative opportunity to the
perpetrators of counterfeiting and smuggling.

Governments are of course perfectly entitled to tax tobacco products and we
fully accept that this can be a valuable source of revenue for them.  The issue
is not taxes in themselves.  It is very large tax increases, sometimes suddenly
imposed, that push prices higher than consumers are prepared to pay and create
big tax differences, and thus big price differences, across borders.

The problem is made worse by weak penalties, poor border controls and corruption
in parts of the world.  But the growing lawlessness is fundamentally driven by
tax policies that offer huge profit margins to the unscrupulous players who are
in business to exploit them.

In the UK, for example, tax on cigarettes rose by 173 per cent in the six years
to 2000, and consumption of cigarettes on which no UK taxes had been paid rose
from 4 per cent to an estimated 27 per cent today.  It is also estimated that
one in ten of these cigarettes is counterfeit.

In Hungary, tax increases of 94 per cent in 18 months saw illicit trade soar to
over a fifth of the market, losing the Government, over a two-year period, a sum
equivalent to its entire annual healthcare budget.  In Germany, 70 per cent
excise increases over four years saw a 70 per cent rise in consumption of
cigarettes on which German taxes were not paid, losing the Government almost £3
billion last year alone - a sum forecast to rise by a further £1 billion this
year.

More and more consumers are simply refusing to pay the fully taxed price and
turning to cheap illegal offers.  Consumer demand for cheap cigarettes, with no
questions asked, gives the traffickers a huge incentive.

Let me give you an example of smugglers' profit margins.  Cigarette taxes in
Ukraine are less than a tenth of those in the UK.  An international brand bought
fully tax paid in Ukraine, and sold in the UK by a street hawker at half its UK
retail price, nets an illegal profit of £2 a pack, £20 on a carton of 200,
£50,000 on a transit van-load and £1 million on a container-load.  A so-called '
amateur' smuggler can get 15,000 cigarettes into two suitcases.  Bought in Spain
at £1.60 a pack, these can net an illegal profit in the UK of over £1,000.


Damage

Consumers should not imagine that the shadowy figures behind this trade are
heroic 'Robin Hoods'.  Anyone lighting up a smuggled or counterfeit cigarette
should know they may unwittingly be helping to fund international organised
crime, while taxpayers foot the bill.  UK Revenue & Customs puts losses to the
Treasury from tobacco smuggling, over the five years to 2005, at £19 billion.
That's enough to train seven hundred thousand teachers or build 800 new
secondary schools.

The UK has had an illicit trade problem for some years.  But the virus is
spreading to a growing number of markets, including some that are major sources
of your company's profitability.

In Brazil, nearly a third of sales have no local taxes paid on them.  In South
Africa, 17 per cent of sales are illegal product.  In Malaysia, 21 per cent of
sales are smuggled product from neighbouring countries.  In Canada, a survey
just over a year ago found that 17 per cent of tobacco consumption was
contraband, mainly product manufactured in, and smuggled from, First Nations
reservations.  All the indicators show things have grown worse since then.
Politicians in Canada, a leading country in tobacco control, find it politically
convenient to ignore this scourge, despite the disastrous social and economic
impacts.

Illicit trade throws markets into chaos, with real losses for both governments
and the legitimate industry.

For the industry, investment in distribution networks is undermined, retail jobs
are threatened, margins are undercut and brands are harmed by counterfeiting.

For governments, large holes are blown in national budgets, while legitimate
jobs and investment are threatened.  More insidiously, a culture can develop of
casual social acceptance of lawbreaking.  Any government that turns a blind eye
to smuggling and counterfeit on the grounds that 'it's only tobacco' faces the
corrosive effect of law and order more generally being brought into disrepute.

We estimate that your company's losses to the criminals' pockets are now well
over £500 million a year, that legitimate tobacco companies as a whole are
losing over £2 billion a year, and that this large-scale theft robbed
governments worldwide of some £12 billion in tobacco taxes in 2006 alone.


Our controls

For our part, we work to ensure that all our operations are directed only at
supporting the legitimate tobacco trade.  Our companies ensure that quantities
they supply are consistent with legitimate demand and cut off supplies to any
customers knowingly or recklessly involved in illicit trade.  All our companies
are required to have tight 'Know Your Customer' controls for ensuring that sales
are only made to reputable customers and we require assurance from our key
suppliers of raw materials that they have adopted similar controls.

To support governments, our products now carry a covert security feature so that
we can help enforcement agencies to identify fakes.  Our companies have signed
agreements with customs authorities in some 35 countries for intelligence
sharing and joint action.  Our Brand Enforcement Group has intensified its
intelligence gathering on the sources of illegal product, its target
destinations and routes, and shares information with enforcement agencies.  We
monitor the destruction of seized products and machinery and analyse suspect
fakes in our laboratories.  In several countries, we help to train customs
officers in tackling illicit trade.

Our companies in many markets are also researching the scale, dynamics and
nature of the illicit segment and are sharing the findings with governments, to
help them understand the link between excise rates and levels of illicit trade.

Where governments have responded to our calls for balanced tax policy and better
enforcement, we have begun to see some success, with reductions in illicit trade
in markets such as Brazil, Argentina and Hungary.


Governments must act

But fundamental to this battle is recognition that there is a limit to what
manufacturers can do on their own.  Responsibility for tackling the problem
primarily rests with governments.

Governments set tax rates, define laws and decide resources for enforcement, and
governments must act.  Yet in many countries, where enforcement agencies have
many high priority targets, resources to combat tobacco smuggling are often
inadequate.  It is critical for governments to recognise that ever-rising
tobacco taxes will drive growth of the illegal segment.

An urge to raise revenues or reduce consumption through higher taxes can all too
often be an 'own goal', with lost revenues and taxes higher than consumers will
pay, driving them to illegal cigarettes.

And because illicit trade is now a global phenomenon, it needs the unified
effort of all governments to address it.


WHO Protocol

We therefore support the anti illicit trade measures in the World Health
Organisation's Framework Convention on Tobacco Control.  We welcome the WHO's
move to develop a global treaty, called a Protocol, on illicit tobacco trade
within the scope of the Convention, to put more emphasis and detail into
tackling the issue.  A universally applied set of appropriate measures will do
much to help address a global problem.

We have some sound ideas on what these measures should be, reflecting actions
that we already take.

For example, we propose that every manufacturer should ensure its sales are
equivalent to legitimate demand, should screen and monitor customers and act to
ensure that its customers implement similar trading policies.  We support pack
marking, showing the place and date of manufacture, security devices and
government tax markers on packs.  We advocate stronger laws, tougher penalties,
destruction of seized goods and illicit machinery, and laws to make the copying
of tax markers as serious a crime as forging banknotes.


Common ground

Global action against illicit trade offers real common ground between the
responsible part of our industry and the tobacco control community.  The WHO
Anti-Illicit Trade Protocol is a real opportunity to guide best practice for
governments in addressing this issue in a workable way.  We believe we have much
to offer in helping to make it effective and we are committed to working with
national, regional and global bodies like the WHO to find solutions.

But if the Protocol brings measures that only hinder the properly run and
legitimate tobacco trade, the outcomes could be perverse, with more criminality
and more consumers turning to illegal traders.

We hope, and believe, that some members of the tobacco control community
recognise that in this battle, the legitimate industry is an ally, not an enemy.
The real enemy is the burgeoning body of illicit traffickers which, if
regulation takes a perverse course, could become bigger and more successful yet.


Employees

As you will have seen, we cover illicit trade as one of the risks to your
business in our first Operating and Financial Review, produced as part of this
year's Annual Report.  Our OFR aims to follow the best practice guidance of the
UK Accounting Standards Board by covering significant industry trends, risks,
our Key Performance Indicators and other important business measures.  I believe
it is a high quality document and I commend it to you.

In describing our strategy in action, one of the many positive topics it
outlines is the excellent set of results from our most recent global employee
opinion survey.  Our people returned scores in all fifteen categories higher
than the norm for the benchmark group of global FMCG companies.

This is highly encouraging, and I should like to offer my sincere personal
thanks to all our employees worldwide for their hard work and commitment in
delivering such strong results.




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