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A bad year for BAT - but £300 million profit earned from smuggled cigarettes

Businessdecline: A year is a long time in the tobacco business. This timelast year British American Tobacco was preening itself over the financialservices demerger, plotting the acquisition of Rothmans, celebrating the USsettlement and anticipating its share price reaching £6.27.  Now its price has fallen to around £3.20, itfaces litigation Armageddon in Florida, and its top management stands accusedof orchestrating smuggling through intermediaries in Asia and LatinAmerica  - with its prominentnon-Executive Director (Ken Clarke) forced out to defend the company without havingtime to read the evidence [1].

Thousandsof deaths: The 753 billion cigarettes sold by BAT in 1999 will becausing damage that will eventually lead to about three-quarters of a millionpremature deaths attributable to smoking (about one premature death per millioncigarettes smoked).  That is the humanprice of BAT's business activity.

Fingerprintsall over cigarette smuggling: In January and February thisyear ASH presented powerful evidence of the company's involvement - throughthird parties - in the control of cigarette smuggling in Asia and Latin America[2].  Under pressure before the House of Commons Health SelectCommittee, BAT chairman Martin Broughton promised an internal inquiry into hiscompany's role in tobacco smuggling, to be conducted by Rupert Pennant-Rea -the Chair of the BAT Audit Committee. ASH wrote to BAT outlining the company's responsibilities for such aninquiry under the Turnbull Code [3] and BAT has promised an interimreport at the AGM [4].

Slammedfor bogus science: Despite BAT's PR offensive toreposition itself as a responsible company on smoking and health issues, itsstance on passive smoking has recently been demolished in The Lancet  [5].

AGMaccountability: ASH is a small shareholder in BAT and will be attending theBAT AGM to put questions to the board about smuggling, about the harm caused byits products, about  its conduct andgovernance, about its litigation risks and about its product strategy.

Clive Bates ofASH said: "As a crude estimate we reckon that at least £300 million poundsof BAT's operating profit derives from cigarettes ultimately soldillegally.  We will want to know howmuch BAT does to nurture that criminal business."

[1] See letter from Clarke at: www.ash.org.uk/smuggling/
[2] See ASH evidence to Health Select Committee at www.ash.org.uk/smuggling/
[3] See letter to Pennant-Rea: www.ash.org.uk/smuggling/pennant-rea.html
[4] See letter from BAT company secretary www.ash.org.uk/smuggling/batresponse.pdf
[5] See ASH press release and links at www.ash.org.uk/press/000407.html

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