The tobacco roadrunnner
BAT's chief doesn't have many fans, but his company now threatens to overtake the industry's global leader. Dan Gledhill reports
Although he does not smoke, Martin Broughton must know how they feel. As chairman of British American Tobacco, he presides over the world's second largest cigarette manufacturer following last January's pounds 13bn merger with South Africa's Rothmans. After spending pounds 4.2bn on the rest of Imasco of Canada last week, BAT is within spitting distance of America's mighty Philip Morris. Broughton's six-year tenure at the BAT helm has seen the company's share price double - no mean feat in such a controversial and unfashionable industry.
So, is he lauded for his leading role in a great British success story? Anything but. Broughton's critics, among them lawyers, politicians and doctors, are far more numerous and voluble than his admirers. At least he can console himself with the thought that he chose his own destiny.
Broughton had already been with BAT for 23 years when he became chief executive in 1993. The previously diversified company had sold off its retailing businesses, and he set about divesting its sundry interests in financial services, notably Eagle Star and Allied Dunbar, to create a lean outfit dedicated entirely to the manufacture and sale of BAT's brands, which include Benson & Hedges, Lucky Strike and Dunhill.
"We used to use the cash made from tobacco to invest in other businesses," he says. "When I took over we opted to go for a growth strategy for tobacco. The total world market is hardly growing but there are some very good opportunities out there."
Broughton has succeeded in boosting BAT's share of the global cigarette market from 11.5 per cent to 16 per cent, a whisker away from Philip Morris's 17 per cent. His strategy of capturing business in the new markets of South America, Africa and the Indian sub-continent has been vindicated. If City gossips are to be believed, Philip Morris is sufficiently concerned about its competitor to be planning a swoop on Gallaher or Imperial Tobacco, Britain's two other big cigarette manufacturers.
What Broughton describes as a "differentiated strategy" has been condemned by critics as a cynical attempt to encourage the Third World to take up smoking en masse. In common with the rest of the industry, BAT's conduct is likely to be slated in an inquiry to be launched in the next Parliamentary session by the Commons' health committee.
In particular, David Hinchcliffe, the committee's chairman, is expected to attack those tobacco advertisements apparently geared towards attracting young smokers. Broughton dismisses Hinchcliffe's attitude, which the Government appears to share, as "classic nanny statism".
"It is exactly the kind of thing which appeals to this Government," says Broughton, whose non-executive directors include Kenneth Clarke, the former Conservative Chancellor. "I read the other day someone saying that it really was time to stop advertising cigarettes on television. I stopped seeing them in 1972."
That, of course, was the year that they were banned from our screens - his point being to expose the alleged ignorance of some of his critics. He is also critical of the latest move in this country to ban the use of hoardings to promote cigarettes.
"Products fall into two categories, mature and immature", he says. "Cigarettes are a mature product. The advertisements are not designed to say `start smoking'. They say `smoke ours'." His argument is that cigarette advertisements do not encourage people to start smoking. In support, he cites a 1995 verdict of Canada's Supreme Court, which overturned a ban on such adverts on the grounds that "there was no direct evidence of a scientific nature showing a causal link between advertising bans and a decrease in tobacco consumption".
The attempt to restrict tobacco adverts is not the only example of Government folly, he believes. The other target of his wrath, inevitably, is tax, that now accounts for pounds 3.20 of the pounds 3.90 for a packet of 20.
"The whole process just encourages smuggling," he says. "It offers a margin of 320p as an incentive to the smuggler. And the natural buyer of smuggled goods is the youth, because they are cheaper and it represents a more exciting purchase."
Broughton is less concerned by the various legal actions that the industry is facing in the US from dissatisfied former customers who blame tobacco companies for their ill-health.
"The underlying position of the litigation is far better than it is perceived, and it has improved a lot over the last 15 months or so," he says. "Back then, there were a number of state cases which were life-threatening for us. There is still a lot of litigation out there, but it's now manageable. We win most cases, but the cost comes from defending them."
"It unquestionably affects our share price", he complains. BAT's share price, like those of other tobacco companies, is depressed by a discount that reflects the company's ongoing legal liabilities.
This may seem a callous attitude - given the predicament of many of the smokers who allege that their health has been destroyed by BAT's products. But Broughton does not accept that these addicts were as powerless to stop smoking as they claim.
"Addiction is an emotive word whose definition has changed over time," he says. "If you take the colloquial definition, that it means anything which you do as a habit, then it clearly is addictive. But by the more objective definition, it isn't." He identifies those whose cigarette consumption is limited to just the workplace, for example, as non-addicts. If they can desist from smoking at home, he argues, then they are not addicted.
But some medical experts say that nicotine can be as addictive as heroin.
"Do they not give up because they can't, or because they don't want to?" Broughton asks. "I go home every night, take off my coat and have a gin and tonic. Am I addicted? I don't think so. Do I want to give it up? No."
He points out that there are now more ex-smokers in the UK and US than smokers. This statistic may just be part of his carefully conceived argument to assuage the animosity of his critics - one they are unlikely to accept. A damning report by the Commons' health committee this Autumn will not make his life any easier. However, Broughton remains determined to convince the sceptics of BAT's good intentions.
"As well as wanting to be the world leader in the tobacco business, I would also like to see a general perception of us as a responsible company. I would like it to be said that we are reputable people, that there is a consumer demand out there and it is better that it is provided for by us than by smugglers or bootleggers."
Not that he says so, but Broughton is probably aware that achieving world domination will be a breeze against winning over his critics.
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