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Excerpts from: BAT agrees to pay dying grandmother

www.citywire.co[04/30/02]

British American Tobacco is paying damages awarded to Rolah Ann McCabe, the Australian grandmother dying of lung cancer who won a case against the cigarette giant, writes Meera Selva.

McCabe was awarded damages for smoking related illness in March after the Melbourne Supreme Court accused BAT (BATS) of destroying key documents that prevented her chances of a fair trial.

The company has vehemently opposed the accusations, and has already lodged an appeal against the ruling but BAT spokesman Michael Prideaux told Citywire that it had decided to pay out the A$700,0000 (£258,000) damages to McCabe regardless.

'It's absolutely not company policy to destroy documents related to litigation,' he said. 'But we have paid her the money. She unfortunately does not have long to live.’

His comments come as BAT shares fell 11p to 697.5p following its first-quarter results.

Sales fell 2% to £5.96 billion, on better than expected profits of £472 million pre-tax, up from £467 million the year before.

The company warned last year that it expected volumes to fall amid worsening economic conditions and a crackdown on the sale of contraband cigarettes. But it has also been hit by problems with its distributor in Russia and price increases by its trading partners in India.

The company now expects volumes in 2002 to be 3% lower than last year and chairman Martin Broughton said he expected declining volumes to be a long-term trend.

He said: ‘We are not out to increase the number of smokers, but to compete fairly for a valuable share of the existing market. We can certainly foresee health authorities achieving gradually decreasing world volumes, while well-run tobacco companies continue to build sustainable value.’

In the meantime BAT will focus on Asia, where a growing population and an increase in consumer spending power should drive the cigarette market.

The growth there should offset difficulties in the American market, where stringent anti-smoking legislation in states such as California has made it hard for tobacco companies to grow earnings.

Citywire verdict.

BAT does not want to just be a defensive company. Yes, the shares benefited from the flight to safety after 11 September, but now, it wants investors to realise it is also a quality stock, with high earnings growth.