British American Tobacco plc

Company Profile
Reference Code: 269 Publication Date: Aug 2005

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TABLE OF CONTENTS

TABLE OF CONTENTS Company Overview ....................................................... 4 Key Facts........................................................................ 4 Business Description .................................................... 5 History ............................................................................ 6 Key Employees .............................................................. 9 Major Products And Services..................................... 14 Products And Services Analysis................................ 16 SWOT Analysis ............................................................ 17 Top Competitors .......................................................... 22 Company View ............................................................. 23 Locations and Subsidiaries ........................................ 26

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Company Overview

COMPANY OVERVIEW
British American Tobacco (BAT) is the second largest tobacco producer in the world. BAT operates through 81 factories in 64 countries, producing over 853 billion cigarettes and using more than 660 million kilos of tobacco per year. The Group also has nine other tobacco product (OTP) factories in 7 countries which manufacture cigars, roll-your-own cigarettes (stix) and pipe tobacco. It is headquartered in London, United Kingdom and employs about 90,200 people. The company recorded revenues of 31,811 million during the fiscal year ended December 2004, an increase of 31.7% over 2003. The increase was primarily attributable to strong performances in Europe and Africa and the Middle East. The operating profit of the company during fiscal 2004 was 1794 million, an increase of 1.0% over fiscal 2003. The net profit was 1224 million during fiscal year 2004, an increase of 55.3% over 2003.

KEY FACTS

Head Office

British American Tobacco plc Globe House 4 Temple Place London WC2R 2PG United Kingdom

Phone Fax Web Address Revenues/turnover ( Mn) Financial Year End Employees SIC Codes NAICS Codes London Ticker

+44 20 7845 1000 +44 20 7240 0555 http://www.bat.com 31811

December 90249 SIC 5194 Tobacco and Tobacco Products 42294 BATS

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Business Description

BUSINESS DESCRIPTION
BAT is an international cigarette and OTP manufacturer with manufacturing and processing operations in about 64 countries. The companys leading international brands include Dunhill, Lucky Strike, Kent, State Express 555, Rothmans, Peter Stuyvesant, Benson & Hedges, Kool, Pall Mall, Viceroy, Winfield and John Player Gold Leaf. BATs popular local brands around the world include: Jockey Club (Argentina), Stradbroke (Australia), du Maurier (Canada), North State (Finland), HB (Germany), Sopianae (Hungary), Wills (India), Ardath (Indonesia), Carrolls (Ireland), Boots (Mexico), Jan III Sobieski (Poland), Yava Gold (Russia), Courtleigh (South Africa), Parisienne (Switzerland), GPC (US), and Xon (Uzbekistan). BAT also produces fine cut tobacco, pipe tobacco and cigars. The companys leading fine cut tobacco brands are Samson, Ajja, Javaanse Jongens and locally favored brands such as Belgam in Belgium or Schwarzer Krauser in Germany. Major pipe tobacco brands include Clan, Erinmore, Captain Black and Dunhill. The companys most widely distributed cigar brands are Mercator, Dunhill and Schimmelpenninck. The companys finished products are distributed to retail outlets throughout the world, including: supermarkets, convenience stores, hotels, bars, restaurants, cafes, tobacconists and duty free shops.

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History

HISTORY
The British-American Tobacco Company was established as a joint venture between the UKs Imperial Tobacco Company and the American Tobacco Company of the US to end an intense mutual trade war in 1902. The parent companies agreed not to trade in each others domestic territory; and transferred certain trademarks, export businesses and overseas subsidiaries to the joint venture. Thus the company began operating in countries as diverse as Canada, China, Germany, South Africa and Australia, but not in the UK or US. Operations were extended by 1910 to the West Indies, India, Sri Lanka, East Africa, Malaysia and Nigeria. In 1911, the American Tobacco Company broke up its complex group and divested its shares in the British-American joint venture. British-American Tobacco was listed on the London Stock Exchange, with most of its American parents shares acquired by British investors. The company was then free to conduct its business independently throughout the world, except for the UK where there were still territorial agreements with Imperial. In 1914, British-American Tobacco acquired the Brazilian tobacco company Souza Cruz. In 1927, British-American Tobacco moved into the US market by purchasing the small North Carolina company, Brown & Williamson. From 1945-1960, despite international turmoil, which resulted in the loss of several markets including, notably, Egypt and China, the companys worldwide sales continued to grow. In 1956, the overseas business of Benson & Hedges was added to the portfolio. With shareholder approval, British-American Tobaccos Memorandum of Association was amended to allow diversification. The group gradually expanded over the next three decades into paper and pulp, including Wiggins Teape and Appleton Papers; cosmetics, where British-American Cosmetics became a UK industry leader; retailing, where acquisitions in the 1970s included Argos in the UK and Saks Fifth Avenue in the US; and later in the 1980s, financial services. The 1902 covenant with Imperial Tobacco was revoked in 1972. British-American Tobacco gained exclusive ownership of its original brands, including State Express, in the UK and Western Europe. Four years later, the group underwent a comprehensive reorganization and its operations were coordinated under a new holding company B.A.T Industries. In 1980, Imperial Tobacco sold its remaining shareholding in B.A.T Industries.

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History

B.A.T Industries acquired Eagle Star (in 1984), Allied Dunbar (in 1985) and Farmers (in 1988), enabling it to become the largest UK-based insurance company by 1989. B.A.T Industries then changed its strategy to re-focus on tobacco and financial services, and to dispose of almost everything else. Economic liberalization in the 1990s and the break-up of state monopolies opened up new trading opportunities, especially in Central and Eastern Europe and the Far East. This was highlighted by the first acquisition in the emerging democracies of Eastern Europe with the purchase of Pcsi Dohnygyr, in 1992, Hungarys largest cigarette manufacturer. In 1997, the board of B.A.T Industries announced a proposal to demerge the financial services businesses and simultaneously merge them with the Zurich Group. Also that year the company acquired Cigarrera La Moderna based in Mexico. In 1998, BAT became a separately quoted company on the London Stock Exchange. The following year, BAT announced a global merger with Rothmans International. British American Tobacco acquired the remaining 58.5% of Imasco, the groups principal associate in Canada, in 2000. Imascos non-tobacco interests were sold, leaving BAT with full ownership of Canadas largest cigarette business, Imperial Tobacco. At the beginning of 2001, the company acquired the 40.5% stake in BAT Australasia that it did not own previously. As a result, BAT Australasia was de-listed and became a wholly-owned subsidiary of BAT. In mid 2001, the company announced its intention to enter the Turkish tobacco market, through an investment of up to $200 million over a 10-year period. While, later in that year, BAT announced plans to build a factory in South Korea, which would be the core element in the companys plans for an increased market presence in the worlds eighth largest tobacco market. The following month, a similar plan was announced for Nigeria. In 2003, an agreement was signed to combine R. J. Reynolds with the US tobacco business of Brown & Williamson, under a new public holding company, Reynolds American, which would apply to be listed on the New York Stock Exchange. British American Tobacco would receive 42% of the common equity in Reynolds American. It was also announced that Reynolds American would acquire Lane, British American Tobaccos US smoking tobacco and cigar business, for $400 million in cash. In 2003, the company announced the sale of its cigarette making operation in Burma. BAT agreed to offload its 60% stake in Rothmans of Pall Mall Myanmar to a Singapore-based partner in the venture. The same year BAT acquired Ente Tabacchi Italiani, Italys state-owned tobacco company. The company agreed to sell Etnera, the distribution business of BAT Italia (formerly Ente Tabacchi Italiani) in July 2004 to the Compaa de Distribucin Integral Logista (that acquired a 96% stake) and Axiter

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History

Investments (that acquired the remaining 4%). The company also announced during the year that the Central Government of China and the relevant government departments had approved the Groups major strategic investment in China, the largest tobacco market in the world, with annual sales of around 1780 billion cigarettes. In August 2004, R.J. Reynolds Tobacco Holdings (RJR) and Brown & Williamson Tobacco Corporation (a subsidiary of BAT) completed the transaction that formed a new publicly traded company, Reynolds American, and combined their respective US tobacco businesses. In January 2005 BARH Limited, the 55/45 joint venture between BAT and Honda Motor Company, completed the acquisition of the B.A.R Formula One racing team from administrators Grant Thornton. In April 2005, the company sold to Gallaher the Benson & Hedges and Silk Cut trademarks in Malta and Cyprus (North and South), and the Silk Cut trademark in Lithuania. May 2005 saw BAT Start the testmarketing of smokeless Swedish-style snus for the first time and putting two of its best-known brands (Lucky Strike and Peter Stuyvesant) behind it. In June 2005, BAT announced plans to transfer the production of some 6.2 billion cigarettes from its Southampton factory to factories in Korea and Singapore. In July 2005, BAT announced the planned closure of its Southampton factory, signalling the end of its cigarette production in the UK.

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Key Employees

KEY EMPLOYEES

Name
Paul Adams Antonio Monteiro de Castro Paul Rayner Jan Du Plessis Kenneth Clarke Thys Visser Nicholas Scheele Piet Beyers Ana Maria Llopis Rupert Pennant-Rea Robert Lerwill Flavio De Andrade Jacques Kruger Ben Stevens Michael Prideaux Rudi Kindts Jimmi Rembiszewski Peter Taylor Neil Withington John Daly

Job Title
Chief Executive Officer Chief Operating Officer Finance Director Chairman Deputy Chairman Director Director Director Director Director Director Director, Latin America and Caribbean Director, Africa and Middle East Director, Europe Director, Corporate and Regulatory Affairs Director, Human Resources Director, Marketing Director, Operations and IT Director, Legal; and General Counsel Director, Asia-Pacific

Board
Executive Board Executive Board Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management

Compensation

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Key Employee Biographies

KEY EMPLOYEE BIOGRAPHIES

Paul Adams
Board: Executive Board Job Title: Chief Executive Officer Since: 2004 Age: 51 Mr Adams joined British American Tobacco from Pepsi International in 1991 and was regional director, Asia-Pacific and regional director, Europe prior to becoming deputy managing director in 2001 and managing director in 2002. He was appointed a director in 2001 and has been the companys chief executive officer since January 2004.

Antonio Monteiro de Castro

Board: Executive Board Job Title: Chief Operating Officer Since: 459 Mr Monteiro de Castro joined the British American Tobacco Group in 1971. Appointed to the board of B.A.T Industries in 1988, he was group chief executive and deputy chairman at the time of the de-merger in 1998. Appointed a director in 2002, he was regional director, Latin America and Caribbean before being appointed to his current position (since 1996). He held senior executive positions at Gillette do Brasil and Alcoa (Brazil) before joining Souza Cruz of Brazil as vice president in 1989. He was formerly president and chief executive officer of Souza Cruz and since 1995 he has been president of the Souza Cruz administrative council.

Paul Rayner
Board: Executive Board Job Title: Finance Director Since: 2002 Age: 50

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Key Employee Biographies

Mr Rayner joined Rothmans Holdings in Australia in 1991 as general manager, group finance and corporate services. He held senior executive appointments with Rothmans before becoming chief operating officer of British American Tobacco Australasia in 1999. He was appointed to the management board in 2001 and became finance director in 2002.

Jan Du Plessis
Board: Non Executive Board Job Title: Chairman Since: 2004 Age: 51 Mr du Plessis became chairman of the company in July 2004, having been a nonexecutive director since his appointment to the board following the merger with Rothmans in 1999. Prior to taking on the chairmanship, he was group finance director of Richemont, a position he held since 1988. From 1990 to 1995, he held the additional role of group finance director of Rothmans International. He retired as group finance director of Richemont in April 2004.

Kenneth Clarke
Board: Non Executive Board Job Title: Deputy Chairman Age: 64 Mr Clarke was appointed a director in 1998. He has been Member of Parliament (UK) for Rushcliffe for over 30 years. Appointed Queens Counsel in 1980, from 1993 until 1997, he was Chancellor of the Exchequer. He is non-executive chairman of Savoy Asset Management and British American Racing (Holdings) Limited. He is also a director of Alliance UniChem, Foreign & Colonial Investment Trust and Independent News & Media (UK).

Thys Visser
Board: Non Executive Board Job Title: Director

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Key Employee Biographies

Since: 2001 Age: 50 Mr Visser was appointed a director in 2001. He is vice chairman and chief executive officer of Remgro, having held senior management positions with Rembrandt Group since 1980. He is also a non-executive director of Nampak and Rainbow Chicken.

Nicholas Scheele
Board: Non Executive Board Job Title: Director Since: 2005 Age: 61 Mr Scheele was appointed to the board of British American Tobacco as a nonexecutive director in February 2005. Since 2001, he was president and chief operating officer of Ford Motor Company until his retirement in February 2005. He had a long and distinguished career with Ford, during which time he held a number of significant positions including chairman of Ford Europe, chairman and chief executive officer of Jaguar Cars and president of Ford of Mexico. He was knighted in 2001 for services to British exports.

Piet Beyers
Board: Non Executive Board Job Title: Director Since: 2004 Age: 55 Mr Beyers is an executive director of Richemont and a non-executive director of several other companies. He has been chairman of FCB (Cape); managing director of Cadbury, South Africa; marketing strategy director of Remgro, formerly known as Rembrandt; and has held other roles in the food, liquor, tobacco and advertising industries.

Ana Maria Llopis

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Key Employee Biographies

Board: Non Executive Board Job Title: Director Since: 2003 Age: 54 Dr Llopis was appointed a director in 2003. Her career has been in sales and marketing with Procter & Gamble and Playtex, and in finance with Banesto (now part of Banco Santander). She was chief executive of Banestos branch-less bank. She is executive vice-president of Indra, the leading Spanish IT consultancy, and a nonexecutive director of Reckitt Benckiser.

Rupert Pennant-Rea
Board: Non Executive Board Job Title: Director Since: 1998 Age: 57 Mr Pennant-Rea was editor of The Economist and deputy governor of the bank of England. He is chairman of The Stationery Office Holdings, Plantation & General Investments and Key Asset Management (UK) Limited. He was appointed nonexecutive director of B.A.T Industries in 1995, becoming a director of British American Tobacco in 1998.

Robert Lerwill
Board: Non Executive Board Job Title: Director Since: 2005 Age: 53 Until 2003 Mr Lerwill was an executive director of Cable and Wireless plc where he served as finance director between 1997 and 2002 and chief executive of Cable and Wireless Regional between 2000 and 2003. From 1986 to 1996 he was group finance director of WPP Group. In both companies he was instrumental in developing and managing major international businesses. Mr Lerwill was appointed chief executive officer of Aegis Group in February 2005 and is also a director of The Anthony Nolan Trust.

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Major Products And Services

MAJOR PRODUCTS AND SERVICES

BAT is an international cigarette and OTP manufacturer with manufacturing and processing operations in about 64 countries. The companys products are as follows: Cigarettes Cigars Roll-your-own cigarettes (stix) Pipe tobacco Snuff International brands: Dunhill Lucky Strike KentState Express 555 Rothmans Peter Stuyvesant Benson & Hedges Pall Mall ViceroyWinfield John Player Gold Leaf Belmont Free Hollywood Golden American Holiday GPC Courtleigh Ardath Regional Brands: Jockey Club Stradbrokedu Maurier North State HB

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Major Products And Services

Sopianae Wills Ardath Carrolls Boots Jan III Sobieski Yava Gold Courtleigh Parisienne GPC Xon Fine cut brands: Samson Ajja Javaanse Jongens Belgam Schwarzer Krauser Pipe Tobacco Clan Erinmore Captain Black Mercator Dunhill Schimmelpenninck

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Products And Services Analysis

PRODUCTS AND SERVICES ANALYSIS

The company recorded revenues of 31,811 million during the fiscal year ended December 2004, an increase of 31.7% over 2003. The increase was primarily attributable to strong performances in Europe, Africa and the Middle East. For the fiscal year 2004, revenues from Europe, the companys largest geographical market, accounted for 41.4% of the net revenues*. Revenues by Division The company operates in a single segment: the manufacture of cigarettes and OTPs. Revenues by Geography Europe, BATs largest geographical market, accounted for 41.4% of the net revenues in the fiscal year 2004. Net revenues from Europe reached 4452 million in 2004, an increase of 51.0% over fiscal 2003. The America-Pacific region accounted for 21.3% of the total revenues. Net revenues from the America-Pacific region reached 2294 million in 2004, a decrease of 35.6% from fiscal 2003. The Asia-Pacific region accounted for 13.1% of the total revenues. Net revenues from the Asia-Pacific region reached 1410 million in 2004, a decrease of 4.6% from fiscal 2003. Africa and the Middle East region accounted for 12.4% of the total revenues. Net revenues from Africa and the Middle East region reached 1333 million in 2004, an increase of 4.6% over fiscal 2003. Latin America accounted for 11.8% of the total revenues. Net revenues from Latin America reached 1275 million in 2004, a decrease of 2.5% over fiscal 2003. *Note: The company gives a segmental break-down only for its net revenues (excluding duty, excise and other taxes for subsidiaries) and not for total revenues.

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SWOT Analysis

SWOT ANALYSIS
BAT is the second largest tobacco producer in the world. With more than 300 brands in its portfolio, the company holds robust market positions in each of its operating regions and has leadership in more than 50 of the 180 markets where it does business. The companys strong market position is further strengthened by its wide global presence. However, the companys revenues may be adversely affected due to rising health concerns and public opinion against smoking.

Strengths
Strong market position Geographically diversified Control over tobacco leaf

Weaknesses
Declining profitability Falling revenues from major operating segments Decreasing operating cash flows

Opportunities
Light cigarettes Market potential in China Rising popularity of smokeless tobacco

Threats
Increasing health concerns Competitor strategies Contraband and counterfeit cigarettes

Strengths
Strong market position BAT is the second largest tobacco producer in the world, with a market share of 22.1% and more than 300 brands in its portfolio. BAT holds robust market positions in each of its regions and has leadership in more than 50 of the 180 markets where it does business. The company processes some 660 million kilos of tobacco leaf and producing some 853 billion cigarettes in 2004. Due to the addictive nature of tobacco products, BATs products enjoy a built in high level of demand, and the companys vast array of popular brands mean that it is in a position to consistently take advantage of this demand. The strong market position of the company is a key strength for BAT. Geographically diversified BAT is very well diversified geographically. The company operates through 81 factories in 64 countries. However, the companys largest market, Europe accounts

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SWOT Analysis

for only 41.4% of its net revenues. Geographically balanced in its operations, BAT is not overly dependent on any of its operating regions. The America-Pacific region accounted for 21.3% of the companys net revenues in 2004; while the Asia-pacific region accounted for 13.1%. In 2004, Africa and the Middle East contributed 12.4% of BATs net revenues and Latin America contributed another 11.8%. The company has strong market position in North America, Western Europe and Eastern Europe, three of the strongest markets for tobacco products in the world. However, this has not stopped BAT from expanding into emerging markets like China where the sheer size of the smoking population presents a significant opportunity for the company. The companys wide geographical spread has provided it growth opportunities in diversified markets. Control over tobacco leaf BATs tobacco leaf business is large, with the group purchasing about 517,000 tons of leaf tobacco annually. Subsidiary companies operate leaf growing programs through which they provide direct agronomy support to farmers if it is not otherwise available. BAT purchases on average about 65% of its leaf through these programs, mainly through directly contracted farmers. In 2004, BATs subsidiary companies operated 22 leaf programs in 22 countries, covering about 254,400 hectares under cultivation. This gives the company an assured supply of tobacco leaf and insulates it from demand and price fluctuations for tobacco leaf.

Weaknesses
Declining operating profitability Despite a 31.7% increase in total revenues during 2004, the operating profit of the company increased a mere 1.0% over fiscal 2003. As result, the companys operating margins decreased from 7.4% to 5.6%. Profit from the America-Pacific region was 795 million, a decrease of 200 million from the same period last year. This was the result of lower profits in Canada and Japan. In Latin America, profits from Brazil were slightly down from 2003 due to lower volumes requiring higher marketing expenses. Profits in Chile also declined. These declines in profitability were further accentuated by the translation of US, Canadian and Latin American results into pounds sterling. The decline in profit in these two operating regions caused the overall profitability of the company to decline and this reflects poorly on the company. Falling revenues from major operating segments

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SWOT Analysis

Three of the companys five operating regions witnessed declining revenues during 2004. Net revenues from the America-Pacific region reached 2294 million in 2004, a decrease of 35.6% from fiscal 2003. At the same time, the Asia-Pacific regions net revenues declined by 4.6%. Latin America, which accounts for 11.8% of the total revenues, witnessed a 2.5% decline in revenues during 2004. In the Asia Pacific region, the company witnessed a decline in Indonesia and Malaysia while in the America-Pacific region, Imperial Tobacco Canada witnessed declining volumes and deteriorating sales mix. In Latin America, regional sales volume at 148 billion was down by 2 billion mainly as a result of increased pressure from growing illicit trade. Falling revenues from major operating segments could lead to a loss of market share for BAT. Decreasing operating cash flows For fiscal year 2004, BATs cash flow from operations was 2677 million, a decrease of 14.0% from 2003. The free cash flow for the company was 2412 million, 10.4% less than the free cash flow in 2003. The decline in the companys operating cash flow and free cash flow is largely attributable to an increase in working capital requirements. Declining cash flows from operations are indicative of the companys poor cash management.

Opportunities
Light cigarettes The demand for tobacco products with lower nicotine content has been rising in the past few years due to increasing health concerns. As a result, most tobacco companies have shifted focus from manufacturing strong cigarettes to manufacturing lighter ones, with low nicotine content. Considering the fact that adult women smoking population presents opportunities for growth, most tobacco companies have introduced light cigarettes for the market. BAT has a strong position in the market for light cigarettes and these are marketed under some of the companys strongest brands. The company can thus leverage the growing popularity of light cigarettes to increase its sales volumes. Market potential in China China is potentially a huge market for BAT. While the majority of the market remains under the control of China National Tobacco (CNTC), a state tobacco monopoly, there is a growing demand for international brands in China in all product categories. With 2003 volumes of 1.75 trillion cigarette sticks (one-third of the total global market),

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SWOT Analysis

China is the large volume prize for all the international majors, who currently have barely a foothold in the market. However, of all major international players, BAT is the best-placed as far as taking advantage of this is concerned since, the Central Government of China and the relevant government departments approved the Groups strategic investment in China in the year 2004. The new factory is being established by BAT in a joint venture with China Eastern Investments Corporation, and will reach a manufacturing capacity of 100 billion cigarettes (State Express 555 and other brands) per year. The venture will also allow BAT to distribute and sell its brands all over China. Rising popularity of smokeless tobacco The world market for smokeless tobacco is worth an estimated $2 billion of which the US accounts for approximately 65%, followed by Sweden with sales of $480 million in 2003. Other markets with a strong smokeless tobacco tradition include India, Algeria, Pakistan, South Africa and Norway. The European market for snus has been witnessing increasing sales. Norway and Sweden especially enjoy a lively snus market, with sales increasing rapidly over the past few years as consumers turn to reduced-risk nicotine consumption. During the five years ended 2004, Swedens market for snuff increased by 30%. In May 2005, BAT started test-marketing smokeless snus for the first time and the company has put two of its best-known brands (Lucky Strike and Peter Stuyvesant) behind it. With the market for snus increasing in Europe, the companys largest market, BAT could have found a new area for growth.

Threats
Increasing health concerns Due to increasing health concerns worldwide, there has been a general decline in the consumer preference for tobacco products. While active smoking leads to a number of respiratory and heart ailments, even passive smoking has been proven to cause certain diseases. The frequency of consumers who have suffered irreparable damage to their health is slowly increasing as also the incidence of such people taking cigarette companies to court for punitive damages. BAT is no exception to this, and should this trend continue, it may be the single largest factor leading to a decline in the companys revenues. Competitor strategies

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SWOT Analysis

Major cigarette manufacturers like BAT, which are subject to pending lawsuits worth billions of dollars, are facing competition from smaller manufacturers who are not subject to litigation. The bigger companies are being forced to set aside substantial amounts of their profits to pay for damages they might have to pay in future. Smaller companies are trying to take advantage of this by tying up with each other and offering very-low priced but quality tobacco products. As a result, they are gaining market share from established players who cannot afford to price their products below a certain level, in order to maintain the premium image of their products. Contraband and counterfeit cigarettes BAT is also threatened by the increased availability of contraband and counterfeit cigarettes. The company plans to tackle this by working in partnership with governments. It is playing a major role in The Global Business Leaders Alliance Against Counterfeiting, a group whose aim is to increase political awareness of the risks and impact of counterfeit. The company has also been experiencing falling growth volumes because of the planned action taken to restrict the supply of duty-free products. Approximately 15% of all cigarettes sold in the UK are expected to be contraband / counterfeit. In 2002-03, the companys Benson and Hedges brand accounted for 19% of all seizures of illicit cigarettes made by the UK customs. Of these, 90% were counterfeit. The company has also witnessed counterfeit products in East European and Asian markets. Since these cigarettes are cheaper (due to not being taxed), an increase in the availability of such illicit cigarettes could deprive BAT of potential customers.

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Top Competitors

TOP COMPETITORS
The following companies are the major competitors of British American Tobacco plc: Gallaher Group Plc Imperial Tobacco Group PLC Japan Tobacco Inc. Loews Corporation Altria Group, Inc. Reynolds American Inc. UST Inc. Altadis SA

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Company View

COMPANY VIEW
A statement by Jan du Plessis, chairman of BAT is given below. The statement has been taken from the companys 2004 annual report. British American Tobaccos operating profit before goodwill amortisation and exceptional items grew by 2 per cent to 2,830 million at current rates of exchange. At comparable rates of exchange, the improvement would have been 7 per cent. Adjusted diluted earnings per share increased by 10 per cent to 75.83p, reflecting the increase in operating profit, the reduced effective tax rate, lower minority interests and the impact of the share buy-back programme. During the year, 59 million shares have been repurchased, representing 2.8 per cent of the average number of shares in issue during 2004, at a cost of around 490 million and at an average price of 8.35 per share. This brings the total number of shares bought back since the programme was launched in 2003 to 165 million, accounting for 8 per cent of the total outstanding, at a cost of almost 1.2 billion. We expect to restart the share buy-back programme following the announcement of these results. The Board has proposed a final dividend of 29.2p per share, bringing the total for the year to 41.9p, an increase of 8 per cent. The dividend will be paid on 4 May to shareholders on the Register at 11 March 2005. In future, when the Board is considering the interim dividend, its policy will be that the interim should represent one-third of the previous years total dividend, unless there are any special factors to be taken into account. Group cigarette volumes, including make-your-own cigarette stix, were ahead by 8 per cent to 853 billion, principally as a result of the inclusion of a full years sales from the enlarged business in Italy, as well as five months results from Reynolds American Inc., formed by the successful combination of R.J. Reynolds and the US businesses of Brown & Williamson. The completion of this transaction was a landmark event for the Group in 2004 and the integration of the businesses is progressing well. Our 42 per cent shareholding is now transparently valued, at around US$5 billion, and the Group has the benefit of an indemnity for all existing and future US litigation. The recent Appeals Court decision to reject the US Federal Governments US$280 billion claim against the US tobacco industry is obviously encouraging, even though

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Company View

the US Government is seeking a further appeal. Given the appeals pending in the Engle and Price/Miles cases, 2005 is set to be an important year for the US tobacco industrys attempts to put these three lawsuits behind it. Excluding merger benefits, there were strong volume performances in Russia, Turkey, India and Pakistan offset by declines in Germany, France, Canada and Japan. The global drive brands, Dunhill, Kent, Lucky Strike and Pall Mall, grew by 2 per cent. Kents volume increased by 10 per cent to a new record high of 33 billion. As this is my first Chairmans statement, I would like to remind shareholders that there is more to the Groups strategy for creating shareholder value than achieving growth, vital though it undoubtedly is. It is essential that we maintain our balanced approach to achieving growth, improving productivity, managing our business in a responsible manner and developing a winning organisation. We will continue to drive all four elements of our strategy, in order to build a sustainable business and achieve leadership of the industry. In terms of productivity, we have continued to meet the commitment made two years ago to reduce overheads and indirect costs by 200 million per year by 2007. Building on the 64 million in 2003, we saved a further 89 million in 2004, principally as a result of restructuring throughout the Group. Given our excellent progress, we are now raising our five year target on overheads and indirect costs to 320 million per year by the end of 2007, around a further 170 million per year over the next three years. Additionally, we have reduced our supply chain costs over the last two years by 120 million per year, as a result of factory rationalization and logistics savings. We expect to achieve further substantial supply chain savings in the years ahead. On the responsibility front, I am pleased to report that we have made further progress in the eyes of those organisations prepared to consider our record in an objective way. The United Nations Environmental Programme ranked British American Tobacco fourth out of the top 50 global reporters in its annual survey of best practice in nonfinancial reporting. The Group was also favourably mentioned in a UK Department of Trade & Industry report entitled Building Better Boards and covering best practice in corporate governance. We have maintained our position as the only tobacco company, apart from our Malaysian subsidiary, to be included in the Dow Jones Sustainability World Index. Our website, bat.com, was, once again, ranked as the best in the FTSE 100 by the Financial Times Webranking Survey.

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Company View

We will continue to support tobacco regulation that balances the preferences of consumers with the interests of society, establishes an open-minded approach to harm reduction as a public health policy and does not undermine the competitive business environment. In the debate over smoking in public places, for example, we will promote the provision of segregated and properly ventilated smoking areas. These solutions work perfectly well and are a more balanced approach than the social exclusion of smokers favoured by anti-tobacco campaigners. In addition to Martin Broughtons retirement as Chairman on 30 June 2004, there have been some other changes to the Board. Dr Harald Einsmann retired at last years Annual General Meeting and Admiral Bill Owens had to step down unexpectedly on becoming Chief Executive of Nortel Networks. On shareholders behalf, I should like to thank all of them, and most particularly Martin Broughton, for their service and to welcome Piet Beyers, Robert Lerwill and Sir Nick Scheele as new Non-Executive Directors of the Board. It is with great sadness that we learned of the sudden death of K S Wong, a Non-Executive Director since 1998, and I extend my deepest sympathy to his family. These will be the last set of full year results presented under UK Generally Accepted Accounting Principles, as the Group will in future present its results under International Financial Reporting Standards. Based on the current understanding of the requirements, we have set out a restatement of the key figures for 2004 on pages 34 to 36. I hope this will help to provide an early insight into the impact of the change. It has been a good year for the Group, with all regions apart from America-Pacific achieving organic growth at comparable rates of exchange. This demonstrates the fundamental strength provided by British American Tobaccos successful strategy and geographical diversity. Our goal remains to grow earnings per share, on average, by high single figures and to pay out at least half of our earnings in dividends. Our success over the last three years has enabled us to deliver an average total shareholder return of 20.8 per cent a year, compared to 2.4 per cent for the FTSE 100.

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Locations and Subsidiaries

LOCATIONS AND SUBSIDIARIES

Head Office
British American Tobacco plc Globe House 4 Temple Place London WC2R 2PG United Kingdom P: 44 20 7845 1000 F: 44 20 7240 0555 www.bat.com

Other Locations and Subsidiaries

British American Tobacco (UK & Export) Ltd 11a Bekhozin Street Almaty 480 023 Kazakhstan P: 7 3272 919588 F: 7 3272 618714

Imperial Tobacco Canada 3711 Saint-Antoine Street Montreal Quebec H4C 3P6 Canada P: 1 514 932 6161 F: 1 514 932 2695 www.imperialtobaccocanada.com

Cigarrera La Moderna Apartado Postal 384 Monterrey, N.L 64000 Mexico P: 52 8122 4000 F: 52 8122 4097

BAT (UK & Export) Ltd. Al-Sahab Tower - 4th Floor Office #1 - Salhiya PO Box 26018 Safat Postal Code 13121 Kuwait P: 965 2422 442 F: 965 2421 537

British American Tobacco (La Reunion) 5, immeuble Cap 2000 Avenue Theodore Drouhet ZAC Horizon 2000 97420 Le Port Ile de la Reunion P: 2 62 42 40 40 F: 2 62 42 03 56

British American Tobacco (Malawi) Ltd PO Box 428 Blantyre Malawi P: 265 670 033 F: 265 670 808

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Locations and Subsidiaries

British American Tobacco (Mauritius) PO Box 101 Port Luis Mauritius P: 230 242 2821 F: 230 241 8552 British American Tobacco (UK & Export) Ltd PO Box 175 Muscat 113 Sultanate of Oman Oman P: 968 771 4270 F: 968 771 3037 British American Tobacco PO Box 22163 Bin Thani Street Doha Qatar P: 974 437 1329 F: 974 437 1612 British American Tobacco Agency Division Villa #5 Beutat Business Park Al-Malik Road Jeddah Saudi Arabia P: 966 2 606 2523 F: 966 2 606 2478 British American Tobacco (Southern African Area Office) PO Box 631 Cape Town 8000 South Africa P: 27 21 888 3700 F: 27 21 888 2772 British American Tobacco (Investments) Limited - Istanbul Liaison Office Buyukdere Caddesi C Blok Kat 15 80620 Levent Istanbul Turkey P: 90 212 281 6300 F: 90 212 281 6073

Nigeria Tobacco Company PLC PO Box 137 Lagos Nigeria P: 234 1 2625769 F: 234 1 2625768 Pakistan Tobacco Company Limited PO Box 2549 Islamabad 44000 Pakistan P: 9251 2083 2000 F: 9251 2083 2001 British American Tobacco Cameroon SA BP 94 Yaounde Cameroon P: 237 210875 F: 237 200400 British American Tobacco / TMC Boulevard de LEst Point E BP 3174 Dakar Senegal P: 221 8 240851 F: 221 8 256999 Ceylon Tobacco Company Ltd PO Box 18 Colombo Sri Lanka P: 94 1 434265 67 F: 94 1 54 12 55 British American Tobacco (Turkmenistan) Krasnovodskaia Street No.18. Apt.2 Ashgabad Turkmenistan P: 993 1 2361 735 F: 993 1 2361 392

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Locations and Subsidiaries

British American Tobacco (Uganda) Plot 69/71 Jinja Road PO Box 7100 Kampala Uganda P: 256 41343231 F: 256 41256425

British American Tobacco (United Arab Emirates) Apartment 801-804 Al Moosa Tower II Sheikh Zayed Road Post Box 2784 Dubai United Arab Emirates P: 9714 3322344 F: 9714 3316133

British American Tobacco (Uzbekistan) Nasirov Street, 77 700084 Tashkent Uzbekistan P: 998 71 120 62 82 F: 998 71 120 62 12 British American Tobacco (Belgium) S.A. Rue De Koninck, 38 Brussels 1080 Belgium P: 32 2 413 12 11 F: 32 2 413 14 22 British American Tobacco (Cyprus) Limited PO Box 21563 Nicosia (PC1510) Cyprus P: 357 2433 201 F: 357 2437 053 British American Tobacco Nordic Oy Pitkansillanranta 3 A PO Box 22 00531 Helsinki Finland P: 358 9 731 311 F: 358 9 7313 1222 www.bat.fi P.J. Carroll & Co. Ltd. Burton Hall Park Sandyford Industrial Estate Sandyford Dublin 18 Ireland P: 35 31 205 2300 F: 35 31 295 8105 www.pjcarroll.ie

British American Tobacco (Zimababwe) Limited Box ST 98 Southerton Harare Zimbabwe P: 263 4 621 170 F: 263 4 621 185 British American Tobacco (Bulgaria) Ltd. Sofia 1000 2A, Saborna Street Bulgaria P: 359 2 980 8915 F: 359 2 981 0079 British American Tobacco (Czech Republic) Hybernska 24 110 00 Praha 1 Czech Republic P: 42 02 22 81 18 10 F: 42 02 22 81 18 71 British American Tobacco (Central Europe Area) H-2040 Budars PO Box 8 Hungary P: 36 23 504400 F: 36 23 504490 www.bat.hu

British American Tobacco (Northern Europe Area) Postbus 7400 1007 JK Amsterdam Netherlands P: 31 20 540 69 11 F: 31 20 646 26 75

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Locations and Subsidiaries

British American Tobacco Polska Wisniowy Business Park Ul. llzecka 26 02-134 Warsaw Poland P: 48 22 575 43 00 F: 48 22 575 43 09 Souza Cruz SA PO Box 160, Rua Candelaria 66 20092-900 Rio de Janeiro Brazil P: 55 21 3849 9000 F: 55 21 3849 9643 www.souzacruz.com.br British American Tobacco (Colombia) Calle 97A No. 9A-34 Piso 4 Edificio Santa Clara Bogota Colombia P: 571 5219240 F: 571 5231021 British American Tobacco Sucursal El Salvador Apartado Postal 06-113 San Salvador El Salvador United States P: 503 250 4444 F: 503 250 4443 British American Tobacco Sucursal Guatemala Apartado No 316 Ciudad de Guatemala Guatemala 01001 United States P: 502 366 8787 F: 502 366 8785 British American Tobacco Sucursal Nicaragua Apartado 1049 Managua Nicaragua United States P: 505 2631 900 F: 505 2631 642

British American Tobacco Co (Barbados) Ltd PO Box 107 Bridgetown Barbados P: 1246 425 3990 F: 1246 425 3763 Chiletabacos SA Casilla 267-V Correo 21 Santiago Chile P: 562 464 6000 F: 562 246 0431 British American Tobacco Sucursal Costa Rica Apartado 896 1000 San Jose Costa Rica United States P: 506 207 7070 F: 506 225 0614 British American Tobacco (South America) Ltd Avenue Isabel La Catolica N26-63 (1479) y Av.Orellana Quito Ecuador P: 5932 529 333 F: 5932 220 416 Demerara Tobacco Co. Ltd PO Box 10262 Georgetown Guyana P: 592 225 1900 F: 592 226 9322 Tabacalera Istmena SA Apartado A-3 Panama 9A Panama P: 507 278 8600 F: 507 278 8656

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Locations and Subsidiaries

British American Tobacco (SA) Limited Bernardino Caballero 191 c/Mcal.Lopez Barrio Ciudad Nueva Asuncion Paraguay P: 595 21 222384 F: 595 21 210931 British American Tobacco (Suriname) Kankawa straat 7 Paramaribo-Zuid Suriname United States P: 597 481 444 F: 597 483 170 The West Indian Tobacco Co. Ltd PO Box 177 Port of Spain Trinidad Trinidad and Tobago P: 1868 662 2271 F: 1868 663 5451 C.A. Cigarrera Bigott Sucs Apartado 186, Caracas 1010-A Venezuela P: 58 212 237 9611 F: 58 212 237 9320 Tabacalera Hondurena SA Apartado Postal 64 San Pedro Sula Honduras P: 504 556 6161 F: 504 556 6189 Smoking Tobacco and Cigars (Germany) Brinkmann Niemeyer GmbH Corneliusstrasse 36 40215 Dsseldorf Germany P: 49 211 38 740 F: 49 211 3874 133

British American Tobacco (SA) Ltd, Sucursal Peru Av.Camino Real 348 Torre del Pilar, Piso 7 San Isidro, Lima 27 Peru P: 511 421 8228 F: 511 421 9402 British American Tobacco (Caribbean Area) PO Box 177 Port of Spain Trinidad Trinidad and Tobago P: 1868 662 2271 F: 1868 645 3660 British American Tobacco (SA) Ltd Sucursal Uruguay Camino Colman 5360 Montevideo Uruguay P: 5982 2223622 F: 5982 2223621 British American Tobacco South Africa Stellenbosch Cape Town 8000 South Africa P: 27 21 888 3973 Cedex France P: 33 1 55 19 92 00 F: 33 1 55 19 95 00

Smoking Tobacco and Cigars (Germany) Stanwell Vertriebs-Gesellschaft GmbH Herman-Ritter-Strae 114 28197 Bremen Germany P: 49 421 548 4046 F: 49 421 548 4394

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Locations and Subsidiaries

British American Tobacco Espaa S.A. C/Alfred Nobel 19 - B Urbanizacion Los Tarahales 35013 Las Palmas de Gran Canaria Spain P: 34 928 410 404 F: 34 928 413 004 British American Tobacco (Southern Europe Area) CP 186 Lausanne 3 Cour 1000 Switzerland P: 41 21 614 1330 F: 41 21 614 1398 British American Tobacco (UK & Export) Ltd Post Box 850366 Amman 11185 Jordan P: 962 6 535 6926 F: 962 6 535 6927 Brown & William Tobacco Corporation PO Box 35090 Louisville KY 40232 United States P: 1 502 568 7000 F: 1 502 568 7494 www.brownandwilliamson.com Brown & Williamson Japan Inc Shiroyama JT Mori Building 20th fl 4-3-1 Toranomon Minato-Ku Tokyo 105 6020 Japan P: 81 35403 8700 F: 81 35403 8701 Carreras Group First Life Building 60 Knutsford Boulevard Kingston 5 Jamaica P: 1 8769 26 3776 F: 1 8769 29 2881

Smoking Tobacco and Cigars (France) British American Tobacco STC (France) S.A.R.L. 175, rue Jean Jacques Rousseau lssy-Les-Moulineaux Cedex 92138 France P: 33 1 4109 9595 F: 33 1 4109 9596 Brown & Williamson Tobacco Manufacturing 2600 Weaver Road Macon GA 31217 United States P: 1 912 464 0561 F: 1 912 464 4048 British American Tobacco (Argentina) Nobleza Piccardo SAIC y F Casilla de Correo 899 Buenos Aires 1000 Argentina P: 54 11 4724 8444 F: 54 11 4724 8495 British American Tobacco (Korea) 14th Floor Seian Building 116 Shinmoonro 1 Ka Chongro-Ku Seoul Korea P: 822 732 8171 F: 822 732 8124 Imperial Tabacco Limited 3810 St-Antoine Street Montreal Quebec H4C 1B5 Canada P: 1 514 932 6161 F: 1 514 939 0432 British American Tobacco (Ghana) Limited PO Box 60 Takoradi Ghana P: 233 31 223413 F: 233 31 22258

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Locations and Subsidiaries

British American Tobacco (Ukraine) 16-G Dimitrova Street 252150 Kiev Ukraine P: 380 44 490 6940 F: 380 44 490 6955 British American Tobacco Hellas S.A 114 Krioneriou A.V & 1 Asklipiou Str. 145 68 Krioneri Attika Greece P: 30 1 6220872 F: 30 1 6220867 British American Tobacco (Romania) Trading SRL 1-3 Macul Rosu Street Sector 1 Bucharest Romania P: 401 231 0393 F: 401 231 0365

British American Tobacco (Espana) C/Orense 4-2 28020 Madrid Spain P: 34 91 555 1904 F: 34 91 555 2185 British American Tobacco (Portugal) Urbanizacao Industrial de Trajouce Lote 16 Trajouce Domingos de Rana 2785 219 S Portugal P: 351 21 448 04 70 F: 351 21 448 04 89 Bitish American Tobacco (Russia) 3-ya Ulitsa Yamskogo Polya, 9 Building 4 Moscow 125124 Russia P: 7 095 974 0555 F: 7 095 785 2309 www.batrussia.ru

British American Tobacco (Switzerland) Carse Postale 136 Lausanne 1007 Switzerland P: 41 21 614 1614 F: 41 21 617 1409

B.A.T Services Ltd, Tawain Branch Room E, 10th Floor 156 Min Sheng East Road Section 3 Taipei Taiwan China P: 886 2271 93677 F: 886 2271 93680

British American Tobacco (Singapore) Pte. Ltd 15 Senoko Loop 758168 Singapore Singapore P: 65 338 8998 F: 65 338 8181

British American Tobacco (New Zealand) Limited Price Waterhouse Center, 13th Floor 66 Wyndham Street Auckland New Zealand P: 64 9 357 9430 F: 64 9 357 9432

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Locations and Subsidiaries

British American Tobacco Co (Hong Kong) Ltd 19th Floor Cityplaza 3 Taikoo Wan Road Taikoo Shing Hong Kong P: 852 2977 3388 F: 852 2977 3000 British American Tobacco (Kenya) PO Box 30000 Nairobi Kenya P: 254 2 533 555 F: 254 2 531 616

British American Tobacco (Australasia) Limited Private Bag 1 Maroubra NSW 2035 Australia P: 61 29370 1500 F: 61 29370 1188 www.bata.com.au Overseas Tobacco Ltd Amgar Building 7 Rival Street Tel-Aviv 67778 Israel P: 972 3 687 6464 F: 972 3 688 1885

British American Tobacco (UK and Export) Ltd 26th Floor, Rajanakarn Building 183 South Sathorn Road Yannawa Sathorn Bankok 10120 Thailand P: 66 2 676 6255 F: 66 2 676 6245 British American Tobacco (Germany) GmbH Postfach 30 06 60 20347 Hamburg Germany P: 49 40 4151 01 F: 49 40 4151 3231 www.bat.de

British American Tobacco Congo SARL PO Box 621 Kinshasa 1 Congo P: 243 871 6823 F: 243 12 40105

British American Tobacco (France) 11, Avenue Morizet 21, alle Maillasson Boulogne Billancourt Cedex 92513 France P: 33 1 55 19 92 00 F: 33 1 55 19 95 00

British American Tobacco Bangaladesh Company Ltd New D.O.H.S Mohakhali PO Box 6069 Dhaka-1206 Bangladesh P: 880 2 882 2791 F: 880 2 882 2786

British American Tobacco (North Africa Area) 17 Port Said Street Maadi Saryat - Maadi Cairo Egypt P: 20 2 380 3809 F: 20 2 380 3830

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Locations and Subsidiaries

Sociedade Unificado de Tabacos de Angola, Lda (SUT) Rua Deolinda Rodrigues No 533/543 C.P 1263 Luanda Angola P: 244 2 360180 F: 244 2 362138 BAT Cambodia Ltd 1121 National Road No. 2 Sangkat Chak Ang Re Leu Phnom Penh Cambodia P: 855 23 430011 F: 855 23 360692 British American Tobacco (Fiji) Limited GPO Box 560 Suva Fiji P: 679 31 4733 F: 679 30 1893 British American Tobacco (Malaysia) Berhad Virginia Park Jalan Universiti 46200 Petaling Jaya Selangor Darul Ehsan Malaysia P: 603 7956 6899 F: 603 7955 8416 www.batmalaysia.com British American Tobacco (Philippines) Ltd. 25c Citibank Tower 8741 Paseo de Roxas Makati City 1200 Philippines P: 63 2848 1688 F: 63 2848 1699 BAT (Vietnam) Ltd - HCMC 6th Floor, Sun Wah Tower 115 Nguyen Hue Boulevard District 1 Ho Chi Minh City Vietnam P: 84 8 8219 888 F: 84 8 8219 338

British American Tobacco (Djibouti) BP4452 Djibouti Djibouti P: 253 354 196 F: 253 355 019

BAT China Limited 19th Floor Cityplaza 3 Taikoo Wan Road Taikoo Shing Hong Kong P: 852 2977 3388 F: 852 2977 3000 P T BAT Indonesia PO Box 1078 Jakarta 10010 Indonesia P: 62 21526 8388 F: 62 21526 8389 British American Tobacco (PNG) Ltd PO Box 632 Port Moresby National Capital District Papua New Guinea P: 675 320 1416 F: 675 320 1412

Solomon Islands Tobacco Company Limited PO Box 13 Honiara Solomon Islands P: 677 30 127 F: 677 30 463 British American Tobacco (Azerbaijan) Hyatt International Centre Tower II - 3rd Floor 1033 Izmir Street Baku 370065 Azerbaijan P: 994 12 975877 F: 994 12 975878

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Locations and Subsidiaries

British American Tobacco PO Box 900 Car Park Building Office No. 101, Government Avenue Manama Bahrain P: 973 214839 F: 973 214847 British American Tobacco Australasia Private Bag 1 Maroubra NSW 2035 Australia P: 61 2 9370 1500 F: 61 2 9370 1188 www.bat.com.au

British American Tobacco (West Africa Area) International Cigarette Consultants 01 BP2638 (Cocody Danga) Abidjan Cote dIvoire P: 225 224 76416 F: 225 275 472249 British American Tobacco Japan Atago Mori Tower 22nd Floor 2-5-1 Atago Minato-Ku Tokyo 105 6222 Japan P: 81 3 6402 3000 F: 81 3 6402 3001

British American Tobacco China 19th Floor - Nokia Tower Pacific Century Place 2A, Gong Ti Bei Lu Chaoyang District Beijing 100027 China P: 86 10 6539 1388 F: 86 10 6539 3700 www.battaiwan.com

British-American Tobacco Germany Group Alsterufer 4 Hamburg 20354 Germany P: 49 40 4151 01 F: 49 40 4151 3231

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