British American Tobacco said it has begun 2003 “in line with expectations” but warned that the year ahead would be challenging.

At the tobacco giant’s AGM Chairman Martin Broughton warned of the effect of the Iraq war, exchange rate fluctuations and the downbeat state of the world economy.

On a more positive note Broughton said the group expected to see further progress from its four global drive brands, including Dunhill, Kent, Lucky Strike and Pall Mall, which achieved overall growth of 8% during 2002.

Broughton also joined the growing ranks of business leaders calling for a review of the Higgs report on corporate governance before it is adopted as best practice.