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BTI
BTI
BTI - British American Tobacco P.l.c. - Half-Yearly Report to 30 June 2009
British American Tobacco P.l.c.
Incorporated in England and W ales
(Registration number: 03407696)
Short name: BATS
Share code: BTI
ISIN number: GB0002875804
("British American Tobacco P.l.c." or "the Company")
HALF-YEARLY REPORT TO 30 JUNE 2009
SUMMARY
SIX MONTHS RESULTS - unaudited 2009 2008 Change
Revenue GBP6,780m GBP5,457m +24%
Profit from operations GBP2,111m GBP1,724m +22%
Basic earnings per share 73.23p 62.48p +17%
Adjusted diluted earnings per share 77.27p 62.02p +25%
Interim dividend per share 27.9p 22.1p +26%
- Group revenue increased by 24 per cent to GBP6,780 million as a result of the
continued good pricing momentum, volume growth from acquisitions made in the
middle of last year (Skandinavisk Tobakskompagni (ST) and Tekel) and the
favourable impact of exchange rate movements. Revenue increased by 14 per cent
at constant rates of exchange.
- The reported profit from operations was 22 per cent higher at GBP2,111
million with a 23 per cent increase after adjusting items. Profit from
operations, after adjusting items, would have been 13 per cent higher at
constant rates of exchange, despite the adverse transactional impact of
exchange rates on costs.
- Group volumes from subsidiaries were 349 billion, an increase of 5 per cent,
as a result of the acquisitions of ST and Tekel. Excluding the benefits of
these acquisitions, volumes were down 2 per cent on last year, mainly driven by
market declines in Russia, Ukraine, Japan and Mexico.
- The four Global Drive Brands continued their strong performance and achieved
overall volume growth of 5 per cent. Dunhill was up 8 per cent, Lucky Strike 7
per cent and Pall Mall grew by 10 per cent, while Kent volumes fell 2 per cent.
- Adjusted diluted earnings per share rose by 25 per cent, principally as a
result of the strong growth in profit from operations and favourable exchange
movements. Basic earnings per share were up 17 per cent at 73.23p (2008:
62.48p).
- The Board has declared an interim dividend of 27.9p, a 26 per cent increase
on last year, to be paid on 29 September 2009.
- The acquisition of an 85 per cent stake in PT Bentoel Internasional Investama
Tbk was completed on 17 June 2009 and did not have any impact on profit from
operations for the six months to 30 June 2009.
- The Chairman, Jan du Plessis, commented "Despite difficult economic and
trading conditions in many countries, the continued market share growth from
our Global Drive Brands, our ability to innovate and our broad geographic
spread should continue to stand us in very good stead. These half-yearly
results give us confidence that we are very much on track to deliver another
year of strong earnings growth."
ENQUIRIES:
INVESTOR RELATIONS:
Ralph Edmondson/ 020 7845 1180
Rachael Brierley 020 7845 1519
PRESS OFFICE:
David Betteridge/Catherine Armstrong/ 020 7845 2888
Elif Boutlu
BRITISH AMERICAN TOBACCO p.l.c.
HALF-YEARLY REPORT TO 30 JUNE 2009
INDEX
PAGE
Chairman`s statement 2
Business review 3
Dividends 9
Risks and uncertainties 10
Going concern 10
Statement of Directors` responsibilities 11
Independent review report to British American Tobacco p.l.c. 12
Group income statement 13
Group statement of comprehensive income 14
Group statement of changes in equity 15
Group balance sheet 16
Group cash flow statement 18
Accounting policies and basis of preparation 19
Non-GAAP measures 21
Foreign currencies 21
Segmental analyses of revenue and profit 22
Adjusting items 25
Other changes in the Group 26
Net finance costs 28
Associates and joint ventures 29
Taxation 30
Earnings per share 30
Cash flow 32
Total equity 36
Litigation: Franked Investment Income Group Litigation Order 36
Contingent liabilities 37
Related party disclosures 37
Share buy-back programme 37
Financial calendar 38
Calendar for the interim dividend 2009 38
Corporate information 38
Disclaimers 40
Distribution of report 40
CHAIRMAN`S STATEMENT
British American Tobacco has continued to perform remarkably well, with
adjusted diluted earnings per share increasing by 25 per cent to 77.27p in the
first half of the year. The Board has declared an interim dividend of 27.9p, a
rise of 26 per cent.
Revenue rose by 14 per cent at constant rates of exchange and by 24 per cent at
current rates. Profit from operations, after adjusting items, grew by 13 per
cent at constant rates and by 23 per cent to GBP2,164 million at current rates.
These very strong results have been driven by good pricing momentum, volume
growth from the acquisitions of Tekel and ST in the middle of last year, and
the favourable impact of exchange rate movements on the translation of the
Group`s results into sterling.
The benefit from exchange was GBP187 million.
Our volume from subsidiaries rose by 5 per cent to 349 billion cigarettes, as a
result of the acquisitions. Excluding them, volume was down 2 per cent
following relatively large market declines in countries such as Russia,
Ukraine, Japan and Mexico. Market sizes have principally been affected by
rising unemployment, excise-driven price increases, the growth in illicit trade
and trade inventory reductions.
Whilst down-trading on a global basis is limited, it is affecting some markets.
British American Tobacco`s premium volume declined by 1 per cent on an organic
basis and low price volume by 5 per cent, leading to an improvement in the
quality of our portfolio.
The four Global Drive Brands grew by 5 per cent, leading to improved share in
many markets. Kent was 2 per cent lower, following market declines in its two
major markets of Russia and Japan, but Dunhill was up 8 per cent, Luck y Strike
up 7 per cent and Pall Mall up 10 per cent.
The volume from associate companies was 94 billion. After adjusting items and
at constant rates of exchange, Reynolds American`s contribution was up 5 per
cent and ITC`s was up 10 per cent.
Adjusted diluted earnings per share grew by 25 per cent to 77.27p, in line with
the growth in profit from operations.
The Board has declared an interim dividend of 27.9p, an increase of 26 per
cent, which will be paid on 29 September to shareholders on the register on 21
August. In line with our established practice, the interim dividend payment
represents one-third of the total dividend in respect of last year.
Although it had no impact on the profit from operations in these results, the
Group acquired control of PT Bentoel Internasional Investama Tbk (Bentoel) in
Indonesia on 17 June for GBP303 million. Bentoel is Indonesia`s fourth largest
cigarette maker, with a market share of some 7 per cent. Indonesia is the
world`s fifth largest tobacco market by volume and in the top ten in terms of
profit. The move represents an excellent strategic opportunity to enter the
large kretek market in Indonesia and should present us with a good platform for
further growth.
Despite difficult economic and trading conditions in many countries, the
continued market share growth from our Global Drive Brands, our ability to
innovate and our broad geographic spread should continue to stand us in very
good stead. These half-yearly results give us confidence that we are very much
on track to deliver another year of strong earnings growth.
Jan du Plessis
29 July 2009
BUSINESS REVIEW
Group revenue increased by 24 per cent to GBP6,780 million as a result of the
continued good pricing momentum, volume growth from acquisitions made in the
middle of last year (Skandinavisk Tobakskompagni (ST) and Tekel) and the
favourable impact of exchange rate movements. Revenue increased by 14 per cent
at constant rates of exchange.
The reported profit from operations was 22 per cent higher at GBP2,111 million
with a 23 per cent increase after adjusting items. Profit from operations,
after adjusting items, would have been 13 per cent higher at constant rates of
exchange, despite the adverse transactional impact of exchange rates on costs.
The recently announced acquisition of PT Bentoel Internasional Investama Tbk
did not have any impact on profit from operations.
Group volumes from subsidiaries were 349 billion, an increase of 5 per cent, as
a result of the acquisitions of ST and Tekel. Excluding the benefits of the
acquisitions, volumes were down 2 per cent on last year, mainly driven by
market declines in Russia, Ukraine, Japan and Mexico. However, volume losses
were mainly in the low-price segment with premium just 1 per cent lower. Good
volume growth in Pakistan, Bangladesh, South Korea, Uzbekistan, Nigeria and the
Gulf Cooperation Council (GCC) was more than offset by declines in Russia,
Japan, Malaysia, Brazil, Mexico, Italy, Ukraine and South Africa.
Despite market size declines in many countries, the four Global Drive Brands
achieved good overall volume growth of 5 per cent and improved shares in a
number of markets. Over half of the growth was contributed by brand migrations.
Although there was pressure on the premium segment, Dunhill grew market share
in all its key markets, except in Taiwan, while Kent increased market shares in
its main markets, apart from Japan.
Kent volumes fell by 2 per cent with volume growth in Romania, Uzbekistan and
Azerbaijan, offset by industry declines in Japan and Russia and despite
increasing its market share in Russia. Dunhill rose by 8 per cent, with growth
in the GCC, Russia, South Korea and Brazil, partially offset by declines in
Malaysia, Taiwan and South Africa. Dunhill`s growth was mostly driven by a
brand migration in Brazil.
Lucky Strike volumes were 7 per cent higher with growth in Germany, France,
Italy, Indonesia, Chile and Brazil, partially offset by declines in Spain,
Japan and Argentina. This was largely the result of industry volume decline.
Market share grew well across all its key markets except Japan, where it was
slightly down. Pall Mall volumes increased by 10 per cent with growth in
Germany, Uzbekistan, Mexico, Turkey and Chile, partially offset by lower
volumes in Italy, Pakistan, Russia, Romania and Hungary. Despite lower volumes,
market share grew in Romania and Hungary.
In Asia-Pacific, profit at GBP557 million was up GBP101 million, mainly as a
result of favourable exchange rates, backed by strong performances in
Australia, Pakistan, Bangladesh and Vietnam. At constant rates of exchange,
profit would have increased by GBP25 million or 5 per cent. Volumes at 88
billion were 2 per cent lower as increases in Pakistan, Bangladesh and South
Korea were more than offset by lower volumes in Japan and Malaysia.
Strong profit growth in Australia was attributable to higher pricing and
continued cost saving initiatives, partially offset by increased competitor
price discounting. Volumes and market share were in line with last year despite
the growth experienced in Pall Mall and W infield. In New Zealand, overall
volumes were down as the challenging economic environment impacted the
business. Profit was in line with last year as price increases and lower costs
were offset by the unfavourable product mix.
In Malaysia, Dunhill achieved a record market share and Kent was successfully
relaunched. This was offset by a decline in tail brands. Volumes decreased in
line with the overall contraction of the market, exacerbated by the continued
growth in illicit trade and steep excise increases over the last two years. A
strong growth in profit was predominantly attributable to favourable exchange
rates with an improved product mix, higher pricing and cost management offset
by the impact of lower volumes.
In Vietnam, strong profit growth was achieved through a combination of price
increases, productivity initiatives, improved product mix and favourable
exchange rates. Whilst market share was slightly down on last year, volumes
were maintained.
Volumes and market share in South Korea grew due to a good performance from
Dunhill. Profit decreased as a weaker exchange rate had an adverse
transactional impact, leading to higher material costs. In Taiwan, profit
improved due to price increases, cost savings and the favourable exchange rate.
In Japan, volumes suffered as a result of significant industry decline.
Although the premium priced Kool continued to grow, market share was down
slightly. Significant profit growth was achieved predominantly through
favourable exchange rates, productivity savings and a better product mix.
Pakistan continued to experience good growth in both volumes and market share.
Profit was up significantly due to the higher volumes, combined with price
increases.
In Bangladesh, volumes grew although market share was slightly lower due to the
substantial growth in the low-price segment of the market. Profit was
significantly higher due to increased volumes, improved sales mix, the effect
of prior year price increases and lower costs.
Profit continued to grow in Sri Lanka, benefiting from higher prices, a better
sales mix and continuing productivity improvements. Volumes were down due to
the excise-led price increases and diminishing consumer affordability.
In Americas, profit rose by GBP63 million to GBP579 million, following a strong
performance from Brazil. At constant rates of exchange, profit would have risen
by GBP57 million or 11 per cent. Volumes were down 5 per cent at 74 billion,
with decreases experienced by most markets across the region.
In Brazil, significant profit growth was achieved primarily as a result of a
recent price increase in anticipation of an excise increase, coupled with a
better brand mix. The higher prices led to lower volumes, although overa ll
market share increased on last year. Dunhill performed well due to its
continuing migration from Carlton.
Profit in Canada decreased as lower costs, better pricing and the benefits of a
strong currency were more than offset by lower volumes and an adverse product
mix. Market share for the last four quarters has been stable although it fell
slightly compared to the same period last year.
Volumes in Mexico were lower due to the excise-driven price increase at the end
of 2008 and reduced market share. However, Montana performed well, as did Pall
Mall following the migration from Boots. The reduction in volumes and increased
marketing investment were only partially offset by the price increase,
resulting in a profit decline. In Argentina, profit fell due to adverse
exchange impacts and lower volumes.
In Chile, the contraction of the market led to lower volumes. Although Luck y
Strike and Pall Mall both performed well, market share was slightly down.
Profit decreased as a result of the lower volumes and higher costs, including
the adverse exchange impact on imported materials. Profit increased in Peru,
although volumes were slightly lower than last year due to general market
contraction. However, market share remained strong.
Market share in Venezuela improved, driven by the growth of Luck y Strike and
the strength of the brand portfolio. However, volumes declined, impacted by
excise-driven price increases in 2008 and the current year. Profit was
significantly lower due to the adverse impact of exchange rates. In Colombia,
market share is down on last year with decreasing volumes driven by strong
competition in the market and a reduction in trade inventory levels. Profit was
higher due to lower costs.
Profit increased in the Central America and Caribbean area. This was due to
exchange gains, higher prices and an improved product mix in key markets,
partially offset by lower volumes. Market share remained strong, with Pall Mall
and Dunhill being key drivers for the growth.
Profit in Western Europe increased by GBP175 million to GBP509 million, mainly
as a result of strong performances from Italy, Germany, Spain, Belgium, and the
Czech Republic, coupled with the acquisition of ST in 2008. At constant rates
of exchange, profit would have increased by GBP100 million or 30 per cent.
Regional volumes were up 18 per cent to 63 billion, with significant increases
arising due to the new ST businesses in Poland, Denmark and Greece, partially
offset by declines in Italy, Spain and the Netherlands.
Profit increased significantly in Italy mainly driven by higher prices,
productivity savings and favourable exchange rates. Volumes dropped as the
total market contracted and there was also a small decline in market share,
mostly due to MS and tail brands, partly offset by growth in Luck y Strike.
In Germany, sales volumes were in line with last year, benefiting from lower
illicit trade and stable consumption. Market share grew with good performances
from Pall Mall and Lucky Strike compensating for tail brand declines. This,
along with favourable exchange rates, contributed to a higher profit.
Volumes and market share in France were stable, with the strength of Lucky
Strike and Pall Mall offsetting declining tail brands. Profit benefited from a
favourable exchange rate. In Spain, profit increased reflecting price rises in
January and continuing cost management, despite lower volumes in a much reduced
market.
Profit improved significantly in Belgium with stable volumes and mix benefits
supported by lower costs. There was good growth in Pall Mall following the 2008
migration from W infield, supported by an increase in Kent. In the Netherlands,
cigarette volumes decreased following the excise rise in late 2008. Profit
increased due to favourable exchange rates, slightly offset by the impact of
the overall market decline.
In Poland, profit increased significantly due to improved pricing, coupled with
the acquisition of ST which also led to significantly higher volumes. Both
Lucky Strike and Pall Mall increased market share.
In Hungary, the impact of declining volumes was offset by improved margins and
productivity benefits, leading to an increase in profit. Market share remained
stable in the light of declining industry volumes. Profit and volumes were
higher in the Czech Republic, driven predominantly by the reversal of the 2007
trade load effect and the ST acquisition, which positively impacted market
share.
Profit in Switzerland increased due to favourable exchange rates and the 2008
price increases, offsetting the impact of decreased volumes. Market share
improved, with Parisienne demonstrating a strong performance.
The acquisition of the ST businesses transformed results in Scandinavia and
they have been successfully integrated.
Profit in the Eastern Europe region decreased by GBP16 million to GBP183
million. This was principally due to lower volumes and the adverse
transactional impact of exchange rates on product costs. Profit would have been
down a similar amount at constant rates of exchange. Volumes at 60 billion were
9 per cent lower than last year, with decreases seen in a number of markets as
a result of overall industry declines following the excise-driven price
increases and also a lower market share in Russia.
In Russia, volumes were impacted by a lower market share and a decline in
market size. Profit was lower as a result of lower volumes, higher marketing
investments and adverse transactional exchange effects on costs, which more
than offset the impact of higher prices. Market share fell in the second half
of 2008, as a result of the decline of low-price and local brands, following
price increases that were not immediately followed by competitors. Market share
was stable in the second quarter of this year, as competitors` price increases
flowed through to the market.
In Romania, market share continued to grow through strong performances from
Kent, Dunhill and Vogue and, as a result, volumes declined by less than the
industry decline. Increased marketing investment together with the reduction in
volumes led to lower profit.
In Ukraine, Kent continued to grow its market share, although total volumes and
market share decreased. Profit was lower as a result of the rapid currency
devaluation, combined with the excise increases. Strong volumes and market
share performances were achieved in the Caucasus. This was driven by good
performances by Kent and Pall Mall. In Uzbekistan, profit increased
significantly on the back of strong volumes and market share gains.
Profit from the Africa and Middle East region grew by GBP84 million to GBP336
million. At constant rates of exchange, profit would have increased by GBP53
million or 21 per cent, mainly driven by Nigeria, the GCC and the benefit of
the acquisition of Tekel during 2008. Volumes were 37 per cent higher at 64
billion, following increases in Turkey, GCC, Nigeria and Egypt, which was
partly offset by a decline in South Africa.
In South Africa, volumes are down from last year largely due to an increase in
illicit trade and reductions in trade inventories. However, market share
increased, with the relaunched Peter Stuyvesant showing strong growth and
achieving record market share, whilst Kent and Dunhill continue to perform
well. Profit was broadly in line with last year.
Profit in Nigeria increased significantly due to increased volumes and lower
costs. Volumes increased strongly as a result of marketing and supply chain
initiatives with an excellent performance by Pall Mall.
It was also positively impacted by anti-illicit trade initiatives from the
government.
In the Middle East, market share grew across the area and as a result volumes
increased significantly. Dunhill showed excellent growth in the GCC whilst
sales of Kent and Luck y Strike improved markedly in the Levant. Profit rose as
a result of increased prices, improved product mix and lower costs coupled with
the favourable exchange rate.
In Turkey, the Tekel business acquired in 2008 has been successfully
integrated. Kent, Pall Mall and Viceroy all performed well although total
market share was lower as a result of a decline in Tekel tail brands.
The above regional profits were achieved after adjusting for restructuring and
integration costs, amortisation of trademarks and gains on disposal of
businesses and trademarks.
Profit from operations at current rates of exchange is as follows:
30.6.09 30.6.08
Adjusted Adjusted
Profit from profit from Profit from profit from
operations operations* operations operations*
GBPm GBPm GBPm GBPm
Asia-Pacific 557 557 454 456
Americas 574 579 518 516
Western Europe 473 509 308 334
Eastern Europe 183 183 199 199
Africa and
Middle East 324 336 245 252
Total 2,111 2,164 1,724 1,757
* After adjusting for restructuring and integration costs, amortisation of
trademarks and gains on disposal of businesses and trademarks as explained on
page 25.
Results of associates
Associates principally comprise Reynolds American and ITC. ST was an associate
until 2 July 2008 when the cigarette and snus businesses of ST were acquired
and from that date it was consolidated into the Group results.
The Group`s share of the post-tax results of associates decreased by GBP62
million, or 21 per cent, to GBP231 million. After adjusting items in 2008 and
in 2009, explained on page 29, the Group`s share of the post-tax results of
associates increased by 19 per cent to GBP279 million, with a decline of 5 per
cent at constant rates of exchange. The decline in the Group`s share of
post-tax results of associates reflects the non-inclusion of ST in the 2009
associates` results.
The contribution from Reynolds American was down 20 per cent at GBP149 million.
Excluding the impairment of brands in 2009 and the gain on termination of a
joint venture in 2008, the contribution was 39 per cent higher at GBP197
million. At constant rates of exchange this increase was 5 per cent.
Earnings were higher as increases in pricing, productivity and moist-snuff
volume more than offset cigarette volume declines and higher pension and legal
expenses.
The Group`s associate in India, ITC, continued its strong profit growth and its
contribution to the Group rose by GBP13 million to GBP77 million. At constant
rates of exchange, the contribution would have been 10 per cent higher than
last year.
The segmental analysis of the Group`s share of the post-tax results of
associates and joint ventures at current rates of exchange is as follows:
30.6.09 30.6.08
Adjusted Adjusted
Share of share of Share of share of
post-tax post-tax post-tax post tax
results results * results results *
GBPm GBPm GBPm GBPm
Asia-Pacific 79 79 66 66
Americas 151 199 188 143
Western Europe 38 25
Eastern Europe
Africa and Middle East 1 1 1 1
Total 231 279 293 235
* After adjusting for trademark impairments, additional ST income and gain on
termination of joint venture as explained on page 29.
CIGARETTE VOLUMES
The segmental analysis of the volumes of subsidiaries is as follows:
3 months to 6 months to Year to
30.06.09 30.06.08 30.06.09 30.06.08 31.12.08
bns bns bns bns bns
45 47 Asia-Pacific 88 90 180
36 39 Americas 74 78 161
33 28 Western Europe 63 54 123
33 37 Eastern Europe 60 66 137
32 24 Africa and Middle East 64 46 114
179 175 349 334 715
Associates` volumes decreased by 15 per cent to 94 billion largely as a result
of the ST transaction. With the inclusion of associates` volumes, total group
volumes were 443 billion (2008: 445 billion).
DIVIDENDS
The Board has declared an interim dividend of 27.9 pence per ordinary share of
25p for the six months ended 30 June 2009. The interim dividend will be payable
on 29 September 2009 to shareholders registered on either the UK main register
or the South African branch register on 21 August 2009 (the record date).
In compliance with the requirements of Strate, the electronic settlement and
custody system used by the JSE Limited (JSE), the following salient dates for
the payment of the interim dividend are applicable:
Last date to trade cum dividend (JSE): Friday 14 August 2009
Shares commence trading ex dividend (JSE): Monday 17 August 2009
Shares commence trading ex dividend (LSE): Wednesday 19 August 2009
Record date (JSE and LSE): Friday 21 August 2009
Payment date: Tuesday 29 September 2009
As the Group reports in sterling, dividends are declared and payable in
sterling except for shareholders on the branch register in South Africa whose
dividends are payable in rand. A rate of exchange of GBP:R = 12.95460 as at 28
July 2009 (the closing rate on that date as quoted by Bloomberg), results in an
equivalent interim dividend of 361.43334 SA cents per ordinary share. From the
close of business on 14 August 2009 until the close of business on 21 August
2009, no transfers between the UK main register and the South African branch
register will be permitted and no shares may be dematerialised or
rematerialised between 17 August 2009 and 21 August 2009, both days inclusive.
This interim dividend amounts to GBP552 million. The comparative dividend for
the six months to 30 June 2008 of 22.1 pence per ordinary share amounted to
GBP440 million.
In accordance with IFRS, the interim dividend will be charged in the Group
results for the third quarter. The condensed consolidated financial information
for the six months to 30 June 2009 include the final dividend paid in respect
of the year ended 31 December 2008 of 61.6p per share amounting to GBP1,241
million (30 June 2008: 47.6p amounting to GBP954 million).
RISKS AND UNCERTAINTIES
The principal risks and uncertainties affecting the business activities of the
Group were identified under the heading `Key Group risk factors`, set out on
pages 30 to 35 of the Annual Report for the year ended 31 December 2008, a copy
of which is available on the Group`s website www.bat.com. The key Group risks
were summarised under the headings of:
- Illicit trade;
- Excise and tax;
- Financial;
- Marketplace;
- Regulation;
- Litigation; and
- Information technology.
In the view of the Board the key risks and uncertainties for the remaining six
months of the financial year continue to be those set out in the above section
of the 2008 Annual Report, coupled with the challenges of incorporating the
recent acquisition of Bentoel (see page 26) into the Group. These should be
read in the context of the cautionary statement regarding forward-looking
statements on page 40.
GOING CONCERN
The Annual Report and the Half-Yearly Report have been prepared on a going
concern basis. After reviewing the Group`s annual budgets, plans, current
forecasts and financing arrangements, as well as the current trading activities
of the Group, the Directors consider that the Group has adequate resources to
continue operating for the foreseeable future. A full description of the
Group`s business activities, its financial position, cash flows, liquidity
position, facilities and borrowing position, together with the factors likely
to affect its future development, performance and position, are set out in the
Business Review and Financial Review and in the notes to the accounts, all of
which are included in the 2008 Annual Report that is available on the Group`s
website, www.bat.com. This Half-Yearly Report provides updated information
regarding the business activities for the six months to 30 June 2009 and of the
financial position, cash flow and liquidity position at 30 June 2009.
The Group has, at the date of this report, sufficient financing available for
its estimated existing requirements for at least the next twelve months. This,
together with the proven ability to generate cash from trading activities, the
performance of the Group`s Global Drive Brands, its leading market positions in
a number of markets and its geographical spread, as well as numerous contracts
with established customers and suppliers across different geographical areas
and industries, provides the Directors with the confidence that the Group is
well placed to manage its business risks successfully despite the current
financial conditions and uncertain outlook in the general global econom y and
financial climate.
STATEMENT OF DIRECTORS` RESPONSIBILITIES
The Directors confirm that this condensed consolidated financial information
has been prepared in accordance with IAS 34 `Interim Financial Reporting` as
adopted by the European Union, and that this Half-Yearly Report includes a fair
review of the information required by the Disclosure and Transparency Rules of
the Financial Services Authority, paragraphs DTR 4.2.7 and DTR 4.2.8.
The current Directors of British American Tobacco p.l.c. are as listed on page
54 in the British American Tobacco Annual Report for the year ended 31 December
2008, with the exception of Gerry Murphy who was appointed a Non-Executive
Director on 13 March 2009 and Thys Visser who retired at the conclusion of the
Annual General Meeting on 30 April 2009. Details of all the current Directors
of British American Tobacco p.l.c. are maintained on www.bat.com.
For and on behalf of the Board of Directors:
Jan du Plessis Ben Stevens
Chairman Finance Director
29 July 2009
INDEPENDENT REVIEW REPORT TO BRITISH AMERICAN TOBACCO p.l.c.
Introduction
We have been engaged by the Company to review the condensed consolidated
financial information in the Half-Yearly Report for the six months ended 30
June 2009, which comprises the Group income statement, the Group statement of
comprehensive income, the Group statement of changes in equity, the Group
balance sheet, the Group cash flow statement, the accounting policies and basis
of preparation and the related notes. W e have read the other information
contained in the Half-Yearly Report and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the
condensed consolidated financial information.
Directors` responsibilities
The Half-Yearly Report is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the Half-Yearly Report
in accordance with the Disclosure and Transparency Rules of the United
Kingdom`s Financial Services Authority.
As disclosed on page 19, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed consolidated financial information in the Half- Yearly Report has
been prepared in accordance with International Accounting Standard 34, `Interim
Financial Reporting`, as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
consolidated financial information in the Half-Yearly Report based on our
review. This report, including the conclusion, has been prepared for and only
for the Company for the purpose of the Disclosure and Transparency Rules of
the Financial Services Authority and for no other purpose. W e do not, in
producing this report, accept or assume responsibility for any other purpose or
to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, `Review of Interim Financial Information
Performed by the Independent Auditor of the Entity` issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed consolidated financial information in the
Half-Yearly Report for the six months ended 30 June 2009 is not prepared, in
all material respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure and Transparency Rules of
the United Kingdom`s Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
1 Embankment Place
London
29 July 2009
GROUP INCOME STATEMENT - unaudited
6 months to Year to
30.6.09 30.6.08 31.12.08
GBPm GBPm GBPm
Gross turnover (including duty, excise and
other taxes of
GBP12,295 million (30.6.08: GBP9,518
million; 31.12.08:
GBP21,799 million) 19,075 14,975 33,921
Revenue 6,780 5,457 12,122
Raw materials and consumables used (1,899) (1,537) (3,335)
Changes in inventories of finished goods
and work in progress 104 52 19
Employee benefit costs (1,079) (806) (1,907)
Depreciation and amortisation costs (285) (174) (430)
Other operating income 85 54 281
Other operating expenses (1,595) (1,322) (3,178)
Profit from operations 2,111 1,724 3,572
after (charging)/crediting:
- restructuring and integration costs (29) (33) (160)
- Canadian settlement (102)
- amortisation of trademarks (26) (24)
- gains on disposal of businesses
and trademarks 2 141
Finance income 5 121 267
Finance costs (224) (300) (658)
Net finance costs (219) (179) (391)
Share of post-tax results of
associates and joint ventures 231 293 503
after (charging)/crediting:
- trademark impairments (48) (20)
- additional ST income 13 13
- termination of joint venture 45 45
- restructuring costs (12)
Profit before taxation 2,123 1,838 3,684
Taxation on ordinary activities (534) (494) (1,025)
Profit for the period 1,589 1,344 2,659
Attributable to:
Shareholders` equity 1,450 1,249 2,457
Minority interests 139 95 202
Earnings per share
Basic 73.23p 62.48p 123.28p
Diluted 72.75p 62.08p 122.54p
The accompanying notes on pages 19 to 40 form an integral part of this
condensed consolidated financial information.
GROUP STATEMENT OF COMPREHENSIVE INCOME - unaudited
6 months to Year to
30.6.09 30.6.08 31.12.08
restated
GBPm GBPm GBPm
Profit for the period page 13 1,589 1,344 2,659
Other comprehensive income:
Differences on exchange (606) (196) 937
Difference on exchange reclassified and
reported in profit for the period (22)
Cash flow hedges
- net fair value gains 121 19 180
- reclassified and reported in profit for
the period (98) (22) (173)
- reclassified and reported in net assets (7) 1
Available-for-sale investments
- net fair value gains 1 1 1
- reclassified and reported in profit for
the period (1) (1) (6)
Net investment hedges
- net fair value gains/(losses) 307 (39) (672)
- differences on exchange on borrowings 8 (178)
Revaluation of existing business 179
Retirement benefit schemes
- actuarial losses in respect of
subsidiaries (103) (547)
- surplus recognition in respect of
subsidiaries (48)
- actuarial gains/(losses) in respect of
associate companies 28 (396)
Tax on items recognised directly in other
comprehensive income (38) (23) 184
Total comprehensive income for the period 1,153 1,083 2,147
Total comprehensive income attributable to:
- shareholders` equity 1,029 972 1,913
- minority interests 124 111 234
The restatement of the 30 June 2008 statement of comprehensive income reflects
the change in Group accounting policy for recognition of actuarial gains and
losses, together with the early adoption of IFRIC 14, as explained on page 20.
The accompanying notes on pages 19 to 40 form an integral part of this
condensed consolidated financial information.
GROUP STATEMENT OF CHANGES IN EQUITY - unaudited
30.6.09 30.6.08 31.12.08
restated
GBPm GBPm GBPm
Total comprehensive income for the period
page 14 1,153 1,083 2,147
Employee share options
- value of employee services 27 26 51
- proceeds from shares issued 4 7 10
Dividends and other appropriations
- ordinary shares (1,241) (954) (1,393)
- to minority interests (108) (80) (176)
Purchase of own shares
- held in employee share ownership trusts (92) (116) (116)
- share buy-back programme (191) (400)
Minority interests in Bentoel page 26 25
Acquisition of minority interests (1) (5)
Other movements 10 2 8
(222) (224) 126
Balance at beginning of period 7,215 7,089 7,089
Balance at end of period 6,993 6,865 7,215
The restatement of the June 2008 movements in total equity reflects the change
in Group accounting policy for recognition of actuarial gains and losses,
together with the early adoption of IFRIC 14, as explained on page 20.
The accompanying notes on pages 19 to 40 form an integral part of this
condensed consolidated financial information.
GROUP BALANCE SHEET - unaudited
30.6.09 30.6.08 31.12.08 1.1.08
restated restated restated
GBPm GBPm GBPm GBPm
Assets
Non-current assets
Intangible assets 11,437 8,872 12,318 8,105
Property, plant and equipment 2,796 2,496 3,076 2,378
Investments in associates
and joint 2,364 2,194 2,552 2,316
ventures
Retirement benefit assets 64 46 75 37
Deferred tax assets 353 275 392 264
Trade and other receivables 197 159 193 123
Available-for-sale
investments 23 24 27 22
Derivative financial
instruments 118 97 179 154
Total non-current assets 17,352 14,163 18,812 13,399
Current assets
Inventories 3,451 2,637 3,177 1,985
Income tax receivable 114 94 137 85
Trade and other receivables 2,237 1,749 2,395 1,845
Available-for-sale
investments 80 76 79 75
Derivative financial
instruments 270 203 417 81
Cash and cash equivalents 1,304 2,326 2,309 1,258
7,456 7,085 8,514 5,329
Assets classified as
held-for-sale 17 285 225 36
Total current assets 7,473 7,370 8,739 5,365
Total assets 24,825 21,533 27,551 18,764
The restatement of the 30 June 2008 balance sheet reflects the change in Group
accounting policy for recognition of actuarial gains and losses, together with
the early adoption of IFRIC 14, as explained on page 20. The balance sheets as
at 30 June 2008 and 31 December 2008 have been restated for the
reclassification of certain derivatives, as explained on page 20. In accordance
with IAS 1 Revised, an additional balance sheet comparative has been presented
as at 1 January 2008.
The accompanying notes on pages 19 to 40 form an integral part of this
condensed consolidated financial information.
30.6.09 30.6.08 31.12.08 1.1.08
restated restated restated
GBPm GBPm GBPm GBPm
Equity
Capital and Reserves
Share capital 506 506 506 506
Share premium, capital
redemption and
merger reserves 3,907 3,905 3,905 3,902
Other reserves 647 381 955 658
Retained earnings 1,622 1,825 1,578 1,805
Shareholders` funds 6,682 6,617 6,944 6,871
after deducting
- cost of treasury shares (788) (554) (745) (296)
Minority interests 311 248 271 218
Total equity 6,993 6,865 7,215 7,089
Liabilities
Non-current liabilities
Borrowings 8,369 7,895 9,437 6,062
Retirement benefit
liabilities 885 302 848 360
Deferred tax liabilities 543 380 599 336
Other provisions for
liabilities and charges 152 153 186 165
Trade and other payables 145 139 166 149
Derivative financial
instruments 109 121 222 59
Total non-current liabilities 10,203 8,990 11,458 7,131
Current liabilities
Borrowings 2,522 1,760 2,724 861
Income tax payable 323 274 300 227
Other provisions for
liabilities and charges 277 300 295 263
Trade and other payables 4,377 3,167 4,718 2,976
Derivative financial
instruments 130 174 841 215
7,629 5,675 8,878 4,542
Liabilities directly
associated with assets
classified as held-for-sale 3 2
Total current liabilities 7,629 5,678 8,878 4,544
Total liabilities 17,832 14,668 20,336 11,675
Total equity and liabilities 24,825 21,533 27,551 18,764
The restatement of the 30 June 2008 balance sheet reflects the change in Group
accounting policy for recognition of actuarial gains and losses, together with
the early adoption of IFRIC 14, as explained on page 20. The balance sheets as
at 30 June 2008 and 31 December 2008 have been restated for the
reclassification of certain derivatives, as explained on page 20. In accordance
with IAS 1 Revised, an additional balance sheet comparative has been presented
as at 1 January 2008.
The accompanying notes on pages 19 to 40 form an integral part of this
condensed consolidated financial information.
GROUP CASH FLOW STATEMENT - unaudited
6 months to Year to
30.6.09 30.6.08 31.12.08
GBPm GBPm GBPm
Cash flows from operating activities
Cash generated from operations page 34 1,806 1,569 4,156
Dividends received from associates 143 153 326
Tax paid (517) (455) (943)
Net cash from operating activities 1,432 1,267 3,539
Cash flows from investing activities
Interest received 55 63 125
Dividends received from investments 2 1 2
Purchases of property, plant and equipment (160) (117) (448)
Proceeds on disposal of property, plant
and equipment 28 17 62
Purchases of intangibles (33) (15) (96)
Proceeds on disposal of intangibles 17 17
Purchases and proceeds on disposals of
investments 13 15 9
Proceeds from associates` share buy-backs 19 42
Purchase of Bentoel (300)
Purchase of Tekel cigarette assets (12) (867) (873)
Proceeds from ST trademark disposals and
purchase of ST businesses 190 (1,243)
Purchases of other subsidiaries and
minority interests (2) (9)
Proceeds on disposal of subsidiaries 26
Net cash from investing activities (217) (869) (2,386)
Cash flows from financing activities
Interest paid (351) (179) (400)
Interest element of finance lease rental
payments (1) (1) (3)
Capital element of finance lease rental
payments (18) (13) (30)
Proceeds from issue of shares to Group
shareholders 2 3 3
Proceeds from exercise of options over own
shares
held in employee share ownership trusts 2 4 7
Proceeds from increases in and new
borrowings 696 2,727 3,518
Movements relating to derivative financial
instruments (87) (301) (656)
Purchases of own shares (137) (400)
Purchase of own shares held in employee
share ownership trusts (92) (116) (116)
Reductions in and repayments of borrowings (948) (372) (731)
Dividends paid to shareholders (1,241) (954) (1,393)
Dividends paid to minority interests (112) (79) (173)
Net cash from financing activities (2,150) 582 (374)
Net cash flows from operating, investing
and financing activities (935) 980 779
Differences on exchange (246) 91 261
(Decrease)/ increase in net cash and cash
equivalents
in the period (1,181) 1,071 1,040
Net cash and cash equivalents at 1 January 2,220 1,180 1,180
Net cash and cash equivalents at period end 1,039 2,251 2,220
The accompanying notes on pages 19 to 40 form an integral part of this
condensed consolidated financial information.
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed consolidated financial information comprises the unaudited
interim financial information for the six months to 30 June 2009 and 30 June
2008, together with the audited results for the year ended 31 December 2008.
This condensed consolidated financial information has been prepared in
accordance with IAS 34 `Interim Financial Reporting` as adopted by the European
Union and the Disclosure and Transparency Rules issued by the Financial
Services Authority. They are unaudited but have been reviewed by the auditors
and their review report is set out on page 12.
The condensed consolidated financial information does not constitute statutory
accounts within the meaning of Section 434 of the UK Companies Act 2006 and
should be read in conjunction with the annual consolidated financial statements
for the year ended 31 December 2008, which were prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European
Union (EU) and implemented in the UK. The annual consolidated financial
statements for 2008 represent the statutory accounts for that year and have
been filed with the Registrar of Companies. The auditors` report on those
statements was unqualified and did not contain an emphasis of matter paragraph
and did not contain any statement under Section 498 of the Companies Act 2006.
This condensed consolidated financial information has been prepared under the
historical cost convention, except in respect of certain financial instruments,
and on a basis consistent with the IFRS accounting policies as set out in the
Annual Report for the year ended 31 December 2008, with the following
amendments due to certain changes in IFRS, as endorsed by the EU, affecting the
Group. These changes are effective from 1 January 2009:
- IFRS 8 (Operating Segments). This standard requires segmental reporting in
the financial statements to be on the same basis as is used for internal
management reporting to the chief operating decision maker. This has not
required any changes to the segments reported by the Group, however, it has
resulted in certain changes to the disclosures;
- IFRS 2 (Share-based Payment - Vesting Conditions and Cancellations). This
interpretation clarifies that vesting conditions are service conditions and
performance conditions only, and specifies that all cancellations, whether by
the entity or by other parties, should receive the same accounting treatment.
This change has had no material affect on the Group`s reported profit or
equity;
- IAS 1 Revised (Presentation of Financial Statements). This standard requires
separate disclosure of non-owner and owner changes in equity. The Group has
chosen to show other comprehensive income in a separate statement from the
income statement, however, implementation of the standard has not affected the
measurement of reported profit or equity;
and
- IAS 23 Revised (Borrowing Costs). This standard requires borrowing costs
directly attributable to the acquisition, construction or production of an
asset that takes a substantial period of time to get ready for its intended use
or sale, to be capitalised as part of the cost of the asset. The Group`s
previous policy was to expense such borrowing costs as they were incurred. This
change has not materially affected the Group`s reported profit or equity.
The Annual Improvements to IFRS have been endorsed by the EU, and have varying
application dates commencing on or after 1 January 2009. The main effect has
been a reclassification of derivatives held for trading with a settlement date
greater than one year from current to non-current on the balance sheet.
The balance sheets of prior reporting periods have been amended to reflect this
reclassification and, in accordance with IAS 1 Revised (Presentation of
Financial Statements), an additional balance sheet comparative has been
presented as at 1 January 2008. The effect of the reclassification has been to
increase non-current assets and decrease current assets at 31 December 2008 by
GBP3 million (30 June 2008 and 1 January 2008: GBP1 million) and to increase
non-current liabilities and decrease current liabilities at 31 December 2008 by
GBP23 million (30 June 2008: GBP7 million, 1 January 2008:
GBP10 million).
As explained in the 2008 Annual Report, the Group has amended its treatment
with regard to the recognition of actuarial gains and losses of retirement
benefit schemes under IAS 19, and has adopted IFRIC 14 (IAS 19 - The Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction).
Following these changes, the Group now recognises actuarial gains and losses in
the period in which they occur, in the statement of comprehensive income,
rather than using partial deferral of such gains and losses through the
`corridor` method as also permitted by IAS 19. The effect of this change in
accounting policy on the 30 June 2008 balance sheet and equity is as follows:
Balance sheet as at 30 June 2008 GBPm
Investments in associates and joint ventures 47
Retirement benefits assets (14)
Deferred tax assets 1
Total assets 34
Opening equity (9)
Differences on exchange (other comprehensive income) 3
Total equity (6)
Retirement benefits liabilities (4)
Deferred tax liabilities 44
Total equity and liabilities 34
Apart from the above, the change in accounting policy had no material effect
on the income statement or the statement of other comprehensive income for the
six months ended 30 June 2008.
As a result of the change in accounting policy, from 1 January 2009, the Group
reviews the asset valuations and actuarial assumptions underlying the
retirement benefits of its material schemes on a half- yearly basis. This
resulted in the recognition of actuarial losses of GBP123 million pre-tax at 30
June 2009. This review was not carried out at 30 June 2008 and actuarial gains
and losses for the year ended 31 December 2008 are deemed to have arisen in the
second half of the year.
The preparation of the condensed consolidated financial information requires
management to make estimates and assumptions that affect the reported amounts
of revenue, expenses, assets and liabilities, and the disclosure of contingent
liabilities at the date of the condensed consolidated financial information.
Such estimates and assumptions are based on historical experience and various
other factors that are believed to be reasonable in the circumstances and
constitute management`s best judgement at the date of the financial statements.
In future, actual experience may deviate from these estimates and assumptions,
which could affect the financial statements as the original estimates and
assumptions are modified, as appropriate, in the period in which the
circumstances change.
NON-GAAP MEASURES
In the reporting of financial information, the Group uses certain measures that
are not required under IFRS, the generally accepted accounting principles
(GAAP) under which the Group reports. The Group believes that these additional
measures, which are used internally by the Group, are useful to users of the
financial information in helping them understand the underlying business
performance.
The principal non-GAAP measure which the Group uses is adjusted diluted
earnings per share, which is reconciled to diluted earnings per share. The
adjusting items that mainly drive the adjustments made, are separately
disclosed, as memorandum information on the face of the Income Statement, and
all adjustments are explained in this Report.
The chief operating decision maker reviews current and prior year segmental
income statement information of subsidiaries and associates at constant rates
of exchange which provides an approximate guide to performance in the current
year if exchange rates had not changed from the prior year. The constant rate
comparison provided for reporting segment information in accordance with IFRS
8, is based on a retranslation, at prior year exchange rates, of the current
year results of the Group`s overseas entities but does not adjust for the
normal transactional gains and losses in operations which are generated by
exchange movements.
The Group also prepares an alternative cash flow, which includes a measure of
`free cash flow`, to illustrate the cash flows before transactions relating to
borrowings. The Group also provides gross turnover as an additional disclosure
to indicate the impact of duty, excise and other taxes. Certain
reclassifications have been made in respect of gross turnover in 2008 and, as a
result, historical information has been re-presented.
Due to the secondary listing of the ordinary shares of British American Tobacco
p.l.c. on the main board of the JSE Limited (JSE) in South Africa, the Group is
required to present headline earnings per share and diluted headline earnings
per share which are additional alternative measures of earnings per share,
calculated in accordance with Circular 8/2007 `Headline Earnings` issued by the
South African Institute of Chartered Accountants. These are shown on pages 30
and 31.
FOREIGN CURRENCIES
The income and cash flow statements of overseas subsidiaries and associates
have been translated at the average rates for the respective periods. Assets
and liabilities have been translated at the relevant period end rates. For high
inflation countries, the local currency results are adjusted for the impact of
inflation prior to translation to sterling at closing exchange rates.
The principal exchange rates used were as follows:
Average
30.6.09 30.6.08 31.12.08
US dollar 1.493 1.975 1.852
Canadian dollar 1.797 1.989 1.961
Euro 1.119 1.291 1.257
South African rand 13.676 15.127 15.132
Brazilian real 3.267 3.351 3.355
Australian dollar 2.099 2.138 2.187
Russian rouble 49.304 47.251 45.810
Closing
30.6.09 30.6.08 31.12.08
US dollar 1.647 1.990 1.438
Canadian dollar 1.913 2.019 1.775
Euro 1.174 1.263 1.034
South African rand 12.718 15.579 13.292
Brazilian real 3.228 3.165 3.353
Australian dollar 2.037 2.074 2.062
Russian rouble 51.336 46.658 43.902
SEGMENTAL ANALYSES OF REVENUE AND PROFIT - unaudited
The five geographic regions are the reportable segments for the Group as they
form the focus of the Group`s internal reporting systems and are the basis used
by the chief operating decision maker, identified as the Management Board, for
assessing performance and allocating resources. The Management Board reviews
external net revenues and operating profit after adjusting items, to evaluate
segment performance and allocate resources.
The Management Board reviews current and prior year income statement
information of subsidiaries and associates at constant rates of exchange. As a
result, the 2009 segmental results were translated using the 2008 average rates
of exchange. The 2008 comparative figures are stated at the 2008 actual average
rates of exchange for the relevant period.
The tables below are represented for the new regional structure effective 1
January 2009, as previously disclosed in the Annual Report for the year ended
31 December 2008.
The analyses of revenue for the six months to 30 June 2009, 30 June 2008 and
the year to 31 December 2008, based on location of sales, are as follows:
30.6.09
Revenue Translation Revenue
Constant exchange Current
GBPm GBPm GBPm
Asia-Pacific 1,315 232 1,547
Americas 1,466 30 1,496
W estern Europe 1,665 219 1,884
Eastern Europe 754 (13) 741
Africa and Middle East 1,027 85 1,112
Total 6,227 553 6,780
30.6.08 31.12.08
Revenue Revenue
GBPm GBPm
Asia-Pacific 1,293 2,717
Americas 1,349 2,863
W estern Europe 1,406 3,218
Eastern Europe 689 1,594
Africa and Middle East 720 1,730
Total 5,457 12,122
Profit from operations for the six months to 30 June 2009 is as follows:
30.6.09
Adjusted Adjusted
profit from profit from
operations Translation operations
Constant* exchange Current*
GBPm GBPm GBPm
Asia-Pacific 481 76 557
Americas 573 6 579
W estern Europe 434 75 509
Eastern Europe 184 (1) 183
Africa and Middle East 305 31 336
Total 1,977 187 2,164
Net finance costs
Share of post-tax
results of associates
and joint ventures
Profit before taxation
Adjusting Profit from
items operations
GBPm GBPm
Asia-Pacific 557
Americas (5) 574
Western Europe (36) 473
Eastern Europe 183
Africa and Middle East (12) 324
Total (53) 2,111
Net finance costs (219)
Share of post-tax
results of associates
and joint ventures 231
Profit before taxation 2,123
*After adjusting for restructuring and integration costs, amortisation of
trademarks and gains on disposal of businesses and trademarks as explained on
page 25.
Profit from operations for the six months to 30 June 2008 and the year to 31
December 2008 is as follows:
30.6.08
Adjusted
profit from Adjusting Profit from
operations* items operations
GBPm GBPm GBPm
Asia-Pacific 456 (2) 454
Americas 516 2 518
Western Europe 334 (26) 308
Eastern Europe 199 199
Africa and Middle East 252 (7) 245
Total 1,757 (33) 1,724
Net finance costs (179)
Share of post-tax
results of associates
and joint ventures 293
Profit before taxation 1 ,8 3 8
31.12.08
Adjusted Profit
profit from Adjusting from
operations* items operations
GBPm GBPm GBPm
Asia-Pacific 924 (2) 922
Americas 1,052 (96) 956
Western Europe 760 5 765
Eastern Europe 468 468
Africa and Middle East 513 (52) 461
Total 3,717 (145) 3,572
Net finance costs (391)
Share of post-tax
results of associates
and joint ventures 503
Profit before taxation 3,684
*After adjusting for restructuring and integration costs, the 2008 Canadian
settlement, amortisation of trademarks and gains on disposal of businesses and
trademarks as explained on page 25.
The segmental analysis of the Group`s share of the post-tax results of
associates and joint ventures for the six months to 30 June 2009 is as follows:
30.6.09
Adjusted Adjusted
share of share of
post-tax post-tax
results Translation results
Constant* exchange Current*
GBPm GBPm GBPm
Asia-Pacific 72 7 79
Americas 151 48 199
Western Europe
Eastern Europe
Africa and Middle East 1 1
Total 224 55 279
Share of
Adjusting post-tax
items results
GBPm GBPm
Asia-Pacific 79
Americas (48) 151
Western Europe
Eastern Europe
Africa and Middle East 1
Total (48) 231
*After adjusting for trademark impairment charges as explained on page 29.
The segmental analysis of the Group`s share of the post-tax results of
associates and joint ventures for the six months to 30 June 2008 and the year
to 31 December 2008 is as follows:
30.6.08
Adjusted
share of Share of
post-tax Adjusting post-tax
results* items results
GBPm GBPm GBPm
Asia-Pacific 66 66
Americas 143 45 188
Western Europe 25 13 38
Eastern Europe
Africa and Middle East 1 1
Total 235 58 293
31.12.08
Adjusted
share of Share of
post-tax Adjusting post-tax
results* items results
GBPm GBPm GBPm
Asia-Pacific 121 121
Americas 328 13 341
Western Europe 26 13 39
Eastern Europe
Africa and Middle East 2 2
Total 477 26 503
*After adjusting for gain on termination of joint venture, charges for
trademark impairments, additional ST income and restructuring costs as
ADJUSTING ITEMS
Adjusting items are distorting items in the profit from operations and the
Group`s share of the post-tax results of associates and joint ventures which
individually or, if of a similar type in aggregate, are relevant to an
understanding of the Group`s underlying financial performance. These items are
separately disclosed either as memorandum information on the face of the income
statement and in the segmental analyses, or in the notes, as appropriate.
(a) Restructuring and integration costs
The integration of the Tekel and ST businesses into existing operations and the
review of the Group`s manufacturing operations and organisational structure
including the initiative to reduce overheads and indirect costs, continued
during the six months to 30 June 2009.
The six months to 30 June 2009 includes a charge for restructuring and
integration of GBP29 million (2008: GBP33 million), principally in respect of
the integration of ST and Tekel, the restructuring of the Group`s IT shared
services and further costs related to restructurings announced in prior years.
The results for the year ended 31 December 2008 included a charge for
restructuring and integration of GBP160 million, principally in respect of
further costs related to restructurings announced in prior years, the
re-organisation of the business in the Netherlands and costs in respect of the
integration of the Tekel and ST businesses into existing operations.
(b) Canadian settlement
On 31 July 2008, the Group`s subsidiary in Canada (Imperial Tobacco Canada)
announced that it had reached a resolution with the federal and provincial
governments with regard to the investigation related to the export to the
United States of Imperial Tobacco Canada tobacco products in the late 1980s and
early 1990s. The subsidiary entered a plea of guilty to a regulatory violation
of a single count of Section 240(i) (a) of the Excise Act and has paid a fine
of GBP102 million which was included in other operating expenses in the profit
from operations for the year ended 31 December 2008.
Imperial Tobacco Canada has also entered into a 15 year civil agreement with
the federal and provincial governments. In order, amongst other things, to
assist the governments in their future efforts against illicit trade, Imperial
Tobacco Canada has agreed to pay a percentage of annual net sales revenue each
year going forward for 15 years, up to a maximum of Can$350 million, which is
expensed as it is incurred.
(c) Amortisation of trademarks
The acquisitions of Tekel and ST resulted in the capitalisation of trademarks
which are amortised over their expected useful lives, which do not exceed 20
years. The amortisation charge of GBP26 million was included in depreciation
and amortisation costs in the profit from operations for the six months to 30
June 2009 (2008: GBPnil). For the year ended 31 December 2008, the amortisation
charge was GBP24 million.
(d) Gains on disposal of businesses and trademarks
The gain on disposal of businesses and trademarks for the year ended 31
December 2008 was GBP141 million, of which GBP139 million arose on 2 July 2008
with the disposal of the Group`s 32.35 per cent holding in the non-cigarette
and snus businesses of ST (see page 28). This gain was included in other
operating income in the profit from operations for the year to 31 December
2008.
The acquisition of the cigarette and snus businesses of ST was subject to
regulatory approval which was received on the condition that the Group divest a
small number of local trademarks, primarily in Norway. The disposal of the
trademarks was dealt with in two packages, with the first package sold and
completed in February 2009. In March 2009, contracts were exchanged in respect
of the second package and it was completed in May 2009.
The total proceeds from the two packages resulted in a gain of GBP2 million
which was included in other operating income in the profit from operations for
the six months to 30 June 2009.
OTHER CHANGES IN THE GROUP
(a) PT Bentoel Internasional Investama Tbk
On 17 June 2009, the Group acquired from Rajawali Group and other shareholders
an 85 per cent stake in Indonesia`s fourth largest cigarette maker PT Bentoel
Internasional Investama Tbk (Bentoel) for US$494 million (GBP303 million). The
price is equivalent to IDR873 per share, a premium of 20 per cent over
Bentoel`s closing price of IDR730 per share on 17 June 2009. A public tender
offer for the remaining shares was announced after the acquisition and is
expected to be completed by the end of August 2009. The fair value table below,
stated at the exchange rates ruling at the date of the transaction, has been
based on available management information and, given the short period of time
since acquisition, work is continuing in respect of the fair value exercise and
the necessary adjustments between Indonesian GAAP and IFRS to determine
acquired book values. The values shown in the table below are therefore
provisional and the full table will be presented and updated in due course as
permitted under IFRS 3.
Provisional values
Book Fair value Estimated
values adjustments fair value
GBPm GBPm GBPm
Property, plant and equipment 57 21 78
Deferred tax asset 5 (1) 4
Trade and other receivables 41 41
Inventories 152 (13) 139
Cash and cash equivalents 3 3
Borrowings (97) (97)
Retirement benefit liabilities (9) (1) (10)
Deferred tax liabilities (27) (27)
Trade and other payables (48) (48)
Net tangible assets acquired 104 (21) 83
Intangible assets 4 246 250
108 225 333
Less: minority share of net assets
acquired (25)
Total consideration including accrued
acquisition costs 308
The provisional intangible assets of GBP250 million on the acquisition of the
85 per cent stake in the business, reflects the goodwill representing a
strategic premium to acquire the opportunity to enter the very large Indonesian
kretek market and anticipated synergies that will arise from combining the
businesses in Indonesia, post-acquisition, as well as the value of acquired
trademarks.
Although the acquisition was completed on 17 June 2009, the results generated
from the acquired business for the period to 30 June 2009 were not material to
the profit from operations.
If the acquisition had occurred on 1 January 2009, before accounting for
anticipated synergy, restructuring and pricing benefits, it is currently
estimated that Group revenue would have been GBP6,862 million and Group profit
from operations would have been GBP2,116 million for the 6 months to 30 June
2009, after charging GBP32 million for the amortisation of acquired
intangibles. These amounts have been estimated based on Bentoel`s results for
the 6 months prior to acquisition, adjusted to reflect changes arising from
differences in accounting policies and the anticipated effect of fair value
adjustments.
(b) Tekel
On 22 February 2008, the Group announced that it had won the public tender to
acquire the cigarette assets of Tekel, the Turkish state-owned tobacco company,
with a bid of US$1,720 million. The acquisition only related to the cigarette
assets of Tekel, which principally comprised trademarks, factories and tobacco
leaf stocks. The acquisition did not include employees and the Group had
directly employed the required workforce by the effective date of the
transaction. Completion of this transaction was subject to regulatory approval
which was subsequently received and on 24 June 2008 the Group completed the
transaction, subject to finalisation of the purchase price based on agreed
completion accounts.
As noted in the December 2008 Annual Report, finalisation of part of the
transaction was still continuing.
This has now been concluded with an adjustment of GBP12 million to the purchase
price and goodwill.
The goodwill of GBP578 million on the cigarette assets of Tekel, stated at the
exchange rates ruling at the date of the transaction, arose as follows:
Final
fair value
GBPm
Net assets acquired 307
Goodwill 578
Total consideration 885
Consideration comprises:
- Cash 878
- Acquisition costs 7
Total consideration 885
Included within the cigarette assets acquired from Tekel are certain items of
property, plant and equipment that are being actively marketed for sale. These
assets, amounting to GBP15 million at 31 December 2008, have been included as
`Assets classified as held-for-sale`. At 30 June 2009, these assets amounted to
GBP13 million.
The goodwill of GBP578 million arising on the acquisition of the cigarette
assets of Tekel represents a strategic premium to acquire Tekel`s significant
market position in the Turkish cigarette market and significant anticipated
synergies that will arise post acquisition of combining the Turkey businesses.
(c) Skandinavisk Tobakskomagni (ST)
On 27 February 2008, the Group agreed to acquire 100 per cent of ST`s cigarette
and snus businesses in exchange for its existing 32.35 per cent holding in ST
and payment of DKK11,582 million (GBP1,237 million) in cash. Completion of this
transaction was subject to regulatory approval which was subsequently received
on the condition that the Group agreed to divest a small number of local
trademarks, primarily in Norway. The transaction was completed on 2 July 2008.
The transaction resulted in a revaluation gain of GBP179 million, included in
other comprehensive income for the year ended 31 December 2008, and goodwill of
GBP923 million. The gain on disposal from this transaction and subsequent
trademark disposals, are explained on page 25.
Until the date of the transaction, the results of ST were equity accounted as
an associate undertaking and following the transaction, the results of the
acquired business have been consolidated.
NET FINANCE COSTS
Net finance costs comprise:
6 months to
30.6.09 30.6.08
GBPm GBPm
Finance costs (224) (300)
Finance income 5 121
(219) (179)
Comprising:
Interest payable (260) (224)
Interest and dividend income 55 66
Fair value changes 198 (157)
Exchange differences (212) (14) 136 (21)
(219) (179)
Net finance costs at GBP219 million were GBP40 million higher than last year,
principally reflecting the higher interest cost as a result of increased
borrowings, as well as the impact of derivatives and exchange differences.
The net GBP14 million loss (2008: GBP21 million loss) of fair value changes and
exchange differences reflects a loss of GBP10 million (2008: GBP9 million) from
the net impact of exchange rate movements and a loss of GBP4 million (2008:
GBP12 million) principally due to interest related changes in the fair value of
derivatives.
IFRS requires fair value changes for derivatives, which do not meet the tests
for hedge accounting under IAS 39, to be included in the income statement. In
addition, certain exchange differences are required to be included in the
income statement under IFRS and, as they are subject to exchange rate movements
in a period, they can be a volatile element of net finance costs. These amounts
do not always reflect an economic gain or loss for the Group and, accordingly,
the Group has decided that, in calculating the adjusted diluted earnings per
share, it is appropriate to exclude certain amounts.
The adjusted diluted earnings per share for the period ended 30 June 2008
exclude, in line with previous practice, an GBP11 million loss relating to
exchange losses in net finance costs where there is a compensating exchange
gain reflected in differences in exchange taken directly to the statement of
comprehensive income and expense. There are no similar gains or losses in the
six months ended 30 June 2009.
ASSOCIATES AND JOINT VENTURES
The Group`s share of post-tax results of associates and joint ventures was
GBP231 million (2008: GBP293 million) after taxation of GBP133 million (2008:
GBP151 million). For the year to 31 December 2008, the share of post-tax
results was GBP503 million after tax of GBP284 million. This share is after the
following adjusting items which are excluded from the calculation of adjusted
diluted earnings per share (pages 30 and 31).
In the six months to 30 June 2009, Reynolds American recognised a trademark
impairment charge of US$280 million, triggered by the increase in federal
excise taxes on tobacco products and changes in pricing. The Group`s share of
this charge amounted to GBP48 million (net of tax).
In the year ended 31 December 2008, Reynolds American modified the previously
anticipated level of support between certain trademarks and the projected net
sales of certain trademarks, resulting in a trademark impairment charge of
which the Group`s share amounted to GBP20 million (net of tax).
On 21 February 2008, Reynolds American announced that it would receive a
payment from Gallaher Limited resulting from the termination of a joint venture
agreement. While the payment will be received over a number of years, in the
six months to 30 June 2008 and in the year to 31 December 2008 Reynolds
American recognised a pre-tax gain of US$328 million. The Group`s share of this
gain included in the results for the six months to 30 June 2008 and for the
year to 31 December 2008, amounts to GBP45 million (net of tax).
On 9 September 2008, Reynolds American further announced planned changes in the
organisational structure at Reynolds American Inc. and its largest subsidiary,
R. J. Reynolds Tobacco Company. The charge to the results for the year ended 31
December 2008 amounted to US$90 million. The Group`s share of this charge
included in the results for the year amounted to GBP12 million (net of tax).
The year end of ST, an associate of the Group to 2 July 2008, was 30 June, and,
for practical reasons, the Group had previously equity accounted for its
interest based on the information available from ST which was 3 months in
arrears to that of the Group. As explained on page 28, the Group acquired 100
per cent of ST`s cigarette and snus businesses on 2 July 2008. Consequently, in
order to account for the Group`s share of the net assets of ST at the date of
the acquisition, the results of ST for the period up to 2 July 2008 were
included in the results from associates for 2008, resulting in one additional
quarter`s income in 2008. This contributed an additional GBP13 million to the
share of post-tax results of associates and joint ventures.
TAXATION
The tax rate in the income statement of 25.2 per cent for the six months to 30
June 2009 (30 June 2008: 26.9 per cent) is affected by the inclusion of the
share of associates` post-tax profit in the Group`s pre-tax results and
adjusting items. The underlying rate for subsidiaries reflected in the adjusted
earnings per share below was 28.0 per cent in 2009 and 30.1 per cent for the
six months to 30 June 2008. The decrease arises primarily from a favourable
change in the mix of profits and a reduction in national tax rates in several
countries. The charge relates to taxes payable overseas.
The tax charge for the period ended 30 June 2008 included a one-off net
deferred tax charge of GBP22 million (31 December 2008: GBP26 million) as a
result of the acquisition of the cigarette assets of Tekel. This has been
excluded from the adjusted diluted earnings per share and consequently from the
underlying tax rate above.
EARNINGS PER SHARE
6 months to Year to
30.6.09 30.6.08 31.12.08
pence pence pence
Earnings per share
- basic 73.23 62.48 123.28
- diluted 72.75 62.08 122.54
Adjusted earnings per share
- basic 77.78 62.43 129.55
- diluted 77.27 62.02 128.78
Headline earnings per share
- basic 76.67 60.28 114.80
- diluted 76.17 59.89 114.11
Basic earnings per share are based on the profit for the period attributable to
ordinary shareholders and the weighted average number of ordinary shares in
issue during the year (excluding treasury shares).
For the calculation of the diluted earnings per share, the weighted average
number of shares reflects the potential dilutive effect of employee share
schemes.
The presentation of headline earnings per share is mandated under the JSE
Listing Requirements. It is calculated in accordance with Circular 8/2007
`Headline Earnings`, as issued by the South African Institute of Chartered
Accountants.
The earnings per share are based on:
30.6.09 30.6.08
Earnings Shares Earnings Shares
GBPm m GBPm m
Earnings per share
- basic 1,450 1,980 1,249 1,999
- diluted 1,450 1,993 1,249 2,012
Adjusted earnings per
share
- basic 1,540 1,980 1,248 1,999
- diluted 1,540 1,993 1,248 2,012
Headline earnings per
share
- basic 1,518 1,980 1,205 1,999
- diluted 1,518 1,993 1,205 2,012
31.12.08
Earnings Shares
GBPm m
Earnings per share
- basic 2,457 1,993
- diluted 2,457 2,005
Adjusted earnings per
share
- basic 2,582 1,993
- diluted 2,582 2,005
Headline earnings per
share
- basic 2,288 1,993
- diluted 2,288 2,005
In 2009, earnings have been affected by a number of adjusting items which
include restructuring and integration costs, amortisation of trademarks and the
effect on disposal of businesses and trademarks (see page 25). The earnings for
2008 were affected by similar adjusting items, together with the Canadian
settlement and certain distortions to net finance costs under IFRS (see page
29) and to deferred tax (see page 30). In order to illustrate the impact of
these items, the adjusted diluted earnings per share are shown below:
Diluted earnings per share
6 months to Year to
30.6.09 30.6.08 31.12.08
pence pence pence
Unadjusted earnings per share 72.75 62.08 122.54
Effect of restructuring and integration
costs 1.17 1.19 6.08
Effect of Canadian settlement 5.09
Effect of amortisation of trademarks 1.00 0.90
Effect of disposals of businesses and
trademarks (0.05) (6.38)
Effect of net finance cost adjustment 0.55 0.55
Effect of associates` trademark
impairments,
restructuring costs and termination of
joint venture 2.40 (2.24) (0.65)
Effect of additional ST income (0.65) (0.65)
Effect of deferred tax adjustment 1.09 1.30
Adjusted diluted earnings per share 77.27 62.02 128.78
Similar types of adjustments would apply to basic earnings per share.
Headline earnings per share are calculated by taking the following adjustments
into account:
Diluted headline earnings per share
6 months to Year to
30.6.09 30.6.08 31.12.08
pence pence pence
Unadjusted earnings per share 72.75 62.08 122.54
Effect of impairment of goodwill and
property, plant and
equipment 1.12 0.20 0.25
Effect of gains on disposal of property,
plant and
equipment (0.10) (0.45)
Effect of gains on disposal of businesses
and trademarks (0.05) (6.68)
Effect of losses/(gains) reclassified from
the available-
for-sale reserve (0.05) (0.05) (0.30)
Effect of share of associates` trademark
impairments and
termination of joint venture 2.40 (2.24) (1.25)
Headline earnings per share 76.17 59.89 114.11
CASH FLOW
a) The IFRS cash flow includes all transactions affecting cash and cash
equivalents, including financing. The alternative cash flow below is
presented to illustrate the cash flows before transactions relating to
borrowings.
6 months to Year to
30.6.09 30.6.08 31.12.08
GBPm GBPm GBPm
Net cash from operating activities before
restructuring
costs and taxation 2,031 1,796 4,692
Restructuring costs (82) (74) (210)
Taxation (517) (455) (943)
Net cash from operating activities (page
18) 1,432 1,267 3,539
Net interest (307) (125) (280)
Net capital expenditure (165) (115) (482)
Dividends paid to minority interests (112) (79) (173)
Free cash flow 848 948 2,604
Dividends paid to shareholders (1,241) (954) (1,393)
Share buy-back (137) (400)
Purchase of Bentoel (page 26) (300)
Purchase of Tekel cigarette assets (page
27) (12) (867) (873)
Proceeds from ST trademark disposals and
purchase
of ST businesses (page 28) 190 (1,243)
Other net flows (151) (117) (227)
Net cash flows (666) (1,127) (1,532)
Net cash from operating activities before restructuring costs and taxation
increased by GBP235 million to GBP2,031 million, reflecting growth in
underlying operating performance, partly offset by the impact of lower
dividends from associates and adverse working capital movements reflecting
timing differences. Although outflows relating to taxation and restructuring
costs were GBP70 million higher than last year due to higher profits and the
timing of payments, the Group`s net cash flow from operating activities was
GBP165 million higher at GBP1,432 million.
Free cash flow is the Group`s cash flow before dividends, share buy-back and
investing activities. With the impact of higher net interest payments,
increased net capital expenditure and dividends paid to minorities, the Group`s
free cash flow was GBP100 million lower than 2008 at GBP848 million.
The ratio of free cash flow per share to adjusted diluted earnings per share
was 55 per cent (30 June 2008: 76 per cent), with free cash flow per share
decreasing by 10 per cent.
Below free cash flow, the principal cash outflows comprise the payment of the
prior year final dividend which was GBP287 million higher at GBP1,241 million,
and the acquisition of PT Bentoel Internasional Investama Tbk in Indonesia. The
Bentoel acquisition resulted in a net cash outflow of GBP300 million, which
comprises the purchase consideration less acquired cash and cash equivalents,
as explained on page 26. As explained on page 37, there was no share buy-back
in the six months ended 30 June 2009 (30 June 2008: GBP137 million; 31 December
2008: GBP400 million).
The other net flows principally relate to share purchases by the employee share
ownership trusts and outflows in respect of certain derivative financial
instruments.
The above flows resulted in net cash outflows of GBP666 million (30 June 2008:
GBP1,127 million outflow; 31 December 2008: GBP1,532 million outflow). After
taking account of transactions related to borrowings, especially net repayment
of debt, the above flows resulted in a net decrease of cash and cash
equivalents of GBP935 million (30 June 2008: GBP980 million increase; 31
December 2008: GBP779 million increase) as shown in the IFRS cash flow on page
18.
b) The movements in net debt (borrowings including related derivatives, less
cash and cash equivalents and current available-for-sale investments) and
the maturity analyses of net debt are as follows:
Reconciliation of movements in net debt
30.6.09 30.6.08 31.12.08
GBPm GBPm GBPm
Net debt at 1 January (9,891) (5,581) (5,581)
Exchange* 1,173 (462) (2,622)
Free cash flow 848 948 2,604
Dividends (1,241) (954) (1,393)
Share buy-back (137) (400)
Bentoel acquisition
- purchase consideration less acquired
cash and cash
equivalents (300)
- debt acquired (97)
Tekel acquisition (12) (867) (873)
ST trademark disposals and purchase of ST
businesses 190 (1,243)
Other net flows (151) (117) (227)
Other non-cash items 105 (46) (156)
Net debt at period end (9,376) (7,216) (9,891)
*Including movements in respect of debt
related derivatives.
Maturity analyses of net debt
30.6.09 30.6.08 31.12.08
GBPm GBPm GBPm
Net debt due within one year:
Borrowings (2,522) (1,760) (2,724)
Related derivatives 127 61 (91)
Cash and cash equivalents 1,304 2,326 2,309
Current available-for-sale investments 80 76 79
(1,011) 703 (427)
Net debt due beyond one year:
Borrowings (8,369) (7,895) (9,437)
Related derivatives 4 (24) (27)
(8,365) (7,919) (9,464)
Total net debt (9,376) (7,216) (9,891)
The Group remains confident about its ability to successfully access the debt
capital markets and reviews its options on an ongoing basis.
c) Cash generated from operations (page 18)
6 months to Year to
30.6.09 30.6.08 31.12.08
GBPm GBPm GBPm
Profit from operations 2,111 1,724 3,572
Adjustments for:
Amortisation of trademarks 26 24
Gains on disposal of businesses and
trademarks (2) (141)
Depreciation and impairment of property,
plant and equipment 205 153 350
Amortisation and write off of intangible
assets 54 21 56
Increase in inventories (527) (415) (367)
(Increase)/decrease in trade and other
receivables (35) 120 19
Increase in trade and other payables 84 55 746
Decrease in net retirement benefit
liabilities (78) (58) (99)
Decrease in provisions for liabilities and
charges (23) (41) (31)
Other non-cash items (9) 10 27
Cash generated from operations 1,806 1,569 4,156
d) IFRS investing and financing activities
The investing and financing activities in the IFRS cash flows on page 18
include the following items:
The proceeds on disposal of intangibles of GBP17 million for the six months
ended 30 June 2008 and the year ended 31 December 2008 arose from the
termination of a licence agreement in Southern Africa, as reported in the 2007
results.
In the six months ended 30 June 2008, the purchases and disposals of
investments (which comprise available-for-sale investments and loans and
receivables) include a net cash inflow of GBP14 million (31 December 2008: GBP8
million inflow) in respect of current investments and a GBP1 million inflow (31
December 2008: GBP1 million inflow) from non-current investments. In the six
months ended 30 June 2009, the purchases and disposals of investments of GBP13
million arose from the disposal of current investments.
The proceeds of GBP19 million from associates` share buy-backs for the six
months ended 30 June 2008 (31 December 2008: GBP42 million) principally reflect
cash received in respect of the Group`s participation in the share buy-back
programme conducted by Reynolds American Inc.
In the six months ended 30 June 2009, the Group acquired PT Bentoel
Internasional Investama Tbk, resulting in a net cash outflow of GBP300 million,
which comprises the purchase consideration less acquired cash and cash
equivalents, as explained on page 26.
In the six months ended 30 June 2008 and the year ended 31 December 2008, the
cash outflows of GBP867 million and GBP873 million respectively, in respect of
the Tekel acquisition, reflect the purchase price paid as well as related
acquisition costs. In the six months ended 30 June 2009, the GBP12 million
outflow in respect of the Tekel acquisition reflects purchase price adjustments
arising from the conclusion of the transaction, as explained on page 27.
In the year ended 31 December 2008, the cash outflow of GBP1,243 million in
respect of the ST acquisition reflects the purchase price, the related
acquisition costs less acquired net cash and cash equivalents and overdrafts.
Proceeds from ST trademark disposals and purchases of ST businesses in the six
months ended 30 June 2009, represent the proceeds on disposal of a small number
of trademarks in Norway (see page 25) of GBP188 million and the receipt in 2009
of a partial refund of the purchase price, accrued at 31 December 2008, of GBP2
million.
In the six months ended 30 June 2008 and the year ended 31 December 2008, the
purchases of other subsidiaries and minorities of GBP2 million and GBP9 million
respectively, arise from the acquisition of minority interests in Africa and
Middle East and Western Europe.
In the year ended 31 December 2008, the GBP26 million cash inflow from the
disposal of subsidiaries reflected the net proceeds on disposal of a non-core
business in Asia-Pacific region.
The movement relating to derivative financial instruments is in respect of
derivatives taken out to hedge cash and cash equivalents and external
borrowings, derivatives taken out to hedge inter company loans and derivatives
treated as net investment hedges. Derivatives taken out as cash flow hedges in
respect of financing activities are also included in the movement relating to
derivative financial instruments, while other such derivatives in respect of
operating and investing activities are reflected along with the underlying
transactions.
e) Net cash and cash equivalents in the Group cash flow statement comprise:
30.6.09 30.6.08 31.12.08
GBPm GBPm GBPm
Cash and cash equivalents per balance sheet 1,304 2,326 2,309
Accrued interest (4) (3)
Overdrafts (265) (71) (86)
Net cash and cash equivalents 1,039 2,251 2,220
f) Liquidity
In the six months to 30 June 2009, the Group re-established its euro commercial
paper (ECP) programme of GBP1 billion. GBP260 million of ECP is outstanding at
30 June 2009.
The Group`s 1.75 billion revolving credit facility was undrawn at 30 June 2009.
In June 2009, the Group issued a GBP250 million bond with a maturity of June
2022. In February 2009, the Group repaid a 900 million bond and a MYR100
million bond in May 2009.
In July 2009, the Group entered into a new 700 million term loan facility with
a maturity date of 31 October 2013. The facility will be used to refinance part
of the Group`s existing 860 million credit facility.
In the year ended 31 December 2008, the 1.8 billion revolving credit facility
arranged in December 2007 was cancelled and replaced with the issue of 1.25
billion and GBP500 million bonds maturing in 2015 and 2024 respectively. In
addition to this, the Group increased its 1 billion (5.375 per cent, maturity
2017) bond by an additional 250 million, bringing the total size of the bond to
1.25 billion.
During 2008, the Group also issued US$300 million and US$700 million bonds,
maturing in 2013 and 2018 respectively, pursuant to Rule 144A and RegS under
the US Securities Act. The Group also repaid US$330 million and GBP217 million
bonds upon maturity in May and November respectively. In addition, on 22
September 2008, the Group repurchased its maturing Mexican 2011 MXN1,055
million UDI bond and refinanced it with a floating rate borrowing of MXN1,444
million.
On 13 February 2008, the Group entered into an acquisition credit facility
whereby lenders agreed to make available an amount of US$2 billion. On 1 May
2008, this facility was syndicated in the market and was redenominated into two
euro facilities, one of 420 million and one of 860 million. These facilities
expire on 31 October 2009. There was a net draw down on these credit facilities
of 1.15 billion during the year ended 31 December 2008 which continued through
the six months ended 30 June 2009.
TOTAL EQUITY
30.6.09 30.6.08 31.12.08 1.1.08
restated
GBPm GBPm GBPm GBPm
Share capital 506 506 506 506
Share premium account 58 56 56 53
Capital redemption reserves 101 101 101 101
Merger reserves 3,748 3,748 3,748 3,748
Translation reserve (125) (194) 188 80
Hedging reserve 9 (14) 4 (11)
Available-for-sale reserve 11 16 11 16
Revaluation reserve 179 179
Other reserves 573 573 573 573
Retained earnings 1,622 1,825 1,578 1,805
after deducting
- cost of treasury shares (788) (554) (745) (296)
Total shareholders` funds 6,682 6,617 6,944 6,871
Minority interests 311 248 271 218
6,993 6,865 7,215 7,089
Total equity at 30 June 2009 was GBP222 million lower than at 31 December 2008
as the payment of dividends exceeded total comprehensive income for the period.
In addition, exchange movements had a GBP606 million negative impact on
shareholders` funds, reflecting the general strengthening of the closing rates
for sterling in 2009 compared to 2008.
LITIGATION: FRANKED INVESTMENT INCOME GROUP LITIGATION ORDER
British American Tobacco is the principal test claimant in an action in the
United Kingdom against HM Revenue and Customs in the Franked Investment Income
Group Litigation Order ("FII GLO"). There are over 20 companies in the FII GLO.
The case concerns the treatment for UK corporate tax purposes of profits earned
overseas and distributed to the UK. The claim was filed in 2003 and the case
was heard in the European Court of Justice in 2005 and a decision of the ECJ
received in December 2006. In July 2008, the case reverted to a trial in the UK
High Court for the UK Court to determine how the principles of the ECJ decision
should be applied in a UK context.
The High Court judgment in November 2008 concluded, amongst many other things,
that dividends received from EU subsidiaries should be, and should have been,
exempt from UK taxation. It also concluded that certain dividends received
before 5 April 1999 from the EU and, in some limited circumstances after 1993
from outside the EU, should have been treated as franked investment income with
the consequence that advance corporation tax need not have been paid. Claims
for the repayment of UK tax incurred where the dividends were from the EU can
be made back to 1973. This judgement was appealed and will be heard by the
Court of Appeal in October this year.
The tentative conclusion reached in the judgment would, if upheld, produce an
estimated receivable of about GBP1.2 billion for British American Tobacco.
The potential receipt of some or all of the amount referred to above has not
been recognised in the results of the Group due to the uncertainty of the
amounts and the eventual outcome.
CONTINGENT LIABILITIES
As noted in the 2008 Annual Report for the year ended 31 December 2008, there
are contingent liabilities in respect of litigation, overseas taxes and
guarantees in various countries.
Group companies, as well as other leading cigarette manufacturers, are
defendants in a number of product liability cases. In a number of these cases,
the amounts of compensatory and punitive damages sought are significant. At
least in the aggregate and despite the quality of defences available to the
Group, it is not impossible that the results of operations or cash flows of the
Group in particular quarterly or annual periods could be materially affected by
this.
Having regard to these matters, the Directors (i) do not consider it
appropriate to make any provision in respect of any pending litigation and (ii)
do not believe that the ultimate outcome of this litigation will significantly
impair the financial condition of the Group.
RELATED PARTY DISCLOSURES
The Group`s related party transactions and relationships for 2008 were
disclosed in the British American Tobacco Annual Report for the year ended 31
December 2008. In the six months to 30 June 2009, there were no material
changes in related parties or related party transactions.
SHARE BUY-BACK PROGRAMME
The Group initiated an on-market share buy-back programme at the end of
February 2003. During the year to 31 December 2008, 22 million shares were
bought back at a cost of GBP400 million (six months to 30 June 2008: 7 million
shares at a cost of GBP141 million). At the beginning of 2009, the Board
suspended the share buy-back programme for the time being, in order to preserve
the Group`s financial flexibility during the period of economic uncertainty.
Consequently, to 30 June 2009, no shares were bought back.
Purchase of own shares in the Group statement of changes in equity for the six
months ended 30 June 2008, included an amount of GBP50 million provided for the
potential buy-back of shares during July 2008 under an irrevocable
non-discretionary contract.
FINANCIAL CALENDAR
28 October 2009 Interim Management Statement
25 February 2010 Preliminary Statement
CALENDAR FOR THE INTERIM DIVIDEND 2009
2009
30 July Dividend announced (including amount of dividend per
share in both sterling and rand; applicable exchange
rate and conversion date - 28 July 2009)
14 August Last Day to Trade (JSE)
17 August to 21 August No transfers between UK main register and South African
branch
register; no shares may be dematerialised or
rematerialised
17 August Ex-dividend date (JSE)
19 August Ex-dividend date (LSE)
21 August Record date (LSE and JSE)
29 September Payment date (sterling and rand)
Details of the applicable exchange rate can be found under the heading
`Dividends` above.
For holders of American Depositary Receipts (ADRs), the record date for ADRs is
also 21 August 2009 with an ADR payment date of 5 October 2009.
CORPORATE INFORM ATION
Primary listing
London Stock Exchange (Share Code: BATS; ISIN: GB0002875804)
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ, UK
tel: 0800 408 0094; +44 870 889 3159
share dealing tel: 0870 703 889 3159 (UK only)
your account: www.computershare.com
share dealing: www.computershare.com/dealing/uk
queries: www.investorcentre.co.uk/contactus
Secondary listing
JSE (Share Code: BTI)
Shares are traded in electronic form only and transactions settled
electronically through Strate.
Computershare Investor Services (Pty) Limited
PO Box 61051, Marshalltown 2107, South Africa
tel: 0861 100 950; +27 11 373 0017
queries: web.queries@computershare.co.za
American Depositary Receipts (ADRs)
NYSE Alternext US (Share Code: BTI; CUSIP Number: 110448107;
ISIN: US1104481072)
Sponsored ADR programme; each ADR represents two ordinary shares of British
American Tobacco p.l.c.
Citibank Shareholder Services
PO Box 43077
Providence, Rhode Island 02940-3077, USA
tel: 1-888-985-2055 (toll-free) or +1 781 575 4555
email: Citibank@shareholders-online.com
web: www.citi.com/dr
Publications
British American Tobacco Publications
Unit 80, London Industrial Park, Roding Road, London E6 6LS, UK
tel: +44 (0)20 7511 7797; facsimile: +44 (0)20 7540 4326
email: bat@team365.co.uk or
Computershare Investor Services (Pty) Limited in South Africa using the contact
details above.
British American Tobacco p.l.c.
Registered office
Globe House
4 Temple Place
London
W C2R 2PG
UK
tel: +44 (0)20 7845 1000
British American Tobacco p.l.c.
Representative office in South Africa
34 Alexander Street
Stellenbosch 7600
South Africa
(PO Box 631, Cape Town 8000, South Africa)
tel: +27 (0)21 888 3722
DISCLAIMERS
This announcement does not constitute an invitation to underwrite, subscribe
for, or otherwise acquire or dispose of any British American Tobacco p.l.c.
shares or other securities.
This announcement contains certain forward looking statements which are subject
to risk factors associated with, among other things, the economic and business
circumstances occurring from time to time in the countries and markets in which
the Group operates. It is believed that the expectations reflected in this
announcement are reasonable but they may be affected by a wide range of
variables which could cause actual results to differ materially from those
currently anticipated.
Past performance is no guide to future performance and persons needing advice
should consult an independent financial adviser.
DISTRIBUTION OF REPORT
This Half-Yearly Report is released to the London Stock Exchange and the JSE
Limited. It may be viewed and downloaded from our website www.bat.com.
Copies of the Half-Yearly Report may also be obtained during normal business
hours from: (1) the Company`s registered office; (2) the Company`s
representative office in South Africa; and (3) British American Tobacco
Publications, as above.
Nicola Snook
Secretary
29 July 2009
30 July 2009
Sponsor: UBS South Africa (Pty) Ltd
Date: 30/07/2009 08:00:01 Produced by the JSE SENS Department.
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