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BTI
BTI
BTI - British American Tobacco p.l.c - Half-yearly report to 30 June 2010
British American Tobacco p.l.c.
Incorporated in England and Wales
(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 2010
SUMMARY
SIX MONTHS RESULTS - unaudited 2010 2009 Change
Revenue GBP7,298m GBP6,780m +8%
Profit from operations GBP2,271m GBP2,111m +8%
Adjusted profit from operations GBP2,460m GBP2,164m +14%
Basic earnings per share 76.9p 73.2p +5%
Adjusted diluted earnings per share 87.1p 77.3p +13%
Interim dividend per share 33.2p 27.9p +19%
Group revenue increased by 8 per cent to GBP7,298 million as a result of the
continued good pricing momentum, volume from the acquisition of PT Bentoel
Internasional Investama Tbk (Bentoel) made in June 2009 and the favourable
impact of exchange rate movements. Revenue increased by 4 per cent at constant
rates of exchange.
The reported Group profit from operations was 8 per cent higher at GBP2,271
million. Adjusted profit from operations was 14 per cent higher and would have
been 9 per cent higher at constant rates of exchange.
Group volumes were 348 billion, in line with last year. Market share of the
Group`s top 40 markets increased but on an organic basis, volumes were down 3
per cent, mainly driven by market declines in Romania, Turkey, Japan and
Pakistan.
The four Global Drive Brands achieved good overall volume growth of 6 per
cent. Dunhill was up 21 per cent, Lucky Strike 1 per cent and Pall Mall grew by
7 per cent, while Kent volumes fell 4 per cent due to industry declines in its
main markets.
Adjusted diluted earnings per share rose by 13 per cent, principally as a
result of the strong growth in profit from operations and favourable exchange
movements. Basic earnings per share were up 5 per cent at 76.9p (2009: 73.2p).
The Board has declared an interim dividend of 33.2p, a 19 per cent increase
on last year, to be paid on 29 September 2010.
The Chairman, Richard Burrows, commented "These results show that British
American Tobacco`s business is in very good shape, with continued pricing
momentum, increasing market share in key markets and improving organic volume
trends. While the comparisons with 2009 will become tougher in the second half,
shareholders should see another year of good growth in both earnings and
dividends."
ENQUIRIES:
INVESTOR RELATIONS:
Ralph Edmondson/ 020 7845 1180
Maya Farhat 020 7845 1977
PRESS OFFICE:
Christina Dona/Kate Matrunola/ 020 7845 2888
Catherine Armstrong
BRITISH AMERICAN TOBACCO p.l.c.
HALF-YEARLY REPORT TO 30 JUNE 2010
INDEX
PAGE
BUSINESS REVIEW
Chairman`s statement 2
Business review 3
Dividends 8
Risks and uncertainties 9
Going concern 9
Statement of Directors` responsibility 10
Independent review report to British American Tobacco p.l.c. 11
FINANCIAL STATEMENTS
Group income statement 12
Group statement of comprehensive income 13
Group statement of changes in equity 14
Group balance sheet 16
Group cash flow statement 18
Accounting policies and basis of preparation 19
Non-GAAP measures 20
Foreign currencies 20
Segmental analyses of revenue and profit 21
Adjusting items included in profit from operations 24
Other changes in the Group 25
Net finance costs 26
Associates and joint ventures 26
Taxation 27
Earnings per share 27
Cash flow and net debt movements 29
Franked Investment Income Group Litigation Order 33
Contingent liabilities 33
Related party disclosures 33
Share buy-back programme 34
Post balance sheet events 34
SHAREHOLDER INFORMATION
Financial calendar 35
Calendar for the interim dividend 2010 35
Corporate information 35
Disclaimers 37
Distribution of report 37
CHAIRMAN`S STATEMENT
In a difficult trading environment, I am pleased to report that British
American Tobacco has had a good first half, with continued revenue growth and a
very satisfactory increase in profit from operations. Revenue grew by 4 per
cent at constant rates of exchange and by 8 per cent at current rates, while
adjusted profitfrom operations improved by 9 per cent at constant rates and by
14 per cent at current rates.
As a result of the strong growth in profit from operations and favourable
exchange movements, adjusted diluted earnings per share increased by 13 per
cent to 87.1p. The Board has declared an Interim Dividend of 33.2p, up 19 per
cent. As usual, the Interim Dividend represents one third of last year`s total
dividend. It will be paid on 29 September to shareholders on the Register at 20
August 2010.
On 24 June, the Board announced that Nicandro Durante will become Chief
Executive of British American Tobacco on the retirement of Paul Adams at the
end of February 2011. In anticipation of his new role, Nicandro will become
Chief Executive Designate on 1 September 2010. He will be succeeded in his
current role as Chief Operating Officer by John Daly, also on 1 September. From
the same date, Ben Stevens, Finance Director, will take on the additional role
of Chief Information Officer.
The Board is delighted to have been able to choose such a strong and
experienced internal candidate to succeed Paul, who has been an outstandingly
successful Chief Executive.
In addition to the executive appointments, we also announced on 24 June that
Kieran Poynter would become a Non-Executive Director with effect from 1 July
2010.
These results show that British American Tobacco`s business is in very good
shape, with continued pricing momentum, increasing market share in key markets
and improving organic volume trends. While the comparisons with 2009 will
become tougher in the second half, shareholders should see another year of good
growth in both earnings and dividends.
Richard Burrows
27 July 2010
BUSINESS REVIEW
The Group revenue grew by 8 per cent to GBP7,298 million, or at 4 per cent at
constant rates of exchange. This was the result of a favourable impact of
exchange rate movements, continued good pricing momentum and additional volumes
from the acquisition of PT Bentoel Internasional Investama Tbk (Bentoel) made
in the middle of last year.
The reported profit from operations was 8 per cent higher at GBP2,271 million
with a 14 per cent increase after adjusting items, as explained on pages 24 and
25. Profit from operations, after adjusting items, would have been 9 per cent
higher at constant rates of exchange. All the regions contributed to this good
profit result, except for Eastern Europe where lower industry volumes adversely
impacted the two main markets, Russia and Romania.
Group volumes were 348 billion, in line with last year, mainly as a result of
the acquisition of Bentoel, offset by market size declines and an increase in
illicit trade in some markets. Market share of the Group`s Top 40 markets
increased but, excluding the benefits of the Bentoel acquisition, volumes were
down 3 per cent on last year as a result of the industry volume declines in
some markets, mainly Romania, Turkey, Japan and Pakistan.
The four Global Drive Brands achieved good overall volume growth of 6 per cent
following the successful launches of a number of innovations, resulting in the
continued improvement in market shares. Dunhill increased volumes by 21 per
cent mainly as a result of brand migrations in Brazil and South Africa and
strong growth in the GCC, Russia and France. Kent was 4 per cent lower after
industry volume declines in its main markets of Romania and Russia, although
market share was up in both markets.
Lucky Strike volumes were slightly up with growth in many markets, partially
offset by declines in its main markets of Germany and Spain. Pall Mall volumes
increased by 7 per cent with growth in Germany, Uzbekistan, Italy, Spain,
Pakistan and Chile, partially offset by lower volumes in Russia, Romania and
Turkey.
The profit discussed in the business review is based on adjusted profit from
operations, at current rates of exchange.
Adjusted profit from operations* at constant and current rates of exchange is
as follows:
30.6.10 30.6.09
Adjusted
profit from
Adjusted profit from operations* operations*
Constant Current
rates rates
GBPm GBPm GBPm
Asia-Pacific 591 651 557
Americas 625 694 579
Western Europe 560 548 509
Eastern Europe 169 124 183
Africa and Middle East 412 443 336
Total 2,357 2,460 2,164
*Adjusted profit from operations (page 12) is derived after excluding adjusting
items from profit from operations. Adjusting items include restructuring and
integration costs, amortisation of trademarks and gains on disposal of
businesses and trademarks as explained on pages 24 and 25.
In Asia-Pacific, profit was up GBP94 million to GBP651 million as a result of
strong performances in Australia, New Zealand, Bangladesh and Sri Lanka and
favourable exchange rates. The region benefited from the acquisition of Bentoel
which has been successfully merged with the existing Indonesian business. At
constant rates of exchange, profit would have increased by GBP34 million or 6
per cent. Volumes at 95 billion were 8 per cent higher as increases in
Bangladesh and Vietnam, and the additional volumes from Bentoel, were partially
offset by lower volumes in Australia, Japan, South Korea, Taiwan and Pakistan.
Strong profit growth in Australia was attributable to higher pricing and
continued cost saving initiatives, partially offset by increased competitive
price discounting. Market share declined slightly but Pall Mall and Winfield
have performed well. In New Zealand, volumes were lower, impacted by a large
excise increase. Despite this, Pall Mall has been growing volume and share.
Profit was up due to price increases, lower costs and a stronger exchange rate.
In Malaysia, Pall Mall`s market share grew strongly while premium priced
Dunhill and Kent were both stable. Volumes were slightly down due to legal
industry volume decreases, although the rate of decline was lower as a result
of improved economic conditions. Profit decreased marginally as a result of
lower volumes, partly compensated by higher pricing and reduced costs.
In Japan, volumes were down following continued industry decline but market
share was up. In addition to the continued good performance of Kool, Kent has
returned to share growth, driven by the successful launch of Nanotek. Profits
were down, mainly due to phasing of marketing investments.
In Vietnam, a solid performance was achieved with volume growth and market
share gain. Profit was slightly lower, impacted by unfavourable exchange rate
movements. Volumes in South Korea were lower due to reduced industry volumes
and slightly lower market share. Profit decreased as a result of lower volumes
and increased marketing investment behind the launch of Kent HD and Dunhill
Nanocut.
In Taiwan, profit was down driven by lower volumes as a result of market
contraction and down-trading to the low-priced segment, following excise-led
price increases. Overall market share grew while Dunhill maintained share.
Volumes and market share were lower in Pakistan, due to unfavourable economic
conditions and an excise-driven price increase that accelerated down-trading to
the illicit sector. Profit decreased as a result of lower volumes. In
Bangladesh, strong profit growth was achieved through increased volumes, higher
margins and lower costs. Market share grew. In Sri Lanka, profit was up
strongly, benefiting from price increases, a better sales mix and continued
productivity improvements. Dunhill and Pall Mall both recorded an improvement
in market share and overall volumes were maintained.
In Indonesia, volumes and market share of the Bentoel business grew strongly.
Following the acquisition of Bentoel, it was successfully merged with the
existing business. Profit grew due to higher volumes and market share, price
increases and synergy savings resulting from the merger.
In Americas, profit rose by GBP115 million to GBP694 million, mainly
attributable to a strong performance from Canada and Chile, an improved product
mix and exchange rate benefits. At constant rates of exchange, profit would
have risen by GBP46 million or 8 per cent. Volumes were down 1 per cent at 73
billion, with the small decreases experienced by Brazil and Venezuela as a
result of industry declines, almost offset by higher volumes in Canada and
Chile.
In Brazil, profit was slightly down as a result of the one-off benefit of
higher margins in the comparative period due to price rises in anticipation of
excise tax increases. Higher prices led to lower industry volumes but market
share increased strongly.
Profit in Canada grew, benefiting from higher volumes and a strong currency.
Volume growth was achieved on the back of a significant reduction in illicit
product as a result of the authorities` enforcement activities. Good share
growth was achieved for the last three quarters and leadership was gained in
all price segments although market share declined slightly versus the first
half of 2009.
In Mexico, volumes were slightly lower compared to last year but market share
has been relatively stable since mid-2009, with good performances from Pall
Mall and Montana. Higher margins and lower overheads were offset by increased
marketing investment, resulting in profit in line with last year. Profit in
Argentina was higher as price increases were only partially offset by lower
volumes. Lucky Strike showed strong volume and share growth.
In Chile, volumes and market share increased, driven mainly by strong
performances by Lucky Strike and Pall Mall. As a result, profit grew
significantly, enhanced by price rises ahead of an excise increase.
In Venezuela, industry volumes were adversely impacted by the economic
conditions. Profit decreased as a result of lower volumes and despite price
rises to offset the impact of inflation.
Profit in Central America and the Caribbean was down as a result of the impact
of the lower volumes in the area, after excise driven price increases led to
volume contractions for the industry. Overall market share increased and
strengthened our market leadership position, with Dunhill performing strongly.
Profit in Western Europe increased by GBP39 million to GBP548 million, mainly
as a result of strong performances in Germany, Belgium and the Netherlands,
partially offset by declines in Switzerland and Poland. At constant rates of
exchange, profit would have increased by GBP51 million or 10 per cent.
Regional volumes were 6 per cent lower at 59 billion as a result of declines in
Poland, Denmark, Switzerland and the Netherlands, as well as the termination of
the Gauloises agreement.
In Italy, a small increase in volumes was the result of the good performance of
the Global Drive Brands largely offset by the decline of a number of local
brands. Price increases in December 2009 resulted in increased revenue but
profit was slightly lower as a result of higher marketing investment.
Volumes in Germany were lower as a result of the termination of the Gauloises
agreement, however, underlying volumes and market share were stable. This was
driven by an excellent performance by Pall Mall, while Lucky Strike maintained
its strong position. Higher margins from prior year price increases and lower
costs resulted in a strong increase in profit.
Volumes in France were lower, slightly ahead of industry declines, while profit
was in line with last year. The good performances of Vogue, Dunhill and Pall
Mall, which all grew volumes and share, were more than offset by the lower
volumes of Winfield and Lucky Strike. In Spain, profit grew and market share
was significantly higher with stable volumes in a declining total market,
driven by Pall Mall and Lucky Strike. Profit in Switzerland decreased as
volumes and market share were impacted by increased price discounting
activities by competitors, partially offset by favourable exchange rates.
In Belgium, volumes were down marginally driven by a weaker total market
although market share grew as Pall Mall and Kent performed strongly. Profit was
higher due to improved pricing. In the Netherlands, volumes were lower due to
loss of market share as the decline in tail brands was not fully compensated by
growth in Global Drive Brands. Profit grew strongly benefiting from improved
margins driven by higher industry pricing.
In Poland, industry volumes continued to fall. The decline of the tail brands
acquired with ST, resulted in a decrease in market share despite Viceroy
performing strongly with a significant increase in volumes.
The impact of lower volumes on profit was only partially offset by an increase
in prices. In May 2010 the Group announced that agreement had been reached with
employee representatives regarding the closure of the Jawornick factory in
Poland and that the last month of production will be, at the latest, January
2011.
Volumes in Denmark were lower due to the discontinuation of various tail brands
and down-trading following a significant excise-driven price increase. Profit
was higher as a result of price increases and a reduction in overheads,
partially offset by lower volumes. The closure of the Soeborg factory in
Denmark was announced in October 2009 and is progressing well.
Profit in the Eastern Europe region decreased by GBP59 million to GBP124
million. This was principally due to lower volumes and the adverse impact of
exchange rates. At constant rates of exchange, profit would have decreased by
GBP14 million or 8 per cent. Volumes at 58 billion were 3 per cent lower than
last year, mainly in Romania, due to industry decline.
In Russia, volumes were in line with last year although market share was
slightly lower. The success of Kent resulted in the continued growth of market
share in the premium segment, as well as sequential growth in overall share for
the last two quarters. Profit was down as a result of increased marketing
investment.
In Romania, a significant increase in illicit trade and lower industry volumes
were the result of numerous and large excise-driven price increases. The
impressive performance by premium priced Kent drove the strong increase in
market share. The impact of the substantial reduction in volumes, only
partially offset by price increases, led to significantly lower profit.
In Ukraine, Kent and Dunhill performed strongly and led to an increased market
share. Higher volumes were driven by loading by the trade in advance of an
excise rises and, together with higher margins, resulted in an increase in
profit.
In Uzbekistan, an excise increase resulted in lower volumes despite a strong
growth in market share. Improved pricing and an improved product mix were more
than offset by lower volumes and an adverse exchange rate impact, resulting in
significantly reduced profit.
Profit from the Africa and Middle East region grew by GBP107 million to GBP443
million. At constant rates of exchange, profit would have improved by GBP76
million or 23 per cent, mainly driven by Nigeria, South Africa and GCC. Volumes
were 2 per cent lower at 63 billion, following declines in Turkey, Iran and
South Africa, partially offset by increases in the GCC, Egypt and Nigeria.
In South Africa, a substantial increase in illicit trade resulted in a
significant decline in volumes. Despite the increased competition in the low
price segment, market share was only slightly down. Profit was higher due to
increased pricing, cost reduction initiatives and a favourable exchange rate.
In Nigeria, profit grew, reflecting higher volumes and an improved product mix,
supported by productivity improvements. A strong growth in volumes was
achieved, driven by improved premium volume performance and by the growth of
Pall Mall. In addition, the progress arising from efforts by government
enforcement agencies to reduce the levels of illicit trade continued to
contribute positively to volume growth.
Volumes in the Middle East were higher due to strong performance in the GCC and
the Levant partially offset by the challenging trading environment in Iran.
Dunhill is performing especially well in the GCC. Profit was higher with the
volume increase being offset by the issues in Iran.
In Turkey, there has been significant volume reduction following a swingeing
excise increase in January 2010, leading to an increase in illicit trade. The
negative impact of lower volumes was partially offset by price increases and
the benefit of exchange movements but led to lower profit.
In Egypt, Rothmans continues to be the fastest growing brand leading to
excellent volume and share growth versus last year.
Results of associates
Associates principally comprise Reynolds American and ITC.
The Group`s share of the post-tax results of associates increased by GBP8
million, or 3 per cent, to GBP239 million. Excluding the adjusting items in
2009 and in 2010, explained on pages 26 and 27, the Group`s share of the
post-tax results of associates increased by 10 per cent to GBP306 million, with
a rise of 9 per cent at constant rates of exchange.
The segmental analyses of the Group`s share of the adjusted* post-tax results
of associates and joint ventures at constant rates of exchange are as follows:
30.6.10 30.6.09
Adjusted share of Adjusted share of
post-tax results* post-tax results*
Constant Current
rates rates
GBPm GBPm GBPm
Asia-Pacific 98 103 79
Americas 206 202 199
Western Europe
Eastern Europe
Africa and Middle East 1 1 1
Total 305 306 279
* Adjusted share of post-tax results of associates and joint ventures (page 12)
is after adjusting for trademark impairments, Canadian settlements and
restructuring costs as explained on pages 26 and 27.
The contribution from Reynolds American was down 11 per cent at GBP133 million.
Excluding the impairment of brands and restructuring costs, as well as the the
Canadian settlement in 2010, the contribution was 1 per cent higher at GBP200
million. At constant rates of exchange the increase was 3 per cent.
The Group`s associate in India, ITC, continued its strong profit growth and its
contribution to the Group rose by GBP26 million to GBP103 million. At constant
rates of exchange, the contribution would have been 27 per cent higher than
last year.
CIGARETTE VOLUMES
The segmental analysis of the volumes of subsidiaries is as follows:
3 months to
30.06.10 30.06.09
bns bns
Asia-Pacific 50 45
Americas 35 36
Western Europe 30 33
Eastern Europe 33 33
Africa and Middle East 32 32
180 179
6 months to Year to
30.06.10 30.06.09 31.12.09
bns bns bns
Asia-Pacific 95 88 185
Americas 73 74 151
Western Europe 59 63 130
Eastern Europe 58 60 131
Africa and Middle East 63 64 127
348 349 724
DIVIDENDS
The Board has declared an interim dividend of 33.2 pence per ordinary share of
25p for the six months ended 30 June 2010. The interim dividend will be payable
on 29 September 2010 to shareholders registered on either the UK main register
or the South African branch register on 20 August 2010 (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): 13 August 2010
Shares commence trading ex dividend (JSE): 16 August 2010
Shares commence trading ex dividend (LSE): 18 August 2010
Record date (JSE and LSE): 20 August 2010
Payment date: 29 September 2010
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 = 11.39130 as at 26
July 2010 (the closing rate on that date as quoted by Bloomberg), results in an
equivalent interim dividend of 378,19116 SA cents per ordinary share. From the
close of business on 13 August 2010 until the close of business on 20 August
2010, 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 16 August 2010 and 20 August 2010, both days inclusive.
This interim dividend amounts to GBP658 million. The comparative dividend for
the six months to 30 June 2009 of 27.9 pence per ordinary share amounted to
GBP557 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 2010 includes the final dividend paid in respect
of the year ended 31 December 2009 of 71.6p per share amounting to GBP1,431
million (30 June 2009: 61.6p amounting to GBP1,241 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 32 to 39 of the Annual Report for the year ended 31 December 2009, 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
- Data risks.
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 2009 Annual Report. These should be read in the context of the
cautionary statement regarding forward looking statements on page 37.
GOING CONCERN
A full description of the Group`s business activities, its financial position,
cash flows, liquidity position, facilities and borrowings 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 2009 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 2010 and of the financial position, cash flow and liquidity
position at 30 June 2010.
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 countries and its broad geographical spread, as well as numerous
contracts with established customers and suppliers across different geographic
areas and industries, provides the Directors with the confidence that the Group
is well placed to manage its business risks successfully in the context of
current financial conditions and the general outlook in the general global
economy.
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. The Annual Report and this Half-Yearly
Report have been prepared on a going concern basis.
STATEMENT OF DIRECTORS` RESPONSIBILITY
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
62 in the British American Tobacco Annual Report for the year ended 31 December
2009, with the exception of Kieran Poynter who was appointed a Non-Executive
Director on 1 July 2010. 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:
Paul Adams Ben Stevens
Chief Executive Finance Director
27 July 2010
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 2010, 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. We 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. We 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 2010 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
27 July 2010
GROUP INCOME STATEMENT - unaudited
6 months to Year to
30.6.10 30.6.09 31.12.09
GBPm GBPm GBPm
Gross turnover (including duty, excise and
other taxes of GBP13,879 million
(30.6.09: GBP12,295 million; 31.12.09:
GBP26,505 million)) 21,177 19,075 40,713
Revenue 7,298 6,780 14,208
Raw materials and consumables used (1,964) (1,899) (3,983)
Changes in inventories of finished goods
and work in progress 86 104 35
Employee benefit costs (1,213) (1,079) (2,317)
Depreciation and amortisation costs (323) (285) (611)
Other operating income 103 85 196
Other operating expenses (1,716) (1,595) (3,427)
Profit from operations 2,271 2,111 4,101
Analysed as:
- adjusted profit from operations 2,460 2,164 4,461
- restructuring and integration costs (158) (29) (304)
- amortisation of trademarks (31) (26) (58)
- gains on disposal of businesses
and trademarks 2 2
2,271 2,111 4,101
Finance income 9 5 77
Finance costs (240) (224) (581)
Net finance costs (231) (219) (504)
Share of post-tax results of
associates and joint ventures 239 231 483
Analysed as:
- adjusted share of post-tax results of
associates and joint
ventures 306 279 541
- trademark impairments (48) (65)
- health plan credit 16
- Canadian settlements (60)
- restructuring costs (7) (9)
239 231 483
Profit before taxation 2,279 2,123 4,080
Taxation on ordinary activities (624) (534) (1,124)
Profit for the period 1,655 1,589 2,956
Attributable to:
Shareholders` equity 1,525 1,450 2,713
Non-controlling interests 130 139 243
1,655 1,589 2,956
Earnings per share
Basic 76.9p 73.2p 137.0p
Diluted 76.5p 72.8p 136.3p
The accompanying notes on pages 19 to 34 form an integral part of this
condensed consolidated financial information.
GROUP STATEMENT OF COMPREHENSIVE INCOME - unaudited
6 months to Year to
30.6.10 30.6.09 31.12.09
GBPm GBPm GBPm
Profit for the period page 12 1,655 1,589 2,956
Other comprehensive income:
Differences on exchange
- subsidiaries 327 (270) 166
- associates 194 (336) (258)
Difference on exchange reclassified and
reported in profit
for the period (1)
Cash flow hedges
- net fair value (losses)/gains (36) 121 (72)
- reclassified and reported in profit for
the period 55 (98) 67
- reclassified and reported in net assets (3) (7) (1)
Available-for-sale investments
- net fair value gains 1 3
- reclassified and reported in profit for
the period (1) (3)
Net investment hedges
- net fair value (losses)/gains (6) 307 238
- differences on exchange on borrowings 79 8 12
Retirement benefit schemes
- actuarial gains/(losses) in respect of
subsidiaries 69 (103) (295)
- surplus recognition and minimum funding
obligations in 54 (48) (76)
respect of subsidiaries
- actuarial (losses)/gains in respect of
associate companies (89) 28 61
Tax on items recognised directly in other
comprehensive income 17 (38) (71)
Total other comprehensive income 660 (436) (229)
Total comprehensive income for the period 2,315 1,153 2,727
Total comprehensive income attributable to:
- shareholders` equity 2,169 1,029 2,476
- non-controlling interests 146 124 251
2,315 1,153 2,727
The accompanying notes on pages 19 to 34 form an integral part of this
condensed consolidated financial information.
GROUP STATEMENT OF CHANGES IN EQUITY - unaudited
At 30 June 2010
Share
premium,
capital
redemption
Share and merger Other Retained
capital reserves reserves earnings
GBPm GBPm GBPm GBPm
Total comprehensive
income for the period (page 13) 599 1,570
Employee share options
- value of employee services 34
- proceeds from shares issued 3 3
Dividends and other
appropriations
- ordinary shares (1,431)
- to non-controlling interests
Purchase of own shares
- held in employee share
ownership trusts (62)
Non-controlling interests in Bentoel (3)
Other movements 40
Total changes in equity
for the period 3 599 151
Balance at 1 January 506 3,907 1,032 2,168
Balance at 30 June 506 3,910 1,631 2,319
Non-
Shareholders` controlling Total
funds interests equity
GBPm GBPm GBPm
Total comprehensive
income for the period (page 13) 2,169 146 2,315
Employee share options
- value of employee services 34 34
- proceeds from shares issued 6 6
Dividends and other
appropriations
- ordinary shares (1,431) (1,431)
- to non-controlling interests (107) (107)
Purchase of own shares
- held in employee share
ownership trusts (62) (62)
Non-controlling interests in Bentoel (3) (3)
Other movements 40 40
Total changes in equity
for the period 753 39 792
Balance at 1 January 7,613 299 7,912
Balance at 30 June 8,366 338 8,704
At 30 June 2009
Share
premium,
capital
redemption
Share and merger Other Retained
capital reserves reserves earnings
GBPm GBPm GBPm GBPm
Total comprehensive
income for the period
(page 13) (308) 1,337
Employee share options
- value of employee services 27
- proceeds from shares issued 2 2
Dividends and other
appropriations
- ordinary shares (1,241)
- to non-controlling interests
Purchase of own shares
- held in employee share
ownership trusts (92)
Non-controlling interests
in Bentoel
Other movements 11
Total changes in equity
for the period 2 (308) 44
Balance at 1 January 506 3,905 955 1,578
Balance at 30 June 506 3,907 647 1,622
Shareholders` Non-
controlling Total
funds interests equity
GBPm GBPm GBPm
Total comprehensive
income for the period (page 13) 1,029 124 1,153
Employee share options
- value of employee services 27 27
- proceeds from shares issued 4 4
Dividends and other appropriations
- ordinary shares (1,241) (1,241)
- to non-controlling interests (108) (108)
Purchase of own shares
- held in employee share
ownership trusts (92) (92)
Non-controlling interests
in Bentoel 24 24
Other movements 11 11
Total changes in equity
for the period (262) 40 (222)
Balance at 1 January 6,944 271 7,215
Balance at 30 June 6,682 311 6,993
The accompanying notes on pages 19 to 34 form an integral part of this
condensed consolidated financial information.
At 31 December 2009
Share
premium,
capital
redemption
Share and merger Other Retained
capital reserves reserves earnings
GBPm GBPm GBPm GBPm
Total comprehensive
income for the period (page 13) 77 2,399
Employee share options
- value of employee services 61
- proceeds from shares issued 2 5
Dividends and other
appropriations
- ordinary shares (1,798)
- to non-controlling interests
Purchase of own shares
- held in employee share
ownership trusts (94)
Non-controlling interests
in Bentoel
Non-controlling interests
- capital injection
Other movements 17
2 77 590
Balance at 1 January 506 3,905 955 1,578
Balance at 31 December 506 3,907 1,032 2,168
Shareholders` Non-
controlling Total
funds interests equity
GBPm GBPm GBPm
Total comprehensive
income for the period (page 13) 2,476 251 2,727
Employee share options
- value of employee services 61 61
- proceeds from shares issued 7 7
Dividends and other
appropriations
- ordinary shares (1,798) (1,798)
- to non-controlling interests (240) (240)
Purchase of own shares
- held in employee share
ownership trusts (94) (94)
Non-controlling interests
in Bentoel 1 1
Non-controlling interests
- capital injection 16 16
Other movements 17 17
669 28 697
Balance at 1 January 6,944 271 7,215
Balance at 31 December 7,613 299 7,912
The accompanying notes on pages 19 to 34 form an integral part of this
condensed consolidated financial information.
GROUP BALANCE SHEET - unaudited
30.6.10 30.6.09 31.12.09
GBPm GBPm GBPm
Assets
Non-current assets
Intangible assets 12,209 11,437 12,232
Property, plant and equipment 2,939 2,796 3,010
Investments in associates and joint
ventures 2,742 2,364 2,521
Retirement benefit assets 105 64 105
Deferred tax assets 358 353 350
Trade and other receivables 193 197 171
Available-for-sale investments 23 23 26
Derivative financial instruments 149 118 93
Total non-current assets 18,718 17,352 18,508
Current assets
Inventories 3,522 3,451 3,261
Income tax receivable 89 114 97
Trade and other receivables 2,465 2,237 2,344
Available-for-sale investments 58 80 57
Derivative financial instruments 312 270 156
Cash and cash equivalents 1,497 1,304 2,161
7,943 7,456 8,076
Assets classified as held-for-sale 16 17 30
Total current assets 7,959 7,473 8,106
Total assets 26,677 24,825 26,614
The accompanying notes on pages 19 to 34 form an integral part of this
condensed consolidated financial information.
30.6.10 30.6.09 31.12.09
GBPm GBPm GBPm
Equity
Capital and Reserves
Share capital 506 506 506
Share premium, capital redemption and
merger reserves
3,910 3,907 3,907
Other reserves 1,631 647 1,032
Retained earnings 2,319 1,622 2,168
Shareholders` funds 8,366 6,682 7,613
after deducting
- cost of treasury shares (760) (788) (772)
Non-controlling interests 338 311 299
Total equity 8,704 6,993 7,912
Liabilities
Non-current liabilities
Borrowings 8,656 8,369 9,712
Retirement benefit liabilities 886 885 1,129
Deferred tax liabilities 494 543 527
Other provisions for liabilities and
charges 146 152 144
Trade and other payables 184 145 180
Derivative financial instruments 48 109 94
Total non-current liabilities 10,414 10,203 11,786
Current liabilities
Borrowings 2,138 2,522 1,370
Income tax payable 434 323 364
Other provisions for liabilities and
charges 282 277 312
Trade and other payables 4,572 4,377 4,727
Derivative financial instruments 133 130 127
7,559 7,629 6,900
Liabilities directly associated with assets
classified as held-for-sale 16
Total current liabilities 7,559 7,629 6,916
Total equity and liabilities 26,677 24,825 26,614
The accompanying notes on pages 19 to 34 form an integral part of this
condensed consolidated financial information.
GROUP CASH FLOW STATEMENT - unaudited
6 months to Year to
30.6.10 30.6.09 31.12.09
GBPm GBPm GBPm
Cash flows from operating activities
Cash generated from operations page 31 1,956 1,806 4,645
Dividends received from associates 150 143 328
Tax paid (546) (517) (1,095)
Net cash from operating activities 1,560 1,432 3,878
Cash flows from investing activities
Interest received 30 55 83
Dividends received from investments 2 2 2
Purchases of property, plant and equipment (140) (160) (450)
Proceeds on disposal of property, plant
and equipment 9 28 39
Purchases of intangibles (32) (33) (104)
Purchases and proceeds on disposals of
investments 1 13 37
Purchase of Bentoel and acquisition of
non-controlling interests (3) (300) (370)
Purchase of Tekel cigarette assets (12) (12)
Proceeds from ST trademark disposals 190 187
Purchases of other subsidiaries,
associates and non-controlling interests (1)
Proceeds on disposal of subsidiaries 12
Net cash from investing activities (121) (217) (589)
Cash flows from financing activities
Interest paid (334) (351) (576)
Interest element of finance lease rental
payments (1) (1) (2)
Capital element of finance lease rental
payments (10) (18) (35)
Proceeds from issue of shares to Group
shareholders 3 2 2
Proceeds from exercise of options over own
shares
held in employee share ownership trusts 3 2 5
Proceeds from increases in and new
borrowings 820 696 1,447
Movements relating to derivative financial
instruments (200) (87) (267)
Purchase of own shares held in employee
share ownership trusts (62) (92) (94)
Reductions in and repayments of borrowings (704) (948) (1,853)
Dividends paid to shareholders (1,431) (1,241) (1,798)
Dividends paid to non-controlling interests (107) (112) (234)
Net cash from financing activities (2,023) (2,150) (3,405)
Net cash flows from operating, investing
and financing activities (584) (935) (116)
Differences on exchange (23) (246) (125)
Decrease in net cash and cash equivalents
in the period (607) (1,181) (241)
Net cash and cash equivalents at 1 January 1,979 2,220 2,220
Net cash and cash equivalents at period end 1,372 1,039 1,979
The accompanying notes on pages 19 to 34 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 2010 and 30 June
2009, together with the audited results for the year ended 31 December 2009.
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. The condensed consolidated financial information is
unaudited but has been reviewed by the auditors and their review report is set
out on page 11.
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 2009, 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 2009 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 2009, 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 2010:
IFRS 3 Revised (Business Combinations) and IAS 27 Revised (Consolidated and
Separate Financial Statements). These standards have been endorsed by the EU
and change the accounting for business combinations and transactions with
non-controlling interests. While these revised standards are applicable for
periods beginning on or after 1 July 2009, with early adoption permitted on or
after 30 June 2007, they are only to be applied prospectively and so there is
no restatement of transactions prior to the effective date and no material
impact in the six months to 30 June 2010.
The Annual Improvements to IFRS (issued in April 2009), have been endorsed by
the EU, and have varying application dates commencing with annual periods
beginning on or after 1 July 2009. The main effect of these amendments has been
to revise certain disclosures in relation to segment assets under IFRS 8.
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 reconciling items are separately
disclosed, as memorandum information, on the face of the Income Statement and
are used to calculate the additional non-GAAP measures of adjusted profit from
operations and adjusted share of post-tax results of associates and joint
ventures. All adjustments to profit from operations and diluted earnings per
share are explained in this Report.
The chief operating decision maker reviews the 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 had they been translated at last years rate of exchange. The constant rate
comparison provided for reporting segment information is based on a
retranslation, at prior year exchange rates, of the current year results of the
Group`s overseas entities but, other than in exceptional circumstances, does
not adjust for transactional gains and losses in operations which are generated
by movements in exchange rates.
The Group also prepares an alternative cash flow statement, 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.
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 27
to 29.
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
30.6.10 30.6.09 31.12.09 30.6.10
US dollar 1.525 1.493 1.566 1.496
Canadian dollar 1.578 1.797 1.779 1.590
Euro 1.150 1.119 1.123 1.221
South African rand 11.481 13.676 13.091 11.469
Brazilian real 2.741 3.267 3.108 2.697
Australian dollar 1.708 2.099 1.990 1.771
Russian rouble 45.876 49.304 49.535 46.729
Closing
30.6.09 31.12.09
US dollar 1.647 1.615
Canadian dollar 1.913 1.693
Euro 1.174 1.126
South African rand 12.718 11.891
Brazilian real 3.228 2.815
Australian dollar 2.037 1.796
Russian rouble 51.336 48.952
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 revenue and adjusted profit from operations, to evaluate segment
performance and allocate resources.
The Management Board reviews current and prior year segmental revenue, adjusted
profit from operations of subsidiaries and adjusted post-tax results of
associates and joint ventures at constant rates of exchange. As a result, the
2010 segmental results were translated using the average rates of exchange for
the six months to 30 June 2009. The 2009 comparative figures are stated at the
2009 actual average rates of exchange for the relevant period.
The analyses of revenue for the six months to 30 June 2010, 30 June 2009 and
the year to 31 December 2009, based on location of sales, are as follows:
30.6.10
Revenue Translation Revenue
Constant exchange Current
GBPm GBPm GBPm
Asia-Pacific 1,689 122 1,811
Americas 1,502 144 1,646
Western Europe 1,847 (22) 1,825
Eastern Europe 776 (18) 758
Africa and Middle East 1,204 54 1,258
Revenue 7,018 280 7,298
30.6.09 31.12.09
Revenue Revenue
GBPm GBPm
Asia-Pacific 1,547 3,270
Americas 1,496 3,156
Western Europe 1,884 3,884
Eastern Europe 741 1,628
Africa and Middle East 1,112 2,270
Revenue 6,780 14,208
Western Europe includes revenue in respect of Lyfra NV (see page 25) of GBP215
million for the six months ended 30 June 2010 (GBP220 million at constant
rates) and GBP237 million and GBP473 million respectively for the six months to
30 June 2009 and the twelve months to 31 December 2009.
The analyses of profit from operations and the Group`s share of the post-tax
results of associates and joint ventures for the six months to 30 June 2010,
reconciled to profit before tax, are as follows:
30.6.10
Adjusted* Adjusted*
segment segment
result result
Constant Translation Current
rates exchange rates
GBPm GBPm GBPm
Asia-Pacific 591 60 651
Americas 625 69 694
Western Europe 560 (12) 548
Eastern Europe 169 (45) 124
Africa and Middle East 412 31 443
Profit from operations 2,357 103 2,460
Net finance costs
Asia-Pacific 98 5 103
Americas 206 (4) 202
Western Europe
Eastern Europe
Africa and Middle East 1 1
Share of post-tax
results of associates
and joint ventures 305 1 306
Profit before taxation
Segment
result
Adjusting Current
items rates
GBPm GBPm
Asia-Pacific (39) 612
Americas (16) 678
Western Europe (90) 458
Eastern Europe (2) 122
Africa and Middle East (42) 401
Profit from operations (189) 2,271
Net finance costs (231)
Asia-Pacific 103
Americas (67) 135
Western Europe
Eastern Europe
Africa and Middle East 1
Share of post-tax
results of associates
and joint ventures (67) 239
Profit before taxation 2,279
*The adjustments to profit from operations and the Group`s share of the
post-tax results of associates and joint ventures are explained on pages 24 and
25 and pages 26 and 27, respectively.
The analyses of profit from operations and the Group`s share of the post-tax
results of associates and joint ventures for the six months to 30 June 2009 and
the year to 31 December 2009 are as follows:
30.6.09
Adjusted*
Segment Segment
result result
Current Adjusting Current
rates items rates
GBPm GBPm GBPm
Asia-Pacific 557 557
Americas 579 (5) 574
Western Europe 509 (36) 473
Eastern Europe 183 183
Africa and Middle East 336 (12) 324
Profit from operations 2,164 (53) 2,111
Net finance costs (219)
Asia-Pacific 79 79
Americas 199 (48) 151
Western Europe
Eastern Europe
Africa and Middle East 1 1
Share of post-tax
results of associates
and joint ventures 279 (48) 231
Profit before taxation 2,123
31.12.09
Adjusted*
Segment Segment
result result
Current Adjusting Current
rates items rates
GBPm GBPm GBPm
Asia-Pacific 1,148 (59) 1,089
Americas 1,186 (51) 1,135
Western Europe 994 (188) 806
Eastern Europe 409 (16) 393
Africa and Middle East 724 (46) 678
Profit from operations 4,461 (360) 4,101
Net finance costs (504)
Asia-Pacific 148 148
Americas 391 (58) 333
Western Europe
Eastern Europe
Africa and Middle East 2 2
Share of post-tax
results of associates
and joint ventures 541 (58) 483
Profit before taxation 4,080
*The adjustments to profit from operations and the Group`s share of the
post-tax results of associates and joint ventures are explained on pages 24 and
25 and pages 26 and 27, respectively.
ADJUSTING ITEMS INCLUDED IN PROFIT FROM OPERATIONS
Adjusting items are significant items in the profit from operations 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 and
are used to derive the Group`s principal non-GAAP measure which is adjusted
diluted earnings per share.
(a) Restructuring and integration costs
Restructuring costs reflect the costs incurred as a result of initiatives to
improve the effectiveness and the efficiency of the Group as a globally
integrated enterprise. These initiatives include a review of the Group`s
manufacturing operations, overheads and indirect costs, organisational
structure and systems and software used. The costs of these initiatives
together with the costs of integrating acquired businesses into existing
operations are included in profit from operations under the following headings:
6 months to Year to
30.6.10 30.6.09 31.12.09
GBPm GBPm GBPm
Employee benefit costs 67 10 143
Impairment
Property, plant and equipment 68 1 54
Computer software 7 53
Other operating expenses 16 18 61
Other operating income (7)
Total 158 29 304
Restructuring and integration costs in 2010 principally relate to: the
continuation of factory closure and downsizing activities in Denmark and
Australia respectively; the planned closure of the Jawornik factory in Poland
and the Tire factory in Turkey; a voluntary separation scheme and closure of
the printing unit in Argentina and the continued integration of Skandinavisk
Tobakskompagni (ST), Tekel and Bentoel into existing operations; as well as
other restructuring initiatives directly related to improving the efficiency
and effectiveness of the Group as a globally integrated enterprise.
Restructuring and integration costs in 2010 also include a payment of US$21
million to Reynolds American relating to the early termination and settlement
of all disputes at issue in respect of the Contract Manufacturing Agreement
dated 30 July 2004, as explained on page 33.
Restructuring and integration costs in the six months to 30 June 2009
principally reflect 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 GBP304 million charge for restructuring and integration costs in the year
to 31 December 2009, arose principally in respect of the closure of the Soeborg
factory in Denmark, the downsizing of the manufacturing plant in Australia, the
continued integration of ST and Tekel and the integration of Bentoel into
existing operations, as well as other restructuring initiatives directly
related to improving the efficiency and effectiveness of the Group. The costs
of these other initiatives include redundancies, principally in respect of
restructuring activities in the Group`s subsidiary in Canada and impairment
charges for certain software assets where the development of global software
solutions has resulted in these assets having minimal or limited future
economic benefits.
Other operating income in 2009 includes a gain on disposal of a property
related to a restructuring announced in prior years and the release of deferred
income from a disposal in 2007.
(b) Amortisation of trademarks
The acquisitions of Bentoel, 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 GBP31 million was included in
depreciation and amortisation costs in the profit from operations for the six
months to 30 June 2010 (six months to 30 June 2009: GBP26 million). For the
year ended 31 December 2009, the amortisation charge was GBP58 million.
(c) Gains on disposal of businesses and trademarks
The acquisition of the cigarette and snus businesses of ST in 2008 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 and for the year to 31 December 2009.
OTHER CHANGES IN THE GROUP
(a) Lyfra NV
On 7 April 2010, the Group announced that it had agreed to sell its Belgium
distribution business, Lyfra NV, to Landewyck Group S.a.r.l. The transaction
was completed on 25 June 2010 for a consideration of EUR16 million and resulted
in a gain of GBP5 million. Lyfra contributed GBP215 million to revenue (GBP237
million for the six months to 30 June 2009 and GBP437 million for the year to
31 December 2009) and GBP1 million to profit from operations to 25 June 2010
(GBPnil million for the six months to 30 June 2009, GBP1 million for the year
to 31 December 2009) in the Western Europe Region.
(b) PT Bentoel Internasional Investama Tbk
On 17 June 2009, the Group acquired an 85 per cent stake in Indonesia`s fourth
largest cigarette maker PT Bentoel Internasional Investama Tbk (Bentoel). A
public tender offer for the remaining shares was completed by 26 August 2009,
resulting in the acquisition of a further 14 per cent share in the company,
bringing the total shareholding in the Bentoel Group to 99.7 per cent. The
transaction resulted in goodwill of GBP188 million.
On 20 October 2009, it was announced that Bentoel and BAT Indonesia had decided
to enter into a merger plan whereby BAT Indonesia would merge into Bentoel. The
merger was completed in 2010 under the Bentoel name and the company remains
listed on the Indonesian Stock Exchange. As part of the merger, certain
non-controlling interests were acquired for GBP3 million.
(c) 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. The transaction was completed on 24 June 2008 and finalised in the
first six months of 2009 with a GBP12 million adjustment to the purchase price
of GBP873 million and therefore an increase in goodwill to GBP578 million.
NET FINANCE COSTS
Net finance costs comprise:
6 months to
30.6.10 30.6.09
GBPm GBPm
Finance costs (240) (224)
Finance income 9 5
(231) (219)
Comprising:
Interest payable (286) (260)
Interest and dividend income 31 55
Fair value changes (53) 198
Exchange differences 77 24 (212) (14)
(231) (219)
Net finance costs at GBP231 million were GBP12 million higher than last year,
principally reflecting the higher interest cost as a result of increased
borrowings and lower interest and dividend income, partially offset by the net
impact of derivatives and exchange differences.
The net GBP24 million gain (2009: GBP14 million loss) of fair value changes and
exchange differences reflects a gain of GBP4 million (2009: loss of GBP10
million) from the net impact of exchange rate movements and a gain of GBP20
million (2009: loss of GBP4 million) principally due to interest related
changes in the fair value of derivatives.
ASSOCIATES AND JOINT VENTURES
The Group`s share of the post-tax results of its associates and joint ventures
was GBP239 million (2009: GBP231 million) after tax of GBP144 million (2009:
GBP133 million). For the year to 31 December 2009, the share of the post-tax
results was GBP483 million after tax of GBP291 million. The Group`s share is
after the following adjusting items which are excluded from the calculation of
adjusted diluted earnings per share (pages 27 to 29).
In the six months to 30 June 2010, a subsidiary of Reynolds American, R.J.
Reynolds Tobacco Company Inc. (RJRTC), entered into a comprehensive settlement
agreement with the Canadian federal, provincial and territorial governments to
resolve all the governments` civil claims related to smuggling in Canada during
the 1980s and 1990s. As part of the civil settlement, RJRTC agreed to pay the
governments CA$325 million. In a separate matter, a subsidiary of R.J. Reynolds
Tobacco Holdings Inc. Northern Brands International Inc., entered into a plea
agreement with the Ministry of the Attorney General of Ontario. As a result of
its plea to one count of conspiracy to aid others in the sale and possession of
contraband cigarettes in the early 1990s, Northern Brands paid a fine of CA$75
million. The Group`s share of these charges amounted to GBP60 million (net of
tax).
In the six months to 30 June 2010, Reynolds American also recognised
restructuring charges in respect of the planned closure of two cigarette
factories in order to maximise cigarette manufacturing efficiency in light of
the declining U.S. cigarette industry and to facilitate cost-effective
compliance with new regulatory requirements. The Group`s share of these charges
amounted to GBP10 million (net of tax) and is presented as part of the post-tax
results of associates and joint ventures in the Group income statement.
In the six months to 30 June 2010, RJRTC received a payment of US$21m as a
result of the agreement to terminate early the Contract Manufacturing Agreement
dated 30 July 2004 between RJRTC and BATUS Japan Inc., a wholly owned Group
subsidiary, and settle all disputes at issue between the parties as explained
on page 34. The Group`s share of this receipt amounted to GBP3 million (net of
tax) and is treated as an adjusting item. The receipt (net of tax) is presented
as part of restructuring costs in the post- tax results of associates and joint
ventures in the Group income statement.
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).
For the year ended 31 December 2009, trademark impairment charges increased to
US$394 million.
There was also an amortisation charge of US$5 million in respect of brands. The
Group`s share of these charges for the year to 31 December 2009 amounted to
GBP65 million (net of tax).
In the second half of 2009, Reynolds American reviewed its post-retirement
medical plans, resulting in a past service credit which is amortised under US
GAAP. However, under IFRS it must be recognised in full in the income
statement. The Group`s share of this credit amounted to GBP16 million (net of
tax).
Reynolds American also recognised a charge of US$56 million in the second half
of 2009 in connection with severance and related costs of around 400 employees
in order to better align staffing levels with business requirements and enable
Reynolds American`s manufacturing operations to phase in new productivity
programs over time. The Group`s share of this charge amounted to GBP9 million
(net of tax).
TAXATION
The tax rate in the income statement of 27.4 per cent for the six months to 30
June 2010 (30 June 2009: 25.2 per cent) is affected by the inclusion of the
share of associates` post-tax profit in the Group`s pre-tax results and by
adjusting items. The underlying rate for subsidiaries reflected in the adjusted
earnings per share below was 30.0 per cent in 2010 and 28.0 per cent for the
six months to 30 June 2009. The increase arises primarily from a change in the
mix of profits. The charge relates to taxes payable overseas.
EARNINGS PER SHARE
6 months to Year to
30.6.10 30.6.09 31.12.09
pence pence pence
Earnings per share
- basic 76.9 73.2 137.0
- diluted 76.5 72.8 136.3
Adjusted earnings per share
- basic 87.6 77.8 153.8
- diluted 87.1 77.3 153.0
Headline earnings per share
- basic 80.2 76.7 144.1
- diluted 79.7 76.2 143.3
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, as an alternative measure of
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.
Earnings have been affected by a number of adjusting items which impact profit
from operations (see pages 24 and 25) and share of post-tax results of
associates and joint ventures (see pages 26 and 27).
In order to illustrate the impact of these items, the adjusted diluted earnings
per share are shown below:
Adjusted diluted earnings per share
6 months to Year to
30.6.10 30.6.09 31.12.09
Pence pence pence
Unadjusted diluted earnings per share 76.5 72.8 136.3
Effect of restructuring and integration costs 6.0 1.1 11.7
Effect of amortisation of trademarks 1.2 1.0 2.1
Effect of associates` adjusting items
(see pages 26 and 27) 3.4 2.4 2.9
Adjusted diluted earnings per share 87.1 77.3 153.0
Similar types of adjustments would apply to basic earnings per share.
The earnings per share are based on:
30.6.10
Earnings Shares
GBPm m
Earnings per share
- basic 1,525 1,982
- diluted 1,525 1,993
Adjusted earnings per
share
- basic 1,736 1,982
- diluted 1,736 1,993
Headline earnings per
share
- basic 1,589 1,982
- diluted 1,589 1,993
30.6.09
Earnings Shares
GBPm m
Earnings per share
- basic 1,450 1,980
- diluted 1,450 1,993
Adjusted earnings per
share
- basic 1,540 1,980
- diluted 1,540 1,993
Headline earnings per
share
- basic 1,518 1,980
- diluted 1,518 1,993
31.12.09
Earnings Shares
GBPm m
Earnings per share
- basic 2,713 1,980
- diluted 2,713 1,991
Adjusted earnings per
share
- basic 3,046 1,980
- diluted 3,046 1,991
Headline earnings per
share
- basic 2,853 1,980
- diluted 2,853 1,991
Headline earnings per share are calculated by taking the following adjustments
into account:
Diluted headline earnings per share
6 months to Year to
30.6.10 30.6.09 31.12.09
Pence pence Pence
Unadjusted earnings per share 76.5 72.8 136.3
Effect of impairment of intangibles and
property, plant and equipment 3.0 1.1 4.3
Effect of gains on disposal of property,
plant and equipment (0.2)
Effect of gains on disposal of businesses
and trademarks (0.3) (0.2)
Effect of gains reclassified from the
available-for-sale reserve (0.1) (0.2)
Effect of share of associates` asset
impairments and
termination of joint venture 0.5 2.4 3.3
Headline earnings per share 79.7 76.2 143.3
CASH FLOW AND NET DEBT MOVEMENTS
a) The IFRS cash flow on page 18 includes all transactions affecting cash and
cash equivalents, including financing. The alternative cash flow statement
below is presented to illustrate the cash flows before transactions relating to
borrowings.
6 months to Year to
30.6.10 30.6.09 31.12.09
GBPm GBPm GBPm
Net cash from operating activities before
restructuring
costs and taxation 2,215 2,031 5,160
Restructuring costs (109) (82) (187)
Taxation (546) (517) (1,095)
Net cash from operating activities
(page 18) 1,560 1,432 3,878
Net interest (297) (307) (499)
Net capital expenditure (163) (165) (515)
Dividends paid to non-controlling interests (107) (112) (234)
Free cash flow 993 848 2,630
Dividends paid to shareholders (1,431) (1,241) (1,798)
Purchase of Bentoel and acquisition of
non-controlling
interests (page 25) (3) (300) (370)
Purchase of Tekel cigarette assets (page 25) (12) (12)
Proceeds from ST trademark disposals (page25) 190 187
Purchases of other subsidiaries,
associates and non-
controlling interests (1)
Proceeds from disposal of subsidiaries 12
Other net flows (80) (151) (203)
Net cash flows (509) (666) 433
Net debt at 1 January (8,842) (9,891) (9,891)
Exchange rate effects* 311 1,173 672
Debt disposed/(acquired) 11 (97) (84)
Accrued interest and other 58 105 28
Net debt at period end (8,971) (9,376) (8,842)
*Including movements in respect of debt related derivatives
Net cash from operating activities before restructuring costs and taxation
increased by GBP184 million or 9 per cent, reflecting growth in underlying
operating performance, partly offset by adverse working capital movements.
Taking into account outflows relating to taxation and restructuring costs,
which were GBP56 million higher than last year due to higher taxable profits,
the timing of payments and an increase in restructuring activities, the Group`s
net cash flow from operating activities was GBP128 million or 9 per cent higher
at GBP1,560 million.
Free cash flow is the Group`s cash flow before dividends and investing
activities. Free cash flow was GBP145 million or 17 per cent higher at GBP993
million due to the higher net cash from operating activities, as well as lower
net interest, capital expenditure and dividends paid to non-controlling
interests.
Below free cash flow, the principal cash outflows comprise the payment of the
prior year final dividend which was GBP190 million higher at GBP1,431 million
primarily due to higher distributable profits in 2009. Also reflected below
free cash flow are proceeds on disposal of subsidiaries of GBP12 million which
arose from the sale of the Group`s Belgian distribution business, Lyfra NV as
explained on page 25. The six months to 30 June 2009 included a net outflow of
GBP122 million in respect of the purchase of Bentoel and Tekel, the proceeds
from the ST trademark disposals and GBP2 million refunded from the original
purchase consideration paid in the previous year, as explained on page 25.
The other net flows principally reflect the impact of the level of shares
purchased by the employee share ownership trusts, together with the impact of
cash flows in respect of certain derivative financial instruments.
The above flows resulted in net cash outflows of GBP509 million compared to an
outflow of GBP666 million in the six months ended 30 June 2009. After taking
account of exchange rate movements, debt acquired and disposed and the change
in accrued interest and other, total net debt was GBP8,971 million at 30 June
2010 (30 June 2009: GBP9,376 million).
After taking account of cash flows related to borrowings, the above flows
resulted in a net decrease of cash and cash equivalents of GBP584 million (30
June 2009: GBP935 million decrease) as shown in the IFRS cash flow on page 18.
b) The Group defines net debt as borrowings, including related derivatives,
less cash and cash equivalents and current available-for-sale investments.
The maturity profile of net debt is as follows:
30.6.10 30.6.09 31.12.09
GBPm GBPm GBPm
Net debt due within one year:
Borrowings (2,138) (2,522) (1,370)
Related derivatives 179 127 33
Cash and cash equivalents 1,497 1,304 2,161
Current available-for-sale investments 58 80 57
(404) (1,011) 881
Net debt due beyond one year:
Borrowings (8,656) (8,369) (9,712)
Related derivatives 89 4 (11)
(8,567) (8,365) (9,723)
Total net debt (8,971) (9,376) (8,842)
The Group remains confident in its ability to access successfully the debt
capital markets and reviews its options on an ongoing basis.
c) Cash generated from operations (page 18)
6 months to Year to
30.6.10 30.6.09 31.12.09
GBPm GBPm GBPm
Profit from operations 2,271 2,111 4,101
Adjustments for:
Amortisation of trademarks 31 26 58
Gains on disposal of businesses and
trademarks (5) (2) (2)
Depreciation and impairment of property,
plant and equipment 253 205 433
Amortisation and write-off of intangible
assets 39 54 120
Increase in inventories (269) (527) (125)
(Increase)/decrease in trade and other
receivables (205) (35) 30
(Decrease)/increase in trade and other
payables (14) 84 174
Decrease in net retirement benefit
liabilities, excluding amounts
taken directly to equity (148) (78) (127)
Decrease in provisions for liabilities and
charges (20) (23) (38)
Other non-cash items 23 (9) 21
Cash generated from operations 1,956 1,806 4,645
d) IFRS investing and financing activities
The investing and financing activities in the IFRS cash flow statement on page
18 include the following items:
The purchases and proceeds on disposals of investments (which comprise
available-for-sale investments and loans and receivables) comprises a net cash
inflow in respect of current investments of GBP1 million for the six months
ended 30 June 2010 (30 June 2009: GBP13 million inflow and 31 December 2009:
GBP37 million inflow).
In the six months ended 30 June 2009 and the year ended 31 December 2009, the
net cash outflows of GBP300 million and GBP370 million from the purchase of
Bentoel reflected the purchase price paid for an initial 85 per cent stake
which was followed by the acquisition of a further 14 per cent, together with
related acquisition costs and the acquired net cash and cash equivalents and
overdrafts. In the six months ended 30 June 2010, the cash outflow of GBP3
million arises from the acquisition of the non- controlling interests of
shareholders who did not wish to participate in the merger of Bentoel and BAT
Indonesia (see page 25).
In the six months ended 30 June 2009 and the year ended 31 December 2009, the
GBP12 million outflow in respect of the acquisition of Tekel cigarette assets
reflected the final payment made at the conclusion of the acquisition, as
explained on page 25.
In the six months ended 30 June 2009, the GBP190 million from the ST
transaction reflected proceeds of GBP188 million from the disposal of ST
trademarks in Norway (see page 25) and GBP2 million refunded from the original
purchase consideration paid in the previous year. These cash inflows are partly
offset by a GBP3 million outflow in the second half of the year, resulting from
the payment of the related disposal costs.
In the year ended 31 December 2009, the purchase of other subsidiaries,
associates and non-controlling interests principally arose from equity
investments in associate companies.
The proceeds on disposal of subsidiaries reflects the consideration received,
less cash and cash equivalents disposed of, from the sale of the Group`s
Belgian distribution business, Lyfra NV as explained on page 25.
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:
30.6.10 30.6.09 31.12.09
GBPm GBPm GBPm
Cash and cash equivalents per balance sheet 1,497 1,304 2,161
Accrued interest (1)
Overdrafts (125) (265) (181)
Net cash and cash equivalents 1,372 1,039 1,979
f) Liquidity
The Central Treasury Department is responsible for managing, within an overall
policy framework, the Group`s exposure to funding and liquidity, interest rate,
foreign exchange and counterparty risk arising from the Group`s underlying
operations.
In May 2010, the Group repaid a maturing EUR525 million bond. The repayment was
financed from debt issued in November 2009. In addition, several markets have
increased or obtained short-term borrowings in 2010 and these are included in
the GBP820 million proceeds from increases in and new borrowings in the IFRS
cash flow statement on page 18.
In the year ended 31 December 2009, the Group entered into a number of
transactions in the capital markets. The first was the repayment of the EUR900
million maturing debt at the end of February 2009.
This was financed from bond issues during 2008 and from cash generated from
operations. In May 2009, there was the repayment of a MYR100 million bond,
which was subsequently replaced in August by a new MYR250 million bond, due
2014. The additional proceeds were used for the repayment of a MYR150 million
bond which matured in November 2009.
In June 2009, the Group issued a GBP250 million bond with maturity of June
2022. In November 2009, the terms of EUR481 million of the EUR1.0 billion bond
maturing in 2013 were modified by extending the maturity to 2021. At the same
time the Group issued an additional EUR169 million bond with a maturity of
2021. In addition, GBP199 million of the GBP350 million bond maturing in 2013
was purchased and cancelled; at the same time the Group issued a new GBP500
million bond with a maturity of 2034.
At 30 June 2010, the Group`s GBP1.75 billion revolving credit facility was
undrawn. The revolving credit facility acts as a backstop for the euro
commercial paper (ECP) programme and GBP380 million (30 June 2009: GBP259
million and 31 December 2009: GBP187 million) of ECP was outstanding at 30 June
2010.
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 27 corporate groups 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 (ECJ) in 2005 and a decision of the
ECJ was 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. The tentative conclusion reached by the High Court would,
if upheld, produce an estimated receivable of about GBP1.2 billion for British
American Tobacco.
The case was heard by the Court of Appeal in October 2009 and the judgment
handed down on 23 February 2010. The Court of Appeal has determined that
various questions should be referred back to the European Court of Justice for
further clarification. In addition, the Court determined that the claim should
be restricted to six years and not cover claims dating back to 1973. This time
restriction would, if upheld, reduce the value of the claim to between zero and
GBP10 million. Based on advice received the Company believes it has realistic
prospects of success on further appeal and the Company has accordingly sought
leave to appeal.
No potential receipt has been recognised in prior years, nor in the current
year, in the results of the Group due to the uncertainty of the amounts and
eventual outcome.
CONTINGENT LIABILITIES
As noted in the 2009 Annual Report for the year ended 31 December 2009, 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
On 26 May 2010, a wholly owned subsidiary of the Group, BATUS Japan Inc.,
entered into an American- blend Cigarette Manufacturing Agreement (referred to
as the 2010 Agreement) with a wholly owned subsidiary of Reynolds American,
R.J. Reynolds Tobacco Company (referred to as RJRTC), with an effective date of
1 January 2010. Under this Agreement, RJRTC has been appointed BATUS Japan`s
exclusive manufacturer of all BATUS Japan`s requirements for certain
American-blend cigarettes intended to be distributed and sold in Japan for the
five year period expiring on 31 December 2014, subject to the early termination
and extension provisions set out in the agreement. The 2010 Agreement is based
on arm`s length terms and conditions.
On the same date, RJRTC and BATUS Japan entered into a letter agreement
terminating the existing Contact Manufacturing Agreement dated 30 July 2004
(referred to as the 2004 Agreement), as amended between the parties, with
effect from midnight on 31 December 2009. The 2004 Agreement was scheduled to
expire on 31 December 2014, subject to early termination and extension
provisions. Under the terms of the letter agreement, certain sections and
sub-sections of the 2004 Agreement will survive the termination, and, in
consideration for RJRTC agreeing to terminate the agreement and in settlement
of all disputes at issue between the parties, BATUS Japan agreed to pay RJRTC
US$21 million.
The payment has been presented as an adjusting item and is included within the
Group`s restructuring and integration costs (see page 24). The Group`s share of
the income net of tax included within the post- tax results of Reynolds
American is also presented as an adjusting item and is credited against
restructuring costs (see page 27).
In the six months to 30 June 2010, there were no other material changes in
related parties or related party transactions. The Group`s related party
transactions and relationships for 2009 were disclosed in the British American
Tobacco Annual Report for the year ended 31 December 2009.
SHARE BUY-BACK PROGRAMME
At the beginning of 2009, the Board suspended the Group`s on-market share
buy-back programme for the time being, in order to preserve the Group`s
financial flexibility during the period of economic uncertainty.
Consequently, in the six months to 30 June 2010, no shares were bought back
(six months to 30 June and year to 31 December 2009: none).
POST BALANCE SHEET EVENTS
On 15 July 2010, the Group announced that it had entered into a cooperation
agreement with the European Commission and the Member States of the European
Union ("EU") to collectively tackle the problem of illicit trade in tobacco.
Under the agreement, British American Tobacco will be joining forces and
working alongside the European Commission and the law enforcement authorities
of the Member States. The agreement sees cooperation in a number of areas for
the purpose of tackling illicit trade in tobacco and includes the funding by
British American Tobacco of US$200 million over the next 20 years.
On 25 June 2010, the Group announced that the terms of EUR470 million of the
EUR1 billion bond maturing in 2011 had been modified by extending the maturity
to 2020. At the same time the Group announced the issue of an additional EUR130
million bond with a maturity of 2020. These transactions were settled on 7 July
2010 and have been recognised from this date.
On 25 June 2010, the Group announced the purchase and cancellation of EUR413
million of its EUR750 million bond maturing in 2012. At the same time the Group
announced the issue of a new GBP275 million bond with a maturity of 2040. These
transactions were settled on 5 July 2010 and have been recognised from this
date.
FINANCIAL CALENDAR
27 October 2010 Interim Management Statement
24 February 2011 Preliminary Statement
CALENDAR FOR THE INTERIM DIVIDEND 2010
2010
28 July Dividend announced (including amount of dividend per
share in both sterling and rand; applicable exchange
rate and conversion date - 26 July 2010)
13 August Last Day to Trade (JSE)
16 August to 20 August No transfers between UK main register and South
African branch register;
no shares may be dematerialised or rematerialised
16 August Ex-dividend date (JSE)
18 August Ex-dividend date (LSE)
20 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 20 August 2010 with an ADR payment date of 4 October 2010.
CORPORATE INFORMATION
Premium 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 0084 (UK only)
your account: www.computershare.com/uk/investor/bri
share dealing: www.computershare.com/dealing/uk
web-based enquiries: 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) Ltd
PO Box 61051, Marshalltown 2107, South Africa
tel: 0861 100 925; +27 11 870 8222
email enquiries: web.queries@computershare.co.za
American Depositary Receipts (ADRs)
NYSE Amex Equities (Share Code: BTI; CUSIP Number: 110448107;
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 enquiries: Citibank@shareholders-online.com
website: 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 enquiries: bat@team365.co.uk or
Computershare Investor Services (Pty) Ltd in South Africa using the contact
details above.
British American Tobacco p.l.c.
Registered office
Globe House
4 Temple Place
London
WC2R 2PG
UK
tel: +44 (0)20 7845 1000
British American Tobacco p.l.c. is a public limited company which is listed on
the London Stock Exchange and the JSE Limited in South Africa. British American
Tobacco p.l.c. is incorporated in England and Wales (No. 3407696) and is
domiciled in the UK.
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
28 July 2010
Sponsor: UBS South Africa (Pty) Ltd
Date: 28/07/2010 08:00:03 Produced by the JSE SENS Department.
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employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
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