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British Am. Tobacco (BATS)

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Wednesday 25 July, 2012

British Am. Tobacco

Half Yearly Report

RNS Number : 4213I
British American Tobacco PLC
25 July 2012
 



 

 

 

 

25 July 2012

BRITISH AMERICAN TOBACCO p.l.c.

 

HALF-YEARLY REPORT TO 30 JUNE 2012

 

GOOD RESULTS DESPITE CURRENCY HEADWINDS

 

Six Months Results - unaudited

2012

2011 

Change 

 





 





 

Revenue

£7,452m

£7,438m 

 

Adjusted profit from operations

£2,839m

£2,760m 

+3%

 

Profit from operations

£2,740m

£2,691m 

+2%

 

Adjusted diluted earnings per share

102.4p

96.1p 

+7%

 

Basic earnings per share

98.9p

94.5p 

+5%

 

Interim dividend per share

42.2p

38.1p 

+11%

 





 

 

•      

The Group's organic revenue at constant rates of exchange grew by 4 per cent as a result of continued good pricing momentum.  Reported Group revenue was in line with last year as a result of adverse exchange rate movements.

 

 

 

•      

Adjusted Group profit from operations increased by 3 per cent and 6 per cent at constant rates of exchange.

 

 

 

•      

The reported profit from operations was 2 per cent higher at £2,740 million.  The adjusting items are explained on pages 24 to 25.

 

 

 

•      

Group volumes were 344 billion, in line with last year.  This strong performance was achieved against a comparator period which benefited from one-off events in Japan.

 

 

 

•      

The four Global Drive Brands achieved good volume growth of 4 per cent.  Dunhill was up 3 per cent, Kent 2 per cent, Lucky Strike 19 per cent and Pall Mall grew by 3 per cent.

 

 

 

•      

Adjusted diluted earnings per share rose by 7 per cent, principally as a result of the growth in profit from operations.  Basic earnings per share were up 5 per cent at 98.9p (2011: 94.5p).

 

 

 

•      

The Board has declared an interim dividend of 42.2p, an 11 per cent increase on last year, to be paid on 26 September 2012.

 

 



 

 

•      

18 million shares were bought back at a cost of £553 million, excluding transaction costs.

 

 

 

•      

The Chairman, Richard Burrows, commented "Despite the global economic uncertainty and the adverse impact of exchange rates, British American Tobacco has delivered another good set of results.  The underlying business continues to perform well and we are confident of another year of good earnings growth."

 

 

ENQUIRIES:

INVESTOR RELATIONS:

PRESS OFFICE:

Mike Nightingale

Rachael Brierley

Maya Farhat

 

020 7845 1180

020 7845 1519

020 7845 1977

Kate Matrunola/

Jem Maidment/

Will Hill

020 7845 2888



 

BRITISH AMERICAN TOBACCO p.l.c.

 

 

HALF-YEARLY REPORT TO 30 JUNE 2012

 

CONTENTS

 

 


PAGE



BUSINESS REVIEW:


Chairman's statement

2

Regional review

3

Cigarette volumes

6

Results of associates

7

Dividends

8

Risks and uncertainties

9

Implementation of a new operating model

9

Going concern

9

Directors' responsibility statement

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

21

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

28

Cash flow and net debt movements

30

Litigation: Franked Investment Income Group Litigation Order

34

Contingent liabilities

35

Related party disclosures

35

Share buy-back programme

35



SHAREHOLDER INFORMATION:


Financial calendar

36

Calendar for the interim dividend 2012

36

Corporate information

36

Disclaimers

38

Distribution of report

 

APPENDIX

Appendix 1 - Analyses of revenue and profit from operations

 

*Non-GAAP measures referred to and used in these condensed consolidated financial statements, such as adjusted profit from operations, organic growth and adjusted diluted earnings per share, are explained on page 20.

38

 

 

39

 



CHAIRMAN'S STATEMENT

 

Good Results Despite Currency Headwinds

 

Performance in the first half of the year has been good, with continued pricing momentum, Global Drive Brand growth and stable overall volumes.

 

Despite currency weaknesses in key markets and tough comparator one-off events in 2011, the underlying business is performing well.

 

Adjusted profit from operations at constant rates of exchange grew by 6 per cent to £2,929 million. Adjusted diluted earnings per share rose 7 per cent to 102.4 pence.

 

We repurchased some 18 million shares in the first half of the year through our buy-back programme at a cost of £553 million and at an average price of £31.47 per share.

 

The Board has declared an Interim Dividend of 42.2 pence per share, an increase of 11 per cent.  As usual, the Interim Dividend has been set at one third of last year's total dividend and will be paid on 26 September to shareholders on the Register on 17 August 2012.

 

Despite the global economic uncertainty and the adverse impact of exchange rates, British American Tobacco has delivered another good set of results.  The underlying business continues to perform well and we are confident of another year of good earnings growth.

 

 

Richard Burrows

24 July 2012

 

 

 



 

REGIONAL REVIEW

 

The Group delivered a good performance during the first half of the year, laying the foundation for another year of good results.  This was achieved despite industry contraction in Southern Europe, instability in some EEMEA countries and tough comparators impacted by one-off events during 2011. The Group has been exposed to adverse exchange rate movements, in particular, weakness against Sterling of the Brazilian real, euro, South African rand and Russian rouble.

 

Reported revenue was in line with last year as the impact of the continued good pricing momentum and stable volumes were offset by adverse exchange rate movements. At constant rates of exchange, organic revenue was up 4 per cent.

 

Organic adjusted Group profit from operations, at constant rates of exchange, increased by 6 per cent.  All regions contributed to this good profit performance.  The reported profit from operations was 2 per cent higher at £2,740 million with a 3 per cent increase in adjusted profit from operations, as explained on pages 24 and 25.

 

Group cigarette volumes from subsidiaries was 344 billion, in line with the first half of last year.  Excluding Protabaco in Colombia, organic volumes were 0.6 per cent lower.  This is a strong performance against a comparator period which benefited from the one-off increased sales volumes in Japan and despite contracting industry volumes in some markets, notably Southern Europe.

 

The Group's cigarette market share in its Top 40 markets, excluding the impact of Japan, is essentially flat compared to full year 2011 and is showing a growing trend in 2012.  Share of the premium segment continued to improve.

 

Other tobacco products performed well with a growth of 7 per cent to 6,954 tonnes in Fine Cut in Western Europe, mainly in Germany, Hungary, the Netherlands and the United Kingdom.  Market share grew strongly and profit was higher.  Pall Mall is by far the largest Fine Cut brand in Western Europe.

 

The four Global Drive Brands achieved good volume growth of 4 per cent following the successful geographic roll-out of innovations, resulting in continued improvement in market share.  This growth would be 6 per cent if the one-off benefit of the additional sales in Japan last year was excluded.

 

Dunhill increased volumes by 3 per cent with growth in Malaysia, Indonesia, the GCC, South Africa, Nigeria and Romania, partially offset by a decline in South Korea.  Kent volumes were higher in Russia, Ukraine and Switzerland, however, declines in Uzbekistan and Chile, as well as the high comparator in Japan, limited the growth to 2 per cent.

 

The excellent growth of 19 per cent by Lucky Strike was driven by increased volumes in Germany, Spain, France, Poland, Argentina, Chile and Brazil, partially offset by the lower volumes in Italy and Japan.  Pall Mall volumes rose by 3 per cent with strong growth in Pakistan, Romania, Russia, Taiwan and Canada, partially offset by lower volumes in Chile, Italy and Spain.

 

Adjusted profit from operations* at constant and current rates of exchange is as follows:

 


30.6.12



30.6.11 


 

Adjusted profit from operations*



Adjusted 

profit from 

operations*


Constant

rates


Current 

rates 





£m


£m 



£m 








Asia-Pacific

792


815



766 

Americas

803


754



768 

Western Europe

583


558



572 

EEMEA

751


712



654 


2,929


2,839



2,760 

 

*Adjusted profit from operations (page 12) is derived after excluding adjusting items from profit from operations. Adjusting items include restructuring and integration costs and amortisation of trademarks, as explained on pages 24 and 25.

Regional review cont...

 

In Asia-Pacific, profit was up £49 million to £815  million as a result of strong performances in Japan, Malaysia, New Zealand, Pakistan, Bangladesh and Vietnam and favourable exchange rates. At constant rates of exchange, profit would have increased by £26 million or 3 per cent.  If adjusted by Japan's one-off sales in the first half of 2011, profit at constant rates of exchange would have grown by 10 per cent.  Volumes at 95 billion were in line with last year, with increases in Pakistan, Bangladesh, Malaysia, Taiwan and Vietnam, offset by lower volumes in South Korea, Japan and Indonesia.

 

In Australia, profit was up as a result of favourable exchange rate movements while the impact of lower volumes were partially offset by cost savings and higher pricing. Market share was lower, mainly as a result of increased competition in the low-priced segment.  Profit was much higher in New Zealand, the result of volume growth, price increases and cost savings.  A strong performance by Pall Mall contributed to the higher volumes.

 

Market share grew strongly in Malaysia, strengthening the Group's market leadership position, with an excellent performance from Dunhill.  The improved product mix and increased volumes led to a significant rise in profit.

 

In Japan, volumes and market share were lower, following the additional one-off sales in the same period last year. Underlying market share was up, while profit for the period also benefited from cost savings and favourable exchange rate movements.

 

In Vietnam, volumes and market share grew, driven by Kent and State Express 555. Profit increased strongly as a result of higher pricing and volumes, as well as cost saving initiatives.  In South Korea, the benefit of higher pricing and tight control of costs were offset by the impact of lower volumes due to competitor pricing activities.

 

In Indonesia, the launch of Dunhill Fine Cut Mild, an international kretek offer, performed well. The change in excise structure and the excise-driven price increases adversely impacted volumes, especially the low-priced brands. This, together with the significant marketing investment and higher clove prices, resulted in a decline in profit.

 

In Taiwan, both Dunhill and Pall Mall contributed to a growth in market share. Increased volumes and higher pricing resulted in a profit increase.

 

Volume growth in Pakistan led to a strong increase in market share.  There was growth in profit as a result of higher margins, volumes and cost reductions.  In Bangladesh, market share, profit and volumes grew due to the strong performances of Benson & Hedges and John Player Gold Leaf.

 

In Americas, profit declined by £14 million to £754 million, mainly due to exchange rate movements in Brazil.  The results benefited from the acquisition of Protabaco in the fourth quarter of 2011.  At constant rates of exchange, profit rose by £35 million or 5 per cent.  Good performances from Brazil and Chile were partially offset by lower contributions from Mexico and Canada. Volumes were up 1 per cent at 71 billion, mainly as a result of the Protabaco acquisition and increases in Canada and Chile, partially offset by decreases in Mexico, Brazil, Argentina and Venezuela. On an organic basis, volumes were 2 per cent lower at 69 billion.

 

In Brazil, good profit growth was driven by an improved product mix and higher pricing. However, this was largely offset by exchange rate movements of the Brazilian real.  Market share rose due to solid performances by Dunhill and Lucky Strike. Volumes were lower due to market contraction following the excise-led price increases.

 

Industry volumes increased in Canada as a result of more moderate pricing, driven by limited excise increases and stable illicit trade.  Although market share was essentially flat, volumes were higher, mainly in the low-priced segment.  Down-trading from the premium segment impacted profits, despite higher volumes and lower costs.

 



Regional review cont...

 

In Mexico, industry volumes declined substantially as a result of high excise-led price increases during 2011, fuelling illicit trade.  Market share was essentially flat against 2011 with the recent strong performance of Pall Mall. Profit was lower in line with the volume decline.

 

In Argentina, profit was stable as a result of higher pricing and cost savings, offset by lower volumes.  Market share declined despite Lucky Strike's and Dunhill's strong growth.  In Chile, Lucky Strike continued to deliver outstanding growth.  Overall volumes increased, resulting in a significant rise in profit.

 

Profit in Venezuela grew strongly as a result of higher pricing, partially offset by increased costs, the adverse impact of down-trading and lower volumes, while market share was higher. In Colombia, the acquisition of Protabaco in the last quarter of 2011, resulted in increases in profit and volumes compared to last year.  Profit benefited from the integration of the two businesses.

 

Profit in Western Europe decreased by £14 million to £558 million but at constant rates of exchange, increased by £11 million or 2 per cent.  Profit was affected by difficult economic conditions, leading to market contraction and volume decline.  There were strong performances in Germany, Switzerland, Denmark, the United Kingdom, France and Romania, partially offset by declines in Italy, Greece and Belgium.  Regional volumes were 4 per cent lower at 62 billion, mainly as a result of market contractions in Italy, Spain, Poland and Belgium.

 

In Italy, market share was down on last year.  However, Dunhill and Lucky Strike performed well.  Overall volumes were lower mainly as a result of market contraction and declines in the tail brands.  Despite price increases and lower costs, profit decreased due to the effect of the volume decline.

 

Profit in Germany increased as a result of improved margins and lower costs.  Market share was higher, driven by excellent performances from Lucky Strike, Pall Mall and Vogue, with volumes stable in a declining overall market. 

 

In France, good profit growth was the result of higher market share and growing volumes driven by Lucky Strike and Dunhill benefiting from the launch of innovations.  In Spain, profit was up, driven by a stabilisation of the pricing environment and the excellent growth of Lucky Strike.

 

A strong increase in profit in Switzerland was the result of reduced costs, increased margins and higher volumes.  Volumes rose with market share up through the performances of Kent and Parisienne.  Profits in Belgium and the Netherlands were lower as industry volumes declined.  Market share in the Netherlands rose on good performances by Kent and Lucky Strike.

 

In Romania, increases in profit, volumes and market share were achieved through good performances by Dunhill and Pall Mall.  The decline in volumes in Poland was due to lower industry volumes, despite an increase in market share.  Profit at constant rates of exchange was stable as a result of the lower cost base and good performances from Lucky Strike and Viceroy.  Despite growth in market share in Greece, competitor pricing activity and the challenging economic conditions drove a decline in industry volumes and resulted in lower profit.  In the United Kingdom, Pall Mall performed well and together with Vogue, resulted  in market share growth. Price increases and cost management led to higher profit despite lower volumes.

 

Profit grew in Denmark as a result of price increases, although volumes and market share were lower. In Sweden, profit rose as a result of price increases and higher volumes, with market share also up.

 

Profit in the Eastern Europe, Middle East and Africa region increased by £58 million to £712 million.  This was principally due to higher volumes and price increases, partly offset by the adverse impact of exchange rate movements.  At constant rates of exchange, profit would have increased by £97 million or 15 per cent.  Volumes at 116 billion were 2 billion higher than last year with the increases in GCC, South Africa and Ukraine, partially offset by the declines in Turkey and Egypt.  Due to International sanctions the Group withdrew from the Syria market.

 



Regional review cont...

 

In Russia, market share grew compared to the full year 2011 with volumes stable.  Premium share grew substantially driven by Kent.  Strong profit growth was the result of price increases and an improved mix.

 

Higher market share in Ukraine led to volume growth.  Competitor pricing activities in the low-priced segment and increased marketing investment resulted in lower profit.  Profit improved in Kazakhstan due to pricing and market share gains.

 

In Turkey, volumes and market share declined mainly as a result of competitor pricing activities in the low-priced segment and volume losses of tail brands.  Profit was up due to savings initiatives and higher margins resulting from last year's excise-driven price increase.

 

In the GCC, volumes and market share increased mainly due to good performances by Dunhill and Rothmans.  Profit grew strongly with higher volumes, improved margins and cost savings. Trading conditions in the Egyptian market have rapidly deteriorated and combined with multiple excise increases, resulted in a steep increase in illicit trade and a corresponding decline in volumes.

 

In Nigeria, market share grew substantially while volumes were lower as industry volumes declined largely due to political and social unrest.  Premium brands posted impressive growth with Dunhill, Benson & Hedges and Rothmans the main contributors.  The lower volumes, partially offset by an improved product mix and cost savings, led to lower profit.

 

At constant rates of exchange, profit was higher in South Africa, following higher prices and increased volumes, driven by strong performances by Dunhill and Peter Stuyvesant.  Industry volumes are still significantly behind previous years as a result of the major increase in the incidence of illicit trade.

 

CIGARETTE VOLUMES

 

The segmental analyses of the volumes of subsidiaries are as follows:

            

3 months to
 
 
 
6 months to
 
Year to
30.6.12
 
30.6.11
 
 
 
30.6.12
 
30.6.11
 
31.12.11
bns
 
bns
 
 
 
bns
 
bns
 
bns
 
 
 
 
 
 
 
 
 
 
 
50
 
51
 
Asia-Pacific
 
95
 
95
 
191
34
 
34
 
Americas
 
71
 
70
 
143
33
 
35
 
Western Europe
 
62
 
65
 
135
61
 
60
 
EEMEA
 
116
 
114
 
236
178
 
180
 
 
 
344
 
344
 
705

 

 

Regional review cont...

 

RESULTS OF ASSOCIATES

Associates principally comprise Reynolds American Inc. and ITC Limited.

 

The Group's share of the post-tax results of associates increased by £15 million, or 5 per cent, to £344 million.  The Group's share of the adjusted post-tax results of associates increased by 10 per cent to £347 million, with a rise of 14 per cent to £358 million at constant rates of exchange. The adjusting items in 2011 and 2012 are explained on pages 26 and 27.

 

The segmental analyses of the Group's share of the adjusted* post-tax results of associates and joint ventures are as follows:

 


30.6.12



30.6.11 


 

Adjusted share of post-tax results*



Adjusted 

share of post- 

tax results*


Constant

rates  


Current  

rates  





£m  


£m  



£m 








Asia-Pacific

143


126



112 

Americas

214


220



201 

Western Europe

-


-



EEMEA

1


1




358


347



315 

 

*Adjusted share of post-tax results of associates and joint ventures is after the adjusting items, as shown on page 12 and explained on pages 26 and 27, have been eliminated from the share of post-tax results of associates and joint ventures.

 

The adjusted contribution from Reynolds American increased by 9 per cent to £219 million. This excludes restructuring costs, the financing of a smoking cessation programme in Louisiana, tax credits and interest, and costs related to a number of Engle progeny cases.  At constant rates of exchange the increase was 7 per cent.

 

The Group's associate in India, ITC, contributed £122 million to the Group, up 12 per cent, after adjusting for the impact of the dilution in the shareholding. At constant rates of exchange, the contribution would have been 27 per cent higher than last year.

 



DIVIDENDS

 

Declaration

The Board has declared an Interim Dividend of 42.2 pence per ordinary share of 25 pence for the six months ended 30 June 2012. The Interim Dividend will be payable on 26 September 2012 to shareholders registered on either the UK main register or the South African branch register on 17 August 2012 (the record date).

 

Key Dates and South Africa Branch Register

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:

 

Event

Date 2012

Last Day to Trade (LDT) cum dividend (JSE)

Friday 10 August

Shares commence trading ex dividend (JSE)

Monday 13 August

Shares commence trading ex dividend (LSE)

Wednesday 15 August

Record date (JSE and LSE)

Friday 17 August

Payment date

Wednesday 26 September

 

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 £:R = 13.10720 as at 23 July 2012 (the closing rate on that date as quoted by Bloomberg), results in an equivalent Interim Dividend of 553.12384 SA cents per ordinary share. From the commencement of trading on 25 July 2012 until the close of business on 17 August 2012, no removal requests between the UK main register and the South African branch register will be permitted and no shares may be dematerialised or rematerialised between 13 August 2012 and 17 August 2012, both days inclusive.

 

South Africa Branch Register: Dividend Withholding Tax Information

South African Dividend Withholding Tax will be withheld from the gross Interim Dividend of 82.96858 SA cents per ordinary share paid to shareholders on the South African branch register at the rate of 15 per cent unless a shareholder qualifies for an exemption. After Dividend Withholding Tax has been withheld, the net dividend will be 470.15526 SA cents per ordinary share.

 

At the close of business on 24 July 2012 (the latest practicable date prior to the date of the declaration of the Interim Dividend), British American Tobacco p.l.c. (the "Company") had a total of 1,948,105,224 ordinary shares in issue (excluding treasury shares). The Company held 78,149,808 ordinary shares in treasury giving a total issued share capital of 2,026,255,032 ordinary shares.

 

The Company, as a South Africa non-resident, was not subject to the secondary tax on companies (STC) regime which used to operate before the introduction of Dividend Withholding Tax. No STC credits are available for set-off against the Dividend Withholding Tax liability on the Interim Dividend which is regarded as a 'foreign dividend' for the purposes of the South Africa Dividend Withholding Tax.

 

British American Tobacco p.l.c. is registered with the South African Revenue Service (SARS) with tax reference number 9378193172.

 

For the avoidance of doubt, Dividend Withholding Tax and the information provided above is only of direct application to shareholders on the South African branch register. Shareholders on the South African branch register should direct any questions regarding the application of Dividend Withholding Tax to Computershare Investor Services (Pty) Ltd, contact details for which are given in the 'Corporate Information' on page 36.

 

General Dividend Information

The Interim Dividend amounts to £824 million. The comparative dividend for the six months to 30 June 2011 of 38.1 pence per ordinary share amounted to £738 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 2012 includes the final dividend paid in respect of the year ended 31 December 2011 of 88.4 pence per share amounting to £1,723 million (30 June 2011: 81.0 pence amounting to £1,620 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 40 to 47 of the Annual Report for the year ended 31 December 2011, a copy of which is available on the Group's website www.bat.com. The Key Group risks are summarised under the headings of:

 

-       Illicit trade;

-       Excise and tax;

-       Financial;

-       Marketplace; and

-       Regulation.

 

The Group continues to review its risks and exposures in the eurozone as part of the management of its ongoing exposure to foreign exchange rates and under the Key Group risk - Marketplace: Geopolitical tensions.

 

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 2011 Annual Report.  These should be read in the context of the cautionary statement regarding forward looking statements on page 38.

 

Although the Group operates in all eurozone countries and has significant long-term debt, derivatives, and trade creditor and debtor balances, denominated in euros, the Board is satisfied that reasonable precautions have been taken to protect the Group, as far as is possible, to any potential adverse consequences of the risks related to the eurozone.

 

IMPLEMENTATION OF A NEW OPERATING MODEL

 

The Group has embarked on a medium-term programme to implement a new operating model.  This includes revised organisation structures, standardised processes and shared back office services underpinned by a global single instance of SAP.  The new organisation structures and processes are currently being implemented and the new SAP system will start to be deployed in the third quarter of 2012 and will take around four years to fully roll-out.

 

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 Regional Review and Financial Review and in the notes to the accounts, all of which are included in the 2011 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 2012 and of the financial position, cash flow and liquidity position at 30 June 2012.

 

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 geographical 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 the current financial conditions and the general outlook in the 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 and that it is therefore appropriate to continue to adopt the going concern basis in preparing the Annual Report and this Half-Yearly Report.



DIRECTORS' RESPONSIBILITY STATEMENT

 

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 Directors of British American Tobacco p.l.c. are as listed on pages 48 and 49 in the British American Tobacco Annual Report for the year ended 31 December 2011:

 

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:

 

 

 

 

Richard Burrows                                         Ben Stevens

Chairman                                                   Finance Director and Chief Information Officer

24 July 2012

 



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 2012, 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 2012 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

24 July 2012

 

 

 


GROUP INCOME STATEMENT - unaudited
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6 months to
 
Year to
 
 
30.6.12
 
30.6.11
 
31.12.11
 
 
 £m
 
 £m
 
 £m
 
 
 
 
 
 
 
 
Gross turnover (including duty, excise and other taxes of £14,837 million (30.6.11: £14,740 million; 31.12.11: £30,494 million))
22,289 
 
22,178 
 
45,893 
 
 
 
 
 
 
 
 
Revenue
7,452 
 
7,438 
 
15,399 
 
 
 
 
 
 
 
 
Raw materials and consumables used
 (1,770)
 
 (1,716)
 
 (3,507)
 
Changes in inventories of finished goods and work in progress
138 
 
50 
 
81 
 
Employee benefit costs
 (1,167)
 
 (1,177)
 
 (2,501)
 
Depreciation, amortisation and impairment costs
 (246)
 
 (262)
 
 (817)
 
Other operating income
124 
 
129 
 
233 
 
Other operating expenses
 (1,791)
 
 (1,771)
 
 (4,167)
 
Profit from operations
2,740 
 
2,691 
 
4,721 
 
Analysed as:
 
 
 
 
 
 
– adjusted profit from operations
2,839 
 
2,760 
 
5,519 
 
– restructuring and integration costs
 (68)
 
 (40)
 
 (193)
 
– amortisation of trademarks
 (31)
 
 (29)
 
 (58)
 
– goodwill impairment
-
 
-
 
 (273)
 
– Fox River
-
 
-
 
 (274)
 
 
2,740 
 
2,691 
 
4,721 
 
 
 
 
 
 
 
 
Finance income
37 
 
57 
 
117 
 
Finance costs
 (248)
 
 (290)
 
 (577)
 
Net finance costs
 (211)
 
 (233)
 
 (460)
 
Share of post-tax results of associates and joint ventures
344 
 
329 
 
670 
 
Analysed as:
 
 
 
 
 
 
– adjusted share of post-tax results of associates and joint ventures
347 
 
315 
 
659 
 
– issue of shares and change in shareholding
24 
 
34 
 
28 
 
– smoking cessation programme
 
 (23)
 
 (23)
 
– gain on disposal of businesses
 
-
 
22 
 
– restructuring and integration costs
 (25)
 
 (2)
 
 (4)
 
– other (see page 26)
 (2)
 
 
 (12)
 
 
344 
 
329 
 
670 
 
 
 
 
 
 
 
 
Profit before taxation
2,873 
 
2,787 
 
4,931 
 
Taxation on ordinary activities
 (787)
 
 (781)
 
 (1,556)
 
Profit for the period
2,086 
 
2,006 
 
3,375 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
Owners of the parent
1,929 
 
1,870 
 
3,095 
 
Non-controlling interests
157 
 
136 
 
280 
 
 
2,086 
 
2,006 
 
3,375 
 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
Basic
98.9p
 
94.5p
 
157.1p
 
 
 
 
 
 
 
 
Diluted
98.4p
 
94.0p
 
156.2p
 
 
 
 
 
 
 
 
Adjusted diluted earnings per share
102.4p
 
96.1p
 
194.6p
 
 
 
 
 
 
 
 
All of the activities during both years are in respect of continuing operations.
 
 
 
 
 
 
 
 
The accompanying notes on pages 19 to 35 form an integral part of this condensed consolidated financial information.
 

 


GROUP STATEMENT OF COMPREHENSIVE INCOME - unaudited
 
 
 
 
 
 
 
 
 
 
 
6 months to
 
Year to
 
30.6.12
 
30.6.11
 
31.12.11
 
£m
 
£m
 
£m
 
 
 
 
 
 
Profit for the period (page 12)
2,086 
 
2,006 
 
3,375 
Other comprehensive income
 
 
 
 
 
Differences on exchange
 
 
 
 
 
– subsidiaries
(182)
 
(5)
 
 (411)
– associates
(68)
 
(59)
 
 (109)
Differences on exchange reclassified and reported in profit for the period
 
-
 
 (4)
Cash flow hedges
 
 
 
 
 
– net fair value gains/(losses)
 
13 
 
 (21)
– reclassified and reported in profit for the period
22 
 
(5)
 
38 
– reclassified and reported in net assets
 
(8)
 
 (5)
Available-for-sale investments
 
 
 
 
 
– net fair value gains
 
-
 
26 
– reclassified and reported in profit for the period
-
 
-
 
 (1)
Net investment hedges
 
 
 
 
 
– net fair value gains/(losses)
64 
 
(43)
 
62 
– differences on exchange on borrowings
44 
 
(48)
 
 (104)
Retirement benefit schemes
 
 
 
 
 
– net actuarial losses in respect of subsidiaries
(255)
 
(118)
 
 (462)
– surplus recognition and minimum funding obligations in respect
 
 
 
 
 
   of subsidiaries
-
 
(11)
 
– actuarial (losses)/gains in respect of associates net of tax
(47)
 
23 
 
 (67)
Tax on items recognised directly in other comprehensive income
33 
 
(23)
 
20 
Total other comprehensive income for the period, net of tax
(378)
 
(284)
 
(1,036)
 
 
 
 
 
 
Total comprehensive income for the period, net of tax
1,708 
 
1,722 
 
2,339 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
Owners of the parent
1,566 
 
1,588 
 
2,094 
Non-controlling interests
142 
 
134 
 
245 
 
1,708 
 
1,722 
 
2,339 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes on pages 19 to 35 form an integral part of this condensed consolidated financial information.

 

 

 

GROUP STATEMENT OF CHANGES IN EQUITY - unaudited
 
 
 
 
 
 
 
 
At 30 June 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to owners of the parent
 
 
 
Share capital
£m
Share premium, capital redemption and merger reserves
£m
Other
reserves
£m
Retained earnings
£m
Total
attributable
to owners
of parent
£m
Non-controlling interests
£m
Total equity
£m
Balance at 1 January 2012
506 
3,913 
1,112 
2,636 
8,167 
307 
8,474 
Total comprehensive income 
for the period (page 13)
(111)
1,677 
1,566 
142 
1,708 
Profit for the period (page 12)
1,929 
1,929 
157 
2,086 
Other comprehensive income for the period (page 13)
(111)
(252)
(363)
(15)
(378)
Employee share options
 
 
 
 
 
 
 
– value of employee services
37 
37 
37 
– proceeds from shares issued
5  
Dividends and other appropriations
 
 
 
 
 
 
 
– ordinary shares
(1,723)
(1,723)
(1,723)
– to non-controlling interests
(143)
(143)
Purchase of own shares
 
 
 
 
 
 
 
– held in employee share
 
 
 
 
 
 
 
   ownership trusts
(121)
(121)
(121)
– share buy-back programme
(676)
(676)
(676)
Non-controlling interests - acquisitions
(21)
(21)
(3)
(24)
Other movements
(10)
(10)
(10)
Balance at 30 June 2012
507 
3,916 
1,001 
1,800 
7,224 
303 
7,527 
 
 
 
 
 
 
 
 
 At 30 June 2011
 
 
 
 
 
 
 
 
Attributable to owners of the parent
 
 
 
Share capital
£m
Share premium, capital redemption and merger reserves
£m
Other
reserves
£m
Retained earnings
£m
Total
attributable
to owners
of parent
£m
Non-controlling interests
£m
Total equity
£m
Balance at 1 January 2011
506 
3,910 
1,600 
3,190 
9,206 
342 
9,548 
Total comprehensive income for the period (page 13)
(172)
1,760 
1,588 
134 
1,722 
Profit for the period (page 12)
1,870 
1,870 
136 
2,006 
Other comprehensive income for the period (page 13)
(172)
(110)
(282)
(2)
(284)
Employee share options
 
 
 
 
 
 
 
– value of employee services
38 
38 
-
38 
– proceeds from shares issued
-
Dividends and other appropriations
 
 
 
 
 
 
 
– ordinary shares
(1,620)
(1,620)
-
(1,620)
– to non-controlling interests
(139)
(139)
Purchase of own shares
 
 
 
 
 
 
 
– held in employee share
 
 
 
 
 
 
 
   ownership trusts
(122)
(122)
(122)
– share buy-back programme
(410)
(410)
(410)
Other movements
20 
20 
20 
Balance at 30 June 2011
506 
3,912 
1,428 
2,859 
8,705 
337 
9,042 


 

 

 


GROUP STATEMENT OF CHANGES IN EQUITY - unaudited cont…
 
 
 
 
 
 
 
 
At 31 December 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to owners of the parent
 
 
 
Share capital
£m
Share premium, capital redemption and merger reserves
£m
Other
reserves
£m
Retained earnings
£m
Total
attributable
to owners
of parent
£m
Non-controlling interests
£m
Total equity
£m
Balance at 1 January 2011
506 
3,910 
1,600 
3,190 
9,206 
342 
9,548 
Total comprehensive income for the year (page 13)
(488)
2,582 
2,094 
245 
2,339 
Profit for the year (page 12)
3,095 
3,095 
280 
3,375 
Other comprehensive income for the year (pages 13)
(488)
(513)
(1,001)
(35)
(1,036)
Employee share options
 
 
 
 
 
 
 
– value of employee services
76 
76 
76 
– proceeds from shares issued
Dividends and other appropriations
 
 
 
 
 
 
 
– ordinary shares
(2,358)
(2,358)
 
(2,358)
– to non-controlling interests
(279)
(279)
Purchase of own shares
 
 
 
 
 
 
 
– held in employee share
 
(123)
(123)
(123)
   ownership trusts
(755)
(755)
(755)
Non-controlling interests - acquisitions
(10)
(10)
(10)
Other movements
32 
32 
(1)
31 
Balance at 31 December 2011
506 
3,913 
1,112 
2,636 
8,167 
307 
8,474 
 
 
 
 
 
 
 
 
The accompanying notes on pages 19 to 35 form an integral part of the condensed consolidated financial information.

 

 

GROUP BALANCE SHEET - unaudited
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30.6.12
£m
 
30.6.11
£m
 
31.12.11
£m
Assets
 
 
 
 
 
Non-current assets
 
 
 
 
 
Intangible assets
11,795 
 
12,673 
 
11,992 
Property, plant and equipment
2,919 
 
3,064 
 
3,047 
Investments in associates and joint ventures
2,522 
 
2,809 
 
2,613 
Retirement benefit assets
42 
 
113 
 
105 
Deferred tax assets
304 
 
366 
 
343 
Trade and other receivables
319 
 
311 
 
305 
Available-for-sale investments
39 
 
30 
 
40 
Derivative financial instruments
185 
 
110 
 
179 
Total non-current assets
18,125 
 
19,476 
 
18,624 
 
 
 
 
 
 
Current assets
 
 
 
 
 
Inventories
3,984 
 
3,824 
 
3,498 
Income tax receivable
95 
 
71 
 
127 
Trade and other receivables
2,699 
 
2,517 
 
2,423 
Available-for-sale investments
45 
 
46 
 
57 
Derivative financial instruments
184 
 
136 
 
159 
Cash and cash equivalents
1,749 
 
1,717 
 
2,194 
 
8,756 
 
8,311 
 
8,458 
Assets classified as held-for-sale
53 
 
22 
 
37 
Total current assets
8,809 
 
8,333 
 
8,495 
 
 
 
 
 
 
Total assets
26,934 
 
27,809 
 
27,119 
 
 
 
 
 
 
The accompanying notes on pages 19 to 35 form an integral part of this condensed consolidated financial information.


 

GROUP BALANCE SHEET - unaudited cont
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30.06.12
 
30.06.11
 
31.12.11
 
 
£m
 
£m
 
£m
 
Equity
 
 
 
 
 
 
Capital and reserves
 
 
 
 
 
 
Share capital
507 
 
506 
 
506 
 
Share premium, capital redemption and merger reserves
3,916 
 
3,912 
 
3,913 
 
Other reserves
1,001 
 
1,428 
 
1,112 
 
Retained earnings
1,800 
 
2,859 
 
2,636 
 
Owners of the parent
7,224 
 
8,705 
 
8,167 
 
after deducting
 
 
 
 
 
 
– cost of treasury shares
(2,259)
 
 (1,207)
 
 (1,539)
 
Non-controlling interests
303 
 
337 
 
307 
 
Total equity
7,527 
 
9,042 
 
8,474 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Non-current liabilities
 
 
 
 
 
 
Borrowings
9,526 
 
8,713 
 
8,510 
 
Retirement benefit liabilities
1,076 
 
786 
 
1,003 
 
Deferred tax liabilities
498 
 
527 
 
556 
 
Other provisions for liabilities and charges
417 
 
181 
 
458 
 
Trade and other payables
173 
 
194 
 
184 
 
Derivative financial instruments
81 
 
97 
 
87 
 
Total non-current liabilities
11,771 
 
10,498 
 
10,798 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
Borrowings
1,836 
 
2,303 
 
1,766 
 
Income tax payable
475 
 
465 
 
494 
 
Other provisions for liabilities and charges
346 
 
314 
 
236 
 
Trade and other payables
4,871 
 
4,937 
 
5,174 
 
Derivative financial instruments
108 
 
250 
 
177 
 
Total current liabilities
7,636 
 
8,269 
 
7,847