1st Quarter Results

British American Tobacco PLC 27 April 2000 QUARTERLY REPORT TO 31 MARCH 2000 SUMMARY THREE MONTHS RESULTS 2000 1999 Change Operating profit pre-exceptionals £535m £353m +52% Pre-tax profit £220m £308m -29% Adjusted earnings per share 11.28p 10.87p + 4% Operating profit was 52 per cent higher at £535 million, excluding goodwill amortisation and exceptional items, and benefited from the inclusion of Rothmans in 2000. Adjusted earnings per share growth (on a fully diluted basis) rose by 4 per cent; this is probably the measure that best illustrates the real improvement in the enlarged British American Tobacco Group. Group volumes were 21 per cent higher at 193 billion reflecting the inclusion of Rothmans. On a comparable basis volumes were 4 per cent lower, although the quality of mix continued to improve. Pre-tax profit was affected by goodwill amortisation, as well as exceptional charges notably in respect of the Imasco restructuring and the acquisition of S.C.A. Tobacco Corporation in Japan. The Chairman, Martin Broughton, commented that 'While the difficult conditions in the US domestic market look likely to continue, we expect to make progress in a more stable world market than the one we had to trade our way through in 1999. We are confident of achieving a good increase in adjusted fully diluted earnings per share. Most importantly of all for shareholders, as the uncertainty caused by the Engle case starts to recede, the real value of our business should become more apparent.' ENQUIRIES: INVESTOR RELATIONS: PRESS OFFICE: Ralph Edmondson 020 7845 1180 Fran Morrison/David Betteridge/ Denise Hart 020 7845 1191 Jody Humble 020 7845 2888 www.bat.com BRITISH AMERICAN TOBACCO p.l.c. THREE MONTHS REPORT TO 31 MARCH 2000 INDEX PAGE Chairman's comments 2-3 Business review 4-8 Group results 9 Segmental analyses of turnover and profit 10 Statement of total recognised gains and losses 11 Interest of British American Tobacco's shareholders 11 Accounting policies and basis of preparation 12 Changes in the Group 13 Foreign currencies 14 Exceptional items 14 Goodwill amortisation 15 Sale of brands 15 Net interest 15 Taxation 15 Earnings per share 16 Segmental analyses: Associated companies and Joint Venture 17 CHAIRMAN'S COMMENTS 2. Operating profit before exceptional items rose 52 per cent to £535 million in the first three months, reflecting the benefits of merger and acquisition activity. The results from Europe, Asia-Pacific and Amesca are much improved by the merger with Rothmans, while those from America-Pacific include Imperial Tobacco of Canada as a wholly-owned subsidiary. Adjusted fully diluted earnings per share grew 4 per cent to 11.28p. As I wrote in the Annual Review, this is probably the measure that best illustrates the real improvement in the enlarged British American Tobacco Group. As Imperial Tobacco Company of Canada became a subsidiary on 1 February, following the restructuring of Imasco, I would like to welcome the management team and all the employees to full membership of the Group. Canada is one of the major contributors to operating profit and everything we have seen since the acquisition has confirmed the high quality of Imperial's business. On 31 March, the Group completed the purchase of its Japanese distributor, S.C.A. Tobacco Corporation (SCAT). This will enable us to build further on the proven success of our brand portfolio in a key market, by bringing our world class trade- marketing skills more directly to bear on the Japanese business. There is a one-off charge of £80 million in the quarter as a result of reacquiring cigarette stocks previously sold to SCAT. The impact of the exceptional items relating to Imasco, SCAT and the continuing integration of Rothmans resulted in a 29 per cent reduction of pre-tax profit to £220 million. Two particular events stand out on the regulation and litigation front in the US, the Supreme Court's decision that the Food & Drug Agency lacks the authority to regulate tobacco products and the jury's award of compensatory damages in the Engle class action. We welcome sensible regulation and the Supreme Court's ruling is an important victory for common sense. This increasingly rare commodity is not yet apparent in the Engle class action, where the Appeal Court has still to rule on whether the trial judge, who is a member of the class, should sit in judgement on this case. Indeed, the recent compensatory damages award, where the jury made different findings based on the three plaintiffs' individual circumstances and found that each defendant's fault was different for each plaintiff, clearly proves that class action litigation is totally unsuitable for smoking related health claims. Chairman's comments... 3. In virtually every other case, class certification has been rejected. With such a strong track record, the Board fully expects that the Engle case will eventually collapse, even if the jury does award huge punitive damages. It is reassuring that the Florida Attorney General himself has confirmed that, under Florida law, the compensatory damages stage of the trial must be completed for every plaintiff before any determination of punitive damages. Moving away from the US, our Group companies have been drawing governments' attention to the risks to their countries' sovereign rights posed by the World Health Organisation's (WHO) proposed Framework Convention on Tobacco Control. We are also calling on the WHO to embark on constructive engagement with all its stakeholders, rather than confining its attention to the strident claims of an international coalition of anti-tobacco activists. Pressure from governments appears to have resulted in some change to the WHO's approach. Provided that it can be taken at face value, it is encouraging that the tobacco industry, the farmers and the trade unions will be given the opportunity of a public hearing later this year. In addition, we believe that a majority of countries are now calling for the Convention to be broad, rather than prescriptive. In a major initiative to help us to communicate more fully and transparently with all our stakeholders, we launched our Group website last month at www.bat.com complementing the various sites already maintained by our subsidiaries around the world. I hope that shareholders who have not already visited the website will do so soon. It contains our views on many of the public issues concerning tobacco and there is also a section that private investors should find helpful, as it features the presentations we have made to our institutional holders. At this time of year, I usually give shareholders some indication of the Board's view about our prospects for the year as a whole. While the difficult conditions in the US domestic market look likely to continue, we expect to make progress in a more stable world market than the one we had to trade our way through in 1999. We are confident of achieving a good increase in adjusted fully diluted earnings per share. Most importantly of all for shareholders, as the uncertainty caused by the Engle case starts to recede, the real value of our business should become more apparent. MARTIN BROUGHTON BUSINESS REVIEW 4. Operating profit was 52 per cent higher at £535 million, excluding goodwill amortisation and the exceptional items set out on page 9, and benefited from the inclusion of Rothmans in 2000. Volumes were 21 per cent higher at 192.7 billions, benefiting from the merger with Rothmans. On a comparable basis volumes were 4 per cent lower, although the quality of the mix continued to improve. The significant increase in the total volumes of international brands reflected the inclusion of Rothmans. However, comparable volumes were 2 per cent lower. There were strong performances from many of the key brands, notably with Lucky Strike, Kent and Dunhill increasing volumes. The lower overall comparable performance reflected reduced volumes for State Express 555 and the Rothmans brand. Profit from the America-Pacific region for the first time includes the Group's business in Canada. In the first quarter, regional profit was up £4 million at £173 million. This is primarily due to an increased contribution from the Canadian and Japanese markets and lower overheads in the US which more than offset the lower contribution from the US market. Overall volumes were 3 per cent lower mainly due to a decline in volumes in the US market. The operating profit for Canada in the first quarter of 2000 was £68 million, comprising the Group's share of Imasco's total results for January and two months of the tobacco company's results as a wholly-owned subsidiary. Last year's figure of £63 million reflects the Group's share of Imasco's total results for the first quarter of 1999 (see page 13). The industry's domestic cigarette volume is down 7 per cent on 1999. This reduction reflected both higher shipments in the first quarter of 1999 due to expected price increases and a reduction in 2000 due to wholesaler actions to increase inventory levels in late 1999. In this lower domestic cigarette market, Imperial Tobacco increased its market share to 70.5 per cent, which again demonstrated the strength of the main brands, namely Player's, du Maurier and Matinee. Despite the lower total volumes, operating profit increased by 4 per cent principally as a result of the price increase in April 1999. Business review continued 5. The contribution from the US domestic market, before common overheads of £59 million, decreased by 12 per cent to £104 million. This reduction is due to lower volumes, together with higher federal excise taxes, ongoing settlement expenses and an expansion of wholesale/retail contracts. However, the impact of these was partially offset by higher pricing. Brown & Williamson's market share fell with shipments down by 7.8 per cent, primarily as a result of the decline in GPC. This decline is further indication of the continuing effect of the rise in grey market activity, the preferential treatment allowed to certain small manufacturers under the MSA agreement and aggressive competitive discounting. In the quarter B&W announced, effective from April, a reduction in GPC list prices to give the brand competitive pricing in more retail channels. Although Lucky Strike, Viceroy and Capri showed small market share increases, both Kool and Misty lost share. In Japan, the Group's market contribution increased due to favourable brand mix, an improved exchange rate and the effect of the Rothmans merger. This was partially offset by higher marketing expenditures. On a comparable basis, the Group again increased market share, from 7.4 per cent to 7.6 per cent. Both Kent and Kool increased volumes, as did Lucky Strike where growth was fuelled in part by the launch of an Ultra Lights variant. The region will benefit from the acquisition of S.C.A. Tobacco Corporation in Japan, which will be consolidated in the Group results from 1 April 2000 (see page 13). In Asia-Pacific, volumes rose by 7 billion or 46 per cent on the first quarter last year, driving profits ahead £37 million to £77 million. The region benefited from the addition of Rothmans' earnings in Malaysia, Australia, New Zealand, and Singapore, as well as synergy benefits resulting from the merger, partially offset by the effect of the brand divestments in Australia and New Zealand. Australian profits are higher than the comparable quarter last year due to the merger and share gains for Benson & Hedges and Winfield at the top end of the market. Business review continued 6. In Indonesia, volumes continued to advance but profits were impacted by the excise change implemented in April 1999, a situation that will be exacerbated by further changes in April 2000. In Malaysia, volume shipments increased as the economic recovery continued. These higher volumes, together with lower costs and synergy savings, led to higher profits. Profits from exports to the region were lower than last year affected mainly by lower volumes. Following a comprehensive review of its operations in Hong Kong, Macau and China, the Group has reduced its operations to improve efficiency. The profit in Latin America at £83 million was £12 million higher than last year, mainly due to Brazil and the inclusion of Jamaica following the Rothmans merger. Regional volumes were in line with last year. In Brazil, Souza Cruz's volumes rose and market share was maintained. Free is the leader in the lights segment, while Hollywood increased market share. Overhead and operational cost reductions contributed to the increase in profit. Although the Group's share of the Mexican market has declined due to aggressive competitor activities, profit rose due to higher prices, the benefits of rationalisation and timing of expenditure. The strong market position in Chile has been reinforced, with Kent leading the Lights segment and Derby gaining market share, and profits are slightly up on last year. In Argentina, Nobleza-Piccardo is continuing to gain market share. However, results were adversely affected mainly as a consequence of a higher social assistance fund tax, with insufficient price increases to re-establish margins. Total profits in Europe were £117 million, £70 million higher than last year. This increase reflects the inclusion of the results of the former Rothmans businesses. Markets to have benefited significantly from the merger include France, Switzerland and the Benelux countries, as well as the United Kingdom and Ireland where there was hardly any Group presence in the prior period. Profits in Germany benefited from both the merger and higher margins and there were underlying improvements in Russia and Romania. However, these were partly offset by the end of intra-EU duty free business from July 1999. Business review continued 7. Volumes have increased significantly over the prior period due to the inclusion of the former Rothmans businesses, most particularly in the markets identified above. There were also good gains in Russia (principally related to Yava Gold and Pall Mall), and from Viceroy in Romania and Pall Mall in Italy. In Germany, Lucky Strike is continuing to achieve record market share levels. However, these underlying gains were offset by the loss of intra-EU duty free business. Both sales and profits from the smoking tobacco and cigars operations were up on the comparative period last year. The Rothmans merger had a significant impact on the Amesca region, with volumes up 28 per cent and profit £59 million higher at £85 million. The higher profit also reflected some good underlying performances, although the first quarter in the Middle East was affected by pre-millennium buying in the last quarter of 1999. Despite a declining market in South Africa, the underlying profit grew due to improved margins. The cost base was reduced following the integration of the BAT and Rothmans operations. Peter Stuyvesant increased both volume and market share. Due to insufficient availability of foreign currency we have restricted our production in Uzbekistan which has resulted in lower sales volumes. In India, good profit growth was achieved principally through a combination of improved mix and price increases. In Pakistan the very difficult trading conditions resulted in lower volumes and market share. Bangladesh achieved profit growth mainly due to rising sales from John Player Gold Leaf following a price repositioning. The integration of the Rothmans business into British American Tobacco is well advanced and the transaction for the disposal of Rothmans' Canadian business was finalised during the quarter. There are of course still a number of smaller issues to be resolved. Synergy benefits of at least £250 million per annum will be achieved ahead of schedule, with some already contributing to the profit of this quarter. Business review continued 8. Group Cigarette Volumes 3 months to 12 months to ----------- ------------ 31.3.00 31.3.99 31.12.99 bns bns bns America-Pacific 26.1 27.0 116.1 Asia-Pacific 23.4 16.0 85.1 Latin America 41.5 41.9 167.0 Europe 45.2 30.1 170.4 Amesca 56.5 44.3 213.9 ----- ----- ----- 192.7 159.3 752.5 ===== ===== ===== GROUP RESULTS unaudited 9. 3 months to Year to 31.3.00 31.3.99 31.12.99 £m £m £m REVENUE Subsidiary undertakings 5,244 3,387 18,798 Share of associates 539 794 2,873 ----- ----- ------ 5,783 4,181 21,671 ===== ===== ====== PROFIT Subsidiary undertakings 298 244 1,099 ------------------------------------- -------- -------- -------- after charging: acquired stock (80) US tobacco settlements (13) (24) integration costs (18) (357) goodwill amortisation (85) (162) ------------------------------------- -------- -------- -------- Share of associates and joint venture (13) 96 380 ------------------------------------- -------- -------- -------- after charging: Imasco restructuring costs (67) ------------------------------------- -------- -------- -------- ----- ----- ------ Total operating profit 285 340 1,479 Sale of brands 88 ----- ----- ------ Profit on ordinary activities before interest 285 340 1,567 Net interest (62) (27) (170) Share of associates' net interest (3) (5) (26) ----- ----- ------ Profit before taxation 220 308 1,371 Taxation on ordinary activities (124) (137) (673) ----- ----- ------ Profit after taxation 96 171 698 Minority interests (41) (29) (142) ----- ----- ------ Profit for the period 55 142 556 ===== ===== ====== Earnings per share - basic 2.13p 9.11p 25.25p ===== ===== ====== - adjusted diluted 11.28p 10.87p 52.33p ===== ===== ===== See notes on pages 12 to 17. SEGMENTAL ANALYSES OF TURNOVER AND PROFIT unaudited 10. 3 months to Year to 31.3.00 31.3.99 31.12.99 £m £m £m Turnover excluding duty, excise and other taxes America-Pacific 1,010 1,078 4,804 Asia-Pacific 351 215 1,208 Latin America 361 327 1,461 Europe 711 431 2,359 Amesca 362 222 1,350 ------ ------ ------ 2,795 2,273 11,182 ====== ====== ====== Operating Profit America-Pacific 173 169 848 Asia-Pacific 77 40 231 Latin America 83 71 333 Europe 117 47 342 Amesca 85 26 268 ------ ------ ------ 535 353 2,022 Acquired stock (80) US tobacco settlements (13) (24) Integration costs (18) (357) Goodwill amortisation (85) (162) Imasco restructuring costs (67) ------ ------ ------ 285 340 1,479 ====== ====== ====== Operating profit restated at comparable rates of exchange 292 340 1,479 ====== ====== ====== The net turnover analysis is based on external sales in each region. The figures for the three months ended 31 March 2000 and 31 March 1999 based on regional location of manufacture would not be materially different except for sales from Europe to Amesca and Asia-Pacific which amounted to £123 million and £113 million respectively, 1999 £79 million and £92 million. The operations of subsidiaries are entirely related to tobacco. The Group's share of the operations of associates and joint venture, analysed by business, is set out on page 17. STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 11. 3 months to Year to 31.3.00 31.3.99 31.12.99 £m £m £m Profit for the period 55 142 556 Differences on exchange (124) (96) (268) Revaluation of associated company 1,266 ------ ------ ------ Total recognised gains related to the period (below) 1,197 46 288 ====== ====== ====== INTEREST OF BRITISH AMERICAN TOBACCO'S SHAREHOLDERS 3 months to Year to 31.3.00 31.3.99 31.12.99 £m £m £m Balance 1 January 4,821 64 64 Total recognised gains related to the period (above) 1,197 46 288 Issue of shares: Share options 1 1 3 Rothmans merger 5,089 Dividends and other appropriations: Ordinary shares (62) (546) Convertible redeemable preference shares (54) Amortisation of discount on preference shares (9) (20) Other movements 9 (17) (3) ------ ------ ------ Balance at period end 6,019 32 4,821 ====== ====== ====== See notes on pages 12 to 17. ACCOUNTING POLICIES AND BASIS OF PREPARATION 12. The financial statements comprise the unaudited results for the three months ended 31 March 2000 and 31 March 1999 and the audited results for the twelve months ended 31 December 1999. The unaudited Group results have been prepared under the historical cost convention and in accordance with applicable accounting standards using the accounting policies set out in the Report and Accounts for the year ended 31 December 1999. As described below, during the quarter a transaction was completed whereby the holding in Imasco, an associated company in Canada, was effectively replaced by shares in a wholly-owned subsidiary comprising only the tobacco interests of Imasco. When an associate becomes a subsidiary the method for calculating goodwill differs between the Companies Act 1985 and FRS2. In order to give a 'true and fair' view, the Group has complied with FRS2 in arriving at the figures shown below. If the Act had been followed the goodwill arising on acquisition would have been some £1.65 billion lower, as it would have been net of the revaluation surpluses on the disposed businesses and the share of accumulated profits while Imasco had been an associated company. Following this change the results of the Canadian operations are included within the America-Pacific region in the segmental analyses and the comparative information has been restated accordingly. Previously the results of Imasco as an associate were shown as a separate segment. As the acquisition of Rothmans was completed on 7 June 1999, the comparative three months ended 31 March 1999 do not include any contribution from the Rothmans businesses, and the year ended 31 December 1999 includes a contribution reflecting their consolidation for seven months. As a result of a reorganisation following last year's acquisition of Rothmans, profit from the manufacturing operations located in Southampton in the UK is included within the Europe region with effect from 1 January 2000. Previously it was included in Asia- Pacific and the comparative information in the segmental analyses has been restated accordingly. CHANGES IN THE GROUP 13. Following the agreement with Imasco, the acquisition of the shares of that company not already owned by the Group, representing approximately 58 per cent of its shares, was completed on 1 February 2000. This was followed immediately by the completion of the sale of Imasco's CT Financial Services Inc. business and Imasco's retailing business, Shopper's Drug Mart. The sale process for Genstar, Imasco's land development company, continues and its results have not been consolidated given the intended disposal. Once Genstar is sold, the Group's restructured business in Canada will comprise the tobacco business of Imperial Tobacco Canada Limited. Consequently, the results from Canada for the 3 months ended 31 March 2000 comprise the Group's share of the results of its associate for January and the consolidated results of Imperial Tobacco for the two months to 31 March 2000. The results in the comparative periods represent the Group's share of the results of its associate company Imasco over those periods. During the quarter, Imasco's discontinued non-tobacco operations contributed £109 million of turnover and £15 million of profit, while for the period the tobacco operations were a wholly-owned subsidiary they contributed £107 million of turnover and £44 million of profit before goodwill amortisation. In 1999 the discontinued non-tobacco operations contributed £289 million of turnover and £34 million of profit for the first quarter and £1,286 million of turnover and £155 million of profit for the year. For the purpose of this quarter's results provisional figures have been included in respect of this transaction. The goodwill arising of £2,115 million will be amortised over a period of 20 years. The statement of total recognised gains and losses for the period includes £1,266 million principally in respect of the Group share of the surplus on revaluing Imasco's non-tobacco businesses prior to their disposal. As a result of this revaluation, the profit and loss account does not include any gain on these disposals. On 3 February 2000 the Group sold its entire shareholding in Rothmans Inc., Canada. As the intention to dispose of these operations was announced at the outset of the merger, the results and assets of that business were not consolidated. The investment was included as a current asset at net realisable value and therefore the sale did not generate a gain or loss in these results. Changes in the Group cont. 14. On 31 March 2000 the Group completed the purchase of S.C.A. Tobacco Corporation (SCAT), which distributes the Group's products in Japan. Consequently, its results will be consolidated from 1 April 2000 and the amortisation relating to the provisional goodwill of £62 million will commence from that date. FOREIGN CURRENCIES The results of overseas subsidiaries and associated undertakings have been translated to sterling as follows: Profit and loss for the three months to 31 March 2000 at the average rates for that period. The comparatives for the three months to 31 March 1999 and the year to 31 December 1999 at the average rates for the year to 31 December 1999. The interest of British American Tobacco's shareholders has been translated at the relevant period end rate. For high inflation countries, the translation from local currencies to sterling makes allowance for the impact of inflation on the local currency results. The principal exchange rates used were as follows: Average Closing 2000 1999 31.3.00 31.3.99 31.12.99 US dollar 1.606 1.618 1.595 1.614 1.612 Canadian dollar 2.334 2.405 2.316 2.441 2.339 Deutschmark 3.184 2.971 3.261 2.933 3.145 Euro 1.628 1.519 1.667 1.499 1.608 EXCEPTIONAL ITEMS As part of the SCAT acquisition, the Group reacquired cigarette stocks which had previously been sold to that business. A one-off accounting adjustment of £80 million is charged against Group operating profit for the first quarter to remove the gross contribution previously recognised by the Group on those cigarette sales. Integration costs are the costs incurred in integrating Rothmans into the British American Tobacco Group and the consequential restructuring of the enlarged Group. The Imasco restructuring costs relate to the Group's share of pre-tax cost to Imasco of buying out share options together with other employee deferred compensation and severance arrangements consequent upon a fundamental change of control. Exceptional items cont. 15. US tobacco settlement costs in 1999 are one-off settlement compliance costs and liquidated legal fees relating to the US cigarette companies' 1998 agreement with the Attorneys General in 46 US States to settle outstanding Medicaid recovery suits. Other settlement costs are charged as ongoing costs. GOODWILL AMORTISATION The goodwill amortisation charge has arisen from the Imasco transaction described above, together with the initial acquisition of Rothmans and subsequent local restructurings during 1999. SALE OF BRANDS This comprised the profit on the sale in 1999 of certain of British American Tobacco's brands in Australasia. The sale was required by regulatory authorities as a consequence of the restructuring of the businesses in those countries. NET INTEREST The net interest charge for the 3 months ended 31 March 1999 and the year ended 31 December 1999 includes a benefit of £25 million as the Group was able to recover interest on the amounts which formed the basis for the recovery of sales tax in Brazil in 1998. Net interest payable now includes Imperial Tobacco Canada Limited as a wholly-owned subsidiary for the two months to 31 March 2000, during which period it incurred a net interest charge of £8 million. TAXATION 3 months to 31.3.00 31.3.99 £m £m UK (2) 8 Overseas 128 97 --- --- British American Tobacco and subsidiary undertakings 126 105 Share of associates and joint venture (2) 32 --- --- 124 137 === === Effective tax rate 56.4% 44.5% ==== ==== Taxation cont. 16. The tax rate for the first quarter of 2000 is adversely affected by the goodwill amortisation arising from the Rothmans and Imasco transactions, neither of which were in the comparable figures for 1999. The effective rate for the first quarter of 2000 is also affected by the accounting adjustment to profit arising from the acquisition of the S.C.A. Tobacco Corporation (SCAT) in Japan. The effective tax rate in 1999 was affected by charges accrued in 1999 for certain of the US tobacco settlements not being relieved for tax until the following year. As future years were expected to show the same pattern for such payments and tax relief, under UK accounting standards there was a distortion to the tax rate shown in 1999. EARNINGS PER SHARE Basic earnings per share are based on the profit for the period attributable to ordinary shareholders and the average number of ordinary shares in issue during the period (excluding shares held by the Group's two Employee Share Ownership Trusts). For the calculation of diluted earnings per share the average number of shares reflects the potential dilution effect of the exercise of employee share options and from June 1999 the convertible redeemable preference shares. The earnings are correspondingly adjusted to the amount of earnings prior to charging dividends and the amortisation of discount on the convertible redeemable preference shares. The earnings have been affected by a number of exceptional items. To illustrate the impact of the principal distortions, as well as the effect of goodwill amortisation, adjusted diluted earnings per share are shown below: Diluted earnings per share 3 months to Year to 31.3.00 31.3.99 31.12.99 (pence) (pence) (pence) Unadjusted earnings per share 2.43 9.03 27.02 Effect of acquired stock 2.91 Effect of goodwill amortisation 3.53 7.82 Effect of US tobacco settlements 0.51 0.73 Effect of integration costs 0.54 11.27 Effect of Imasco restructuring costs 1.87 Effect of sales tax recovery (0.83) (0.63) Effect of sale of brands (2.53) Effect of US tobacco settlements on effective tax rate 2.16 8.65 ------ ------ ------ Adjusted earnings per share 11.28 10.87 52.33 ====== ====== ====== Earnings per share cont. 17. Similar types of adjustments would apply to basic earnings per share. For the three months to 31 March 2000 basic earnings per share on an adjusted basis would be 12.00p (1999 10.97p) compared to unadjusted amounts of 2.13p (1999 9.11p). SEGMENTAL ANALYSES: ASSOCIATED COMPANIES AND JOINT VENTURE 3 months to Year to 31.3.00 31.3.99 31.12.99 £m £m £m Turnover excluding duty, excise and other taxes Tobacco 217 261 824 Financial services 67 180 761 Other trading activities 42 109 525 ------ ------ ------ 326 550 2,110 ====== ====== ====== Operating Profit Tobacco 39 62 225 Financial services 11 24 103 Other trading activities 4 10 52 ------ ------ ------ 54 96 380 Imasco restructuring costs (67) ------ ------ ------- (13) 96 380 ====== ====== ======= ****** Copies of this Report will be posted to shareholders and may also be obtained during normal business hours from the Company's Registered Office at Globe House, 4 Temple Place, London WC2R 2PG. Philip Cook Secretary 27 April 2000

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