Final Results - Year Ended 31 December 1999 - Pt 2

British American Tobacco PLC
7 March 2000


PART TWO


NOTES                                                     16.

ACCOUNTING POLICIES AND BASIS OF PREPARATION

During 1998 the principal financial services businesses of
B.A.T Industries p.l.c. were demerged and British American Tobacco
p.l.c. became the listed parent company for the retained businesses.  To
comply with company law and accounting standards the Group accounts for
1998 included the results of the financial services businesses up to the
date of demerger.  However, to provide information which is helpful to
shareholders of British American Tobacco p.l.c., the Directors also
presented financial information prepared as if the demerger had taken
effect prior to 1998.  As this financial information is the basis which
more clearly reflects the ongoing operations of British American Tobacco
p.l.c., it is used for the comparatives in this preliminary
announcement.

In the segmental analyses published for 1998 the costs of the
headquarters for B.A.T Industries were shown separately.  To provide
1998 comparatives on a more consistent basis with the segmental results
for 1999, the comparatives have been restated to allocate these costs
within the regional results.

During the year two new accounting standards were implemented, being
FRS12 on provisions and FRS13 on financial instruments.  While these
standards have resulted in some additional disclosures they have not
affected profit or shareholders' equity.

ROTHMANS INTERNATIONAL

On 7 June 1999 British American Tobacco p.l.c. issued 604,336,627
ordinary shares and 241,734,651 convertible redeemable preference shares
in consideration for the acquisition of Rothmans International.  As a
result, Compagnie Financiere Richemont AG and Rembrandt Group Limited
together indirectly own 35 per cent of the fully diluted ordinary share
capital of British American Tobacco p.l.c., comprising 27.8 per cent of
the issued ordinary share capital and 100 per cent of the convertible
redeemable preference shares.

As the intention to dispose of the Canadian interests of Rothmans was
announced at the outset of the merger, the results of that business are
not consolidated but their dividend payments are included in the Group's
investment income.  On 3 February 2000 the Group sold these operations
for Can$314 million.  The goodwill on the Rothmans transaction reflects
this disposal value in respect of Rothmans' Canadian assets.  Therefore
the transaction will not result in any profit or loss in 2000.

Goodwill has arisen on the initial acquisition of Rothmans and
subsequent local restructurings of the enlarged Group's subsidiaries in
Singapore, Malaysia, Australia, New Zealand and South Africa.  These
subsequent restructurings resulted in a net cash outflow of
£434 million. A provisional figure for the goodwill arising on these
transactions of £5,574 million is being amortised over a period of 20
years.  The charge for 1999 was £162 million and, in the future, the
annual charge in respect of this transaction will be around
£275 million.

Rothmans International cont.                              17.

Integration of the businesses is now well advanced, with most of them
being managed on a unified basis.  The net revenue and operating profit
attributable to the Rothmans businesses since acquisition are estimated
at £1,626 million and £427 million respectively.

Notice has been given to the Group by the preference shareholder, under
the terms of the Merger agreement with Rothmans, of their intention to
redeem the half of the convertible preference shares redeemable in June
2000.  The cost of the redemption would be £695 million.  The preference
shares which remain after June 2000 are redeemable in June 2004.

EXCHANGE RATE EFFECTS

The results of overseas subsidiaries and associates have been translated
to sterling for the purpose of this report at average rates of exchange.
Results were affected by generally weaker average rates against sterling
but, with a stronger US dollar, operating profit before exceptional
items was only marginally affected.

EXCEPTIONAL ITEMS

The integration costs of £357 million are the costs incurred in
integrating Rothmans into the British American Tobacco Group.  While
this indicates that the final total for such costs will be somewhat
higher than the £400 million estimate referred to in the Circular to
Shareholders issued for the merger, the Group is ahead of schedule in
achieving the £250 million of annual synergy benefits.

The principal exceptional item in the year to 31 December 1998 was a
charge of £613 million, comprising £463 million for the US cigarette
companies' agreement with the Attorneys General in 46 US States to
settle outstanding Medicaid recovery suits and £150 million resulting
from the earlier agreement with the State of Minnesota and Blue Cross
and Blue Shield of Minnesota.  One-off settlement compliance costs and
liquidated legal fees totalled £24 million in 1999.

Other settlement costs are charged as ongoing costs.  Operating profit
before exceptional items for the year to 31 December 1999 was after
charging settlement costs of £746 million compared to £106 million in
the prior year.

In the second quarter of 1998 the Group included a sales tax recovery
arising from a favourable decision taken by a Regional Federal Court in
Brazil, resulting in amounts being recoverable which had previously been
paid to the Government as social contributions assessed on the basis of
sales.

SALE OF BRANDS

This comprised the profit on the sale 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 local
businesses and was implemented on a tax efficient basis.

DEMERGER AND RESTRUCUTURING COSTS                         18.

This comprised advisory and legal fees for restructuring the
B.A.T Industries group in 1998, involving the demerger of its principal
financial services businesses and the formation of British American
Tobacco p.l.c. as the parent company for the retained businesses.

INTEREST AND INTEREST COVER

The Group is now able to recover interest on the amounts which form the
basis for the sales tax recovery in Brazil (see above).  The reduction
in net interest in the year includes £25 million in respect of this
item, as well as gains on cancellation of swap contracts and the
benefits of restructuring the Group's debt.

The Group's interest cover was distorted in 1998 and 1999 by goodwill
amortisation and exceptional items in operating profit, as well as
profit on sale of brands and demerger and restructuring costs.  On an
adjusted basis, interest cover, based on profit before interest paid
over interest paid, was strong at 5.9 (1998: 4.8).  On a similar
adjusted basis, interest cover based on profit before net interest over
net interest, was 10.2 (1998: 7.5).

TAXATION

                                             Year to
                                        31.12.99   31.12.98
                                           £m         £m

   UK                                     (15)       138
   Overseas                               434        132
                                         ----       ----
   Current taxation                       419        270
   Deferred taxation                      114       (110)
                                         ----       ----
   British American Tobacco p.l.c.
     and subsidiary undertakings          533        160
   Share of associates                    140        117
                                         ----       ----
                                          673        277
                                         ====       ====
   Effective tax rate                    49.1%      37.5%
                                         ====       ====

The effective tax rate increases in 1999 as a result of goodwill
amortisation and charges accrued in 1999 for certain of the US tobacco
settlements not being relieved for tax until the following year.  As
future years are expected to show the same pattern for such payments and
tax relief, under UK accounting standards there is a distortion to the
tax rate shown in the accounts for 1999.  While the settlement payments
should not materially distort the tax rate after 1999, there will be a
continuing distortion from goodwill amortisation.

EARNINGS PER SHARE                                        19.

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 periods prior to the demerger
of the financial services businesses in 1998, the average number of
shares in issue is based on 50 per cent of the average number of B.A.T
Industries ordinary 25p shares in issue, reflecting the issue of one
ordinary share in British American Tobacco p.l.c. for every two ordinary
shares of B.A.T Industries p.l.c.

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 in 1999, 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 and ACT, adjusted diluted earnings per
share are shown below:

                                           Diluted earnings per share
                                                     Year to
                                              31.12.99   31.12.98
                                              (pence)    (pence)
Unadjusted earnings per share                  27.02      21.98
Adjustment from net to nil basis                          (0.32)
Effect of goodwill amortisation                 7.82     
Effect of US tobacco settlements                0.73      23.89
Effect of integration costs                    11.27     
Effect of sales tax recovery                   (0.63)     (2.35)
Effect of sale of brands                       (2.53)    
Effect of demerger and                                   
 restructuring costs                                       2.92
Effect of US tobacco settlements on                      
 effective tax rate                             8.65     
                                              ------     ------
Adjusted earnings per share                    52.33      46.12
                                              ======     ======

Similar types of adjustments would apply to basic earnings per share
which, on an adjusted basis, would be 52.54p (1998 46.51p) compared to
unadjusted amounts of 25.25p (1998 22.17p).

GROUP RESERVES

The Group reserve movements are summarised on page 10.

As regards the impact of exchange, the weakening of a number of
currencies against sterling during 1999 led to an adverse movement of
£268 million.  However, the main impact in 1999 was the share issue in
respect of the Rothmans merger as described above.  The ACT written back
of £96 million in 1998 arose because of the utilisation of ACT which had
been written off to reserves in prior years.

CASH FLOW                                                 20.

The Group cash flow is summarised on page 15 and the comparison of 1999
with 1998 is distorted by the acquisition of Rothmans in 1999 and the
demerger and change in Group structure in 1998, as well as the
exceptional items described above.

Operating cash flows were significantly higher at £2,085 million,
compared to £1,182 million in 1998.  This increase principally reflected
the inclusion of Rothmans for seven months, a one-off timing benefit as
certain ongoing US tobacco settlement payments are not made until 2000
and the impact on 1998 of the higher initial payments in respect of US
tobacco settlements.

With lower net interest and capital expenditure, despite the inclusion
of Rothmans operations for the first time, the net cash generation of
£1,264 million is significantly up on 1998.  The material reduction in
interest cash flow is partly due to one-off timing benefits from the
restructuring of Group debt.

In 1999 investing activities showed a net outflow of £216 million mainly
as a result of the Rothmans related transactions in Singapore, Malaysia,
Australasia and South Africa, less the proceeds on sale of BAT brands
noted above.  Even though the 1999 cash flow reflects the acceleration
of Group dividend payments, total dividend payments were down as 1998
included payments which were in respect of B.A.T Industries.  However,
1998 did benefit from £910 million of cash inflows in respect of the
settlement of inter company balances and other transactions with the
demerged financial services businesses.

As a result of the above the net cash inflow was £518 million compared
to £466 million in 1998, but the Group's net debt position rose
£480 million to £3,055 million reflecting the inclusion of Rothmans debt
as well as exchange movements.  Group debt rose £1,946 million to
£5,676 million, while cash, deposits and current investments increased
by £1,466 million to £2,621 million as the Group built up its liquidity.
This liquidity served the Group in closing the Imasco transaction and
would also be available for the potential redemption of the preference
shares in 2000.

CONTINGENT LIABILITIES

There are contingent liabilities in respect of litigation, overseas
taxes and guarantees in various countries.  Group companies, notably
Brown & Williamson Tobacco Corporation ('B&W') as well as other leading
cigarette manufacturers, are defendants, principally in the United
States, in a number of product liability cases, including a substantial
number of new cases filed in 1999, although a number of cases were
discontinued by claimants (without payment by any defendants) in the
year.

Legal Matters outside the United States
At year end, there were no active claims against the Group companies
(including those of the former Rothmans Group) in respect of health-
related claims outside Argentina, Australia, Brazil, Canada, Chile,
Eire, Finland, France, Germany, Israel, the Netherlands, Pakistan, the
Philippines and Sri Lanka.

Contingent Liabilities cont.                              21.

US litigation
The total number of US product liability cases pending at year end
involving Group companies was 537 (31 December, 1998, 678 cases).  Group
companies were named as co-defendants in 161 of those cases (1998, 238
cases).  Since many of these pending cases seek unspecified damages, it
is not possible to determine the total amount of claims pending. The
cases fall into three principal categories:

(1)  Medical reimbursement cases. These civil actions seek to recover
amounts spent by government entities and other third party providers on
health care and welfare costs claimed to result from illnesses
associated with smoking.  Despite the almost uniform success of the
industry's defence to these to date, the US Federal Government has filed
a suit, which will probably not come to trial until 2003.

(2)  Class actions. As at 31 December 1999, B&W was named as a defendant
in some 38 (31 December 1998, 55) separate actions attempting to assert
claims on behalf of classes of persons allegedly injured by smoking.
Despite the almost uniform success of the industry's defence to these to
date, there is one case (Engle, Florida) currently in trial.

(3)  Individual cases.  Approximately 421 cases were pending against B&W
at 31 December 1999 (31 December 1998, 497), filed by or on behalf of
individuals in which it is contended that diseases or deaths have been
caused by cigarette smoking or by exposure to environmental tobacco
smoke (ETS).  While the industry continues not to have paid any damages
to date, two decisions adverse to Philip Morris are currently under
appeal.

In addition, conduct-based claims, including antitrust and RICO claims,
have been filed and also threatened in the US but none of these recent
cases is considered to be meritorious.

Conclusion

While it is impossible to be certain of the outcome of any particular
case or of the amount of any possible adverse verdict, the Company
believes that the defences of the Group companies to all these various
claims are meritorious both on the law and the facts, and a vigorous
defence is being made everywhere.  If an adverse judgement were entered
against any of the Group companies in any case, an appeal would be made.
Such appeals could require the posting of appeal bonds or substitute
security by the appellants for the amounts of such adverse judgements.
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 and by the final outcome of any
particular litigation.

Having regard to all 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 all this litigation
will significantly impair the financial condition of the Group.

POST BALANCE SHEET EVENT - IMASCO                         22.

On 3 August 1999, the Group announced that it had entered into an
agreement with Imasco Limited in Canada to acquire the 58 per cent
shareholding in Imasco it did not already own.  The deal was conditional
on the sale of Canada Trust to TD Bank and also envisaged the sale of
other non-tobacco interests of Imasco.  Thus the Group interests in
Canada will be focused on Imperial Tobacco rather than through a 42 per
cent stake in a diversified holding company.

On 15 October the deal was approved by the British American Tobacco
shareholders.  On 1 February 2000 Imasco announced that the necessary
capital reorganisation of that company had been completed following
approval by their shareholders.

As at 1 February 2000, Imperial Tobacco Canada Limited became a wholly
owned subsidiary of British American Tobacco and Canada Trust was sold,
while the sale of Shoppers Drug Mart was completed on 4 February.  The
transaction will be reflected in British American Tobacco's first
quarter results for 2000.  The transaction is expected to result in
goodwill of around £2.1 billion and a significant increase in
shareholders' funds.  The increase in net debt, including Imasco's own
debt, is approximately £900 million, which will be reduced from the
proceeds of the Genstar sale which is well underway.

The Group's share of Imasco's results for January 2000 will include an
exceptional charge of around Can$147 million for severence and similar
payments consequent upon change of control.  The restructuring of the
investment in Canada will however materially improve the Group's cash
flow in 2000.

ANNUAL REPORT AND ACCOUNTS

The above figures have been extracted from the Group's full financial
statements which, for the year ended 31 December 1998 have been
delivered and for the year ended 31 December 1999, will be delivered to
the Registrar of Companies.  Both carry an unqualified audit report.
The Annual General Meeting will be held on 27 April 2000 at 11.30 a.m.



The report and accounts will be posted to shareholders in late March
2000.



Philip Cook
Secretary
7 March 2000