1st Quarter Report - Part 2
British American Tobacco PLC
2 May 2001
PART 2
ACCOUNTING POLICIES AND BASIS OF PREPARATION 13.
The financial statements comprise the unaudited results for the
three months ended 31 March 2001 and 31 March 2000 and the
audited results for the twelve months ended 31 December 2000.
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 2000,
with the exception of deferred tax as described below.
From 1 January 2001 the Group is adopting the new accounting
standard FRS19: Deferred Tax which requires full provision to
be made for deferred tax arising from timing differences
between the recognition of gains and losses in the financial
statements and their recognition in the tax computation. In
adopting FRS19, the Group has chosen not to discount deferred
tax assets and liabilities.
The comparative figures for 2000 have been restated to reflect
the impact of FRS19. Consequently the interest of British
American Tobacco's shareholders at 1 January 2000 and
31 December 2000, as published last year, have been reduced by
£95 million and £81 million respectively to reflect recognition
of the additional net provision in respect of deferred tax.
The impact of FRS19 is to decrease the tax charge as shown
below:
3 months to Year to
31.3.01 31.3.00 31.12.00
£m £m £m
7 22 23
The reduction in the tax charge in 2000 principally arises from
the setting up of a deferred tax asset under FRS19 for the
exceptional charge in respect of the cigarette stocks
reacquired from S.C.A. Tobacco Corporation (SCAT) on 31 March
2000 (see page 15).
CHANGES IN THE GROUP
On 1 February 2000, a transaction was completed whereby the
holding in Imasco, an associated company in Canada, was
effectively replaced by shares in Imperial Tobacco Canada, a
wholly-owned subsidiary comprising only the tobacco interests
of Imasco.
Changes in the Group cont... 14.
Consequently, the comparative results from Canada for the three
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 Canada for the two months to
31 March 2000. During that quarter, Imasco's discontinued
non-tobacco operations contributed £112 million of turnover and
£16 million of profit. For the period the tobacco operations
were an associate they contributed £23 million of turnover and
£9 million of profit, while for the period they were a wholly-
owned subsidiary they contributed £111 million of turnover and
£48 million of profit before goodwill amortisation.
Having sold most of the non-tobacco businesses of Imasco last
year, on 15 January 2001 the Group disposed of the remaining
operations of Genstar, Imasco's land development company in
Canada, for Can$128 million. As the intention at the time of
the Imasco acquisition was to dispose of all these non-tobacco
businesses, the revaluation of £1,248 million included in the
year to 31 December 2000 is principally in respect of the
surplus on revaluing the 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 30 January 2001, it was announced that the Group's
Australian subsidiary had entered into an agreement under which
the Group proposed to acquire the remaining 40.5 per cent
shareholding of that company that it does not already own.
This transaction has now received both shareholder and court
approval in Australia and will be completed in May 2001 at a
cost of approximately Aus$1.1 billion (£378 million) and have a
positive impact on the cash earnings of the Group.
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 2001 at the
average rates for that period. The comparatives for the three
months to 31 March 2000 and the year to 31 December 2000 at the
average rates for the year to 31 December 2000. 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.
Foreign currencies cont... 15.
The principal exchange rates used were as follows:
Average Closing
2001 2000 31.3.01 31.3.00 31.12.00
US dollar 1.459 1.516 1.422 1.595 1.494
Canadian dollar 2.229 2.249 2.239 2.316 2.244
Euro 1.581 1.642 1.608 1.667 1.591
EXCEPTIONAL ITEMS
On 20 September 2000, Brown & Williamson announced a major
cost cutting programme in order to improve its financial
position and enable it to remain competitive. The costs of
£119 million for early retirement and redundancies and the
write-down of fixed assets were charged in 2000 as an
exceptional item.
On 31 March 2000, the Group completed the purchase of SCAT,
which distributes the Group's products in Japan. As part of
the acquisition, the Group reacquired cigarette stocks which
had previously been sold to that business. A one-off
accounting adjustment of £83 million was charged against Group
operating profit for the first quarter in 2000 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 the 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.
GOODWILL AMORTISATION
The amortisation charge is in respect of goodwill which
principally arose from the Rothmans transaction during 1999
and the Imasco transaction during 2000.
SALE OF BUSINESS
The sale of the Group's pipe tobacco business in South
Africa to Swedish Match was completed on 1 February 2001,
resulting in a profit on disposal of £35 million.
NET INTEREST 16.
The increase in net interest reflects the impact of
financing the June 2000 redemption of convertible redeemable
preference shares.
TAXATION
3 months to
31.3.01 31.3.00
Restated
£m £m
UK 4 (7)
Overseas 178 113
---- ----
British American Tobacco p.l.c.
and subsidiary undertakings 182 106
Share of associates and joint
ventures 11 (2)
---- ----
193 104
==== ====
Tax rate 41.7% 46.6%
==== ====
The tax rates for the first quarter of both 2001 and 2000 are
adversely affected by the goodwill amortisation arising from
the Rothmans and Imasco transactions.
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 dilutive effect of
employee share schemes and 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.
Earnings per share cont... 17.
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
31.3.01 31.3.00 31.12.00
Restated Restated
pence pence pence
Unadjusted earnings per share 9.84 3.35 29.57
Effect of US restructuring costs 3.08
Effect of acquired stock 2.08 2.14
Effect of goodwill amortisation 4.22 3.57 16.07
Effect of integration costs 0.54 4.02
Effect of Imasco restructuring costs 1.95 2.05
Sale of business (1.52)
------ ------ ------
Adjusted earnings per share 12.54 11.49 56.93
====== ====== ======
Similar types of adjustments would apply to basic earnings
per share. For the three months to 31 March 2001 basic
earnings per share on an adjusted basis would be 13.23p
(2000 12.29p) compared to unadjusted amounts of 10.34p
(2000 3.15p).
SEGMENTAL ANALYSES: ASSOCIATED COMPANIES AND JOINT VENTURES 18.
3 months to Year to
31.3.01 31.3.00 31.12.00
£m £m £m
Turnover excluding duty, excise
and other taxes
Tobacco 157 219 588
Financial services 69 69
Other trading activities 43 43
------ ------ ------
157 331 700
====== ====== ======
Operating profit
Tobacco 26 38 116
Financial services 12 12
Other trading activities 4 4
------ ------ ------
26 54 132
Imasco restructuring costs (69) (71)
------ ------ -------
26 (15) 61
====== ====== =======
The comparisons between the periods above are distorted by
the Imasco transaction (see page 14) and a change in
accounting for an associated company in Europe (see page 8).
******
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.
Aileen McDonald
Secretary
2 May 2001
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