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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| British American Tobacco Plc | LSE:BATS | London | Ordinary Share | GB0002875804 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -25.00 | -0.78% | 3,165.00 | 3,169.00 | 3,171.00 | 3,194.00 | 3,156.00 | 3,189.00 | 3,349,739 | 16:35:19 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Cigarettes | 26.21B | 3.07B | 1.4794 | 21.43 | 66.15B |
From Mar 2020 to Mar 2025
TIDMBATS
RNS Number : 5327K
British American Tobacco PLC
31 July 2013
31 July 2013
BRITISH AMERICAN TOBACCO p.l.c.
HALF-YEARLY REPORT TO 30 JUNE 2013
Hot Features
Premium
CONTINUED GOOD PERFORMANCE
===========================
2013 2012 Change
---------------------- ----------- -------------------
KEY FINANCIALS Current Constant Restated** Current Constant
Six Months Results rates rates rates rates
- unaudited
Revenue GBP7,572m GBP7,745m GBP7,452m +2% +4%
Adjusted profit from
operations* GBP2,944m GBP3,001m GBP2,821m +4% +6%
Profit from operations GBP2,807m GBP2,865m GBP2,722m +3% +5%
Adjusted diluted earnings
per share* 109.1p 111.1p 101.3p +8% +10%
Basic earnings per
share 106.6p 97.8p +9%
Interim dividend per
share 45.0p 42.2p +7%
--------------------------- ---------- ---------- ----------- -------- ---------
*The non-GAAP measures, including adjusting items
and constant currencies, are set out on page
20.
**The 2012 comparatives have been restated to
take account of the revised IAS 19 Employee Benefits
(see page 19).
HALF YEAR HIGHLIGHTS
-- Group revenue was up by 2% and up by 4% at
constant rates of exchange, mainly as a result
of continuing good pricing momentum. Exchange
rate movements adversely impacted three of
the Group's four regions.
-- Adjusted Group profit from operations increased
by 4% and by 6% at constant rates of exchange.
-- The reported profit from operations was 3%
higher at GBP2,807 million.
-- Group cigarette volume was 332 billion, a
decline of 3.4%. Total tobacco volume (including
cigarettes) was 3.2% lower. This performance
was achieved against a total industry decline,
a demanding one-off comparator and the leap
year impact. Underlying cigarette volume decline
was 2%.
-- The Group's cigarette market share continued
to increase in its Top 40 markets, led by
good market share growth of the Global Drive
Brands, which grew volume by 2.3%.
-- Adjusted diluted earnings per share rose by
8% to 109.1p, principally as a result of the
growth in profit from operations. At constant
rates of exchange, it was up by 10%.
-- Basic earnings per share were up by 9% at
106.6p (2012: 97.8p).
-- The Board has declared an interim dividend
of 45.0p, a 7% increase on last year, to be
paid on 30 September 2013.
Richard Burrows, Chairman, commenting on the
6 months ended 30 June 2013
=======================================================
"Despite fragile economic conditions persisting
in some parts of the world, notably Europe, British
American Tobacco has delivered another good set
of results. The business is performing well and
we are confident of another year of good earnings
growth."
CHIEF EXECUTIVE'S REVIEW
=========================
Continued good performance
We performed well during the first half of the year with strong pricing momentum, increased market share and continued growth in our Global Drive Brands, strengthening the foundations for another year of good results in line with our long term strategic goals.
The underlying business performance, measured by constant rates of exchange, was strong with revenue up by 4%, adjusted profit up by 6% and adjusted diluted earnings per share up by 10%.
The business performance was impacted by industry volume contraction in some parts of the world and fragile economic conditions persisting, notably in Europe. Despite the good performance in Asia-Pacific, Group cigarette volume from subsidiaries was 332 billion, down 3.4%. This was also adversely compounded by trade inventory movements last year in specific markets, notably Brazil and the GCC, and the leap year impact. Excluding these one-offs, the cigarette volume decline would have been 2%.
Share growth
We continued to grow cigarette market share in our Top 40 markets, led by the good performances of the Global Drive Brands (GDBs). Globally, Dunhill, Lucky Strike and Pall Mall all grew market share, while Kent was stable.
Collectively, our four GDBs achieved good volume growth of 2.3%. Our other International Brands grew by 1.9% and combined with our Global Drive Brands, now make up nearly 60% of our total cigarette volume.
Next-generation products
This month, CN Creative, our stand-alone company specialising in the development of next-generation products, launched Vype in the UK, the Group's new e-cigarette brand. This is another step in our ongoing commitment to developing a portfolio of next-generation products alongside our tobacco business.
Delivering shareholder value
The Group has been exposed to adverse exchange rate movements over the past six months. Despite this, once again, we delivered excellent value to shareholders, with adjusted diluted earnings per share up by 8% on last year. Our interim dividend of 45p is 7% up on last year and will be paid on 30 September 2013.
I remain confident that we have the right plans in place and the resources at hand to continue to strengthen our competitive position and to deliver another year of good growth.
Nicandro Durante
30 July 2013
REGIONAL REVIEW ================
References to profit in the regional review are based on adjusted profit from operations, as explained in the Group's non-GAAP measures on page 20. Adjusted profit from operations is derived after excluding adjusting items from profit from operations. Adjusting items include restructuring and integration costs and amortisation of trademarks and similar intangibles, as explained on page 23. The 2012 numbers are restated to take account of the revised IAS 19 Employee Benefits which has been adopted by the Group with effect from 1 January 2013. See page 34 for the income statement impact of the restatements.
Adjusted profit from operations at constant and current rates of exchange and volumes are as follows:
Adjusted profit from Cigarette volumes
operations
------------------------------- -----------------------------
6 months to 6 months to Year
to
------------------------------- ------------------ ---------
30.6.13 30.6.12 30.6.13 30.6.12 31.12.12
Restated
--------- -------- ---------- -------- -------- ---------
Constant Current
rates rates
GBPm GBPm GBPm Bns Bns Bns
Asia-Pacific 890 875 815 100 95 188
Americas 755 732 740 64 71 142
Western Europe 556 573 555 57 62 129
EEMEA 800 764 711 111 116 235
--------- -------- ---------- -------- -------- ---------
3,001 2,944 2,821 332 344 694
========= ======== ========== ======== ======== =========
Total tobacco
volumes 346 357 722
======== ======== =========
British American Tobacco performed well during the first half of the year with strong pricing momentum and continued growth in the Global Drive Brands. The Group has been exposed to adverse exchange rate movements over the past months, in particular, the weakness of the Brazilian real, South African rand and Japanese yen against sterling.
Reported revenue was up by 2% as the impact of the continuing good pricing momentum was partially offset by adverse exchange rate movements and lower volumes, giving a strong price-mix of 7%. At constant rates of exchange, revenue was up by 4%.
The reported profit from operations was 3% higher at GBP2,807 million with a 4% increase in adjusted profit from operations.
Group cigarette volume from subsidiaries was 332 billion, down 3.4%. This was mainly the result of contracting industry volumes in some markets, a demanding comparator caused by trade inventory movements in Brazil and the GCC, and the leap year impact. Underlying cigarette volume was down by 2%.
Fine Cut performed well with strong volume growth of 6.7% to 10 billion sticks equivalent in Western Europe, mainly in Spain, Italy, Poland, Belgium and France. Pall Mall remains by far the biggest brand in Western Europe in this category. This performance led to market share growth and higher profit. Total tobacco volume (including cigarettes) was 3.2% lower at 346 billion. The conversion rates applied to calculate the cigarette equivalents of Other Tobacco Products are based on usage levels and are explained in appendix 1 on page 37.
Regional review cont...
Dunhill increased volume by 6% with growth in Indonesia, Chile, South Africa and South Korea partially offset by declines in the GCC and Brazil, mainly as a result of the one-off impacts in the comparator period. Kent maintained market share despite lower volume of 3% due to industry declines in Russia and Romania, partially offset by growth in other Eastern European markets.
Lucky Strike volume was down by 7%, mainly driven by the market contraction in Spain and instability in the Middle East, partially offset by higher volumes in Germany, France, Philippines, Poland and Argentina. Pall Mall volume rose by 8% with strong growth in Pakistan, Chile, Romania, Canada and Mexico partially offset by lower volumes in Russia and Spain.
Asia-Pacific: adjusted profit at constant rates of exchange increased by 9%
Adjusted profit was up by GBP60 million to GBP875 million as a result of strong performances in Australia, Vietnam, Pakistan and Bangladesh partially offset by unfavourable exchange rate movements. At constant rates of exchange, profit would have increased by GBP75 million or 9%. Volume at 100 billion was 5.5% higher than last year, with increases in Pakistan, Bangladesh, Vietnam, South Korea, Indonesia and Philippines, partially offset by lower volumes in Japan and Malaysia.
Country Performance
------------ -------------------------------------------------------
Malaysia The growth in market share continued through
the excellent performance of Dunhill, strengthening
the Group's market leadership position. Profit
was higher as the adverse impact of lower volume
due to market contraction and the growth of
illicit trade was offset by higher pricing
and exchange rate movements.
Australia Profit was up substantially as a result of
higher pricing and cost saving initiatives,
partially offset by slightly lower volume.
Market share was lower as a result of competitor
pricing activities leading to a growth in the
ultra low-priced segment.
Japan Market share was maintained despite significant
competitor activity. Industry contraction led
to lower volume. Exchange rate movements impacted
profit.
Vietnam Volume and market share grew across the portfolio.
Profit increased as a result of higher prices
and increased volume, as well as cost saving
initiatives.
South Korea Volume grew and market share was stable with
a growing trend over the past eight months.
Profit decreased on the back of higher marketing
investment, partially offset by cost savings.
Pakistan Volume growth, fuelled by Pall Mall and John
Player Gold Leaf, led to a strong increase
in market share. Profit increased significantly
as a result of higher volume and improved margins
coupled with productivity savings.
Bangladesh The excellent growth in profit, volume and
market share was the result of the strong performance
of the whole brand portfolio.
Indonesia Dunhill continued to perform well, driving
an increase in overall volume and share growth
in the premium segment. Substantially increased
marketing investment behind the strategic brand
portfolio and higher clove prices resulted
in a decline in profit.
Philippines As a result of our recent market entry following
the removal of the discriminatory excise regime,
Lucky Strike made good gains in volume and
market share.
Regional review cont...
Americas: adjusted profit at constant rates of exchange increased by 2%
Adjusted profit declined by GBP8 million to GBP732 million, mainly due to exchange rate movements in Brazil and Venezuela. At constant rates of exchange, profit rose by GBP15 million or 2%. Good performances from Brazil, Canada and Mexico were partially offset by Argentina, Venezuela and Chile. Volume was down 9.4% at 64 billion, mainly due to reduced industry volume in Brazil, illicit trade growth and trade inventory movements ahead of excise-driven price increases which impacted the comparator period. Underlying volume decline was 7%.
Country Performance
---------- -------------------------------------------------------
Brazil Market share increased significantly but volume
was lower due to market contraction after significant
excise-driven price increases and a subsequent
rise in illicit trade. Strong profit growth
at constant rates was achieved through higher
prices and overhead savings. Reported profit
was down as a result of the adverse exchange
rate movement.
Canada Market share and volume were up and profit
grew strongly. Leadership in the premium segment
was further strengthened.
Mexico Profit increased as a result of good market
share growth and higher volume as the market
recovered slightly after a drop in illicit
trade, driven by Pall Mall's outstanding performance.
Argentina The growth of Lucky Strike led to an increase
in market share. Profit was down, the result
of lower volume, higher marketing investment
and the inflationary impact on costs.
Chile Volume declined, following excise-driven price
increases, resulting in reduced profit.
Venezuela Market share was up against a backdrop of industry
volume decline. Profit was lower, impacted
by significant currency devaluations.
Western Europe: adjusted profit at constant rates of exchange was slightly higher
Adjusted profit was up by GBP18 million to GBP573 million and at constant rates of exchange, it was up by GBP1 million. Industry volume declined strongly due to the difficult economic conditions, affecting profit growth. There were good profit performances in Switzerland, the United Kingdom, Belgium, Sweden, France and Romania, partially offset by declines in Italy, Germany, the Netherlands and Denmark. Cigarette volume was 8.3% lower at 57 billion, mainly as a result of market contractions in Italy, Spain, Poland, the Netherlands, Denmark and Greece. However, Fine Cut volume was up 6.7% to 10 billion sticks equivalent, as a result of increases in Italy, Spain, Poland, Belgium and France.
Country Performance
--------------- ----------------------------------------------------
Italy The difficult economic environment continued
and resulted in significantly lower industry
volume, leading to profit decline. While cigarette
market share was lower, Fine Cut market share
and profit grew strongly.
Germany Volume was lower, in line with the industry
decline but the good performance of Lucky Strike
led to a stable market share. Profit declined
mainly as a result of lower volume.
France Market share was stable with good performances
by Lucky Strike and Pall Mall Fine Cut. Cigarette
volume was lower as a consequence of the industry
volume decline. Profit was higher as a result
of exchange rate movements.
Spain Market share was maintained but volume was
significantly lower due to the industry volume
decline. Fine Cut volume was substantially
up. Profit was lower despite a lower cost base.
Regional review cont...
Romania A strong increase in market share was the result
of good performances by Pall Mall and Dunhill,
although volume was lower. Profit increased
due to higher prices.
Poland Industry volume and market share declined,
impacting profit. Lucky Strike and Fine Cut
performed well and grew volume.
United Kingdom Strong performances from Pall Mall and Rothmans
led to increased market share although volume
was lower, impacted by the industry decline.
Profit grew strongly due to price increases
and cost management.
Denmark Industry volume declined although market share
was up. Profit was lower as a result of volume
decline, partially offset by improved margins
due to higher prices and lower costs.
Sweden Profit increased strongly as a result of lower
costs, higher prices and growing volume. Market
share grew due to the performance of Pall Mall.
Eastern Europe, Middle East and Africa: adjusted profit at constant rates of exchange increased by 13%
Adjusted profit increased by GBP53 million to GBP764 million. This was principally due to price increases, partly offset by volume declines and the adverse impact of exchange rate movements. At constant rates of exchange, profit would have increased by GBP89 million or 13%. Volume at 111 billion was 5 billion lower, or 4.5% down on last year, driven by Turkey, Ukraine and one-off trade inventory movements in the GCC in 2012. Underlying volume declined by 3%.
Country Performance
------------- ----------------------------------------------------
Russia Industry volume declined but market share was
significantly higher driven by the growth of
Rothmans. Kent held its leadership position
in the premium segment. Profit was in line
with last year despite increased marketing
investment.
Ukraine Industry volume declined as a result of the
significant growth of illicit trade. Market
share increased strongly due to the growth
of Rothmans and Kent. Profit was affected by
lower volume and marketing investments, partially
offset by improved pricing.
Turkey Good profit growth was achieved due to improved
pricing and cost savings. Market share declined
despite the growth of Viceroy and Kent. Volume
was lower.
GCC markets Market share increased due to the good performances
of Dunhill and John Player Gold Leaf. Profit
was up due to higher pricing. However, volume
was down due to trade inventory movements which
impacted the comparator period.
Nigeria Profit increased mainly due to cost saving
initiatives. Volume was lower due to the continued
instability in the north east of the country.
South Africa Profit at constant currency grew as a result
of price increases but this was more than offset
by the adverse exchange rate movement. Despite
a decline in total market share, Dunhill performed
well against a backdrop of overall market volume
contraction.
Regional review cont...
The following includes a summary of the analysis of revenue, profit from operations and diluted earnings per share, as reconciled between reported information and non-GAAP management information on pages 21 and 22.
REGIONAL INFORMATION
Western
For the 6 months ended 30 June Asia-Pacific Americas Europe EEMEA Total
----------------------------------- ------------ -------- ------- ------ ------
SUBSIDIARIES
----------------------------------- ------------ -------- ------- ------ ------
Volume (cigarette billions)
----------------------------------- ------------ -------- ------- ------ ------
2013 100 64 57 111 332
2012 95 71 62 116 344
Change* 5.5% (9.4%) (8.3%) (4.5%) (3.4%)
Revenue (GBPm)
----------------------------------- ------------ -------- ------- ------ ------
2013 (at constant) 2,159 1,738 1,662 2,186 7,745
2013 (at current) 2,108 1,650 1,714 2,100 7,572
2012 2,050 1,706 1,649 2,047 7,452
Change (at constant) 5% 2% 1% 7% 4%
Change (at current) 3% (3%) 4% 3% 2%
Adjusted profit from operations
(GBPm)
----------------------------------- ------------ -------- ------- ------ ------
2013 (at constant) 890 755 556 800 3,001
2013 (at current) 875 732 573 764 2,944
2012 Restated 815 740 555 711 2,821
Change (at constant) 9% 2% 0% 13% 6%
Change (at current) 7% (1%) 3% 7% 4%
Operating margin based on adjusted
profit (%)
----------------------------------- ------------ -------- ------- ------ ------
2013 (at constant) 41.2% 43.4% 33.5% 36.6% 38.7%
2013 (at current) 41.5% 44.4% 33.4% 36.4% 38.9%
2012 Restated 39.8% 43.4% 33.7% 34.7% 37.9%
*Based on absolute volumes.
Regional review cont...
REGIONAL INFORMATION
Western
For the 6 months ended 30 Asia-Pacific Americas Europe EEMEA Total
June
------------------------------------ ------------ -------- ------- ----- -----
ASSOCIATES AND JOINT VENTURES
------------------------------------ ------------ -------- ------- ----- -----
Share of post-tax results
of associates
and joint ventures (GBPm)
------------------------------------ ------------ -------- ------- ----- -----
2013 (at current) 175 249 1 - 425
2012 Restated 150 185 - 1 336
Change 17% 35% 26%
Adjusted share of post-tax
results of
associates and joint ventures
(GBPm)
------------------------------------ ------------ -------- ------- ----- -----
2013 (at constant) 152 216 1 - 369
2013 (at current) 148 219 1 - 368
2012 Restated 126 212 - 1 339
Change (at constant) 21% 2% 9%
Change (at current) 17% 3% 9%
------------------------------------ ------------ -------- ------- ----- -----
GROUP
For the 6 months ended 30 Total
June
------------------------------------ ------------ -------- ------- ----- -----
Underlying tax rate of subsidiaries
(%)
------------------------------------ ------------ -------- ------- ----- -----
2013 30.5%
2012 Restated 30.8%
------------------------------------ ------------ -------- ------- ----- -----
Adjusted diluted earnings
per share (pence)
------------------------------------ ------------ -------- ------- ----- -----
2013 (at constant) 111.1
2013 (at current) 109.1
2012 Restated 101.3
Change (at constant) 10%
Change (at current) 8%
------------------------------------ ------------ -------- ------- ----- -----
RESULTS OF ASSOCIATES
The Group's share of the post-tax results of associates increased by GBP89 million, or 26%, to GBP425 million. The Group's share of the adjusted post-tax results of associates increased by 9% to GBP368 million, with a rise of 9% to GBP369 million at constant rates of exchange.
The adjusted contribution from Reynolds American increased by 3% to GBP218 million. At constant rates of exchange the increase was 1%. The Group's adjusted contribution from its associate in India, ITC, was GBP144 million, up 18%. At constant rates of exchange, the contribution would have been 22% higher than last year.
See page 24 for the adjusting items.
NET FINANCE COSTS
Net finance costs at GBP241 million were GBP30 million higher than last year, principally reflecting higher interest paid as a result of increased borrowings, as well as decreased interest income on cash balances.
Net finance costs comprise:
6 months to Year
to
----------------------
30.6.13 30.6.12 31.12.12
GBPm GBPm GBPm
Finance costs (252) (248) (505)
Finance income 11 37 49
------ ------- -------
(241) (211) (456)
====== ======= =======
Comprising:
Interest payable (302) (283) (580)
Interest and dividend income 24 50 84
Net impact of fair value and exchange 37 22 40
- fair value changes - derivatives 47 32 71
- exchange differences (10) (10) (31)
------ ------- -------
(241) (211) (456)
====== ======= =======
TAXATION
6 months to Year
to
-------------------------
30.6.13 30.6.12 31.12.12
restated restated
GBPm GBPm GBPm
UK - - -
Overseas
- current year tax expense 751 757 1,556
- adjustment in respective of prior
periods - (7) (18)
------ ------- -------
Current tax 751 750 1,538
Deferred tax 52 32 (22)
------ ------- -------
803 782 1,516
====== ======= =======
The tax rate in the income statement of 26.8% for the six months to 30 June 2013 (30 June 2012 restated: 27.5%; 31 December 2012 restated: 27.1%) is affected by the inclusion of the share of associates' post-tax profit in the Group's pre-tax results and by adjusting items. The underlying tax rate for subsidiaries reflected in the adjusted earnings per share on page 29 was 30.5% in 2013 and 30.8% (restated) for the six months to 30 June 2012. For the year to 31 December 2012 it was 30.6% (restated). The decrease is mainly due to a change in the mix of profits. The charge relates to taxes payable overseas.
FREE CASH FLOW AND NET DEBT
Operating cash flow increased by GBP151 million or 9% to GBP1,840 million, primarily reflecting increased underlying operating performance. Taking into account the increased outflows relating to taxation and interest paid of GBP22 million and GBP21 million respectively, as well as higher dividends paid to non-controlling interests (GBP19 million increase), the Group's free cash flow was GBP91 million, 13% higher at GBP812 million.
The ratio of free cash flow per share to adjusted diluted earnings per share was 39% (2012 restated: 36%).
Closing net debt was GBP10,548 million at 30 June 2013 (30 June 2012: GBP9,395 million and 31 December 2012: GBP8,473 million).
The Group's alternative cash flow statement and analysis of net debt is shown on page 25 and explained on page 20 under non-GAAP measures.
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 39 to 45 of the Annual Report for the year ended 31 December 2012, a copy of which is available on the Group's website www.bat.com. The Key Group risks and applicable sub-categories are summarised under the headings of:
Illicit trade: - Competition from illicit trade
Excise and tax: - Excise shocks from tax increases or structure changes; Onerous tax disputes, interest and penalties
Financial: - Translational foreign exchange rate exposures; Access to end market cash resources
Marketplace: - Geopolitical tensions; Risk of injury, illness or death in the workplace
Regulation: - Tobacco controls inhibit growth strategy; Product based regulation impacts costs and consumer demand; Loss of ability to communicate directly with consumer
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 2012 Annual Report. These should be read in the context of the cautionary statement regarding forward looking statements on page 36 of this Half-Yearly Report.
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 deployment of the new SAP system, which was piloted at the end of 2012, will start in the fourth quarter 2013. This 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 Chief Operating Officer's Review and the Financial Review and in the notes to the accounts, all of which are included in the 2012 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 2013 and of the financial position, cash flow and liquidity position at 30 June 2013.
Going concern cont...
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 this Half-Yearly Report.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm, that to the best of their knowledge, that this condensed 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 Conduct 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 2012 with the exception of Robert Lerwill and Sir Nicholas Scheele who retired as Directors at the conclusion of the Annual General Meeting on 25 April 2013.
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
30 July 2013
ENQUIRIES: INVESTOR RELATIONS: PRESS OFFICE: Mike Nightingale 020 7845 1180 Kate Matrunola 020 7845 2888 Rachael Brierley 020 7845 1519 Will Hill
Webcast and Conference Call
A live webcast of the results is available via www.bat.com/ir.
If you wish to listen to the presentation via a conference call facility please use the dial in details below:
Dial in number +44 (0) 20 3139 4830
Please quote Passcode: 6961450#
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Please quote passcode: 636263#
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 2013, 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 Conduct 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 Conduct 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 2013 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 Conduct Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
1 Embankment Place
London
30 July 2013
GROUP INCOME STATEMENT - unaudited
6 months to Year to
-------------------
30.6.12 31.12.12
30.6.13 Restated Restated
GBPm GBPm GBPm
Gross turnover (including duty, excise
and other taxes of GBP15,125 million
(30.6.12: GBP14,837 million; 31.12.12:
GBP30,682 million)) 22,697 22,289 45,872
======== ========= =========
Revenue 7,572 7,452 15,190
Raw materials and consumables used (1,678) (1,770) (3,445)
Changes in inventories of finished goods
and work in progress 61 138 133
Employee benefit costs (1,152) (1,185) (2,426)
Depreciation, amortisation and impairment
costs (253) (246) (475)
Other operating income 91 124 245
Other operating expenses (1,834) (1,791) (3,850)
-------- --------- ---------
Profit from operations 2,807 2,722 5,372
-------- --------- ---------
Analysed as:
- adjusted profit from operations 2,944 2,821 5,641
- restructuring and integration costs (97) (68) (206)
- amortisation of trademarks and similar
intangibles (40) (31) (63)
2,807 2,722 5,372
-------- --------- ---------
Finance income 11 37 49
Finance costs (252) (248) (505)
-------- --------- ---------
Net finance costs (241) (211) (456)
Share of post-tax results of associates
and joint ventures 425 336 676
-------- --------- ---------
Analysed as:
- adjusted share of post-tax results
of associates and joint ventures 368 339 681
- issue of shares and change in shareholding 27 24 20
- restructuring and integration costs (2) (25) (24)
- change in post-retirement obligations - - 24
- other (see page 24) 32 (2) (25)
-------- --------- ---------
425 336 676
-------- --------- ---------
Profit before taxation 2,991 2,847 5,592
Taxation on ordinary activities (803) (782) (1,516)
-------- --------- ---------
Profit for the period 2,188 2,065 4,076
======== ========= =========
Attributable to:
Owners of the parent 2,040 1,908 3,797
Non-controlling interests 148 157 279
-------- --------- ---------
2,188 2,065 4,076
======== ========= =========
Earnings per share
Basic 106.6p 97.8p 195.8p
======== ========= =========
Diluted 106.1p 97.3p 194.8p
======== ========= =========
Adjusted diluted earnings per share 109.1p 101.3p 205.2p
======== ========= =========
All of the activities during both years are in respect of continuing
operations.
The accompanying notes on pages 8 and 19 to 36 form an integral
part of this condensed consolidated financial information.
GROUP STATEMENT OF COMPREHENSIVE INCOME - unaudited
6 months to Year to
------------------
30.6.13 30.6.12 31.12.12
Restated Restated
GBPm GBPm GBPm
Profit for the period (page 12) 2,188 2,065 4,076
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss: (103) (127) (337)
------- --------- ---------
Differences on exchange
- subsidiaries (97) (182) (379)
- associates 97 (68) (145)
Cash flow hedges
- net fair value gains/(losses) 99 4 (11)
- reclassified and reported in profit
for the period (47) 22 71
- reclassified and reported in net assets 6 6 12
Available-for-sale investments
- net fair value (losses)/gains (11) 1 (3)
- reclassified and reported in profit
for the period - - (1)
Net investment hedges
- net fair value (losses)/gains (81) 64 106
- differences on exchange on borrowings (50) 44 49
Tax on items that may be reclassified (19) (18) (36)
------- --------- ---------
Items that will not be reclassified subsequently
to profit or loss: 195 (230) (306)
------- --------- ---------
Retirement benefit schemes
- net actuarial gains/(losses) in respect
of subsidiaries 200 (237) (381)
- surplus recognition and minimum funding
obligations in respect of subsidiaries (49) - 60
- actuarial gains/(losses) in respect
of associates net of tax 55 (39) (39)
Tax on items that will not be reclassified (11) 46 54
------- --------- ---------
Total other comprehensive income for
the period, net of tax 92 (357) (643)
------- --------- ---------
Total comprehensive income for the period,
net of tax 2,280 1,708 3,433
======= ========= =========
Attributable to:
Owners of the parent 2,122 1,566 3,163
Non-controlling interests 158 142 270
------- --------- ---------
2,280 1,708 3,433
======= ========= =========
The accompanying notes on pages 8 and 19 to 36 form an integral
part of this condensed consolidated financial information.
GROUP STATEMENT OF CHANGES IN EQUITY - unaudited
At 30 June 2013
Attributable to owners of the
parent
----------------------------------------------------------
Share
premium,
capital Total
redemption attributable
Share and merger Other Retained to owners Non-controlling Total
capital reserves reserves earnings of parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- ----------- --------- --------- ------------- --------------- ---------
Balance at 1 January
2013 507 3,916 796 2,253 7,472 307 7,779
Total comprehensive
income for the period
(page 13) - - (108) 2,230 2,122 158 2,280
--------------------------- -------- ----------- --------- --------- ------------- --------------- ---------
Profit for the period
(page 12) - - - 2,040 2,040 148 2,188
Other comprehensive
income for the period
(page 13) - - (108) 190 82 10 92
--------------------------- -------- ----------- --------- --------- ------------- --------------- ---------
Employee share options
- value of employee
services - - - 40 40 - 40
- proceeds from shares
issued - 3 - 1 4 - 4
Dividends and other
appropriations
- ordinary shares - - - (1,765) (1,765) - (1,765)
- to non-controlling
interests - - - - - (157) (157)
Purchase of own shares
- held in employee
share ownership
trusts - - - (75) (75) - (75)
- share buy-back programme - - - (845) (845) - (845)
Other movements - - - 5 5 - 5
--------------------------- -------- ----------- --------- --------- ------------- --------------- ---------
Balance at 30 June
2013 507 3,919 688 1,844 6,958 308 7,266
=========================== ======== =========== ========= ========= ============= =============== =========
At 30 June 2012
Attributable to owners of the
parent
----------------------------------------------------------
Share
premium, Total
capital attributable
redemption Retained to owners Non-controlling Total
Share and merger Other earnings of parent interests equity
capital reserves reserves Restated Restated Restated Restated
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- ----------- --------- --------- ------------- --------------- ---------
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) - - - 1,908 1,908 157 2,065
Other comprehensive
income for the period
(page 13) - - (111) (231) (342) (15) (357)
--------------------------- -------- ----------- --------- --------- ------------- --------------- ---------
Employee share options
- value of employee
services - - - 37 37 - 37
- proceeds from shares
issued 1 3 - 1 5 - 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
=========================== ======== =========== ========= ========= ============= =============== =========
GROUP STATEMENT OF CHANGES IN EQUITY - unaudited cont...
At 31 December 2012
Attributable to owners of the
parent
----------------------------------------------------------
Share
premium, Total
capital attributable
redemption Retained to owners Non-controlling Total
Share and merger Other earnings of parent interests equity
capital reserves reserves Restated Restated Restated Restated
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- ----------- --------- --------- ------------- --------------- ---------
Balance at 1 January
2012 506 3,913 1,112 2,636 8,167 307 8,474
Total comprehensive
income for the year
(page 13) - - (316) 3,479 3,163 270 3,433
--------------------------- -------- ----------- --------- --------- ------------- --------------- ---------
Profit for the year
(page 12) - - - 3,797 3,797 279 4,076
Other comprehensive
income for the year
(page 13) - - (316) (318) (634) (9) (643)
--------------------------- -------- ----------- --------- --------- ------------- --------------- ---------
Employee share options
- value of employee
services - - - 73 73 - 73
- proceeds from shares
issued 1 3 - 1 5 - 5
Dividends and other
appropriations
- ordinary shares - - - (2,538) (2,538) - (2,538)
- to non-controlling
interests - - - - - (267) (267)
Purchase of own shares
- held in employee
share ownership
trusts - - - (121) (121) - (121)
- share buy-back programme - - - (1,258) (1,258) - (1,258)
Non-controlling interests
- acquisitions - - - (21) (21) (3) (24)
Other movements - - - 2 2 - 2
--------------------------- -------- ----------- --------- --------- ------------- --------------- ---------
Balance at 31 December
2012 507 3,916 796 2,253 7,472 307 7,779
=========================== ======== =========== ========= ========= ============= =============== =========
The accompanying notes on pages 8 and 19 to 36 form an integral
part of this condensed consolidated financial information.
GROUP BALANCE SHEET - unaudited
30.6.13 30.6.12 31.12.12
GBPm GBPm GBPm
Assets
Non-current assets
Intangible assets 11,924 11,795 11,710
Property, plant and equipment 3,226 2,919 3,201
Investments in associates and joint
ventures 2,588 2,522 2,330
Retirement benefit assets 80 42 105
Deferred tax assets 282 304 327
Trade and other receivables 230 319 224
Available-for-sale investments 40 39 37
Derivative financial instruments 198 185 207
-------- -------- --------
Total non-current assets 18,568 18,125 18,141
-------- -------- --------
Current assets
Inventories 4,046 3,984 4,026
Income tax receivable 80 95 83
Trade and other receivables 3,019 2,699 2,741
Available-for-sale investments 46 45 26
Derivative financial instruments 323 184 166
Cash and cash equivalents 1,726 1,749 2,081
-------- -------- --------
9,240 8,756 9,123
Assets classified as held-for-sale 59 53 63
-------- -------- --------
Total current assets 9,299 8,809 9,186
-------- -------- --------
Total assets 27,867 26,934 27,327
======== ======== ========
The accompanying notes on pages 8 and 19 to 36 form an integral
part of this condensed consolidated financial information.
GROUP BALANCE SHEET - unaudited cont...
30.6.13 30.6.12 31.12.12
GBPm GBPm GBPm
Equity
Capital and reserves
Share capital 507 507 507
Share premium, capital redemption and
merger reserves 3,919 3,916 3,916
Other reserves 688 1,001 796
Retained earnings 1,844 1,800 2,253
------- -------- --------
Owners of the parent 6,958 7,224 7,472
------- -------- --------
after deducting
- cost of treasury shares (3,673) (2,259) (2,824)
------- -------- --------
Non-controlling interests 308 303 307
------- -------- --------
Total equity 7,266 7,527 7,779
------- -------- --------
Liabilities
Non-current liabilities
Borrowings 10,147 9,526 9,083
Retirement benefit liabilities 877 1,076 1,152
Deferred tax liabilities 548 498 500
Other provisions for liabilities and
charges 393 417 419
Trade and other payables 155 173 166
Derivative financial instruments 137 81 86
------- -------- --------
Total non-current liabilities 12,257 11,771 11,406
------- -------- --------
Current liabilities
Borrowings 2,307 1,836 1,636
Income tax payable 429 475 404
Other provisions for liabilities and
charges 447 346 210
Trade and other payables 4,999 4,871 5,827
Derivative financial instruments 162 108 65
------- -------- --------
Total current liabilities 8,344 7,636 8,142
------- -------- --------
Total equity and liabilities 27,867 26,934 27,327
======= ======== ========
The accompanying notes on pages 8 and 19 to 36 form an integral
part of this condensed consolidated financial information.
GROUP CASH FLOW STATEMENT
6 months to Year to
------------------
30.6.13 30.6.12 31.12.12
GBPm GBPm GBPm
Cash flows from operating activities
Cash generated from operations (page
27) 1,867 1,714 5,437
Dividends received from associates 182 176 486
Tax paid (730) (708) (1,496)
-------- -------- --------
Net cash generated from operating activities 1,319 1,182 4,427
-------- -------- --------
Cash flows from investing activities
Interest received 26 46 72
Dividends received from investments 1 2 2
Purchases of property, plant and equipment (151) (136) (664)
Proceeds on disposal of property, plant
and equipment 20 20 56
Purchases of intangibles (59) (77) (140)
Proceeds from associate's share buy-back 110 117 262
Purchases and proceeds on disposals of
investments (19) 12 24
Purchase of subsidiaries (12) - (12)
Net cash used in investing activities (84) (16) (400)
-------- -------- --------
Cash flows from financing activities
Interest paid (274) (290) (564)
Interest element of finance lease rental
payments - (1) (1)
Capital element of finance lease rental
payments (2) (3) (5)
Proceeds from issue of shares to owners
of the parent 3 4 4
Proceeds from the exercise of options
over own shares
held in employee share ownership trusts 1 1 1
Proceeds from increases in and new borrowings 1,486 2,601 2,539
Movements relating to derivative financial
instruments (76) (7) 93
Purchases of own shares (612) (536) (1,258)
Purchases of own shares held in employee
share ownership trusts (75) (121) (121)
Purchases of non-controlling interests - (24) (24)
Reductions in and repayments of borrowings (238) (1,475) (1,821)
Dividends paid to owners of the parent (1,765) (1,723) (2,538)
Dividends paid to non-controlling interests (154) (135) (259)
-------- -------- --------
Net cash used in financing activities (1,706) (1,709) (3,954)
-------- -------- --------
Net cash flows (used in)/generated from
operating, investing and financing activities (471) (543) 73
Differences on exchange (12) (43) (176)
-------- -------- --------
Decrease in net cash and cash equivalents
in the year (483) (586) (103)
Net cash and cash equivalents at 1 January 1,839 1,942 1,942
-------- -------- --------
Net cash and cash equivalents at period
end 1,356 1,356 1,839
======== ======== ========
The accompanying notes on pages 8 and 19 to 36 form an integral
part of this condensed consolidated financial information.
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed consolidated financial information comprises the unaudited interim financial information for the six months to 30 June 2013 and 30 June 2012, together with the audited results for the year ended 31 December 2012. This condensed consolidated financial information has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union and the Disclosure and Transparency Rules issued by the Financial Conduct Authority. The condensed consolidated financial information is unaudited but has been reviewed by the auditors and their review report is set out on page 11.
The condensed consolidated financial information does not constitute statutory accounts within the meaning of Section 434 of the UK Companies Act 2006 and should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2012, which were prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). The annual consolidated financial statements for 2012 represent the statutory accounts for that year and have been filed with the Registrar of Companies. The auditors' report on those statements was unqualified and did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.
These condensed consolidated financial statements have been prepared under the historical cost convention, except in respect of certain financial instruments, and on a basis consistent with the IFRS accounting policies as set out in the Annual Report for the year ended 31 December 2012, except where noted below.
With effect from 1 January 2013 the Group has adopted the revised IAS 19 Employee Benefits. The revised standard does not change the values of retirement benefit assets and liabilities on the balance sheet, but does change the amounts recognised in the income statement and in other comprehensive income. The expected return on plan assets and the interest cost on liabilities have been replaced by a new component of the income statement charge - interest on the net retirement benefit asset / liability. The revised standard has retrospective application and has reduced the profit for the six months to 30 June 2012 and the twelve months to 31 December 2012 by GBP21 million and GBP46 million, respectively, with compensating credits in other comprehensive income. See page 34 for the detail.
In addition, the Group has adopted the amendment to IAS 1 Presentation of Financial Statements which changes the presentation of certain items within other comprehensive income, and IFRS 13 Fair Value Measurement which provides a single source of fair value measurement and disclosure requirements for use across IFRS. The implementation of IFRS 13 does not require a restatement of historical transactions.
The Group has early adopted IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities with effect from 1 January 2013 along with the revised versions of IAS 27 Separate Financial Statements and IAS 28 Associates. While the requirements of IFRS 12 will potentially lengthen certain disclosures in respect of Group entities, the requirements of these standards will not materially affect the Group in its present form.
The preparation of these condensed consolidated financial information requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities at the date of these condensed consolidated financial information. Such estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable in the circumstances and constitute management's best judgement at the date of the condensed consolidated financial information. The key estimates and assumptions were the same as those that applied to the consolidated financial information for the year ended 31 December 2012, apart from updating the assumptions used to determine the carrying value of liabilities for retirement benefit schemes. In the future, actual experience may deviate from these estimates and assumptions, which could affect these condensed consolidated financial information as the original estimates and assumptions are modified, as appropriate, in the period in which the circumstances change.
NON-GAAP MEASURES
In the reporting of financial information, the Group uses certain measures that are not required under IFRS, the generally accepted accounting principles (GAAP) under which the Group reports. The Group believes that these additional measures, which are used internally, are useful to users of the financial information in helping them understand the underlying business performance.
The principal non-GAAP measures which the Group uses are adjusted profit from operations and adjusted diluted earnings per share, which is reconciled to diluted earnings per share. Adjusting items are significant items in the profit from operations, net finance costs, taxation and the Group's share of the post-tax results of associates and joint ventures which individually or, if of a similar type, in aggregate, are relevant to an understanding of the Group's underlying financial performance. While the disclosure of adjusting items is not required by IFRS, these items are separately disclosed either as memorandum information on the face of the income statement and in the segmental analysis, or in the notes to the accounts as appropriate. The adjusting items are used to calculate the non-GAAP measures of adjusted profit from operations and adjusted share of post-tax results of associates and joint ventures. All adjustments to profit from operations and diluted earnings per share are explained in this announcement. See pages 23 to 24 and page 29.
The Management Board, as the chief operating decision maker, reviews current and prior year adjusted segmental income statement information of subsidiaries and associates and joint ventures at constant rates of exchange which provides an approximate guide to performance in the current year had they been translated at last year's rate of exchange. The constant rate comparison provided for reporting segment information is based on a retranslation, at prior year exchange rates, of the current year results of the Group's overseas entities but other than in exceptional circumstances, does not adjust for the normal transactional gains and losses in operations which are generated by exchange movements. As an additional measure to indicate the impact of the exchange rate movement on the Group results, the principal measure of adjusted diluted earnings per share is also shown at constant rates of exchange. See page 22.
In the presentation of financial information, the Group also uses another measure, organic growth, to analyse underlying business performance. Organic growth is the growth after adjusting for mergers and acquisitions and discontinued activities. Adjustments would be made to current and prior year numbers, based on the 2012 Group position but for the six months to 30 June 2013 no adjustments are necessary.
The Group prepares an alternative cash flow, which includes a measure of 'free cash flow', to illustrate the cash flows before transactions relating to borrowings. A net debt summary is also provided. See pages 25 and 26. The Group publishes gross turnover as an additional disclosure to indicate the impact of duty, excise and other taxes.
Due to the secondary listing of the ordinary shares of British American Tobacco p.l.c. on the main board of the JSE Limited (JSE) in South Africa, the Group is required to present headline earnings per share and diluted headline earnings per share, as alternative measures of earnings per share, calculated in accordance with Circular 3/2012 'Headline Earnings' issued by the South African Institute of Chartered Accountants. These are shown on page 30.
ANALYSIS OF REVENUE, PROFIT FROM OPERATIONS AND DILUTED EARNINGS
PER SHARE
REVENUE
30 June 2013
-----------------------------------------------------------------------------------------------
Impact Organic
Reported of Revenue Organic revenue
revenue exchange @ CC(2) adjustments(3) @ CC(2)
GBPm GBPm GBPm GBPm GBPm
------------ ------------------- --------------------- ------------------ -----------------
Asia-Pacific 2,108 51 2,159 - 2,159
Americas 1,650 88 1,738 - 1,738
Western Europe 1,714 (52) 1,662 - 1,662
EEMEA 2,100 86 2,186 - 2,186
Total 7,572 173 7,745 - 7,745
============ =================== ===================== ================== =================
30 June 2012
--------------------------------------------------------
Reported Organic Organic
revenue adjustments(3) revenue
GBPm GBPm GBPm
------------ ------------------- ---------------------
Asia-Pacific 2,050 - 2,050
Americas 1,706 - 1,706
Western Europe 1,649 - 1,649
EEMEA 2,047 - 2,047
Total 7,452 - 7,452
============ =================== =====================
PROFIT FROM OPERATIONS
30 June 2013
Organic
Adjusted Adjusted
Impact
Reported Adjusting Adjusted of PFO(1) Organic PFO(1)
PFO(1) items PFO(1) exchange @ CC(2) adjustments(3) @ CC(2)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- ------------ ------------------- --------------- ------------ ----------------- ----------
Asia-Pacific 834 41 875 15 890 - 890
Americas 711 21 732 23 755 - 755
Western Europe 521 52 573 (17) 556 - 556
EEMEA 741 23 764 36 800 - 800
--------- ------------ ------------------- --------------- ------------ ----------------- ----------
Total 2,807 137 2,944 57 3,001 - 3,001
========= ============ =================== =============== ============ ================= ==========
30 June 2012
----------------------------------------------------------------------------------------------
Organic
Reported Adjusted Adjusted
PFO(1) Adjusting PFO(1) Organic PFO(1)
restated items Restated adjustments(3) Restated
GBPm GBPm GBPm GBPm GBPm
---------------- ---------------- ------------------ ------------------- -----------------
Asia-Pacific 793 22 815 - 815
Americas 711 29 740 - 740
Western
Europe 513 42 555 - 555
EEMEA 705 6 711 - 711
---------------- ---------------- ------------------ ------------------- -----------------
Total 2,722 99 2,821 - 2,821
================ ================ ================== =================== =================
Analysis of revenue, profit from operations and earnings per share cont...
DILUTED EARNINGS PER SHARE
30 June 2013
---------------------------------------------------------
Adjusting Impact of Adjusted
Reported items Adjusted exchange @ CC(2)
GBPm GBPm GBPm GBPm GBPm
---------- ---------- ---------- ---------- ---------
Profit from subsidiaries 2,807 137 2,944 57 3,001
Net Finance costs (241) - (241) 9 (232)
Associates and joint
ventures 425 (57) 368 1 369
---------- ---------- ---------- ---------- ---------
Profit before tax 2,991 80 3,071 67 3,138
Taxation (803) (22) (825) (24) (849)
Non controlling interest (148) (2) (150) (4) (154)
Profit attributable
to shareholders 2,040 56 2,096 39 2,135
========== ========== ========== ========== =========
Diluted number of shares 1,922 1,922 1,922
Diluted earnings per
share (pence) 106.1 109.1 111.1
30 June 2012
----------------------------------
Reported Adjusting Adjusted
Restated items Restated
GBPm GBPm GBPm
---------- ---------- ----------
Profit from subsidiaries 2,722 99 2,821
Net Finance costs (211) - (211)
Associates and joint
ventures 336 3 339
---------- ---------- ----------
Profit before tax 2,847 102 2,949
Taxation (782) (23) (805)
Non controlling interest (157) - (157)
Profit attributable
to shareholders 1,908 79 1,987
========== ========== ==========
Diluted number of shares 1,961 1,961
Diluted earnings per
share (pence) 97.3 101.3
Notes:
(1) PFO: Profit from operations
(2) CC: Constant currencies
(3) Organic adjustments: Mergers and acquisitions and discontinued
operations - no adjustments are required for 2013.
ADJUSTING ITEMS INCLUDED IN PROFIT FROM OPERATIONS
Adjusting items are significant items in the profit from operations which individually or, if of a similar type, in aggregate, are relevant to an understanding of the Group's underlying financial performance. See page 20. These items are separately disclosed as memorandum information on the face of the income statement.
(a) Restructuring and integration costs
Restructuring costs reflect the costs incurred as a result of initiatives to improve the effectiveness and the efficiency of the Group as a globally integrated enterprise. These initiatives include a review of the Group's manufacturing operations, overheads and indirect costs, organisational structure and systems and software used. The costs of these initiatives together with the costs of integrating acquired businesses into existing operations, including acquisition costs, are included in profit from operations under the following headings:
6 months to Year
to
-------------------------
30.6.13 30.6.12 31.12.12
GBPm GBPm GBPm
Employee benefit costs 41 25 96
Depreciation and impairment
costs 14 21 26
Other operating expenses 42 22 100
Other operating income - - (16)
Total 97 68 206
======== =========== =========
Restructuring and integration costs in the six months to 30 June 2013 principally relate to the restructuring initiatives directly related to implementation of a new operating model (see page 9) and the continuation of factory closures and downsizing activities in Australia and Russia, and restructurings in Argentina and Canada. The costs also cover separation packages in respect of permanent headcount reductions and permanent employee benefit reductions in the Group.
Restructuring and integration costs in the six months to 30 June 2012 principally relate to the continuation of factory closure and downsizing activities in Australia and restructuring in Argentina. The costs also cover the social plan and other activities relating to the Bremen factory closure in Germany, integration of Productora Tabacalera de Colombia, S.A.S. (Protabaco) into existing operations, as well as other restructuring initiatives directly related to implementation of the new operating model.
For the year ended 31 December 2012, the charge of GBP206 million for restructuring and integration costs includes the activities referred to in respect of the six months to 30 June 2012. In addition, the costs also cover the write-off of non-compliant products and materials related to the implementation of plain packaging in Australia, separation packages in respect of permanent headcount reductions and permanent employee benefit reductions in the Group as well as other restructuring initiatives directly related to implementation of the new operating model.
Other operating income for the year ended 31 December 2012 included gains from the sale of land and buildings in the UK and South Africa and the release of deferred income from a disposal in 2007.
(b) Amortisation of trademarks and similar intangibles
The acquisitions of Protabaco, Bentoel, Tekel, ST and CN Creative resulted in the capitalisation of trademarks and similar intangibles which are amortised over their expected useful lives, which do not exceed 20 years. The amortisation charge of GBP40 million is included in depreciation, amortisation and impairment costs in the profit from operations for the six months to 30 June 2013 (30 June 2012: GBP31 million). For the year to 31 December 2012, the amortisation charge was GBP63 million.
ASSOCIATES AND JOINT VENTURES
The share of post-tax results of associates and joint ventures is after the following adjusting items which are excluded from the calculation of adjusted earnings per share as set out on page 29.
In the six months to 30 June 2013:
The Group's interest in ITC decreased from 30.72% to 30.54% as a result of ITC issuing ordinary shares under the Company's Employee Share Option Scheme. The issue of these shares and change in the Group's share of ITC resulted in a gain of GBP27 million, which is treated as a deemed partial disposal and included in the income statement.
Reynolds American recognised restructuring charges of US$8 million in respect of its overall activities. The Group's share of these charges is GBP2 million (net of tax).
Reynolds American has also recognised amounts which have been combined in the table of adjusting items in the Group income statement and are shown as "other". These include costs of US$4 million in respect of a number of Engle progeny lawsuits; the Group's share of these costs is GBP1 million (net of tax); costs of US$3 million relating to other tobacco related litigation charges; the Group's share of these costs is GBP1 million (net of tax); and during 2013, Reynolds American, various other tobacco manufacturers, 19 states, the District of Columbia and Puerto Rico reached a final agreement related to Reynolds American's 2003 Master Settlement Agreement (MSA) activities. Under this agreement Reynolds American will receive credits, currently estimated to be more than US$1 billion, in respect of its Non-Participating Manufacturer (NPM) Adjustment claims related to the period from 2003 to 2012. These credits will be applied against the company's MSA payments over the next five years, subject to meeting the various performance obligations. During the first half of this year, Reynolds American has recognised income of US$124 million related to its 2012 liability. The Group's share of this income is GBP34 million (net of tax). Credits in respect of the 2013 liability and future years would be accounted for in the applicable year and will not be treated as adjusting items.
In the six months to 30 June 2012:
The Group's interest in ITC decreased from 31.04% to 30.86% as a result of ITC issuing ordinary shares under the Company's Employee Share Option Scheme. The issue of these shares and change in the Group's share of ITC resulted in a gain of GBP24 million, which is treated as a deemed partial disposal and included in the income statement.
Reynolds American recognised restructuring charges of US$93 million in respect of its overall activities. The Group's share of these charges is GBP25 million (net of tax).
Included in "other" adjusting items in the Group income statement, Reynolds American has recognised costs of US$7 million in respect of a number of Engle progeny lawsuits and the Group's share of these costs is GBP2 million (net of tax).
For the year ended 31 December 2012:
The Group's interest in ITC decreased from 31.04% to 30.72% as a result of ITC issuing ordinary shares under the company's employee stock option scheme. The issue of shares and change in the Group's share of ITC resulted in a gain of GBP20 million, which is treated as a deemed partial disposal and included in the income statement.
Reynolds American recognised restructuring charges of US$149 million in respect of its overall activities. The Group's share of these charges is GBP24 million (net of tax). In addition, Reynolds American amended a post-retirement medical plan that resulted in a gain of US$157 million and the Group's share of this gain is GBP24 million (net of tax).
Reynolds American has also recognised amounts which have been combined in the table of adjusting items and reported in other. These mainly consist of a charge of US$37 million in respect of a number of Engle progeny lawsuits; the Group's share of these costs is GBP6 million (net of tax); and trademark amortisation and impairment of US$86 million; the Group's share of these charges amounts to GBP16 million (net of tax).
CASH FLOW AND NET DEBT MOVEMENTS
(a) Alternative cash flow
The IFRS cash flow statement on page 18 includes all transactions affecting cash and cash equivalents, including financing. The alternative cash flow statement below is presented to illustrate the cash flows before transactions relating to borrowings.
6 months to Year to
-----------------------------
30.6.13 30.6.12 31.12.12
Restated* Restated*
GBPm GBPm GBPm
Adjusted profit from operations (page
12) 2,944 2,821 5,641
Depreciation, amortisation and impairment 199 194 385
Other non-cash items in operating profit 42 23 45
--------- ---------- ----------
Profit from operations before depreciation,
amortisation
and impairment 3,185 3,038 6,071
Increase in working capital (1,156) (1,159) (242)
Net capital expenditure (189) (190) (742)
--------- ----------
Gross capital expenditure (209) (210) (798)
Sale of fixed assets 20 20 56
--------- ---------- ----------
Operating cash flow 1,840 1,689 5,087
Pension funds' shortfall funding net
of one-off receipts (70) (70) (164)
Net interest paid (274) (253) (429)
Tax paid (730) (708) (1,496)
Dividends paid to non-controlling interests (154) (135) (259)
--------- ---------- ----------
Cash generated from operations 612 523 2,739
Restructuring costs (92) (95) (228)
Dividends and other appropriations
from associates 292 293 748
Free cash flow 812 721 3,259
Dividends paid to shareholders (1,765) (1,723) (2,538)
Share buy-back (including transaction
costs) (612) (536) (1,258)
Net investment activities (17) (27) (43)
Net flow from share schemes and other (98) (85) (57)
--------- ---------- ----------
Net cash flow (1,680) (1,650) (637)
External movements on net debt
Exchange rate effects** (427) 140 89
Change in accrued interest and other 32 43 3
--------- ---------- ----------
Change in net debt (2,075) (1,467) (545)
Opening net debt (8,473) (7,928) (7,928)
--------- ---------- ----------
Closing net debt (10,548) (9,395) (8,473)
========= ========== ==========
* 2012 numbers have been restated to separately show the additional cash flows in respect of the funding of pension funds in deficit, or where one-off amounts have been repaid from pension fund surpluses to Group companies, as well as the impact of the adoption of the revised IAS 19 Employee Benefits on the adjusted profit from operations and working capital movement.
** Including movements in respect of debt related derivatives.
Cash flow and net debt movements cont...
Operating cash flow increased by GBP151 million or 9% to GBP1,840 million, primarily reflecting increased underlying operating performance. Taking into account the increased outflows relating to taxation and interest paid of GBP22 million and GBP21 million respectively, as well as higher dividends paid to non-controlling interests (GBP19 million increase), the Group's free cash flow was GBP91 million or 13% higher at GBP812 million.
The ratio of free cash flow per share to adjusted diluted earnings per share was 39% (2012 restated: 36%), with free cash flow per share increasing by 15%.
Below free cash flow, the principal cash outflows for the six months to 30 June 2013 comprise the payment of the prior year final dividend which was GBP42 million higher at GBP1,765 million, as well as an outflow of GBP612 million due to the continuation of the on-market share buy-back programme in 2013 (2012: GBP536 million), including transaction costs.
Also reflected below free cash flow are the cash outflows of GBP17 million (2012: GBP27 million) in respect of investing activities. These include the further investment of GBP12 million in CN Creative in 2013, the purchase of non-controlling interests in British American Tobacco Bangladesh for GBP24 million in 2012, and the payment for manufacturing licences in 2013 and 2012.
The other net flows principally relate to the impact of the level of shares purchased by the employee share ownership trusts and cash flows in respect of certain derivative financial instruments.
These flows resulted in net cash outflows of GBP1,680 million (2012: GBP1,650 million). After taking account of exchange rate movements and the change in accrued interest, total net debt was GBP10,548 million at 30 June 2013 (30 June 2012: GBP9,395 million and 31 December 2012: GBP8,473 million).
(b) Net debt
The Group defines net debt as borrowings including related derivatives, less cash and cash equivalents and current available-for-sale investments. The maturity profile of net debt is as follows:
30.6.13 30.6.12 31.12.12
GBPm GBPm GBPm
Net debt due within one year:
Borrowings (2,307) (1,836) (1,636)
Related derivatives 107 72 41
Cash and cash equivalents 1,726 1,749 2,081
Current available-for-sale investments 46 45 26
--------- -------- --------
(428) 30 512
Net debt due beyond one year:
Borrowings (10,147) (9,526) (9,083)
Related derivatives 27 101 98
--------- -------- --------
(10,120) (9,425) (8,985)
Total net debt (10,548) (9,395) (8,473)
========= ======== ========
The Group remains confident about its ability to access the debt capital markets successfully and reviews its options on a continuing basis.
Cash flow and net debt movements cont...
(c) IFRS cash generated from operations
The cash generated from operating activities in the IFRS cash flows on page 18 include the following items:
6 months to Year to
-------------------------
30.6.13 30.6.12 31.12.12
Restated* Restated*
GBPm GBPm GBPm
Profit from operations 2,807 2,722 5,372
Adjustments for:
Amortisation of trademarks and
similar intangibles 40 31 63
Amortisation and impairment of
other
intangible assets 27 27 53
Depreciation and impairment of
property,
plant and equipment 186 188 359
Decrease/(increase) in inventories 62 (593) (755)
(Increase) in trade and other
receivables (240) (382) (329)
(Decrease)/increase in trade and
other payables (943) (167) 840
Decrease in net retirement benefit
liabilities (117) (98) (160)
Increase/(decrease) in provisions
for liabilities
and charges 6 (37) (45)
Other non-cash items 39 23 39
------ -------- -------
Cash generated from operations 1,867 1,714 5,437
====== ======== =======
* See page 25
(d) IFRS net cash and cash equivalents
The net cash and cash equivalents in the Group cash flow statement comprise:
30.6.13 30.6.12 31.12.12
GBPm GBPm GBPm
Cash and cash equivalents per balance
sheet 1,726 1,749 2,081
Overdrafts (370) (393) (242)
-------- -------- ---------
Net cash and cash equivalents 1,356 1,356 1,839
======== ======== =========
(e) Liquidity
The Central Treasury Department is responsible for managing, within an overall policy framework, the Group's exposure to funding and liquidity, interest rate, foreign exchange and counterparty risk arising from the Group's underlying operations.
The Group has a target average centrally managed debt maturity of at least 5 years with no more than 20 per cent of centrally managed debt maturing in a single rolling year. As at 30 June 2013, the average centrally managed debt maturity was 6.8 years (31 December 2012: 7.2 years, 30 June 2012: 7.1 years) and the highest proportion of centrally managed debt maturing in a single rolling year was 18.2 per cent (31 December 2012: 19.3 per cent, 30 June 2012: 19.4 per cent).
In July 2013, post the 30 June 2013 balance sheet date, the Group repaid a EUR519 million bond from the Group's cash balances.
In March 2013, the Group issued a US$300 million bond with a maturity of March 2016 and EUR650 million bond with a maturity of March 2025.
Cash flow and net debt movements cont...
During the period to 30 June 2013, the Group's subsidiary in Brazil received proceeds of GBP323 million (2012 full year: GBP356 million, to 30 June 2012: GBP278 million) from short-term borrowings in respect of advance payments on leaf export contracts and repaid GBP172 million (31 December 2012: GBP350 million, 30 June 2012: GBP193 million).
In June 2012, the Group issued new US$2 billion bonds, US$500 million with a maturity of June 2015, US$600 million with a maturity of June 2017 and US$900 million with a maturity of June 2022.
In June 2012, the Group repaid a EUR337 million bond due in June 2012, prepaid and cancelled a US$690 million syndicated facility due October 2012, a Mexican Peso 1,444 million borrowing due September 2014 and a Mexican Peso 1,025 million borrowing due November 2014. These repayments were financed from Group cash balances.
In July 2012, the Group prepaid and cancelled a EUR450 million syndicated facility due October 2013. This repayment was financed from Group cash balances.
In November 2012, the Group issued a new EUR750 million bond with maturity of January 2023.
It is Group policy that short-term sources of funds (including drawings under both the Group US$2 billion commercial paper programme, and the Group GBP1 billion euro commercial paper (ECP) programme) are backed by undrawn committed lines of credit and cash. At 30 June 2013, GBP171 million of commercial paper was outstanding (31 December 2012: no commercial paper outstanding, 30 June 2012 GBP589 million).
EARNINGS PER SHARE
Adjusted diluted earnings per share rose by 8% at 109.1p (2012 restated: 101.3p), principally as a result of the growth in profit from operations. Basic earnings per share were up 9% at 106.6p (2012 restated: 97.8p).
6 months to Year to
-------------------
30.6.13 30.6.12 31.12.12
Restated Restated
pence pence pence
Earnings per share
- basic 106.6 97.8 195.8
- diluted 106.1 97.3 194.8
Adjusted earnings per share
- basic 109.5 101.8 206.3
- diluted 109.1 101.3 205.2
Headline earnings per share
- basic 105.7 97.3 195.1
- diluted 105.3 96.8 194.1
Basic earnings per share are based on the profit for the year attributable to ordinary shareholders and the weighted average number of ordinary shares in issue during the period (excluding treasury shares).
For the calculation of the diluted earnings per share, the weighted average number of shares reflects the potential dilutive effect of employee share schemes.
Earnings per share cont...
The presentation of headline earnings per share, as an alternative measure of earnings per share, is mandated under the JSE Listing Requirements. It is calculated in accordance with Circular 3/2012 'Headline Earnings', as issued by the South African Institute of Chartered Accountants.
Earnings have been affected by a number of adjusting items which impact profit from operations (see page 23) and share of post-tax results of associates and joint ventures (see page 24). For the year to 31 December 2012, the merger of the Group's Colombian companies resulted in a reduction of GBP11 million against a deferred tax liability set up on the acquisition of Protabaco in 2011 which has also been treated as an adjusting item. In order to illustrate the impact of these items, the adjusted diluted earnings per share are shown below:
Adjusted diluted earnings
per share
6 months to Year to
------------------------
30.6.13 30.6.12 31.12.12
Restated Restated
pence pence pence
Unadjusted diluted earnings per
share 106.1 97.3 194.8
Effect of restructuring and integration
costs 4.3 2.7 8.3
Effect of deferred tax credit - - (0.6)
Effect of amortisation of trademarks
and similar
intangibles 1.7 1.2 2.4
Effect of associates' adjusting items (3.0) 0.1 0.3
Adjusted diluted earnings per share 109.1 101.3 205.2
====== ======= ========
Similar types of adjustments would apply to basic earnings per share.
The earnings per share are based on:
30.6.13 30.6.12 31.12.12
------------------ ------------------ ------------------
Earnings Shares Earnings Shares Earnings Shares
Restated Restated
GBPm m GBPm m GBPm m
Earnings per
share
- basic 2,040 1,914 1,908 1,951 3,797 1,939
- diluted 2,040 1,922 1,908 1,961 3,797 1,949
Adjusted earnings
per share
- basic 2,096 1,914 1,987 1,951 4,000 1,939
- diluted 2,096 1,922 1,987 1,961 4,000 1,949
Headline earnings
per share
- basic 2,024 1,914 1,899 1,951 3,784 1,939
- diluted 2,024 1,922 1,899 1,961 3,784 1,949
Earnings per share cont...
The diluted headline earnings per share are calculated by taking the following adjustments into account:
Diluted headline earnings
per share
6 months to Year to
---------------------
30.6.13 30.6.12 31.12.12
Restated Restated
pence pence pence
Unadjusted diluted earnings per share 106.1 97.3 194.8
Effect of impairment of intangibles
and property, plant
and equipment 0.6 0.7 0.4
Effect of gains on disposal of property,
plant and
equipment and held-for-sale assets - - (0.8)
Effect of gains reclassified from
the available-for-sale
reserve - - (0.1)
Effect of share of associates' trademark
and other asset
impairments - - 0.8
Effect of issue of shares and change
in shareholding in
associate (1.4) (1.2) (1.0)
-------- -------- --------
Diluted headline earnings per share 105.3 96.8 194.1
======== ======== ========
DIVIDENDS
Declaration
The Board has declared an interim dividend of 45.0p pence per ordinary share of 25p for the six months ended 30 June 2013. The interim dividend will be payable on 30 September 2013 to shareholders registered on either the UK main register or the South Africa branch register on 23 August 2013 (the record date).
Key Dates and South Africa Branch Register
In compliance with the requirements of the London Stock Exchange (LSE) and 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 2013 ------------------------------------- -------------------- Last Day to Trade (LDT) cum dividend Friday 16 August (JSE) Shares commence trading ex dividend Monday 19 August (JSE) Shares commence trading ex dividend Wednesday 21 August (LSE) Record date (JSE and LSE) Friday 23 August Payment date Monday 30 September No removal requests permitted between Wednesday 31 July to the UK main register and the South Friday 23 August (inclusive) Africa branch register No transfers permitted between the Monday 19 August to Friday UK main register and the South Africa 23 August (inclusive) branch register No shares may be dematerialised or Monday 19 August to Friday rematerialised 23 August (inclusive)
As the Group reports in sterling, dividends are declared and payable in sterling except for shareholders on the branch register in South Africa whose dividends are payable in rand. A rate of exchange of GBP:R = 15.00890 as at 29 July 2013 (the closing rate on that date as quoted by Bloomberg), results in an equivalent interim dividend of 675.40050 SA cents per ordinary share.
Dividends cont...
South Africa Branch Register: Dividend Tax Information
South Africa Dividend Tax will be withheld from the gross interim dividend of 675.40050 SA cents per ordinary share paid to shareholders on the South African branch register at the rate of 15% unless a shareholder qualifies for an exemption. After Dividend Tax has been withheld, the net dividend will be 574.09043 SA cents per ordinary share.
At the close of business on 29 July 2013 (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 1,907,026,376 ordinary shares in issue (excluding treasury shares). The Company held 119,426,237 ordinary shares in treasury giving a total issued share capital of 2,026,452,613 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 Tax. No STC credits are available for set-off against Dividend Tax liability on the interim dividend which is regarded as a 'foreign dividend' for the purposes of the South Africa Dividend 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 Tax and the information provided above is of only direct application to shareholders on the South Africa branch register. Shareholders on the South Africa branch register should direct any questions regarding the application of Dividend Tax to Computershare Investor Services (Pty) Ltd, contact details for which are given in the 'Corporate Information' section below.
CHANGES IN THE GROUP
(a) CN Creative Limited
On 18 December 2012, the Group acquired CN Creative Limited, a UK-based start-up company specialising in the development of e-cigarette technologies. The company's entire share capital was acquired for GBP40 million, of which GBP14 million was paid in 2012 and a further GBP12 million paid during the current period. The remaining balance of the consideration payable is contingent upon the achievements of certain post-acquisition events. The only material asset acquired was the company's intellectual property.
(b) British American Tobacco Bangladesh
On 27 June 2012, the Group acquired a further 7 per cent interest in British American Tobacco Bangladesh Company Limited at a cost of GBP24 million. This increased the Group's total shareholding to 73 per cent as at 30 June 2012.
SHARE BUY-BACK PROGRAMME
The Company continues with its approved on-market share buy-back programme with a value of up to GBP1,500 million, excluding transaction costs. During the six months to 30 June 2013, 18 million shares were bought at a cost of GBP641 million, excluding transaction costs of GBP4 million (30 June 2012: 18 million shares at a cost of GBP553 million, excluding transaction costs of GBP3 million).
For the year ended 31 December 2012, 38.9 million shares were bought at a cost of GBP1,250 million, excluding transaction costs of GBP8 million.
The purchase of own shares in the Group statement of changes in equity, includes an amount of GBP200 million (30 June 2012: GBP120 million) provided for the potential buy-back of shares during July 2013 under an irrevocable non-discretionary contract.
RELATED PARTY DISCLOSURES
In the six months to 30 June 2013, there were no material changes in related parties or related party transactions. The Group's related party transactions and relationships for 2012 were disclosed on page 174 of the Annual Report for the year ended 31 December 2012.
FOREIGN CURRENCIES
The principal exchange rates used were as follows:
Average Closing
-------------------------------- --------------------------------
30.6.13 30.6.12 31.12.12 30.6.13 30.6.12 31.12.12
US dollar 1.544 1.577 1.586 1.517 1.568 1.626
Canadian dollar 1.568 1.586 1.584 1.600 1.599 1.619
Euro 1.176 1.216 1.234 1.167 1.236 1.233
South African
rand 14.221 12.521 13.054 15.057 12.828 13.791
Brazilian real 3.139 2.941 3.109 3.351 3.166 3.328
Australian dollar 1.523 1.528 1.532 1.657 1.530 1.566
Russian rouble 47.915 48.255 49.277 49.790 50.876 49.656
Japanese yen 147.400 125.689 126.633 150.661 125.147 140.549
Indian rupee 84.922 82.267 84.838 90.130 87.574 89.061
CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
The Group has contingent liabilities in respect of litigation, taxes and guarantees in various countries. The Group is subject to contingencies pursuant to requirements that it complies with relevant laws, regulations and standards. Failure to comply could result in restrictions in operations, damages, fines, increased tax, increased cost of compliance, interest charges, reputational damage or other sanctions. These matters are inherently difficult to quantify.
In cases where the Group has an obligation as a result of a past event existing at the balance sheet date, it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated, a provision will be recognised based on best estimates and management judgment. There are, however, contingent liabilities in respect of litigation, taxes in some countries and guarantees for which no provisions have been made.
Taxes
The Group has exposures in respect of the payment or recovery of a number of taxes. The Group is and has been subject to a number of tax audits covering, amongst others, excise tax, value added taxes, sales taxes, corporate taxes, withholding taxes and payroll taxes.
The estimated costs of known tax obligations have been provided in these accounts in accordance with the Group's accounting policies. In some countries, tax law requires that full or part payment of disputed tax assessments be made pending resolution of the dispute. To the extent that such payments exceed the estimated obligation, they would not be recognised as an expense. In some cases disputes are proceeding to litigation.
While the amounts that may be payable or receivable could be material to the results or cash flows of the Group in the period in which they are recognised, the Board does not expect these amounts to have a material effect on the Group's financial condition.
Product liability
Group companies, as well as other leading cigarette manufacturers, are defendants in a number of product liability cases. In a number of the cases, the amounts of compensatory and punitive damages sought are significant. At least in the aggregate and despite the quality of the defences available to the Group, it is not impossible that the results of operations or cash flows of the Group in a particular period could be materially affected by this.
Contingent liabilities cont...
While it is impossible to be certain of the outcome of any particular case or of the amount of any possible adverse verdict, the Group believes that the defences of the Group's companies to all these various claims are meritorious on both the law and the facts, and a vigorous defence is being made everywhere. If an adverse judgment is entered against any of the Group's companies in any case, an appeal will be made. Such appeals could require the appellants to post appeal bonds or substitute security in amounts which could in some cases equal or exceed the amount of the judgment. In any event, with regard to US litigation, the Group has the benefit of the indemnity from R. J. Reynolds Tobacco Company, a wholly-owned subsidiary of Reynolds American Inc. At least in the aggregate, and despite the quality of defences available to the Group, it is not impossible that the Group's results of operations or cash flows in a particular period could be materially affected by this and by the final outcome of any particular litigation.
Summary
Having regard to all these matters, the Group (i) does not consider it appropriate to make any provision in respect of any pending litigation, save insofar as stated above and (ii) does not believe that the ultimate outcome of this litigation will significantly impair the Group's financial condition.
Full details of the litigation against Group companies as at 31 December 2012 are included in the Annual Report for the year ended 31 December 2012. There were no material developments during the six months to 30 June 2013 that would impact on the financial position of the Group.
FRANKED INVESTMENT INCOME GROUP LITIGATION ORDER
British American Tobacco is the principal test claimant in an action in the United Kingdom against HM Revenue and Customs in the Franked Investment Income Group Litigation Order (FII GLO). There are 25 corporate groups in the FII GLO. The case concerns the treatment for UK corporate tax purposes of profits earned overseas and distributed to the UK. The claim was filed in 2003 and the case was heard in the European Court of Justice (ECJ) in 2005 and a decision of the ECJ received in December 2006. In July 2008, the case reverted to a trial in the UK High Court for the UK Court to determine how the principles of the ECJ decision should be applied in a UK context.
The High Court judgement in November 2008 concluded, amongst many other things, that dividends received from EU subsidiaries should have been exempt from UK taxation. It also concluded that certain dividends received before 5 April 1999 from the EU and, in some limited circumstances after 1993 from outside the EU, should have been treated as franked investment income with the consequence that advance corporation tax (ACT) need not have been paid. Claims for the repayment of UK tax incurred where the dividends were from the EU were allowed back to 1973. The tentative conclusion reached by the High Court would, if upheld, produce an estimated receivable of about GBP1.2 billion for British American Tobacco.
The case was heard by the Court of Appeal in October 2009 and the judgment handed down on 23 February 2010. The Court of Appeal determined that various questions, including which companies in the corporate tree can be included in a claim, should be referred back to the ECJ for further clarification. In addition, the Court determined that the claim should be restricted to six years and not cover claims dating back to 1973. The issue of time limits was heard by the Supreme Court in February 2012 and in May 2012 the Supreme Court decided in British American Tobacco Group's favour, that claims submitted before 8 September 2003 can go back to 1973. A hearing took place in February 2012 at the ECJ on the questions referred from the Court of Appeal.
The ECJ judgement of 13 November 2012 confirms that the UK treatment of EU dividends was discriminatory and produces the same outcome for third country dividends from 1994 in certain circumstances. The judgement also confirms that the claim can cover dividends from all indirect as well as direct EU subsidiaries and also ACT paid by a superior holding company.
Franked Investment Income Group litigation order cont...
The case will now revert to the UK High Court to apply the ECJ judgement and a full quantification hearing is scheduled for May 2014.
No potential receipt has been recognised in the current period or the prior year, in the results of the Group, due to the uncertainty of the amounts and eventual outcome.
IMPACT OF CHANGE IN ACCOUNTING POLICY
The impact of the revised IAS19 Employee Benefits on the results
for the six months to 30 June 2012 and the twelve months to 31
December 2012 is as follows:
6 months to Year to
30.6.12 31.12.12
----------------------------------- -------------------------------
Previously Previously Restated Change
reported Restated Change reported
GBPm GBPm GBPm GBPm GBPm GBPm
Income statement
- Profit from operations 2,740 2,722 (18) 5,412 5,372 (40)
- Adjusted profit from
operations 2,839 2,821 (18) 5,681 5,641 (40)
- Share of post-tax
results of
associates and joint
ventures 344 336 (8) 692 676 (16)
- Adjusted share of
post-tax results
of associates 347 339 (8) 697 681 (16)
- Profit before taxation 2,873 2,847 (26) 5,648 5,592 (56)
- Taxation on ordinary
activities (787) (782) 5 (1,526) (1,516) 10
- Profit for the period 2,086 2,065 (21) 4,122 4,076 (46)
FAIR VALUE MEASUREMENTS AND VALUATION PROCESSES
The Group held certain financial instruments at fair value at 30 June 2013.
As part of the amendments to IFRS due to IFRS 13 Fair Value Measurement, which has prospective application from 1 January 2013, certain of the year end disclosures required by IFRS 7 Financial Instruments: Disclosures are required to be shown in the Half-Yearly Report.
The definitions and valuation techniques employed for these as at 30 June 2013 are consistent with those used at 31 December 2012 and disclosed in Note 24 on pages 165 to 166 of the 2012 Annual Report:
- Level 1 financial instruments are traded in an active market and fair value is based on quoted prices at the period end.
- Level 2 financial instruments are not traded in an active market, but the fair values are based on quoted market prices, broker/ dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The Group's level 2 financial instruments include certain money market securities and most OTC derivatives.
- The fair values of level 3 financial instruments have been determined using a valuation technique where at least one input (which could have a significant effect on the instrument's valuation) is not based on observable market data. The Group's level 3 financial instruments primarily consist of an equity investment in an unquoted entity which is valued using the discounted cash flows of estimated future dividends.
Fair value measurements and valuation processes cont...
While the carrying values of assets and liabilities at fair value have changed since 31 December 2012, the Group does not consider the movements in value to be significant, and the categorisation of these assets and liabilities in accordance with the disclosure requirements of IFRS 7 has not materially changed. The values of level 1 assets and level 3 assets are not material to the Group and were GBP32 million and GBP39 million respectively at 30 June 2013 (GBP26 million and GBP37 million respectively at 31 December 2012).
Level 2 assets and liabilities are shown below.
30.6.2013 31.12.2012
----------- -----------
Level 2 Level 2
GBPm GBPm
-------------------------------------- ----------- -----------
Assets at fair value
Available-for-sale investments 15
Derivatives relating to
- interest rate swaps 272 209
- cross-currency swaps 35 10
- forward foreign currency contracts 214 154
Assets at fair value 536 373
-------------------------------------- ----------- -----------
Liabilities at fair value
Derivatives relating to
- interest rate swaps 139 55
- cross-currency swaps 35 30
- forward foreign currency contracts 124 65
- others 1 1
Liabilities at fair value 299 151
-------------------------------------- ----------- -----------
The fair value of borrowings is estimated to be GBP13,440 million (December 2012: GBP12,041 million) and has been determined using quoted market prices or discounted cash flow analysis. The value of other assets and liabilities held at amortised cost are not materially different from their fair values.
POST BALANCE SHEET EVENTS
British American Tobacco Myanmar Limited
On 8 July 2013, the Group completed a joint venture in Myanmar with I.M.U. Enterprise Limited (IMU) to manufacture, distribute and market the Group's brands. Under the terms of the agreement, the Group has contributed plant and machinery and cash to the venture in return for a controlling stake, and will therefore account for the transaction as a business combination.
The fair value table below, stated at the exchange rates ruling at the date of the transaction, has been based on available management information and, given the short period of time since acquisition, work is continuing in respect of the fair value exercise and the necessary adjustments between local GAAP and IFRS to determine acquired book values. The values shown in the table below are therefore provisional and the full table will be presented and updated in due course as permitted under IFRS 3.
Post balance sheet events cont...
Provisional values
Book Fair value Estimated
values adjustments fair value
GBPm GBPm GBPm
Property, plant and equipment 9 9
Trade and other receivables 6 (2) 4
Inventories 4 4
Cash and cash equivalents 3 3
Trade and other payables (4) (4)
--------- -------------- -------------
18 (2) 16
Less: non-controlling share
of net assets acquired (8)
-------------
Proportion of net assets acquired 8
=============
Goodwill 1
=============
Total consideration (including
cash GBP3 million) 9
=============
The provisional goodwill of GBP1 million on the acquisition of the 51 per cent stake in the business reflects the strategic premium to acquire the opportunity to re-enter the Myanmar market.
DISCLAIMERS
This announcement does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any British American Tobacco p.l.c. shares or other securities.
This announcement contains certain forward looking statements which are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries and markets in which the Group operates. It is believed that the expectations reflected in this announcement are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated.
Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.
ANNUAL REPORT AND HALF-YEARLY REPORT
Annual Report: Statutory Accounts
The information for the year ended 31 December 2012 does not constitute statutory accounts as defined in s434 of the Companies Act 2006. A copy of the statutory accounts for that year 2012 has been delivered to the Registrar of Companies. The auditors' report on the 2012 accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of the Companies Act 2006.
Half-Yearly Report: Publication
This Half-Yearly Report is released to the London Stock Exchange and the JSE Limited. It may be viewed and downloaded from our website www.bat.com.
Copies of the announcement may also be obtained during normal business hours from: (1) the Company's registered office; (2) the Company's representative office in South Africa; and (3) British American Tobacco Publications, as below.
Nicola Snook
Secretary
30 July 2013
APPENDIX 1
OTHER TOBACCO PRODUCTS
The Group reports volumes as additional information. This is done with cigarette sticks as the basis, with usage levels applied to other tobacco products to calculate the equivalent number of cigarette units.
The usage rates that are applied:
Equivalent to one cigarette
Roll-your-own (RYO) 0.8 grams
Make-your-own (MYO)
- Expanded tobacco 0.5 grams
- Optimised tobacco 0.7 grams
Cigars 1 cigar
Snus
- Pouches 1 pouch
- Loose snus 2.0 grams
Roll-your-own (RYO)
Loose tobacco designed for hand rolling, normally a finer cut with higher moisture, compared to cigarette tobacco.
Make-your-own (MYO)
MYO Expanded tobacco; also known as volume tobacco
Loose cigarette tobacco with enhanced filling properties - to allow higher yields of cigarettes/kg - designed for use with cigarette tubes and filled via a tobacco tubing machine.
MYO Non-expanded tobacco; also known as optimised tobacco
Loose cigarette tobacco designed for use with cigarette tubes and filled via a tobacco tubing machine.
SHAREHOLDER INFORMATION
FINANCIAL CALENDAR
Monday 30 September 2013 Payment date of 2013 interim dividend Wednesday 23 October 2013 Interim Management Statement Thursday 27 February 2014 Preliminary Statement 2013
CALENDAR FOR THE INTERIM DIVIDEND 2013
2013
Wednesday 31 July Declaration of interim dividend: amount
of dividend per ordinary share in both
sterling and rand; applicable exchange
rate and conversion date - Monday 29
July 2013; plus additional applicable
information as required in respect of
South Africa Dividend Tax*.
Wednesday 31 July to Friday From the commencement of trading on Wednesday
23 August 31 July 2013 to Friday 23 August 2013,
no removal requests in either direction
between the UK main register and the
South Africa branch register will be
permitted.
Friday 16 August Last Day to Trade or LDT (JSE)
Monday 19 August to Friday No transfers between the UK main register
23 August and the South Africa branch register
will be permitted; no shares may be dematerialised
or rematerialised between these inclusive
dates.
Monday 19 August Ex-dividend date (JSE)
Wednesday 21 August Ex-dividend date (LSE)
Friday 23 August Record date (LSE and JSE)
Monday 30 September Payment date (sterling and rand)
* Details of the applicable exchange rate and the South Africa Dividend Tax information can be found under the heading 'Dividends' on page 30.
American Depositary Receipts (ADRs)
For holders of ADRs, the record date is Friday 23 August 2013 with a payment date of Thursday 3 October 2013.
CORPORATE INFORMATION
Premium listing
London Stock Exchange (Share Code: BATS; ISIN: GB0002875804)
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol BS99 6ZZ, UK
tel: 0800 408 0094; +44 870 889 3159
Share dealing tel: 0870 703 0084 (UK only)
Your account: www.computershare.com/uk/investor/bri
Share dealing: www.computershare.com/dealing/uk
Web-based enquiries: www.investorcentre.co.uk/contactus
Secondary listing
JSE (Share Code: BTI)
Shares are traded in electronic form only and transactions settled electronically through Strate.
Computershare Investor Services (Pty) Ltd
PO Box 61051, Marshalltown 2107, South Africa
tel: 0861 100 925; +27 11 870 8222
email enquiries: web.queries@computershare.co.za
American Depositary Receipts (ADRs)
NYSE MKT Equities (Symbol: BTI; CUSIP Number: 110448107)
Sponsored ADR programme; each ADR represents two ordinary shares of British American
Tobacco p.l.c.
Citibank Shareholder Services
PO Box 43077
Providence, Rhode Island 02940-3077, USA
tel: 1-888-985-2055 (toll-free) or +1 781 575 4555
email enquiries: citibank@shareholders-online.com
website: www.citi.com/dr
Publications
British American Tobacco Publications
Unit 80, London Industrial Park, Roding Road, London E6 6LS, UK
tel: +44 20 7511 7797; facsimile: +44 20 7540 4326
e-mail enquiries: bat@team365.co.uk or
Computershare Investor Services (Pty) Ltd in South Africa using the contact details shown above.
British American Tobacco p.l.c.
Registered office
Globe House
4 Temple Place
London
WC2R 2PG
tel: +44 20 7845 1000
British American Tobacco p.l.c. is a public limited company which is listed on the London Stock Exchange and the JSE Limited in South Africa. British American Tobacco p.l.c. is incorporated in England and Wales (No. 3407696) and domiciled in the UK.
British American Tobacco p.l.c.
Representative office in South Africa
34 Alexander Street
Stellenbosch
7600
South Africa
(PO Box 631, Cape Town 8000, South Africa)
tel: +27 21 888 3722
This information is provided by RNS
The company news service from the London Stock Exchange
END
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