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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 17.00 | 0.74% | 2,310.00 | 2,310.00 | 2,311.00 | 2,316.00 | 2,281.00 | 2,301.00 | 12,289,620 | 16:29:40 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Cigarettes | 27.72B | -14.37B | -6.4241 | -3.60 | 51.66B |
From Apr 2019 to Apr 2024
TIDMBATS
RNS Number : 6106X
British American Tobacco PLC
23 February 2017
23 February 2017
BRITISH AMERICAN TOBACCO p.l.c.
PRELIMINARY ANNOUNCEMENT - YEARED 31 DECEMBER 2016
Hot Features
Premium
AN EXCEPTIONALLY GOOD PERFORMANCE
==================================
KEY FINANCIALS 2016 2015 Change
------------------------ ----------- -------------------
Current Constant Current Constant
rates rates rates rates
----------- ----------- ----------- -------- ---------
Revenue GBP14,751m GBP14,008m GBP13,104m +12.6% +6.9%
Adjusted profit from operations* GBP5,480m GBP5,197m GBP4,992m +9.8% +4.1%
Profit from operations GBP4,655m GBP4,424m GBP4,557m +2.2% -2.9%
Adjusted diluted earnings per share* 247.5p 230.0p 208.4p +18.8% +10.4%
Basic earnings per share 250.2p 230.9p +8.4%
Dividends per share 169.4p 154.0p +10.0%
-------------------------------------- ----------- ----------- ----------- -------- ---------
*The non-GAAP measures, including adjusting
items and constant currencies, are set out
on page 19.
FULL YEAR HIGHLIGHTS
-- The Group's cigarette market share(1) in its
Key Markets(2) continued to grow very strongly,
up 50 basis points (bps). This was driven by
another excellent performance by our Global
Drive Brand (GDB) portfolio with volume up 7.5%
and market share increasing 100 bps.
-- Group cigarette volume grew 0.2% to 665 billion,
with a 0.8% decline on an organic basis outperforming
the industry, which was estimated to decline
by around 3.0%. Total tobacco volume was 0.1%
higher than 2015.
-- Group revenue was up 12.6% at current rates,
partly reflecting the translational tailwind
as a result of the relative weakness of sterling.
Revenue grew 6.9% at constant rates and was
5.3% up on an organic basis.
-- Adjusted Group profit from operations increased
9.8% at current rates, or by 4.1% at constant
rates of exchange. Excluding the adverse impact
of exchange movements on a transactional level,
adjusted Group profit at constant rates, would
have increased by approximately 10%.
-- Profit from operations, at current rates of
exchange, was 2.2% higher at GBP4,655 million.
-- Without the adverse transactional impact of
foreign exchange and the impact from acquisitions,
operating margin would have improved by around
160 bps. On a reported basis, it fell 90 bps
to 37.2%.
-- Adjusted diluted earnings per share, at current
rates, was up 18.8% at 247.5p. At constant rates
of exchange, it increased 10.4% despite the
transactional headwinds from foreign exchange.
-- Basic earnings per share was up 8.4% at 250.2p
(2015: 230.9p), resulting from the improved
operating performance and foreign exchange tailwind.
-- The Group's vapour business grew to become the
world's largest, outside of the US, and we successfully
launched our Tobacco Heating Product, glo(TM)
, in Japan.
-- On 17 January 2017, the Group announced the
agreed terms of a recommended offer for the
acquisition of the remaining 57.8% of Reynolds
American Inc. (Reynolds American) not already
owned by the Group. We expect the transaction
to close in Q3 2017, subject to obtaining the
relevant approvals.
-- The Board has recommended a final dividend of
118.1p, to be paid on 4 May 2017. This will
take the 2016 total dividend to 169.4p per share,
an increase of 10.0%.
Key Market offtake share, The Group's Key Markets
as independently measured represent around 80%
(1) by AC Nielsen. (2) of the Group's volume
All variances within this document are based
upon the absolute number.
Richard Burrows, Chairman, commenting on the year
ended 31 December 2016
===================================================================
"The Group delivered exceptional earnings, volume and market share growth in 2016, despite challenging trading conditions persisting in many of our Key Markets. Our results this year demonstrate our ability to continue delivering excellent shareholder returns while investing in the future strength of the business. The 10% increase in our total dividend for 2016 to 169.4p reflects our confidence in our strategy, our people and in generating growth for our shareholders in 2017 and beyond."
CHIEF EXECUTIVE'S REVIEW =========================
The Group delivered a great set of results in 2016, with excellent growth seen across all key business metrics. This was achieved despite a challenging backdrop of adverse foreign exchange rates impacting our cost base and ongoing pressure on consumers' disposable income in many of our Key Markets.
Group revenue was up by 6.9% at constant rates of exchange, driven by good pricing - with price mix exceeding 6%. Reported revenue was 12.6% higher, reflecting the translational tailwind resulting from the relative weakness of sterling. On an organic basis, Group revenue was up by 5.3% at constant rates.
At constant rates of exchange, adjusted profit from operations grew by 4.1% and adjusted diluted earnings per share grew by 10.4%. Adjusted profit from operations would have grown by approximately 10% were it not for the significant ongoing effect of adverse foreign exchange movements on our cost base during 2016. Underlying operating margin, excluding transactional foreign exchange and acquisitions, grew by around 160 bps. On a reported basis, it was down by 90 bps to 37.2%.
Agreement to acquire Reynolds American Inc.
I am very pleased that we reached an agreement with the Board of Reynolds American in relation to the acquisition of the remaining 57.8% of Reynolds American that the Group does not currently own. This is a significant step towards the completion of this transaction and we look forward to putting the recommended offer to shareholders.
Strategically, this deal will create a truly global business with a world class portfolio of tobacco and Next Generation Products which will be available across the most attractive markets in the world. Financially, it will be earnings accretive with enhanced cash generation while maintaining a solid investment grade credit rating. We expect the transaction to close during the third quarter of 2017, subject to obtaining the relevant shareholder and regulatory approvals.
Combustible tobacco products
Total Group cigarette volume for the full year was up 0.2%, to 665 billion. A 0.8% decline on an organic basis was considerably better than the industry, which we estimate to be down around 3.0%.
Strong growth in 2016, with overall market share in our Key Markets increasing by 50 bps, was driven by the continuing momentum of our Global Drive Brands (GDBs). Total volume growth across the GDBs was an outstanding 7.5% and total market share growth was 100 bps. The GDBs now account for 49% of Group cigarette volume, up from 32% in 2011, demonstrating the key role they play in our growth strategy.
Next Generation Products
In 2016, we made significant progress with our differentiated strategy of developing and marketing a range of outstanding next generation tobacco and nicotine products, across both the Vapour and Tobacco Heating categories. Our Vapour Products business continues to perform very well and, following the geographic expansion of Vype(TM) in 2016, we are now present in ten markets and have the largest vapour business in the world outside of the US.
In the UK, our category retail share, as independently measured by AC Nielsen, has reached nearly 40% through the growth of Vype(TM) and the acquisition of Ten Motives. We also have an estimated market share of around 50% in Poland as well as category retail share of over 7% in Germany, over 4% in France and over 2% in Italy. In addition, we launched a new vaping concept in Europe called the Vype Pebble(TM) which we believe will enhance the overall category and increase consumer penetration.
In December 2016, we launched a new-to-world Tobacco Heating Product, called glo(TM), in Sendai, Japan. Initial results are very encouraging, with glo(TM) gaining 5.4% volume share in a leading convenience store chain in Sendai after only ten weeks. Further roll-out and product upgrades are scheduled for 2017 and beyond.
These innovations, alongside our exciting pipeline, demonstrate our commitment to meeting all of the differing preferences of our consumers, providing them with a choice of outstanding products across the risk continuum.
Facing the future with confidence
As these results demonstrate, our combustible tobacco business continues to perform extremely well and I am very pleased with the progress we are making in Next Generation Products. Both would be made stronger by our proposed acquisition of Reynolds American, creating what will become a truly global tobacco and Next Generation Products company, delivering sustained long-term profit growth and returns.
Nicandro Durante
22 February 2017
REGIONAL REVIEW ================
This review presents the underlying performance of the regions and markets, at constant rates of exchange. However, as explained on page 19, the Group does not adjust for transactional gains or losses in profit from operations which are generated by exchange rate movements. The performance is adjusted for the items explained on pages 21 to 23.
Adjusted profit from operations at constant and current rates of exchange and volume are as follows:
Adjusted profit from operations Cigarette volume
------------------------------------ -------------------
2016 2016 2015 2016 2015
Current Constant As reported
rates Rates
GBPm GBPm GBPm Bns Bns
Asia-Pacific 1,630 1,488 1,469 196 198
Americas 1,172 1,202 1,169 113 124
Western Europe 1,389 1,236 1,146 120 112
EEMEA 1,289 1,271 1,208 236 229
--------- ---------- ------------- --------- --------
Total 5,480 5,197 4,992 665 663
========= ========== ============= ========= ========
Total tobacco volume 689 689
========= ========
The Group delivered exceptional results in 2016 with market share continuing to grow strongly based upon the outstanding performance of the Global Drive Brand portfolio. An excellent financial performance was further enhanced by the translational foreign exchange tailwind, despite the continued impact of transactional foreign exchange on our cost of sales.
At current rates of exchange, revenue increased by 12.6%, with good pricing across a number of key markets, a price mix of over 6% and the translational foreign exchange tailwind benefiting the reported results due to the relative weakness of sterling against the Group's operating currencies. At constant rates of exchange revenue was 6.9% higher, or 5.3% on an organic basis.
Reported profit from operations was up 2.2% at GBP4,655 million. Adjusted profit from operations (see page 20) was 9.8% higher, but at constant rates of exchange adjusted profit from operations was GBP5,197 million, an increase of 4.1%, or 3.6% on an organic basis. Excluding the transactional foreign exchange impact on the cost of items such as leaf, filter tow and wrapping materials, adjusted operating profit would have increased by approximately 10%.
Group cigarette volume from subsidiaries was 665 billion, an increase of 0.2% against the previous year and a decline of 0.8% on an organic basis. Volume growth in Bangladesh, Ukraine, Russia, Vietnam, Turkey, Mexico, Poland and Indonesia was offset by declines in Pakistan, Brazil, Venezuela and Malaysia. Total tobacco volume was ahead of prior year by 0.1%.
Market share increased 50 bps, driven by a very strong performance from the GDB portfolio with a combined growth of 100 bps, on volume that was up 7.5%:
-- Dunhill's overall market share was flat. Volume fell by 3.3%, driven mainly by industry declines in Malaysia and Brazil, more than offsetting growth in South Korea, Romania and the continued growth in Indonesia;
-- Kent volume increased 1.0%, with market share up 10 bps, driven by Chile, Turkey and Japan;
-- Lucky Strike grew market share, higher by 10 bps, and volume, up 13.5%, with growth in Indonesia, Colombia Egypt, France, Germany and Croatia more than offsetting lower volume in Argentina and Russia;
Regional review cont...
-- Pall Mall market share grew 10 bps, with volume marginally higher than prior year as growth in Venezuela, Poland, Mexico and Romania more than offset reductions in Pakistan and the migration to Rothmans in Italy; and
-- Rothmans' strong growth in volume (+36.9%) and market share (+70 bps) was driven by Russia, Ukraine, Italy, Nigeria, Turkey and South Korea.
Other international brands declined by 9.0%, as growth in State Express 555 and Craven A (in Vietnam) was more than offset by lower volume from Peter Stuyvesant (in South Africa), JPGL (largely in SE Asia), and Vogue (where growth in Russia was offset by lower volume in South Korea due to the migration to Rothmans).
Innovations(3) volume grew by 12%, driven by the success of tube filters, capsules and the slimmer formats across the GDB portfolio and now account for 29% of our cigarette volume.
The performances of the Group's Key Markets are discussed in the regions where they are reported. This discussion excludes certain markets, identified as new investment or growth markets, which currently do not materially contribute to the Group profit or volume.
Asia-Pacific: adjusted profit at constant rates of exchange up GBP19 million, or 1.3%
Adjusted profit, at current rates of exchange, was up by GBP161 million to GBP1,630 million as strong profit performances in Pakistan, Bangladesh, Sri Lanka, Vietnam and South Korea were partly offset by lower profit in Malaysia following a change in excise and the adverse impact of foreign exchange on cost of sales in a number of markets including Japan and New Zealand. At constant rates of exchange, adjusted profit grew GBP19 million or 1.3%. Cigarette volume fell 0.9% to 196 billion, as increases in Bangladesh, Vietnam, South Korea and Indonesia, were offset by industry declines in Pakistan and Malaysia.
Country Performance at constant rates of exchange
------------ -------------------------------------------------
Australia Market share returned to growth, driven
by Rothmans. Pricing in the second half
of the year was offset by lower volume
due to the market contraction and down-trading,
leading to a reduction in profit.
Malaysia Volume and profit were down as the tax-driven
price increases led to a reduction in
the total market and higher illicit
trade. Market share fell despite good
growth in Peter Stuyvesant as Dunhill
was impacted by down-trading.
Japan Market share of combustibles grew, driven
by Kent. Lower volume and adverse foreign
exchange movements affecting cost of
sales led to a reduction in profit.
glo(TM) , our Tobacco Heating Product,
was launched in December 2016, with
encouraging initial results.
New Zealand Good pricing, an increase in market
share and stable volume were more than
offset by the adverse impact of foreign
exchange on cost of sales, with profit
marginally lower.
Bangladesh Volume, market share and profit continued
to increase strongly.
Pakistan Profit increased significantly as a
result of pricing and cost savings.
Market share grew, driven by Pall Mall.
Market contraction led to lower volume
as illicit trade increased significantly
following the excise-led price increases.
Vietnam Higher profit was driven by an increase
in volume, pricing and an enhanced mix.
Market share was stable as State Express
555 continued to perform well in the
premium segment.
South Korea Profit was up, driven by higher volume,
including in Dunhill, and productivity
initiatives. Market share fell despite
good growth in Rothmans.
Indonesia Volume and market share grew, driven
by Dunhill and Lucky Strike, with the
enhanced mix and strong pricing leading
to an improvement in financial performance.
Philippines Market share was marginally higher,
driven by Pall Mall. Pricing and productivity
initiatives more than offset a decline
in volume, leading to an improvement
in financial performance.
(3) Any Group manufactured cigarette containing non-standard features such as slims, capsules, reloc or tubes
Regional review cont...
Americas: adjusted profit at constant rates of exchange increased by GBP33 million or 2.8%
Adjusted profit, at current rates of exchange, was marginally ahead of prior year at GBP1,172 million as the reported results were impacted by the devaluation of the bolivar in Venezuela. At constant rates, adjusted profit rose by GBP33 million, or 2.8%, driven by good performances from Canada, Chile, Venezuela and Peru, more than offsetting lower profit in Brazil. Cigarette volume was down 8.8% to 113 billion, as higher volume in Mexico and Colombia was more than offset by declines in Brazil and Venezuela.
Country Performance at constant rates of exchange
---------- -----------------------------------------------
Brazil Lucky Strike grew market share, gaining
segment leadership, with Dunhill growing
within the premium segment. Total market
share fell from an all-time high. Lower
consumer disposable income, higher VAT
and excise-led price increases drove
market contraction and higher illicit
trade, adversely impacting volume and
profit.
Canada Strong profit growth was driven by good
pricing and cost reductions, which offset
lower volume. Market share fell, despite
growth in Pall Mall.
Chile Pricing and an improvement in mix led
to higher profit. Total volume fell but
market share was up, driven by Kent following
the successful migration from Belmont.
Venezuela Pricing, to offset currency devaluation
and inflation, led to higher profit.
Pall Mall grew although, due to the reduction
in consumer disposable income, total
volume fell.
Mexico Volume and market share were up, driven
by the continued growth in Pall Mall.
A delay in pricing led to stable profit.
Colombia Higher volume, an improvement in market
share and good pricing were more than
offset by the adverse impact of foreign
exchange on cost of sales, with profit
down.
Argentina Excise-led price increases drove a decrease
in the total market and a decline in
volume. Market share was marginally lower
despite Rothmans growth following launch.
Western Europe: adjusted profit at constant rates of exchange increased by GBP90 million or 7.8%
Adjusted profit, at current rates of exchange, grew by GBP243 million to GBP1,389 million reflecting the relative weakness in sterling against the reporting currencies, notably the euro. At constant rates, adjusted profit was higher by 7.8% (GBP90 million) or 6.9% on an organic basis, with good performances in several markets including Germany, Romania, Italy and France. Cigarette volume was up by 6.7% to 120 billion, or 2.4% on an organic basis, with growth in Poland and Romania more than offsetting lower volume in the UK, Denmark and Germany.
Country Performance at constant rates of exchange
------------ ------------------------------------------------
Germany Profit grew strongly driven by pricing,
with volume marginally lower. Market
share was flat as a good performance
by Lucky Strike was offset by declines
in the local brands. Fine Cut volume
and market share fell due to increased
price competition. Vype(TM) was launched
nationally, growing to over 7% category
retail market share in 12 months.
Switzerland Price discounting at retail led to down-trading
in the market, lower volume, a fall in
market share and a decline in profit.
France Profit and volume were marginally higher.
Market share was up, driven by the continued
growth in Lucky Strike.
Romania Profit grew very strongly, driven by
good pricing and higher volume. Excellent
market share growth was driven by Pall
Mall and Dunhill, more than offsetting
a decline in Kent.
Italy Higher volume and pricing drove profit
up. Growth in Rothmans market share was
more than offset by declines in the rest
of the local portfolio with total market
share down. Vype(TM) distribution was
expanded. Pebble(TM) was launched and
the first flagship store was opened.
Regional review cont...
Country Performance at constant rates of exchange
------------ ----------------------------------------------
Denmark Volume, market share and profit were
down due to down-trading leading to the
growth of the low-priced segment.
Netherlands Profit grew, driven by a lower cost base.
Market share growth in Pall Mall and
Lucky Strike was more than offset by
a decline in Kent and local brands, reducing
total market share.
Belgium Profit fell, driven by lower volume.
Market share fell as the decline in Kent
more than offset the continued growth
in Lucky Strike.
United A challenging pricing environment led
Kingdom to a decline in market share, with profit
flat as cost reductions offset lower
volume. Total retail market share of
the NGP business grew to nearly 40%,
driven by the continued growth of Vype(TM)
and the acquisition of Ten Motives.
Spain Profit was marginally higher, driven
by cost savings. Volume and market share
were stable.
Poland Market share grew strongly with volume
higher due to the success of Pall Mall.
The financial performance improved, driven
by the improved volume and pricing.
Croatia The integration of TDR is now substantially
/ Balkans complete, with the migration to the GDB
portfolio on track, driving an increase
in total market share.
Eastern Europe, Middle East and Africa: adjusted profit at constant rates of exchange increased by GBP63 million or 5.3%
Adjusted profit, at current rates of exchange, increased by GBP81 million to GBP1,289 million. Good pricing across the region and strong profit growth in several markets was partly offset by the effect of currency devaluation, notably in Russia, Nigeria and Ukraine. At constant rates of exchange, profit was GBP63 million higher or 5.3%, or 4.3% on an organic basis. Excluding acquisitions and the impact of adverse foreign exchange movements on cost of sales, adjusted profit at constant rates would have increased by 19%. Cigarette volume was 3.0% higher at 236 billion, (up 2.1% on an organic basis), as growth in a number of markets including Ukraine, Russia, Turkey and Algeria were partially offset by lower volume in South Africa and GCC.
Country Performance at constant rates of exchange
------------- ---------------------------------------------------
Russia Profit was significantly higher, driven
by good pricing and an increase in volume,
more than offsetting the continuing adverse
impact of foreign exchange on cost of
sales. Market share continued to grow
strongly, driven by another excellent
performance by Rothmans, with Kent premium
segment share increasing.
South Africa Volume fell, driven by down-trading to
the low-priced segment and higher illicit
trade. Dunhill, Pall Mall and Benson
& Hedges all grew market share although
total market share fell. Profit was down
due to lower volume and the adverse transactional
impact of foreign exchange on cost of
sales, partially offset by pricing.
GCC Profit was flat as pricing and cost savings
offset lower volume. Market share fell
as Dunhill was impacted by down-trading
following tax driven price increases.
Nigeria Volume growth and pricing were offset
by the adverse impact of foreign exchange
on cost of sales, with profit in line
with prior year.
Iran Volume and profit were lower due to the
retrospective application of an increase
in excise.
Ukraine Excellent volume and market share growth
was driven by Rothmans. Geopolitical
instability continued to impact the financial
performance, with a significant deterioration
in currency and intense price competition,
leading to a decline in profit.
Turkey Profit was up, driven by good pricing
and higher volume. Market share grew
as the excellent performance of Kent
and Rothmans continued.
Algeria Strong volume growth and pricing drove
profit up.
Regional review cont...
Country Performance at constant rates of exchange
----------- --------------------------------------------
Kazakhstan Rothmans drove an increase in volume
and market share. Profit improved as
pricing and higher volume more than offset
the effect of down-trading.
Egypt An improvement in the financial performance
was driven by higher volume, pricing
and an enhanced mix.
The following includes a summary of the analysis of revenue, adjusted profit from operations, share of post-tax results of associates and joint ventures and adjusted diluted earnings per share, as reconciled between reported information and non-GAAP management information on page 20.
REGIONAL INFORMATION
Western
For the year ended 31 December Asia-Pacific Americas Europe EEMEA Total
--------------------------------------- ------------ -------- ------- ------ ------
SUBSIDIARIES
--------------------------------------- ------------ -------- ------- ------ ------
Volume (cigarette billions)
--------------------------------------- ------------ -------- ------- ------ ------
2016 196 113 120 236 665
2016 (organic) 196 113 115 234 658
2015 198 124 112 229 663
Change -0.9% -8.8% +6.7% +3.0% +0.2%
Change (organic) -0.9% -8.8% +2.4% +2.1% -0.8%
Revenue (GBPm)
--------------------------------------- ------------ -------- ------- ------ ------
2016 (at constant) 3,770 3,014 3,471 3,753 14,008
2016 (organic, at constant) 3,770 3,014 3,317 3,700 13,801
2016 (at current) 4,266 2,868 3,867 3,750 14,751
2015 3,773 2,720 3,203 3,408 13,104
Change (at constant) -0.1% +10.8% +8.4% +10.1% +6.9%
Change (organic, at constant) -0.1% +10.8% +3.6% +8.6% +5.3%
Change (at current) +13.1% +5.4% +20.7% +10.0% +12.6%
Adjusted profit from operations (GBPm)
--------------------------------------- ------------ -------- ------- ------ ------
2016 (at constant) 1,488 1,202 1,236 1,271 5,197
2016 (organic, at constant) 1,488 1,202 1,225 1,259 5,174
2016 (at current) 1,630 1,172 1,389 1,289 5,480
2015 1,469 1,169 1,146 1,208 4,992
Change (at constant) +1.3% +2.8% +7.8% +5.3% +4.1%
Change (organic, at constant) +1.3% +2.8% +6.9% +4.3% +3.6%
Change (at current) +11.0% +0.3% +21.2% +6.7% +9.8%
Operating margin based on adjusted profit (%)
----------------------------------------------------- -------- ------- ------ ------
2016 (at current) 38.2% 40.9% 35.9% 34.4% 37.2%
2015 38.9% 43.0% 35.8% 35.4% 38.1%
All variances quoted above are based upon absolute numbers.
Organic excludes contribution by TDR, Sudan, Ten Motives and Chic.
Regional review cont...
REGIONAL INFORMATION
Western
For the year ended 31 December Asia-Pacific Americas Europe EEMEA Total
--------------------------------------------------------------------- ------------ -------- ------- ------ ------
ASSOCIATES AND JOINT VENTURES
--------------------------------------------------------------------- ------------ -------- ------- ------ ------
Share of post-tax results of associates and joint ventures (GBPm)
--------------------------------------------------------------------- ------------ -------- ------- ------ ------
2016 (at current) 342 1,880 3 2 2,227
2015 302 933 - 1 1,236
Change +13.2% +102% n/a +63.8% +80.3%
Share of adjusted post-tax results of associates and joint ventures
(GBPm)
--------------------------------------------------------------------- ------------ -------- ------- ------ ------
2016(at constant) 307 877 4 2 1,190
2016 (at current) 331 991 3 2 1,327
2015 286 656 - 1 943
Change (at constant) +7.4% +33.8% n/a +62.5% +26.1%
Change (at current) +15.8% +50.9% n/a +63.8% +40.7%
--------------------------------------------------------------------- ------------ -------- ------- ------ ------
GROUP
For the year ended 31 December Total
-------------------------------------------------------------------------------------------- ----------
Underlying tax rate of subsidiaries (%)
-------------------------------------------------------------------------------------------- ----------
2016 (at current) 29.8%
2015 (at current) 30.5%
------------------------------------------------------------------------------------------------ ----------
Adjusted diluted earnings per share (pence)
-------------------------------------------------------------------------------------------- ----------
2016 (at constant) 230.0
2016 (at current) 247.5
2015 208.4
Change (at constant) +10.4%
Change (at current) +18.8%
------------------------------------------------------------------------------------------------ ----------
Return on capital employed (%) - excluding associates*
------------------------------------------------------------------------------------------------ ----------
2016 32%
2015 33%
------------------------------------------------------------------------------------------------ ----------
* The calculation for "Return on capital employed" excludes the Group's Investments in Associates
and Joint Ventures from the underlying assets, aligning the return (adjusted profit from operations)
to the assets (average total assets less Investment in Associates and Joint Ventures, less
average current liabilities).
FINANCIAL INFORMATION AND OTHER
================================
NET FINANCE (COSTS)/INCOME
Net finance costs were GBP637 million, compared to income of GBP62 million in 2015. The movement is principally due to a one-off deemed gain related to the investment in Reynolds American, as described below, recognised in 2015. Net adjusted finance costs increased as the higher level of borrowing more than offset an overall reduction in the underlying cost to service the debt.
Net finance (costs)/income comprise:
2016 2015
GBPm GBPm
Finance costs (681) (584)
Finance income 44 646
------ ------
Net finance (costs)/income (637) 62
====== ======
Less: adjusting items 108 (489)
------ ------
Make-whole provision re early redemption 101 -
of bond, see below
Hedge ineffectiveness, see below (18) -
Option cost and fees, see below - 104
Deemed gain on investment in Reynolds
American, see below - (601)
Interest related to Franked Investment
Income Group Litigation Order (FII
GLO), see below 25 8
------ ------
Net adjusted finance costs (529) (427)
====== ======
Comprising:
Interest payable (650) (582)
Interest and dividend income 68 79
Fair value changes - derivatives 458 245
Exchange differences (405) (169)
Net adjusted finance costs (529) (427)
====== ======
On 19 July 2016, the Group redeemed a US$700 million bond, prior to its original maturity date of 15 November 2018 undertaken to manage the Group's debt maturity profile, manage future refinancing risk and reduce the on-going interest expense. This led to a loss in the year of GBP101 million which has been treated as an adjusting item.
In 2016, the Group experienced significant hedge ineffectiveness on its external swaps, driven by the market volatility following the referendum regarding "Brexit". The gain of GBP18 million has been deemed to be adjusting as it is not representative of the underlying performance of the business.
In 2015, as described on page 34, the Group received GBP963 million from HM Revenue & Customs in relation to the FII GLO. The payment was received subject to the on-going appeals process and was made with no admission of liability. Any future repayment by the Group is subject to interest and, as any recognition of income will be deemed to be adjusting (due to size), interest of GBP25 million (2015: GBP8 million) has been accrued and treated as an adjusting item.
Net Finance (costs)/income cont....
In 2015, the Group incurred costs of GBP104 million in relation to financing activities, which largely comprise costs related to the acquisition of the non-controlling interest in the Group's Brazilian subsidiary, Souza Cruz S.A. and the Group's investment in 2015 to maintain its current ownership in Reynolds American following its acquisition of Lorillard Inc. ("Lorillard").
In 2015, the Group's investment of US$4.7 billion in cash in Reynolds American realised a deemed gain of US$931 million (GBP601 million), taken through net finance costs. This arose as the contract to acquire shares is deemed to be a financial instrument and has been fair valued through profit and loss, in compliance with IAS 39. The deemed gain reflects the difference between the fixed price paid by the Group to Reynolds American and the market value of Reynolds American shares on the day of the transaction.
The above have been included in the adjusted earnings per share calculation on page 28.
RESULTS OF ASSOCIATES
The Group's share of post-tax results of associates increased by GBP991 million, or 80.3%, to GBP2,227 million, benefiting from the sale of the international brand rights of Natural American Spirit by Reynolds American. The Group's share of the adjusted post-tax results of associates increased by 40.7% to GBP1,327 million, or by 26.2% to GBP1,190 million at constant rates of exchange.
The adjusted contribution from Reynolds American increased by 51.9% to GBP991 million, or by 34.6% at constant rates of exchange, reflecting the continued strong performance of Reynolds American and the full year's contribution following the acquisition of Lorillard in June 2015. The Group's adjusted contribution from its main associate in India, ITC, was GBP322 million, up 15.2%. At constant rates of exchange, the contribution would have been 6.9% higher than last year. See pages 22 and 23 for the adjusting items.
TAXATION
2016 2015
GBPm GBPm
UK
- current year tax 7 5
Overseas
- current year tax expense 1,382 1,317
- adjustment in respect of prior
periods 13 7
------ ------
Current tax 1,402 1,329
Deferred tax 4 4
------ ------
1,406 1,333
Adjusting items (see below) 67 58
------ ------
Adjusted tax charge 1,473 1,391
====== ======
The tax rates in the income statement of 22.5% in 2016 and 22.8% in 2015 are affected by the inclusion of the share of associates' and joint ventures' 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 28 was 29.8% in 2016 and 30.5% in 2015. The slight decrease is mainly due to a change in the mix of profits.
IFRS requires entities to provide deferred taxation on the undistributed earnings of associates and joint ventures. In 2016, the Group's share of the gain on the divestiture of intangibles and other assets by Reynolds American to Japan Tobacco International is GBP941 million. Given that the profit on this item is recognised as an adjusting item by the Group, the additional deferred tax charge of GBP61 million on the potential distribution of these undistributed earnings has also been treated as adjusting.
Taxation cont......
In 2015, the Group's share of the gain on the divestiture of intangibles and other assets by Reynolds American to ITG Brands LLC, a subsidiary of Imperial Tobacco Group PLC, is GBP371 million. Given that the profit on this item is recognised as an adjusting item by the Group, the additional deferred tax charge of GBP22 million on the potential distribution of these undistributed earnings has also been treated as adjusting. The adjusting tax item also includes GBP128 million (2015: GBP80 million) in respect of the tax on adjusting items, see pages 21 to 22.
Please refer to page 34 for the FII GLO update.
FREE CASH FLOW AND NET DEBT
In the alternative cash flow presented on page 24, operating cash flow increased by GBP539 million, or 11.8%, to GBP5,122 million, reflecting the excellent growth in underlying operating performance of the Group which was partly offset by higher capital expenditure, including that for Next Generation Products.
Cash generated from operations fell by GBP253 million, or by GBP450 million at constant rates of exchange, as 2015 benefited from the FII GLO receipt of GBP963 million (see page 34). Excluding this receipt, cash generated from operations at constant exchange rates was up GBP513 million or 21.3% higher.
Free cash flow was lower by GBP92 million or 2.6%, at GBP3,389 million but grew, excluding FII GLO, by GBP871 million as the improved operating performance, higher distributions from associates (including the proceeds from Reynolds American's share buyback programme) and lower payments to minorities following the buy-out of Souza Cruz were partly offset by the increase in Quebec Class Action-related cash deposits.
The conversion of adjusted operating profit to operating cash flow remained strong at 93% (2015: 92%). The ratio of free cash flow per share to adjusted diluted earnings per share fell to 73% from 90% in 2015 as the prior year benefited from the receipt in relation to FII GLO.
After taking account of other changes, including the payment of the prior year final dividend and the 2016 interim dividend (GBP2,910 million, up GBP140 million on prior year) and exchange rate movements, closing net debt was up GBP1,973 million at GBP16,767 million (2015: GBP14,794 million).
The Group's alternative cash flow statement is shown on page 24 and explained on page 19 under non-GAAP measures.
PROPOSED ACQUISITION OF REYNOLDS AMERICAN INC.
On 17 January 2017, the Group announced the agreed terms of a recommended offer for the acquisition of the remaining 57.8% of Reynolds American not already owned by the Group. Reynolds American shareholders will receive for each Reynolds American share $29.44 in cash and 0.5260 BAT ordinary shares which shall be represented by BAT American Depositary Receipts (ADRs) listed on the New York Stock Exchange.
We expect the transaction to close during the third quarter of 2017, subject to: obtaining affirmative votes from BAT and Reynolds American shareholders; obtaining anti-trust approvals in the US and Japan; registration of BAT shares with the SEC; approval of the BAT shares for listing on the LSE and the BAT ADRs on the NYSE; and other customary conditions. The completion of the transaction is not subject to any financing condition.
CHANGE TO QUARTERLY REPORTING
As previously announced, with effect from 1 January 2017, the Group ceased publication of an IMS for Q1 and Q3 and will instead release two short trading updates shortly before the closed periods for the Interim and the Full Year Preliminary Announcements.
UPDATE ON INVESTIGATION INTO MISCONDUCT ALLEGATIONS
As reported last year, towards the end of 2015 a number of allegations were made regarding historic misconduct in Africa. We are investigating, through external legal advisors, allegations of misconduct and are liaising with the Serious Fraud Office and other relevant authorities. The Board also created a sub-Committee of the Board to specifically monitor matters, having regard to the need to ensure active oversight of, and support for the investigation between Board meetings. In 2016, the Group began a project, which will continue into 2017, to review and further strengthen all aspects of the Group's global compliance procedures. This important project will create a centre of excellence to champion and guide the Group's Statement of Business Conduct programme.
RISKS AND UNCERTAINTIES
During the year, the Directors have carried out a robust assessment of the principal risks and uncertainties facing the Group, including those that would threaten its business model, future performance, solvency, liquidity and viability.
The principal risks facing the Group have remained broadly unchanged over the past year. The Board has considered the risks associated with the inability to recruit required talent and the loss of existing talent, the impact and likelihood of which has decreased and as such this is no longer a principal risk.
Full details of all principal risks will be included in the Annual Report for the year ended 31 December 2016.
GOING CONCERN
A 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 this announcement. Further information will be provided in the Strategic Report and in the notes to the financial statements, all of which will be included in the 2016 Annual Report.
The Group has, at the date of this announcement, sufficient existing financing available for its estimated requirements for at least the next 12 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 current financial conditions and the general outlook in the global economy.
After reviewing the Group's annual budget, plans and financing arrangements for the next three years, the Directors consider that the Group has adequate resources to continue operating and that it is therefore appropriate to continue to adopt the going concern basis in preparing the Annual Report.
BOARD CHANGES
Dr Marion Helmes was appointed as a Non-Executive Director of the Company with effect from 1 August 2016 and Christine Morin-Postel retired as a Non-Executive Director on 6 December 2016.
Dr Gerry Murphy will be standing down as a Non-Executive Director of the Company at the conclusion of the Annual General Meeting on 26 April 2017, having served eight years on the Board.
As previously announced on 26 October 2016, Paul McCrory has been appointed as Company Secretary Designate with effect from 1 February 2017 and as Company Secretary with effect from 1 May 2017. He will take over from Nicola Snook who is retiring from the Company and from the role as Company Secretary, having held that position for ten years. As part of the handover process, Nicky will remain with the Group until July 2017.
DIRECTORS' RESPONSIBILITY STATEMENT
The responsibility statement below has been prepared in connection with the company's full Annual Report for the year ended 31 December 2016. Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
-- the financial statements, prepared in accordance with FRS 101 and IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the Group respectively; and
-- the Directors' Report and the Strategic Report include a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties that they face.
This responsibility statement has been approved and is signed by order of the Board by:
Richard Burrows Ben Stevens Chairman Finance Director
22 February 2017
ENQUIRIES:
INVESTOR RELATIONS: PRESS OFFICE:
020 7845
Mike Nightingale 1180 Anna Vickerstaff 020 7845 2888
020 7845
Rachael Brierley 1519
020 7845
Sabina Marshman 1781
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GROUP INCOME STATEMENT
For the year ended 31 December
2016 2015
GBPm GBPm
Gross turnover (including duty, excise
and other taxes of GBP32,136 million
(2015: GBP27,896 million)) 46,887 41,000
======= =======
Revenue 14,751 13,104
Raw materials and consumables used (3,777) (3,217)
Changes in inventories of finished
goods and work in progress 44 184
Employee benefit costs (2,274) (2,039)
Depreciation, amortisation and impairment
costs (607) (428)
Other operating income 176 225
Other operating expenses (3,658) (3,272)
------- -------
Profit from operations 4,655 4,557
------- -------
Analysed as:
- adjusted profit from operations 5,480 4,992
- restructuring and integration costs (603) (367)
- amortisation and impairment of trademarks
and similar intangibles (149) (65)
- Fox River (20) -
- South Korea sales tax (53) -
- Flintkote - (3)
------- -------
4,655 4,557
------- -------
Net finance (costs)/income (637) 62
------- -------
Finance income 44 646
Finance costs (681) (584)
------- -------
Share of post-tax results of associates
and joint ventures 2,227 1,236
------- -------
Analysed as:
- adjusted share of post-tax results
of associates and joint ventures 1,327 943
- issue of shares and change in shareholding 11 22
- gain on disposal of assets 941 371
- other (see page 23) (52) (100)
------- -------
2,227 1,236
------- -------
Profit before taxation 6,245 5,855
Taxation on ordinary activities (1,406) (1,333)
------- -------
Profit for the year 4,839 4,522
======= =======
Attributable to:
Owners of the parent 4,648 4,290
Non-controlling interests 191 232
------- -------
4,839 4,522
======= =======
Earnings per share
Basic 250.2p 230.9p
======= =======
Diluted 249.2p 230.3p
======= =======
Adjusted diluted 247.5p 208.4p
======= =======
All of the activities during both years are in
respect of continuing operations.
The accompanying notes on pages 8 to 10 and 19
to 34 form an integral part of this condensed
consolidated financial information.
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December
2016 2015
GBPm GBPm
Profit for the year (page 13) 4,839 4,522
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss: 1,760 (849)
----- -------
Differences on exchange
- subsidiaries 1,270 (1,006)
- associates 1,425 336
Cash flow hedges
- net fair value gains/(losses) 29 (99)
- reclassified and reported in profit
for the year 38 15
- reclassified and reported in net
assets (12) (45)
Available-for-sale investments
- net fair value gains in respect
of subsidiaries - 14
- reclassified and reported in profit
for the year - (10)
- net fair value (losses)/gains in
respect of associates net of tax (10) 1
Net investment hedges
- net fair value losses (837) (118)
- differences on exchange on borrowings (124) 42
Tax on items that may be reclassified (19) 21
----- -------
Items that will not be reclassified
subsequently to profit or loss: (173) 263
----- -------
Retirement benefit schemes
- net actuarial (losses)/gains in
respect of subsidiaries (228) 283
- surplus recognition and minimum
funding obligations in respect of
subsidiaries (1) -
- actuarial gains in respect of associates
net of tax 20 3
Tax on items that will not be reclassified 36 (23)
----- -------
Total other comprehensive income for
the year, net of tax 1,587 (586)
----- -------
Total comprehensive income for the
year, net of tax 6,426 3,936
===== =======
Attributable to:
Owners of the parent 6,180 3,757
Non-controlling interests 246 179
----- -------
6,426 3,936
===== =======
The accompanying notes on pages 8 to 10 and 19
to 34 form an integral part of this condensed
consolidated financial information.
GROUP STATEMENT OF CHANGES IN EQUITY
At 31 December
Attributable to owners
2016 of the parent
Share
premium,
capital
redemption Total
and attributable
Share 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
2016 507 3,927 (1,294) 1,754 4,894 138 5,032
Total comprehensive
income for the
year (page 14) - - 1,707 4,473 6, 180 246 6,426
-------------------------- -------- ----------- --------- --------- ------------- --------------- --------
Profit for the
year - - - 4,648 4,648 191 4,839
Other comprehensive
income for the
year - - 1,707 (175) 1,532 55 1,587
-------------------------- -------- ----------- --------- --------- ------------- --------------- --------
Employee share
options
- value of employee
services - - - 71 71 - 71
- proceeds from
shares issued - 4 - - 4 - 4
Dividends and
other appropriations
- ordinary shares - - - (2,910) (2,910) - (2,910)
- to non-controlling
interests - - - - - (156) (156)
Purchase of own
shares
- held in employee
share ownership
trusts - - - (64) (64) - (64)
Non-controlling
interests - acquisitions - - - 4 4 (4) -
Other movements - - - 3 3 - 3
-------------------------- -------- ----------- --------- --------- ------------- --------------- --------
Balance at 31
December 2016 507 3,931 413 3,331 8,182 224 8,406
========================== ======== =========== ========= ========= ============= =============== ========
Attributable to owners
2015 of the parent
----------------------------------------------------------
Share
premium,
capital
redemption Total
and attributable
Share 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
2015 507 3,923 (498) 1,578 5,510 304 5,814
Total comprehensive
income for the
year (page 14) - - (796) 4,553 3,757 179 3,936
-------------------------- -------- ----------- --------- --------- ------------- --------------- --------
Profit for the
year - - - 4,290 4,290 232 4,522
Other comprehensive
income for the
year - - (796) 263 (533) (53) (586)
-------------------------- -------- ----------- --------- --------- ------------- --------------- --------
Employee share
options
- value of employee
services - - - 50 50 - 50
- proceeds from
shares issued - 4 - - 4 - 4
Dividends and
other appropriations
- ordinary shares - - - (2,770) (2,770) - (2,770)
- to non-controlling
interests - - - - - (238) (238)
Purchase of own
shares
- held in employee
share ownership
trusts - - - (46) (46) - (46)
Non-controlling
interests - acquisitions - - - (1,642) (1,642) (107) (1,749)
Other movements - - - 31 31 - 31
-------------------------- -------- ----------- --------- --------- ------------- --------------- --------
Balance at 31
December 2015 507 3,927 (1,294) 1,754 4,894 138 5,032
========================== ======== =========== ========= ========= ============= =============== ========
The accompanying notes on pages 8 to 10 and
19 to 34 form an integral part of this condensed
consolidated financial information.
GROUP BALANCE SHEET
At 31 December
2016 2015
GBPm GBPm
Assets
Non-current assets
Intangible assets 12,117 10,436
Property, plant and equipment 3,661 3,021
Investments in associates and joint
ventures 9,507 6,938
Retirement benefit assets 455 408
Deferred tax assets 436 326
Trade and other receivables 599 248
Available-for-sale investments 43 37
Derivative financial instruments 596 287
------ ------
Total non-current assets 27,414 21,701
------ ------
Current assets
Inventories 5,793 4,247
Income tax receivable 69 74
Trade and other receivables 3,884 3,266
Available-for-sale investments 15 35
Derivative financial instruments 375 209
Cash and cash equivalents 2,204 1,963
------ ------
12,340 9,794
Assets classified as held-for-sale 19 20
------ ------
Total current assets 12,359 9,814
------ ------
Total assets 39,773 31,515
====== ======
The accompanying notes on pages 8 to 10 and
19 to 34 form an integral part of this condensed
consolidated financial information.
GROUP BALANCE SHEET - continued
At 31 December
2016 2015
GBPm GBPm
Equity
Capital and reserves
Share capital 507 507
Share premium, capital redemption
and merger reserves 3,931 3,927
Other reserves 413 (1,294)
Retained earnings 3,331 1,754
------- -------
Owners of the parent 8,182 4,894
------- -------
after deducting
- cost of treasury shares (5,053) (5,049)
------- -------
Non-controlling interests 224 138
------- -------
Total equity 8,406 5,032
------- -------
Liabilities
Non-current liabilities
Borrowings 16,488 14,806
Retirement benefit liabilities 826 653
Deferred tax liabilities 652 563
Other provisions for liabilities
and charges 386 296
Trade and other payables 1,040 1,029
Derivative financial instruments 119 130
------- -------
Total non-current liabilities 19,511 17,477
------- -------
Current liabilities
Borrowings 3,007 2,195
Income tax payable 558 414
Other provisions for liabilities
and charges 407 273
Trade and other payables 7,335 5,937
Derivative financial instruments 549 187
------- -------
Total current liabilities 11,856 9,006
------- -------
Total equity and liabilities 39,773 31,515
======= =======
The accompanying notes on pages 8 to 10 and
19 to 34 form an integral part of this condensed
consolidated financial information.
GROUP CASH FLOW STATEMENT
For the year ended 31 December
2016 2015
GBPm GBPm
Cash flows from operating activities
Cash generated from operations (page
26) 4,893 5,400
Dividends received from associates 962 593
Tax paid (1,245) (1,273)
------- -------
Net cash generated from operating
activities 4,610 4,720
------- -------
Cash flows from investing activities
Interest received 62 64
Purchases of property, plant and equipment (586) (483)
Proceeds on disposal of property,
plant and equipment 93 108
Purchases of intangibles (88) (118)
Purchases of investments (109) (99)
Proceeds on disposals of investments 22 45
Investment in associates and acquisitions
of subsidiaries (57) (3,508)
Proceeds from associate's share buy-back 23 -
Net cash used in investing activities (640) (3,991)
------- -------
Cash flows from financing activities
Interest paid (641) (596)
Proceeds from increases in and new
borrowings 3,476 6,931
(Outflow)/inflow relating to derivative
financial instruments (26) 201
Purchases of own shares held in employee
share ownership trusts (64) (46)
Reductions in and repayments of borrowings (3,840) (2,028)
Dividends paid to owners of the parent (2,910) (2,770)
Purchases of non-controlling interests (70) (1,677)
Dividends paid to non-controlling
interests (147) (235)
Other (7) 1
Net cash used in financing activities (4,229) (219)
------- -------
Net cash flows (used in)/generated
from operating, investing and financing
activities (259) 510
Differences on exchange 180 (272)
------- -------
(Decrease)/Increase in net cash and
cash equivalents in the year (79) 238
Net cash and cash equivalents at 1
January 1,730 1,492
------- -------
Net cash and cash equivalents at 31
December 1,651 1,730
------- -------
The accompanying notes on pages 8 to 10 and 19
to 34 form an integral part of this condensed
consolidated financial information.
The net cash outflows relating to the Quebec Class
Action and adjusting items on pages 21 and 23,
included in the above, are GBP711 million, including
GBPnil million related to interest (2015: GBP577
million with GBP97 million related to interest).
The receipt in relation to FII GLO in 2015 from
HMRC was GBP963 million, and is included in 'Cash
generated from operations' as shown on page 26.
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed consolidated financial information has been extracted from the Annual Report, including the audited financial statements for the year ended 31 December 2016. This condensed consolidated financial information does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.
The Group has prepared its annual consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
These 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 2015.
The preparation of these condensed consolidated financial statements 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 statements. 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 statements. In the future, actual experience may deviate from these estimates and assumptions, which could affect these condensed consolidated financial statements as the original estimates and assumptions are modified, as appropriate, in the year 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 are reconciled to profit from operations and 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 that 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, adjusted share of post-tax results of associates and joint ventures and adjusted diluted earnings per share. The Group also includes organic measures of volume, revenue and adjusted profit from operations to ensure a full understanding of the underlying operating performance of the Group, before the impact of acquisitions. All adjustments to profit from operations and diluted earnings per share are explained in this announcement. See pages 21 to 23 and 28.
The Management Board, as the chief operating decision maker, reviews current and prior year segmental adjusted profit from operations of subsidiaries and joint operations, and adjusted post tax results of associates and joint ventures, at constant rates of exchange. This allows comparison of the Group's results, had they been translated at the previous year's average rates of exchange. The Group does not adjust for normal transactional gains and losses in operations that are generated by exchange movements. However, for clarity the Group also gives a figure for growth in adjusted operating profit excluding both transactional and translational foreign exchange movements. As an additional measure to indicate the impact of the exchange rate movements on the Group results, the principal measure of adjusted diluted earnings per share is also shown at constant translation rates of exchange. See page 20.
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 on page 25. 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 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. These are shown on page 28.
ANALYSIS OF REVENUE, PROFIT FROM OPERATIONS AND
DILUTED EARNINGS PER SHARE
=========
2016 2015
======================================================================== =============================
Adj
Adjusted Impact Organic(2)
Adj at of at Adj
Reported Items Adjusted Exchange CC(1) Acqs CC(1) Reported Items Adjusted
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue
Asia-Pacific 4,266 - 4,266 (496) 3,770 - 3,770 3,773 - 3,773
Americas 2,868 - 2,868 146 3,014 - 3,014 2,720 - 2,720
Western
Europe 3,867 - 3,867 (396) 3,471 (154) 3,317 3,203 - 3,203
EEMEA 3,750 - 3,750 3 3,753 (53) 3,700 3,408 - 3,408
-------- ------- --------- --------- --------- ------- ----------- --------- ------- ---------
Total
Region 14,751 - 14,751 (743) 14,008 (207) 13,801 13,104 - 13,104
Profit from
Operations
Asia-Pacific 1,432 198 1,630 (142) 1,488 - 1,488 1,361 108 1,469
Americas 1,017 155 1,172 30 1,202 - 1,202 1,082 87 1,169
Western
Europe 1,044 345 1,389 (153) 1,236 (11) 1,225 990 156 1,146
EEMEA 1,182 107 1,289 (18) 1,271 (12) 1,259 1,127 81 1,208
-------- ------- --------- --------- --------- ------- ----------- --------- ------- ---------
Total
Region 4,675 805 5,480 (283) 5,197 (23) 5,174 4,560 432 4,992
-----------
Fox River
/ Flintkote
(3) (20) 20 - - - (3) 3 -
-------- ------- --------- --------- --------- ------- ----------- --------- ------- ---------
Profit
from operations 4,655 825 5,480 (283) 5,197 4,557 435 4,992
Net finance
(costs)/income (637) 108 (529) 35 (494) 62 (489) (427)
Associates
and joint
ventures 2,227 (900) 1,327 (137) 1,190 1,236 (293) 943
-------- ------- --------- --------- --------- ------- ----------- --------- ------- ---------
Profit
before
tax 6,245 33 6,278 (385) 5,893 5,855 (347) 5,508
Taxation (1,406) (67) (1,473) 47 (1,426) (1,333) (58) (1,391)
Non-controlling
interest (191) 1 (190) 12 (178) (232) (3) (235)
-------- ------- --------- --------- --------- ------- ----------- --------- ------- ---------
Profit
attributable
to shareholders 4,648 (33) 4,615 (326) 4,289 4,290 (408) 3,882
======== ======= ========= ========= ========= ======= =========== ========= ======= =========
Diluted
number
of shares
(m) 1,865 1,865 1,865 1,863 1,863
Diluted
earnings
per share
(pence) 249.2 247.5 230.0 230.3 208.4
---------
Notes:
(1) CC: profit translated at constant rates of exchange. No adjustment is made for the transactional impact of currency movements on cost of sales, as described on page 19
(2) Organic performance excludes the contribution from TDR, Sudan, Chic and Ten Motives
(3) The Fox River and Flintkote charges have not been allocated to any segment as they neither relate to current operations nor to the tobacco business. They are not included in the segmental performance as reported to the chief operating decision maker.
ADJUSTING ITEMS INCLUDED IN PROFIT FROM OPERATIONS
Adjusting items are significant items in the profit from operations that individually or, if of a similar type, in aggregate, are relevant to an understanding of the Group's underlying financial performance, as described on page 19. These items are separately disclosed as memorandum information on the face of the income statement and in the segmental analyses.
(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, including the relevant operating costs of implementing the new operating model. These costs represent additional expenses incurred that are not related to the normal business and day-to-day activities. The new operating model is underpinned by a global single instance of SAP with full deployment occurring during 2016 with benefits already being realised within the business and future savings expected in the years to come. The initiatives also include a review of the Group's manufacturing operations, supply chain, 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:
2016 2015
GBPm GBPm
Employee benefit costs 240 159
Depreciation, amortisation and
impairment costs 64 26
Other operating expenses 325 228
Other operating income (26) (46)
Total 603 367
===== ======
Restructuring and integration costs in 2016 principally relate to the restructuring initiatives directly related to implementation of a new operating model and the cost of initiatives in respect of permanent headcount reductions and permanent employee benefit reductions in the Group. The costs also cover factory closure and downsizing activities in Germany, Malaysia and Brazil, certain exit costs and asset write-offs related to the change in approach to the commercialisation of Voke, uncertainties surrounding regulatory changes, and restructurings in Japan and Australia.
Restructuring and integration costs in 2015 principally relate to the restructuring initiatives directly related to implementation of a new operating model and the cost of initiatives in respect of permanent headcount reductions and permanent employee benefit reductions in the Group. The costs also cover the factory closure and downsizing activities in Australia, certain costs related to the acquisitions undertaken (including TDR in Croatia) and restructurings in Indonesia, Canada, Switzerland and Germany.
Other operating income in 2016 includes gains from the sale of land and buildings in Malaysia. In 2015, other operating income includes gains from the sale of land and buildings in Australia.
(b) Amortisation and impairment of trademarks and similar intangibles
Acquisitions including Ten Motives, CHIC, TDR, Bentoel, Tekel and ST resulted in the capitalisation of trademarks and similar intangibles that are amortised over their expected useful lives, which do not exceed 20 years. The amortisation and impairment charge of GBP149 million (2015: GBP65 million) is included in depreciation, amortisation and impairment costs in the profit from operations.
Adjusting items included in profit from operations cont...
(c) Fox River
In 2011, a Group subsidiary provided GBP274 million in respect of claims in relation to environmental clean-up costs of the Fox River. On 30 September 2014, a Group subsidiary, NCR, Appvion and Windward Prospects entered into a Funding Agreement with regard to the costs for the clean-up of Fox River. Based on this Funding Agreement, GBP17 million has been paid in 2016, which includes legal costs of GBP11 million (2015: GBP17 million, including legal costs of GBP8 million).
In 2016, NCR and Appvion entered into a settlement agreement with certain other defendants (the "Settling 5") to release claims amongst those parties. In January 2017, NCR and Appvion also entered into a consent decree with the US Government to resolve how the remaining clean-up will be funded and to resolve further outstanding claims between them, although this consent decree requires approval from the District Court of Wisconsin. The agreements reduce the Group's exposure under the Funding Agreement. However, this is offset by the devaluation of sterling against the US Dollar, leading to a net charge of GBP20 million (2015: nil). Considering these developments, the provision is GBP163 million at 31 December 2016 (up GBP3 million against prior year).
In July 2016, the High Court ruled in a Group subsidiary's favour that a dividend of EUR135 million paid by Windward to Sequana in May 2009 was a transaction made with the intention of putting assets beyond the reach of the Group subsidiary and of negatively impacting its interests. On 10 February 2017, further to a hearing in January 2017 to determine the relief due, the Court found in the Group subsidiary's favour, ordering that Sequana must pay it an amount up to the full value of the dividend plus interest which equates to around US$185 million, related to past and future clean-up costs. The Court granted all parties leave to appeal, with an appeal hearing expected in late 2017 at the earliest. Due to the uncertain outcome of the case no asset has been recognised in relation to this ruling.
(d) South Korea sales tax
In 2016, the Board of Audit and Inspection of Korea ("BAI") concluded its tax assessment in relation to the 2014 year-end tobacco inventory and imposed additional sales tax (excise and VAT) and penalties. This resulted in the recognition of a GBP53 million charge by a Group subsidiary. Management deems the tax and penalties to be unfounded and has appealed to the tax tribunal against the assessment. Management believes that this appeal will be successful and based upon the Group's expectation that the penalties will be reversed in future, BAT has recognised the tax and penalties charge as adjusting for 2016.
ADJUSTING ITEMS INCLUDED IN NET FINANCE (COSTS)/INCOME
Adjusting items are significant items in net financing costs which individually or, if of a similar type, in aggregate, are relevant to an understanding of the Group's underlying financial performance and are discussed on pages 8 and 9.
ADJUSTING ITEMS INCLUDED IN SHARE OF POST-TAX RESULTS OF 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 28.
In 2016, the Group's interest in ITC Ltd. (ITC) decreased from 30.06% to 29.89% (2015: 30.26% to 30.06%) 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 GBP11 million (2015: gain of GBP22 million), which is treated as a deemed partial disposal and included in the income statement.
In 2016, Reynolds American recognised a gain in relation to the sale of the international rights to Natural American Spirit to the Japan Tobacco Group of companies (JT) of US$4,861 million. The Group's share of this net gain amounted to GBP941 million (net of tax). In 2015, Reynolds American recognised a gain on the related divestiture of assets, following the Lorillard, Inc. ("Lorillard") acquisition, of US$3,288 million. The Group's share of this net gain amounted to GBP371 million (net of tax).
Adjusting items included in share of post-tax results of associates and joint ventures cont...
Reynolds American has also recognised amounts that have been combined in the table of adjusting items in the Group income statement and are included within "other". In 2016, this includes income relating to the early termination of the Manufacturing Agreement between BATUS Japan Inc. and R.J. Reynolds Tobacco Company of US$90 million, the Group's share of which is GBP18 million (net of tax), restructuring charges of US$36 million, the Group's share of which is GBP7 million (net of tax) (2015: US$223 million, the Group's share of which is GBP39 million (net of tax)) and costs in respect of a number of Engle progeny lawsuits and other tobacco litigation charges that amounted to US$86 million, the Group's share of which is GBP17 million (net of tax) (2015: US$152 million, the Group's share of which is GBP26 million (net of tax)).
Additionally, there was income of US$6 million (2015: US$108 million) related to the Non-Participating Manufacturer (NPM) Adjustment claims of the states no longer challenging the findings of non-diligence entered against them by an Arbitration Panel, the Group's share of which is GBP2 million (2015: GBP18 million) (net of tax). Also included in 2016 are transaction costs of US$5 million (2015: US$54 million) and financing costs of US$243 million (2015: US$60 million), connected with the acquisition of Lorillard, the Group's share (net of tax) of which is GBP1 million and GBP47 million (2015: GBP12 million and GBP10 million), respectively. The remaining costs in 2015 of US$99 million are primarily in respect of asset impairment and exit charges, the Group's share of which is GBP25 million (net of tax).
ADJUSTING ITEMS INCLUDED IN TAXATION
IFRS requires entities to provide deferred taxation on the undistributed earnings of associates and joint-ventures. As explained on page 9, the Group's share of gains on divestiture of intangibles and other assets by Reynolds American in 2016 and 2015 are treated as adjusting items and therefore the additional tax charge of GBP61 million (2015: GBP22 million) has also been treated as adjusting.
The adjusting tax item also includes GBP128 million (2015: GBP80 million) in respect of the tax on adjusting items, as described above and on pages 21 and 22.
CASH FLOW AND NET DEBT MOVEMENTS
(a) Alternative cash flow (at current rates of exchange unless specifically noted)
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.
2016 2015
GBPm GBPm
Adjusted profit from operations
(page 13) 5,480 4,992
Depreciation, amortisation and
impairment 393 338
Other non-cash items in operating
profit 62 (1)
--------- ---------
Profit from operations before depreciation,
amortisation and impairment 5,935 5,329
Increase in working capital (254) (263)
Net capital expenditure (559) (483)
---------
Gross capital expenditure (652) (591)
Sale of fixed assets 93 108
--------- ---------
Operating cash flow 5,122 4,583
Pension funds' shortfall funding (78) (148)
Net interest paid (537) (522)
Tax paid (1,245) (1,273)
Franked Investment Income Group
Litigation Order (FII GLO) - 963
Dividends paid to non-controlling
interests (147) (235)
--------- ---------
Cash generated from operations 3,115 3,368
Restructuring costs (452) (405)
Non-tobacco litigation: Flintkote
and Fox River (settlement) (17) (20)
Tobacco litigation: Quebec (deposit) (242) (55)
Dividends and other appropriations
from associates 985 593
--------- ---------
Free cash flow 3,389 3,481
Dividends paid to shareholders (2,910) (2,770)
Net investment activities (166) (5,192)
Net flow from net investment hedges,
share schemes and other (476) (52)
--------- ---------
Net cash outflow (163) (4,533)
Note: Cash generated from operations
at constant rates of exchange 2,918 3,368
External movements on net debt
Exchange rate effects* (1,684) (112)
Change in accrued interest and
other (126) 16
--------- ---------
Change in net debt (1,973) (4,629)
Opening net debt (14,794) (10,165)
--------- ---------
Closing net debt (16,767) (14,794)
========= =========
* Including movements in respect of debt-related derivatives.
In the alternative cash flow presented above, operating cash flow increased by GBP539 million, or 11.8%, to GBP5,122 million, reflecting the excellent growth in underlying operating performance of the Group which was partly offset by higher capital expenditure, including that for Next Generation Products.
Cash generated from operations fell by GBP253 million, or by GBP450 million at constant rates of exchange, as 2015 benefited from the FII GLO receipt of GBP963 million (see page 34). Excluding this receipt, cash generated from operations at constant exchange rates was up GBP513 million or 21.3% higher.
Free cash flow was lower by GBP92 million or 2.6%, at GBP3,389 million but grew, excluding FII GLO, by GBP871 million as the improved operating performance, higher distributions from associates (including the proceeds from Reynolds American's share buyback programme) and lower payments to minorities following the buy-out of Souza Cruz were partly than offset by the increase in Quebec Class Action-related cash deposits.
Cash flow and net debt movements cont...
The conversion of adjusted profit from operations to operating cash flow remained strong at 93% (2015: 92%). The ratio of free cash flow per share to adjusted diluted earnings per share fell to 73% from 90% in 2015 as the prior year benefited from the receipt in relation to FII GLO.
Below free cash flow, the principal cash outflows for 2016 comprise the payment of the prior year final dividend and the 2016 interim dividend, GBP140 million higher than prior year at GBP2,910 million, as well as net investment activities which included the acquisition of Ten Motives. During 2015, the cash outflow from net investing activities was GBP5,192 million relating to the investment in Reynolds American, the buy-out of the minorities in Souza Cruz and the acquisition of TDR in Croatia.
The other net flows in 2016 principally relate to shares purchased by the employee share ownership trusts and cash flows in respect of certain derivative financial instruments.
These flows resulted in a net cash outflow of GBP163 million (2015: GBP4,533 million outflow). After taking account of other changes, especially exchange rate movements, total net debt was GBP1,973 million higher at GBP16,767 million at 31 December 2016 (2015: GBP14,794 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:
2016 2015
GBPm GBPm
Net debt due within one year:
Borrowings 3,007 2,195
Related derivatives (498) (46)
Cash and cash equivalents (2,204) (1,963)
Current available-for-sale investments (15) (35)
-------- --------
290 151
Net debt due beyond one year:
Borrowings 16,488 14,806
Related derivatives (11) (163)
-------- --------
16,477 14,643
Total net debt 16,767 14,794
======== ========
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 includes the following items:
2016 2015
GBPm GBPm
Profit from operations 4,655 4,557
Adjustments for:
Depreciation, amortisation and
impairment costs 607 428
Increase in inventories (638) (520)
Decrease/(increase) in trade and
other receivables 87 (508)
Increase in amounts receivable
in respect of the Quebec Class
Action (242) (55)
Increase in trade and other payables 428 732
FII GLO receipts (see page 34) - 963
Decrease in net retirement benefit
liabilities (145) (191)
Increase in provisions for liabilities
and charges 141 48
Other non-cash items - (54)
------ ------
Cash generated from operations 4,893 5,400
====== ======
(d) IFRS net cash and cash equivalents
The net cash and cash equivalents in the IFRS Group cash flow statement on page 18 comprise:
2016 2015
GBPm GBPm
Cash and cash equivalents per balance
sheet 2,204 1,963
Overdrafts and accrued interest (553) (233)
------ ------
Net cash and cash equivalents 1,651 1,730
====== ======
(e) Liquidity
The Treasury function is responsible for raising finance for the Group, managing the Group's cash resources and financial risks arising from underlying operations. All these activities are carried out under defined policies, procedures and limits.
The Group targets an average centrally managed debt maturity of at least five years with no more than 20% of centrally managed debt maturing in a single rolling year. As at 31 December 2016, the average centrally managed debt maturity was 8.2 years (2015: 7.9 years) and the highest proportion of centrally managed debt maturing in a single rolling 12-month period was 18.1% (2015: 15.0%).
It is Group policy that short-term sources of funds (including drawings under both the US$3 billion US commercial paper programme and the GBP1 billion-euro commercial paper programme) are backed by undrawn committed lines of credit and cash. At 31 December 2016, GBP254 million of commercial paper was outstanding (2015: GBP505 million).
In March 2016, a one-year extension option was exercised for the GBP3 billion main bank facility, extending the final maturity to May 2021. The facility was undrawn as at 31 December 2016.
In March 2016, a US$300 million bond was repaid. In July 2016, the Group issued a GBP500 million bond maturing in 2021, with two bonds issued in September 2016 (a US$650 million bond maturing in 2019 and a GBP650 million bond maturing in 2052). The Group repaid on maturity a CHF 350 million bond in August 2016 and a GBP325 million bond in September 2016.
Cash flow and net debt movements cont...
On 19 July 2016, the Group exercised the make-whole provision for its US$700 million bond originally issued in 2008 pursuant to rule 144A. The bond was redeemed on 18 August 2016, prior to its original maturity date of 15 November 2018. This was undertaken to manage the Group's debt maturity profile, decrease future refinancing risk and reduce the on-going interest expense.
In January 2017, following the announcement that the Group had agreed the terms in relation to the proposed acquisition of the shares not already owned in Reynolds American, a US$25 billion acquisition facility was entered into with a syndicate of banks, split in four tranches as follows: two bridge facilities of US$15 billion and US$5 billion maturing in 2018 and 2019 respectively (each with two six months extensions at BAT's option), US$2.5 billion term loan maturing in 2020 and US$2.5 billion term loan maturing in 2022. The Group intends to refinance the bridge facilities through debt issuance at the capital market at or around the closing date.
In addition, the Group increased its liquidity position with a new two-tranche GBP5.7 billion forward starting revolving credit facility, which consists of a 364-day revolving credit facility of GBP2.84 billion (with a one year extension and one year term out option), and a GBP2.84 billion revolving credit facility maturing in 2021. This will effectively replace the Group's existing GBP3.0 billion revolving credit facility, which will be cancelled upon closing of the acquisition when the new revolving credit facility will become effective.
EARNINGS PER SHARE
Adjusted diluted earnings per share were 18.8% ahead of prior year at 247.5p (2015: 208.4p), as the growth in the Group's operating profit, higher share of post-tax results of associates and joint ventures, lower tax charge and a reduction in non-controlling interest. Excluding the impact of the relative weakness of sterling on the reported results, adjusted diluted earnings per share increased by 10.4% to 230.0p (2015: 208.4p), at constant rates of exchange. Basic earnings per share were 8.8% higher at 251.2p (2015: 230.9p), benefiting from the growth in the Group's operating performance and the foreign exchange tailwind on translation of the Group results. The Group incurred higher restructuring charges and an increase in net finance costs, but these were largely offset by the increase in the Group's share of one-off gains from disposals by Reynolds American.
2016 2015
Pence pence
Earnings per share
- basic 250.2 230.9
- diluted 249.2 230.3
Adjusted earnings per share
- basic 248.4 208.9
- diluted 247.5 208.4
Headline earnings per share
- basic 205.6 210.4
- diluted 204.8 209.8
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.
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 2/2015 'Headline Earnings', as issued by the South African Institute of Chartered Accountants.
Earnings per share cont...
Adjusted diluted earnings per share and adjusted diluted earnings per share at constant rates of exchange are calculated by taking the following adjustments into account (see pages 21 to 23):
2016 2015
pence pence
Unadjusted diluted earnings per
share 249.2 230.3
Effect of restructuring and integration
costs 27.5 15.7
Effect of amortisation of trademarks
and similar intangibles 6.3 3.0
Effect of South Korea sales tax 2.6 -
challenge
Effect of Fox River 1.1 -
Effect of Flintkote - 0.2
Effect of associates' adjusting
items (48.3) (15.7)
Effect of adjusting items in net
finance costs 5.8 (26.3)
Effect of adjusting items in respect
of deferred taxation 3.3 1.2
Adjusted diluted earnings per share 247.5 208.4
Effect of exchange rate movements (17.5) -
------- -------
Adjusted diluted earnings per share
(at constant rates) 230.0 208.4
======= =======
Diluted headline earnings per share are calculated by taking the following adjustments into account:
2016 2015
pence pence
Unadjusted diluted earnings per
share 249.2 230.3
Effect of impairment of intangibles
and property, plant and equipment
and held-for-sale assets 4.9 1.1
Effect of gains on disposal of
property, plant and equipment
and held-for-sale assets (1.6) (2.2)
Effect of associates' gain on
disposal of asset held-for-sale (47.1) (18.7)
Effect of issue of shares and
change in shareholding in associate (0.6) (1.2)
Other - 0.5
------- -------
Diluted headline earnings per
share 204.8 209.8
======= =======
Earnings per share cont...
In the earnings per share disclosed above, the calculation is based upon the following level of earnings and number of shares:
2016 2015
------------------ ------------------
Earnings Shares Earnings Shares
GBPm m GBPm m
For earnings per
share
- basic 4,648 1,858 4,290 1,858
- diluted 4,648 1,865 4,290 1,863
For adjusted earnings
per share
- basic 4,615 1,858 3,882 1,858
- diluted 4,615 1,865 3,882 1,863
- diluted, at constant
rates 4,289 1,865
For headline earnings
per share
- basic 3,819 1,858 3,909 1,858
- diluted 3,819 1,865 3,909 1,863
DIVIDS
Recommendation
The Board recommends a final dividend of 118.1p per ordinary share of 25p for the year ended 31 December 2016. If approved by shareholders at the Annual General Meeting to be held on 26 April 2017, the final dividend will be payable on 4 May 2017 to shareholders registered on either the UK main register or the South Africa branch register on 17 March 2017 (the record date).
General Dividend Information
Under IFRS, the recommended final dividend in respect of a year is only provided in the accounts of the following year. Therefore, the 2016 accounts reflect the 2015 final dividend and the 2016 interim dividend amounting to 155.9p (GBP2,910 million in total (2015: 150.0p - GBP2,770 million)).
The following is a summary of the dividends declared/recommended for the years ended 31 December 2016 and 2015.
2016 2015
Pence GBPm Pence GBPm
per per
Share share
Ordinary shares
Interim
- 2016 paid 28 September
2016 51.3 961
- 2015 paid 30 September
2015 49.4 908
Final
- 2016 payable 4
May 2017 118.1 2,194
- 2015 paid 5 May
2016 104.6 1,949
------ ------ ------ ------
169.4 3,155 154.0 2,857
====== ====== ====== ======
Dividends cont...
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 final dividend are applicable:
Event Date 2017
-------------------------------- ---------------------
Last Day to Trade (LDT) Tuesday 14 March
cum dividend (JSE)
Shares commence trading Wednesday 15 March
ex-dividend (JSE)
Shares commence trading Thursday 16 March
ex-dividend (LSE)
Record date (JSE and LSE) Friday 17 March
Payment date Thursday 4 May
No removal requests permitted Thursday 23 February
between the UK main register to Friday 17 March
and the South Africa branch (inclusive)
register
No transfers permitted between Wednesday 15 March
the UK main register and to Friday 17 March
the South Africa branch (inclusive)
register
No shares may be dematerialised Wednesday 15 March
or rematerialised to Friday 17 March
(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 = 16.32100 as at 21 February 2017 (the closing rate on that date as quoted by Bloomberg), results in an equivalent final dividend of 1,927.51010 SA cents per ordinary share.
South Africa Branch Register: Dividends Tax Information
South Africa Dividends Tax (at a rate of 15%), equivalent to 289.12652 SA cents per ordinary share, will be withheld from the gross final dividend paid to shareholders on the South Africa branch register, unless a shareholder qualifies for an exemption. After Dividends Tax has been withheld, the net dividend will be 1,638.38359 SA cents per ordinary share. The final dividend is regarded as a 'foreign dividend' for the purposes of the South Africa Dividends Tax.
At the close of business on 21 February 2017 (the latest practicable date prior to the date of the recommendation of the final dividend), British American Tobacco p.l.c. (the "Company") had a total of 1,864,374,894 ordinary shares in issue (excluding treasury shares). The Company held 162,645,590 ordinary shares in treasury giving a total issued share capital of 2,027,020,484 ordinary shares.
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, Dividends 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 Dividends Tax to Computershare Investor Services Proprietary Limited, contact details for which are given in the 'Corporate Information' section below.
RETIREMENT BENEFIT SCHEMES
The Group's subsidiaries operate around 170 retirement benefit arrangements worldwide. The majority of the scheme members belong to defined benefit schemes, most of which are funded externally and many are closed to new entrants. The Group also operates a number of defined contribution schemes.
The present total value of funded scheme liabilities as at 31 December 2016 was GBP7,155 million (2015: GBP5,956 million), while unfunded scheme liabilities amounted to GBP476 million (2015: GBP364 million). The fair value of scheme assets increased from GBP6,086 million in 2015 to GBP7,278 million in 2016.
The overall net liability for all pension and health care schemes in Group subsidiaries amounted to GBP371 million at the end of 2016, compared to GBP245 million at the end of 2015.
The actuarial loss of GBP228 million (2015: GBP283 million gain) recognised in the Group Statement of Comprehensive Income is principally driven by changes in the discount rates used in the valuation of retirement benefit scheme liabilities at each year end, resulting in a GBP843 million loss (2015: GBP377 million gain) offset by increases in the fair value of scheme assets of GBP615 million (2015: GBP94 million decrease).
Contributions to the defined benefit schemes are determined after consultation with the respective trustees and actuaries of the individual externally funded schemes, taking into account regulatory environments.
OTHER CHANGES IN THE GROUP
On 20 April 2016, the Group completed the acquisition of 100% of Ten Motives, a UK based e-cigarette business with particular strength in traditional grocery and convenience channels. The fair value of the consideration payable was GBP56 million of which GBP6 million is contingent on post-acquisition targets. The fair value and book value of acquired net assets was not materially different except for the recognition of trademarks and similar intangibles of GBP33 million. Goodwill of GBP21 million arising on this transaction represents a strategic premium to increase the Group's share of the UK e-cigarette market.
In January 2017, the Group signed an agreement with CID Adriatic Investments GmbH (CID) for the Group to acquire certain tobacco assets of Fabrika Duhana Sarajevo (FDS), largely brands, and a retail business (Tobacco Press). The Group will also enter into a contract manufacturing agreement with FDS for the continued production of the acquired brands by FDS in Sarajevo. The agreement between the Group and CID is subject to FDS shareholder approval and approval by the relevant regulatory authority. It is expected that this transaction will complete in the first half of 2017.
As disclosed in the Annual Report for the year ended 31 December 2015, page 34, on 5 February 2016, the acquisition of the shares in Souza Cruz not already owned by the Group was approved, with Souza Cruz becoming a wholly-owned subsidiary at that date.
RELATED PARTY DISCLOSURES
The Group's related party transactions and relationships for 2015 were disclosed on page 190 of the Annual Report for the year ended 31 December 2015. In the year to 31 December 2016, there were no material changes in related parties or in related party transactions except for the matters noted below:
On 17 December 2012, a wholly owned subsidiary of the Group, BATUS Japan Inc. (BATUSJ), entered into an Amendment and Extension Agreement (referred to as the Amendment) with a wholly owned subsidiary of Reynolds American, R.J. Reynolds Tobacco Company (referred to as RJRTC). The Amendment modifies the American blend Cigarette Manufacturing Agreement (referred to as the 2010 Agreement), effective as of 1 January 2010.
Prior to the Amendment, the term of the 2010 Agreement was scheduled to expire on 31 December 2014, subject to early termination and extension provisions. Pursuant to the Amendment, the Manufacturing Agreement would remain in effect beyond 31 December 2014, provided that either RJRTC or BATUSJ may terminate the Manufacturing Agreement by furnishing three years' notice to the other party, such notice was given in January 2016. As a result of early termination of this agreement the Group agreed to a compensation payment of US$90 million of which US$7 million were paid to RJRTC on 22 September 2016, with the Group recognising the full expense of US$90 million as required by IFRS in 2016. The balance is due in March 2017.
During 2016, the Group received proceeds of GBP23 million in respect of its participation in the share buy-back programme conducted by Reynolds American. This programme ceased in the fourth quarter of 2016.
FOREIGN CURRENCIES
The principal exchange rates used were as follows:
Average Closing
------------------ ------------------
2016 2015 2016 2015
Australian dollar 1.824 2.036 1.707 2.026
Brazilian real 4.740 5.101 4.022 5.831
Canadian dollar 1.795 1.954 1.657 2.047
Euro 1.224 1.378 1.172 1.357
Indian rupee 91.022 98.070 83.864 97.508
Japanese yen 147.466 185.012 144.120 177.303
Russian rouble 91.026 93.591 75.429 107.646
South African rand 19.962 19.522 16.898 22.839
US dollar 1.355 1.528 1.236 1.474
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 judgement. There are, however, contingent liabilities in respect of litigation, taxes in some countries and guarantees for which no provisions have been made.
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 in the next three years.
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, among 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 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.
There are disputes that may proceed to litigation in a number of countries including Brazil, Netherlands and South Africa. A dispute in Bangladesh, which proceeded to litigation in 2014, is on-going, whilst the Group is appealing the ruling in respect of sales taxes and penalties in South Korea.
Group litigation
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.
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. An adverse judgment was entered against one Group company, Imperial, in the Quebec class actions and an appeal has been made. If further adverse judgments are entered against any of the Group's companies in any case, all avenues of appeal will be pursued. Such appeals could require the appellants to post appeal bonds or substitute security (as has been necessary in Quebec) in amounts that could in some cases equal or exceed the amount of the judgment. In any event, with regard to US tobacco product liability litigation (which excludes the recent litigation brought against the Company by the shareholders of Reynolds American Inc. and Lorillard Inc.) the Group has the benefit of an 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, with the exception of Fox River, the Group (i) does not consider it appropriate to make any provision or charge in respect of any pending litigation, (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 and tax disputes as at 31 December 2016 will be included in the Annual Report for the year ended 31 December 2016. There were no material developments in 2016 that would impact on the financial position of the Group.
FRANKED INVESTMENT INCOME GROUP LITIGATION ORDER
The Group is the principal test claimant in an action in the United Kingdom against HM Revenue and Customs (HMRC) 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 original claim was filed in 2003. The trial of the claim was split broadly into issues of liability and quantification. The main liability issues were heard by the High Court, Court of Appeal and Supreme Court in the UK and the European Court of Justice in the period to November 2012. The detailed technical issues of the quantification mechanics of the claim were heard by the High Court during May and June 2014 and the judgment handed down on 18 December 2014. The High Court determined that in respect of issues concerning the calculation of unlawfully charged corporation tax and advance corporation tax, the law of restitution including the defence on change of position and questions concerning the calculation of overpaid interest, the approach of the Group was broadly preferred. The conclusion reached by the High Court would, if upheld, produce an estimated receivable of GBP1.2 billion for the Group. Appeals on a majority of the issues were made to the Court of Appeal, which heard the arguments in June 2016. The Court of Appeal determined in November 2016 on the majority of issues that the conclusion reached by the High Court should be upheld. The outcome of the Court of Appeal has not reduced the estimated receivable. Permission has been sought by HMRC to appeal almost all issues on which it was unsuccessful to the Supreme Court.
During 2015, HMRC paid to the Group a gross amount of GBP1,224 million in two separate payments. The payments made by HMRC have been made without any admission of liability and are subject to refund were HMRC to succeed on appeal. The second payment in November 2015 followed the introduction of a new 45% tax on the interest component of restitution claims against HMRC. HMRC held back GBP261 million from the second payment contending that it represents the new 45% tax on that payment, leading to total cash received by the Group of GBP963 million. Actions challenging the legality of the 45% tax have been lodged by both the Group and other participants in the FII GLO which will be heard in 2017.
Due to the uncertainty of the amounts and eventual outcome the Group has not recognised any impact in the Income Statement in the current or prior period in respect of the receipt which, net of the deduction by HMRC, is held as deferred income. Any future recognition as income will be treated as an adjusting item, due to the size of the order, with interest of GBP25 million for the 12 months to 31 December 2016 (2015: GBP8 million) accruing on the balance, which was also treated as an adjusting item.
ANNUAL REPORT
Statutory accounts
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2015. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's Annual General Meeting. The auditors' reports on both the 2016 and 2015 accounts were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of Companies Act 2006 or equivalent preceding legislation.
Publication
The Annual Report will be published on bat.com on or around 13 March 2017. A printed copy will later be mailed to shareholders on the UK main register who have elected to receive it. At the same time, shareholders will be notified of the availability of the Annual Report on the website and of the Performance Summary together with other ancillary documents in accordance with their elections. Specific local mailing and/or notification requirements will apply to shareholders on the South Africa branch register.
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 that 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 that 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.
DISTRIBUTION OF PRELIMINARY STATEMENT
This announcement is released to the London Stock Exchange and the JSE Limited. It may be viewed and downloaded from our website 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.
Nicola Snook
Secretary
22 February 2017
APPIX 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.
GROUP VOLUME
The Group volume includes 100% of all volume sold by subsidiaries. As previously reported in the case of the joint operation, (known as CTBAT International Limited) between China National Tobacco Corporation (CNTC) and the Group, the volume of CTBAT not already recognised by Group subsidiaries is included in Group volumes at 100% rather than as a proportion of volume sold, in line with the Group's measurement of market share, which is based on absolute volume sold, both in individual markets and globally.
SHAREHOLDER INFORMATION
FINANCIAL CALAR 2017
Wednesday 26 April Annual General Meeting at 11.30am
Milton Court Concert Hall,
Silk Street, London EC2Y 9BH
Thursday 27 July Half-Year Report
CALAR FOR THE FINAL DIVID 2016
2017
Thursday 23 February Dividend announced: amount
of dividend per share in both
sterling and rand; applicable
exchange rate and conversion
date - Tuesday 21 February
2017; plus additional applicable
information as required in
respect of South Africa Dividends
Tax(1) .
Thursday 23 February From the commencement of trading
to on Thursday 23 February 2017
Friday 17 March to Friday 17 March 2017 (inclusive),
no removal requests in either
direction between the UK main
register and the South Africa
branch register will be permitted.
Tuesday 14 March Last Day to Trade or LDT (JSE)
Wednesday 15 March From the commencement of trading
to Friday 17 March on Wednesday 15 March 2017
to Friday 17 March 2017 (inclusive),
no transfers between the UK
main register and the South
Africa branch register will
be permitted; no shares may
be dematerialised or rematerialised.
Wednesday 15 March Ex-dividend date (JSE)
Thursday 16 March Ex-dividend date (LSE)
Friday 17 March Record date (LSE and JSE)
Monday 10 April Last date for receipt of Dividend
Reinvestment Plan (DRIP) elections
(UK main register only)
Thursday 4 May Payment date (sterling and
rand)
Note:
(1) Details of the applicable exchange rate and the South Africa Dividends Tax information can be found under the heading 'Dividends' on page 30.
For holders of American Depositary Receipts (ADRs), the record date for ADRs is also Friday 17 March 2017 with an ADR payment date of Tuesday 9 May 2017.
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; +44 370 889 3159
Share dealing tel: 0370 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 Proprietary Limited
PO Box 61051, Marshalltown 2107, South Africa
tel: 0861 100 634; +27 11 870 8216
email enquiries: web.queries@computershare.co.za
American Depositary Receipts (ADRs)
NYSE MKT (Symbol: BTI; CUSIP Number: 110448107)
Sponsored ADR programme; each ADR represents one ordinary share 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
The Company's Representative office in South Africa using the contact details shown below.
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
Waterway House South
No 3 Dock Road, V&A Waterfront
Cape Town 8000
South Africa
(PO Box 631, Cape Town 8000, South Africa)
tel: +27 21 003 6576
Forward looking statements
Certain statements in this communication regarding the proposed merger of Reynolds American and BAT (the "Proposed Transaction"), the expected timetable for completing the Proposed Transaction, the benefits and synergies of the Proposed Transaction, future opportunities for the combined company and any other statements regarding BAT's, Reynolds American's or the combined company's future expectations, beliefs, plans, objectives, financial conditions, assumptions or future events or performance that are not historical facts are "forward-looking" statements made within the meaning of Section 21E of the United States Securities Exchange Act of 1934. These statements are often, but not always, made through the use of words or phrases such as "believe," "anticipate," "could," "may," "would," "should," "intend," "plan," "potential," "predict," "will," "expect," "estimate," "project," "positioned," "strategy," "outlook" and similar expressions. All such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual future financial condition, performance and results to differ materially from the plans, goals, expectations and results expressed in the forward-looking statements and other financial and/or statistical data
within this communication. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking statements are uncertainties related to the following: whether the conditions to the Proposed Transaction will be satisfied and the Proposed Transaction will be completed on the anticipated timeframe, or at all; the failure to realize contemplated synergies and other benefits from the Proposed Transaction; the incurrence of significant costs and the availability and cost of financing in connection with the Proposed Transaction; the effect of the announcement of the Proposed Transaction, and related uncertainties as to whether the Proposed Transaction will be completed, on BAT's, Reynolds American's or the combined company's ability to retain customers, retain and hire key personnel and maintain relationships with suppliers and on their operating results and businesses generally; the ability to maintain credit ratings; changes in the tobacco industry and stock market trading conditions; changes or differences in domestic or international economic or political conditions; changes in tax laws and rates; the impact of adverse legislation and regulation; the ability to develop, produce or market new alternative products profitably; the ability to effectively implement strategic initiatives and actions taken to increase sales growth; the ability to enhance cash generation and pay dividends; adverse litigation and dispute outcomes; and changes in the market position, businesses, financial condition, results of operations or prospects of BAT, Reynolds American or the combined company.
Additional information concerning these and other factors can be found in Reynolds American's filings with the U.S. Securities and Exchange Commission ("SEC"), including Reynolds American's most recent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and BAT's Annual Reports, which may be obtained free of charge from BAT's website www.BAT.com. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof and BAT undertakes no obligation to update or revise publicly any forward-looking statements or other data or statements contained within this communication, whether as a result of new information, future events or otherwise.
No statement in this communication is intended to be a profit forecast and no statement in this communication should be interpreted to mean that earnings per share of BAT or Reynolds American for the current or future financial years would necessarily match or exceed the historical published earnings per share of BAT or Reynolds American, respectively.
Additional information and where to find it
This communication is neither a solicitation of a proxy nor a substitute for any proxy statement or other filings that may be made with the SEC in connection with the Proposed Transaction. Any solicitation will only be made through materials filed with the SEC. Nonetheless, this communication may be deemed to be solicitation material in respect of the Proposed Transaction by BAT.
BAT intends to file relevant materials with the SEC, including a registration statement on Form F-4 that will include a proxy statement of Reynolds American that also constitutes a prospectus of BAT. Investors and security holders are urged to read all relevant documents filed with the SEC (if and when they become available), including the proxy statement/prospectus, because they will contain important information about the Proposed Transaction. Investors and security holders will be able to obtain the documents (if and when available) free of charge at the SEC's website, http://www.sec.gov, or for free from BAT at batir@bat.com / +44 (0) 20 7845 1000. Such documents are not currently available.
Participants in solicitation
This communication is neither a solicitation of a proxy nor a substitute for any proxy statement or other filings that may be made with the SEC in connection with the Proposed Transaction. Nonetheless, BAT, and its affiliates and each of their directors and executive officers and certain employees may be deemed to be participants in the solicitation of proxies from the holders of Reynolds American common stock with respect to the Proposed Transaction. Information about such parties and a description of their interests are set forth in BAT's 2015 Annual Report, which may be obtained free of charge from BAT's website www.BAT.com and the proxy statement for Reynolds American's 2016 Annual Meeting of Stockholders, which was filed with the SEC on March 23, 2016, Reynolds American's annual report for the year ended December 31, 2016, which was filed on Form 10-K with the SEC on February 9, 2017 and Reynolds American's Form 10-K/A, which is to be filed with the SEC on or before May 1, 2017 (such filings by Reynolds American, collectively, "Reynolds SEC filings"). To the extent holdings of Reynolds American securities by such parties have changed since the amounts contained in the Reynolds SEC filings, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC. Additional information regarding the interest of such parties will also be included in the materials that BAT intends to file with the SEC in connection with the Proposed Transaction. These documents (if and when available) may be obtained free of charge from the SEC's website http://www.sec.gov, or from BAT using the contact information above.
Non-solicitation
This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
This communication should not be construed as investment advice and is not intended to form the basis of any investment decision, nor does it form the basis of any contract for acquisition or investment in any member of the BAT group, financial promotion or any offer, invitation or recommendation in relation to any acquisition of, or investment in, any member of the BAT group.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKBDQKBKBFBB
(END) Dow Jones Newswires
February 23, 2017 02:02 ET (07:02 GMT)
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