3rd Quarter Results
British American Tobacco PLC
28 October 2003
QUARTERLY REPORT TO 30 SEPTEMBER 2003 28 October 2003
SUMMARY
NINE MONTHS RESULTS 2003 2002 Change
Operating profit pre-goodwill amortisation and
exceptionals £2,115m £2,045m +3%
Pre-tax profit £1,293m £1,620m -20%
Adjusted earnings per share 51.47p 49.15p +5%
• Group operating profit, excluding goodwill amortisation
and exceptional items, was 3 per cent higher at
£2,115 million, with higher contributions from all
regions except America-Pacific. At comparable rates of
exchange operating profit was also up 3 per cent.
• Group volumes grew by 1 per cent to 584 billion. The
four global drive brands Kent, Dunhill, Lucky Strike
and Pall Mall achieved an overall growth of 13 per
cent.
• Pre-tax profit was 20 per cent lower at £1,293 million
and basic earnings per share fell to 24.48p
(2002: 38.32p), reflecting the exceptional costs of
restructuring the businesses in the UK and Canada, as
well as a loss on disposal of a subsidiary.
• Adjusted diluted earnings per share at 51.47p were up
5 per cent, benefiting from higher operating profit and
the impact of the share buy-back programme.
• The Group has announced the agreement to combine Brown
& Williamson's (B&W) US domestic business with
R.J. Reynolds (RJR) under Reynolds American, a new
holding company 58 per cent owned by RJR shareholders
and 42 per cent by the Group, through B&W. The Group
will also sell Lane to Reynolds American for
US$400 million in cash.
• The Chairman, Martin Broughton, commented "The Group as
a whole remains very much on track and the exciting
agreement with Reynolds is the best way to achieve our
long-term strategic ambitions in the US, while
improving both our earnings per share and our cash
flow."
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BRITISH AMERICAN TOBACCO p.l.c.
QUARTERLY REPORT TO 30 SEPTEMBER 2003
INDEX
PAGE
Chairman's comments 2
Business review 4
Group results 9
Segmental analyses of turnover and profit 10
Statement of total recognised gains and losses 11
Interest of British American Tobacco's shareholders 11
Accounting policies and basis of preparation 12
Foreign currencies 12
Changes in the Group 12
Restructuring costs 13
Goodwill amortisation 13
Loss on disposal of subsidiary 14
Net interest 14
Taxation 14
Earnings per share 15
Share buy-back programme 16
CHAIRMAN'S COMMENTS 2.
In the first nine months, British American Tobacco's operating
profit before goodwill amortisation and exceptional items rose
by 3 per cent to £2,115 million, as volumes grew by 1 per cent
to 584 billion cigarettes. At the pre-tax level, profit was
some £327 million lower, reflecting the exceptional
restructuring costs in Canada and the UK announced earlier in
the year and a loss on the disposal of a subsidiary. Basic
earnings per share were 24.48p compared to 38.32p in 2002.
However, adjusted diluted earnings per share grew 5 per cent
to 51.47p, as higher operating profit and the benefit from the
share buy-back programme more than offset the increases in net
interest paid and minorities. The Group has now bought back
84 million shares so far this year at a cost of £533 million,
improving earnings per share by 1 per cent and the programme
will resume shortly.
We have just announced the agreement to combine Brown &
Williamson's (B&W) US domestic business with R.J. Reynolds in
a new holding company, Reynolds American Inc. Reynolds
American's shares will be allocated 58 per cent to the former
R.J. Reynolds shareholders and 42 per cent to the Group
through B&W. In addition, the Group will sell Lane, the
company operating the Smoking Tobacco and Cigars business in
the US, to Reynolds American for US$400m in cash. Both these
proposals will be subject to anti-trust clearance, to a vote
of R.J. Reynolds shareholders and to the receipt of Internal
Revenue Services rulings.
The allocation of 42 per cent of Reynolds American's common
stock to the Group through B&W will involve the issue to B&W
of 61.6 million shares which, at the current R.J. Reynolds
share price of approximately US$42.50, will be worth US$2.6bn.
Reynolds American will be listed on the New York Stock
Exchange and will recommend a minimum dividend payout of 75
per cent of reported net income. In addition, B&W will be
provided with an indemnity for all existing and any future
litigation relating to the US tobacco business.
The combined business will have an enlarged brand portfolio
and be able to achieve cost reductions greatly in excess of
those from either business on its own. The total annual
synergy benefits are agreed to be over US$500m and these
should be largely achieved during 2005. Andrew Schindler,
currently Chairman and CEO of R.J. Reynolds, will be Chairman
of Reynolds American, with B&W's Susan Ivey becoming CEO.
This exciting combination makes both strategic and financial
sense. The merger will improve our competitive position in
the most important cigarette market in the world. It gives
the Group a 42 per cent share in a stronger and more
sustainable business with an enlarged brand portfolio.
Chairman's comments cont... 3.
Returning to the results, every region contributed to the
growth in operating profit except for America-Pacific, where
the strong profit increases in Canada, Japan and South Korea
were unable to compensate for the very difficult trading
conditions in the US market and the impact of exchange rate
movements. To improve profit in Latin America, despite the
difficult economic conditions in many countries as well as the
impact of currency devaluations, is no mean feat.
In Asia-Pacific, the performances in Australia, Malaysia and
from the associated companies in India stand out while, in
Africa and Middle East, the continuing success in South Africa
and excellent results from Nigeria following the move to local
manufacturing, are real highlights. The 7 per cent volume
growth in Europe is particularly encouraging and achieving an
almost 33 per cent market share in Moscow is quite
outstanding.
The Group's four global drive brands, Kent, Dunhill, Lucky
Strike and Pall Mall have grown by 13 per cent, with the star
performer being Pall Mall, over 30 per cent ahead of last
year. Kent and Dunhill have maintained their strong growth,
while Lucky Strike is looking more stable, with signs of
improvement coming from France and Japan and a positive launch
of Lucky Strike Silver in Germany.
Our second Social Report, published at the time of the interim
results and containing the Group's Statement of Business
Principles, has been generally well received. British
American Tobacco was re-selected for the 2004 Dow Jones
Sustainability World Index, remaining the only tobacco company
(other than our Malaysian subsidiary) in the index. The Group
scored 100 per cent in social reporting, environmental
reporting and the management of fuels for tobacco curing. We
have also won the Stakeholder Communications category in the
new PricewaterhouseCoopers building public trust awards.
At the end of the quarter, the Group irrevocably transferred
Flintkote, a US subsidiary facing claims and suits alleging
significant damages from exposure to asbestos, to a trust,
resulting in a loss on disposal of £62 million. Flintkote was
acquired by Imasco, the holding company for the Group's
interests in Canada, in 1986. All the claims relate to
businesses which ceased operating in the early 1970s. Since
1986, Flintkote, a separate legal entity, has also been
operated as an entirely independent business and is in no way
integrated with any of the Group's other businesses. The
transfer does not affect the position of claimants. As a
result of the transfer, the Group's financial statements will
no longer have to include Flintkote's results and its
litigation related issues.
The Group as a whole remains very much on track and the
exciting agreement with Reynolds is the best way to achieve
our long-term strategic ambitions in the US, while improving
both our earnings per share and our cash flow.
MARTIN BROUGHTON
BUSINESS REVIEW 4.
Group operating profit, excluding goodwill amortisation and
exceptional items set out on page 13, was 3 per cent higher at
£2,115 million, with higher contributions from all regions
except America-Pacific. The strengthening of the euro and
South African rand for the year to date, compared to last year,
offset the continued weakness of the US dollar and currency
devaluations in Latin America. The growth in profit at
comparable rates of exchange would have been similar.
Group volumes grew by 1 per cent from 579 billion to
584 billion, with the four global drive brands Kent, Dunhill,
Lucky Strike and Pall Mall, continuing their strong performance
and showing an overall growth of 13 per cent. This was
achieved by the outstanding performance of Pall Mall, supported
with strong growth from Kent and Dunhill, while Lucky Strike
stabilised its position.
Profit from the America-Pacific region was £728 million, down
£30 million from last year, as the impact of very difficult
trading conditions continuing in the US cigarette business and
exchange rate movements were only partly offset by strong
profit increases from Canada, Japan and South Korea. Volumes
in the region were down 4 per cent to 77 billion as the impact
of lower industry volumes in Canada and the US more than offset
the increased volumes from Japan and Korea.
Imperial Tobacco Canada contributed £339 million of profit
before restructuring costs, up 5 per cent from last year. This
was a good result given the steep decline in industry volumes
as a result of the high increases in tobacco taxes. Market
share in the premium segment, where volume and margins are the
highest, increased as du Maurier, the number one brand, grew
share. However, the growth of illicit trade and the lower-
priced segment eroded overall market share.
In the US market, industry profitability was severely affected
by continued competitive pricing and promotional activities, as
well as industry volumes down 7 per cent due to state excise
tax increases and lower wholesale inventory levels. Brown &
Williamson's contribution from its US cigarette business was
£194 million, 26 per cent lower, as a result of lower volumes
and lower net pricing, despite lower ongoing settlement
expenses. Good share performances in the strategic brands,
Kool, Pall Mall and Misty, were more than offset by the
declines in non-strategic brands, mainly GPC, which resulted in
the shipment share being down to 10.5 per cent.
Business review cont... 5.
The contribution from the US cigarette business would have been
36 per cent lower than last year without the inclusion of a
benefit of £27 million in respect of the settlement of certain
disputed MSA payments.
In Japan, a strong performance from Kent and growth from Kool
led to higher overall market share and volumes, despite total
industry volumes falling. This growth led to a much higher
profit, which was further improved by increased margins
following a business restructuring.
Following the smooth transition to local manufacturing in South
Korea, the very strong growth of Dunhill Lights continued.
Increased volumes and a record market share of 12.8 per cent
resulted in a substantially higher profit.
In Asia-Pacific, regional profit rose by £9 million to £358
million, with outstanding performances in Australia, Malaysia,
Vietnam and India, partially offset by reduced profit from
Cambodia, Indonesia and duty-free. Regional volumes at
143 billion were 1 per cent lower than last year, as strong
increases in Vietnam and Bangladesh were more than offset by
declines from Indonesia, Cambodia and duty-free sales.
Australia delivered outstanding profit growth through higher
margins, with volumes and market share both up, reflecting the
performance of Dunhill and Winfield. Profits in New Zealand
were higher as a result of improved margins and reduced costs,
although volumes were lower.
In Malaysia, strong profit growth was achieved through higher
volumes and increased efficiencies. With Dunhill volumes
stable and good growth from Pall Mall, overall market share was
higher.
In Vietnam, price increases and strong performances by State
Express 555 and Craven 'A' resulted in a significant growth of
profit and volume, with a much higher market share. In
Cambodia, lower volumes seriously affected profits. The
government-mandated price increases in Indonesia led to reduced
volumes and profit, although the rate of decline in volumes has
slowed.
Business review cont... 6.
In Pakistan, total volumes were higher as John Player Gold Leaf
continued its strong performance but profit was down due to
higher marketing costs. In Bangladesh, volumes grew with a
strong performance by Benson & Hedges whilst profits were lower
as the company was unable to pass on the full extent of the
additional 2002 excise increase. Market share and profits
improved in Sri Lanka where John Player Gold Leaf continued its
strong growth. Volume from the Group's associated companies in
India grew strongly and contributed to higher profits.
In Latin America, profit of £335 million was £19 million higher
with increased contributions from many markets in the region
and a first time contribution from the acquisition in Peru.
The excellent regional results were achieved despite the
difficult economic conditions in many of the countries and the
impact of currency devaluations compared to last year,
especially in Venezuela. Volumes in the region declined by
3 per cent to 110 billion primarily due to lower volumes in
Brazil.
Profit in Brazil increased strongly as lower costs, coupled
with price increases in 2002, were only partially offset by
lower volumes and the real/sterling exchange rate devaluation.
Volumes were lower as a result of the difficult economic
environment, price increases which reduced the size of the
legal market and competitor pricing activities.
In Mexico, although volumes were flat, profit was higher as
price increases at the end of 2002 and overhead savings more
than offset the exchange rate devaluation. Profit in Argentina
increased with higher volumes, as well as a price increase in
July enabling partial restoration of margins. In Chile, profit
was higher, while volumes rose mainly driven by Belmont. In
Venezuela, two price increases were not sufficient to cover the
severe impact of the devaluation of the currency and an
increase in VAT, resulting in a significant reduction in
profit. Profit increased in Central America, despite flat
volumes, as margins improved.
Excluding restructuring costs in the UK, total profit in Europe
was up £29 million to £444 million, as lower marketing costs in
the UK and significantly higher profits in Russia, Hungary and
Netherlands, as well as the strengthening of the euro, more
than offset lower profit from France. Regional volumes rose
7 per cent to 183 billion, with share increases from Russia,
Ukraine, Italy and Romania partially offset by reduced industry
volumes in France and Germany.
Business review cont... 7.
In Germany, all three key brands Lucky Strike, Pall Mall and
Gauloises Blondes continued to grow their share. Profit was
lower due to reduced margins and volumes reflecting a decline
in total industry volumes following an excise related price
increase in January. Volume and profits were lower in France
due to intense competitive pricing and a considerable
contraction in the overall market size.
In Switzerland, volume and market share remained strong with
Barclay, Lucky Strike and Parisienne performing well. In
Italy, following the successful repositioning of Pall Mall,
both volume and market share continued to grow, with improved
profits in the third quarter. Despite a slight decline in
volumes, both Belgium and Netherlands increased profit due to
higher margins.
In Russia, volume and profit growth continued, with the 30 key
city volume share growing to a record level of 24 per cent,
while market share in Moscow grew to almost 33 per cent. In
Romania, volume and share growth combined with higher prices,
led to improved profits with Kent continuing to lead the
premium segment. Lower volumes and depressed pricing due to
very competitive market conditions, led to a slight profit
decline in Poland.
In Hungary, a record market share was attained despite a
marginal decline in total volumes, while higher prices resulted
in profit growth. The Group maintained its position as market
leader in Ukraine through the sustained growth of Prilucky
Osoblivy, but pricing pressure led to lower profit.
Smoking Tobacco and Cigars continued its profit growth with all
product groups showing a good performance. This was especially
marked in fine cut in Germany, where the Group has 30 per cent
of that segment, and Belgium, as well as cigars in Belgium and
Russia.
In the Africa and Middle East region, profit at £250 million
was up by £43 million, despite the costs of continuing
investments in building the business in Turkey, reflecting
generally good performances and the impact of the stronger
South African rand. Volumes increased by 2 per cent to
71 billion with strong growth in Nigeria and volumes from the
new investment in Turkey.
South Africa showed strong profit growth, benefiting from a
much stronger currency and price and mix driven margin gains,
although there were cost increases and lower volumes. Peter
Stuyvesant, Rothmans and Dunhill increased market share and
contributed to the higher margins.
Business review cont... 8.
Profit in East Africa improved with increased leaf sales and
higher volumes, primarily in Uganda. Profit in West Africa was
ahead of last year, mainly in Nigeria, where profit benefited
from strong volume growth following the opening of the new
factory and an expansion of the distribution network, partly
offset by increased marketing costs and overheads.
In the Middle East, profit rose as a result of the solid
performance of Kent in Iran, but was reduced by the increased
investment in Egypt. However, overall volume declined as a
result of the weakness in US international brands in a number
of markets following the Iraq war.
Non-trading items
The above results were achieved before accounting for goodwill
amortisation and exceptional items described on page 13.
Group Cigarette Volumes
3 months to 9 months to Year to
30.9.03 30.9.02 30.9.03 30.9.02 31.12.02
bns bns bns bns bns
25.8 27.4 America-Pacific 76.8 80.1 107.0
47.7 47.3 Asia-Pacific 143.5 144.8 192.5
37.3 38.0 Latin America 109.7 113.2 153.0
66.3 61.9 Europe 183.0 171.4 232.6
24.4 24.9 Africa and Middle East 71.0 69.8 92.2
----- ----- ----- ----- -----
201.5 199.5 584.0 579.3 777.3
===== ===== ===== ===== =====
GROUP RESULTS - unaudited 9.
3 months to 9 months to Year to
30.9.03 30.9.02 30.9.03 30.9.02 31.12.02
£m £m £m £m £m
REVENUE
6,250 5,973 Subsidiary undertakings 17,950 17,548 23,330
Share of associates and
342 317 joint ventures 1,096 972 1,352
----- ----- ------ ------ ------
6,592 6,290 19,046 18,520 24,682
===== ===== ====== ====== ======
PROFIT
604 601 Subsidiary undertakings 1,395 1,673 2,180
after charging:
(21) restructuring costs (302)
(101) (95) goodwill amortisation (302) (283) (378)
Share of associates and
46 35 joint ventures 116 89 123
----- ----- ------ ------ ------
650 636 Total operating profit 1,511 1,762 2,303
(62) Loss on disposal of subsidiary (62)
----- ----- ------ ------ ------
Profit on ordinary
588 636 activities before interest 1,449 1,762 2,303
(55) (31) Net interest (153) (137) (184)
Share of associates' and
(1) (3) joint ventures' net interest (3) (5) (6)
----- ----- ------ ------ ------
532 602 Profit before taxation 1,293 1,620 2,113
Taxation on ordinary
(227) (232) activities (629) (662) (818)
----- ----- ------ ------ ------
305 370 Profit after taxation 664 958 1,295
(40) (36) Minority interests (119) (110) (143)
----- ----- ------ ------ ------
265 334 Profit for the period 545 848 1,152
===== ===== ====== ====== ======
Earnings per share
12.51p 15.39p basic 24.48p 38.32p 50.91p
===== ===== ====== ====== ======
11.93p 14.52p diluted - unadjusted 24.18p 36.85p 50.10p
===== ===== ====== ====== ======
19.86p 18.65p diluted - adjusted 51.47p 49.15p 66.54p
===== ===== ====== ====== ======
See notes on pages 12 to 16.
SEGMENTAL ANALYSES OF TURNOVER AND PROFIT - unaudited 10.
3 months to 9 months to Year to
30.9.03 30.9.02 30.9.03 30.9.02 31.12.02
£m £m £m £m £m
Turnover excluding duty,
excise and other taxes
897 1,042 America-Pacific 2,698 3,015 4,026
448 437 Asia-Pacific 1,321 1,337 1,792
346 290 Latin America 963 1,018 1,410
924 884 Europe 2,648 2,412 3,064
316 305 Africa and Middle East 918 837 1,087
----- ----- ------ ------ ------
2,931 2,958 8,548 8,619 11,379
===== ===== ====== ====== ======
Operating profit
251 270 America-Pacific 728 758 1,018
129 132 Asia-Pacific 358 349 463
116 98 Latin America 335 316 393
182 156 Europe 444 415 547
94 75 Africa and Middle East 250 207 260
----- ----- ------ ------ ------
772 731 2,115 2,045 2,681
(21) Restructuring costs (302)
(101) (95) Goodwill amortisation (302) (283) (378)
----- ----- ------ ------ ------
650 636 1,511 1,762 2,303
===== ===== ====== ====== ======
Operating profit, before
goodwill amortisation and
exceptionals, restated at
760 731 comparable rates of exchange 2,106 2,045 2,681
===== ===== ====== ====== ======
Net turnover for the nine months includes £638 million
(2002 £561 million) in respect of associates and joint ventures
and £198 million (2002 £188 million) for the three months to
30 September 2003. The net turnover analysis is based on external sales
in each region. The figures for the nine months ended 30 September
2003 and 30 September 2002 based on regional location of manufacture
would not be materially different except for sales from Europe to
Africa and Middle East and Asia-Pacific which amounted to
£353 million and £86 million respectively, 2002 £337 million
and £136 million.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES - unaudited 11.
9 months to Year to
30.9.03 30.9.02 31.12.02
£m £m £m
Profit for the period 545 848 1,152
Differences on exchange 342 (99) 70
------ ------ ------
Total recognised gains related
to the period (below) 887 749 1,222
====== ====== ======
INTEREST OF BRITISH AMERICAN TOBACCO'S SHAREHOLDERS - unaudited
9 months to Year to
30.9.03 30.9.02 31.12.02
£m £m £m
Balance 1 January 5,185 4,754 4,754
Total recognised gains related
to the period (above) 887 749 1,222
Issue of shares - share options 4 4 6
Dividends and other appropriations:
ordinary shares (247) (229) (755)
convertible redeemable preference
shares (14) (13) (42)
amortisation of discount on
preference shares (13) (13) (18)
Purchase of own shares (518)
Other movements 13 13 18
------ ------ ------
Balance at period end 5,297 5,265 5,185
====== ====== ======
See notes on pages 12 to 16.
ACCOUNTING POLICIES AND BASIS OF PREPARATION 12.
The financial statements comprise the unaudited results for
the nine months ended 30 September 2003 and 30 September
2002 and extracts from the audited results for the twelve
months ended 31 December 2002.
The unaudited Group results have been prepared under the
historical cost convention and in accordance with applicable
UK accounting standards using the accounting policies set out
in the Report and Accounts for the year ended 31 December
2002.
FOREIGN CURRENCIES
The results of overseas subsidiaries and associated
undertakings have been translated to sterling as follows:
Profit and loss for the nine months to 30 September 2003 at
the average rates for that period. The comparatives for
the nine months to 30 September 2002 and the year to 31
December 2002 at the average rates for the year to 31
December 2002. The interest of British American Tobacco's
shareholders has been translated at the relevant period end
rate.
For high inflation countries, the translation from local
currencies to sterling makes allowance for the impact of
inflation on the local currency results.
The principal exchange rates used were as follows:
Average Closing
-------------- ----------------------------
2003 2002 30.9.03 30.9.02 31.12.02
US dollar 1.612 1.504 1.661 1.573 1.610
Canadian dollar 2.302 2.361 2.242 2.495 2.543
Euro 1.449 1.581 1.427 1.591 1.534
South African
rand 12.608 15.739 11.572 16.575 13.814
CHANGES IN THE GROUP
On 4 April 2003 the Group announced that it had acquired
controlling interests in a number of companies in Peru,
including Peru's leading tobacco company Tabacalera
Nacional S.A.A. The aggregate consideration to the vendors
of all the various shareholdings acquired amounts to around
£140 million and is subject to adjustment. The goodwill
arising on these transactions is provisionally estimated at
£122 million. The companies acquired contributed
£33 million of turnover and £6 million of profit in the
nine months to 30 September 2003.
On 16 July 2003 the Group announced a successful bid to
acquire Ente Tabacchi Italiani S.p.A., Italy's state
tobacco company, for £1.63 billion. Completion of this
transaction is subject to approval by the European
Commission.
Changes in the Group cont... 13.
It was announced on 4 September 2003 that the Group
successfully bid for a 67.8 per cent holding in the Serbian
tobacco company Duvanska Industrija Vranje for £35 million.
In addition, the Group has committed to invest £17 million
in factory modernisation over two years and further amounts
over five years on social programmes.
As described on page 2, the Group has announced the
agreement to combine Brown & Williamson's (B&W) US domestic
business with R.J. Reynolds (RJR) under Reynolds American,
a new holding company 58 per cent owned by RJR shareholders
and 42 per cent by the Group, through B&W. The Group will
also sell Lane to Reynolds American for US$400 million in
cash.
Following the restructuring of its Malaysian businesses in
1999, the Group had an operational subsidiary and a 54.7
per cent holding in a separate non-trading company whose
assets were primarily short term deposits. In May 2002,
the holding in this separate company was sold for book
value.
RESTRUCTURING COSTS
During the second quarter of 2003 the Group announced
proposals to restructure the businesses in the UK and Canada.
These proposals included the closure of the Darlington
factory in the UK, with manufacturing consolidated in the
larger Southampton plant, and a major restructuring of the
business in Canada, including the closure of the Montreal
factory with production transferred to their other Canadian
facilities, as well as the closure of the leaf threshing
operations at Alymer, Ontario.
The results for the nine months include a charge of
£302 million out of the estimated total cost for
restructurings of approximately £320 million. Annualised
cost savings of around £65 million are expected from 2005.
GOODWILL AMORTISATION
The amortisation charge of £302 million is in respect of
goodwill which principally arose from the Rothmans
transaction during 1999 and the Imasco transaction during
2000. The increase in the charge mainly reflects the
impact of exchange rate movements shown above.
LOSS ON DISPOSAL OF SUBSIDIARY 14.
On 29 September 2003, a subsidiary of the Group, absolutely
and irrevocably transferred to a newly created trust (the
Trust) all of its rights, title and interest in and to 100 per
cent of the issued and outstanding shares of The Flintkote
Company (Flintkote) together with US$3 million in cash and
did not receive any consideration in return. The Trust,
administered by an independent trustee, has been created for
the management, conservation and eventual disposition of the
assets transferred to the Trust and names a medical facility
active in the research and treatment of asbestos-related
diseases as ultimate beneficiary. The Group will have no
continuing involvement in the Trust. Since by virtue of this
arrangement Flintkote is no longer a Group subsidiary, the
Group has ceased to consolidate Flintkote effective
29 September 2003. The transfer resulted in a loss on
disposal of £62 million.
Flintkote, a US company, was part of the acquisition of
Genstar Corporation by Imasco Limited in 1986 and became a
Group subsidiary following the restructuring of Imasco in
2000. Flintkote has been named, along with a large number of
defendants, in numerous actions by individuals who seek
damages based upon alleged exposure to asbestos products, or
alleged damage to their buildings due to the presence in the
buildings of certain materials containing asbestos, allegedly
manufactured and/or sold by such defendants. Certain of these
claims and suits allege significant damage. All claims relate
to businesses which ceased active operations in the early
1970s. To date substantially all of the claim costs and legal
expenses incurred in connection with these suits have been
covered by insurance proceeds and this continues. However,
there remain a number of factors, beyond the control of
Flintkote, that could impact its future costs. Regardless of
the outcome of current and potential future claims against
Flintkote, in the Directors' view no future costs should
accrue to the Group beyond what has already been presented in
these financial statements.
NET INTEREST
Net interest rose by £14 million to £156 million, despite
improved interest rates, as 2002 included interest received
as a result of a reassessment of net tax payments in the
US.
TAXATION
9 months to
30.9.03 30.9.02
£m £m
British American Tobacco p.l.c.
and subsidiary undertakings
- overseas 589 630
Share of associates and joint
ventures 40 32
---- ----
629 662
==== ====
Tax rate 48.6% 40.9%
==== ====
Taxation cont.... 15.
The tax rates for each period are adversely affected by
goodwill amortisation and 2003 is also adversely affected
by the impact of both the restructuring costs and the loss
on disposal of a subsidiary. The underlying tax rate
reflected in the adjusted earnings per share shown below
was 34.7 per cent (2002 34.8 per cent).
EARNINGS PER SHARE
Basic earnings per share are based on the profit for the
period attributable to ordinary shareholders and the
average number of ordinary shares in issue during the
period (excluding shares held by the Group's two Employee
Share Ownership Trusts).
For the calculation of the adjusted diluted earnings per
share the average number of shares reflects the potential
dilutive effect of employee share schemes and the
convertible redeemable preference shares. The earnings are
correspondingly adjusted to the amount of earnings prior to
charging dividends and the amortisation of discount on the
convertible redeemable preference shares.
The earnings have been distorted by exceptional charges and
goodwill amortisation. To illustrate the impact of these
distortions, the adjusted diluted earnings per share are
shown below:
Diluted earnings per share
9 months to Year to
30.9.03 30.9.02 31.12.02
pence pence pence
Unadjusted earnings per share 24.18 36.85 50.10
Effect of restructuring costs 11.14
Effect of goodwill amortisation 13.40 12.30 16.44
Effect of disposal of subsidiary 2.75
------ ------ ------
Adjusted earnings per share 51.47 49.15 66.54
====== ====== ======
Earnings per share cont... 16.
Similar types of adjustments would apply to basic earnings
per share. For the nine months to 30 September 2003 basic
earnings per share on an adjusted basis would be 53.54p
(2002 51.51p) compared to unadjusted amounts of 24.48p
(2002 38.32p).
SHARE BUY-BACK PROGRAMME
The Group initiated an on-market share buy-back programme at
the end of February 2003. During the nine months to
30 September 2003, 81.6 million shares were bought at a cost
of £518 million.
******
Copies of this Report will be posted to shareholders and may
also be obtained during normal business hours from the
Company's Registered Office at Globe House, 4 Temple Place,
London WC2R 2PG.
Alan F Porter
Secretary
28 October 2003
This information is provided by RNS
The company news service from the London Stock Exchange
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