1st Quarter Report - Part 2

British American Tobacco PLC
2 May 2001

 
PART 2
 
  ACCOUNTING POLICIES AND BASIS OF PREPARATION                13.
 
 The financial statements comprise the unaudited results for the
 three months ended 31 March 2001 and 31 March 2000 and the
 audited results for the twelve months ended 31 December 2000.
 
 The unaudited Group results have been prepared under the
 historical cost convention and in accordance with applicable
 accounting standards using the accounting policies set out in
 the Report and Accounts for the year ended 31 December 2000,
 with the exception of deferred tax as described below.
 
 From 1 January 2001 the Group is adopting the new accounting
 standard FRS19:  Deferred Tax which requires full provision to
 be made for deferred tax arising from timing differences
 between the recognition of gains and losses in the financial
 statements and their recognition in the tax computation.  In
 adopting FRS19, the Group has chosen not to discount deferred
 tax assets and liabilities.
 
 The comparative figures for 2000 have been restated to reflect
 the impact of FRS19.  Consequently the interest of British
 American Tobacco's shareholders at 1 January 2000 and
 31 December 2000, as published last year, have been reduced by
 £95 million and £81 million respectively to reflect recognition
 of the additional net provision in respect of deferred tax.
 The impact of FRS19 is to decrease the tax charge as shown
 below:
 
                              3 months to         Year to
                           31.3.01    31.3.00     31.12.00
                              £m         £m          £m
                               7         22          23
 
 The reduction in the tax charge in 2000 principally arises from
 the setting up of a deferred tax asset under FRS19 for the
 exceptional charge in respect of the cigarette stocks
 reacquired from S.C.A. Tobacco Corporation (SCAT) on 31 March
 2000 (see page 15).
 
  CHANGES IN THE GROUP                                        
 
 On 1 February 2000, a transaction was completed whereby the
 holding in Imasco, an associated company in Canada, was
 effectively replaced by shares in Imperial Tobacco Canada, a
 wholly-owned subsidiary comprising only the tobacco interests
 of Imasco.
 
 
  Changes in the Group cont...                               14.
 
 Consequently, the comparative results from Canada for the three
 months ended 31 March 2000 comprise the Group's share of the
 results of its associate for January and the consolidated
 results of Imperial Tobacco Canada for the two months to
 31 March 2000.  During that quarter, Imasco's discontinued
 non-tobacco operations contributed £112 million of turnover and
 £16 million of profit.  For the period the tobacco operations
 were an associate they contributed £23 million of turnover and
 £9 million of profit, while for the period they were a wholly-
 owned subsidiary they contributed £111 million of turnover and
 £48 million of profit before goodwill amortisation.
 
 Having sold most of the non-tobacco businesses of Imasco last
 year, on 15 January 2001 the Group disposed of the remaining
 operations of Genstar, Imasco's land development company in
 Canada, for Can$128 million.  As the intention at the time of
 the Imasco acquisition was to dispose of all these non-tobacco
 businesses, the revaluation of £1,248 million included in the
 year to 31 December 2000 is principally in respect of the
 surplus on revaluing the businesses prior to their disposal.
 As a result of this revaluation, the profit and loss account
 does not include any gain on these disposals.
 
 On 30 January 2001, it was announced that the Group's
 Australian subsidiary had entered into an agreement under which
 the Group proposed to acquire the remaining 40.5 per cent
 shareholding of that company that it does not already own.
 This transaction has now received both shareholder and court
 approval in Australia and will be completed in May 2001 at a
 cost of approximately Aus$1.1 billion (£378 million) and have a
 positive impact on the cash earnings of the Group.
 
 FOREIGN CURRENCIES
 
 The results of overseas subsidiaries and associated
 undertakings have been translated to sterling as follows:
 
 Profit and loss for the three months to 31 March 2001 at the
 average rates for that period.  The comparatives for the three
 months to 31 March 2000 and the year to 31 December 2000 at the
 average rates for the year to 31 December 2000.  The interest
 of British American Tobacco's shareholders has been translated
 at the relevant period end rate.
 
 For high inflation countries, the translation from local
 currencies to sterling makes allowance for the impact of
 inflation on the local currency results.
 
  Foreign currencies cont...                                  15.
 
 The principal exchange rates used were as follows:
 
                        Average           Closing       
                     2001     2000   31.3.01   31.3.00  31.12.00
                                                        
  US dollar         1.459    1.516    1.422     1.595     1.494
  Canadian dollar   2.229    2.249    2.239     2.316     2.244
  Euro              1.581    1.642    1.608     1.667     1.591
 
 
  EXCEPTIONAL ITEMS                                        
 
 On 20 September 2000, Brown & Williamson announced a major
 cost cutting programme in order to improve its financial
 position and enable it to remain competitive.  The costs of
 £119 million for early retirement and redundancies and the
 write-down of fixed assets were charged in 2000 as an
 exceptional item.
 
 On 31 March 2000, the Group completed the purchase of SCAT,
 which distributes the Group's products in Japan.  As part of
 the acquisition, the Group reacquired cigarette stocks which
 had previously been sold to that business.  A one-off
 accounting adjustment of £83 million was charged against Group
 operating profit for the first quarter in 2000 to remove the
 gross contribution previously recognised by the Group on those
 cigarette sales.
 
 Integration costs are the costs incurred in integrating
 Rothmans into the British American Tobacco Group and the
 consequential restructuring of the enlarged Group.
 
 The Imasco restructuring costs relate to the Group's share
 of the pre-tax cost to Imasco of buying out share options
 together with other employee deferred compensation and
 severance arrangements consequent upon a fundamental change
 of control.
 
  GOODWILL AMORTISATION                                   
 
 The amortisation charge is in respect of goodwill which
 principally arose from the Rothmans transaction during 1999
 and the Imasco transaction during 2000.
 
 SALE OF BUSINESS
 
 The sale of the Group's pipe tobacco business in South
 Africa to Swedish Match was completed on 1 February 2001,
 resulting in a profit on disposal of £35 million.
 
  NET INTEREST                                             16.
 
 The increase in net interest reflects the impact of
 financing the June 2000 redemption of convertible redeemable
 preference shares.
 
  TAXATION                                                 
 
                                               3 months to
                                          31.3.01    31.3.00
                                                     Restated
                                             £m         £m
                                                     
  UK                                          4         (7)
  Overseas                                  178        113
                                           ----       ----
  British American Tobacco p.l.c.                    
    and subsidiary undertakings             182        106
  Share of associates and joint                      
   ventures                                  11         (2)
                                           ----       ----
                                            193        104
                                           ====       ====
Tax rate                                   41.7%      46.6%
                                           ====       ====
 
 The tax rates for the first quarter of both 2001 and 2000 are
 adversely affected by the goodwill amortisation arising from
 the Rothmans and Imasco transactions.
 
 
 
 
  EARNINGS PER SHARE                                       
 
 Basic earnings per share are based on the profit for the period
 attributable to ordinary shareholders and the average number of
 ordinary shares in issue during the period (excluding shares
 held by the Group's two Employee Share Ownership Trusts).
 
 For the calculation of diluted earnings per share the average
 number of shares reflects the potential dilutive effect of
 employee share schemes and the convertible redeemable
 preference shares.  The earnings are correspondingly adjusted
 to the amount of earnings prior to charging dividends and the
 amortisation of discount on the convertible redeemable
 preference shares.
 
  Earnings per share cont...                               17.
 
 The earnings have been affected by a number of exceptional
 items.  To illustrate the impact of the principal
 distortions, as well as the effect of goodwill amortisation,
 adjusted diluted earnings per share are shown below:
 
                                         Diluted earnings per share
                                            3 months to       Year to
                                         31.3.01  31.3.00     31.12.00
                                                  Restated    Restated
                                          pence    pence       pence
                                                              
  Unadjusted earnings per share            9.84     3.35       29.57
  Effect of US restructuring costs                              3.08
  Effect of acquired stock                          2.08        2.14
  Effect of goodwill amortisation          4.22     3.57       16.07
  Effect of integration costs                       0.54        4.02
  Effect of Imasco restructuring costs              1.95        2.05
  Sale of business                        (1.52)              
                                         ------   ------      ------
  Adjusted earnings per share             12.54    11.49       56.93
                                         ======   ======      ======
 
 Similar types of adjustments would apply to basic earnings
 per share.  For the three months to 31 March 2001 basic
 earnings per share on an adjusted basis would be 13.23p
 (2000  12.29p) compared to unadjusted amounts of 10.34p
 (2000  3.15p).
 
  SEGMENTAL ANALYSES:  ASSOCIATED COMPANIES AND JOINT VENTURES   18.

                                                       
                                       3 months to     Year to
                                    31.3.01  31.3.00   31.12.00
                                       £m       £m        £m
  Turnover excluding duty, excise                      
   and other taxes
  Tobacco                              157      219        588
  Financial services                             69         69
  Other trading activities                       43         43
                                    ------   ------     ------
                                       157      331        700
                                    ======   ======     ======
  Operating profit                                     
  Tobacco                               26       38        116
  Financial services                             12         12
  Other trading activities                        4          4
                                    ------   ------     ------
                                        26       54        132
  Imasco restructuring costs                    (69)       (71)
                                    ------   ------    -------
                                        26      (15)        61
                                    ======   ======    =======
 
 The comparisons between the periods above are distorted by
 the Imasco transaction (see page 14) and a change in
 accounting for an associated company in Europe (see page 8).
 
 
                            ******
 
 
 
 Copies of this Report will be posted to shareholders and may
 also be obtained during normal business hours from the
 Company's Registered Office at Globe House, 4 Temple Place,
 London WC2R 2PG.
 
                        Aileen McDonald
                           Secretary
                          2 May 2001