Interim Results
British American Tobacco PLC
30 July 2002
INTERIM REPORT TO 30 JUNE 2002 30 July 2002
SUMMARY
SIX MONTHS RESULTS 2002 2001 Change
Operating profit pre-exceptionals £1,342m £1,315m +2%
Pre-tax profit £1,041m £934m +11%
Adjusted earnings per share 30.99p 28.43p +9%
Interim dividend per share 10.70p 9.70p +10%
• Operating profit, excluding goodwill and exceptional
items, was 2 per cent higher at £1,342 million. At
comparable rates of exchange, operating profit would
have risen 5 per cent.
• The four global drive brands achieved overall growth
for the six months of more than 6 per cent, with the
discrete second quarter up by almost 10 per cent.
Second quarter Group volumes were 3 per cent lower, an
improvement over the first quarter, bringing total
volumes to 380 billion, down 5 per cent for the six
months.
• Pre-tax profit growth of 11 per cent benefited from the
absence of exceptional charges and lower net interest
paid.
• Adjusted diluted earnings per share rose by 9 per cent
to 30.99p, benefiting from lower net interest,
effective tax rate and minority charges.
• The Board has declared an interim dividend of 10.7p, to
be paid on 16 September, which represents a 10 per cent
increase on last year.
• The Chairman, Martin Broughton, commented "Against a
background of generally declining corporate earnings, I
hope that shareholders will be reassured by the Group's
resilient results in the first six months. The good
performances in America-Pacific and Europe and the
6 per cent overall growth in our global drive brands
demonstrate real strength. Moreover, the 10 per cent
increase in the interim dividend underlines our
confidence in our future prospects."
ENQUIRIES:
INVESTOR RELATIONS: PRESS OFFICE:
Ralph Edmondson 020 7845 1180 David Betteridge/ 020 7845 2888
Scott Hailstone/
Anne Tradigo
BRITISH AMERICAN TOBACCO p.l.c.
INTERIM REPORT TO 30 JUNE 2002
INDEX
PAGE
Chairman's comments 2
Business review 4
Group results 10
Segmental analyses of turnover and profit 11
Statement of total recognised gains and losses 12
Interest of British American Tobacco's shareholders 12
Group balance sheet 13
Group cash flow statement 14
Notes to the Group cash flow statement 15
Accounting policies and basis of preparation 16
Changes in the Group 16
Foreign currencies 16
Exceptional items 17
Goodwill amortisation 17
Sale of business 17
Net interest 17
Taxation 17
Earnings per share 18
Dividends 19
Shareholders' funds 19
CHAIRMAN'S COMMENTS 2.
British American Tobacco's operating profit, excluding
goodwill amortisation and exceptional items, has risen by
2 per cent to £1,342 million in the first six months, driven
by good growth in America-Pacific and Europe. With lower net
interest payments, an improvement in the effective tax rate
and a reduced charge for minorities, adjusted earnings per
share have increased by 9 per cent to 30.99p.
The Board has declared an interim dividend of 10.7p, which
will be payable on 16 September. This represents an increase
of 10 per cent and underlines our confidence in the underlying
strength of the business. The 2 per cent improvement in
operating profit would have been 5 per cent if the impact of
exchange differences, principally reflecting the weakness of
the South African rand, had been excluded.
Clearly, recent currency gyrations, particularly the decline
of the US dollar, represent a challenge for us on the
translation of operating profit. Nevertheless, the Group is
benefiting from lower net interest costs as well as from an
improved tax position and unless key currencies deteriorate
further we still anticipate achieving high single figure
growth in earnings per share for the full year.
Group volumes in the first six months at 380 billion were
5 per cent lower than last year, a slight improvement on the
performance in the first quarter, although still outside the
2-3 per cent reduction indicated last December. In addition
to the slowdown from the decision to restrict the supply of
duty-free exports, volumes have been affected by the loss of
low margin business in a number of regions. The exception is
America-Pacific, where key brand volumes in the highly
profitable US market have risen. Group volumes were only
3 per cent lower in the second quarter and, for the full year,
we continue to expect the reduction in volumes to return
closer to the range we had originally indicated.
The Group's four global drive brands, Lucky Strike, Kent,
Dunhill and Pall Mall grew overall by more than 6 per cent in
the first six months and by almost 10 per cent in the second
quarter.
Following recent losses by the US tobacco industry in some
individual product liability cases, a few commentators have
understandably raised fresh concerns about the course of
litigation in the United States. However, your Board does not
consider that there has been any material change in the
aggregate legal risk faced by Brown & Williamson.
It remains the case that the threat from third party
recoupment cases and class actions in general has diminished.
Although some individual cases have been lost at the trial
court level, the appeal process is not yet over in any of
them. Brown & Williamson's only financial loss has been in
the Carter case, where the appeal process took five years.
Chairman's comments cont... 3.
Turning from litigation to regulation, the World Health
Organisation has recently released a new draft of its
Framework Convention for Tobacco Control, which is scheduled
for completion in May 2003. The new wording allows countries
to use the Convention more as a policy guide than as a set of
absolute rules that take precedence over their own laws and
their own policy priorities. The new text will be negotiated
in October and may be significantly amended as the whole
convention is still very much work in progress.
British American Tobacco's support for sound but fair tobacco
regulation and the Group's real desire to contribute to
reducing the impact of tobacco consumption on public health is
made clear in our first Social Report. The Report is fairly
long but, being our first, we felt that we should thoroughly
explain what we are doing and cover all the main issues.
Future reports should be shorter and will be published on our
website, www.bat.com, rather than being sent to all
shareholders. We will, of course, continue to send future
reports to any shareholder who would like to have a copy and
we very much welcome your comments on this major new
initiative.
In September, shareholders will also be receiving a copy of a
publication to mark the Group's centenary, a considerable
milestone in an age where it is popular to say that change
itself is the only true constant. It is all the more
remarkable since Buck Duke, our founder, would readily
recognise the enterprise he created in the British American
Tobacco of today. Duke and his successors built a great
business and the current generation of management remains
determined to live up to his expectations, as we do our best
to get the next 100 years off to a good start.
Against a background of generally declining corporate
earnings, I hope that shareholders will be reassured by the
Group's resilient results in the first six months. The good
performances in America-Pacific and Europe and the 6 per cent
overall growth in our global drive brands demonstrate real
strength. Moreover, the 10 per cent increase in the interim
dividend underlines our confidence in our future prospects.
MARTIN BROUGHTON
BUSINESS REVIEW 4.
Operating profit at £1,342 million, was 2 per cent higher,
excluding goodwill amortisation and exceptional items set out
on page 17, with increased contributions from the America-
Pacific and Europe regions. Profit was particularly affected
by the weakness of the South African rand and, at comparable
rates of exchange, the growth in profit would have been 5 per
cent.
On 5 December 2001, the Group announced that deteriorating
economic conditions and the application of even more stringent
criteria for supplying trade customers, especially in the area
of duty-free sales, would have a negative impact on volumes in
2002. Second quarter volumes were 3 per cent lower, an
improvement over the first quarter, bringing Group volumes to
380 billion, down 5 per cent for the six months to June.
The four global drive brands, Lucky Strike, Kent, Dunhill and
Pall Mall, achieved an overall growth for the six months of
more than 6 per cent with the discrete second quarter up by
almost 10 per cent.
Lucky Strike continued to grow in many of its key markets,
with a strong performance in Germany and Spain, although
market share was marginally lower in France and Japan. This,
combined with the reduction in duty-free sales, resulted in
brand volumes lower by 9 per cent. Kent volumes in Russia and
Romania were significantly ahead and strong growth continued
in many other markets. It also increased share and volume in
Japan, resulting in total brand volume up 5 per cent.
The Dunhill brand continued its outstanding performance in
South Korea, as well as achieving good growth in Taiwan,
Australia and Saudi Arabia and share was up in Malaysia, while
volumes were in line with last year, reflecting overall market
decline. Overall brand volumes rose by 20 per cent. The mid
priced brand, Pall Mall, maintained its strong growth track
with total volumes up 13 per cent. There was excellent
progress in the US, Russia, Germany, Ukraine and Romania.
With effect from 1 January 2002 the composition of the
regions has been changed to ensure the most efficient
grouping of markets, taking account of political and
economic patterns of influence as well as the organisation
of our supply chain. The markets of South Asia (Pakistan,
Bangladesh and Sri Lanka) together with our associated
companies in India will now form part of Asia-Pacific.
Also the markets of Central Asia will become part of the
Europe region. These transferred markets were formerly
part of the Amesca region, which is now renamed Africa and
Middle East. All the comparative information in this
report has been restated to account for this reallocation
of markets.
There was a good performance in the America-Pacific region,
with profit for the six months at £506 million, up
£37 million, as a result of higher contributions from the US,
Canada and South Korea. Strong volume increases in South
Korea and higher volumes in Canada and Japan led to volumes up
4 per cent to 53 billion.
Business review cont... 5.
The profit included for Imperial Tobacco Canada was
£214 million, up a pleasing 14 per cent in local currency, as
a result of improved margins and slightly higher volumes.
Results benefited from consumer and trade inventory loading in
advance of swingeing excise increases. The Group's impressive
market share was slightly affected by the increase in sales of
discount cigarette brands made by small manufacturers,
resulting in Matinee losing market share, while both Player's
and du Maurier increased share. Du Maurier Edition was
launched in June as an extension of the du Maurier brands.
In the US, Brown & Williamson's cigarette business contributed
£196 million, an increase of 8 per cent in local currency.
This is the result of price increases and lower expenses,
partly offset by increased excise taxes and costs of
discounting. In the very competitive US market, shipment
share was stable at 10.9 per cent compared to 10.7 per cent in
the first six months of last year. The improvement over the
comparable period was achieved with increased volumes and
market share by our strategic brands, Kool, Pall Mall and
Misty, offset by decreases in GPC and other brands.
Increases in Kent and Kool contributed to continued growth in
the market share in Japan, where total industry volumes fell.
Profit was lower as increased marketing expenditure and lower
gross margins more than offset the benefit of slightly higher
volumes and favourable foreign exchange hedging.
In South Korea, the impressive performance continued as
Dunhill Lights more than doubled volumes, resulting in an
increased profit and a total market share which also more than
doubled to 9.3 per cent.
In Asia-Pacific, regional volumes at 98 billion were down
7 per cent compared to last year. Higher volumes achieved in
growth markets, particularly in IndoChina, were more than
offset by pricing-led volume decreases in Pakistan, Indonesia
and our associated companies in India, coupled with lower
duty-free sales. Despite the volume decline, with the benefit
of higher margins in a number of key markets, profit at
£223 million was only £2 million lower.
Australia delivered strong profit growth due to higher margins,
reduced overheads and savings in the supply chain. In a smaller
total market, the growth of Dunhill and Winfield reflected their
strength in the premium segment despite continued discounting in
the low price segment and meant that overall volumes were only
slightly down. In New Zealand, profits declined slightly with
volumes the same as last year.
Business review cont... 6.
Profits in Malaysia rose after better margins were achieved
following excise-driven price increases late last year and
Dunhill continued to perform well, further increasing its
market share.
Both Cambodia and Vietnam achieved strong volume growth with
profits significantly ahead. This was attributable to
continued good performances by State Express 555 and
Craven 'A' and strong growth in the low price brands in
Cambodia. Excise-led price increases resulted in higher
margins in Indonesia but led to lower volumes as government
mandated price increases hampered efforts to compete
effectively in the value-for-money segment.
Better product mix and favourable pricing saw Pakistan improve
profits significantly although volumes were lower. In
Bangladesh, where market share improved to over 50 per cent
driven by the continued success of higher margin brands,
profit and volumes grew significantly.
In Singapore, following the emergence of a lower price segment
and the consequent downtrading, corrective action was taken to
stabilise volumes but profit was significantly down. In
Taiwan, profit grew strongly with Dunhill continuing its track
record of growth, although overall volumes were down slightly.
Profit from the Group's associated companies in India was well
ahead following a significant excise-driven price increase in
2001, despite the resulting decline in domestic cigarette
volumes.
In difficult conditions with deteriorating exchange rates, the
operations in Latin America focused on maintaining margins.
The economic conditions and higher prices resulted in generally
lower volumes, down 7 per cent to 75 billion. However, the
total profit of £226 million was £2 million higher as a result
of higher contributions from Brazil, Venezuela and the
Caribbean.
In Brazil, higher prices led to a strong growth of profits
despite a decline in volumes and some downtrading. Derby
consolidated its position as market leader and increased market
share.
Business review cont... 7.
Profit in Mexico was stable as a consequence of higher prices
and cost reductions being offset by lower volumes and higher
excise rates. In Chile, market share was maintained and in a
declining total market, volumes and profit were lower. Market
share and volumes rose in Venezuela, as Consul continued its
growth momentum, contributing to higher profit.
The economic crisis in Argentina led to lower volumes and the
devaluation of the currency resulted in a significant drop in
profit reported in sterling. In Central America, lower
volumes, higher marketing costs and government levies partially
offset by lower production costs, resulted in a much reduced
profit contribution. Profits were higher in the Caribbean as
volumes increased.
Volumes in Europe were 2 per cent lower at 109 billion,
although there were some good volume performances in Eastern
Europe and key brand share gains in Western Europe. Profit
at £254 million was £7 million higher than last year. These
results have been accomplished despite the adverse effects
of the dissolution of the UK partnership, competitive market
conditions in Romania and the excise tax increase in
Germany.
Market share growth for the key brands of Lucky Strike, Pall
Mall and Gauloises led to higher volumes in Germany,
although profits suffered as a result of reduced margins
from not fully recovering an excise tax increase. In
France, despite lower volumes in a reduced total market,
profit was higher as a result of a price increase in
January.
In Switzerland, good performances by Lucky Strike and
Barclay led to stable volumes which, combined with the
impact of the price increase, resulted in higher profit.
Higher margins contributed to better results in Belgium and
the Netherlands.
In Russia, a better mix driven by record sales of Kent and
the continued growth of Vogue and Pall Mall, contributed to
a significant rise in profit. Volumes recovered from the
first quarter but are still marginally behind last year.
Volume growth of Prilucky Osoblivy and Pall Mall led to a
very strong increase in profit in Ukraine. Price increases
towards the end of 2001, combined with higher volumes, led
to much improved results in Poland. In Uzbekistan volumes
were higher and profitability was restored. In tough
competitive conditions in Romania, which saw profits
deteriorate, market share increased with Viceroy doing well.
Business review cont... 8.
In the Smoking Tobacco and Cigars operations, profit was
higher mainly driven by strong performances for fine cut in
most of the core markets, especially Germany, the Netherlands
and France.
In the Africa and Middle East region profit was £17 million
lower at £133 million, affected by the severe devaluation of
the South African rand, costs incurred in setting up the
operation in Turkey and lower volumes. Regional volumes of
45 billion were down 12 per cent largely due to lower duty-
free sales.
Reduced margins, as a result of timing of expenditure, and
lower volumes resulted in lower profits in local currency in
South Africa. In a reduced total market, both Benson & Hedges
and Peter Stuyvesant increased market share.
Elsewhere in the Southern Africa area, a decline in the
volumes led to lower operating results.
Profit in the West Africa area is well ahead of last year, due
to volume and price gains in Nigeria compared to the start up
costs incurred last year.
In the Middle East, profit is in line with last year as a
result of good performances in most markets offset by expenses
incurred with market entry in Turkey.
The above results were achieved before accounting for any
goodwill amortisation and exceptional items described on
page 17.
The Group's net cash flow from operating activities was
£276 million lower at £1,352 million. This reflected the
timing of inventory purchases and other payments in 2002
compared to the first six months of 2001. In addition 2002
was affected by the run off of integration costs (see page 17)
and a lower level of accruals required for the ongoing US
tobacco settlement payments.
The improvement in net interest (see page 17), coupled with
one off payments in 2001, led to a £102 million reduction in
net financing cost outflows to £265 million. However this was
partly offset by higher tax outflows, due to increased profits
and timing of payments, as well as higher capital expenditure.
As a result net cash inflow before acquisitions, disposals and
equity dividends paid at £355 million was £254 million down on
2001.
Business review cont... 9.
Disposals less acquisitions resulted in a net inflow of
£49 million in 2002, principally due to the sale of a non-
trading company in Malaysia (see page 16). The comparative
period comprised an outflow of £319 million, largely as a
result of the buy out of the minority shareholdings in
Australia (see page 16).
After equity dividends paid of £479 million
(2001 £430 million), the Group's net cash outflow was
£75 million compared to £140 million in 2001. This,
together with the impact of the cash disposed of on the
company sale noted above, contributed to the Group's net
debt rising by £185 million for the six months to
£4,036 million.
Group Cigarette Volumes
3 months to 6 months to Year to
30.6.02 30.6.01 30.6.02 30.6.01 31.12.01
Restated Restated Restated
bns bns bns bns bns
28.2 26.7 America-Pacific 52.7 50.7 105.9
48.9 52.6 Asia-Pacific 97.5 104.3 204.1
37.2 40.2 Latin America 75.2 80.7 162.9
59.2 58.4 Europe 109.5 111.6 230.2
23.3 25.4 Africa and Middle East 44.9 51.2 104.0
----- ----- ----- ----- -----
196.8 203.3 379.8 398.5 807.1
===== ===== ===== ===== =====
GROUP RESULTS - unaudited 10.
3 months to 6 months to Year to
30.6.02 30.6.01 30.6.02 30.6.01 31.12.01
£m £m £m £m £m
REVENUE
6,178 6,167 Subsidiary undertakings 11,818 12,006 24,466
Share of associates and
334 314 joint ventures 660 604 1,228
----- ----- ------ ------ ------
6,512 6,481 12,478 12,610 25,694
===== ===== ====== ====== ======
PROFIT
591 511 Subsidiary undertakings 1,096 991 2,176
after charging:
(73) integration costs (73) (82)
(96) (98) goodwill amortisation (191) (194) (392)
Share of associates and
27 31 joint ventures 55 57 121
----- ----- ------ ------ ------
618 542 Total operating profit 1,151 1,048 2,297
Sale of business 33 33
----- ----- ------ ------ ------
Profit on ordinary
618 542 activities before interest 1,151 1,081 2,330
(48) (74) Net interest (108) (144) (263)
Share of associates' and
(1) (1) joint ventures' net interest (2) (3) (2)
----- ----- ------ ------ ------
569 467 Profit before taxation 1,041 934 2,065
Taxation on ordinary
(235) (210) activities (442) (403) (886)
----- ----- ------ ------ ------
334 257 Profit after taxation 599 531 1,179
(41) (44) Minority interests (77) (89) (169)
----- ----- ------ ------ ------
293 213 Profit for the period 522 442 1,010
===== ===== ====== ====== ======
Earnings per share
12.80p 9.10p - basic 23.30p 19.63p 44.43p
===== ===== ====== ====== ======
16.91p 15.67p - adjusted diluted 30.99p 28.43p 61.82p
===== ===== ====== ====== ======
See notes on pages 16 to 19.
SEGMENTAL ANALYSES OF TURNOVER AND PROFIT - unaudited 11.
3 months to 6 months to Year to
30.6.02 30.6.01 30.6.02 30.6.01 31.12.01
Restated Restated Restated
£m £m £m £m £m
Turnover excluding duty,
excise and other taxes
1,112 1,048 America-Pacific 2,050 2,006 4,128
466 477 Asia-Pacific 930 943 1,911
390 423 Latin America 758 812 1,619
808 803 Europe 1,529 1,541 3,189
285 264 Africa and Middle East 542 556 1,192
----- ----- ------ ------ ------
3,061 3,015 5,809 5,858 12,039
===== ===== ====== ====== ======
Operating profit
275 268 America-Pacific 506 469 1,019
108 113 Asia-Pacific 223 225 509
122 124 Latin America 226 224 428
141 134 Europe 254 247 505
68 74 Africa and Middle East 133 150 310
----- ----- ------ ------ ------
714 713 1,342 1,315 2,771
(73) Integration costs (73) (82)
(96) (98) Goodwill amortisation (191) (194) (392)
----- ----- ------ ------ ------
618 542 1,151 1,048 2,297
===== ===== ====== ====== ======
Operating profit restated
at comparable rates of
640 542 exchange 1,184 1,048 2,297
===== ===== ====== ====== ======
The net turnover analysis is based on external sales in each region.
The figures for the six months ended 30 June 2002 and 30 June 2001 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 £212 million and £54 million respectively,
2001 £285 million and £181 million.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES - unaudited 12.
6 months to Year to
30.6.02 30.6.01 31.12.01
£m £m £m
Profit for the period 522 442 1,010
Differences on exchange 106 (35) (631)
------ ------ ------
Total recognised gains related
to the period (below) 628 407 379
====== ====== ======
INTEREST OF BRITISH AMERICAN TOBACCO'S SHAREHOLDERS - unaudited
6 months to Year to
30.6.02 30.6.01 31.12.01
£m £m £m
Balance 1 January 4,754 5,097 5,097
Total recognised gains related
to the period (above) 628 407 379
Issue of shares - share options 4 3 3
Dividends and other appropriations:
ordinary shares (229) (208) (686)
convertible redeemable preference
shares (13) (12) (39)
amortisation of discount on
preference shares (9) (9) (18)
Other movements 9 9 18
------ ------ ------
Balance at period end 5,144 5,287 4,754
====== ====== ======
See notes on pages 16 to 19.
GROUP BALANCE SHEET - unaudited 13.
30.6.02 30.6.01 31.12.01
£m £m £m
Fixed assets
Intangible assets 6,547 7,332 6,546
Tangible assets 2,614 2,704 2,678
Investments in associates and joint
ventures 318 241 274
Other investments and long term loans 579 531 512
------ ------ ------
10,058 10,808 10,010
------ ------ ------
Current assets
Stocks 2,775 3,004 2,748
Debtors 2,081 2,224 2,173
Current investments 155 318 331
Short term deposits and cash 1,501 1,461 1,968
------ ------ ------
6,512 7,007 7,220
------ ------ ------
TOTAL ASSETS 16,570 17,815 17,230
====== ====== ======
Capital and reserves
Shareholders' funds:
equity 4,361 4,522 3,980
non-equity 783 765 774
------ ------ ------
5,144 5,287 4,754
Minority shareholders' equity interest 280 382 329
------ ------ ------
5,424 5,669 5,083
------ ------ ------
Other liabilities
Provisions for liabilities and charges 1,405 1,413 1,467
Borrowings 5,692 6,333 6,150
Creditors 4,049 4,400 4,530
------ ------ ------
11,146 12,146 12,147
------ ------ ------
TOTAL FUNDS EMPLOYED 16,570 17,815 17,230
====== ====== ======
See notes on pages 16 to 19.
GROUP CASH FLOW STATEMENT - unaudited 14.
6 months to Year to
30.6.02 30.6.01 31.12.01
£m £m £m
Net operating cash flow from
subsidiary undertakings (note 1) 1,352 1,628 3,279
Dividends from associates 38
------ ------ ------
Net cash inflow from operating
activities 1,352 1,628 3,317
Returns on investments and
servicing of finance (265) (367) (586)
Taxation (511) (469) (858)
Capital expenditure and financial
investment (221) (183) (455)
------ ------ ------
Net cash generation 355 609 1,418
Disposals less acquisitions 49 (319) (342)
Equity dividends paid (479) (430) (638)
------ ------ ------
Cash flow before use of liquid
resources and external financing (75) (140) 438
Management of liquid resources 334 136 (285)
Financing - proceeds from issue
of shares 4 3 3
- (decrease)/increase in (474) 27 37
debt
(470) 30 40
------ ------ ------
(Decrease)/increase in cash in the
period (211) 26 193
====== ====== ======
Reconciliation of net cash flow to
movement in net debt (note 2)
(Decrease)/increase in cash in
the period (211) 26 193
Decrease/(increase) in debt 474 (27) (37)
(Decrease)/increase in liquid resources (334) (136) 285
------ ------ ------
Change in net debt resulting from
cash flow (71) (137) 441
Net funds disposed of on sale of
Subsidiaries (133)
Other changes 4 (20) (18)
Differences on exchange 15 (134) (11)
------ ------ ------
Movement in net debt in the period (185) (291) 412
Net debt at 1 January (3,851) (4,263) (4,263)
------ ------ ------
Net debt at period end (4,036) (4,554) (3,851)
====== ====== ======
NOTES TO THE GROUP CASH FLOW STATEMENT 15.
6 months to Year to
30.6.02 30.6.01 31.12.01
1) Net operating cash flow from £m £m £m
subsidiary undertakings
Operating profit 1,096 991 2,176
Depreciation 162 168 396
Goodwill amortisation 191 194 392
(Increase)/decrease in stocks (39) 92 234
Decrease in debtors 20 8 86
Increase/(decrease) in creditors 9 203 (29)
(Decrease)/increase in provisions (63) (26) 7
Other (24) (2) 17
------ ------ ------
Net operating cash flow from subsidiary
Undertakings 1,352 1,628 3,279
====== ====== ======
Differences
Cash Other on
1.1.02 flow changes exchange 30.6.02
2) Analysis of £m £m £m £m £m
net debt
Cash and bank
balances 589 436
Overdrafts (96) (127)
------ ------
493 (211) 27 309
Term borrowings (5,941) 457 (2) 19 (5,467)
Finance lease
obligations (113) 17 (6) 4 (98)
Short term
deposits 1,379 (172) (128) (14) 1,065
Current
investments 331 (162) 7 (21) 155
------ ------ ------ ------ ------
(3,851) (71) (129) 15 (4,036)
====== ====== ====== ====== ======
ACCOUNTING POLICIES AND BASIS OF PREPARATION 16.
The financial statements comprise the unaudited results for
the six months ended 30 June 2002 and 30 June 2001 and the
audited results for the twelve months ended 31 December
2001.
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 2001.
CHANGES IN THE GROUP
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 did not already
own. This transaction was completed on 11 May 2001 at a
cost of Aus$1.1 billion (£393 million), resulting in
goodwill of £311 million which will be amortised over
20 years. Consequent upon the transaction, the company was
delisted from the Australian Stock Exchange.
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
only asset was cash. In May 2002, the holding in this
separate company was sold for about book value.
FOREIGN CURRENCIES
The results of overseas subsidiaries and associated
undertakings have been translated to sterling as follows:
Profit and loss for the six months to 30 June 2002 at the
average rates for that period. The comparatives for the
six months to 30 June 2001 and the year to 31 December 2001
at the average rates for the year to 31 December 2001. The
interest of British American Tobacco's shareholders has
been translated at the relevant period end rate.
Foreign currencies cont... 17.
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
2002 2001 30.6.02 30.6.01 31.12.01
US dollar 1.445 1.440 1.524 1.406 1.445
Canadian dollar 2.273 2.229 2.318 2.134 2.323
Euro 1.595 1.608 1.543 1.661 1.635
South African
rand 15.833 12.330 15.715 11.340 17.458
EXCEPTIONAL ITEMS
Integration costs disclosed in 2001 were the final such
costs incurred in integrating Rothmans into the British
American Tobacco Group and the consequential restructuring
of the enlarged Group.
GOODWILL AMORTISATION
The amortisation charge of £191 million 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 non-taxable profit on disposal of
£33 million.
NET INTEREST
The decrease in net interest reflects the benefit from the
Group's cash flow since 30 June 2001 and lower interest
rates partly offset by the acquisition of the minority
shares in Australia in May 2001.
TAXATION
6 months to
30.6.02 30.6.01
£m £m
UK 6
Overseas 421 376
---- ----
British American Tobacco p.l.c.
and subsidiary undertakings 421 382
Share of associates and joint
ventures 21 21
---- ----
442 403
==== ====
Tax rate 42.5% 43.1%
==== ====
Taxation cont... 18.
The tax rates for each period are adversely affected by
goodwill amortisation, while the 2001 tax rate benefited
from the inclusion of the tax free capital gain realised in
South Africa. (See above). The underlying tax rate
reflected in the adjusted earnings per share shown below
was 35.9 per cent (2001 36.5 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 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 items and
goodwill amortisation. To illustrate the impact of these
distortions the adjusted diluted earnings per share are
shown below:
Diluted earnings per share
6 months to Year to
30.6.02 30.6.01 31.12.01
pence pence pence
Unadjusted earnings per share 22.69 19.24 43.97
Effect of goodwill amortisation 8.30 8.45 17.07
Effect of integration costs 2.18 2.22
Effect of sale of business (1.44) (1.44)
------ ------ ------
Adjusted earnings per share 30.99 28.43 61.82
====== ====== ======
Similar types of adjustments would apply to basic earnings
per share. For the six months to 30 June 2002 basic
earnings per share on an adjusted basis would be 32.20p
(2001 29.46p) compared to unadjusted amounts of 23.30p
(2001 19.63p).
DIVIDENDS 19.
The Directors have declared an interim dividend out of the
profit for the six months to 30 June 2002, for payment on
16 September 2002, at the rate of 10.7p per share on both
the ordinary and preference shares. This interim dividend
amounts to £242 million. The comparative dividend for the
six months to 30 June 2001 of 9.7p per share amounted to
£220 million.
Valid transfers received by the Registrar of the Company up
to 9 August 2002 will be in time to rank for payment of the
interim dividend.
The amortisation of discount on preference shares referred
to on page 12 reflects the difference between the share
price at the date of the Rothmans transaction and the
redemption price, which is being amortised over the period
to the redemption date.
SHAREHOLDERS' FUNDS
30.6.02 30.6.01 31.12.01
£m £m £m
Share capital 576 575 575
Share premium account 13 10 10
Merger reserves 4,115 4,353 4,231
Capital redemption reserve 30 30 30
Other reserves 538 520 529
Profit and loss account (128) (201) (621)
------ ------ ------
Total shareholders' funds 5,144 5,287 4,754
====== ====== ======
******
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 E McDonald
Secretary
30 July 2002
This information is provided by RNS
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