Wrap Text
Preliminary announcement - year ended 31 Dec 2015
British American Tobacco p.l.c.
Incorporated in England and Wales
(Registration number: 03407696)
Short name: BATS
Share code: BTI
ISIN number: GB0002875804
("British American Tobacco p.l.c." or "the Company")
25 February 2016
BRITISH AMERICAN TOBACCO p.l.c.
PRELIMINARY ANNOUNCEMENT – YEAR ENDED 31 DECEMBER 2015
EXCELLENT PERFORMANCE DRIVEN BY MARKET SHARE GROWTH
KEY FINANCIALS 2015 2014 Change
Current Constant Current Constant
rates rates rates rates
Revenue £13,104m £14,720m £13,971m -6.2% +5.4%
Adjusted profit from operations* £4,992m £5,620m £5,403m -7.6% +4.0%
Profit from operations £4,557m £5,162m £4,546m +0.2% +13.6%
Adjusted diluted earnings per share* 208.4p 229.1p 208.1p +0.1% +10.1%
Basic earnings per share 230.9p 167.1p +38.2%
Dividends per share 154.0p 148.1p +4.0%
*The non-GAAP measures, including adjusting items and constant currencies, are set out on page 19.
FULL YEAR HIGHLIGHTS
- Group cigarette volume fell by 0.5% to 663 billion, an organic decline of 0.8% excluding the acquisition of
TDR in Croatia, against an estimated industry decline of 2.3%. Total tobacco volume was 0.8% lower than
the previous year.
- The Group’s cigarette market share1 in its Key Markets2 continued to grow strongly, higher by over 40
basis points (bps), driven by our Global Drive Brands which grew volume by 8.5% and market share by
120 bps.
- Group revenue was up by 5.4% at constant rates of exchange. Reported revenue was down 6.2%, as a
result of adverse exchange rate movements.
- Adjusted Group profit from operations increased by 4.0% at constant rates of exchange. Excluding the
transactional effect of foreign exchange on raw materials and leaf this would have been an increase of
around 10%. Adjusted Group profit from operations was down by 7.6% at current rates.
- Profit from operations, at current rates of exchange, was 0.2% higher at £4,557 million, impacted by
adverse exchange movements, on a translational and transactional level.
- Without the adverse transactional impact of foreign exchange, operating margin would have improved
by around 160 bps. However, at current rates it fell by 60 bps to 38.1%.
- Adjusted diluted earnings per share, at constant translational rates of exchange, were up by 10.1%
despite the transactional headwinds from foreign exchange. At current rates, they were up 0.1% at
208.4p.
- Basic earnings per share were 38.2% higher at 230.9p (2014: 167.1p), benefiting from one off gains as a
result of the acquisition of Lorillard Inc. by the Group’s associate Reynolds American Inc. (RAI).
- The Group invested US$4.7 billion to maintain a 42% shareholding in the enlarged RAI, concluded the
£1.7 billion acquisition of the shares not already owned by the Group in Souza Cruz S.A. and acquired
TDR in Croatia for €550 million.
- The Group acquired the leading e-cigarette business in Poland (CHIC) and signed a vapour collaboration
agreement with RAI.
- The Board has recommended a final dividend of 104.6p, to be paid on 5 May 2016. This will take the
2015 total dividend to 154.0p per share, an increase of 4%.
1
Key Market offtake share, as independently measured by AC Nielsen.
2
The Group’s Key Markets represent around 80% of the Group’s volume
Richard Burrows, Chairman, commenting on the year ended 31 December 2015
“The Group had an excellent year in 2015, despite a challenging external environment. Led by growth across all
of our Global Drive Brands, the Group delivered another year of very good revenue and profit growth at
constant rates of exchange. Despite significant currency headwinds impacting reported results, the excellent
underlying performance of the Group in 2015 and the increase in our total dividend for 2015 to 154.0p are
testimony to the strength of the business, our strategy and our confidence in the future.”
CHIEF EXECUTIVE’S REVIEW
In 2015, we delivered an excellent performance in a difficult environment
We delivered outstanding results in 2015, against a very challenging external environment and with significant
adverse transactional foreign exchange rate movements.
Driven by a very strong second half of the year, with cigarette volume higher by 1.7%, total Group cigarette volume
for the full year was down by only 0.5% to 663 billion. This was significantly better than the overall estimated
industry decline of 2.3%. After excluding the impact of the TDR acquisition, organic cigarette volume decline was
still ahead of the market at 0.8%.
Market share in our Key Markets increased by over 40 bps. This was driven by an excellent performance from our
Global Drive Brands, which grew volume by an exceptional 8.5% and increased market share by 120 bps.
At constant rates of exchange, we grew revenue by 5.4%, adjusted profit from operations by 4.0% and adjusted
diluted earnings per share by 10.1%. Excluding the significant transactional effect of foreign exchange on the cost
of raw materials and leaf, adjusted profit from operations would have grown by approximately 10%.
Price mix of 5.9% was up from 4.2% in 2014. Underlying operating margin grew by around 160 bps, although on a
reported basis it was down by 60 bps to 38.1%. This was largely due to the transactional impact of unfavourable
foreign exchange described above.
These excellent results in 2015 are once again proof of the strength of our strategy. These were achieved despite
unprecedented adverse exchange rate movements and continuing pressure on consumers’ disposable income.
Continuing progress in Next Generation Products
We are confident that Next Generation Products can deliver a substantial and sustainable commercial return to
shareholders over the long term.
In 2015, we continued to grow market share of Vype, our e-cigarette brand, in the UK where we launched three
new products and a range of new e-liquid flavours. We also expanded the geographical footprint of our Next
Generation Product business beyond the UK, with launches of Vype in France, Germany, Italy, Poland and
Colombia. Additionally, our first Tobacco Heating Product, the ‘glo iFuse’, was launched in Romania with excellent
initial levels of consumer acceptance.
We also continued our R&D focus on building a high quality pipeline of products across three distinct Next
Generation Product categories – Vapour Products (e-cigarettes), Tobacco Heating Products and Licensed Medicinal
Products.
Progress is encouraging and our ambition is to lead the category worldwide.
Our strategy continues to deliver
Since we updated the Group strategy in 2011, we have seen the business continue to perform strongly. We have
increased our share of the global cigarette market and significantly grown share in key market segments. Our
Global Drive Brands have grown year-on-year, accounting now for 45% of all Group cigarettes sold (up from 34% in
2011) and they continue to be a key pillar for future growth.
In 2016 we expect the trading environment to remain challenging but our resilient business model has shown the
Group is well placed to face future challenges. As such I am confident that we have the right brands, people and
focus on efficiency to enable the continued delivery of value to shareholders.
Nicandro Durante
24 February 2016
Page 1
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 also excludes the adjusting
items, explained on pages 21 to 23, which are lower as 2014 included a one off charge in relation to the
Flintkote settlement.
Adjusted profit from operations at constant and current rates of exchange and volume are as follows:
Adjusted profit from operations Cigarette volume
2015 2015 2014 2015 2014
Constant Current As
rates rates reported
£m £m £m Bns Bns
Asia-Pacific 1,546 1,469 1,548 198 197
Americas 1,426 1,169 1,286 124 131
Western Europe 1,249 1,146 1,189 112 112
EEMEA 1,399 1,208 1,380 229 227
Total 5,620 4,992 5,403 663 667
Total tobacco volume 689 694
The Group delivered a strong performance in 2015, increasing market share and achieving growth in all of the
Global Drive Brands. A very good financial performance was affected by continued adverse exchange rate
movements, with an adverse translational impact of approximately 12%.
Revenue in constant currency was 5.4% higher driven by a price mix of 5.9%, as strong pricing was partly offset
by adverse geographic mix and the growth of the lower priced segment in some markets. At current rates of
exchange, revenue decreased by 6.2%, reflecting the adverse effects of currency movements on reported
results.
Reported profit from operations was 0.2% higher at £4,557 million, reflecting the impact of foreign exchange
movements on the reported results, being partly offset by the charge in 2014 related to non-tobacco litigation
that does not repeat. Adjusted profit from operations (see page 20) declined by 7.6%, but excluding the
translational effect of exchange rate movements, adjusted profit from operations was £5,620 million, an
increase of 4.0%. 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%.
Return on capital employed, calculated excluding the Group’s investments in associates, fell to 33% from 35%
in 2014. This decrease was largely driven by the investments undertaken in the year, including TDR in Croatia
and CHIC in Poland, and the receipt of £963 million in relation to the Franked Investment Income Group
Litigation Order (FII GLO), as described on page 34.
Group cigarette volume from subsidiaries was 663 billion, a decrease against the previous year of 0.5% (or
0.8% down excluding the acquisition of TDR in Croatia). Total tobacco volume was lower by 0.8%. The decline
in cigarette volume was largely due to market contraction in Brazil, Italy, Russia, Pakistan, Malaysia and South
Korea, which was partly offset by higher Group volume in Turkey, Bangladesh, Iran, Kazakhstan, Ukraine and
Denmark. The Group increased market share by over 40 bps in its Key Markets, notably in South Korea,
Indonesia, Russia, Japan, Turkey, France, Pakistan, Bangladesh, Mexico, Malaysia, Ukraine, Kazakhstan and the
UK.
Global Drive Brand volume was higher by 8.5%, with all the brands increasing volume and contributing to the
strong share growth of 120 bps. Dunhill market share grew by 30 bps as volume increased by 6.0%, driven
mainly by Indonesia and South Africa, offsetting lower volume in South Korea and Malaysia. Kent volume grew
by 3.3%, with market share in line with prior year, as volume growth in Iran, Turkey, Japan and Chile was partly
offset by lower volume in Russia and Ukraine driven by market contraction.
Page 2
Regional review cont…
Lucky Strike volume was up by 3.6%, driven by growth in Belgium, France and Chile offsetting lower volume in
Russia and Argentina, resulting in an improvement in market share of 10 bps. Pall Mall’s market share grew by
10 bps with volume higher by 0.4% as good performances in Pakistan, Venezuela, Poland and Mexico were
partly offset by the migration to Rothmans in Italy. Rothmans’ strong growth of 46.5% was driven by Russia,
Ukraine, Turkey, Italy, Kazakhstan, Australia, Algeria and the UK, with market share significantly higher,
growing by 70 bps.
Other international brands declined by 6.8%, as growth in State Express 555 and Shuang Xi were more than
offset by lower volume in Peter Stuyvesant, JPGL, Craven A and Vogue.
Innovations account for over 26% of our cigarette volume and in 2015 grew by 14% driven by the success of
Tubes (mainly Kent) and the “slimmer” variants (particularly Rothmans).
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 was in line with 2014
Adjusted profit, at current rates of exchange, was down by £79 million to £1,469 million as strong profit
performances in Pakistan, Bangladesh, New Zealand, Sri Lanka and Vietnam were offset by a challenging
environment in Australia and adverse foreign exchange rates in a number of markets. At constant rates of
exchange, adjusted profit fell by £2 million or 0.1%. Volume was marginally ahead of 2014 at 198 billion, as
increases in Bangladesh, Vietnam, Indonesia and Japan were offset by Pakistan, Malaysia and South Korea,
where lower volume was due to market decline.
Country Performance at constant rates of exchange
Australia Volume fell due to market contraction. Excise led-price increases, a challenging
pricing environment and continued high prevalence of illicit trade led to down-
trading and a significant reduction in profit. Market share was flat.
Malaysia Profit was stable, as the introduction of sales tax (GST) and large ad hoc excise-led
price increases, were offset by a reduction in industry volume, which was partly due
to an increase in illicit trade. Market share was up driven by Peter Stuyvesant.
Japan Excellent growth in market share was driven by a strong performance by Kent,
supported by innovations. Profit was down mainly due to the adverse exchange rate
impact on cost of sales, which was partly mitigated by productivity savings.
New Zealand Profit was higher as pricing offset lower volume. Rothmans performed strongly
leading to an increase in market share.
Bangladesh Profit continued to increase strongly, driven by higher volume, significant market
share growth and higher pricing.
Pakistan High excise-driven pricing led to market contraction and an increase in illicit trade.
Volume decline was lower than the market leading to an increase in market share,
particularly in Pall Mall. The roll-over of prior year pricing and cost efficiencies drove
profit significantly higher.
Vietnam Volume was up, in line with the industry. Profit was higher due to increased volume,
pricing and an improvement in mix.
South Korea Market share grew strongly, driven by Dunhill and Vogue. Volume declined, as a
result of significant industry contraction following high excise-driven price increases,
leading to lower profit.
Page 3
Regional review cont…
Country Performance at constant rates of exchange
Indonesia Volume and market share were up and profitability improved as Dunhill continued to
grow, driving an improvement in mix and offsetting the decline in the local brands.
Taiwan Market share was higher driven by Pall Mall. Good pricing was offset by marketing
investment leading to a small decline in profit.
Philippines Market share increased driven by Pall Mall, leading to an improvement in profitability.
Americas: adjusted profit at constant rates of exchange increased by £140 million or 10.9%
Adjusted profit, at current rates of exchange, declined by £117 million to £1,169 million, mainly due to
exchange rate movements in Brazil, Canada and Venezuela. At constant rates, adjusted profit rose by £140
million, or 10.9%, driven by good performances from Canada, Mexico, Venezuela and Chile. Volume was lower
by 5.2% at 124 billion, mainly due to Brazil, Argentina, Chile and Canada, partially offset by higher volume in
Mexico.
Country Performance at constant rates of exchange
Brazil Dunhill and Minister performed well with higher market share, but were more than
offset by the rest of the portfolio. Market contraction, largely due to the deterioration
in the economic environment led to lower volume and a reduction in profit.
Canada Profit grew strongly driven by good pricing and cost reductions, offsetting lower
volume. Market share fell, despite growth in Pall Mall.
Chile Strong profit growth was due to good pricing and up-trading to capsule offers
offsetting lower volume and the effect of adverse exchange rates on cost of sales.
Kent, Lucky Strike and Pall Mall all grew market share.
Venezuela Profit was higher as significant pricing was required to offset the combined effects of
local inflation and the devaluation of the Bolivar following the introduction of the
SIMADI exchange rate mechanism. Volume was marginally lower.
Mexico Market share was up, driven by the continued growth in Pall Mall and Lucky Strike.
Profit was higher driven by pricing and higher volume.
Colombia Market share growth was partly driven by Kool and Lucky Strike, with volume flat
despite industry decline. Profit was up as pricing offset the impact of adverse foreign
exchange on cost of sales.
Argentina Pricing more than offset the impact of lower volume and led to higher profit. Lucky
Strike grew market share, continuing to perform well in the premium segment.
Western Europe: adjusted profit at constant rates of exchange increased by £60 million or 5.1%
Adjusted profit, at current rates of exchange, declined by £43 million to £1,146 million, largely reflecting the
devaluation of the euro. At constant rates, adjusted profit was higher by £60 million or 5.1% with good
performances in a number of markets including Denmark, Germany and Romania. This was partly offset by the
effect of lower volume in Italy and Netherlands. Total cigarette volume was up by 0.5% to 112 billion but,
excluding the acquisition of TDR, cigarette volume would have declined by 1.1%. Fine Cut volume was lower by
3.9% at 20 billion sticks equivalent.
Country Performance at constant rates of exchange
Germany Volume and market share were higher, driven by Lucky Strike and Pall Mall, which,
coupled with pricing, led to an increase in profit. Fine Cut volume was lower.
Switzerland Profit was up as pricing offset lower volume and a decline in market share.
Page 4
Regional review cont…
Country Performance at constant rates of exchange
Italy The migration of Pall Mall to Rothmans progressed very well, with an increase in the
brands’ combined market share. Total volume fell, with profit down partly due to
increased marketing investment.
Romania Market share grew, driven by Pall Mall and Dunhill, consolidating the Group’s
leadership position. Good pricing and an increase in volume drove profit higher.
France Volume was higher as Lucky Strike continued to perform very well, driving an increase
in total market share. Profit fell partly due to down-trading and increased marketing
investment.
Denmark Volume and profit were higher following the trade destocking in 2014. Market share
declined driven by competitive pricing activity at the low end of the market.
Netherlands Market share was higher due to the good performance of Lucky Strike and Pall Mall.
Industry decline led to lower volume and a reduction in profit.
Belgium Profit was stable as pricing offset lower volume. Market share declined as growth in
Lucky Strike was more than offset by the rest of the local portfolio.
United Kingdom Rothmans drove an increase in market share, with profit higher as good pricing offset
marginally lower volume, due to industry decline.
Spain Profit was flat as pricing was offset by lower volume and a reduction in market share.
Poland Profitability improved as pricing more than offset a fall in volume, which was in part
due to further industry contraction. Pall Mall continues to demonstrate excellent
momentum, with an increase in market share.
Eastern Europe, Middle East and Africa: adjusted profit at constant rates of exchange increased
by £19 million or 1.3%
Adjusted profit, at current rates of exchange, decreased by £172 million to £1,208 million. Good pricing across
the region and strong profit growth in a number of markets was offset by the effect of currency devaluation,
notably in Russia, Nigeria and Ukraine. At constant rates of exchange, profit would have increased by £19
million or 1.3%. Volume was 1.1% higher at 229 billion, with growth in a number of markets including Turkey,
Iran, Kazakhstan and Ukraine offsetting lower volume in Egypt, Russia, Nigeria and South Africa.
Country Performance at constant rates of exchange
Russia Market share continued to grow, driven by a strong performance by Rothmans.
Industry volume decline was due to excise-led price increase, with the Group’s volume
falling at a lower rate than the market. Pricing partially offset the significant adverse
effect of devaluation on cost of sales, leading to a decrease in profit.
South Africa Market share was down despite good growth from Benson & Hedges, following the
launch in 2014, and Pall Mall. Lower volume and down-trading were offset by pricing
and cost savings, with profit stable.
GCC Higher volume, driven by JPGL and Rothmans, and the full year effect of pricing taken
in 2014 more than offset negative mix to deliver an increase in profit. Total market
share declined.
Nigeria Profit was down due to the effect of adverse exchange rates on cost of sales and a
reduction in volume, which was driven by market contraction. Market share was up.
Iran Kent continued to perform extremely well, with higher volume driving an increase in
profit despite a change in excise that was partly borne by the industry.
Ukraine Geopolitical instability continued to impact performance, with a significant
deterioration in currency and intense price competition leading to a decline in profit.
Volume was up, driven by Rothmans. Market share grew strongly.
Turkey Higher volume and strong market share growth were driven by Kent and Rothmans.
Profit fell due to the continued part absorption of excise.
Page 5
Regional review cont…
Country Performance at constant rates of exchange
Egypt Volume, market share and profitability declined, due to down-trading following the
change in the excise regime in 2014.
Kazakhstan Rothmans drove an increase in volume and market share. Profitability improved as
higher volume more than offset the effect of down-trading.
Algeria Excellent market share growth drove an increase in volume and profit.
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)
2015 198 124 112 229 663
2014 197 131 112 227 667
Change +0.1% -5.2% +0.5% +1.1% -0.5%
Change (organic*) +0.1% -5.2% -1.1% +1.1% -0.8%
Revenue (£m)
2015 (at constant) 3,874 3,340 3,476 4,030 14,720
2015 (at current) 3,773 2,720 3,203 3,408 13,104
2014 3,873 2,990 3,359 3,749 13,971
Change (at constant) 0.0% +11.7% +3.5% +7.5% +5.4%
Change (at current) -2.6% -9.0% -4.6% -9.1% -6.2%
Adjusted profit from operations (£m)
2015 (at constant) 1,546 1,426 1,249 1,399 5,620
2015 (at current) 1,469 1,169 1,146 1,208 4,992
2014 1,548 1,286 1,189 1,380 5,403
Change (at constant) -0.1% +10.9% +5.1% +1.3% +4.0%
Change (at current) -5.2% -9.1% -3.6% -12.5% -7.6%
Operating margin based on adjusted profit (%)
2015 (at current) 38.9% 43.0% 35.8% 35.4% 38.1%
2014 40.0% 43.0% 35.4% 36.8% 38.7%
All variances quoted above are based upon absolute numbers.
* Organic change excludes volume contribution by TDR, acquired in 2015. No adjustment to exclude TDR from revenue or adjusted profit is presented as the results
are immaterial to the regional/Group financial results.
Page 6
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 (£m)
2015 (at current) 302 933 - 1 1,236
2014 291 424 - 4 719
Change +3.8% +120.0% - -75.0% +71.9%
Share of adjusted post-tax results of
associates and joint ventures (£m)
2015 (at constant) 278 610 - 1 889
2015 (at current) 286 656 - 1 943
2014 277 431 - 4 712
Change (at constant) +0.4% +41.5% - -75.0% +24.7%
Change (at current) +3.3% +52.2% - -75.0% +32.3%
GROUP
For the year ended 31 December Total
Underlying tax rate of subsidiaries (%)
2015 30.5%
2014 30.6%
Adjusted diluted earnings per share (pence)
2015 (at constant) 229.1
2015 (at current) 208.4
2014 208.1
Change (at constant) +10.1%
Change (at current) +0.1%
Return on capital employed (%) – excluding associates*
2015 33%
2014 35%
* The calculation for “Return on capital employed” was changed in 2015, with 2014 restated accordingly, to exclude 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).
Page 7
FINANCIAL INFORMATION AND OTHER
NET FINANCE INCOME/(COSTS)
Net finance income was £62 million, compared to a cost of £417 million in 2014. The movement is
principally due to a deemed gain related to the investment in RAI, as described below. 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 income/(costs) comprise:
2015 2014
£m £m
Finance costs (584) (484)
Finance income 646 67
62 (417)
Comprising:
Interest payable (606) (588)
Interest and dividend income 79 67
Net impact of fair value and exchange 589 104
- fair value changes - derivatives 245 154
- option costs and fees related to the funding of the acquisition of non-
(88) -
controlling interest in Souza Cruz, and investment in RAI
- Deemed gain related to the investment in RAI 601 -
- exchange differences (169) (50)
62 (417)
Adjusting items:
Option cost and fees, see below 104 -
Deemed gain on investment in RAI, see below (601) -
Interest related to Franked Investment Income Group Litigation Order 8 -
Net adjusted finance cost (427) (417)
The Group incurred costs of £104 million in relation to financing activities, which include costs in relation
to the acquisition of the non-controlling interest in the Group’s Brazilian subsidiary, Souza Cruz S.A. and
the Group’s activities to maintain the current ownership in RAI following its acquisition of Lorillard Inc.
These activities are described on page 10.
The Group’s investment of US$4.7 billion in cash in RAI has realised a deemed gain of US$931 million
(£601 million), taken through net finance costs. This has arisen 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 RAI and the
market value of RAI shares on the day of the transaction.
As described on page 34, the Group received £963 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 £8 million has been accrued and treated
as an adjusting item.
The above have been included in the adjusted earnings per share calculation on page 28.
Page 8
RESULTS OF ASSOCIATES
The Group’s share of post-tax results of associates increased by £517 million, or 72%, to £1,236 million.
The Group’s share of the adjusted post-tax results of associates increased by 32% to £943 million, with a
rise of 25% to £889 million at constant rates of exchange.
The adjusted contribution from RAI increased by 53% to £652 million, reflecting the strong performance
of RAI in the year, following the acquisition of Lorillard Inc. in June 2015 and subsequent divestiture of
certain assets to ITG Brands LLC. At constant rates of exchange this would have been an increase of 42%.
The Group’s adjusted contribution from its main associate in India, ITC, was £280 million, up 3.6%. At
constant rates of exchange, the contribution would have been 1.1% higher than last year.
See pages 22 and 23 for the adjusting items.
TAXATION
2015 2014
£m £m
UK
- current year tax 5 -
Overseas
- current year tax expense 1,317 1,439
- adjustment in respect of prior periods 7 11
Current tax 1,329 1,450
Deferred tax 4 5
1,333 1,455
Adjusting items (see below) 58 69
Adjusted tax charge 1,391 1,524
The tax rates in the income statement of 22.8% in 2015 and 30.0% in 2014 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
30.5% in 2015 and 30.6% in 2014. 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. The Group’s share of the gain on the divestiture of intangibles and other assets by RAI to ITG
Brands LLC, a subsidiary of Imperial Tobacco Group PLC, is £371 million. Given that the profit on this item
is recognised as an adjusting item by the Group, the additional deferred tax charge of £22 million on the
potential distribution of these undistributed earnings has also been treated as adjusting.
The adjusting tax item also includes £80 million (2014: £69 million) in respect of the tax on adjusting
items, as described on pages 21 to 23. 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, the operating cash flow decreased by £325 million, or
7%, to £4,583 million, reflecting the growth in underlying operating performance at constant currency
being more than offset by adverse exchange movements. Free cash flow was higher by £974 million or
39%, at £3,481 million as the receipt related to the FII GLO case, as described on page 34 and lower cash
paid in the year in respect of Flintkote and Fox River which, combined with a reduction in tax paid, offset
higher net interest paid, higher outflows for restructuring costs and the deposit in relation to the Quebec
Class Action (£55 million, or CAD $108 million).
The conversion of adjusted operating profit to operating cash flow remained strong at 92% (2014: 91%),
with the ratio of free cash flow per share to adjusted diluted earnings per share increasing to 90% from
64% in 2014 as the receipt in relation to FII GLO combined with lower cash costs related to non-tobacco
related litigation (Flintkote and Fox River).
Closing net debt at £14,794 million was up £4,629 million from £10,165 million as at 31 December 2014 as
the Group’s investment activities described below more than offset the strong cash flow generation.
The Group’s alternative cash flow statement is shown on page 24 and explained on page 19 under non-
GAAP measures.
Page 9
INVESTMENT IN RAI
On 12 June 2015, RAI completed its acquisition of Lorillard Inc. and related divestiture transactions to ITG
Brands LLC, a subsidiary of Imperial Tobacco Group PLC, after receiving the required regulatory approval.
At the same time, the Group invested US$4.7 billion (£3.0 billion) of cash in RAI to maintain its 42% equity
position in the enlarged business.
The Group has recognised a deemed gain of US$931 million (£601 million), as part of the cost of
investment. This has arisen as the contract to acquire shares is deemed to be a financial instrument and
was fair valued through the profit and loss, in compliance with IAS 39. This has been treated as an
adjusting item, in line with the Group’s policy as described on page 19. Goodwill of US$529 million (£336
million) has also been recognised, being the difference between the Group’s share of the net assets
acquired by RAI and the deemed fair value of the consideration paid.
RAI recognised a gain on divestiture of assets of US$3,288 million. The Group’s share of this net gain
amounted to £371 million (net of tax). This has been treated as an adjusting item, in line with the Group’s
policy as described on page 19.
PUBLIC TENDER OFFER FOR SOUZA CRUZ S.A.
On 16 October 2015, the Group announced that it had concluded the auction related to its public tender
offer in Brazil to acquire up to all of the 24.7% of Souza Cruz shares not currently owned by the Group
and to delist the company.
As a result of the auction, the Group acquired 342,956,819 shares at a price of R$27.20 per share (the
Offer Price), representing 22.4% of Souza Cruz. The Group’s total ownership of Souza Cruz increased to
97.7% following the auction. At the Offer Price, the value of the 24.7% free float was approximately £1.7
billion. Given the level of acceptances at the auction, Souza Cruz cancelled its registration as a publicly
listed company.
Subsequent to the auction the Group continued to acquire outstanding minority shares at the Offer Price
(plus interest) and as at 31 December 2015 the Group owned 99.1% of Souza Cruz. The compulsory
acquisition of the remaining minority shares was approved on 5 February 2016, with Souza Cruz
effectively becoming a wholly-owned subsidiary at that date.
TDR - CROATIA
On 30 September 2015, the Group completed its previously announced acquisition of TDR d.o.o. and other
tobacco and retail assets (TDR) from Adris Grupa d.d. (Adris) for a total enterprise value of €550 million. The
purchase price is subject to the final agreement of adjustments for working capital and certain liabilities with
the vendors and part of the consideration is contingent upon certain targets being met post acquisition,
including the retention of key customers. Provisional goodwill has been recognised of £116 million.
INVESTMENT IN NEXT GENERATION PRODUCTS
The Group concluded the previously announced acquisition of the CHIC Group. The acquisition of CHIC provides
the Group with scale and market reach, via over 800 points of sale in Poland, a number of leading Polish e-
cigarette brands, a dedicated e-liquids production facility and a modern research and development centre.
During 2015, the Group also announced the agreement of a vapour products technology-sharing term sheet
with R.J. Reynolds Tobacco Company (RJRTC), a subsidiary of the Group’s associate RAI. This will provide a
framework for collaboration and mutual cross-licensing of the parties’ vapour product technologies through
2022.
IMPERIAL TOBACCO CANADA – QUEBEC CLASS ACTION
Following the decision by the Quebec Court of Appeal to uphold the Order for Security, of which the Group’s
subsidiary Imperial Tobacco Canada’s (ITCAN) share is CAD $758 million (£370 million), on 30 December 2015
ITCAN made the first of up to seven quarterly deposits (£55 million, CAD $108 million) to the Court escrow
account as required by the judgement. ITCAN continues to retain strong legal grounds to appeal the original
judgement, with the hearing scheduled for November 2016.
No charge against profit has been made with regards to the deposit, as ITCAN continues to assess that the
deposits are fully recoverable upon a successful appeal of the original judgement.
Page 10
RESPONSE TO ALLEGATIONS REGARDING STANDARDS OF BUSINESS CONDUCT
Towards the end of 2015, a number of allegations were made regarding historic misconduct in Africa. We take
these allegations extremely seriously. Although we were aware of and had looked into some of the allegations
in the past, given the high standards to which we hold ourselves and the number and nature of the allegations
of which the Group is now aware, the Group has appointed an external law firm to conduct a full
investigation. We have also informed the Serious Fraud Office of our approach and are liaising with them.
All our 50,000 employees are required to understand and abide by our Standards of Business Conduct. We will
not tolerate corruption in our business anywhere in the world.
RISKS AND UNCERTAINTIES
The Board’s assessment of the principal risks and uncertainties facing the Group has remained broadly
unchanged over the past year, particularly with regard to the principal risks included in Marketplace,
Excise and tax, Operations, Regulation and Litigation risk factors.
The Board also considered the risks associated with the inability to recruit required talent and the loss of
existing talent. The impact of the risk has been increased to reflect the challenge posed by negative
perceptions of the sustainability and corporate reputation of a tobacco business and is now listed as a
principal risk facing the business.
The Board has reassessed the previously reported risks associated with the Group’s revised operating
model and single IT operating system. In view of the progress of deployment of the single IT operating
system, the Board considers that a combined risk, focussing on sustainability and benefits realisation
describes more accurately the context of the current risk. As such the risks have been merged into a new
combined risk, being failure to achieve sustainability of the operating model and its benefits. However
this is not considered to be a principal risk.
In addition, the Board has considered the foreign exchange rate exposure risk. An assessment of the
current exposure to transactional foreign exchange rate risk has resulted in an increase to the risk rating.
The risk of failure to lead the development of Next Generation Products has also been removed from the
principal risk factors as progress has been made in several areas which mitigates the risk.
A solvency and liquidity risk has been disclosed as its assessment underpins our Viability Statement, which
will be shown in the Annual Report and Accounts 2015 on page 38, although the mitigation plans reduce
the likelihood of the risk occurring.
Full details of all principal risks will be included in the Annual Report for the year ended 31 December
2015.
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 2015
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.
Page 11
BOARD CHANGES
The following changes to the Board will take effect from the conclusion of the Annual General Meeting on
27 April 2016:
- Karen de Segundo (Chair of the Corporate Social Responsibility Committee and a member of the
Nominations Committee) will be retiring as a Non-Executive Director, having served eight years on
the Board; and
- Dr Richard Tubb (member of the Corporate Social Responsibility and Nominations Committees) will
retire from the Board, having been a Non-Executive Director since January 2013.
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 2015. 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 was approved by the Board of Directors on 24 February 2016 and is signed
on its behalf by:
Richard Burrows Ben Stevens
Chairman Finance Director
24 February 2016
ENQUIRIES:
INVESTOR RELATIONS: PRESS OFFICE:
Mike Nightingale 020 7845 1180 Will Hill / Anna Vickerstaff 020 7845 2888
Rachael Brierley 020 7845 1519
Sabina Marshman 020 7845 1781
Webcast and Conference Call
A live webcast of the results is available via www.bat.com/ir.
If you wish to listen to the presentation via a conference call facility please use the dial in details below:
Dial-in number: +44 20 3139 4830
Passcode: 95975895#
Conference Call Playback Facility
A replay of the conference call will also be available from 1pm for 48 hours.
Dial-in number: +44 20 3426 2807
Passcode: 660261#
Page 12
GROUP INCOME STATEMENT
For the year ended 31 December
2015 2014
£m £m
Gross turnover (including duty, excise and other taxes of £27,896 million (2014:
£28,535 million)) 41,000 42,506
Revenue 13,104 13,971
Raw materials and consumables used (3,217) (3,088)
Changes in inventories of finished goods and work in progress 184 58
Employee benefit costs (2,039) (2,194)
Depreciation, amortisation and impairment costs (428) (523)
Other operating income 225 178
Other operating expenses (3,272) (3,856)
Profit from operations 4,557 4,546
Analysed as:
– adjusted profit from operations 4,992 5,403
– restructuring and integration costs (367) (452)
– amortisation of trademarks and similar intangibles (65) (58)
– Fox River - 27
– Flintkote (3) (374)
4,557 4,546
Net finance income/(costs) 62 (417)
Finance income 646 67
Finance costs (584) (484)
Share of post-tax results of associates and joint ventures 1,236 719
Analysed as:
– adjusted share of post-tax results of associates and joint ventures 943 712
– issue of shares and change in shareholding 22 14
– gain on disposal of assets 371 -
– other (see page 23) (100) (7)
1,236 719
Profit before taxation 5,855 4,848
Taxation on ordinary activities (1,333) (1,455)
Profit for the year 4,522 3,393
Attributable to:
Owners of the parent 4,290 3,115
Non-controlling interests 232 278
4,522 3,393
Earnings per share
Basic 230.9p 167.1p
Diluted 230.3p 166.6p
Adjusted diluted 208.4p 208.1p
All of the activities during both years are in respect of continuing operations.
The accompanying notes on pages 8 to 10 and 19 to 35 form an integral part of this condensed consolidated
financial information.
Page 13
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December
2015 2014
£m £m
Profit for the year (page 13) 4,522 3,393
Other comprehensive income
Items that may be reclassified subsequently to profit or loss: (849) (327)
Differences on exchange
– subsidiaries (1,006) (539)
– associates 336 113
Cash flow hedges
– net fair value (losses)/gains (99) 57
– reclassified and reported in profit for the year 15 (67)
– reclassified and reported in net assets (45) 8
Available-for-sale investments
– net fair value gains 15 15
– reclassified and reported in profit for the year (10) -
Net investment hedges
– net fair value (losses)/gains (118) 2
– differences on exchange on borrowings 42 60
Tax on items that may be reclassified 21 24
Items that will not be reclassified subsequently to profit or loss: 263 (458)
Retirement benefit schemes
– net actuarial gains/(losses) in respect of subsidiaries 283 (428)
– surplus recognition and minimum funding obligations in respect of subsidiaries - 7
– actuarial gains/(losses) in respect of associates net of tax 3 (124)
Tax on items that will not be reclassified (23) 87
Total other comprehensive income for the year, net of tax (586) (785)
Total comprehensive income for the year, net of tax 3,936 2,608
Attributable to:
Owners of the parent 3,757 2,349
Non-controlling interests 179 259
3,936 2,608
The accompanying notes on pages 8 to 10 and 19 to 35 form an integral part of this condensed consolidated
financial information.
Page 14
GROUP STATEMENT OF CHANGES IN EQUITY
At 31 December
2015 Attributable to owners of the parent
Share
premium,
capital Total
redemption attributable Non-
Share and merger Other Retained to owners controlling
capital reserves reserves earnings of parent interests Total equity
£m £m £m £m £m £m £m
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
2014 Attributable to owners of the parent
Share
premium,
capital Total
redemption attributable Non-
Share and merger Other Retained to owners controlling
capital reserves reserves earnings of parent interests Total equity
£m £m £m £m £m £m £m
Balance at 1 January 2014 507 3,919 (190) 2,398 6,634 301 6,935
Total comprehensive income for the year
(page 14) - - (308) 2,657 2,349 259 2,608
Profit for the year - - - 3,115 3,115 278 3,393
Other comprehensive income for the year - - (308) (458) (766) (19) (785)
Employee share options
– value of employee services - - - 66 66 - 66
– proceeds from shares issued - 4 - 1 5 - 5
Dividends and other appropriations
– ordinary shares - - - (2,712) (2,712) - (2,712)
– to non-controlling interests - - - - - (260) (260)
Purchase of own shares
– held in employee share ownership
trusts - - - (49) (49) - (49)
– share buy-back programme - - - (800) (800) - (800)
Non-controlling interests – acquisitions - - - (4) (4) - (4)
Non-controlling interests – capital injection - - - - - 4 4
Other movements - - - 21 21 - 21
Balance at 31 December 2014 507 3,923 (498) 1,578 5,510 304 5,814
The accompanying notes on pages 8 to 10 and 19 to 35 form an integral part of this condensed
consolidated financial information.
Page 15
GROUP BALANCE SHEET
At 31 December
2015 2014
£m £m
Assets
Non-current assets
Intangible assets 10,436 10,804
Property, plant and equipment 3,021 3,004
Investments in associates and joint ventures 6,938 2,400
Retirement benefit assets 408 40
Deferred tax assets 326 311
Trade and other receivables 248 153
Available-for-sale investments 37 36
Derivative financial instruments 287 287
Total non-current assets 21,701 17,035
Current assets
Inventories 4,247 4,133
Income tax receivable 74 57
Trade and other receivables 3,266 2,768
Available-for-sale investments 35 50
Derivative financial instruments 209 274
Cash and cash equivalents 1,963 1,818
9,794 9,100
Assets classified as held-for-sale 20 32
Total current assets 9,814 9,132
Total assets 31,515 26,167
The accompanying notes on pages 8 to 10 and 19 to 35 form an integral part of this condensed
consolidated financial information.
Page 16
GROUP BALANCE SHEET - continued
At 31 December
2015 2014
£m £m
Equity
Capital and reserves
Share capital 507 507
Share premium, capital redemption and merger reserves 3,927 3,923
Other reserves (1,294) (498)
Retained earnings 1,754 1,578
Owners of the parent 4,894 5,510
after deducting
– cost of treasury shares (5,049) (5,073)
Non-controlling interests 138 304
Total equity 5,032 5,814
Liabilities
Non-current liabilities
Borrowings 14,806 9,779
Retirement benefit liabilities 653 781
Deferred tax liabilities 563 495
Other provisions for liabilities and charges 296 278
Trade and other payables 1,029 128
Derivative financial instruments 130 123
Total non-current liabilities 17,477 11,584
Current liabilities
Borrowings 2,195 2,479
Income tax payable 414 430
Other provisions for liabilities and charges 273 210
Trade and other payables 5,937 5,524
Derivative financial instruments 187 126
Total current liabilities 9,006 8,769
Total equity and liabilities 31,515 26,167
The accompanying notes on pages 8 to 10 and 19 to 35 form an integral part of this condensed
consolidated financial information.
Page 17
GROUP CASH FLOW STATEMENT
For the year ended 31 December
2015 2014
£m £m
Cash flows from operating activities
Cash generated from operations (page 26) 5,400 4,634
Dividends received from associates 593 515
Tax paid (1,273) (1,433)
Net cash generated from operating activities 4,720 3,716
Cash flows from investing activities
Interest received 64 61
Dividends received from investments - 2
Purchases of property, plant and equipment (483) (529)
Proceeds on disposal of property, plant and equipment 108 62
Purchases of intangibles (118) (163)
Purchases of investments (99) (31)
Proceeds on disposals of investments 45 34
Proceeds from associate's share buy-back - 94
Investment in associates (3,015) -
Acquisition of subsidiaries (493) -
Net cash used in investing activities (3,991) (470)
Cash flows from financing activities
Interest paid (596) (571)
Interest element of finance lease rental payments (1) -
Capital element of finance lease rental payments (2) (2)
Proceeds from issue of shares to owners of the parent 4 4
Proceeds from the exercise of options over own shares held in employee share
ownership trusts - 1
Proceeds from increases in and new borrowings 6,931 1,967
Movements relating to derivative financial instruments 201 244
Purchases of own shares - (800)
Purchases of own shares held in employee share ownership trusts (46) (49)
Reductions in and repayments of borrowings (2,028) (1,300)
Dividends paid to owners of the parent (2,770) (2,712)
Purchases of non-controlling interests (1,677) (4)
Non-controlling interests – capital injection - 4
Dividends paid to non-controlling interests (235) (249)
Net cash used in financing activities (219) (3,467)
Net cash flows generated from/(used in) operating, investing and financing
activities 510 (221)
Differences on exchange (272) (63)
Increase/(Decrease) in net cash and cash equivalents in the year 238 (284)
Net cash and cash equivalents at 1 January 1,492 1,776
Net cash and cash equivalents at 31 December 1,730 1,492
The accompanying notes on pages 8 to 10 and 19 to 35 form an integral part of this condensed consolidated
financial information.
The net cash outflows relating to adjusting items on pages 21 and 22, and related to the Quebec Class Action
included in the above are £577 million, including £97 million related to interest (2014: £750 million with £nil
related to interest). The receipt in relation to FII GLO in 2015 from HMRC is £963 million (2014: £nil), and is
included in ‘Cash generated from operations’ as shown on page 26.
Page 18
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 2015. 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 2014.
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.
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 the 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 29.
Page 19
ANALYSIS OF REVENUE, PROFIT FROM OPERATIONS AND DILUTED EARNINGS PER
SHARE
REVENUE
2015 2014
Reported Impact of Revenue Reported
revenue exchange at CC(1) revenue
£m £m £m £m
Asia-Pacific 3,773 101 3,874 3,873
Americas 2,720 620 3,340 2,990
Western Europe 3,203 273 3,476 3,359
EEMEA 3,408 622 4,030 3,749
Total 13,104 1,616 14,720 13,971
PROFIT FROM OPERATIONS AND DILUTED EARNINGS PER SHARE
2015 2014
Impact Adjusted
Reported Adjusting Adjusted of Profit Reported Adjusting Adjusted
1
Profit items Profit exchange at CC Profit items Profit
£m £m £m £m £m £m £m £m
Asia-Pacific 1,361 108 1,469 77 1,546 1,360 188 1,548
Americas 1,082 87 1,169 257 1,426 1,197 89 1,286
Western Europe 990 156 1,146 103 1,249 1,018 171 1,189
EEMEA 1,127 81 1,208 191 1,399 1,318 62 1,380
Total Region 4,560 432 4,992 628 5,620 4,893 510 5,403
Non-tobacco
litigation:
Fox River - - - - - 27 (27) -
Flintkote (3) 3 - - - (374) 374 -
Profit from
4,557 435 4,992 628 5,620 4,546 857 5,403
Operations
Net finance
62 (489) (427) (37) (464) (417) - (417)
income/(costs)
Associates and
1,236 (293) 943 (54) 889 719 (7) 712
joint ventures
Profit before
5,855 (347) 5,508 537 6,045 4,848 850 5,698
tax
Taxation (1,333) (58) (1,391) (126) (1,517) (1,455) (69) (1,524)
Non-controlling
(232) (3) (235) (26) (261) (278) (5) (283)
interest
Profit
attributable to 4,290 (408) 3,882 385 4,267 3,115 776 3,891
shareholders
Diluted number
1,863 1,863 1,863 1,870 1,870
of shares (m)
Diluted earnings
per share 230.3 208.4 229.1 166.6 208.1
(pence)
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.
The Fox River credit in 2014 and the Flintkote charges in 2014 and 2015 have not been allocated to any segment as they
neither relate to current operations nor to the tobacco business. They are presented separately from the segment reporting
which is used to evaluate segmental performance and to allocate resources, and is reported to the chief operating decision
maker on this basis.
Page 20
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 includes revised
organisation structures, standardised processes and shared back office services underpinned by a global
single instance of SAP. The new organisation structures and processes are currently being implemented
and the deployment of the new SAP system started in the third quarter of 2012 and will take at least four
years to fully roll out. These 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:
2015 2014
£m £m
Employee benefit costs 159 223
Depreciation, amortisation and impairment costs 26 69
Other operating expenses 228 180
Other operating income (46) (20)
Total 367 452
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.
Restructuring and integration costs in 2014 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, Colombia and the Democratic Republic of Congo and
restructurings in Argentina, Indonesia, Canada, Switzerland and Germany.
Other operating income in 2015 includes gains from the sale of land and buildings in Australia. In 2014,
other operating income includes gains from the sale of land and buildings in Turkey, Uganda and the
Democratic Republic of Congo.
(b) Amortisation of trademarks and similar intangibles
Acquisitions including 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 charge of £65 million (2014: £58 million) is included in depreciation, amortisation and
impairment costs in the profit from operations.
Page 21
Adjusting items included in profit from operations cont…
(c) Fox River
In 2011, a Group subsidiary provided £274 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, £17 million has been paid in 2015, which includes legal costs of £8 million (2014: £56 million,
including legal costs of £7 million). The Fox River provision has been reviewed with no further change
required in 2015, following a release in 2014 of £27 million.
(d) Flintkote
In September 2015, the settlement announced in 2014 of £374 million in connection with various legal
cases related to a former non-tobacco business in Canada was finalised upon receipt of the approvals of
certain courts in the United States. Legal costs of £3 million were incurred in the year.
ADJUSTING ITEMS INCLUDED IN NET FINANCE INCOME/(COST
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, as
described on page 19.
The Group incurred costs of £104 million in relation to financing activities, which comprise costs on the
proposed acquisition of the non-controlling interest in the Group’s Brazilian subsidiary, Souza Cruz S.A.
and the Group’s activities to maintain the current ownership in RAI following its acquisition of Lorillard
Inc.
The Group’s investment of US$4.7 billion in cash in RAI has realised a deemed gain of US$931 million
(£601 million). This has arisen 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 RAI and the market value of RAI shares on the
day of the transaction.
As described on page 34, the Group received £963 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 £8 million has been accrued and treated
as an adjusting item.
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.
For the year ended 31 December 2015:
In 2015, the Group’s interest in ITC Ltd. (ITC) decreased from 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 £22 million, which is treated as a deemed partial
disposal and included in the income statement.
RAI recognised a gain on the related divestiture of assets, following the Lorillard Inc. acquisition, of
US$3,288 million. The Group’s share of this net gain amounted to £371 million (net of tax).
Page 22
Adjusting items included in share of post-tax results of associates and joint ventures cont…
RAI has also recognised amounts that have been combined in the table of adjusting items in the Group
income statement and are shown as “other”. This includes restructuring charges of US$223 million, the
Group’s share of which is £39 million (net of tax), and costs in respect of a number of Engle progeny
lawsuits and other tobacco litigation charges that amounted to US$152 million, the Group’s share of
which is £26 million (net of tax). Also included are transaction costs of US$54 million and financing costs
of US$60 million connected with the acquisition of Lorillard Inc., the Group's share of which is £12 million
(net of tax) and £10 million (net of tax), respectively. Additionally, there is income of 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 amounted to £18 million (net of tax). The remaining costs of US$99 million are primarily in
respect of asset impairment and exit charges, the Group’s share of which is £25 million (net of tax).
In June 2014, a further two states entered into a settlement agreement in relation to disputed NPM
Adjustment Claims for the years 2003 to 2012. Under the settlement RAI expects to receive more than
US$170 million in Master Settlement Agreement (MSA) credits to be applied over 5 years. In addition, in
2015, another state agreed to settle NPM disputes related to claims for the period 2004 to 2014. It is
estimated that RAI will receive US$285 million in credits, which will be applied over the next four years.
Credits in respect of future years’ payments and the NPM Adjustment claims would be accounted for in
the applicable year and will not be treated as adjustable items. Only credits in respect of prior year
payments are included as adjustable items.
For the year ended 31 December 2014:
In 2014, the Group’s interest in ITC decreased from 30.47% to 30.26% as a result of ITC issuing ordinary
shares under the company’s Employee Share Option Scheme. This resulted in a gain of £14 million, which
was treated as a deemed partial disposal and included in the income statement.
RAI also recognised amounts that have been combined in the table of adjusting items in the Group
income statement and are shown as “other”. There were costs in respect of a number of Engle progeny
lawsuits and other tobacco litigation charges that amount to US$102 million, the Group’s share of which is
£16 million (net of tax). RAI recognised income of US$34 million related to the 2013 MSA liability as an
adjusting item. The Group’s share of this income amounted to £5 million (net of tax). RAI recognised a net
gain from discontinued activities of US$25 million, reduced by restructuring activities of US$16 million,
resulting in a net gain of US$9 million. The Group’s share of this net gain amounted to £4 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. The Group’s share of the gain on the divestiture of intangibles and other assets by RAI to ITG
Brands LLC, a subsidiary of Imperial Tobacco Group PLC, is £371 million. Given that the profit on this item
is recognised as an adjusting item by the Group, the additional deferred tax charge of £22 million on the
potential distribution of these undistributed earnings has also been treated as adjusting.
The adjusting tax item also includes £80 million (2014: £69 million) in respect of the tax on adjusting
items, as described above and on pages 21 and 22.
Page 23
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.
2015 2014
£m £m
Adjusted profit from operations (page 13) 4,992 5,403
Depreciation, amortisation and impairment 338 396
Other non-cash items in operating profit (1) 45
Profit from operations before depreciation, amortisation and impairment 5,329 5,844
Increase in working capital (263) (309)
Net capital expenditure (483) (627)
Gross capital expenditure (591) (689)
Sale of fixed assets 108 62
Operating cash flow 4,583 4,908
Pension funds’ shortfall funding (148) (140)
Net interest paid (522) (426)
Tax paid (1,273) (1,433)
Franked Investment Income Group Litigation Order (FII GLO) 963 -
Dividends paid to non-controlling interests (235) (249)
Cash generated from operations 3,368 2,660
Memo: Cash generated from operations at constant rates of exchange 3,656 2,660
Restructuring costs (405) (325)
Non-tobacco litigation: Flintkote and Fox River (settlement) (20) (437)
Tobacco litigation: Quebec (deposit) (55) -
Dividends and other appropriations from associates 593 609
Free cash flow 3,481 2,507
Dividends paid to shareholders (2,770) (2,712)
Share buy-back (including transaction costs) - (800)
Net investment activities (5,192) (6)
Net flow from share schemes and other (52) 108
Net cash outflow (4,533) (903)
External movements on net debt
Exchange rate effects* (112) 270
Change in accrued interest and other 16 (17)
Change in net debt (4,629) (650)
Opening net debt (10,165) (9,515)
Closing net debt (14,794) (10,165)
* Including movements in respect of debt-related derivatives.
Page 24
Cash flow and net debt movements cont…
In the alternative cash flow presented on page 24, the operating cash flow decreased by £325 million, or
7%, to £4,583 million, reflecting the growth in underlying operating performance at constant currency
being more than offset by adverse exchange movements. Free cash flow was higher by £974 million or
39%, at £3,481 million as the receipt related to the FII GLO case, as described on page 34 and lower cash
paid in the year in respect of Flintkote and Fox River which, combined with a reduction in tax paid, offset
higher net interest paid, higher outflows for restructuring costs and the deposit of £55 million (CAD $108
million) in relation to the Quebec Class Action.
The conversion of adjusted operating profit to operating cash flow remained strong at 92% (2014: 91%).
Due to the receipt in relation to FII GLO and lower cash costs related to non-tobacco related litigation
(Flintkote and Fox River), the ratio of free cash flow per share to adjusted diluted earnings per share
increased to 90% (2014: 64%).
Below free cash flow, the principal cash outflows for 2015 comprise the payment of the prior year final
dividend and the 2015 interim dividend, which was £58 million higher at £2,770 million, as well as a
£5,192 million cash outflow related to net investment activities. This was principally due to the
investment in RAI, the buy-out of the minorities in Souza Cruz and the acquisition of TDR in Croatia.
During 2014, the cash outflow from net investing activities was £6 million relating to various entities in
which the Group already had an interest.
The other net flows in 2015 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 £4,533 million (2014: £903 million outflow). After taking
account of other changes, especially exchange rate movements, total net debt was £4,629 million higher
at £14,794 million at 31 December 2015 (2014: £10,165 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:
2015 2014
£m £m
Net debt due within one year:
Borrowings 2,195 2,479
Related derivatives (46) (79)
Cash and cash equivalents (1,963) (1,818)
Current available-for-sale investments (35) (50)
151 532
Net debt due beyond one year:
Borrowings 14,806 9,779
Related derivatives (163) (146)
14,643 9,633
Total net debt 14,794 10,165
The Group remains confident about its ability to access the debt capital markets successfully and reviews
its options on a continuing basis.
Page 25
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:
2015 2014
£m £m
Profit from operations 4,557 4,546
Adjustments for:
Depreciation, amortisation and impairment costs 428 523
(Increase) in inventories (520) (405)
(Increase) in trade and other receivables (508) (36)
(Increase) in amounts receivable in respect of the Quebec Class Action (55) -
Increase in trade and other payables 732 203
FII GLO receipts (see page 34) 963 -
(Decrease) in net retirement benefit liabilities (191) (170)
Increase/(Decrease) in provisions for liabilities and charges 48 (76)
Other non-cash items (54) 49
Cash generated from operations 5,400 4,634
(d) IFRS net cash and cash equivalents
The net cash and cash equivalents in the IFRS Group cash flow statement on page 18 comprise:
2015 2014
£m £m
Cash and cash equivalents per balance sheet 1,963 1,818
Accrued interest (1) (1)
Overdrafts (232) (325)
Net cash and cash equivalents 1,730 1,492
(e) Liquidity
The Treasury function is responsible for raising finance for the Group, managing the Group’s cash
resources and managing the 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 2015, the average
centrally managed debt maturity was 7.9 years (2014: 6.8 years) and the highest proportion of centrally
managed debt maturing in a single rolling 12-month period was 15.0% (2014: 18.7%).
It is Group policy that short-term sources of funds (including drawings under both the US$3 billion US
commercial paper programme and the £1 billion euro commercial paper programme) are backed by
undrawn committed lines of credit and cash. At 31 December 2015, £505 million of commercial paper was
outstanding (2014: £160 million).
In February 2015, the Group signed a one-year bridge facility of £2.5 billion with an extension option of up
to one year for its possible public tender offer to acquire up to all of the 24.7% of Souza Cruz shares which
were not owned by BAT. This was cancelled in December 2015.
In March 2015, the Group issued €3 billion of bonds in four tranches as follows: €800 million maturing in
2019, €800 million maturing in 2023, €800 million maturing in 2027 and €600 million maturing in 2045. A
€1.25 billion bond was repaid.
Page 26
Cash flow and net debt movements cont…
In March 2015, a one year extension option was exercised for the £3 billion main bank facility, extending
the final maturity to May 2020. The facility was undrawn as at 31 December 2015 (2014: undrawn). The
US$2 billion US commercial paper programme was increased in size to US$3 billion.
In June 2015, the Group issued US$4.5 billion of bonds in five tranches as follows: US$750 million
maturing in 2018, US$1,250 million maturing in 2020, US$500 million maturing in 2022, US$1,500 million
maturing in 2025 and US$500 million of floating rate notes maturing in 2018. A US$500 million bond was
repaid. The US$4.7 billion bridge facility in respect of the RAI transaction was cancelled following the issue
of the bonds.
In July 2015, the Group received £620 million from HM Revenue & Customs in connection with the FII
GLO, as described on page 34. The Group received a further £343 million in November 2015.
In November 2015, the Group issued a €600 million bond maturing in 2022 and a £350 million bond
maturing in 2055.
In March 2014, the Group issued €1 billion of bonds in two tranches as follows: €600 million maturing in
2029 and €400 million of floating rate notes maturing in 2018.
In May 2014, the Group, via B.A.T. International Finance p.l.c. negotiated a new main bank facility of £3
billion with a final maturity of May 2019 (with two additional one year extensions at the option of the
banks). This facility is provided by 22 banks. The new facility is on significantly improved terms compared
to the previous facility of £2 billion, with a maturity of December 2015, which was cancelled at the same
time.
In June 2014, the Group purchased and cancelled an existing US$40 million bond with a maturity of 2029;
financed from Group cash balances.
In August 2014, the Group repaid a maturing MYR250 million note, financed from Group cash balances.
In September 2014, the Group issued SFr1 billion of bonds in three tranches as follows: SFr350 million
maturing in 2016, SFr400 million maturing in 2021 and SFr250 million maturing in 2026. A one-year bridge
facility of US$4.7 billion with an extension option of up to one year for the Group’s investment in RAI was
signed. A €600 million bond was repaid, financed from Group cash balances.
The Group has drawn US$225 million in 2015 and 2014 against a US$240 million Chilean peso facility
maturing in 2016.
Page 27
EARNINGS PER SHARE
Adjusted diluted earnings per share were marginally ahead of prior year at 208.4p (2014: 208.1p), as the
growth in the Group’s operating profit at constant rates of exchange, higher share of post-tax results of
associates and joint ventures, lower tax charge and a reduction in non-controlling interest was offset by
the adverse impact of foreign exchange on the Group’s performance. Excluding this impact, at constant
rates of exchange, adjusted diluted earnings per share increased by 10.1% to 229.1p (2014: 208.1p). Basic
earnings per share were 38.2% higher at 230.9p (2014: 167.1p), benefitting from one off gains in 2015 as
a result of the acquisition of Lorillard Inc. by the Group’s associate RAI, as described on page 22, whilst the
one off charge in 2014 in relation to non-tobacco litigation does not repeat.
2015 2014
Pence pence
Earnings per share
- basic 230.9 167.1
- diluted 230.3 166.6
Adjusted earnings per share
- basic 208.9 208.7
- diluted 208.4 208.1
Headline earnings per share
- basic 210.4 169.7
- diluted 209.8 169.1
Basic earnings per share are based on the profit for the year attributable to ordinary shareholders and the
weighted average number of ordinary shares in issue during the period (excluding treasury shares). For
the calculation of the diluted earnings per share, the weighted average number of shares reflects the
potential dilutive effect of employee share schemes.
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.
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):
2015 2014
pence pence
Unadjusted diluted earnings per share 230.3 166.6
Effect of restructuring and integration costs 15.7 20.6
Effect of amortisation of trademarks and similar intangibles 3.0 2.7
Effect of Fox River - (1.4)
Effect of Flintkote 0.2 20.0
Effect of associates’ adjusting items (15.7) (0.4)
Effect of adjusting items in net finance costs (26.3) -
Effect of adjusting items in respect of deferred taxation 1.2 -
Adjusted diluted earnings per share 208.4 208.1
Effect of exchange rate movements 20.7 -
Adjusted diluted earnings per share (at constant rates) 229.1 208.1
Page 28
Earnings per share cont…
Diluted headline earnings per share are calculated by taking the following adjustments into account:
2015 2014
pence pence
Unadjusted diluted earnings per share 230.3 166.6
Effect of impairment of intangibles and property, plant and equipment
and held-for-sale assets 1.1 4.7
Effect of gains on disposal of property, plant and equipment and held-
for-sale assets (2.2) (1.4)
Effect of associates’ gain on disposal of asset held-for-sale (18.7) -
Effect of issue of shares and change in shareholding in associate (1.2) (0.8)
Other 0.5 -
Diluted headline earnings per share 209.8 169.1
An alternative measure of headline earnings per share has been
presented below to take account of the adjusting items in net finance
costs and taxation and non-tobacco litigation relating to Fox River and
Flintkote (see page 22); this measure is in addition to and not mandated
by the JSE Listing Requirements:
Headline earnings per share amended for adjusting items in net finance 183.3 187.7
costs and taxation, Fox River and Flintkote
In the earnings per share disclosed above, the calculation is based upon the following level of earnings
and number of shares:
2015 2014
Earnings Shares Earnings Shares
£m m £m m
For earnings per share
- basic 4,290 1,858 3,115 1,864
- diluted 4,290 1,863 3,115 1,870
For adjusted earnings per share
- basic 3,882 1,858 3,891 1,864
- diluted 3,882 1,863 3,891 1,870
- diluted, at constant rates 4,267 1,863 3,891 1,870
For headline earnings per share
- basic 3,909 1,858 3,163 1,864
- diluted 3,909 1,863 3,163 1,870
Page 29
DIVIDENDS
Recommendation
The Board recommends a final dividend of 104.6p per ordinary share of 25p for the year ended
31 December 2015. If approved by shareholders at the Annual General Meeting to be held on 27 April
2016, the final dividend will be payable on 5 May 2016 to shareholders registered on either the UK main
register or the South Africa branch register on 18 March 2016 (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 2015 accounts reflect the 2014 final dividend and the 2015 interim dividend
amounting to 150.0p (£2,770 million in total (2014: 144.9p - £2,712 million)).
The following is a summary of the dividends declared/recommended for the years ended 31 December
2015 and 2014.
2015 2014
Pence Pence
per £m per £m
share share
Ordinary shares
Interim
- 2015 paid 30 September 2015 49.4 908
- 2014 paid 30 September 2014 47.5 881
Final
- 2015 payable 5 May 2016 104.6 1,943
- 2014 paid 7 May 2015 100.6 1,862
154.0 2,851 148.1 2,743
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 2016
Last Day to Trade (LDT) cum dividend (JSE) Friday 11 March
Shares commence trading ex-dividend (JSE) Monday 14 March
Shares commence trading ex-dividend (LSE) Thursday 17 March
Record date (JSE and LSE) Friday 18 March
Payment date Thursday 5 May
No removal requests permitted between the UK main Thursday 25 February to Friday
register and the South Africa branch register 18 March (inclusive)
No transfers permitted between the UK main register and Monday 14 March to Friday 18 March
the South Africa branch register (inclusive)
No shares may be dematerialised or rematerialised Monday 14 March to Friday 18 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 £:R =
21.32780 as at 23 February 2016 (the closing rate on that date as quoted by Bloomberg), results in an
equivalent final dividend of 2,230.88788 SA cents per ordinary share.
Page 30
Dividends cont…
South Africa Branch Register: Dividends Tax Information
South Africa Dividends Tax of 334.63318 SA cents per ordinary share will be withheld from the gross final
dividend paid to shareholders on the South Africa branch register at the rate of 15% unless a shareholder
qualifies for an exemption. After Dividends Tax has been withheld, the net dividend will be
1,896.25470 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 23 February 2016 (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
1,864,228,895 ordinary shares in issue (excluding treasury shares). The Company held 162,645,590
ordinary shares in treasury giving a total issued share capital of 2,026,874,485 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 2015 was £5,956 million (2014:
£6,609 million), while unfunded scheme liabilities amounted to £364 million (2014: £385 million). The fair
value of scheme assets decreased from £6,266 million in 2014 to £6,086 million in 2015.
After excluding unrecognised scheme surpluses of £11 million (2014: £13 million), the overall net liability
for all pension and health care schemes in Group subsidiaries amounted to £245 million at the end of
2015, compared to £741 million at the end of 2014.
The actuarial gains of £283 million (2014: £428 million loss) recognised in the Group Statement of
Comprehensive Income are principally driven by changes in the discount rates used in the valuation of
retirement benefit scheme liabilities at each year end, resulting in a £377 million gain (2014: £884 million
loss) offset by reductions in the fair value of scheme assets of £94 million (2014: £456 million increase).
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.
CHANGES IN THE GROUP
In addition to the cash investment of US$4.7 billion (£3.0 billion) in RAI, the public tender offer to acquire
up to all of the 24.7% of Souza Cruz shares not currently owned by the Group, the acquisition of TDR and
the acquisition of the leading e-cigarette business in Poland, the CHIC Group (see page 10), the Group has
the following change:
On 15 December 2014, the Hungarian Government voted in new legislation whereby the distribution of
tobacco products to retail would move to a single authorised concession holder. The concession holder
would have the right to exclusively supply the Hungarian tobacco retail universe of approximately 6,000
outlets, whilst generating a legislated margin at legislated trading terms. On 11 June 2015, it was
announced that a joint venture between Taban Trafik, the distribution company of local manufacturer
Continental, and a Group subsidiary in Hungary would be granted the exclusive distribution concession for
tobacco products, for a period of 20 years. This became effective from 17 November 2015.
Page 31
SHARE BUY-BACK PROGRAMME
The Group suspended, with effect from 30 July 2014, its approved on-market share buy-back programme
with a value of up to £1.5 billion. This was as a result of the Group’s announcement on 15 July 2014 that it
planned to invest US$4.7 billion (£3.0 billion) as part of RAI’s proposed acquisition of Lorillard Inc. and
enabling the Group to maintain its 42% equity position in the enlarged RAI’s business.
During the year ended 31 December 2014, 23 million shares were bought at a cost of £795 million,
excluding transaction costs of £5 million.
RELATED PARTY DISCLOSURES
The Group’s related party transactions and relationships for 2014 were disclosed on page 189 of the
Annual Report for the year ended 31 December 2014. In the year to 31 December 2015, there were no
material changes in related parties or in related party transactions except for the matters noted below:
In addition to the $4.7 billion (£3.0 billion) investment noted previously, on 1 December 2015, the Group
announced the agreement with R.J. Reynolds Tobacco Company (RJRT), a subsidiary of RAI, of a vapour
products technology sharing agreement. This agreement will provide a framework for collaboration and
mutual cross-licencing of the parties’ vapour product technologies up to 31 December 2022. On 4 January
2016, the Group served notice to terminate a contract manufacturing agreement with RJRT for certain
American-blend cigarettes manufactured for the Japanese market.
As described on page 10, the Group acquired the shares not already owned in its subsidiary Souza Cruz
S.A. and delisted the company. Souza Cruz became a wholly owned subsidiary on 5 February 2016.
FOREIGN CURRENCIES
The principal exchange rates used were as follows:
Average Closing
2015 2014 2015 2014
Australian dollar 2.036 1.827 2.026 1.905
Brazilian real 5.101 3.874 5.831 4.145
Canadian dollar 1.954 1.819 2.047 1.806
Euro 1.378 1.241 1.357 1.289
Indian rupee 98.070 100.529 97.508 98.424
Japanese yen 185.012 174.223 177.303 186.946
Russian rouble 93.591 63.412 107.646 93.555
South African rand 19.522 17.861 22.839 18.039
US dollar 1.528 1.648 1.474 1.559
Page 32
CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
The Group has contingent liabilities in respect of litigation, taxes and guarantees in various countries. The
Group is subject to contingencies pursuant to requirements that it complies with relevant laws,
regulations and standards. Failure to comply could result in restrictions in operations, damages, fines,
increased tax, increased cost of compliance, interest charges, reputational damage or other sanctions.
These matters are inherently difficult to quantify.
In cases where the Group has an obligation as a result of a past event existing at the balance sheet date, it
is probable that an outflow of economic resources will be required to settle the obligation and the
amount of the obligation can be reliably estimated, a provision will be recognised based on best estimates
and management judgment. There are, however, contingent liabilities in respect of litigation, taxes in
some countries and guarantees for which no provisions have been made.
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, whilst a dispute in Bangladesh, which proceeded to litigation in 2014, is on-going.
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. If an
adverse judgment is entered against any of the Group’s companies in any case, an appeal will be made.
Such appeals could require the appellants to post appeal bonds or substitute security in amounts that
could in some cases equal or exceed the amount of the judgement. In any event, with regard to US
litigation, except for recent litigation brought against the company by the shareholders of RAI and
Lorillard Inc., the Group has the benefit of an indemnity from R. J. Reynolds Tobacco Company, a wholly-
owned subsidiary of RAI. 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 2015 will be
included in the Annual Report for the year ended 31 December 2015. There were no material
developments in 2015 that would impact on the financial position of the Group, except for judgement in
respect of the Quebec Class Action as described on page 10.
Page 33
FRANKED INVESTMENT INCOME GROUP LITIGATION ORDER
British American Tobacco is the principal test claimant in an action in the United Kingdom against HM
Revenue and Customs (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 claim was filed in 2003 and the case was heard in
the European Court of Justice (ECJ) in 2005 and a decision of the ECJ received in December 2006. In July
2008, the case reverted to a trial in the UK High Court for the UK Court to determine how the principles of
the ECJ decision should be applied in a UK context.
The High Court judgment in November 2008 concluded, amongst other things, that the corporation tax
provisions relating to dividend income from EU subsidiaries breached EU law. It also concluded that
certain dividends received before 5 April 1999 from the EU and, in some limited circumstances after 1993
from outside the EU, should have been creditable against advance corporation tax (ACT) liabilities with
the consequence that ACT need not have been paid. Claims for the repayment of UK tax incurred where
the dividends were from the EU were allowed back to 1973.
The case was heard by the Court of Appeal in October 2009 and the judgment handed down on 23
February 2010. The Court of Appeal determined that various questions, including which companies in the
corporate tree can be included in a claim, should be referred back to the ECJ for further clarification. In
addition, the Court determined that the claim should be restricted to six years and not cover claims dating
back to 1973.
The issue of time limits was heard by the Supreme Court in February 2012 and in May 2012 the Supreme
Court decided in British American Tobacco Group’s favour, that claims submitted before 8 September
2003 can go back to 1973. A hearing took place in February 2012 at the ECJ on the questions referred
from the Court of Appeal.
The ECJ judgment of 13 November 2012 confirms that the UK treatment of EU dividends was
discriminatory and produces the same outcome for third country dividends from 1994 in certain
circumstances. The judgment also confirms that the claim can cover dividends from all indirect as well as
direct EU subsidiaries and also ACT paid by a superior holding company.
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
advanced 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 British American Tobacco
Group was broadly preferred. The conclusion reached by the High Court would, if upheld, produce an
estimated receivable of £1.2 billion for British American Tobacco. Appeals on a majority of the issues
have been made to the Court of Appeal, which is likely to hear the case in 2016.
During 2015, HMRC paid to the Group a gross amount of £1,224 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 £261
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 £963 million. Actions challenging the legality of the 45% tax have
been lodged by both the Group and other participants in the FII GLO.
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. The receipt, 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 (£8 million in 2015) accruing on the balance, which was also treated as an
adjusting item.
Page 34
ANNUAL REPORT
Statutory accounts
The financial information set out above does not constitute the Company’s statutory accounts for the
years ended 31 December 2015 or 2014. Statutory accounts for 2014 have been delivered to the Registrar
of Companies and those for 2015 will be delivered following the Company’s Annual General Meeting. The
auditors’ reports on both the 2014 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 22 March 2016. At that time, a printed copy will be
mailed to shareholders on the UK main register who have elected to receive it. Otherwise, such
shareholders will be notified that the Annual Report is available on the website and will, at the time of
that notification, receive a Performance Summary (which sets out an overview of the Group’s
performance, headline facts and figures and key dates in the Company’s financial calendar) together with
a Proxy Form. Specific local mailing and/or notification requirements will apply to shareholders on the
South African 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
24 February 2016
Page 35
APPENDIX 1
OTHER TOBACCO PRODUCTS
The Group reports volumes as additional information. This is done with cigarette sticks as the basis, with
usage levels applied to other tobacco products to calculate the equivalent number of cigarette units.
The usage rates that are applied:
Equivalent to one cigarette
Roll-your-own (RYO) 0.8 grams
Make-your-own (MYO)
- Expanded tobacco 0.5 grams
- Optimised tobacco 0.7 grams
Cigars 1 cigar
Snus
- Pouches 1 pouch
- Loose snus 2.0 grams
Roll-your-own (RYO)
Loose tobacco designed for hand rolling, normally a finer cut with higher moisture, compared to cigarette
tobacco.
Make-your-own (MYO)
MYO expanded tobacco; also known as volume tobacco.
Loose cigarette tobacco with enhanced filling properties – to allow higher yields of cigarettes/kg -
designed for use with cigarette tubes and filled via a tobacco tubing machine.
MYO non-expanded tobacco; also known as optimised tobacco.
Loose cigarette tobacco designed for use with cigarette tubes and filled via a tobacco tubing machine.
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 subsidiaries of 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.
Page 36
SHAREHOLDER INFORMATION
FINANCIAL CALENDAR 2016
Tuesday 26 April Interim Management Statement
(This represents a change to the previously reported date due to
the closure of the JSE on a national holiday in South Africa on 27
April 2016)
Wednesday 27 April Annual General Meeting at 11.30am
Milton Court Concert Hall, Silk Street, London EC2Y 9BH
Thursday 28 July Half-Yearly Report
Wednesday 26 October Interim Management Statement
CALENDAR FOR THE FINAL DIVIDEND 2015
2016
Thursday 25 February Dividend announced: amount of dividend per share in both
sterling and rand; applicable exchange rate and conversion date
– Tuesday 23 February 2016; plus additional applicable
information as required in respect of South Africa Dividends
Tax(1).
Thursday 25 February to From the commencement of trading on Thursday 25 February
Friday 18 March 2016 to Friday 18 March 2016 (inclusive), no removal requests in
either direction between the UK main register and the South
Africa branch register will be permitted.
Friday 11 March Last Day to Trade or LDT (JSE)
Monday 14 March to Friday 18 March From the commencement of trading on Monday 14 March 2016
to Friday 18 March 2016 (inclusive), no transfers between the UK
main register and the South Africa branch register will be
permitted; no shares may be dematerialised or rematerialised.
Monday 14 March Ex-dividend date (JSE)
Thursday 17 March Ex-dividend date (LSE)
Friday 18 March Record date (LSE and JSE)
Wednesday 13 April Last date for receipt of Dividend Reinvestment Plan (DRIP)
elections (UK main register only)
Thursday 5 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 18 March
2016 with an ADR payment date of Tuesday 10 May 2016.
Page 37
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 100 925; +27 11 870 8222
email enquiries: web.queries@computershare.co.za
American Depositary Receipts (ADRs)
NYSE MKT (Symbol: BTI; CUSIP Number: 110448107)
Sponsored ADR programme; each ADR represents two ordinary shares of British American
Tobacco p.l.c.
Citibank Shareholder Services
PO Box 43077
Providence, Rhode Island 02940-3077, USA
tel: 1-888-985-2055 (toll-free) or +1 781 575 4555
email enquiries: citibank@shareholders-online.com
website: www.citi.com/dr
Publications
British American Tobacco Publications
Unit 80, London Industrial Park, Roding Road, London E6 6LS, UK
tel: +44 20 7511 7797; facsimile: +44 20 7540 4326
e-mail enquiries: bat@team365.co.uk or
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
34 Alexander Street
Stellenbosch 7600
South Africa
(PO Box 631, Cape Town 8000, South Africa)
tel: +27 21 888 3194
25 February 2016
Sponsor: UBS South Africa (Pty) Ltd
Page 38
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