Wrap Text
Half-year report to 30 June 2016
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")
28 July 2016
BRITISH AMERICAN TOBACCO p.l.c.
HALF-YEAR REPORT TO 30 JUNE 2016
A STRONG PERFORMANCE DRIVEN BY ORGANIC GROWTH
KEY FINANCIALS
2016 2015 Change
Six Months Results - unaudited Current Constant Current Constant
rates rates rates rates
Revenue £6,669m £6,900m £6,398m +4.2% +7.8%
Adjusted profit from operations* £2,452m £2,551m £2,507m -2.2% +1.8%
Profit from operations £2,213m £2,309m £2,347m -5.7% -1.6%
Adjusted diluted earnings per share* 111.1p 113.6p 100.2p +10.9% +13.4%
Basic earnings per share 143.8p 142.4p +1.0%
Interim dividend per share 51.3p 49.4p +4.0%
*The non-GAAP measures, including adjusting items and constant currencies, are set out on page 22.
HALF-YEAR HIGHLIGHTS
- Group revenue was up 7.8% at constant rates of exchange, or 6.0% on an organic basis, driven by a strong
volume performance and good pricing. Reported revenue was 4.2% higher than the same period last
year, reflecting the continued adverse translational impact of exchange rates.
- Group cigarette volume was 332 billion, an increase of 3.4% on the same period last year, or 2.1% on an
organic basis.
- The Group’s cigarette market share [1] in its Key Markets [2] continued to grow strongly, up 30 basis points
(bps) driven by the Global Drive Brands which increased volume by 10.8%.
- Adjusted Group profit from operations, at constant rates of exchange, was up 1.8% at £2,551 million.
Excluding the adverse transactional impact of foreign exchange, the increase would have been
approximately 8%. At current rates of exchange, adjusted profit from operations fell 2.2%.
- Profit from operations, at current rates of exchange, was 5.7% lower at £2,213 million.
- Underlying operating margin [3] fell 170 bps. Excluding the adverse transactional impact of foreign
exchange, it would have increased by around 50 bps. On a reported basis, operating margin fell 240 bps
to 36.8%.
- Adjusted diluted earnings per share, at constant rates of exchange, were up 13.4%. At current rates, they
were 10.9% higher at 111.1p.
- Basic earnings per share were 1.0% higher at 143.8p (2015: 142.4p), benefiting from the acquisition of
Lorillard Inc. by the Group’s associate Reynolds American Inc. (RAI) in 2015 and one-off gains as a result
of RAI’s sale of the international brand rights of Natural American Spirit.
- Our Next Generation Products portfolio continues to develop with Vype performing well and now
available in six markets. iFuse (our first tobacco heating product) is performing ahead of expectations in
Romania. Our portfolio has been further strengthened by the acquisition of Ten Motives in April 2016.
- The Board has declared an interim dividend of 51.3p, being one third of the 2015 dividend, a 4% increase
on last year. This will be paid on 28 September 2016.
1
Key Market offtake share, as independently measured by AC Nielsen
2
The Group’s Key Markets represent over 75% of the Group’s volume
3
Underlying operating margin excludes the impact of acquisitions and certain accounting adjustments made in 2015
Richard Burrows, Chairman, commenting on the 6 months ended 30 June 2016
“The business has delivered strong organic growth in the first six months of the year. This is despite the
significant adverse transactional impact of foreign exchange and the continued investment in our long-term
future via our Next Generation Products portfolio. With profit growth weighted to the second half of the
year, we remain confident that we will deliver another year of good earnings growth at constant rates of
exchange.”
CHIEF EXECUTIVE’S REVIEW
Continuing strong organic growth
The Group’s performance in the first six months of the year has been very good, underpinned by strong
organic growth.
Group revenue grew 7.8% at constant rates of exchange driven by good pricing, with price/mix of
approximately 4%. Constant organic revenue grew 6.0%. Reported revenue grew 4.2%, reflecting the adverse
translational exchange rate movements of around 4%.
Group cigarette volume increased 3.4% to 332 billion. It is estimated that the industry will decline by around
2.5% for the full year.
Market share in our Key Markets grew 30 bps, driven by an outstanding performance from our Global Drive
Brands (GDB), which all grew market share, up a combined 80 bps, with volume higher by 10.8%.
Adjusted operating profit at constant rates of exchange was up 1.8%. Operating margin fell 240 bps on a
reported basis. Excluding the significant adverse transactional impact of foreign exchange, adjusted operating
profit growth would have been approximately 8%, with the underlying operating margin increasing around
50 bps.
If exchange rates stayed where they are today we would expect a translational full year tailwind of 4% on
operating profit due to the current weakness of sterling. However we would expect the transactional foreign
exchange impact to be an operating profit headwind of approximately 6% for the full year.
Progress in Next Generation Products (NGP)
In the first half of 2016, we have made excellent progress in our NGP business.
The global vapour products category continues to grow at a significant rate and, following the geographic
expansion of Vype, we are now present in the biggest vapour markets outside of the US. Vype is performing
extremely well - having reached 9% category retail share of market in the UK, as measured by AC Nielsen, and
an estimated category retail share [4] of 8% in Germany and 5% in France. It is now available in several
innovative product formats, with new product launches and upgrades planned for this year. Further
expansion to new markets are planned later in the year and into 2017.
The integration of the Chic Group, the market leading Vapour Product business in Poland is also on track and
our recent acquisition of Ten Motives in the UK has increased our strength in the traditional grocery and
convenience channels in the UK vapour market.
iFuse, our first Tobacco Heating Product, was launched in Bucharest, generating encouraging consumer
interest, with a country-wide roll out planned in the next 12 months.
Our continued significant investment in NGP R&D means we have an exciting pipeline of new products and
launches planned.
On track for another good year
I am confident that we remain on track for another year of good earnings growth at constant rates of
exchange despite the continuing difficult trading environment in a number of our key markets.
An interim dividend of 51.3p, an increase of 4%, will be paid on 28 September 2016, being one third of the
prior year dividend and in line with the Group’s intention to increase the dividend year on year.
Nicandro Durante
27 July 2016
4
Category retail share based upon internal estimates for Vype in Germany and France
Page 1
REGIONAL REVIEW
This review presents the underlying performance of the regions and markets, at constant translational rates
of exchange. However, as explained on page 22, 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 significant adjusting items, explained on pages 24 and 25.
Adjusted profit from operations at constant and current rates of exchange and volume are as follows:
Adjusted profit from operations Cigarette volume
6 months to 6 months to Year to
30.6.16 30.6.15 30.6.16 30.6.15 31.12.15
Current Constant
rates rates
£m £m £m Bns Bns Bns
Asia-Pacific 761 756 776 105 103 198
Americas 536 618 622 56 60 124
Western Europe 590 559 519 57 52 112
EEMEA 565 618 590 114 107 229
Total 2,452 2,551 2,507 332 322 663
Total tobacco volume 344 334 689
The Group continued to perform very well in the first half of 2016, driven by market share growth, good
pricing and a strong performance from the Global Drive Brands, despite the continued transactional foreign
exchange headwinds.
Revenue in constant currency was 7.8% higher, or 6.0% on an organic basis, with good pricing underpinning a
price/mix of approximately 4%. Pricing in high inflation markets was offset by the increased adverse impact
of geographic mix. At current rates of exchange, revenue increased 4.2%, with the lower rate of growth
reflecting the continued adverse effect of currency headwinds on reported results.
Adjusted profit from operations (see page 23), at constant rates of exchange, was ahead of the prior year
1.8% at £2,551 million, but would have increased by approximately 8% when adjusted for the transactional
impact of foreign exchange on the cost of items such as leaf, filter tow and wrapping materials. Adjusted
operating profit, at current rates of exchange, fell 2.2% reflecting the foreign exchange headwinds on
reported results.
Group cigarette volume from subsidiaries increased 3.4% to 332 billion, or 2.1% organically. Excluding
inventory movements impacting 2015, organic volume grew 1.5%. Growth in Ukraine, Bangladesh, Russia,
Vietnam, Indonesia and Turkey was partly offset by declines in Pakistan, Brazil, Venezuela and Malaysia.
Market share increased 30 bps, driven by a very strong performance from the Global Drive Brands, which all
grew market share, with a combined growth of 80 bps, on volume that was up 10.8%:
- Dunhill market share was higher as volume grew 3.4%, driven mainly by Indonesia, more than offsetting
lower volume in Malaysia, Brazil and GCC;
- Kent volume increased 6.8%, with market share up 10 bps, driven by Chile, Turkey, Japan and Russia;
- Lucky Strike grew market share, 10 bps, and volume, 13.0%, with growth in Indonesia, Colombia and
France more than offsetting lower volume in Argentina and Russia;
- Pall Mall market share grew 10 bps, although volume declined 1.0% as growth in Venezuela, Poland and
Romania, was more than offset by the migration to Rothmans in Italy and lower volume, particularly in
Pakistan;
- Rothmans’ strong growth in volume (+48.8%) and market share (+50 bps) was driven by Ukraine,
Australia, Russia, Italy and Turkey.
Page 2
Regional review cont…
Other international brands’ cigarette volume declined 7.4%, as growth in State Express 555 and Craven A was
more than offset by lower volume in Vogue, Viceroy, Peter Stuyvesant and JPGL.
ASIA-PACIFIC
Adjusted profit at constant rates of exchange decreased by £20 million or 2.7%, as strong profit growth in
South and East Asia was more than offset by Malaysia and Australia. Excluding the transactional impact of
foreign exchange, adjusted operating profit would have increased by approximately 4%. Adjusted profit,
at current rates of exchange, was down 2.0% at £761 million. Volume was up 2.0% against 2015 at 105
billion, as increases in Bangladesh, Vietnam and Indonesia more than offset lower volume in Pakistan and
Malaysia.
Key Market Performance at constant rates of exchange
Australia Excise led price increases resulted in market contraction and a fall in volume, although
market share was up as Rothmans grew strongly in the low priced segment. Profit
declined due to lower volume and down-trading.
Japan Volume and market share grew, driven by Kent. Foreign exchange movements adversely
affected cost of sales leading to a reduction in profit.
Pakistan Profit increased significantly as a result of pricing and cost savings. Market share grew,
driven by Pall Mall. Market contraction led to lower volume, as illicit trade increased
significantly following the excise led price increase.
Malaysia Volume and profit were down as higher illicit trade, following the tax driven price
increases, led to a reduction in the total market. Market share fell despite good growth
in Peter Stuyvesant as Dunhill was impacted by down-trading.
Bangladesh Higher profit was driven by pricing and strong volume growth, which offset the impact
of down-trading. Market share continued to increase.
New Zealand Profit grew due to good pricing, with volume flat. Market share fell despite good growth
in Rothmans.
Vietnam An increase in volume led to higher profit. Market share was stable as continued growth
in the premium segment with State Express 555 was offset by declines in the local
portfolio.
South Korea The unwinding of inventory movements in the comparator period led to higher volume,
although market share fell as strong growth in Rothmans was more than offset by
Dunhill and Vogue. Profit was lower due to timing of pricing.
Philippines Market share was up, driven by Pall Mall as distribution increased. Profitability
improved, driven by pricing, with volume in line with prior year.
Indonesia Volume and market share were up as Dunhill continued to grow which offset declines in
the local portfolio. Profitability declined as higher marketing investment to support the
launch of Lucky Strike was partly offset by pricing and volume.
Page 3
Regional review cont…
AMERICAS
Adjusted profit, at constant rates of exchange, fell by £4 million or 0.6% as good performances in Canada,
Venezuela, Colombia and Chile were more than offset by lower profit in Brazil and Mexico. Excluding the
transactional impact of foreign exchange, adjusted operating profit would have increased by over 3%.
Adjusted profit, at current rates of exchange, fell 13.7% to £536 million reflecting the devaluation of the
Brazilian Real and Venezuelan Bolivar. Volume was 56 billion, a decline of 6.6% as lower volume in Brazil,
Venezuela, Canada and Argentina was only partially offset by higher volume in Colombia and Mexico.
Key Market Performance at constant rates of exchange
Canada Profit was higher as good pricing offset lower volume. Market share fell despite
growth in Pall Mall and Viceroy.
Brazil Lower consumer disposable income, higher VAT and excise led price increases drove
down-trading, market contraction and higher illicit trade, adversely impacting volume
and profit. Market share fell, from an all-time high, despite continued growth in Lucky
Strike.
Chile Market share grew, driven by up-trading to Kent following the successful migration of
Belmont. Profit increased, driven by pricing and improved mix, offsetting the impact
of lower volume due to market contraction.
Mexico Market share was higher with volume up, driven by Pall Mall, although profit fell due
to a delay in pricing.
Venezuela Pricing to offset currency devaluation and inflation led to higher profit. Volume fell
due to above inflation price increases and the challenging economic environment
which impacted consumer disposable income. Market share grew.
Argentina Volume and market share fell due to down-trading to local manufacturers following
the excise led price increase. Profit was lower as the devaluation in the Peso, since
currency controls were eased, adversely impacted cost of sales.
Colombia Market share continued to increase due to the growth in Lucky Strike. Good pricing
and higher volume led to an increase in profit.
WESTERN EUROPE
Adjusted profit at constant rates of exchange increased by £40 million (+7.6%) or by £36 million (+7.0%)
on an organic basis, as good performances in Germany, Romania, France and Netherlands were partially
offset by Italy, Denmark and Switzerland. Excluding the transactional impact of foreign exchange,
adjusted operating profit would have increased by over 9%. Adjusted profit, at current rates of exchange,
grew 13.8% to £590 million, reflecting the relative weakness of sterling against the Euro. Cigarette
volume was 11.0% higher at 57 billion, or 5.1% on an organic basis with good performances in Poland,
Romania, France and Italy. Fine Cut volume fell 4.4% mainly due to reductions in the low margin category
of Make-Your-Own in Germany.
Key Market Performance at constant rates of exchange
Germany Profit was higher driven by strong pricing and improved mix. Volume was in line
with the prior year. Market share fell, as a good performance in Lucky Strike was
offset by declines in the rest of the portfolio. Fine Cut volume was down. Vype was
launched nationally, registering an estimated 8% category retail market share.
Romania Profit grew strongly driven by pricing and higher volume. Market share increased
driven by Pall Mall and Dunhill, more than offsetting a decline in Kent.
Switzerland Volume and market share were lower, with profit down due to continued price
discounting in the low priced segment.
France Higher volume led to an increase in profit. Lucky Strike performed well, driving an
increase in total market share. Vype retail market share increased to 5%
(estimated), with distribution expanded to 54 cities.
Denmark Volume, market share and profit were down due to the growth of the low segment,
leading to down-trading.
Page 4
Regional review cont…
Key Market Performance at constant rates of exchange
Italy Rothmans market share grew strongly, partly due to the migration from Pall Mall,
leading to growth in total market share over the six months to June. Volume was
up, although profit fell partly due to the timing of marketing investment. Vype has
been launched in five cities, with further expansion planned.
Belgium Profit was up, with volume in line with prior year. Market share fell as growth in
Lucky Strike was more than offset by Kent.
Netherlands Profit was higher, with stable volume, partly due to the phasing of marketing
investments. Strong market share growth in Pall Mall and Lucky Strike was more
than offset by a decline in Kent and the local portfolio, reducing total market share.
United Kingdom Lower volume, due to market contraction and aggressive competitive pricing, led to
a decrease in profit. Market share fell. Vype continues to grow, reaching 9% retail
market share as measured by AC Nielsen. The acquisition of Ten Motives further
strengthens the portfolio.
Spain Volume and profit were in line with prior year, with market share down.
Poland Volume and market share grew strongly, driven by a good performance by Pall Mall,
with profitability in line with 2015. The integration of Chic is on schedule with the
Group now leading the market in NGP.
Croatia / Balkans The integration of TDR is progressing well, with the migration to the GDB portfolio
on track, driving an increase in total market share.
EASTERN EUROPE, MIDDLE EAST AND AFRICA
Adjusted profit at constant rates of exchange grew by £28 million or 4.9%, as good performances in
Russia, Turkey and GCC more than offset lower profit in South Africa and Ukraine. Excluding the
transactional impact of foreign exchange, adjusted operating profit would have increased by over 17%.
Adjusted profit, at current rates of exchange, decreased 4.2% to £565 million. Volume was 6.6% higher at
114 billion, or 5.7% on an organic basis, as growth in Ukraine, Russia, and Turkey more than offset lower
volume in South Africa and GCC.
Key Market Performance at constant rates of exchange
Russia Volume was higher with market share growing strongly, as Kent, the leading
premium brand, and Rothmans performed well. Good pricing more than offset the
transactional foreign exchange impact on cost of sales, leading to higher profit.
South Africa Volume fell due to down-trading to the low priced segment. Benson & Hedges, Pall
Mall and Dunhill all grew market share although total market share fell. Profit was
down due to lower volume and the adverse transactional impact of foreign
exchange on cost of sales, partially offset by pricing.
GCC Profit was higher as pricing and cost savings offset lower volume. Market share was
lower as Dunhill was impacted by down-trading following tax driven price increases.
Nigeria Profit was up due to pricing, notably in Benson & Hedges. Volume grew, benefiting
from improvements in distribution.
Turkey Volume was up with good pricing increasing profit. Growth in market share was
driven by Kent and Rothmans.
Iran Volume increased although profit fell due to an increase in excise.
Kazakhstan Profit increased as higher volume and pricing offset the adverse impact of foreign
exchange on cost of sales. Market share grew strongly, driven by Rothmans.
Ukraine Volume and market share grew strongly. Profit was significantly lower, impacted by
increased competitive pricing in the low segment and the adverse transactional
impact on cost of sales due to the devaluation in the Hryvnia.
Algeria Volume was up, driven by Rothmans which, combined with the impact of pricing in
2015, led to higher profit.
Page 5
Regional review cont…
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 22.
REGIONAL INFORMATION
Western
For the 6 months ended 30 June Asia -Pacific Americas EEMEA Total
Europe
SUBSIDIARIES
Volume (cigarette billions)
2016 105 56 57 114 332
2016 (organic) 105 56 54 113 328
2015 103 60 52 107 322
Change +2.0% -6.6% +11.0% +6.6% +3.4%
Change (organic) +2.0% -6.6% +5.1% +5.7% +2.1%
Revenue (£m)
2016 (at constant) 1,923 1,527 1,643 1,807 6,900
2016 (organic, at constant) 1,923 1,527 1,553 1,781 6,784
2016 (at current) 1,987 1,297 1,729 1,656 6,669
2015 1,893 1,384 1,463 1,658 6,398
Change (at constant) +1.5% +10.4% +12.3% +9.0% +7.8%
Change (organic, at constant) +1.5% +10.4% +6.1% +7.4% +6.0%
Change (at current) +4.9% -6.3% +18.2% -0.1% +4.2%
Adjusted profit from operations (£m)
2016 (at constant) 756 618 559 618 2,551
2016 (organic, at constant) 756 618 555 617 2,546
2016 (at current) 761 536 590 565 2,452
2015 776 622 519 590 2,507
Change (at constant) -2.7% -0.6% +7.6% +4.9% +1.8%
Change (organic, at constant) -2.7% -0.6% +7.0% +4.6% +1.6%
Change (at current) -2.0% -13.7% +13.8% -4.2% -2.2%
Operating margin based on adjusted profit
(%)
2016 (organic, at current) 38.3% 41.4% 35.9% 34.6% 37.4%
2016 (at current) 38.3% 41.4% 34.1% 34.1% 36.8%
2015 41.0% 44.9% 35.5% 35.6% 39.2%
All variances quoted above are based upon absolute numbers.
* Organic change excludes the volume, revenue and adjusted profit contribution from the business acquired during the review period.
Page 6
Regional review cont…
REGIONAL INFORMATION
Western
For the 6 months ended 30 June Asia -Pacific Americas EEMEA Total
Europe
ASSOCIATES AND JOINT VENTURES
Share of post-tax results of associates and
joint ventures (£m)
2016 (at current) 173 1,268 2 3 1,446
2015 176 622 - 1 799
Change -1.9% +104.0% - +141.6% +81.0%
Share of adjusted post-tax results of
associates and joint ventures (£m)
2016 (at constant) 160 415 2 3 580
2016 (at current) 159 441 2 3 605
2015 151 267 - 1 419
Change (at constant) +5.7% +55.3% - +145.1% +38.1%
Change (at current) +5.2% +65.1% - +141.6% +44.1%
GROUP
For the 6 months ended 30 June Total
Underlying tax rate of subsidiaries (%)
2016 29.9%
2015 30.6%
Adjusted diluted earnings per share (pence)
2016 (at constant) 113.6
2016 (at current) 111.1
2015 100.2
Change (at constant) +13.4%
Change (at current) +10.9%
Page 7
FINANCIAL INFORMATION AND OTHER
NET FINANCE (COSTS)/INCOME
Net finance cost for the six months to 30 June 2016 was £233 million, compared to an income of £351
million in the same period last year. The movement is principally due to a deemed gain related to the
investment in Reynolds American Inc. (RAI) recognised in 2015, as described below. Net adjusted finance
costs increased due to higher levels of borrowing compared to the same period last year.
Net finance (costs)/income comprise:
6 months to Year to
30.6.16 30.6.15 31.12.15
£m £m £m
Finance costs (260) (282) (584)
Finance income 27 633 646
(233) 351 62
Comprising:
Interest payable (337) (288) (606)
Interest and dividend income 27 37 79
Net impact of fair value and exchange 77 602 589
- fair value changes - derivatives 344 118 245
- exchange differences (299) (90) (169)
- hedge ineffectiveness 32 - -
- option costs related to the funding of the acquisition of non-
controlling interests in Souza Cruz and investment in RAI - (27) (88)
- deemed gain related to the investment in RAI - 601 601
(233) 351 62
Adjusting items – see below:
Hedge ineffectiveness (32) - -
Interest related to Franked Investment Income Group
Litigation Order (FII GLO) 12 - 8
Option costs and fees - 30 104
Deemed gain on investment in RAI - (601) (601)
Net adjusted financing cost (253) (220) (427)
In 2016, the Group experienced significant hedge ineffectiveness, driven by the market volatility in the
first six months of the year. The gain of £32 million has been deemed to be adjusting, as it is not
representative of the underlying performance of the business through the six months to 30 June 2016.
As described on page 36, the Group received £963 million in 2015 from HM Revenue & Customs in
relation to the FII GLO. The case remains subject to on-going appeals. 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), the
interest of £12 million (30 June 2015: £nil, 31 December 2015: £8 million) has been accrued and treated
as an adjusting item.
In the six months to June 2015, the Group incurred costs of £30 million (31 December 2015: £104 million)
in relation to financing activities, associated with the acquisition of the non-controlling interest in the
Group’s Brazilian subsidiary, Souza Cruz SA and the Group’s investment of US$4.7 billion to maintain the
current ownership in RAI following its acquisition of Lorillard Inc. The investment also realised a deemed
gain of US$931 million (£601 million) as the contract to acquire shares was deemed to be a financial
instrument and was 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 immediately prior to the completion of the transaction.
All of the above have been included in the adjusted earnings per share calculation on page 31.
Page 8
RESULTS OF ASSOCIATES AND JOINT VENTURES
The Group’s share of post-tax results of associates and joint ventures increased by £647 million to
£1,446 million. The increase was principally due to the growth of RAI following the acquisition of Lorillard
Inc. in 2015 and the impact of a US$4,861 million gain recorded by RAI, the Group’s share of which is £890
million, in relation to the sale of the international rights to Natural American Spirit to the Japan Tobacco
Group of companies (JT). These were partly offset by the inclusion in 2015 of a gain on divesture of
certain assets by RAI to ITG Brands LLC, the Group’s share of which was £406 million. The Group’s share of
the adjusted post-tax results of associates and joint ventures increased 44.1% to £605 million, with a rise
of 38.1% to £580 million at constant rates of exchange.
The adjusted contribution from RAI increased by 65.7% to £441 million. At constant rates of exchange the
increase was 55.8%. The Group’s adjusted contribution from its main associate in India, ITC Ltd. (ITC), was
£155 million, up 4.8%. At constant rates of exchange, the contribution would have been 5.4% higher than
last year. See page 25 for the adjusting items.
TAXATION
6 months to Year to
30.6.16 30.6.15 31.12.15
£m £m £m
UK
- current year tax 4 - 5
Overseas
- current year tax expense 573 660 1,317
- adjustment in respect of prior periods 4 (2) 7
Current tax 581 658 1,329
Deferred tax 104 55 4
685 713 1,333
Adjusting items (see below) (28) (13) 58
Net adjusted tax charge 657 700 1,391
The tax rate in the income statement of 20.0% for the six months to 30 June 2016 (30 June 2015: 20.4%,
31 December 2015: 22.8%) is 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 31 was 29.9% in 2016 and 30.6% for the six months to
30 June 2015. For the year to 31 December 2015, it was 30.5%.
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 sale of Natural American Spirit by RAI to Japan Tobacco
International (JTI) is £890 million. Given that the profit on this item is recognised as an adjusting item by
the Group, the additional deferred tax charge of £58 million on the potential distribution of these
undistributed earnings has also been treated as adjusting. In the six months to 30 June 2015, RAI
recognised a gain on divestiture of certain assets to ITG Brands LLC, the Group’s share of which was £406
million, giving rise to a deferred tax charge in that period of £31 million (31 December 2015: £22 million).
The adjusting tax item also includes £30 million for the six months to 30 June 2016 (30 June 2015: £18
million, 31 December 2015: £80 million) in respect of the tax on adjusting items, as described on pages 24
and 25.
Refer to page 36 for the Franked Investment Income Group Litigation Order update.
Page 9
FREE CASH FLOW AND NET DEBT
In the alternative cash flow presented on page 27, operating cash flow fell by £373 million or 19.9% to
£1,503 million, largely due to increases in working capital from the timing of excise payments, the impact
of the implementation of the Tobacco Product Directive (TPD) and timing of leaf purchases. Free cash
flow fell by £207 million or 27.0% to £559 million as lower payments related to taxation, a reduction in
dividends to non-controlling interests (following the completion of the buy-out of the Souza Cruz
minority) and an increase in dividends from associates were offset by the working capital increases,
described above, and payments on deposit related to the Quebec Class Action.
The conversion of adjusted operating profit to operating cash flow was 61.3% (2015: 74.8%). The ratio of
free cash flow per share to adjusted diluted earnings per share fell to 27.0% (2015: 41.1%).
Closing net debt was £17,735 million at 30 June 2016 (30 June 2015: £13,876 million and 31 December
2015: £14,794 million).
The Group’s alternative cash flow statement is shown on page 27 and explained on page 22 under non-
GAAP measures.
POST BALANCE SHEET EVENT
On 14 July 2016, as part of the on-going review of the Group’s manufacturing operations, the Group
announced the intention to cease the manufacturing of all Factory Made Cigarette volumes and
certain semi-finished goods and filters in Bayreuth, Germany. The manufacturing requirements will be
reallocated to other Group factories within the same region.
In July 2016, the Group issued a £500 million bond maturing in 2021. On 19 July 2016, the Group
exercised the make-whole provision for its $700mn bond originally issued in 2008 pursuant to rule
144A. The bond will consequently be redeemed on 18 August 2016, prior to its original maturity date
of 15 November 2018.
CHANGE TO QUARTERLY REPORTING
Since November 2014, in accordance with the relevant regulations, BAT has published a quarterly
Interim Management Statement (IMS) at the end of April and October on a voluntary basis. With
effect from 1 January 2017, BAT will cease publication of an IMS for Q1 and Q3 and will instead
release two short trading updates shortly before the closed periods for the Interim and the Full Year
Preliminary Announcements.
RISKS AND UNCERTAINTIES
The principal risks and uncertainties which may affect the business activities of the Group were identified
under the heading ‘Key Group risk factors’, set out on pages 37 to 44 of the Annual Report for the year
ended 31 December 2015, a copy of which is available on the Group’s website www.bat.com. The
Principal Group risks and applicable sub-categories are summarised under the headings of:
- Marketplace: Competition from illicit tobacco trade; Market size reduction and consumer down-
trading; Inability to obtain price increases and impact of increases on consumer affordability;
- Excise and tax: Significant excise increases or structure changes; Disputed taxes, interest and
penalties;
- Finance: Foreign exchange rate exposures; Solvency and liquidity;
- Operations: Geopolitical tensions; Injury, illness or death in the workplace;
- Regulation: Tobacco regulation inhibits growth strategy;
- People: Inability to recruit or retain talent; and
- Litigation.
In the view of the Board, the key risks and uncertainties for the remaining six months of the financial year
continue to be those set out in the above section of the 2015 Annual Report. These should be read in the
context of the cautionary statement regarding forward looking statements on page 38 of this Half-Year
Report. Specifically the Board does not consider the recent vote in the UK to exit the European Union will
materially impact the Group’s underlying business and as such will not necessitate any change to the
Group’s identified risks.
Page 10
GOING CONCERN
A full 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, as well as the risks associated with the business, are set out in the Strategic
Report and in the notes to the accounts, all of which are included in the 2015 Annual Report that is
available on the Group’s website, www.bat.com. This Half-Year Report provides updated information
regarding the business activities for the six months to 30 June 2016 and of the financial position, cash
flow and liquidity position at 30 June 2016.
The Group has, at the date of this report, sufficient financing available for its estimated existing
requirements for at least the next twelve 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 the current financial conditions and the general outlook in the global economy.
After reviewing the Group’s annual budgets, plans and financing arrangements, the Directors consider
that the Group has adequate resources to continue operating for the foreseeable future and that it is
therefore appropriate to continue to adopt the going concern basis in preparing this Half-Year Report.
NEW NON-EXECUTIVE DIRECTOR AND BOARD COMMITTEE CHANGES
In a separate announcement today, Dr Marion Helmes has been appointed as a Non-Executive Director of
the Company with effect from 1 August 2016. Dr Helmes brings with her a wealth of international
business skills and experience which includes recent senior executive roles at Celesio AG, the German
healthcare and pharmaceutical company. Dr Helmes will serve as a member of the Audit Committee and
will also sit on the Nominations Committee.
Christine Morin-Postel (Senior Independent Director, Chair of the Audit Committee and a member of the
Nominations Committee) will be retiring as a Non-Executive Director with effect from 6 December 2016,
having served on the Board since 2007 and as Senior Independent Director since 2013.
Kieran Poynter will take over Christine’s role as Chair of the Audit Committee with effect from 1 October
2016. Kieran joined the Board as a Non-Executive Director in 2010 and has previously chaired the Audit
Committee. He is currently Chair of the Remuneration Committee and will stand down from this role with
effect from 1 October 2016.
Dimitri Panayotopoulos has been appointed as Chair of the Remuneration Committee with effect from 1
October 2016. Dimitri joined the Board as a Non-Executive Director in 2015.
A separate announcement regarding the new Senior Independent Director will be made in due course.
As a consequence of the above changes, the memberships of the Company’s Audit Committee and
Remuneration Committee (all comprising Non-Executive Directors) are as follows with effect from 1
October 2016:
Audit Committee Remuneration Committee
Kieran Poynter (Chair) Dimitri Panayotopoulos (Chair)
Marion Helmes Sue Farr
Pedro Malan Ann Godbehere
Christine Morin-Postel (until 6 December 2016) Savio Kwan
Gerry Murphy
Page 11
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors confirm, that to the best of their knowledge, that this condensed financial information has
been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the European Union,
and that this Half-Year Report includes a fair review of the information required by the Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority, paragraphs DTR 4.2.7 and DTR 4.2.8.
The Directors of British American Tobacco p.l.c. are as listed on pages 48 and 49 in the British American
Tobacco Annual Report for the year ended 31 December 2015 with the exception of Karen de Segundo
and Richard Tubb who retired as Directors at the conclusion of the Annual General Meeting on 27 April
2016.
Details of all the current Directors of British American Tobacco p.l.c. are maintained on www.bat.com.
For and on behalf of the Board of Directors:
Richard Burrows Ben Stevens
Chairman Finance Director
27 July 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 to be held on Thursday 28th July 2016, at
09.30 BST.
If you wish to listen to the presentation via a conference call facility please use the dial in details below:
Dial in number +44 (0) 20 3139 4830
Please quote Passcode: 96105265#
Conference Call Playback Facility
A replay of the conference call will also be available from 1:00 p.m. for 48 hours.
Dial in number: +44 (0) 20 3426 2807
Please quote passcode: 669212#
Page 12
INDEPENDENT REVIEW REPORT TO BRITISH AMERICAN TOBACCO p.l.c.
We have been engaged by British American Tobacco p.l.c. to review the condensed set of financial
statements in the half-year report for the six months ended 30 June 2016 which comprises the Group
Income Statement, the Group Statement of Comprehensive Income, the Group Statement of
Changes in Equity, the Group Balance Sheet, the Group Cash Flow Statement and the related
explanatory notes. We have read the other information contained in the half-year financial report
and considered whether it contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the company in accordance with the terms of our engagement to assist
the company in meeting the requirements of the Disclosure Guidance and Transparency Rules (“the
DTR”) of the UK's Financial Conduct Authority (“the UK FCA”). Our review has been undertaken so
that we might state to the company those matters we are required to state to it in this report and for
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this report, or for the conclusions we
have reached.
Directors’ responsibilities
The half-year report is the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the half-year financial report in accordance with the DTR of the UK FCA.
The annual financial statements of the Group are prepared in accordance with IFRSs as adopted by
the EU. The condensed set of financial statements included in this half-yearly financial report has
been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial
statements in the half-year report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK
and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of
the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial
information consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with International Standards on Auditing (UK
and Ireland) and consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed
set of financial statements in the half-year report for the six months ended 30 June 2016 is not
prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the
UK FCA.
Mark Baillache
For and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square, London E14 5GL
27 July 2016
Page 13
GROUP INCOME STATEMENT - unaudited
6 months to Year to
30.6.16 30.6.15 31.12.15
£m £m £m
Gross turnover (including duty, excise and other taxes of £14,364
million (30.6.15: £13,506 million; 31.12.15: £27,896 million)) 21,033 19,904 41,000
Revenue 6,669 6,398 13,104
Raw materials and consumables used (1,630) (1,489) (3,217)
Changes in inventories of finished goods and work in progress 8 31 184
Employee benefit costs (1,034) (973) (2,039)
Depreciation, amortisation and impairment costs (253) (197) (428)
Other operating income 49 75 225
Other operating expenses (1,596) (1,498) (3,272)
Profit from operations 2,213 2,347 4,557
Analysed as:
– adjusted profit from operations 2,452 2,507 4,992
– restructuring and integration costs (161) (133) (367)
– amortisation of trademarks and similar intangibles (58) (26) (65)
– Fox River (20) - -
– Flintkote - (1) (3)
2,213 2,347 4,557
Net finance (costs)/income (233) 351 62
Finance income 27 633 646
Finance costs (260) (282) (584)
Share of post-tax results of associates and joint ventures 1,446 799 1,236
Analysed as:
– adjusted share of post-tax results of associates and joint
ventures 605 419 943
– issue of shares and change in shareholding 13 25 22
– gain on disposal of assets 890 406 371
– other (see pages 25 and 26) (62) (51) (100)
1,446 799 1,236
Profit before taxation 3,426 3,497 5,855
Taxation on ordinary activities (685) (713) (1,333)
Profit for the period 2,741 2,784 4,522
Attributable to:
Owners of the parent 2,671 2,645 4,290
Non-controlling interests 70 139 232
2,741 2,784 4,522
Earnings per share
Basic 143.8p 142.4p 230.9p
Diluted 143.4p 142.1p 230.3p
Adjusted diluted 111.1p 100.2p 208.4p
All of the activities during both years are in respect of continuing operations.
The accompanying notes on pages 8, 9 and 21 to 38 form an integral part of this condensed consolidated
financial information.
Page 14
GROUP STATEMENT OF COMPREHENSIVE INCOME - unaudited
6 months to Year to
30.6.16 30.6.15 31.12.15
£m £m £m
Profit for the period (page 14) 2,741 2,784 4,522
Other comprehensive income
Items that may be reclassified subsequently to profit or loss: 995 (458) (849)
Differences on exchange
– subsidiaries 1,124 (530) (1,006)
– associates 764 (56) 336
Cash flow hedges
– net fair value (losses) (226) (77) (99)
– reclassified and reported in profit for the period 106 15 15
– reclassified and reported in net assets (22) 16 (45)
Available-for-sale investments of associates
– net fair value (losses)/gains (7) (7) 15
– reclassified and reported in profit for the year - - (10)
Net investment hedges
– net fair value (losses)/gains (644) 97 (118)
– differences on exchange on borrowings (100) 72 42
Tax on items that may be reclassified - 12 21
Items that will not be reclassified subsequently to profit or loss: (427) 139 263
Retirement benefit schemes
– net actuarial (losses)/gains in respect of subsidiaries (459) 139 283
– surplus recognition and minimum funding obligations in respect
of subsidiaries (1) (6) -
– actuarial (losses)/gains in respect of associates net of tax (45) 28 3
Tax on items that will not be reclassified 78 (22) (23)
Total other comprehensive income for the period, net of tax 568 (319) (586)
Total comprehensive income for the period, net of tax 3,309 2,465 3,936
Attributable to:
Owners of the parent 3,209 2,358 3,757
Non-controlling interests 100 107 179
3,309 2,465 3,936
The accompanying notes on pages 8, 9 and 21 to 38 form an integral part of this condensed consolidated
financial information
Page 15
GROUP STATEMENT OF CHANGES IN EQUITY - unaudited
At 30 June 2016
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 2016 507 3,927 (1,294) 1,754 4,894 138 5,032
Total comprehensive income for the period
(page 15) - - 965 2,244 3,209 100 3,309
Profit for the period (page 14) - - - 2,671 2,671 70 2,741
Other comprehensive income for the period
(page 15) - - 965 (427) 538 30 568
Employee share options
– value of employee services - - - 27 27 - 27
– proceeds from shares issued - 2 - - 2 - 2
Dividends and other appropriations
– ordinary shares - - - (1,950) (1,950) - (1,950)
– to non-controlling interests - - - - - (92) (92)
Purchase of own shares
– held in employee share ownership
trusts - - - (65) (65) - (65)
Non-controlling interests – acquisitions - - - 4 4 (4) -
Other movements - - - (11) (11) - (11)
Balance at 30 June 2016 507 3,929 (329) 2,003 6,110 142 6,252
At 30 June 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 period
(page 15) - - (426) 2,784 2,358 107 2,465
Profit for the period (page 14) - - - 2,645 2,645 139 2,784
Other comprehensive income for the period
(page 15) - - (426) 139 (287) (32) (319)
Employee share options
– value of employee services - - - 22 22 - 22
– proceeds from shares issued - 3 - - 3 - 3
Dividends and other appropriations
– ordinary shares - - - (1,862) (1,862) - (1,862)
– to non-controlling interests - - - - - (147) (147)
Purchase of own shares
– held in employee share ownership
trusts - - - (46) (46) - (46)
Non-controlling interests – acquisitions - - -
(13) (13) (3) (16)
- - -
Other movements 15 15 - 15
Balance at 30 June 2015 507 3,926 (924) 2,478 5,987 261 6,248
Page 16
GROUP STATEMENT OF CHANGES IN EQUITY - unaudited cont…
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 period
(page 15) - - (796) 4,553 3,757 179 3,936
Profit for the period (page 14) - - - 4,290 4,290 232 4,522
Other comprehensive income for the period
(page 15) - - (796) 263 (533) (53) (586)
Employee share options
– value of employee services - - - 50 50 - 50
– proceeds from shares issued - 4 - - 4 - 4
Dividends and other appropriations
– ordinary shares - - - (2,770) (2,770) - (2,770)
– to non-controlling interests - - - - - (238) (238)
Purchase of own shares
– held in employee share ownership
trusts - - - (46) (46) - (46)
Non-controlling interests – acquisitions - - - (1,642) (1,642) (107) (1,749)
Other movements - - - 31 31 - 31
Balance at 31 December 2015 507 3,927 (1,294) 1,754 4,894 138 5,032
The accompanying notes on pages 8, 9 and 21 to 38 form an integral part of this condensed consolidated financial information
Page 17
GROUP BALANCE SHEET - unaudited
30.6.16 30.6.15 31.12.15
£m £m £m
Assets
Non-current assets
Intangible assets 11,780 10,128 10,436
Property, plant and equipment 3,274 2,831 3,021
Investments in associates and joint ventures 8,726 6,596 6,938
Retirement benefit assets 273 218 408
Deferred tax assets 383 274 326
Trade and other receivables 409 181 248
Available-for-sale investments 42 33 37
Derivative financial instruments 663 243 287
Total non-current assets 25,550 20,504 21,701
Current assets
Inventories 4,725 3,766 4,247
Income tax receivable 81 77 74
Trade and other receivables 3,390 2,516 3,266
Available-for-sale investments 61 50 35
Derivative financial instruments 532 307 209
Cash and cash equivalents 1,882 1,417 1,963
10,671 8,133 9,794
Assets classified as held-for-sale 18 38 20
Total current assets 10,689 8,171 9,814
Total assets 36,239 28,675 31,515
The accompanying notes on pages 8, 9 and 21 to 38 form an integral part of this condensed
consolidated financial information
Page 18
GROUP BALANCE SHEET - unaudited cont…
30.6.16 30.6.15 31.12.15
£m £m £m
Equity
Capital and reserves
Share capital 507 507 507
Share premium, capital redemption and merger reserves 3,929 3,926 3,927
Other reserves (349) (924) (1,294)
Retained earnings 2,023 2,478 1,754
Owners of the parent 6,110 5,987 4,894
after deducting
– cost of treasury shares (5,069) (5,060) (5,049)
Non-controlling interests 142 261 138
Total equity 6,252 6,248 5,032
Liabilities
Non-current liabilities
Borrowings 14,888 14,131 14,806
Retirement benefit liabilities 925 701 653
Deferred tax liabilities 657 513 563
Other provisions for liabilities and charges 312 280 296
Trade and other payables 1,020 89 1,029
Derivative financial instruments 398 128 130
Total non-current liabilities 18,200 15,842 17,477
Current liabilities
Borrowings 5,343 1,341 2,195
Income tax payable 396 435 414
Other provisions for liabilities and charges 306 203 273
Trade and other payables 5,080 4,433 5,937
Derivative financial instruments 662 173 187
Total current liabilities 11,787 6,585 9,006
Total equity and liabilities 36,239 28,675 31,515
The accompanying notes on pages 8, 9 and 21 to 38 form an integral part of this condensed consolidated
financial information
Page 19
GROUP CASH FLOW STATEMENT - unaudited
6 months to Year to
30.6.16 30.6.15 31.12.15
£m £m £m
Cash flows from operating activities
Cash generated from operations (page 29) 1,350 1,841 5,400
Dividends received from associates 324 201 593
Tax paid (620) (687) (1,273)
Net cash generated from operating activities 1,054 1,355 4,720
Cash flows from investing activities
Interest received 26 32 64
Purchases of property, plant and equipment (120) (154) (483)
Proceeds on disposal of property, plant and equipment 23 10 108
Purchases of intangibles (29) (52) (118)
Purchases of investments (75) (57) (99)
Proceeds on disposals of investments 8 - 45
Investment in associates and acquisition of subsidiaries (53) (3,015) (3,508)
Net cash used in investing activities (220) (3,236) (3,991)
Cash flows from financing activities
Interest paid (316) (265) (596)
Interest element of finance lease rental payments (2) (1) (1)
Capital element of finance lease rental payments (3) 13 (2)
Proceeds from issue of shares to owners of the parent 2 3 4
Proceeds from increases in and new borrowings 2,327 5,736 6,931
Movements relating to derivative financial instruments 133 106 201
Purchases of own shares held in employee share ownership trusts (65) (46) (46)
Reductions in and repayments of borrowings (1,013) (1,884) (2,028)
Dividends paid to owners of the parent (1,950) (1,862) (2,770)
Purchases of non-controlling interests (70) (16) (1,677)
Dividends paid to non-controlling interests (94) (140) (235)
Net cash generated (used in)/from financing activities (1,051) 1,644 (219)
Net cash flows (used in)/generated in operating, investing and
financing activities (217) (237) 510
Differences on exchange (53) (100) (272)
Decrease in net cash and cash equivalents in the period (270) (337) 238
Net cash and cash equivalents at 1 January 1,730 1,492 1,492
Net cash and cash equivalents at period end 1,460 1,155 1,730
The accompanying notes on pages 8, 9 and 21 to 38 form an integral part of this condensed consolidated
financial information
The net cash outflows relating to adjusting items on pages 24 and 25, including as related to the Quebec
Class Action are £238 million, (30 June 2015: £159 million, 31 December 2015: £577 million). The receipt in
relation to FII GLO in 2015 from HMRC was £963 million, and is included in ‘Cash generated from operations’
as shown on page 29.
Page 20
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed consolidated financial information comprises the unaudited interim financial information
for the six months to 30 June 2016 and 30 June 2015, together with the audited results for the year
ended 31 December 2015. This condensed consolidated financial information has been prepared in
accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the European Union and the
Disclosure Guidance and Transparency Rules issued by the Financial Conduct Authority. The condensed
consolidated financial information is unaudited but has been reviewed by the auditor and its review
report is set out on page 13.
The condensed consolidated financial information does not constitute statutory accounts within the
meaning of the UK Companies Act 2006 and should be read in conjunction with the annual consolidated
financial statements for the year ended 31 December 2015, which were prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). The annual
consolidated financial statements for 2015 represent the statutory accounts for that year and have been
filed with the Registrar of Companies. The auditor’s report on those statements was unqualified and did
not contain an emphasis of matter paragraph and did not contain any statement under Section 498 (2) or
(3) of the Companies Act 2006.
This condensed consolidated financial information has been prepared under the historical cost
convention, except in respect of certain financial instruments, and on a basis consistent with the IFRS
accounting policies as set out in the Annual Report for the year ended 31 December 2015.
The preparation of this condensed consolidated financial information 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 this condensed consolidated financial
information. 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 information. The key estimates and
assumptions were the same as those that applied to the consolidated financial information for the year
ended 31 December 2015, apart from updating the assumptions used to determine the carrying value of
liabilities for retirement benefit schemes. In the future, actual experience may deviate from these
estimates and assumptions, which could affect this condensed consolidated financial information as the
original estimates and assumptions are modified, as appropriate, in the period in which the circumstances
change.
Page 21
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 which 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 financial information as appropriate. The adjusting items are used to
calculate the non-GAAP measures of adjusted profit from operations, adjusted share of post-tax results
of associates and joint ventures and adjusted diluted earnings per share. The Group also includes organic
measures of volume, revenue and adjusted profit from operations to ensure a full understanding of the
underlying operating performance of the Group, before the impact of acquisitions.
All adjustments to profit from operations and diluted earnings per share are explained in this
announcement. See pages 24 to 26 and page 31.
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 23.
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. See
page 28. 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 main board of
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, calculated in
accordance with Circular 2/2015 ‘Headline Earnings’ issued by the South African Institute of Chartered
Accountants. These are shown on page 32.
Page 22
ANALYSIS OF REVENUE BY SEGMENT
30 June
30 June 2016
2015
Reported Impact of Revenue Impact of Adj Organic Reported
1 1
revenue exchange @ CC Acquisitions at CC revenue
£m £m £m £mn £m £m
Asia-Pacific 1,987 (64) 1,923 1,923 1,893
Americas 1,297 230 1,527 1,527 1,384
Western Europe 1,729 (86) 1,643 (90) 1,553 1,463
EEMEA 1,656 151 1,807 (26) 1,781 1,658
Total 6,669 231 6,900 (116) 6,784 6,398
ANALYSIS OF PROFIT FROM OPERATIONS AND DILUTED EARNINGS PER SHARE BY SEGMENT
30 June 2016
Adj
Reported Adjusting Adjusted Impact of Adjusted Impact of Organic
1 1
Items exchange at CC Acquisitions at CC
£m £m £m £m £m £m £m
Asia-Pacific 700 61 761 (5) 756 - 756
Americas 484 52 536 82 618 - 618
Western Europe 516 74 590 (31) 559 (4) 555
EEMEA 533 32 565 53 618 (1) 617
Total Region 2,233 219 2,452 99 2,551 (5) 2,546
Non-tobacco litigation:
Fox River (20) 20 - - - - -
Profit from operations 2,213 239 2,452 99 2,551 (5) 2,546
Net finance (costs)/income (233) (20) (253) 6 (247)
Associates and joint ventures 1,446 (841) 605 (25) 580
Profit before tax 3,426 (622) 2,804 80 2,884
Taxation (685) 27 (658) (33) (691)
Non-controlling interest (70) (6) (76) (1) (77)
Profit attributable to shareholders 2,671 (601) 2,070 46 2,116
Diluted number of shares (m) 1,863 1,863 1,863
Diluted earnings per share (pence) 143.4p 111.1p 113.6p
30 June 2015
Reported Adjusting Adjusted
items
£m £m £m
Asia-Pacific 726 50 776
Americas 588 34 622
Western Europe 473 46 519
EEMEA 561 29 590
Total Region 2,348 159 2,507
Non-tobacco litigation:
Flintkote (1) 1 -
Profit from operations 2,347 160 2,507
Net finance income/(costs) 351 (571) (220)
Associates and joint ventures 799 (380) 419
Profit before tax 3,497 (791) 2,706
Taxation (713) 13 (700)
Non-controlling interest (139) (2) (141)
Profit attributable to shareholders 2,645 (780) 1,865
Diluted number of shares (m) 1,862 1,862
Diluted earnings per share (pence) 142.1p 100.2p
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 22.
The Fox River and Flintkote charges have not been allocated to any segment as they neither relate to current operations nor to the tobacco
business. They are not included in the segmental performance as reported to the chief operating decision maker.
Page 23
ADJUSTING ITEMS INCLUDED IN PROFIT FROM OPERATIONS
Adjusting items are significant items in the profit from operations which individually or, if of a similar type,
in aggregate, are relevant to an understanding of the Group’s underlying financial performance. See
page 22. 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 is now substantially complete. 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:
6 months to Year to
30.6.16 30.6.15 31.12.15
£m £m £m
Employee benefit costs 72 67 159
Depreciation and impairment costs 18 - 26
Other operating expenses 71 66 228
Other operating income - - (46)
Total 161 133 367
Restructuring and integration costs in the six months to 30 June 2016 principally relate to the
implementation of a new operating model and the cost of packages 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 Malaysia and Brazil.
Restructuring and integration costs in the six months to 30 June 2015 principally related to the
implementation of a new operating model and the cost of packages in respect of permanent headcount
reductions and permanent employee benefit reductions in the Group. The costs also covered the factory
closure and downsizing activities in Australia, and restructurings in Indonesia, South Korea, Canada and
Malaysia.
For the year ended 31 December 2015, restructuring and integration costs principally included the
activities referred to in respect of the six months to 30 June 2015. In addition, the costs also covered
restructurings in Switzerland and Germany and certain costs related to the acquisitions undertaken
(including TDR in Croatia).
Other operating income in 2015 includes gains from the sale of land and buildings in Australia.
(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 £58 million is included in depreciation, amortisation and impairment costs in the
profit from operations for the six months to 30 June 2016 (30 June 2015: £26 million). For the year to
31 December 2015, the amortisation charge was £65 million.
Page 24
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
cleanup 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, in the six months to 30 June 2016, £9 million has been paid (30 June 2015: £7
million, 31 December 2015: £17 million). The Fox River provision has been reviewed and increased by £20
million, mainly driven by the devaluation in Sterling against the US Dollar.
In July 2016, the High Court ruled in the Group’s favour that a dividend of €135 million paid by Windward
to Sequana in May 2009 was a transaction made with the intention of putting assets beyond the reach of
the Group and of negatively impacting the Group’s interests. A further hearing is expected later in the
year to determine the remedy to be granted on the Group’s successful claim. Assuming leave to appeal is
granted, this case is expected to proceed to appeal on the merits in 2017. Due to the uncertain nature of
any future recoverability, the Group, in line with IFRS, has not recognised this in the current period,
treating it as a contingent asset. Any future recovery will be treated as adjusting income.
ADJUSTING ITEMS INCLUDED IN NET FINANCING COSTS
Adjusting items are significant items in net financing costs which individually or, if of a similar type, in
aggregate, are relevant to an understanding of the Group’s underlying financial performance and are
discussed on page 8.
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 31.
In the six months to 30 June 2016:
The Group’s interest in ITC decreased from 30.06% to 29.99% 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 £13 million, which is treated as a deemed partial disposal and
included in the income statement.
RAI recognised a gain on the sale of the international rights to Natural American Spirit of
US$4,861 million. The Group’s share of this net gain amounted to £890 million (net of tax).
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$28 million, the
Group’s share of which is £5 million (net of tax), costs in respect of a number of Engle progeny lawsuits
and other tobacco litigation charges that amounted to US$61 million, the Group’s share of which is
£11 million (net of tax). Also included are financing costs of US$243 million connected with the acquisition
of Lorillard Inc. the Group's share of which is £46 million (net of tax).
In the six months to 30 June 2015:
The Group’s interest in ITC decreased from 30.26% to 30.11% 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 £25 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$3,499 million. The Group’s share of this net gain amounted to £406 million (net of tax), which at the
time was subject to the accounting for the Lorillard Inc. acquisition.
Page 25
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$104 million, the
Group’s share of which is £18 million (net of tax), costs in respect of a number of Engle progeny lawsuits
and other tobacco litigation charges that amounted to US$130 million, the Group’s share of which is
£22 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 £11 million (net of tax), respectively, and income of US$70 million related to the Non-
Participating Manufacturer (NPM) Adjustment claims (see below) of the two states no longer challenging
the findings of non-diligence entered against them by an Arbitration Panel, the Group’s share of this
income amounted to £12 million (net of tax).
For the year ended 31 December 2015:
In 2015, the Group’s interest in 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).
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.
ADJUSTING ITEMS INCLUDED IN TAXATION
IFRS requires entities to provide deferred taxation on the undistributed earnings of associates and joint-
ventures. The additional tax charge arising on the Group’s share of the gain on the sale of the
international rights of Natural American Spirit in 2016, and the divestiture of certain assets to ITG Brands
LLC in 2015, has been discussed on page 9, along with the tax on adjusting items.
Page 26
CASH FLOW AND NET DEBT MOVEMENTS
(a) Alternative cash flow
The IFRS cash flow statement on page 20 includes all transactions affecting cash and cash equivalents,
including financing. The alternative cash flow statement below, at current rates of exchange, is presented
to illustrate the cash flows before transactions relating to borrowings.
6 months to Year to
30.6.16 30.6.15 31.12.15
£m £m £m
Adjusted profit from operations (page 14) 2,452 2,507 4,992
Depreciation, amortisation and impairment 177 171 338
Other non-cash items in operating profit 17 3 (1)
Profit from operations before depreciation, amortisation and 2,646 2,681 5,329
impairment
Increase in working capital (1,017) (609) (263)
Net capital expenditure (126) (196) (483)
Gross capital expenditure (149) (206) (591)
Sale of fixed assets 23 10 108
Operating cash flow 1,503 1,876 4,583
Pension funds’ shortfall funding (40) (70) (148)
Net interest paid (276) (252) (522)
Tax paid (620) (687) (1,273)
Franked Investment Income Group Litigation Order (FII GLO) - - 963
Dividends paid to non-controlling interests (94) (140) (235)
Cash generated from operations 473 727 3,368
Memo: Cash generated from operations at constant rates of 412
exchange
Restructuring costs (115) (154) (405)
Non-tobacco litigation: Flintkote and Fox River (9) (8) (20)
Tobacco litigation: Quebec (deposit) (114) - (55)
Dividends and other appropriations from associates 324 201 593
Free cash flow 559 766 3,481
Dividends paid to shareholders (1,950) (1,862) (2,770)
Net investment activities (130) (3,031) (5,192)
Net flow from share schemes and other (175) (110) (52)
Net cash flow (1,696) (4,237) (4,533)
External movements on net debt
Exchange rate effects* (1,241) 417 (112)
Change in accrued interest and other (4) 109 16
Change in net debt (2,941) (3,711) (4,629)
Opening net debt (14,794) (10,165) (10,165)
Closing net debt (17,735) (13,876) (14,794)
* Including movements in respect of debt related derivatives.
Page 27
Cash flow and net debt movements cont…
In the alternative cash flow presented on page 27, operating cash flow was lower by £373 million or
19.9% to £1,503 million, largely due to increases in working capital due to the timing of excise payments,
the impact of the implementation of the TPD and the timing of leaf purchases. Free cash flow fell by £207
million or 27.0% to £559 million as lower payments related to taxation, a reduction in dividends to non-
controlling interests following the completion of the buy-out of the Souza Cruz minority and an increase
in dividends from associates were offset by working capital movements described above and payments
on deposit related to the Quebec Class Action.
The conversion of adjusted operating profit to operating cash flow was 61.3% (2015: 74.8%). The ratio of
free cash flow per share to adjusted diluted earnings per share fell to 27.0% (2015: 41.1%).
Below free cash flow, the principal cash outflows for the six months to 30 June 2016 comprise the
payment of the prior year final dividend which was £88 million higher at £1,950 million.
During 2016, the cash outflow from net investing activities fell significantly to £130 million, with 2015
(£3,031 million) largely reflecting the investment in RAI.
The other net flows in 2016 principally relate to shares purchased by the employee share ownership
trusts and cash flows in respect of certain derivative financial instruments.
These flows resulted in a net cash outflow of £1,696 million (2015: £4,237 million). After taking account
of other changes, especially exchange rate movements, total net debt was £17,735 million at 30 June
2016 (30 June 2015: £13,876 million and 31 December 2015: £14,794 million).
(b) Net debt
The Group defines net debt as borrowings including related derivatives, less cash and cash equivalents
and current available-for-sale investments. The maturity profile of net debt is as follows:
6 months to Year to
30.6.16 30.6.15 31.12.15
£m £m £m
Net debt due within one year:
Borrowings 5,343 1,341 2,195
Related derivatives (215) (32) (46)
Cash and cash equivalents (1,882) (1,417) (1,963)
Current available-for-sale investments (61) (50) (35)
3,185 (158) 151
Net debt due beyond one year:
Borrowings 14,888 14,131 14,806
Related derivatives (338) (97) (163)
14,550 14,034 14,643
Total net debt 17,735 13,876 14,794
The Group remains confident about its ability to access the debt capital markets successfully and reviews
its options on a continuing basis.
Page 28
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 20 includes the following
items:
6 months to Year to
30.6.16 30.6.15 31.12.15
£m £m £m
Profit from operations 2,213 2,347 4,557
Adjustments for:
Depreciation, amortisation and impairment 253 197 428
Decrease/(Increase) in inventories 118 24 (520)
Decrease/(Increase) in trade and other receivables 219 59 (508)
(Increase) in amounts receivable in respect of the Quebec
Class Action (114) - (55)
(Decrease)/Increase in trade and other payables (1,323) (713) 732
FII GLO receipts (see page 36) - - 963
(Decrease) in net retirement benefit liabilities (81) (96) (191)
Increase in provisions for liabilities and charges 2 21 48
Other non-cash items 63 2 (54)
Cash generated from operations 1,350 1,841 5,400
(d) IFRS net cash and cash equivalents
The net cash and cash equivalents in the IFRS Group cash flow statement on page 20 comprise:
6 months to Year to
30.6.16 30.6.15 31.12.15
£m £m £m
Cash and cash equivalents per balance sheet 1,882 1,417 1,963
Accrued interest (1) (1) (1)
Overdrafts (421) (261) (232)
Net cash and cash equivalents 1,460 1,155 1,730
(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 30 June 2016, the average centrally
managed debt maturity was 7.4 years (30 June 2015: 7.8 years; 31 December 2015: 7.9 years) and the
highest proportion of centrally managed debt maturing in a single rolling 12-month period was 17.8% (30
June 2015: 13.8%; 31 December 2015: 15.0%).
It is Group policy that short-term sources of funds (including drawing under both the US$3 billion US and
£1 billion euro commercial paper programmes) are backed by undrawn committed lines of credit and
cash. At 30 June 2016, £1,705 million of commercial paper was outstanding (30 June 2015: £238 million;
31 December 2015: £505 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.
Page 29
Cash flow and net debt movements cont…
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.
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 at both 30 June 2015 and 31 December 2015.
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 36. 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 2016, a one year extension option was exercised for the £3 billion main bank facility, extending
the final maturity to May 2021. The facility was undrawn as at 30 June 2016.
In March 2016, a US$300 million bond was repaid.
In July 2016, the Group issued a £500 million bond maturing in 2021.
On 19 July 2016, the Group exercised the make-whole provision for its $700mn bond originally issued in
2008 pursuant to rule 144A. The bond will be redeemed on 18 August 2016, prior to its original maturity
date of 15 November 2018.
Page 30
EARNINGS PER SHARE
Adjusted diluted earnings per share increased by 10.9% to 111.1p (2015: 100.2p), principally as a result of
good adjusted operating profit growth, higher profit from associates and lower minority interest following
the buy-out of the Souza Cruz minority, offsetting the continued adverse exchange rate movements on a
transactional and translational level. At constant rates, adjusted diluted earnings per share increased by
13.4% to 113.6p (2015: 100.2p). Basic earnings per share were 1.0% higher at 143.8p (2015: 142.4p)
benefiting from gains as a result of the sale of the international brand rights to Natural American Spirit by
the Group’s associate RAI and lower minority interest, more than offsetting the adverse impact of foreign
exchange.
6 months to Year to
30.6.16 30.6.15 31.12.15
pence pence pence
Earnings per share
- basic 143.8 142.4 230.9
- diluted 143.4 142.1 230.3
Adjusted earnings per share
- basic 111.4 100.4 208.9
- diluted 111.1 100.2 208.4
Headline earnings per share
- basic 99.5 119.4 210.4
- diluted 99.2 119.1 209.8
Basic earnings per share are based on the profit for the year attributable to ordinary shareholders and the
weighted average number of ordinary shares in issue during the period (excluding treasury shares). For
the calculation of the diluted earnings per share, the weighted average number of shares reflects the
potential dilutive effect of employee share schemes.
The presentation of headline earnings per share, as an alternative measure of earnings per share, is
mandated under the JSE Listing Requirements. It is calculated in accordance with Circular 2/2015
‘Headline Earnings’, as issued by the South African Institute of Chartered Accountants.
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 24 to 26):
6 months to Year to
30.6.16 30.6.15 31.12.15
pence pence pence
Unadjusted diluted earnings per share 143.4 142.1 230.3
Effect of restructuring and integration costs 7.1 6.2 15.7
Effect of amortisation of trademarks and similar intangibles 2.6 1.2 3.0
Effect of Fox River 1.1 - -
Effect of Flintkote - 0.1 0.2
Effect of associates’ adjusting items (45.1) (20.4) (15.7)
Effect of adjusting items in net finance costs (1.1) (30.7) (26.3)
Effect of adjusting items in respect of deferred taxation 3.1 1.7 1.2
Adjusted diluted earnings per share 111.1 100.2 208.4
Effect of exchange rate movements 2.5
Adjusted diluted earnings per share (at constant rates) 113.6
Page 31
Earnings Per Share cont…
Diluted headline earnings per share are calculated by taking the following adjustments into account:
6 months to Year to
30.6.16 30.6.15 31.12.15
pence pence pence
Unadjusted diluted earnings per share 143.4 142.1 230.3
Effect of impairment of intangibles and property, plant and
equipment and held-for-sale assets 1.2 0.5 1.1
Effect of gains on disposal of property, plant and equipment and
held-for-sale assets - (0.3) (2.2)
Effect of share of associates’ gain on disposal of held-for-sale
assets (44.6) (21.8) (18.7)
Effect of issue of shares and change in shareholding in associate (0.7) (1.4) (1.2)
Other (0.1) - 0.5
Diluted headline earnings per share 99.2 119.1 209.8
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 25); this measure is in addition
to and not mandated by the JSE Listing Requirements
Headline earnings per share as amended 100.3 86.8 183.3
The earnings per share are based on:
30.6.16 30.6.15 31.12.15
Earnings Shares Earnings Shares Earnings Shares
£m m £m m £m m
Earnings per share
- basic 2,671 1,858 2,645 1,858 4,290 1,858
- diluted 2,671 1,863 2,645 1,862 4,290 1,863
Adjusted earnings per share
- basic 2,070 1,858 1,865 1,858 3,882 1,858
- diluted 2,070 1,863 1,865 1,862 3,882 1,863
- diluted, at constant rates 2,116 1,863
Headline earnings per share
- basic 1,849 1,858 2,218 1,858 3,909 1,858
- diluted 1,849 1,863 2,218 1,862 3,909 1,863
Page 32
DIVIDENDS
Declaration
The Board has declared an interim dividend of 51.3 pence per ordinary share of 25p for the six months
ended 30 June 2016. The interim dividend will be payable on 28 September 2016 to shareholders
registered on either the UK main register or the South Africa branch register on 19 August 2016 (the
record date).
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 interim dividend are applicable:
Event Date 2016
Last Day to Trade (LDT) cum dividend (JSE) Tuesday 16 August
Shares commence trading ex dividend (JSE) Wednesday 17 August
Shares commence trading ex dividend (LSE) Thursday 18 August
Record date (JSE and LSE) Friday 19 August
Payment date Wednesday 28 September
No removal requests permitted between the UK main Thursday 28 July to Friday 19 August
register and the South Africa branch register (inclusive)
No transfers permitted between the UK main register and Wednesday 17 August to Friday 19
the South Africa branch register August (inclusive)
No shares may be dematerialised or rematerialised on the Wednesday 17 August to Friday 19
South Africa branch register August (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 =
18.87280 as at 26 July 2016 (the closing rate on that date as quoted by Bloomberg), results in an
equivalent interim dividend of 968.17464 SA cents per ordinary share.
South Africa Branch Register: Dividends Tax Information
South Africa Dividends Tax of 145.22620 SA cents per ordinary share will be withheld from the gross
interim 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
822.94844 SA cents per ordinary share. The interim dividend is regarded as a ‘foreign dividend’ for the
purposes of South Africa Dividends Tax.
At the close of business on 26 July 2016 (the latest practicable date prior to the date of the declaration of
the interim dividend), British American Tobacco p.l.c. (the “Company”) had a total of 1,864,338,615
ordinary shares in issue (excluding treasury shares). The Company held 162,645,590 ordinary shares in
treasury giving a total issued share capital of 2,026,984,205 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.
Page 33
OTHER CHANGES IN THE GROUP
On 20 April 2016, the Group completed the acquisition of 100% of Ten Motives, a UK based e-cigarette
business with particular strength in traditional grocery and convenience channels. The fair value of the
consideration payable was £56 million of which £6 million is contingent on post-acquisition targets. The
fair value and book value of acquired net assets was not materially different except for the recognition of
brands and similar intangibles of £33 million and related deferred tax liabilities. Provisional goodwill of
£21 million arising on this transaction represents a strategic premium to increase the Group’s share of the
UK e-cigarette market.
As disclosed in the Annual Report for the year ended 31 December 2015, page 34, on 5 February 2016,
the acquisition of the shares in Souza Cruz not already owned by the Group was approved, with Souza
Cruz becoming a wholly-owned subsidiary at that date.
In June 2015, the Group invested US$4.7 billion (£3.0 billion) in cash in RAI to maintain its 42%
shareholding in the enlarged business, following RAI’s acquisition of Lorillard Inc.
In the second half of 2015 the Group acquired TDR in Croatia and the Chic Group in Poland. The
acquisition accounting, which was provisional at year end (as permitted by IFRS), is now complete for
these transactions, with goodwill being reduced by £13 million.
RELATED PARTY DISCLOSURES
There were no material changes in related parties or related party transactions. The Group’s related party
transactions and relationships for 2015 were disclosed on page 190 of the Annual Report for the year
ended 31 December 2015.
FOREIGN CURRENCIES
The principal exchange rates used were as follows:
Average Closing
30.6.16 30.6.15 31.12.15 30.6.16 30.6.15 31.12.15
Australian dollar 1.954 1.949 2.036 1.795 2.046 2.026
Brazilian real 5.308 4.527 5.101 4.283 4.885 5.831
Canadian dollar 1.907 1.881 1.954 1.736 1.963 2.047
Euro 1.284 1.366 1.378 1.203 1.412 1.357
Indian rupee 96.300 95.782 98.070 90.227 100.150 97.508
Japanese yen 159.892 183.311 185.012 137.142 192.443 177.303
Russian rouble 100.639 88.018 93.591 85.391 87.623 107.646
South African rand 22.075 18.162 19.522 19.577 19.089 22.839
US dollar 1.433 1.524 1.528 1.337 1.573 1.474
Page 34
CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
The Group has contingent liabilities in respect of litigation, taxes and guarantees in various countries, as
described in Note 30 to the 2015 Annual Report and Accounts, page 192 to 202. 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.
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, South Africa
and Netherlands. A judgment in dispute in Bangladesh, which proceeded to litigation in 2014, was issued
in March 2016 when the High Court Division of the Supreme Court found in favour of the Tax
Authorities. BAT Bangladesh is currently seeking leave to appeal.
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 judgment. 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.
In respect of the two class actions against the Group’s subsidiary Imperial Tobacco Canada (ITCAN) in
Quebec, in 2015 the Quebec Court of Appeal upheld the Order for Security, of which ITCAN’s share is CAD
$758 million. During the period ended 30 June 2016 ITCAN continued to make quarterly deposits (£114
million, CAD $216 million) to the Court escrow account as required by the judgment. ITCAN continues to
retain strong legal grounds to appeal the original judgment, with the hearing scheduled for November
2016.
Page 35
Contingent liabilities and financial commitments cont…
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 judgment.
Summary
Having regard to all these matters, with the exception of Fox River, the Group (i) does not consider it
appropriate to make any provision or charge in respect of any pending litigation, (ii) does not believe that
the ultimate outcome of this litigation will significantly impair the Group’s financial condition.
Full details of the litigation against Group companies and tax disputes as at 31 December 2016 will be
included in the Annual Report for the year ended 31 December 2016. There were no material
developments in 2015 that would impact on the financial position of the Group.
FRANKED INVESTMENT INCOME GROUP LITIGATION ORDER
The Group is the principal test claimant in an action in the United Kingdom against HM Revenue and
Customs (HMRC) in the Franked Investment Income Group Litigation Order (FII GLO). There are 25
corporate groups in the FII GLO. The case concerns the treatment for UK corporate tax purposes of profits
earned overseas and distributed to the UK. Full details are provided in the 2015 Annual Report and
Accounts, note 6(b), page 145.
Since the original claim was filed in 2003, the case has been heard in the High Court in the UK, the
European Court of Justice and in the Court of Appeal. The detailed technical issues of the quantification
mechanics of the claim were heard by the High Court during May and June 2014 and the judgment
handed down on 18 December 2014. The High Court determined that in respect of issues concerning the
calculation of unlawfully charged corporation tax and advance corporation tax, the law of restitution
including the defence on change of position and questions concerning the calculation of overpaid interest,
the approach of the Group was broadly preferred. The conclusion reached by the High Court would, if
upheld, produce an estimated receivable of £1.2 billion for the Group. Appeals on a majority of the issues
have been made to the Court of Appeal, which heard the arguments in June 2016. The judgment is
pending and is expected before the end of 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 in respect of the receipt which, net of the deduction
by HMRC, is held as deferred income. Any future recognition as income will be treated as an adjusting
item, due to the size of the order, with interest of £12 million for the six months to 30 June 2016 (30 June
2015: £nil, 31 December 2015: £8 million) accruing on the balance, which was also treated as an adjusting
item.
Page 36
FAIR VALUE MEASUREMENTS AND VALUATION PROCESSES
The Group held certain financial instruments at fair value at 30 June 2016. The definitions and valuation
techniques employed for these as at 30 June 2016 are consistent with those used at 31 December 2015
and disclosed in Note 24 on pages 179 to 184 of the 2015 Annual Report:
- Level 1 financial instruments are traded in an active market and fair value is based on quoted prices
at the period end.
- Level 2 financial instruments are not traded in an active market, but the fair values are based on
quoted market prices, broker/dealer quotations, or alternative pricing sources with reasonable levels
of price transparency. The Group’s level 2 financial instruments include OTC derivatives.
- The fair values of level 3 financial instruments have been determined using a valuation technique
where at least one input (which could have a significant effect on the instrument's valuation) is not
based on observable market data. The Group’s level 3 financial instruments primarily consist of an
equity investment in an unquoted entity which is valued using the discounted cash flows of
estimated future dividends.
While the carrying values of assets and liabilities at fair value have changed since 31 December 2015, the
Group does not consider the movements in value to be significant, and the categorisation of these assets
and liabilities in accordance with the disclosure requirements of IFRS 7 has not materially changed. The
values of level 1 assets and level 3 assets are not material to the Group and were £61 million and
£42 million respectively at 30 June 2016 (30 June 2015: £50 million and £33 million respectively and
31 December 2015: £35 million and £37 million respectively).
Level 2 assets and liabilities are shown below.
30.6.2016 30.6.2015 31.12.2015
Level 2 Level 2 Level 2
£m £m £m
Assets at fair value
Derivatives relating to
– interest rate swaps 349 244 269
– cross-currency swaps 501 38 53
– forward foreign currency contracts 345 261 174
– options - 7 -
Assets at fair value 1,195 550 496
Liabilities at fair value
Derivatives relating to
– interest rate swaps 120 88 93
– cross-currency swaps 212 53 49
– forward foreign currency contracts 728 160 175
Liabilities at fair value 1,060 301 317
The fair value of borrowings is estimated to be £19,586 million (30 June 2015: £16,016 million and
31 December 2015: £20,448 million) and has been determined using quoted market prices or discounted
cash flow analysis. The value of other assets/liabilities held at amortised cost are not materially different
from their fair values.
Page 37
NOTES AND ADDITIONAL INFORMATION
British American Tobacco is the world's second largest quoted tobacco group by global market share, with
brands sold in more than 200 markets. We have five Global Drive Brands – Dunhill, Kent, Lucky Strike, Pall
Mall and Rothmans – and over 200 brands in our portfolio. We hold robust market positions in each of
our regions and have leadership positions in more than 55 markets.
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 which 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
which 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.
PUBLICATION OF HALF-YEAR REPORT
This Half-Year Report is released to the London Stock Exchange and the JSE Limited. It may be viewed and
downloaded from our website www.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, as below.
ANNUAL REPORT: Statutory Accounts
The information for the year ended 31 December 2015 does not constitute statutory accounts as defined
in s434 of the Companies Act 2006. A copy of the statutory accounts for that year 2015 has been
delivered to the Registrar of Companies. The auditor’s report on the 2015 accounts was unqualified, did
not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or
(3) of the Companies Act 2006.
Nicola Snook
Secretary
27 July 2016
Page 38
SHAREHOLDER INFORMATION
FINANCIAL CALENDAR
Wednesday 28 September 2016 Payment date of 2016 interim dividend
Wednesday 26 October 2016 Interim Management Statement
Thursday 23 February 2017 Preliminary Statement 2016
CALENDAR FOR THE INTERIM DIVIDEND 2016
2016
Thursday 28 July Declaration of interim dividend: amount of dividend per ordinary
share in both sterling and rand; applicable exchange rate and
conversion date – Tuesday 26 July 2016; plus additional
applicable information as required in respect of South Africa
Dividends Tax*.
Thursday 28 July to Friday 19 August From the commencement of trading on Thursday 28 July 2016 to
Friday 19 August 2016 (inclusive), no removal requests in either
direction between the UK main register and the South Africa
branch register will be permitted.
Tuesday 16 August Last Day to Trade or LDT (JSE)
Wednesday 17 August to Friday 19 August From the commencement of trading on Wednesday 17 August
2016 to Friday 19 August 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.
Wednesday 17 August Ex-dividend date (JSE)
Thursday 18 August Ex-dividend date (LSE)
Friday 19 August Record date (LSE and JSE)
Wednesday 7 September Last date for receipt of Dividend Reinvestment Plan (DRIP)
elections (UK main register only)
Wednesday 28 September Payment date (sterling and rand)
* Details of the applicable exchange rate and the South Africa Dividends Tax information can be found
under the heading ‘Dividends’ on page 33.
American Depositary Receipts (ADRs)
For holders of ADRs, the record date is Friday 19 August 2016 with a payment date of Monday 3 October
2016.
Page 39
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
28 July 2016
Sponsor: UBS South Africa (Pty) Ltd
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