bat plc annual report 2007 - Notes on the PLC accounts

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1 Accounting policies

Basis of Accounting

The Financial Statements have been prepared on the going concern basis under the historical cost convention and in accordance with the Companies Act 1985 and UK Generally Accepted Accounting Principles.

Cash flow statement

The cash flows of the Company are included in the consolidated Cash Flow Statement of British American Tobacco p.l.c. which is included in this Directors’ Report and Accounts. Consequently the Company is exempt under the terms of FRS1 (Revised) from publishing a cash flow statement.

Foreign currencies

Transactions arising in currencies other than sterling are translated at the rate of exchange ruling on the date of the transaction. Assets and liabilities expressed in currencies other than sterling are translated at rates of exchange ruling at the end of the financial year. All exchange differences are taken to the profit and loss account in the year.

Accounting for income

Income is included in the profit and loss account when all contractual or other applicable conditions for recognition have been met. Provisions are made for bad and doubtful debts, including where delays are anticipated in the receipt of monies from overseas.

Taxation

Taxation provided is that chargeable on the profits of the period, together with deferred taxation. Deferred taxation is provided in full on timing differences between the recognition of gains and losses in the Financial Statements and their recognition in tax computations. However, the Company does not discount deferred tax assets and liabilities.

Fixed asset investments

Fixed asset investments are stated at cost, together with subsequent capital contributions, less provisions for any impairment in value.

Dividends

Final dividend distributions to the Company’s shareholders are recognised as a liability in the Financial Statements in the period in which the dividends are approved by the Company’s shareholders, while interim dividend distributions are recognised in the period in which the dividends are declared and paid.

Repurchase of share capital

When share capital is repurchased the amount of consideration paid, including directly attributable costs, is recognised as a deduction from equity. Repurchased shares which are not cancelled, or shares purchased for the employee share ownership trusts, are classified as treasury shares and presented as a deduction from total equity.

Related parties

The Company has taken advantage of the exemption under paragraph 3(b) FRS8 from disclosing transactions with related parties that are part of the British American Tobacco p.l.c. Group.

Financial instruments

The financial instrument disclosures of the Company are included in the Consolidated Group Accounts which are included in this Directors’ Report and Accounts. Consequently, the Company is exempt under paragraph 3C (b) of FRS25 from publishing these financial instrument disclosures.

Financial guarantees are recorded at fair value less accumulated amortisation.

2 Investments in Group companies

The Company’s directly owned subsidiaries are British American Tobacco (1998) Limited, B.A.T. International Finance p.l.c., B.A.T Capital Corporation, BATMark Limited, British American Ventures Limited and British American Tobacco QUEST Limited.

The Directors are of the opinion that the individual investments in the subsidiary undertakings have a value not less than the amount at which they are shown in the Balance Sheet.

3 Debtors

4 Shareholders’ funds

Dividends paid are recognised in the year in which they are declared, and dividends received are recognised in the year in which they are received. The final dividend which has been declared for the year ended 31 December 2007 is shown in note 8 and will be recognised in the Financial Statements for the year ended 31 December 2008.

In 2006, for the first time, the Company needed to file interim accounts which were prepared to recognise additional dividend income in 2006. As a result of the Company not doing so, the interim dividend of £323 million paid on 13 September 2006 did not comply with the technical requirements of the Companies Act 1985. The appropriation of distributable profits to the payment of the interim dividend was ratified by shareholders by way of special resolution at the 2007 Annual General Meeting.

As permitted by Section 230 of the Companies Act 1985, the profit and loss account of the Company has not been presented in these Financial Statements. The profit for the year ended 31 December 2007 was £3,517 million (2006: £1,809 million).

Details of Directors’ remuneration, share options and retirement benefits are given in the Remuneration Report.

Shareholders’ funds are stated after deducting the cost of treasury shares which include £123 million (2006: £nil) for shares repurchased and not cancelled and £171 million (2006: £197 million) in respect of the cost of own shares held in employee share ownership trusts.

Between 22 September 2006 and 4 December 2006, the Company sought to repurchase 6,927,790 shares for an aggregate consideration of £100 million, which were included in the purchases of own shares of £500 million for the year ended 31 December 2006. However, as a result of the technical infringement of the Companies Act 1985, the repurchase and cancellation of these shares was invalid and, accordingly, their nominal value is included within the Company’s allotted, called up and fully paid share capital as at 31 December 2006 shown above. These shares were repurchased on 1 March 2007 from the holders, the Company’s brokers, at the same prices agreed between 22 September 2006 and 4 December 2006. Consequently, the above table for the year ended 31 December 2006 includes 28 million shares purchased for cancellation at a cost of £400 million. During the year ended 31 December 2007, 45 million shares were also purchased at a cost of £750 million, of which 7 million shares at a cost of £123 million are held in treasury, the remainder being cancelled. The above table for the year ended 31 December 2007 therefore includes 45 million shares purchased for cancellation, at a cost of £727 million.

Share premium

The increase of £5 million relates solely to ordinary shares issued under the Company’s share option schemes. These schemes are described in the Remuneration Report.

5 Creditors

Included in creditors are amounts of £108 million (2006: £106 million) falling due after one year.

Loans due to Group undertakings are unsecured and bear interest at rates between 6.85 per cent and 6.94 per cent.

6 Audit fees

7 Contingent liabilities and financial commitments

British American Tobacco p.l.c. has guaranteed borrowings by subsidiary undertakings of £6,383 million (2006: £5,907 million) and total borrowing facilities of £15,905 million (2006: £13,009 million).

Performance guarantees given to third parties in respect of Group companies were £1 million (2006: £157 million).

There are contingent liabilities in respect of litigation in various countries (note 30).