british american tobacco p.l.c. annual report 2008 - Financial review (5 of 5)

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Changes in the Group

There were a number of changes in the Group in 2008 and 2007 as described under adjusting items above.

Share buy-back programme

The Group initiated an on-market share buy-back programme at the end of February 2003. During the year to 31 December 2008, 22 million shares were bought back at a cost of £400 million (31 December 2007: 45 million shares at a cost of £750 million). This brought the total of the share buy-back programme to 313 million shares at a cost of £3,342 million and an average share price of £10.68.

The Board has decided to suspend the share buy-back programme for the time being, in order to preserve the Group’s financial flexibility during a period of economic uncertainty.

Regional structure from 2009

Given the acquisition of ST and the cigarette assets of Tekel, it was announced that the Group’s regional structure would be realigned from1 January 2009. Europe region splits into Eastern Europe and Western Europe, Americas region includes Latin America, the Caribbean and Canada, while Asia-Pacific includes Japan. The 2008 segmental information, re-allocated on the basis of the new regional structure that is applicable from 2009, is shown as additional information in the segmental analysis note to the accounts.

Cigarette volumes for 2008, based on the structure that is applicable from 2009, are: Eastern Europe 137 billion; Western Europe 123 billion; Asia-Pacific 180 billion; Americas 161 billion and Africa and Middle East 114 billion.

The information in respect of revenue and profit is shown in note 2 on the accounts.

Non-GAAP measures

In the reporting of financial information, the Group uses certain measures that are not required under International Financial Reporting Standards (IFRS), the generally accepted accounting principles (GAAP) under which the Group reports. This is done because the Group believes that these additional measures, which are used internally, are useful to users of the financial statements in helping them understand the underlying business performance.

The principal non-GAAP measure which the Group uses is adjusted diluted earnings per share, which is reconciled to diluted earnings per share. This measure removes the impact of adjusting items from earnings.

The Group also prepares an alternative cash flow, which includes a measure of ‘free cash flow’, to illustrate the cash flow before transactions relating to borrowings, and provides gross turnover as an additional disclosure to indicate the impact of duty, excise and other taxes.

Following 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 which are additional alternative measures of earnings per share, calculated in accordance with Circular 8/2007 ‘Headline Earnings’, issued by the South African Institute of Chartered Accountants.

Accounting developments

From 1 January 2005, the Group has reported under IFRS and, generally, the move to IFRS has made the reporting of performance more complex.

During 2008, the Group amended its accounting policy in respect of the recognition of actuarial gains and losses under IAS19 and adopted IFRIC14. As a result, the comparatives for 2007 have been restated with both profit from operations and taxation being reduced by £1 million. Profit for the year was unchanged from that previously reported. Total equity at 31 December 2007 was reduced by £9 million. The impact of the accounting changes for 2008 was to reduce the Group’s total equity at 31 December 2008 by £817 million and increase the profit for the year by £4 million.

The next few years are likely to see more changes in the financial statements given the aims of standard setters and regulators.

Franked Investment Income Group Litigation Order (FII GLO)

British American Tobacco is the principal test claimant against HM Revenue and Customs in the FII GLO. Over 20 companies are involved in the claim which concerns the treatment for UK corporate tax purposes of profits earned overseas and distributed to the UK. The tentative conclusion reached in the High Court judgment would, if upheld, produce an estimated receivable of about £1.2 billion for the Group. The potential receipt of some or all of this amount has not been recognised in the results of the Group due to the uncertainty of the amount and eventual outcome. The case will now proceed to the Court of Appeal.

Foreign currencies

The results of overseas subsidiaries and associates have been translated to sterling at the following exchange rates in respect of principal currencies: