british american tobacco p.l.c. annual report 2008 - Financial review 2 of 5




The Group’s share of the post-tax results of associates, included at the pre-tax profit level under IFRS, decreased by £20 million to £483 million, after net adjusting charges of £58 million (2008: £26 million income). Excluding the adjusting items in 2008 and 2009, the Group’s share of the post-tax results of associates increased by 13 per cent to £541 million, with a decline of 1 per cent at constant rates of exchange as a result of accounting for ST as a subsidiary from July 2008. The Group’s share of the net adjusting items from Reynolds American amounted to an expense of £58 million (2008: £13 million of income) and included trademark impairment charges, restructuring charges, a health plan credit and in 2008, a benefit from the termination of a joint venture agreement.

Associates’ income in 2008 also included a £13 million benefit from accounting for an additional quarter’s income of the ST group during 2008, prior to the acquisition of the cigarette and snus businesses on 2 July 2008. This was treated as an adjusting item in 2008.

Profit before tax

Profit before tax was up £396 million at £4,080 million, principally reflecting the higher profit from operations and favourable exchange rates, partially offset by the rise in interest costs and the decreased contribution from associates.

Effective tax rate

The tax rates in the Group income statement of 27.5 per cent in 2009 and 27.8 per cent in 2008 are affected by the inclusion of the share of associates’ post-tax profit in the Group’s pre-tax results and by the adjusting items.

The underlying tax rate for subsidiaries, reflected in the adjusted earnings per share below, was 30.3 per cent in 2009 and 30.8 per cent in 2008. The decrease arose mainly from a favourable change in the mix of profits and a reduction in tax rates in several countries.

Earnings per share

Basic earnings per share for 2009 were 137.0p, up 11 per cent (2008: 123.3p). With the distortions that adjusting items can cause in profit, as well as the potential dilutive effect of employee share schemes, earnings per share are best viewed on the basis of adjusted diluted earnings per share. The calculation of this measure is explained in note 7 of the financial statements. Profit for the year is adjusted by the adjusting items explained above, as well as for distortions in net finance costs and one-off adjustments in taxation in 2008.

On this basis, the adjusted diluted earnings per share were 153.0p, a 19 per cent increase over 2008, mainly as a result of the strong operating performance and benefits from foreign exchange movements.


The Group’s policy is to pay dividends of65 per cent of long-term sustainable earnings, calculated with reference to the adjusted diluted earnings per share. Interim dividends are calculated as one-third of the total dividends declared for the previous year.

With the recommended final dividend of 71.6p, the total dividends per share for 2009 are 99.5p, up 19 per cent on the prior year. Under IFRS, the recommended final dividend in respect of a year is only provided in the accounts of the following year. Therefore, the 2009 accounts reflect the 2008 final dividend and the 2009 interim dividend amounting to 89.5p (£1,798 million) in total (2008: 69.7p – £1,393 million). The table below shows the dividends declared in respect of 2009 and 2008.

Dividends declared
per share
per share
Ordinary shares    

Adjusted diluted EPS

Adjusted diluted EPS
+19% in 2009

Dividend per share declared

Dividend per share declared
+19% in 2009

Underlying tax rate

Underlying tax rate
30.3% in 2009