directors report and accounts 2006 - Notes on the accounts
Annual Report
and Accounts 2006
1 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.
| 2006 £m | 2005 Restated £m | |
|---|---|---|
| 4,047 | 4,047 |
As described in Accounting policies, the investments in 2005 have been increased by £25 million as a result of the amendment to FRS26.
2 Debtors
| 2006 £m | 2005 Restated £m | |
|---|---|---|
| Amounts due from Group undertakings | 2,246 | 2,002 |
Included in debtors are amounts of £99 million (2005: £60 million) falling due after one year. As described in Accounting policies, debtors in 2005 have been increased by £77 million as a result of the amendment to FRS26.
3 Shareholders' funds
| Share capital £m | Share premium account £m | Capital redemption reserves £m | Other reserves £m | Profit and loss account £m | Total £m | |
|---|---|---|---|---|---|---|
| 1 January 2006 | 524 | 43 | 83 | 90 | 1,064 | 1,804 |
| Change in accounting policy | 5 | 5 | ||||
| 524 | 43 | 83 | 90 | 1,069 | 1,809 | |
| Increase in share capital - share options | 5 | 5 | ||||
| Transfer from profit and loss account | 1,809 | 1,809 | ||||
| Dividends and other appropriations | ||||||
| ordinary shares (note 8) | (1,008) | (1,008) | ||||
| Purchase of own shares | (7) | 7 | (500) | (500) | ||
| Consideration paid for purchase of own shares | ||||||
| held in Employee Share Ownership Trusts | (77) | (77) | ||||
| Consideration received on the exercise of | ||||||
| options over own shares held in Employee | ||||||
| Share Ownership Trusts | 23 | 23 | ||||
| Other movements | 40 | 40 | ||||
| 31 December 2006 | 517 | 48 | 90 | 90 | 1,356 | 2,101 |
The accounting policy change is in respect of guarantees provided to other Group companies, required to be recognised at fair value in the Balance Sheet as a result of the amendment to FRS26 Financial Instruments: Measurement. The guarantees are recognised based on the net present value of the fee income (actual or notional) charged thereon.
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 2006 is shown in note 8 and will be recognised in the financial statements for the year ended 31 December 2007.
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. It is proposed that the appropriation of distributable profits to the payment of the interim dividend will be ratified by shareholders by way of special resolution at the Annual General Meeting.
As permitted by Section 230 of the Companies Act 1985, the profit and loss of the Company has not been presented in these Financial Statements. The profit for the year ended 31 December 2006 was £1,809 million (2005 restated: £2,168 million).
Details of Directors' remuneration, share options and retirement benefits are given in the Remuneration Report.
| Ordinary shares of 25p each Number of shares | Convertible redeemable preference shares of 25p each Number of shares | £m | |
|---|---|---|---|
| Share capital | |||
| Authorised | |||
| 1 January 2006 and 31 December 2006 | 2,858,265,349 | 241,734,651 | 775.00 |
| Allotted, called up and fully paid | |||
| 1 January 2006 | 2,096,139,187 | 524.03 | |
| Changes during the year | |||
| - share option schemes | 994,757 | 0.25 | |
| - purchase of own shares | (28,330,000) | (7.08) | |
| 31 December 2006 | 2,068,803,944 | 517.20 |
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 are included in the purchases of own shares of £500 million above. 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 will be repurchased on 1 March 2007 from their present holders, the Company's brokers, at the same prices agreed between 22 September 2006 and 4 December 2006. The above table includes 28 million shares purchased for cancellation at a cost of £400 million.
| Share capital | Ordinary shares of 25p each Number of shares | Convertible redeemable preference shares of 25p each Number of shares | £m |
|---|---|---|---|
| Authorised | |||
| 1 January 2005 and 31 December 2005 | 2,858,265,349 | 241,734,651 | 775.00 |
| Allotted, called up and fully paid | |||
| 1 January 2005 | 2,139,807,599 | 534.95 | |
| Changes during the year | |||
| - share option schemes | 1,571,588 | 0.39 | |
| - purchase of own shares | (45,240,000) | (11.31) | |
| 31 December 2005 | 2,096,139,187 | 524.03 |
During 2005, 45 million shares were purchased for cancellation at a cost of £501 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.
4 Creditors
| 2006 £m | 2005 Restated £m | |
|---|---|---|
| Amounts due to Group undertakings | 2,003 | 2,094 |
| Loan due to Group undertakings | 2,046 | 2,046 |
| Sundry creditors | 143 | 100 |
| 4,192 | 4,240 |
Included in creditors are amounts of £106 million (2005: £69 million) falling due after one year.
Loans due to Group undertakings are unsecured and bear interest at a rate of 6.21 per cent.
As described in the Accounting policies, creditors in 2005 have been increased by £97 million as a result of the amendment to FRS26.
5 Audit fees
| 2006 | 2005 | |
|---|---|---|
| Auditors' fees | £30,000 | £30,000 |
| Fees paid to PricewaterhouseCoopers for advisory and accountancy services - UK | £nil | £nil |
6 Contingent liabilities and financial commitments
British American Tobacco p.l.c. has guaranteed borrowings by subsidiary undertakings of £5,907 million (2005: £6,425 million) and total borrowing facilities of £13,009 million (2005: £15,326 million).
Performance guarantees given to third parties in respect of Group companies were £157 million (2005: £167 million).
There are contingent liabilities in respect of litigation in various countries (note 30).