You are on page 1of 44

British American Tobacco

Annual Report

2009

Contents
Mission and Guiding Principles Statement of Business Principles Smoking and Health our view Financial Highlights Chairmans Report Managing Directors Report The year 2009 Photos Board of Directors Report of the Directors Administration Statement on Corporate Governance Statement of Directors Responsibilities Report of the independent auditor Financial statements Principal shareholders Notice to Shareholders 1 2 3 4 5 7 9 10 11 13 14 16 17 18 39 40

Annual Report and Financial Statements

Our success would not be possible without the passion, commitment and dedication of our employees.

2009

Mission and Guiding Principles

British American Tobacco Zambias mission


To be the market leader by providing complete consumer satisfaction through excellent customer service, while adding value to all stakeholders.

Guiding principles
As part of the British American Tobacco plc Group, British American Tobacco Zambia shares and lives by a common set of Guiding Principles. The Guiding Principles describe our core values; they define the personality of our organisation and guide the way we do business. Developed from within, they differentiate British American Tobacco and make this a company people feel proud to belong to.

Freedom through responsibility Enterprising spirit Open minded Strength from diversity

People have the freedom to take decisions and act by accepting personal responsibility, within the parameters of the organisation's strategic goals.

We have the confidence to seek out opportunities for success, to strive for innovation and to accept the considered risk taking that comes with it. We are open minded and encourage everyone to contribute, by actively listening; by being genuinely receptive to new ideas and the ideas of others; by being open to different perspectives and by questioning and challenging the conventional.

We actively utilise our diversity of people, cultures, viewpoints, brands, markets and ideas to create opportunities and strengthen performance.

These principles apply to every employee of British American Tobacco, across all levels, functions and geographies. They act as a point of reference for every aspect of our working life, from communication to decision-making.

British American Tobacco Zambia Annual Report 2009

Statement of Business Principles


The British American Tobacco Group has developed a Statement of Business Principles in dialogue with managers from our businesses and external stakeholders. It consists of three Business Principles: Mutual Benefit, Responsible Product Stewardship and Good Corporate Conduct, each supported by a series of Core Beliefs, which explain what we think the Principle means in more detail. The Business Principles and Core Beliefs cover the key issues that we believe underpin corporate social responsibility for a multinational business and, particularly, for the unique characteristics of a tobacco business. They form the basis on which we expect our businesses to be run in terms of responsibility.

Mutual Benefit

The principle of Mutual Benefit is the basis on which we build our relationships with our stakeholders. We are primarily in business to build long term shareholder value and we believe the best way to do this is to seek to understand and take account of the needs of all our stakeholders. Core Beliefs We believe in creating long term shareholder value. We believe in engaging constructively with our stakeholders. We believe in creating inspiring working environments for our people. We believe in adding value to the communities in which we operate. We believe that suppliers and other business partners should have the opportunity to benefit from their relationship with us.

Responsible Product Stewardship

The principle of Responsible Product Stewardship is the basis on which we meet consumer demand for a legal product that is a cause of serious diseases. Therefore, our products and brands should be developed, manufactured and marketed in a responsible manner. We also aspire to develop tobacco products with critical mass appeal that will, over time, be recognised by scientific and regulatory authorities as posing substantially reduced risks to health. Core Beliefs We believe in the provision of accurate, clear health messages about the risks of tobacco consumption. We believe the health impact of tobacco consumption should be reduced whilst respecting the right of informed adults to choose the products they prefer. We believe that relevant and meaningful information about our products should continue to be available. We believe that under-age people should not consume tobacco products. We believe that our brands and products should be marketed responsibly and directed at adult consumers. We believe in the appropriate taxation of tobacco products and the elimination of illicit trade. We believe in regulation that balances the interests of all sections of society, including tobacco consumers and the tobacco industry. We believe that public smoking should be approached in a way that balances the interests of smokers and non-smokers.

Good Corporate Conduct

The principle of Good Corporate Conduct is the basis on which all our businesses should be managed. Business success brings with it an obligation for high standards of behaviour and integrity in everything we do and wherever we operate. These standards should not be compromised for the sake of results. Core Beliefs We believe our businesses should uphold high standards of behaviour and integrity. We believe that high standards of corporate social responsibility should be promoted within the tobacco industry. We believe that universally recognised fundamental human rights should be respected. We believe the tobacco industry should have a voice in the formation of government policies affecting it. We believe in achieving world class standards of environmental performance.

British American Tobacco Zambia Annual Report 2009

Smoking and Health our view


At British American Tobacco, we have for decades accepted that smoking is risky. Our business is not about persuading people to smoke; it is about offering high quality brands to adults who have already taken the decision to smoke. We strongly believe that smoking should only be for adults who are aware of the risks.

Smoking and health

Our companies produce fine quality products that provide pleasure to many millions of adult smokers around the world. Along with the pleasures of smoking come real risks of serious diseases such as lung cancer, respiratory disease and heart disease. We also recognise that, for many people, it is difficult to quit smoking. Put simply, smoking is a cause of certain diseases. This has been the working hypothesis of much of our product modification research, has been believed by smokers for decades and is the most appropriate viewpoint for consumers and public health authorities. The risks associated with smoking are primarily defined by epidemiological (population statistics) studies that show that groups of lifetime smokers have a far higher incidence of certain diseases than comparable groups of non-smokers. These risks tend to be greater in groups that start smoking younger, smoke for longer, smoke more cigarettes per day and, to some extent, smoke higher tar cigarettes compared to those who smoke lower tar cigarettes. However, all smoking behaviours are associated with some risk, and the only way to be sure to avoid a smokingrelated risk is not to smoke. The statistics do not tell us whether a particular individual smoker will avoid an associated disease by smoking less. Statistics are unable to predict what will happen to an individual and science is still to determine which smokers will get a smoking related disease and which will not. We continue to support relevant research to understand the biological mechanisms that link smoking with diseases, in order to influence future changes to cigarette design and to help our efforts to produce cigarettes with lower associated risks. We agree with the public health community that the health impact of smoking should be reduced.

Smoking and addiction

We accept that the popular understanding today is that smoking is addictive. Anyone thinking about starting to smoke should consider that they may find it hard to give up later. But smoking doesnt take away anyones free will and we believe that it is important that smokers realise they can quit, provided they have the necessary motivation and self-belief. We think smokers who want to quit should be encouraged and supported. Because of the risks of smoking, we have long considered that the choice to smoke or not is one exclusively for adults. We do not want children to smoke and we actively support programmes to prevent and reduce under-age smoking. We also think that people should understand the risks and hence every pack of cigarettes we manufacture worldwide carries a health warning.

Smoking is for adults

There are some people who will argue that leaving the choice to individuals ignores the claimed health risks to others posed by environmental tobacco smoke (ETS). Based on our assessment of the available science, we think that many of the claims against ETS have been overstated. Specifically, we dont believe that it has been shown to cause chronic disease such as lung cancer, cardiovascular disease or chronic obstructive pulmonary disease. But we cannot say that it is proven to be harmless to everyone. There is evidence, for example, that exposure to ETS is related to acute illnesses, like respiratory and ear infections, in children who live in smoking households. Smoky atmospheres may also cause discomfort, especially to people who suffer from respiratory problems such as asthma. We accept, therefore, that ETS is an issue of public importance and believe that smokers should be mindful of others comfort and should not smoke around young children. In our view, an informed decision to enjoy the pleasures of smoking, while balancing those pleasures against the risks, deserves to be treated like many other lifestyle choices we all make. Most of us are content to leave these choices to the individual. We will continue to support the right of informed adults to choose to smoke.

Smoke in the air

Conclusion
3

Financial Highlights
Group 2009 235,901 (117,989) 117,912 41,170 46,269 29,722 75,550 48,201 26,684 125.00 140.20 Group 2008 203,196 (115,901) 87,295 52,760 52,798 40,811 61,930 30,396 30,955 170.00 192.50 Group 2007 172,518 (97,270) 75,248 27,167 25,643 14,526 52,850 36,515 12,452 95.00 68.52 Group 2006 151,750 (57,980) 93,770 41,052 42,893 27,567 46,876 27,428 15,985 180.00 130.03 Group 2005 149,932 (82,701) 67,231 16,970 15,047 9,871 46,582 19,870 20,287 30.00 46.14

K million Turnover Excise duty and VAT Revenue Operating profit Profit before taxation Profit for the year Total assets Current liabilities Total equity Kwacha Dividend per share Basic and diluted earnings per share

Our brands

British American Tobacco Zambia Annual Report 2009

Chairmans Report

A B Munyama Chairman

British American Tobacco (Z) Plc has continued to perform well, with sales volume increasing by 2.4 per cent to 949 million sticks. These results have been driven by good pricing momentum and volume growth in the Zambian market.

Good Performance

British American Tobacco (Z) Plc has had another good year, despite having operated in a very difficult economic environment where consumer confidence was badly shaken. We have continued to deliver pleasing results in all areas of our company strategy and we have every reason to be proud of our achievements. We have built a strong foundation over the past years and this we believe should continue to build sustainable shareholder value in the years ahead. British American Tobacco (Z) Plc has continued to perform well, with sales volume increasing by 2.4 per cent to 949 million sticks. Revenue for 2009 grew by 35.1 per cent compared to 16 per cent growth in 2008. Profit from operations, after adjusting for other income, grew by 32.5 per cent compared to the long term target of growing profit by 5 per cent per annum. These results have been driven by good pricing momentum and volume growth in the Zambian market with the exception of the markets in the North-Western and Copperbelt Provinces (Mining Areas). Profit was adversely impacted by the increase in the product cost due to significant depreciation of the local currency against hard currencies. Sales volumes in the mining areas were down 8 per cent due to reduced disposable incomes following the slow down in mining activities caused by the global economic downturn. The Global Drive Brands (Pall Mall and Dunhill) performed relatively well. Pall Mall, was two per cent lower, following market declines in the mining areas, but Dunhill was up eight per cent. Peter Stuyvesant, a premium brand, benefited from this decline by posting a 10 per cent growth, leading to improved value share in the market. Government levies grew from K115,901 million to K117,989 million due to the good sales performance and this equates to a tax incidence of 50 per cent. The Company remains committed to pay its share of Government revenue on time and in full.

Government Levies

British American Tobacco Zambia Annual Report 2009

Chairmans Report

2010 and beyond

Our approach to business in 2010 and beyond will not be totally different from what has been applied over the years. We have a good distribution network, strong brands and great people, and we need to harness the power of all to the maximum advantage of our Company, employees, customers and shareholders. We will continue to listen and care about our customers, and be fully committed to cultivating diversity to our product offerings and employ a focused approach to innovation, thus creating sustained long-term value. In closing, and on behalf of the Board, I wish to thank the management team and employees, whose dedication, loyalty and commitment to service, contributed significantly to the achievement of these results. Thank you for your trust in our ability to harness that foundation for continued growth and long-term success. I also wish to thank our loyal customers for their business and continued support.

Acknowledgement

A B Munyama Chairman 24 February 2010

Below: Our new office premises at Plot no. 20992, along Kafue Road, Lusaka.

British American Tobacco Zambia Annual Report 2009

Managing Directors Report

Nicolaas J Grobbelaar Managing Director

Before 2009 there were only two companies in the Zambian cigarette market and in 2009 we saw two new entrants to the market to bring the total number of legal players to four. The new entrants are looking at the market and considering further investment.
Strong growth
2009 was a very successful year for British American Tobacco (Z) Plc in what was a challenging economic environment. We achieved a record high sales volume of 949 million sticks, driven by the strong performance of our Premium Brands Dunhill and Peter Stuyvesant which grew by 10 per cent and revenue improved due to a beneficial price mix. We delivered on all our core business objectives. Before 2009 there were only two companies in the Zambian cigarette market and in 2009 we saw two new entrants to the market to bring the total legal players to four. The new entrants are looking at the market and considering further investment. In the near future, this will bring about high levels of competitiveness and corporate activity. Despite the looming competitive activities we are confident that the inherent strength of our business, our brands and our people should make us more resilient than most and that the Company will maintain its market share. Our corporate social investment (CSI) activities include a range of community and charitable projects with three main themes: Empowerment, Civic Life and Sustainable Agriculture. British American Tobacco (Zambia) plcs CSI programme is aligned with the groups global theme and recently embarked on the following projects:

Competitive landscape

Corporate Social Investment

Scholarship Scheme The company launched the Educate the Community programme which aims at assisting underprivileged but intelligent students in Zambia. Under the scholarship scheme, seven students were given the opportunity to reach their potential within the available resources of the scheme. The principal aim of the scheme is to help deserving candidates from disadvantaged backgrounds gain access to university education without having to incur financial obligations. Provision of Clean Water Despite the development of water provision programmes and the subsequent improving resource allocation to the water sector in Zambia by the Government and donors, a large proportion of Zambian particularly in rural areas still remain underserved with clean water supply. The company, therefore, made the decision to sink boreholes in selected parts of Zambia. This is aimed at augmenting what is already being done to address the plight of many Zambians who still lack access to safe water and under this scheme three boreholes have been drilled in North-Western and Southern Provinces.

British American Tobacco Zambia Annual Report 2009

Managing Directors Report

Smoking Lounge at the Lusaka International Airport As part of the process of provision of smoking areas to accommodate smokers while protecting non-smokers from passive smoking, the company erected a smoking lounge at the Lusaka International Airport and this will be extended to other International Airports in the country. Our CSI focus areas for 2010 will see the continuation of provision of scholarships for the disadvantaged but highly capable individuals at Zambias tertiary institutions and provision of clean water to needy areas across the country.

Industry outlook

Challenging economic times: The short-term outlook is overshadowed by deteriorating consumer confidence due to the after effects of the global financial crisis. Although it is prudent to expect some level of adverse consumer response, on the whole we have not experienced a loss of consumer interest in our premium brands, which recorded a 10 per cent rise in organic growth in 2009. We are well placed to capture down-trading consumers with our balanced brand portfolio covering all the key consumer price points. Illicit trade: Illicit trade, mainly from neighbouring countries, still remains a problem for the industry. A lot of strides have been made by the stakeholders to address this concern. Illicit trade represents a major competitor and addressing this could provide a potential source of growth for the industry and tax revenue for the government. Increasing regulation: The Government of the Republic of Zambia enacted the Local Government (Prohibition of Smoking in Public Places) Regulations, Statutory Instrument no.39 of 2008. The major immediate implications are limited smoking areas, and increased harassment of smokers by law enforcement officers unsure of the limitations of the Act. As a Company we support that there should be regulations and that these regulations should be clearly interpreted and be able to take the interest of both smokers and non-smokers into account.

Our employees

Our employees are the face of the Company and our success would not be possible without their passion, commitment and dedication. They have contributed greatly to our results in this challenging year and positioning the Company to meet our future goals and aspirations. I would like to thank them for their continuing efforts. Following changes in our business model, I am happy to report that since July 2009 we moved to our new offices. The offices are located at Plot number 20992 along Kafue Road and I wish to thank our employees once more for their hard work and commitment in making it possible for us to achieve this milestone, without any interruptions to our business operations. Tobacco has shown itself to be one of the more resilient industries in economic downturns. We are confident that our balance across price segments and geographies, our strong brand portfolio and our dedicated and talented people will help us to navigate through this challenging period. We are as determined as ever to ensure that our strategy is executed effectively and to meet our shareholders expectations. 24 February 2010 8

New Offices

Moving forward

Nicolaas J Grobbelaar Managing Director

British American Tobacco Zambia Annual Report 2009

The Year 2009

The official opening of our new premises - July 2009

we achieved a record high sales volume, driven by the strong performance of our Premium brands Our new home

Spreading the word - celebrating the new Menthol taste of our Pall Mall brand.

Board of Directors

The current members of the Board of Directors are set out below.

1 A B Munyama

(Zambian) Non-Executive Chairman Mr Munyama was appointed to the Board of Directors on 9 February 1995 and has been Chairman of the Board since. He is a lawyer by profession and has held various senior positions in both the public and private sectors in Zambia. He is a director of several Zambian companies including ZAMEFA, Goldman Insurance and SGS Zambia.

4 David A R Phiri

(Zambian) Non-Executive Director Mr Phiri was appointed to the Board of Directors in September 1999. He is a former Governor of the Bank of Zambia, former Ambassador to Sweden and is a director of several Zambian companies including Southern Sun, Madison Insurance, Tau Risk Management, Anvil Mining, Sable Zinc, SKF and Manda Hill Holdings.

2 Nicolaas J Grobbelaar
(Namibian) Managing Director

5 Lovemore T Manatsa
(Zimbabwean) Non-Executive Director

Appointed managing Director in September 2008. He joined British American Tobacco Group on 5 February, 2002, and held senior appointments including that of Country Manager of British American Tobacco Namibia.

Mr Manatsa was appointed to the Board on 3 May 2005. He is also the Managing Director of British American Tobacco Zimbabwe and has held various positions including Managing Director positions in both Zambia and Malawi since joining the British American Tobacco Group in March 1995.

3 Benedict Mwila

(Zambian) Finance Director & Company Secretary Mr Mwila was appointed to the Board of Directors in May 2006. He is an accountant by profession and before his appointment he held various positions in the Companys finance function since joining British American Tobacco Zambia in 2000.

6 Richard Morgan

(South African) Non-Executive Director (Alternate to Mr Lovemore T Manatsa) Mr Morgan joined the Board on 1 July 2007. He is the Finance Director of British American Tobacco Zimbabwe. He has held senior management positions in Russia and South Africa since joining the Group in 1998.

British American Tobacco Zambia Annual Report 2009

10

Report of the Directors


The directors submit their report together with the audited financial statements for the year ended 31 December 2009, which disclose the state of affairs of the company and the group.

Principal activities

The principal activities of the company are the marketing and distribution of cigarettes in Zambia. All the companys activities fall within the tobacco industry.

Share capital

The authorised share capital of the company remained unchanged at 215,000,000 shares of 20 ngwee each. The issued and fully paid-up share capital remained at 212,456,304 ordinary shares of 20 ngwee each.

Results and dividends


Turnover Net profit for the year

2009 K millions 235,901 29,722

2008 K millions 203,196 40,811

The net profit for the year has been added to retained earnings. During the year an interim dividend of K40 (2008: K50) per share was paid. The directors recommend the approval of a final dividend of K85 (2008: K120) per share.

Number of employees and remuneration

The total remuneration of employees during the year amounted to K6,929 million (2008: K6,759 million) and the number of employees as at year end was 42. The company has policies and procedures to safeguard the occupational health, safety, and welfare of its employees.

Gifts and donations Property, plant and equipment

During the year the company made donations of K286 million (2008: K115 million) to charitable organisations and events.

The company purchased property, plant and equipment amounting to K2,571 million (2008: K2,121 million) during the year. In the opinion of the directors, the carrying value of property, plant and equipment is not less than their market value.

Auditor

The auditors, PricewaterhouseCoopers, have indicated their willingness to continue in office and a resolution for their reappointment will be proposed at the annual general meeting.

11

British American Tobacco Zambia Report 2006 British American Tobacco Zambia Annual Annual Report 2009

Report of the Directors

Directors

The directors who held office during the year and to the date of this report were: A B Munyama Chairman Johan Grobbelaar Managing Director David A R Phiri Director Lovemore T Manatsa Director Benedict Mwila Finance Director & Company Secretary Richard Morgan Alternate Director to Lovemore Manatsa In accordance with the Companies Act 1994 Section 206(5) Messrs AB Munyama and Lovemore T Manatsa retire from the Board at the forthcoming Annual General Meeting and, being eligible, offer themselves for reappointment. None of the Directors had an interest in any significant contract entered into during the year. The interests of Directors of the Company in the issued share capital of British American Tobacco (Zambia) plc according to the register of shareholders were as follows: AB Munyama Number of Shares 1 January 2009 1,000 31 December 2009 1,000 24 February 2010 1,000 By order of the Board

Below: Benedict Mwila, David A R Phiri, A B Munyama (Chairman), Lovemore T Manatsa, Johan Grobbelaar. Not in picture: Richard Morgan

Benedict Mwila Finance Director & Company Secretary 24 February 2010

British American Tobacco Zambia Annual Report 2009

12

Administration
Registered Office
20992 Kafue Road P O Box 31062 Lusaka 10101 Zambia Enfin Solutions Limited Plot No 868 Great East Road P O Box 320069 Lusaka Zambia Deloitte & Touche Kafue House 1 Nairobi place Cairo Road P O Box 30030 Lusaka Zambia PricewaterhouseCoopers PricewaterhouseCoopers Place Stand No. 2374 Thabo Mbeki Road P O Box 30942 Lusaka Zambia D H Kemp & Co No. 8 Lungwebungu Road Rhodes Park P O Box 31000 Lusaka, Zambia Barclays Bank Zambia Kafue House Corner Cairo Road/Nairobi Place P/Bag E308 Lusaka Zambia Stanbic Bank Zambia Limited Woodgate House Cairo Road P O Box 31955 Lusaka Zambia All queries regarding shareholding and dividend payments should be addressed to our transfer secretaries, Enfin Solutions Limited. A M Wood & Co Permanent House P O Box 30028 Lusaka Zambia Citibank Zambia Limited Citibank House Cha Cha Cha Road P O Box 30037 Lusaka Zambia

Transfer Secretaries

Tax Advisors

Auditors

Legal Advisors

Bankers

Website

British American Tobacco Group:

www.bat.com

13

British American Tobacco Zambia Annual Report 2009

Statement on Corporate Governance

Corporate Governance is the system by which companies are directed and controlled from within. Within British American Tobacco (Zambia) plc, there is a strong commitment to the highest standards of corporate governance, for which the Board is accountable to shareholders.

Directors
At the date of this report, there are seven directors on the board of the Company. Their names and brief profiles are set out on page 10. The non-executive directors are independent and provide a considerable depth of knowledge and experience collectively gained from a variety of public and private companies. The Board meets at least four times a year and it has reserved to itself key matters on which it alone may make decisions. Responsibility for implementing the Companys strategy is delegated to management. The senior management team meets formally twice a month under the leadership of the Managing Director to discuss operational issues and regularly reviews strategic issues in conjunction with the rest of the management team.

Board Committees
Audit Committee The Audit Committee is chaired by David A R Phiri and also includes A B Munyama and Neville William (Secretary). All other directors are permanent invitees to meetings of this committee. The Audit Committee meets twice a year with management and with internal and external auditors to review the effectiveness of internal controls and business risk management, other matters raised in regular reports to the Committee and the full year financial statements before these are put to the Board. The Committee is also responsible for making recommendations to the Board on the appointment of and fees to be paid to the Company's external auditors. Board Compensation Committee The Board Compensation Committee is chaired by Lovemore T Manatsa and comprises all the directors. This committee has the responsibility for the remuneration of executive directors, management and all employees of the company and it meets once a year. Corporate Social Responsibility Committee The Corporate Social Responsibility (CSR) Committee is chaired by Nicholaas J Grobbelaar and comprises all the directors. This committee meets twice a year with the following objectives: To oversee the management of CSR activities and monitoring of alignment with the Statement of Business Principles. To ensure that the Companys social and environmental performance is appropriate and effectively managed. To ensure that social and environmental risks and issues or weaknesses of significance are identified and appropriate and timely action is taken.

British American Tobacco Zambia Annual Report 2009

14

Statement on Corporate Governance

Number of meetings held in 2009


A B Munyama Nicholas J Grobbelaar David A R Phiri Lovemore T Manatsa Benedict Mwila Richard Morgan

Board 4
4 4 3 4 4 1

Audit Committee 2
2 2* 1 2* 2* -*

Board Compensation Committee -

CSR Committee 2
2 2 1 2 2 1

* by invitation

Re-election of directors
The Companies Act 1994 provides that at least one third of directors must submit themselves for re-election each year at the Annual General Meeting. Furthermore any director appointed during the year also has to seek re-election at the Annual General Meeting. In this way, each director of the Board is required to regularly submit himself for reelection. The Directors who retire by rotation and offer themselves for re-election at this year's Annual General Meeting are set out on page 12.

Relations with shareholders


The Company encourages on-going dialogue with institutional shareholders and the use of the Annual General Meeting to encourage participation by private investors.

Accountability and audit


The Board has reviewed the contents of the 2009 Annual Report and it is satisfied that the assessment given of the company's position and prospects is balanced and understandable. A summary of the directors' responsibilities in respect of the financial statements is given on page 16. The system of internal controls designed to safeguard shareholders' investment and the Company's assets is set out below. The Audit Committee has considered in conjunction with the external auditors, the accounting policies adopted in the Group financial statements and has examined the internal controls which have been put in place in the Group.

Internal control
The Board is responsible for the overall system of internal control for the Group and for reviewing the effectiveness of these controls. The system is designed to manage risks that may impede the achievement of the Group's business objectives rather than eliminate these risks. The internal control system can therefore only provide reasonable assurance, not absolute assurance, against material mis-statement or loss. There is and has been an ongoing process for identifying, evaluating, and managing the significant risks faced by the Group. This process was in place throughout 2009 and is regularly reviewed by the Board.

15

British British American American Tobacco Tobacco Zambia Zambia AnnualAnnual Report 2009 Report 2006

Statement of Directors Responsibilities


The Companies Act requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the group and of the company at the end of the financial year and of its profit or loss. It also requires the directors to ensure that the company and its subsidiary keep proper accounting records that disclose, with reasonable accuracy, the financial position of the company and the group. They are also responsible for safeguarding the assets of the company. The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable estimates, in conformity with International Financial Reporting Standards and the requirements of the Companies Act. The Directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the group and of the company and of its profit in accordance with the International Financial Reporting Standards. The Directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statement, that are free from material misstatement. Nothing has come to the attention of the directors to indicate that the company will not remain a going concern for at least twelve months from the date of this statement. Signed on their behalf by:

A B Munyama Chairman 24 February 2010

Nicolaas J Grobbelaar Managing Director 24 February 2010

British American Tobacco Zambia Annual Report 2009

16

REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF BRITISH AMERICAN TOBACCO (ZAMBIA) PLC Report on the financial statements

PricewaterhouseCoopers PricewaterhouseCoopers Place Stand Number 2374 Thabo Mbeki Road P O Box 30942 Lusaka, Zambia

We have audited the accompanying consolidated financial statements of British American Tobacco (Zambia) plc (the company) and its subsidiary (together, the Group) for the year ended 31 December 2009 set out on pages 18 to 38. These financial statements comprise the consolidated balance sheet at 31 December 2009 and the consolidated profit and loss account, the consolidated statement of comprehensive income, statements of changes in equity and cash flow statement for the year then ended, together with the balance sheet of the company standing alone at 31 December 2009, and a summary of significant accounting policies and other explanatory notes. Directors responsibility for the financial statements The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and with the requirements of the Zambia Companies Act. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the companys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion the accompanying financial statements give a true and fair view of the state of the financial affairs of the group and of the company at 31 December 2009 and of the profit and cash flows of the group for the year then ended in accordance with International Financial Reporting Standards and the Zambia Companies Act. Report on other legal requirements The Companies Act requires that in carrying out the audit we consider whether the company has kept the accounting records and other records and registers required by this Act. We confirm that in our opinion the accounting records and other records and registers required by the Companies Act have been kept by the company, so far as appears from our examination of those records. PricewaterhouseCoopers Chartered Accountants Lusaka Mark Libakeni Partner

6 March 2010

British American Tobacco (Zambia) plc Balance sheet as at 31 December 2009

Notes Equity Share capital Retained profits Proposed dividend Total equity Non-current liabilities Deferred income tax 12 20 14

Group 2009 K millions 42 8,583 18,059 26,684 665 27,349

Group 2008 K millions 42 5,418 25,495 30,955 579 31,534

Company 2009 K millions 42 6,538 18,059 24,639 665 25,304

Company 2008 K millions 42 3,373 25,495 28,910 579 29,489

Represented by: Non-current assets Property, plant and equipment Investment in subsidiary company Current assets Inventories Trade and other receivables Cash and bank balances 15 16 4,528 4,528 17 18 22,482 24,807 23,733 71,022 Current liabilities Trade and other payables Current income tax 19 11 34,961 13,240 48,201 Net current assets 22,821 27,349 3,504 3,504 12,132 25,436 20,858 58,426 24,378 6,018 30,396 28,030 31,534 4,528 1 4,529 22,482 24,807 23,733 71,022 36,996 13,251 50,247 20,775 25,304 3,504 1 3,505 12,132 25,436 20,858 58,426 26,413 6,029 32,442 25,984 29,489

The financial statements on pages 18 to 38 were approved for issue by the board of directors on 24 February 2010 and signed on its behalf by:

A B Munyama Chairman 19

Johannes Grobbelaar Managing Director British American Tobacco Zambia Annual Report 2009

British American Tobacco (Zambia) plc Consolidated profit and loss account for the year ended 31 December 2009

Notes Turnover Excise duty and Value Added Tax Revenue Cost of sales Gross profit Other income Distribution costs Administrative expenses Other expenses Operating profit Finance income Profit before tax Income tax expense Profit for the year Basic and diluted earning per share (kwacha) Dividend per share Dividends: Interim dividend - paid in the year Proposed final dividend for the year 13 14 14 14 11 7 5

2009 K millions 235,901 (117,989) 117,912 (43,276) 74,636 604 (11,518) (19,587) (2,965) 41,170 5,099 46,269 (16,547) 29,722 140.20 125.00 8,498 18,059 26,557

2008 K millions 203,196 (115,901) 87,295 (24,990) 62,305 18,345 (8,261) (17,447) (2,182) 52,760 38 52,798 (11,987) 40,811 90.50 170.00 10,623 25,495 36,118

8 10

Consolidated statement of comprehensive income for the Year ended 31 December 2009
Notes 2009 K millions 29,722 29,722 2008 K millions 40,811 40,811

Profit for the year Other comprehensive income: Other comprehensive income for the year Total comprehensive income for the year

British American Tobacco Zambia Annual Report 2009

18

British American Tobacco (Zambia) plc Consolidated cash flow statement for the year ended 31 December 2009

Notes

2009
K millions

2008
Kmillions

Operating activities Cash generated from operations Interest received Income tax paid Net cash generated from operating activities Investing activities Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash flow from financing activities Unclaimed dividend paid for previous year Final dividend paid for previous year Interim dividend paid for current year Net cash used in financing activities Increase/(decrease) in cash and cash equivalents Movement in cash and cash equivalents At start of year Increase/(decrease) At end of year 23 10 11 47,741 196 (9,239) 38,698 15,880 198 (14,761) 1,317

15

(2,571) 151 (2,420)

(2,121) 18,263 16,142

(23) (25,031) (8,349) (33,403) 2,875 20,858 2,875 23,733

(657) (11,534) (9,990) (22,181) (4,722) 25,580 (4,722) 20,858

21

British American Tobacco Zambia Annual Report 2009

British American Tobacco (Zambia) plc Consolidated statement of changes in shareholders equity for the year ended 31 December 2009

Notes Year ended 31 December 2008 At start of year Comprehensive income Profit for the year Transaction with owners Dividends Final for 2007 - paid Interim for 2008 - paid Proposed final for 2008 At end of year

Share capital K miliions

Retained earnings K millions

Proposed dividends K millions

Total K millions

42 -

725 40,811

11,685 -

12,452 40,811

14 14 14

42

(10,623) (25,495) 5,418

(11,685) 25,495 25,495

(11,685) (10,623) 30,955

Year ended 31 December 2009 At start of year Comprehensive income Profit for the year Transaction with owners Dividends Final for 2008 - paid Interim for 2009 - paid Proposed final for 2009 At end of year 42 5,418 29,722 25,495 30,955 29,722

14 14 14

42

(8,498) (18,059) 8,583

(25,495) 18,059 18,059

(25,495) (8,498) 26,684

British American Tobacco Zambia Annual Report 2009

20

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009

General information
British American Tobacco (Zambia) plc was incorporated in Zambia under the Companies Act as a limited liability company, and is domiciled in Zambia. The address of its registered office is: 20992 Kafue Road P O Box 31062 Lusaka 10101 Zambia

Summary of significant accounting policies


The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. (a) Basis of preparation

The financial statements are prepared in compliance with International Financial Reporting Standards (IFRS). The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The financial statements are presented in Zambia Kwacha (K), rounded to the nearest million. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions. It also requires management to exercise its judgement in the process of applying the companys accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3. Changes in accounting policy and disclosures New and amended standards adopted by the company IFRS 8, Operating segments effective 1 January 2009. IFRS 8 replaces IAS 14, 'Segment reporting'. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. This has resulted in an increase in the number of reportable segments presented. In addition, the segments are reported in a manner that is more consistent with the internal reporting provided to the chief operating decision-maker. IAS 1 (revised), Presentation of financial statements effective 1 January 2009. The revised standard prohibits the presentation of items of income and expenses (that is, non-owner changes in equity) in the statement of changes in equity, requiring non-owner changes in equity to be presented separately from owner changes in equity in a statement of comprehensive income. As a result the company presents in the statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share. IFRS 7 Financial Instruments Disclosures (amendment) effective 1 January 2009. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy.

British American Tobacco Zambia Annual Report 2009

22

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

Summary of significant accounting policies (contd)


(a) Basis of preparation (contd) New and amended standards adopted by the company (continued) As the adoption of the amendment results in additional disclosures, there is no impact on earnings per share. Amendments to existing standards effective in 2009 but not relevant In 2009, the following amendments to existing standards became effective but are not relevant to the Groups operations. IFRS 2 (amendment), 'Share-based payment' - effective from 1 January 2009. It clarifies that vesting conditions are service conditions and performance conditions only. All cancellations, whether by the entity or by other parties, should receive the same accounting treatment IAS 23 (amendment), 'Borrowing costs' - effective from 1 January 2009.The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group. Two revised standards (IFRS 3 Business combinations and IAS 27 Consolidated and separate financial statements ) and numerous amendments to existing standards and new interpretations have been published and will be effective for the companys accounting periods beginning on or after 1 January 2010, but the Group has not early adopted any of them. (b) Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the companys activities. Revenue is shown net of excise duty, valueadded tax (VAT), rebates and discounts. The company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the company and when specific criteria have been met for each of the companys activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The company bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. i) Sales of goods are recognised in the period in which the company delivers products to the customer, the customer has accepted the products and collectability of the related receivables is reasonably assured; Interest income is recognised on a time proportion basis using the effective interest method.

ii)

23

British American Tobacco Zambia Annual Report 2009

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

Summary of significant accounting policies (contd)


(c) Functional currency and translation of foreign currencies

Transactions are recorded on initial recognition in Zambia Kwacha, being the currency of the primary economic environment in which the company operates (the functional currency). Transactions in foreign currencies are converted into Zambia Kwacha using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the profit and loss account within finance income or cost. All other foreign exchange gains and losses are presented in the profit and loss account within other (losses)/gains net. (d) Property, plant and equipment

All categories of property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit and loss account during the financial period in which they are incurred. Depreciation is calculated on the straight line basis to write down the cost of each asset , to its residual value over its estimated useful life, as follows: Buildings Plant and machinery Motor vehicles Computer hardware Computer software Furniture, fittings and office equipment 40 years 10 years 3 years 3 years 5 years 6.67 years

The residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amounts and are taken into account in determining profit. (e) Accounting for leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the profit and loss account on a straight-line basis over the period of the lease.

British American Tobacco Zambia Annual Report 2009

24

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

Summary of significant accounting policies (contd)


(f) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined by the first-in, firstout (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business, less the applicable variable selling expenses. (g) Receivables

Receivables are recognised at fair value. A provision for impairment of receivables is established when there is objective evidence that the company will not be able to collect all the amounts due according to the original terms of receivables. The amount of the provision is recognised in the profit and loss account. (h) Payables

Payables are recognised at fair value. (i) Share capital

Ordinary shares are classified as share capital in equity. (j) Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. (k) Employee benefits (i) Retirement benefit obligations The company operates a defined contribution retirement benefit scheme for its employees. The assets of the scheme are held in a separate fund which is funded by contributions from both the company and employees and administered by African Life Financial Services (Zambia) Limited. The company and all its employees also contribute to the National Pension Scheme Fund, which is a defined contribution scheme. A defined contribution scheme is a pension benefit plan under which the company pays fixed contributions into a separate entity (fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The companys contributions to the defined contribution schemes are charged to the profit and loss account in the year in which they fall due. The company has no further obligation once the contributions have been paid. (ii) Other entitlements The estimated monetary liability for employees accrued annual leave entitlement at the balance sheet date is recognised as an expense accrual.

25

British American Tobacco Zambia Annual Report 2009

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

Summary of significant accounting policies (contd)


(l) Income tax

Income tax expense is the aggregate of the charge to the profit and loss account in respect of current income tax and deferred income tax. Tax is recognised in the profit and loss account unless it relates to items recognised directly in equity, in which case it is also recognised directly in equity. Current income tax is the amount of income tax payable on the profit for the year determined in accordance with the Zambian Income Tax Act. Deferred income tax is recognised, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. However, the deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. (m) Dividends

Dividends on ordinary shares are charged to equity in the period in which they are declared. Proposed dividends are shown as a separate component of equity until declared. (n) Segmental reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operation in other economic environments.

Critical accounting estimates and judgements


Estimates and judgements are continually evaluated and are based on historical experience and other factors, including experience of future events that are believed to be reasonable under the circumstances. (i) Critical accounting estimates and assumptions

The company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. Receivables Critical estimates are made by the directors in determining the recoverable amount of impaired receivables. The carrying amount of impaired receivables is set out in Note 4.

British American Tobacco Zambia Annual Report 2009

26

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

Critical accounting estimates and judgements (contd)


(ii) Critical judgements in applying the entitys accounting policies

In the process of applying the companys accounting policies, management has made judgements in determining: the classification of financial assets and leases whether assets are impaired.

Financial risk management objectives and policies


The companys activities expose it to a variety of financial risks: Market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The companys overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance, but the company does not hedge any risks. Financial risk management is carried out by the finance department under policies approved by the Board of Directors. Market risk (i) Foreign exchange risk The company imports finished goods and services and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and GB pounds and South African Rand. Foreign exchange risk arises from future commercial transactions, and recognised assets and liabilities. Currency exposure arising from liabilities denominated in foreign currencies is managed primarily through the holding of bank balances in the relevant foreign currencies. At 31 December 2009, if the Kwacha had weakened/strengthened by 10% against the US dollar with all other variables held constant, post tax profit for the year would have been K710 million (2008: K701 million) higher/lower, mainly as a result of US dollar denominated trade payables and bank balances. At 31 December 2009, if the Kwacha had weakened/strengthened by 10% against the GB pounds with all other variables held constant, post tax profit for the year would have been K5 million (2008: K42 million) lower/higher, mainly as a result of GB pounds denominated trade payables. At 31 December 2009, if the Kwacha had weakened/strengthened by 10% against the South African Rand, with all other variables held constant, post tax profit for the year would have been K124 million (2008: K29 million) lower/higher, mainly as a result of South African Rand denominated trade payables. (ii) Price risk The company does not hold any financial instruments subject to price risk. Credit risk Credit risk is managed by the credit controller. Credit risk arises from cash at bank and short term deposits with banks, as well as trade and other receivables. The company does not have any significant concentrations

27

British American Tobacco Zambia Annual Report 2009

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

Financial risk management objectives and policies (contd)


Credit risk (contd) of credit risk. The credit controller assesses the credit quality of each customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board. The utilisation of credit limits is regularly monitored. The amount that best represents the companys maximum exposure to credit risk at 31 December 2009 is made up as follows: 2009 K millions Cash and cash equivalents Trade receivables Other receivables 23,733 24,134 673 48,540 2008 K millions 20,858 8,457 17,940 47,255

Collateral is held for 37% of the trade receivables and no collateral is held for the rest of the assets stated above. 79% of the trade receivables stated above had since been collected as at the reporting date. The company does not grade the credit quality of receivables. All receivables that are neither past due nor impaired are within their approved credit limits, and no receivables have had their terms renegotiated. None of the above assets are past due or impaired except for the following amounts in trade receivables (which are due within 14 days of the month in which they are invoiced). 2009 K millions Past due but not impaired: - by up to 30 days - by 31 to 60 days - above 61 days Total past due but not impaired Impaired Receivables individually determined to be impaired: Carrying amount before provision for impairment loss Provision for impairment loss Net carrying amount 8,338 8,338 763 763 (763) 2008 K millions 122 122 961 961 (961) -

British American Tobacco Zambia Annual Report 2009

28

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

Financial risk management objectives and policies (contd)


Liquidity risk Prudent liquidity risk management includes maintaining sufficient cash balances, and the availability of funding from an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, the finance department maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the companys liquidity reserve on the basis of expected cash flow. The table below analyses the companys financial liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.

Less than 1 year K millions At 31 December 2009: trade and other payables At 31 December 2008: trade and other payables 34,961 24,378

Between 1 and 2 years K millions

Between 2 and 5 years K millions

Over 5 years K millions

The companys objectives when managing capital are to safeguard the companys ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the company may limit the amount of dividends paid to shareholders, issue new shares, or sell assets to reduce debt. The company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity plus net debt.

Revenue
2009 K millions Sales of cigarettes 117,912 2008 K millions 87,295

Segment reporting
i) Primary reporting format business segment At 31 December 2009, the company was organised into one main segment: the wholesale distribution of cigarettes. Secondary reporting format geographical segment The company operated in one geographical segment: Zambia

ii)

29

British American Tobacco Zambia Annual Report 2009

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

Other income

2009 K millions 604 604

2008 K millions 18,154 191 18,345

Gain on disposal of property, plant and equipment Miscellaneous income

Expenses by nature
The following items have been charged in arriving at the profit before income tax: 2009 K millions Depreciation on property, plant and equipment (Note 15) Operating lease rentals expensed Profit on disposal of property, plant and equipment Receivables provision for impairment losses Repairs and maintenance Employee benefits expense (Note 9) Auditors remuneration 1,426 622 (53) 110 1,288 6,929 246 2008 K millions 979 (18,154) 422 430 6,759 260

Employee benefits expense


The following items are included within employee benefits expense: 2009 K millions Salaries and wages Insurance and medical benefits Defined benefit scheme Defined contribution scheme National Pension Scheme Authority 5,586 482 673 188 6,929 2008 K millions 5,544 223 722 130 140 6,759

10

Finance income

2009 K millions 196 4,903 5,099

2008 K millions 198 (160) 38

Interest income Net foreign exchange gain/(loss) Net finance income

British American Tobacco Zambia Annual Report 2009

30

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

11

Income tax expense


Current income tax Deferred income tax (Note 12) Income tax expense

2009 K millions 16,461 86 16,547

2008 K millions 11,741 246 11,987

The tax on the companys profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: 2009 K millions 2008 K millions

Profit before income tax Tax calculated at the statutory income tax rate of 35% (2008 35%) Tax effect of: Income not subject to tax Expenses not deductible for tax purposes Income tax expense Current income tax movement in the balance sheet Group At start of year Current income tax charge Payment during the year At end of year Company At start of year Current income tax charge Payment during the year At end of year

46,269 16,194 353 16,547

52,798 18,479 (6,933) 441 11,987

6,018 16,461 (9,239) 13,240

9,038 11,741 (14,761) 6,018

6,029 16,461 (9,239) 13,251

9,049 11,741 (14,761) 6,029

Income tax assessments have been agreed with Zambia Revenue Authority (ZRA) up to and including the year ended 31 December 2005. Self-assessment tax returns have been filed with ZRA for the subsequent year ends. Quarterly tax payments for the year ended 31 December 2009 were made on the statutory due dates during the year.

31

British American Tobacco Zambia Annual Report 2009

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

12

Deferred income tax Group and company


Deferred income tax is calculated using the enacted income tax rate of 35% (2008: 35%). The movement on the deferred income tax account is as follows: 2009 K millions At start of the year Charge to profit and loss account (Note 11) At end of year 579 86 665 2008 K millions 333 246 579

Deferred income tax assets and liabilities, deferred income tax charge/(credit) in the profit and loss account, and deferred income tax charge/(credit) in equity are attributable to the following items: Year ended 31 December 2009 1.1.2009 K millions 337 242 579 579 Charged/ (credit) to P/L K millions 99 (6) 93 (7) 86

Deferred income tax liabilities Property, plant and equipment Unrealised exchange gain Deferred income tax assets Unrealised exchange losses Net deferred income tax liability

31 .12.2009 K millions 436 236 672 (7) 665

Year ended 31 December 2008 Deferred income tax liabilities Property, plant and equipment Unrealised exchange gain Deferred income tax assets Provisions Net deferred income tax liability 682 16 698 (365) 333 (345) 226 (119) 365 246 337 242 579 579

British American Tobacco Zambia Annual Report 2009

32

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

13

Earnings per share


Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2009 Net profit attributable to shareholders (K million) Weighted average number of ordinary shares in issue (million) Basic and diluted earnings per share (Kwacha) 29,722 212 140.20 2008 40,811 212 192.50

14

Dividends per share


At the annual general meeting to be held on 31 March 2010, a final dividend in respect of the year ended 31 December 2009 of K85 per share amounting to a total of K18,059 million is to be proposed. During the year an interim dividend of K40 per share, amounting to a total of K8,498 million was paid. The total dividend for the year is therefore K125 per share (2008: K170), amounting to a total of K26,557 (2008: K36,118 million). Payment of dividends is subject to withholding tax at a rate at the rates applicable to the legal residence of each shareholder.

33

British American Tobacco Zambia Annual Report 2009

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

15 Property, plant and equipment


Buildings Plant & Buildings machinery Computers K millions At 1 January 2008 Cost Accumulated depreciation Net book amount Year ended 31 December 2008 Opening net book amount Additions Disposals Depreciation charge Closing net book amount At 31 December 2008 Cost Accumulated depreciation Net book amount Year ended 31 December 2009 Opening net book amount Additions Disposals Depreciation charge Closing net book amount At 31 December 2009 Cost Accumulated depreciation Net book amount (a) (b) 198 (72) 126 126 (5) 121 198 (77) 121 K millions 235 (159) 76 76 (20) 56 235 (179) 56 K millions 3,096 (1,868) 1,228 1,228 273 (306) 1,195 3,154 (1,959) 1,195 Furniture & Fittings K millions 959 (789) 170 170 52 (12) (79) 131 908 (777) 131 Motor Vehicles K millions 2,790 (2,016) 774 774 1,796 (569) 2,001 4,134 (2,133) 2,001 Total K millions 7,278 (4,904) 2,374 2,374 2,121 (12) (979) 3,504 8,629 (5,125) 3,504

121 (5) 116 198 (82) 116

56 113 (26) 143 302 (159) 143

1,195 479 (79) (362) 1,233 3,540 (2,307) 1,233

131 1,062 (6) (113) 1,074 1,578 (504) 1,074

2,001 917 (36) (920) 1,962 4,310 (2,348) 1,962

3,504 2,571 (121) (1,426) 4,528 9,928 (5,400) 4,528

Included in the above amount are fully depreciated assets of K2,522 million (2008: K2,951 million) that are still in use. The schedule listing the properties are required by Section 193 and the second schedule of the Companies Act, 1993 is available for inspection by members or their duly appointed authorised representatives at the registered office of the Company.

British American Tobacco Zambia Annual Report 2009

34

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)
16 Investment in subsidiary company

2009 K millions 1

2008 K millions 1

Augusta Developments Limited

17

Inventories Group and company

2009

2009 K millions 22,482 22,482

2008 K millions 11,311 821 12,132

Finished goods Consumables

The cost of inventories recognised as an expense and included in cost of sales amounted to K41,378 million 2008: K23,966 million).

18

Trade and other receivables Group and company

2009 K millions 24,897 (763) 24,134 31 642 24,807

2008 K millions 8,199 (961) 7,238 258 17,940 25,436

Trade receivables Less: Provision for impairment losses Receivables from related companies (Note 24) Other receivables

Movements on the provision for impairment of trade receivables are as follows: 2009 K millions At start of year Provision in the year Unused amounts reversed At end of year 961 110 (308) 763 2008 K millions 539 422 961

The carrying amounts of trade and other receivables approximate to their fair values.

35

British American Tobacco Zambia Annual Report 2009

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)
19 Trade and other payables
Group Trade payables Excise duty and Value Added Tax Amounts due to related companies (Note 24) Other payables and accrued expenses Unclaimed dividend 2009 K millions 858 11,595 14,599 5,641 2,268 34,961 Company Trade payables Excise duty and Value Added Tax Amounts due to related companies (Note 24) Other payables and accrued expenses Unclaimed dividend 858 11,595 14,599 7,676 2,268 36,996 127 10,291 6,654 7,633 1,678 26,413 2008 K millions 127 10,291 6,654 5,628 1,678 24,378

20

Share capital
Authorised 215,000,000 ordinary shares K0.20 each

2009 K millions 43

2008 K millions 43 42

Issued and fully paid 212,456,304 ordinary shares of K0.20 each

42

21

Contingent liabilities
(i) Guarantees At 31 December 2009 the company had a contingent liability in respect of Customs and Excise Duty guarantee issued by its bankers to Zambia Revenue amounting to K7 billion (2008: K7 billion ). It is not anticipated that any liabilities will arise from this guarantee. (ii) Legal proceedings The company had several pending legal proceedings at 31 December 2009. The directors believe that there will be no material losses arising from the pending legal proceedings against the company.

British American Tobacco Zambia Annual Report 2009

36

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

22

Commitments
Property, plant and equipment Operating lease commitments Not later than one year Later than 1 year and not later than 5 years Later than 5 years

2009 K millions 1,094

2008 K millions 2,124

648 2,160 2,808

23

Cash generated from operations group and company


Reconciliation of profit before income tax to cash generated from operations: 2009 K millions Profit before income tax Adjustments for: Interest income (Note 10) Depreciation (Note 15) Profit on sale of property, plant and equipment Retirement benefit obligations Changes in working capital: receivables and prepayments inventories payables and accrued expenses Cash generated from operations 46,269 (196) 1,426 (30) 629 (10,350) 9,993 47,741 2008 K millions 52,798 (198) 979 (18,154) (3,550) (18,002) 5,106 (3,099) 15,880

24

Related party transactions


The company is controlled by British American Tobacco Group incorporated in the United Kingdom. There are other companies that are related to British American Tobacco (Zambia) plc though common shareholdings or common directorships.

37

British American Tobacco Zambia Annual Report 2009

British American Tobacco (Zambia) plc Notes to the consolidated financial statements for the year ended 31 December 2009 (contd)

24

Related party transactions (contd)


The following transactions were carried out with related parties: 2009 K millions i) Purchase of goods and services British American Tobacco South Africa British American Tobacco Kenya British American Tobacco UK American Cigarettes Company (Royalties) British American Tobacco Southern African Market British American Shared Services AME 2,358 40,219 4,142 1,898 1,705 1,048 50,322 ii) Key management compensation Salaries and other short-term employment benefits iii) Directors remuneration Fees for services as a director Other emoluments (included in key management compensation above) 147 1,126 1,273 iv) Outstanding balances arising from purchase of goods/services Receivables from related parties British American Tobacco Malawi British American Tobacco South Africa 31 31 Payable to related parties British American Tobacco South Africa British American Tobacco UK & export American Cigarettes Company British American Tobacco Kenya British American Tobacco Southern Africa Market British American Shares Services GSD - UK British American Shares Services AME 1,189 2,533 907 7,410 914 641 1,005 14,599 2,113 33 4,008 347 153 6,654 8 250 258 120 1,090 1,210 1,886 1,532 1,195 19,656 3,555 1,024 2,759 28,189 2008 K millions

No provisions for impairment losses have been required in 2008 and 2009 for any related party receivables.

British American Tobacco Zambia Annual Report 2009

38

Principal Shareholders
The ten largest shareholders in the company and the respective number of shares held at 31 December 2009 were as follows: Name of the shareholder British American Tobacco International Holding Limited Barclays Nominees Public Service Pensions Fund Local Authorities Superannuation Fund Saturnia Regna Pension Trust Fund Standard Chartered Pension Trust Fund Mrs Elizabeth Anne Gunn CBZ Nominees Limited Barclays Zimbabwe Nominees (Private) Limited C P Youngson Number of shares 165,885,883 11,388,315 8,000,000 5,000,000 3,354,644 1,007,176 694,656 608,256 571,920 498,816

Distribution of shareholders

Number of Shareholders 192 937 104 223 36 6 1,498

Number of shares 43,765 1,718,181 799,295 6,452,795 8,806,750 194,636,018 212,456,804

% of Shareholding 0.02% 0.81% 0.38% 3.04% 4.15% 91.61% 100.00%

Less than 500 shares 500-5,000 shares 5,001-10,000 shares 10,001-100,000 shares 100,001-1,000,000 share Over 1,000,000 shares Total

British American Tobacco Zambia Annual Report 2009

39

Notice to Shareholders

NOTICE IS HEREBY GIVEN that the Forty-Eighth Annual General Meeting of British American Tobacco (Zambia) plc will be held at Taj Pamodzi Hotel, Lusaka on 31 March 2010 at 10 hours for the following purposes: 1. 2. 3. 4. 5. 6. 7. To confirm and sign off the minutes of the forty-seventh Annual General meeting of shareholders held on 27 March, 2009. To receive and adopt the audited financial statements for the year ended 31 December 2009. To approve Directors remuneration for the year ended 31 December 2009. To recommend that a final dividend of K85 per share, total K18,059 million is paid for the year ended 31 December 2009. To elect Directors in place of those retiring in accordance with the provision of the Companies Act 1994 section 2006 (5). To authorize the Directors to determine the remuneration of the auditors for the past audit and to appoint auditors for the year to 31 December 2010. To transact any other business that may properly be transacted at the Annual General meeting.

A member is entitled to appoint any person (whether a member of the Company or not) to attend and speak and vote in his or her stead. Proxy forms must be lodged at the Registered Office of the Company not less than 48 hours before the commencement of the meeting. By order of the Board

Benedict Mwila Finance Director and Company Secretary 24 February 2010 20992 Kafue Road P O Box 31062 Lusaka 10101 Zambia

40

British American Tobacco Zambia Annual Report 2009

Form of Proxy

as my proxy to vote on behalf of the forty eighth Annual General meeting of the Company to be held at the Taj Pamodzi Hotel at 10:00 hours on 31 March 2010 and at any adjournment thereof. 2010

Please Note: Proxies must be in the hands of the Secretary of the Company at Stand No. 20992, Kafue Road (P.O Box 31062, Lusaka 10101, Zambia) 48 hours before the time set for the meeting.

I hereby direct my proxy as named above to vote as follows on the matters included in the agenda for the meeting:

1) 2) 3) 4) the 5) 6) 7)

To confirm the minutes of the fortyseventh Annual General Meeting of shareholders held on 27 March 2009. To receive and adopt the audited financial statements for the year ended 31 December 2009. To approve Directors remuneration for the year 31 December 2009. To recommend that a final dividend of K85 per share, total K18,059 million is paid for year ended 31 December 2009. To elect Directors in place of those retiring in accordance with the provision of the Companies Act 1994 section 206(5). To authorise the Directors to determine the remuneration of the auditors for the year past audit and to appoint auditors for the year to 31 December 2010. To transact any other business that may properly be transacted at the Annual General Meeting.

British American Tobacco Zambia Annual Report 2009

41

www.bat.com