Glossary of terms

D

Depreciation: The systematic allocation of an asset’s depreciable amount (acquisition cost less residual value) over its useful economic life. In the case of intangible assets the term “amortisation” is generally used rather than “depreciation”.

Diluted earnings per share: Profit for the period attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period adjusted for the potential dilutive effect of employee share schemes.

Dividend: The amount paid to shareholders in cash or shares from the Company's profits after tax, commonly expressed in pence per share. UK listed companies usually announce a final and an interim dividend during the financial year.

Dividend cover (adjusted): Adjusted diluted earnings per share divided by the declared dividend per Ordinary Share.

DSS: Direct store sales.

E

Earnings: Profit for the period attributable to ordinary shareholders of the parent entity.

Earnings per share:

1. Basic: Profit for the period attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the period (excluding treasury shares).
2. Diluted: Profit for the period attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period adjusted for the potential dilutive effect of employee share schemes.
3. Adjusted diluted: As for ‘Earnings per share – diluted’, but amended to exclude the effect of adjusting items, allowing EPS to be measured on a comparable basis with previous periods. Adjusted diluted earnings per share is shown at both current and constant rates of exchange to indicate the impact of the exchange rate movement on the Group’s results.
4. Headline: The presentation of headline earnings per share, as an alternative measure of earnings per share, is mandated under the JSE Listing Requirements.  It is calculated in accordance with Circular 2/2013 ‘Headline Earnings’, as issued by the South African Institute of Chartered Accountants.

EBITDA: Profit on ordinary activities before interest and tax, adjusted for goodwill impairment, depreciation and amortisation.

Effective tax rate: The tax charge expressed as a percentage of profit before tax.

Employee Share Ownership Trust (ESOT): Holds British American Tobacco p.l.c. shares purchased in the market, to provide for share options granted to British American Tobacco employees.

Enterprise value (EV): Market capitalisation, plus net debt and the market value of the non-controlling interests.

EV / EBITDA: This ratio compares companies using all the capital employed, including debt. It is a useful means of comparing companies that are domiciled in different countries with different tax and accounting conventions.

Ex-dividend date: The date from which shares are traded without the right to the next dividend payment.

F

FCTC: The Framework Convention on Tobacco Control, issued by the World Health Organization (WHO).

Final dividend: The dividend a company pays after the end of its financial year.

FMCG: Fast moving consumer goods.

Free cash flow: An additional non-GAAP measure used by companies and investors as a performance target, generally taken to mean the amount of cash a business generates after accounting for capital expenditure / reinvestment in the business, and provides a measure of how much cash is available for additional reinvestment in the business and for acquisitions, or available for return to shareholders. The Group prepares an alternative cash flow, which includes a measure of ‘free cash flow’, to illustrate the cash flows before dividends, share buy-backs and investing activities and highlight the effect of restructuring costs, tax, and dividends to non-controlling interests, while excluding the distorting effects of borrowings-related cash flows.

G

GAAP: Generally accepted accounting principles.

Global Drive Brands (GDBs): From 2014 our five leading international cigarette brands - Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans.

Goodwill: Goodwill represents the excess of the cost of acquisition of a subsidiary, associate or joint venture over the Group’s share of the fair value of identifiable net assets acquired. Goodwill arising on acquisitions is capitalised and is considered to have an indefinite life subject to impairment reviews. Any impairment of goodwill is recognised immediately in the income statement and is not subsequently reversed.

Group: British American Tobacco p.l.c. and all its businesses throughout the world.

Gross turnover: Group turnover before deducting the effects of duty, excise and other taxes. Group revenue is turnover less duty, excise and other taxes.

H

Headline earnings: Due to 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, as alternative measures of earnings per share, calculated in accordance with Circular 2/2013 ‘Headline Earnings’ issued by the South African Institute of Chartered Accountants.

I

IFRS: International Financial Reporting Standards as adopted by the European Union, comprising:

1. International Financial Reporting Standards issued by the International Accounting Standards Board (IASB), and interpretations issued by IFRS Interpretations Committee (IFRIC);
2. International Accounting Standards originally issued by the International Accounting Standards Committee (IASC), which were subsequently adopted and amended by the IASB, and interpretations originally issued by the IASC’s Standing Interpretations Committee (SIC).

The Group has prepared its annual consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

Impairment loss: The amount by which the carrying amount of an asset exceeds its recoverable amount.

Interest cover: EBITDA excluding the effect of adjusting items divided by net finance costs.

Interim dividend: A dividend paid part way through a company's financial year.

J

Joint arrangements: Comprise contractual arrangements where two or more parties have joint control and where decisions regarding the relevant activities of the entity require unanimous consent.

Joint operations: Comprise jointly-controlled arrangements where the parties to the arrangement have rights to the underlying assets and obligations for the underlying liabilities relating to the arrangement. The Group accounts for its share of the assets, liabilities, income and expenses of any such arrangement.

Joint ventures: entities comprise jointly-controlled arrangements where the parties to the arrangement have rights to the net assets of the arrangement. They are accounted for using the equity method (like associates).

N

Net debt: The Group defines net debt as borrowings including related derivatives, less cash and cash equivalents and current available-for-sale investments.

Non-controlling interests: The share of profit after tax and accumulated capital and reserves attributable to shareholders of subsidiaries not wholly directly owned by the Company or indirectly by its subsidiaries.

Non-GAAP measures: In the reporting of financial information, the Group uses certain measures that are not required under IFRS, the generally accepted accounting principles (GAAP) under which the Group reports.  The Group believes that these additional measures, which are used internally, are useful to users of the financial information in helping them understand the underlying business performance. The principal non-GAAP measures which the Group uses are adjusted profit from operations and adjusted diluted earnings per share, which are reconciled to profit from operations and diluted earnings per share.

Number of institutions holding shares: The number of all reporting institutions that are holding shares of this stock.

O

Operating margin: Group adjusted profit from operations (operating profit excluding adjusting items), divided by revenue, multiplied by 100 per cent.

Organic growth: Organic growth is the growth after adjusting for mergers and acquisitions and discontinued activities.  Adjustments are made to current and prior period numbers based on the current Group position.

P

Profit from operations: Profit earned from operating activities i.e. before net finance costs, the share of post-tax results of associates and joint ventures, and tax. Adjusted profit from operations excludes the adjusting items.

Proposed dividend: Dividend proposed by the Board of Directors but not yet approved by the shareholders at the Annual General Meeting.

R

Related parties: The Group has a number of transactions and relationships with related parties, as defined in IAS 24 Related Party Disclosures , all of which are undertaken in the normal course of business, typically with associates.

Reloc: Resealable cigarette pack exclusive to Dunhill.

Restructuring costs: Costs incurred as a result of initiatives to improve the effectiveness and the efficiency of the Group as a globally integrated enterprise.  These initiatives include a review of the Group’s manufacturing operations, supply chain, overheads and indirect costs, organisational structure and systems and software used.

Revenue: Revenue principally comprises sales of cigarettes and other tobacco products to external customers. Revenue excludes duty, excise and other taxes and is after deducting rebates, returns and other similar discounts. Revenue is recognised when the significant risks and rewards of ownership are transferred to a third party.

S

Segments: The four geographic regions are the reportable segments for the Group as they form the focus of the Group’s internal reporting systems and are the basis used by the chief operating decision maker, identified as the Management Board, for assessing performance and allocating resources. The Management Board reviews current and prior period segmental revenue, adjusted profit from operations of subsidiaries and adjusted post-tax results of associates and joint ventures at constant rates of exchange.

Share option scheme: A right granted to employees to purchase shares in a company at a fixed price for a set period of time.

Subsidiary undertaking: A subsidiary is an entity controlled by the Group. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. This is often evidenced by directly or indirectly holding more than 50 per cent of the voting capital.

T

Taxation: Taxation is income tax chargeable on the profits for the period, together with deferred taxation. The current income tax charge is calculated on the basis of tax laws enacted or substantially enacted at the balance sheet date in the countries where the Group’s subsidiaries, associates and joint ventures operate and generate taxable income. Deferred taxation is provided in full using the liability method for temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for taxation purposes.

Total shareholder return: Dividends combined with share price appreciation relative to the FTSE 100 Index and also to the Fast Moving Consumer Goods (FMCG) peer group. The FMCG comparator group is reviewed annually to ensure that it remains both relevant and representative. TSR is measured according to the return index calculated by Datastream, on the basis of all companies’ dividends being reinvested in their shares. The return is the percentage increase in each company’s index over a three year period.

Total tobacco volume: Total tobacco volume is measured with cigarette sticks as the basis, with usage levels applied to other tobacco products to calculate the equivalent number of cigarette units.

Trade loading: Where retailers and wholesalers order additional products in advance, usually ahead of an anticipated price increase.

Treasury shares: Previously issued shares of the Company, reacquired by buying them on the market through the share buyback programme or through employee share option schemes.

U

Underlying tax rate: The adjusted tax charge expressed as a percentage of adjusted profit before tax excluding the results of associates.

V

Volumes: Quantities of cigarettes sold during the reporting period by BAT Group companies, including the volumes of joint operations not already recognised by Group subsidiaries, but excluding the volumes of associates and joint ventures. Total tobacco volume is measured with cigarette sticks as the basis, with usage levels applied to other tobacco products to calculate the equivalent number of cigarette units.

W

Weighted average cost of capital: The cost of capital for the Group, i.e. the return that the providers of the Group’s capital (both borrowings and equity) require, weighted by the proportions of borrowings and equity and the different rates of return for each.

Weighted average number of shares in issue: The average number of shares in issue during the period, weighted for the period of time they were in issue.