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Annual Report
British American Tobacco
2009
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Mission and Guiding Principles 1
Statement of Business Principles 2
Smoking and Health – our view 3
Financial Highlights 4
Chairman’s Report 5
Managing Director’s Report 7
The year 2009 – Photos 9
Board of Directors 10
Report of the Directors 11
Administration 13Statement on Corporate Governance 14
Statement of Directors’ Responsibilities 16
Report of the independent auditor 17
Financial statements 18
Principal shareholders 39
Notice to Shareholders 40
Contents
Annual
Report andFinancialStatements
Our success would not be possible
without the passion, commitment
and dedication of our employees.
2009
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Mission and Guiding Principles
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’s 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.
We actively utilise our diversity – of people, cultures, viewpoints, brands, markets
and ideas – to create opportunities and strengthen performance.
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.
Freedom
through
responsibility
Enterprising
spirit
Open
minded
Strength
from diversity
British American Tobacco Zambia Annual Report 20091
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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, ResponsibleProduct 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 BenefitThe 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 StewardshipThe 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 ConductThe 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 2
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Smoking and Health – our view
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 smoking-
related 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 healthcommunity that the health impact of smoking should be reduced.
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
doesn’t take away anyone’s 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.
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 don’t 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.
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
Smoking and
addiction
Smoking is for
adults
Smoke in
the air
Conclusion
3
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British American Tobacco Zambia Annual Report 2009 4
Financial Highlights
Group Group Group Group Group
K million 2009 2008 2007 2006 2005
Turnover 235,901 203,196 172,518 151,750 149,932
Excise duty and VAT (117,989) (115,901) (97,270) (57,980) (82,701)
Revenue 117,912 87,295 75,248 93,770 67,231
Operating profit 41,170 52,760 27,167 41,052 16,970
Profit before taxation 46,269 52,798 25,643 42,893 15,047
Profit for the year 29,722 40,811 14,526 27,567 9,871
Total assets 75,550 61,930 52,850 46,876 46,582
Current liabilities 48,201 30,396 36,515 27,428 19,870
Total equity 26,684 30,955 12,452 15,985 20,287
Kwacha
Dividend per share 125.00 170.00 95.00 180.00 30.00
Basic and diluted earnings per share 140.20 192.50 68.52 130.03 46.14
Our brands
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Chairman’s Report
British American Tobacco Zambia Annual Report 2009 6
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 distributionnetwork, 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.
A B Munyama
Chairman
24 February 2010
2010 and beyond
Acknowledgement
Below:
Our new office premises at Plot
no. 20992, along Kafue Road,
Lusaka.
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Managing Director’s Report
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.
Nicolaas J Grobbelaar – Managing Director
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) plc’s CSI programme
is aligned with the group’s global theme and recently embarked on the following
projects:
British American Tobacco Zambia Annual Report 20097
Strong growth
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.
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Managing Director’s Report
British American Tobacco Zambia Annual Report 2009 8
• Smoking Lounge at the Lusaka International Airport
As part of the process of provision of smoking areas to accommodate smokers while protecting non-smokers frompassive 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 Zambia’s tertiary institutions and provision of clean water to needy areas across the
country.
Nicolaas J Grobbelaar
Managing Director 24 February 2010
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 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 July2009 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.
Industry outlook
Our employees
New Offices
Moving forward
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The Year 2009
The official openingof our new premises - July 2009
Our new home
we achieved a record high sales volume,driven by the strong performance
of our Premium brands
Spreading the word - celebrating the newMenthol taste of our Pall Mall brand.
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Board of Directors
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.
2
Nicolaas J Grobbelaar(Namibian)
Managing 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.
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 Company’s finance function
since joining British American Tobacco Zambia in 2000.
The current members of the Board of Directors are set out below.
British American Tobacco Zambia Annual Report 2009 10
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.
5
Lovemore T Manatsa(Zimbabwean)
Non-Executive Director
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.
6Richard 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.
1 2 3 4 5 6
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Report of the Directors
British American Tobacco Zambia Annual Report 200911
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.
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.
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.
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.
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 company’s activities fall within the tobacco industry.
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
Share capital
Number of employees and
remuneration
Gifts
and donations
Property, plant
and equipment
Auditor
2009 2008
K millions K millions
Turnover 235,901 203,196
Net profit for the year 29,722 40,811
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Report of the Directors
British American Tobacco Zambia Annual Report 2009 12
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 re-
appointment.
None of the Directors had an interest in any significant contract entered intoduring 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
Benedict Mwila
Finance Director & Company Secretary
24 February 2010
Directors
Below:
Benedict Mwila, David A R Phiri,
A B Munyama (Chairman),
Lovemore T Manatsa,
Johan Grobbelaar.
Not in picture:
Richard Morgan
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Administration
Registered Office 20992 Kafue Road
P O Box 31062Lusaka 10101
Zambia
Transfer Secretaries Enfin Solutions Limited
Plot No 868 Great East Road
P O Box 320069
Lusaka
Zambia
Tax Advisors Deloitte & Touche
Kafue House
1 Nairobi placeCairo Road
P O Box 30030
Lusaka
Zambia
Auditors PricewaterhouseCoopers
PricewaterhouseCoopers Place
Stand No. 2374
Thabo Mbeki Road
P O Box 30942
Lusaka
Zambia
Legal Advisors D H Kemp & Co A M Wood & Co
No. 8 Lungwebungu Road Permanent House
Rhodes Park P O Box 30028
P O Box 31000 Lusaka
Lusaka, Zambia Zambia
Bankers Barclays Bank Zambia Citibank Zambia Limited
Kafue House Citibank House
Corner Cairo Road/Nairobi Place Cha Cha Cha Road
P/Bag E308 P O Box 30037
Lusaka Lusaka
Zambia 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.
Website British American Tobacco Group: www.bat.com
British American Tobacco Zambia Annual Report 200913
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British American Tobacco Zambia Annual Report 2009 14
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 Company’s 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 yearwith 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 Company’s 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.
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* by invitation
British American Tobacco Zambia Annual Report 200915
Statement on Corporate Governance
Board
Audit Compensation CSR
Board Committee Committee Committee
Number of meetings held in 2009 4 2 - 2
A B Munyama 4 2 - 2
Nicholas J Grobbelaar 4 2* - 2
David A R Phiri 3 1 - 1
Lovemore T Manatsa 4 2* - 2
Benedict Mwila 4 2* - 2
Richard Morgan 1 - * - 1
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 re-
election.
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.
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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 profitor 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 Nicolaas J Grobbelaar
Chairman Managing Director
24 February 2010 24 February 2010
British American Tobacco Zambia Annual Report 2009 16
Statement of Directors’ Responsibilities
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PricewaterhouseCoopersPricewaterhouseCoopers Place
Stand Number 2374Thabo Mbeki Road
P O Box 30942Lusaka, Zambia
REPORT OF THE INDEPENDENT AUDITORTO THE MEMBERS OF BRITISH AMERICAN TOBACCO (ZAMBIA) PLC
Report on the financial statements
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 pages18 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 changesin 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 accordancewith 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 andfair 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.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our auditin 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 freefrom material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditor’s judgement, including the assessment of the risksof 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 company’s preparation and fair presentation of the financialstatements 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 entity’s internal control. An audit also includes evaluating theappropriateness of the accounting policies used and the reasonableness of accounting estimates made by thedirectors, 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 thenended 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 recordsand 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 6 March 2010
Mark LibakeniPartner
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British American Tobacco (Zambia) plcBalance sheet as at 31 December 2009
British American Tobacco Zambia Annual Report 200919
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 Johannes Grobbelaar
Chairman Managing Director
Group Group Company Company
2009 2008 2009 2008
Notes K millions K millions K millions K millions
Equity
Share capital 20 42 42 42 42
Retained profits 8,583 5,418 6,538 3,373
Proposed dividend 14 18,059 25,495 18,059 25,495
Total equity 26,684 30,955 24,639 28,910
Non-current liabilitiesDeferred income tax 12 665 579 665 579
27,349 31,534 25,304 29,489
Represented by:
Non-current assets
Property, plant and equipment 15 4,528 3,504 4,528 3,504
Investment in subsidiary company 16 - - 1 1
4,528 3,504 4,529 3,505
Current assets
Inventories 17 22,482 12,132 22,482 12,132
Trade and other receivables 18 24,807 25,436 24,807 25,436
Cash and bank balances 23,733 20,858 23,733 20,858
71,022 58,426 71,022 58,426
Current liabilities
Trade and other payables 19 34,961 24,378 36,996 26,413
Current income tax 11 13,240 6,018 13,251 6,029
48,201 30,396 50,247 32,442
Net current assets 22,821 28,030 20,775 25,984
27,349 31,534 25,304 29,489
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2009 2008
K millions K millions
Profit for the year 29,722 40,811
Other comprehensive income:
Other comprehensive income for the year - -
Total comprehensive income for the year 29,722 40,811
British American Tobacco (Zambia) plc
Consolidated profit and loss account
for the year ended 31 December 2009
British American Tobacco Zambia Annual Report 2009 18
Notes 2009 2008
K millions K millions
Turnover 235,901 203,196
Excise duty and Value Added Tax (117,989) (115,901)
Revenue 5 117,912 87,295
Cost of sales (43,276) (24,990)
Gross profit 74,636 62,305
Other income 7 604 18,345
Distribution costs (11,518) (8,261)
Administrative expenses (19,587) (17,447)
Other expenses (2,965) (2,182)
Operating profit 8 41,170 52,760
Finance income 10 5,099 38
Profit before tax 46,269 52,798
Income tax expense 11 (16,547) (11,987)
Profit for the year 29,722 40,811
Basic and diluted earning per share (kwacha) 13 140.20 90.50
Dividend per share 14 125.00 170.00
Dividends:
Interim dividend - paid in the year 14 8,498 10,623
Proposed final dividend for the year 14 18,059 25,495
26,557 36,118
Notes
Consolidated statement of comprehensive income
for the Year ended 31 December 2009
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British American Tobacco (Zambia) plc
Consolidated cash flow statement
for the year ended 31 December 2009
British American Tobacco Zambia Annual Report 200921
Notes 2009 2008K millions Kmillions
Operating activities
Cash generated from operations 23 47,741 15,880
Interest received 10 196 198
Income tax paid 11 (9,239) (14,761)
Net cash generated from operating activities 38,698 1,317
Investing activities
Purchase of property, plant and equipment 15 (2,571) (2,121)
Proceeds from disposal of property, plant
and equipment 151 18,263
Net cash used in investing activities (2,420) 16,142
Cash flow from financing activities
Unclaimed dividend paid for previous year (23) (657)
Final dividend paid for previous year (25,031) (11,534)Interim dividend paid for current year (8,349) (9,990)
Net cash used in financing activities (33,403) (22,181)
Increase/(decrease) in cash and cash equivalents 2,875 (4,722)
Movement in cash and cash equivalents
At start of year 20,858 25,580
Increase/(decrease) 2,875 (4,722)
At end of year 23,733 20,858
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Year ended 31 December 2008
At start of year 42 725 11,685 12,452
Comprehensive income
Profit for the year - 40,811 - 40,811
Transaction with owners
Dividends
– Final for 2007 - paid 14 - - (11,685) (11,685)
– Interim for 2008 - paid 14 - (10,623) - (10,623)
– Proposed final for 2008 14 - (25,495) 25,495 -
At end of year 42 5,418 25,495 30,955
Year ended 31 December 2009
At start of year 42 5,418 25,495 30,955
Comprehensive income
Profit for the year - 29,722 - 29,722
Transaction with owners
Dividends
– Final for 2008 - paid 14 - - (25,495) (25,495)
– Interim for 2009 - paid 14 - (8,498) - (8,498)
– Proposed final for 2009 14 - (18,059) 18,059 -
At end of year 42 8,583 18,059 26,684
British American Tobacco (Zambia) plc
Consolidated statement of changes in shareholders’ equity
for the year ended 31 December 2009
British American Tobacco Zambia Annual Report 2009 20
Notes
Sharecapital
K miliions
Retainedearnings
K millions
ProposeddividendsK millions
TotalK millions
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009
British American Tobacco Zambia Annual Report 2009 22
1 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
2 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 company’s 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.
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 200923
2 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
Group’s 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 company’s 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 company’s activities. Revenue is shown net of excise duty, value-
added 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 company’s 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;
ii) Interest income is recognised on a time proportion basis using the effective interest method.
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 2009 24
2 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 asset’s 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 40 years
Plant and machinery 10 years
Motor vehicles 3 years
Computer hardware 3 years
Computer software 5 years
Furniture, fittings and office equipment 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 asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher
of an asset’s 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.
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 200925
2 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, first-
out (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 company’s 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.
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 2009 26
2 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.
3 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.
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 200927
3 Critical accounting estimates and judgements (contd)
(ii) Critical judgements in applying the entity’s accounting policies
In the process of applying the company’s accounting policies, management has made judgements in determining:
• the classification of financial assets and leases
• whether assets are impaired.
4 Financial risk management objectives and policies
The company’s 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 company’s 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 andliabilities.
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
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 2009 28
4 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 company’s maximum exposure to credit risk at 31 December 2009 is
made up as follows:
2009 2008
K millions K millions
Cash and cash equivalents 23,733 20,858
Trade receivables 24,134 8,457
Other receivables 673 17,940
48,540 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 2008
K millions K millions
Past due but not impaired:
- by up to 30 days 8,338 122
- by 31 to 60 days - -
- above 61 days - -
Total past due but not impaired 8,338 122
Impaired 763 961
Receivables individually determined to be impaired:
Carrying amount before provision for impairment loss 763 961
Provision for impairment loss (763) (961)
Net carrying amount - -
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 200929
Less than 1 Between 1 and 2 Between 2 and 5 Over 5
year years years years
K millions K millions K millions K millions
At 31 December 2009:
– trade and other payables 34,961 – – –
At 31 December 2008:
–trade and other payables 24,378 – – –
4 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 company’s liquidity reserve on the basis of expected cash flow.
The table below analyses the company’s 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.
The company’s objectives when managing capital are to safeguard the company’s 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.
5 Revenue
2009 2008
K millions K millions
Sales of cigarettes 117,912 87,295
6 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.
ii) Secondary reporting format – geographical segmentThe company operated in one geographical segment: Zambia
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10 Finance income2009 2008
K millions K millions
Interest income 196 198
Net foreign exchange gain/(loss) 4,903 (160)
Net finance income 5,099 38
9 Employee benefits expense
The following items are included within employee benefits expense:
2009 2008
K millions K millions
Salaries and wages 5,586 5,544
Insurance and medical benefits 482 223
Defined benefit scheme - 722
Defined contribution scheme 673 130
National Pension Scheme Authority 188 140
6,929 6,759
British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 2009 30
7 Other income2009 2008
K millions K millions
Gain on disposal of property, plant and equipment - 18,154
Miscellaneous income 604 191
604 18,345
8 Expenses by nature
The following items have been charged in arriving at the profit before income tax:
2009 2008
K millions K millions
Depreciation on property, plant and equipment (Note 15) 1,426 979
Operating lease rentals expensed 622 -
Profit on disposal of property, plant and equipment (53) (18,154)
Receivables – provision for impairment losses 110 422
Repairs and maintenance 1,288 430
Employee benefits expense (Note 9) 6,929 6,759
Auditors’ remuneration 246 260
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Current income tax 16,461 11,741
Deferred income tax (Note 12) 86 246
Income tax expense 16,547 11,987
The tax on the company’s profit before income tax differs from the theoretical amount that would arise using
the statutory income tax rate as follows:
British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 200931
2009
K millions
2008
K millions
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.
11 Income tax expense
Profit before income tax 46,269 52,798
Tax calculated at the statutory income tax rate of 35%
(2008 – 35%) 16,194 18,479
Tax effect of:
Income not subject to tax - (6,933)
Expenses not deductible for tax purposes 353 441
Income tax expense 16,547 11,987
Current income tax movement in the balance sheet
Group
At start of year 6,018 9,038
Current income tax charge 16,461 11,741
Payment during the year (9,239) (14,761)
At end of year 13,240 6,018
Company
At start of year 6,029 9,049
Current income tax charge 16,461 11,741
Payment during the year (9,239) (14,761)
At end of year 13,251 6,029
2009
K millions
2008
K millions
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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 2008
K millions K millions
At start of the year 579 333
Charge to profit and loss account (Note 11) 86 246
At end of year 665 579
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:
British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 2009 32
12 Deferred income tax – Group and company
1.1.2009
K millions
31 .12.2009
K millions
Charged/
(credit)
to P/L
K millions
Year ended 31 December 2008
Deferred income tax liabilities
Property, plant and equipment 682 (345) 337
Unrealised exchange gain 16 226 242698 (119) 579
Deferred income tax assets
Provisions (365) 365 -
Net deferred income tax liability 333 246 579
Year ended 31 December 2009
Deferred income tax liabilities
Property, plant and equipment 337 99 436
Unrealised exchange gain 242 (6) 236
579 93 672
Deferred income tax assets
Unrealised exchange losses - (7) (7)
Net deferred income tax liability 579 86 665
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 200933
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 2008
Net profit attributable to shareholders (K million) 29,722 40,811
Weighted average number of ordinary shares in issue (million) 212 212
Basic and diluted earnings per share (Kwacha) 140.20 192.50
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.
13 Earnings per share
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
15 Property, plant and equipment
British American Tobacco Zambia Annual Report 2009 34
Plant & Furniture Motor
machinery & Fittings Vehicles
K millions K millions K millions K millions K millions K millions
At 1 January 2008
Cost 198 235 3,096 959 2,790 7,278
Accumulated depreciation (72) (159) (1,868) (789) (2,016) (4,904)
Net book amount 126 76 1,228 170 774 2,374
Year ended 31 December 2008Opening net book amount 126 76 1,228 170 774 2,374
Additions - - 273 52 1,796 2,121
Disposals - - - (12) - (12)
Depreciation charge (5) (20) (306) (79) (569) (979)
Closing net book amount 121 56 1,195 131 2,001 3,504
At 31 December 2008
Cost 198 235 3,154 908 4,134 8,629
Accumulated depreciation (77) (179) (1,959) (777) (2,133) (5,125)
Net book amount 121 56 1,195 131 2,001 3,504
Year ended 31 December 2009
Opening net book amount 121 56 1,195 131 2,001 3,504
Additions - 113 479 1,062 917 2,571
Disposals - - (79) (6) (36) (121)
Depreciation charge (5) (26) (362) (113) (920) (1,426)
Closing net book amount 116 143 1,233 1,074 1,962 4,528
At 31 December 2009
Cost 198 302 3,540 1,578 4,310 9,928
Accumulated depreciation (82) (159) (2,307) (504) (2,348) (5,400)
Net book amount 116 143 1,233 1,074 1,962 4,528
(a) Included in the above amount are fully depreciated assets of K2,522 million (2008: K2,951 million) that
are still in use.
(b) 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.
Buildings
ComputersBuildings Total
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2009 2008
K millions K millions
Augusta Developments Limited 1 1
British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 200935
17 Inventories – Group and company 2009 2009 2008
K millions K millions
Finished goods 22,482 11,311
Consumables - 821
22,482 12,132
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 2008
K millions K millions
Trade receivables 24,897 8,199
Less: Provision for impairment losses (763) (961)
24,134 7,238
Receivables from related companies (Note 24) 31 258
Other receivables 642 17,940
24,807 25,436
Movements on the provision for impairment of trade receivables are as follows:
2009 2008
K millions K millions
At start of year 961 539
Provision in the year 110 422
Unused amounts reversed (308) -
At end of year 763 961
The carrying amounts of trade and other receivables approximate to their fair values.
16 Investment in subsidiary company
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 2009 36
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.
19 Trade and other payables
Group 2009 2008K millions K millions
Trade payables 858 127
Excise duty and Value Added Tax 11,595 10,291
Amounts due to related companies (Note 24) 14,599 6,654
Other payables and accrued expenses 5,641 5,628
Unclaimed dividend 2,268 1,678
34,961 24,378
Company
Trade payables 858 127
Excise duty and Value Added Tax 11,595 10,291
Amounts due to related companies (Note 24) 14,599 6,654
Other payables and accrued expenses 7,676 7,633
Unclaimed dividend 2,268 1,678
36,996 26,413
20 Share capital2009 2008
K millions K millions
Authorised
215,000,000 ordinary shares K0.20 each
43 43
Issued and fully paid
212,456,304 ordinary shares of K0.20 each 42 42
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 200937
22 Commitments 2009 2008
K millions K millions
Property, plant and equipment 1,094 2,124
Operating lease commitments
Not later than one year 648 -
Later than 1 year and not later than 5 years 2,160 -
Later than 5 years - -
2,808 -
23 Cash generated from operations – group and company
2009 2008
K millions K millions
Profit before income tax 46,269 52,798
Adjustments for:
Interest income (Note 10) (196) (198)
Depreciation (Note 15) 1,426 979
Profit on sale of property, plant and equipment (30) (18,154)Retirement benefit obligations - (3,550)
Changes in working capital:
– receivables and prepayments 629 (18,002)
– inventories (10,350) 5,106
– payables and accrued expenses 9,993 (3,099)
Cash generated from operations 47,741 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.
Reconciliation of profit before income tax to cash generated from operations:
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British American Tobacco (Zambia) plc
Notes to the consolidated financial statements
for the year ended 31 December 2009 (contd)
British American Tobacco Zambia Annual Report 2009 38
24 Related party transactions (contd)
The following transactions were carried out with related parties:
2009 2008
K millions K millions
i) Purchase of goods and services
British American Tobacco South Africa 2,358 1,195
British American Tobacco Kenya 40,219 19,656
British American Tobacco UK 4,142 3,555
American Cigarettes Company (Royalties) 1,898 1,024
British American Tobacco Southern African Market 1,705 2,759
British American Shared Services AME 1,048 -
50,322 28,189
ii) Key management compensation
Salaries and other short-term employment benefits 1,886 1,532
iii) Directors’ remuneration
Fees for services as a director 147 120
Other emoluments (included in key management
compensation above) 1,126 1,090
1,273 1,210
iv) Outstanding balances arising from purchase of goods/services
Receivables from related parties
British American Tobacco Malawi - 8
British American Tobacco South Africa 31 250
31 258
Payable to related parties
British American Tobacco South Africa 1,189 -
British American Tobacco UK & export 2,533 2,113
American Cigarettes Company 907 33
British American Tobacco Kenya 7,410 4,008
British American Tobacco Southern Africa Market 914 347
British American Shares Services GSD - UK 641 153
British American Shares Services AME 1,005 -
14,599 6,654
No provisions for impairment losses have been required in 2008 and 2009 for any related party receivables.
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Principal Shareholders
British American Tobacco Zambia Annual Report 2009 39
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 Number of shares
British American Tobacco International Holding Limited 165,885,883
Barclays Nominees 11,388,315
Public Service Pensions Fund 8,000,000
Local Authorities Superannuation Fund 5,000,000
Saturnia Regna Pension Trust Fund 3,354,644
Standard Chartered Pension Trust Fund 1,007,176
Mrs Elizabeth Anne Gunn 694,656
CBZ Nominees Limited 608,256
Barclays Zimbabwe Nominees (Private) Limited 571,920
C P Youngson 498,816
Distribution of shareholders Number of Number of % of
Shareholders shares Shareholding
Less than 500 shares 192 43,765 0.02%
500-5,000 shares 937 1,718,181 0.81%
5,001-10,000 shares 104 799,295 0.38%
10,001-100,000 shares 223 6,452,795 3.04%
100,001-1,000,000 share 36 8,806,750 4.15%
Over 1,000,000 shares 6 194,636,018 91.61%
Total 1,498 212,456,804 100.00%
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Notice to Shareholders
British American Tobacco Zambia Annual Report 200940
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. To confirm and sign off the minutes of the forty-seventh Annual General meeting of shareholders
held on 27 March, 2009.
2. To receive and adopt the audited financial statements for the year ended 31 December 2009.
3. To approve Director’s remuneration for the year ended 31 December 2009.
4. To recommend that a final dividend of K85 per share, total K18,059 million is paid for the year
ended 31 December 2009.
5. To elect Directors in place of those retiring in accordance with the provision of the Companies Act
1994 section 2006 (5).
6. 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.
7. 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
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Form of Proxy
British American Tobacco Zambia Annual Report 2009 41
1) To confirm the minutes of the forty–seventh Annual General Meeting of shareholders
held on 27 March 2009.
2) To receive and adopt the audited financial statements for the year ended 31 December
2009.
3) To approve Directors’ remuneration for the year 31 December 2009.
4) To recommend that a final dividend of K85 per share, total K18,059 million is paid for
the year ended 31 December 2009.
5) To elect Directors in place of those retiring in accordance with the provision of the
Companies Act 1994 section 206(5).
6) 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.
7) To transact any other business that may properly be transacted at the Annual General
Meeting.
I hereby direct my proxy as named above to vote as follows on the matters included in the agenda for the meeting:
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.
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
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