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Annual Report

British American Tobacco

2009



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



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



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



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




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



Chairman’s Report


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.



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:


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.



Managing Director’s Report


• Smoking Lounge at the Lusaka International Airport

As part of the process of provision of smoking areas to accommodate smokers while protecting non-smokers 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



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.



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.


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



Report of the Directors


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



Report of the Directors


The directors who held office during the year and to the date of this report

were:A B Munyama - Chairman

Johan Grobbelaar - Managing Director

David A R Phiri - Director

Lovemore T Manatsa - Director

Benedict Mwila - Finance Director & Company Secretary

Richard Morgan - Alternate Director to Lovemore Manatsa

In accordance with the Companies Act 1994 Section 206(5) Messrs AB

Munyama and Lovemore T Manatsa retire from the Board at the forthcoming

Annual General Meeting and, being eligible, offer themselves for 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



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





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.



* by invitation


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.



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


Statement of Directors’ Responsibilities



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



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


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



2009 2008


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


Notes 2009 2008


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




Consolidated cash flow statement



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



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


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


Consolidated statement of changes in shareholders’ equity



Notes

Sharecapital

K miliions

Retainedearnings

K millions

ProposeddividendsK millions

TotalK millions




Notes to the consolidated financial statements



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.





for the year ended 31 December 2009 (contd)


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.








(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.








(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.








(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.







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







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


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


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 - -







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


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



10 Finance income2009 2008


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


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





7 Other income2009 2008


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


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



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:





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


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


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



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


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:





12 Deferred income tax – Group and company

1.1.2009

K millions

31 .12.2009

K millions

Charged/

(credit)

to P/L

K millions


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


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







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






15 Property, plant and equipment


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


Net book amount 121 56 1,195 131 2,001 3,504


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


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



2009 2008


Augusta Developments Limited 1 1





17 Inventories – Group and company 2009 2009 2008


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


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


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







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


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







22 Commitments 2009 2008


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


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:







24 Related party transactions (contd)

The following transactions were carried out with related parties:

2009 2008


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.



Principal Shareholders


The ten largest shareholders in the company and the respective number of shares held at 31 December 2009 were

as follows:

Name of the shareholder 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%



Notice to Shareholders


NOTICE IS HEREBY GIVEN that the Forty-Eighth Annual General Meeting of British American Tobacco

(Zambia) plc will be held at Taj Pamodzi Hotel, Lusaka on 31 March 2010 at 10 hours for the following

purposes:

1. 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



Form of Proxy


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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