Global interests cloud BAT’s reporting

British American Tobacco, the world’s second largest cigarette manufacturer, and owner of the Lucky Strike and Pall Mall brands, is battling with the presentation of its accounts under IFRS.

Announcing the company’s 2005 Q1 results, its first ever under IFRS, BAT’s chairman Jan Du Plessis warned investors that ‘comparisons with 2004 will become more deman- ding’ and that the new presentation of the financial statements was ‘further complicated’ by two major transactions in 2004.

BAT, which reported a 4% drop in profit for group operations to £582m from £609m in Q1 2004, has associates across the globe and had to amend the way these interests are accounted for – a change that has seen the company abandon the pre-tax profit headline from its accounts.

Under IFRS the after-tax profits from associates are included in the accounts, as opposed to the treatment under UK GAAP where the share of associates’ pre-tax profits was included.

Peter Holgate, senior technical partner at PricewaterhouseCoopers, said: ‘Investors need to understand [the presentational change] so they can react to reported figures appropriately.’

Although a purely presentational issue that does not affect the bottom line, the change alters the pre-tax profit figure, which has prompted BAT to scrap the heading altogether.

Ralph Edmondson, from BAT investor relations, said the tobacco giant had left out the heading because it was ‘a little counter-intuitive’.

‘The effect on pre-tax profit of the presentational changes makes the measure less relevant so we have stripped it out,’ said Edmondson, before going onto say that ‘there are better ways to look at the business’.

Edmondson said BAT was also grappling with how to present net finance costs, which have become more volatile since the inclusion of derivatives in the accounts.

BAT’s net finance costs for Q1 2005 were £8m higher than Q1 2004 because IAS39 was only applied from the start of this year.

‘We have not decided how to deal with derivatives in the accounts, but by the time we release our full-year results we will have come to a decision,’ Edmondson said.

Despite these presentational difficulties, BAT’s share price climbed above the £10 mark for the first time after the release of its Q1 results, and closed 21.5p higher at 995.5p

Jonathan Fell, an analyst at Morgan Stanley, said this was because BAT’s business had performed well – and not because of the transition to the new standards.’I am surprised that so much has been made of IFRS,’ Fell said.

‘IFRS does not change the financial results of BAT. The operating result was at the top end of expectations.’


Reckitt Benckiser goes ahead with pay increases, despite strong opposition from shareholders

Anglo-American saw its turnover for 2004 increase by £143m after restating its accounts under IFRS. The turnover of the global mining giant increased from $26.1bn (£13.8bn) to $26.3bn under the new standards, because under UK GAAP the company did not include associates’ sales in its turnover figure. ‘Transparency and consistency of financial reporting were prime objectives for the group’s transition project,’ said Anglo-American’s finance director Tony Lea. ‘The presentation and accounting changes made will not detract from our underlying business performance.’

Over a third (35%) of Reckitt Benckiser‘s shareholders voted against the director?s remuneration scheme at the company?s AGM. Despite the shareholder vote against the remuneration report, Colin Day, the CFO of the Harpic and Dettol manufacturer, will still take home a £1.7m pay package for 2004 ð a 30% increase on the £1.35m he earned in 2003.

During this week, the UK’s leading banks – including Barclays – have presented their restated 2004 IFRS accounts to a market still coming to terms with the new standards. In guidance issued towards the end of 2004, most banks revealed that adjusted earnings per share would drop by about 5%, but analysts have expressed concern that the new figures could still cause confusion as auditors and banks grapple with the interpretations of standards.

Cairn Energy’s finance director Kevin Hart saw his annual pay for 2004 increase to £342,038 from £328,152 in 2003. Hart earned a salary of £227,700 and an annual bonus of £99,619. His benefits for 2004 totalled £14,719. Cairn Energy?s profit before taxation and exceptionals for 2004 was £29.4m, down from £69m in 2003.

Nord-Anglia Education, the training and child-care company, has moved to quell speculation about its banking arrangements.

In a trading update the company said it was in ‘constructive discussions’ with its main lenders over an amendment to the terms of its banking facilities. The company said it was ‘confident’ that a satisfactory resolution would be reached.

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