Associated Company - British American Tabacco

In the year under review, the Group's share of the results of its associated company, BAT, increased by 11 per cent to € 468 million.

In its financial year to 31 December 2004, BAT's adjusted diluted earnings per share, a good measure of its underlying performance, grew by 10 per cent to 75.83 pence per share. This reflects the higher operating profit, the reduced effective tax rate, lower minority interests and the positive impact of BAT's share buy-back programme.

In the quarter to 31 March 2005, BAT's adjusted diluted earnings per share, calculated using International Financial Reporting Standards, showed an increase of 26 per cent over the comparable period.

In the year to 31 December 2004, BAT - in line with UK accounting practice - included within its equity an amount of £ 918 million, being the gain on the disposal of subsidiaries and some £ 216 million in respect of goodwill reinstated on its balance sheet. These items were linked to the deemed disposal of its US operations as a consequence of the Reynolds American transaction. Under the Group's accounting policies, Richemont has included its share of the gain on disposal of € 252 million within exceptional items in its profit and loss account on a reported basis for the year ended 31 March 2005.

In the year to 31 March 2005, Richemont's interest in BAT generated cash totalling € 1 274 million. This is made up of dividends on its ordinary and preference shares totalling € 267 million (2004: € 252 million), the proceeds on the effective disposal of Richemont's interest in the preference shares of some € 828 million as well as € 179 million on the disposal of a 0.6 per cent effective interest in BAT to Remgro Limited, announced in March 2005. Richemont now has an effective interest in 390 036 627 BAT ordinary shares.

BAT has reported under UK accounting standards ('UK GAAP') for its financial year ended 31 December 2004. From 1 January 2005, BAT has adopted International Financial Reporting Standards ('IFRS'). In Richemont's consolidated financial statements for the year ended 31 March 2005, the Group has included its share of BAT results for the nine months to 31 December 2004 using UK GAAP based figures provided by BAT. To reflect Richemont's April to March financial year, BAT's results for the quarter ended 31 March 2005 and its balance sheet at that date, which were prepared by BAT in accordance with IFRS, were adjusted to reflect consistent accounting policies for the full 12-month period.

The Group's percentage interest in the ordinary capital of BAT fluctuated during the year as a result of the conversion of the BAT preference shares into ordinary shares on 28 May 2004 upon their sale to third party investors and the indirect sale, announced in March 2005, of a 0.6 per cent interest in BAT shares to the Group's joint venture partner, Remgro Limited, offset to some extent by the effect of the share buy-back programme carried out by BAT during the year. The following table shows the percentage interest held by Richemont in BAT during the financial year as well as the percentages applied to the prior year.

For the year ended 31 March 2005


1 April 2004 to 31 May 2004	19.7%
1 June 2004 to 30 September 2004	18.7%
1 October 2004 to 31 December 2004	18.8%
1 January 2005 to 28 February 2005	18.8%
1 March 2005 to 31 March 2005	18.3%

For the year ended 31 March 2004


1 April 2003 to 30 September 2003	19.2%
1 October 2003 to 31 March 2004	19.6%

BAT's own attributable profit, excluding goodwill amortisation and exceptional items, was 9 per cent higher than the previous year at £ 1 698 million. However, after accounting adjustments to reflect the present value of the preference shares and preference share dividends, BAT's results for 2005 were 11 per cent higher compared to the previous year. Notwithstanding Richemont's reduced equity interest, the 2 per cent strengthening of sterling against the euro and the improved profitability of BAT resulted in the Group's share of BAT's results increasing in euro terms by 11 per cent to € 468 million.

BAT's financial year runs from 1 January to 31 December, in respect of which it publishes unaudited quarterly financial statements and audited annual financial statements. Richemont's share of the results of its investment in BAT is determined for each year ended 31 March on the basis of the audited results of BAT for the year to the previous 31 December, adjusted to exclude the unaudited results for the three months to the previous 31 March and to include the unaudited results for the three months to Richemont's year end. The carrying value of Richemont's investment in BAT at 31 March each year is based on the unaudited quarterly balance sheet of BAT at that date.

In July 2004, BAT completed the agreement to combine its Brown & Williamson ('B&W') US domestic businesses with that of R.J. Reynolds ('RJR') under Reynolds American Inc, a new holding company 58 per cent owned by RJR shareholders and 42 per cent by BAT. BAT also sold Lane, its US-based pipe and smoking tobacco business, to Reynolds American for $ 400 million in cash. As a consequence of the merger, B&W and each of its affiliates (other than Reynolds American and its subsidiaries) will be indemnified by Reynolds American for all existing and future litigation relating to the US tobacco business. BAT expects that the transaction will significantly improve its competitive position in the US domestic market.

The following comments on BAT's performance have been extracted from the BAT annual report for its financial year ended 31 December 2004:

During BAT's financial year ended 31 December 2004, cigarette volumes, including make-your-own 'stix', grew by 8 per cent to 853 billion cigarettes. The additional volumes were mainly gained from acquisitions together with the impact of the Reynolds American transaction. Excluding these benefits, the growth in sales volume would have been 0.4 per cent. Cigarette sales volumes include the whole of the Reynolds American volume, as is the case with BAT's other associated companies in India and Denmark. The US volumes, therefore, include seven months from B&W and five months from Reynolds American. Excluding merger benefits, there were strong volume performances in Russia, Turkey, India and Pakistan, offset by declines in Germany, France, Canada and Japan. The global drive brands - Dunhill, Kent, Lucky Strike and Pall Mall - grew by 2 per cent. Kent's volume increased by 10 per cent to a new record high of 33 billion.

BAT's operating profit, before goodwill amortisation and exceptional items, was 2 per cent higher at £ 2 830 million. These results were adversely affected by average sterling exchange rates strengthening against almost all currencies. At comparable rates of exchange, operating profit, before goodwill and exceptional items, would have risen by 7 per cent, reflecting the benefit from the Ente Tabacchi Italiani S.p.A. ('ETI') acquisition at the end of 2003 and a good performance in all regions except America-Pacific.

Profit from the America-Pacific region was £ 795 million, a decrease of £ 200 million from the same period last year. This was the result of lower profits in Canada and Japan, further accentuated by the translation of US and Canadian results into sterling. Volumes in the region were up 27 per cent to 131 billion, mainly as a result of the Reynolds American transaction, with higher volumes from South Korea more than offset by declines in Canada and Japan.

In Asia-Pacific, regional profit rose by £ 42 million to £ 515 million as strong performances in Australia, New Zealand, Malaysia, Vietnam, Pakistan, India and the dutyfree business were only partially offset by reduced profit from Indonesia and Taiwan. Regional volumes at 201 billion were 4 per cent higher than last year, with strong increases in India, Vietnam, Pakistan and Bangladesh partially offset by declines in Indonesia and Malaysia.

In Latin America, a decrease in profit of £ 12 million to £ 428 million was mainly the result of many currencies in this region weakening against sterling. This masked good performances in local currency terms as the region benefited from an improvement in margins. Regional sales volume at 148 billion was down by 2 billion mainly as a result of increased pressure from the growing illicit trade, especially after excise-driven price increases in Brazil and Argentina. This was partly offset by the additional volumes from the new business acquisition in Peru, good performances in the majority of the Central American markets and growth in Venezuela.

In Europe, profit increased by £ 190 million to £ 726 million, mainly driven by the inclusion of ETI in the results from the beginning of 2004. Excluding ETI, there was good profit growth of 10 per cent at comparable rates of exchange. There were excellent performances in Russia and Romania. The Smoking Tobacco and Cigars business performed well and benefits were realised from cost savings following the closure of factories and a number of reorganisations. These more than offset the adverse impact of markets where excise increases resulted in lower volumes. Regional volumes grew by 7 per cent, reaching 268 billion, primarily due to incremental volume from newly acquired businesses and growth in Russia, partly offset by market-related declines in Western Europe.

Profits in the Africa and Middle East region grew by £ 29 million to £ 366 million, with strong performances from South Africa, Nigeria and the Caucasus, partly offset by the cost of continued investment in new markets and a large fall in profit from Zimbabwe. Volumes rose by 7 per cent to 105 billion mainly as a result of the significant growth in Turkey as well as increases in the Caucasus and Nigeria, partly offset by declines in South Africa and Zimbabwe.