Summary Income Statement and Results of Associate

	2006 €m	2005 €m
Operating profit	741	561
Finance income/(costs)	5	(48)
	746	513
Share of post-tax results of associated undertaking	486	798
Before non-recurring (expenses)/income	544	493
Share of non-recurring (expenses)/income	(58)	305

Profit before taxation	1232	1311
Taxation	(136)	(97)
Net profit	1069	1214

Attributable to unitholders	1094	1212
Attributable to minority interests	2	2
Net profit	1096	1214

Net finance income amounting to € 5 million includes net interest income, net foreign exchange gains and fair value adjustments. In the prior year, net finance cost of € 48 million primarily reflected net foreign exchange losses on intra-group financing.

Excluding the Group’s share of the results of its investment in British American Tobacco, the Group’s effective taxation rate was 18.2 per cent compared with 18.9 per cent last year. The rate reflects the significant improvement in the Group’s pre-tax profit and the generally low level of corporate taxes in Switzerland compared to other jurisdictions.

Associated company – British American Tobacco

For the year ended 31 March 2006, the Group’s share of the results of British American Tobacco decreased to € 486 million. The reduction largely reflects the significant and non-recurring income reported by British American Tobacco in the prior year in respect of the merger of its North American operations with those of R.J. Reynolds to form Reynolds American, in which British American Tobacco now holds 42 per cent of the equity. Excluding this and other non-recurring income and expense from both years, the Group’s share of the results of British American Tobacco would have increased by 10 per cent to € 544 million.

The following table presents the Group’s effective interest in British American Tobacco applied in the current and the prior year.

	2005-06 %	2004-05 %
1 April to 31 May	18.4	19.7
1 June to 30 June	18.4	18.7
1 July to 30 September	18.5	18.7
1 October to 28 February	18.6	18.8
1 March to 31 March	18.6	18.3

The Group’s interest in the prior year fluctuated principally as a result of the dilutive effect of the conversion of the British American Tobacco preference shares into ordinary shares on 28 May 2004, upon their sale to third party investors, and the sale in March 2005 of a 0.6 per cent interest in British American Tobacco shares to Remgro Limited. Other movements for that year and those of the current year were the result of the share buy-back programme carried out by British American Tobacco.

British American Tobacco reports its results in sterling. As the average euro:sterling exchange rate, at 0.682, was the same for the past two years, there was no direct impact on the Group’s share of British American Tobacco’s results due to exchange rate movements.

In cash flow terms, the Group received dividends totalling € 247 million during the year (2005: € 267 million).

In British American Tobacco’s financial year to 31 December 2005, its adjusted, diluted earnings per share, a good indicator of its underlying performance, grew by 17 per cent to 89.34 pence per share. This increase benefited from the improved underlying operating performance and reduced net finance costs as well as the impact of the formation of the Reynolds American joint venture during the previous year and the positive impact of the share buy-back programme.

In British American Tobacco’s quarter to 31 March 2006, its adjusted, diluted earnings per share grew by 14 per cent as a result of the increase in the profit from operations, the improved contribution from associated companies and the benefit of the share buy-back programme, partially offset by higher taxation and minority interests.

The following commentary is condensed from British American Tobacco’s annual report for the year ended 31 December 2005:

British American Tobacco cigarette sales volumes from subsidiaries decreased by 1 per cent to 678 billion from the prior year due to the merger of British American Tobacco’s US business with R.J. Reynolds to form Reynolds American as well as the sale of Etinera, an Italian distribution business. However, excluding the impact of these transactions, there was good organic volume growth from subsidiaries of 2 per cent. The four global drive brands – Dunhill, Kent, Lucky Strike and Pall Mall – performed well with an overall growth of 9 per cent on a ‘like for like’ basis. Associates’ volumes increased from 167 billion to 232 billion and, with the inclusion of these, total British American Tobacco volumes would have been 910 billion (2004: 853 billion).

British American Tobacco’s profit from operations was 36 per cent lower at £ 2 420 million, mainly due to the impact in 2004 of a significant £ 1 389 million gain on the Reynolds American merger. Excluding the merger of its US business with R.J. Reynolds and the sale of Etinera, on a ‘like for like’ basis, British American Tobacco’s profit from operations would have been 9 per cent higher, or 5 per cent at constant rates of exchange. This ‘like for like’ information provides a better understanding of the subsidiaries’ trading results. The strong profit performance reflected higher profit in all regions, except America-Pacific.

In Europe, profit increased by £ 34 million to £ 784 million, with particularly strong growth from Russia and Germany. The integration of the Smoking Tobacco and Cigars business in 2005, other cost savings and the positive impact of the change in trade terms in Italy also contributed to the result. Excluding a net £ 30 million gain as a result of the sale of Etinera at the end of 2004, partly offset by the consequent change in terms of trade, profit on a ‘like for like’ basis would have increased by £ 64 million or 9 per cent. Volumes were 2 per cent higher at 244 billion with growth in Russia, Romania and Poland, partly offset by declines in Italy, Germany, Switzerland and Ukraine.

In Asia-Pacific, profit rose by £ 36 million to £ 531 million as good performances in Australasia and Pakistan, a benefit in the first quarter from the timing of an excise payment in South Korea and good results from many of its other markets more than covered the reductions in Malaysia and Vietnam. Volumes at 137 billion were 4 per cent higher, as strong increases in Pakistan and Bangladesh were partially offset by declines in South Korea, Vietnam and Malaysia.

In Latin America, profit increased by £ 82 million to £ 530 million as good performances across the region reflected higher volumes and margins, further helped by stronger currencies in many of the markets. Volumes at 149 billion increased slightly as growth in many markets was partly offset by declines in Mexico and Argentina.

Profit in the Africa and Middle East region grew by £ 74 million to £ 434 million, mainly driven by South Africa and reduced losses from Turkey. Volumes grew by 5 per cent to 103 billion with strong growth from the Middle East markets and Turkey.

On a ‘like for like’ basis, the America-Pacific regional profit declined by £ 54 million to £ 436 million, with lower contributions from both Canada and Japan. Increased volumes in Japan were more than offset by a decrease in Canada leading to an overall decline of 2 per cent. As the comparative period included the US tobacco businesses now merged with R.J. Reynolds and included in associates, the reported regional volumes were 34 per cent lower at 45 billion and reported profit was £ 203 million down.

British American Tobacco’s share of the post-tax results of its own associates increased by £ 266 million to £ 392 million, reflecting the inclusion of £ 244 million for Reynolds American, following its formation in July 2004. On a pro forma US GAAP basis, as if the combination of the R.J. Reynolds domestic US tobacco business with Brown & Williamson had been completed as of 1 January 2004, Reynolds American reported that operating profit for the year increased by 35 per cent and net income rose by 29 per cent. These results demonstrate the success of the business combination. The higher income principally reflected improved pricing and merger synergies.

Further information in respect of British American Tobacco can be obtained from that company’s website: www.bat.com.