British American Tobacco Regulatory News (BATS)

12 March 2019

British American Tobacco p.l.c.

Imperial Tobacco Canada Ltd. files for CCAA

An opportunity to settle all outstanding Canadian tobacco litigation

British American Tobacco p.l.c. has today been informed by its Canadian subsidiary, Imperial Tobacco Canada Ltd (ITCAN), that ITCAN has obtained an Initial Order from the Ontario Superior Court of Justice granting it protection under the Companies' Creditors Arrangement Act ("CCAA"). This has the effect of staying all current tobacco litigation in Canada against ITCAN and other Group companies.

ITCAN's decision to file for protection under the CCAA follows the Quebec Court of Appeal judgment holding the industry jointly and severally liable for a maximum of CAD$13.6 billion, and the recent decision by one of the other Canadian tobacco companies, JTI-Macdonald, to seek, and subsequently obtain, CCAA protection. If ITCAN had not also obtained court protection, it could have been required to pay for all or part of JTI-Macdonald's share of the Quebec judgment, in addition to its own.

In addition, across Canada, other tobacco plaintiffs and provincial governments are collectively seeking significant damages which substantially exceed ITCAN's total assets. In seeking protection under the CCAA, ITCAN will look to resolve not only the Quebec case but also all other tobacco litigation in Canada under an efficient and court supervised process, while continuing to trade in the normal course.

It will remain business as usual for ITCAN, its employees, customers and suppliers and during the CCAA process, ITCAN's management will continue to focus on growing its current cigarette and potentially reduced risk products business.

The Group will continue to consolidate the results of ITCAN, in line with IFRS 10 "Consolidated Financial Statements", and ITCAN's CCAA filing will not negatively affect the Group's adjusted net debt to adjusted EBITDA ratio.

The £2.3 billion of goodwill relating to ITCAN on the Group's balance sheet at 31 December 2018 will continue to be reviewed on a regular basis. Any future impairment charge would result in a non-cash charge to the income statement that will be treated as an adjusting item.

Since 2014 the Group has received no dividends from ITCAN and expects that this situation will continue whilst ITCAN remains under CCAA protection. Notwithstanding this, there will be no impact on the BAT Group's dividend payments or policy.

A British American Tobacco spokesperson said:

"Imperial Tobacco Canada has informed us that it disagrees with the Court's judgment. However, we understand that CCAA protection will provide Imperial Tobacco Canada an opportunity to settle all of its outstanding tobacco litigation under an efficient and court supervised process whilst continuing to run its business in the normal course."

Quebec Class Action Update

Following the upholding of the Quebec Superior Court's judgment on 1 March 2019, ITCAN's share of the judgment is a maximum of approximately CAD$9.2 billion. Following the first instance judgment, ITCAN made an initial deposit of CAD$758 million into escrow. As announced on 5 March 2019, an amount of approximately £436 million (CAD$758 million) will be charged to the Group's consolidated income statement in 2019 in respect of this sum and treated as an adjusting item.

ITCAN continues to disagree with the judgments of the Quebec Court of Appeal and the Quebec Superior Court. Canadian consumers and governments have been aware of the health risks associated with smoking for decades, and ITCAN has always operated and sold its legal products within a regulatory framework prescribed by successive governments.

Notes to Editors

CCAA is the Companies' Creditors Arrangement Act, and it refers to the Canadian Federal Act that allows corporations the opportunity to restructure their affairs. An organisation that files for court protection under CCAA continues to operate and maintain business that is "in the ordinary course" or business as usual.

About British American Tobacco

British American Tobacco (BAT) is one of the world's leading, multi-category consumer goods companies, providing tobacco and nicotine products to millions of consumers around the world. It employs over 55,000 people, with market leadership in over 55 countries and factories in 48. Its Strategic Portfolio is made up of its global cigarette brands and a growing range of potentially reduced-risk products. These include vapour, tobacco heating products, and modern oral products as well as traditional oral products such as snus and moist snuff. In 2018, the Group generated revenue of £24.5 billion and profit from operations of £9.3 billion.

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