Accounting for judgment

British American Tobacco has said that a provision of about £436 million will be charged to the Group’s consolidated income statement in 2019 following an appeals-court judgment in two class action lawsuits in Quebec, Canada.

In a statement posted on its website, BAT said the Quebec Court of Appeal in Montreal, in a judgment made public on Friday, had upheld a trial court’s decision of May 2015 in respect of two Quebec class action lawsuits against its subsidiary, Imperial Tobacco Canada (ITCAN) and two other Canadian tobacco companies. As part of that decision, the defendants were required to deposit about C$1.1 billion into a court escrow account.

‘As part of the 2015 decision, ITCAN was required to place C$758 million (approximately £436 million) in escrow – the final payment of which was made in 2017,’ the note said. ‘This deposit was held as an asset on the Group’s balance sheet at the year-end (31 December 2018).

‘Following the 1 March 2019 judgment, the Board of Directors of ITCAN have reassessed the recoverability of the deposit and have determined that the asset’s recoverability is, under IFRS, less than virtually certain. ‘Consequently, a provision of approximately £436 million will be charged to the Group’s consolidated income statement in 2019. This will be treated as an adjusting expense.

‘There will be no impact from this charge to the ratio of adjusted net debt to adjusted EBITDA, with this decision having no impact to cash flow in 2019.

‘The Board of Directors of ITCAN and the Group are monitoring developments. As previously stated, ITCAN intends to seek leave to appeal this judgment to the Supreme Court of Canada.

‘British American Tobacco p.l.c. was not a party to the proceeding and is not a party to the judgment.’