British American Tobacco Annual Report 2010 - Note 2

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2 Segmental analyses

As the chief operating decision maker, the Management Board reviews external revenues and adjusted profit from operations to evaluate segment performance and allocate resources. Interest income, interest expense and taxation are centrally managed and accordingly such items are not presented by segment as they are excluded from the measure of segment profitability.

The Management Board reviews current and prior year segmental revenue, adjusted profit from operations of subsidiaries and adjusted post-tax results of associates and joint ventures at constant rates of exchange. The constant rate comparison provided for reporting segment information is based on a retranslation, at prior year exchange rates, of the current year results of the Group’s overseas entities but, other than in exceptional circumstances, does not adjust for transactional gains and losses in operations which are generated by movements in exchange rates. As a result, the 2010 segmental results were translated using the 2009 average rates of exchange. The 2009 comparative figures are also stated at the 2009 average rates of exchange.

The analyses of revenue for the 12 months to 31 December 2010 and 31 December 2009, based on location of sales, are as follows:

The analyses of profit from operations and the Group’s share of the post-tax results of associates and joint ventures, reconciled to profit before taxation, are as follows:

*

The adjustments to profit from operations and the Group’s share of the post-tax results of associates and joint ventures are explained in notes 3(e) to 3(h) and in note 5, respectively.

**

Translation exchange in Eastern Europe includes exceptional transactional exchange losses in respect of the Group’s subsidiary in Uzbekistan.

Adjusted profit from operations at constant rates of £4,745 million (2009: £4,461 million) excludes impairment of intangibles and property, plant and equipment, as well as amortisation of trademarks. These are treated as adjusting items as explained in notes 3(b) and 3(e) to (g) and are excluded from segmental profit from operations at constant rates as follows:

External revenue and non-current assets other than financial instruments, deferred tax assets and retirement benefit assets are analysed between the UK and all foreign countries at current rates of exchange as follows:

Included in the external revenue from foreign countries is £1,696 million (2009: £1,529 million) attributable to Brazil, being the only subsidiary contributing more than 10 per cent of the Group’s external revenue in 2010 and 2009. The main acquisitions comprising the goodwill balance of £11,656 million (2009: £11,331 million) in intangible assets is provided in note 9. Included in investments in associates and joint ventures are amounts of £1,872 million (2009: £1,805 million) attributable to the investment in Reynolds American and £747 million (2009: £670 million) attributable to the investment in ITC. Further information can be found in note 11.

Segmental analysis of revenue and profit for 2010 for the regional structure change that will be applicable from 2011

Due to the decision to reduce the management structure from five regions to four regions from 1 January 2011, markets which currently comprise the Eastern Europe region will be merged into the Africa and Middle East region and the Western Europe region. Russia, Ukraine, Moldova, Belarus, Caucasus and Central Asia will form part of the new Eastern Europe, Middle East and Africa region (EEMEA) while Romania, Bulgaria, Serbia, Montenegro, Albania and Kosovo will become part of the Western Europe region. The following analysis of revenue and adjusted profit from operations is being provided as additional information and will be the comparative information used by the Management Board in 2011 to evaluate segment performance and allocate resources.

*

The adjustments to profit from operations and the Group’s share of the post-tax results of associates and joint ventures are explained in notes 3(e) to 3(h) and in note 5, respectively.