bat plc annual report 2007 - Financial review (1 of 4)

General Navigation

• Quick read
• Operating and Financial Review
  • Chairman's statement
  • Chief Executive's review
  • Measuring our performance
  • Our strategy
  • Key Group risk factors
  • Regional review
  • Financial review
• Directors' report
• Group financial statements
• Parent company financial statements
• Shareholder information and downloads

Profit from operations

The reported Group revenue at £10,018 million grew by 3 per cent and profit from operations at £2,905 million grew by 11 per cent. However, at comparable rates of exchange, the growth rates would have been 5 per cent and 15 per cent respectively. The adverse impact of exchange resulted from the weakening in the average rates against sterling of a number of currencies.

In addition, reported profit can be distorted by exceptional items, as described below. Excluding the exceptional items, profit from operations grew by 7 per cent or 11 per cent at comparable rates of exchange.

During 2007, revenue grew and costs were lower, with profit from operations, excluding exceptional items, as a percentage of revenue at 30.0 per cent compared to 28.7 per cent in 2006.

During 2007, the last year of our five year programme of cost savings, we achieved annual savings of £1,006 million in total for supply chain and overheads and indirects. A new five year target has been set to achieve annual savings of £800 million by 2012, in areas such as supply chain efficiencies, back office integration and management structures.

Details of the Group’s operating performance excluding exceptional items and unallocated costs can be found in the Regional review. Unallocated costs, which are net corporate costs not directly attributable to regional segments of the businesses, were £107 million (2006: £103 million).

Exceptional items

The exceptional items below are separately disclosed as memorandum information on the face of the Income Statement and in the segmental analysis, to help provide a better understanding of the Group’s financial performance.

The Group continued its review of manufacturing operations and organisational structure, including the initiative to reduce overheads and indirect costs. In 2007, costs were incurred for restructuring the operations in Italy and the reorganisation of the business across the Europe and Africa and Middle East regions, as well as further costs related to restructurings announced in prior years. The total restructuring costs were £173 million for 2007 compared to £216 million for 2006.

On 20 February 2007, the Group announced that it had agreed to sell its pipe tobacco trademarks to the Danish company, Orlik Tobacco Company A/S, for €24 million. The sale was completed during the second quarter and resulted in a gain of £11 million included in other operating income in the profit from operations. However, the Group has retained the Dunhill and Captain Black pipe tobacco brands.

On 23 May 2007, the Group announced that it had agreed to sell its Belgian cigar factory and associated brands to the cigars division of Skandinavisk Tobakskompagni AS. The sale includes a factory in Leuven as well as trademarks including Corps Diplomatique, Schimmelpennick, Don Pablo and Mercator. The transaction was completed on 3 September 2007, and a gain on disposal of £45 million is included in other operating income for the twelve months to 31 December 2007.

On 1 October 2007, the Group agreed the termination of its license agreement with Philip Morris for the rights to the Chesterfield trademark in a number of countries in Southern Africa. This transaction resulted in a gain of £19 million included in other operating income in the profit from operations.

Profit from operations in 2006 benefited from a £41 million gain, comprising a £60 million gain on a trademark transfer agreement for certain brands in Far East and African markets, partly offset by a loss of £19 million on the disposal of the Italian cigar business.