bat plc annual report 2007 - Notes on the accounts: Notes 2-4

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2 Segmental Analyses

Segmental analyses of revenue, profit, assets and liabilities for the year ended 31 December:

The restructuring costs and net gains/(losses) on disposal of businesses and brands are explained in note 3(e) and note 3(f).

The 2006 analysis of revenue above has been restated to reflect changes in manufacturing operations.

Segment assets and segment liabilities include inter-company balances with entities reported as corporate liabilities and corporate assets in note 2(b) and note 2(c).

a) Segment revenue

The segmental analysis of revenue is based on location of manufacture. Figures based on external sales by subsidiaries in each segment are as follows:

b) Segment assets

c) Segment liabilities

d) Segmental analysis of the Group's share of the revenue and post-tax results of associates and joint ventures

External revenue

Post-tax results

*Excluding brand impairments and exceptional tax credits (Note 5)

3 Profit from operations

a) Employee benefit costs

b) Depreciation and amortisation costs

Impairment and accelerated depreciation in respect of property, plant and equipment arose in relation to the restructuring costs (see note (e) below) and, for 2006, in respect of the impairment of a business (see note (f) below). Goodwill arising on the acquisition of minority interests in Africa and Middle East in 2007 has been expensed as part of restructuring costs of that region.

c) Other operating income

This represents income arising from the Group’s activities which falls outside the definition of revenue and includes gains on the disposal of businesses and brands, property disposals, service fees and other shared costs charged to third parties, manufacturing fees and trademark income.

d) Other operating expenses include:

The total fees payable to PricewaterhouseCoopers firms and associates included above are £13.8 million (2006: £12.7 million).

Total research and development costs including employee benefit costs and depreciation were £91 million (2006: £76 million).

e) Restructuring costs

These were the costs incurred as a result of a review of the Group’s manufacturing operations and organisational structure, including the initiative to reduce overheads and indirect costs, and are included in the profit from operations under the following headings:

Restructuring costs in 2007 principally relate to costs associated with restructuring the operations in Italy and with 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 restructuring costs in 2006 principally relate to manufacturing rationalisation in the Netherlands, with further costs for the earlier restructurings in the UK and in Canada.

Other operating income relates to gains on property disposals arising from the restructuring exercises.

f) Net gains/(losses) on disposal of businesses and brands

On 10 March 2006, the Group’s Italian subsidiary signed an agreement to sell its cigar business, Toscano, to Maccaferri for €95 million. The sale was subject to regulatory and governmental approval and was completed on 19 July 2006. The sale resulted in the recognition of a loss of £19 million, reflecting an impairment charge of £15 million included in depreciation and amortisation costs in the profit from operations and £4 million of other costs included in other operating expenses in the profit from operations.

On 29 November 2006, the Group completed a trademark transfer agreement with Philip Morris International. Under this arrangement the Group sold its Muratti Ambassador brand in certain markets, as well as the L&M and Chesterfield trademarks in Hong Kong and Macao, while acquiring the Benson & Hedges trademark in certain African countries. These transactions resulted in a gain of £60 million included in other operating income in the profit from operations.

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 in the profit from operations.

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.

4 Net finance costs

Other interest payable includes interest on the bonds and notes detailed in note 21.

Included within the interest receivable above is £3 million (2006: £6 million) in respect of available-for-sale investments. Included within dividend income above is £1 million (2006: £2 million) in respect of available-for-sale investments.

Included within exchange differences above is a loss of £35 million (2006: £71 million loss) in respect of items subject to fair value hedges.