british american tobacco p.l.c. annual report 2008 - Notes on the accounts: Notes 2-3

Sub Navigation

2 Segmental Analyses

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

The restructuring and integration costs, Canadian settlement, amortisation of trademarks and gains on disposal of businesses and trademarks are explained in note 3(e), note 3(f), note 3(g) and note 3(h).

The restatement of the 2007 results reflects the change in the Group's accounting policy for recognition of acturial gains and losses together with the early adoption of the IFRIC14 as explained in note 1.

Segment assets and liabilities include inter-company balances with entities reported as corporate liabilities and corporate assets.

a) Segment revenue

The segmental analysis of revenue is based on location of manufacture. Figures based on location of 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 charges for trademark impairments, additional ST income, the gain on termination of joint venture and restructuring costs.

e) Segmental analysis of revenue and profit for 2008 for the regional structure that will be applicable from 2009

The acquisition of ST (Skandinavisk Tobakskompagni) and Tekel, and the growth of the global business have prompted a review of the Group’s regional structure. The Group has decided, from 1 January 2009, to separate Europe into two regions, Eastern and Western. In addition, Canada forms part of a new Americas region, which include the markets of Latin America and the Caribbean, while Japan becomes part of the Asia-Pacific region. The following segmental analysis of revenue and profit is being provided as additional information:

Revenue - year ended 31 December 2008

Profit from operations - year ended 31 December 2008

All centre costs are allocated to regions in the new regional structure.

*Adjusted profit from operations excludes restructuring and integration costs, Canadian settlement, amortisation of trademarks and gains on disposal of businesses and trademarks as explained in note 3.

Group's share of the post-tax results of associates and joint ventures - year ended 31 December 2008

* Adjusted post-tax profit of associates and joint ventures excludes charges for trademark impairments, additional ST income, the gain on termination of joint venture and restructuring costs.

3 Profit from operations

a) Employee benefit costs

The restatement of 2007 reflects the change in the Group's accounting policy for recognition of actuarial gains and losses as explained in note 1 and note 12.

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 3(e)). 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 trademarks, 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 £17.1 million (2007: £13.8 million).

Total research and development costs including employee benefit costs and depreciation were £105.1 million (2007: £90.9 million).

e) Restructuring and integration 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 as well as integrating acquired businesses into existing operations and are included in the profit from operations under the following headings:

Restructuring costs in 2008 principally relate to costs in respect of the integration of ST and Tekel into existing operations, the reorganisation of the business in the Netherlands, as well as further costs in respect of restructurings announced in 2007 and earlier years. The restructuring costs in 2007 principally related to costs associated with restructuring the operations in Italy, 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.

Other operating income relates to gains on property disposals and also, in 2008, a gain on disposal of a non-core business in the Asia-Pacific region arising from the restructuring exercises. 

f) Canadian settlement

On 31 July 2008, the Group's subsidiary in Canada (Imperial Tobacco Canada) announced that it had reached a resolution with the federal and provincial governments with regard to the investigation related to the export to the United States of Imperial Tobacco Canada tobacco products in the late 1980s and early 1990s.  The subsidiary entered a plea of guilty to a regulatory violation of a single count of Section 240(i) (a) of the Excise Act and has paid a fine of £102 million which was included in other operating expenses in the profit from operations for the year ended 31 December 2008.

Imperial Tobacco Canada has also entered into a 15-year civil agreement with the federal and provincial governments.  In order, amongst other things, to assist the governments in their future efforts against illicit trade, Imperial Tobacco Canada has agreed to pay a percentage of annual net sales revenue each year going forward for 15 years, up to a maximum of Can$350 million, which will be expensed as it is incurred.

g) Amortisation of trademarks

The acquisitions of Tekel and ST resulted in the capitalisation of trademarks which are amortised over their expected useful lives, which do not exceed 20 years. The amortisation charge of £24 million is included in depreciation and amortisation costs in the profit from operations for the year ended 31 December 2008.

h) Gains on disposal of businesses and trademarks

The gain on disposal of businesses and trademarks for the year ended 31 December 2008 was £141 million, of which £139 million arose on 2 July 2008 with the disposal of the Group's 32.35 per cent holding in the non-cigarette and snus businesses of ST (as described in note 26(a)). The gain is included in other operating income in the profit from operations for the year ended 31 December 2008.

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 of 2007 and resulted in a gain of £11 million included in other operating income in profit from operations. However, the Group retained the Dunhill and Captain Black pipe tobacco trademarks.

On 23 May 2007, the Group announced that it had agreed to sell its Belgian cigar factory and associated trademarks to the cigars division of ST. The sale included 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 was included in other operating income in profit from operations for the year ended 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 profit from operations for the year ended 31 December 2007.