Notes on the accounts
Associates and joint ventures
- 1 Accounting policies
- 2 Segmental analyses
- 3 Profit from operations
- 4 Net finance costs
- 5 Associates and joint ventures
- 6 Taxation on ordinary activities
- 7 Earnings per share
- 8 Dividends and other appropriations
- 9 Intangible assets
- 10 Property, plant and equipment
- 11 Investments in associates and joint ventures
- 12 Retirement benefit schemes
- 13 Deferred tax
- 14 Trade and other receivables
- 15 Available-for-sale investments
- 16 Derivative financial instruments
- 17 Inventories
- 18 Income tax receivable and payable
- 19 Cash and cash equivalents
- 20 Capital and reserves – reconciliation of movement in total equity
- 21 Borrowings
- 22 Other provisions for liabilities and charges
- 23 Trade and other payables
- 24 Financial instruments and risk management
- 25 Cash flow
- 26 Business combinations and disposals
- 27 Share-based payments
- 28 Group employees
- 29 Related party disclosures
- 30 Contingent liabilities and financial commitments
5 Associates and joint ventures
|Gross turnover (including duty, excise and other taxes)||12,841||4,864||12,834||4,924|
|Duty, excise and other taxes||(4,053)||(1,541)||(4,205)||(1,620)|
|Profit from operations||2,861||1,066||2,473||938|
|Net finance costs||(149)||(62)||(152)||(63)|
|Profit on ordinary activities before taxation||2,712||1,004||2,321||875|
|Taxation on ordinary activities||(881)||(331)||(846)||(322)|
|Profit on ordinary activities after taxation||1,831||673||1,475||553|
|Owners of parent company||670||550|
|– adjusted share of post-tax results of associates and joint ventures||659||622|
|– issue of shares and change in shareholding||91||28||(30)||(9)|
|– smoking cessation programme||(55)||(23)|
|– gain on disposal of business||51||22|
|– Canadian settlements||(140)||(59)|
|– listed investments||479||460|
|– unlisted investments||7||6|
The share of post-tax results of associates and joint ventures is after the following adjusting items which are excluded from the calculation of adjusted earnings per share as set out in note 7.
In 2011, the Group’s interest in ITC decreased from 31.43 per cent to 31.04 per cent as a result of ITC issuing ordinary shares under the company’s employee stock option scheme. The issue of shares and change in the Group’s share of ITC resulted in a gain of £28 million, which is treated as a partial deemed disposal and included in the income statement.
During the year, Reynolds American, along with other tobacco companies, was refused by the US Supreme Court a request to revoke a 2009 order requiring them to finance a US$278 million smoking cessation programme in Louisiana (Scott case). The Group’s share of this charge amounts to £23 million (net of tax).
In March 2011, Reynolds American sold Lane Limited for US$205 million in cash. The Group’s share of the gain on the disposal of this business amounts to £22 million (net of tax).
Reynolds American has also recognised the following amounts which have been combined in the table of adjusting items and reported in other: Reynolds American reported a charge of US$64 million in respect of four Engle progeny lawsuits that have proceeded through the appellate process in the state of Florida. The amount includes compensatory and punitive damages as well as attorneys’ fees and statutory interest. The Group’s share of this charge amounts to £10 million (net of tax). Reynolds American recognised trademark amortisation and impairment of US$47 million and the Group’s share of these charges amounts to £8 million (net of tax). Reynolds American reported US$16 million and US$11 million of tax credits and interest, respectively and the Group’s share of these credits amounts to £6 million (net of tax). Reynolds American recognised restructuring charges of US$23 million and the Group’s share of these charges amounts to £4 million (net of tax).
During 2010, the Group’s interest in ITC decreased from 31.92 per cent to 31.43 per cent as a result of ITC issuing ordinary shares under the company’s employee stock option scheme. This resulted in a charge of £9 million.
In the year ended 31 December 2010, a subsidiary of Reynolds American, R.J. Reynolds Tobacco Company Inc. (RJRTC), entered into a comprehensive settlement agreement with the Canadian federal, provincial and territorial governments to resolve all the governments’ civil claims related to smuggling in Canada during the 1980s and 1990s. As part of the civil settlement, RJRTC agreed to pay the governments CA$325 million. In a separate matter, a subsidiary of R.J. Reynolds Tobacco Holdings Inc., Northern Brands International Inc., entered into a plea agreement with the Ministry of the Attorney General of Ontario. As a result of its plea to one count of conspiracy to aid others in the sale and possession of contraband cigarettes in the early 1990s, Northern Brands paid a fine of CA$75 million. The Group’s share of these charges amounted to £59 million (net of tax).
In the year ended 31 December 2010, Reynolds American recognised the following amounts which have been combined in the table of adjusting items and reported in other: Reynolds American recognised restructuring charges from the closure of one factory in August 2010 and the planned closure of another in mid 2011. As a result of these actions, Reynolds American recorded charges mostly relating to asset impairment and, to a lesser extent, severance costs. The Group’s share of these charges amounted to £6 million (net of tax). RJRTC also received a payment of US$21 million as a result of the agreement to terminate early the Contract Manufacturing Agreement dated 30 July 2004 between RJRTC and BATUS Japan Inc., a wholly owned Group subsidiary, and settle all disputes at issue between the parties as explained in note 29. The Group’s share of this receipt amounted to £3 million (net of tax). In addition, Reynolds American recognised a trademark impairment charge of US$6 million as well as trademark amortisation of US$4 million. The Group's share of these charges amounted to £1 million (net of tax).