british american tobacco p.l.c. annual report 2008 - Notes on the accounts: 5 of 31
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DIRECTORS' REPORT: BUSINESS REVIEW
DIRECTORS' REPORT: GOVERNANCE
FINANCIAL STATEMENTS AND OTHER INFORMATION
5 Associates and joint ventures
| 2009 | 2008 | |||
|---|---|---|---|---|
| Total £m | Group’s share £m | Total £m | Group’s share £m | |
| Gross turnover (including duty, excise and other taxes) | 11,506 | 4,477 | 11,279 | 4,205 |
| Duty, excise and other taxes | (3,687) | (1,431) | (2,935) | (1,045) |
| Revenue | 7,819 | 3,046 | 8,344 | 3,160 |
| Profit from operations | 2,183 | 843 | 2,201 | 850 |
| Net finance costs | (159) | (66) | (140) | (58) |
| Profit on ordinary activities before taxation | 2,024 | 777 | 2,061 | 792 |
| Taxation on ordinary activities | (759) | (291) | (736) | (284) |
| Profit on ordinary activities after taxation | 1,265 | 486 | 1,325 | 508 |
| after (charging)/crediting | ||||
| – trademark impairments | (154) | (65) | (46) | (20) |
| – additional ST income | 42 | 13 | ||
| – termination of joint venture | 107 | 45 | ||
| - health plan credit | 38 | 16 | ||
| – restructuring costs | (22) | (9) | (29) | (12) |
| Attributable to: | ||||
| British American Tobacco’s shareholders | 483 | 503 | ||
| Minority interests | 3 | 5 | ||
| 486 | 508 | |||
| Dividends | ||||
| – listed investments | (328) | (278) | ||
| – unlisted investments | (3) | (48) | ||
| (331) | (326) | |||
The share of post-tax results of associates and joint ventures is after trademark impairments, additional ST income, the gain on termination of a joint venture, a health plan credit and restructuring costs. These items have been treated as adjusting items and excluded from the calculation of adjusted earnings per share as set out in note 7.
In the year ended 31 December 2009, Reynolds American recognised a trademark impairment charge of US$394 million, triggered by the increase in federal excise taxes on tobacco products and changes in pricing. It also has an amortisation charge of US$5 million in respect of brands. The Group’s share of this charge amounted to £65 million (net of tax).
During 2009, Reynolds American reviewed its post-retirement medical plans, resulting in a past service credit which is amortised under US GAAP, but under IFRS is required to be recognised in the income statement in 2009. The Group’s share of this credit amounts to £16 million (net of tax).
Reynolds American also recognised a charge of US$56 million in 2009 in connection with severance and related costs of around 400 employees in order to better align staffing levels with business requirements and enable Reynolds American’s manufacturing operations to phase in new productivity programmes. The Group’s share of this charge amounted to £9 million (net of tax).
In the year ended 31 December 2008, Reynolds American modified the previously anticipated level of support between certain trademarks and the projected net sales of certain trademarks, resulting in a trademark impairment charge of which the Group’s share amounted to £20 million (net of tax).
On 21 February 2008, Reynolds American announced that it would receive a payment from Gallaher Limited resulting from the termination of a joint venture agreement. While the payment will be received over a number of years, in the year ended 31 December 2008, Reynolds American recognised a pre-tax gain of US$328 million. The Group’s share of this gain amounts to £45 million (net of tax).
On 9 September 2008, Reynolds American further announced planned changes in the organisational structure at Reynolds American Inc. and its largest subsidiary, R.J. Reynolds Tobacco Company. The charge for the year ended 31 December 2008 amounted to US$90 million. The Group’s share of this charge included in the results for the year ended 31 December 2008 amounted to £12 million (net of tax).
The year end of ST, an associate of the Group until 2 July 2008, was 30 June, and, for practical reasons, the Group had previously equity accounted for its interest based on the information available from ST which was three months in arrears to that of the Group. The Group acquired 100 per cent of ST’s cigarette and snus businesses on 2 July 2008. ln order to account for the Group’s share of the net assets of ST at the date of the acquisition, the results of ST for the period up to 2 July 2008 were included in the results from associates for 2008, resulting in one additional quarter’s income in 2008. This contributed an additional £13 million to the share of post-tax results of associates and joint ventures.