Note 3 Profit from operations
a) Employee benefit costs
|Wages and salaries||1,233||1,228|
|Social security costs||159||152|
|Other pension and retirement benefit costs (Note 12)||112||123|
|Share-based payments (Note 27)||50||54|
b) Depreciation and amortisation costs
| || ||2006|
|Intangibles other than goodwill||- amortisation||34||35|
|Property, plant and equipment||- depreciation||278||290|
| ||- impairment and accelerated depreciation||89||58|
| || ||401||383|
Impairment and accelerated depreciation in respect of property, plant and equipment arose in relation to the restructuring costs (see note e below) and in respect of the impairment of a business (see note f below).
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 disposals of subsidiaries, joint venture and brands, property disposals, service fees and other shared costs charged to third parties, manufacturing fees and trademark income.
d) Other operating expenses include:
|Research and development expenses (excluding employee benefit costs and depreciation)||36||29|
|Loss on net monetary position|| ||1|
|Rent of plant and equipment (operating leases)|| || |
|- minimum lease payments||25||26|
|- contingent rents||1||1|
|Rent of property (operating leases)|| || |
|- minimum lease payments||61||61|
|- sublease payments||2||2|
|Audit fees payable to PricewaterhouseCoopers LLP||1.3||1.3|
|Fees for other services payable to PricewaterhouseCoopers firms and associates|| || |
|- other services pursuant to statutory legislation||6.3||5.6|
|- tax advisory services||4.3||2.4|
|- tax compliance||0.4||0.5|
|- services relating to Information Technology||0.1||0.1|
|- other non audit services||0.3||0.8|
Fees for other services pursuant to statutory legislation payable to PricewaterhouseCoopers firms and associates include £6.1 million (2005: £5.3 million) for local statutory and Group reporting audits. In addition, the Group paid £0.6 million (2005: £0.5 million) in audit fees to other audit firms, which are excluded from the table above.
Total research and development costs including employee benefit costs and depreciation were £76 million (2005: £66 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:
|Employee benefit costs||100||165|
|Depreciation and amortisation costs||74||58|
|Other operating expenses||62||48|
|Other operating income||(20)|| |
The restructuring costs in 2006 principally relate to manufacturing rationalisation in the Netherlands, with further costs for the earlier restructurings in the UK and Ireland and in Canada. The initial recognition of these earlier restructurings comprised the main costs in 2005. Other operating income relates to gains on property disposals arising from the restructuring exercises.
f) (Losses)/gains on disposal of a business, brands and joint venture
In April 2005, the Group sold its Benson & Hedges and Silk Cut trademarks in Malta and Cyprus to Gallaher Group plc (Gallaher), together with the Silk Cut trademark in Lithuania, resulting in a gain on disposal of £68 million included in other operating income in the profit from operations. The transactions were in accordance with contracts of 1993 and 1994 in which Gallaher agreed to acquire these trademarks in European Union states and the accession of Malta, Cyprus and Lithuania necessitated the sale.
As described in note 26, on 4 October 2005, the Group announced that it had agreed the sale of its 55% shareholding in BARH Ltd to Honda and the sale was completed on 20 December 2005. As a result of these transactions a gain of £5 million was included in other operating income in the profit from operations for 2005.
On 10 March 2006, the Group's Italian subsidiary signed an agreement to sell its cigar business, Toscano, to Maccaferri for euro 95 million. The sale was subject to regulatory and governmental approval and was completed on 19 July 2006.
This resulted in the recognition of a loss of £19 million including an impairment charge of £15 million which is included in depreciation and amortisation costs in the profit from operations.
On 29 September 2006, the Group signed a trademark transfer agreement with Philip Morris International. Under this arrangement the Group agreed to sell 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, which resulted in a net payment to the Group of US $115 million. The agreement was subject to regulatory approval which was received and the transactions completed on 29 November 2006, resulting in a gain of £ 60 million included in other operating income in the profit from operations.