Annual report 2010 - Imperial Tobacco Group

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Accounting Policies continuedStrategy Performance Governance FinancialsBasis of ConsolidationThe consolidated financial statements comprise the results of Imperial Tobacco Group PLC (the Company) and itssubsidiary undertakings.Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power to govern the financialand operating policies of an enterprise taking into account any potential voting rights. The financial statements of subsidiariesare included in the consolidated financial statements from the date that control commences until the date that controlceases. Where necessary, accounting policies of subsidiaries are changed to ensure consistency with the policies adoptedby the Group.The acquisition method of accounting is used to account for the purchase of subsidiaries. The excess of the valuetransferred to the seller in return for control of the acquired business together with the fair value of any previously heldequity interest in that business over the Group’s share of the fair value of the identifiable net assets is recorded as goodwill.Transactions with non-controlling interests are treated as transactions with parties external to the Group.Intragroup transactions, balances and unrealised gains on transactions between Group companies are eliminated.Unrealised losses are also eliminated unless costs cannot be recovered.A list of the principal subsidiaries is included on pages 157 and 158.Joint VenturesJoint ventures are those businesses which the Group and third parties jointly control. The financial statements of jointventures are consolidated using the proportionate method, with the Group’s share of assets and liabilities recognised in thebalance sheet classified according to their nature. In the same way, the Group’s share of income and expenses is presentedin the consolidated income statement in accordance with their function.If necessary, adjustments are made to the financial statements of these companies to align their accounting policies withthose used by the Group.Foreign CurrencyItems included in the financial statements of each Group company are measured using the currency of the primary economicenvironment in which the company operates (the functional currency).The income and cash flow statements of Group companies using non-sterling functional currencies are translated to sterling(the Group’s presentational currency) at average rates of exchange in each period, which are an appropriate approximationof the rates ruling at the dates of transactions in the income and cash flow statements. Assets and liabilities of thesecompanies are translated at rates of exchange ruling at the balance sheet date. The differences between retained profitsand losses translated at average and closing rates are taken to reserves, as are differences arising on the retranslation ofthe net assets at the beginning of the year.Any translation differences that have arisen since 1 October 2004 are presented as a separate component of equity.As permitted by IFRS 1, any differences prior to this date are not included in this separate component of equity.Transactions in currencies other than a company’s functional currency are initially recorded at the exchange rate ruling atthe date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and fromthe translation at exchange rates ruling at the balance sheet date of monetary assets and liabilities denominated in foreigncurrencies are recognised in the income statement, except when treated as qualifying net investment hedges.The Group designates as net investment hedges certain external borrowings and derivatives up to the value of the netassets of Group companies that use non-sterling functional currencies after deducting permanent intragroup loans.Gains or losses on these hedges are transferred to other comprehensive income and offset any gains or losses ontranslation of the net assets.Revenue RecognitionFor the Tobacco business, revenue comprises the invoiced value for the sale of goods and services net of sales taxes,rebates and discounts. Revenue from the sale of goods is recognised when a Group company has delivered products tothe customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured.Sales of services, which include fees for distributing third party products, are recognised in the accounting period in whichthe services are rendered. Licence fees are recognised on an accruals basis in accordance with the substance of therelevant agreements.For the Logistics business, revenue comprises the invoiced value for the sale of goods and services net of sales taxes,rebates and discounts. The Logistics business only recognises commission revenue on purchase and sale transactionsin which it acts as a commission agent. Distribution and marketing commissions are included in revenue. Revenue isrecognised on products on consignment when these are sold by the consignee.104
Duty and Similar ItemsDuty and similar items includes duty and levies having the characteristics of duty. In countries where duty is a production tax,duty is included in revenue and in the income statement as an expense. Where duty is a sales tax, duty is excluded fromrevenue. Payments due in the United States under the Master Settlement Agreement and the Fair and Equitable TobaccoReform Act are considered to be levies having the characteristics of duty and are treated as a production tax.TaxesTax on the profit or loss for the year comprises current and deferred tax.Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enactedat the balance sheet date, and any adjustments to tax payable in respect of previous years.Management periodically evaluates positions taken in tax returns where the applicable tax regulation is subject tointerpretation. The Group establishes provisions on the basis of amounts expected to be paid to the tax authorities onlywhere it is considered more likely than not that an amount will be paid or received. The Group applies this test to eachindividual uncertain position. The Group measures the uncertain positions based on the single most likely outcome.Deferred tax is provided in full on temporary differences between the carrying amount of assets and liabilities in the financialstatements and the tax base. However, the deferred tax is not accounted for if it arises from initial recognition of an asset orliability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nortaxable profit or loss. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits willbe available against which the assets can be realised. Deferred tax assets and liabilities are not discounted. Deferred tax isdetermined using the tax rates that have been enacted or substantively enacted at the balance sheet date, and are expectedto apply when the deferred tax liability is settled or the deferred tax asset is realised.Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of thereversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reversein the foreseeable future.Tax is recognised in the income statement, except where it relates to items recognised in other comprehensive income ordirectly in equity, in which case it is recognised in other comprehensive income or equity.DividendsFinal dividends are recognised as a liability in the period in which the dividends are approved by shareholders, while interimdividends are recognised in the period in which the dividends are paid.Intangible Assets – GoodwillGoodwill represents the excess of value transferred to the seller in return for control of the acquired business together withthe fair value of any previously held equity interest in that business over the Group’s share of the fair value of the identifiablenet assets.Goodwill arising on acquisitions made on or after 27 September 1998 is capitalised. Previously all goodwill was written offthrough equity in the period of acquisition. As permitted under IFRS 1, goodwill arising on acquisitions prior to 1 October2004 is stated in accordance with UK GAAP and has not been remeasured on transition to IFRS. Goodwill is tested at leastannually for impairment and carried at cost less accumulated impairment losses. Any impairment is recognised immediatelyin the income statement and cannot be subsequently reversed. Goodwill is allocated to groups of cash-generating units forthe purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating unitsthat are expected to benefit from the business combination in which the goodwill arose. Gains or losses on the disposal ofa Group company are determined by comparing the proceeds with the carrying value of the Group company’s assets andliabilities including the carrying amount of related goodwill.Goodwill previously written off directly to reserves under UK GAAP is not reclassified to the income statement on the disposalof the subsidiary to which it relates.Intangible Assets – OtherOther intangible assets are initially recognised in the balance sheet at historical cost unless they are acquired as part ofa business combination, in which case they are initially recognised at fair value. They are shown in the balance sheet athistorical cost or fair value (depending on how they are acquired) less accumulated amortisation and impairment.These assets consist mainly of acquired trademarks, concessions and rights, acquired customer relationships andcomputer software. The Davidoff cigarette trademark and some premium cigar trademarks are considered by theDirectors to have indefinite lives based on the fact that they are established international brands with global potential.Trademarks with indefinite lives are not amortised but are reviewed annually for impairment. Other trademarks, supplyagreements (including customer relationships) and computer software are amortised over their estimated useful livesas follows:Other trademarks 20 – 30 years straight lineSupply agreements 3 – 15 years straight lineComputer software 3 – 5 years straight line105
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Imperial Tobacco Group PLCAnnual Re
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…to deliver sustainableshareholde
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Operational HighlightsDelivering Su
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and product portfolio to evolving c
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In this section9 Strategic Review10
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Our StrategyWe are focused on deliv
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Total Tobacco5 % Our Powerful Brand
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Our global strategic cigarette bran
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Our global team is fully aligned be
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Satisfying consumers and aligning o
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We are a responsive business with s
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Operating responsibly, combined wit
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Our growth drivers of sales growth,
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Principal Risks and UncertaintiesA
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Competition LawOverviewWe take comp
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Reconciliation of Adjusted Performa
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Key Performance Indicators (KPIs) 1
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Lambert & Butler and Richmond remai
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Within this the travel retail marke
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OutlookThe strength of our portfoli
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Blondes. In the Middle East, we aga
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Corporate ResponsibilityOur Corpora
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Corporate Responsibility and our St
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We have revised our IMS and employe
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Environmental Performance 1Absolute
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across the business. More informati
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Supplier RelationshipsOur main supp
Page 55 and 56: Non-financial performance indicator
Page 57 and 58: “High standards of corporategover
Page 59 and 60: 5. Pierre Jungels, CBE (HON), PHD,
Page 61 and 62: Management and Corporate StructureB
Page 63 and 64: Meetings of the Board, Board Commit
Page 65 and 66: and supplemented by our Non-Executi
Page 67 and 68: 6 Performance evaluation: How do we
Page 69 and 70: The Board recognises that we operat
Page 71 and 72: Assurance process for financial rep
Page 73 and 74: - receiving reports from, and quest
Page 75 and 76: Directors’ Report: Other Informat
Page 77 and 78: - state whether IFRSs as adopted by
Page 79 and 80: We understand that a purported coll
Page 81 and 82: This Report covers the following:1
Page 83 and 84: 2 Directors’ Emoluments for the Y
Page 85 and 86: Directors’ Interests in Ordinary
Page 87 and 88: Executive Directors’ Service Agre
Page 89 and 90: When setting base salary the Remune
Page 91 and 92: First ElementFifty per cent of the
Page 93 and 94: In respect of the October 2007 - Oc
Page 95 and 96: Any annual bonus earned up to 100 p
Page 97 and 98: Benefit Trusts have also been provi
Page 99 and 100: Independent Auditors’ Reportto th
Page 101 and 102: Consolidated Statement ofComprehens
Page 103 and 104: Consolidated Statement of Changes i
Page 105: Accounting PoliciesBasis of Prepara
Page 109 and 110: InventoriesInventories are stated a
Page 111 and 112: Restructuring CostsSignificant one-
Page 113 and 114: Property, Plant and Equipment and I
Page 115 and 116: Tobacco net revenue£ million 2010
Page 117 and 118: 3 Restructuring Costs£ million 201
Page 119 and 120: Factors affecting the tax charge fo
Page 121 and 122: 9 Intangible Assets2010£ million G
Page 123 and 124: 10 Property, Plant and Equipment201
Page 125 and 126: 13 Trade and Other Receivables2010
Page 127 and 128: Sensitivity analysisIFRS 7 requires
Page 129 and 130: At 30 September 2009Balance sheetam
Page 131 and 132: (iii) Currency analysis and effecti
Page 133 and 134: (iv) Derivative financial instrumen
Page 135 and 136: Matures in financial year ending in
Page 137 and 138: The following tables are provided i
Page 139 and 140: Matures in financial year ending in
Page 141 and 142: (vi) Hedge of net investments in fo
Page 143 and 144: 18 Retirement Benefit SchemesThe Gr
Page 145 and 146: Assumptions regarding future mortal
Page 147 and 148: 21 Share SchemesThe Group recognise
Page 149 and 150: Year from 1 October 2008 to 30 Sept
Page 151 and 152: 23 CommitmentsCapital commitments£
Page 153 and 154: 27 Reconciliation of Cash Flow to M
Page 155 and 156: Imperial Tobacco Group PLC Balance
Page 157 and 158:
(iii) Debtors: Amounts Falling Due
Page 159 and 160:
Principal SubsidiariesThe principal
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Shareholder InformationRegistered O
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IndexAAccounting Policies 103Acquis
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Annual report 2010 - Imperial Tobacco Group

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