Financial statements

Note 19 - ASSETS HELD FOR SALE

At 31 December 2008, assets and liabilities held for sale comprise Alcan's Packaging group ('Packaging'). In the announcement of Rio Tinto's offer for Alcan on 12 July 2007, it was stated that Rio Tinto and Alcan had agreed to divest of Packaging. As Packaging was acquired with a view to resale, its results are excluded from the Group's income from continuing operations.

An impairment of US$827 million relating to Packaging has been recognised within discontinued operations on the Group income statement. As required by IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations, the amount of this impairment was determined by reference to Packaging's fair value less costs to sell. The main circumstances that led to the impairment were:

The adverse change in capital markets, which made it difficult for potential buyers to fund acquisitions of companies like Packaging.
The global economic downturn.
The adverse trading performance of companies in Packaging's markets.

Packaging's fair value less costs to sell represents the Group's best estimate of the expected proceeds to be realised on sale of Packaging, less an estimate of remaining costs to sell. This estimate is consistent with estimates of fair value less costs to sell, which were determined using the Income Approach and the Market Approach valuation techniques.

The Income Approach provided an estimation of Packaging's fair value based on the cash flows it is expected to generate in the future. A discount rate of 9 per cent was applied to Packaging's post-tax cash flows expressed in nominal terms.

Under the Market Approach, an estimate of Packaging's fair value was determined based on a comparison of Packaging to comparable publicly traded companies and transactions in its industry.

Packaging's impairment reduced the 'Assets held for sale' line of the Group's balance sheet.

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