Financial statements

Note 5 - IMPAIRMENT (CHARGES)/REVERSALS

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Impairment (charges)/reversals (PDF 44KB)

	Pre-tax 2008 US$m	Taxation 2008 US$m	Outside interests 2008 US$m	Net amount 2008 US$m	Net amount 2007 US$m
Cash generating unit
Upstream Aluminium (a)	(6,131)	4	-	(6,127)	-
Downstream Aluminium (excluding Packaging) (b)	(1,210)	230	-	(980)	-
HIsmelt (c)	(254)	72	-	(182)	-
Argyle Diamonds (d)	-	-	-	-	(328)
Palabora (e)	-	-	-	-	100
Tarong coal mine (f)	-	-	-	-	134
Other	(420)	132	13	(275)	(19)
	(8,015)	438	13	(7,564)	(113)

Notes	Expand
Details of the impairment review relating to Upstream Aluminium are set out in note 11. The annual review of the goodwill allocated to Downstream Aluminium (excluding Packaging) resulted in a pre-tax impairment charge of US$1,210 million, of which US$493 million was applied in writing off the attributed goodwill, and the balance to property, plant and equipment. Downstream Aluminium is part of the Alcan group that was acquired in October 2007, and forms part of the Aluminium product group. It manufactures engineered or fabricated aluminium products and is also a full-service packaging supplier with a worldwide presence. The Group's intention is to sell Downstream Aluminium. As such, the recoverable amount has been estimated by reference to fair value less costs to sell. Such estimates were derived by applying multiples to forecasts of earnings for the Downstream Aluminium businesses. The multiples were derived from statistics relating to publicly traded companies in the various sectors in which the Downstream Aluminium businesses operate. The main circumstances that led to impairment were the adverse change in capital markets, making it difficult to fund acquisitions of companies generally; the global economic downturn and the adverse trading performance of Downstream Aluminium's operations. The specific details of the impairment review relating to Packaging are set out in note 19. Full provision was made against the carrying value of the HIsmelt operation, which is within the Iron Ore product group. Operations at the Kwinana plant have been suspended and the Group's future role in developing this technology is under review, leading to doubt about the recoverability of the amount invested. Large increases in the estimated capital cost of Argyle's underground project triggered an assessment of its recoverable amount during 2007. Impairment of property, plant and equipment was assessed by reference to fair value less costs to sell. The determination of fair value less costs to sell was based on the estimated amount that would be obtained from sale in an arm's length transaction between knowledgeable and willing parties. This estimate was derived from discounting projections of cash flows, using valuation assumptions that a buyer might be expected to apply. An increase in the Group's long term copper price assumption triggered an assessment of the recoverable amount of Palabora during 2007. The value in use was based on cash flows forecast in real terms and discounted at a pre-tax rate of 12 per cent. This led to a full reversal of the remainder of the impairment provision previously recognised. An announcement of the sale of Tarong led to full reversal in 2007 of the remainder of the impairment provision previously recognised. Total impairment charges in 2008 excluded from Underlying earnings includes impairment charges of US$15 million relating to equity accounted units.

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