Impact of Transition to IFRS
Irish Continental Group PLC
06 July 2005
IRISH CONTINENTAL GROUP plc
Adoption of International Financial Reporting Standards
(IFRS)
Preliminary Restatement of 2004 Financial Information
6 July 2005
OVERVIEW OF ADOPTION OF IFRS
Introduction
Irish Continental Group plc (ICG), is adopting International Financial Reporting
Standards (IFRS) as its primary accounting basis for all reporting periods
beginning on or after 1 January 2005 as required for all EU listed Companies. As
part of the transition from Irish GAAP, ICG now presents financial information
prepared in accordance with IFRS at the date of transition 1 January 2004 and
for the year ended 31 December 2004.
The purpose of this document is to provide information on the impact of the
adoption of IFRS. This financial information represents our current best
estimates and may be affected by changes to IFRS standards, interpretations
thereof and the emergence of best practice. Certain of these standards are still
subject to endorsement by the European Commission. For these reasons it is
possible that the information presented
in this document may be subject to change prior to its finalisation in the 2005
Annual Report. The Financial information presented here is unaudited.
Financial Highlights: year ended 31 December 2004
IFRS Irish GAAP
Turnover €293.3m €293.3m
EBITDA (pre exceptional) €49.4m €51.5m
Profit before tax and exceptional €17.9m €21.1m
Profit after tax €4.4m €8.0m
Adjusted earnings per share 71.5c 84.7c
Basic earnings per share 18.7c 34.0c
Group cash flow from operations €51.8m €51.8m
Net assets as at 31 December 2004 €150.6m €176.6m
Significant changes
The most significant impact on our Income & Expenditure Statement and Balance
Sheet is due to the adoption of the following standards:
IAS 19 Accounting for retirement benefits
The adoption of IAS 19 results in a net increase in the charge for pension
benefits in the P&L of €2.5m (before a deferred tax credit of €0.1m) and a
reduction in net assets at 31 December 2004 of €2.9m. The Group is also a
contributing employer to the Merchant Navy Officers Pension Fund (MNOPF), part
of which is in deficit. Due to uncertainty regarding the allocation of the
deficit among employers the Group continues to account for its membership of the
MNOPF as if it were a defined contribution scheme.
IAS 16 Property, plant and equipment
The adoption of IAS 16 results in components of certain assets being depreciated
at different rates. This results in an extra charge of €1.1m to the P&L in 2004
and a reduction of €12.4m in net assets at 31 December 2004.
IFRS1 First time adoption of IFRS
The restating of one vessel at valuation on transition to IFRS at 1 January 2004
reduces net assets and reserves by €10.2m.
The implementation of IFRS has no impact on either turnover or cashflows, nor
does it affect the underlying operation of the business.
Expectations for 2005
The implementation of IFRS is expected to reduce the profit after tax which
would have been reported under Irish GAAP by approximately €2.3m in the year
ended 31 December 2005. The resulting impact on earnings per share is a
reduction of approximately 10 cent.
The effect on net assets at 31 December 2005 is dependent on the adjustments set
out above, taken in conjunction with the market conditions for the pension
scheme at 31 December 2005.
ICG will issue its first results under IFRS, the interim results to 30 June
2005, on 8 September 2005.
Full details of the impact of transition are set out in the following pages.
Garry O'Dea
Finance Director
6 July 2005
DETAILS OF THE IMPACT OF TRANSITION
CONTENTS
Basis of preparation
Reconciliation of impact of IFRS on the:
• Consolidated Income Statement for the year ended 31 December 2004
• Consolidated Statement of Recognised Income and Expense for the year ended
31 December 2004
• Consolidated Balance Sheet as at 1 January 2004
• Consolidated Balance Sheet as at 31 December 2004
• Consolidated Income Statement for the six months ended 30 June 2004
• Consolidated Statement of Recognised Income and Expense for the six months
ended 30 June 2004
• Consolidated Balance Sheet as at 30 June 2004
Explanatory notes on the impact of the IFRS adjustments
Group accounting policies under IFRS
Basis of Preparation
The financial information presented in this document has been prepared in
accordance with IFRS, including all International Accounting Standards (IAS),
and interpretations issued by the International Accounting Standards Board
(IASB), the Standing Interpretations Committee (SIC) and the International
Financial Reporting Interpretations Committee (IFRIC) effective at 31 December
2004.
The rules for first time adoption of IFRS are set out in IFRS 1 'First Time
Adoption of International Financial Reporting Standards'. IFRS 1 requires
application of the same accounting policies in the IFRS opening balance sheet
and for all periods thereafter.
The Group's transition to IFRS has been prepared on the basis of availing of the
following exemptions under IFRS 1:
a. Business combinations prior to 1 January 2004 have not been restated to
comply with IFRS 3 'Business Combinations'.
b. Cumulative translation differences on foreign operations are deemed to be nil
at 1 January 2004. Any gains and losses recognised in the Consolidated
Income Statement on subsequent disposals of foreign operations will
therefore exclude translation differences arising prior to the transition
date.
c. The fair value of the fast ferry Dublin Swift has been taken as its deemed
cost at the date of transition.
The financial information has been prepared under the historical cost
convention.
RECONCILIATION OF IMPACT OF IFRS ON THE CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2004
Impact of transition to IFRS
Under IAS 19 IAS 16
Irish Employee Property, Under
GAAP benefits plant & IFRS
equipment
€m €m €m €m
Notes* (1) (2)
Continuing operations
Revenue 293.3 - - 293.3
Cost of sales (221.5) - (1.1) (222.6)
Gross profit 71.8 - (1.1) 70.7
Distribution costs (13.3) - - (13.3)
Admin expenses (30.5) (2.1) - (32.6)
Other operating expenses (1.5) - - (1.5)
Restructuring costs (11.9) (0.5) - (12.4)
Profit from operations 14.6 (2.6) (1.1) 10.9
Finance costs (5.4) - - (5.4)
Profit before taxation 9.2 (2.6) (1.1) 5.5
Taxation (1.2) 0.1 - (1.1)
Profit for the period: all
attributable to equity holders
of the parent 8.0 (2.5) (1.1) 4.4
Earnings per ordinary share (cent)
All from continuing operations
• adjusted 84.7 (8.5) (4.7) 71.5
• basic 34.0 (10.6) (4.7) 18.7
• fully diluted 33.9 (10.6) (4.7) 18.6
*Explanatory notes are presented on pages below
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED 31 DECEMBER 2004
Impact of transition to IFRS
Under IAS 19 IAS 16
Irish Employee Property, Under
GAAP benefits plant & IFRS
equipment
€m €m €m €m
Notes* (1) (2)
Profit for the period: all
attributable to equity holders
of the parent 8.0 (2.5) (1.1) 4.4
Exchange differences
on translation of foreign
operations (2.3) - - (2.3)
Actuarial gains/ (losses)
on defined benefit pension
schemes - (14.1) - (14.1)
Other - 1.1 - 1.1
Net income recognised
directly in equity 5.7 (15.5) (1.1) (10.9)
* Explanatory notes are presented on pages below
RECONCILIATION OF IMPACT OF IFRS ON THE CONSOLIDATED
BALANCE SHEET AS AT 1 JANUARY 2004
Impact of transition to IFRS
Under IAS 19 IAS 16 IFRS 1 IAS 39 IAS 38 Under
Irish Employee Property Trans Financial Intang IFRS
GAAP benefits plant, to Instrmnts assets
IFRS
€m €m €m €m €m €m €m
Notes* (1) (2) (3) (4) (5)
Non current assets
Intangible assets - - - - - 0.4 0.4
Property, plant &
equipment 334.5 - (11.3) (10.2) - (0.4) 312.6
334.5 - (11.3) (10.2) - - 313.0
Current assets
Inventories 0.7 - - - - - 0.7
Trade & other receivables 48.3 - - - - - 48.3
Retirement benefit asset - 12.4 - - - - 12.4
Cash at bank and in hand 12.2 - - - - - 12.2
61.2 12.4 - - - - 73.6
Non current assets 3.3 - - - - - 3.3
Total assets 399.0 12.4 (11.3) (10.2) - - 389.9
Current liabilities
Trade & other payables (61.2) 0.2 - - (0.9) - (61.9)
Tax liabilities (5.5) - - - - - (5.5)
Obligations under finance
leases (3.4) - - - - - (3.4)
Bank loans & overdrafts (25.5) - - - - - (25.5)
(95.6) 0.2 - - (0.9) - (96.3)
Net current liabilities (34.4) 12.6 - - (0.9) - (22.7)
Total assets less current
liabilities 303.4 12.6 (11.3) (10.2) (0.9) - 293.6
Creditors: Amounts falling
due after more than one year 108.3 - - - - - 108.3
Provision for liabilities &
charges 11.6 - - - - - 11.6
119.9 - - - - - 119.9
Capital and reserves
Called-up share capital 15.7 - - - - - 15.7
Share premium account 38.9 - - - - - 38.9
Capital reserves 2.2 - - - - - 2.2
Profit and loss account 126.7 12.6 (11.3) (10.2) (0.9) - 116.9
Shareholders' funds 183.5 12.6 (11.3) (10.2) (0.9) - 173.7
303.4 12.6 (11.3) (10.2) (0.9) - 293.6
* Explanatory notes are presented on pages below
RECONCILIATION OF IMPACT OF IFRS ON THE CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2004
Impact of transition to IFRS
Under IAS 19 IAS 16 IFRS 1 IAS 39 IAS 38 Under
Irish Employee Property Trans Financial Intang IFRS
GAAP benefits plant, to Instrmnts assets
IFRS
€m €m €m €m €m €m €m
Notes* (1) (2) (3) (4) (5)
Non current assets
Intangible assets - - - - - 0.1 0.1
Property, plant &
equipment 320.4 - (12.4) (10.2) - (0.1) 297.7
320.4 - (12.4) (10.2) - - 297.8
Current assets
Inventories 0.6 - - - - - 0.6
Trade & other receivables 42.9 (0.3) - - - - 42.6
Cash at bank and in hand 9.2 - - - - - 9.2
52.7 (0.3) - - - - 52.4
Non current assets 3.6 - - - - - 3.6
Total assets 376.7 (0.3) (12.4) (10.2) - - 353.8
Current liabilities
Trade & other payables (56.2) - - - (0.5) - (56.7)
Tax liabilities (5.5) - - - - - (5.5)
Obligations under finance
leases (4.3) - - - - - (4.3)
Bank loans & overdrafts (39.0) - - - - - (39.0)
(105.0) - - - (0.5) - (105.5)
Net current liabilities (52.3) (0.3) - - (0.5) - (53.1)
Total assets less current
liabilities 271.7 (0.3) (12.4) (10.2) (0.5) - 248.3
Creditors: Amounts falling
due after more than one year 83.8 2.6 - - - - 86.4
Provision for liabilities &
charges 11.3 - - - - - 11.3
95.1 2.6 - - - - 97.7
Capital and reserves
Called-up share capital 15.8 - - - - - 15.8
Share premium account 39.6 - - - - - 39.6
Capital reserves 2.2 - - - - - 2.2
Profit and loss account 119.0 (2.9) (12.4) (10.2) (0.5) - 93.0
Shareholders' funds 176.6 (2.9) (12.4) (10.2) (0.5) - 150.6
271.7 (0.3) (12.4) (10.2) (0.5) - 248.3
* Explanatory notes are presented on pages below
RECONCILIATION OF IMPACT OF IFRS ON THE CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2004
Impact of transition to IFRS
Under IAS 19 IAS 16
Irish Employee Property, Under
GAAP benefits plant & IFRS
equipment
€m €m €m €m
(1) (2)
Continuing operations
Revenue 135.8 - - 135.8
Cost of sales (113.8) - (0.6) (114.4)
Gross profit 22.0 - (0.6) 21.4
Distribution costs (4.7) - - (4.7)
Admin expenses (8.6) (1.3) - (9.9)
Other operating expenses (4.5) - - (4.5)
Restructuring costs - - - -
Profit from operations 4.2 (1.3) (0.6) 2.3
Finance costs (2.8) - - (2.8)
Profit before taxation 1.4 (1.3) (0.6) (0.5)
Taxation (0.2) 0.1 - (0.1)
Profit for the period: all
attributable to equity holders
of the parent 1.2 (1.2) (0.6) (0.6)
Earnings per ordinary share (cent)
All from continuing operations
- adjusted 5.1 (5.1) (2.5) (2.5)
- basic 5.1 (5.1) (2.5) (2.5)
- fully diluted 5.0 (5.0) (2.5) (2.5)
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE SIX MONTHS ENDED 30 JUNE 2004
Impact of transition to IFRS
Under IAS 19 IAS 16
Irish Employee Property, Under
GAAP benefits plant & IFRS
equipment
€m €m €m €m
(1) (2)
Profit for the period: all
attributable to equity holders
of the parent 1.2 - (0.6) 0.6
Exchange differences
on translation of foreign
operations 4.3 - - 4.3
Actuarial losses on defined
benefit pension schemes - (4.2) - (4.2)
Other - 1.1 - 1.1
Net income recognised
directly in equity 5.5 (3.1) (0.6) 1.8
RECONCILIATION OF IMPACT OF IFRS ON THE CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2004
Impact of transition to IFRS
Under IAS 19 IAS 16 IFRS 1 IAS 39 IAS 38 Under
Irish Employee Property Trans Financial Intang IFRS
GAAP benefits plant, to IFRS Instrmnts assets
€m €m €m €m €m €m €m
(1) (2) (3) (4) (5)
Non current assets
Intangible assets - - - - - 0.3 0.3
Property, plant &
equipment 337.4 - (11.9) (10.2) - (0.3) 315.0
337.4 - (11.9) (10.2) - - 315.3
Current assets
Inventories 1.0 - - - - - 1.0
Trade & other receivables 48.8 (0.3) - - - - 48.5
Retirement benefit asset - 8.8 - - - - 8.8
Cash at bank and in hand 16.0 - - - - - 16.0
65.8 8.5 - - - - 74.3
Non current assets 3.8 - - - - - 3.8
Total assets 407.0 8.5 (11.9) (10.2) - - 393.4
Current liabilities
Trade & other payables (67.1) - - - (0.4) - (67.5)
Tax liabilities (5.7) - - - - - (5.7)
Obligations under finance
leases (4.1) - - - - - (4.1)
Bank loans & overdrafts (29.3) - - - - - (29.3)
(106.2) - - - (0.4) - (106.6)
Net current liabilities (40.4) 8.5 - - (0.4) - (32.3)
Total assets less current
liabilities 300.8 8.5 (11.9) (10.2) (0.4) - 286.8
Creditors: Amounts falling
due after more than one year 109.6 - - - - - 109.6
Provision for liabilities &
charges 11.6 - - - - - 11.6
121.2 - - - - - 121.2
Capital and reserves
Called-up share capital 15.7 - - - - - 15.7
Share premium account 39.4 - - - - - 39.4
Capital reserves 2.2 - - - - - 2.2
Profit and loss account 122.3 8.5 (11.9) (10.2) (0.4) - 108.3
Shareholders' funds 179.6 8.5 (11.9) (10.2) (0.4) - 165.6
300.8 8.5 (11.9) (10.2) (0.4) - 286.8
EXPLANATORY NOTES ON THE IMPACT OF THE IFRS ADJUSTMENTS
A summary of the impact of the principal differences and resulting adjustments
between Irish GAAP and IFRS as they apply to the Consolidated Income Statement
for the year ended 31 December 2004, the Consolidated Balance Sheet as at 1
January 2004 and the Consolidated Balance Sheet as at 31 December 2004 are as
follows:
(1) Employee Benefits (IAS 19)
Under Irish GAAP, the Group accounted for pensions in accordance with SSAP 24
Accounting for Pension Costs and complied with the disclosure requirements of
FRS 17 Retirement Benefits.
Accounting for defined contribution pension plans remains unchanged under IFRS.
The Irish GAAP defined benefit pension cost charged to the Consolidated Income
Statement was based on current service cost plus the impact of spreading any
deficits/surpluses arising on the Group's defined benefit pension and post
retirement plans over the estimated average remaining service lives of the
employees. Under IFRS the defined benefit pension charge is based on current
service cost and a financing charge/credit.
The 2004 Irish GAAP Consolidated Income Statement has been adjusted to comply
with IAS 19 by:
• eliminating the credit/charge from spreading the surplus/deficit relating
to past service under SSAP 24;
• taking account of differences in measurement bases in the current service
cost;
• recognising the past service cost arising in 2004 under IFRS; and
• recognising the IFRS financing charge.
The Group has opted for the full recognition of pension deficits/surpluses on
the Consolidated Balance Sheet under IFRS. The surplus arising on the Group's
defined benefit pension plans at 1 January 2004 and the deficit arising at 31
December 2004, as measured by the plans' actuaries using the attained age method
and the projected unit method under IFRS guidelines, have been recognised in
full in the IFRS Consolidated Balance Sheets as at 1 January 2004 and 31
December 2004 respectively. The pension asset at 1 January 2004 has been
included in debtors in current assets. The pension deficit at 31 December 2004
has been included in creditors falling due after more than one year. The net
actuarial loss arising in 2004 has been taken to the Statement of Recognised
Income and Expense.
The net impact on the 2004 Consolidated Income Statement of adopting IAS 19 is a
decrease of €2.6m in operating profit which is the net amount of the service
cost under IAS 19 and an increase in interest receivable. A deferred tax credit
of €0.1m is set against this, giving a net change of €2.5m. The surplus in the
Group's defined benefit pension and post retirement plans at 1 January 2004 of
€12.4m and the deficit at 31 December 2004 of €2.6m, have been recognised in
full on the IFRS Consolidated Balance Sheet as at 1 January 2004 and 31 December
2004 respectively.
The reversing effect on the Consolidated Balance Sheet of eliminating the SSAP
24 deficit / surplus relating to past service is a €0.2m increase in reserves at
1 January 2004 and a €0.3m decrease in reserves at 31 December 2004.
Some ships' officers employed in the Group participate in the Merchant Navy
Officers Pension Fund (MNOPF), a defined benefit multi-employer retirement plan.
At the last valuation date the Group had 60 contributing members to the scheme
out of a total contributing membership to the scheme of 2,821. The scheme is
divided into two sections, The Old Section and the New Section, both of which
are closed to new members. The latest valuations were carried out as at 31 March
2003.
At 31 March 2003 there is an actuarial surplus in the Old Section of the fund,
under which benefits accrued for service prior to April 1978, of GBP 167.0m.
The New Section of the fund relates to benefits accrued for service since 1978.
It is closed to new members but existing contributors continue to accrue
benefits. There is an actuarial deficit of GBP 194.0m in this section as at 31
March 2003. The Trustee Board of the MNOPF intends apportioning the deficit in
this section among the participating employers and has applied to the courts for
a determination on the apportionment of the liability between employees. The
Trustee Board intends to require participating employers to increase
contributions over a ten year period until the deficit is eliminated.
As disclosed in the notes to the 2004 Annual Report and Financial Statements,
the apportionment of the deficit to ICG was estimated by the Trustees to range
from GBP 2.7 million to GBP 6.2 million.
Judgement on the case was handed down on 22 March 2005 in the High Court. The
judgement entitles the Trustee Board to seek contributions from the widest
definition possible of participating employers. However, permission to appeal
this judgement has been sought by a number of the employers. In the
circumstances it is not possible to quantify the Group's share of the deficit.
Consequently, as permitted by IAS 19, the Group will continue to account for the
plan as if it were a defined contribution plan.
(2) Property, plant & equipment (IAS 16)
Under Irish GAAP each item of property, plant and equipment was depreciated over
the total expected useful life of that item of property, plant or equipment.
IAS 16 states an entity allocates the amount initially recognised in respect of
an item of property, plant and equipment to its significant parts and
depreciates separately each such part.
In respect of passenger ships, cost is allocated between hull & machinery and
hotel & catering areas. In respect of stevedoring equipment cost is allocated
between structural frame and machinery.
Under IFRS, hotel & catering areas which are subject to intensive wear are
assessed on initial recognition to have a useful life of 10 years, and are
depreciated accordingly. Hull & machinery, which is subject to minor wear, are
assessed on initial recognition to have a useful life of 15 years for fast
ferries and 30 years for conventional ferries, and are depreciated accordingly.
This results in the net book value of ships at 1 January 2004 and 31 December
2004 being reduced by €11.3m and €12.4m respectively to take account of the
depreciation of intensive wearing components which was not previously
recognised.
Component accounting for passenger ships results in an extra charge to
depreciation of €1.1m in 2004. This charge is stated after a €1.1m credit
resulting from the revaluation of the fast ferry, Dublin Swift.
Under IFRS, stevedoring equipment components with intensive wear are depreciated
over 7 years. Components with minor wear are depreciated over 12 years. The
transition to IFRS has no effect on the net book value of stevedoring equipment
at 1 January 2004 or 31 January 2004 and does not affect the depreciation charge
in the 2004 Consolidated Income Statement.
(3) Fair value or revaluation as deemed cost (IFRS 1)
IFRS 1 permits an entity to elect to measure any item of property, plant and
equipment at the date of transition to IFRS at its fair value and use that fair
value as its deemed cost at that date.
At the date of transition to IFRS the company has chosen to measure one of its
vessels, the fast ferry Dublin Swift, at its market value at that date. This
results in a reduction in the value of property, plant and equipment on the
balance sheet of €10.2 million at 1 January 2004 and a corresponding reduction
in reserves.
(4) Financial instruments (IAS 39)
The Group's activities expose it to risks of changes in foreign currency
exchange rates and interest rates. The Group uses foreign exchange forward
contracts and interest rate swaps to hedge these exposures.
Under Irish GAAP these financial instruments are not recognised on the balance
sheet of the company.
Under IAS 39 interest rate swaps entered into by the company are treated as
cashflow hedges and all derivative financial instruments are held in the
Consolidated Balance Sheet at their fair value.
At 1 January 2004 this results in an increase in trade and other payables by
€0.9m, with a corresponding decrease in retained earnings. At 31 December 2004
this amount is €0.5m.
(5) Intangible assets (IAS 38)
Under Irish/UK GAAP computer software was previously capitalised as a tangible
asset. Under IAS 38, computer software that is not an integral part of an item
of computer hardware is capitalised as an intangible asset.
Computer software as at 1 January 2004 and 31 December 2004 with a net book
value of €0.4m and €0.1m respectively, has been transferred from tangible fixed
assets to intangible fixed assets in the Consolidated Balance Sheets.
GROUP ACCOUNTING POLICIES UNDER IFRS
The significant accounting policies adopted by the Group are as follows:
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries all of which present financial statements up to
3l December. The results of subsidiaries acquired or disposed of during the year
are included in the Consolidated Income Statement from the date of their
acquisition or up to the date of their disposal.
Reporting currency
The financial statements contained herein are presented in Euro.
Turnover
Turnover represents revenues from passenger and freight services supplied to
third parties, exclusive of discounts and value added tax.
Passenger ticket revenue is recognised at the date of travel. Freight revenue is
recognised at the date of transportation. Revenue from passenger tickets sold
before the year end for a travel date after the year end is included in the
balance sheet in creditors due within one year under the caption 'accruals and
deferred income'. Unused tickets are recognised as revenue on a systematic
basis.
Cash revenue from on-board sales is recognised immediately.
Segmental analysis
The Group's primary format for segmental reporting is business segments. The
risks and returns of the Group's operations are primarily determined by the
different services that the Group offers. The Group has two business segments,
Ferries and Container & Terminal. Corporate activities, such as the cost of
corporate stewardship, are reported along with the elimination of inter-group
activities under the heading 'Unallocated Liabilities'.
Segment assets and liabilities consist of property, plant and equipment and
other assets and liabilities that can be reasonably allocated to the reported
segment. Unallocated segment assets and liabilities mainly include current and
deferred income tax balances together with financial assets and liabilities.
The Group's secondary format for segmental reporting is geographical segments.
There is no significant difference in risk profile between the routes the Group
operates i.e. between geographical areas. Given that the Group is primarily an
operator of ships there is no reasonable basis upon which to assign its main
assets, ships, to any geographical area. Therefore the Group will only present
geographical information relating to where revenues are earned.
Tangible fixed assets
Passenger ships
Passenger ships are stated at cost, with the exception of the fast ferry Dublin
Swift which is stated at valuation at the transition date.
The amount initially recognised in respect of an item of property, plant and
equipment is allocated to its significant parts and each such part is
depreciated separately. In respect of passenger ships cost is allocated between
hull & machinery and hotel & catering areas.
For passenger ships hotel & catering components with intensive wear are
depreciated over 10 years. Hull & machinery components with minor wear are
depreciated over the useful lives of the ships of 15 for fast ferries and 30
years for conventional ferries.
Other assets
Other tangible fixed assets are stated at cost less accumulated depreciation and
any impairment losses. Cost comprises purchase price and directly attributable
costs. Freehold land is not depreciated.
The amount initially recognised in respect of an item of property, plant and
equipment is allocated to its significant parts and each such part is
depreciated separately. In respect of stevedoring equipment cost is allocated
between structural frame and machinery.
Depreciation on the tangible fixed assets is calculated by charging equal annual
instalments to the Consolidated Income Statement so as to provide for their cost
over the period of their expected useful lives at the following annual rates:
Property - leased 0.7%-10% over the life of the lease
Plant, Machinery and Equipment 4%- 25%
Motor Vehicles 25% to residual value
Drydocking
Costs incurred on the overhaul of vessels are capitalised and depreciated over
the period to the next overhaul.
Financial fixed assets
Financial fixed assets are shown at cost less amounts charged to the profit and
loss account where the Directors consider that there has been a permanent
impairment in value.
Impairment of assets
Assets that are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value less selling costs and its value in use.
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash generating
units).
Stocks
Stocks are stated at the lower of cost and net realisable value. Cost represents
suppliers' invoiced cost determined on a first in, first out, basis.
Taxation
Income taxes include all taxes based upon the taxable profits of the Group. A
proportion of the Group's profits fall within the charge to Tonnage Tax, under
which regime taxable profits are based on the tonnage of the vessels employed
during the period. The tonnage tax charge is included within the income tax
charge.
The tax charge also includes income taxes payable based on taxable profit for
the year and deferred taxes, which have been calculated on the basis set out in
IAS 12 'income taxes'. Deferred tax is calculated at the tax rates that are
expected to apply in the period when the liability is settled or the asset is
realised.
Deferred taxes are calculated based on the temporary differences that arise
between the tax base of the asset or liability and its carrying value in the
Consolidated Balance Sheet. Deferred tax is recognised on all temporary
differences in existence at the balance sheet date except as provided under IAS
12. Deferred tax assets are recognised to the extent that it is probable that
they will be utilised.
Deferred tax assets and deferred tax liabilities are offset where taxes are
levied by the same taxation authority and relate to the same tax period.
Retirement benefits
Payments to defined contribution plans are recognised in the Consolidated Income
Statement as they fall due and any contributions outstanding at the period end
are included as an accrual in the Consolidated Balance Sheet.
The cost of providing benefits and the liabilities of defined benefit plans are
determined, using the attained age method and the projected unit method, by
independent and professionally qualified actuaries.
Current service cost, interest cost and return on plan assets are recognised in
the Consolidated Income Statement. Actuarial gains and losses are recognised in
full in the period in which they occur in the Statement of Recognised Income and
Expense. Past service cost is recognised immediately to the extent that the
benefits are already vested. Otherwise, past service cost is recognised on a
straight line basis over the average period until the benefits become vested.
The surplus or deficit on the Group's defined benefit pension plans is
recognised in full in the Consolidated Balance Sheet.
A small number of the Groups employees are members of a multi-employer defined
benefit retirement plan. The liability of each participating employer to fund a
deficit in this scheme is currently the subject of a legal action. In these
circumstances it is not possible to quantify the Group's share of the deficit.
Consequently the scheme is currently accounted for as a defined contribution
scheme and appropriate disclosures are given.
Grants
Grants of a capital nature are accounted for as deferred income and are released
to the Consolidated Income Statement at the same rates as the related assets are
depreciated. Grants of a revenue nature are credited to the Consolidated Income
Statement to offset the matching expenditure.
Leases
Assets held under finance leases are capitalised and included in tangible fixed
assets at an amount representing the outright purchase price of such assets.
Depreciation is provided at rates designed to write-off the cost, less any
residual value, in equal annual amounts over the shorter of the estimated useful
lives of the assets, or the period of the leases.
The capital element of future rentals is treated as a liability and the interest
element is charged to the Consolidated Income Statement over the period of the
leases in proportion to the balances outstanding.
Annual rentals payable under operating leases are charged to the Consolidated
Income Statement on a straight line basis over the period of the lease.
Foreign currency
Foreign currency transactions are translated into local currency at the rate of
exchange ruling at the date of the transaction. Any exchange difference arising
from either the retranslation of the resulting monetary asset or liability at
the exchange rate at the balance sheet date or from the settlement of the
balance at a different rate is recognised in the Consolidated Income Statement
when it occurs.
The Income Statements of foreign currency subsidiaries are translated into Euro
at the average exchange rate for the period. The Balance Sheets of such
subsidiaries are translated at rates of exchange ruling at the balance sheet
date. From 1 January 2004, a separate component of equity is maintained for the
recognition of exchange differences arising on the translation of foreign
currency subsidiaries.
On disposal of a foreign subsidiary the cumulative translation difference for
that foreign subsidiary is transferred to the Consolidated Income Statement as
part of the gain or loss on disposal.
Derivative financial instruments and hedge accounting
The Group's activities expose it to risks of changes in foreign currency
exchange rates and interest rates. The Group uses foreign exchange forward
contracts and interest rate swaps to hedge these exposures. Derivative financial
instruments are held in the Consolidated Balance Sheet at their fair value.
The Group uses Cash flow hedges: Changes in the fair value of derivative
financial instruments that are designated, and are effective, as hedges of
changes in future cash flows are recognised directly in equity. Any ineffective
portion of the hedge is recognised in the Consolidated Income Statement. When
the cash flow hedge of a firm commitment or forecasted transaction subsequently
results in the recognition of an asset or a liability, then, at the time the
asset or liability is recognised, the associated gains or losses on the
derivative that had previously been recognised in equity are recognised in the
Consolidated Income Statement.
The significant accounting policies applicable from 1 January 2005 are as
follows:
Financial assets
Financial fixed assets classified as available-for-sale are stated at their fair
market value at the balance sheet date. Any movements in value are taken to
equity until the asset is disposed of unless there is deemed to be an impairment
on the original cost in which case the loss is taken directly to the
Consolidated Income Statement.
All other financial assets are stated at cost less provisions for impairment.
Income from financial assets is recognised in the Consolidated Income Statement
in the period in which it is receivable.
Borrowings
Debt instruments are initially reported at cost, which is the proceeds received,
net of transaction costs. Subsequently they are reported at amortised cost. Any
discount between the net proceeds received and the principal value due on
redemption is amortised over the duration of the debt instrument, and is
recognised as part of the interest expense in the Consolidated Income Statement.
To the extent that debt instruments are hedged under qualifying fair value
hedges, the hedged item is recorded at fair value.
This information is provided by RNS
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