Statement of Group Accounting Policies
for the year ended 31 March 2009
Significant Accounting Policies
NTR plc (the “Company”) is a company incorporated and domiciled in the
Republic of Ireland. The Group financial statements for the year ended 31
March 2009 consolidate the individual financial statements of the Company
and its subsidiaries (together referred to as the “Group”) and the Group’s
interest in joint venture and associate entities, accounted for using the
equity method. The Group and Company financial statements were authorised
for issue by the Directors on 16 July 2009.
Statement of Compliance
As permitted by the European Union (EU) law, the Group and Company financial
statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) and their interpretations issued by the International
Accounting Standards Board (IASB), as adopted by the EU.
The Company has taken advantage of the exemption in Section 148(8) of the Companies Act 1963 from presenting to its members the Company income statement and related notes which form part of the approved Company financial statements as the Company publishes Company and Group financial statements together.
The IFRS, adopted by the EU, applied by the Group in the preparation of these Group financial statements are those that were effective for accounting periods ending on or before 31 March 2009.
Basis of Preparation
The Group and Company financial statements are presented in euro, rounded
to the nearest thousand. They are prepared on the historical cost basis
except that the following assets and liabilities are stated at their fair
value: derivative financial instruments, share based payments, investment
properties and available-for-sale financial assets. The accounting policies
have been applied consistently for all periods presented, by all Group entities.
Certain prior period amounts have been re-classified to conform to current year presentation.
Recent Accounting Pronouncements
The IFRS adopted by the EU applied by the Company and Group in the preparation
of these consolidated financial statements are those that were effective
for accounting periods ending on or before 31 March 2009. The IASB and the
International Financial Reporting Interpretations Committee (‘IFRIC’) have
issued the following standards and interpretations which were effective
for the Group in the year ended 31 March 2009:
| • | IFRIC Interpretation 14 IAS 19, ‘The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’. This had no impact on Group reporting. |
| • | IAS 39, ‘Reclassification of Financial Assets and related IFRS 7 amendments’. This had no significant impact on Group reporting. |
| • | IFRIC Interpretation 12, ‘Service Concession Arrangements’. This had no impact on Group reporting. |
The following provides a brief outline of the likely impact on future financial statements of relevant IFRS adopted by the EU which are not yet effective and have not been adopted early in these financial statements:
| • | IFRS 8, ‘Operating Segments’ introduces the “management approach” to segment reporting. IFRS 8, which becomes mandatory for the Group’s 2010 consolidated financial statements, will require a change in the presentation and disclosure of segment information based on the internal reports regularly reviewed by the Group’s Chief Operating Decision Maker in order to assess each segment’s performance and to allocate resources to them. Currently the Group presents segmental information in respect of its business segments (see Note 1). The directors believe that the implementation of this standard will increase the number of segments for which information is presented from the current classifications. The standard focuses on disclosure and will have no impact on recognition and measurement. | |
| • | IFRIC Interpretation 13, ‘Customer Loyalty Programmes’ (effective for the Group’s 2010 consolidated financial statements). The directors do not believe that this will have any significant impact on Group reporting. | |
| • | IAS 23, ‘Borrowing Costs’ (effective for the Group’s 2010 consolidated financial statements). The directors do not believe that this will have any significant impact on Group reporting. | |
| • | Amendments to IAS 1, ‘Presentation of Financial Statements: A Revised Presentation’ (effective for the Group’s 2010 consolidated financial statements). This amendment will result in some presentational changes to the Group financial statements. | |
| • | Amendments to IFRS 2, ‘Share-based Payments: Vesting Conditions and Cancellations’ (effective for the Group’s 2010 consolidated financial statements). The directors do not believe that this will have a material impact on Group reporting. | |
| • | Amendments to IAS 32 and IAS 1, ’Puttable Financial instruments and Obligations arising on Liquidation’ (effective for the Group’s 2010 consolidated financial statements). The directors do not believe that this will have any significant impact on Group reporting. | |
| • | IFRIC Interpretation 15, ‘Agreements for the Construction of Real Estate’ (effective for the Group’s 2010 consolidated financial statements). The directors do not believe that this will have any significant impact on Group reporting. | |
| • | IFRIC Interpretation 16, ‘Hedges of a Net Investment in a Foreign Operation’ (effective for the Group’s 2010 consolidated financial statements). The directors do not believe that this will have any significant impact on Group reporting. | |
| • | IFRIC Interpretation 17, ‘Distributions of Non-Cash Assets to Owners’ (effective for the Group’s 2010 consolidated financial statements). The directors do not believe that this will have any significant impact on Group reporting. | |
| • | IFRIC Interpretation 18, ‘Transfers of Assets from Customers’ (effective for the Group’s 2010 consolidated financial statements). The directors do not believe that this will have any significant impact on Group reporting. | |
| • | Revised IFRS 3, ‘Business Combinations (2008)’ (effective for the Group’s 2010 consolidated financial statements) will impact on the amounts recorded in goodwill and in the income statement for business combinations, and incorporates the following changes that are likely to be relevant to the Group’s operations: | |
| - | The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations. | |
| - | Contingent consideration will be measured at fair value, with subsequent changes therein recognised in profit or loss. | |
| - | Transaction costs, other than share and debt issue costs, will be expensed as incurred. | |
| - | Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognised in profit or loss. | |
| - | Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis. | |
| • | Amendments to IAS 39, ‘Financial Instruments: Recognition and Measurement’: Eligible Hedged Items (effective for the Group’s 2010 consolidated financial statements). The directors do not believe that this will have any significant impact on Group reporting. | |
| • | Amendments to IAS 27, ‘Consolidated and Separate Financial Statements”. The amendments to this standard will impact on how transactions with non-controlling interests are accounted for or where the Group makes additional investment such that it obtains control over existing associates and joint ventures. | |
Estimates and Uncertainties
The preparation of financial statements in conformity with IFRS (as adopted
by the EU) requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated assumptions
are based on historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form the
basis of making judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation, uncertainty
and critical judgments in applying accounting policies that have the most
significant effect on the amounts recognised in the financial statements is
included in the following notes:
Note 12 – Goodwill
Note 24 – Provisions
Note 26 – Employee Benefits
Note 29 – Deferred Taxation Assets/(Liabilities)
Note 31 – Business Combinations
Note 32 – Commitments and Contingencies
Note 33 – Share Based Payments
Basis of Consolidation
Business combinations
The purchase method of accounting is employed in accounting for the acquisition
of subsidiaries by the Group. The cost of a business combination is measured
as the aggregate of the fair values at the date of exchange of assets given,
liabilities incurred or assumed and equity instruments issued in exchange
for control together with any directly attributable costs. Where a business
combination agreement provides for an adjustment to the cost of the combination
contingent on future events, the amount of the estimated adjustment is included
in the cost at the acquisition date if the adjustment can be reliably measured.
Any changes to this estimate in subsequent periods are reflected in goodwill.
Deferred consideration is included in the acquisition balance sheet on a discounted
basis.
The assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. In the case of a business combination which is completed in stages, the fair values of the identifiable assets, liabilities and contingent liabilities are determined at the date of each exchange transaction. When the initial accounting for a business combination is determined provisionally, any adjustments to the provisional values allocated to the identifiable assets, liabilities and contingent liabilities are made within twelve months of the acquisition date.
The interest of minority shareholders is stated as the minority’s proportion of the fair values of the assets and liabilities recognised.
Acquisition of joint ventures and associates
The purchase method of accounting is applied in the same manner as detailed
above to the proportionate share of net identifiable assets and liabilities
acquired in a joint venture or associate.
Goodwill
Goodwill represents amounts arising on acquisition of subsidiaries, joint
ventures and associates. In respect of business acquisitions initiated
since 1 January 2004, goodwill represents the difference between the cost
of the acquisition and the fair value of the net identifiable assets acquired.
In respect of acquisitions prior to this date, goodwill is included on the
basis of its deemed cost in the Group consolidated balance sheet, i.e. original
cost less accumulated amortisation since acquisition up to 31 December
2003, which represents the amount recorded under Irish GAAP. As permitted
by IFRS 1, IFRS 3 Business Combinations was not applied to previous transactions
and therefore the reclassification and accounting treatment of business combinations
that occurred prior to 1 January 2004 was not reconsidered. Goodwill is
allocated to cash generating units and is not amortised but is tested annually
for impairment at a consistent time each financial year. Goodwill is stated
at cost or deemed cost less any accumulated impairment losses. In respect
of joint ventures or associates, the carrying amount of goodwill is included
in the carrying amount of the investment.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained.
Basis of Consolidation
| (i) | Subsidiaries Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of any entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the Group financial statements from the date that control commences until the date that control ceases. A list of the principal subsidiaries consolidated within these financial statements is included at note 34.
The interest in a subsidiary undertaking included in the consolidation that is attributable to the shares held by or on behalf of persons other than the parent undertaking and its subsidiary undertakings is included within the minority interest in the balance sheet.
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| (ii) | Associates and jointly controlled entities (equity accounted investees) Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Associates and jointly controlled entities are accounted for using the equity method (equity accounted investees) and are recognised initially at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.
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| (iii) | Transactions eliminated
on consolidation
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| (iv) | Special purpose
entities Special purpose entities are entities that are created to accomplish a narrow and well defined objective where, under contractual agreements, the financial and operating policies are effectively predetermined. The financial statements of such special purpose entities are consolidated into the Group financial statements where, based on an analysis of risks and rewards, the substance of the relationship is that the Group effectively controls the entity. Where the Group is not exposed to the majority of the risks and rewards in the special purpose entity, the Group’s investment is categorised as an available-for-sale financial asset. |
Foreign Currency
Functional and presentation currency
The Group and Company financial statements are presented in euro which
is also the Company’s functional currency. Items included in the financial
statements of each of the Group’s activities are measured using the currency
of the primary economic environment in which the entity operates, which is
primarily the euro, sterling, and US dollars.
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange
rate ruling at the date of the transaction. Non-monetary assets that are
carried at historical cost are not subsequently retranslated. Monetary
assets and liabilities denominated in foreign currencies at the balance
sheet date are translated to functional currencies at the foreign exchange
rate ruling at that date. Foreign exchange differences arising on translation
are recognised in the income statement.
Financial statements of foreign operations
To the extent that the Group’s foreign operations are considered to have
functional currencies which are different from the Group’s presentational
currency, the assets and liabilities of foreign operations, including goodwill
and fair value adjustments arising on consolidation and long term intra-Group
loans that are part of the net investment because repayment is not planned
or foreseen, are translated to euro at foreign exchange rates ruling at
the balance sheet date. The revenues and expenses of these foreign operations
are translated to euro at rates approximating the foreign exchange rates
ruling at the dates of the transactions. Foreign exchange differences arising
on translation are recognised directly in equity.
Financial Instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity securities,
trade and other receivables, cash and cash equivalents, restricted cash, borrowings,
windfarm financing and trade and other payables. Non-derivative financial
instruments are recognised initially at fair value plus any directly attributable
transaction costs, except as described below. Subsequent to initial recognition,
non-derivative financial instruments are measured as described below.
A financial instrument is recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the Group’s contractual rights to the cash flows from the financial assets expire, are extinguished or if the Group transfers the financial asset to another party without retaining control of substantially all the risks and rewards of the asset. Regular purchases and sales of financial assets are accounted for at trade date i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contracts expire or are discharged or cancelled.
| (i) | Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Cash and cash equivalents comprise cash balances held for the purpose of meeting short-term cash commitments and investments which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Where investments are categorised as cash equivalents, the related balances have a maturity of three months or less from the date of acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the Cash Flow Statement.
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| (ii) | Restricted cash
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| (iii) | Equity securities
– available for sale
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| (iv) | Trade and other
receivables
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| (v) | Trade and other
payables
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| (vi) | Interest bearing
borrowings Interest bearing borrowings are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Capitalised interest is described in accounting policy Property, plant and equipment. |
Derivative Financial Instruments
Derivative financial instruments are recognised initially at fair value,
being their cost. Subsequent to initial recognition, derivative financial
instruments are stated at fair value. Derivative assets and derivative liabilities
are offset and presented on a net basis only when a legal right of set-off
exists and the intention to net settle the derivative contracts is present.
The gain or loss on re-measurement to fair value is recognised immediately
in the income statement. However, where derivatives qualify for hedge accounting,
recognition of any resultant gain or loss depends on the nature of the item
being hedged and the hedge accounting model adopted (see accounting policy
Hedging).
| (i) | Forward
commodity contracts
|
| (ii) | Other derivative
instruments
The Group uses a range of derivatives to hedge exposures to financial risks, such as interest rate and foreign exchange risks, arising in the normal course of business. The use of derivative financial instruments is governed by the Group’s policies approved by the Board of Directors. |
Hedging
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the
variability in cash flows of a recognised asset or liability, or a highly
probable forecasted transaction, the effective part of any gain or loss on
the derivative financial instrument is recognised directly in equity. When
the forecasted transaction subsequently results in the recognition of a non-financial
asset or non-financial liability, the associated cumulative gain or loss is
removed from equity and included in the initial cost or other carrying amount
of the non-financial asset or liability. If a hedge of a forecasted transaction
subsequently results in the recognition of a financial asset or a financial
liability, the associated gains and losses that were recognised directly in
equity are reclassified into the income statement in the same period or periods
during which the asset acquired or liability assumed affects the income statement
(i.e. when interest income or expense is recognised). For cash flow hedges
other than those covered by the preceding two policy statements, the associated
cumulative gain or loss is removed from equity and recognised in the income
statement in the same period or periods during which the hedged forecast transaction
affects the income statement. The ineffective part of any gain or loss is
recognised immediately in the income statement.
When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the forecasted hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised immediately in the income statement.
PROPERTY, PLANT AND EQUIPMENT
| (i) | Owned
assets
Costs related to assets in development and construction are capitalised where, in the opinion of the Directors, the related project is likely to be successfully developed and the economic benefits arising from future operations will at least equal the amount of capitalised expenditure incurred to date. Costs capitalised to assets in development relate to costs incurred in bringing a project to the consented stage. Costs associated with reaching the consented stage include planning application costs and environmental impact studies. Turbine deposits paid to acquire turbines are recorded at cost and disclosed within property, plant and equipment. On acquisition of the related turbines, these payments are included as part of the cost of the project to which the turbines are assigned. Construction costs relate to costs incurred in bringing the asset from the consented stage to completed construction. Depreciation commences when the asset is substantially complete and ready for its intended use. Full provision is made for any impairment in the value of the asset.
When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment.
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| (ii) | Leased assets Leases, under the terms of which the Group assumes substantially all the risks and rewards of ownership, are classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation (see below) and impairment losses (see accounting policy Impairment). The capital element of finance lease obligation payments is recorded as a liability, while the interest element is charged to the income statement over the term of the lease to produce a constant rate of charge on the balance of capital repayments outstanding. Operating lease payments are accounted for as described in accounting policy Lease Payments.
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| (iii) | Subsequent expenditure
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| (iv) | Depreciation
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Intangible Assets
Service Concessions
Intangible assets included the Group’s interests in the West-Link and East-Link
public private partnership concessions and were stated at cost, less accumulated
amortisation and any provision for impairment. All costs directly incurred
in connection with construction of the road/bridge have been recorded as part
of the acquisition cost and are amortised on a straight line basis over the
life of the related concession.
Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost
less accumulated amortisation and impairment losses.
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised
only when it increases the future economic benefits embodied in specific
assets to which it relates. All other expenditure is expensed as incurred.
Amortisation
Amortisation is charged to the income statement on a straight-line basis
over the estimated useful lives of intangible assets. Intangible assets
are amortised from the date they become available for use. The estimated
useful lives are as follows:
| West-Link concession | up until date of disposal |
| Software costs | 5 years |
| Customer lists | 5-10 years |
| Supplier lists | 6 years |
| Contract based intangible assets | 3-10 years |
| Gas reserves | in line with utilisation of the gas reserve |
Impairment
The carrying amounts of the Group’s depreciable assets, other than deferred
tax assets (see accounting policy Income Tax) and assets carried at fair
value, are reviewed at each balance sheet date to determine whether there
is any indication of impairment. Non depreciable intangible assets and goodwill
are assessed annually for impairment. In assessing assets for impairment,
the recoverable amount of the asset or its cash generating units is estimated.
An impairment loss is recognised when the carrying amount of an asset or
its cash-generating unit exceeds its recoverable amount. Impairment losses
are recognised in the Group income statement.
Calculation of recoverable amount
The recoverable amount of assets is the greater of their fair value less
costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. For an asset that does not
generate largely independent cash inflows, the recoverable amount is determined
for the cash-generating unit to which the asset belongs.
Impairment losses recognised in respect of the cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or groups of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis.
Reversals of impairment
Impairment losses in respect of goodwill and equity investments are not
reversed. In respect of other assets, an impairment loss is reversed if
there has been a change in the estimates used to determine the recoverable
amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Deferred Purchase Consideration and Earnout Obligations
To the extent that deferred purchase consideration and earnout obligations
are payable after more than one year from the date of acquisition, they
are discounted at an appropriate loan interest rate and, accordingly, are
carried at net present value on the balance sheet. An appropriate interest
charge, at a constant rate on the carrying amount adjusted to reflect market
conditions, is reflected in the income statement over the earnout period,
increasing the value of the provision so that the obligation will reflect
its settlement value at the time of maturity. Adjustments to the amount
of the obligation relating to changes in the amount expected to be paid,
the effective interest rate or the timing of the expected payments are accounted
for as adjustments to the cost of the acquisition and reflected in goodwill.
Discontinued Operations
A discontinued operation is a component of the Group’s business that represents
a separate major line of business of operations that has been disposed of
or is held for sale, or is a subsidiary acquired exclusively with a view
for resale. Classification as a discontinued operation occurs upon disposal
or when the operation meets the criteria to be classified as held for sale,
if earlier. When an operation is classified as a discontinued operation,
the comparative income statement is re-presented as if the operation had
been discontinued from the start of the comparative period.
Revenue
Revenue represents the fair value of goods and services delivered to customers
in the normal course of business, net of trade discounts and VAT. Services
are deemed to have been delivered when, and to the extent that, the Group
has met its obligations under its service contracts. Payments received in
advance of performance are deferred and recognised as revenue when the related
service is delivered.
Revenue includes the Group’s share of net toll revenue from the East-Link toll facility. Revenue from the Group’s West-Link toll facility was, under an agreement with the State, shared between the Group and the State based on traffic volume throughput. Accordingly, the State’s share of revenue from this facility was excluded from Group revenue.
Dividends
Dividends are recognised as a liability in the period in which they are
declared and approved by those with the authority to do so, or in the case
of an interim dividend, when it has been approved by the directors and paid.
Pension Costs
Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement in the period in which
the relevant employee service is received.
Share Awards
The Company and certain of its subsidiaries operate both equity settled
and cash settled share based programmes which allow employees to acquire
shares in the Company and in the relevant subsidiaries respectively. The
fair value of awards granted is recognised as an employee expense with a
corresponding increase in equity (for equity settled schemes) and liabilities
(for cash settled schemes).
The fair values of equity settled awards are measured at grant date and
spread over the period during which the employees become unconditionally
entitled to the awards. The fair value of the awards granted is measured
using an appropriate model. Management uses a binomial lattice model, which
takes into account the terms and conditions upon which the awards were granted.
Market based performance conditions are included in the calculation of fair
value. Non-market performance conditions are not. The amount recognised
as an expense is adjusted to reflect the actual number of shares that vest
when the condition is a non-market condition.
The fair values of cash settled awards are initially measured at grant date and spread over the period during which the employee becomes unconditionally entitled to payment. The liability is re-measured to fair value at each balance sheet date until the awards vest and thereafter at settlement amount until the settlement date. Any changes in the value of the liability are reflected in the income statement as an employee benefit expense.
Where share based payment costs arise in relation to employees whose service is directly attributable to the construction of an item of property, plant and equipment, they are capitalised in accordance with the accounting policy for property, plant and equipment.
Lease Payments
Payments made under operating leases are recognised in the income statement
on a straight-line basis over the term of the lease.
The capital elements of future finance lease obligations are recorded as liabilities, while the interest elements are charged to the income statement over the period of the lease to produce a constant rate of charge on the balance of capital repayments outstanding.
Provisions
A provision is recognised in the balance sheet when the Group has a legal
or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the risks
specific to that liability.
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract.
SITE RESTORATION AND AFTERCARE PROVISION
Full provision is made for the net present value of the Group’s costs in
relation to restoration liabilities at its landfill sites. The net present
value of the estimated costs is capitalised as property, plant and equipment.
The unwinding of the discount element on the restoration provision is reflected
as a finance cost in the income statement. Current cost estimates are revised
each year and any resulting change is reflected in the carrying amount of
the relevant assets. Provision is made for the net present value of post
closure costs based on the quantity of waste input into the landfill during
the year. Similar costs incurred during the operating life of the landfill
site are expensed as incurred.
Income Tax
Income tax on the profit or loss for the period comprises current and deferred
tax. Income tax is recognised in the income statement except to the extent
that it relates to items recognised directly in equity, in which case it
is recognised in equity.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes; those arising on the initial recognition of assets or liabilities that affect neither accounting or taxable profit or loss; and differences relating to retained earnings in subsidiaries, to the extent that they are controlled by the company and will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Net Financing Costs
Net financing costs comprise interest payable on borrowings calculated
using the effective interest rate method, interest receivable on funds
invested, foreign exchange gains and losses, gains and losses on hedging
instruments that are recognised in the income statement and the unwinding
of discounts on provisions.
Interest income is recognised in the income statement as it accrues, taking
into account the effective yield on the asset.
The interest component of finance lease payments is recognised in the income
statement using the effective interest rate method.
Financing costs which are directly attributable to the construction of property, plant and equipment are capitalised as part of the cost of those assets. The commencement of capitalisation begins when both finance costs and expenditures for the asset are being incurred and activities that are necessary to get the asset ready for use are in progress. Capitalisation ceases when substantially all the activities that are necessary to get the asset ready for use are complete.
Minority Interests
The interest in a subsidiary undertaking included in the consolidation
that is attributable to the shares held by or on behalf of persons other
than the parent undertaking and its subsidiary undertakings is included
within minority interests in the balance sheet.
Employee Share Ownership Plan
Payments are made by the Company to the Plan’s Trustees to acquire Company
shares to be allocated to employees over the life of the scheme. The assets
and liabilities of the Plan, including future obligations to employees arising
from the operation of the Plan, are reflected in the consolidated financial
statements. Shares in the Company which have not yet vested are shown as
a deduction from shareholders’ funds in the consolidated balance sheet.
Earnings per Share
The Group presents basic and diluted earnings per share (EPS) data for
its ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shares of the Company by the weighted average number
of ordinary shares outstanding during the period. Diluted EPS is determined
by adjusting the profit or loss attributable to ordinary shareholders and
the weighted average number of ordinary shares outstanding for the effects
of all dilutive potential ordinary shares, which comprise share options
granted to employees.
Government Assistance
In certain areas in which the Group operates, the Group is entitled to
government assistance as a result of producing electricity in an environmentally
friendly manner. This may take the form of Production Tax Credits or other
forms of assistance. The Government assistance is recognised as income in
the income statement when the Group has complied with the conditions associated
with the assistance and there is reasonable assurance that it will be received.
Classification of Financial Instruments issued by the Group
Financial instruments issued by the Group are treated as equity only to
the extent that they meet the following two conditions:
| (a) | they include no contractual obligations of the Group (or Company as the case may be) to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group (or Company); and |
| (b) | where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group’s own equity instruments or is a derivative that will be settled by the Group’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. |
To the extent that this definition is not met, the instrument is classified
as a financial liability.
Where the instrument so classified takes the legal form of the shares of Group companies, the amounts presented in these financial statements for equity exclude amounts in relation to those shares.
Where a financial instrument that contains both equity and financial liability components exists these components are separated and accounted for individually under the above policy. The finance cost on the financial liability component is correspondingly higher over the life of the instrument.