6th Jul 2005 15:15
Irish Continental Group PLC06 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 ReportingStandards (IFRS) as its primary accounting basis for all reporting periodsbeginning on or after 1 January 2005 as required for all EU listed Companies. Aspart of the transition from Irish GAAP, ICG now presents financial informationprepared in accordance with IFRS at the date of transition 1 January 2004 andfor the year ended 31 December 2004. The purpose of this document is to provide information on the impact of theadoption of IFRS. This financial information represents our current bestestimates and may be affected by changes to IFRS standards, interpretationsthereof and the emergence of best practice. Certain of these standards are stillsubject to endorsement by the European Commission. For these reasons it ispossible that the information presentedin this document may be subject to change prior to its finalisation in the 2005Annual Report. The Financial information presented here is unaudited. Financial Highlights: year ended 31 December 2004 IFRS Irish GAAP Turnover €293.3m €293.3mEBITDA (pre exceptional) €49.4m €51.5mProfit before tax and exceptional €17.9m €21.1mProfit after tax €4.4m €8.0mAdjusted earnings per share 71.5c 84.7cBasic earnings per share 18.7c 34.0cGroup cash flow from operations €51.8m €51.8mNet assets as at 31 December 2004 €150.6m €176.6m Significant changesThe most significant impact on our Income & Expenditure Statement and BalanceSheet is due to the adoption of the following standards: IAS 19 Accounting for retirement benefitsThe adoption of IAS 19 results in a net increase in the charge for pensionbenefits in the P&L of €2.5m (before a deferred tax credit of €0.1m) and areduction in net assets at 31 December 2004 of €2.9m. The Group is also acontributing employer to the Merchant Navy Officers Pension Fund (MNOPF), partof which is in deficit. Due to uncertainty regarding the allocation of thedeficit among employers the Group continues to account for its membership of theMNOPF as if it were a defined contribution scheme. IAS 16 Property, plant and equipmentThe adoption of IAS 16 results in components of certain assets being depreciatedat different rates. This results in an extra charge of €1.1m to the P&L in 2004and a reduction of €12.4m in net assets at 31 December 2004. IFRS1 First time adoption of IFRSThe restating of one vessel at valuation on transition to IFRS at 1 January 2004reduces net assets and reserves by €10.2m. The implementation of IFRS has no impact on either turnover or cashflows, nordoes it affect the underlying operation of the business. Expectations for 2005The implementation of IFRS is expected to reduce the profit after tax whichwould have been reported under Irish GAAP by approximately €2.3m in the yearended 31 December 2005. The resulting impact on earnings per share is areduction of approximately 10 cent. The effect on net assets at 31 December 2005 is dependent on the adjustments setout above, taken in conjunction with the market conditions for the pensionscheme at 31 December 2005. ICG will issue its first results under IFRS, the interim results to 30 June2005, on 8 September 2005. Full details of the impact of transition are set out in the following pages. Garry O'DeaFinance Director6 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 inaccordance 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 InternationalFinancial Reporting Interpretations Committee (IFRIC) effective at 31 December2004. The rules for first time adoption of IFRS are set out in IFRS 1 'First TimeAdoption of International Financial Reporting Standards'. IFRS 1 requiresapplication of the same accounting policies in the IFRS opening balance sheetand for all periods thereafter. The Group's transition to IFRS has been prepared on the basis of availing of thefollowing 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 costconvention. RECONCILIATION OF IMPACT OF IFRS ON THE CONSOLIDATED INCOME STATEMENTFOR 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 •mNotes* (1) (2)Continuing operationsRevenue 293.3 - - 293.3Cost of sales (221.5) - (1.1) (222.6)Gross profit 71.8 - (1.1) 70.7Distribution 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) 10.9Finance costs (5.4) - - (5.4)Profit before taxation 9.2 (2.6) (1.1) 5.5Taxation (1.2) 0.1 - (1.1)Profit for the period: allattributable to equity holdersof 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 EXPENSEFOR 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 •mNotes* (1) (2)Profit for the period: allattributable to equity holdersof the parent 8.0 (2.5) (1.1) 4.4Exchange differenceson translation of foreignoperations (2.3) - - (2.3)Actuarial gains/ (losses)on defined benefit pensionschemes - (14.1) - (14.1)Other - 1.1 - 1.1Net income recogniseddirectly in equity 5.7 (15.5) (1.1) (10.9) * Explanatory notes are presented on pages below RECONCILIATION OF IMPACT OF IFRS ON THE CONSOLIDATEDBALANCE 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 •mNotes* (1) (2) (3) (4) (5)Non current assetsIntangible assets - - - - - 0.4 0.4Property, plant &equipment 334.5 - (11.3) (10.2) - (0.4) 312.6 334.5 - (11.3) (10.2) - - 313.0Current assetsInventories 0.7 - - - - - 0.7Trade & other receivables 48.3 - - - - - 48.3Retirement benefit asset - 12.4 - - - - 12.4Cash at bank and in hand 12.2 - - - - - 12.2 61.2 12.4 - - - - 73.6Non current assets 3.3 - - - - - 3.3Total assets 399.0 12.4 (11.3) (10.2) - - 389.9Current liabilitiesTrade & other payables (61.2) 0.2 - - (0.9) - (61.9)Tax liabilities (5.5) - - - - - (5.5)Obligations under financeleases (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 currentliabilities 303.4 12.6 (11.3) (10.2) (0.9) - 293.6Creditors: Amounts fallingdue after more than one year 108.3 - - - - - 108.3Provision for liabilities &charges 11.6 - - - - - 11.6 119.9 - - - - - 119.9Capital and reservesCalled-up share capital 15.7 - - - - - 15.7Share premium account 38.9 - - - - - 38.9Capital reserves 2.2 - - - - - 2.2Profit and loss account 126.7 12.6 (11.3) (10.2) (0.9) - 116.9Shareholders' 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 SHEETAS 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 •mNotes* (1) (2) (3) (4) (5)Non current assetsIntangible assets - - - - - 0.1 0.1Property, plant &equipment 320.4 - (12.4) (10.2) - (0.1) 297.7 320.4 - (12.4) (10.2) - - 297.8Current assetsInventories 0.6 - - - - - 0.6Trade & other receivables 42.9 (0.3) - - - - 42.6Cash at bank and in hand 9.2 - - - - - 9.2 52.7 (0.3) - - - - 52.4Non current assets 3.6 - - - - - 3.6Total assets 376.7 (0.3) (12.4) (10.2) - - 353.8Current liabilitiesTrade & other payables (56.2) - - - (0.5) - (56.7)Tax liabilities (5.5) - - - - - (5.5)Obligations under financeleases (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 currentliabilities 271.7 (0.3) (12.4) (10.2) (0.5) - 248.3 Creditors: Amounts fallingdue after more than one year 83.8 2.6 - - - - 86.4Provision for liabilities &charges 11.3 - - - - - 11.3 95.1 2.6 - - - - 97.7Capital and reservesCalled-up share capital 15.8 - - - - - 15.8Share premium account 39.6 - - - - - 39.6Capital reserves 2.2 - - - - - 2.2Profit and loss account 119.0 (2.9) (12.4) (10.2) (0.5) - 93.0Shareholders' 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 STATEMENTFOR 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 operationsRevenue 135.8 - - 135.8Cost of sales (113.8) - (0.6) (114.4)Gross profit 22.0 - (0.6) 21.4Distribution 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) 2.3Finance 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: allattributable to equity holdersof 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 EXPENSEFOR 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: allattributable to equity holdersof the parent 1.2 - (0.6) 0.6Exchange differenceson translation of foreignoperations 4.3 - - 4.3Actuarial losses on definedbenefit pension schemes - (4.2) - (4.2)Other - 1.1 - 1.1Net income recogniseddirectly 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 assetsIntangible assets - - - - - 0.3 0.3Property, plant &equipment 337.4 - (11.9) (10.2) - (0.3) 315.0 337.4 - (11.9) (10.2) - - 315.3Current assetsInventories 1.0 - - - - - 1.0Trade & other receivables 48.8 (0.3) - - - - 48.5Retirement benefit asset - 8.8 - - - - 8.8Cash at bank and in hand 16.0 - - - - - 16.0 65.8 8.5 - - - - 74.3Non current assets 3.8 - - - - - 3.8Total assets 407.0 8.5 (11.9) (10.2) - - 393.4Current liabilitiesTrade & other payables (67.1) - - - (0.4) - (67.5)Tax liabilities (5.7) - - - - - (5.7)Obligations under financeleases (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 currentliabilities 300.8 8.5 (11.9) (10.2) (0.4) - 286.8Creditors: Amounts fallingdue after more than one year 109.6 - - - - - 109.6Provision for liabilities &charges 11.6 - - - - - 11.6 121.2 - - - - - 121.2Capital and reservesCalled-up share capital 15.7 - - - - - 15.7Share premium account 39.4 - - - - - 39.4Capital reserves 2.2 - - - - - 2.2Profit and loss account 122.3 8.5 (11.9) (10.2) (0.4) - 108.3Shareholders' 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 adjustmentsbetween Irish GAAP and IFRS as they apply to the Consolidated Income Statementfor the year ended 31 December 2004, the Consolidated Balance Sheet as at 1January 2004 and the Consolidated Balance Sheet as at 31 December 2004 are asfollows: (1) Employee Benefits (IAS 19) Under Irish GAAP, the Group accounted for pensions in accordance with SSAP 24Accounting for Pension Costs and complied with the disclosure requirements ofFRS 17 Retirement Benefits. Accounting for defined contribution pension plans remains unchanged under IFRS.The Irish GAAP defined benefit pension cost charged to the Consolidated IncomeStatement was based on current service cost plus the impact of spreading anydeficits/surpluses arising on the Group's defined benefit pension and postretirement plans over the estimated average remaining service lives of theemployees. Under IFRS the defined benefit pension charge is based on currentservice cost and a financing charge/credit. The 2004 Irish GAAP Consolidated Income Statement has been adjusted to complywith 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 onthe Consolidated Balance Sheet under IFRS. The surplus arising on the Group'sdefined benefit pension plans at 1 January 2004 and the deficit arising at 31December 2004, as measured by the plans' actuaries using the attained age methodand the projected unit method under IFRS guidelines, have been recognised infull in the IFRS Consolidated Balance Sheets as at 1 January 2004 and 31December 2004 respectively. The pension asset at 1 January 2004 has beenincluded in debtors in current assets. The pension deficit at 31 December 2004has been included in creditors falling due after more than one year. The netactuarial loss arising in 2004 has been taken to the Statement of RecognisedIncome and Expense. The net impact on the 2004 Consolidated Income Statement of adopting IAS 19 is adecrease of €2.6m in operating profit which is the net amount of the servicecost under IAS 19 and an increase in interest receivable. A deferred tax creditof €0.1m is set against this, giving a net change of €2.5m. The surplus in theGroup'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 infull on the IFRS Consolidated Balance Sheet as at 1 January 2004 and 31 December2004 respectively.The reversing effect on the Consolidated Balance Sheet of eliminating the SSAP24 deficit / surplus relating to past service is a €0.2m increase in reserves at1 January 2004 and a €0.3m decrease in reserves at 31 December 2004. Some ships' officers employed in the Group participate in the Merchant NavyOfficers Pension Fund (MNOPF), a defined benefit multi-employer retirement plan.At the last valuation date the Group had 60 contributing members to the schemeout of a total contributing membership to the scheme of 2,821. The scheme isdivided into two sections, The Old Section and the New Section, both of whichare closed to new members. The latest valuations were carried out as at 31 March2003. 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 accruebenefits. There is an actuarial deficit of GBP 194.0m in this section as at 31March 2003. The Trustee Board of the MNOPF intends apportioning the deficit inthis section among the participating employers and has applied to the courts fora determination on the apportionment of the liability between employees. TheTrustee Board intends to require participating employers to increasecontributions 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 rangefrom GBP 2.7 million to GBP 6.2 million. Judgement on the case was handed down on 22 March 2005 in the High Court. Thejudgement entitles the Trustee Board to seek contributions from the widestdefinition possible of participating employers. However, permission to appealthis judgement has been sought by a number of the employers. In thecircumstances 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 theplan 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 overthe total expected useful life of that item of property, plant or equipment. IAS 16 states an entity allocates the amount initially recognised in respect ofan item of property, plant and equipment to its significant parts anddepreciates separately each such part. In respect of passenger ships, cost is allocated between hull & machinery andhotel & catering areas. In respect of stevedoring equipment cost is allocatedbetween structural frame and machinery. Under IFRS, hotel & catering areas which are subject to intensive wear areassessed on initial recognition to have a useful life of 10 years, and aredepreciated accordingly. Hull & machinery, which is subject to minor wear, areassessed on initial recognition to have a useful life of 15 years for fastferries 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 December2004 being reduced by €11.3m and €12.4m respectively to take account of thedepreciation of intensive wearing components which was not previouslyrecognised. Component accounting for passenger ships results in an extra charge todepreciation of €1.1m in 2004. This charge is stated after a €1.1m creditresulting from the revaluation of the fast ferry, Dublin Swift. Under IFRS, stevedoring equipment components with intensive wear are depreciatedover 7 years. Components with minor wear are depreciated over 12 years. Thetransition to IFRS has no effect on the net book value of stevedoring equipmentat 1 January 2004 or 31 January 2004 and does not affect the depreciation chargein 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 andequipment at the date of transition to IFRS at its fair value and use that fairvalue as its deemed cost at that date. At the date of transition to IFRS the company has chosen to measure one of itsvessels, the fast ferry Dublin Swift, at its market value at that date. Thisresults in a reduction in the value of property, plant and equipment on thebalance sheet of €10.2 million at 1 January 2004 and a corresponding reductionin reserves. (4) Financial instruments (IAS 39) The Group's activities expose it to risks of changes in foreign currencyexchange rates and interest rates. The Group uses foreign exchange forwardcontracts and interest rate swaps to hedge these exposures. Under Irish GAAP these financial instruments are not recognised on the balancesheet of the company. Under IAS 39 interest rate swaps entered into by the company are treated ascashflow hedges and all derivative financial instruments are held in theConsolidated 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 2004this amount is €0.5m. (5) Intangible assets (IAS 38) Under Irish/UK GAAP computer software was previously capitalised as a tangibleasset. Under IAS 38, computer software that is not an integral part of an itemof computer hardware is capitalised as an intangible asset. Computer software as at 1 January 2004 and 31 December 2004 with a net bookvalue of €0.4m and €0.1m respectively, has been transferred from tangible fixedassets 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 consolidationThe consolidated financial statements incorporate the financial statements ofthe Company and its subsidiaries all of which present financial statements up to3l December. The results of subsidiaries acquired or disposed of during the yearare included in the Consolidated Income Statement from the date of theiracquisition or up to the date of their disposal. Reporting currencyThe financial statements contained herein are presented in Euro. TurnoverTurnover represents revenues from passenger and freight services supplied tothird parties, exclusive of discounts and value added tax. Passenger ticket revenue is recognised at the date of travel. Freight revenue isrecognised at the date of transportation. Revenue from passenger tickets soldbefore the year end for a travel date after the year end is included in thebalance sheet in creditors due within one year under the caption "accruals anddeferred income". Unused tickets are recognised as revenue on a systematicbasis. Cash revenue from on-board sales is recognised immediately. Segmental analysisThe Group's primary format for segmental reporting is business segments. Therisks and returns of the Group's operations are primarily determined by thedifferent services that the Group offers. The Group has two business segments,Ferries and Container & Terminal. Corporate activities, such as the cost ofcorporate stewardship, are reported along with the elimination of inter-groupactivities under the heading "Unallocated Liabilities". Segment assets and liabilities consist of property, plant and equipment andother assets and liabilities that can be reasonably allocated to the reportedsegment. Unallocated segment assets and liabilities mainly include current anddeferred 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 Groupoperates i.e. between geographical areas. Given that the Group is primarily anoperator of ships there is no reasonable basis upon which to assign its mainassets, ships, to any geographical area. Therefore the Group will only presentgeographical information relating to where revenues are earned.Tangible fixed assets Passenger shipsPassenger ships are stated at cost, with the exception of the fast ferry DublinSwift which is stated at valuation at the transition date. The amount initially recognised in respect of an item of property, plant andequipment is allocated to its significant parts and each such part isdepreciated separately. In respect of passenger ships cost is allocated betweenhull & machinery and hotel & catering areas. For passenger ships hotel & catering components with intensive wear aredepreciated over 10 years. Hull & machinery components with minor wear aredepreciated over the useful lives of the ships of 15 for fast ferries and 30years for conventional ferries. Other assetsOther tangible fixed assets are stated at cost less accumulated depreciation andany impairment losses. Cost comprises purchase price and directly attributablecosts. Freehold land is not depreciated. The amount initially recognised in respect of an item of property, plant andequipment is allocated to its significant parts and each such part isdepreciated separately. In respect of stevedoring equipment cost is allocatedbetween structural frame and machinery. Depreciation on the tangible fixed assets is calculated by charging equal annualinstalments to the Consolidated Income Statement so as to provide for their costover 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 DrydockingCosts incurred on the overhaul of vessels are capitalised and depreciated overthe period to the next overhaul. Financial fixed assetsFinancial fixed assets are shown at cost less amounts charged to the profit andloss account where the Directors consider that there has been a permanentimpairment in value. Impairment of assetsAssets that are subject to amortisation are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which theasset's carrying amount exceeds its recoverable amount. The recoverable amountis 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 lowestlevels for which there are separately identifiable cash flows (cash generatingunits). StocksStocks are stated at the lower of cost and net realisable value. Cost representssuppliers' invoiced cost determined on a first in, first out, basis. TaxationIncome taxes include all taxes based upon the taxable profits of the Group. Aproportion of the Group's profits fall within the charge to Tonnage Tax, underwhich regime taxable profits are based on the tonnage of the vessels employedduring the period. The tonnage tax charge is included within the income taxcharge. The tax charge also includes income taxes payable based on taxable profit forthe year and deferred taxes, which have been calculated on the basis set out inIAS 12 'income taxes'. Deferred tax is calculated at the tax rates that areexpected to apply in the period when the liability is settled or the asset isrealised. Deferred taxes are calculated based on the temporary differences that arisebetween the tax base of the asset or liability and its carrying value in theConsolidated Balance Sheet. Deferred tax is recognised on all temporarydifferences in existence at the balance sheet date except as provided under IAS12. Deferred tax assets are recognised to the extent that it is probable thatthey will be utilised. Deferred tax assets and deferred tax liabilities are offset where taxes arelevied by the same taxation authority and relate to the same tax period. Retirement benefitsPayments to defined contribution plans are recognised in the Consolidated IncomeStatement as they fall due and any contributions outstanding at the period endare included as an accrual in the Consolidated Balance Sheet. The cost of providing benefits and the liabilities of defined benefit plans aredetermined, using the attained age method and the projected unit method, byindependent and professionally qualified actuaries. Current service cost, interest cost and return on plan assets are recognised inthe Consolidated Income Statement. Actuarial gains and losses are recognised infull in the period in which they occur in the Statement of Recognised Income andExpense. Past service cost is recognised immediately to the extent that thebenefits are already vested. Otherwise, past service cost is recognised on astraight line basis over the average period until the benefits become vested.The surplus or deficit on the Group's defined benefit pension plans isrecognised in full in the Consolidated Balance Sheet. A small number of the Groups employees are members of a multi-employer definedbenefit retirement plan. The liability of each participating employer to fund adeficit in this scheme is currently the subject of a legal action. In thesecircumstances it is not possible to quantify the Group's share of the deficit.Consequently the scheme is currently accounted for as a defined contributionscheme and appropriate disclosures are given. GrantsGrants of a capital nature are accounted for as deferred income and are releasedto the Consolidated Income Statement at the same rates as the related assets aredepreciated. Grants of a revenue nature are credited to the Consolidated IncomeStatement to offset the matching expenditure. LeasesAssets held under finance leases are capitalised and included in tangible fixedassets at an amount representing the outright purchase price of such assets.Depreciation is provided at rates designed to write-off the cost, less anyresidual value, in equal annual amounts over the shorter of the estimated usefullives of the assets, or the period of the leases. The capital element of future rentals is treated as a liability and the interestelement is charged to the Consolidated Income Statement over the period of theleases in proportion to the balances outstanding. Annual rentals payable under operating leases are charged to the ConsolidatedIncome Statement on a straight line basis over the period of the lease. Foreign currencyForeign currency transactions are translated into local currency at the rate ofexchange ruling at the date of the transaction. Any exchange difference arisingfrom either the retranslation of the resulting monetary asset or liability atthe exchange rate at the balance sheet date or from the settlement of thebalance at a different rate is recognised in the Consolidated Income Statementwhen it occurs. The Income Statements of foreign currency subsidiaries are translated into Euroat the average exchange rate for the period. The Balance Sheets of suchsubsidiaries are translated at rates of exchange ruling at the balance sheetdate. From 1 January 2004, a separate component of equity is maintained for therecognition of exchange differences arising on the translation of foreigncurrency subsidiaries. On disposal of a foreign subsidiary the cumulative translation difference forthat foreign subsidiary is transferred to the Consolidated Income Statement aspart of the gain or loss on disposal. Derivative financial instruments and hedge accountingThe Group's activities expose it to risks of changes in foreign currencyexchange rates and interest rates. The Group uses foreign exchange forwardcontracts and interest rate swaps to hedge these exposures. Derivative financialinstruments are held in the Consolidated Balance Sheet at their fair value. The Group uses Cash flow hedges: Changes in the fair value of derivativefinancial instruments that are designated, and are effective, as hedges ofchanges in future cash flows are recognised directly in equity. Any ineffectiveportion of the hedge is recognised in the Consolidated Income Statement. Whenthe cash flow hedge of a firm commitment or forecasted transaction subsequentlyresults in the recognition of an asset or a liability, then, at the time theasset or liability is recognised, the associated gains or losses on thederivative that had previously been recognised in equity are recognised in theConsolidated Income Statement. The significant accounting policies applicable from 1 January 2005 are asfollows: Financial assetsFinancial fixed assets classified as available-for-sale are stated at their fairmarket value at the balance sheet date. Any movements in value are taken toequity until the asset is disposed of unless there is deemed to be an impairmenton the original cost in which case the loss is taken directly to theConsolidated Income Statement. All other financial assets are stated at cost less provisions for impairment.Income from financial assets is recognised in the Consolidated Income Statementin the period in which it is receivable. BorrowingsDebt instruments are initially reported at cost, which is the proceeds received,net of transaction costs. Subsequently they are reported at amortised cost. Anydiscount between the net proceeds received and the principal value due onredemption is amortised over the duration of the debt instrument, and isrecognised as part of the interest expense in the Consolidated Income Statement.To the extent that debt instruments are hedged under qualifying fair valuehedges, the hedged item is recorded at fair value. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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