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The principal Accounting Policies adopted in the preparation of the Group's IFRS Financial Statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.
The Consolidated Financial Statements have been prepared in accordance with IFRS adopted by the EU, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS and therefore comply with Article 4 of the EU IAS regulations. They have been prepared on the historical cost basis, except for the revaluation of certain properties, financial instruments, share-based payments and pension assets and liabilities, which are measured at fair value.
The prior year financial information has been restated to reflect the application of IFRIC 12 (see impact of standards).
The Group Financial Statements are a consolidation of the Financial Statements of the Parent Company and all its subsidiary undertakings made up to 31 December each year.
Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring the Accounting Policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority's share of changes in equity since the date of the combination.
The Directors have, at the time of approving the Financial Statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the Financial Statements. Further detail is contained in the Directors' Report.
Goodwill arising on consolidation of subsidiary undertakings is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. Goodwill is subsequently measured at cost less any accumulated impairment losses. Goodwill is subjected to an impairment test at the Statement of Financial Position date and any loss is recognised immediately through the Statement of Comprehensive Income and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to cash-generating units. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which goodwill arose.
Revenue is measured at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.
Revenue from construction contracts is recognised in accordance with the Group's accounting policy on construction contracts (see below).
Revenue from the sale of land and properties is recognised at the point of legal completion and where title has passed.
Revenue from the Group's PFI concession is recognised by the calculation of 'shadow tolls' which are based on vehicle usage of the A69 for the period of account.
Revenue from operating leases is recognised on a straight line basis over the lease term, except for contingent rental income which is recognised when it arises. When the Group provides incentives to its tenants, the cost of incentives is recognised over the lease term, on a straight line basis, as a reduction to revenue.
Revenue from the hire of plant and equipment is measured as the fair value of sales proceeds from such which relate to the period of account.
Where the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised by reference to the stage of completion of the contract activity at the Statement of Financial Position date and profit is that estimated to fairly reflect the profit arising up to that date.
Contract revenue is recognised in accordance with the stage of completion of the contract where the contract's outcome can be estimated reliably. The principal method used to recognise the stage of completion of a contract is an in-house survey of the work performed.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
Contract revenue includes an assessment of the amounts agreed in the contract, plus or less any variations in contract work and claims to the extent that they are approved and can be measured reliably. The Group therefore assesses the revenue recognised on a contract by contract basis.
Variations and claims are changes to the original contractual obligations, which may be valued by contractual rates or agreed rates, or changes to contract conditions, loss and expense, prolongation, disruption, or additional prelims. They are included to the extent that it is probable that they will result in revenue and they are capable of being reliably measured. Our judgement on these matters is based on past experience, external valuers, external influences (weather, for example), trends, risk profile and nature of the contract, competency of consultants, and legal constraints.
The chief operating decision maker is the person or group that allocates resources to and assesses the performance of the operating segments of an entity. The Group has determined that its chief operating decision maker is the Board of Henry Boot PLC ('the Board').
Management has determined the operating segments based on the reports reviewed by the Board in making strategic decisions.
The Board considers the business based on the following operating segments:
All of the Group's business activities and operating segments are reported within the above segments.
Investment properties, which are properties held to earn rental income and for capital appreciation, are stated at fair value at the Statement of Financial Position date.
On completion, investment property is carried at fair value, based on market values. Other than houses, property is then valued annually by independent valuers. Houses are held at Directors' valuation. Any surplus or deficit arising from these valuations is included in the Statement of Comprehensive Income. When an existing investment property is redeveloped for continued future use as an investment property, it remains an investment property whilst in development.
Investment properties under construction are held at fair value unless a fair value cannot be reliably determined in which case it is accounted for at cost. Valuation movements on investment properties under construction are reflected in the Statement of Comprehensive Income.
Group occupied properties are stated in the Statement of Financial Position at their revalued amounts, being the fair value, based on market values less any subsequent accumulated depreciation or subsequent accumulated impairment loss. Fair value is determined annually by independent valuers. Surpluses on revaluations are transferred to the revaluation reserve. Deficits on revaluations are charged against the revaluation reserve to the extent that there are available surpluses relating to the same asset and are otherwise charged to the Statement of Comprehensive Income.
In respect of buildings, depreciation is provided where it is considered significant having regard to the estimated remaining useful lives and residual values of individual properties.
Plant and vehicles, and office equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives, using the straight line method, mainly at the following annual rates:
The PFI asset represents the capitalised cost of the initial project, together with the capitalised cost of any additional major works to the road and structures, which are then amortised over 20 years or the remaining life of the concession.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases and rentals are charged wholly to the Statement of Comprehensive Income.
Assets held under finance leases are capitalised in the Statement of Financial Position and depreciated over their expected useful lives or the lease term, whichever is the shorter. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the Statement of Comprehensive Income over the period of the lease.
Where the Group acts as a lessor in the case of operating leases, rental income is recognised on a straight line basis over the term of the relevant lease after adjustment for any rent free periods or other incentives.
Inventories are stated at the lower of cost and net realisable value which, in the case of land held for development, is deemed to be the estimated existing use value where satisfactory planning permission has not yet been obtained.
The cost of options to purchase land and planning promotion agreements are carried at the lower of cost or estimated net realisable value and are subject to regular impairment reviews.
Developments in progress comprise all the direct costs incurred in bringing the individual schemes to their present state at the Statement of Financial Position date less the value of any impairment losses.
Payments to the defined contribution retirement benefit scheme are charged as an expense as they fall due.
The cost of providing benefits under the defined benefit retirement scheme is determined using the Projected Unit Credit Method, with actuarial calculations being carried out at each Statement of Financial Position date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised within 'Other comprehensive income' within the Consolidated Statement of Comprehensive Income. The net periodic benefit cost comprising the employer share of the service cost and the interest cost, less the expected return on assets, is charged to the Statement of Comprehensive Income. The Group's net obligations in respect of the scheme are calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. This is then discounted to present value and the fair value of the scheme's assets is then deducted.
Equity-settled share-based payments are measured at fair value at the date of grant and are expensed on a straight line basis over the vesting period. Fair value is measured by a Monte Carlo pricing model.
SAYE share options are treated as cancelled when employees cease to contribute to the scheme. This results in accelerated recognition of the expenses that would have arisen over the remainder of the original vesting period.
The tax charge on the profit or loss for the year comprises the sum of tax currently payable and deferred tax.
Tax currently payable is based on taxable profit for the year adjusted for any tax payable or repayable in respect of earlier years. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and items that may never be taxable or deductible.
The Group's liability for current taxation is calculated using tax rates that have been enacted or substantially enacted by the Statement of Financial Position date.
Corporation tax liabilities of wholly owned subsidiary companies are transferred to and paid by the Parent Company and credit is given by the Parent Company for loss relief surrendered.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax bases used in computing taxable profits.
The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered.
Deferred tax is calculated at tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and deferred tax liabilities are offset where the Group has a legally enforceable right to do so and when the deferred tax assets and liabilities relate to tax levied by the same tax authority where there is an intention to settle the balances on a net basis.
Dividends are only recognised as a liability in the actual period in which they are declared.
Preference share capital is classified as equity as it is non-redeemable, or is redeemable only at the Company's option and any dividends are discretionary. Dividends on preference share capital classified as equity are recognised as distributions within equity.
The Group retains such financial instruments as are required, together with retained earnings, in order to finance the Group's operations.
Financial assets or financial liabilities are recognised by the Group in the Statement of Financial Position only when the Group becomes a party to the contractual provisions of the instrument.
The principal financial instruments are:
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Statement of Comprehensive Income over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
Derivative financial instruments such as interest rate swaps are occasionally entered into in order to manage interest rate risks arising from long-term debt. Such derivative instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
For the purpose of cash flow hedge accounting, hedges are classified as cash flow hedges when hedging exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction.
The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where such derivative transactions are executed, gains and losses on the fair value of such arrangements are taken either to reserves or to the Statement of Comprehensive Income dependent upon the nature of the instrument.
If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.
When a derivative is held as an economic hedge for a period beyond twelve months after the end of the reporting period, the derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item. A derivative instrument that is a designated and effective hedging instrument is classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if: 1) a reliable allocation can be made; and 2) it is applied to all designated and effective hedging instruments.
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event; it is probable that the Group will be required to settle that obligation; and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the Statement of Financial Position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Interest income and expense are recognised within 'Investment income' and 'Finance costs' in the Statement of Comprehensive Income using the effective interest rate method, except for borrowing costs relating to qualifying assets, which from 1 January 2009 are capitalised as part of the cost of that asset. The Group has chosen not to capitalise borrowing costs on all qualifying assets which are measured at fair value.
The effective interest rate method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or a shorter period where appropriate, to the net carrying amount of the financial asset or financial liability.
The critical judgements in applying the Group's Accounting Policies and that have the most significant effect on the amounts recognised in the Financial Statements, apart from those involving estimations (see below), relate to revenue recognition, construction contracts and inventories. All of these are referred to within the Principal Accounting Policies section and each is interpreted by management in the light of IAS 18 'Revenue', IAS 11 'Construction Contracts' and IAS 2 'Inventories'.
The key assumptions concerning the future and other key sources of estimation uncertainty at the Statement of Financial Position date, and that could have a material adjustment to the carrying amounts of assets and liabilities over the ensuing year, are retirement benefit costs, fair value, goodwill impairment and the impairment review of option costs carried forward in inventories. The estimates used in retirement benefit costs are arrived at in conjunction with the scheme's actuary and advisers, those having the most significant impact being mortality rates and bond yields. The fair value of completed investment property is determined by independent valuation experts using the Yield Method valuation technique. In most cases the fair values are determined based on recent market transactions with similar characteristics and location to those of the Company's assets. The fair value of investment property under construction has been determined using the Residual Method by the Directors of the Company. Determination of goodwill impairment is estimated on the basis of future cash flow generation over the remaining concessionary period; whilst impairment relating to option costs is considered individually by management in the light of progress made in the planning process, feedback from local planning officers and other external factors that might be considered likely to influence the eventual outcome.
At the date of authorisation of these Financial Statements, the following standards and interpretations to existing standards are mandatory for the first time for the accounting period ended 31 December 2009:
IFRIC 12 (Issued 2006) |
‘Service Concession Arrangements’ |
1 January 2008 |
IFRIC 13 (Issued 2007) |
‘Customer Loyalty Programmes’ |
1 July 2008 |
IFRIC 15 (Issued 2008) |
‘Agreements for Construction of Real Estate’ |
1 January 2009 |
IFRS 7 (Amended) |
‘Improving Disclosures about Financial Instruments’ |
1 January 2009 |
IFRS 8 (Issued 2006) |
‘Operating Segments’ |
1 January 2009 |
IAS 1 (Revised) |
‘Presentation of Financial Statements’ |
1 January 2009 |
IFRS 1 (Amended) and IAS 27 (Amended) |
‘Cost of an Investment in a Subsidiary, Jointly Controlled Entity |
1 January 2009 |
IAS 23 (Revised) |
‘Borrowing Costs’ |
1 January 2009 |
IAS 32 and IAS 1 (Amended) |
‘Puttable Financial Instruments and Obligations Arising |
1 January 2009 |
IAS 39 (Amended) |
‘Reclassification of Financial Assets: Effective Date and Transition’ |
1 July 2008 |
IAS 39 (Amended) and IFRS 7 (Amended) |
‘Reclassification of Financial Instruments’ |
1 July 2009 |
IAS 40 (Amended) |
‘Investment Property’ |
1 January 2009 |
The adoption of these standards and interpretations has not had a significant impact on the Group. The principal effects of these changes are as follows:
Following the adoption of IFRIC 12 'Service Concession Arrangements', our PFI asset has been retrospectively reclassified as an intangible asset. The following restatements have been made:
The restatements have no impact on the Statement of Comprehensive Income or Net Assets.
Following the adoption of IAS 40 (Amended) our Properties under construction, previously accounted for under IAS 16, have been prospectively reclassified as investment property and will be measured at fair value. The following adjustment has been made:
The reclassification has no impact on the Statement of Comprehensive Income or Net Assets.
Following the adoption of IAS 23 (Revised) 'Borrowing Costs' the Group is now required to capitalise borrowing costs relating to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The revised standard is applied prospectively from 1 January 2009. The Group has chosen not to capitalise borrowing costs on all qualifying assets which are measured at fair value.
The Revision to IAS 1 'Presentation of Financial Statements' gives companies the option to continue presenting a 'traditional' Income Statement complemented by a second statement, the Statement of Comprehensive Income, or to present a single statement, also named 'Statement of Comprehensive Income', that includes both elements. The Group has taken the option of presenting a single statement. The revised standard also prohibits the presentation of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity in the Statement of Comprehensive Income. As a result, the Group presents all non-owner changes in equity in the Statement of Comprehensive Income. This revision impacts presentation aspects only and has no impact on the Statement of Comprehensive Income or Net Assets.
At the date of the authorisation of these Financial Statements, the following standards and interpretations were in issue but not yet effective:
|
|
Effective from |
|---|---|---|
IFRIC 14 (Amended 2009) |
‘Prepayments of a Minimum Funding Requirement’ |
1 January 2011* |
IFRIC 9 and IAS 39 (Amended 2009) |
‘Embedded Derivatives’ |
30 June 2009 |
IFRIC 16 (Issued 2008) |
‘Hedges of a Net Investment in a Foreign Operation’ |
30 June 2009 |
IFRIC 17 (Issued 2008) |
‘Distributions of Non-cash Assets to Owners’ |
1 July 2009 |
IFRIC 18 (Issued 2009) |
‘Transfers of Assets from Customers’ |
1 July 2009 |
IFRIC 19 (Issued 2009) |
‘Extinguishing Financial Liabilities with Equity Instruments’ |
1 July 2010* |
IAS 17 (Amended) |
‘Leases’ |
1 January 2010 |
IAS 24 (Revised 2009) |
‘Related Party Disclosures’ |
1 January 2011* |
IAS 27 (Revised 2008) |
‘Consolidated and Separate Financial Statements’ |
1 July 2009 |
IAS 32 (Amended 2009) |
‘Classification of Rights Issue’ |
1 February 2010 |
IAS 39 (Amended 2008) |
‘Financial Instruments: Recognition and Measurement: Eligible Hedged Items’ |
1 July 2009 |
IFRS 1 (Amended 2010) |
‘Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters’ |
1 July 2010* |
IFRS 1 (Amended 2008) |
‘First-time Adoption of IFRS’ |
1 July 2009 |
IFRS 1 (Amended 2009) |
‘Additional Exemptions for First-time Adopters’ |
1 January 2010* |
IFRS 2 (Amended 2009) |
‘Group Cash-settled Share-based Payment Transactions’ |
1 January 2010* |
IFRS 3 (Revised 2008) |
‘Business Combinations’ |
1 July 2009 |
IFRS 9 (Issued 2009) |
‘Financial Instruments’ |
1 January 2013* |
* Not yet endorsed by the EU.
A review of the impact of these standards, amendments and interpretations continues. At this stage the Directors do not believe that they will give rise to any significant financial impact.
There are also a number of minor amendments to other standards which are part of the International Accounting Standards Board's annual improvements project issued on 16 April 2009. The improvements comprise amendments that result in accounting changes for presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. Most of the amendments are effective for annual periods beginning on or after 1 January 2010. No material changes to Accounting Policies are expected as a result of these amendments.
In 2009, the Group did not early adopt any new or amended standards and does not plan to early adopt any of the standards issued but not yet effective.
