Statement of Group Accounting Policies

For the Year ended 31 March 2010

 

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 2010 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. The Group and Company financial statements were authorised for issue by the Directors on 1 November 2010.

 

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, the Company statement of comprehensive income 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 ended on or before 31 March 2010.

 

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 for the following material items:

Assets which are classified as held for sale are measured at the lower of their carrying values and fair value less costs to sell;
derivative financial instruments are measured at fair value;
equity-settled share based payments are measured at grant date fair value while cash-settled share based payments are measured at fair value at the reporting date;
investment properties are measured at fair value; and
held-for-sale financial assets are measured at fair value.


The accounting policies have been applied consistently by all Group entities.

 

Changes in accounting policies and disclosures
The accounting policies adopted are consistent with those applied in the prior year except for the following new and amended IFRS, and IFRIC interpretations adopted by the Group as of 1 April 2009:

 

IFRS 8 ‘Operating Segments’. With effect from 1 April 2009, the Group has adopted IFRS 8 and identifies and reports information about its operating segments based on the information reported to the Group’s Chief Operating Decision Maker in order to assess each segment’s performance and to allocate resources to them. As a result of the implementation of the standard, the Group has revised the operating segments for which financial information is disclosed. As IFRS 8 concentrates on disclosure of financial information, there has been no impact on recognition and measurement within these consolidated financial statements. Operating segment disclosures in respect of the year ended 31 March 2009 have been restated on a comparable basis.
Revised IAS 1 – IAS 1(2007) ‘Presentation of Financial Statements’. With effect from 1 April 2009, the Group has adopted this revised standard. Among the changes introduced by the revised standard are new titles for a number of the primary financial statements in order to reflect their function more clearly; the statement of recognised income and expense is now known as the ‘Statement of Comprehensive Income’. The Group has adopted the ‘two separate statements approach’ of presenting items of income and expense and the components of other comprehensive income. All changes in equity arising from transactions with owners in their capacity as owners are now presented separately from non-owner changes in equity in the ‘Consolidated Statement of Changes in Equity’.

IFRS 7 ‘Financial Instruments: Disclosures (Amended)’. The amended standard requires additional disclosures about fair value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by source of inputs using a three level fair value hierarchy, by class, for all financial instruments recognised at fair value. In addition, a reconciliation between the beginning and ending balance for level 3 fair value measurements is now required, as well as significant transfers between levels in the fair value hierarchy. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. The fair value measurement and liquidity risk disclosures are presented in Note 28.

The Group has also adopted the following new and amended IFRS and IFRIC interpretations, which have not had a material impact on the financial statements or performance of the Group:

- IAS 23 Borrowing costs (Amended)
- IFRIC 9 Re-measurement of Embedded Derivatives (Amended) and IAS 39 Financial Instruments: Recognition and Measurement (Amended)
- IFRIC 13 Customer Loyalty Programmes
- IFRIC 16 Hedges of a Net Investment in a Foreign Operation
- Improvements to IFRS (May 2008)


New Standards and Interpretations Not Applied
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 3, ‘Business Combinations (2008)’, together with IAS 27 ‘Consolidated and Separate Financial Statements’ (amended), will be adopted by the Group from 1 April 2010. In combination, these two revised standards 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 obligations 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 re-measured to fair value at the acquisition date with the gain or loss recognised in profit or loss;
- Any non-controlling 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.

 

In addition, IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will not give rise to goodwill, nor will they give rise to a gain or loss. Furthermore, the amended standard changes the accounting for loss of control of a subsidiary including the calculation of a gain or loss arising on such events.


Other than IFRS 3 (Revised) and IAS 27 (Amended) as addressed above, there are a number of new standards, amendments to standards and interpretations published but not yet effective, and not applied in preparing these consolidated financial statements. These include:

 

Amendments to IAS 39, ‘Financial Instruments: Recognition and Measurement’: Eligible Hedged Items.
IFRIC 17, ‘Distribution of Non-cash Assets to Owners’.
Amendments to IFRS 5, ‘Measurement of Non-current Assets Held for Resale and Discontinued Operations’.


These new standards and interpretations are not expected to have a material impact on the Group financial statements, and are therefore not disclosed presently.

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 13 – Intangible Assets
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 is probable and 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 now 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 in 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.

 

(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.

 

(iii)

Transactions eliminated on consolidation
Intra-Group balances and transactions, and any unrealised gains arising from intra-Group transactions, are eliminated in preparing the Group Consolidated financial statements. Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

 

(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 reporting 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 in other comprehensive income.

 

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, 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 Statement of Cash Flows.

 

(ii)

Restricted cash
Restricted cash comprises cash held by the Group but which is ring fenced or used as security for specific financing arrangements, and to which the Group does not have unfettered access. Restricted cash is classified as held to maturity and carried at amortised cost.

 

(iii)

Equity securities – available for sale
Investments in equity securities are initially recorded at their fair value, which is normally the cost to the Group and are classified as available for sale financial assets. Subsequent to initial recognition, they are carried at fair value and movements are recognised in other comprehensive income. On disposal of the instrument, any amounts in equity are recycled as part of the profit or loss on disposal.

 

(iv)

Trade and other receivables
Trade and other receivables are stated at their cost less impairment losses.

 

(v)

Trade and other payables
Trade and other payables are stated at their expected settlement amount.

 

(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. Transaction costs are recognised in profit or loss as incurred. 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

The Group enters into sale and purchase transactions for raw materials. The majority of these transactions take the form of contracts that were entered into and continue to be held for the purpose of receipt or delivery of the physical commodity in accordance with the Group’s expected sale, purchase or usage requirements, and are not within the scope of IAS 39.

 

(ii)

Other derivative instruments

The accounting treatment for derivatives is dependent on whether they are entered into for trading or hedging purposes. A derivative instrument is considered to be used for hedging purposes when it alters the risk profile of an underlying exposure of the Group in line with the Group’s risk management policies and is in accordance with established guidelines, which require that the hedge relationship is documented at inception of the contract, is effective in achieving its objective, and require that the effectiveness is reliably measured both prospectively and retrospectively.

 

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 in other comprehensive income. 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 in other comprehensive income 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 other comprehensive income is recognised immediately in the income statement.

 

Property, Plant and Equipment

(i)

Owned assets

Items of property, plant and equipment are stated at cost, net of accumulated depreciation (see below) and impairment losses (see accounting policy Impairment). Costs include employee and other costs that are directly attributable to the acquisition and construction associated with bringing assets into working condition for their intended use. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. The cost of self-constructed assets and acquired assets includes, where relevant, (i) the initial estimate at the time of installation of the assets of dismantling and removing the items and of restoring the site on which they are located and (ii) changes in the measurement of existing liabilities recognised for those costs during the period of use resulting from changes in the timing or outflow of resources required to settle the obligation or from changes in the discount rate. Land is not depreciated.

 

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 the asset to the stage where it is ready for construction to commence. Costs associated with reaching this 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 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.

 

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 development or construction of 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.

 

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.

 

(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.

 

(iii)

Subsequent expenditure

The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the replaced item can be measured reliably for its derecognition. All other costs are recognised in the Group income statement as an expense as incurred.

 

(iv)

Depreciation

Freehold land, assets in development and assets in construction are not depreciated. Depreciation is calculated to write off the cost, less estimated residual value, of all other assets, as follows:

landfill site acquisition, commissioning costs, engineering works and the discounted cost of final site restoration are depreciated over the life of the landfill project based on the rate of fill of void space, commencing from the start of landfill operations. Available void space is measured annually, and any resulting impact on the depreciation charge is recognised prospectively;

all other assets are depreciated on a straight line basis over their expected useful lives at the following annual rates:

Freehold buildings 2 – 4%
Leasehold improvements Over the shorter of life of the asset or the lease term
Windfarms 3.33%
Other plant and equipment 3 – 33%
Fixtures and fittings 10 – 33%
Transport assets 4 – 33%

The residual values, if not insignificant, and remaining useful lives are reassessed annually.

 

Intangible Assets
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:

Software costs 4 – 10 years
Customer lists 2 – 20 years
Supplier lists 6 years
Contract based intangible assets 2 – 20 years
Gas reserves in line with utilisation of the gas reserve
Intellectual property in line with the rate of commercial manufacture


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 reporting 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 unit 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 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.

 

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 to employees, at the grant date, 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. Service and 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 number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting dates.

 

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 reporting date until the awards vest and thereafter at settlement amount until the settlement date. Any changes in the fair 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 present 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
Full provision is made for the net present value of the Group’s costs in relation to restoration liabilities at its landfill, wind farm and solar farm 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. Similar costs incurred during the operating life of the landfill site are expensed as incurred.

 

Income Tax
Income tax on the result 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 in other comprehensive income, in which case it is recognised in other comprehensive income.

 

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantially enacted at the reporting 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; 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 reporting 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 consolidated financial statements 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.

 

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 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 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 Investment Tax Credits, cash grants, 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 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 an instrument takes the legal form of shares in 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.

 

Segmental Reporting
An operating segment is a component of the Group that engages in business activities for which it may earn revenue and incur expenses. Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision-Maker. The Chief Operating Decision-Maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive.