Basis of accounting and preparation of Financial Statements
The financial statements are prepared in accordance with accounting standards generally accepted in Ireland and Irish statute comprising the Companies Acts, 1963 to 2009, and the European Communities (Companies: Group Accounts) Regulations, 1992. Accounting standards generally accepted in Ireland in preparing financial statements giving a true and fair view are those published by the Institute of Chartered Accountants in Ireland and issued by the Accounting Standards Board.
The financial statements are prepared in Euro under the historical cost convention. Assets are stated at cost or valuation less accumulated depreciation from the date of original acquisition or valuation.
A summary of the more important Group accounting policies is set out below, together with an explanation of where changes have been made to previous policies on the adoption of new standards in the year.
Basis of consolidation
The consolidated financial statements include the financial statements of Bord na Móna plc and all of its subsidiaries as listed on page 47. The Group financial statements consolidate the financial statements of the Holding Company and its subsidiary undertakings.
The policies set out below have been consistently applied to all years presented in these consolidated financial statements and have been applied consistently by all Group entities.
The results of subsidiary undertakings acquired or sold are included in the consolidated profit and loss account and cashflow statement up to or from the date control passes.
Intergroup transactions are eliminated on consolidation in the preparation of the Group financial statements.
Financial Reporting Standard 7 ‘Fair values in acquisition accounting’ sets out the principles of accounting for a business combination under the acquisition method of accounting. Companies Legislation requires the identifiable assets and liabilities of the acquired entity to be included in the consolidated financial statements of the acquirer at their fair values at the date of acquisition. The difference between these and the cost of acquisition is recognised as goodwill or negative goodwill. The results of the acquired entity are included in the profit and loss account of the acquiring Group from the date of acquisition. The assets and liabilities recognised in the allocation of fair values are those of the acquired entity that existed at the date of acquisition. They are measured at fair values that reflect the conditions at the date of the acquisition. The cost of acquisition is the amount of cash or cash equivalents paid and the fair value of other purchase consideration given by the acquirer, together with the associated transaction expenses.
The fair value exercise includes the measurement of contingent assets and liabilities. These are determined based on the Group’s reasonable estimates of the expected outcome. Certain contingent assets and liabilities that crystallise as a result of the acquisition are also recognised, where the underlying contingency was in existence before the acquisition (e.g. environmental re-instatement provisions).
Turnover
Turnover is comprised of revenue, excluding value added tax and trade discounts and including other levies on goods and services to external customers arising in the normal course of business. Turnover on long-term contracts is recognised using the percentage-of-completion method, calculated on an input cost basis.
The Group supplies electricity to ESB Customer Supply under a power purchase agreement for the period to December 2015. Turnover is recognised for capacity availability, energy supplied on the basis of contractual performance and related pass through costs such as EU ETS (Emissions Trading Scheme) in accordance with the terms of the fuel supply agreement.
On receipt of payment from customers, in advance of the performance of the Group’s contractual obligations to its customers under the normal course of business, in respect of certain of its activities, the Group recognises a liability equal to the amount received as deferred revenue, included in Creditors on the balance sheet, representing its obligations under the contract terms. When the Group performs it obligations and thereby obtains the right to consideration under the terms of business, it reduces the liability and recognises that reduction as revenue in the profit and loss account. The related costs associated with the delivery of these services are charged to cost of sales as incurred, to the extent that they are less than the unamortised deferred revenue. A provision is recognised where future costs in respect of the delivery of the service are estimated to exceed unamortised deferred revenue.
Turnover is stated after eliminating sales within the Group.
Foreign currencies
Transactions denominated in foreign currencies are translated into Euro at the rate of exchange ruling at the transaction date or, if hedged, at the rate of exchange under the related forward currency contract. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates ruling at the balance sheet date or, if hedged forward, at the rate of exchange under the related forward currency contract. The resulting profit or loss is included in the profit and loss account. Gains and losses arising on forward foreign exchange contracts which are used to hedge foreign transaction cash flows are recognised as an operating expense in the profit and loss account. Interest rate swaps agreements and similar contracts are used to manage interest rate exposures. Amounts payable or receivable in respect of these derivatives are recognised as an interest expense over the period of the contracts.
The financial statements of foreign subsidiaries are translated into Euro using the closing rate method. Profits and losses arising on the re-translation of foreign subsidiaries are taken to reserves and recognised in the statement of total recognised gains and losses.
Differences on foreign currency borrowings, to the extent that they are used to finance or provide a hedge against Group equity investment in foreign subsidiaries, are also taken to reserves and recognised in the statement of total recognised gains and losses.
Exceptional items
The Group has adopted a profit and loss account format which endeavours to highlight significant items within the Group’s results for the year. Exceptional items are:
| • | profits or losses on the sale or termination of an operation; |
| • | cost of a fundamental reorganisation or restructuring, and |
| • | profits or losses on the disposal of fixed assets. |
Judgement is used by the Group in assessing the particular items which, by virtue of their materiality and/or nature are disclosed in the Group profit and loss account and related notes as exceptional items.
Emission allowances
In accordance with the provisions of the European CO2 emissions trading scheme, emissions allowances covering a percentage of the expected emissions during the year are granted to Bord na Móna at the beginning of each year by the relevant Government Authority.
As emissions arise, a provision is recorded in the profit and loss account to reflect the amount required to settle the liability to the Authority. This provision will include the current market value of any additional allowances required to settle the obligation. These allowances, together with any additional allowances purchased during the year, are returned to the relevant Authority in charge of the scheme within four months of the end of that calendar year, in order to cover the liability for actual emissions of CO2 during that year.
The emissions costs are recoverable from ESB Customer Supply under the power purchase agreement as a related pass through cost and the recoverable credit is recorded in the profit and loss account.
Tangible fixed assets and depreciation
Freehold land, and the estimated residual value of peatland after the peat production phase, are stated at cost. Cost includes direct costs (including direct labour), overheads and interest incurred in financing the construction of tangible fixed assets. Peatland and other tangible fixed assets are stated at cost less accumulated depreciation. Depreciation is calculated in order to write off the cost of peatland, railways and associated transport equipment over the remaining useful lives of the Fuel Supply Agreements with the peat fired generating stations and other tangible fixed assets over their estimated useful lives.
The depletion method of depreciation is applied to peatland, drainage and railways. Other tangible fixed assets are depreciated on a straight line basis at the rates shown below
| Plant & Machinery | 5% to 33.3% per annum |
| Buildings | 5% to 10% per annum |
| Generating Assets | 4% to 10% per annum |
| Landfill | 5% per annum |
Additions to generating assets are depreciated at the above rates but not exceeding a useful life up to 2025.
The cost of landfill sites includes the cost of acquiring, developing and engineering sites and interest incurred during the construction phase. The cost of the asset is depreciated over either the licensed life of the engineered facility or on the basis of the usage of void space.
Assets in the course of construction represent the cost of purchasing, constructing and installing tangible fixed assets ahead of their productive use. No depreciation is charged on assets in the course of construction.
The Group has adopted a policy of capitalising finance costs. Finance costs that are directly attributable to the construction of tangible fixed assets are capitalised as part of the cost of those assets. Where funds are borrowed specifically for the purpose of financing the construction of a tangible fixed asset, the amount of finance costs capitalised has been limited to the actual costs incurred on the borrowings during the period in respect of expenditures to date on the tangible fixed asset.
The capitalisation of finance costs ceases when the asset is commissioned or where active development has been interrupted for an extended period of time.
Goodwill and intangible assets
Purchased goodwill, being the excess of the consideration paid on the acquisition of a business over the fair values of the entity’s identifiable assets and liabilities, is capitalised and classified as an asset on the balance sheet. Goodwill is amortised to the Group profit and loss account over its estimated useful life (between three and twenty years).
Accounting for financial assets
Interests in subsidiary undertakings are stated in the Holding Company’s balance sheet at cost less provisions for impairment. The Group carries out an impairment review if events or changes in circumstances indicate that the carrying value of the subsidiary undertakings may not be recoverable.
The recoverable amount is determined by comparing the carrying value of the financial asset against the higher of its net realisable value and its value in use. The value in use is determined by discounting estimated future cash flows expected to be derived from the financial asset, to net present value. The discount rate used reflects an appropriate risk weighting for the type of investment being tested for impairment.
The impairment review comprises a comparison of the carrying amount of the financial asset with its recoverable amount (the higher of net realisable value and value in use). To the extent that the carrying amount exceeds the recoverable amount, the financial asset is impaired and is written down in the books of the Holding Company.
Investment properties
Investment properties are included in the balance sheet at their open market value. Changes in the market value of investments are taken to the statement of total recognised gains and losses unless a deficit is expected to be permanent in which case it is charged to the profit and loss account.
Research and development
Expenditure on pure or applied research and development is written off to the profit and loss account as incurred.
Impairment of assets and goodwill
If events or changes in circumstances indicate that the carrying value of tangible fixed assets or goodwill may not be recoverable, the Group carries out an impairment review. Goodwill is reviewed for impairment if events or changes in circumstances indicate that the carrying value may be impaired.
The recoverable amount in respect of income generating units is determined by comparing the carrying value of the asset against the higher of its net realisable value and its value in use. The value in use is determined by discounting estimated future cash flows expected to be derived from the income generating unit, to net present value. The discount rate used reflects an appropriate risk weighting for the type of investment being tested for impairment.
The impairment review comprises a comparison of the carrying amount of the asset with the recoverable amount (the higher of net realisable value and value in use). To the extent that the carrying amount exceeds the recoverable amount, the asset is impaired and is written down. Any impairment loss arising is recognised in the profit and loss account unless it arises on a previously revalued asset.
Grants
Capital grants received and receivable under EU-assisted schemes are recognised when received or when their receipt can be foreseen with virtual certainty. Grants received in respect of tangible fixed assets are treated as a deferred credit and amortised to the profit and loss account annually over the economic useful life of the related tangible fixed assets.
Stocks, work in progress and long term contracts
Stocks and work in progress are valued at the lower of cost and net realisable value. Coal stocks are valued at weighted average cost.
Cost includes all direct expenditure incurred in bringing products to their current state under normal operating conditions. The cost of milled peat stock harvested is determined at each peatland location as the cost of the annual harvest allocated over the normal levels of harvest production calculated based on standard tonnage. The unit cost is reduced to actual cost where actual cost per tonne is lower than standard cost per tonne. The costs of milled peat stocks include a depletion charge, direct labour, other costs and related production overheads. Variations from standard tonnage (i.e. up tonnages where the actual output tonnages are greater due to improved moisture content) are recognised on measurement of the peat when the stock pile is fully outloaded. The additional bonuses of work groups which only arise when up-tonnage is recognised are provided for when the related up-tonnages are identified and recognised as part of this measurement process.
Net realisable value is based on anticipated selling price less the cost of selling such goods and any sales incentives or penalty payments.
Profit on long-term contracts is recognised once the outcome can be assessed with reasonable certainty. Losses on long-term contracts are provided as soon as they are foreseen. Long-term work in progress is stated net of payments received on account.
Provision is made for damaged, deteriorated, obsolete and slow moving items where appropriate.
Trade debtors
Provisions against the non-recovery of debtors are made specifically against identified doubtful debtors. Additionally, a provision is made against other trade debts where appropriate.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short term deposits.
Derivative financial instruments
The Group uses derivative financial instruments including a number of cross currency interest rate swaps to hedge its exposure to interest and foreign exchange risks arising from two US private placements. In order to fully hedge the associated US Dollar exchange rate exposures and convert the underlying interest rates to fixed, the Group entered into a number of cross currency swaps to match the maturity profile of the unsecured loan notes.
Derivative financial instruments are recognised at book value. Interest differentials arising on the derivatives are recognised in net interest expense over the period of the related contract. The fair value of the financial instruments is disclosed at each balance sheet date.
Borrowings
Interest bearing loans and borrowings are initially recognised net of arrangement fees. These arrangement fees are amortised over the life of the related borrowing. Accrued finance costs, to the extent that they are payable within one year, are included in accruals rather than in the carrying amount of the debt.
Leases
Assets held under finance leases are included in tangible fixed assets at cost and are depreciated over the shorter of the lease term or their useful economic life. Obligations relating to finance leases, net of finance charges in respect of future periods, are included as appropriate under creditors due within or after one year. Finance charges are allocated to accounting periods over the lease term to reflect a constant rate of interest on the remaining balance of the obligations.
Rentals under operating leases are charged to the profit and loss account as incurred.
Provisions
A provision is defined as a liability of uncertain timing or amount. Provisions are recognised in accordance with FRS 12 when the Group has a legal or constructive obligation as a result of a past event, a reliable estimate of that obligation can be made and it is possible that an outflow of economic benefits will be required to settle the obligation. Where the effect of the time value of money is material provisions are recognised at a discounted rate.
Specifically:
Environmental reinstatement provision
Provision is made for environmental reinstatement costs relating to the after-use of cutaway peatland and decommissioning costs. The provision is made when the circumstances giving rise to the obligation to make the reinstatement occur. The amount of the provision represents the present value of the expected future costs. Capitalised reinstatement costs are charged to the profit and loss account as depreciation on a depletion basis.
Self insurance provisions
Self insurance provisions relate to the estimated liability in respect of costs to be incurred under the Group’s self insurance programmes for events occurring on or prior to the year end. The provision is estimated based on a case by case assessment by the independent claims handling agents of the likely outturn on each case.
Legal provisions
Provisions for legal claims are included in the financial statements, for legal and other matters on the basis of the amounts that the Group consider will become payable, after evaluating the recommendations of legal advisors, their in-house legal teams, and other experts.
Landfill restoration provision
Full provision is made for the net present value (NPV) of the Group’s unavoidable costs in relation to restoration liabilities at its landfill site. This value is capitalised as a fixed asset. The Group also provides for the NPV of intermediate restoration costs over the life of its landfill sites, based on the quantity of waste deposited in the year. Provision is made for the NPV of post closure costs based on the quantity of waste deposited in the year. Similar costs incurred during the operating life of the sites are written off directly to the profit and loss account and not charged to the provision.
All long term provisions for restoration and aftercare are calculated based on the NPV of estimated future costs. The effects of inflation and unwinding of the discount element on existing provisions are reflected within the financial statements as a finance charge.
Warranty provision
The Group issues warranties for goods and services. The warranty costs are provided for based on the duration of the warranty period.
Redundancy provision
Redundancy costs are provided for by the Group, once a detailed formal plan has been prepared and approved and the Group is irrevocably committed to implementing the plan.
No provision has been made for the decommissioning of the generating assets as it is assumed there will be no net outflow of economic benefits.
Pensions and post retirement benefits
The Group has both defined benefit and contribution pension arrangements. Defined benefit pension scheme assets are measured at fair value. Defined benefit pension scheme liabilities are measured on an actuarial basis using the projected unit credit method. The excess of scheme liabilities over scheme assets is presented on the balance sheet as a liability net of related deferred tax and pension scheme surpluses, to the extent that they are considered recoverable are presented on the balance sheet as an asset net of related deferred tax. The defined benefit pension charge to operating profit comprises the current service cost and past service costs. The excess of the expected return on scheme assets over the interest cost on the scheme liabilities is presented in the profit and loss account as other finance income. Actuarial gains and losses arising from changes in actuarial assumptions and from experience surpluses and deficits are recognised in the statement of total recognised gains and losses for the year in which they occur.
The defined contribution pension charge to operating profit comprises the contribution payable to the scheme for the year.
Where the scheme rules require a surplus arising in the scheme to be shared between the employer and the members, the amount passed to the members is treated as an increase in the scheme liabilities.
Taxation including deferred tax
Current tax represents the amount expected to be paid in respect of taxable profit for the year and is calculated using the tax rates and laws that have been enacted or substantially enacted at the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.
Timing differences are temporary differences between profit as computed for taxation purposes and profit as stated in the financial statements which arise because certain items of income and expenditure in the financial statements are dealt with in different periods for taxation purposes.
Deferred tax assets are regarded as recoverable and recognised in the financial statements when, on the basis of available evidence, it is more likely than not that there will be suitable taxable profits from which the future reversal of the timing differences can be deducted. The recoverability of tax losses is assessed by reference to forecasts which have been prepared and approved by the Board.
Deferred tax is measured, on an undiscounted basis, at the tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Share based payment
Equity settled share based payment to employees are measured at the fair value of the equity instruments at the grant date. The fair value is expensed on a straight line basis over the vesting period. In accordance with FRS 20 ‘Share based payments’, the Group recognise an expense in the profit and loss and a corresponding increase in equity in respect of the fair value of the shares issued to employees. The fair value of the shares issued is determined on a minority non-controlling basis. Factors taken into consideration in determining the fair value include the market, discounted cash flow, net assets value and the characteristics of the shares being acquired.
Share capital
Ordinary shares are classified as equity.
Dividends
Dividends are recognised in the financial statements when they have been appropriately approved or authorised by the shareholder and are no longer at the discretion of the Company.
Accounting year
The financial year ends on the last Wednesday in March. These financial statements cover the 53-week period 26 March 2009 to 31 March 2010 (prior year: 52-week period 27 March 2008 to 25 March 2009).