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REG-Jarvis PLC Annual Financial Report - Part 5
Released: 14/07/2009
Part 5 : For preceding part double-click [nRn4N5989V]
on temporary differences arising between the carrying amounts of assets and
liabilities used for financial reporting purposes and the amounts used for
taxation purposes. Deferred taxation is determined using tax rates and laws that
have been enacted or substantively enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised or the
deferred tax liability is settled.
Deferred taxation is provided in full on temporary taxable differences
associated with pension scheme surpluses. Deferred tax assets arising from
unused tax losses eligible to cover such differences are recognised
accordingly.
Deferred tax assets are recognised to the extent that it is probable future
taxable profit will be available against which the temporary differences 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. This requires judgement
to be made in respect of the forecast of future taxable income.
Deferred taxation is provided on temporary differences arising on investments in
subsidiaries, associates and joint ventures, except where the Group controls the
timing of the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
Accruals for tax contingencies require management to make judgements and
estimates of ultimate exposures in relation to tax audit issues. Tax benefits
are not recognised unless the tax positions can be ascertained with reasonable
certainty. Once considered probable, management reviews each material tax
benefit to assess whether a provision should be taken against a full recognition
of that benefit on the basis of potential settlement through negotiation or
litigation.
Current and deferred tax charges or credits are recognised in the Consolidated
Income Statement except where they relate to items recognised directly in
equity, in which case the charge or credit is also recognised directly in
equity.
1.5 Intangible assets
Intangible assets are stated at cost less accumulated amortisation and
impairment losses. Amortisation is charged to the Consolidated Income Statement
on a straight-line basis over the useful economic lives of the assets concerned,
from the date they are brought into operational use. Computer software and
licenses are the only intangible assets held by the Group at 31 March 2009. They
have an estimated life of 3 to 5 years. Software development costs are only
capitalised where they are considered to generate future economic benefit.
1.6 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and accumulated impairment losses.
The initial cost of an asset comprises the purchase price or construction cost,
any costs directly attributable to bringing the asset into operation, the
initial estimate for any decommissioning obligations, and, for qualifying
assets, any borrowing costs. The purchase price or construction cost is the
aggregate amount paid and the fair value of any other consideration given to
acquire the asset. The capitalised values of any finance leases are also
included within property, plant and equipment.
Subsequent costs are included in the asset's carrying amount or recognised as a
separate asset, as appropriate. Expenditure on major maintenance refits or
repairs comprises the cost of replacement assets or parts of assets, inspection
costs and overhaul costs. Inspection costs associated with major maintenance
programmes are capitalised and amortised over the period to the next inspection.
Other repairs and maintenance costs are charged to the income statement during
the financial period in which they are incurred.
Where an asset or part of an asset that was separately depreciated and is now
written off is replaced, and it is probable that future economic benefits
associated with the item will flow to the Group, and the cost of the item can be
measured reliably, the expenditure is capitalised.
Depreciation on assets is calculated using the straight-line method to allocate
the cost of each asset to its residual value over its estimated useful life as
follows:
Leasehold land and buildings Over the period of the lease
Leasehold improvements 5 to 20 years or period of the lease if shorter
Plant and machinery 3 to 15 years
Fixtures, fittings and office equipment 3 to 10 years
The expected useful lives and residual values of property, plant and equipment
are reviewed on an annual basis and, if necessary, changes in expected useful
lives and residual values are accounted for prospectively.
1.7 Impairment
The carrying amount of property, plant and equipment, and intangible assets for
each cash generating unit are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount may be impaired. If any such
indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of any impairment loss. Where the asset does not generate
cash flows that are independent of other assets, the Group estimates the
recoverable amount of the cash generating unit to which the asset belongs.
1.8 Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is
determined by the first in first out method and comprises direct purchase costs,
and, where applicable, costs of production, transportation and any directly
attributable overheads.
1.9 Financial instruments
(i) Financial assets
The company's financial assets relate to trade and other receivables, and cash
and cash equivalents. Trade and other receivables are classified as loans and
receivables and are measured on initial recognition at fair value plus
transaction cost, and subsequently at amortised cost using the effective
interest method, less provision for any impairment. Any change in their value
through impairment or reversal of impairment is recognised in the Income
Statement. Cash and cash equivalents are classified as loans and receivables. No
financial assets are classified as fair value through profit and loss or as held
to maturity or available for sale.
All financial assets are assessed for indicators of impairment at each balance
sheet date. Financial assets are impaired where there is evidence that a loss
event has occurred and that estimated future cash flows of the financial asset
have been impacted. For certain categories of financial asset, such as trade
receivables, assets are assessed for impairment on a collective basis. Objective
evidence of impairment for a portfolio of receivables could include the Group's
past experience of collecting payments, an increase in the number of delayed
payments in the portfolio and the average credit period, as well as observed
changes in the national or local economic conditions that correlate with default
on receivables.
(ii) Financial liabilities
Financial liabilities, which include bank loans, overdrafts and trade and other
payables are measured initially at fair value net of transaction costs and
thereafter at amortised cost under the effective interest method. Finance
charges are accounted for on an accruals basis to the Consolidated Income
Statement using the effective interest method.
1.10 Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at amortised cost and
comprise cash at bank and in hand and deposits available upon demand. Cash at
bank includes amounts where the use is restricted to certain contracts in
accordance with defined contractual obligations. For the purposes of the
Consolidated Cash Flow Statement, cash and cash equivalents also include bank
overdrafts, as they are an integral part of the Group's cash management.
1.11 Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, and when it is probable that an
outflow of resources will be required to settle the obligation.
Long-term provisions are measured at the present value of management's best
estimate of the expenditure required to settle the present obligation at the
balance sheet date. The present value of long-term provisions is determined by
discounting the expected future cash flows at a rate that reflects the current
market assessment of the risk and time value of money and, where appropriate,
the risks specific to the liability. Where discounting is used, the change in
the provision due to the passage of time and changes in discount rates is
included within other finance expense.
1.12 Operating leases
Leases where substantially all the risks and rewards of ownership are retained
by the lessor are classified as operating leases. Payments made under operating
leases are charged to the income statement on a straight-line basis over the
period of the lease.
1.13 Retirement benefits
The Group operates both defined contribution and defined benefit pension
schemes. The Group contributes to these schemes according to the arrangements
agreed with employees. Contributions paid by the Group to defined contribution
pension schemes are charged to the Income Statement as they become payable in
accordance with the rules of the schemes.
The defined benefit schemes are valued every three years by a qualified actuary,
the rates of contribution payable being determined by the actuary. In the
intervening years the appropriateness of the last valuation is reviewed
annually. Obligations to employees are measured at discounted present value
whilst plan assets are measured at fair value. The operating and finance costs
of such plans are recognised separately in the Consolidated Income Statement.
Service costs are spread systematically over the lives of employees and
financing costs are recognised in full in the periods in which they arise.
Actuarial gains and losses are recognised immediately in the Statement of
Recognised Income and Expense. The asset or liability recognised in the
Consolidated Balance Sheet is the fair value of plan assets less the present
value of the defined benefit obligations.
1.14 Equity
Ordinary shares are classified as equity determined by the nominal value of
shares that have been issued. The share premium account represents premiums
received on the initial issue of the share capital. Details of other equity held
by the Group are detailed in Note 23 to the Consolidated Financial Statements.
1.15 Share-based payments
The Group operates equity-settled share-based payment schemes for certain
employees. The cost of share-based payments is measured at fair value at the
date of grant, excluding the effect of non market-based vesting conditions. The
cost is recognised in the Consolidated Income Statement on a straight-line basis
over the vesting period with the corresponding amount credited to equity, based
on an estimate of the number of shares that will eventually vest. The estimate
of awards expected to vest is assessed each year. The fair value of employee
share option plans is calculated by using the Black-Scholes-Merton valuation
model.
1.16 Revenue
Revenue represents the fair value of consideration receivable, excluding value
added tax, for services supplied to external customers. Revenue from Facilities
Management contracts is recognised according to the services provided to date.
All other service and construction related contracts recognise revenue according
to the degree of completion of each individual contract, based on amounts
certified by the customer.
1.17 Long-term contracts
Long-term contracts are accounted for in accordance with IAS 11 'Construction
Contracts'. When the outcome of a long-term contract can be estimated reliably,
contract revenue is recognised by reference to the degree of completion of each
contract, based on the amounts certified and to be certified by the customer.
Incentive payments and insurance claims arising from long-term contracts are
included where they have been agreed with the client. Variations and other
claims are included where it is probable that the amount will be settled. When
the outcome of a long-term contract cannot be estimated reliably, contract
revenue is recognised to the extent of contract costs incurred where it is
probable those costs will be recoverable.
Contract costs are recognised as expenses in the period in which they are
incurred. When it is probable that total contract costs will exceed total
contract revenue, the expected loss is recognised immediately.
All costs incurred in advance of contracts being awarded are written off to the
Consolidated Income Statement, until the date that, in the opinion of the
Directors, it is probable that the contract will be secured. Costs incurred
during the period between the contract being probably secured and the eventual
award are carried as work in progress to the extent they are expected to be
recovered.
Where revenue recognised exceeds progress billings, the balance is shown as due
from customers on long-term contracts within trade and other receivables. Where
progress billings exceed costs incurred, the balance is shown as due to
customers on long-term contracts within trade and other payables.
1.18 Exceptional items
Exceptional items are material items which individually or, if of a similar
type, in aggregate, need to be disclosed by virtue of their size or incidence
because of their relevance to understanding the entity's financial performance.
1.19 Critical accounting judgements and key areas of estimation uncertainty
The preparation of financial statements in accordance with IFRS requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, income and expenses, which may differ from actual
results. The key areas of estimates and assumptions that have the most
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are identified below.
(i) Defined benefit pension schemes
Details of the Group's defined benefit pension schemes are set out in Note 14 to
the Consolidated Financial Statements. These are accounted for in accordance
with IAS 19 'Employee Benefits' which, in order to calculate the value of
pension scheme liabilities, requires estimates to be made in relation to future
salary increases, rates of increase of pension benefits, mortality rates and
inflation. These calculations are performed by the scheme actuary, with whom the
Directors have agreed the underlying assumptions to be applied. The discount
rates used are from market rates on corporate bonds matched to the profile of
the ages of the scheme members and the maturity of the scheme liabilities at the
balance sheet date.
(ii) Revenue recognition
Long-term contracts are accounted for in accordance with IAS 11 'Construction
Contracts', which require estimates to be made for future contract costs and
revenues. Provisions are made where contracts are estimated to result in losses
or where further rectification work will be required to complete the project. In
making these provisions, management consider the detailed criteria for revenue
recognition set out in IAS 18 'Revenue' and in particular whether the risks and
rewards have been transferred.
Areas of critical accounting judgement include:
(i) Deferred tax
Deferred tax is accounted for on temporary differences using the liability
method. Management consider it reasonable to recognise deferred tax assets
attributable to defined benefit pension scheme deficits and unused tax losses
(as detailed in Note 13 to the Consolidated Financial Statements), based on
future profit projections.
(ii) Capitalisation of software development
Management capitalise development costs in line with the accounting policy set
out in 1.5. The Directors have to apply their judgement in deciding whether
software development and projects costs meet the criteria for capitalisation.
2 Segmental analysis for continuing business
Segmental information is presented in respect of the Group's business segments,
which are the primary format of segmental reporting and reflect the Group's
management reporting structure. The Group is organised into three main business
segments:
Rail - provides rail infrastructure works to the UK rail industry, including
rail renewal, major track development, electrical and signalling services.
Plant - provides on-track machinery, small plant equipment and manages an
extensive fleet of purpose-built vehicles for the rail and other industries;
provides bulk haulage rail freight services.
Accommodation Services - undertakes facilities management operations.
Inter-segment pricing is determined on an arm's length basis.
2.1 Performance by business segment for the year ended 31 March 2009
Rail Plant Accommodation Services Centre, eliminations and unallocated Total
£m £m £m £m £m
External revenue 252.7 50.8 42.3 - 345.8
Inter-segment revenue - 40.6 - (40.6) -
Total revenue 252.7 91.4 42.3 (40.6) 345.8
Operating profit / (loss) before exceptional items 14.4 3.6 (0.1) (10.2) 7.7
Exceptional items (3.3) (7.7) - (0.4) (11.4)
Operating profit / (loss) 11.1 (4.1) (0.1) (10.6) (3.7)
Centre recharges (4.1) (2.9) (2.6) 9.6 -
Operating profit / (loss) after centre recharges 7.0 (7.0) (2.7) (1.0) (3.7)
Net finance costs - - - - (2.6)
Taxation - - - - (3.3)
Loss for the year from continuing operations - - - - (9.6)
Segment assets 43.1 32.6 12.8 6.7 95.2
Unallocated assets - - - 13.6 13.6
Total assets 43.1 32.6 12.8 20.3 108.8
Segment liabilities (57.5) (28.5) (14.9) (9.1) (110.0)
Unallocated liabilities - - - (32.6) (32.6)
Total liabilities (57.5) (28.5) (14.9) (41.7) (142.6)
Net (liabilities) / assets (14.4) 4.1 (2.1) (21.4) (33.8)
Capital expenditure 0.2 1.0 - 2.9 4.1
Depreciation and amortisation 0.1 3.2 - 0.3 3.6
Unallocated assets represent cash and cash equivalents and deferred tax assets. Unallocated liabilities represent current and non-current borrowings,
current tax liabilities and deferred tax liabilities.
2.2 Performance by business segment for the year ended 31 March 2008
Rail Plant Accommodation Services Centre, eliminations and unallocated Total
£m £m £m £m £m
External revenue 206.3 53.4 62.2 - 321.9
Inter-segment revenue - 35.1 - (35.1) -
Total revenue 206.3 88.5 62.2 (35.1) 321.9
Operating profit / (loss) before exceptional items 14.7 9.0 (2.1) (12.4) 9.2
Exceptional items (0.9) (0.2) (3.0) - (4.1)
Operating profit / (loss) 13.8 8.8 (5.1) (12.4) 5.1
Centre recharges (4.3) (4.3) (3.0) 11.6 -
Operating profit / (loss) after centre recharges 9.5 4.5 (8.1) (0.8) 5.1
Net finance costs - - - - (0.6)
Taxation - - - - 5.2
Profit for the year from continuing operations - - - - 9.7
Segment assets 80.5 60.0 15.6 7.0 163.1
Unallocated assets - - - 16.1 16.1
Total assets 80.5 60.0 15.6 23.1 179.2
Segment liabilities (62.4) (24.9) (19.4) (11.2) (117.9)
Unallocated liabilities - - - (59.8) (59.8)
Total liabilities (62.4) (24.9) (19.4) (71.0) (177.7)
Net assets / (liabilities) 18.1 35.1 (3.8) (47.9) 1.5
Capital expenditure 0.1 0.4 - 2.8 3.3
Depreciation and amortisation 0.1 3.1 - - 3.2
In the year ended 31 March 2008 there was a post-tax profit from discontinued operations of £1.4m, relating to Herefordshire Jarvis Services Limited.
2.3 Performance by geographic origin
The Group's trading activities are all transacted in Europe.
3 Revenue
Revenue from continuing operations is analysed below.
2009 2008
£m £m
Service revenue 345.1 313.8
Construction contract revenue 0.7 8.1
345.8 321.9
4 Operating profit before exceptional items
Operating profit before exceptional items is stated after charging:
2009 2008
£m £m
Repairs and maintenance expenditure on property, plant 10.3 8.6
and equipment
Trade receivables impairment - 0.1
Inventories impairment 0.1 -
Cost of inventories recognised as an expense 2.7 3.3
Depreciation of property, plant and equipment 3.3 3.2
Amortisation of intangible assets 0.3 -
Operating lease rentals 10.4 16.4
Fees payable to Company's auditor for the audit of the Consolidated Financial Statements and Parent Company 0.1 0.1
Fees payable to the Company's auditor for other services
- Audit of the Company's subsidiaries 0.3 0.3
- Other services supplied pursuant to legislation 0.1 0.1
5 Exceptional items
2009 2008
£m £m
Restructuring costs (8.1) (2.0)
Termination costs (2.2) (2.7)
Other (1.1) 0.6
Corporation tax refund - 5.4
Interest on corporation tax refund - 1.1
Exceptional items relating to continuing operations (11.4) 2.4
Exceptional items relating to discontinued operations (Note 9) - 1.8
Total exceptional items (11.4) 4.2
Restructuring costs in the year relate to the restructuring of the Rail and Plant businesses, following a significant reduction in demand by Network
Rail for these services.
Termination costs of £2.2m incurred are from the closure of the Group's freight container services business. The £2.7m of costs incurred in 2008
relate to the termination of loss-making facilities management contracts.
Other exceptional items relate to impairment losses of £0.6m, legacy contract settlement costs of £0.4m and a net £0.1m cost incurred in the first
half of the year from the termination of an operating depot lease.
6 Net finance costs
2009 2008
£m £m
Finance income
Net finance income from defined benefit pension schemes* 2.0 4.1
Other interest 0.4 0.2
2.4 4.3
Finance expense
Interest payable on bank and other loans (3.8) (5.6)
Other interest (1.2) (0.4)
(5.0) (6.0)
Net finance cost before exceptional items (2.6) (1.7)
Exceptional finance income (Note 5) - 1.1
Total net finance cost for continuing operations (2.6) (0.6)
*Includes £0.7m of pension scheme administration expenses paid for by the Company.
7 Employees
The average number of persons employed by the Group during the year, including Executive Directors, analysed by operating division is shown below.
2009 2008
Number Number
Rail 1,381 1,293
Plant 656 696
Accommodation Services 812 1,605
Central 81 111
Continuing operations 2,930 3,705
Discontinued operations - 176
2,930 3,881
The employment costs of all employees included in continuing operations are shown below.
2009 2008
£m £m
Wages and salaries 104.6 106.0
Social security costs 10.4 10.5
Share-based payments 0.1 0.1
Defined contribution pension scheme costs 2.1 2.3
Current service cost of defined benefit pension schemes 3.0 3.8
120.2 122.7
8 Income tax recognised in the Consolidated Income Statement
8.1 Taxation for continuing operations
2009 2008
£m £m
UK corporation tax at the standard rate:
- Adjustment in respect of prior year - 6.3
Total current tax credit - 6.3
UK deferred tax:
- Current year (3.3) (1.1)
Total deferred tax charge (Note 13) (3.3) (1.1)
Total income tax (charge) / credit (3.3) 5.2
There is no taxation charge in the year attributable to discontinued operations (2008: £nil).
8.2 Factors affecting the tax charge for the year
The tax charge for the year and effective tax rate are reconciled to the loss for the year in the analysis below.
2009 2008
£m £m
(Loss) / profit before taxation (6.3) 4.5
Tax at the UK standard rate of 28% (2008: 30%) (1.8) 1.4
Expenses not deductible for tax purposes 0.4 0.3
Utilisation of previously unrecognised tax losses (4.8) (4.5)
Release of tax losses recognised against pension surplus 5.6 -
Current year tax losses for which no deferred tax asset recognised 3.9 3.9
Adjustments to tax charge in respect of prior years - (6.3)
Total tax charge / (credit) for year 3.3 (5.2)
9 Discontinued operations
There have been no new discontinued activities during the year. Discontinued operations in 2008 relate to the disposal of the Group's 80 per cent
interest in Herefordshire Jarvis Services Limited.
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