REG - Intl Con Airline Grp - Final Results <Origin Href="QuoteRef">ICAG.L</Origin> - Part 3
27/02/2015 07:13
- Part 3: For the preceding part double click ID:nRSa0301Gb
in the accounts amounts to E9,027 million (December 31,
2013: E8,745 million). The majority of capital expenditure commitments are denominated in US dollars, and as such are
subject to changes in exchange rates
12. IMPAIRMENT REVIEW
The carrying amounts of intangible assets with indefinite life and goodwill for the three cash generating units of the
Group are:
E million Goodwill Brand Customer loyalty programmes Landing rights Total
2014
Iberia
January 1, 2014 - 227 253 423 903
Impairment reversal - 79 - - 79
December 31, 2014 - 306 253 423 982
British Airways
January 1, 2014 48 - - 789 837
Additions - - - 1 1
Exchange movements 3 - - 50 53
December 31, 2014 51 - - 840 891
Vueling
January 1, 2014 28 35 - 89 152
December 31, 2014 28 35 - 89 152
December 31, 2014 79 341 253 1,352 2,025
E million Goodwill Brand Customer loyalty programmes Landing rights Total
2013
Iberia
January 1, 2013 - 227 253 423 903
December 31, 2013 - 227 253 423 903
British Airways
January 1, 2013 49 - - 796 845
Additions - - - 15 15
Exchange movements (1) - - (22) (23)
December 31, 2013 48 - - 789 837
Vueling
January 1, 2013 - - - - -
Additions due to Business combination 28 35 - 89 152
December 31, 2013 28 35 - 89 152
December 31, 2013 76 262 253 1,301 1,892
Basis for calculating recoverable amount
Goodwill, Brand and the customer loyalty programme recoverable amounts have been measured based on their value-in-use.
Landing rights recoverable amount has been measured by reference to market transactions of similar assets less costs to
sell, or through value-in-use.
Value-in-use is calculated using a discounted cash flow model. Cash flow projections are based on the Business plan approved
by the Board covering a five year period. Cash flows extrapolated beyond the five year period are projected to increase on
long-term growth rates. Cash flow projections are discounted using the cash generating unit's (CGU) pre-tax discount rate.
12. IMPAIRMENT REVIEW continued
Annually the Group prepares and approves five year Business plans. Business plans were approved in the fourth quarter of
the year. The Iberia Business plan cash flows used in the value-in-use calculations reflect all restructuring of the
business that has been approved by the Board and which can be executed by Management under existing agreements reached with
the unions.
Key assumptions
The key assumptions used in the value-in-use calculations for each of the CGU's are as follows. In addition, where there
has been an impairment loss in a CGU, the recoverable amount is also disclosed.
2014
British Airways Iberia Vueling
Long-term growth rate (per cent)(1) 2.5 2.2 2.2
Pre-tax discount rate (per cent)(2) 10.0 10.2 12.5
Recoverable amount of the CGU (million) n/a E6,400 n/a
2013
British Airways Iberia Vueling
Long-term growth rate (per cent)(1) 2.5 - -
Pre-tax discount rate (per cent)(2) 10.0 12.2 12.4
(1) The long-term growth rate is calculated for each CGU based on the forecasted weighted average exposure in each primary
market using gross domestic product (GDP). This is amended from time-to-time to reflect specific market risk. This was last
the case in 2013, when Management assessed the outlook for the economic environment in Spain as challenging following two
years of negative GDP.
(2) Pre-tax discount rates represent the current market assessment of the risks specific to each CGU, taking into
consideration the time value of money and underlying risks of its primary market. The discount rate calculation is based on
the circumstances of the airline industry, the Group and its CGU. It is derived from the weighted average cost of capital
(WACC). The WACC takes into consideration both debt and equity available to airlines. The cost of equity is derived from
the expected return on investment by airline investors and the cost of debt is broadly based on the Group's
interest-bearing borrowings. CGU specific risk is incorporated by applying individual beta factors which are evaluated
annually based on available market data. The pre-tax discount rate reflects the timing of future tax flows.
Summary of results
In 2014, Management reviewed the recoverable amount of each of the CGUs and concluded the recoverable amounts exceeded the
carrying values.
Following the impairment review of the Iberia CGU in 2012, goodwill and a franchise agreement were impaired by their full
carrying amounts and the Iberia Brand was written down by E79 million. The impairment of goodwill cannot be reversed and
the franchise agreement has since expired. The original impairment of the Iberia Brand has been reassessed in the current
year given the excess of the Iberia CGU recoverable amount over its carrying value. The reassessment included testing the
Iberia Brand recoverable amount using the royalty methodology, with a royalty rate of 0.60 per cent (2013: 0.60 per cent).
Individually and in combination, the value-in-use tests of the Iberia CGU and of the Iberia Brand support the reversal of
the original E79 million impairment. This has been recorded as an exceptional credit within Depreciation, amortisation and
impairment in the Income statement.
Sensitivities
For the Iberia cash generating unit, additional sensitivities have been considered at the overall CGU level. A 16 point
increase in the post-tax discount rate would reduce the recoverable amount to the carrying amount. A 7 point reduction in
the operating margin in each year of the Business plan, and extrapolated beyond the plan would reduce the recoverable
amount to the carrying amount.
No reasonable possible change in the key assumptions for the British Airways or Vueling CGUs would cause the carrying
amounts of goodwill to exceed the recoverable amounts.
13. NON-CURRENT ASSETS HELD FOR SALE
The non-current assets held for sale of E18 million (2013: E12 million) represent E11 million for the remaining investment
of 0.075 per cent in Amadeus representing one settlement day outstanding, and E7 million representing six Boeing 737
engines (2013: four Boeing 737s and one Boeing 767 aircraft stood down). These are presented within the Iberia and British
Airways operating segments respectively and will exit the business within 12 months of December 31, 2014.
Assets held for sale with a net book value of E3 million were disposed of by the Group during the year to December 31, 2014
resulting in a loss of E2 million on disposal (2013: property with a net book value of E3 million disposed of at no gain or
loss).
14. FINANCIAL INSTRUMENTS
a. Financial assets and liabilities by category
The detail of the Group's financial instruments at December 31, 2014 and December 31, 2013 by nature and classification for
measurement purposes is as follows:
December 31, 2014 Financial assets
E million Loans and receivables Derivatives used for hedging Available-for-sale Non-financial assets Total carrying amount by balance sheet item
Non-current assets
Available-for-sale financial assets - - 84 - 84
Derivative financial instruments - 80 - - 80
Other non-current assets 167 - - 21 188
Current assets
Trade receivables 1,252 - - - 1,252
Other current assets 244 - - 367 611
Non-current assets held for sale - - 11 7 18
Derivative financial instruments - 178 - - 178
Other current interest-bearing deposits 3,416 - - - 3,416
Cash and cash equivalents 1,528 - - - 1,528
Financial liabilities
E million Loans and payables Derivatives used for hedging Non-financial liabilities Total carrying amount by balance sheet item
Non-current liabilities
Interest-bearing long-term borrowings 5,904 - - 5,904
Derivative financial instruments - 359 - 359
Other long-term liabilities 7 - 219 226
Current liabilities
Current portion of long-term borrowings 713 - - 713
Trade and other payables 3,017 - 264 3,281
Deferred revenue on ticket sales - - 3,933 3,933
Derivative financial instruments - 1,313 - 1,313
14. FINANCIAL INSTRUMENTS continued
December 31, 2013 Financial assets
E million Loans and receivables Derivatives used for hedging Available-for-sale Non-financial assets Total carrying amount by balance sheet item
Non-current assets
Available-for-sale financial assets - - 1,092 - 1,092
Derivative financial instruments - 35 - - 35
Other non-current assets 182 - - 15 197
Current assets
Trade receivables 1,196 - - - 1,196
Other current assets 270 - - 361 631
Derivative financial instruments - 135 - - 135
Other current interest-bearing deposits 2,092 - - - 2,092
Cash and cash equivalents 1,541 - - - 1,541
Financial liabilities
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