NATS-Annual-Report-2015

Annual Report and Accounts 2015 | NATS Holdings Limited
Financial Statements 100
Notes forming part of the
consolidated accounts
(continued)
3. Critical judgements and key sources of
estimation uncertainty
Impairment of goodwill, intangible and tangible assets
In carrying out impairment reviews of goodwill, intangible
and tangible assets (including assets in the course of
construction), a number of significant assumptions have
to be made when preparing cash flow projections and
assessing net realisable values. These include air traffic
growth, service performance, future cash flows, the value of
the regulated asset bases, market premiums for regulated
businesses and the outcome of the regulatory price control
determinations. The market premium was assessed at the
balance sheet date to be 5-6% (2014: 7-8%). If the actual
outcome should differ or changes in expectations arise,
impairment charges may be required which would materially
impact on operating results. Refer to notes 13, 14 and 15.
Retirement benefits
The group accounts for its defined benefit pension scheme
such that the net pension scheme position is reported on
the balance sheet with actuarial gains and losses being
recognised directly in equity through the statement of
comprehensive income.
A number of key assumptions have been made
in calculating the fair value of the group’s defined
benefit pension scheme which affect the balance sheet
position and the group’s reserves and income statement.
Refer to note 28 of the notes to the consolidated
accounts for a summary of the main assumptions and
sensitivities. Actual outcomes may differ materially from
the assumptions used and may result in volatility in the
net pension scheme position.
Recoverability of revenue allowances
The economic regulatory price controls for UK en route
services for Control Period 3 (2011 to 2014) and Reference
Period 2 (2015 to 2019) established an annual revenue
allowance that is recovered through a price based on the
economic regulator’s forecasts of traffic volumes and
inflation made at the start of the price control period.
Where traffic volumes or inflation differ from the regulator’s
forecasts, revenue actually recovered may be higher or
lower than the revenue allowance. Where this is the case,
the EC Charging Regulation allows an adjustment to be
made to the price two years later to reflect any over or
under-recovery. Also, following the CP3 price control
review, the economic regulator deferred the recovery of
adjustments for traffic volume risk sharing and service
performance incentives arising in the previous control
period (CP2: 2006 to 2010) and allowed these to be
recovered through an adjustment to prices in the last three
years of CP3. The weakness of the economy in the early
part of CP3 has resulted in traffic volumes which are lower
than the regulator assumed for CP3. Inflation has also been
higher than assumed. When combined with the remaining
balances deferred from CP2 and service performance
incentives from CP3, recoverable revenue allowances
totalled £121.7m at 31 March 2015 (2014: £108.8m). The
legal right to recover the revenue adjustments discussed
above is provided by the EC Charging Regulation and
NERL’s air traffic services licence. The group expects to
recover these amounts through adjustments to prices in
RP2.
Capital investment programme
The group is undertaking a significant capital investment
programme to upgrade existing air traffic control
infrastructure. This programme requires the group to
enter into substantial contracts for the development of
infrastructure assets and information systems. Whilst
covered by contractual arrangements, it is in the nature of
such complex projects that, from time to time, variations
to the original specifications may necessitate the
renegotiation of original contract scope or price and affect
amounts reported in these accounts.
Financial
Statements