NATS-Annual-Report-2015

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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
Annual Report and Accounts 2015 | NATS Holdings Limited Financial Statements 101 Notes forming part of the consolidated accounts (continued) 4. Revenue An analysis of the group’s revenue is provided as follows: 2015 2014 £m £m NATS Airspace 716.1 719.9 NATS Airports 176.5 170.2 NATS Engineering 16.7 13.4 Other NATS Service lines 13.1 14.1 922.4 917.6 Other operating income 4.1 0.7 Investment revenue (see note 8) 4.8 6.0 931.3 924.3 All revenue is derived from continuing operations. Note 5 summarises the source of revenue by business and geographical segment. Other revenue is described on the face of the income statement and is included in note 8. A portion of the group’s revenue from the provision of services denominated in foreign currencies is cash flow hedged. Included in revenue is the recycling of the effective amount of foreign currency derivatives that are used to hedge foreign currency revenue. The amount included in revenue is £4.2m gain (2014: £0.4m loss). Financial Statements
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NATS-Annual-Report-2015

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