Punch Taverns plc 2011 Annual Report

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Punch Taverns plc
Annual Report and Financial Statements 2011
Notes to the financial statements continued
for the 52 weeks ended 21 August 2011
1 Accounting policies continued
Significant accounting estimates and judgements
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
On an ongoing basis, management evaluates its estimates and judgements including those relating to income taxes, deferred tax,
financial instruments, property, plant and equipment, goodwill, intangible assets, valuations, provisions and post-employment benefits.
Management bases its estimates and judgements on historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets
and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different
assumptions and conditions.
The estimates and judgements that have a significant effect on the amounts recognised in the financial statements are detailed below.
Goodwill impairment
The Group assesses whether goodwill is impaired on at least an annual basis. The recoverable amounts of the cash-generating units
(CGUs) to which goodwill has been allocated is determined based on value-in-use calculations. These calculations require assumptions
to be made regarding future cash flows and the choice of a suitable discount rate in order to calculate the present value of those cash
flows. These assumptions are disclosed in note 14. Actual outcomes could vary from these estimates.
Impairment of property, plant and equipment
Property, plant and equipment is reviewed for impairment if circumstances suggest that the carrying amount may not be recoverable.
Recoverable amounts are determined based on value-in-use calculations and estimated sale proceeds. These calculations require
assumptions to be made regarding future cash flows and the choice of a suitable discount rate in order to calculate the present value
of those cash flows. These assumptions are disclosed in note 14. Actual outcomes may vary from these estimates.
Post-employment benefits
The present value of defined benefit pension scheme liabilities is determined on an actuarial basis and depends on a number
of actuarial assumptions which are disclosed in note 29. Any change in these assumptions could impact the carrying amounts
of pension liabilities.
Onerous lease provisions
The Group provides for its onerous obligations under operating leases where the property is closed or vacant and for properties
where rental expense is in excess of income. The estimated timings and amounts of cash flows are determined using the experience
of internal property experts; however, any changes to the estimated method of exiting from the property could lead to changes to
the level of the provision recorded.
Effectiveness of cash flow hedges
The Group performs an assessment of the probability of future cash flows on the floating rate notes and related interest rate swaps.
Where future expected hedged cash flows are expected to still be highly probable, the Group continues to account for these as
effective cash flow hedges, with the effective portion being recognised in equity. Where future expected cash flows are deemed
not to be highly probable but are still expected to occur, the Group discontinues hedge accounting from the date of the assessment.
From this date, all movements in the fair value of the cash flow hedges are recognised in the income statement. Where future
expected cash flows are deemed to no longer be expected to occur, the Group discontinues hedge accounting from this date and
recycles the existing accumulated amounts in equity in the income statement. From this date all future movements in the fair value
of the cash flow hedges are recognised in the income statement.
Authorisation of financial statements
The Group’s and Company’s financial statements of Punch Taverns plc for the period ended 20 August 2011 were authorised for issue
by the Board of Directors on 19 October 2011 and the balance sheets were signed on the Board’s behalf by Roger Whiteside and
Steve Dando.
Corporate information
Punch Taverns plc is a public limited company incorporated and domiciled in England. The Company’s shares are listed on the
London Stock Exchange.