3. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group’s and Company’s accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these amounts. The estimates and underlying assumptions are reviewed on an ongoing basis.

Key sources of estimation uncertainty and critical accounting judgements are as follows:


Post-employment benefits

The Group’s and Company’s total obligation in respect of defined benefit obligations is calculated by independent, qualified actuaries, updated at least annually. The size of the obligation is sensitive to actuarial assumptions. These include demographic assumptions covering mortality and longevity, and economic assumptions covering price inflation, benefit and salary increases together with the discount rate used. The size of the scheme assets is also sensitive to asset return levels and the level of contributions from the Group and Company. Further details are set out in note 32. Many of the actuarial assumptions are dependent on market developments and are outside the control of the Company and Group and movements may give rise to material adjustments in future estimates of post-employment obligations.

The Group and Company is a participating employer in the Merchant Navy Officer Pension Fund (MNOPF), a multi-employer defined benefit pension scheme. The MNOPF is in deficit. Under the rules of the fund all employers are jointly and severally liable for the deficit. The deficit included in the Financial Statements for the Group and Company represents an apportionment of the overall scheme deficit based on notification received from the trustees which is currently 1.53% for the Group and 0.51% for the Company, less any deficit payments made. Should other participating employers’ default on their obligations, the Group and Company will be required to absorb a larger share of the scheme deficit calculated in the same manner as the current apportionment.

Useful lives for property, plant and equipment

Long lived assets comprising primarily of property, plant and equipment represent a significant portion of total assets. The annual depreciation and amortisation charge depends primarily on the estimated useful lives of each type of asset. Management regularly reviews these useful lives and changes them if necessary, to reflect current conditions. In determining these useful lives management considers technological change, patterns of consumption, physical condition and expected economic utilisation of the asset. Changes in the useful lives may have a significant impact on the annual depreciation and amortisation charge. Details of the useful lives are included in the accounting policy headed property, plant and equipment. Further details are set out in note 13.

In relation to one vessel, which was surplus to requirements and layed-up during 2020, the Directors noted that this vessel had been maintained in line with all regulatory and class requirements during the lay-up period and the Directors have assessed that no revision in remaining useful life was warranted.

Critical accounting judgements


The Group assessed its property, plant and equipment and intangible assets to determine if there were any indications of impairment. Factors considered in identifying whether there were any indications of impairment included the economic performance of assets, technological developments, new rules and regulations, shipbuilding costs and carrying value versus market capitalisation of the Group.

During the period, the Group experienced a decline in activity levels mainly concentrated on passenger carryings due to the imposition of restrictions placed on travel in the jurisdictions that we offer services. The Group assessed that notwithstanding the material effect on profitability in 2020 and likely effects into 2021 as restrictions remained in place, that this performance did not amount to an indication of impairment. This assessment was based on previous experiences where the Group suffered serious shocks to its activity levels and the time taken to recover to pre-shock activity levels relative to the remaining life of its operating assets. The principal operating assets comprise vessels with an average remaining life of up to 20 years and leasehold property with remaining terms of between 86 and 101 years.

One vessel which is dedicated to passenger only carryings was layed-up during 2020. Within the assessment carried out above this temporary surplus to operational requirements was not deemed to be an indication of impairment as it is intended to return this vessel to service when restrictions lift.

The Group also sought to support the carrying value of its vessels through an independent valuation exercise. The Group recognises the limitations of such exercises as the majority of the Group’s fleet by value is bespoke to its requirements and true value can only be assessed if offered for sale to one or more willing purchasers. Within these valuation limitations the valuations did not indicate a movement in market values such that would lead management to a conclusion that they represented an indication of impairment.

All Group vessels comply with current rules and regulations and future capital expenditure for known regulations expected to be mandated is not expected to be of such amounts such as to increase any risk of obsolescence.

Based on the above reviews no internal or external indications of impairment were identified for any material asset and consequently no impairment review was performed.

Leases – non-cancellable lease term

The Group has applied judgement in determining the non-cancellable term of vessel leases, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised.

Going Concern

The Directors have satisfied themselves that the Group and Company are going concerns having adequate financial resources to continue in operational existence for the foreseeable future. In forming their view, the Directors have taken into consideration the future financial requirements of the Group and Company and available financial resources comprising cash and available undrawn loan facilities.

At the time of making this assessment the Directors note that the Group has been significantly affected by the imposition of travel restrictions in the jurisdictions that it offers services at various times and levels since March 2020. These restrictions remain at the date of approval of these Financial Statements. While the restrictions initially affected all of the Group’s revenue streams, freight carryings recovered to previously expected activity levels over the course of the year. Passenger carryings remain restricted to essential travel only.

On 1 January 2021, customs checks were introduced on the movement of goods between the UK and Ireland with the ending of the transition arrangements introduced following the UK’s exit from the EU. This has led to a significant reduction in Irish Sea carryings, partially offset increases in our higher yielding direct services to France, resulting in an overall reduction in the Group’s RoRo revenues of 8.1% in the period 1 January 2021 to 6 March 2021. The trend since the early reduction in volumes in January has been a gradual return of RoRo volumes to our Irish Sea services.

Notwithstanding the reduced activity levels in 2020, the Group generated cash from operating activities of €46.1 million (2019: €84.8 million). At 31 December 2020, the Group had cash balances net of short term borrowings of €63.1 million (2019: €107.3 million) and undrawn committed lending facilities of €90.4 million (2019: €90.4 million). The Group has also agreed a temporary increase in its leverage covenant with all its lenders to four times pre-IFRS 16 EBITDA levels.

The Group has modelled a number of scenarios for its businesses over the 12 month period from the date of approval of the Financial Statements, including retention of travel restrictions for 2021. Notwithstanding the effects that this would have on projected profitability and cash flows, the Group expects to generate sufficient cash from operations to enable it retain sufficient liquidity to operate and meet its financial obligations as they fall due for at least the period up to March 2022.