ICG fends off accounting watchdog challenge over ferry values

Concern over lack of impairment charges as ferries left idle during pandemic shutdown

Ferry group Irish Continental (ICG) has successfully defended itself against a challenge from the accounting watchdog over its decision not to write down the value of its fleet of ferries at the height of the Covid-19 crisis in 2020, even as it plunged into a net loss for the year.

The Irish Auditing & Accounting Supervisory Authority (Iaasa) said in a report this week on recent financial reporting issues across Irish companies that it had taken issue with ICG over a statement in its 2020 accounts that no indications of impairment had been identified across its assets.

The authority noted that the pandemic had significantly affected the Irish Ferries owner's operations that year, resulting in revenue sliding 33.4 per cent to €212.4 million and the company sliding into a €12.3 million loss amid travel restrictions. It added that one ferry, known to be the Dublin Swift which serves the route from Dublin to Holyhead, did not operate any sailings that year.

An impairment charge would have pushed ICG deeper into loss-making territory.

ICG, led by chief executive Eamonn Rothwell, responded to Iaasa saying it did not consider the revenue and earnings drop to be an indicator of impairment in respect of the ferry fleet "as it was assessed to be a once-in-a-lifetime event and not a long-term structural change, and the impact of a one-year downturn in revenues would not have a material impact for long-life vessels", the report said.

However, Iaasa was of the view that “one or more” impairment indicators would have been triggered under accounting rules as a result of Covid-19 travel restrictions, it said. It added that it believed that ICG’s interpretation of an international accounting standard meant that “there would unlikely be an indication of impairment ever being identified”.

Idle asset

Iaasa said the facts that one vessel was an “idle asset” for the entire year, that revenues and earnings had slumped and that ICG had secured an easing of debt covenants from its lenders were all relevant factors.

However, when Iaasa asked ICG to provide figures for how much it could make from a sale of its fleet, the figures provided by the ferry company – which it accepted – led it to conclude that no impairment charge was required in 2020.

ICG committed to providing more impairment disclosures in its upcoming 2021 annual accounts. A spokesman for ICG declined to comment beyond what was stated in the Iaasa report.

The report also said that Iaasa took issue with Paddy Power owner, Flutter Entertainment, basing much of the narrative in its 2020 accounts around pro-forma figures as if its transformational merger with Canada's The Stars Group had happened at the start of 2019.

Pro-forma revenue of £4.14 billion (€4.91 billion) and £5.26 billion in 2019 and 2020 respectively compared with statutory accounting revenue in the consolidated income statement of £2.14 billion and £4.41 billion.

While Flutter argued that the use of statutory numbers to explain its performance that year would have been inadequate and inappropriate, given the scale of the deal, it agreed to provide equal prominence to alternative performance measures and statutory accounting measures in future reports.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times