3.2 Property, plant and equipment

Accounting policies

Property, plant and equipment

Property, plant and equipment excluding land are stated at cost less accumulated depreciation and any recognised impairment loss. Cost includes the original purchase price of the asset and any costs attributable to bringing the asset to its working condition for its intended use.

Depreciation is provided at rates estimated to write off the cost of the relevant assets less their estimated residual values by equal annual amounts over their expected useful lives. Residual values and expected useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period.

Land is held at cost and not depreciated. Depreciation on other non-current assets is charged to distribution costs and is calculated based on the useful life indicated below:

Freehold buildings and leasehold properties 25 years, or the lease term if shorter
Fixtures and fittings 5–10 years
Plant and machinery 3–20 years
Motor vehicles 2–5 years

Capital work-in-progress is not depreciated until it is available for use.

Gains and losses on disposal are determined by comparing proceeds with the asset's carrying amount and are recognised within operating profit/(loss).

Property, plant and equipment represents 54% of the total asset base of the Group in 2011 (2010: 33%). Therefore, the estimates and assumptions made to determine the carrying value of property, plant and equipment and related depreciation are important to the Group's financial position and performance.

For more information on the Group's policy on capitalisation of borrowings costs, see Note 4.3.

Estimation of useful life

The charge in respect of periodic depreciation is derived by estimating an asset's expected useful life and the expected residual value at the end of its life. Increasing an asset's expected life or its residual value would result in a reduced depreciation charge in the income statement.

The useful lives of the Group's assets are determined by management at the time the asset is acquired and reviewed at least annually for appropriateness. The lives are based on historical experience with similar assets as well as anticipation of future events which may impact their useful life, such as changes in technology.

Impairment of non-financial assets

An annual impairment review is performed and assets which do not have indefinite useful lives are subject to an annual depreciation or amortisation charge. Assets that are subject to an annual amortisation or depreciation charge are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less cost to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

Given the Group's current operating structure the lowest level at which cash flows can reasonably be assessed is for the Group as a whole. The Group prepares detailed forward projections which are constantly updated and refined. Based on these projections the Board does not consider that any further impairment of assets is required, other than that recognised in the income statement.

3.2.1 Property, plant and equipment

Land and
buildings
£'000
Fixtures,
fittings,
plant and
machinery
£'000
Motor
vehicles
£'000
Total
£'000
Cost



At 29 November 2009 35,335 112,478 22,638 170,451
Additions 3,079 15,348 10,723 29,150
Disposals (173) (1,483) (5,936) (7,592)
At 28 November 2010† 38,241 126,343 27,425 192,009
Additions 59,158 49,179 7,121 115,458
Disposals (499) (2,995) (3,494)
At 27 November 2011 97,399 175,023 31,551 303,973
Accumulated depreciation and impairment



At 29 November 2009 (9,746) (57,927) (12,526) (80,199)
Charge for the period (1,493) (13,151) (4,689) (19,333)
Impairment (14) (14)
Disposals 149 1,483 5,936 7,568
At 28 November 2010 (11,090) (69,609) (11,279) (91,978)
Charge for the period (1,574) (14,117) (5,570) (21,261)
Impairment (76) (76)
Disposals 499 2,957 3,456
At 27 November 2011 (12,664) (83,303) (13,892) (109,859)
Net book value



At 28 November 2010 27,151 56,734 16,146 100,031
At 27 November 2011 84,735 91,720 17,659 194,114

† Cost includes cumulative capitalised borrowing costs of £699,000 (2010: £147,000). The current period capitalisation rate is the same as that incurred on the underlying borrowings, being LIBOR plus 3.5%. No borrowing costs were capitalised in the prior period.

The net book value of land and buildings comprises:


27 November
2011
£'000
28 November
2010
£'000
Freehold 70,105 11,274
Short leasehold — less than 50 years 13,865 15,877
Long leasehold 765

84,735 27,151

The net book value of non-current assets held under finance leases is set out below:


Land and
buildings
£'000
Fixtures,
fittings,
plant and
machinery
£'000
Motor
vehicles
£'000
Total
£'000
At 28 November 2010



Cost 26,509 57,685 26,455 110,649
Accumulated depreciation and impairment (10,632) (32,200) (10,618) (53,450)
Net book value 15,877 25,485 15,837 57,199
At 27 November 2011



Cost 26,588 67,762 29,721 124,071
Accumulated depreciation and impairment (11,958) (38,465) (12,260) (62,683)
Net book value 14,630 29,297 17,461 61,388

The movement in cost includes assets of £9.7 million (2010: £2.1 million) reclassified from owned assets to assets held under finance lease following asset based financing arrangements.

The impairment charge for fixtures, fittings, plant and machinery in both financial periods arises in respect of assets that have been superseded.

Included within property, plant and equipment is capital work-in-progress for land and buildings of £60.0 million (2010: £1.8 million) and capital work-in-progress for fixtures, fittings, plant and machinery of £35.2 million (2010: £4.2 million).

Property, plant and equipment with a net book value of £66.7 million (2010: £10.3 million) has been pledged as security for the secured loans (Note 4.1.2). Included in this amount is £57.2 million (2010: £nil) relating to assets pledged as security for amounts already drawn down under the £100 million credit facility.