VINCI – Annual report – 31 December 2017
Industry: utilities. concessions, construction
F. Concession and PPP contracts
Under the terms of IFRIC 12 “Service Concession Arrangements”, a concession operator has a twofold activity:
- a construction activity in respect of its obligations to design, build and finance a new asset that it delivers to the grantor: revenue is recognised on a stage of completion basis in accordance with IAS 11;
- an operating and maintenance activity in respect of concession assets: revenue is recognised in accordance with IAS 18.
In return for its activities, the operator receives remuneration from:
- users: the intangible asset model applies. The operator has a right to receive tolls (or other forms of payment) from users in consideration for the financing and construction of the infrastructure. The intangible asset model also applies whenever the concession grantor remunerates the concession operator based on the extent of use of the infrastructure by users, but with no guarantees as to the amounts that will be paid to the operator (under a simple “pass through” or “shadow toll” agreement).
Under this model, the right to receive toll payments (or other forms of payment) is recognised in the concession operator’s balance sheet under “Concession intangible assets”, net of any investment grants received. This right corresponds to the fair value of the asset under concession plus the borrowing costs capitalised during the construction phase. It is amortised over the term of the arrangement in a manner that reflects the pattern in which the concession asset’s economic benefits are consumed by the entity, starting from the entry into service of the asset. This treatment applies to most of the infrastructure concessions, in particular VINCI Autoroutes’ concessions in France, the main airports managed by VINCI Airports and certain bridges and tunnels.
The motorway concession companies ASF, Cofiroute, Escota, Arcour and Arcos, along with most of the Group’s airport concession companies, use the straight-line method for amortising concession intangible assets.
- the grantor: the financial asset model applies. The operator has an unconditional contractual right to receive payments from the concession grantor, irrespective of the amount of use made of the infrastructure.
Under this model, the operator recognises a financial asset, attracting interest, in its balance sheet, in consideration for the services it provides (design and construction). Such financial assets are recognised in the balance sheet under “Other financial assets”, in an amount corresponding to the fair value of the infrastructure on first recognition and subsequently at amortised cost. The receivable is settled by means of the grantor’s payments received. The income calculated on the basis of the effective interest rate is recognised under operating income (revenue from ancillary activities).
In the case of bifurcated models, the operator is remunerated partly by users and partly by the grantor. The part of the investment that is covered by an unconditional contractual right to receive payments from the grantor (in the form of grants or rental) is recognised as a financial receivable up to the amount guaranteed. The unguaranteed balance, of which the amount is dependent on the extent of use of the infrastructure, is recognised under “Concession intangible assets”.
- Breakdown of revenue by geographical area (extract)
Consolidated revenue of the Concessions business is recognised in accordance with IAS 18 “Revenue” and IAS 11 “Construction Contracts”. The method for recognising revenue under concession contracts is explained in Note F “Concession and PPP contracts”. This revenue consists of:
- tolls for the use of motorway infrastructure operated under concession, revenue from airport service concessions, and ancillary income such as fees for the use of commercial installations, rental of telecommunications infrastructure and advertising space; and
- revenue in respect of the construction of new infrastructure under concession recognised on a stage of completion basis in accordance with IAS 11, corresponding to works carried out by companies outside the Group.
Consolidated revenue of the Contracting business (VINCI Energies, Eurovia and VINCI Construction) is recognised in accordance with IAS 11. It includes the total of the work, goods and services generated by the consolidated subsidiaries pursuing their main activity and the revenue for construction work on infrastructure under concession. The method for recognising revenue under construction contracts is explained in Note G.15 “Information on construction contracts”.
In the French property sector, revenue arising on lots sold is recognised as the property development proceeds (in accordance with IFRIC 15 “Agreements for the Construction of Real Estate” and statutory provisions relating to off-plan sales).
G Construction contracts (VINCI Energies, Eurovia, VINCI Construction) (extract)
15. Information on construction contracts (extract)
The Group recognises construction contract income and expenses using the stage of completion method defined by IAS 11. For VINCI Construction, the stage of completion is usually determined on a physical basis. For the other business lines (Eurovia and VINCI Energies), it is determined on the basis of the percentage of total costs incurred to date.
If the estimate of the final outcome of a contract indicates a loss, a provision is made for the loss on completion regardless of the stage of completion, based on the best estimates of income, including, if need be, any rights to additional revenue or claims if these are probable and can be reliably estimated. Provisions for losses on completion are shown under liabilities.
Part payments received under construction contracts before the corresponding work has been carried out are recognised under liabilities under advances and payments on account received.
18.3 Breakdown of current provisions (extract)
Current provisions are provisions directly linked to each business line’s own operating cycle, whatever the expected time of settlement of the obligation. They are recognised in accordance with IAS 37. They also include the part at less than one year of provisions not directly linked to the operating cycle.
These provisions are recognised at their present value. The effect of discounting provisions is recognised under “Other financial income and expense”.
Provisions are taken for contractual obligations to maintain the condition of concession assets, principally by the motorway concession operating companies to cover the expense of major road repairs (surface courses, restructuring of slow lanes, etc.), bridges, tunnels and hydraulic infrastructure. They also include expenses to be incurred by airport concession companies (repairs to runways, traffic lanes and other paved surfaces). Provisions are calculated on the basis of maintenance expense plans spanning several years, which are updated annually. These expenses are reassessed on the basis of appropriate indexes (mainly the TP01, TP02 and TP09 indexes in France). Provisions are also taken whenever recognised signs of defects are encountered on identified infrastructure.
Provisions for after-sales service cover Group entities’ commitments under statutory warranties relating to completed projects, in particular the 10-year warranty on building projects in France. They are estimated statistically on the basis of expenses incurred in previous years or individually on the basis of specifically identified events.
Provisions for losses on completion of contracts and construction project liabilities are set aside mainly when end-of-contract projections, based on the most likely estimated outcome, indicate a loss, and those covering work yet to be carried out in respect of completed projects under completion warranties.
Provisions for disputes connected with operations relate mainly to disputes with customers, subcontractors, joint contractors or suppliers.
Restructuring provisions include the cost of plans and measures for which there is a commitment whenever these have been announced before the period end.
Provisions for other current liabilities comprise mainly provisions for other risks related to operations.