Report on the audit of the financial statements
Opinion
We have audited the financial statements of Irish Continental Group plc (‘the Company’) and its consolidated undertakings (‘the Group’) for the year ended 31 December 2022 set out on pages 124 to 193, contained within the reporting package 635400FQKB6QXERQOC74-2022-12-31-en.zip, which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows; Company Statement of Financial Position, Company Statement of Changes in Equity and related notes, including the summary of significant accounting policies set out in note 2.
The financial reporting framework that has been applied in their preparation is Irish Law, including the Commission Delegated Regulation 2019/815 regarding the single electronic reporting format (ESEF) and International Financial Reporting Standards (IFRS) as adopted by the European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2014.
In our opinion:
- the financial statements give a true and fair view of the assets, liabilities and financial position of the Group and Company as at 31 December 2022 and of the Group’s profit for the year then ended;
- the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;
- the Company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union, as applied in accordance with the provisions of the Companies Act 2014; and
- the Group and Company financial statements have been properly prepared in accordance with the requirements of the Companies Act 2014 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section of our report. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit Committee.
We were appointed as auditor by the shareholders on 12 May 2021. The period of total uninterrupted engagement is the year ended 31 December 2022. We have fulfilled our ethical responsibilities under, and we remained independent of the Group in accordance with, ethical requirements applicable in Ireland, including the Ethical Standard issued by the Irish Auditing and Accounting Supervisory Authority (IAASA) as applied to public interest entities. No non-audit services prohibited by that standard were provided.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the director’s assessment of the Group’s and Company’s ability to continue to adopt the going concern basis of accounting included:
- Understanding the Group’s process around the going concern assessment performed by management;
- Agreeing the underlying cash flow projections to Board approved forecasts, understanding how these forecasts are compiled;
- Testing of the clerical accuracy of management’s going concern model;
- Evaluating the key assumptions within management’s forecasts;
- Assessing whether the plausible downside scenario prepared by management appropriately considered the principal risks facing the business;
- Evaluating the feasibility of management’s mitigating actions in the plausible downside scenario;
- Evaluating management’s assessment of the Group’s ability to comply with debt covenants; and
- Assessing the appropriateness of the going concern disclosures by evaluating the consistency with management’s assessment and for compliance with the relevant reporting requirements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group or the Company’s ability to continue as a going concern for a period of at least twelve months from the date when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
In relation to the Group and the Company’s reporting on how they have applied the UK Corporate Governance Code and the Irish Corporate Governance Annex, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.
Detecting irregularities including fraud
We identified the areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements and risks of material misstatement due to fraud, using our understanding of the entity’s industry, regulatory environment and other external factors and inquiry with the directors. In addition, our risk assessment procedures included:
- Inquiring with the directors and other management as to the Group’s policies and procedures regarding compliance with laws and regulations, identifying, evaluating and accounting for litigation and claims, as well as whether they have knowledge of non-compliance or instances of litigation or claims;
- Inquiring of directors, the Audit Committee and internal audit as to the Group’s policies and procedures to prevent and detect fraud, including the internal audit function, and the Group’s channel for “whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged fraud;
- Inquiring of directors and the Audit Committee regarding their assessment of the risk that the financial statements may be materially misstated due to irregularities, including fraud;
- Inspecting selected regulatory and legal correspondence;
- Reading Board and Audit Committee minutes;
- Considering remuneration incentive schemes and performance targets for management; and
- Performing planning analytical procedures to identify any usual or unexpected relationships.
We discussed identified laws and regulations, fraud risk factors and the need to remain alert among the audit team.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including companies and financial reporting legislation, taxation legislation etc. We assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items, including assessing the financial statement disclosures and agreeing them to supporting documentation when necessary.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: health and safety, anti-bribery, employment law, environmental regulation, maritime law, liquidity and certain aspects of company legislation.
Auditing standards limit the required audit procedures to identify non-compliance with these non-direct laws and regulations to inquiry of the directors and inspection of regulatory and legal correspondence, if any. These limited procedures did not identify actual or suspected non-compliance.
We assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. As required by auditing standards, we performed procedures to address the risk of management override of controls and the risk of fraudulent revenue recognition. We did not identify any additional fraud risks.
In response to the fraud risks, we also performed procedures including:
- Identifying journal entries to test based on risk criteria and comparing the identified entries to supporting documentation;
- Evaluating the business purpose of significant unusual transactions;
- Assessing significant accounting estimates for bias; and
- Assessing the disclosures in the financial statements.
As the Group is regulated, our assessment of risks involved obtaining an understanding of the legal and regulatory framework that the Group operates and gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, were as follows (unchanged from 2021):
Group key audit matters
Valuation of vessels – Group €320.3m (2021: €294.1m) and Company €138.8m (2021: €144.4m)
Refer to note 2 (accounting policy), note 3 (Critical accounting judgements and key sources of estimation uncertainty) and notes 12 and 39 (Group and Company financial disclosures respectively)
The key audit matter |
How the matter was addressed in our audit |
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Property, plant and equipment amounted to €362.3 million (Company: €139.1 million) as of 31 December 2022, of which €320.3 million (Company: €138.8 million) related to owned vessels. The vessel-related depreciation charge for the year ended 31 December 2022 was €34.7 million (Company: €5.7 million). We identified the valuation of vessels as a key audit matter. This matter consists of:
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We obtained and documented an understanding of the Group’s process and tested the design and implementation of the relevant control in place over the Group’s process to value vessels including the control relating to the development of the assumptions in relation to the useful economic life and expected residual values together with the calculation of the recoverable values of vessels. In respect of part 1) of the key audit matter, we assessed the estimated useful lives and estimated residual values assumptions by comparing;
In respect of part 2) of the key audit matter, we assessed the accuracy of the Group’s calculations used in assessing those assets subject to impairment testing and considered whether the assumptions and methodology applied to the assets tested were reasonable and appropriate. We evaluated the key assumptions used in the Group’s value in use calculations with regard to those assets subject to impairment assessment by:
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We performed sensitivity analysis over the Group’s key assumptions with regard to cash flows and discount rate, to assess the impact of changes to those key assumptions on the Group’s determination of the recoverability of vessels. We inspected asset valuations obtained from experts engaged by the Group and considered whether they supported the Group’s assessment of impairment at 31 December 2022. We evaluated the completeness, accuracy and relevance of disclosures required by IAS 36, including disclosures about sensitivities and major sources of estimation uncertainty. As a result of our work performed, we found that the judgements made by the Group in relation to:
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Valuation of net defined benefit pension asset – Group only
Refer to note 2 (accounting policy), note 3 (Critical accounting judgements and key sources of estimation uncertainty) and note 31 (financial disclosures)
Valuation of the net defined benefit pension asset of €33.2m consisting of pension assets of €124.8m and liabilities of €91.6m (2021 – net pension asset of €5.3m consisting of pension assets of €145.8m and liabilities of €140.5m)
The key audit matter |
How the matter was addressed in our audit |
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The Group operates a number of defined benefit pension schemes. The valuation of such schemes requires judgement and is subject to volatility arising from movements in actuarial assumptions and the selection of same. We consider that the valuation of the net defined benefit pension assets includes estimation uncertainty in relation to the key assumptions used, in particular the discount rate. In addition, the valuation of the net defined benefit pension asset is sensitive to changes in those key assumptions applied. |
We obtained and documented our understanding of the process in place to value the defined benefit pension schemes, including the selection of actuarial assumptions used, in particular the discount rate used. We engaged internal KPMG actuarial specialists to inspect the valuation assessments and key assumptions applied throughout the Group. We made inquiries of management to understand the key assumptions made in calculating the net defined benefit pension asset and we tested the design and implementation of the relevant control in place. We challenged, with the support of our actuarial specialist, the key actuarial assumptions applied in the calculation of the valuation of the defined benefit pension asset. The most significant judgements related to the evaluation of the appropriateness of the discount rates assumptions. We also assessed the inflation rates and mortality/life expectancies used. This included a comparison of these assumptions against externally available benchmarks. We also considered the adequacy of the Group’s disclosures in respect of the sensitivity of the net defined benefit pension asset to these assumptions. We found the assumptions used in, and the resulting valuation of the net defined benefit pension asset to be reasonable and the related disclosures to be adequate. |
Company key audit matter
In addition to the two matters noted above which applied to the Group and Company, the following additional key audit matter applied to the Company only:
Valuation of investment in subsidiaries €16.5m (2021: €14.4m)
Refer to note 37 (accounting policy) and note 41 (financial disclosures)
The key audit matter |
How the matter was addressed in our audit |
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Investments in subsidiary undertakings are carried on the Company balance sheet at cost less impairment. There is a risk of impairment in respect of the carrying value of these investments if the future performance and cashflows of such subsidiaries is not sufficient to support the carrying value of the Company’s investments. We focused on this matter due to the materiality of the balance in the context of the Company balance sheet and the uncertainty associated with assumptions used in forecasting future performance and cashflows. |
We obtained and documented our understanding of management’s process in place for monitoring the carrying values of investments in subsidiaries. We considered management’s assessment of impairment indicators by comparing the carrying value of investments in the Company’s Balance Sheet to the net assets of the subsidiary financial statements and to the market capitalisation of the Company. We compared the carrying value of investments in the Company’s subsidiary undertakings to the net assets of each subsidiary and to the market capitalisation of the Company. We considered the audit procedures performed in relation to the impairment testing performed by management over the carrying value of vessels as outlined in the key audit matter above, in particular the assumptions relating to the forecasting of future performance and cashflows. As a result of our audit work performed, we found that management’s assessment of the valuation of investments in subsidiary undertakings to be appropriate. |
Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements and Company financial statements as a whole was set at €2.85m (2021: €2.5m) and €1.5m (2021: €1.5m) respectively, determined with reference to benchmarks of profit before tax (2021: total revenue) for the Group and total assets for the Company (of which it represents 5% of profit before tax (2021: 0.75% of total revenue) and 0.9% (2021: 0.5%) respectively.
In applying our judgement to determine the most appropriate benchmark, the factor, which had the most significant impact was our understanding that the principal item on which the attention of the users of the Group’s financial statements tends to be focused on is, profit before tax. Profit before tax is the principal item used by Management in assessing performance. In applying our judgement in determining the percentage to be applied to the benchmark, we considered that the Group has a high public profile and operates in a regulated environment and has debt arrangements which include covenants linked to operating results.
We consider profit before tax to be the most appropriate benchmark for 2022 and the most representative benchmark for the financial performance of the Group. This represents a change from the prior year. We used total revenue as the benchmark in 2021 due to the impact of Covid-19 on the Group’s performance. However, as performance fluctuations and associated uncertainties eased in 2022, we reverted to profit before tax as the most appropriate benchmark for investors.
In applying our judgement in determining the most appropriate benchmark for Company materiality, we considered the elements of the financial statements and the nature of the Company and the fact that the Company is an investment holding company for the Group.
In applying our judgement in determining the percentage to be applied to the benchmark, we considered that the Company is listed and has a high public profile.
Performance materiality for the Group financial statements and Company financial statements was set at 75% (2021: 75%) of materiality for the financial statements as a whole, which equates to €2.1m (2021: €1.9m) and €1.25m (2021: €1.25m) respectively. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. In applying our judgement in determining performance materiality, we considered a number of factors including; the low number and value of misstatements detected and the low number and severity of deficiencies in control activities identified in the prior year financial statement audit.
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding €150,000 (2021: €150,000), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 12 reporting components, we subjected all to full scope audits for group purposes. The structure of the Group’s finance function is such that certain transactions and balances are accounted for by the central Group finance team, with the remainder accounted for in the Group’s components. We performed comprehensive audit procedures, including those in relation to the key audit matters as set out above, on those transactions accounted for at Group and component level. Our audits covered 100% of total Group revenue and 100% of Group total assets, including 100% of the Company’s revenue and total assets. The work on all components was performed by the Group team.
The audits undertaken for Group reporting purposes at the key reporting components were all performed to component materiality levels. These component materiality levels were set individually for each component and ranged from €27,000 to €2.2 million. The Group audit team were also auditors to all of the Group’s significant components.
Our audit was undertaken to the materiality and performance materiality level specified above and was all performed by a single engagement team in Dublin.
Other information
The directors are responsible for the other information presented in the Annual Report together with the financial statements. The other information comprises the information included in the directors’ Report, the Strategic Report, the Corporate Governance Report and the Investor and Other Information. The financial statements and our auditor’s report thereon do not comprise part of the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.
Based solely on our work on the other information undertaken during the course of the audit, we report that:
- we have not identified material misstatements in the directors’ report;
- in our opinion, the information given in the directors’ report is consistent with the financial statements;
- in our opinion, the directors’ report has been prepared in accordance with the Companies Act 2014.
Corporate Governance Report
We have reviewed the directors’ statement in relation to going concern, longer-term viability, that part of the Corporate Governance Report relating to the Company’s compliance with the provisions of the UK Corporate Governance Code and the Irish Corporate Governance Annex specified for our review by the Listing Rules of Euronext Dublin and the UK Listing Authority.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Report is materially consistent with the financial statements and our knowledge obtained during the audit:
- Directors' statement with regards the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 93;
- Directors’ explanation as to their assessment of the Group's prospects, the period this assessment covers and why the period is appropriate set out on page 93;
- Director’s statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set out on page 93;
- Directors' statement on fair, balanced and understandable and the information necessary for shareholders to assess the Group's position and performance, business model and strategy set out on page 93;
- Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks and the disclosures in the annual report that describe the principal risks and the procedures in place to identify emerging risks and explain how they are being managed or mitigated set out on page 62;
- Section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 86; and;
- Section describing the work of the Audit Committee set out on page 91.
The Listing Rules of Euronext Dublin also requires us to review certain elements of disclosures in the report to shareholders by the Board of Directors’ remuneration committee.
We have nothing to report in this regard.
In addition as required by the Companies Act 2014, we report, in relation to information given in the Corporate Governance Report on pages 78 to 90, that:
- based on the work undertaken for our audit, in our opinion, the description of the main features of internal control and risk management systems in relation to the financial reporting process and information relating to voting rights and other matters required by the European Communities (Takeover Bids (Directive 2004/EC) Regulations 2006 and specified for our consideration, is consistent with the financial statements and has been prepared in accordance with the Act;
- based on our knowledge and understanding of the Company and its environment obtained in the course of our audit, we have not identified any material misstatements in that information; and
- the Corporate Governance Report contains the information required by the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017. We also report that, based on work undertaken for our audit, the information required by the Act is contained in the Corporate Governance Report.
We also report that, based on work undertaken for our audit, the information required by the Act is contained in the Corporate Governance Report.
Our opinions on other matters prescribed by the Companies Act 2014 are unmodified
We have obtained all the information and explanations which we consider necessary for the purposes of our audit.
In our opinion the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited and the financial statements are in agreement with the accounting records.
We have nothing to report on other matters on which we are required to report by exception
The Companies Act 2014 requires us to report to you if, in our opinion:
- the disclosures of directors’ remuneration and transactions required by Sections 305 to 312 of the Act are not made;
- the Company has not provided the information required by Section 1110N in relation to its remuneration report for the financial year 31 December 2021.
We have nothing to report in this regard.
Respective responsibilities and restrictions on use
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 113, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A fuller description of our responsibilities is provided on IAASA’s website at https://iaasa.ie/publications/description-of-the-auditors-responsibilities-for-the-audit-of-the-financial-statements/.
The purpose of our audit work and to whom we owe our responsibilities
Our report is made solely to the Company’s members, as a body, in accordance with Section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Colm O’Sé
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Stokes Place
St. Stephen’s Green
Dublin 2
D02 DE03
9 March 2023