6 Property, Plant and Equipment

 

US$'000Vessels
and vessel
component
costs
BuildingsLeasehold
improvements
Furniture,
fixtures and
equipment
Motor
vehicles
Total
Cost
At 1 January 20182,368,6096464,67410,529302,384,488
Additions132,110-9491,197-134,256
Disposals-(652)(53)(72)-(777)
Write offs(18,638)-(439)(2,216)-(21,293)
Transfer to assets held for sale (Note 14)(17,170)----(17,170)
Exchange differences-6(57)(74)(2)(127)
At 31 December 20182,464,911-5,0749,364282,479,377
Accumulated depreciation and impairment
At 1 January 2018577,095381,1178,62130586,901
Charge for the year114,53717501,047-116,335
Impairment charge (d)705----705
Disposals-(39)(46)(58)-(143)
Write offs(18,638)-(439)(2,216)-(21,293)
Transfer to assets held for sale (Note 14)(10,720)----(10,720)
Exchange differences--(29)(49)(2)(80)
At 31 December 2018662,979-1,3537,34528671,705
Net book value
At 31 December 20181,801,932-3,7212,019-1,807,672
US$'000Vessels
and vessel
component
costs
Vessels
under
construction
BuildingsLeasehold
improvements
Furniture,
fixtures
and equipment
Motor
vehicles
Total
Cost
At 1 January 20172,093,20357,2606004,2619,738292,165,091
Additions133,371119,884-3,9781,398-258,631
Disposals(17,975)--(3,603)(628)-(22,206)
Write offs(17,134)---(29)-(17,163)
Exchange differences--4638501135
Reclassifications177,144(177,144)-----
At 31 December 20172,368,609-6464,67410,529302,384,488
Accumulated depreciation and impairment
At 1 January 2017499,614-593,8098,14729511,658
Charge for the year107,603-46341,046-109,287
Disposals(12,988)--(3,386)(582)-(16,956)
Write offs(17,134)---(29)-(17,163)
Exchange differences--(25)6039175
At 31 December 2017577,095-381,1178,62130586,901
Net book value
At 31 December 20171,791,514-6083,5571,908-1,797,587
Estimated useful lives
for the year ended
2018 and 2017
Vessels: 25 years
Vessel component costs: estimated
period to
the next
drydocking
50 years 4 to 6
years
or the
remaining
lease
period
if shorter
3 to 5
years
4 to 5
years

Accounting policy

Please refer to Note 5 for the accounting policy on impairment

  1. Vessels and vessel component costs

    Vessels are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an asset comprises its purchase price and any directly attributable cost of bringing the asset to its working condition for its intended use. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of vessels.
    Vessel component costs include the cost of major components which are usually replaced or renewed at drydockings. The assets are stated at cost less accumulated depreciation and accumulated impairment losses. The Group subsequently capitalises drydocking costs as they are incurred.


  2. Vessels under construction

    Vessels under construction are stated at cost and are not subject to depreciation. All cost of services relating to the construction of vessels, including borrowing costs (see below) during the construction period, are capitalised as cost of vessels. When the assets concerned are brought into use, the costs are transferred to vessels and vessel component costs and depreciated in accordance with the policy on depreciation.


  3. Borrowing costs

    Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed.


  4. Other property, plant and equipment

    Other property, plant and equipment, comprising buildings, leasehold improvements, furniture, fixtures and equipment and motor vehicles, are stated at cost less accumulated depreciation and accumulated impairment losses.


  5. Subsequent expenditure

    Subsequent expenditure is either included in the carrying amount of the assets or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the expenditure will accrue to the Group and such expenditure can be measured reliably. The carrying amount of a replaced part is written off. All other repairs and maintenance are expensed in the income statement during the financial period in which they are incurred.


  6. Depreciation

    Depreciation of property, plant and equipment is calculated using straight-line method to allocate their cost to their residual values over their remaining estimated useful lives.


  7. Residual values and useful lives

    The residual values of the Group’s assets are defined as the estimated amounts that the Group would obtain from disposal of the assets, after deducting the estimated costs of disposals, as if the assets were already of the age and in the conditions expected at the end of their useful lives.

    Useful lives of the Group’s vessels and vessel component costs are defined as the period over which they are expected to be available for use by the Group.

    The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.


  8. Gains or losses on disposal

    Gains or losses on disposal are determined by comparing the proceeds with the carrying amounts and are recognised in the income statement.


Critical accounting estimates and judgements

Residual values of property, plant and equipment

The Group estimates residual values of its vessels by reference to the lightweight tonnes of the vessels and the average demolition steel price of similar vessels in the Far East market and Indian Sub-Continent market.

  • Sensitivity analysis:
    With all other variables held constant, if the residual value increases/decreases by 10% from management estimates, the depreciation expense would decrease/ increase by US$2.2 million in the next year.

Useful lives of vessels and vessel component costs

The Group estimates the useful life of its vessels by reference to the average historical useful life of similar vessels, their expected usage, expected repair and maintenance programme, and technical or commercial obsolescence arising from changes or improvements in the shipping market.

The Group estimates the useful life of its vessel component costs by reference to the average historical periods between drydocking cycles of vessels of similar age, and the expected usage of the vessel until its next drydock.

  • Sensitivity analysis:
    With all other variables held constant, if the useful lives increase/decrease by 3 years from management estimates, the depreciation expense would decrease by US$17.0 million or increase by US$29.2 million in the next year.

Impairment of vessels and vessels under construction

The Group tests whether the carrying values of vessels and vessels under construction have suffered any impairment in accordance with the accounting policy on impairment of investments and non-financial assets (Note 5). In assessing the indicators of potential impairment, internal and external sources of information such as reported sale and purchase prices, market demand and general market conditions are considered. In assessing the fair market value and valuein- use, the information above as well as market valuations from leading, independent and internationally recognised shipbroking companies are considered.

The owned minor bulk vessels are separated as two cashgenerating units (“CGUs”) (Handysize and Supramax) as the vessels within each of these CGUs are considered to be interchangeable.

The value-in-use of the vessels is an assessment of assumptions and estimates of vessel future earnings and appropriate discount rates to derive the present value of those earnings. The discount rates used are based on the industry sector risk premium relevant to the CGU and the applicable gearing ratio of the CGU.

For the value-in-use assessments, the applicable discount rates are 7.3% (2017: 6.4%).

  • Sensitivity analysis:
    With all other variables held constant, increasing the discount rates by 100 basis points or reducing the estimates of future vessel earnings by US$500 per day from the original estimate would not give rise to any impairment.

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