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 administrative expenses and is calculated based on the useful lives 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 2–7 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.

Property, plant and equipment represents 63% of the total asset base of the Group in 2012 (2011: 54%). 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 borrowing 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
£m
Fixtures,
fittings,
plant and
machinery
£m
Motor
vehicles
£m
Total
£m
Cost
At 28 November 2010 38.2 126.3 27.4 191.9
Additions 59.2 49.2 7.2 115.6
Disposals (0.5) (3.0) (3.5)
At 27 November 2011 97.4 175.0 31.6 304.0
Additions 20.4 82.8 6.8 110.0
Disposals (0.4) (4.3) (4.7)
At 2 December 2012 117.8 257.4 34.1 409.3
Accumulated depreciation and impairment
At 28 November 2010 (11.1) (69.6) (11.3) (92.0)
Charge for the period (1.6) (14.1) (5.6) (21.3)
Impairment (0.1) (0.1)
Disposals 0.5 3.0 3.5
At 27 November 2011 (12.7) (83.3) (13.9) (109.9)
Charge for the period (1.7) (15.3) (5.8) (22.8)
Impairment (0.8) (0.2) (1.0)
Disposals 0.4 4.3 4.7
At 2 December 2012 (15.2) (98.4) (15.4) (129.0)
Net book value
At 27 November 2011 84.7 91.7 17.7 194.1
At 2 December 2012 102.6 159.0 18.7 280.3

Cost includes cumulative capitalised borrowing costs of £4.8 million (2011: £0.7 million). The capitalisation rate for both periods is the same as that incurred on the underlying borrowings, being LIBOR plus 3.5%. Borrowing costs are capitalised on specific borrowings which are wholly attributable to qualifying assets.

Of the current period impairment charge, £0.9 million has been included within exceptional costs.

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

Land and
buildings
£m
Fixtures,
fittings,
plant and
machinery
£m
Motor
vehicles
£m
Total
£m
At 27 November 2011
Cost 26.6 67.8 29.7 124.1
Accumulated depreciation and impairment (12.0) (38.5) (12.3) (62.8)
Net book value 14.6 29.3 17.4 61.3
At 2 December 2012
Cost 26.9 69.6 33.4 129.9
Accumulated depreciation and impairment (13.3) (43.9) (14.9) (72.1)
Net book value 13.6 25.7 18.5 57.8

The movement in cost includes assets of £2.1 million (2011: £9.7 million) reclassified from owned assets to assets held under finance lease following asset based financing arrangements.

Included within property, plant and equipment is capital work-in-progress for land and buildings of £77.7 million (2011: £60.0 million) and capital work-in-progress for fixtures, fittings, plant and machinery of £80.0 million (2011: £35.2 million).

Property, plant and equipment with a net book value of £135.1 million (2011: £66.7 million) has been pledged as security for the secured loans (Note 4.1.2). Included in this amount is £120.9 million (2011: £57.2 million) relating to assets pledged as security for amounts already drawn down under the £100 million credit facility.