Page 64 - RFU Annual Report 2018

6 FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2

3. Judgements in applying The transaction generated a gain after Impairment of investments
accounting policies and key sources associated costs of £31.6m which, in The RFU has an 8.4% shareholding in
of estimation uncertainty accordance with FRS 102, has been Rugby International Marketing LLC
recorded in the Profit and Loss Reserve. (RIM). During the year, significant
The preparation of the financial uncertainty arose over RIM’s future
statements requires management Compass was granted the irrevocable cash flows which triggered an
to make judgements, estimates and right to exercise a put option, at a impairment review. As a result of this
assumptions that affect the amounts stated price, on the occurrence of an review, the full value of the RFU’s
reported for assets and liabilities at the option event as set out in the contract investment of £1.3m was impaired.
Balance Sheet date, and the amounts (for example, the cessation of rugby
reported for revenues and expenses matches at Twickenham). Professional Game Agreement
during the year. Actual outcomes could The Professional Game Agreement
differ from the estimates made but If no option event occurs before 30 runs for eight years from the 2016/17
management seeks to mitigate this June 2028, the contract requires the season through to the 2023/24 season.
risk by using all available information RFU to repurchase Compass Group’s Under the agreement, the RFU will
and experience to make judgements as 40% share of TEL for £95.5m. The invest up to £112m across the first
accurate as possible. likelihood of an option event occurring four years of the agreement, provided
before 30 June 2028 is considered to be that agreed conditions aimed at
a) Critical judgements highly unlikely and as such, the RFU strengthening domestic rugby and
has accounted for the obligation to England men’s international teams
Twickenham Experience Ltd (TEL) repurchase Compass Group’s shares by are met. The level of investment for
TEL is a joint venture between the RFU recording a liability, as outlined above. the remainder of the agreement will,
(owning 60%) and the Compass Group in part, be linked to the financial
(owning 40%), established to provide As with the previous similar performance of the RFU under a rugby
catering and hospitality services at agreement in 2015, FRS 102 does not revenue share approach, with the total
Twickenham Stadium. The RFU has provide specific guidance for such payments over the eight years expected
granted TEL exclusive hospitality arrangements. The RFU therefore to be in excess of £200m.
rights at the stadium for a period of 40 considered available guidance from
years from May 2000. various sources, including information Payments specific to each contractual
contained in the International year of the agreement are recognised
>RFU/Compass agreement – 2018 Financial Reporting Standards (IFRS). in the period to which they relate, once
During the year, the RFU and Compass the agreed conditions have been met.
Group entered into new Shareholders’ The IFRS Interpretations Committee
and Share Transfer Agreements, (IFRIC), while making no formal East Stand Development
terminating the existing funding pronouncements, indicated that in All East Stand Development capital
arrangements described in last year’s circumstances where there is an costs are included as “assets in the
accounts. Under the new agreements, acquisition of a controlling interest in a course of construction”.
Compass Group’s contribution to the company with a purchase arrangement
development of the East Stand is in the over the non-controlling interest, then These will be transferred to land
form of an increase in the value of its those arrangements should be treated and buildings or fixtures and fittings
investment in TEL rather than a loan to as a liability in the balance sheet. when the assets are brought into
the RFU. Whilst this arrangement did not arise use. From this point, the assets will
in relation to an acquisition, the RFU be depreciated over the appropriate
This was effected by Compass Group concluded that the most appropriate timescale given the nature of the
selling its 40% share in TEL to the treatment to reflect the purchase of the assets.
RFU for £46.5m and immediately non-controlling interest in TEL is to
repurchasing it for £78.5m. The record it as a liability. The liability is
previous loan of £3m from Compass to recognised in creditors due after more
the RFU was also settled as part of this than one year in the balance sheet.
transaction.

Annual
Report
2018