Alliance Medical Group Limited
Annual Report & Financial Statements 2020 Page 24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2020
2. ACCOUNTING POLICIES (continued)
The external debt used to provide funding for the group sits outside of this consolidation at Alliance Medical
Group level (the external debt is recorded in Life UK Holdco Limited) and include covenants that must be met
at various measurement points as defined in the contract for these facilities. These covenants are measured
based on the results of the wider group- this being the group headed by Life Healthcare Group Holdings Limited.
Life Healthcare Group Holdings Limited is the ultimate parent undertaking and controlling party of Alliance
Medical Group limited. The wider group successfully refinanced this external debt during March 2020 and
extended the Debt’s maturities. This wider Group is in a strong financial position with net debt to normalised
EBITDA as at 30 September 2020 at 2.96 times (2019: 1.96 times). Given the significant uncertainty caused by
the pandemic, the wider Group pre-emptively negotiated amended bank covenants for the period up to 31
March 2021 and continue to monitor prospective compliance with such covenants. In addition, banking facilities
have been increased and the wider Group’s committed undrawn bank facilities as at 30 September 2020 are
The Group’s assessments and sensitivity analysis show that the Group has sufficient accessible capital and
liquidity to continue to meet its obligations as they fall due and as a result it is appropriate to prepare these
consolidated financial statements on a going concern basis.
Standards and interpretations effective in the current period
In the current financial year, the Group has adopted the following new and revised Standards, Amendments
and Interpretations. Their adoption has not had a significant impact on the comparative amounts reported in
these Financial Statements but IFRS 16 has had a significant impact on the current year:
IFRS 16: Leases (effective from 01 October 2019)
The Group adopted IFRS 16 “Leases” on 1 October 2019 using the modified retrospective approach, resulting
in no adjustments to the prior year comparatives. IFRS 16 superseded the previous lease guidance, including
IAS 17: “Leases” and related interpretations. IFRS 16 requires all leases, except where exemptions are
applied, to be recognised on the Balance Sheet as a lease liability with a corresponding right-of-use asset
presented within property, plant and equipment. As a result of the transition to IFRS 16, the Group recognised
right-of-use assets of £40.7 million and lease liabilities of £40.7 million at the date of transition.
As part of the initial application of IFRS 16, the Group has applied the following exemptions available: IFRS
16 guidance has not been applied to leases with a lease term which ends within 12 months of the date of
initial application or to leases of low value assets. Payments relating to these leases are recognised as an
expense in the Income Statement over the lease term and no right-of-use asset or lease liability is
recognised. The group has also chosen to apply the practical expedient in paragraph C3 of IFRS 16.
The lease liabilities were measured at the present value of the remaining lease payments discounted at the
incremental borrowing rate as at 1 October 2019. On transition, the right-of-use assets were measured at an
amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. When
calculating the lease liabilities all elements of the lease were considered, including variable lease payments,
extension options and residual value guarantees, these were reviewed on a lease by lease basis.
The variable lease payments relate to four specific building rental contracts in Italy, and are specific
agreements with the building owners. The annual amounts payable vary as the lease goes on, however this is
pre-agreed and there are no ongoing variables which can affect the cost of the lease. As a result, the changes
in the lease cost has already been considered when completing the IFRS 16 valuation and so there are no
anticipated potential variances because of these. There is not deemed to be a material impact on the
calculation because of these leases.
There are also Italian building rentals with options to extend the lease period, the standard lease period for
these leases is 6 years, but with an option to extend for another 6 years. Due to the nature of the leases
(buildings) when carrying out the IFRS 16 valuations it has been assumed these will be extended as they are
most likely to be.