25th Aug 2005 16:54
Clarkson PLC25 August 2005 CLARKSON PLC REGULATORY NEWS RELEASE 25 August 2005 Restatement of 2004 Report and Accountsfollowing adoption of International Financial Reporting Standards (IFRS) The purpose of this regulatory news release is to provide a detailed update onthe impact of the transition to International Financial Reporting Standards(IFRS) on the previously published 2004 Annual Report and Accounts of ClarksonPLC, in particular this requires the restatement of the transitional balancesheet at 1 January 2004. Overview of Impact • Underlying trading and cash flows unaffected. • Reported profit before tax and basic earnings per share slightly improved. • Net assets reduced due to revised accounting for defined benefit pension fund deficit (less related deferred tax), offset by writing back of proposed dividends. • No material changes from the effects mentioned in the 2004 Annual Report and Accounts. 2004 2004 IFRS (unaudited) UK GAAP Note (1) Revenue - continuing operations £87.4m £87.4m Profit before taxation £20.4m £20.2m Taxation £6.4m £6.5m Profit after taxation £14.0m £13.7m Earnings per share 85.7 pence 83.8 pence Net assets £28.1m £31.1m (1) The UK GAAP numbers are as reported in the 2004 Annual Report and Accounts. For further information please contact: Rob Ward, Group Finance Director 020 7334 0000 This announcement, together with other information on Clarkson PLC, may be foundat: www.clarksons.com 1. Introduction The purpose of this statement is to provide a detailed update on the impact ofthe transition to International Financial Reporting Standards (IFRS) on the 2004published consolidated accounts of Clarkson PLC. A brief commentary on the expected impact was included in the Finance Director'sReview contained in the Group's 2004 Annual Report and Accounts. Whilst thisstatement provides greater detail on the transition to IFRS, the adjustments areconsistent with the previous commentary. The information has been prepared by management using its best knowledge,judgement and interpretation of the expected standards and accounting policiesthat will be adopted when the Group prepares its first complete set of IFRSaccounts as at 31 December 2005. It is unaudited. It should be noted that only acomplete set of accounts comprising an income statement, a balance sheet, a cashflow statement, a statement of recognised income and expense together withcomparative financial information and explanatory notes can provide a fairpresentation of the Group's financial position and operating performance. This statement contains no information in respect of the Group's 2005performance under IFRS. Clarkson PLC intends to report its interim accounts, covering the six months to30 June 2005, under IFRS, on Wednesday 31 August 2005. Throughout this document the following abbreviations apply: • IFRS - International Financial Reporting Standard(s) • IAS - International Accounting Standard • FRS - Financial Reporting Standard • SSAP - Statement of Standard Accounting Practice • UK GAAP - UK Generally Accepted Accounting Practice, which comprise all the rules under SSAP and FRS which applied prior to the introduction of IFRS and IAS 2. Transition to International Financial Reporting Standards Companies listed on regulated exchanges within the European Union are requiredto adopt IFRS for accounting periods beginning after 31 December 2004. Theadoption of IFRS will, therefore, first apply to the Group's accounts witheffect from 1 January 2005. Comparative figures are required and consequently,for Clarkson PLC, the transition date is 1 January 2004, as determined inaccordance with IFRS 1 'First-time Adoption of International AccountingStandards'. The European Union has not yet adopted all of the IFRS (including amendments toIAS 19 'Employee Benefits' and IAS 39 'Financial Instruments: Recognition andMeasurement') consequently on adoption of these standards there may be furtherchanges to the figures provided in this document. Further IFRS may beintroduced between now and the finalisation of the 2005 Report and Accounts. During 2004/05 the Group undertook a project, overseen by the Audit Committee,to manage the transition to IFRS. This involved an analysis of each standard toidentify the differences between the Group's accounting policies under UK GAAPand those to be adopted under IFRS. The additional data required to restate theGroup's results and its financial position in accordance with IFRS with effectfrom the transition date has been collected and the ongoing reporting andconsolidation systems are being modified to meet IFRS requirements. The differences between UK GAAP and IFRS that have been identified as having themost significant effect on the Group's reported results are those arising from: • The implementation of IAS 19 'Employee Benefits' • The treatment of proposed dividends These, along with some of the more minor changes, are discussed below: • Section 3 - Group Income Statement • Section 4 - Group Balance Sheet • Section 5 - Group Cash Flow Statement • Section 6 - Statement of Recognised Income and Expense • Section 7 - Reconciliation of Equity • Section 8 - Segmental Analysis • Section 9 - Earnings Per Share The exemptions adopted by Clarkson PLC in the transition to IFRS, as permittedby IFRS 1, are explained in Section 10 and the Accounting Policies to be adoptedby the Group under IFRS in Section 11. 3. Group Income Statement UK GAAP Adjustment IFRS Notes 2004 2004 2004 (see below) £m £m £m Revenue - continuing operations 87.4 - 87.4 Trading profit 17.5 - 17.5 3.2, 3.3Amortisation of goodwill (0.1) 0.1 - 3.4Operating profit 17.4 0.1 17.5 Finance income (revenue) 2.1 5.2 7.3 3.3Finance costs (0.1) (4.9) (5.0) 3.3Share of profit from associates and 0.8 (0.2) 0.6 3.6joint venturesProfit before taxation 20.2 0.2 20.4 Taxation (6.5) 0.1 (6.4) 3.2, 3.3, 3.6Profit after taxation 13.7 0.3 14.0 3.5 Profit attributable toEquity holders of the parent 13.4 0.3 13.7Minority interest 0.3 - 0.3 13.7 0.3 14.0 Earnings per share 83.8 pence 85.7 pence - basic and diluted 3.1 Format of the Income Statement The proforma IFRS income statement is based on a current interpretation of IFRS.It is subject to modification as standard practice amongst UK listed entitiesevolves. 3.2 Foreign exchange gains or losses on foreign currency ledgers. Under UK GAAP the monetary assets and liabilities held in foreign currencyledgers were considered to be separate foreign currency branches. The tradingresults of foreign currency branches were translated at average rates, or atcontracted rates if the trading results were covered by forward exchangecontracts, with any exchange differences arising taken directly to reserves. Under IAS 21 'The Effect of Changes in Foreign Exchange Rates', the tradingresults of foreign currency ledgers are translated at the rate of exchangeprevailing on the date of the transaction. Monetary assets and liabilities heldin foreign currency ledgers are translated at the rate prevailing at the balancesheet date. Differences are recognised in the income statement in the period inwhich they arise. Consequently a foreign exchange loss of £0.9m before taxation relief of £0.3m(equating to £0.6m net) has been included in the income statement in respect ofsuch ledgers. 3.3 Pension costs Under SSAP 24 'Accounting for Pension Costs' contributions to the definedbenefit pension scheme were charged to the profit and loss account in accordancewith the recommendations of a qualified actuary. Under IFRS pension contributions are charged in accordance with IAS 19 'EmployeeBenefits'. IAS 19 accounting is very similar to a full implementation of FRS 17'Retirement Benefits'. Information on FRS 17 was provided in note 32 of the2004 Annual Report and Accounts. Implementation of IAS 19 requires the removal of the SSAP24 charge relating tothe defined benefit scheme of £2.5m (included in administrative expenses) andreplacing it with the IFRS pension charge of £1.3m. This charge is splitbetween a current service cost of £1.6m (included in administrative expenses),expected return on plan assets of £5.2m (included in finance income) andinterest cost of £4.9m (included in finance costs). An adjustment of £0.4mrelated to the tax affect of this adjustment. 3.4 Goodwill amortisation Under UK GAAP, goodwill arising on acquisitions subsequent to 1 January 1998 wascapitalised and amortised over a period of up to 20 years. Under IFRS, goodwillis held at its carrying value (the UK GAAP net book value as at 31 December2003) and subjected to annual impairment testing. The goodwill amortisationcharge of £0.1m for 2004 under UK GAAP has been reversed for IFRS purposes. 3.5 Dividends Under UK GAAP, any dividends paid or proposed in respect of a year arerecognised in the income statement. Under IFRS, dividends are recognised asdistributions from equity when declared. Dividends of £4.0m, paid and proposedin 2004, have been excluded from the income statement under IFRS. 3.6 Share of profits of associates and joint ventures Under UK GAAP, the share of profits is shown before tax of £0.2m which isincluded in the taxation charge. Under IFRS, the share of profits is reportedafter tax with no amount in the taxation charge. 4. Group Balance Sheet Non-current Assets UK GAAP Adjustment IFRS Notes 2004 2004 2004 (see below) £m £m £m Property, plant and equipment 6.6 (0.4) 6.2 4.1Goodwill 5.5 0.1 5.6 4.2Investments in associates and joint 0.8 - 0.8venturesTrade and other receivables 0.3 0.4 0.7 4.1Financial assets 0.7 - 0.7Deferred tax assets - 3.1 3.1 4.3 13.9 3.2 17.1 Current AssetsTrade and other receivables 17.7 (0.7) 17.0 4.3Cash and cash equivalents 44.1 - 44.1 61.8 (0.7) 61.1 Current LiabilitiesInterest bearing loans (1.5) - (1.5) and borrowingsTrade payables (4.2) - (4.2)Other payables (30.3) - (30.3)Income tax payable (4.7) - (4.7)Deferred taxation - (0.2) (0.2) 4.3Proposed dividends (2.6) 2.6 - 4.4 (43.3) 2.4 (40.9) Net Current Assets 18.5 1.7 20.2 32.4 4.9 37.3 Non-current LiabilitiesInterest bearing loans (0.3) - (0.3) and borrowingsTrade payables (0.1) - (0.1)Provisions (0.9) - (0.9)Employee benefits - (7.9) (7.9) 4.5 (1.3) (7.9) (9.2) Net Assets 31.1 (3.0) 28.1 Capital and ReservesShare capital 4.1 - 4.1Share premium 4.5 - 4.5ESOP reserves (0.4) - (0.4)Capital redemption reserve 2.0 - 2.0Profit and loss 19.7 (2.6) 17.1 4.6Other reserves - (0.4) (0.4) 4.6 29.9 (3.0) 26.9 Minority Interests 1.2 - 1.2 Total Equity 31.1 (3.0) 28.1 4.1 Lease premium Under UK GAAP a lease premium amounting to £0.4m was capitalised as part ofleasehold improvements. Under IAS 17 'Leases' this premium is now classified asa prepayment and will continue to be amortised over the lease term. 4.2 Goodwill amortisation Under UK GAAP, goodwill arising on acquisitions subsequent to 1 January 1998 wascapitalised and amortised over a period of up to 20 years. Under IFRS, goodwillis held at its carrying value (the UK GAAP net book value as at 31 December2003) and subjected to annual impairment testing. Hence the goodwillamortisation charge of £0.1m has been reversed, leading to an equivalentincrease in the goodwill value on the balance sheet at the end of 2004 underIFRS. 4.3 Deferred tax IFRS changes the focus of deferred tax from the income statement to the balancesheet and to the differences between the book value and tax base of assets andliabilities. Under IFRS, deferred tax is provided on all temporary differences. Deferred tax assets are only recognised to the extent that they may beregarded as recoverable. The Group has recognised a net increase in deferredtax assets of £2.4m relating to the pension fund deficit (see 4.5 below).Furthermore an adjustment of £0.7m of deferred tax previously recorded in tradeand other receivables under UK GAAP is now shown as a non-current asset. Under IFRS, a temporary difference arises on unremitted distributable earningsof overseas subsidiaries if it is probable that these funds will be remitted inthe foreseeable future. As a result, the deferred tax liability has increasedby £0.2m. 4.4 Dividends Under UK GAAP, any dividend proposed in respect of a year is recognised in theincome statement and provided for in the closing balance sheet. Under IFRS, adeclared dividend does not constitute an adjusting post balance sheet event.Hence, the provision for the final dividend of £2.6m at the end of 2004 under UKGAAP has been reversed under IFRS. 4.5 Employee benefits As indicated in 3.3 above, employee benefit obligations are recorded inaccordance with IAS 19. This has resulted in incorporating a £7.9m net deficitas at 31 December 2004 onto the balance sheet. Subsequent to the year end thecompany made a contribution of £10.0m into the scheme. 4.6 Reserves The profit and loss account is adjusted to: • add back the goodwill previously written off under UK GAAP of £0.1m • add back the final proposed dividend for 2004 £2.6m • incorporate the pension fund deficit of £7.9m and related deferred tax asset £2.4m. • transfer foreign exchange losses to a translation reserve £0.4m relating to differences arising on the consolidation of foreign operations. • incorporate an additional deferred tax charge of £0.2m on unremitted overseas dividends. As noted in 10.3 under the IFRS 1 exemptions, the cumulative translationdifferences have been set to zero at the transition date. The closing balance of£0.4m represents the amount arising in 2004. 5. Group Cash Flow Statement Under IAS 7 'Cash Flow Statements' the company is required to analyse themovements in cash and cash equivalents. Under UK GAAP, the company presentedinformation on the movement in cash balances, without taking into accountdeposits. Underlying cash flows are unaffected by this change in presentation. UK GAAP Adjustment IFRS Notes 2004 2004 2004 (see below) £m £m £m Cash flows from 19.6 - 19.6 5.1 operating activitiesCash flows from (2.6) - (2.6) 5.2 investing activitiesCash flows from (4.0) - (4.0) 5.3 financing activitiesIncrease in cash 13.0 - 13.0 5.4 and cash equivalents 5.1 Taxation paid of £4.7m under UK GAAP was shown separately on the face of thecash flow statement and is deducted from the £24.3m previously shown as net cashinflow from operating activities. These are now shown combined as cash flowsfrom operating activities. 5.2 Under UK GAAP investing activities were shown separately as: • dividends from associates of £0.2m • plus returns on investments and servicing of finance of £2.0m • less capital expenditure and financial investment of £1.5m • less acquisitions and disposals of £3.3m 5.3 Under UK GAAP financing activities were shown as: • equity dividends paid of £3.1m • financing of £0.9m 5.4 UK GAAP specifically excluded monies held on deposit from the face of thecash flow statement and any movements between short-term cash holdings and suchdeposits were shown in 'Management of Liquid Resources' as £7.4m. Under IAS 7,deposits are considered to be cash equivalents and are included on thestatement. 6. Statement of Recognised Income and Expense (SORIE) Under IAS 1 'Presentation of Financial Statements' the company is required toproduce a Statement of Changes in Equity (SOCIE). However, because the Group isusing the amendment to IAS 19 to record the actuarial gains and losses on theemployee benefit obligation, this statement of changes in equity should be shownas a SORIE with other changes in equity being shown in the accounts. The SORIEreplaces the UK GAAP equivalent of the statement of total recognised gains andlosses. UK GAAP Adjustment IFRS Notes 2004 2004 2004 (see below) £m £m £m Net actuarial gains / losses on - 2.6 2.6 6.2employee benefit obligationForeign exchange differences (1.0) 0.6 (0.4) 6.3Recognised directly in equity (1.0) 3.2 2.2 Profit for the period 13.7 0.3 14.0 6.1 Total recognised income and expense 12.7 3.5 16.2 Attributable toEquity holders of the parent 12.4 3.5 15.9Minority interests 0.3 - 0.3 12.7 3.5 16.2 6.1 The profit adjustment comprises: • A net after tax foreign exchange loss of £0.6m - see 3.2 above • A net after tax employee benefit adjustment under IAS 19 of £0.8m - see 3.3 above • A goodwill write back of £0.1m - see 3.4 above 6.2 Represents the net actuarial gain on the employee benefit obligations in2004 of £2.6m. 6.3 The foreign exchange differences are now split between those shown throughthe income statement of £0.6m (see 3.2 above) and the £0.4m still shown throughthe SORIE (see 4.6 above). 7. Reconciliation of Equity by Component of Equity 7.1 As at 1 January 2004 UK GAAP Adjustment IFRS Notes 01.01.2004 01.01.2004 01.01.2004 (see below) £m £m £m Share capital 4.0 - 4.0Share premium 4.1 - 4.1Capital redemption reserve 2.0 - 2.0ESOP reserve (0.5) - (0.5)Profit and loss 11.3 (7.4) 3.9 7.1.1 20.9 (7.4) 13.5Minority interests 0.9 - 0.9 Total Equity 21.8 (7.4) 14.4 7.1.1 The profit and loss account is adjusted to: • add back the final proposed dividend for 2003 of £1.7m • incorporate the employee benefit deficit of £12.7m and related deferred tax balance of £3.8m. • incorporate an additional deferred tax charge of £0.2m on unremitted overseas dividends. 7.2 As at 31 December 2004 UK GAAP Adjustment IFRS Notes 31.12.2004 31.12.2004 31.12.2004 (see below) £m £m £m Share capital 4.1 - 4.1Share premium 4.5 - 4.5Capital redemption reserve 2.0 - 2.0ESOP reserve (0.4) - (0.4)Profit and loss 19.7 (2.6) 17.1 7.2.1Translation reserve - (0.4) (0.4) 7.2.1 29.9 (3.0) 26.9Minority interests 1.2 - 1.2 Total Equity 31.1 (3.0) 28.1 7.2.1 The profit and loss account is adjusted to: • add back the goodwill previously written off under UK GAAP of £0.1m • add back the final proposed dividend for 2004 £2.6m • incorporate the employee benefit deficit of £7.9m and related deferred tax asset £2.4m. • transfer foreign exchange losses to a translation reserve £0.4m • incorporate the additional deferred tax charge of £0.2m on unremitted overseas dividends. 8. Segmental Analysis Under IFRS, segmental analysis is presented according to primary segments andsecondary segments. The Group's primary segmental analysis will be based on thetwo classes of business it provides: shipping services and shipping logistics.The secondary analysis will be presented according to geographic marketscomprising UK, Americas and the Rest of the World. This is consistent with theway the Group manages itself and with the format of the Group's internalfinancial reporting. 8.1 Segment revenue UK GAAP Adjustment IFRS Notes 2004 2004 2004 (see below) £m £m £m Shipping services 82.4 - 82.4Shipping logistics 5.0 - 5.0 87.4 - 87.4 UK 67.7 - 67.7Americas 2.0 - 2.0Rest of World 17.7 - 17.7 87.4 - 87.4 There are no adjustments between UK GAAP and IFRS. 8.2 Segment result UK GAAP Adjustment IFRS Notes 2004 2004 2004 (see below) £m £m £m Shipping services 22.2 0.5 22.7 8.2.1, 8.2.4Shipping logistics (2.0) (0.3) (2.3) 8.2.2 20.2 0.2 20.4 UK 13.8 0.3 14.1 8.2.3, 8.2.4Americas 0.4 - 0.4Rest of World 6.0 (0.1) 5.9 8.2.4 20.2 0.2 20.4 8.2.1 The services result adjustment comprises: • A foreign exchange loss of £0.6m • A net employee benefit gain under IAS 19 of £1.2m - see 3.3 above • A goodwill write back of £0.1m - see 3.4 above 8.2.2 The logistics result adjustment comprises a £0.3m foreign exchange loss. 8.2.3 The UK result adjustment comprises: • A foreign exchange loss of £0.9m - see 3.2 above • A net employee benefit gain under IAS 19 of £1.2m - see 3.3 above • A goodwill write back of £0.1m - see 3.4 above 8.2.4 Adjustments to deduct the tax relating to the share of profits ofassociates and joint ventures amount to £0.1m (UK shipping services), £0.1m(Rest of World shipping services) - see 3.6 above. 8.3 Segment net assets UK GAAP Adjustment IFRS Notes 2004 2004 2004 (see below) £m £m £m Shipping services 30.7 (3.0) 27.7 8.3.1Shipping logistics 0.4 - 0.4 31.1 (3.0) 28.1 UK 23.4 (3.0) 20.4 8.3.1Americas 0.1 - 0.1Rest of World 7.6 - 7.6 31.1 (3.0) 28.1 8.3.1 The services and UK net assets adjustment comprises: • Goodwill of £0.1m added back - see 4.2 above • Proposed dividends of £2.6m added back - see 4.4 above • Less after-tax employee benefit deficit of £5.5m - see 4.3 and 4.5 above • Increase in deferred tax liability of £0.2m - see 4.3 above 9. Earnings Per Share - Basic and Diluted Earnings EPSAs at 31 December 2004 £m Pence per share Attributable to shareholders under UK GAAP 13.4 83.8Goodwill adjustment 0.1 0.6Employee benefit adjustment (net) 0.8 5.0Foreign exchange differences (0.6) (3.7)Attributable to shareholders under IFRS 13.7 85.7 10. IFRS 1 Exemptions Clarkson PLC has taken the following exemptions, as permitted by IFRS 1, in thetransition to IFRS. 10.1 Business combinations The accounting for acquisitions that occurred prior to the transition date of 1January 2004 has not been restated. 10.2 Employee benefits All cumulative actuarial gains and losses have been recognised in equity at thetransition date. Under IAS 19 the Group intends to early adopt an amendmentpermitting the full recognition of actuarial gains and losses on an annual basisvia the statement of recognised income and expense. 10.3 Cumulative translation differences Cumulative translation differences have been reset to zero at the transitiondate. 10.4 Tangible fixed assets The Group has chosen not to restate property, plant and equipment to fair valueat the date of transition. These are carried at historic cost which has beentaken as the effective cost for IFRS purposes. 10.5 Financial instruments The Group has taken the exemption available in IFRS 1 not to restatecomparatives for IAS 32 'Financial Instruments: Disclosure and Presentation' andIAS 39 'Financial Instruments: Recognition and Measurement'. Consequently,information provided in this restatement, and the information that willultimately be presented as comparatives to the 2005 financial statements, willbe presented in accordance with UK GAAP. IAS 32 and IAS 39, which primarily relate to the accounting treatment anddisclosure of financial instruments, will be implemented with effect from 1January 2005. As indicated in the Finance Director's Review in the 2004 AnnualReport, the Group uses forward contracts to hedge transaction exposures. UnderUK GAAP, the Group applied hedge accounting principles supplemented by thedisclosures required by FRS 13 'Financial Instruments'. Under IFRS, the Group expects to continue this approach to hedging currencyexposures. Hedging relationships will be formally documented and it is believedthat hedge accounting will continue to be allowable under IAS 39, subject tomeeting hedge effectiveness testing. As at 31 December 2004, the fair value of forward foreign exchange contracts wasan asset of £0.1m against a book value of nil. The fair value will beincorporated on the balance sheet. The future impact is unpredictable, but itis considered that it is unlikely to be material to an understanding of theGroup's results. 11. Significant Accounting Policies 11.1 Basis of accounting The financial statements will be prepared in accordance with IFRS for the firsttime with effect from 1 January 2005. They will be prepared on the historicalcost basis, except for the derivative financial instruments andavailable-for-sale financial assets that have been measured at fair value. Theprincipal accounting policies expected to be adopted in the preparation of the2005 Group accounts under IFRS are set out below. 11.2 Basis of consolidation The consolidated accounts incorporate the accounts of Clarkson PLC and all itssubsidiary undertakings made up to 31 December each year. Investments in associates and joint ventures are accounted for under the equitymethod of accounting. Investments are carried in the balance sheet at cost pluspost acquisition changes in the Group's share in the net assets of associatesand joint ventures, less any impairment in value. The income statement reflectsthe share of the results of the operations of associates and joint ventures. The interest of minority shareholders is stated at the minority's proportion ofthe value of the assets and liabilities recognised. The results of companies acquired or disposed of during the year are included inthe group from the effective date of acquisition or up to the effective date ofdisposal, as appropriate. Where necessary, adjustments are made to the accounts of subsidiaries to bringthe accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. 11.3 Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities at the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment at leastannually. Any impairment is recognised immediately through the income statementand is not subsequently reversed. On disposal the attributable amount of goodwill will be included in thedetermination of the profit or loss on disposal. Goodwill arising on acquisitions prior to the date of transition to IFRS hasbeen retained at the previous UK GAAP amount subject to being tested forimpairment at that date. Goodwill written off to reserves under UK GAAP prior to1998 has not been reinstated and will not be included in determining anysubsequent profit or loss on disposal. 11.4 Revenue recognition Revenue is recognised to the extent that it is probable that the economicbenefits will flow to the Group and the revenue can be reliably measured. Rendering of services Revenue is recognised on brokerage and commission earnings from shipping relatedactivities invoiced during the year, hire charter earnings, shipowning and otherincome arising from shipping research and consultancy. Invoices are raised whenall material subjects are lifted or in the case of futures contracts, on thesettlement date. Sale of goods Revenue is recognised when products are delivered. Interest Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable. Dividends Dividend income from investments is recognised when the shareholders' legalrights to receive payment have been established. 11.5 Leasing Leases are classified as finance leases whenever the terms of the leasesubstantially transfer all the risks and rewards of ownership to the lessee. Allother leases are classified as operating leases. Rentals payable under operating leases are expensed on a straight-line basisover the term of the relevant lease. Payments made on entering into an operating lease are also spread on astraight-line basis over the lease term. 11.6 Foreign currencies Transactions in currencies other than pounds sterling are recorded at the ratesof exchange prevailing on the date of the transaction. At each balance sheetdate, monetary assets and liabilities that are denominated in foreign currenciesare retranslated at the rates prevailing on the balance sheet date. Gains andlosses arising on retranslation are included in net profit or loss for theperiod, except for exchange differences arising on non-monetary assets andliabilities where the changes in fair value are recognised directly in equity,subject to meeting the requirements under IAS 21 'The Effect of Changes inForeign Exchange Rates'. In order to hedge its exposure to certain foreign exchange risks, the Groupenters into forward contracts (see 11.11 below for details of the Group'saccounting policies in respect of such derivative financial instruments). On consolidation, the assets and liabilities of the Group's overseas operationsare translated at exchange rates prevailing on the balance sheet date. Incomeand expense items are translated at the average exchange rates for the periodunless exchange rates fluctuate significantly. Exchange differences arising, ifany, are classified as equity and transferred to the Group's translationreserve. Such translation differences are recognised as income or expense in theperiod in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. 11.7 Retirement benefit costs Payments to defined contribution retirement schemes are charged as an expense asthey fall due. For the defined benefit retirement scheme, the cost of providing benefits isdetermined using the Projected Unit Credit Method, with full actuarialvaluations being carried out on a triennial basis, and updated at each balancesheet date. Actuarial gains and losses are recognised in full in the period inwhich they occur. They are recognised outside the income statement and arepresented in the statement of recognised income and expense. Past service costs are recognised immediately to the extent that the benefitsare already vested. Otherwise, they are amortised on a straight-line basis overthe period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents thepresent value of the defined benefit obligation as adjusted for unrecognisedpast service costs, and as reduced by the fair value of scheme assets. Any netasset resulting from this calculation is limited to the past service cost plusthe present value of available refunds and reductions in future contributions tothe plan. 11.8 Taxation The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit not the accounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. The carrying value of deferred tax assets is reviewed at each balance sheet dateand reduced to the extent that it is no longer probable that sufficient taxableprofits will be available to allow all or part of the deferred tax asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. 11.9 Property, plant and equipment Land and buildings held for use in the production or supply of goods orservices, or for administrative purposes, are stated in the balance sheet attheir historic cost and tested annually for impairment. Fixtures, plant and equipment are stated at cost less accumulated depreciationand any recognised impairment loss. Depreciation is charged on a straight-line basis over the estimated useful lifeof the asset, and is charged from the time an asset becomes available for itsintended use. Estimated useful lives are as follows: Fleet interests - over the remaining working life to residual scrap value Freehold properties - 60 years Leasehold improvements - over the period of the lease Office furniture and equipment - 4-10 years Motor vehicles - 4 years Estimates of useful lives and residual scrap values (with the exception of fleetinterests, these are assumed to be zero) are assessed annually. 11.10 Impairment of tangible assets and goodwill At each balance sheet date, the Group reviews the carrying amounts of itstangible assets and goodwill on acquisition to determine whether there is anyindication that those assets have suffered an impairment loss. If any suchindication exists, the recoverable amount of the asset is estimated in order todetermine the extent of the impairment loss (if any). Where the asset does notgenerate cash flows that are independent from other assets, the Group estimatesthe recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of the fair value less the costs to selland the value in use. In assessing the value in use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risksspecific to the asset for which the estimates of future cash flows have not beenadjusted. If the recoverable amount of an asset is estimated to be less than its carryingamount, the carrying amount of the asset is reduced to its recoverable amount.An impairment loss is recognised as an expense immediately. For tangible assets, where an impairment loss subsequently reverses, thecarrying amount of the asset is increased to the revised estimate of itsrecoverable amount, but so that the increased carrying amount does not exceedthe carrying amount that would have been determined had no impairment loss beenrecognised for the asset in prior years. A reversal of an impairment loss isrecognised as income immediately. 11.11 Derivative financial instruments and hedging The group has adopted the following accounting policy with effect from 1 January2005 in accordance with IAS 39 'Financial Instruments: Measurement andRecognition". The group's activities expose it primarily to the financial risks of changes inforeign currency exchange rates. The group uses foreign exchange contracts tohedge these exposures. The Group does not use derivative financial instrumentsfor speculative purposes. Changes in the fair value of derivative financial instruments that aredesignated and are effective as a cash flow hedge are recognised directly inequity and the ineffective portion is recognised immediately in the incomestatement. If the cash flow hedge of a firm commitment or forecasted transactionresults in the recognition of an asset or a liability, then, at the time theasset or liability is recognised, the associated gains or losses on thederivative that had previously been recognised in equity are included in theinitial measurement of the asset or liability. For hedges that do not result inthe recognition of an asset or a liability, amounts deferred in equity arerecognised in the income statement in the same period in which the hedged itemaffects net profit or loss. For an effective hedge of an exposure to changes infair value, the hedged item is adjusted for changes in fair value attributableto the risk being hedged with the corresponding entry in the income statement.Gains or losses from re-measuring the derivative are also recognised in theincome statement. If the hedge is effective these entries will offset. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in the income statement as theyarise. Hedge accounting is discontinued when the hedging instrument expires or is sold,terminated, or exercised, or no longer qualifies for hedge accounting. At thattime, any cumulative gain or loss on the hedging instrument recognised in equityis retained in equity until the forecasted transaction occurs. If a hedgedtransaction is no longer expected to occur, the net cumulative gain or lossrecognised in equity is transferred to net profit or loss for the period.Derivatives embedded in other financial instruments or other host contracts aretreated as derivatives when their risks and characteristics are not closelyrelated to those host contracts. The following accounting policy applied for the year ended 31 December 2004 The group used spot and forward foreign currency contracts to reduce exposure tovariations in the US dollar exchange rate. The group considers these foreigncurrency contracts qualify for hedge accounting and gains or losses on theseinstruments are only recognised when the transaction occurs. 11.12 Investments The group has adopted the following accounting policy with effect from 1 January2005 in accordance with IAS 39 'Financial Instruments: Measurement andRecognition". All investments are initially recognised at the fair value of the considerationgiven and including acquisition charges associated with the investment. After initial recognition, investments, which are classified asavailable-for-sale, are measured at fair value. Gains or losses onavailable-for-sale investments are recognised as a separate component of equityuntil the investment is sold, at which time the cumulative gain or losspreviously reported in equity is included in the income statement. The following accounting policy applied for the year ended 31 December 2004 All the group's investments are for the long term and are treated as fixedassets. Investments are included in these accounts at cost, less any provisionfor permanent diminution in value. 11.13 Provisions Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of the obligation. 11.14 Segmental analysis The Group's primary segmental analysis is based on the two classes of businessit provides: shipping services and shipping logistics. The secondary analysiswill be presented according to geographic markets comprising UK, Americas andthe Rest of the World. This is consistent with the way the Group manages itselfand with the format of the Group's internal financial reporting. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Clarkson