5th Sep 2007 07:01
Clarkson PLC05 September 2007 5 September 2007 CLARKSON PLC UNAUDITED INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 JUNE 2007 Clarkson PLC ('Clarksons') is the world's leading shipping services group. It has 15 offices on five continents whose services and expertise facilitate the efficient functioning of global seaborne trade. Highlights • Revenue up 53% to US$144.7 million (2006: US$94.7 million); sterling equivalent reported revenue up 39% to £73.2 million (2006: £52.6 million); • Operating profit on continuing operations up 41% to £9.6 million (2006: £6.8 million) despite the legal costs associated with defending the Russian legal cases of £1.4 million; • Profit before taxation on continuing operations up 32% to £12.3 million (2006: £9.3 million); • Earnings per share on continuing operations up 26% to 47.3p (2006: 37.5p); • Interim dividend up 17% to 14.0p (2006: 12.0p); • Integration of businesses and teams acquired in 2006 complete and delivering strong results; • Three acquisitions completed to expand and strengthen specific areas of the business: Cofimar SA (France), LNG Shipping Solutions (UK) and Normarine Offshore Consultants (US). Tim Harris, Chairman said: "The result for the first half was encouraging andreflected both a strong shipping market and the benefits which are now comingthrough from the acquisition of businesses and teams in key business lines. This solid first half result establishes a good platform for the full year." Richard Fulford-Smith, Chief Executive Officer of Clarksons commented: "We areoptimistic that 2007 will prove to be a strong year for Clarksons. As a resultof our strategy to increase the spread of our global businesses and the strengthof our forward order book, we are confident that despite turbulence in financialmarkets in August, we should produce full year profits in line with managementexpectations and continue to grow our position as the world's leading shippingservices group." Enquiries: Clarkson PLC 020 7334 0000Richard Fulford-Smith, Chief ExecutiveJeff Woyda, Finance Director Hudson Sandler 020 7796 4133Jessica Rouleau Chairman's statement The result for the first half was encouraging and reflected both a strongshipping market and the benefits which are now coming through from theacquisition of businesses and teams in key business lines. This solid firsthalf result establishes a good platform for the full year. Particularly good results were achieved across the board in shipbroking and weare enthused by the growth and performance of our fund management business.Improved profitability was achieved despite a weak dollar and the costsof Russian legal suits. As the world's leading shipping services group, our increasing spread of globalactivities will enable us to maximise future benefits from the massive and fastgrowing business that world shipping is today. Tim HarrisChairman5 September 2007 Chief Executive's report Results Underlying US dollar revenue increased 53% to US$144.7 million (2006: US$94.7million). The average sterling exchange rate in the first half of 2007 wasUS$1.98 compared to US$1.80 for the corresponding period of 2006. Therefore,sterling equivalent revenue reported increased 39% to £73.2 million (2006: £52.6million). Operating profit on continuing operations has improved 41% to £9.6 million(2006: £6.8 million) despite a £2.6 million increase in one-off expenses and theeffects of further weakening of the US dollar. The additional expenses relateto the initial acquisition costs of new teams (£1.2 million) and legal costsincurred during the period on the Russian shipping cases (£1.4 million). Duringthe second half, we will incur the remainder of the one-off consideration forteam acquisitions (£1.2 million) and we will continue to incur legal costs at asimilar level. Clarksons will continue to defend its position strongly in boththe Sovcomflot and Novoship cases. Our view of these proceedings is that bothcases are about litigation between powerful Russian factions in which Clarksonsand others have been caught up as a third party. Profit before taxation on continuing operations improved by 32% to £12.3 million(2006: £9.3 million). Basic earnings per share on continuing operations were47.3 pence per share (2006: 37.5 pence per share). Cash and dividends The business continues to be strongly cash generative and ended the first halfwith cash balances of £62.6 million (2006: £37.2 million). The Board isrecommending an interim dividend of 14.0 pence per share (2006: 12.0 pence pershare), an increase of over 16%. This is covered three times by dilutedearnings and is consistent with our progressive dividend policy. The dividendwill be paid on 28 September to shareholders on the register at the close ofbusiness on 14 September. Operational review The shipping industry has delivered stellar performance over the last few years,richly rewarding shipowners with unprecedented, largely Asian-sponsored, growth.It seems unlikely that the overall growth trend will end in the next year,albeit freight rates can be vulnerable where demand for ships fails to matchfleet build-up, causing an imbalance in demand and supply. Although not severe, the tanker and gas sectors were weaker in the first half, as predicted by our research analysts, who are also concerned over the build-up of shipbuilding capacity by 2011. Against this backdrop, Clarksons has consistently invested in the development ofits base of business. The company is committed to further growth and enhancementin the provision of both corporate and sector research through Clarkson ResearchServices, which has long been a market leader in the provision of shipping dataand related publications. The knowledge, data and market intelligenceaccumulated through our Research Services underscores our pre-qualification to operate in investor advisory services where we plan to have an increased presence through acquisition and organic growth. Your company remains committed to manageably growing in line with the increasedscale of the industry and the resultant matching growth in demand for ourknowledge-based global services across all segments. Diversification hasstarted to spread our earnings base to ensure that we are not over-reliant onany one segment. Exceptionally strong and continuously growing dry bulk freight markets combinedwith expanded market share in weaker gas/tanker segments created very decentmargins across our diverse physical and derivative freight broking activities. First half revenues in dry cargo chartering rose to US$39.9 million / £20.2million (2006: US$23.0 million / £12.8 million), with profit before taxincreasing by 145% to £4.9 million (2006: £2.0 million). This uplift was largelyattributed to a very strong freight market which also assisted our derivativesdesk which reported record revenue of US$9.5 million / £4.8 million (2006:US$6.5 million / £3.6 million) with a profit before tax of £1.2 million (2006:£0.8 million). With tanker and gas markets weaker, but our market sharestronger, our revenues were steady in both tankers at US$23.7 million / £12.0million (2006: US$21.6 million / £12.0 million) and gas chartering at US$5.1million / £2.6 million (2006: US$4.7 million / £2.6 million). Our investment in fund management and our acquisition of leading Sale andPurchase specialists and legal and technical services staff are already bearingfruit. Sale and Purchase/New Building revenues were significantly up in the first half of 2007 to US$29.7 million / £15.0 million (2006: US$17.3 million / £9.6 million) and profit before tax has more than doubled to £3.5 million (2006: £1.7 million) as a consequence. As at 31 July there was US$83.6 million under management in the ClarksonShipping Hedge Fund (31 December 2006: US$40.2 million). Investors in our hedgefund have been rewarded with significant returns of 16% in the first six calendar months of 2007 and the fund's performance remains ahead of where it was at the end of June. Acquisitions During the half, we continued to make acquisitions that expand and strengthenspecific areas of our business. In May, we announced the acquisitions ofthe remaining 51% interest in Cofimar SA, a dry cargo broker based in Paris, and the remaining 50% interest in LNG Shipping Solutions. The total combined consideration for these businesses, which are now both 100% owned by Clarksons, was US$4.5 million, of which US$2.5 million was payable in shares. Having now fully integrated these businesses with our broking teams in London, we are already beginning to benefit from the strength of the combined teams. In July, we announced the merger of our Houston operation with NormarineOffshore Consultants, which acts as a broker in the sale and purchase,newbuilding, and charter of mobile offshore drilling units. The totalconsideration of £2.7 million has been satisfied by the issue of shares,admitted to trading on 10 July. Whilst it is still early days, we are confidentthat this acquisition will also benefit the group in the second half. Outlook We are optimistic that 2007 will prove to be a strong year for Clarksons. As aresult of our strategy to increase the spread of our global businesses and thestrength of our forward order book, we are confident that despite turbulence in financial markets in August, we should produce full year profits in line with management expectations and continue to grow our position as the world's leading shipping services group. Richard Fulford-SmithChief Executive5 September 2007 Consolidated income statement Half year to Half year to Year to 30 June 30 June 31 December 2007 2006 2006 £m £m £mRevenue - continuing operations 73.2 52.6 117.7Cost of sales (1.2) - -Trading profit 72.0 52.6 117.7Administrative expenses (62.4) (45.8) (100.6)Operating profit - continuing operations 9.6 6.8 17.1Share of profits of associates and joint ventures 0.3 0.2 0.4Finance revenue 3.5 2.2 4.2Finance costs (1.7) (0.5) (1.7)Other finance revenue - pensions 0.6 0.6 1.1Profit before taxation - continuing operations 12.3 9.3 21.1Taxation (4.0) (3.0) (6.9)Profit for the period - continuing operations 8.3 6.3 14.2Profit for the period from discontinued operations 0.1 1.1 0.6Profit for the period 8.4 7.4 14.8 Attributable to:Equity holders of the parent 8.4 7.4 14.8 Earnings per share Basic - continuing operations 47.3p 37.5p 83.1pDiluted - continuing operations 45.2p 37.2p 80.0pBasic - profit for the period 47.7p 44.2p 86.6pDiluted - profit for the period 45.6p 43.8p 83.4p Consolidated statement of recognised income and expense Half year to Half year to Year to 30 June 30 June 31 December 2007 2006 2006 £m £m £mActuarial gain on employee benefit schemes - net of tax 3.4 5.9 4.3Foreign exchange differences on retranslation of foreign operations (0.4) (1.4) (2.4)Total recognised directly in equity 3.0 4.5 1.9Profit for the period 8.4 7.4 14.8Total recognised income and expense 11.4 11.9 16.7 Attributable to:Equity holders of the parent 11.4 11.9 16.7 Consolidated balance sheet 30 June 30 June 31 December 2007 2006 2006 £m £m £m Non-current assetsProperty, plant and equipment 19.1 20.7 20.1Investment property 0.4 0.4 0.4Intangible assets 45.1 35.3 42.4Investments in associates and joint ventures 1.5 1.0 2.6Trade and other receivables 0.5 0.7 0.4Investments 15.8 15.7 14.0Employee benefits 12.9 8.7 7.1Deferred tax asset 3.4 2.5 3.7 98.7 85.0 90.7Current assetsTrade and other receivables 35.6 26.8 30.5Cash and short-term deposits 62.6 37.2 74.8Income tax receivable 0.5 - 0.6 98.7 64.0 105.9Current liabilitiesInterest-bearing loans and borrowings (0.8) (0.7) (0.9)Trade and other payables (55.1) (39.6) (66.6)Provisions (0.3) (1.7) (0.6)Income tax payable (2.4) (3.0) (2.0) (58.6) (45.0) (70.1)Net current assets 40.1 19.0 35.8Non-current liabilitiesInterest-bearing loans and borrowings (51.1) (32.4) (50.9)Trade and other payables (4.8) (5.0) (5.0)Provisions (0.6) (0.3) (0.5)Deferred tax liability (6.9) (4.7) (4.7) (63.4) (42.4) (61.1)Net assets 75.4 61.6 65.4 Issued share capital 4.6 4.5 4.5Share premium 21.9 17.5 20.7ESOP reserve (2.1) (1.4) (3.7)Deferred share consideration 0.9 1.1 1.1Capital redemption reserve 2.0 2.0 2.0Profit and loss 49.8 38.2 42.1Currency translation reserve (1.7) (0.3) (1.3)Clarkson PLC group shareholders' equity 75.4 61.6 65.4 Consolidated cash flow statement Half year to Half year to Year to 30 June 30 June 31 December 2007 2006 2006 £m £m £mCash flows from operating activitiesOperating profit 9.6 6.8 17.1Adjustments for:Profit before tax from discontinued operations 0.1 1.1 0.4Depreciation and amortisation 2.0 1.3 2.6Profit on sale of investments (0.2) - -Impairment of goodwill - - 0.5Difference between ordinary pension contributions paid and amount recognised (0.2) (0.1) (0.4)in the income statement 11.3 9.1 20.2(Increase) / decrease in trade and other receivables (5.0) 1.7 (2.4)Decrease in bonus accrual (5.7) (22.3) (9.4)(Decrease)/increase in trade and other payables (0.7) 3.8 13.0Decrease in provisions (0.2) (2.1) (3.0)Cash (utilised) / generated from operations (0.3) (9.8) 18.4Income tax paid (3.0) (4.9) (8.3)Interest paid (1.7) (0.5) (1.7)Net cash flow from operating activities (5.0) (15.2) 8.4 Cash flows from investing activitiesInterest received 1.6 0.9 1.7Purchase of property, plant and equipment (0.6) (1.5) (2.2)Proceeds from sale of investments 0.2 - -Proceeds from sale of property, plant and equipment 0.1 0.1 0.1Purchase of investments (0.2) (16.5) (11.2)Special contributions to pension schemes - (6.7) (6.7)Investment in associates and joint ventures (0.4) (0.1) (0.7)Acquisition of subsidiaries and businesses, net of cash acquired 0.4 (0.9) (5.5)Dividends received from associates and joint ventures 0.5 0.3 0.3Dividends received from investments 0.2 1.3 1.8Net cash flow from investing activities 1.8 (23.1) (22.4) Cash flows from financing activitiesDividends paid (4.3) (3.8) (5.7)Proceeds from borrowings 0.7 25.5 44.8Repayment of borrowings (0.6) - (1.2)ESOP shares acquired (4.6) - (3.1)Net cash flow from financing activities (8.8) 21.7 34.8 Net (decrease) / increase in cash and cash equivalents (12.0) (16.6) 20.8Cash and cash equivalents at start of period 74.8 55.1 55.1Net foreign exchange differences (0.2) (1.3) (1.1)Cash and cash equivalents at end of period 62.6 37.2 74.8 Notes to the interim financial report 1. Basis of preparation and accounting policies The interim financial report has been prepared using the same accountingpolicies and bases as those followed in the preparation of the group's annualfinancial statements for the year ended 31 December 2006. The group has notapplied IAS 34, 'Interim Financial Reporting', which is not mandatory for UKgroups, in the preparation of these interim financial statements. 2. Segmental information Revenue Results Half year to Half year to Year to Half year to Half year to Year to 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 2006 £m £m £m £m £m £mContinuing operationsDry bulk chartering 20.2 12.8 28.6 4.9 2.0 6.0Container chartering 1.8 1.4 2.9 0.4 0.3 0.6Deep sea chartering 12.0 12.0 24.3 2.8 2.8 5.7Specialised products chartering 6.3 4.3 10.5 1.0 0.6 1.9Gas chartering 2.6 2.6 5.5 0.4 0.6 1.3Sale and purchase broking 15.0 9.6 20.6 3.5 1.7 3.5Futures broking 4.8 3.6 9.0 1.2 0.8 2.5Research services 3.0 2.9 5.2 0.8 0.8 1.0Logistics 1.3 1.2 2.4 (0.6) (0.4) (1.2)Fund management 1.4 0.1 0.5 0.3 (0.6) -Financial and technical services 1.2 - 2.3 (0.5) (0.2) 0.7Property services 3.2 3.1 6.2 0.5 0.3 0.9Port and agency services 1.7 - 1.9 0.1 - 0.2 74.5 53.6 119.9Less property services revenue (1.3) (1.0) (2.2)arising within the groupSegment revenue/results 73.2 52.6 117.7 14.8 8.7 23.1Head office costs and foreign (5.2) (1.9) (6.0)exchange differencesShare of profits of associates and 0.3 0.2 0.4joint venturesFinance revenue 3.5 2.2 4.2Finance costs (1.7) (0.5) (1.7)Other finance revenue - pensions 0.6 0.6 1.1Profit before taxation 12.3 9.3 21.1Taxation (4.0) (3.0) (6.9)Profit after taxation 8.3 6.3 14.2 The share of profit of associates and joint ventures is as follows: Half year to Half year to Year to 30 June 30 June 31 December 2007 2006 2006 £m £m £mDry bulk chartering - - 0.1Gas chartering 0.1 - -Sale and purchase broking - 0.2 0.3Financial and technical services 0.2 - - 0.3 0.2 0.4 3. Taxation The taxation charge is calculated by applying the directors' best estimate ofthe annual effective tax rate to the profit for the period. 4. Earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing data: Half year to Half year to Year to 31 30 June 30 June December 2007 2006 2006 £m £m £mEarnings - continuing operations 8.3 6.3 14.2Profit for the period 8.4 7.4 14.8 Million Million MillionWeighted average number of ordinary shares 17.6 16.8 17.1Diluted weighted average number of ordinary shares 18.4 16.9 17.8 5. Intangible assets In May 2007 the group acquired the controlling 51% interest in Cofimar SA ('Cofimar'). Cofimar provides dry bulk chartering services in Paris. The grouporiginally acquired 49% of Cofimar in 2001. Also in May 2007 the group completed the acquisition of the other 50%shareholding in LNG Shipping Solutions Limited ('LNGSS'). LNGSS predominantlyserves liquefied natural gas. The group subscribed for 50% of LNGSS in 2001. The book and provisional fair values of the identifiable assets and liabilitiesof Cofimar and LNGSS at the date of acquisition were as follows: Cofimar LNGSS Book value Fair value Book value Fair value £m £m £m £mInvestments 0.1 0.1 - -Trade receivables 0.1 0.1 - -Other receivables - - 0.1 0.1Cash and short-term deposits 0.3 0.3 1.4 1.4 0.5 0.5 1.5 1.5Trade and other payables (0.4) (0.4) (0.8) (0.8)Taxation - - (0.4) (0.4) (0.4) (0.4) (1.2) (1.2) 0.1 - 0.3 -Fair value of net assets 0.1 0.3Share of assets at date of original acquisition 0.3 -Accumulated share of reserves - (0.1)Goodwill arising on acquisitions 2.2 0.9 2.6 1.1 Cofimar LNGSS Total £m £m £mDischarged by:Cash - 1.1 1.1Fair value of shares issued 1.3 - 1.3Costs associated with acquisition, settled in cash 0.2 - 0.2Consideration previously paid in 2001 1.1 - 1.1 2.6 1.1 3.7 6. Employee benefits The company operates two defined benefit schemes: the Clarkson main scheme ('Clarkson scheme') and the JO Plowright scheme ('JOP scheme'). As at 30 June 2007 the Clarkson scheme had a surplus of £12.9 million. Thisamount is included in full on the balance sheet as a non-current asset; thecompany has provided deferred tax on this surplus amounting to £3.9 million.The market value of the assets is £107.0 million and independent actuaries haveassessed the present value of funded obligations at £94.1 million. Also as at 30 June 2007 the JOP scheme had a surplus of £1.4 million. Thissurplus is not included in the balance sheet, as the company is unable to deriveany benefit from this surplus. The market value of the assets is £23.0 millionand independent actuaries have assessed the present value of funded obligationsat £21.6 million. A significant proportion of the improvement in both schemes since the year endhas arisen from the increased discount rate from 5.1% as at 31 December 2006 to5.8% as at 30 June 2007. 7. Analysis of net funds Foreign 31 December exchange 30 June 2006 Reallocation Cash flow differences 2007 £m £m £m £m £mCash and short-term deposits 74.8 - (12.0) (0.2) 62.6Current interest-bearing loans and borrowings (0.9) (0.8) 0.9 - (0.8)Non-current interest-bearing loans and (50.9) 0.8 (1.1) 0.1 (51.1)borrowingsNet funds 23.0 - (12.2) (0.1) 10.7 8. Profit and loss reserve reconciliation Half year to 30 June 2007 £mProfit and loss reserve at start of period 42.1Profit for the period 8.4Actuarial gain on employee benefit schemes - net of tax 3.4Dividend paid in the period (4.3)Deferred share consideration 0.2Profit and loss reserve at end of period 49.8 9. Post balance sheet events In July 2007 the company acquired Normarine Offshore Consultants (USA) ('Normarine'). Details of the book and fair values of the identifiable assets and liabilities of Normarine will be provided in the 2007 annual report. On 2 July 2007, 164,615 ordinary shares were awarded to three directors underthe Clarksons' Long-Term Incentive Plan. These awards vest subject tocontinuing employment and the satisfaction of performance conditions set by theremuneration committee. 10. Contingencies Two separate legal actions have been commenced against H Clarkson & CompanyLimited by the state owned Russian shipping companies, Sovcomflot and Novoship,together with their subsidiaries. The actions relate to the payment of thirdparty commissions on business transacted during the period 2001-2004. The claimsinclude both the third party commissions paid and payable, and the repayment ofcommissions received and receivable by Clarksons which together amount to US$67million. H Clarkson & Company Limited acted throughout on the instructions ofthe client's senior management at the time on which it relied, and will besubmitting its defence during September 2007. Clarksons will strongly defend itsposition in both cases and accordingly no provision has been made in thefinancial statements of the group. 11. Accounts The figures for the six months ended 30 June 2007 and 30 June 2006 are unauditedand do not constitute full accounts within the meaning of Section 240(5) of theCompanies Act 1985. The statutory audited accounts for the year ended 31December 2006 have been delivered to the Registrar of Companies in England andWales. The Auditors' report on these accounts was unqualified and did notcontain statements under Section 237(2) or (3) of the Companies Act 1985. Copies of the interim report will be circulated to all shareholders and willalso be available from the registered office of the company at St. Magnus House,3 Lower Thames Street, London EC3R 6HE. 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