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Baltic Oil Terminals (PAN)

  Print      Mail a friend       Annual reports

Tuesday 26 June, 2012

Baltic Oil Terminals

Final Results

RNS Number : 1172G
Baltic Oil Terminals Plc
26 June 2012
 



BALTIC OIL TERMINALS PLC ("Baltic", "the Company" or "the Group")

 

26 June 2012

 

ANNUAL RESULTS

 

Baltic Oil Terminals plc today announces its audited results for the year ended 31 December 2011.

 

The Company's Annual Report for the year ended 31 December 2011 will shortly be available at www.balticpetroleum.com

 

A printed copy of the Annual Report and a Notice of General Meeting, to be held on 14 August 2012, will be sent to shareholders shortly. 

Enquiries:

Baltic Oil Terminals plc

Tel: +44 (0)20 3145 1909

Richard Healey, Chairman

Tel: +44 (0) 7884 430482 (mobile)

Simon Escott, Chief Executive

Tel: +44 (0)20 3145 1908/9



Westhouse Securities Limited

Tel: +44 (0)20 7601 6100

Richard Johnson

Antonio Bossi

 

 

Chairman's and Chief Executive's statement

 

We are glad to report that 2011 was a better year for your Company after the problems in 2010 and that our programme set up to protect shareholders assets in Russia has continued to progress in line with our expectations as set out at the time of the announcement of the 2010 accounts.

 

We can report that turnover increased to £15.6 million for the year (2010: £6.0m), producing profits after taxation of £4.7m million (2010: £2.4m), reflecting the first full year of operations from Petro Broker International BV ("PBI"), the wholly owned subsidiary that operates fuel oil tanks in Europort Rotterdam and continued contribution from OOO Baltic Top ("Baltic Top").

 

As expected administrative expenses are higher this year mainly due to the one off acquisition costs associated with the purchase of the new terminal, Dan Balt Tank Lager A/S ("Dan Balt") at Aabenraa, Denmark, and also the legal costs required to protect the title and assets of our operations in Kaliningrad, Russia. Whilst these costs are reasonable when viewed against the value of the assets concerned, we analyse these in more detail in the Financial Overview that follows this statement.

 

Overall the Group continues to operate on a cost efficient basis as can be evidenced from the reduction of overheads for PBI, and the tight control that has been exercised over central overheads.

 

PBI made a profit (before management fees) of just over £2.3 million which we view as satisfactory in light of the start-up costs, together with the reduction in the number of incumbent staff, as this is costly in Holland. Baltic Top has performed at maximum capacity and the new General Director, appointed in late 2010, has fully secured this asset for Baltic and completely stabilised the operation in a professional manner.

 

The share of profit from associates of £3.9 million (2010: £3.2m) has been added to the value of our investments in the businesses which are consolidated as associates and are shown on the balance sheet at £19.5 million (2010: £15.6m).  As in the Audit report for 2010, Grant Thornton have issued a disclaimer of opinion on the Rosbunker results and we request shareholders to refer to the relevant section of the Grant Thornton Audit Report.

 

The balance sheet reflects the growth of the Group in the year and the total assets now stand at £44.0 million (2010: £35.7m).

 

The improved 2011 results confirm that the Board's strategy to create a diversified European terminals operation that is stand-alone, but also offers a one-stop shop to both traders and oil companies, is a sound one and based on strong market requirements.

 

The Dan Balt subsidiary was acquired in November 2011 and as a result has had little impact on the trading results. With the acquisition of the terminal, we also took over existing storage contracts that run through to the end of 2012. We will switch these to transhipment by the end of 2012 as a result of which we expect to increase our margins. Furthermore, we have entered into a marketing agreement with Contango Storage of Sweden, who, as tank marketing specialists in Scandinavia, are well placed to promote our business.

 

Subsequent to the year end, we have instigated a fuel optimisation project in Dan Balt, which will allow the terminal to offer clients faster pumping rates and thus lower transhipment throughput fees due to increased efficiency. To fund this project we announced, on 22 May 2012, a placing of new shares to raise £0.95 million before expenses. We are pleased to also note that the Harbour Board of Aabenraa are instigating, subject to government approval, a jetty and draft improvement project that will allow us to handle vessels up to 80,000DWT by 2013.

 

In Rotterdam we plan to expand the PBI business by doubling our tank capacity from 120,000 cubic metres to 240,000 cubic metres. The extra capacity will be used to tranship Gasoil rather than fuel oil. We expect this extra capacity to be on-stream by the end of July 2012 and we consider this to be an exciting opportunity for PBI going forward.

 

This will result in the Group managing or owning 400,000 cubic metres of storage outside of Russia.

 

The Rosbunker terminal has, as in the previous year, been treated as an associated entity in the 2011 report and accounts. The Board is resolute in protecting the Group's assets in Russia,  as has been demonstrated by the court cases and rulings that have been concluded during 2011, and that are continuing during 2012.

 

The former General Director in Kaliningrad, to whom we referred in our 2010 accounts, has been pursued through the Russian courts successfully in civil cases and further proceedings are being considered by the authorities in Kaliningrad. This sends a powerful message in the region.

 

To reflect the business model of expanding  our non-Russian assets, your Management proposes, subject to shareholder approval, to change the name of the Company to Pan European Terminals PLC. We will be seeking shareholder approval for the change of name at the forthcoming General Meeting to approve these accounts.

 

In summary, continuing the hard work of 2010, that was mainly concentrated on addressing the issues in Russia, the Group has shown in 2011 that growth outside Russia is viable and that with the acquisition of Dan Balt, we can expect significant growth in 2012.

 

We also believe that we are now in a position to consider alternatives in dealing with Rosbunker; however, we will ensure that any option taken gives the best value to shareholders: we will not allow ourselves to be rushed into taking any other course of action due to outside pressures.

 

Richard Healey                                                                                                                     Simon Escott

Chairman                                                                                                                               Chief Executive

25 June 2012                                                                                                                        25 June 2012

 

 

Financial Overview

 

Turnover is up to £15.6 million for the 2011 year compared to £6.0 million for 2010. The increase reflects a full year of operations from PBI, our Dutch subsidiary, and also higher sales at Baltic Top. Our other Russian business is an associate, as was the case in 2010, and we are pleased to report that these companies again received clean audit certificates for 2011 from large Russian audit firms.

 

The gross profit on turnover is lower at 27% (2010: 36%) , however this was expected due to lower trading in 2011 together with a lower relative contribution from Baltic Top as a result of the products dealt with, and the customer base, in the region.

 

Included in administration expenses are £608k of non-recurring costs and £650k of overheads from the Dutch business, PBI. Excluding these items gives a fairer comparison to the 2010 results. Within the non-recurring costs are £258k of acquisition costs for Dan Balt in Denmark and a further £191k spent on court actions in Russia to protect our assets there.

 

Overheads in the Dutch business have been cut by 46% since we acquired it, which has contributed to a rise in profitability there.

 

Finance costs include interest on the loan funding used to acquire Dan Balt. This loan of $11.0 million (c £6.8 million) is due for repayment in May 2013 and it is the directors intention to refinance the loan using the Danish Terminal's assets themselves as security. The assets will provide a high level of security for a new lender which, in turn, will help to reduce our cost of borrowing.

 

After taxation, the retained profit for the year is £4.7 million (2010 £2.4 million), which is a good improvement on the 2010 result despite the one-off costs incurred during the year.

 

The one-off costs and interest payments were factors in the net cash outflow from operations in 2011 of £484k. Nevertheless, the Group had cash at bank of £1.6m at the year end which, together with the strong cash flow from Holland and Baltic Top, will adequately fund our future operations. Cash levels and cash flow are monitored daily across the Group's operations and this will continue to be a discipline and focus for management.

 

The investment in Associates includes the result for the year of £3.9m (2010 £3.2m) which, together with the increase in goodwill from subsidiary businesses acquired of £9.7m, has contributed to the total assets figure of £44.0m (2010: £35.7m) at the year end. The Directors have considered the value of all the assets in these accounts and believe these are all reasonably stated as at December 2011. The statement of Financial Position does include the third party borrowings of £6.8m referred to above which were used to purchase the Danish subsidiary.

 

Adrian Simpson

Finance Director

25 June 2012

 

Independent auditor's report to the members of Baltic Oil Terminals plc

 

We were engaged to audit the Group financial statements of Baltic Oil Terminals plc for the year ended 31 December 2011 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of cash flows, the consolidated statement of changes in equity and the related notes. The financial framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Respective responsibilities of directors and auditors

As explained more fully in the Directors' Responsibilities statement set out on page 8, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

 

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

 

Basis for disclaimer of opinion on financial statements

Whilst we have been able to conduct appropriate audit procedures on the following entities:

-     Baltic Oil Terminals plc (as a standalone company),

-     the UK subsidiary entities (see note 26),

-     Petro Broker International B.V,

-     Dan-Balt Tank Lager S/A and;

-     the Russian subsidiary, OOO Baltic Top, (see note below regarding audit procedures)

 

the audit evidence available to us for the Group was limited because we were unable to carry out sufficient audit procedures or obtain sufficient appropriate audit evidence in relation to the financial results of the Group's Russian associated entity ZAO Rosbunker ("Rosbunker"), and the Group's other Russian subsidiary entities (together the "Other Russian Subsidiaries") as listed in Note 26 for the years ended 31 December 2011 and 2010.  

 

The "Other Russian subsidiary entities" referred here exclude OOO Baltic Top for the year ended 31 December 2011, with the exception of the audit of opening balances (and therefore the audit of the 2011 profit and loss account)  given the disclaimer of opinion on the results and financial position of this entity for the year ended 31 December 2010.

 

Rosbunker has been accounted for as an associated entity in the Group financial statements in 2011 and 2010.  Rosbunker contributed £3.9m to Group profits and constituted £19.5m of Group net assets.  The other Russian subsidiaries contributed £0.4m to Group profits and £2.4m to Group net assets. 

 

Further detail is given in the accompanying accounting policies on page 24 and in notes 24 to the financial statements.

 

Significant limitations were placed on the scope of our work due to the lack of availability and inadequate provision of accounting information to support our audit work, and the continuing restrictions over direct access to the Rosbunker premises and therefore the underlying accounting systems. 

 

We have not been able to conduct suitable alternative audit procedures to inform an audit opinion. 

 

The results of Rosbunker have been audited by a Russian registered statutory auditor in accordance with local auditing standards and an unmodified audit opinion has been issued in Russia in respect of this entity.

 

The results of the other Russian subsidiaries have not been audited.

 

Therefore we have not obtained sufficient, appropriate audit evidence concerning the financial position of the Group's other Russian subsidiaries and Rosbunker, and consequently the consolidated results and financial position of Baltic Oil Terminals plc.

 

Disclaimer of opinion on financial statements

Because of the significance of the matter described in the Basis for Disclaimer of Opinion on Financial Statements paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.  Accordingly we do not express an opinion on the financial statements.

 

Opinion on other matter prescribed by the Companies Act 2006

Notwithstanding our disclaimer of an opinion on the view given by the group financial statements, in our opinion the information given in the Group Directors' Report for the financial year for which the group financial statements are prepared is consistent with the group financial statements.

 

Matters on which we are required to report by exception

In respect of the limitation on our work referred to above:

 

-     we have not obtained all the information and explanations that we considered necessary for the purpose of our audit;


We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

 

-     certain disclosures of directors' remuneration specified by law are not made.

 

Other matter

We have reported separately on the parent company financial statements of Baltic Oil Terminals plc for the year ended 31 December 2011. 

 

Philip Westerman                                                                                                                                              

Senior Statutory Auditor

for and on behalf of Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

London

25 June 2012

 

Consolidated income statement

For the year ended 31 December 2011



2011

2010

Notes

£'000

£'000

 

Revenue

6

15,550

6,020

Cost of sales

(10,878)

(3,880)

Gross profit


4,672

2,140

Administrative expenses

(3,383)

(1,924)

 

Operating profit before taxation and finance items

7

1,289

216

Share of profits of associates

24

3,944

3,164

Loss on disposal of investment


-

(947)

Finance income

10

47

18

Finance costs

10

(232)

(36)

Profit before taxation


5,048

2,415

Taxation

11

(323)

(18)


4,725

2,397

Attributable to:




Equity shareholders of the Company

4,725

2,397


4,725

2,397

Earnings per share attributable to equity shareholders of the Company:




Basic and diluted

12

5.01p

3.78p





 

Consolidated statement of comprehensive income

For the year ended 31 December 2011




2011

2010

£'000

£'000

Profit after tax



4,725

2,397

Other comprehensive income

Exchange differences on translating foreign operations

(664)

216

Other comprehensive income for the year, net of tax



(664)

216

Total comprehensive income for the year attributable to equity shareholders



4,061

2,613



4,061

2,613






 

Consolidated statement of financial position

As at 31 December 2011



2011

2010

Notes

£'000

£'000

Non current assets




Intangible assets

13

-

1

Property, plant and equipment

14

6,911

3,461

Investments in associates

24

19,508

15,564

Goodwill

13

11,598

4,483



38,017

23,509

Current assets




Inventories

15

198

100

Trade and other receivables

16

3,613

7,421

Prepayments and other current assets

17

521

2,740

Cash and cash equivalents

18

1,614

1,899



5,946

12,160






43,963

35,669

Share capital

19

945

936

Share premium

19

49,600

49,351

Other reserves - Equity - foreign exchange reserves

(1,218)

(554)

Retained losses

(15,043)

(19,768)

Total equity


34,284

29,965

Non current liabilities




Borrowings

22

6,792

-

Deferred tax liability

11

526

72



7,318

72

Current liabilities




Trade and other payables

20

2,188

5,295

Borrowings

21

173

337



2,361

5,632

Total liabilities


9,679

5,704

TOTAL EQUITY AND LIABILITIES


 43,963

35,669





 

Consolidated cash flow statement

For the year ended 31 December 2011



2011

2010

Notes

£'000

£'000

Cash flows from operating activities




Profit before taxation

5,048

2,415

Adjustments to reconcile profit before taxation to net cash ouflows from operating activities




Share of profits of associates

(3,944)

(3,164)

Finance costs

185

(36)

Foreign exchange gain

(541)

(241)

Depreciation of property, plant and equipment

179

178

Amortisation of intangible assets

1

1

Loss on disposal of property, plant and equipment

18

-

(Increase)/Decrease in inventories

(98)

132

Decrease/(Increase) in trade and other receivables

(349)

(2,371)

(Decrease)/Increase in trade and other payables

(779)

708

Cash outflow from operations

(280)

(2,378)

Income taxes paid

(12)

(43)

Interest paid

(192)

(36)

Net cash outflow from operating activities


(484)

(2,457)

Cash flows from investing activities




Interest received

47

18

Purchase of property, plant and equipment

(60)

(51)

Purchase of subsidiary, gross of cash acquired

(6,550)

(7,012)

Cash acquired as part of purchase of subsidiary

174

1,714

Net cash outflows from investing activities


(6,389)

(5,331)

Cash flows from financing activities




Proceeds from shares issued net of issue costs

-

9,157

Proceeds from borrowings

6,792

111

Repayment of borrowings

(204)

-

Net cash inflows from financing activities


6,588

9,268

(Decrease)/increase in cash and cash equivalents


(285)

1,480

Cash and cash equivalents at beginning of year

1,899

232

Effect of exchange rate on cash and cash equivalents

-

187

Cash and cash equivalents at end of year


1,614

1,899





 

 

Consolidated statement of changes in equity

For the year ended 31 December 2011



  Attributable to equity shareholders of the parent



 Share capital

 Share premium

 Foreign currency translation adjustment

 Retained losses

 Total equity

 £'000

 £'000

 £'000

 £'000

 £'000

At 1 January 2010

571

40,559

(770)

(22,165)

18,195

Exchange differences on translating foreign operations

-

-

216

-

216

Profit for the year

-

-

-

2,397

2,397

Total comprehensive income for the year

-

-

216

2,397

2,613

Shares issued during the year

365

8,792

-

-

9,157

At 31 December 2010 and 1 January 2011

936

49,351

(554)

(19,768)

29,965

Exchange differences on translating foreign operations

-

-

(664)

-

(664)

Profit for the year

-

-

-

4,725

4,725

Total comprehensive income for the year

-

-

(664)

4,725

4,061

Shares issued during the year

9

249

-

-

258

At 31 December 2011

945

49,600

(1,218)

(15,043)

34,284







 

 

Notes to the consolidated financial statements

 

1.     General information

Baltic Oil Terminals plc is a public limited company listed on the Alternative Investment Market of the London Stock Exchange and is registered in England. The registered office is 1 - 6 Yarmouth Place, London, W1J 7BU. The principal activity of the Group is the development and operation of hydrocarbon transhipment terminals in the Russian Federation, the Netherlands, Denmark and trading in refined products.

 

The Group's financial statements for the year ended 31 December 2011 were authorised for issue by the Board of Directors on 25 June 2012 and the statement of financial position were signed on the Board's behalf by Simon Escott.

 

2.     Accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.  These policies have been consistently applied to all the years presented, unless otherwise stated.

 

2.1  Basis of preparation

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

The consolidated financial statements have been prepared on a historical cost basis.

 

No material changes to accounting policies arose as a result of new standards adopted in the period.

 

The consolidated financial statements are presented in pounds sterling ("£") and all monetary amounts are rounded to the nearest thousand (£'000) except when otherwise indicated.

 

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. The nature of estimation means that actual outcomes could differ from those estimates.

 

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are the measurement and impairment of goodwill. The measurement of intangible assets other than goodwill on a business combination involves estimation of future cash flows and the selection of a suitable discount rate. The Group determines whether goodwill is impaired on an annual basis and this requires an estimation of the value in use of the cash generating units to which the intangible assets are allocated. This involves estimation of future cash flows and choosing a suitable discount rate.

 

Receivables
An assessment is made of the recoverability of accounts receivable based on a range of factors including the age of the receivable and the creditworthiness of the customer and the ongoing commercial relationship with the customer. The receivables are assessed regularly. Determining the recoverability of an account involves estimation as to the likely financial condition of the customer and their ability to subsequently make payment. If the Group is cautious as to the financial condition of the customer the Group may provide for accounts that are subsequently recovered. Similarly if the Group is optimistic as to the financial condition of the customer the Group may not provide for an account that is subsequently determined to be irrecoverable. Whilst the Group has a large number of significantly aged receivables these are deemed to be recoverable.

 

2.2  Basis of consolidation

The consolidated financial statements reflect the Group's financial position as at 31 December 2011 and the Group's financial performance for the period from 1 January 2011 to 31 December 2011.

 

(a) Subsidiaries

Subsidiaries are those enterprises controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. On acquisition of a subsidiary, the purchase consideration is allocated to the assets, liabilities and contingent liabilities on the basis of their fair value at the date of acquisition. The excess of the cost of the acquisition over the fair value of the Group's share of identifiable net assets of the subsidiary acquired is recognised as positive goodwill. Following initial acquisition positive goodwill is measured at cost less any impairment losses. Acquisition costs are expensed as incurred.

 

The financial statements of subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies. All inter company balances and transactions, including unrealised profits arising from inter company transactions, have been eliminated in full. Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.

 

(b) Associates

An associate is an entity over which the Group is in a position to exercise significant influence through participation in the financial and operating policy decisions of the investee, but which is not a subsidiary or a jointly controlled entity. The results, assets and liabilities of an associate are incorporated in these financial statements using the equity method of accounting.

 

2.3  Segment reporting

Operating segments are those components of the business where results are regularly reviewed by the Board to assess their performance and to make resource allocation decisions. The operating segments are identified by either trading or terminals activity and the similarity of their economic characteristics and not by their geographical area of operation

 

2.4  Foreign currency translation

The functional currency for each entity in the Group is determined as the currency of the primary economic environment in which it operates. Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated at the functional currency rate of exchange ruling at the year end. All differences are taken to the income statement, except for differences on monetary assets and liabilities that form part of the Group's net investment in a foreign operation. These are taken directly to other comprehensive income until the disposal of the net investment, at which time they are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.

 

The assets and liabilities of foreign operations are translated into sterling at the rate of exchange ruling at the year end. Income and expenses are translated at average exchange rates for the year. The resulting exchange differences are taken directly to other comprehensive income. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

 

2.5  Oil and gas assets

The Group's entire capitalised oil and gas assets relate to properties that are in the exploration and evaluation stage. The Group accounts for oil and gas properties under IFRS 6 'Exploration for and Evaluation of Mineral Resources'.  Property, plant and equipment acquired as part of a business combination is recorded at fair value at the acquisition date.  All subsequent additions are recorded at historical cost of acquisition or construction.  The Group does not currently have proven oil and gas reserves.

 

(a) Pre-licence award costs

Costs incurred prior to the award of oil and gas licences, concessions and other exploration rights are expensed in the income statement.

 

(b) Licence acquisition costs

Oil and gas licence acquisition costs are capitalised within intangible exploration assets and amortised on a straight-line basis over the period of the licence.

 

(c) Exploration and evaluation

Geological and geophysical exploration costs are charged against income as incurred. The direct costs associated with an exploration well, exploratory drilling and directly related overheads, are capitalised as an intangible asset pending determination of proven reserves. These costs are excluded from depletion until commerciality is determined or impairment occurs. Intangible assets also include fair value of exploration assets obtained through acquisitions. The costs of unsuccessful exploratory wells are expensed upon determination that the well does not justify commercial development.

 

Exploration and evaluation assets shall be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount.  When facts and circumstances suggest that the carrying amount exceeds the recoverable amount, an entity shall measure, present and disclose any resulting impairment loss in accordance with IAS 36 'Impairment of assets'.

 

2.6  Non oil and gas assets

 

(a) Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses.  Such cost includes costs directly attributable to making the asset capable of operating as intended.

 

Depreciation is provided on all property, plant and equipment, other than freehold land, at rates calculated to write off the cost, less estimated residual value based on prices prevailing at the year end, of each asset evenly over its expected useful life as follows:

 

Buildings                                               -  50 years

Plant and equipment                          -  5 to 25 years

Office equipment                                 -  3 years

Computer equipment                          -  3 years

 

Depreciation of an item of property, plant and equipment begins when it is available for use and when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

 

(b) Construction in progress

Assets in the course of construction are capitalised as a separate component of property, plant and equipment. On completion, the cost of construction is transferred to the appropriate category.

 

The cost of a property, plant and equipment comprises its purchase price and any costs directly attributable to bringing it into working condition for its intended use.

 

Construction in progress is not depreciated.

 

Borrowing costs directly attributable to the construction of assets that necessarily take a substantial period of time to get ready for their intended use are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.

 

2.7  Impairment

The carrying amounts of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. If there are indicators of impairment, an exercise is undertaken to determine whether the carrying values are in excess of their recoverable amount. Such review is undertaken on an asset by asset basis, except where such assets do not generate cash flows independent of other assets, in which case the review is undertaken at the cash generating unit level.

 

If the carrying amount of an asset or its cash generating unit exceeds the recoverable amount, a provision is recorded to reflect the asset at the lower amount. Impairment losses are recognised in the income statement.

 

(a) Calculation of recoverable amount

The recoverable amount of assets is the greater of their value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash generating unit to which the asset belongs. The Group's cash generating units are the smallest identifiable Groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or Groups of assets.

 

(b) Reversals of impairment

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

2.8  Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

 

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment.

 

2.9  Financial assets

Financial assets are initially recognised at fair value plus transaction costs. Financial assets classified as held for trading and other assets designated as such on inception are included in this category. Financial assets are classified as held for trading if they are acquired for sale in the short term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments or as financial guarantee contracts. Assets are carried in the balance sheet at fair value with gains or losses recognised in the income statement.

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, do not qualify as trading assets and have not been designated as either fair value through profit and loss or available-for-sale. Such assets are carried at amortised cost using the effective interest method if the time value of money is significant. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

 

2.10        Impairment of financial assets

The Group assesses at the year end whether a financial asset or group of financial assets is impaired.

 

If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced, through the use of an allowance account. The amount of the loss shall be recognised in administration costs.

 

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed as irrecoverable.

 

2.11        Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing each product to its present location and condition, as follows:

 

§ Raw materials, consumables and goods for resale - purchase cost on a first-in, first-out basis.

 

§ Finished goods - cost of direct materials and labour plus attributable overheads based on a normal level of activity, excluding borrowing costs.

 

2.12        Cash and cash equivalents

Cash and short-term deposits comprise cash at banks and in hand and short-term deposits with an original maturity of three months or less.

 

For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

 

2.13        Financial liabilities

Except for derivatives, financial liabilities are recognised initially at fair value net of transaction costs and carried subsequently at amortised cost under the effective interest method.

 

Obligations for trade payables, loans and borrowings are recognised when the Group becomes party to the related contracts and are measured initially at the fair value of consideration received less directly attributable transaction costs.

 

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

 

Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised respectively in finance revenue and finance cost.

 

2.14        Derecognition of financial assets and liabilities

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.

 

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, such that the difference in the respective carrying amounts together with any costs or fees incurred are recognised in profit or loss.

 

2.15        Income tax

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the year end.

 

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions:

 

§ where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;

 

§ in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future;

 

§ and deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.

 

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the year end.

 

Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity.  Otherwise income tax is recognised in the income statement.

 

2.16        Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.  Revenue is measured at the fair value of consideration received or receivable. Revenue excludes any applicable sales taxes.

 

Transhipment service revenue is recognised at the point of loading hydrocarbon product onto the customers export vessel.

 

Trading revenue is recognised when the risks and rewards of hydrocarbon product ownership pass to the customer. The associated costs of acquiring the hydrocarbon product are recognised in cost of sales.

 

When the risks and rewards of hydrocarbon product ownership do not pass to the Group the Group is acting as an agent between the supplier and customer and recognises the margin between the cost of the hydrocarbon product and the selling price as revenue.

 

The Group provides heated storage facilities for customer product which is billed on a monthly basis plus additional services such as Ship to Ship transfers.

 

2.17        Financial income and expenses

Financial income and expenses comprise interest expense on borrowings and interest income on funds invested.

 

Interest income is recognised as it accrues, calculated in accordance with the effective interest rate method.

 

2.18        Going concern

The financial statements have been prepared on the going concern basis, which assumes that the company and its subsidiaries will continue in operational existence for the foreseeable future. The Board has performed a review of the next 12 months cash flows from the date of signing of the accounts and is confident that with current operations, recently announced new trading partnerships and the existing Group cash balance is sufficient to meet liabilities as they fall due. The directors are not aware of any material uncertainties that might cast significant doubt on the Group's ability to continue as a going concern.

 

3.     Capital management

Management controls the capital of the group in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the group can fund its operations and continue as a going concern.

 

The Group's debt and capital includes ordinary share capital and financial liabilities, supported by financial assets.

 

There are no externally imposed capital requirements.

 

Management effectively manages the group's capital by assessing the group's financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues.

 

There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year

 

4.     Risk management

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk, liquidity risk and other risks and uncertainties. The Group operates a risk management programme where risks are identified and discussed at Board level and appropriate mitigation measures are implemented.

 

(a) Market risk

 

(i) Currency risk

The Group operates internationally and is exposed to foreign currency risk arising from various currency exposures, primarily with respect to the US Dollar and Russian Rouble.

 

The Group's cash flows generated from the terminals and trading divisions are in US Dollars. Only a proportion of the cash earned from transhipment is converted into Roubles to pay local overheads. There is a currency risk associated with the movement in exchange rate between the Rouble and the Dollar as the Group converts a proportion of US Dollars into Roubles at regular intervals to meet the Rouble expenditure as it falls due.  Where there is a significant exposure to currency risk the Group enters into forward contracts to tie into the current exchange rate to mitigate the risk.

 

The Group has provided a number of US Dollar loans to its Russian subsidiaries. In the individual entities these loans are re-translated into the functional currency of the entity at the closing exchange rate. Any gains or losses arising from the re-translation is recognised in the local entities income statements. For the entities incorporated in the UK these gains and losses are unrealised so do not crystallise taxable gains and losses. In Russia however both unrealised and realised gains and losses are treated as taxable income and expenditure in the tax returns. The directors do not consider this to be significant risk at present due to the availability of tax losses in the Russia entities to offset against taxable gains.

 

The presentation currency of the Baltic Oil Terminals plc Group is GBP. The functional currencies of the underlying entities are mainly US Dollar and Russian Roubles. The assets and liabilities of the underlying entities are re-translated at the closing rate into the presentation currency therefore any currency movements affect the carrying value of the assets and liabilities in the Consolidated Statement of Financial Position of Baltic Oil Terminals plc.

 

At 31 December 2011, if the currency had weakened/strengthened by 10% against the US Dollar with all other variables held constant, post tax loss for the year would have been £37,000 (2010: £72,000) higher/lower, mainly due to the re-translation of US Dollar denominated cash balances. At 31 December 2011, if the currency had weakened/strengthened by 10% against the Russian Rouble with all other variables held constant, post tax loss for the year would have been £61,000 (2010: £463,000) higher/lower, mainly as a result of US Dollar denominated loan balances in the subsidiaries with the Russian Rouble as the functional currency.

 

(ii) Interest rate risk

The Group is not currently exposed to risks associated with interest rate movements on borrowings as these are at fixed interest rate.

 

The Group is currently exposed to interest rate movements on its cash deposits as cash is mainly held in readily available bank accounts.  Where there is sufficient cash held in these bank accounts it is placed on the short term money markets where the interest earned is fixed.

 

(iii) Price risk

The Group's revenue is not generally correlated to oil or commodity prices. In the terminals division revenue is derived from fixed prices earned from handling the customer's product. In the trading division the Group earns a margin between the purchase price of product and the selling price. This margin is determined through purchasing product at a given number of basis points below Platz (the oil product price index) and selling it at a given number of points above. Although the Platz index is correlated to the underlying commodity price the margin between the purchase and selling price will generally be fixed. As the purchase and sale of the product is done under letters of credit, the prices and margins are fixed in advance therefore the Group is not exposed to any price movements between the time of purchase and sale.

 

(c) Credit risk

The Group's trade receivables arise in both the terminals and trading division. The Group considers the risk of not realising trade receivable balances as low. In the terminals division the transhipment and product handling fees are paid prior to the release of the product onto the vessel. As the fees are a relatively small proportion of the value of the customer's product the terminal is handling, the Group rarely encounters default on the payment of debts. If on the rare occasion the customer defaults then the Group holds the customers product as security against the outstanding debt. In the Trading division product is purchased and sold using letters of credit therefore the transactions carried out are guaranteed by the banks issuing the letters of credit. The Group uses letters of credit from reputable European banks only.

 

The Group incurs capital expenditure in the development and maintenance of its terminals division in Russia. Material and labour requirements are generally paid for in advance in Russia so there is a risk of non-performance of contractors. To mitigate this risk the Group has a policy of dealing with only reputable contractors and building merchants.

 

(d) Liquidity risk

Liquidity risk is the risk that obligations associated with financial liabilities will not be met. The Group has performed a cash flow forecast through to 30 June 2013 which has provided the directors with assurance that the Group has sufficient cash to meet its financial liabilities as they fall due.

 

(e) Potential taxation issues
As the Group operates in a number of jurisdictions, monitoring of cross border tax issues and repatriation of funds will be required. The Group has developed adequate presence in its key jurisdictions of the UK, Cyprus, the Netherlands and Russia to manage the risks that changing tax legislation may present.

(f) Title and control over Assets

Baltic has undertaken all the customary due diligence and legal due diligence in the verification of title to and control of its assets and share of assets.

(g) Political risk is the risk that assets will be lost through expropriation, unrest or war. Baltic minimises political risk by operating in countries with relatively stable political systems, established fiscal codes and a respect for the rule of law.

(h) A change or breach of regulatory and local legal requirements.
Regulatory compliance is managed with the assistance of external advisors. Changes in Russian legal requirements are monitored by the management team and with the use of external advisors where required.

 

5.     Significant accounting judgements, estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting estimates will by definition, seldom equal the actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.  Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on managements' best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the financial statements.  The Board has considered the critical accounting estimates and assumptions used in the historical financial information and concluded that the areas of judgement that have the most significant effect on the amounts recognised in the financial statements concern:


Going concern

As detailed in the Directors' report, the directors have complete confidence that their efforts will generate sufficient ongoing cash to meet the company's outgoings for the foreseeable future. The Directors are also confident that the loan notes will be refinanced on more favourable commercial terms which will include an extension to the maturity date of the debt of May 2013. On this basis the directors believe it is appropriate to prepare these financial statements on a going concern basis. Please refer to note 2.18.

 

Petro Broker International fair value exercise

The directors have now concluded their review of the fair values of the Petro Broker International assets and liabilities acquired. The trade and other receivables balance contained an amount receivable from a legal claim made against a former supplier. Under the terms of the share purchase agreement the proceeds from the legal claim were repayable to the vendor. As such a fair value adjustment of £3,498,000 was made against the receivables balance. The fair value exercise was completed within one year from the date of acquisition.

 

Rosbunker assets

Rosbunker has been treated in these Financial Statements as an Associate as it was for 2010 and this reflects the ongoing level of control held by the Group over that asset. The Directors are confident that the Group continued to exert significant influence over its interest in the assets and strategic decisions and therefore it is appropriate that it should continue to be treated as an Associate.

 

Dan Balt fair value exercise

The Directors have carried out a fair value exercise on the acquisition balance sheet of Dan Balt as at the date of acquisition. The Directors are satisfied that the assets and liabilities acquired are all stated at fair value and that the consideration paid for the net assets therefore gives rise to goodwill, as stated in note 22.

 

6.     Segment information

The Group considers that its activities be split into two key areas, terminal and trading activities. An operating segment is a component of the Group engaged in terminal or trading activities that is regularly reviewed by the Chief Operating Decision Maker for the purposes of making economic decisions. In addition, Head Office costs are disclosed separately and added to the sector result in arriving at an operating profit.

 

The terminals operating segment provides terminal handling and storage services on behalf of clients wishing to export oil products and has bases in the Netherlands, Denmark and Russia. The trading operating segment matches buyers and sellers of hydrocarbon product and takes a margin on the product sold.

 

The following table analyses the sector revenue and result and reconciles the sector result to the profit after tax.

 

(a) Operating segments - year ended 31 December 2011



Terminals

£'000

Trading

£'000

Total

£'000

Revenue


15,301

249

15,550

Results

Segment result

3,058

(61)

2,997

Unallocated expenses

(1,708)

Group operating profit

1,289

Share of profit of associates

3,944

-

3,944

Finance costs - net (note 10)

(185)

Group profit before taxation

5,048

Tax charge

(323)

Profit for the year

4,725

Assets and liabilities

Segment assets

39,862

2,821

42,683

Unallocated assets

1,280

Total assets

43,963

Segment liabilities

(9,176)

(9,176)

Unallocated liabilities

(503)

Total liabilities




(9,679)

Total assets includes

Property, plant and equipment

6,911

-

6,911

Unallocated property, plant and equipment

-

Goodwill

11,598

-

11,598






The following significant non-cash items are included in the segment results:

 

§ Terminals - depreciation of £146,000.

 

(b) Operating segments - year ended 31 December 2010



Terminals

£'000

Trading

£'000

Total

£'000

Revenue


3,461

2,559

6,020

Results

Segment result

179

1,864

2,043

Unallocated expenses

(1,827)

Group operating profit

216

Share of profit of associates

3,164

-

3,164

Loss on disposal of investment

(947)

Finance costs - net (note 10)

(18)

Group profit before taxation

2,415

Tax charge

(18)

Profit for the year

2,397

Assets and liabilities

Segment assets

28,197

6,545

34,742

Unallocated assets

927

Total assets

35,669

Segment liabilities

(1,584)

(2,874)

(4,458)

Unallocated liabilities

(1,246)

Total liabilities

(5,704)

Total assets includes

Property, plant and equipment

3,460

-

3,460

Unallocated property, plant and equipment

1

Goodwill

4,483

-

4,483






The following significant non-cash items are included in the segment results:

 

§ Terminals - depreciation of £148,000.

 

(c) Geographical disclosure - year ended 31 December 2011



 

Europe

£'000

Russian Federation

£'000

 

Total

£'000

Revenue


8,311

7,239

15,550

Results

Operating profit for the year

668

621

1,289

Other segment information

Segment assets

19,335

24,628

43,963

Total assets

Capital expenditure:

Property, plant and equipment

3,691

3,220

6,911

Intangible fixed assets

9,710

1,888

11,598



 

 

(d) Geographical disclosure - year ended 31 December 2010


 

UK

£'000

 

Netherlands

£'000

Russian Federation

£'000

 

Total

£'000

Revenue

2,559

75

3,386

6,020

Results

Operating profit for the year

138

77

1

216

Other segment information

Segment assets

7,865

4,974

22,830

35,669

Total assets

Capital expenditure:

Property, plant and equipment

1

48

3,412

3,461

Intangible fixed assets

-

-

4,484

4,484






 

7.     Operating profit

The operating profit is stated after charging/(crediting):




2011

£'000

2010

£'000

Depreciation and amortisation

180

179

Foreign currency loss/(gain)

106

(241)






8.     Staff costs and Directors' emoluments

 

(a) Staff costs




2011

£'000

2010

£'000

Wages and salaries

888

358

Social security costs

83

33

Other pension costs

-

-

971

391






The average monthly number of employees during the year was as follows:




2011

Number

2010

Number

Operational

28

25

Administrative

24

19

52

44






 

(b) Directors' emoluments




2011

£'000

2010

£'000

Directors' emoluments

190

118

Pension costs - defined contribution plan

-

-




190

118






The directors constitute the only key personnel of the Group

 

There were no gains made by Directors on the exercise of share options during the year (2010: nil).

 




Total Emoluments 2011

£'000

Total

Emoluments

 2010

£'000

Simon Escott

150

94

Richard Healey

24

24

Louis Castro

4

-

Stanley Buck

12

-

190

118






The total emoluments paid to directors consists of basic salary only.

 

Emoluments paid to Simon Escott and Richard Healey for services provided to the Group in the years ended 31 December 2011 and 31 December 2010 were paid through service companies.

 

9.     Auditors' remuneration




2011

£'000

2010

£'000

Audit of the group financial statements

82

85






10.  Finance income and costs




2011

£'000

2010

£'000

Finance income:



Bank interest receivable

47

18

47

18

Finance costs:

Bank loans and overdrafts

64

36

Loan note interest

168

-


232

36





11.  Taxation

 

(a) Tax on profit on ordinary activities

Current income tax charged in the income statement:

 




2011

£'000

2010

£'000

Corporation tax

357

43

Deferred tax

(34)

(25)

Tax charge reported in the income statement

323

18

 

A management charge of £1,287,000 was charged to PBI for its proportion of central overheads incurred by Baltic Oil Terminals plc during the year ended 31 December 2011. The group tax charge has been reduced by £322,000 as a result of the management charge.

 

(b) Reconciliation of the total tax charge

 

 








2011

£'000

2010

£'000

Profit before tax

5,048

2,415

Accounting profits multiplied by the UK standard rate of corporation tax of 26% (2010: 28%)

1,312

676

-       UK tax losses not utilised

36

(37)

-       Russian tax losses utilised

(1,025)

(886)

-       tax effect of non-deductible items

-

265

Total tax charge for the year

323

18






 

(c) Deferred tax

The deferred tax included in the Statement of Financial Position is as follows:




2011

£'000

2010

£'000

Balance bought forward

72

1,462

Foreign exchange adjustment

(8)

(1)

Transfer to investments in associates

-

(1,364)

Acquisition fair value adjustment

496

-

Income statement credit

(34)

(25)

Deferred tax liability

526

72






The Group has tax losses which arose in the UK of £11,554,000 (2010: 10,925,000) and in Russia of £1,730,000 (2010: £2,325,000) that are available indefinitely for offset against future taxable profits of those companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses due to uncertainty as to whether such amounts will be realised.

 

12.  Earnings per share (EPS)

 

Basic EPS is calculated by dividing the net profit for the year attributable to ordinary equity shareholders of the Company by the weighted average number of ordinary shares of 1 pence each outstanding during the year.  There is no dilutive effect of the share options in issue during the year ended 31 December 2011.

 

The following reflects the income and adjusted share data used in the EPS computation.




2011

£'000

2010

£'000

Net profit attributable to equity shareholders of the company

4,725

2,397





2011

Number

2010

Number

Number of shares

Weighted average number of ordinary shares of 1 pence each for EPS calculation

94,383,016

63,440,273

Earnings per share - basic and diluted

5.01p

3.78p





13.  Intangible assets


 Exploration assets

 Licenses

 Goodwill

 Total


 £'000

 £'000

 £'000

 £'000

Cost





At 1 January 2010

5,172

628

3,087

8,887

Foreign exchange adjustment

107

15

-

122

Transfers to investments in associates

-

-

(785)

(785)

Additions through acquisition (note 22)

-

-

2,594

2,594

At 31 December 2010

5,279

643

4,896

10,818

Foreign exchange adjustment

(83)

(26)

-

(109)

Additions

-

-

3,498

3,498

Additions through acquisition (note 22)

-

-

3,617

3,617

At 31 December 2011

5,196

617

12,011

17,824

Amortisation and impairment





At 1 January 2010

5,172

626

413

6,211

Foreign exchange adjustment

107

15

-

122

Amortisation charge

-

1

-

1

At 31 December 2010 and 1 January 2011

5,279

642

413

6,334

Foreign exchange adjustment

(83)

(26)

-

(109)

Amortisation charge

-

1

-

1

At 31 December 2011

5,196

617

413

6,226

Net book value





At 31 December 2011

-

-

11,598

11,598

At 31 December 2010

-

1

4,483

4,484






Impairment tests for goodwill

Goodwill is allocated to the Group's four cash-generating units (CGUs) Dan Balt, Petro Broker, Baltic Top and TDKN.  An amount of £3,617,000 is allocated to the Dan Balt CGU, £6,092,000 to Petro Broker, £814,000 to Baltic Top and £1,075,000 to TDKN (2010: £Nil, £2,594,000, £814,000 and £1,075,000 respectively).  The country of operation of Dan Balt is Denmark, Petro Broker is the Netherlands and Baltic Top and TDKN are Russia.

 

The recoverable amount of a CGU is determined based on value in use calculations.  The value in use is calculated using cash flow projections from financial budgets approved by senior management. The recoverable amount of each CGU was in excess of the goodwill carrying value and therefore no impairment provisions were required.

 

No impairment test has been performed for Dan Balt given the proximity of the acquisition to the year end and there being no significant changes to the business during that time.


Key assumptions used in value in use calculations

The calculation of value in use for all units are most sensitive to the following assumptions:


Gross margins - Gross margins are based on average values achieved in the three years preceding the start of the budget period. These are increased over the budget period for anticipated efficiency improvements. An increase of 1.5% per annum was applied.


Discount rates - Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its weighted average cost of capital (WACC).


Growth rate estimates - Rates are based on published industry research.


Sensitivity to changes in assumptions

With regard to the assessment of value in use of all units, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the units to materially exceed their recoverable amount.

 

14.  Property, plant and equipment


 Land and buildings

 Plant and machinery

 Computer and office equipment

 Construction in progress

 Total


 £'000

 £'000

 £'000

 £'000

 £'000

 Cost






 At 1 January 2010

842

13,427

262

4,285

18,816

 Foreign exchange adjustment

1

16

1

111

129

 Transfer to investments in associates

(553)

(11,854)

(7)

(592)

(13,006)

 Additions

-

51

-

-

51

 Additions through acquisition

-

46

-

-

46

 At 31 December 2010 and 1 January 2011

290

1,686

256

              3,804

6,036

 Foreign exchange adjustment

(17)

(95)

-

(7)

(119)

 Additions

-

-

-

60

60

 Additions through acquisition

674

3,045

-

-

3,719

 Disposals

-

(18)

-

-

(18)

 At 31 December 2011

947

4,618

256

3,857

9,678

 Depreciation






 At 1 January 2010

26

1,816

221

2,286

4,349

 Foreign exchange adjustment

-

2

-

53

55

 Transfer to investments in associates

-

(1,411)

(4)

(592)

(2,007)

 Depreciation charge

5

143

30

-

178

 At 31 December 2010 and 1 January 2011

31

550

247

1,747

2,575

 Foreign exchange adjustment

(1)

(8)

-

22

13

 Transfer to investments in associates

-

-

-

-

-

 Depreciation charge

19

155

5

-

179

 At 31 December 2011

49

697

252

1,769

2,767

 Net book value






 At 31 December 2011

898

3,921

4

2,088

6,911

 At 31 December 2010

259

1,136

9

2,057

3,461







15.  Inventory




2011

£'000

2010

£'000

Consumables

198

100

 

16.  Trade and other receivables (current)

 




2011

£'000

2010

£'000

Trade receivables

3,613

7,419

Loans to related parties

-

2


3,613

7,421






There is no difference between the carrying value and fair value of financial assets.

 

At 31 December 2011, trade receivables of £3,038,000 (2010: £5,328,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:




2011

£'000

2010

£'000

3 to 6 months past due

-

-

Over 6 months past due

3,038

5,328


3,038

5,328






The Directors consider all of the overdue debts to be recoverable.

 

17.  Prepayments and other current assets




2011

£'000

2010

£'000

Advances paid for goods and services

448

2,625

VAT reclaimable

73

115


521

2,740






 

18.  Cash and cash equivalents




2011

£'000

2010

£'000

Cash at bank and in hand

1,614

1,899






Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

 

19.  Share capital and reserves

 

(a) Allotted and called up share capital







2011

2010

Number

£

Number

£

 

Allotted and called up share capital





 

Ordinary shares of 1 pence each

94,517,416

945,174

93,641,416

936,414

 






 


 Number

 Share capital

 Share premium

 Total

 

 of shares

 £'000

 £'000

 £'000

 

Ordinary shares of 1 pence each issued and fully paid





 

At 1 January 2010

57,062,548

571

40,559

41,130

 

Shares issued

36,578,868

365

8,792

9,157

 

At 31 December 2010 and 1 January 2011

93,641,416

936

49,351

50,287

 

Shares issued

876,000

9

249

258

 

At 31 December 2011

94,517,416

945

49,600

50,545

 






 

On 28 February 2011 the Company issued 876,000 ordinary shares to a consultant to the Company in discharge of outstanding consultancy fees with a fair value of £258,000.

 

(b) Ordinary shares - rights at general meetings

 

At general meetings of the Company each member present or by proxy has one vote on a show of hands, and on a poll every member who is present in person or by proxy has one vote per every ordinary share.

 

20.  Trade and other payables (current)




2011

£'000

2010

£'000

Trade payables

1,285

3,823

Salaries and related payables

15

687

Other payables and accrued expenses

888

785

2,188

5,295






There is no difference between the fair value and carrying value of financial liabilities.

 

These financial liabilities are all due within 6 months.

 

21.  Borrowings (current liabilities)




2011

£'000

2010

£'000

Loan notes

40

-

Bank borrowings

8

114

Other loans

125

223

173

337






Bank borrowings are at fixed interest rates so there is no exposure to interest rate changes. Bank borrowings are unsecured.

 

There is no difference between the carrying value and fair value of financial liabilities.

 

22.  Borrowings (non current liabilities)




2011

£'000

2010

£'000

Loan notes

6,792

-





Interest is payable on the loan notes at 15% per annum. The loan notes are due to be repaid in May 2013. The Group has given security over its assets except those in Cyprus and Russia in respect of the loan notes.

 

The Directors are currently in preliminary negotiations to refinance the 15% $11m Secured Fixed Rate Loan notes on more favourable commercial terms and are confident that the refinancing will be successful.

 

Loan note issue costs of £323,000 have been offset against the loan note balance.

 

23.  Acquisition of subsidiary undertakings

 

On 22 November 2011 the Group acquired 100% of the share capital of Dan Balt for a total cash consideration of $9.9m (£6.3m). Dan Balt operates a 160,000 cubic metres refined oils terminal, located at Aabenraa in Denmark. The acquisition was financed by the issue of secured fixed rate loan notes to the value $11m (£7m).

 

A table of net assets acquired and the associated goodwill is as follows:




 Book values £'000

 Fair values

 £'000

Cash and cash equivalents

174

174

Property, plant and equipment

3,718

3,718

Trade and other receivables

33

33

Trade and other payables

(496)

(496)

Deferred taxation

(496)

(496)

Net assets

2,933

2,933

Goodwill arising on acquisition

3,617

6,550

Discharged by:


Cash consideration

6,292

Costs of acquisition

258

6,550






The directors have performed a detailed review of the assets and liabilities acquired and have concluded that there are no differences between the book value and fair value of assets and liabilities.

 

The acquired business contributed revenues of £79,000 and a net profit of £27,000 to the Group for the period from 22 November 2011 to 31 December 2011.  If the acquisition had occurred on 1 January 2010, Group revenue would have been £833,000 higher and the net profit would have been £153,000 higher.

 

The acquisition has given the Group access to a further 165,000 cubic metres of storage which is an excellent fit with the geographic strategy and will produce good cashflow in 2013 when existing contracts expire.

 

On 22 December 2010 the Company acquired 100% of the share capital of Petro Broker International for a total cash consideration of $10.8m (£7.0m). The directors have concluded their review of the fair values of the assets and liabilities acquired and the associated goodwill as follows:



 Book values £'000

 Provisional fair values

 £'000

 Final fair values
£'000

Cash and cash equivalents

1,714

1,714

1,714

Property, plant and equipment

48

48

48

Trade and other receivables

3,858

3,858

360

Trade and other payables

(1,202)

(1,202)

(1,202)

Net assets

4,418

4,418

920

Goodwill arising on acquisition

2,594

6,092

7,012

7,012

Discharged by:

Cash consideration

7,012

7,012

7,012

7,012






The trade and other receivables balance contained an amount receivable from a legal claim made against a former supplier. Under the terms of the share purchase agreement the proceeds from the legal claim were repayable to the vendor. As such a fair value adjustment of £3,498,000 was made against the receivables balance. The final fair values were determined within one year from the date of acquisition of PBI.

 

By acquiring PBI, the Company will gain access to an important new market, with opportunities to trade and trans-ship significant volumes of oil product out of a major global shipping hub. The addition of PBI to the Group's existing operations will also provide an additional immediate source of free cashflow for the Group.

 

24.  Investment in associates




2011

2010




£'000

£'000

Group share of Rosbunker net assets

17,533

13,589

Rosbunker goodwill

785

785

Group share of Polex net assets

100

100

Polex goodwill

1,090

1,090

19,508

15,564






The following table illustrates summarised financial information of the Group's investment in Rosbunker:

 

Share of Rosbunker balance sheet (50%):




2011

2010




£'000

£'000

Non-current assets

9,902

10,854

Current assets

11,002

6,107

Share of gross assets

20,904

16,961

Current liabilities

3,371

3,371

Non-current liabilities

-

-

Share of gross liabilities

3,371

3,371

Share of net assets

17,533

13,590










Share of Rosbunker Income Statement (50%):







2011

£'000

2010

£'000

Revenue

5,434

5,539

Net profit after tax

3,927

3,164






The Rosbunker investment in associates includes an amount of goodwill of £785,000.

 

The following table illustrates summarised financial information of the Group's investment in OOO Polex Service:

 

Share of Polex Service balance sheet (50%):




2011

2010

£'000

£'000

Non-current assets

87

87

Current assets

76

76

Share of gross assets

163

163

Current liabilities

63

63

Non-current liabilities

-

-

Share of gross liabilities

63

63

Share of net assets

100

100











Share of Polex Income statement (50%):







2011

£'000

2010

£'000

Revenue

-

-

Net profit/(loss) after tax

-

-






The Polex investments in associates at 31 December 2011 includes goodwill of £1,089,500 (2010: £1,089,500).

 

25.  Related party disclosures

 

There were no related party transactions during the year.

 

26.  Principal subsidiaries, associates and joint ventures

 


Principal activity

Country of incorporation

Percentage equity interest held by the Group at 31 December 2011 %

Percentage equity interest held by the Group at 31 December 2010 %

Baltic Petroleum Limited

Intermediate holding company

UK

100

100

Baltic Terminals Limited

Intermediate holding company

UK

100

100

Baltic Petroleum (E&P) Limited

Intermediate holding company

UK

100

100

Caspian Finance Limited

Finance company

UK

100

100

Baltic Hydrocarbons Limited

Oil Services

UK

100

100

Zauralneftegaz Limited

Oil E&P

UK

50

50

Tetoil Limited

Oil Services

UK

100

100

Tetoil Baltic Limited

Oil Services

UK

100

100

OOO Zauralneftegaz

Oil E&P

Russian Federation

50

50

OJSC Tetoil

Oil Services

Russian Federation

100

100

OJSC Tetoil Baltic

Oil Services

Russian Federation

100

100

OOO Polex Service

Oil Services

Russian Federation

50

50

Pazega Limited

Intermediate holding company

Cyprus

100

100

OOO Baltic Top

Oil Services

Russian Federation

100

100

OOO Otelbiznesstroy

Oil Services

Russian Federation

100

100

Yuri Trading Limited

Intermediate holding company

Cyprus

100

100

OOO Torgovy Dom Kaliningradneft

Oil Services

Russian Federation

65

65

Baltica Hydrocarbons Limited

Intermediate holding company

Cyprus

100

100

Arblade Holdings Limited

Intermediate holding company

Cyprus

100

100

OOO Agroprom

Intermediate holding company

Russian Federation

50

50

ZAO Rosbunker

Oil Services

Russian Federation

50

50

Edgeview Ventures Limited

Finance company

British Virgin Islands

50

50

North Oil Trading Limited

Oil Services

Panama

50

50

North Oil Bunker Limited

Oil Services

British Virgin Islands

50

50

Petro Broker International B.V

Oil Services

Netherlands

100

100

Haahr Tank-Lager A/S

Oil Services

Denmark

100

-

 

The Company has operational control over Zauralneftegaz Limited and OOO Zauralneftegaz by virtue of there being 50 A ordinary shares and 50 B ordinary shares of £1 each.  The A and B ordinary shares of £1 rank pari passu other than the A ordinary shares have an additional vote at general meeting thereby giving the Company as shareholder of the A shares control of the company.

 

27.  Capital commitments

 

At 31 December 2011, there were no amounts contracted for but not provided in the financial statements of £nil (2010: £nil).

 

28.  Post balance sheet events

 

On 22 May 2012 the Company issued 7,307,694 new ordinary shares of 1 pence each at 13 pence per share with certain institutional investors, to raise £0.95 million before expenses. The Company will use the proceeds of the share issue to progress its fuel oil optimisation project at the Company's refined product terminal in Aabenraa, Denmark.

 

 

ENDS


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