Final Results

Clarkson PLC 26 March 2007 CLARKSON PLC 26 March 2007 Preliminary results Clarkson PLC ('Clarksons') the world's largest shipbroker and shipping services group, today announces unaudited preliminary results for the twelve months ended 31 December 2006. ---------------------------- -------------- ------------ Results for 2006 Year ended Year ended 31 December 31 December 2006 2005 ---------------------------- -------------- ------------ Revenue - continuing operations £117.7m £115.6m ---------------------------- -------------- ------------ Profit before taxation - continuing operations £21.1m £26.8m ---------------------------- -------------- ------------ Earnings per share - continuing operations 83.1p 108.9p ---------------------------- -------------- ------------ Dividends per share 36.0p 32.0p ---------------------------- -------------- ------------ HIGHLIGHTS • £17.4 million of acquisitions made during the year to diversify and strengthen our core broking business into growth areas of specialised chemicals and dry bulk chartering. • Significant strengthening of the senior broking team. • Encouraging initial results for newly introduced services, including development of structured shipping projects and agency services. • Hedge fund successfully launched and performing well. 'Your company has produced another substantial profit reflecting the group's pre-eminent position in the shipping services market. 'We are well positioned to grow the business further in 2007.' Tim Harris, Chairman Enquiries: Clarkson PLC: 020 7334 0000 Richard Fulford-Smith, Chief Executive Jeff Woyda, Finance Director Hudson Sandler: 020 7796 4133 Jessica Rouleau Nick Dunne Chairman's statement Against the backdrop of more challenging conditions in 2006, Clarksons has continued to build and invest in its core shipbroking business and to develop new growth areas across the spectrum of shipping services. We remain committed to expanding selectively into both broking and non-broking activities, in which our unrivalled market intelligence and market-leading brand provide us with a strong competitive advantage. It was a busy year, during which we significantly expanded and strengthened our broking and chartering businesses through the acquisitions of Plowrights, Genchem and Anchor Cross. In addition, we attracted some very experienced senior management to our broking team. We have continued to build our expertise in financial products through our newly established hedge fund and have also added a range of other new services to our portfolio in 2006. Results Revenues increased by 2% to £117.7 million (2005: £115.6 million), driven primarily by specialised products chartering. Operating profit on continuing operations was £17.1 million (2005: £23.7 million), largely as a result of the weakening US dollar and weakness in our sale and purchase business in the first half of the year. Profit before taxation on continuing operations was £21.1 million (2005: £26.8 million). Basic earnings per share on continuing operations were 83.1 pence per share (2005: 108.9 pence per share). Balance sheet The increase in non-current assets to £90.7 million (2005: £46.3 million) was mainly due to an active year of acquisition and investment. In order to take advantage of these opportunities, the group increased borrowings to £51.8 million (2005: £8.2 million). The business continues to be strongly cash generative. Dividend Clarksons is committed to maintaining a progressive dividend policy and the directors are recommending a final dividend of 24.0 pence per share (2005: 22.0 pence per share). The interim dividend was 12.0 pence per share, giving a total dividend of 36.0 pence per share (2005: 32.0 pence per share), a 12.5% increase in the total dividend for the year. The dividend has increased eight fold in the last 10 years and this year's increase reflects both our dividend policy and our continuing confidence in the sound underlying ability of our business to generate cash. The dividend will be payable on 15 June 2007 to shareholders on the register as at 1 June 2007. Board In May 2006, Rob Ward, finance director, announced his intention to retire at the end of the year. On behalf of the board, I would like to thank Rob for his invaluable contribution to the development of the company during his 15 years at Clarksons and wish him well in his retirement. In October 2006, we were delighted to announce the appointment of Jeff Woyda as finance director. Jeff assumed the full responsibilities of his role in January 2007. Employees Like any services business, our core strength is our people. On behalf of the board, I would like to thank all our employees for their outstanding contribution and commitment to the business. I would also like to take this opportunity to welcome all those who have joined Clarksons both directly and as a result of the acquisitions we have made during the year. The Clarksons team is now stronger than ever. Outlook Although there is always much market comment about the future direction of freight rates and the relative strength of the US dollar, we have started the year strongly and with a forward order book larger than at any other time in Clarksons' history. 2007 will also benefit fully for the first time from the acquisitions made over the last year and a strengthened sale and purchase team. We believe that we are well positioned with a broader base of profitable operations than ever before to grow the business further in 2007 and subsequent years for the benefit of our shareholders. Tim Harris CHAIRMAN 26 March 2007 Chief executive's review of operations Introduction This has been a year where Clarksons has achieved a great deal, but in which we have faced many challenges. As is our style we have met the challenges head-on and we have continued to produce healthy profits and returns to shareholders whilst absorbing a number of new business lines which will serve us well in the future. The ambition of the group to further spread its base of business, always within shipping and shipping-related products, has been clearly stated by us before. This programme has been accelerated and I am delighted to report significant progress on a number of fronts in 2006. I shall describe our progress in more detail in this report and confirm that, at the same time as we make progress, we have focussed on some necessary house-keeping as we secure a sound springboard for future expansion. The commitment to continuously globalising our activities around our expanded product range creates for our international clients a one-stop shop to service their worldwide needs - irrespective of where they arise. To meet this pledge we shall focus increasingly on supporting the growth of our regional businesses around the world. Clarksons proved its ability to attract the best talents to strengthen its management team in key areas. The exciting environment linked with attractive incentive schemes has combined well to build a better blend of youth and senior management, essential tools for running a complex people-based organisation. There have been three notable additions to our broking teams arising from acquisitions and further significant organic growth which add to our spread of activities. Acquisitions Plowrights and Genchem (UK) It was recognised that although we possessed an excellent team of brokers working within the chemical sector, the development of a broader based specialised products department would add further value to a public group such as Clarksons. By identifying and subsequently integrating the right blend of people with dedicated skill sets in this sector we sought to expand our existing global customer base and to provide a diversified service platform to attract a broad range of new clients. We chose well, as results already testify. In this sector we act increasingly as an outsourcer, manager of cargo contract business and supplier of logistics advice. The customer base is varied but of significant status including large multi-national chemical companies, utilities and energy groups. Most of these clients readily recognise that when choosing an outsourcer and benchmarker, our own public company status and governance pre-qualifies us ahead of smaller private boutiques. Our unique research and consultancy businesses further enhance the service we can offer. This activity is inherently less susceptible to movements in freight rates that can impact our more traditional shipbroking businesses and therefore fits well with our mission statement. In January 2006 we acquired Plowrights which was quickly and successfully integrated into the Clarksons group providing very effective management to the enlarged working group. They initiated and drove the acquisition of Genchem - made in August. Both companies had a presence in specialised products by which we mean petrochemical liquids and gases, clean products, luboils/vegoils and molasses, whether spot, contract or time charter. Genchem brought a team of another dozen brokers in the same sector with particularly long-standing connections in the chemicals industry and a strong position in the petrochemical gases freight business. Product and customer portfolios of both companies have combined uniquely with our existing business. We also acquired, through the Genchem purchase, a port agency, warehousing and stevedoring operation based in Ipswich, Great Yarmouth, Bristol, Liverpool and Southampton. In total Genchem employed 54 people and we shall use their management of the nonbroking businesses to expand our UK port services businesses to enhance further our service of the short sea business. All parts of the business are profitable as will become clearer in 2007 when we will show a full year of benefit. Anchor Cross (Australia) I have already referred to the priority we place on being a global business. In dry cargo we have confidence in the freight markets ahead and decided to create greater critical mass in the cargo-strong Australian market where the Clarksons group has a proud history. Having recognised the difficulty of finding people with sufficient expertise, when the opportunity arose, we leapt at the chance of acquiring drybulk specialist Anchor Cross with its complementary strong cargo-based, operator servicing businesses. The acquisition was completed in September 2006 and has already been successfully integrated into our existing operations in Melbourne, which will significantly contribute to profitability. That team now comprises over 20 staff led by management from the new team allowing the previous management to focus on expansion outside Melbourne. We intend to concentrate on organic growth in the region and will further reinforce our Auckland and Sydney activities including the operation of our new liner business (PANZ) and service of our break bulk and liner clients' businesses. Organic growth / notable developments Sale and purchase team (global) Whilst Clarksons has traditionally been accredited as having a leading position in the sale and purchase and particularly newbuilding sectors, we recognised that our team needed significant strengthening. Although we have offices globally, we were not properly represented in Asia. Our London operations, despite being profitable, were too narrowly focussed and lacked sufficient market coverage. The departure of senior members of the old team enabled us to address these issues. This process, together with the lack of corporate fleet deals, impacted our spot earnings in the division in 2006. I am delighted to report that we have been successful in enticing a number of significant, senior and well respected industry figures to our team which now means that our global coverage is, we believe, markedly superior to our competitors. The two most senior members of this new team - Andi Case and Julian Brynteson - have assumed responsibility, respectively, for the management of our shipbroking and sale and purchase businesses. Martin Rowe has also joined as managing director of Clarkson Asia in Hong Kong and his new colleagues in Hong Kong, Singapore and Shanghai will provide a proper impetus to our Asian sale and purchase businesses, just as our growing team in Greece is making increasingly significant contributions to our global sale and purchase activities. In Shanghai we have already established a lead position in the newbuilding market. As many of our new team were unable to join us before the end of 2006 the full impact of these additions will only be apparent in 2007. New finance director recruited We are very pleased to announce the appointment of Jeff Woyda who joined us in November 2006. He replaces Rob Ward, who announced his intention to retire last May, and stepped down at the year end. We are indebted to Rob for his invaluable service over 15 years. We are all looking forward to working with Jeff. His considerable experience in financial services will assist us in meeting many of our objectives for growth. He already has a number of measures in hand including further enhancement and detailing of our financial reporting and updating of systems to cope with our expanded businesses. Jeff is fully equipped to assist me in clearly articulating to shareholders the changing nature of our business, always linked to shipping and its products. Hedge fund commenced trading As indicated previously the hedge fund was launched in May 2006. Clarksons invested US$20 million of seed capital from launch. The fund now has US$47 million under management. As at 31 December 2006 the fund produced an annualised return, after all fees, of more than 12%, placing it in the top quartile of comparative funds. This success was achieved due to the hard work of the team of fund managers and trading advisers. The group start-up losses from this activity in the first half were reversed almost entirely in the second half of the year. Financial and technical services introduced This activity started at the beginning of 2006 with the acquisition of a number of new personnel, already working in this sector, particularly in the German KG market. In their first year of operation they have made a positive contribution to group profits of over US$1.3 million. At the year end they have added further to our range of services by recruiting personnel to run a technical services business which we hope will add further to the diversity of added-value resources available to our customers. Enhanced business lines LNG We have been operating a broking and advisory company called LNG Shipping Solutions in joint-venture with BRS of Paris. This company is one of only two significantly scaled businesses operating in this fast expanding arena. We established this business line ahead of all our European broking competitors and have successfully built a lead position bringing many shipowners and operators into this new market place. Our small but dynamic team has provided critical knowledge and years of experience to a new audience hungry for quality advice. We have a significant book of shipbuilding orders and consultancy appointments and are extremely confident in our ability to grow our profitability rather rapidly. Offshore Within sale and purchase we have grown our offshore business from nothing over the last couple of years. We operated in cooperation between London and Singapore with a company called Normarine in Houston. In that cooperation we have been successful in all our centres to build a base of business spawned from the rig business centred round the Houston operation and the offshore support vessel businesses in London. In 2007, we are confident of a significant additional contribution from this line of business. Other matters As has been reported in the media, a legal case has been threatened against H Clarkson & Company Ltd. relating to commission payments during the period 2001 to 2004. The board have reviewed this matter closely. Essentially, the case is about litigation between powerful Russian interests in which Clarksons has been caught up as a third party. All commissions were paid under the direct instruction and authority of the clients. Indeed, Clarksons' shipbroking and advice on all the transactions in this fleet renewal programme have been proven to be advantageous to our clients. Overview of sector performance The group's profit before tax of £21.1 million was achieved because of increased market share in all energy-related, tanker, gas and specialised products businesses. Despite a relatively weaker performance from sale and purchase compared to the exceptional performance of 2005, and a lack-lustre first half in drybulk, the group has performed in line with our analysts' projections for the year. We have made a good start to the current year and are encouraged by the group's performance to date. The value of our forward order book as at 31 December 2006 was US$80 million, a 23% increase from last year (2005: US$65 million). We are in a US dollar denominated business and therefore our results were affected by the weakened US dollar which gave rise to significant foreign exchange losses. We will continue our strategy of building our global business and remain open to absorb more businesses irrespective of their location, as the established industry consolidator. In the 2005 annual report we provided details about each business stream - including forward order book at 1 January for the following year. This was designed to enable a better understanding of the diversity of our earnings. Full detail of the trading performance in each segment for 2006 can be found in the enhanced business review. The actions we have taken during the year to expand and strengthen both our services and reach have already started to produce results. With the sale and purchase team now back on track and a full year's results to be included from businesses acquired, we are confident that we can further grow both our core and new business areas in 2007. Richard Fulford-Smith CHIEF EXECUTIVE 26 March 2007 Enhanced business review During the year we capitalised on a number of opportunities to accelerate our strategy of selectively diversifying into growth areas of shipping and shipping-related services. We have grown our broking and chartering business lines through strategic acquisitions in sale and purchase and specialised products. We have added a number of new businesses to our portfolio, including financial and technical services, and port and agency services. By building on our unique heritage and expertise, we aim to develop a portfolio of integrated businesses that provide market-leading services which meet the demands of our clients around the world. We believe that selective diversification will decrease the level of volatility associated with traditional shipping businesses and increase the visibility of our earnings. Broking Dry bulk chartering Revenue: US$53.1 million (2005: US$57.3 million) Result: US$11.1 million or £6.0 million (2005: US$12.9 million or £7.1 million) Forward order book for 2007: US$27 million (At 31 December 2005 for 2006: US$24 million) Clarksons provides this service in 9 offices globally covering a number of raw materials and commodities. Revenue was down this year at £28.6 million (2005: £31.6 million), as was profit before tax at £6.0 million (2005: £7.1 million). Despite very difficult market conditions during the first half of the year the division has recovered ground in the second half. Dry bulk chartering remains an important market for us and in order to expand our global offering, we acquired Melbourne-based Anchor Cross in September 2006. Container chartering Revenue: US$5.4 million (2005: US$4.4 million) Result: US$1.1 million or £0.6 million (2005: US$0.9 million or £0.5 million) Forward order book for 2007: US$5 million (At 31 December 2005 for 2006: US$3 million) Although we are disappointed by our inability to expand significantly the activities on the container desk, this is largely as a consequence of us not having representation in Europe in the major centre of Hamburg. We do, however, continue to function successfully out of London, Singapore and Shanghai and deals concluded in 2006 will impact positively on our performance in 2007 where again we start the year with a record forward order book. Deep sea chartering Revenue: US$45.1 million (2005: US$36.6 million) Result: US$10.6 million or £5.7 million (2005: US$8.7 million or £4.8 million) Forward order book for 2007: US$7 million (At 31 December 2005 for 2006: US$7 million) This business line performed strongly during the year, with a 20% increase in revenue to £24.3 million (2005: £20.2 million) and a 19% increase in profit before tax to £5.7 million (2005: £4.8 million). We benefited from improved market conditions, a subsequent increase in rates and the continuing consolidation of our position with major customers. Specialised products chartering Revenue: US$19.5 million (2005: US$7.3 million) Result: US$3.5 million or £1.9 million (2005: US$1.1 million or £0.6 million) Forward order book for 2007: US$9 million (At 31 December 2005 for 2006: US$5 million) As part of our strategy to build on our core broking business and diversify into areas we believe offer substantial opportunities for growth and diversification, we made two important acquisitions during the year in this area. In January 2006, we completed the acquisition of Plowrights whose experienced management team have already brought a step change in Clarksons' ability to provide a superior quality and level of service in this area. In August 2006 we completed the acquisition of Genchem. The Genchem broking team brings with it both long-standing connections in the chemicals industry and specific knowledge of the petrochemical gases freight business. Both Plowrights and Genchem have been successfully integrated and are performing well. Revenue from specialised products was up 163% to £10.5 million (2005: £4.0 million) and profit before tax was up 217% to £1.9 million (2005: £0.6 million). Gas chartering Revenue: US$10.2 million (2005: US$6.2 million) Result: US$2.4 million or £1.3 million (2005: US$0.4 million or £0.2 million) Forward order book for 2007: US$4 million (At 31 December 2005 for 2006: US$4 million) Gas chartering and the LPG team has helped deliver significantly improved revenues and margins whereas in 2005 we were absorbing the cost of integrating the new team. Margins were significantly improved as a consequence thereof and again we start the year with a record forward order book. Congratulations to the team on winning significant market share. Revenues increased to £5.5 million (2005: £3.4 million), with profit before tax up by 550% to £1.3 million (2005: £0.2 million), reflecting the benefits from the full integration of the new team acquired in 2005. Sale and purchase broking Revenue: US$38.2 million (2005: US$58.8 million) Result: US$6.5 million or £3.5 million (2005: US$17.1 million or £9.4 million) Forward order book for 2007: US$21 million (At 31 December 2005 for 2006: US$16 million) Clarksons represents buyers and sellers across the globe through its five sale and purchase teams located in London, Singapore, Hong Kong, Piraeus and Shanghai. Whilst the company has traditionally enjoyed a leading position in sale and purchase, and particularly the newbuilding sector, we identified a need to strengthen our team significantly during the year. Revenue was £20.6 million (2005: £32.4 million), as a result of a weaker secondhand market and the lack of significant corporate fleet deals, as we had in 2005. Profit before tax fell to £3.5 million (2005: £9.4 million). In order to strengthen and broaden the focus of this business, we have acquired a team which includes a number of senior, highly-respected industry figures to our global team. With this revitalised global team now in place, we have been able to expand our coverage and have already seen a rebound in the performance of our sale and purchase business during 2007. Futures broking Revenue: US$16.7 million (2005: US$22.3 million) Result: US$4.6 million or £2.5 million (2005: US$6.5 million or £3.6 million) Forward order book for 2007: US$7 million (At 31 December 2005 for 2006: US$6 million) It was a challenging year for the futures broking team, with both adverse market conditions in the first half and increased competition affecting the performance of this business line. Revenue was £9.0 million (2005: £12.3 million) and profit before tax was £2.5 million (2005: £3.6 million). As much of the tanker related business is now traded on screen, we have initiated a restructuring of the wet desk to concentrate on more specialist areas of business. We believe this re-structuring and a rejuvenation of the team, which has led to a reduction in costs, will contribute to improved performance. Research services Revenue: £5.2 million (2005: £4.5 million) Result: £1.0 million (2005: £0.8 million) In 2006 a strong performance on digital products again more than offset the attrition on hard copy products. Revenue amounted to £5.2 million (2005: £4.5 million). Our Ledbury office provided good results with a successful new shipping diary range and advertising sales. Progress was made integrating the offshore databases into Clarksons' well established database and database publishing systems. Our Shanghai office expanded and China Intelligence Monthly was successfully launched. Logistics Revenue: US$4.5 million (2005: US$2.0 million) Loss: US$2.2 million or £1.2 million (2005: loss US$0.7 million or £0.4 million) This is a non-core activity involving the operation of two ships, the Pacific Dhow and the CFF Seine. Whilst revenues from the continuing business increased to £2.4 million (2005: £1.1 million), losses also increased to £1.2 million (2005: loss of £0.4 million). Fund management Revenue: £0.5 million (2005: £nil) Result: £nil (2005: loss £0.4 million) Assets under management: US$47 million (2005: US$nil) Management and performance fees amounted to £0.5 million for the year (2005: £nil). The losses incurred in the first half of the year were reversed by the year end. The fund had US$47 million under management as at 31 December 2006. Property services Revenue: £6.2 million (2005: £5.5 million) Result: £0.9 million (2005: £0.3 million) St Magnus House benefited from a complete year's rental income from Clarkson operating companies (2005: 7 months), and the sub-letting of the surplus space was completed in February 2006. Following expiration of the tenancy of Hamilton Barr House in Godalming in 2005, the premises were refurbished and a new tenant took occupation during the year. Port and agency services Revenue: £1.9 million (2005: £nil) Result: £0.2 million (2005: £nil) As part of the Genchem acquisition, we acquired a port agency, warehousing and stevedoring operation based in Ipswich, Great Yarmouth, Bristol, Liverpool and Southampton. This will enable us to expand into an additional new area of operations and further enhance our service of the short sea business. Although this business was only acquired in August 2006, it has performed well with revenue of £1.9 million (2005: £nil) and profit before tax of £0.2 million (2005: £nil). Financial and technical services Revenue: £2.3 million (2005: £nil) Result: £0.7 million (2005: £nil) This is a new area of activity for Clarksons in 2006 and involves the development of structured shipping projects and ship operations on behalf of our clients. This new activity is very much in line with our strategy to build on our expertise in order to branch out into new and growing areas of shipping services. Initial results are encouraging, with revenue reaching £2.3 million (2005: £nil) and profit before tax of £0.7 million (2005: £nil). We have also added a technical services capability to our portfolio this year, as we believe that diversification into this area will further enhance our prospects going forward. Employees The group employed 570 staff at the end of 2006. 38% of employees were based outside the UK, providing local coverage of the key business centres around the world in which the business trades. Of the employees, 68% were in positions whereby they contribute directly to the earning of revenue, and 32% were employed in supporting roles. The group seeks to employ, motivate and retain high calibre staff. To retain flexibility, incentivise staff and protect the group's earnings, a significant proportion of total annual compensation is made in the form of variable bonuses linked to profits of divisions. Key performance indicators The performance of the business is analysed by desk, division and business segment. Segmental performance is reviewed on revenue, overhead and operating margin. Owing to the nature of shipbroking, estimates of new business concluded are analysed between 'spot' revenue, which is invoiced during the current financial year, and the forward order book which will be invoiced in future years. The forward order book relating to billable revenues in the following financial year is summarised as follows: At 31 At 31 December December 2006 for 2005 for Invoicing Invoicing In 2007 In 2006 Increase Increase $m $m $m % ---------------------- -------- -------- -------- -------- Dry bulk chartering 27 24 3 13 Container chartering 5 3 2 67 Deep sea chartering 7 7 - - Specialised products chartering 9 5 4 80 Gas chartering 4 4 - - Sale and purchase broking 21 16 5 31 Futures broking 7 6 1 17 ---------------------- -------- -------- -------- -------- 80 65 15 23 ---------------------- -------- -------- -------- -------- The group monitors the level of outstanding commissions on a regular basis and believes that the amount of working capital tied up in such balances can be significantly reduced over the coming year. Finance director's review I am delighted to join Clarksons and present my first finance director's review. Profit and loss Results Profit before taxation on continuing operations was £21.1 million, compared with £26.8 million for 2005. Earnings per share on continuing activities were 83.1 pence per share (2005: 108.9 pence per share). The company also earned 3.5 pence per share from discontinued activities (2005: 7.9 pence per share) - see 'discontinued activities' below. The profit for the year attributable to shareholders, which is after tax and combines both continuing and discontinued operations, amounted to £14.8 million (2005: £19.1 million). Revenue Revenues increased to £117.7 million from £115.6 million. The most significant decrease in revenue was from reduced spot earning generated in the sale and purchase department. As stated in the chief executive's review, investment has been made in sale and purchase during 2006, and the full impact from this investment will be seen during 2007. Administrative expenses As the group has grown over the past 12 months, both organically and by acquisition, staff costs have increased by £0.6 million. The company continues to attempt to keep fixed remuneration increases to a minimum, with a key element of remuneration being performance related bonuses. Foreign exchange The US dollar is the major trading currency of the group and results are therefore linked to that currency's fortunes. The average sterling exchange rate for the period was US$1.86 (2005: US$1.81). At 31 December 2006 the sterling exchange rate was US$1.96, a significant weakening since 31 December 2005 when the exchange rate was US$1.72. The group used spot currency contracts to convert cash collected into local currency to meet operating costs. No forward contracts were used during 2006. The weakening in the US dollar has resulted in an exchange loss of £2.0 million (2005: profit £1.5 million). Finance revenue and costs During 2006 the group received substantial dividend income from a shipping related equity investment, and made gains on the seed capital invested in the hedge fund. Finance costs have increased as a result of additional borrowings to fund acquisitions and seed the hedge fund. Borrowings have increased by £43.6 million during the year, of which £16.0 million remained in cash and cash equivalents at the year end. This increased level of borrowing will result in increased finance charges during 2007. Other finance revenue, which relates to the impact of pension accounting, reflects the expected returns on the assets of the schemes less the interest cost on the liabilities of schemes. The 2006 profit of £1.1 million reflects the matched assets and liabilities but with a greater expected return than interest cost. 2007 will also show a corresponding profit, given the underlying net asset position and relevant rates. Taxation The effective tax rate on continuing operations is 32.5% (2005: 33.2%). The overall effective tax rate on continuing and discontinued operations was 31.0% (2005: 27.2%). The overall tax rate is higher than the standard rate of UK tax of 30.0% due to the impact of disallowable trading expenses. Dividends The directors are recommending that, in line with our progressive dividend policy and reflecting our confidence in the business plan, the total dividend for the year increases to 36.0 pence per share (2005: 32.0 pence per share). The final dividend of 24.0 pence per share will be paid to shareholders on 15 June 2007. In accordance with International Financial Reporting Standards, the amount of the final dividend is not provided in the 2006 financial statements as it will be paid in the following year. Statement of recognised income and expense The other major movements in the statement of recognised income and expense relate, as in 2005, to the actuarial gains of £4.3 million on the defined benefit pension schemes (2005: £2.6 million loss) and exchange losses of £2.4 million (2005: £1.5 million profit) on the translation of overseas operations' results. Balance sheet Non-current assets The significant increases in non-current assets are: • intangibles arising on acquisition of £27.0 million (goodwill £20.2 million and intangibles £6.8 million); • the seed capital invested in the hedge fund (£10.8 million); • the presentation of the £7.1 million asset relating to the combined defined benefit schemes. Current assets Increases in trade and other receivables have arisen due to the high level of income generated in the final quarter. The management of working capital and reduction of debtor days are targets for this year. Cash balances include amounts set aside for the payment of bonuses after the year end relating to the results of the year. Current liabilities As in previous years, at the end of the year the majority of the bonuses are accrued awaiting payment after the year end. At 31 December 2006 this amounted to £23.2 million (2005: £32.6 million). There is also an amount of £4.9 million relating to deferred consideration on acquisitions. Non-current liabilities During the year the company negotiated a £50.0 million three year revolving facility from Barclays Bank PLC. As at the year end, £47.7 million (2005: £2.9 million) was drawn down, primarily to finance acquisitions and investments. This amount is in addition to the £4.1 million (2005: £5.3 million) borrowed from DVB Bank in Singapore secured on the MV Pacific Dhow. Capital and reserves The company issued further shares during the year to meet current and future obligations arising on the various acquisitions. A total of 1,125,051 shares were issued for a consideration of £9.8 million. Cash flow Cash generation remains a key strength of the group. During the year the group accumulated cash as profit linked bonus entitlements were accrued; bonuses are paid in February and May following the end of the financial year. At the end of the financial year the aggregate cash balance had increased to £74.8 million (2005: £55.1 million). Subsequent to the year end a number of significant payments will be made totalling £27.5 million (2005: £54.9 million). These include £23.2 million in staff bonuses relating to 2006 (2006 in relation to 2005: £32.6 million) and a £4.3 million final dividend payment relating to 2006 (2006 in relation to 2005: £3.7 million). There are no other significant payments in early 2007 (2006: £7.5 million for Plowrights and US$ 20.0 million investment in the new Clarkson Shipping Fund). Acquisitions In January 2006 the group acquired Plowrights for an initial consideration of £1.5 million satisfied in cash (£0.8 million) and shares (£0.7 million). A further payment of £6.7 million was made to eliminate the pension deficit which existed on acquisition. Deferred consideration of up to £0.8 million may be payable in cash over the next two years dependent on the achievement of performance targets over that period. In August 2006 the group acquired the Genchem group for an initial consideration of £8.8 million, payable as to £5.6 million in cash and £3.2 million in shares. Deferred consideration of up to £1.5 million may be payable over the next two years dependent on the achievement of performance targets over that period. In September 2006 our Australian subsidiary acquired Anchor Cross for an initial consideration of Aus$6 million (£2.4 million) satisfied in cash. Deferred consideration of up to Aus$6.0 million (£2.4 million) may be payable in shares over the next three years. Discontinued activities In December 2005, Channel Freight Ferries ceased daily sailings and preparation was made for the orderly closure of the business. This logistics business was treated in the 2005 financial statements as a discontinued activity and a closure provision was made. In 2006 most of the contracts were terminated successfully, thereby enabling the group to release £0.9 million of provisions which were no longer required. This has left one final contract which was terminated in January 2007 without incurring any further costs. In August 2002, the group acquired the activities of Beacon Chartering & Shipping Limited. These activities were conducted in New Zealand. The original business ceased to operate during 2006 and thus the results and the associated goodwill impairment charge have been accounted for as a discontinued activity and are shown separately from the current year's reported profits for continuing operations. Segmental reporting The 2005 financial statements provided a detailed analysis of the operating performance of the full range of business activities undertaken by the Clarkson group, to provide shareholders with a fuller understanding of the spread of business activity. This analysis has been enhanced in 2006. Pensions The company now operates two defined benefit schemes. In January 2006 the company assumed responsibility for the assets and liabilities of the Plowrights defined benefit pension scheme. Under the terms of the acquisition the accounting deficit on the Plowrights scheme of £6.7 million was eliminated. Defined benefit pension arrangements give rise to open ended commitments and liabilities for the sponsoring company. As a consequence the company closed the original defined benefit section of the UK scheme to new entrants on 31 March 2004 and closed this section for further accrual to all existing members as from 31 March 2006. The Plowrights scheme was closed to new entrants and to further accrual with effect from 1 January 2006. The combined UK defined benefit pension scheme surplus at the end of 2006 was £7.1 million (2005: liability of £0.4 million). From 1 April 2006 all pension benefits accrued in the UK arise in defined contribution schemes. The group also operates a variety of pension arrangements throughout the world, all of which are either provided by the state or are defined contribution schemes. Risk management The identification, control and monitoring of risks facing the business remain a management priority and steps continue to be taken to improve further our risk management procedures. The risks monitored include operational, market, treasury, credit and reputational risk. Details of our approach to risk management are provided in the corporate governance statement in the annual report. Liquidity risk The group's policy is to maintain borrowings and facilities at a level such that they provide access to funds sufficient to meet all of its foreseeable requirements. At the end of the year the company had short and medium term borrowing facilities of £55.0 million (2005: £7.0 million) of which £47.7 million was drawn down (2005: £2.9 million). Taking the group's bank facilities and strong operating cash flow generation, the group is well placed to fund future developments of its global business. Interest rate risk The majority of the company's borrowings are at variable rates of interest. We are considering the appropriateness of this exposure to interest rate movements. Foreign exchange risk As stated, the US dollar is the major trading currency of the group. Movements in the US dollar relative to other currencies, particularly sterling, have the potential to impact the results of the group as was evident in 2006 both in terms of the operating results and the revaluation of the balance sheet. Credit risk In common with most other companies, the group is exposed to credit-related losses in the event of non-payment of invoices. The group mitigates this risk by closely monitoring amounts outstanding from all sources and by adopting a conservative approach to accounting for bad debt. Share price The share price at 31 December 2006 was 820.5 pence. During 2006 the share price ranged from a high of 1058.5 pence in August to a low of 725.5 pence at the end of November. Compliance and regulation Clarksons has two subsidiaries which are authorised and regulated by the UK Financial Services Authority (FSA). Clarkson Securities Limited provides futures broking services and Clarkson Fund Management Limited provides investment management services to the new Clarkson Shipping Fund which became active in February 2006. Both companies have strong balance sheets to comply with regulatory capital adequacy requirements. Jeff Woyda FINANCE DIRECTOR 26 March 2007 Consolidated income statement for the year ended 31 December 2006 2006 2005 £m £m -------------------------------- -------- -------- Revenue - continuing operations 117.7 115.6 Administrative expenses (100.6) (91.9) -------------------------------- -------- -------- Operating profit - continuing operations 17.1 23.7 Share of profits of associates and joint ventures 0.4 0.5 Finance revenue 4.2 1.6 Finance costs (1.7) (0.1) Other finance revenue - pensions 1.1 1.1 -------------------------------- -------- -------- Profit before taxation - continuing operations 21.1 26.8 Taxation (6.9) (8.9) -------------------------------- -------- -------- Profit for the year - continuing operations 14.2 17.9 Profit for the year from discontinued operations 0.6 5.7 -------------------------------- -------- -------- Profit for the year 14.8 23.6 -------------------------------- -------- -------- Attributable to: Equity holders of the parent 14.8 19.1 Minority interests - 4.5 -------------------------------- -------- -------- 14.8 23.6 -------------------------------- -------- -------- Earnings per share Basic - continuing operations 83.1p 108.9p -------------------------------- -------- -------- Diluted - continuing operations 80.0p 107.7p -------------------------------- -------- -------- Basic - profit for the year 86.6p 116.8p -------------------------------- -------- -------- Diluted - profit for the year 83.4p 115.5p -------------------------------- -------- -------- Consolidated statement of recognised income and expense for the year ended 31 December 2006 2006 2005 £m £m -------------------------------- -------- -------- Actuarial gain/(loss) on employee benefits - net of tax 4.3 (2.6) Foreign exchange differences on retranslation of foreign operations (2.4) 1.5 -------------------------------- -------- -------- Total recognised directly in equity 1.9 (1.1) Profit for the year 14.8 23.6 -------------------------------- -------- -------- Total recognised income and expense for the year 16.7 22.5 -------------------------------- -------- -------- Attributable to: Equity holders of the parent 16.7 18.0 Minority interests - 4.5 -------------------------------- -------- -------- 16.7 22.5 -------------------------------- -------- -------- Effects of changes in accounting policy: Equity holders of the parent - 0.5 Restatement for the effects of adopting IAS 39 - (0.1) Settlement of forward currency contracts -------------------------------- -------- -------- - 0.4 -------------------------------- -------- -------- Consolidated balance sheet as at 31 December 2006 2006 2005 £m £m -------------------------------- -------- -------- Non-current assets Property, plant and equipment 20.1 21.3 Investment property 0.4 0.4 Intangible assets 42.4 17.7 Investments in associates and joint ventures 2.6 1.0 Trade and other receivables 0.4 0.5 Investments 14.0 2.1 Employee benefits 7.1 - Deferred tax asset 3.7 3.3 -------------------------------- -------- -------- 90.7 46.3 -------------------------------- -------- -------- Current assets Trade and other receivables 30.5 25.4 Cash and short-term deposits 74.8 55.1 Income tax receivable 0.6 0.3 -------------------------------- -------- -------- 105.9 80.8 -------------------------------- -------- -------- Current liabilities Interest-bearing loans and borrowings (0.9) (3.4) Trade and other payables (66.6) (55.6) Provisions (0.6) (3.9) Income tax payable (2.0) (4.8) -------------------------------- -------- -------- (70.1) (67.7) -------------------------------- -------- -------- Net current assets 35.8 13.1 -------------------------------- -------- -------- Non-current liabilities Interest-bearing loans and borrowings (50.9) (4.8) Trade and other payables (5.0) (4.4) Provisions (0.5) (0.2) Employee benefits - (0.4) Deferred tax liability (4.7) (1.8) -------------------------------- -------- -------- (61.1) (11.6) -------------------------------- -------- -------- Net assets 65.4 47.8 -------------------------------- -------- -------- Capital and reserves Issued capital 4.5 4.3 Share premium 20.7 11.1 ESOP reserve (3.7) (0.5) Deferred share consideration 1.1 1.9 Capital redemption reserve 2.0 2.0 Profit and loss 42.1 27.9 Currency translation reserve (1.3) 1.1 -------------------------------- -------- -------- Clarkson PLC group shareholders' equity 65.4 47.8 Minority interests - - -------------------------------- -------- -------- Total equity 65.4 47.8 -------------------------------- -------- -------- Consolidated cash flow statement for the year ended 31 December 2006 -------------------------------- -------- -------- 2006 2005 £m £m -------------------------------- -------- -------- Cash flows from operating activities Operating profit Adjustments for: 17.1 23.7 Profit before tax from discontinued operations 0.4 5.6 Depreciation 2.6 2.4 Profit on sale of property, plant and equipment - (11.4) Profit on sale of investments - (0.6) Impairment of goodwill 0.5 - Difference between ordinary pension contributions paid and amount recognised in the income statement (0.4) (0.1) -------------------------------- -------- -------- Increase in trade and other receivables 20.2 19.6 (Decrease)/increase in bonus accrual (2.4) (7.0) Increase in trade and other payables (9.4) 10.7 (Decrease)/increase in provisions 13.0 10.5 (3.0) 3.2 -------------------------------- -------- -------- Cash generated from operations 18.4 37.0 Income tax paid (8.3) (6.5) Interest paid (1.7) (0.1) -------------------------------- -------- -------- Net cash flow from operating activities 8.4 30.4 -------------------------------- -------- -------- Cash flows from investing activities Interest received 1.7 1.3 Purchase of property, plant and equipment (2.2) (20.7) Proceeds from sale of investments - 0.8 Proceeds from sale of property, plant and equipment 0.1 15.2 Purchase of investments (11.2) (1.2) Special contributions to pension schemes (6.7) (10.0) Investment in associates (0.7) - Acquisition of subsidiaries and businesses, net of cash acquired (5.5) (3.2) Dividends received from associates and joint ventures 0.3 0.3 Dividends received from investments 1.8 0.3 -------------------------------- -------- -------- Net cash flow from investing activities (22.4) (17.2) -------------------------------- -------- -------- Cash flows from financing activities Payments to minority interests - (5.7) Dividends paid (5.7) (4.2) Proceeds from borrowings 44.8 8.2 Repayments of borrowings (1.2) (1.7) ESOP shares acquired (3.1) - -------------------------------- -------- -------- Net cash flow from financing activities 34.8 (3.4) -------------------------------- -------- -------- Net increase in cash and cash equivalents 20.8 9.8 Cash and cash equivalents at 1 January 55.1 44.0 Net foreign exchange differences (1.1) 1.3 -------------------------------- -------- -------- Cash and cash equivalents at 31 December 74.8 55.1 -------------------------------- -------- -------- Notes to the preliminary financial statements 1 General information The preliminary announcement of results for the year ended 31 December 2006 is an extract from the forthcoming 2006 annual report and does not constitute the group's statutory financial statements of 2006 nor 2005. Statutory financial statements for 2005 have been delivered to the Registrar of Companies, and those for 2006 will be delivered following the company's annual general meeting. The auditors have reported on the 2005 financial statements; their report was unqualified and did not contain statements under Sections 237(2) or (3) of the Companies Act 1985. 2 Accounting policies Whilst the financial information included in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted for use in the European Union, this announcement does not itself contain sufficient information to comply with IFRSs. The company expects to publish full financial statements that comply with IFRSs on 18 April 2007. 3 Segmental analysis Segmental information on continuing operations for revenue and results is as follows: Business segments Revenue Results -------------------------- ------------- ------------- Continuing operations 2006 2005 2006 2005 £m £m £m £m -------------------------- ------- -------- -------- -------- Dry bulk chartering 28.6 31.6 6.0 7.1 Container chartering 2.9 2.4 0.6 0.5 Deep sea chartering 24.3 20.2 5.7 4.8 Specialised products chartering 10.5 4.0 1.9 0.6 Gas chartering 5.5 3.4 1.3 0.2 Sale and purchase broking 20.6 32.4 3.5 9.4 Futures broking 9.0 12.3 2.5 3.6 Research services 5.2 4.5 1.0 0.8 Logistics 2.4 1.1 (1.2) (0.4) Fund management 0.5 - - (0.4) Property services 6.2 5.5 0.9 0.3 Port and agency services 1.9 - 0.2 - Financial and technical services 2.3 - 0.7 - -------------------------- ------- -------- -------- -------- Less property services revenue arising within the group 119.9 117.4 (2.2) (1.8) -------------------------- ------- -------- Segment revenue/results 117.7 115.6 23.1 26.5 -------------------------- ------- -------- Head office costs and foreign exchange differences (6.0) (2.8) -------------------------- ------- -------- -------- -------- Operating profit 17.1 23.7 Share of profits of associates and joint ventures 0.4 0.5 Finance revenue 4.2 1.6 Finance costs (1.7) (0.1) Other finance revenue - pensions 1.1 1.1 -------------------------- ------- -------- -------- -------- Profit before taxation 21.1 26.8 Taxation (6.9) (8.9) -------------------------- ------- -------- -------- -------- Profit after taxation 14.2 17.9 -------------------------- ------- -------- -------- -------- 4 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: 2006 2005 £m £m ------------------------------- -------- -------- -------- Earnings - continuing operations 14.2 17.9 ------------------------------- -------- -------- -------- Profit for the period 14.8 19.1 ------------------------------- -------- -------- -------- 2006 2005 Number Number millions millions ------------------------------- -------- -------- -------- Weighted average number of ordinary shares 17.1 16.4 ------------------------------- -------- -------- -------- Diluted weighted average number of ordinary shares 17.8 16.6 ------------------------------- -------- -------- -------- 5 Intangible assets ------------------------------- -------- -------- -------- 31 December 2006 Intangibles Goodwill Total £m £m £m ------------------------------- -------- -------- -------- Cost At 1 January 2006 - 17.7 17.7 Additions 6.8 - 6.8 Acquisition of subsidiaries and businesses - 20.2 20.2 Reclassification of associate's goodwill - (0.8) (0.8) Deferred consideration adjustment - (0.9) (0.9) Foreign exchange differences - (0.1) (0.1) ------------------------------- -------- -------- -------- At 31 December 2006 6.8 36.1 42.9 ------------------------------- -------- -------- -------- Amortisation and impairment ------------------------------- -------- -------- -------- At 1 January 2006 - - - Impairment - 0.5 0.5 Amortisation - - - ------------------------------- -------- -------- -------- At 31 December 2006 - 0.5 0.5 ------------------------------- -------- -------- -------- Net book value at 31 December 2006 6.8 35.6 42.4 ------------------------------- -------- -------- -------- Net book value at 31 December 2005 - 17.7 17.7 ------------------------------- -------- -------- -------- On 4 January 2006 the group completed the acquisition of J O Plowright & Co (Holdings) Limited ('Plowrights'). Plowrights had 26 staff predominantly serving the petrochemical, products, lubricant, gas, vegetable oil and molasses freight markets. The business has now been merged with H Clarkson & Company Limited. On 10 August 2006 the group acquired Genchem Holdings Limited ('Genchem'). Genchem had 54 staff and its services comprise shipbroking, port agency, warehousing and stevedoring. On 5 September 2006 the group acquired the business of Anchor Cross Shipbrokers (Pty) Limited ('Anchor Cross'). This operation was merged with Clarkson Melbourne (Pty) Limited. The combined entity employed in excess of 20 people serving the dry bulk sector. In December 2006 the group purchased intangible assets representing non-contractual commercial relationships for £6.8 million. The directors believe the useful life of these assets to be 5 years. These assets will be amortised on a straight line basis. The book and fair values of the identifiable assets and liabilities of Plowrights, Genchem and Anchor Cross at the date of acquisition were as follows: Plowrights Genchem Anchor Cross Total Book Fair Book Fair Book Fair Book Fair value value value value value value value value £m £m £m £m £m £m £m £m Property, plant and equipment - - 0.5 0.5 - - 0.5 0.5 Deferred tax asset - 1.9 - - - - - 1.9 Trade receivables 0.4 0.4 0.4 0.4 - - 0.8 0.8 Other receivables 1.0 1.0 0.7 0.7 - - 1.7 1.7 Prepayments - - 0.1 0.1 - - 0.1 0.1 Cash and short-term deposits 1.0 1.0 2.3 2.3 - - 3.3 3.3 -------------- ------ ------ ------ ------ ------ ------ ------ ------ 2.4 4.3 4.0 4.0 - - 6.4 8.3 -------------- ------ ------ ------ ------ ------ ------ ------ ------ Trade and other payables (1.4) (1.5) (1.5) (1.5) - - (2.9) (3.0) Accruals - - (0.1) (0.1) - - (0.1) (0.1) Income tax payable (0.9) (0.9) (0.3) (0.3) - - (1.2) (1.2) Employee benefits (6.7) (6.7) - - - - (6.7) (6.7) Other tax and social security - - (0.1) (0.1) - - (0.1) (0.1) -------------- ------ ------ ------ ------ ------ ------ ------ ------ (9.0) (9.1) (2.0) (2.0) - - (11.0) (11.1) -------------- ------ ------ ------ ------ ------ ------ ------ ------ (6.6) 2.0 - (4.6) -------------- ------ ------ ------ ------ Fair value of net assets (4.8) 2.0 - (2.8) Goodwill arising on acquisitions 7.1 8.3 4.8 20.2 -------------- ------ ------ ------ ------ ------ ------ ------ ------ Consideration paid 2.3 10.3 4.8 17.4 -------------- ------ ------ ------ ------ ------ ------ ------ ------ The fair value adjustments relating to the Plowrights acquisition are the deferred tax asset arising on the Plowrights pension deficit available to the company (£1.9 million) and additional liabilities (£0.1 million). Plowrights Genchem Anchor Total £m £m Cross £m £m ----------------------------- ------- ------- ------- ------- Discharged by: Fair value of shares issued 0.7 3.2 - 3.9 Cash - 5.3 2.4 7.7 Costs associated with acquisition, settled in cash 0.8 0.3 - 1.1 Deferred consideration 0.8 1.5 2.4 4.7 ----------------------------- ------- ------- ------- ------- 2.3 10.3 4.8 17.4 ----------------------------- ------- ------- ------- ------- 6 Investments Investments include US$20 million injected as seed capital into the shipping hedge fund. 7 Employee benefits The company now operates two defined benefit schemes. In January 2006 the company assumed responsibility for the assets and liabilities of the Plowrights defined benefit pension scheme. Under the terms of the acquisition the accounting deficit on the Plowrights scheme of £6.7 million was eliminated. As at 31 December 2006 these schemes had a combined surplus of £7.1 million. The market value of the assets is £134.7 million and independent actuaries have assessed the present value of funded obligations at £127.6 million. The company has provided deferred tax on this surplus amounting to £2.1 million. 8 Analysis of net funds 31 December Reallocation Cash flow Foreign 31 December 2005 £m £m Exchange 2006 £m Differences £m £m ------------------- -------- --------- ------- -------- -------- Cash and short-term deposits 55.1 - 20.8 (1.1) 74.8 Current interest-bearing loans and borrowings (3.4) 1.3 1.2 - (0.9) Non-current interest-bearing loans and borrowings (4.8) (1.3) (44.8) - (50.9) ------------------- -------- --------- ------- -------- -------- Net funds 46.9 - (22.8) (1.1) 23.0 ------------------- -------- --------- ------- -------- -------- 9 Dividends The directors will be recommending a final dividend of 24.0 pence per share, payable on 15 June 2007 to shareholders on the register at the close of business on 1 June 2007, making a total dividend for the year of 36.0 pence (2005: 32.0 pence) per share. 10 Contingencies A legal action has been threatened against H Clarkson & Company Limited and various other defendants by a client in connection with third party commissions on business transacted during the period 2001-2004 totalling approximately US$33 million which the subsidiary is alleged to have improperly paid. The subsidiary acted throughout on instructions of the client company's senior management at the time on which it relied. As such the subsidiary considers that should such a claim be brought its case is strongly defensible and, accordingly, no provision has been made in these financial. The legal action reported previously in the 2005 financial statements (and the 2006 interim report) has been settled by the group's insurers without cost to the company. This information is provided by RNS The company news service from the London Stock Exchange

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