Interim Results
Clarkson PLC
30 August 2006
CLARKSONS
Interim results for the six months ended 30 June 2006
Clarkson PLC ('Clarksons'), the world's leading shipping services group, today
announces unaudited interim results for the six months ended 30 June 2006.
• Revenue £52.6 million (2005: £53.9 million).
• Profit before taxation £9.3 million (2005: £13.2 million).
• Earnings per share - continuing operations 37.5p (2005: 49.4p).
• Interim dividend increased to 12.0p (2005: 10.0p).
Tim Harris, Chairman of Clarkson PLC, commented:
'I am pleased to announce another strong interim result.
'The company is well placed to produce another excellent result in 2006.'
30 August 2006
For further information please contact:
Richard Fulford-Smith, Chief Executive, Clarkson PLC: 0774 704 3139
Rob Ward, Finance Director, Clarkson PLC: 020 7334 0000
Overview
The company has generated an interim pre-tax profit of £9.3 million from
continuing operations. In addition a further £1.1 million of profit resulted
from the release of provisions which are no longer required. Earnings per share,
in aggregate, were 44.2 pence per share. Revenue was £52.6 million.
These results reflect the continuing growth of our underlying business despite a
decline in freight rates and related shipping markets in the first half of the
year.
During the first half of 2006 the company acquired three more businesses - a
specialised products broker team with the acquisition of Plowrights, a financial
services team and a sale and purchase team. The company has also commenced
management of a shipping hedge fund. These moves are intended to broaden the
earnings base of the company in activities which are related to our core skills.
The company's strategy remains the continuing development of its shipping
services activities. Clarkson's brand combined with the competitive advantage
provided by its market intelligence, gives it an edge.
Review of operations
Dry bulk chartering
Dry bulk markets in the first half of 2006 were significantly weaker than the
comparable period in 2005, however recent improvements suggest that our global
dry bulk team will generate better results in the second half. In particular, we
are encouraged by the level of forward order book business being written across
all vessel size categories. There is growing confidence in dry bulk markets
going forward with minerals demand from China and India being the major drivers
on the demand side.
Container chartering
We continue to reorganise our container broking operations around the three
centres of London, Singapore and Shanghai.
In addition we are developing Global Slot Network. This new system will enable
ocean carriers, container ship owners, shipping and leasing companies to
exchange slot capacity through a neutral platform. It is anticipated that this
platform will be launched during the second half of 2006.
Deep sea chartering
Our tanker teams globally continue to increase their market share. We are
particularly pleased to have established ourselves on the panels of all of the
major oil companies and traders which provides us with a broad spread of
business across all sectors.
Specialised products chartering
The Plowrights acquisition was completed in January 2006 and the integration
into the London broking team has been successfully achieved. There is a
substantial increase in revenues in this business sector and although we have
not yet determined how best to deal with our 25% interest in Panasia we are
resolved to continue to grow in this market sector.
In August we completed the acquisition of Genchem for an initial consideration
of £8.6 million which will further enhance the results of this activity in the
second half.
Gas chartering
The team of LPG specialists, recruited in 2005, are helping to deliver improved
revenues and results, thereby improving operating margins.
Sale and purchase broking
We have encountered a significant lull in activity on the secondhand side with
no substantial transactions (unlike in the first half of 2005) to support our
otherwise steady stream of income.
The newbuilding market, however, has continued to surprise with unexpectedly
high levels of contracting. As much of this revenue is collectable over the life
of the contract, this has little impact on our 2006 earnings, although
significantly enhances our forward order book.
This sector of the market is particularly important for our business. In May
2006 we recruited a team of sale and purchase brokers from our competitors who
will bring a wealth of knowledge and experience to the sale and purchase
division. The full benefit of this acquisition will only become apparent as
members of the team commence their employment with the company.
Futures broking
Despite adverse market conditions our futures desk is performing well. The dry
desk is maintaining its position but the wet desk is striving to move into more
specialised areas of its business. During the first half we reduced the fixed
level of overheads, the full effect of which will emerge in the second half.
CIF (a platform for trading forward freight agreements) is expected to be
launched for live trading in September.
Research and IT services
Research continues to develop into a global integrated research operation and is
moving forward rapidly on the globalisation of our IT systems.
Many of the Research publications are released in the first half of the year
which has an impact on the timing of revenues.
Logistics
The Pacific Dhow continues to operate profitably though we continue to seek
efficiencies and improved volumes.
The CFF Seine, after its time in dry dock earlier in the year, has now found
profitable employment.
At the end of 2005 significant provisions were established to cover the likely
closure costs of Channel Freight Ferries. Extensive negotiations on many of the
potential liabilities have been successfully concluded with the result that
there are provisions we no longer require. These provisions have been released
as profit on discontinued activities.
Fund management
The Clarkson Shipping Fund was launched in the first half with US$20 million of
investment from the company. A further US$10 million has been subscribed by
external investors.
The Clarkson Shipping Fund has started well with a good result on its portfolio
of shipping equity and derivative investments, compared with the general
performance of the hedge fund industry during May and June 2006, and performance
remains positive in the period to date.
Property services
Since February 2006, St Magnus House has been fully let and is generating a
useful return from our many sub-tenants.
Financial services
In January 2006 we recruited a financial services team. The team have achieved
considerable success in structuring a shipping project, completing various
timecharters and operating a vessel in the first half. The majority of this
income, however, will only arise in the second half of 2006.
Finance
Tax
We estimate that the overall effective tax rate for the whole of 2006 will be
32.5% (2005 full year: 33.2%) and have applied this rate for the first half of
the year. The tax rate reflects the impact of disallowable trading expenses.
Dividend
The board has decided to increase the interim dividend by 2.0p per share from
10.0p to 12.0p per share.
The interim dividend will be paid on Friday 22 September 2006 to shareholders on
the register at close of business on Friday 8 September 2006.
Foreign exchange
The US dollar is the major trading currency of the group. The average sterling
exchange rate for the six month period was US$1.80. At 30 June 2006 the sterling
exchange rate was US$1.85.
Cash flow
Cash generation remains a key strength of the group.
However, net funds fell from £46.9 million at 31 December 2005 to £4.1 million
at 30 June 2006 reflecting the payment of £32.6 million of bonus relating to the
year 2005; £7.5 million relating to the acquisition of Plowrights and a US$20.0
million (£10.8 million) investment in the newly launched shipping hedge fund.
Directors
At the annual general meeting in May 2006, Rob Ward indicated his intention to
retire in December 2006 after being with the company for some 16 years.
Outlook
It is never easy to predict the timing or balance of supply and demand in the
shipping market. However, trading in the first six months of 2006 has not been
quite as difficult as originally anticipated and we are optimistic about the
company's performance in the second half of the year.
With fund management, financial services and property services all now fully
established our revenue base has broadened and should provide additional
consistency to our earnings.
Your company is well placed to produce another excellent result in 2006 and to
continue to generate increased returns for shareholders.
Tim Harris CHAIRMAN
Richard Fulford-Smith CHIEF EXECUTIVE
30 August 2006
Consolidated income statement
Half year to Half year to Year to
30 June 30 June 31 December
2006 2005 2005
£m £m £m
Revenue - continuing operations 52.6 53.9 115.9
Administrative expenses (45.8) (42.0) (92.2)
Operating profit - continuing operations 6.8 11.9 23.7
Share of profits of associates and joint venture 0.2 0.2 0.5
Finance revenue 2.2 0.9 1.6
Finance costs (0.5) - (0.1)
Other finance revenue - pensions 0.6 0.2 1.1
Profit before taxation - continuing operations 9.3 13.2 26.8
Taxation (3.0) (5.1) (8.9)
Profit for the period - continuing operations 6.3 8.1 17.9
Profit for the period from discontinued operations 1.1 8.0 5.7
Profit for the period 7.4 16.1 23.6
Attributable to:
Equity holders of the parent 7.4 12.7 19.1
Minority interests - 3.4 4.5
7.4 16.1 23.6
Earnings per share
Basic - continuing operations 37.5p 49.4p 108.9p
Diluted - continuing operations 37.2p 49.4p 107.7p
Basic - profit for the period 44.2p 77.5p 116.8p
Diluted - profit for the period 43.8p 77.5p 115.5p
Consolidated statement of recognised income and expense
Half year to Half year to Year to
30 June 30 June 31 December
2006 2005 2005
£m £m £m
Actuarial gain/(loss) on employee benefit schemes - net of tax 5.9 (2.7) (2.6)
Foreign exchange differences on retranslation of foreign (1.4) 1.0 1.5
operations
Total recognised directly in equity 4.5 (1.7) (1.1)
Profit for the period 7.4 16.1 23.6
Recognised income and expense for the period 11.9 14.4 22.5
Restatement for the effects of adopting IAS 39 - - 0.5
Settlement of forward currency contracts - - (0.1)
Total recognised income and expense 11.9 14.4 22.9
Attributable to:
Equity holders of the parent 11.9 11.0 18.4
Minority interests - 3.4 4.5
11.9 14.4 22.9
Consolidated balance sheet
30 June 30 June 31 December
2006 2005 2005
£m £m £m
Non-current assets
Property, plant and equipment 20.7 13.7 21.3
Investment property 0.4 - 0.4
Intangible assets 35.3 11.6 17.7
Investments in associates and joint venture 1.0 1.0 1.0
Trade and other receivables 0.7 - 0.5
Investments 15.7 0.8 2.1
Employee benefits 8.7 - -
Deferred tax asset 2.5 3.5 3.3
85.0 30.6 46.3
Current assets
Trade and other receivables 26.8 22.5 25.7
Cash and short-term deposits 37.2 37.6 55.1
64.0 60.1 80.8
Current liabilities
Interest-bearing loans and borrowings (0.7) (4.3) (3.4)
Trade and other payables (39.6) (31.2) (55.6)
Provisions (1.7) - (3.9)
Income tax payable (3.0) (9.9) (4.8)
(45.0) (45.4) (67.7)
Net current assets 19.0 14.7 13.1
Non-current liabilities
Interest-bearing loans and borrowings (32.4) - (4.8)
Trade and other payables (5.0) (1.6) (4.4)
Provisions (0.3) - (0.2)
Employee benefits - (1.5) (0.4)
Deferred tax liability (4.7) - (1.8)
(42.4) (3.1) (11.6)
Net assets 61.6 42.2 47.8
Capital and reserves
Issued capital 4.5 4.3 4.3
Share premium 17.5 11.1 11.1
ESOP reserve (1.4) (2.6) (0.5)
Deferred share consideration 1.1 1.9 1.9
Capital redemption reserve 2.0 2.0 2.0
Profit and loss 38.2 22.6 27.9
Currency translation reserve (0.3) 0.7 1.1
Clarkson PLC group shareholders' and total equity 61.6 40.0 47.8
Minority interests - 2.2 -
Total equity 61.6 42.2 47.8
Consolidated cash flow statement
Half year to Half year to Year to
30 June 30 June 31 December
2006 2005 2005
£m £m £m
Cash flows from operating activities
Operating profit 6.8 11.9 23.7
Adjustments for:
Profit before tax from discontinued operations 1.1 9.8 5.6
Depreciation 1.3 1.0 2.4
Profit on sale of property, plant and equipment - (11.0) (11.4)
Profit on sale of investments - - (0.6)
Difference between ordinary pension contributions paid (0.1) - (0.1)
and amount recognised in the income statement
9.1 11.7 19.6
Decrease/(increase) in trade and other receivables 1.7 (5.2) (7.0)
Prior year related bonus payments (32.6) (21.9) (21.9)
Increase in trade and other payables 14.1 22.6 43.1
(Decrease)/increase in provisions (2.1) - 3.2
Cash (utilised)/generated from operations (9.8) 7.2 37.0
Income tax paid (4.9) (5.6) (6.5)
Interest paid (0.5) - (0.1)
Net cash flow from operating activities (15.2) 1.6 30.4
Cash flows from investing activities
Interest received 0.9 0.6 1.3
Purchase of property, plant and equipment (1.5) (11.2) (20.7)
Proceeds from sale of investments - - 0.8
Proceeds from sale of property, plant and equipment 0.1 14.5 15.2
Purchase of investments (16.5) (0.1) (1.2)
Special contributions to pension schemes (6.7) (10.0) (10.0)
Investment in an associate (0.1) - -
Acquisition of a subsidiary, net of cash acquired (0.9) (2.6) (3.2)
Dividends received from associates and joint venture 0.3 - 0.3
Dividends received 1.3 0.2 0.3
Net cash flow from investing activities (23.1) (8.6) (17.2)
Cash flows from financing activities
Payments to minority interests - - (5.7)
Dividends paid (3.8) (2.6) (4.2)
Proceeds from borrowings 25.5 2.6 6.5
Net cash flow from financing activities 21.7 - (3.4)
Net (decrease)/increase in cash and cash equivalents (16.6) (7.0) 9.8
Cash and cash equivalents at start of period 55.1 44.0 44.0
Net foreign exchange difference (1.3) 0.6 1.3
Cash and cash equivalents at end of period 37.2 37.6 55.1
Notes to the interim financial report
1 Basis of preparation and accounting policies
The interim financial report has been prepared using the same accounting
policies and bases as those followed in the preparation of the group's annual
financial statements for the year ended 31 December 2005.
2 Segmental information
Revenue Results
Half Half year Year to Half year Half year Year to
year to to 30 31 to 30 to 30 31
30 June June December June June December
Continuing operations 2006 2005 2005 2006 2005 2005
£m £m £m £m £m £m
Dry bulk chartering 12.8 16.7 31.9 2.0 4.1 7.1
Container chartering 1.4 1.1 2.4 0.3 0.2 0.5
Deep sea chartering 12.0 9.8 20.2 2.8 2.2 4.8
Specialised products chartering 4.3 1.5 4.0 0.6 0.1 0.6
Gas chartering 2.6 1.1 3.4 0.6 0.1 0.2
Sale and purchase broking 9.6 12.4 32.4 1.7 3.8 9.4
Futures broking 3.6 6.1 12.3 0.8 1.8 3.6
Research services 2.9 2.4 4.5 0.8 0.3 0.8
Logistics 1.2 1.1 1.1 (0.4) 0.6 (0.4)
Fund management 0.1 - - (0.6) - (0.4)
Financial services - - - (0.2) - -
Property services 3.1 2.6 5.5 0.3 (0.1) 0.3
53.6 54.8 117.7
Less property services revenue arising (1.0) (0.9) (1.8)
within the group
Segment revenue/results 52.6 53.9 115.9 8.7 13.1 26.5
Head office costs and foreign exchange (1.9) (1.2) (2.8)
differences
Share of profits of associates and 0.2 0.2 0.5
joint venture
Finance revenue 2.2 0.9 1.6
Finance costs (0.5) - (0.1)
Other finance revenue - pensions 0.6 0.2 1.1
Profit before taxation 9.3 13.2 26.8
Taxation (3.0) (5.1) (8.9)
Profit after taxation 6.3 8.1 17.9
The share of profit of associates and joint Half year Half year Year to
venture is as follows: to 30 to 30 31
June June December
2006 2005 2005
£m £m £m
Dry bulk chartering - 0.2 0.2
Sale and purchase broking 0.2 - 0.3
0.2 0.2 0.5
3 Taxation
The taxation charge is calculated by applying the directors' best estimate of
the annual effective tax rate to the profit for the period.
4 Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
Half year to Half year Year to 31
to
30 June 30 June December
2006 2005 2005
£m £m £m
Earnings - continuing operations 6.3 8.1 17.9
Profit for the period 7.4 12.7 19.1
Million Million Million
Weighted average number of ordinary shares 16.8 16.4 16.4
Diluted weighted average number of ordinary shares 16.9 16.4 16.6
5 Intangible assets
In January 2006 the group completed the acquisition of J O Plowright & Co (Holdings) Limited ('Plowrights'). Plowrights
has 26 staff predominantly serving the petrochemical, products, lubricant, gas, vegetable oil and molasses freight
markets.
During 2006 the group acquired a financial services business and a sale and purchase brokerage business.
The book and provisional fair values of the identifiable assets and liabilities of Plowrights, the financial services
business and the sale and purchase brokerage business at the date of acquisition were as follows:
Plowrights Financial services Sale and purchase
Book Fair Book value Fair Book Fair
value value value value value
£m £m £m £m £m £m
Trade receivables 0.4 0.4 - - - -
Other receivables 1.0 1.0 - - - -
Cash and short-term deposits 1.0 1.0 - - - -
2.4 2.4 - - - -
Trade and other payables (1.4) (1.5) - - - -
Taxation (0.9) (0.9) - - - -
Employee benefits (6.3) (6.7) - - - -
(8.6) (9.1) - - - -
(6.2) - -
Fair value of net assets (6.7) - -
Goodwill arising on acquisitions 8.2 0.8 8.6
1.5 0.8 8.6
Plowrights Financial Sale and Total
services purchase
£m £m £m £m
Discharged by:
Fair value of shares issued 0.7 0.8 3.3 4.8
Costs associated with acquisition, 0.8 - - 0.8
settled in cash
Deferred consideration - cash and shares - - 5.3 5.3
1.5 0.8 8.6 10.9
6 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 30 June 2006 these schemes had a combined surplus of £8.7 million. The market value of the assets is £137.7
million and independent actuaries have assessed the present value of funded obligations at £129.0 million. The company
has provided deferred tax on this surplus amounting to £2.6 million.
A significant proportion of the improvement since the year end has arisen from the increased discount rate from 4.7% as
at 31 December 2005 to 5.2% as at 30 June 2006.
7 Analysis of net funds
31 Reallocation Cash flow Foreign 30 June
December exchange
£m £m differences 2006
2005
£m £m
£m
Cash and short-term deposits 55.1 - (16.6) (1.3) 37.2
Current interest-bearing loans and borrowings (3.4) (0.9) 3.6 - (0.7)
Non-current interest-bearing loans and (4.8) 0.9 (29.1) 0.6 (32.4)
borrowings
Net funds 46.9 - (42.1) (0.7) 4.1
8 Profit and loss reserve reconciliation
Half year
to
30 June
2006
£m
Profit and loss reserve at start of period 27.9
Profit for the period 7.4
Actuarial gain on employee benefit schemes - net of tax 5.9
Dividend paid in the period (3.8)
Deferred share consideration 0.8
Profit and loss reserve at end of period 38.2
9 30 June 2005 reconciliations
The effect of reclassifying discontinued activities is a decrease in revenue of £3.8 million, an increase in operating
profit of £1.1 million, a decrease in disposal of fleet interests of £11.0 million, a decrease in finance costs of £0.1
million and a decrease in taxation of £1.8 million.
Finance income of £2.7 million and finance costs of £2.5 million have also been reanalysed in respect of employee
benefits with the net revenue being shown as 'Other finance revenue - pensions'.
10 Post balance sheet event
In August 2006 the group announced the completion of the acquisition of Genchem Holdings Limited. A copy of this
announcement is available from www.clarksons.com.
11 Contingencies
A subsidiary company, H Clarkson & Company Limited, and six other parties are the defendants in a Commercial Court
action commenced by a client of the subsidiary. In the proceedings, the client is claiming between US$107 million and
US$144 million in damages. The subsidiary provided market commentary to the client prior to their acquisition of a
shipping company which subsequently suffered a financial collapse. The client alleges that it relied on the commentary
provided negligently by the subsidiary when evaluating this acquisition. The subsidiary has been advised its case is
strongly defensible and, accordingly, no provision has been made in these accounts.
A legal action has also 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 accounts.
12 Accounts
The figures for the six months ended 30 June 2006 and 30 June 2005 are unaudited and do not constitute full accounts
within the meaning of Section 240(5) of the Companies Act 1985. The statutory audited accounts for the year ended 31
December 2005, upon which the auditors have given an unqualified report, have been delivered to the Registrar of
Companies in England & Wales.
This information is provided by RNS
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