Clarkson Regulatory News (CKN)

26 Mar 2007 07:02

Clarkson PLC26 March 2007 CLARKSON PLC 26 March 2007 Preliminary results Clarkson PLC ('Clarksons') the world's largest shipbroker and shipping servicesgroup, today announces unaudited preliminary results for the twelve months ended31 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 - continuingoperations £21.1m £26.8m---------------------------- -------------- ------------Earnings per share - continuingoperations 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'spre-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 0000Richard Fulford-Smith, Chief ExecutiveJeff Woyda, Finance Director Hudson Sandler: 020 7796 4133Jessica RouleauNick Dunne Chairman's statement Against the backdrop of more challenging conditions in 2006, Clarksons hascontinued to build and invest in its core shipbroking business and to developnew growth areas across the spectrum of shipping services. We remain committedto expanding selectively into both broking and non-broking activities, in whichour unrivalled market intelligence and market-leading brand provide us with astrong competitive advantage. It was a busy year, during which we significantly expanded and strengthened ourbroking and chartering businesses through the acquisitions of Plowrights,Genchem and Anchor Cross. In addition, we attracted some very experienced seniormanagement to our broking team. We have continued to build our expertise infinancial products through our newly established hedge fund and have also addeda range of other new services to our portfolio in 2006. Results Revenues increased by 2% to £117.7 million (2005: £115.6 million), drivenprimarily by specialised products chartering. Operating profit on continuingoperations was £17.1 million (2005: £23.7 million), largely as a result of theweakening US dollar and weakness in our sale and purchase business in the firsthalf of the year. Profit before taxation on continuing operations was £21.1million (2005: £26.8 million). Basic earnings per share on continuing operationswere 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) wasmainly due to an active year of acquisition and investment. In order to takeadvantage of these opportunities, the group increased borrowings to £51.8million (2005: £8.2 million). The business continues to be strongly cashgenerative. Dividend Clarksons is committed to maintaining a progressive dividend policy and thedirectors are recommending a final dividend of 24.0 pence per share (2005: 22.0pence per share). The interim dividend was 12.0 pence per share, giving a totaldividend of 36.0 pence per share (2005: 32.0 pence per share), a 12.5% increasein the total dividend for the year. The dividend has increased eight fold in thelast 10 years and this year's increase reflects both our dividend policy and ourcontinuing confidence in the sound underlying ability of our business togenerate cash. The dividend will be payable on 15 June 2007 to shareholders onthe register as at 1 June 2007. Board In May 2006, Rob Ward, finance director, announced his intention to retire atthe end of the year. On behalf of the board, I would like to thank Rob for hisinvaluable contribution to the development of the company during his 15 years atClarksons and wish him well in his retirement. In October 2006, we weredelighted to announce the appointment of Jeff Woyda as finance director. Jeffassumed the full responsibilities of his role in January 2007. Employees Like any services business, our core strength is our people. On behalf of theboard, I would like to thank all our employees for their outstandingcontribution and commitment to the business. I would also like to take thisopportunity to welcome all those who have joined Clarksons both directly and asa result of the acquisitions we have made during the year. The Clarksons team isnow stronger than ever. Outlook Although there is always much market comment about the future direction offreight rates and the relative strength of the US dollar, we have started theyear strongly and with a forward order book larger than at any other time inClarksons' history. 2007 will also benefit fully for the first time from theacquisitions made over the last year and a strengthened sale and purchase team.We believe that we are well positioned with a broader base of profitableoperations than ever before to grow the business further in 2007 and subsequentyears for the benefit of our shareholders. Tim Harris CHAIRMAN26 March 2007 Chief executive's review of operations Introduction This has been a year where Clarksons has achieved a great deal, but in which wehave faced many challenges. As is our style we have met the challenges head-onand we have continued to produce healthy profits and returns to shareholderswhilst absorbing a number of new business lines which will serve us well in thefuture. The ambition of the group to further spread its base of business, always withinshipping and shipping-related products, has been clearly stated by us before.This programme has been accelerated and I am delighted to report significantprogress on a number of fronts in 2006. I shall describe our progress in moredetail in this report and confirm that, at the same time as we make progress, wehave focussed on some necessary house-keeping as we secure a sound springboardfor future expansion. The commitment to continuously globalising our activities around our expandedproduct range creates for our international clients a one-stop shop to servicetheir worldwide needs - irrespective of where they arise. To meet this pledge weshall focus increasingly on supporting the growth of our regional businessesaround the world. Clarksons proved its ability to attract the best talents to strengthen itsmanagement team in key areas. The exciting environment linked with attractiveincentive schemes has combined well to build a better blend of youth and seniormanagement, essential tools for running a complex people-based organisation. There have been three notable additions to our broking teams arising fromacquisitions and further significant organic growth which add to our spread ofactivities. Acquisitions Plowrights and Genchem (UK) It was recognised that although we possessed an excellent team of brokersworking within the chemical sector, the development of a broader basedspecialised products department would add further value to a public group suchas Clarksons. By identifying and subsequently integrating the right blend ofpeople with dedicated skill sets in this sector we sought to expand our existingglobal customer base and to provide a diversified service platform to attract abroad range of new clients. We chose well, as results already testify. In this sector we act increasingly as an outsourcer, manager of cargo contractbusiness and supplier of logistics advice. The customer base is varied but ofsignificant status including large multi-national chemical companies, utilitiesand energy groups. Most of these clients readily recognise that when choosing anoutsourcer and benchmarker, our own public company status and governancepre-qualifies us ahead of smaller private boutiques. Our unique research andconsultancy businesses further enhance the service we can offer. This activityis inherently less susceptible to movements in freight rates that can impact ourmore traditional shipbroking businesses and therefore fits well with our missionstatement. In January 2006 we acquired Plowrights which was quickly and successfullyintegrated into the Clarksons group providing very effective management to theenlarged working group. They initiated and drove the acquisition of Genchem -made in August. Both companies had a presence in specialised products by whichwe mean petrochemical liquids and gases, clean products, luboils/vegoils andmolasses, whether spot, contract or time charter. Genchem brought a team of another dozen brokers in the same sector withparticularly long-standing connections in the chemicals industry and a strongposition in the petrochemical gases freight business. Product and customerportfolios of both companies have combined uniquely with our existing business. We also acquired, through the Genchem purchase, a port agency, warehousing andstevedoring operation based in Ipswich, Great Yarmouth, Bristol, Liverpool andSouthampton. In total Genchem employed 54 people and we shall use theirmanagement of the nonbroking businesses to expand our UK port servicesbusinesses to enhance further our service of the short sea business. All partsof the business are profitable as will become clearer in 2007 when we will showa full year of benefit. Anchor Cross (Australia) I have already referred to the priority we place on being a global business. Indry cargo we have confidence in the freight markets ahead and decided to creategreater critical mass in the cargo-strong Australian market where the Clarksonsgroup has a proud history. Having recognised the difficulty of finding peoplewith sufficient expertise, when the opportunity arose, we leapt at the chance ofacquiring drybulk specialist Anchor Cross with its complementary strongcargo-based, operator servicing businesses. The acquisition was completed in September 2006 and has already beensuccessfully integrated into our existing operations in Melbourne, which willsignificantly contribute to profitability. That team now comprises over 20 staffled by management from the new team allowing the previous management to focus onexpansion outside Melbourne. We intend to concentrate on organic growth in theregion and will further reinforce our Auckland and Sydney activities includingthe operation of our new liner business (PANZ) and service of our break bulk andliner clients' businesses. Organic growth / notable developments Sale and purchase team (global) Whilst Clarksons has traditionally been accredited as having a leading positionin the sale and purchase and particularly newbuilding sectors, we recognisedthat our team needed significant strengthening. Although we have officesglobally, we were not properly represented in Asia. Our London operations,despite being profitable, were too narrowly focussed and lacked sufficientmarket coverage. The departure of senior members of the old team enabled us toaddress these issues. This process, together with the lack of corporate fleetdeals, impacted our spot earnings in the division in 2006. I am delighted to report that we have been successful in enticing a number ofsignificant, senior and well respected industry figures to our team which nowmeans that our global coverage is, we believe, markedly superior to ourcompetitors. The two most senior members of this new team - Andi Case and Julian Brynteson -have assumed responsibility, respectively, for the management of our shipbrokingand sale and purchase businesses. Martin Rowe has also joined as managingdirector 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 andpurchase businesses, just as our growing team in Greece is making increasinglysignificant contributions to our global sale and purchase activities. InShanghai 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 fullimpact 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 inNovember 2006. He replaces Rob Ward, who announced his intention to retire lastMay, and stepped down at the year end. We are indebted to Rob for his invaluableservice over 15 years. We are all looking forward to working with Jeff. His considerable experience infinancial services will assist us in meeting many of our objectives for growth.He already has a number of measures in hand including further enhancement anddetailing of our financial reporting and updating of systems to cope with ourexpanded businesses. Jeff is fully equipped to assist me in clearly articulating to shareholders thechanging 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. Clarksonsinvested US$20 million of seed capital from launch. The fund now has US$47million under management. As at 31 December 2006 the fund produced an annualisedreturn, after all fees, of more than 12%, placing it in the top quartile ofcomparative funds. This success was achieved due to the hard work of the team of fund managers andtrading advisers. The group start-up losses from this activity in the first halfwere 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 numberof new personnel, already working in this sector, particularly in the German KGmarket. In their first year of operation they have made a positive contributionto group profits of over US$1.3 million. At the year end they have added further to our range of services by recruitingpersonnel to run a technical services business which we hope will add further tothe diversity of added-value resources available to our customers. Enhanced business lines LNG We have been operating a broking and advisory company called LNG ShippingSolutions in joint-venture with BRS of Paris. This company is one of only twosignificantly scaled businesses operating in this fast expanding arena. Weestablished this business line ahead of all our European broking competitors andhave successfully built a lead position bringing many shipowners and operatorsinto this new market place. Our small but dynamic team has provided criticalknowledge and years of experience to a new audience hungry for quality advice.We have a significant book of shipbuilding orders and consultancy appointmentsand are extremely confident in our ability to grow our profitability ratherrapidly. Offshore Within sale and purchase we have grown our offshore business from nothing overthe last couple of years. We operated in cooperation between London andSingapore with a company called Normarine in Houston. In that cooperation wehave been successful in all our centres to build a base of business spawned fromthe rig business centred round the Houston operation and the offshore supportvessel businesses in London. In 2007, we are confident of a significantadditional contribution from this line of business. Other matters As has been reported in the media, a legal case has been threatened against HClarkson & Company Ltd. relating to commission payments during the period 2001to 2004. The board have reviewed this matter closely. Essentially, the case isabout litigation between powerful Russian interests in which Clarksons has beencaught up as a third party. All commissions were paid under the directinstruction and authority of the clients. Indeed, Clarksons' shipbroking andadvice on all the transactions in this fleet renewal programme have been provento be advantageous to our clients. Overview of sector performance The group's profit before tax of £21.1 million was achieved because of increasedmarket share in all energy-related, tanker, gas and specialised productsbusinesses. Despite a relatively weaker performance from sale and purchasecompared to the exceptional performance of 2005, and a lack-lustre first half indrybulk, the group has performed in line with our analysts' projections for theyear. We have made a good start to the current year and are encouraged by thegroup's performance to date. The value of our forward order book as at 31December 2006 was US$80 million, a 23% increase from last year (2005: US$65million). We are in a US dollar denominated business and therefore our results wereaffected by the weakened US dollar which gave rise to significant foreignexchange losses. We will continue our strategy of building our global business and remain open toabsorb more businesses irrespective of their location, as the establishedindustry 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 wasdesigned to enable a better understanding of the diversity of our earnings. Fulldetail of the trading performance in each segment for 2006 can be found in theenhanced business review. The actions we have taken during the year to expand and strengthen both ourservices and reach have already started to produce results. With the sale andpurchase team now back on track and a full year's results to be included frombusinesses acquired, we are confident that we can further grow both our core andnew 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 ourstrategy of selectively diversifying into growth areas of shipping andshipping-related services. We have grown our broking and chartering businesslines through strategic acquisitions in sale and purchase and specialisedproducts. We have added a number of new businesses to our portfolio, includingfinancial and technical services, and port and agency services. By building on our unique heritage and expertise, we aim to develop a portfolioof integrated businesses that provide market-leading services which meet thedemands of our clients around the world. We believe that selectivediversification will decrease the level of volatility associated withtraditional 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$24million) Clarksons provides this service in 9 offices globally covering a number of rawmaterials 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 thedivision has recovered ground in the second half. Dry bulk chartering remains an important market for us and in order to expandour 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$3million) Although we are disappointed by our inability to expand significantly theactivities on the container desk, this is largely as a consequence of us nothaving representation in Europe in the major centre of Hamburg. We do, however,continue to function successfully out of London, Singapore and Shanghai anddeals concluded in 2006 will impact positively on our performance in 2007 whereagain 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$7million) This business line performed strongly during the year, with a 20% increase inrevenue to £24.3 million (2005: £20.2 million) and a 19% increase in profitbefore tax to £5.7 million (2005: £4.8 million). We benefited from improvedmarket conditions, a subsequent increase in rates and the continuingconsolidation 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$5million) As part of our strategy to build on our core broking business and diversify intoareas we believe offer substantial opportunities for growth and diversification,we made two important acquisitions during the year in this area. In January2006, we completed the acquisition of Plowrights whose experienced managementteam have already brought a step change in Clarksons' ability to provide asuperior quality and level of service in this area. In August 2006 we completed the acquisition of Genchem. The Genchem broking teambrings with it both long-standing connections in the chemicals industry andspecific knowledge of the petrochemical gases freight business. Both Plowrights and Genchem have been successfully integrated and are performingwell. Revenue from specialised products was up 163% to £10.5 million (2005: £4.0million) 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$4million) Gas chartering and the LPG team has helped deliver significantly improvedrevenues and margins whereas in 2005 we were absorbing the cost of integratingthe new team. Margins were significantly improved as a consequence thereof andagain we start the year with a record forward order book. Congratulations to theteam 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 teamacquired 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$16million) Clarksons represents buyers and sellers across the globe through its five saleand purchase teams located in London, Singapore, Hong Kong, Piraeus andShanghai. Whilst the company has traditionally enjoyed a leading position insale and purchase, and particularly the newbuilding sector, we identified a needto strengthen our team significantly during the year. Revenue was £20.6 million (2005: £32.4 million), as a result of a weakersecondhand market and the lack of significant corporate fleet deals, as we hadin 2005. Profit before tax fell to £3.5 million (2005: £9.4 million). In orderto strengthen and broaden the focus of this business, we have acquired a teamwhich includes a number of senior, highly-respected industry figures to ourglobal team. With this revitalised global team now in place, we have been ableto expand our coverage and have already seen a rebound in the performance of oursale 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$6million) It was a challenging year for the futures broking team, with both adverse marketconditions in the first half and increased competition affecting the performanceof this business line. Revenue was £9.0 million (2005: £12.3 million) and profitbefore tax was £2.5 million (2005: £3.6 million). As much of the tanker relatedbusiness is now traded on screen, we have initiated a restructuring of the wetdesk to concentrate on more specialist areas of business. We believe thisre-structuring and a rejuvenation of the team, which has led to a reduction incosts, 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 theattrition on hard copy products. Revenue amounted to £5.2 million (2005: £4.5million). Our Ledbury office provided good results with a successful newshipping diary range and advertising sales. Progress was made integrating theoffshore databases into Clarksons' well established database and databasepublishing systems. Our Shanghai office expanded and China Intelligence Monthlywas 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 PacificDhow and the CFF Seine. Whilst revenues from the continuing business increasedto £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 theyear 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 Clarksonoperating companies (2005: 7 months), and the sub-letting of the surplus spacewas 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 andstevedoring operation based in Ipswich, Great Yarmouth, Bristol, Liverpool andSouthampton. This will enable us to expand into an additional new area ofoperations and further enhance our service of the short sea business. Althoughthis business was only acquired in August 2006, it has performed well withrevenue 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 thedevelopment of structured shipping projects and ship operations on behalf of ourclients. This new activity is very much in line with our strategy to build onour expertise in order to branch out into new and growing areas of shippingservices. 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 ourprospects 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 keybusiness centres around the world in which the business trades. Of the employees, 68% were in positions whereby they contribute directly to theearning of revenue, and 32% were employed in supporting roles. The group seeks to employ, motivate and retain high calibre staff. To retainflexibility, incentivise staff and protect the group's earnings, a significantproportion of total annual compensation is made in the form of variable bonuseslinked to profits of divisions. Key performance indicators The performance of the business is analysed by desk, division and businesssegment. Segmental performance is reviewed on revenue, overhead and operating margin. Owing to the nature of shipbroking, estimates of new business concluded areanalysed between 'spot' revenue, which is invoiced during the current financialyear, and the forward order book which will be invoiced in future years. Theforward order book relating to billable revenues in the following financial yearis 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 13Container chartering 5 3 2 67Deep sea chartering 7 7 - -Specialised products chartering 9 5 4 80Gas chartering 4 4 - -Sale and purchase broking 21 16 5 31Futures broking 7 6 1 17---------------------- -------- -------- -------- -------- 80 65 15 23---------------------- -------- -------- -------- -------- The group monitors the level of outstanding commissions on a regular basis andbelieves that the amount of working capital tied up in such balances can besignificantly 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 83.1pence 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 andcombines 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 significantdecrease in revenue was from reduced spot earning generated in the sale andpurchase department. As stated in the chief executive's review, investment hasbeen made in sale and purchase during 2006, and the full impact from thisinvestment will be seen during 2007. Administrative expenses As the group has grown over the past 12 months, both organically and byacquisition, staff costs have increased by £0.6 million. The company continuesto attempt to keep fixed remuneration increases to a minimum, with a key elementof remuneration being performance related bonuses. Foreign exchange The US dollar is the major trading currency of the group and results aretherefore linked to that currency's fortunes. The average sterling exchange ratefor the period was US$1.86 (2005: US$1.81). At 31 December 2006 the sterlingexchange rate was US$1.96, a significant weakening since 31 December 2005 whenthe exchange rate was US$1.72. The group used spot currency contracts to convertcash collected into local currency to meet operating costs. No forward contractswere used during 2006. The weakening in the US dollar has resulted in anexchange loss of £2.0 million (2005: profit £1.5 million). Finance revenue and costs During 2006 the group received substantial dividend income from a shippingrelated equity investment, and made gains on the seed capital invested in thehedge fund. Finance costs have increased as a result of additional borrowings to fundacquisitions and seed the hedge fund. Borrowings have increased by £43.6 millionduring the year, of which £16.0 million remained in cash and cash equivalents atthe year end. This increased level of borrowing will result in increased financecharges 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 interestcost on the liabilities of schemes. The 2006 profit of £1.1 million reflects thematched assets and liabilities but with a greater expected return than interestcost. 2007 will also show a corresponding profit, given the underlying net assetposition and relevant rates. Taxation The effective tax rate on continuing operations is 32.5% (2005: 33.2%). Theoverall 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 tothe impact of disallowable trading expenses. Dividends The directors are recommending that, in line with our progressive dividendpolicy and reflecting our confidence in the business plan, the total dividendfor the year increases to 36.0 pence per share (2005: 32.0 pence per share). Thefinal dividend of 24.0 pence per share will be paid to shareholders on 15 June2007. In accordance with International Financial Reporting Standards, the amountof the final dividend is not provided in the 2006 financial statements as itwill be paid in the following year. Statement of recognised income and expense The other major movements in the statement of recognised income and expenserelate, as in 2005, to the actuarial gains of £4.3 million on the definedbenefit pension schemes (2005: £2.6 million loss) and exchange losses of £2.4million (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 ofincome generated in the final quarter. The management of working capital andreduction of debtor days are targets for this year. Cash balances include amounts set aside for the payment of bonuses after theyear 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 areaccrued awaiting payment after the year end. At 31 December 2006 this amountedto £23.2 million (2005: £32.6 million). There is also an amount of £4.9 millionrelating to deferred consideration on acquisitions. Non-current liabilities During the year the company negotiated a £50.0 million three year revolvingfacility from Barclays Bank PLC. As at the year end, £47.7 million (2005: £2.9million) was drawn down, primarily to finance acquisitions and investments. Thisamount is in addition to the £4.1 million (2005: £5.3 million) borrowed from DVBBank in Singapore secured on the MV Pacific Dhow. Capital and reserves The company issued further shares during the year to meet current and futureobligations arising on the various acquisitions. A total of 1,125,051 shareswere 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 entitlementswere accrued; bonuses are paid in February and May following the end of thefinancial 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 madetotalling £27.5 million (2005: £54.9 million). These include £23.2 million instaff 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: £7.5million for Plowrights and US$ 20.0 million investment in the new ClarksonShipping 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). Afurther payment of £6.7 million was made to eliminate the pension deficit whichexisted on acquisition. Deferred consideration of up to £0.8 million may bepayable in cash over the next two years dependent on the achievement ofperformance targets over that period. In August 2006 the group acquired the Genchem group for an initial considerationof £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 twoyears dependent on the achievement of performance targets over that period. In September 2006 our Australian subsidiary acquired Anchor Cross for an initialconsideration of Aus$6 million (£2.4 million) satisfied in cash. Deferredconsideration of up to Aus$6.0 million (£2.4 million) may be payable in sharesover the next three years. Discontinued activities In December 2005, Channel Freight Ferries ceased daily sailings and preparationwas made for the orderly closure of the business. This logistics business wastreated in the 2005 financial statements as a discontinued activity and aclosure provision was made. In 2006 most of the contracts were terminatedsuccessfully, thereby enabling the group to release £0.9 million of provisionswhich were no longer required. This has left one final contract which wasterminated 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 originalbusiness ceased to operate during 2006 and thus the results and the associatedgoodwill impairment charge have been accounted for as a discontinued activityand are shown separately from the current year's reported profits for continuingoperations. Segmental reporting The 2005 financial statements provided a detailed analysis of the operatingperformance of the full range of business activities undertaken by the Clarksongroup, to provide shareholders with a fuller understanding of the spread ofbusiness activity. This analysis has been enhanced in 2006. Pensions The company now operates two defined benefit schemes. In January 2006 thecompany assumed responsibility for the assets and liabilities of the Plowrightsdefined benefit pension scheme. Under the terms of the acquisition theaccounting deficit on the Plowrights scheme of £6.7 million was eliminated. Defined benefit pension arrangements give rise to open ended commitments andliabilities for the sponsoring company. As a consequence the company closed theoriginal defined benefit section of the UK scheme to new entrants on 31 March2004 and closed this section for further accrual to all existing members as from31 March 2006. The Plowrights scheme was closed to new entrants and to furtheraccrual 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 definedcontribution 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 contributionschemes. Risk management The identification, control and monitoring of risks facing the business remain amanagement priority and steps continue to be taken to improve further our riskmanagement procedures. The risks monitored include operational, market,treasury, credit and reputational risk. Details of our approach to riskmanagement are provided in the corporate governance statement in the annualreport. Liquidity risk The group's policy is to maintain borrowings and facilities at a level such thatthey provide access to funds sufficient to meet all of its foreseeablerequirements. At the end of the year the company had short and medium termborrowing facilities of £55.0 million (2005: £7.0 million) of which £47.7million was drawn down (2005: £2.9 million). Taking the group's bank facilitiesand strong operating cash flow generation, the group is well placed to fundfuture developments of its global business. Interest rate risk The majority of the company's borrowings are at variable rates of interest. Weare 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. Movementsin the US dollar relative to other currencies, particularly sterling, have thepotential to impact the results of the group as was evident in 2006 both interms 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-relatedlosses in the event of non-payment of invoices. The group mitigates this risk byclosely monitoring amounts outstanding from all sources and by adopting aconservative approach to accounting for bad debt. Share price The share price at 31 December 2006 was 820.5 pence. During 2006 the share priceranged from a high of 1058.5 pence in August to a low of 725.5 pence at the endof November. Compliance and regulation Clarksons has two subsidiaries which are authorised and regulated by the UKFinancial Services Authority (FSA). Clarkson Securities Limited provides futures broking services and Clarkson FundManagement Limited provides investment management services to the new ClarksonShipping Fund which became active in February 2006. Both companies have strong balance sheets to comply with regulatory capitaladequacy requirements. Jeff Woyda FINANCE DIRECTOR26 March 2007 Consolidated income statementfor the year ended 31 December 2006 2006 2005 £m £m-------------------------------- -------- --------Revenue - continuing operations 117.7 115.6Administrative expenses (100.6) (91.9)-------------------------------- -------- --------Operating profit - continuing operations 17.1 23.7Share of profits of associates and joint ventures 0.4 0.5Finance revenue 4.2 1.6Finance costs (1.7) (0.1)Other finance revenue - pensions 1.1 1.1-------------------------------- -------- --------Profit before taxation - continuing operations 21.1 26.8Taxation (6.9) (8.9)-------------------------------- -------- --------Profit for the year - continuing operations 14.2 17.9Profit 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 19.1Minority 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 expensefor 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 offoreign 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 - 0.5Restatement for the effects of adopting IAS 39 - (0.1)Settlement of forward currency contracts-------------------------------- -------- -------- - 0.4-------------------------------- -------- -------- Consolidated balance sheetas at 31 December 2006 2006 2005 £m £m-------------------------------- -------- --------Non-current assets Property, plant and equipment 20.1 21.3 Investment property 0.4 0.4Intangible assets 42.4 17.7Investments in associates and joint ventures 2.6 1.0 Trade and other receivables 0.4 0.5Investments 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 55.1Income 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 4.3Share premium 20.7 11.1 ESOP reserve (3.7) (0.5)Deferred share consideration 1.1 1.9Capital redemption reserve 2.0 2.0Profit and loss 42.1 27.9Currency translation reserve (1.3) 1.1-------------------------------- -------- --------Clarkson PLC group shareholders' equity 65.4 47.8Minority interests - --------------------------------- -------- --------Total equity 65.4 47.8-------------------------------- -------- -------- Consolidated cash flow statementfor 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 5.6Depreciation 2.6 2.4Profit 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 contributionspaid 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 37.0Income 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 1.3Purchase of property, plant and equipment (2.2) (20.7) Proceeds from sale of investments - 0.8Proceeds from sale of property, plant and equipment 0.1 15.2Purchase 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 8.2Repayments 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 9.8Cash and cash equivalents at 1 January 55.1 44.0Net 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 isan extract from the forthcoming 2006 annual report and does not constitute thegroup's statutory financial statements of 2006 nor 2005. Statutory financialstatements for 2005 have been delivered to the Registrar of Companies, and thosefor 2006 will be delivered following the company's annual general meeting. Theauditors have reported on the 2005 financial statements; their report wasunqualified and did not contain statements under Sections 237(2) or (3) of theCompanies Act 1985. 2 Accounting policies Whilst the financial information included in this preliminary announcement hasbeen prepared in accordance with International Financial Reporting Standards(IFRSs) adopted for use in the European Union, this announcement does not itselfcontain sufficient information to comply with IFRSs. The company expects topublish full financial statements that comply with IFRSs on 18 April 2007. 3 Segmental analysis Segmental information on continuing operations for revenue and results is asfollows:Business segments Revenue Results-------------------------- ------------- -------------Continuing operations 2006 2005 2006 2005 £m £m £m £m-------------------------- ------- -------- -------- --------Dry bulk chartering 28.6 31.6 6.0 7.1Container chartering 2.9 2.4 0.6 0.5Deep sea chartering 24.3 20.2 5.7 4.8Specialised products chartering 10.5 4.0 1.9 0.6Gas chartering 5.5 3.4 1.3 0.2Sale and purchase broking 20.6 32.4 3.5 9.4Futures broking 9.0 12.3 2.5 3.6Research services 5.2 4.5 1.0 0.8Logistics 2.4 1.1 (1.2) (0.4)Fund management 0.5 - - (0.4)Property services 6.2 5.5 0.9 0.3Port and agency services 1.9 - 0.2 -Financial and technical services 2.3 - 0.7 --------------------------- ------- -------- -------- --------Less property services revenue arisingwithin 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 exchangedifferences (6.0) (2.8)-------------------------- ------- -------- -------- --------Operating profit 17.1 23.7Share of profits of associates and jointventures 0.4 0.5Finance revenue 4.2 1.6Finance costs (1.7) (0.1)Other finance revenue - pensions 1.1 1.1-------------------------- ------- -------- -------- --------Profit before taxation 21.1 26.8Taxation (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 thefollowing 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------------------------------- -------- -------- --------CostAt 1 January 2006 - 17.7 17.7Additions 6.8 - 6.8Acquisition of subsidiaries and businesses - 20.2 20.2Reclassification 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 0.5Amortisation - - -------------------------------- -------- -------- --------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 servingthe petrochemical, products, lubricant, gas, vegetable oil and molasses freightmarkets. 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 ClarksonMelbourne (Pty) Limited. The combined entity employed in excess of 20 peopleserving the dry bulk sector. In December 2006 the group purchased intangible assets representingnon-contractual commercial relationships for £6.8 million. The directors believethe useful life of these assets to be 5 years. These assets will be amortised ona straight line basis. The book and fair values of the identifiable assets and liabilities ofPlowrights, 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 £mProperty,plant andequipment - - 0.5 0.5 - - 0.5 0.5Deferred taxasset - 1.9 - - - - - 1.9Tradereceivables 0.4 0.4 0.4 0.4 - - 0.8 0.8Otherreceivables 1.0 1.0 0.7 0.7 - - 1.7 1.7Prepayments - - 0.1 0.1 - - 0.1 0.1Cash andshort-termdeposits 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 andother payables (1.4) (1.5) (1.5) (1.5) - - (2.9) (3.0)Accruals - - (0.1) (0.1) - - (0.1) (0.1)Income taxpayable (0.9) (0.9) (0.3) (0.3) - - (1.2) (1.2)Employeebenefits (6.7) (6.7) - - - - (6.7) (6.7)Other tax andsocialsecurity - - (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 ofnet assets (4.8) 2.0 - (2.8)Goodwillarising onacquisitions 7.1 8.3 4.8 20.2-------------- ------ ------ ------ ------ ------ ------ ------ ------Considerationpaid 2.3 10.3 4.8 17.4-------------- ------ ------ ------ ------ ------ ------ ------ ------ The fair value adjustments relating to the Plowrights acquisition are thedeferred tax asset arising on the Plowrights pension deficit available to thecompany (£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 - 3.9Cash - 5.3 2.4 7.7Costs associated with acquisition,settled in cash 0.8 0.3 - 1.1Deferred 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 shippinghedge fund. 7 Employee benefits The company now operates two defined benefit schemes. In January 2006 thecompany assumed responsibility for the assets and liabilities of the Plowrightsdefined benefit pension scheme. Under the terms of the acquisition theaccounting 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. Themarket value of the assets is £134.7 million and independent actuaries haveassessed the present value of funded obligations at £127.6 million. The companyhas 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-termdeposits 55.1 - 20.8 (1.1) 74.8Current 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 businesson 1 June 2007, making a total dividend for the year of 36.0 pence (2005: 32.0pence) per share. 10 Contingencies A legal action has been threatened against H Clarkson & Company Limited andvarious other defendants by a client in connection with third party commissionson business transacted during the period 2001-2004 totalling approximately US$33million which the subsidiary is alleged to have improperly paid. The subsidiaryacted throughout on instructions of the client company's senior management atthe time on which it relied. As such the subsidiary considers that should such aclaim be brought its case is strongly defensible and, accordingly, no provisionhas been made in these financial. The legal action reported previously in the 2005 financial statements (and the2006 interim report) has been settled by the group's insurers without cost tothe company. This information is provided by RNS The company news service from the London Stock Exchange