Clarkson Regulatory News (CKN)

16 Mar 2005 07:00

Clarkson PLC16 March 2005 CLARKSONS Preliminary resultsClarkson PLC ('Clarksons'), the holding company for Clarksons, the world'slargest shipbroker and shipping services group, today announces preliminaryresults for the twelve months ended 31 December 2004.Results for 2004 Year ended Year ended 31 December 2004 31 December 2003Turnover £87.4m £58.7mProfit before taxation £20.2m £12.1mEarnings per share 83.8p 48.6pDividends per share 25.0p 17.5p* Record results.* Increase in dividend.* Continued global expansion.* A good start to 2005.Tim Harris, Chairman of Clarkson PLC, commented:"The result reflects the company's ability to continue growing strongly itsprincipal business."2005 has started well. Freight rates remain significantly above long-termaverages with Chinese growth continuing to be a major driver."The company is well placed to produce another excellent result in 2005."For further information please contact:Richard Fulford-Smith, Chief Executive, Clarkson PLC: 0774 704 3139Robert Ward, Finance Director, Clarkson PLC: 020 7334 0000Notes to editors Background to Clarkson PLCClarkson PLC (which is listed on the London Stock Exchange) is acknowledged asthe world's leading shipping services group. Through its unrivalled andextensive global network of offices it is able to give its clients unique accessto a wide range of shipping services. Clarksons covers shipbroking, research,publications, derivatives and logistics. Clarksons' strategy is to expand anddevelop the group around these key activities.For further information on Clarkson PLC, please visit the company's website atwww.clarksons.com Chairman's statement In my first annual review as chairman, I am delighted to report that yourcompany has produced another record profit.The result reflects the company's ability to continue growing strongly itsprincipal business and the chief executive's review gives a broad outline of theprogress made during the year, sector by sector. An expanding team operatingglobally has attracted an exceptionally broad spread of talented individualswith core competence and knowledge. We are seeing the benefits in the results.Returns and cash flows have again been strong reflecting a sound underlyingability to generate cash. Strategy The company's strategy is to continue developing shipbroking activitiesglobally, following our customers to where the business is best served andbroadening our product range. Our expansion is focused in sectors where there ispotential to increase market share. We remain committed to investing further inshipping service activities in which the Clarkson brand and our competitiveadvantage of market intelligence give us an edge. An advantage of these shippingservice activities such as publishing, logistics and derivatives is that theyshould be less closely linked to the shipping cycle and should thereforeincreasingly improve the consistency and predictability of our earnings. Dividend The company is committed to maintaining a progressive dividend policy but isalso funding significant growth in its business. Major cash spends are referredto in the finance director's review. Costs have been incurred with the nowenlarged offices in Shanghai, Singapore, Athens and London and our strategicintent is to commit further funds to shipping service activities includinglogistics. The board and staff In 2004 I took over as chairman from Michael Beckett who retired at the annualgeneral meeting. Richard Fulford-Smith rejoined the board as chief executiveofficer of the group in April 2004. Gary Weston resigned in April 2004 aftermany years service and I would like to thank both Michael and Gary for theirexcellent past service to the company. In September we strengthened the boardfurther with the appointment of Dr Martin Stopford. Martin is an extremelywell-known public figure in shipping circles and heads up our expanding researchand publications unit. On behalf of the company I would like to thank all our employees who havecontributed so strongly to another excellent performance. Their role is criticalin a people business such as Clarksons and their hard work, great skill and goodhumour is highly appreciated. Outlook 2005 has started well. Freight rates remain significantly above long-termaverages with Chinese growth continuing to be a major driver. At present theonly negative factor is continuing dollar weakness. A strong forward order bookand the close relationship between income and our main cost, staff remuneration,reduces earnings volatility year to year. Developing shipping service activitiessuch as publishing, logistics and derivatives will give greater consistency toearnings. Your company is well placed to produce another excellent result in2005 and to continue to generate increased returns to its shareholders. Tim HarrisChairman16 March 2005 Chief executive's review of operations Overview In my first review of operations as chief executive officer, I am pleased toreport on a year of continuing growth, both in our business and profits.In the interim statement we indicated our intention to grow the businessorganically and through acquisition. We have done both. We have previously made known our desire to reduce the vulnerability of earningsgiven freight market volatility. In part, this is already achieved by ourshipbroking staff accepting that a significant part of their total remunerationpackage will always be linked to underlying profitability. In addition we have asignificant amount of forward income in derivatives, period charters andnewbuilding contracts which will underpin earnings into the future. We arecommitted to the expansion of our non-cyclical businesses through investment inlogistics, publications and shipping related financial services. Our Shipbroking business is the base platform from which we continue to operate.It is supported by our Research and Futures businesses. In combination, thesethree areas of core competence have created strong brand recognition. We areacknowledged in our industry as being a one-stop shop with unrivalled marketknowledge and intelligence. In the last year we have expanded robustly. The anticipated acquisition ofFerrobulk in Genoa, the opening of a new office in Dubai and almost doubling thesize of our offices in Shanghai, Athens and Houston, all of which extendsfurther our global reach. The group will shortly employ more people overseasthan in London. Although London is unlikely to feature heavily in our expansionplans in the near future many new initiatives emanate from this centre and ournew premises adjacent to London Bridge will house a record number of employees.The Clarkson product base has been enhanced by a number of new initiatives andideas. In December 2004 we acquired Oilfield Publications Limited (OPL). Thiscompany specialises in publications for the offshore oil and energy sectors. Itwill therefore add significantly to our range of publications and will bringadditional publishing skills that complement our market information and databaseexpertise. Our office in Houston has been joined by a team from NormarineOffshore Consultants which will increase our competence in the offshore markets.Through OPL and with greater emphasis from Research we will be capable ofexpanding our services to the energy markets generally. In the last year we have brought to the market a new sale and purchasederivatives product - Sale and Purchase Forward Agreements - as well asproviding a new risk management service to the freight sector. As we have already indicated, our greatest assets are our staff. Our commitmentto staff is reflected by our desire to provide them with superior resources towork even more effectively. To this end we are investing heavily in IT anddeveloping a global information gathering and dissemination network. We competeprimarily with unregulated, unlisted private companies who operate in a lessaccountable environment than a public company. To compete we must paycompetitive salaries and bonuses and our trading teams are given responsibilityto understand and control the key financial elements of their costs and income. Review of operations Dry bulk With the exception of Houston, all of our offices have a dry cargo charteringpresence. London continues to maintain its leading role but due to the growinginfluence of emerging dry bulk markets, such as China, Italy and Greece, we haveinvested significantly in these booming centres. Apart from our associatedcompanies in Paris and San Francisco all our other offices worldwide now operateunder the Clarksons name. Organising our teams to operate globally by producttype remains a key ambition. Our lead position in dry bulk derivative broking places our clients in aparticularly strong position to manage their market exposure more effectively. We are constantly addressing ways to improve our spot income and the addition ofnew cargo-based broking teams will assist in this. We are particularly excitedby the anticipated addition of Ferrobulk in this respect. The average 2004 earnings for a modern capesize vessel was US$70,400 per day(2003: US$41,300 per day); modern panamax vessels achieved on average US$33,900per day (2003: US$19,100 per day) and handymax vessels earned on averageUS$28,100 per day (2003: US$14,900 per day). The year has started positively and dry cargo will benefit significantly fromthe substantial timecharter book written last year. Tanker chartering Our deepsea and product teams also operate globally concentrated in the threemain centres of activity - Houston, London and Singapore. Their influence hasgrown substantially and we operate on the panels of most oil majors. With the support of our growing team of energy analysts and database compilersin Research we are able to offer oil major clients an unrivalled service. Intransacting their business we offer them the comfort of being a public,transparent company with access to unrivalled market knowledge and full qualitysystems accreditation. A proper understanding of the derivatives business is central to our capabilityto provide a complete service to both shipowners and oil charterer clients. Wehave grown our tanker derivatives broking teams both in London and Singaporewhich gives us a unique position in this rapid and constantly changing market. The average 2004 earnings derived on the spot market for a modern double hullVLCC was US$96,100 per day (2003: US$52,400 per day); modern suezmax vesselsearned on average US$75,000 per day (2003: US$41,600 per day); modern aframaxtankers earned on average US$49,600 per day (2003: US$ 34,200 per day). The clean and dirty products sectors saw increases in average daily earnings of33% and 48% respectively. Chemicals Now globally established in three major chemical centres of London, Houston andSingapore, Chemicals continues to expand its business primarily through longterm contracts and time charters. We run and manage contracts on behalf of manyof the major participants in the chemical sector and place emphasis on thequality of our support services, research and analysis. We believe the expanding shipowning base in this specialised market sector willrequire support which represents an opportunity for our business to grow furthergiven its excellent platform of knowledge and experience. Gas Our LNG ('Liquified Natural Gas') team is recognised for its significantcontribution with knowledge based solutions in assisting new players and gasproducers/traders. The new sources of gas and an ample supply of shipping shouldcreate a free market environment where gas can be openly and transparentlytraded which should ultimately result in consumers being confident they cansecure reasonably priced gas. Our LNG joint venture with BRS of Paris has prospered in 2004 in a challengingenvironment and the improving trend should continue into 2005 with manynewbuildings delivering and a growing timecharter book. We are likely to witness the same increases in the LPG ('Liquified PetroleumGas') supply chain as for LNG as this product is set for substantial growth andalso expected to become a more competitive energy feedstock. Our ammonia activities have prospered in 2004 and we have been particularlysuccessful in building our forward order book. With team expansion and firmingrates in LPG/ammonia we expect to significantly grow our income in this marketsector during the coming year. Containers Clarksons was a late entrant in this important market area. We are leaders inthe provision of core data, fleet and newbuild registers and market intelligenceand are now building new broking teams in London and Shanghai. We are writing significant volumes of business in the time-charter, newbuild andsecondhand markets. This mostly benefits our forward order book and fuels ourability to grow the team and its income. Secondhand and newbuilding Our Secondhand team produced an excellent result in 2004 due to a combination ofthe strong price levels and our concentration on high quality business withmajor clients. This resulted in a series of significant transactions confirmingour position at the forefront of this sector of the market. Our share of newbuilding business continued to grow and we remain entrusted withthe management of some of the world's leading shipyard/owner relationships.During the year we introduced a new team in Greece and we are growing ourpresence in the Asian market particularly China. We continue to face significant competition in this important area of ourbusiness. Regulation is non existent and the opportunism of boutique shops whoadd little or no value is still richly rewarding for them. Offshore With a new team from Normarine in Houston and with the acquisition of OPL, bothof which I referred to earlier, we are seeking to become a meaningful force inthe offshore markets. We have already arranged a number of rig deals and some support vesselcontracts. We intend to expand further in Singapore, Houston and London. Futures Clarksons was the original creator of the FFA ('Forward Freight Agreement'). Theproduct is now widely used and it is not surprising, given our experience,support and understanding of the product, that we remain the world's foremostarranger of FFA trades. Much of the business undertaken is still over-the-counter with contractingparties bearing the counterparty risk, but we welcome the interest shown byseveral institutions who have expressed a desire to offer a cost effectiveclearing mechanism to the FFA market. The volatility of dry and wet freight markets has led to increased recognitionof the value of these derivative products. Shipping operators increasingly useFFAs to hedge freight market exposures; cargo interests provide a naturalcounterparty while traders provide liquidity. Over the last twelve months wehave seen a significant growth of tanker contracts. Given the increasingrelevance of freight in energy markets, proprietary investment banks areincreasingly active as are the lending banks. Research Research had a busy year. Turnover continues to move ahead with digital productscontinuing to perform particularly strongly, now accounting for a third ofrevenue. Publications now account for 43 per cent of turnover with customerservices making up the balance. The acquisition of OPL took place in Decemberand the two businesses are being merged to leverage off their respectivestrengths. During the year the company's IT function, which was previouslyoutsourced, was integrated with the Research IT team. The aim is to develop anorganisation with more depth to serve both Research's clients and the company asa whole. Logistics Towards the end of 2003 we announced the launch of Channel Freight Ferries (CFF)to provide a regular daily service between Southampton in the UK and Radicatelin France. CFF commenced daily sailings in January 2004. Hauliers have beenslower than anticipated to take up the more cost effective service provided onthis route and the business is therefore correspondingly behind in its businessplan. We are in the process of tailoring our commitment to our customers' needsconsistent with their level of support. The logistics division has a 58% equity stake in Pasir Bulk Carriers (Pasir) inSingapore. Throughout 2004 Pasir owned two 75,000 dwt combination carriers whichcontinued to operate profitably on bareboat charter. Since the year end PasirBulk Carriers has sold one of its two vessels. We are taking steps to expand our logistics activities, including utilising themonies arising on the sale of the Pasir 1. Further investments are intended togenerate earnings which are more stable than those derived from freight markets. Richard Fulford-SmithChief Executive16 March 2005 Finance director's review Results Profit before taxation rose to £20.2 million, compared with £12.1 million in2003, an increase of 67%. These profits are a record for this company and thehighest since it was listed on the London Stock Exchange in 1986. Earnings pershare were 83.8 pence per share (2003: 48.6 pence per share). Turnover, which is primarily derived in US dollars, increased to £87.4 millionin 2004 (2003: £58.7 million). At constant exchange rates, the increase wouldhave been 66%. Taxation The overall effective tax rate was 32.1% (2003: 33.7%). The tax rate is higherthan the standard rate of UK tax of 30.0% due to the impact of disallowabletrading expenses. Dividends The directors are recommending that the dividend for the year increases to 25.0pence per share (2003: 17.5 pence per share); this dividend represents a 43%increase on last year and is now more than a sixfold increase over that declaredfive years ago. The final dividend of 16.0 pence per share will be paid toshareholders on 18 June 2005. Foreign exchange The US dollar is the major trading currency of the group. The average sterlingexchange rate for the period was US$1.84 (2003: US$1.65). At the year end theexchange rate had reached US$1.92. The group benefited from the use of forwardcurrency contracts to mitigate its exposure to variations in currency exchangerates during the year and thereby reduced the adverse impact of the weaker USdollar on our 2004 results. Balance sheet During 2005 the principal operating company will move to new London headquartersat St Magnus House, near London Bridge. This will inevitably result in anadditional capital spend over that incurred in a more usual year. Since the year end, Pasir Bulk Carriers has sold one of its combination carriersof which our share of the profit will be approximately £2.5 million. Trade debtors have risen to £12.6 million from £7.2 million reflecting higherfreight rates and increased volumes. Creditors include provision for bonuses which have accumulated during the yearfor payment early in the following year - referred to under cash flow. Otheraccruals and related creditors have increased in line with the overall expansionof the business. The company issued 76,000 shares during 2004 for a total consideration of£490,200 to meet obligations to new employees. The capital redemption reservearose from various share buybacks in 1997 and 1998. Under the Urgent Issues TaskForce Abstract 38 'Accounting for ESOP Trusts', shares owned by the ExecutiveShare Purchase Trust are now stated as part of shareholders' funds and the 2003comparatives have been amended accordingly. Cash flow Cash generation remains a key strength of the group. During the year the groupaccumulated cash as profit linked bonus entitlements are accrued; bonuses arepaid in February following the end of the financial year. The group continued topay off bank borrowings that were secured on the two combination bulk carriers.At the end of the financial year the aggregate cash balance was £44.1 million(2003: £32.0 million). Subsequent to the year end a number of significantpayments will be made including £21.9 million in staff bonuses and a £10.0million contribution into the group's pension scheme to repair a deficit whichhas arisen. Acquisitions In December 2004 the group acquired OPL, the offshore publications business for£3.3 million. Also in December 2004 the group acquired the business ofKhedivial, the forerunner to our new business based in Dubai, for aconsideration of £0.3 million satisfied in shares. These have generatedadditional goodwill of £3.5 million resulting in a cumulative balance at the endof 2004 of £5.5 million. Pensions The group operates a variety of pension schemes throughout the world, themajority of which are defined contribution arrangements. The UK, however, hasboth a defined contribution section and a defined benefit section within themain UK pension scheme. Defined benefit pension arrangements give rise to open ended commitments andliabilities for the sponsoring company. As a consequence the company closed itsexisting defined benefit section of the UK scheme to new entrants on 31 March2004 and has now decided to close this section for further accrual to allexisting members as from 31 March 2006. This defined benefit section was subject to a valuation as at 31 March 2004. Atthat date the defined benefit section had a deficit of £11.9 million. Inresponse to this deficit and the decision to close this section of the scheme tofurther accrual, the group decided to make a one-off cash contribution of £10.0million into the scheme following the year end. International financial reporting standards Clarksons currently prepares its report and accounts under UK Generally AcceptedAccounting Principles (UK GAAP). The group is required, from 1 January 2005onwards, including release of the Interim Report 2005, to report underInternational Financial Reporting Standards (IFRS). We have evaluated the possible impact on the information provided. The mostsignificant accounting changes are: * The inclusion of any Pension Fund surplus or deficit in the balance sheet of the company.* Goodwill will no longer be amortised over its useful life.* The proposed dividend will no longer be accrued at the year end. There are other changes, including detailed additional disclosures, but theseare not considered likely to result in a material adjustment to previouslypublished information. Full details and reconciliations will be provided in the2005 Interim Report and the 2005 Annual Report and Accounts. The group does notanticipate amending any of its current procedures because of the affects ofIFRS. Given the comparatively limited extent of the changes necessary, and thedisclosures already contained under UK GAAP, the company does not propose toissue unaudited 2004 statements under IFRS. Robert D WardFinance Director16 March 2005 Consolidated profit and loss accountfor the year ended 31 December 2004 2004 2003 £m £mTurnover -continuing operations 87.4 58.7Administrative expenses (70.0) (46.8)Group operating profit -continuing operations 17.4 11.9Share of operating profit in associates 0.8 0.2Total operating profit 18.2 12.1Loss on sale of fixed assets - (0.1)Amounts written off investments - (0.8)Interest receivable and similar income 2.1 1.1Interest payable and similar charges (0.1) (0.2)Profit before taxation 20.2 12.1Taxation (6.5) (4.1)Profit after taxation 13.7 8.0Equity minority interests (0.3) (0.4)Profit after taxationattributable to the group 13.4 7.6DividendsInterim 9.0p (2003: 7.0p) (1.4) (1.1)Final proposed 16.0p (2003: 10.5p) (2.6) (1.7) (4.0) (2.8)Retained profit for the year 9.4 4.8Earnings per share 83.8p 48.6pComparatives have been restated where necessary to reflect the requirements ofUITF 38 (see note 1). Consolidated balance sheetAs at 31 December 2004 2004 2003 £m £mFixed assets 13.6 10.2Current assetsDebtors 18.0 10.0Cash and deposits 44.1 32.0 62.1 42.0CreditorsAmounts falling due within one year (43.3) (28.1)Net current assets 18.8 13.9Total assets less current liabilities 32.4 24.1CreditorsAmounts falling due after more than one year (0.4) (2.1)Provisions for liabilities and charges (0.9) (0.2) (1.3) (2.3) 31.1 21.8Capital and reservesEquity shareholders' funds 29.9 20.9Equity minority interests 1.2 0.9 31.1 21.8Comparatives have been restated where necessary to reflect the requirements ofUITF 38 (see note 1) Consolidated cash flow statementfor the year ended 31 December 2004 2004 2003 £m £mNet cash inflow fromoperating activities 24.3 22.4Dividends from associates 0.2 0.1Returns on investments andservicing of finance 2.0 1.1Taxation (4.7) (2.6)Capital expenditure andfinancial investment (1.4) (0.9)Acquisitions and disposals (3.3) -Equity dividends paid (3.1) (2.6)Management of liquid resourcesIncrease in short term deposits (7.4) (6.0)Financing (1.0) (1.0)Increase in cash 5.6 10.5 Comparatives have been restated where necessary to reflect the requirements ofUITF 38 (see note 1). Consolidated statement of total recognised gains and lossesfor the year ended 31 December 2004 2004 2003 £m £mProfit on ordinary activitiesafter taxation 13.4 7.6Foreign exchange differences (1.0) (0.8)Total recognised gains relating to the year 12.4 6.8Comparatives have been restated where necessary to reflect the requirements ofUITF 38 (see note 1). Movement in equity shareholders' fundsfor the year ended 31 December 2004 2004 2003 £m £mProfit on ordinary activitiesafter taxation 13.4 7.6Issue of new shares 0.5 0.5Foreign exchange differences (1.0) (0.8)Dividends (4.0) (2.8)ESOP share proceeds 0.1 -Total movements during the year 9.0 4.5Equity shareholders' funds at 1 January 20.9 16.4Equity shareholders' funds at 31 December 29.9 20.9Comparatives have been restated where necessary to reflect the requirements ofUITF 38 (see note 1). Notes to the accounts 1 Accounting policies and basis of preparation of preliminary statement The preliminary statement has been prepared in accordance with the accountingpolicies set out in the group's annual report and accounts for the year ended 31December 2003 except for the adoption of Urgent Issues Task Force abstract 38'Accounting for ESOP trusts' (UITF 38). In accordance with UITF 38, shares inClarkson PLC held by the Executive Share Purchase Trust are now deducted withinconsolidated shareholders' funds. Previously, such shares were included withinfixed asset investments. Within the consolidated cash flow statement, thepurchase and sale of such shares is now presented as a financing transaction andnot within returns on investments. Dividend income arising on such shares hasbeen excluded from the group's profit and loss account and deducted fromdividends paid and proposed. The comparatives have been restated accordingly. 2 Dividends The directors will be recommending a final dividend of 16.0 pence per share,payable on 18 June 2005 to shareholders on the register at the close of businesson 4 June 2005, making a total dividend for the year of 25.0 pence per share(2003: 17.5 pence per share). 3 Earnings per share The earnings per ordinary share is based on profit after tax for the financialperiod of £13.4 million (2003: £7.6 million) and 16,011,931 (2003: 15,729,514)shares in issue throughout the period. 4 Analysis of net funds At 1 Arising on Other Foreign At 31 January decon- Arising on non-cash exchange December 2004 Cash flow solidation acquisition movements differences 2004 £m £m £m £m £m £m £mCash 14.2 5.6 (0.2) - - (0.7) 18.9Deposits 17.8 7.4 - - - - 25.2 32.0 13.0 (0.2) - - (0.7) 44.1Debt due within one year (1.3) 1.3 - (0.1) (1.5) 0.1 (1.5)Debt due beyond one year (1.9) - - - 1.5 0.1 (0.3)Deferred consideration (0.3) - - - 0.2 - (0.1)Net funds 28.5 14.3 (0.2) (0.1) 0.2 (0.5) 42.2 5 Accounts It is anticipated that full accounts will be posted to shareholders on 6 April2005. The figures for the year ended 31 December 2004 included in thisannouncement are unaudited and do not constitute full accounts within themeaning of Section 240(5) of the Companies Act 1985. The statutory auditedaccounts for the year ended 31 December 2003, upon which the auditors have givenan unqualified report and which have been delivered to the Registrar ofCompanies in England & Wales, have been restated in this report where necessaryto reflect the requirements of UITF 38 (see note 1). This information is provided by RNS The company news service from the London Stock Exchange