FORTH PORTS PLC FORTH PORTS PLC Annual Report and Accounts 2008
Annual Report and Accounts
Head Office 08 Forth Ports PLC, 1 Prince of Wales Dock, Edinburgh EH6 7DX Telephone 0131 555 8700 Facsimile 0131 553 7462 www.forthports.co.uk Contents
01 Business Highlights 55 Report of the Audit Committee 02 Our businesses 58 Directors’ Remuneration Report 04 Chairman and Group Chief Executive’s Report 67 Report of the Nomination Committee 22 Directorate 69 Independent Auditors’ Report 23 Business Review 71 Annual Accounts 44 Directors’ Biographies 128 Glossary 45 Directors, Secretary and Advisers 130 Five Year Record 46 Directors’ Report 131 Information for Shareholders 50 Corporate Governance Report 132 Notice of Annual General Meeting
Notice of Annual General Meeting
The eighteenth Annual General Meeting of Forth Ports PLC will be held in The Boardroom, The Caledonian Hilton Hotel, Princes Street, Edinburgh EH1 2AB at 11.00am on Friday 1st May 2009. The formal Notice of Meeting begins on page 132.
Financial calendar
Year End 31st December 2008 Interim Report Dispatched 4th September 2009 Preliminary Announcement 16th March 2009 Ex Dividend Date Dispatch of Annual Report 31st March 2009 (Interim Dividend) 7th October 2009 Ex Dividend Date (Final Dividend) 8th April 2009 Record Date Record Date (Final Dividend) 14th April 2009 (Interim Dividend) 9th October 2009 Annual General Meeting and Interim Management Statement 30th October 2009 Interim Management Statement 1st May 2009 Payment of Payment of Final Dividend 2008 8th May 2009 Interim Dividend 2009 6th November 2009 Announcement of Interim Results 2009 27th August 2009
Designed and produced by Tayburn Corporate Our focus is on: Delivering service excellence in the supply chain Control on costs and operating efficiency Conserving cash
Business highlights DTZ property valuations
500
400
300
200
100
0 Calculation of Worth £m 2000 2005 2006 2007 2008 Market Value For the definition of Market Value and Calculation of Worth, see Glossary on page 128.
01 Dividend per share – pence Underlying port operating profit – £m
50 50 47.7 47.6 40 45.2 40 43.0 39.9 38.7 30 30 34.3 34.1 31.0 28.6 20 20
10 10
0 0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008
Annual Report and Accounts 2008 Our Businesses Ports
The Group owns the ports of Grangemouth, Leith, Rosyth, Burntisland and Methil within the Firth of Forth. It owns the Port of Dundee on the Firth of Tay. The largest port within the Group is the Port of Tilbury 1. on the River Thames. We own the Nordic Group which operates out of Chatham in Kent and Tilbury. 3. 2. 6. 5. 4. 4. Grangemouth Scotland’s largest container port, it handled 6.3 million tonnes of liquid bulks, 157,000 containers and 0.3 million tonnes of general cargo in 2008. liquid bulks 70% containers 25% general cargo 5%
5. Hound Point
The terminal for crude oil exports from the North Sea, it handled 24.5 million tonnes last year. liquid bulks 100%
6. Leith 7. 8. Leith handled 2 million tonnes of cargo in 2008, the principal commodities being coal, steel pipes and 1. Dundee agricultural products. coal 55% dry bulks 28% The largest port on the Firth of Tay, it handled over 0.5 grain 10% steel pipes 7% million tonnes each of liquid bulks and general cargo. 02 liquid bulks 50% agripods 26% 7. Tilbury fertiliser 14% other 10% London’s main port, it handled 8.4 million tonnes of 2. Braefoot Bay dry cargo in 2008 with a leading market position in containers, forest products, agriculture and ro-ro. The export terminal for LPG tonnages in the Firth of containers 32% ro-ro 18% Forth. It exported 3.1 million tonnes in 2008. paper 18% agriculture 9% liquid bulks 100% other 23%
3. Fife/Rosyth 8. Nordic
On the north side of the Firth of Forth, these ports Based at Chatham in Kent, Nordic handles forest handled 0.2 million tonnes of general cargo. products imports and baled waste paper for export. dry cargo 100% It also has an export facility at Tilbury. paper 71% recovered paper 29% Property
Our extensive waterfront land ownership and the expertise of the Property Team mean we are uniquely placed to create long term value – financial value for our shareholders, economic value for the City of Edinburgh and Scotland.
1. 1. Western Harbour 4. 3. 2. 2. The Harbour, Leith Docks
3. Leith Docks
4. Granton
Energy Nordic Recycling
03 Our strong asset base and deep water locations We have the ability to source, process and export allow us access to a pipeline of projects creating waste. We have a strong customer base and energy from renewable sources. We have received business model which is well placed for expansion several enquiries for multi-fuel plants in Scotland and as markets recover. Tilbury. These projects will create value and benefit our ports, property and waste businesses.
Annual Report and Accounts 2008 Chairman and Group Chief Executive’s Report
2008 was a year of considerable achievement but Our key watchwords in running the business in these was also affected by a very difficult external difficult times are prudence and conservatism. This environment. applies to our control of costs, to our aim to conserve cash and to our decision to rebase the dividend to a We achieved our strongest ever ports trading more conservative level of cover. performance and levels of growth; we formed a strategic joint venture in the renewable energy sector The underlying ports operating profit increased by with a good pipeline of potential projects; and we 23% in 2008 to £47.6m (2007 – £38.7m), our best achieved planning consent for the largest property ever performance from our ports business with our development ever proposed in the City of Edinburgh. operations in both Tilbury and Scotland performing strongly. The result from the Nordic group of Inevitably, the year was materially impacted by a companies (“Nordic”) was earnings enhancing, number of external factors, notably the growing although disappointing, with profitability being economic downturn, the banking and liquidity crisis adversely affected by incremental costs and, in the and, of most relevance, the severe decline and virtual last quarter of 2008, by the fall in commodity prices shutdown of established property markets. In the at the Materials Recycling Facility (“MRF”) in Tilbury. face of this, we have taken decisive action to control cash spend and to extend the term of our financing The property division successfully achieved outline facilities. We are pleased to report that the Group’s planning approval from City of Edinburgh Council principal net debt was refinanced in December 2008 (“CEC”) for the Leith Docks Outline Planning for a period of over three years to June 2012 and Application (“LDOPA”). This approval was given in interest rates were locked in for three years at a less than twelve months which is a great credit to our significantly lower level than the average rate charged staff who managed the process and also reflects the in 2008. hard work of the planning officials within CEC.
We have therefore entered 2009 with a secure, As indicated in our pre-close trading statement, the profitable, cash generative and well diversified ports property downturn had a major effect on the business, a property portfolio which continues to independent valuation of our development assets. have significant long-term potential (although from a Debenham Tie Leung (“DTZ”), our Valuers, ascribed 04 much reduced base in market value terms) and with a Market Value of £60m to these assets as at 31st a secure financing position. December 2008 (2007 – £282m) and now deem about 80% of the development land bank to have We are committed to developing a platform for no immediate development value. This similarly growth from our strong asset base. We will also impacted the Calculation of Worth which is now deliver excellent levels of service and seek to £82m (2007 – £408m). The effect of the property enhance the quality of our customer base and downturn, notably the rise in property market yields, contracts. We believe that growth will come from all also resulted in a decrease in the value of our of our principal activities – Ports, Property, Waste and investment properties, most of which are secure Renewable Energy. port related leases.
With the refinancing in place, and the significant capital investment in recent years, we believe we are well placed to deal with a challenging year in 2009. Financial
The financial results for 2008 are complicated by a number of adjustments, largely non-cash, to the underlying1 trading position of the Group which are separately identified in the table below.
2008 2008 2008 2007 Ports Property Total Total £m £m £m £m Group revenue 184.3 1.6 185.9 165.0
Group operating profit before exceptional items and revaluations 46.9 0.5 47.4 37.0 Add back: amortisation of intangibles 0.7 – 0.7 0.4
Underlying Group operating profit 47.6 0.5 48.1 37.4 Net finance costs (10.1) (1.8) (11.9) (10.3) Share of results of joint ventures – (1.7) (1.7) (2.0) Share of results of associate 2.5 – 2.5 2.5
Underlying Group profit before tax 40.0 (3.0) 37.0 27.6 Proceeds from guarantor (net) 1.7 – 1.7 – Provision re debtors – (3.9) (3.9) – Insurance proceeds on disposal 2.8 – 2.8 – Revaluation of investment properties (18.7) (0.5) (19.2) 12.8 Provision against property development assets – (27.7) (27.7) – Decrease in valuation of Ocean Terminal – (19.7) (19.7) (7.7) Tax on associate (1.0) – (1.0) –
Profit before tax and amortisation 24.8 (54.8) (30.0) 32.7 Amortisation of intangibles (0.7) – (0.7) (0.4)
Reported profit/(loss) before tax 24.1 (54.8) (30.7) 32.3
Group revenue increased by 13% to £185.9m (2007 – £165m). The underlying ports operating profit increased by 23% to £47.6m (2007 – £38.7m). The underlying property operating profit amounted to £0.5m compared with a loss 05 of £1.3m in 2007. The underlying group profit before tax was £37m (2007 – £27.6m), an increase of 34%. The reported loss before tax amounted to £30.7m after net exceptional items and revaluations of £67.0m arising mainly as a result of non-cash write-downs and provisions in the property business. The loss after tax amounted to £51.2m compared with a profit of £24.9m in 2007.
The basic loss per share amounted to 107.8p (2007 – earnings of 55.3p). Underlying earnings per share were 58.7p compared with 46.1p in 2007, an increase of over 27%.
Net debt at the end of the year amounted to £208m (2007 – £205.5m), an increase of £2.5m over the year. Total committed facilities at the end of 2008 were £275m.
1 The full definition of “underlying” is shown in the Glossary on page 129 but broadly, it excludes revaluations and other items that are considered to be one-off in nature. Full details of the exceptional items and revaluations referred to above may be found in Note 4 on page 89. Annual Report and Accounts 2008 Chairman and Group Chief Executive’s Report continued
Within the property figures, there were four distinct The tax charge in 2008 included a charge of £27.2m effects on the results. First, the mark to market of the to cover the increase in the deferred tax liability investment properties held by the Group which arising from the change in the corporation tax rules includes land and buildings leased out to port related covering Industrial Buildings Allowances. This one-off tenants. The annual revaluation of these assets charge has no immediate cashflow effect in itself but produced a reduction in value of £19.2m compared will increase the cash tax paid annually by with an increase in value in 2006 and 2007 of £24.1m approximately £1.5m. The cash tax charge overall for and £12.8m respectively. This is a non-cash item and 2009 will, however, be significantly reduced. arising from a shift in market yields and is not directly reflective of the growth in overall ports income, Dividend security of income or ports profitability. In the light of the current economic climate, the Board has reviewed the Group’s dividend policy The second effect was on the carrying value of our which was established in 2005. The Board remains property development assets. The mark to market confident that the ports earnings are in the main exercise was carried out by DTZ who have reviewed robust but, given the UK economic outlook and the the approach to the valuation of the Group’s property fact that property values are not expected to recover development assets. A more detailed explanation of materially in the near future, the Board considers that the valuation approach by DTZ is covered in the it would be prudent for dividend cover to be higher Glossary at page 128. We have reviewed the future than it has been in recent years. recoverability of the amounts included within inventories in the Balance Sheet in the light of the Accordingly, the Board has decided to rebase the full reduction in Market Value of the Group’s property year dividend. The recommended final dividend is development assets at the year end. These assets therefore 12p per share (2007 – 31.95p) making a are, in the main, held at historic cost. As a result, the total dividend for 2008 of 28.6p (2007 – 47.7p). The total decrease in Market Value has not been reflected full-year dividend is twice covered by underlying in the Income Statement or Balance Sheet. However, earnings per share of 58.7p. The Board intends that after taking into account the areas of the land bank the Company will continue to pay out dividends of not currently considered realisable for development one third in November and two thirds in May. The by DTZ, the reduction in expected ultimate sales 06 Board expects that this rebased full year dividend will proceeds, and the long-term nature of these be sustainable. developments, we have written off £27.7m against the previous carrying value of work in progress of If approved by the shareholders at the Annual £53.1m. This write-down is a non-cash item. General Meeting, the final dividend will be paid on 8th May 2009 to all shareholders on the register as The third effect was the £19.7m write-down in value at 14th April 2009. of the Group’s interest in Ocean Terminal (“OTL”), which has arisen principally as a result of an adverse Ports market yield movement and is a non-cash item. Our ports business has a relatively even distribution The fourth effect was the write-down of £3.9m in of revenues amongst the main commodity areas: respect of property trade receivables as a consequence of the diminution in value of the Liquid Bulks Group’s security over sites already sold. There are Dry Bulks no further sites in this category. Paper and Forest Products Containers and Ro-Ro At Grangemouth there was a strong performance Imports or exports of these commodities will be from the container business. In addition, we have required, even in a period of economic downturn. invested in four new Sennebogen hydraulic material We estimate that some 80% of our revenues at the handlers for use in our general cargo business in beginning of the year are secure, either contractually Scotland. These have already made significant underpinned by lease or minimum volume guarantee improvements to our productivity and efficiency in or evergreen given the recurring nature of handling short sea cargoes. throughputs and the supply chain pattern of the commodity. The balance of our revenue base is Our piped cargoes remained strong throughout the generated from spot markets. Our ports revenues year in Scotland, producing stable income flow for are, therefore, substantially underpinned with the business. good visibility.
The Nordic group financial result was adversely The ports business produced an excellent affected by two factors: firstly, the significant collapse performance in 2008. The underlying EBITDA2 of commodity prices from the end of the third quarter increased to £61.5m compared with £53m in 2007. in 2008; and secondly, the “bunching” of At Tilbury, there were strong performances in grain, commingled waste inflows into the MRF at Tilbury at the Enterprise Distribution Centre and in the ro-ro which resulted in an uneven flow of recyclable business. Scotland saw an increase in container materials. This, in turn, increased the cost base at the volumes of 11%. Coal and steel pipes were useful same time as the commodity price decrease. contributors in 2008 and liquid bulks performed Measures have already been instigated to improve strongly, particularly at Hound Point. the revenue earning capacity of the MRF with increased inward gate fees to offset the commodity The requirement for land facilities and port services price risk, stricter controls on the inflow of materials, at Tilbury remained strong throughout the year. tighter cost controls and process improvements to A number of customer contracts were renegotiated the machinery. successfully and several long-term customers, recognising the relative shortage of facilities at Property Tilbury, sought to renegotiate existing contracts earlier than contractually required. The senior The property division made an underlying operating 07 management at Tilbury have worked hard with the profit of £0.5m in 2008 compared with a loss of Olympic Delivery Authority (“ODA”) to promote £1.3m in 2007. Tilbury as the prime waterborne distribution centre for the Olympics. Tilbury has already seen an increase in The net decrease in the Market Value of the Group’s volume from the Olympics effect and expects further property development assets and the change of substantial increases over the next few years. Good approach taken by the Valuers have been described progress has been made with the planning earlier. The overall change in value reflects a positive authorities on our application to have our 65 acres of movement of £55m being added to the valuation land outside the port rezoned for port use. The offset by a net reduction of £277m. momentum to sign up new contracts has continued into this year with over ten new or restructured The £55m increase in value was largely attributable contracts being signed with customers. to steps taken or milestones achieved by the Group in its development strategy, the main components Annual Report of which are: and Accounts
2 Earnings before interest, tax, depreciation and amortisation 2008 Chairman and Group Chief Executive’s Report continued
a achievement by the property division of targets With the virtual shutdown of property markets, we and milestones in improving the quality and have already taken steps to reduce materially our prospects of the development assets and the projected property spend and our property resource. development projects becoming more We will focus on maintaining and growing our established as a result of the consent for the income, particularly at Ocean Terminal, obtaining LDOPA (£46m); and viable planning consents and working to facilitate public sector spend on infrastructure for the site. The b value being added through infrastructure achievement of these goals, together with a recovery expenditure incurred (£6.5m). in property markets, will give us a strong platform in the future to attract a development and/or financing The £277m net reduction in value was a result partner. This will allow the long-term potential of these of deteriorating market conditions, the main assets to be realised and, over time, to realise cash. components of which are: Notwithstanding the substantial reduction in Market a a reduction in residential unit sales rates as a Value, the Group’s progressive approach to result of falling values and lack of demand in developing its property estate over time has the property market (£135m); generated a considerable amount of profit and cash and gives the Group significant long-term potential. b sales of residential units being deferred due to Since 1991/1992, when Forth Property Developments the slow down in property markets (£79m); was established, a total of nearly £100m has been spent on developing the Group’s property assets. c reduced long-term growth rates for residential Over that period, the Group has generated cash of units (£54m); £127m from land sales and has received dividends of £38.6m in aggregate from its property subsidiaries3. d adverse yield movement in respect of Ocean As at 31st December 2008, net debt in the property Terminal (£21m); subsidiaries was £40.2m.
e reduction in commercial and industrial values A highlight of 2008 was the approval by CEC of the 08 (£20m); and LDOPA within a period of twelve months. The property team also submitted an Outline Planning f offset by a positive saving of £32m following Application (“OPA”) for The Harbour, Leith Docks a review of development costs. development on 10th December 2008 (the Hub area is now known as The Harbour, Leith Docks). As a consequence of the change of approach and The OPA incorporates proposals for the first two market conditions, over 80% of the Group’s villages of the Leith Docks plan which include a development land bank is currently regarded by DTZ mixed-use development of 1,900 residential units, as having no immediate value for development. 16,000sq.m. of retail, 99,000sq.m. of office and 19,000sq.m. of leisure. The Board continues to believe that the property portfolio is a unique asset which has long-term 2009 will see continuing discussions with CEC on the potential for development when there is a recovery in OPA for The Harbour, Leith Docks which, we believe, property markets and infrastructure links to the site will position us well for a future upturn in the property become more established. market. The property team has carried out a detailed
3 Excluding minority interests review of the property division’s cashflow capitalise on these growth opportunities, such as requirements which will result in a significantly the land outside the Port of Tilbury, in due course. reduced spend in 2009 compared with 2008. Cash We believe that these projects have the potential will only be expended where there is a clear benefit to generate attractive long-term returns for to valuation from the spend or in pursuance of a our shareholders. viable planning approval. Our remaining obligated expenditure is approximately £10m which will be Outlook carried out over the next few years. The Group’s main focus in 2009 will be to manage our businesses efficiently and prudently, in order to Renewable Energy withstand the recessionary pressures and develop We have entered into a strategic joint venture with a growth platform to position us for a recovery in the Scottish and Southern Energy plc (“SSE”) to pursue economy. This will involve increasing the customer joint interests in renewable energy sources. In May base and improving the quality of customer 2008, planning approval was granted to Port of contracts, managing our costs more efficiently and Tilbury for the erection of four large wind turbines our cash more effectively. Property expenditure will within the port and we are considering whether to be tightly controlled with the emphasis on increasing lease or sell the site. the value of our property assets and continuing our dialogue with CEC on our various planning There is a growing recognition that deepwater ports applications in order to take advantage of future are ideal locations for energy generation plants from benefits from improved transport links. renewable sources such as biomass and waste. We see potential to develop a number of such plants Trading in January was lower than last year, although and have already received several enquiries. many areas of our business continue to trade well. Trading in February both at Tilbury and in Scotland At Tilbury, proposals are currently going through has shown signs of improvement over last year. planning and in Scotland several potential sites have The stability of a large part of our ports revenue been identified and are the subject of interest. These base places us well to cope with the challenges that developments will help us create value through we expect as a result of the weaker UK economic consented sites and also through the benefits of environment. Against this background, we expect 09 importing significant quantities of bulk materials. to deliver a robust overall performance.
People
We are extremely grateful to all who work for Forth Ports for their efforts and contributions over the Christopher Collins last year. Chairman Prospects
We continue to have a number of potential projects offering attractive long-term growth prospects for the Charles Hammond ports business. In aggregate, these different projects Group Chief Executive total over £50m of potential spend. In today’s market, Annual Report it is more a question of positioning the business to 16th March 2009 and Accounts 2008 2008 was the year where we demonstrated the quality and breadth of our ports business. We delivered results and created opportunity in 2008 despite a deteriorating economic and market situation.
10 Our Progress in 2008
We achieved a great deal in 2008 despite economic uncertainty. Our key achievements were:
A record performance in our ports business at both Tilbury and Scotland Approval of Edinburgh’s largest ever planning application Earnings enhancing performance from Nordic Strategic joint venture in renewable energy which will add value to our Group in the future Decisive action was taken to refinance the Group at a significantly lower net interest cost
The result of these achievements is a robust, well 11 diversified ports business, a secure and stable financing platform and the ability to create a platform of value when markets recover.
Annual Report and Accounts 2008 Our strategy continues to be one of using our asset base to create value for our shareholders. We have a secure core ports business and will continue to develop supply chain efficient solutions for our customers. Our asset base has long-term potential to add value for our shareholders through property, recycling and renewable energy developments.
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Business assets
Tilbury/Nordic Leith/Edinburgh Grangemouth Dundee Rosyth for shareholders Economic growth and value Port Investment/Supply Chain Development
Waterfront Regeneration
Renewable Energy
Waste Management and Recycling Business focus
Work in partnership with customers and stakeholders The Key Points of Our Strategy
Working closely to understand our customer supply chains Through operating efficiencies, delivering excellent service in the supply chain Investing against secure and visible returns Positioning our land bank for the upturn through viable planning consents and working in partnership with our public sector Developing renewable energy proposals by working in partnership to generate value, port related revenues and a sustainable energy platform for long term regeneration projects Integrated waste management, recycling and export propositions for major customers
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Annual Report and Accounts 2008 In difficult times, it is important to do basic and essential things well. Our strategy of consistent investment will stand us in good stead to deliver excellent service to our customers and efficiencies in their supply chains. Those efficiencies also allow us to control costs and manage our finances. A good example of this philosophy in action is our productivity improvements at the Grangemouth Container Terminal. Shipside turnaround and landside operations have seen productivity improve in the last year after intensive investment and new working practices were introduced to the terminal. This will allow Scotland’s exports to leave Scotland’s largest container port and get to market more quickly and efficiently.
14 Delivering excellent service to customers
With continued investment in the land side operations at Grangemouth Container Terminal the overall time taken to handle vehicles has steadily reduced since 2004. This investment has focused on infrastructure and location of the vehicle drivers’ reception, as well as IT developments. The graph shows the average turnaround time for vehicles delivering and receiving laden boxes at the Port of Grangemouth.
Grangemouth turnaround times (minutes) 80
70 69
60
55 50 52
15 40 40
35 30
20
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Annual Report 0 and Accounts 2004 2005 2006 2007 2008 2008 Health and safety: reduction in accidents
In 2008, we reduced our accident level across the Group. We are committed to working in partnership with our workforce and trade unions to reduce this rate further. The Safety First for Forth and Behavioural Safety campaigns are good examples of these partnership initiatives in action.
Group Personal Injury Accident Statistics
Reporting of Injuries, Diseases and Dangerous Occurrence Regulations 1995 (“RIDDOR”).
All RIDDOR Reportable Accidents Group personal injury accident statistics
200 200 16 175 175
150 150 155 125 125 119 100 100 –23%
75 75
50 50
25 39 25 26 0 –33% 0 2007 2008 2007 2008 Security of revenue
Around 80% of the Group’s port revenue in 2008 was derived from long-term contracts. We work closely with our customers to ensure that we provide them with consistently excellent service.
Liquid Bulks £20.5m Containers £21.3m Paper/Forest Products £26.6m Dry Bulks £17.8m Other Cargo £23.2m
Managing cash
During 2008, the Group refinanced its borrowings for the period ending in June 2012. With effect from early 2009, £200m of the Group’s borrowings are at fixed interest rates.
Net debt
300 17
250
200 205.5 208.0 179.6 150 176.6 161.8
100
50
0 Annual Report £m 2004 2005 2006 2007 2008 and Accounts 2008 Creating a Platform for Growth. Our strong asset base gives us the ability to develop a platform for growth to take advantage of recovering markets.
Operating efficiencies
The Scottish Operation has invested in Sennebogen hydraulic material handling equipment for deployment on its short-sea general cargo business. The flexibility of the Sennebogens allows for deployment at each of our Scottish Ports and provides greater efficiency and productivity for our customers.
18 Nordic
The Nordic business is one of the most efficient materials recycling facilities in the south east of England. We aim to improve the recycling process further to create growth opportunities in waste.
Holmen vessel, Chatham
Throughputs, although stronger in the first half of 2008, were in line with our expectations and reflected the challenging market that our paper customers are trading within.
19 London Olympics
We are the Waterborne Centre for Transport for the London Olympics. These games will require a third of all materials to be transported by sea, lowering carbon footprint and giving Tilbury the opportunity to enhance and diversify its revenue base.
Annual Report and Accounts 2008 Supply chain efficiencies
Transporting goods by sea is generally more cost Over 90% of goods worldwide are moved by sea – effective than any other mode of transportation. It only 67% are moved in and out of Scotland by also generates a much lower carbon footprint than this mode of transport. We believe that creating other transport modes. The new Norfolkline ferry opportunities for coastal shipping in this country service will save as much in carbon emissions as will lead to better supply chain efficiencies, a we as a business emit in servicing our customers. lower carbon footprint and a better return for the public purse. The more efficient our supply chains, the lower the carbon footprint for moving goods in and out of the UK.
20 Grain Drying Facility for Simpsons Malt, Dundee
Investment in grain dryers at the Port of Dundee trebled the drying capacity at the port during 2008. This investment supports the growing Scottish agricultural and distilling industries. Strong container growth
Container volumes at Grangemouth increased by 11% over 2007 levels. In total, 157,225 boxes were handled by the port in 2008.
ISO Accreditation for Marine Division
Assistant Harbour Master, Kelly Johnston, receives the Certificate ISO 14001 Environmental Management System on behalf of the Marine Division from Charles Hammond, Group Chief Executive. This was achieved after the Division developed a structural approach to tackling environmental issues through training, the extension of recycling facilities and monitoring of energy usage. Also pictured is Martyn Clark, Marine Manager Forth and Tay and Bob Baker, Chief Harbour Master.
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Annual Report and Accounts 2008 Directorate Appreciation by Group Chief Executive
2009 will be my last year as Chairman of Forth Ports. It has been my privilege to work closely with Chris I plan to retire at the end of the year in advance of my Collins for almost ten years. Throughout that period 70th birthday. It has been a privilege to be involved. he has led the Board both astutely and with great A process to select my successor has been led by cohesion. The Group will continue to see the benefit Gerry Brown, our Senior Independent Director. I am of this through Chris’s successor, David Richardson. delighted that David Richardson has agreed to take Chris’s contribution to the Group has been both over and wish him well for the future. I will be sad to understated and hugely significant. I have benefitted leave but know that there is an excellent team in greatly from his wisdom, insight and total integrity. place to steer the Company forward. I wish him well for the future.
Christopher Collins Charles Hammond Chairman Group Chief Executive
22 Business Review
Group Ports
The strong underlying trading performance of the Total volume of traffic through the ports increased by ports in 2008 was achieved against a backdrop of 5% to 48.7 million tonnes compared with 46.3 million a dramatic deterioration in the global economy and tonnes in 2007. Liquid bulk tonnages increased to a very steep decline in the value of property, 34.4 million tonnes, up 7% on 2007. Dry cargo particularly in the second half of the year. As a result, tonnages increased marginally to 14.3 million tonnes. we achieved strong growth in our underlying port operating profits with excellent trading performances At the end of December 2008, Bidwells, as from Tilbury and Scotland. independent Valuers, carried out a valuation of the investment properties held by the Group. The As a result of market conditions, the Market Value of valuation produced a decrease of £18.7m in respect our property assets decreased significantly although of the port investment properties and £0.5m in the the Board believes that their long-term potential property investment properties, an overall reduction remains considerable. of £19.2m. This compares with a revaluation increase in 2007 and 2006 of £12.8m and £24.1m respectively. Group revenue increased by 13% to reach £185.9m. The downward movement in valuation of the Port revenue increased by over 15% to £184.3m investment properties is only as a result of property (2007 – £159.5m). Property revenue amounted to yield movements and has no bearing on the security £1.6m compared with £5.5m in 2007 as there were of the revenue shown or strong growth performance no land sales in 2008. in the ports business. Both Scottish Ports and Tilbury continued to benefit from an increase in the The underlying port operating profit amounted to underlying rent per acre during the course of 2008, £47.6m, up from £38.7m in the previous year, an however, this was not sufficient to offset the change increase of 23%. The revaluation decrease in the in the yield year on year. port investment properties amounted to £18.7m, compared with an increase in valuation in 2007 of Tilbury £12.2m. During the year insurance proceeds from the Tilbury produced yet another strong financial collapse of a container crane and income received performance on a throughput which was up under a rental guarantee amounted to £4.7m gross. marginally at 8.4 million tonnes. There was a 10% 23 increase in throughput within the Conventional asset The underlying property operating profit amounted area, driven mostly by ro-ro traffic where there was to £0.5m compared with a loss of £1.3m in 2007. a 70% increase in that traffic, a 10% increase in the Against this the carrying value of the property grain division which benefited from a major increase development costs within inventory were written in exports and a 5% increase in the volumes at the down by £27.7m reflecting, principally, a large Enterprise Distribution Terminal. Short sea container reduction in the underlying value of the land available volumes were down by nearly 6% at just over for development. In addition, the security taken some 145,000 boxes compared with just under 153,000 years ago to protect outstanding sums due on boxes in 2007. The volume of traffic handled by our previous years’ property sales fell to such an extent operating tenants in such areas as cement, scrap that the remaining two major property debtors have and aggregates was also down in 2008, but this was been written down by £3.9m. due principally to the reduced level of business from
Cemex to enable the new blending and milling facility Annual Report to be built and did not affect the increased and Accounts guaranteed tonnage. 2008 Business Review continued
A large number of contracts were reviewed and £3.7m). The Group’s share of profit was up by 60% at renewed during the course of 2008 as part of the the half year but, as referred to in the Group’s Interim normal ongoing review process. At the end of 2008, Statement, the deep sea container market saw a the Board approved an investment of under £3m to dramatic fall in volumes during the course of the upgrade the ro-ro facility in-dock at Tilbury subject to second half of the year. Having geared up for a much reaching an agreement with the customer on an higher annual volume, the cost base latterly was too increased guaranteed minimum throughput and an high to support the lower volume. In common with extension to the existing contract through to 2013. many other deep sea ports, TCS has reviewed its cost base in order to remain competitive in 2009. In May 2008, Tilbury received planning approval to erect four large wind turbines within the port to Nordic provide electricity for its own use and third party Nordic had a difficult year but nevertheless produced use as part of its drive to lower its carbon energy a profit which was still earnings enhancing. The port footprint. In conjunction with our new strategic business through Chatham was affected in the partner, SSE, we have been evaluating the cost of the second half of the year by a reduction in volume from project against the increasing cost of the wind its two major paper customers, one of which was turbines versus falling electricity prices. Separately, significantly below budget in 2008. The recycling we have also been looking at the value of the business was affected by peaks and troughs in planning approval to assess how we crystallise delivery volumes to the Tilbury MRF which made the this value. A decision is expected during the course control of costs much more difficult. In addition, the of 2009. collapse of prices for recycled materials could not be counteracted immediately by increases in gate fee Following Tilbury’s purchase of 65 acres of land income to compensate. just outside the port, we have had detailed meetings with both the Thurrock and Thames Gateway As part of the integration of Nordic, the accounting Development Corporation and Thurrock Council information was transferred to the Group accounting over the future use of this land. The plan is subject system. When this information was being validated to public consultation. Thurrock Council are in some control issues were identified. Further control agreement with the plan and intend to include it in procedures have been implemented to raise 24 their own local development plan due for completion the quality of the management information in the by mid-year 2009. We therefore intend to submit an Nordic group. OPA this year for port-related expansion and development on the site. In 2009, good progress has been made with Nordic’s major customers to improve the port profitability During the year we worked with the ODA in trialling and to mitigate, as much as possible, the adverse movements of various products from Tilbury to the effects of the fall in commodity prices within the Olympics site. The ODA have recently approved recycling business. further dredging works to allow larger barge movements to the site. This can only be to the benefit The recycling joint venture in Lincoln was not of the existing barge operation from Tilbury. successful in obtaining planning approval for a new MRF and so the planning costs of approximately Tilbury Container Services (“TCS”) increased its £150,000 were written off in the year. volumes by 12% to reach 342,000 boxes. Our share of the operating profit amounted to £3.7m (2007 – Scottish Ports and Marine Dundee The Scottish business performed strongly in 2008. The tonnage at Dundee in 2008 amounted to Container volumes were again well up throughout 1 million tonnes (2007 – 1 million tonnes). Agripod/ the year at Grangemouth. The Hound Point volumes agricultural tonnages were up by 7%; unfortunately increased by over 8% and the Braefoot Bay volumes with the contraction in the house building sector, increased by 14%. In addition, operating efficiencies timber tonnages reduced from 66,000 tonnes to improved in all of the ports. 39,000 tonnes in 2008.
Grangemouth Rosyth and Fife Ports Container volumes amounted to 157,225 boxes Tonnage through Rosyth and Fife Ports amounted to in 2008, an increase of 11% compared with 2007. 0.2 million tonnes compared with 0.6 million tonnes Both shipside and roadside productivity improved in 2007. Although the coal traffic ceased at Rosyth in significantly during the year, benefitting customers. March 2007, it still accounted for 0.4 million tonnes in Whisky exports were well up compared with last year. that year with no equivalent tonnage in 2008. Rosyth A new drivers’ reception area was completed at the also experienced its share of the economic downturn end of the year and this has improved the flow of in the timber and construction industry with a landside and haulier operations at the terminal. reduction in timber and plasterboard tonnages of approximately 76,000 tonnes. Dry cargo tonnages remained steady at 0.3 million tonnes with increases recorded in paper and pulp The Superfast ferry service between Rosyth and and fish and fishmeal being offset by a reduction in Zeebrugge ceased operations in September, iron and steel tonnages. The second half of the year however, we are delighted that Norfolkline, a saw the introduction of the new Sennebogen subsidiary of Maersk, is due to start a new service hydraulic handling machines which have significantly in mid-May. It is hoped that the service will build up improved the productivity and overall efficiency of our from the initial three sailings per week to six sailings general cargo operations. The final two machines per week should the demand warrant it next year. The became fully operational in February 2009. new vessel will offer both a freight and passenger service and there is a significant amount of interest in Leith the service from the freight community in Scotland. 25 Total throughput remained steady at 2 million tonnes with increases in grain, aggregates, iron ore and steel Property pipes being offset by a reduction in the coal volume Our property business has been significantly affected which was down by 0.2 million tonnes (although still by the dramatic turnaround in the property sector in above the guaranteed minimum throughput). the UK with, most notably, the massive fall off in housebuilding and lack of available mortgages Discussions continue with CEC, and various other contributing to a major decline in the value of land. parties, on a new cruise liner facility for Edinburgh Within this context the positive work of the property outside the existing lock gates of the port. It is team in building value was more than offset by the recognised that there would be a significant benefit market decline. to Edinburgh and Scotland in having a cruise liner facility which could take larger cruise liners which On the planning front, the LDOPA which was would otherwise not be able to berth in the port. submitted in September 2007 was approved by Annual Report the Planning Committee of CEC in August 2008. and Accounts 2008 Business Review continued
In December 2008, the Scottish Government decided In conjunction with Applecross Properties Limited, that the application would not be called in and we have prepared an OPA for up to 179 units on four referred it back to CEC for determination. Also in plots at Western Harbour. The OPA will be submitted December, we submitted an OPA for The Harbour, during the first quarter of this year. Leith Docks development formerly called the Hub. Detailed discussions with CEC on this application will Over the course of 2008, we have reviewed the take place during the course of 2009. Jones Lang property infrastructure spend on three separate LaSalle have been appointed to review the scheme occasions and have brought down the spend from and will advise the Group on its timing and marketing £22.6m to £4.4m in 2009. This spend covers an to potential partners. This will only be taken forward ongoing requirement to meet existing commitments when market conditions improve. together with a spend which is required to follow through with The Harbour, Leith Docks OPA and the The Granton Harbour revised masterplan was other minor OPAs referred to earlier. Our aim is to approved by CEC on 25th February 2009. The effect spend only where, with the grant of planning of this is to increase the number of townhouses and approval or with the completion of works, value will open spaces within the development. be created which is in excess of the actual spend.
Since the Interim Statement, the value of OTL has declined further, reducing to a Market Value of £90m at the end of December 2008. This resulted in a reduction in valuation borne by the Group of £19.7m in the full year. At this valuation, OTL would have been in breach of its Loan to Value covenant, however, it was agreed with Bank of Scotland (“BOS”) that the Loan to Value test would be suspended until 30th April 2010 and retested at a minimum lower level of £78m. The refinancing will require Forth Ports to inject a further £5m into OTL by way of loan stock. In addition, both shareholders 26 agreed to lend a further £1.5m each to cover the likely cost of physical alterations to the shopping centre and towards capital inducements for new tenants. This latter sum will only be expended on the basis that it produces a greater uplift in value than the initial sum spent. Towards the end of 2008 we received planning approval to carry out various changes to the front entrance of Ocean Terminal. Key Performance Indicators Trends in the Ports Business Ports are increasingly finding themselves as active The Board uses the annual budget as the base for participants in the supply chain for the movement of measuring the Group’s performance. Financial and goods. This means that, rather than just marketing non-financial targets are set for individual senior shipping and handling capabilities to shipping lines, managers and for the businesses within the Group. there are a variety of customers who, at various At the Annual Strategy Review, the Board considers points in the supply chain, can control the movement the financial projections over a three year time of goods and to whom the port will be marketing its horizon. The overarching aim is to increase the value services, including the producer of the commodity, of the Group for the benefit of the shareholders. In the shipping line, the distributor of the commodity the current economic climate, it is unlikely that there and in some cases agents and trade boards. Our will be a return to the high values ascribed to our main ports all have good access for landside property assets in 2007/2008 for some years and so distribution and also, in the case of both Tilbury and this Key Performance Indicator (“KPI”) has been Grangemouth, good access for the export of goods eliminated. from the UK.
The KPIs which are used to measure this increase None of the ports has the depth of water to handle in value are: the new generation of container ships of 12,000 TEUs and more. The normal capacity at Tilbury is ships of 1 Underlying port operating profit about 4,500 TEUs and at Grangemouth less than 2 Growth in value of the property assets 2,000 TEUs, although in 2007, a Maersk vessel of 3 Growth in value of the port assets over 8,000 TEUs came alongside the berth at TCS. 4 Dividend per share As ship size increases in the container market, fewer main ports in Europe will be able to handle the These KPIs are discussed in more detail in the largest vessels but this will also entail a more Business Review and Chairman and Group Chief developed network of transhipment and feedering Executive’s Statement. In using the underlying port terminals which may also see an increase in operating profit as a KPI, the Board is looking to vessel size. With this in mind, both Tilbury and increase the trading profit from the ports business Grangemouth are well placed to see growth in this excluding certain other financial effects such as 27 sector of the market with additional capacity for at revaluation changes to investment properties and least the next five years and with an anticipation of significant one-off costs. increased feedering vessel size.
The movement in the value of property assets is The trends in traffic type suggest that container and measured on an annual basis by the independent ro-ro traffic will continue to increase at a rate greater valuation carried out on the property development than the average GDP of the UK and nearly all of this assets. traffic will be European and therefore can be handled easily by our ports.
Annual Report and Accounts 2008 Business Review continued
Liquid bulk continues to be an important constituent encouraging dialogue between workforce and of the make up of the Group’s business. This management to identify potential problem areas to tonnage has gradually declined over the last five to minimise risk. We encourage national vocational seven years although with the Buzzard Field now on qualifications and support staff who wish to pursue stream, there has been an increase in liquid bulk relevant academic qualifications. Our labour stability movements in 2007 and 2008 which should continue index remained steady at 91% in 2008. for the next few years. Prior to North Sea oil coming on stream in the mid-70s, the UK was a net importer The land under our ownership covers 648 hectares of liquid bulk and already there are signs that this and we also own over 1,900 hectares of seabed may repeat itself with the import of LNG through adjacent the waterfront at Edinburgh. The way in various ports in the UK. which we manage these land assets is critical to the future success of the Group. We have shown in Dry bulk cargoes have been consistent in total Tilbury that we have the expertise to work with our volume terms over many years, however, the customers to move businesses around the port to individual commodity mix has changed over that obtain greater value from the asset but we also work period of time. A good example of this would be that with our customers to help them maximise the although grain has played an important part in the benefits that they receive from being located in our Tilbury traffic for many years, it was only in the ports. In Leith, a similar type of expertise is required mid-1990s that bulk animal feed was imported except that the interaction is between the continuing through the port. port business at Leith and the requirements to develop the assets for property use. In our view, this The thrust of our ports business is to manage our can only be achieved by a unified management assets efficiently and improve the return we get from structure which, although decentralised for the individual operations through more efficient use of day-to-day business, is controlled centrally at a our resources thereby releasing further assets for strategic level. We are therefore, as a Group, seeking future development either in the ports or property to increase the value of our port assets by businesses. This is unlikely to change in the near encouraging long-term agreements with major future. customers to secure income stream and enhance value and at the same time, develop our property 28 Resources assets over a long-term period to regenerate the area around the port and so increase the value of our land Our two greatest resources are our employees and both absolutely and by reducing the value gap our physical asset base. We employ 1,250 people between the Waterfront and the City centre. throughout the Group and our pension scheme encompasses over 900 pensioners and 400 deferred pensioners. If the total number of persons employed within our various ports is included, then our economic activity encompasses many thousands more who are reliant on the trade through our ports.
The ports industry is such that our employees tend to remain with us for many years. Health and safety is paramount and we pay particular attention to the training and retraining of our employees, Risk The banking covenants cover Tangible Net Worth (“TNW”), gearing and interest cover. The minimum The management of the business and the execution TNW is £200m; the gearing level is based on not of the Group’s strategy are subject to a number more than 100% of TNW. The interest cover is based of risks. The key business risks affecting the on a minimum of 2.5 times profit before interest and Group are considered to relate to the retail tax. The TNW covenant is tested monthly, with the and property markets and the current global other covenants tested half yearly at 30th June and economic environment. 31st December each year. The headroom on all of the financial covenants at the end of 2008 Bank Funding and Financial Covenants was comfortable. As has been well publicised, the availability of bank funding deteriorated markedly in 2008, increasing the Business Risk risk of refinancing for normal trading companies. With The Board does not consider that the Group faces this tightening in credit markets, the decision was any substantive strategic risks as both business taken to refinance all of the Group’s borrowings segments are in business areas where there will be rather than wait until 2009 to complete the refinancing ongoing demand for those services. The ports of the £100m Revolving Credit Facility which matured business has evolved over many years and with in that year. The Company entered into negotiations existing trade patterns, our ports are ideally located with BOS to refinance that part of the facility which for that business, whether it be mainly within Europe matured in June 2009. At the same time, a number of as regards the Scottish Ports or serving London and other banks were approached for funding. Following the South East of England from Tilbury and Chatham. prolonged discussions, the Company renegotiated its The Group has a strong record of investing in total facilities with BOS and Lloyds TSB with the modern plant and equipment and this, together with result that, with effect from January 2009, the total increased training for our employees, will enable us facilities available to the Group amounted to £275m to meet the challenges of the future in offering our (2007 – £300m), comprising of two revolving credit port customers a quality cost effective service for facilities totalling £250m which mature on 30th June their needs. 2012 and a multi-option finance facility of £25m which matures on 30th June 2010. The BOS revolving credit facility replaces the previous revolving credit facility 29 and the long-term loan. The average margin increased by nearly 100% to 162 basis points. The opportunity was taken to fix the interest rate on £200m of borrowings which has resulted in an average interest rate (including margin) of 4.4% compared with 6.3% in 2008. The bank funding is on an unsecured basis.
Annual Report and Accounts 2008 Business Review continued
The ports business has a very wide spread of In 2008, with the unprecedented swift decline in customers and commodities and is capable of property values over a short period of time, we adapting to market change as witnessed over the last experienced a situation where the recoverability of ten years by the business in sludge traffic, bauxite, the two remaining large property debtors outstanding fertiliser manufacture and export of coal being in 2008 changed from a position where the security replaced by increased container volumes, the import taken out to cover the indebtedness moved from full of coal, new business such as animal feed, ro-ro cover to very little cover over the year. As a result, a traffic and new paper customers. provision of £3.9m was made in this year’s accounts. There are no other significant property debtors on the The property business has its foundation in the Balance Sheet. ownership of land which the Group has, particularly at Leith. With the benefit of being able to develop Valuation Risks such a significant brownfield site over many years, Although the majority of the year end 2007 Market the main variable is what the take-up rate for this land Value of our property development assets was not might be. Given the extent of our landholding, it is reflected in the Balance Sheet at that date, the more important to put in the infrastructure and add dramatic decline in property prices has had an even value, development by development, rather than aim greater effect on the underlying value of our property for an artificial target of land sales. This is even more development assets at the end of 2008 where we important now in the current economic environment. have written down £27.7m in property infrastructure It is also more challenging to match spend on costs. If there is a further fall in the value of land, then infrastructure with adding value where there is little this may require a further write-down of the property or no third party transactional activity to rely on for development assets. valuation purposes. We have seen a fall in the valuation of our investment Financial Risks properties by £19.2m in 2008 (compared to an The financial risks are limited to the normal increase of £12.8m and £24.1m in 2007 and 2006). commercial risks associated with running a business. This reduction would have been more severe but for We have no major currency exposure as all our the fact that the rent per acre for such assets business is done within the UK, however, we do continued to show reasonable increases in 2008 30 acquire assets from overseas where we have seen which offset, to some extent, the outward shift in the a significant deterioration in the £/€ exchange rate. yields used to value these assets. These are Our policy is to buy currency as soon as we know long-term assets and fundamental to the business we have a foreign exchange liability. and so are less likely to be sold. Nevertheless, if property values continue to decline in 2009, our investment properties will not be immune to the general movement in values. Towards the end of 2008, the shift in yields reduced The Company has agreed a Recovery Plan with the the valuation of OTL from £130m at 31st December Trustees of the Scheme which will require an increase 2007 to £90m at 31st December 2008. As a result, in contributions going forward, but at a lower cash OTL was likely to breach its Loan to Value Covenant. rate than previously when the Company made larger Following discussions with BOS, its lender, it was payments into the Pension Scheme than required to agreed to refinance the company with additional encourage the amalgamation of its two pension funds being made available from the shareholders schemes. The employer contribution rate will including up to £6.5m from the Company. It was also increase from 14.6% to 17.1%. The Trustees agreed agreed that the next date for the Loan to Value that the employees should contribute towards the Covenant to be tested would be 30th April 2010 with increased costs of the Scheme. The way in which this the valuation as at 31st March 2010. The minimum is achieved is being discussed. The Recovery Plan Loan to Value at that date is £78m allowing agreed with the Actuary requires an additional annual headroom on the 2008 value of £12m. The bank payment by the Company of £3.3m for the next seven loans to OTL are non-recourse to the Company. years. It is expected that this sum will be reduced by approximately £600,000 per annum which is the The Forth Ports Group Pension Scheme Company’s estimate of the increased contribution The Group operates a defined benefit scheme which required by the employees. is more fully explained in Note 32 of the accounts. The triennial valuation of The Forth Ports Group Modest changes to the assumptions can have a Pension Scheme (”the Scheme”) was carried out as significant effect on the liability position of the at 5th April 2008. The valuation showed a deficit at Scheme. Full details of the assumptions used are that date of £30.7m compared with £23.9m as at 5th given in Note 32 to the Accounts, however, a 0.25% April 2005. The funding level at April 2008 was up increase or decrease in the discount rate would result marginally at 85%. Higher than assumed investment in a reduction/increase in the liabilities of £7.6m. If the returns and increased employer contributions in inflation assumption was varied by 0.25%, the effect excess of the cost of benefit accruals were more than would be £4.2m. The other significant assumption is offset by the interest on the deficit and the changes in life expectancy. The Scheme uses the PA92 Year of the inflation and mortality assumptions. Birth tables with medium cohort improvements, with members treated as though they were four years 31 older than actual age. The average life expectancy of the members has increased, on average, by one year since the previous triennial valuation. The cost approximates to an increase in liabilities of £3.9m.
Annual Report and Accounts 2008 Business Review continued
The two principal fund managers remain Lazard Any significant risk from any of the above risk Asset Management and Legal and General. The categories would be debated by the Board and an performances by the fund managers both exceeded agreed procedure of handling that risk would be the benchmark returns over the pension year. The delegated to the relevant Executive Director as Statement of Investment Principles has not changed appropriate. The Board has an annual review of the the allocation of the assets which remains at 60% in key risks likely to be faced by the Group. This risk equities and 40% in Government gilts/corporate matrix is updated annually by the Group Risk and bonds. With the significant fall in equities over the Insurance Manager who oversees the procedures year, the actual allocation as at 31st December 2008 involved in the identification of business risks and was 53% equities and 46% gilts/corporate bonds with their compliance by the Group. 1% in cash and property. Essential Business Relationships The Scheme had an accounting net deficit after tax As part of the normal operation of the Group, we under IAS19 of £3.7m at 31st December 2008 (2007 have many business relationships to maintain be they – £0.4m). As has been seen over the last two years, with major customers, major suppliers, elected the deficit position can vary widely. The Group paid members of Parliament (UK, Scottish and European), in £9.5m to the Scheme in 2008 (2007 – £9.5m). local elected councillors and council officials. We also deal with many Government agencies such as General the MCA, Scottish Environmental Protection Agency, Whilst the Board believes that the Group has a good Scottish Natural Heritage and others. In the Board’s reputation in the market place, it cannot be view, there is no one single business relationship or complacent. The nature of the ports industry is such group of business relationships which is, in itself, that the day-to-day work carried out requires our material to the success of the Group. Nevertheless, it employees to be totally aware of their working is important for both business segments to be able to environment as there is always the possibility of communicate effectively with all the stakeholders with accidents occurring. Some of the cargoes which are whom we have a business relationship and to work handled are dangerous and require to be handled in with them to achieve our joint aims. accordance with specific procedures. There is always the risk of accident but we have emergency plans in 32 place which are reviewed regularly and updated where necessary. Finance £205.5m). The level of gearing as measured by total Group revenue amounted to £185.9m (2007 – net debt divided by total shareholders’ equity £165m). The underlying Group operating profit amounted to 90% compared with 70% at 31st amounted to £48.1m compared with £37.4m in 2007. December 2007.
Taxation Should the Group, for any reason, seek to refinance Excluding joint ventures and associates, the effective its borrowings with another financial institution, then rate of tax for the Group before exceptional items and the facility agreements have the right to demand a revaluations for the year was 28.7% compared with prepayment fee equal to 2% of the amount prepaid 25.5% in 2007. The increase in the actual rate is due and/or cancelled within the first twelve months and principally to the previously announced decision by 1% thereafter. the Chancellor of the Exchequer to withdraw Industrial Buildings Allowances progressively over The Group’s business is not particularly seasonal in the next three years. This measure was approved by nature, however, its cash flow requirements may be Parliament in July 2008, resulting in the Group’s affected by the timing of major capital expenditure deferred tax liability increasing by £27.2m. As projects. In 2008, the peak borrowing requirement reported in last year’s Annual Report and Accounts, (net of cash) was £223m in June with a minimum this increase in liability relates to long-life assets requirement of £210m in February. On the basis of which are unlikely to be sold. This change is the budget for 2009, the Group will not require an expected to increase the cash tax paid to HM increase in its facility over the next twelve months. Revenue & Customs by approximately £1.5m annually. With the significant losses in 2008, a refund Accounting Policies of corporation tax of £4.3m was made to the As with most companies, the critical accounting Company in March this year. As a result, the cash tax policies are Revenue Recognition and Employee charge in 2009 will be significantly reduced. Benefits. In the former, the two key areas of judgement are first the determination of any shortfall Cash Flow positions on guaranteed minimum tonnage/minimum The Group operating cash flow amounted to £58.8m revenue contracts in the ports business and second, (2007 – £65.8m). In 2008, £8.5m was collected from determining the liability for costs to complete the 33 property debtors leaving £1.6m to be collected (net various property developments and allocating those of provisions). costs over the various developments. The charge to the Income Statement for pension costs will be Capital Expenditure determined by the assumptions made by the Actuary Capital expenditure in 2008 amounted to £23.1m and accepted by the Company in relation to the (2007 – £13.4m). £10.8m was spent purchasing the discount rate on gilts and corporate bonds, the 65 acres of land at Tilbury. The spend on property expected rate of return on the assets and the development assets amounted to £6.5m. mortality assumptions. These are discussed further in Note 32 to the Accounts. Capital Structure The Company has 45.6m shares in issue with a In addition to the above, the Group has brought out nominal value of 50p per share. No new shares were a new accounting policy on Exceptional Items which issued during the year. The net debt at 31st seeks to identify those material items of income and December 2008 amounted to £208m (2007 – expenditure which the Group has disclosed Annual Report and Accounts separately because of their quantum or incidence 2008 Business Review continued
so as to give a clearer understanding of the Group’s General financial performance. This policy is particularly Certain sections of the Business Review contain important in relation to the 2008 accounts given the forward-looking statements that are based on very significant economic impact of the fall in the management’s expectations, projections and property markets. The 2008 results were materially assumptions. We believe that these expectations, affected as disclosed in Note 4 to the Accounts by projections and assumptions are reasonable, based the property write downs covering both property on the information available to us. However, these development assets and investment properties. statements are not guarantees of future performance A change in the corporation tax law relating to the and involve inherent risks and uncertainties and other abolition of Industrial Buildings Allowances also factors which may cause actual achievements to had a major effect, although this was a one-off differ materially from those expressed or implied by occurrence. such statements. The Group does not undertake any obligation to update or publicly release any revisions The accounting policy on inventories and, in to forward looking statements in light of new particular, in relation to property development assets, information or future events. was also deemed to be critical in 2008 following a major reduction in the market value of the Group’s property development assets. This indirectly affected the cost of the property development assets held on the Balance Sheet by reference to the reduction in expected sales proceeds, the fact that certain areas of the land bank are not currently considered realisable for development and the long-term nature of the developments. The decision was taken to provide £27.7m against the carrying value of these assets.
New International Financial Reporting Standards (“IFRS”) adopted in the year are discussed in the 34 Accounting Policies section. Corporate Social Responsibility (“CSR”) Group Personal Injury Accident Statistics Reporting of Injuries, Diseases and Dangerous We aim to provide excellent service to our customers, Occurrence Regulations 1995 (“RIDDOR”) to provide a safe working environment for our employees and to create sustainable communities 2008 versus 2007 Performance through long term investment. (Includes the Nordic Group data for 2007-2008)
The Company has been a member of the Kempen/ 2008 2007 SNS Smaller Europe Index since October 2003, All All RIDDOR RIDDOR membership being available only to companies with Reportable Reportable % of the very highest standards and practice in the three Accidents Accidents change areas of business ethics, human resources and the Forth Ports PLC Group 26 39 –33% environment. The Company is also a constituent member of the FTSE 4 Good Index. 2008 2007 All All % of Accidents Accidents change Health And Safety Forth Ports PLC Group 119 155 –23% The health and safety of our employees and also visitors, contractors and members of the public who Five Year Trend Analysis visit our places of business is of the utmost 2004-2008 (Includes the Nordic Group data for importance to us. Our safety culture is underpinned 2007-2008) by the application of five strategic safety drivers: 2008 2004 RIDDOR RIDDOR Simplification, Education, Engineering, Engagement Reportable Reportable % of and Enforcement. A Group Strategic Health and Accidents Accidents change Safety Plan for 2008-2010 was originally presented to Forth Ports PLC Group 26 49 –47% the Board in October 2007 and a further presentation was made to the Board in October 2008 showing 2008 2004 progress against the plan and targets achieved to All All % of Accidents Accidents change date. This plan is available to all involved in the Forth Ports PLC Group 119 187 –36% Group’s business and is regularly reviewed. 35 The Board set a target of overall reduction in personal injury accidents of 10% in 2008. This target was met and indeed exceeded.
Personnel The Group health and safety team was expanded in 2008 by the appointment of a Safety, Health, Environment and Quality Advisor to the Nordic business.
Annual Report and Accounts 2008 Business Review continued
Scottish Port Operations long-term effects of his accident on himself, his family As part of the continuing behavioural safety and his work colleagues. programme the strapline “Safety First for Forth” was selected by the workforce at the annual health and Port of Tilbury safety forum as the banner for all safety initiatives and Last year we reported that Port of Tilbury and UNITE campaigns throughout Scottish Ports. The Director, had signed a Safety Partnership Agreement for Scottish Operations formally launched the campaign 2008-2009. This document committed both parties at road-shows during October 2008. to further improving safety standards and reducing accident rates by delivery of a series of objectives We also introduced a Safety Charter aimed at further and initiatives including the objectives of industry enhancing the safety culture within Scottish Ports. wide Safer Ports Initiative 2. All of the targets and This Charter was developed in consultation with the objectives set for 2008 were met. Port Behavioural Safety Forums which include representatives from the workforce, management and The Port of Tilbury/UNITE Partnership health and the health and safety team. safety awareness training programme continued in 2008 with Port of Tilbury employees attending a one Scottish Operations has published a workplace day workshop led by a tutor from the London transport safety DVD from a concept developed by all Metropolitan University. This programme was of our safety committees working in conjunction with extended to include the employees of agency labour the road transport industry and produced by the Port providers to ensure consistent standards and of Dundee Safety Committee. The DVD contains understanding of safety requirements within the port. information on safety rules to be adhered to by hauliers entering the ports and provides an overview The third annual safety, health and environment in several languages recognising that many hauliers forum took place in March 2008 and was attended by entering our ports are from outside the UK. The over 70 staff and safety representatives from the port. Director, Scottish Operations, and an invited The event focused on accident reduction, audience from haulage companies, the Road implementation of Safer Ports Initiative 2 and Haulage Association, Health and Safety Executive, sustainable improvement in health and safety trade unions and Forth Ports Safety Committees performance and monitoring in partnership with the 36 formally launched the DVD in October 2008. The DVD trade union health and safety representatives. Staff has been made available to all of those who operate gave presentations on the progress being made in within the Scottish Ports including our tenants. delivering safety and environmental objectives and a keynote address was made by the Managing The annual health and safety forum took place in Director, Port of Tilbury. March 2008. Over 80 people attended including staff and health and safety representatives from across The Ports Skills and Safety National First Aid Scottish Ports and representatives from the Health Competition, the only national first aid event and Safety Executive. Staff from each of the Scottish designed solely for those working in the ports and Ports delivered presentations on a number of port port related industries, was held in Llandudno in May safety improvement projects including slips, trips and and the Port of Tilbury entered two teams. The Tilbury fall hazards, working safely near water and workplace teams did extremely well with Team A achieving 1st transport management. A motivational speaker who place in their event and Team C achieving 3rd place had suffered a serious industrial injury delivered an in their event out of a total of 19 teams. extremely moving presentation on the short and Nordic Group Industry Engagement Following the acquisition of the Nordic Group in June Forth Ports PLC is involved in all of the core activities 2007 its integration into Forth Ports safety of Port Skills and Safety, the industry body charged management system continues with the with promoting high standards of health and safety implementation of worker involvement in safety and skills competence. The Managing Director of the committees, audit and inspection programmes, fire Port of Tilbury is a member of the PSS management management training, accident investigation training Board and Forth Ports is represented at the Port and engineering modifications to equipment to Safety Steering Group meetings where Health and enhance safety. Safety Managers from across the Ports Industry meet and share best practice. Property During 2008 there were no Health and Safety The Group continues to progress the safety and incidents reportable by our principal contractor to the training objectives detailed in the industry wide Safer HSE under the RIDDOR 1995 Regulations on any of Ports Initiative 2 and fully supports the regional our property development sites. events organised to promote the initiative throughout the industry. The health and safety statistics for the property development sites during 2006 to 2008 are; In November the Group hosted a ports industry first aid conference, a forum designed to share best Total man hours worked – 519,214 practice in first aid provision. Total number of reportable Lost Time Incidents – 4 Audit 2008 Accident Frequency Rate (per 100,000hrs) As reported last year Scottish Port Operations – 0.77 AFR achieved a 5 star audit from the British Safety Council for the first time. Tilbury achieved this for the second The latest available construction industry statistics time in 2007 and the target is for Tilbury to maintain published by the Health and Safety Executive show its 5 star rating at its next audit in 2009. The British a three year average AFR of 1.67. Safety Council carried out a review audit of the Nordic Group in 2008 as a baseline for preparation 37 Throughout 2008 the property group continued to for a 5 star audit in 2010. promote Continuing Professional Development (CPD) for all staff by hosting a series of presentations and The Group continues to use a hierarchical system workshops. This year’s topics included risk of internal and external process safety audits to assessments. measure, monitor and demonstrate compliance with all relevant health and safety legislation and internal safety management procedures. It is the intention to obtain certification to the OHSAS 18000 international occupational health and safety management system specification by 2010.
Annual Report and Accounts 2008 Business Review continued
Employees 2008 saw the introduction of the new corporate Industrial Relations and Manpower manslaughter legislation; training on the new The Group headcount decreased during 2008 by regulations was delivered across the Group to seventy-eight. At the year end the employee directors and senior and middle managers by headcount figures were as follows: external legal advisers and the Group solicitor. The seminars were attended by a total of 54 employees. Scottish Operation 504 Tilbury 547 The training departments within the Scottish Nordic Group 117 Operation and Tilbury have active external relationships with local colleges, universities and Total 1,168 government agencies, particularly those who have a responsibility for skills development. 2008 culminated A significant factor in the reduction was the TUPE in confirmation by the Sector Skills Council – Skills transfer at Tilbury of fifty-eight employees within the for Logistics, that the consortium of which Port of Finnish Terminal to one of our customers, Stanton Tilbury forms part had won the bid to manage and Grove. Aside from this we have a stable workforce run the East of England Academy for Logistics. with relatively low turnover. More than forty per cent of the Group’s employees have more than ten years Environment And Sustainability of service. Our Commitment to the Environment and Sustainability Good industrial relations are important to our The Group recognises that our activities have an business and there have been no days lost due to impact on the environment and we strive to minimise industrial disputes since 1989. this where it is practical to do so. The main potential environmental impacts associated from our activities Employee Involvement fall under the following broad categories: The sixth group-wide information and consultation forum took place during 2008. The employee Noise representatives take an active interest in health Dust/air quality and safety and environmental matters and are Water pollution 38 encouraged to contribute ideas which would benefit Waste the business. The forum is augmented by local Conservation communication forums and regular meetings with Climate change the recognised trade unions to discuss matters of common interest. All business areas in the Group have an important role to play in engaging with the Governments of the Training and Development UK and Scotland on issues such as climate change, The Company remains committed to training for recycling, sustainable development and the employees at all levels. During 2008 182 employees production of renewable energy. Where appropriate achieved certificates or qualifications. These include we aim to work with politicians and civil servants to NVQ Level II, NVQ Level III/IV, IOSH Health and Safety assist in the development of new legislation in these Certificates, Higher National Certificates and Logistics areas, either directly or through trade groups (such degrees. as the UK Major Ports Group). In the coming year the focus of our discussions is likely to be the forthcoming Carbon Reduction Commitment, the final guidance as to the current changes in relative sea versions of the Water Framework Directive River level in this area of east central Scotland. Basin Management Plans, energy and building efficiency legislation and policy and the new UK and Inland Movement of Goods Scottish marine and climate change legislation. We continue to facilitate the movement of goods to and from our ports using rail where this is Each port liaises with its tenants, customers, appropriate. In 2008 approximately 1.2 million tonnes regulators and other key stakeholders to of coal were transported to Cockenzie Power Station communicate and share information on from the Port of Leith, saving more than three quarter environmental and associated topics. Environmental of a million lorry miles. Containers continue to be issues and performance against targets are reported delivered to and transported from the Ports of Tilbury on and discussed at the Environmental Management and Grangemouth via rail. Committee Meetings in Tilbury and in Scotland at operational management meetings. We were delighted that Sir Steve Redgrave agreed to open the new barge terminal at the Port of Tilbury. In 2007 we reported that we had undertaken a The terminal, operated by Green Barge Company Climate Change Impact Assessment (CCIA) for the Ltd, moves materials to Stratford and the Olympic Group’s activities. In 2008 we approached the Park via the River Thames rather than via the road Edinburgh Centre for Carbon Management to assist network. us with a CCIA of three of the shipping routes to and from our ports: the Rosyth to Zeebrugge route, Renewable Energy and Resource Efficiency Grangemouth to Felixstowe container line and the Forth Energy, our joint venture with SSE, gives us Tilbury to Bilbao container line. Each of these routes the ability to explore various renewable energy was compared with the same loads (or passengers) opportunities including windpower and multi-fuel travelling via an alternative land based route. The generation at a number of locations across the results showed that these sea routes can be more Group. In Edinburgh the property team is working than ten times more carbon efficient than the land closely with SSE and CEC to devise a sustainable based alternative. The announcement made in 2008 energy solution for The Harbour, Leith Docks. that Norfolk Line will take over the Rosyth to Options being looked at include district heating and 39 Zeebrugge route will further enhance this contribution combined heat and power. as their vessels are expected to be 40 per cent more efficient than the previous Superfast vessels, and Planning approval was granted in 2008 for the have greater freight capacity. erection of four wind turbines at Tilbury and Express Energy have also applied to convert the site leased to Much of the concern associated with climate change Cargill plc at Tilbury to an energy from waste facility. is focussed on changes in relative sea level however the Forth and Tay are relatively unstudied in this We have also been examining resource efficiency regard. As part of developing a better understanding across the Group, with a particular focus on energy of the potential geoenvironmental changes that may usage. Port of Tilbury set itself a target to reduce face our assets in the Forth and Tay, we have funded energy usage relative to the tonnage handled in 2008 a Ph.D. student at the University of Dundee. The by 2% when compared to 2007. The port actually student has already commenced work analysing achieved an overall reduction in excess of 6% with a historical information from our tidal data and records number of asset areas achieving savings of around Annual Report and Accounts from other locations with the aim of producing 20%. Last year we reported that the Forth and Tay 2008 Business Review continued
Navigation Service building was being used as Pollution Avoidance and Control an energy efficiency trial. This proved extremely All of our ports have emergency and spill response successful with a reduction in the energy usage of plans. These are continually monitored, tested and the building during 2008 of over 16%. During the year reviewed. During 2008 Scottish Ports undertook a the Carbon Trust supported an energy efficiency major review of its emergency plans and a new survey of all buildings at the Port of Grangemouth generic emergency plan was created that covers all with a view to expansion of the energy efficiency of our Scottish Ports in consultation with emergency campaign in 2009. A similar exercise is underway services, local authorities and employees. The plans throughout the Group in relation to water usage dovetail with the estuary-wide, Emergency Forth Plan and fuel. and the Clearwater Forth Plan, which operate across our harbour authority waters. Natural Environment Dredging, port and property development continue to The annual testing of the Clearwater Forth Plan took receive high levels of scrutiny through environmental place via a live-play tier 2 exercise during October regulators, NGOs, media and local communities. 2008. This year CEC was the local authority that We are particularly aware of the environmental participated (with onlookers from a number of other sensitivities that surround our ports, particularly those authorities around the Forth). Exercise ‘Black sites designated under the European Directives for Barnacle’ started in the early morning and tested the the conservation of birds and habitats. During 2008 callout procedure to mobilise Forth Ports staff and many of the islands in the Firth of Forth that were relevant members of the various governmental already designated as Special Protection Areas for bodies, NGOs and local authorities. The exercise their bird interests had the designated areas was also designed to exercise our spill responder extended into the marine environment. and the Environment Group, a committee of experts that provides environmental advice during such We continue to engage regularly and to be actively an incident. involved in the Forth Estuary Forum, Tay Estuary Forum and Thames Estuary Partnership. One Waste Management example of our engagement with environmental The MRF at the Port of Tilbury, owned and operated regulators has been our discussions with Scottish by our recycling division, Nordic Recycling, 40 Natural Heritage regarding the planning consent for processed a total of 100,004 tonnes of commingled Leith Docks and its relationship with the colony of recyclables from local authorities in 2008. Mixed common terns within the docks. The Company is recyclates are deposited in the facility and the MRF also funding a Ph.D. student to study the colony and then splits the recyclate into the individual the activities of its inhabitants. component parts (paper, plastic, glass etc.). Inevitably there is an element of material that is Dredging continues to be an essential part of our delivered with the recyclate that is not recycleable. statutory responsibility to maintain the safety of Where possible this material is sent for energy navigation in our waters. 2008 saw a slight increase recovery. In the MRF in Chatham Docks, also in the dredging figures when compared to operated by Nordic Recycling, a further 180,000 recent years. tonnes of clean paper waste was processed in 2008 and shipped to Sweden on vessels that bring newsprint back to Chatham for distribution throughout the UK. Nordic Recycling operate waste management services for many PLCs across the UK, advising on recycling everything from fluorescent As reported last year, we await final confirmation of tubes through to plastic cups. the impact of the EU Port Security Directive (2005/65) on our ports. During 2008 the Department for In Scotland the recycling scheme operating across Transport consulted on their proposals for the Scottish ports offices continues to be successful, implementation of the Directive. Both the Scottish with greater volumes being recycled this year than Ports and Port of Tilbury responded, in particular last. Excluding confidential waste paper (which is highlighting concerns over bureaucracy, practical shredded and recycled) the Scottish offices recycling benefits and costs. Tilbury will be part of a trial initiative diverted over 59 tonnes of paper, card, regarding the implementation of the Directive for plastic and metal from landfill. all ports along the River Thames.
Environmental Management Community Responsibility and Involvement The Port of Tilbury remains fully compliant to the ISO Education 14001:2004 Environmental Management Standard Forth Ports PLC is a founder signatory of the (EMS). As reported in the section on health and Waterfront Partnership Accord. The Accord is a safety, an electronic integrated environmental and partnership between the Edinburgh waterfront quality management system was launched at the developers, CEC, Skills Development Scotland and Port of Tilbury in early November 2008 enabling the Construction Academy, the aim of which is to integration of key safety and environmental ensure that the developments on the waterfront processes. The system was successfully audited by provide skills, training and employment for the local LRQA in November 2008 to ISO 14001 and ISO 9001. communities. Since 2005 over 700 people have been placed into work both at the waterfront and across During 2008 Nordic Recycling achieved certification Edinburgh. The Accord was signed in October at the to the ISO 14001: 2004 Standard for its facilities at official opening of the Forthside Construction Centre the Port of Chatham and in November of 2008, the of Excellence based at Telford College which will Marine Division in Scotland (which includes Forth provide facilities for up to 700 apprentices and 200 and Tay Navigation Services, pilotage, conservancy adult learners each year. and towage) achieved its certification. A key focus element of the Marine EMS is ensuring integration The property division continued its work with final 41 with the Port Marine Safety Code, a voluntary year students at Heriot Watt University on their management system for Harbour Authorities. The external site projects, this year investigating the Forth Ports Port Marine Safety Code can be found on opportunity for a hotel and special event building the company website: www.forthports.co.uk. within The Harbour, Leith Docks. Presentations were given by the student groups at both Heriot Watt and Security Edinburgh School of Art and members of the The Port of Tilbury and Scottish Ports remain fully property team assisted in judging the quality of compliant with the ISPS code and all UK and EU the work. implementing legislation. An inspection team from the European Commission has recently tested compliance at Tilbury. The team of five inspectors found no deficiencies in any aspect of the security requirements during their three day inspection. Annual Report and Accounts 2008 Business Review continued
The Port of Grangemouth has sponsored the The Edinburgh Mela relocated its festival to the introduction of the Young International Trader waterfront with Forth Ports as one of the main programme at Grangemouth High School in sponsors. The Edinburgh Mela is one of the twelve academic years 2008/9 and 2009/10. The Edinburgh festivals and is Scotland’s largest sponsorship given by the port will allow access to inter-cultural event bringing together an eclectic and teaching materials from which the staff will now innovative mix of diverse arts from a variety of cultural develop a course. origins. Established in 1995, it now supports more than four hundred performers, and over seventy acts In 2008 a consortium of which Port of Tilbury is a and in 2008 attracted over 25,000 people. Earlier in member was appointed by the Sector Skills Council the year, Forth Ports supported the Scottish Firework – Skills for Logistics, to manage and run the East of Championships at Western Harbour and was the title England Academy for Logistics. sponsor of the increasingly popular Leith Festival.
Performing Arts in the Community Community Engagement and Charitable Activities Port of Tilbury continued its commitment to Ocean Terminal Shopping Centre has supported involvement in the performing arts. In July the Royal many charities, community groups and schools Opera House, Covent Garden transferred its during 2008. Many have been provided with space in production workshop from London to the Cruise the Mall for fundraising and awareness raising Terminal at Tilbury to create a “people’s opera”. More activities, for example, Guide Dogs for the Blind, the than 600 people from primary school children to Poppy Appeal and Bethany Christian Trust. There young offenders and pensioners came together for have also been gifts of vouchers and support week long rehearsals and set-building culminating in provided through work placements and mock the performance of Sun and Heir over five days at the interviews for local school children. At Christmas, Cruise Terminal. Ocean Terminal provided all the materials for a charity gift wrap, where charities ran the stall and The Cruise Terminal again hosted the successful kept the money collected for wrapping the Twelve Days of Christmas show. The show had over customers’ gifts. This raised over £4,000 for the 1,500 community performers and an audience of charities involved. 3,300 attended the event over its nine day run. 42 Tilbury’s continued commitment to this project was Forth Ports berthed the Spirit of Fairbridge over a five recognised when the port in conjunction with day period at Prince of Wales Dock, Leith. The visit Thurrock Council won the national JTI Arts & was used to highlight the work that Fairbridge Business Community Award in November. undertakes within the community and in particular with under privileged children. The event was well attended by local politicians, dignitaries and sponsors with former trainees giving accounts of their lives and experiences. During 2008, Forth and Tay Navigation Service was Management Involvement visited by a number of local groups, politicians and Members of the Management Team hold a variety of civil servants to learn about statutory requirements of posts in organisations whose aim is to improve the a competent harbour authority and in particular how community, environmental and economic health of the Forth and Tay are managed by Forth Ports. the areas in which our business operates:
The annual Tilbury/Scotland football match continues Charles Hammond sits on the Waterfront to raise money for local charities, along with a host of Development Partnership Board. smaller departmental events and continued its Perry Glading, the Managing Director, Port of support of various groups including St. Luke’s Tilbury, is the Chairman of the Academy of Hospital, Thurrock Rugby U13’s team, Tilbury FC and Transport and Logistics for Thurrock and a number of other local causes and charities. Tilbury Thames Gateway, represents the Group on the is also a Gold member of Essex Wildlife Trust. Tilbury management board of Port Skills and Safety also took part in the 60th anniversary celebrations of Limited, the organisation which promotes safety the arrival of the Empire Windrush at the Cruise in the port industry, and is Chair of its Ports Terminal. The Windrush brought the first large group Partnership Project Steering Group. of West Indian immigrants to the UK after the Second Morag McNeill, the Group Company Secretary, World War and a plaque commemorating the event is a member of the Waterfront Recruitment was unveiled at the terminal. Initiative. Nathan Thompson, the Managing Director of The property division entered a team of three in the the Property Division, sits on the Waterfront King Sturge Property Triathlon. Approximately £2,000 Development Partnership Board. was raised for the Sick Children’s Hospital in Derek McGlashan, the Environment Manager, Edinburgh. The triathlon took place in and around the is a Director of the Forth Estuary Forum and Olympic rowing lake at Dorney in Berkshire, where represents the United Kingdom Major Ports over 2,000 people competed. The team came 35th in Group on the Scottish Government’s Sustainable the mixed relay class, out of around 200 teams. Seas Task Force. Michaela Sullivan, the Head of Planning, is an Port of Dundee has again made an in-kind external examiner on the Master of Urban and 43 contribution to both the North Carr and Unicorn Regional Planning course at Heriot Watt historic vessels berthed in Victoria Dock and the University. Port of Leith continues to support the historic vessel Mark Tonge, Operations and Resource Director, SS Explorer. Port of Tilbury is a member of Cranfield Agile Supply Chain Research Group. Bob Cowan, the Group Financial Accountant, is a member of the Audit Committee of Mercy Corps Scotland, an International Aid and Development Charity that exists to alleviate suffering, poverty and oppression by helping people build secure, productive and just communities.
Annual Report and Accounts 2008 Board of Directors
1. Christopher Collins 69 2. Charles Hammond 47
Christopher Collins was appointed Chairman of Forth Charles Hammond joined Forth Ports Authority as Ports PLC in August 2000. He is Chairman of Old Company Secretary in 1989 having been previously Mutual PLC and was Chairman of Hanson PLC from with the law firm of McGrigor Donald. He became 1998 to 2005. Commercial Director in 1992, was appointed Managing Director, Port of Tilbury London Limited in December 1995 and became Group Chief Executive in February 2001. He was recently appointed as Deputy Chairman of the United Kingdom Major Ports Group. He was also Chairman of Scottish Enterprise Edinburgh and Lothian until May 2008.
3. Wilson Murray 58
1 2 Wilson Murray was appointed Finance Director of Forth Ports Authority in 1986. Previously, he worked in the accounting profession with Deloitte Haskins & Sells and Price Waterhouse.
4. Perry Glading 50
Perry Glading joined Forth Ports PLC in February 1999 as the Deputy Managing Director of Port of 3 4 Tilbury London Limited. He was subsequently appointed Managing Director in February 2001. He was appointed to the Board of Forth Ports PLC in June 2001. Previously he worked for a number of years in the European logistics market. He is a senior member of the Management Committee of Port Skills 44 and Safety, which is the lead body on safety and training matters in the UK port industry and was 5 6 recently appointed to the Board of Skills for Logistics.
5. Struan Robertson 59
(Chairman of the Remuneration Committee) Struan Robertson is a mechanical engineer with an MBA. He was appointed as a Non-Executive Director in September 2003. He joined BP in South Africa in 1977 and from 1989 to 2001 held a variety of senior 7 8 appointments with BP, both in the UK and overseas. After retiring from BP he was appointed Group Chief Executive of the Wates Group Ltd, one of the UK’s largest privately owned construction and property groups. He stepped down from this role in 2004. He is a Non-Executive Director of International Power Directors plc, Tomkins plc, Henderson TR Pacific Investment C.D. Collins (Chairman) (Non-Executive) C.G. Hammond Trust plc and Salamander Energy plc. He was W.W. Murray previously Senior Independent Director at Atkins plc P.D. Glading E.G.F. Brown (Non-Executive) from 2000-2005. D.D.S. Robertson (Non-Executive) D.H. Richardson (Non-Executive) J. L. Tuckey (Non-Executive) 6. Gerry Brown 64
(Senior Independent Director) Group Company Secretary Gerry Brown was appointed as a Non-Executive Morag McNeill Director in September 2003. He is Chairman of Registered Office Biocompatibles plc, of Quintiles Transnational Europe Forth Ports PLC and of NFT Distribution Holdings Ltd. He is also the 1 Prince of Wales Dock, Leith, Edinburgh EH6 7DX Senior Independent Director of Keller plc. He was formerly Chairman of Upol Ltd and a Non-Executive Company Number Director of Vantec Ltd, CH Jones Ltd, Michael Gerson SC 134741 Ltd and Datrontech plc. His Executive Career included senior positions with Exel Logistics plc, Independent Registered Auditors TDG plc and Tibbett & Britten plc. PricewaterhouseCoopers LLP Chartered Accountants & Registered Auditors, Erskine House, 68-73 Queen Street, 7. David Richardson 57 Edinburgh EH2 4NH
(Chairman of the Audit Committee) Stockbrokers And Financial Advisers David Richardson is a chartered accountant. He was Dresdner Kleinwort Securities Limited PO Box 52715, 30 Gresham Street, London EC2P 2XY appointed as a Non-Executive Director in June 2005. He is also a Non-Executive Director of Serco Group Investec Bank plc 2 Gresham Street, London EC2V 7QP Plc, Dairy Crest Group Plc and Tomkins plc. He retired as Finance Director of Whitbread plc in 2005 Solicitors after 22 years with the company. McGrigors LLP Princes Exchange, 1 Earl Grey Street, Edinburgh EH3 9AQ 45 8. James Tuckey 62 Bankers James Tuckey was appointed as a Non-Executive Lloyds Banking Group PLC Director on 1st July 2007. He is Chairman of Henry Duncan House, Brookfield Europe and the former Chief Executive 120 George Street, Edinburgh EH2 4LH of MEPC plc. He is also an adviser to the BP Registrars Pension Fund. Equiniti Limited 1st Floor, 34 South Gyle Crescent, South Gyle Business Park, Edinburgh EH12 9EB
Website Address www.forthports.co.uk
Annual Report and Accounts 2008 Directors’ Report
The Directors present their report, on pages 46 Directors to 127, which includes sections on Corporate A list of the Directors of the Company is given on Governance and the audited accounts of the Group page 45. Christopher Collins, Charles Hammond for the year ended 31st December 2008. The and Perry Glading retire by rotation and being Directors also present their Business Review, which eligible, offer themselves for re-election at the Annual includes a review of future outlook, principal risks General Meeting. and uncertainties, employee involvement and KPIs, on pages 23 to 43. Directors’ Interests The beneficial interests of those Directors in office as Principal Activities at 31st December 2008 in the share capital of the The principal activities of the Company together with Company at that date are set out in the table below. its subsidiaries are the provision of port, cargo The number of shares over which options are held by handling, towage and related services and facilities. the Executive Directors under the Forth Ports PLC The Group also has extensive property interests. Long-Term Incentive Plan 2006 and the SAYE Scheme are shown below and in the Directors’ Remuneration Report on pages 58 to 66.
Ordinary Shares of Ordinary Shares of 50p each subject to 50p each subject to Option under the Option under the Long-Term Long-Term Incentive Plan 2006 Incentive Plans Ordinary Shares of Ordinary Shares of and the 2002 and 2006 and the 50p each 50p each SAYE Scheme SAYE scheme Held at 31st December 2008 2007 2008 2007 Christopher Collins 10,000 10,000 nil nil Charles Hammond 83,017 73,517 65,326 61,241 Wilson Murray 163,000 153,000 41,192 38,828 Perry Glading 15,100 10,202 39,341 36,160 Gerry Brown 2,064 2,064 nil nil Struan Robertson 1,500 1,500 nil nil David Richardson 3,500 2,000 nil nil 46 James Tuckey 8,345 8,345 nil nil
None of the Directors had any non-beneficial interest in the share capital of the Company during the period to 31st December 2008 or the period from 31st December 2008 to 16th March 2009. The Directors’ beneficial interests in the share capital of the Company did not change in the period from 31st December 2008 to 16th March 2009. Final Dividend give the banks the right to request repayment of the The Directors recommend a final dividend of 12p per facility on change of control. There are no share (2007 – 31.95p). This brings the total dividend agreements providing for compensation for directors per share for the year to 28.6p (2007 – 47.7p) (see or employees on change of control. Note 11). Ordinary and Special Resolutions to be proposed Substantial Shareholdings at the Annual General Meeting in relation to the The following shareholders have notified substantial Company’s Share Capital interests in the Ordinary Shares of the Company as It is proposed that pursuant to an Ordinary at 16th March 2009. Resolution of the Company the Directors be given Percentage renewed general authority under Section 80 of the Number of issued of Ordinary Companies Act 1985 to allot Ordinary Shares up to Shares Share Capital an aggregate nominal amount of £6.2m, a sum Babcock & Brown Ltd 10,735,875 23.5% equivalent to the unissued share capital of the Schroders Investment Company. This authority shall expire on the date of Management 4,111,000 9.0% the next Annual General Meeting after the passing F&C Asset Management 3,521,130 7.7% of this Resolution or on 31st July 2010, whichever is Legal & General the earlier. Investment Management 1,976,341 4.3% Asset Value Investors 1,591,754 3.5% The Directors are also proposing that a Special Threadneedle Resolution be submitted at the Annual General Asset Management 1,456,223 3.2% Meeting to empower them to allot, wholly for cash, Ordinary Shares up to an aggregate nominal amount The Takeovers Directive of £1.14m (which is equivalent to 5% of the issued The Company has one class of share capital, Ordinary Share Capital of the Company) without ordinary shares. All the shares rank pari passu. offering them first to existing shareholders. This There are no special control rights in relation to the authority shall expire on the date of the next Annual Company’s shares. At 31st December 2008, the General Meeting after the passing of this Resolution trustee of The Forth Ports Employee Trust, Forth or on 31st July 2010, whichever is the earlier. Ports Trustees Limited, owned 161,000 shares in 47 the Company (0.4%); any voting or other similar The Directors believe it is in the best interests of the decisions relating to those shares would be taken Company that, as permitted by the Companies Act by the trustee, who may take account of any and in line with current institutional guidelines, they recommendation of the Company. The rules should have at their disposal a relatively small governing the appointment and replacement of Board number of shares in order that they may take Members and changes to the Articles of Association advantage of any appropriate opportunities that accord with usual Scottish company law provisions. may arise. The Board has power to purchase its own shares and is seeking renewal of that power at the forthcoming AGM within the limits set out in the notice of that meeting. There are no significant agreements to which the Company is a party which take effect, alter or terminate in the event of change of control of the Annual Report Company except that the Company’s bank facilities and Accounts 2008 Directors’ Report continued
The Directors are proposing that a Special Resolution A copy of the New Articles of Association will be on be submitted at the Annual General Meeting (as it display at the registered office of the Company and was last year) to empower them to buy back up to at the offices of McGrigors LLP, 5 Old Bailey, London 15% of the issued share capital of the Company. EC4M 7BA during normal business hours on any This authority shall expire on the date of the Annual week day up to and including the date of the Annual General Meeting in 2009 or on 31st July 2010, General Meeting and at that meeting. whichever is the earlier. The Company may then either cancel any shares it buys back, or hold them Copies of the new Articles of Association have also as own shares held in terms of the Companies been submitted to the UK Listing Authority and are (Acquisition of Own Shares) (Treasury Shares) available for inspection at the UK Listing Authority’s Regulations 2003. Document Viewing Facility, which is situated at: Financial Services Authority, 25 North Colonnade, Special Resolution to be proposed at the Annual Canary Wharf, London E14 5HS. General Meeting in relation to changes to the Company’s Articles of Association Recommendation Resolution 11 proposes, as a Special Resolution, the Your Board considers the proposals and the adoption of new Articles of Association of the Resolutions to be proposed at the Annual General Company. Company law has undergone substantial Meeting of the Company to be in the best interests of change following the commencement of the staged the Company and its shareholders as a whole and implementation of the Companies Act 2006 (“the accordingly your Directors unanimously recommend 2006 Act”). As a result, the Board considers it that shareholders vote in favour of the Resolutions prudent to replace the Company’s existing Articles of set out in the Notice of Annual General Meeting, as Association with new Articles (“the New Articles”) that the Directors intend to do in respect of shares take account of these developments. It is also some beneficially owned by them. time since the existing Articles of Association were amended and the New Articles also reflect current Risk Management Policies and Objectives best practice. The risk management policies and objectives may be found on pages 81 and 82 of the Accounting Policies. A summary of the material changes brought about by 48 the proposed adoption of the New Articles is set out in the Appendix to the Notice of Annual General Meeting on pages 135 to 136 of this document. Other changes, which are of a minor, technical or clarifying nature have not been noted in the Appendix.
Further amendments to the New Articles may be required in the coming years as a result of full implementation of the 2006 Act in October 2009. Any further amendments will be put to shareholders at the 2010 Annual General Meeting. Disabled Persons Auditors and Disclosure of Information to Auditors The Company provides Occupational Health Services Each Director, as at the date of this report, has in-house which plays a significant part in monitoring confirmed that, insofar as they are aware, there is no the health of employees and ensuring that those relevant audit information (that is, information needed members of staff who experience long-term illness or by the Group’s auditors in connection with preparing disability receive the appropriate support to secure their report) of which the Group’s auditors are their return to work. Where their return to work is unaware and they have taken all the steps that they possible the Company has well-developed ought to have taken as a Director in order to make procedures to ensure the employee continues to play themselves aware of any relevant audit information a productive role within the Group. These procedures and to establish that the Group’s auditors are aware are evidenced by the numbers of employees who of that information. remain in employment with disabilities or a restricted capacity to carry out their normal duties. The Group The auditors, PricewaterhouseCoopers LLP, have continues to fully endorse the aims of the Disability indicated their willingness to continue in office and Discrimination Act and our internal procedures a resolution concerning their re-appointment will be ensure compliance at all locations. proposed at the Annual General Meeting.
Creditor Payment Policy It is the Group’s policy to settle all debts with its creditors on a timely basis, taking account of the Morag McNeill credit period given by each supplier. The Company’s Group Company Secretary average creditor payment period at 31st December 2008 was 43 days (2007 – 42 days). 16th March 2009
Charitable Donations Donations for local charitable purposes in 2008 amounted to £18,600 (2007 – £30,000). No contributions were made for political purposes.
49
Annual Report and Accounts 2008 Corporate Governance Report
The Directors are committed to high standards of The Directors believe that it is essential that the corporate governance. The way in which the Group should be led and controlled by an effective Company applies the principles set out in the Board. The Board has adopted a formal Schedule of Combined Code on Corporate Governance issued by Matters specifically reserved to it on such matters as: the Financial Reporting Council in June 2006 (the “Combined Code”) is described below. Agreeing objectives, policies and strategies and monitoring the performance of the Executive Compliance Statement Directors and Senior Management; The Company has been in compliance with all Controlling and monitoring the financial relevant provisions of the Combined Code performance of the Group; throughout the year under review. Reviewing strategic options on an annual basis to include any major changes in organisation The Combined Code – and direction of the Group; Application of Principles Approving major expenditure and transactions with other companies including, for example, A. Directors acquisitions, disposals and joint ventures; The Board Ensuring compliance in relation to Christopher Collins is the Non-Executive Chairman of a) Safety, health and environmental matters the Board and Charles Hammond is the Group Chief b) Corporate Governance Executive. Gerry Brown is Senior Independent Delegating clear responsibility and authority to Director. At the beginning of the year, the Board of the Chairman, Committees of the Board, the Directors comprised five Non-Executive Directors and Group Chief Executive and other Directors; three Executive Directors. The Board considers all its Compliance with the Companies Act, UK Listing Non-Executive Directors, with the exception of the Authority, London Stock Exchange and other Chairman, to be independent. regulations; and Consideration and approval of strategy, budgets No Non-Executive Director has served on the Board and major management/financial decisions as for more than nine years from the date of his determined from time to time by the Board. appointment. The Board has adopted the principle 50 that Non-Executive Directors should normally serve Board Meetings two three year terms and that any term beyond six The Board met seven times last year for regular years should be subject to particularly rigorous business and the Directors participated in the Annual review. In any event, no Non-Executive Director shall Strategy Conference. The Board meets as necessary serve longer than nine years. Christopher Collins was for any matters arising at other times. At each Board appointed for a third term in 2006. meeting, the Board considers reports from each of the Executive Directors covering his area of As noted on page 22, Christopher Collins will be responsibility. retiring at the end of the year and David Richardson will succeed him as Chairman. An Annual General Meeting is held every year. All Directors are subject to re-appointment by shareholders at the first Annual General Meeting after their appointment and thereafter to re-election at intervals of no more than three years. The attendance at Board Meetings during 2008 was Group Company Secretary as shown below: The Group Company Secretary is responsible for Meetings ensuring that Board procedures and applicable rules Name Attended and regulations are observed. All Directors have Christopher Collins 6 access to the advice and services of the Group Charles Hammond 7 Company Secretary. The Group Company Secretary Wilson Murray 7 is also responsible for ensuring that the Directors Perry Glading 7 are fully aware of their duties and responsibilities Gerry Brown 7 as Directors and that they undertake appropriate Struan Robertson 7 training. David Richardson 7 James Tuckey 6 Independent Advice
There is an agreed procedure for Directors to take The Chairman holds one meeting with the independent professional advice, if necessary, at the Non-Executive Directors without the Executive Company’s expense. Directors present.
Unresolved Concerns Sub-Committees of the Board Where Directors have concerns which cannot be The Board has delegated certain matters to three resolved in connection with the running of the sub-committees of the Board comprising the Audit Company or a proposed action, their concerns are Committee, the Remuneration Committee and the recorded in the Board Minutes. If a Non-Executive Nomination Committee. Details of the membership of Director resigns, he is required to provide a written each sub-committee are shown on pages 55 to 67. statement to the Chairman, for circulation to the Board, if he has any such concerns. The following table sets out the frequency of, and attendance at, the various sub-committee meetings Insurance Cover for the period under review: The Company purchases insurance to cover its Audit Remuneration Nomination Directors and Officers and the Trustees of its pension Committee Committee Committee scheme against the costs of defending themselves in No. of meetings held 3 4 1 51 civil legal proceedings taken against them in that
Name capacity and in respect of damages resulting from Christopher Collins n/a n/a 1 the unsuccessful defence of any proceedings. To the Gerry Brown 3 4 1 extent permitted by UK Law, the Company also Struan Robertson 3 4 1 indemnifies its Directors, Officers and Trustees. David Richardson 3 3 1 Neither the insurance nor the indemnity provides James Tuckey 3 3 1 cover where a Director, Officer or Trustee has acted Charles Hammond n/a n/a 1 fraudulently or dishonestly.
Annual Report and Accounts 2008 Corporate Governance Report continued
Annual Evaluation of Performance External Audit Process An annual evaluation of the Board’s performance and The Audit Committee has reviewed and monitored that of its sub-committees, individual Directors and the effectiveness of the external audit process by way Chairman is undertaken. Each Director receives a of a questionnaire which reviewed, on a graded Board Performance Evaluation Questionnaire and scale, the robustness of the audit, the quality of separate Committee Performance Evaluation Forms delivery and the quality of people and service. The where appropriate for use in assessing the Board’s Audit Committee was satisfied as to the effectiveness own performance and that of the Audit and of the external audit process. Remuneration Committees. As the Nomination Committee meets infrequently, there is no separate B. Directors’ Remuneration Performance Evaluation Questionnaire for that Reference is made to the Directors’ Remuneration Committee however any comments on the Report on page 58 which sets out the composition of Nomination Committee may be sent to the Group the Remuneration Committee, the Company’s Company Secretary as part of the Board remuneration policy for Directors and details of such Questionnaire. remuneration (including bonus schemes and pensions) for each Director, and the Committee’s The Committee Performance Evaluation compliance with all relevant sections of the Questionnaires consider fulfilment of terms of Combined Code. reference, necessary skills and resources of members, evaluation of the supporting processes All Executive Directors are on one year rolling for the Committee and an overall view of the contracts. effectiveness of the Committee. The results were compiled and addressed by the Group Company No Executive Director who has external Directorships Secretary and reported to the Board. The results is currently paid for these Directorships. were considered by the Board at its March meeting in 2009. No major changes were implemented as a C. Relations with Shareholders result of this review. The Company encourages regular dialogue with institutional shareholders based on a mutual An evaluation of the performance of the Group Chief understanding of objectives. 52 Executive and each of the other Non-Executive Directors was undertaken by the Chairman. The Board receives reports prepared by the Company’s broker which reflect the views of the The Non-Executive Directors, led by the Senior major shareholders on an unattributable basis Independent Director, met once without the Chairman following the half-yearly and annual presentations to and the Executive Directors to evaluate the major shareholders. The Board also receives copies performance of the Chairman. of analysts’ reports on a regular basis.
As part of the annual budget presentation to the In 2008, the Chairman met, or had discussions with Board, the Board reviews the targets which were certain of the Company’s major shareholders. As part given to individual Executive Directors and Senior of the governance process, other major shareholders Managers within the Group and subsequently were offered the opportunity to meet the Chairman discusses and approves the targets to be given to should they so wish. The Senior Independent these individuals for the following year. Director is also available for meetings if requested. The Board uses the Annual General Meeting to Identification of Business Risks and communicate with private investors and encourages compliance with the Guidance their participation both inside and outside the Throughout last year, the Group complied with the formal meeting. Guidance. The Group Risk and Insurance Manager oversees the procedures involved in the identification As in prior years, at the 2009 Annual General of business risks and compliance with the Guidance. Meeting, the Company will ensure that the level The Board regularly reviews the process of of proxies for and against each resolution is intimated identifying, evaluating and managing the Group’s to shareholders after each resolution has been key risks which allows it to take a view on the dealt with. effectiveness of these procedures. All subsidiaries are required to assess key risks and related control D. Financial Reporting and compliance with the and monitoring procedures on an ongoing basis. 2005 Turnbull Committee Guidance on Internal The Board monitors this process on a regular basis. Control (“the Guidance”) Major Corporate Information Systems Internal Control: The Board is responsible for and The Group operates a comprehensive budgeting and has reviewed the effectiveness of the Group’s system financial reporting system which, as a matter of of internal control in accordance with the Guidance routine, compares actual results to budget. throughout the year. Actions were taken in respect of Management accounts are compiled on a monthly the Nordic Group internal controls as set out on page basis. Variances from budget are thoroughly 24 of the Business Review. No other significant investigated and revisions to forecasts are made findings were identified which required action to be twice during the year. Cash Flow projections are taken. The process of internal control has been in prepared monthly and cover a rolling twelve month place for the year under review and up to the date of period to ensure that the Group has adequate funds. approval of the Annual Report and Accounts. It The port business uses the Integrated Port Operating should be recognised that such a system can provide System (“IPOS”) to provide it with up-to-date only reasonable, and not absolute, assurance against information on marine, general cargo and container material misstatement or loss. The key features of the operations. Together with Cognos software, this system which have been established are as follows: enables core information to be tailored to 53 management’s own particular requirements to assist Control Environment in the day-to-day operation of the business. The Group’s control environment is the responsibility of the Group’s Directors and managers at all levels. Main Control Procedures The Group’s organisational structure has clear lines Divisional management establishes control of responsibility. Operating and financial procedures in response to each of the key risks responsibility for subsidiary companies is delegated identified. Standard financial control procedures to the local boards. operate throughout the Group to ensure the integrity of the Group’s accounts. The Board has established procedures for authorisation of capital expenditure and exceptional maintenance. The Group has an internal audit function which carries out a regular programme of systematic reviews of the financial control procedures. Annual Report and Accounts 2008 Corporate Governance Report continued
Monitoring System used by the Board The maintenance and integrity of the Forth Ports PLC The Board participates in an annual strategy website is the responsibility of the Executive conference which includes a three year forward Directors; the work carried out by the auditors does financial review which is then updated on an annual not involve consideration of these matters and, basis. The Board reviews and approves budgets and accordingly, the auditors accept no responsibility for monitors the Group’s performance against those any changes that may have occurred to the accounts budgets. The Board receives reports on a regular since they were initially presented on the website. basis from the Audit Committee. Legislation in the United Kingdom governing the preparation and dissemination of accounts may differ Audit Committee: Full details of the work of the Audit from legislation in other jurisdictions. Committee are contained in the Report of the Audit Committee on page 55. Going Concern: The Directors, having made enquiries, have a reasonable expectation that the Directors’ Responsibilities for the Accounts: Company and the Group have adequate resources to Company law requires the Directors to prepare continue in operational existence for the foreseeable accounts for each financial year which give a true future, and that therefore it is appropriate to continue and fair view of the state of affairs of the Company to adopt the going concern basis in preparing the and the Group and of the profit or loss of the Group accounts. for that period. In preparing those accounts, the Directors are required to: By Order of the Board
select suitable accounting policies and then apply them consistently make judgements and estimates that are Morag McNeill reasonable and prudent Group Company Secretary state that the accounts comply with IFRS as approved by the European Union 16th March 2009 prepare a Directors’ Remuneration Report prepare the accounts on the going concern 54 basis unless it is inappropriate to presume that the Group will continue in business
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group to enable them to ensure that the accounts comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Report of the Audit Committee
The members of the Audit Committee during the year were: The Terms of Reference of the Committee may be summarised as follows: David Richardson Non-Executive Director (Chairman) a to consider the appointment of the external Gerry Brown Non-Executive Director auditors, the audit fee and any questions of Struan Robertson Non-Executive Director resignation or dismissal and to make James Tuckey Non-Executive Director recommendations to the Board for it to put to shareholders; The Group Chief Executive, the Group Finance b to monitor and review the external auditor’s Director and Managing Director, Port of Tilbury, are in independence and objectivity and the attendance at the Audit Committee meetings, effectiveness of the audit process, taking into however, they are not present for the full meeting as consideration relevant UK professional and the Audit Committee has separate sessions with only regulatory requirements; the internal and external auditors present. The c to discuss with the external auditors the nature Chairman is also in attendance. and scope of the audit and ensure co-ordination where more than one audit firm is involved; The Group Company Secretary acts as Secretary to d to develop and implement a policy on the the Committee. engagement of the external auditor to supply non-audit services, taking into account relevant Members of the Audit Committee serve for an initial ethical guidance regarding the provision of period of up to three years with the option to extend non-audit services by the external audit firm; by no more than two additional three year periods e to monitor and review the integrity of the provided the members are considered to be accounts focusing particularly on any changes in independent. The Chairman of the Committee has accounting policies and practices, major recent and relevant financial experience. The judgmental areas, significant adjustments Company has complied with the Combined Code resulting from the audit, the going concern throughout the year. assumption, compliance with Accounting Standards and compliance with UK Listing 55 The Audit Committee met on three occasions during Authority, London Stock Exchange and legal the year to receive reports on various matters requirements; including the full year accounts (March), the Interim f to monitor and review any formal announcements Statement (August), and on planning work for the relating to the Company’s financial performance, 2008 full year audit (December). including the Interim Management Statements; g to monitor and review the Company’s internal The Terms of Reference of the Audit Committee financial controls; authorise it to seek any information it requires from h to monitor and review the internal audit any employee and all employees are required to programme, to review the co-ordination between co-operate with any requests made by the Committee. the internal and external auditors and to ensure The Committee is authorised by the Board to obtain that the internal audit function is adequately outside legal or other independent professional advice resourced to a level commensurate with the and to secure the attendance of outsiders with Company’s requirements; relevant experience and expertise if it is considered Annual Report and Accounts necessary. 2008 Report of the Audit Committee continued
i to ensure that all matters within the remit of the The Audit Committee’s policy on the external Committee are dealt with in an open, fair and auditors’ undertaking non-audit work is as follows: transparent manner; j to report to the Board, identifying any matters in 1. Audit Related Services respect of which it considers that action or This is the primary area of work for the external improvement is needed and make auditors. If any additional accounting support is recommendations as to the steps to be taken; required, then this should be considered on a and competitive basis. k to review arrangements by which staff of the Company may, in confidence, raise concerns 2. Tax Consulting about possible improprieties in matters of In cases where knowledge of the Group’s tax position financial reporting or other matters, and to ensure is important, Forth Ports may use the external that arrangements are in place for the auditors and their associates but this does not proportionate and independent investigation preclude the Group from using other tax consulting of such matters and for appropriate follow firms. Significant additional tax work should be up action. evaluated competitively.
The risk management system is reviewed by 3. General and Systems Consulting the Board. All significant consulting projects, including due diligence work, should be subject to competitive The Audit Committee has satisfied itself as to the tender. The Group Finance Director is required to external auditors’ independence; it has considered give prior approval of work to be carried out by the the external auditors’ quality control procedures and external auditors if the fee proposal is between has reviewed and approved the level of audit fees by £5,000 and £49,999. If the fee proposal is in excess reference to the total level of fees which the external of £50,000 this should be pre-approved by the auditor has been paid during the year; it also Chairman of the Audit Committee if it is proposed to compared the fees paid to the external auditor with give this work to the external auditors. fees paid to other professional advisors for accounting and other tax work. It received a 56 presentation from the external auditor in which the views of the external auditor were expressed in relation to the question of independence. It also assessed the effectiveness of the external audit process considering the quality of people and service provided by the external auditor, the robustness of the audit and the quality of delivery. During 2008, the Company used three different firms The Audit Committee also received a report at all of of professional advisers to advise on accounting, the meetings from the internal auditor on the work corporation tax, VAT and other financial matters. which he carried out. A separate Internal Audit Plan is The fees received by the external auditors were presented to the Audit Committee by the Internal as follows: Auditor for consideration at the last Audit Committee 2008 2007 meeting of each year in respect of the following £000 £000 year’s work programme. The Audit Committee Statutory audit fees 434 448 has reviewed the effectiveness of the internal audit Non-audit services: function and is satisfied as to the effectiveness of Tax advisory services 9 28 that function given the size and complexity of Other 6 5 the business. 449 481 A “whistle blowing” policy is in operation throughout The Audit Committee carried out a review of its the Group. This policy sets out the position whereby effectiveness by considering such matters as skillsets any concerns, including those of a financial nature, of members, quality of Audit Committee papers, may be raised at the appropriate level within relationships with the external auditor and the internal the Group. auditor and suggestions for improving the Committee’s performance. The results were discussed and approved by the Audit Committee which David Richardson expressed itself satisfied as to its effectiveness. Chairman
16th March 2009
57
Annual Report and Accounts 2008 Directors’ Remuneration Report
This report has been prepared in accordance with the performance and fairly rewarded for their Directors’ Remuneration Report Regulations 2002. It individual contribution to the success of the also meets the relevant requirements of the Rules of Company; the UK Listing Authority and describes how the Board b to consider all elements of the remuneration has applied the Principles of Good Governance package i.e. base pay, short and long-term relating to Directors’ remuneration. As required by the incentives, pension arrangements and Regulations, a resolution to receive and consider the termination provisions; report will be proposed at the Annual General Meeting c to review in general terms the remuneration of the Company at which the accounts will be packages for employees directly below Board approved. level; d to ensure compliance with all relevant legal The members of the Remuneration Committee during requirements and take account of the provisions the year were: of the Combined Code and the UK Listing Rules; e to report formally to the Board as necessary on Struan Robertson Non-Executive Director its proceedings; and (Chairman) f to produce an annual report on the Company’s Gerry Brown Non-Executive Director remuneration policy which forms part of the David Richardson Non-Executive Director Company’s Annual Report to the shareholders at James Tuckey Non-Executive Director the Annual General Meeting.
The Group Chief Executive is in attendance at the During the year the Remuneration Committee Remuneration Committee meetings. received advice from Watson Wyatt and Towers Perrin. Watson Wyatt, an independent firm of The Group Company Secretary acts as Secretary Remuneration Consultants, provided advice in to the Committee. relation to the 2002 Long-Term Incentive Plan (“LTIP”) and calculated Total Shareholder Return (“TSR”) for Members of the Remuneration Committee serve for the Company in terms of the 2002 LTIP. Towers Perrin, an initial period of up to three years with the option to an independent firm of Remuneration Consultants, extend for a further three years with, in exceptional were appointed by the Remuneration Committee to 58 circumstances, up to a further three years. provide advice in relation to Executive and Senior Management remuneration and the 2006 LTIP. During the year there were four meetings of the Committee. Neither Watson Wyatt nor Towers Perrin has any other connection with the Company. The Terms of Reference of the Committee may be summarised as follows: The Group Chief Executive and the Group Company Secretary take no part in determining their own a to determine and agree with the Board the policy remuneration. for, and set, the remuneration of the Executive Directors and the Chairman. In determining the The Non-Executive Directors’ fees are determined by policy the Committee should take into account all the Chairman in consultation with Executive factors it deems necessary with the objective of Directors. ensuring that the Executive Directors are appropriately incentivised to encourage enhanced Remuneration Policy provides that the termination payment for all The Company’s policy on remuneration is to attract, Executive Directors is based on their existing salary retain and incentivise the best staff recognising that and benefits. they are key to the ongoing success of the business. In accordance with this policy, the overall packages The dates of the letters of appointment of the awarded to Directors are intended to be competitive Non-Executive Directors are as follows: and comprise a mix of performance related and basic remuneration, taking into account the goals of Christopher Collins 26th July 2000 corporate governance. Basic remuneration Gerry Brown 4th September 2003 represents approximately one third of total potential Struan Robertson 4th September 2003 remuneration with the short-term bonus scheme and David Richardson 6th May 2005 long-term incentive plan each accounting for up to James Tuckey 26th June 2007 one third of the balance. Non-Executive Directors are normally appointed for Each of the Executive Directors, the Non-Executive up to two three year terms which may be extended Directors, the Group Company Secretary, the for a further three years after a rigorous review. The Managing Director of Property and the Director of Company also applies an age limit of seventy years Scottish Ports have agreed to a freeze in their salary of age for Non-Executive Directors, however this age or fees for 2009. limit is proposed to be removed in the New Articles of Association. No termination payments are payable to In 2008, the Company operated three variable Non-Executive Directors. remuneration plans, the Short-Term Bonus Scheme, the 2002 LTIP and the 2006 LTIP. Details of these are Short-Term Bonus Scheme set out on pages 60 to 63. Awards under the Short-Term Bonus Scheme are based on the achievement attained by the Executive The Board continued the policy that only base salary Director of the challenging targets approved by the is used for pension purposes. Further details of the Remuneration Committee. These targets include pension arrangements for Executive Directors are set growth in the underlying profit of the ports out on pages 65 to 66. operations, increases in the net asset value of the property portfolio and the achievement of operating 59 Directors’ Service Contracts targets across the Group. A bonus of 70% of salary The dates of the service contracts of the Executive may be earned by meeting these targets with a Directors are as follows: maximum available bonus of 100% of salary for achievement in excess of the targets. The weighting Charles Hammond 11th March 1992 is approximately 80% financial to 20% non-financial Wilson Murray 11th March 1992 targets. Perry Glading 26th September 2001 The application of the metrics for 2008 would have Each of the service contracts is terminable on resulted in bonuses being payable in full to the 12 months’ written notice by the Company or Executive Directors. The Remuneration Committee, on 6 months’ notice by the Executive Director. however, exercised its discretion to reduce the level New Executive Directors will be appointed on the of bonuses payable because of the diminution in basis of a one year rolling contract unless there are value of the Company’s development properties. Annual Report exceptional circumstances. Each service contract and Accounts 2008 Directors’ Remuneration Report continued
Bonuses were awarded, in respect of performance in Under the 2002 LTIP, which was approved at the 2008, to each of the Executive Directors as follows: Annual General Meeting in May 2002, the value of the shares awarded may be up to 75% of basic salary £ based on the share price at 1st April in the relevant Charles Hammond 299,000 performance period. The shares vest with the Wilson Murray 185,250 recipient after a period of three years and are Perry Glading 182,000 dependent on the TSR achieved by the Company over that period compared to the TSR achieved by a The bonus metrics set for 2009 are aligned with the comparator group of sixty six companies in the FTSE key areas of focus for the Company: ports’ 200-300 Index (see page 62). The number of shares performance, conservation of cash and control of which vest, if the Company is at the median over the property spend. 40% of the bonus relates to ports’ three year period, is 25% of salary rising profit, 30% to achieving positive cash flow (excluding proportionally to vest in full if the Company achieves any reduction in the level of dividend payments year the upper quartile or above. on year) and 20% to non-financial targets half of which relate to achievement of property milestones. The The Remuneration Committee changed the entry point for the port element of the bonus is comparator group in 2004 to sixty six companies achievement of 90% of the ports profit metric and the ranked between 200 and 300 in the FTSE Indices to stretch target is achievement of 110% of the ports reflect the increase in the Company’s market profit metric. capitalisation.
2002 LTIP As at 1st January 2008 shares conditionally awarded No further awards will be made under this plan. to Executive Directors under the 2002 LTIP were as follows:
Cycle Award At Vesting Ending Date 1.1.08 Vested Lapsed At 31.12.08 Date Charles Hammond 2008 4.10.05 18,643 (12,771) (5,872) – 30.4.08 Wilson Murray 2008 4.10.05 11,718 (8,027) (3,691) – 30.4.08 Perry Glading 2008 4.10.05 10,653 (7,298) (3,355) – 30.4.08 60 41,014 (28,096) (12,918) –
The information in the table above has been subject to audit as required by the Companies Act 1985.
The 2002 LTIP was extended to apply to certain Senior Managers during 2003.
68.5% of the shares awarded in 2005 vested on 30th April 2008 in line with the relative TSR performance of Forth Ports over the performance period against the comparator group of companies on which date the share price was £21.77. The share price on the date of award was £14.08. The credit to the income statement in respect of the value of the conditional awards and the related employers’ national insurance was £(0.0)m. Performance Review of the 2002 LTIP The following graph shows the historical TSR The following graph shows the historical TSR performance growth in the value of a hypothetical performance growth in the value of a hypothetical £100 holding in the Company and the FTSE 200-300 £100 holding in the Company and the comparator Index over the five year period to 31st December group in the FTSE 200-300 Index over the five year 2008. The comparison is based on spot values. The period to 31st December 2008 under the 2005 Award. FTSE 200-300 Index is an index of similar sized The comparison is based on spot values. The index, companies to the Company and is the group from and the comparator group within the index, of which amongst which the comparator list for the 2005 the Company was a constituent company, have been awards was selected. selected as a benchmark against which the Company can be measured.
Cumulative Total Shareholder Return Cumulative Total Shareholder Return
Forth Ports PLC versus Custom Peer Group Forth Ports PLC versus FTSE 200-300 Forth Ports PLC Forth Ports PLC Custom Peer Group FTSE 200-300
£300 £300 £275 £275 £250 £250 £225 £225 £200 £200 £175 £175 £150 £150 £125 £125 £100 £100 £75 £75 £50 £50 £25 £25 £0 £0 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008
(31st December 2003 = £100) (31st December 2003 = £100) 61
Annual Report and Accounts 2008 Directors’ Remuneration Report continued
Comparator Group for 2005 Awards Company Name
Aggreko Plc McCarthy & Stone Limited * Alba Plc The Mersey Docks and Harbour Company * WS Atkins Plc Michael Page International Plc Avis Europe Plc Minerva Plc Bodycote International Plc MITIE Group Plc Bovis Homes Group Plc The Morgan Crucible Company Plc British Vita Unlimited * NHP Limited * Carillion Plc Northgate Plc Cookson Group Plc Novar Limited * Crest Nicholson Plc * Pendragon Plc Dairy Crest Group Plc PHS Group Plc * De La Rue Plc Pillar Property Group Limited * De Vere Group Limited * Quintain Estates and Development Plc Derwent London Plc Redrow Plc easyJet Plc Regus Group Plc Eurotunnel Plc * Shaftesbury Plc FKI Plc SIG Plc Forth Ports PLC DS Smith Plc Galiform Plc (formerly MFI Furniture Group Plc) Somerfield Limited * Geest Limited * Spirax-Sarco Engineering Plc The Go-Ahead Group Plc SSL International Plc Great Portland Estates Plc Stanley Leisure Plc * Greggs Plc Topps Tiles Plc Halma Plc Tui Travel Plc (formerly First Choice Holidays Plc) Homeserve Plc Ultra Electronics Holdings Plc JJB Sports Plc VT Group Plc 62 John Laing Plc * The Weir Group Plc lastminute.com Limited * Westbury Limited * London Merchant Securities Limited * JD Wetherspoon Plc Manchester United Limited * Woolworths Group Plc Marshalls Plc Yule Catto & Co Plc Marston’s Plc (formerly The Wolverhampton & Dudley Breweries Plc) * formerly listed Plc 2006 LTIP target are set by the Remuneration Committee and The 2006 LTIP was approved at the Annual General the Remuneration Committee also establishes, for Meeting on 3rd May 2006. The performance each participant, the percentage of award which is to conditions were chosen to align closely to the be dependent on achievement of performance under Company’s strategy of growth in ports profits and each metric. long-term value creation in property. Under the plan, the value of the shares awarded may be up to 100% For awards granted in 2008, the threshold level for of basic salary based on the share price at 1st April in the Ports Profits Test was set at 3% with a stretch the relevant performance period. The shares awarded target of 8%. The threshold level for the NAV test was in 2008 will vest with the recipient after a period of set at 4% with a stretch target of 9%. three years and will be dependent on the extent to which performance conditions relating to average In relation to awards to be made in 2009, under the annual growth in underlying ports profits (“Ports rules of the 2006 LTIP the value of shares awarded Profits Test”) and average annual growth in property may be up to 100% of base salary. However, the net asset value (“NAV Test”) have been satisfied over Remuneration Committee has given careful that period. consideration to the level of awards relative to shareholder value and has decided, with the No award shares subject to the relevant test will vest agreement of the Executive Directors, that while the if the threshold level of performance is not achieved policy of awards to the value of 100% should remain, at the end of the performance period. The maximum the maximum available award for 2009 will be shares number of shares will vest if the stretch target is to the value of 75% of base salary. The Committee achieved. Award shares will vest on a straight line believes that the metrics of growth in ports’ profit and basis for performance between the threshold and the growth in property NAV continue to be aligned to the stretch target. The threshold level and the stretch Group’s strategy as outlined in the Business Review.
Shares conditionally awarded to Executive Directors under the 2006 LTIP are as follows:
Cycle Award At Awarded At Vesting Ending Date 1.1.08 2008 31.12.08 Date Charles Hammond 2009 3.5.06 21,163 – 21,163 30.4.09 63 2010 27.4.07 19,915 – 19,915 30.4.10 2011 30.4.08 – 22,728 22,728 30.4.11 Wilson Murray 2009 3.5.06 13,262 – 13,262 30.4.09 2010 27.4.07 12,328 – 12,328 30.4.10 2011 30.4.08 – 14,082 14,082 30.4.11 Perry Glading 2009 3.5.06 12,133 – 12,133 30.4.09 2010 27.4.07 11,854 – 11,854 30.4.10 2011 30.4.08 – 13,834 13,834 30.4.11
90,655 50,644 141,299
The information in the table above has been subject to audit as required by the Companies Act 1985.
Certain Senior Managers are also eligible for awards under the 2006 LTIP.
Annual Report The total shares awarded in 2006 were 111,554 and, subject to achieving the performance criteria, these will vest and Accounts on 30th April 2009. The market price on 3rd May 2006 was £17.40. The charge to the income statement in respect of the value of the conditional awards and the related employers’ national insurance cost was £0.4m for the year. 2008 Directors’ Remuneration Report continued
The total shares awarded in 2007 were 108,019 and, The total shares awarded in 2008 were 145,682 and, subject to achieving the performance criteria, these subject to achieving the performance criteria, these will vest on 30th April 2010. The market price on 27th will vest on 30th April 2011. The market price on 30th April 2007 was £20.06. The charge to the income April 2008 was £21.77. The charge to the income statement in respect of the value of the conditional statement in respect of the value of the conditional awards and the related employers’ national insurance awards and the related employers’ national insurance cost was £0.6m for the year. cost was £0.6m for the year.
Remuneration Package
Directors’ Detailed Emoluments Basic Salary Performance and Fees Bonus Scheme Other Benefits Total 2008 2007 2008 2007 2008 2007 2008 2007 £ £ £ £ £ £ £ £ Christopher Collins* 122,500 115,500 – – – – 122,500 115,500 Charles Hammond 460,000 420,000 299,000 420,000 132,486 253,670 891,486 1,093,670 Wilson Murray 285,000 260,000 185,250 260,000 88,671 147,949 558,921 667,949 Perry Glading 280,000 250,000 182,000 250,000 24,070 73,146 486,070 573,146 Gerry Brown* 40,000 37,000 – – – – 40,000 37,000 Struan Robertson* 45,000 42,000 – – – – 45,000 42,000 David Richardson* 46,000 43,000 – – – – 46,000 43,000 James Tuckey ** 39,000 18,500 – – – – 39,000 18,500 Bill Harkness** – 12,601 – – – – – 12,601
1,317,500 1,198,601 666,250 930,000 245,227 474,765 2,228,977 2,603,366 * denotes Non-Executive Director ** retired/appointed during the relevant year
The information in the table above has been subject to audit as required by the Companies Act 1985.
Other benefits in 2008 include payments in lieu of company pension contributions for Charles Hammond and 64 Wilson Murray. In 2007, the other benefits include payment of the Special Bonus opportunity awarded in 2007 of £200,000 in aggregate to the three Executive Directors.
The other benefits also include car provision and medical health insurance and, for certain Executive Directors, include fuel provision.
SAYE Scheme The Directors hold options under the Group SAYE Scheme as follows: Exercise Date on Date of At At Price which first Expiry Grant 1.1.08 31.12.08 £ Exercisable Date Charles Hammond 3.6.04 1,520 1,520 10.75 1.8.09 28.2.10 Wilson Murray 3.6.04 1,520 1,520 10.75 1.8.09 28.2.10 Perry Glading 3.6.04 1,520 1,520 10.75 1.8.09 28.2.10
4,560 4,560 The information in the table has been subject to audit As a result of changes introduced by the Finance Act as required by the Companies Act 1985. 2004 which affected the taxation of pensions after 6th April 2006 (“A-day”), employees, including Directors, The highest share price during the year was £22.12 whose pension is likely to exceed the HMRC Lifetime and the lowest was £7.14. The share price as at Allowance, were permitted to cease pension accrual 31st December 2008 was £9.16. within the Scheme in favour of a cash allowance (which will not compensate for the additional tax Directors’ Pensions arising from the new legislation). Individuals taking Executive Directors receive pension entitlements from this option will, however, continue to be entitled to life The Forth Ports Group Pension Scheme. insurance and ill-health benefits from the Scheme.
The Scheme is a defined benefit scheme that Effective from 16th March 2006, Charles Hammond provides the Directors with a pension of up to two and Wilson Murray ceased accrual within the Scheme thirds of their final pensionable salary at age 60. and receive instead a cash allowance in lieu of It is an HMRC Registered Pension Scheme and pension, equal to 25% of basic salary. The allowance all members are contracted out of the State is not pensionable, nor does it count towards Second Pension. entitlements in bonus or long-term incentive schemes. Pensions in payment, earned prior to 31st December 2002, are guaranteed to increase each year by 3% or Following the abolition of the HMRC Earnings Cap, the increase in the Retail Price Index (RPI) if higher, all members of the Scheme will accrue pensions up to a maximum of 5%. Pensions earned from 1st based on the full, uncapped salary in respect of January 2003 increase in accordance with Limited service from A-day onwards. However, for any Price Indexation. member to whom the Cap previously applied, it will continue to apply in respect of service prior to A-day. The figures shown overleaf have been prepared in Perry Glading is one such member. The cash accordance with the Statutory Instrument and the allowance in lieu of pension on salary above the Cap, Listing Rules of the UK Listing Authority. Actual which he was previously receiving, ceased at A-day, Company contribution rates are calculated as an in recognition of his increased rate of pension 65 average of the cost of providing benefits for all accrual. Scheme members over their future working lifetime. This recognises features such as the increasing cost Early retirement provisions for Directors are identical of pension as members approach retirement age and to those for other members of the Scheme. the pension commitments which the Company has made for each member. Contributions are paid (where appropriate) at rates recommended by the Scheme Actuary, details of which are given in Note 32.
Annual Report and Accounts 2008 Directors’ Remuneration Report continued
(A) (B) (C) Accrued Pension for Accrued Pension for Gross Increase in Service to 31.12.07 Service to 31.12.08 Accrued Pension (Note 2) (Note 1) £ £ £ Charles Hammond 175,000 191,667 16,667 Wilson Murray 152,750 167,438 14,688 Perry Glading 40,010 46,941 6,931
(D) (E) (F) Increase in Accrued Increase in (D) Increase in (D) Pension Net of Inflation due to Salary Increases due to Service Accrual £ £ £ Charles Hammond 9,838 9,838 – Wilson Murray 8,722 8,722 – Perry Glading 5,360 1,192 4,168
(G) (H) (I) Value of Net Pension Members’ Value of Net Pension Increase Contributions Increase (G) (Note 4) less (H) (Note 5) £ £ £ Charles Hammond 126,900 – 126,900 Wilson Murray 171,900 – 171,900 Perry Glading 71,100 16,725 54,375
(J) (K) (L) Transfer Value of Transfer Value of Net Increase Benefits at 31.12.07 Benefits at 31.12.08 in Transfer Value (Note 6) £ £ £ Charles Hammond 1,947,600 2,472,900 525,300 Wilson Murray 2,669,200 3,302,100 632,900 Perry Glading 490,700 642,900 135,475
The information in the table above has been subject to audit as required by the Companies Act 1985.
66 Notes: 1 The pension accrual for Perry Glading is the amount during the year, calculated on the assumption that that would have been paid annually on retirement service terminated at the year-end (or earlier in the based on service to the end of the year. For Wilson case of Charles Hammond and Wilson Murray). It is Murray and Charles Hammond it is based on service based on the accrued pension increase (D) after to 15th March 2006 at which point they stopped deducting the Director’s contribution. accruing further service. 6 The change in the transfer value (L) includes the 2 The accrued pensions in column (A) are based on effect of fluctuations in the transfer value due to pensionable salary at 31st December 2007 and factors beyond the control of the Company and pensionable service to that date. The figure is then Directors, such as stockmarket movements. It is increased by 3.9% to allow for revaluation that would calculated after deducting the Director’s contribution. have applied to a leaver over 2008 before being 7 Voluntary contributions paid by Directors and deducted from (B) to give (D). resulting benefits are not shown. 3 Transfer values have been calculated in accordance with the basis set by the Trustees in force at 31st December 2008. This report has been approved by the Board. 4 The values in column (G) reflect the age and proximity to retirement of the Director as well as Struan Robertson financial conditions at the year end. Chairman 5 The value of the net increase (I) represents the incremental value to the Director of his service 16th March 2009 Report of the Nomination Committee
The members of the Nomination Committee during The Committee shall also make recommendations to the year were: the Board in respect of the following:
Christopher Collins Non-Executive Director a the re-appointment of a Non-Executive Director; (Chairman) b the re-election by shareholders of any Director Gerry Brown Non-Executive Director under the retirement by rotation provisions in the Struan Robertson Non-Executive Director Company’s Articles of Association; David Richardson Non-Executive Director c the continuation in office as a Director of any James Tuckey Non-Executive Director Director at any time; and Charles Hammond Group Chief Executive d the appointment of any Director to Executive or other office other than to the positions of The Group Company Secretary acts as Secretary to Chairman and Group Chief Executive, the the Committee. recommendation for which shall be considered at a meeting of all the Directors regarding these two Members of the Nomination Committee serve for an appointments. initial period of up to three years with the option to extend by no more than two additional three year The Committee is authorised to seek any information periods. it requires from any employee of the Company in order to perform its duties. It is authorised to obtain, The Committee meets not less than once a year and at the Company’s expense, outside legal or other at such other times as business requires. During the professional advice on any matters within its Terms year one meeting was held. of Reference.
The Terms of Reference of the Committee may be summarised as follows: a to prepare a description of the role and capabilities required for a particular Board appointment; 67 b to be responsible for identifying and nominating, for approval of the Board, candidates to fill the Board vacancies as and when they arise; c to satisfy itself with regard to succession planning; d to ensure that new Board members have sufficient time to undertake the role; and e to ensure that an appropriate induction plan has been put in place for every new Director.
Annual Report and Accounts 2008 Report of the Nomination Committee continued
In 2008, the Committee met to discuss the process Following their appointment new Directors and for the appointment of a new Chairman to succeed Senior Managers participate in the Company’s Christopher Collins. The meeting was chaired by induction programmes where each individual will Gerry Brown as Senior Independent Director. The meet Senior Managers, be shown the principal Committee had before it a paper outlining the roles locations of the Group and be given presentations and responsibilities of a chairman having regard to on the Company’s strategy, targets and different the balance of the Board, the business experience of business units. the existing Non-Executive Directors and the Combined Code. It also considered a paper prepared by the Group Company Secretary outlining the proposed selection process having regard to the Christopher Collins Combined Code and best practice in other listed Chairman companies. As required by the Combined Code, the Committee considered whether external candidates 16th March 2009 should be sought. The Committee, however, believed that the group of internal candidates was extremely strong and that, therefore, external candidates should not be sought. It was agreed that the selection process would be led by the Senior Independent Director. He would take confidential soundings from Board members regarding each candidate and their suitability for the position with a view to a consensus being reached in respect of a candidate. As required by the Terms of Reference for the Committee, the appointment would require the approval of the Board.
Following the confidential soundings, the Committee was delighted to recommend to the Board that David Richardson should succeed Christopher Collins as 68 Chairman of the Company. Independent Auditors’ Report to the Members of Forth Ports PLC
We have audited the Group and Parent company been properly prepared in accordance with the financial statements (the “financial statements”) of Companies Act 1985 and, as regards the group Forth Ports PLC for the year ended 31st December financial statements, Article 4 of the IAS Regulation. 2008 which comprise the Consolidated Income We also report to you whether in our opinion the Statement, the Group and Company Statements of information given in the Directors’ Report is Recognised Income and Expense, the Group and consistent with the financial statements. The Company Balance Sheets, the Group and Company information given in the Directors’ Report includes Cash Flow Statements, the principal accounting that specific information presented in the Business policies and the related notes. These financial Review that is cross referred from the Directors’ statements have been prepared under the Report. accounting policies set out therein. We have also audited the information in the Directors’ In addition we report to you if, in our opinion, the Remuneration Report that is described as having company has not kept proper accounting records, been audited. if we have not received all the information and explanations we require for our audit, or if information Respective responsibilities of directors specified by law regarding directors’ remuneration and auditors and other transactions is not disclosed.
The Directors’ responsibilities for preparing the We review whether the Corporate Governance Annual Report, the Directors’ Remuneration Report Statement reflects the Company’s compliance with and the financial statements in accordance with the nine provisions of the Combined Code (2006) applicable law and International Financial Reporting specified for our review by the Listing Rules of the Standards (IFRSs) as adopted by the European Financial Services Authority, and we report if it does Union are set out in the Statement of Directors’ not. We are not required to consider whether the Responsibilities. Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness Our responsibility is to audit the financial statements of the Group’s corporate governance procedures or and the part of the Directors’ Remuneration Report to its risk and control procedures. be audited in accordance with relevant legal and regulatory requirements and International Standards 69 We read other information contained in the Annual on Auditing (UK and Ireland). This report, including Report and consider whether it is consistent with the the opinion, has been prepared for and only for the audited financial statements. The other information Company’s members as a body in accordance with comprises only Chairman and Group Chief Section 235 of the Companies Act 1985 and for no Executive’s Report, the Business Review, the other purpose. We do not, in giving this opinion, Directors’ Report, the Corporate Governance Report, accept or assume responsibility for any other the Report of the Audit Committee, the unaudited part purpose or to any other person to whom this report is of the Directors’ Remuneration Report, the Report of shown or into whose hands it may come save where the Nomination Committee and all of the other expressly agreed by our prior consent in writing. information listed on the contents page. We consider the implications for our report if we become aware We report to you our opinion as to whether the of any apparent misstatements or material financial statements give a true and fair view and inconsistencies with the financial statements. whether the financial statements and the part of the Our responsibilities do not extend to any other Annual Report Directors’ Remuneration Report to be audited have and Accounts information. 2008 Independent Auditors’ Report to the Members of Forth Ports PLC continued
Basis of audit opinion Opinion
We conducted our audit in accordance with In our opinion: International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit the group financial statements give a true and includes examination, on a test basis, of evidence fair view, in accordance with IFRSs as adopted relevant to the amounts and disclosures in the by the European Union, of the state of the financial statements and the part of the Directors’ group’s affairs as at 31st December 2008 and of Remuneration Report to be audited. It also includes its loss and cash flows for the year then ended; an assessment of the significant estimates and judgments made by the directors in the preparation the parent company financial statements give a of the financial statements, and of whether the true and fair view, in accordance with IFRSs as accounting policies are appropriate to the group’s adopted by the European Union as applied in and company’s circumstances, consistently applied accordance with the provisions of the and adequately disclosed. Companies Act 1985, of the state of the parent company’s affairs as at 31st December 2008 and We planned and performed our audit so as to obtain cash flows for the year then ended; all the information and explanations which we considered necessary in order to provide us with the financial statements and the part of the sufficient evidence to give reasonable assurance that Directors’ Remuneration Report to be audited the financial statements and the part of the Directors’ have been properly prepared in accordance with Remuneration Report to be audited are free from the Companies Act 1985 and, as regards the material misstatement, whether caused by fraud or group financial statements, Article 4 of the IAS other irregularity or error. In forming our opinion we Regulation; and also evaluated the overall adequacy of the presentation of information in the financial statements the information given in the Directors’ Report is and the part of the Directors’ Remuneration Report to consistent with the financial statements. be audited.
70 PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors Edinburgh
16th March 2009 Consolidated Income Statement For the Year ended 31st December 2008
Before Before Exceptional Exceptional Exceptional Exceptional Items and Items and Total Items and Items and Total Revaluations Revaluations 2008 Revaluations Revaluations 2007 Notes £m £m £m £m £m £m Group revenue 1,2,4 184.0 1.9 185.9 165.0 – 165.0 Cost of sales 3,4 (112.5) (31.8) (144.3) (102.6) – (102.6)
Gross profit/(loss) 71.5 (29.9) 41.6 62.4 – 62.4 Administrative expenses 3 (24.1) – (24.1) (25.4) – (25.4) Other (expenses)/income 4 – (16.4) (16.4) – 12.8 12.8
Group operating profit/(loss) 1 47.4 (46.3) 1.1 37.0 12.8 49.8 Finance income 1,7 2.2 – 2.2 3.1 – 3.1 Finance costs 1,8 (14.1) – (14.1) (13.4) – (13.4) Share of results of joint ventures 1,4 (1.7) (19.7) (21.4) (2.0) (7.7) (9.7) Share of results of associates 1,4 2.5 (1.0) 1.5 2.5 – 2.5
Profit/(loss) before tax 3 36.3 (67.0) (30.7) 27.2 5.1 32.3 Taxation 4,9 (10.2) (10.3) (20.5) (6.8) (0.6) (7.4)
Profit/(loss) for the year 10 26.1 (77.3) (51.2) 20.4 4.5 24.9
(Loss)/profit attributable to minority interest (0.1) (2.1) (2.2) (0.2) 0.0 (0.2) Profit/(loss) attributable to equity shareholders 26.2 (75.2) (49.0) 20.6 4.5 25.1
26.1 (77.3) (51.2) 20.4 4.5 24.9
(Loss)/earnings per share Basic (loss)/earnings per share 12 (107.8p) 55.3p Diluted (loss)/earnings per share 12 (107.8p) 54.9p
All activities relate to continuing activities.
71
Annual Report and Accounts 2008 Statements of Recognised Income and Expense For the Year ended 31st December 2008
Group Group Company Company 2008 2007 2008 2007 Notes £m £m £m £m Share of joint venture’s movement on cash flow hedge 31 (4.1) 0.2 – – Share of associate’s movement on cash flow hedge 31 (0.1) 0.0 – – Revaluation of investment property transferred from operational land and buildings 31 24.9 5.7 0.4 – Deferred tax on revaluation 31 (6.9) (1.1) – – Corporation tax on excess pension contributions 31 1.8 – 1.8 – Deferred tax on excess pension contributions 31 (1.8) – (1.8) – Actuarial (loss)/gain in defined benefit pension scheme 31 (10.9) 12.6 (10.9) 12.6 Deferred tax on actuarial (loss)/gain 31 3.1 (3.5) 3.1 (3.5) Effect of tax rate change for deferred tax on actuarial gain 31 – (0.6) – (0.6) Share of associate’s actuarial loss in defined benefit pension scheme 31 (0.1) (0.3) – – Deferred tax on associate’s actuarial loss 31 0.0 0.1 – – Effect of tax rate change for deferred tax on associate’s actuarial loss 31 – (0.0) – –
Income/(expense) recognised directly in equity 5.9 13.1 (7.4) 8.5 (Loss)/profit for the year 10 (51.2) 24.9 (27.8) 11.1
Total recognised (expense)/income for the year (45.3) 38.0 (35.2) 19.6
Attributable to: Minority interest 31 (2.2) (0.2) – – Equity shareholders 31 (43.1) 38.2 (35.2) 19.6
(45.3) 38.0 (35.2) 19.6
72 Balance Sheets At 31st December 2008
Group Group Company Company 2008 2007 2008 2007 Notes £m £m £m £m ASSETS Non-current assets Property, plant and equipment 13 219.3 223.1 66.4 64.6 Investment property 14 205.7 182.9 46.2 48.6 Intangible assets 15 40.3 41.6 2.1 2.7 Investment in joint ventures 16 – 0.0 – 10.0 Investment in associate 17 9.6 9.3 – – Investment in subsidiaries 18 – – 164.2 164.2 Trade and other receivables 20 – 21.3 – 21.3 Deferred tax assets 21 1.4 0.1 1.4 0.1 476.3 478.3 280.3 311.5 Current assets Inventories 19 27.4 50.7 0.6 0.6 Trade and other receivables 20 35.8 47.9 136.6 148.3 Current tax receivable 22 4.5 – 3.9 0.5 Cash and cash equivalents 23 4.7 7.3 2.5 4.6 72.4 105.9 143.6 154.0 LIABILITIES Current liabilities Trade and other payables 24 (28.9) (27.4) (19.9) (16.1) Current tax liabilities 25 – (3.3) – – Borrowings 26 (0.1) (0.1) (0.0) (0.8) Provisions 27 (0.4) (1.2) (0.1) (0.2) (29.4) (32.0) (20.0) (17.1) Net current assets 43.0 73.9 123.6 136.9 Non-current liabilities Borrowings 26 (212.6) (212.7) (212.6) (212.7) Investment in joint ventures 16 (3.5) (0.5) – – Deferred tax liabilities 28 (67.6) (42.8) (13.1) (7.0) Retirement benefit obligations 32 (5.1) (0.5) (5.1) (0.5) Provisions 27 (0.3) (0.4) (0.2) (0.3) (289.1) (256.9) (231.0) (220.5) 73 Total assets less total liabilities 230.2 295.3 172.9 227.9 SHAREHOLDERS’ EQUITY Share capital 29,31 22.8 22.8 22.8 22.8 Share premium 31 19.2 19.2 19.2 19.2 Own shares held 30,31 (4.9) (5.2) (4.9) (5.2) Fair value and other reserves 31 13.5 17.7 66.3 66.3 Retained earnings 31 179.3 238.3 69.5 124.8
Total shareholders’ equity 229.9 292.8 172.9 227.9 Minority interest in equity 31 0.3 2.5 – – Total equity 31 230.2 295.3 172.9 227.9
The accounts on pages 71 to 127 were approved and authorised for issue by the Board of Directors on 16th March 2009 and signed on its behalf by:
Annual Report Christopher Collins Wilson Murray and Accounts Chairman Group Finance Director 2008 Cash Flow Statements For the Year ended 31st December 2008
Group Group Company Company 2008 2007 2008 2007 Notes £m £m £m £m Cash flows from operating activities Cash generated from operations 36 58.8 65.8 35.9 44.3 Interest paid (12.1) (12.8) (12.0) (12.9) Interest received 0.4 1.0 9.6 9.8 Tax paid (8.6) (2.3) (7.2) (2.3) Dividend received from associated company 1.0 0.7 – – Dividend received from joint venture company 0.1 – 0.1 –
Net cash generated from operating activities 39.6 52.4 26.4 38.9
Cash flows from investing activities Purchase of property, plant and equipment and intangibles (23.1) (13.4) (5.7) (2.3) Purchase of investment property – (0.6) – (0.5) Acquisition of subsidiary – (27.1) – (27.1) Cash acquired with subsidiary – 0.8 – – Repayment of subsidiary’s borrowings – (13.9) – (13.9) (Expenses of)/proceeds from sale of interest in joint venture – (0.2) – (0.2) Sale of property, plant and equipment 2.9 0.1 0.0 0.1 Sale of investment property 0.1 – 0.1 –
Net cash used in investing activities (20.1) (54.3) (5.6) (43.9)
Net cash inflow/(outflow) before financing activities 19.5 (1.9) 20.8 (5.0)
Cash flows from financing activities Loan drawdowns 50.0 31.0 50.0 31.0 Loan repayments (50.0) – (50.0) – Arrangement fees for loans (0.3) – (0.3) – Capital element of finance leases (0.0) (0.1) (0.0) (0.0) Minority interest dividend paid – (1.6) – – Equity dividends paid (22.1) (20.9) (22.1) (20.9) Proceeds from sale of own shares held 0.3 0.1 0.3 0.1 74 Repayment of loan notes – (4.2) – (4.2)
Net cash (used in)/generated from financing activities (22.1) 4.3 (22.1) 6.0
(Decrease)/increase in cash and cash equivalents 36 (2.6) 2.4 (1.3) 1.0
Cash and cash equivalents at start of year 7.3 4.9 3.8 2.8
Cash and cash equivalents at end of year 4.7 7.3 2.5 3.8
For the purposes of the Company Cash Flow Statement cash and cash equivalents as at 31st December 2007 comprised cash on short-term deposit of £4.6m net of bank overdraft of £0.8m. Principal Accounting Policies
General Information estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Forth Ports PLC is a company incorporated in accounts and the reported amounts of revenues Scotland under the Companies Act 1985. The and expenses during the reporting period. Although address of its registered office is given on page 45. these estimates are based on management’s best The nature of the Group’s operations and its knowledge of the amount, event or actions, actual principal activities are the provision of port, cargo results ultimately may differ from those estimates. handling, towage and related services and facilities. The Group also has extensive property interests. In the current year, two Interpretations issued by the International Financial Reporting Interpretations These consolidated accounts have been Committee are effective. These are: IFRS 2 (Group approved for issue by the Board of Directors and Treasury Share Transactions) and IFRIC 14 – on 16th March 2009. IAS 19 (The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Basis of Preparation Interaction). The adoption of these Interpretations The results have been prepared in accordance with has not led to any changes in the Group’s IFRS and IFRICS as adopted by the EU and with accounting policies. those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The consolidated At the date of authorisation of these financial accounts have been prepared under the historical statements, the following Standards and cost convention as modified by the revaluation of Interpretations which have not been applied in these investment properties at fair value. financial statements were in issue but not yet effective (and in some cases had not yet been The preparation of accounts, in accordance with adopted by the EU): IFRS as adopted by the EU, requires the use of
IFRS 1 (amended)/IAS 27 (amended) Cost of an Investment in a Subsidiary, Jointly Controlled Equity or Associate IFRS 2 (amended) Share-based Payment – Vesting Conditions and Cancellations IFRS 3 (revised 2008) Business Combinations IFRS 8 Operating Segments IAS 1 (revised 2007) Presentation of Financial Statements IAS 23 (revised 2007) Borrowing Costs IAS 27 (revised 2008) Consolidated and Separate Financial Statements 75 IAS 32 (amended)/IAS 1 (amended) Puttable Financial Instruments and Obligations Arising on Liquidation IFRIC 12 Service Concession Arrangements IFRIC 15 Agreements for the Construction of Real Estate IFRIC 16 Hedges of a Net Investment in a Foreign Operation Improvements to IFRSs (May 2008)
The Directors anticipate that the adoption of these Currently investment property in the course of standards and interpretations in future periods will construction is included in Property, Plant and have no material impact on the accounts of the Equipment as Capital Work in Progress. The Group except for an amendment to IAS 40 estimated impact that this is expected to have on (Investment Property) contained in Improvements to the Group’s financial statements when the IFRS (May 2008). Investment property in the course amendment is adopted will depend on market of construction will be recognised in investment conditions at that time, but could be material. property and measured at fair value.
Annual Report and Accounts 2008 Principal Accounting Policies continued
Exceptional Items recognised in the Income Statement and its share of post-acquisition movements in reserves is Exceptional items are those material items of recognised in reserves. The cumulative post- income and expenditure which the Group has acquisition movements are adjusted against the disclosed separately because of their quantum or cost of the investment. Unrealised gains on incidence so as to give a clearer understanding of transactions between the Group and its associates the Group’s financial performance. are eliminated to the extent of the Group’s interest in
the associates; unrealised losses are also eliminated The Group has also separately disclosed the effect unless the transaction provides evidence of an of revaluation of investment properties per IAS 40. impairment of the asset transferred. The Group’s investment in associates includes goodwill (net of Consolidation accumulated amortisation) on acquisition. When the 1. Subsidiaries Group’s share of losses in an associate equals or Subsidiaries (which are those entities (including exceeds its interest in the associate, the Group does Special Purpose Entities) in which the Group has an not recognise further losses, unless the Group has interest of more than one half of the voting rights or incurred obligations or made payments on behalf of otherwise has power to govern the financial and the associates. operating policies) are consolidated. 3. Joint Ventures The existence and effect of potential voting rights A joint venture is a contractual arrangement that are presently exercisable or presently whereby two or more parties undertake an convertible are considered when assessing whether economic activity that is subject to joint control. The the Group controls another entity. Group’s interests in joint ventures are accounted for by the equity method of accounting. The investment Subsidiaries are consolidated from the date on in the joint venture is initially recorded at cost and is which control is transferred to the Group and are no adjusted thereafter for the post-acquisition change longer consolidated from the date that control in the Group’s share of net assets of the jointly ceases. The acquisition method of accounting is controlled entity. used to account for the purchase of subsidiaries. The cost of an acquisition is measured as the fair The Group Income Statement includes the Group’s value of the assets given up, shares issued or share of the profit or loss of the joint venture. The liabilities undertaken at the date of acquisition plus Group recognises the portion of gains or losses on costs directly attributable to the acquisition. The the sale of assets by the Group to the joint venture excess of the cost of acquisition over the fair value that is attributable to the other venturers. The Group 76 of the net assets of the subsidiary acquired is does not recognise its share of profits or losses recorded as goodwill. Intercompany transactions, from the joint venture that result from the purchase balances and unrealised gains on transactions of assets by the Group from the joint venture until it between group companies are eliminated fully on resells the assets to an independent party. However, consolidation; unrealised losses are also eliminated if a loss on the transaction provides evidence of a unless costs cannot be recovered. Where reduction in the net realisable value of current necessary, accounting policies of subsidiaries have assets or an impairment loss, the loss is recognised been changed to ensure consistency with the immediately. When the Group’s share of losses of a policies adopted by the Group. joint venture equals or exceeds its interest in the joint venture, the Group does not recognise further 2. Associates losses unless the Group has incurred obligations or An associate is an entity over which the Group has made payments on behalf of the joint venture. significant influence and that is neither a subsidiary nor an interest in a joint venture. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. Under this method the Group’s share of the post-acquisition profits or losses of associates is Goodwill Profits and losses arising on the sale of sites or completed developments are recognised when Goodwill is the excess of the cost of acquisition over contracts for sale have been exchanged and all the net fair value of the identifiable assets, liabilities material conditions have been satisfied. The Board and recognised contingent liabilities of the business will have due regard to all the circumstances of any acquired. individual transaction in determining whether or not any conditions are material or have been satisfied. Goodwill on businesses acquired after 1st January 1999 is shown as an intangible asset with an Where sites or completed developments are sold to indefinite useful life and is subject to an annual joint ventures or associates, profits are only impairment test and is also subject to a test recognised in proportion to third parties’ interests in whenever there is an indication of impairment. those entities. The remaining profits are recognised Goodwill arising on acquisitions prior to 1st January when the sites or completed developments are sold 1999 was written off immediately against reserves. by the joint ventures or associates to unrelated parties. Where there is an excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets Consideration is given to the collectability of any over the purchase price (“negative goodwill”), this debt outstanding arising from the sale of sites or amount is taken to the Income Statement in the year property developments and provisions are made of acquisition. where necessary. The need for such provisions is reviewed on a regular basis. Segmental Reporting The Group has identified two primary business Property, Plant and Equipment segments that provide services that are subject to Operational land and buildings and plant and risks and returns that are different from one another. equipment are stated at historical cost less Information relating to Ports and Property segments depreciation. Land and capital works in progress are shown. All inter-segment transactions and are not depreciated. Cost is the original purchase balances are eliminated on consolidation. The price of the asset and the cost of bringing the Group considers that all revenues, costs, assets and asset to its current condition and includes transfers liabilities can be identified as relating to either Ports from equity of any gains/losses on qualifying cash or Property. Port income includes rental and other flow hedges of foreign currency purchase costs income from investment property located within or where appropriate. adjacent the port estates.
All operational buildings and plant and equipment in 77 Revenue Recognition the course of construction are recorded as capital Revenue from Port activities represents the income work in progress until such time as they are brought earned from the provision of port facilities, which into use by the Group. Capital work in progress comprise cargo handling, towage, pilotage, includes all direct expenditure and may include conservancy services and port related rental capitalised interest in accordance with the income. Such revenue is recorded once the service accounting policy on that subject. On completion, has been provided, and revenue from paper sales is such assets are transferred to the appropriate shown on the basis of net commission. Revenue asset category. from Property includes rental income and sales of property developments. Rental income (net of any In circumstances where there is a change in use of incentives given to lessees) is recognised on a operational land and buildings to investment straight line basis over the lease term. Revenue property, the fair value of the asset is established at excludes value added tax and is shown on a gross a date when it has been decided to transfer the basis in relation to recoverable charges such as asset from operational land and buildings to utilities, recoverable overtime and recoverable plant investment property. hire costs. Annual Report and Accounts 2008 Principal Accounting Policies continued
Depreciation is charged to write off the cost less any Intangible Assets residual value of the asset on a straight line basis over the estimated useful lives as follows; Intangible assets refer principally to computer software and customer relationships. Buildings and dock structures 15-50 years Plant and equipment 3-35 years Costs associated with developing or maintaining computer software programmes are recognised as Where the carrying amount of an asset is greater an expense as incurred. Costs that are directly than its estimated recoverable amount, it is written associated with identifiable and unique software down immediately to its recoverable amount. products controlled by the Group and which will probably generate economic benefits exceeding Gains and losses on disposals of assets are included costs beyond one year, are recognised as intangible in operating profit. assets. Direct costs include staff costs of those involved in the software development. Repairs and maintenance are charged to the Income Statement during the financial period in which they Expenditure which enhances or extends the are incurred. The cost of major renovations is performance of identifiable computer software included in the carrying amount of the assets when it products beyond their original specifications is is probable that future economic benefits in excess recognised as a capital improvement and added of the originally assessed standard of performance of to the original cost of the software. the existing asset will flow to the Group. Major renovations are depreciated over the remaining life Computer software development costs recognised of the related asset. as assets are amortised using the straight-line method over their useful lives, not exceeding a Investment Property period of 10 years. Investment property, principally comprising tenanted If a business is acquired which has long-term land and buildings within the port estates, is held for customer relationships, those relationships are long-term rental yields and is not occupied by the valued and an intangible asset set up to reflect that Group. Investment property is treated as a long-term value and are written off on a straight line basis over investment and is carried at fair value determined a period of up to 15 years. annually or at interim balance sheet dates where there is a material change in fair value. Changes in Impairment of Assets fair values are recorded in the Income Statement in Property, plant and equipment and other non- 78 accordance with IAS 40 and are included in other income or taken directly to reserves as appropriate. current assets, excluding goodwill, are reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of an asset exceeds its recoverable amount which is the higher of an asset’s net selling price and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows.
Investment in Subsidiaries Investments in subsidiaries are stated at cost less any permanent diminution in value by the Company. Finance and Operating Leases Provisions Leases of assets where the Group has substantially Provisions are recognised when the Group has a all the risks and rewards of ownership are classified present legal or constructive obligation as a result of as finance leases. Assets acquired under finance past events where it is probable that an outflow of leases are capitalised at the inception of the lease at resources will be required to settle the obligation the lower of the fair value of the leased asset or the and a reliable estimate of the amount can be made. present value of the minimum lease payments, and are depreciated over their useful lives. The interest The Group recognises a provision for onerous element of the rental payments is charged to the contracts when the expected benefits to be derived Income Statement over the period of the lease from a contract are less than the unavoidable costs contract on the basis of the capital element of meeting the obligations under the contract. outstanding. The finance charges outstanding are included in short-term and long-term payables Restructuring provisions are recognised in the as appropriate. period in which the Group has a present legal or constructive obligation for payment. Costs relating Leases where a significant portion of the risks and to the ongoing activities of the Group are not rewards of ownership are retained by the lessor are provided in advance. classified as operating leases. The cost of operating leases is charged to the Income Statement on a Dividends straight line basis over the life of the lease. Dividends are recorded in the Group’s accounts Lease Incentives in the period in which they are approved by the shareholders or when paid in the case of interim Any lease incentive paid or payable for the dividends. Inter Group dividends are recorded in agreement of a new or existing operating lease is the period in which they are approved and paid allocated over the term of the lease regardless of its by the subsidiary company’s Board. form or cash flow effect. Such incentives are recognised over the lease term, unless another Inventories systematic basis is appropriate, in order to ensure the Income Statement reflects the true effective Property work in progress relates to expenditure on rental charge irrespective of the particular cash flow property development projects, land held for arrangements agreed. development and project work in progress and is included at cost less amounts written off which are Grants relating to the Purchase of deemed to be irrecoverable. Cost includes all direct expenditure and associated indirect costs and 79 Property, Plant and Equipment related costs of finance where appropriate. On Capital grants are recognised at their fair value completion, such assets are transferred to where there is a reasonable assurance that the investment properties or sold to third parties. grant will be received and the Group will comply with all conditions pertaining to the grant. Grants receivable are credited against the carrying value of the assets to which the grant relates. The amount amortised in each period is set against the depreciation charge of the asset to which it relates.
Annual Report and Accounts 2008 Principal Accounting Policies continued
Trade Receivables and Accrued Cash and Cash Equivalents Property Income Cash and cash equivalents are carried in the Trade receivables and accrued property income are Balance Sheet at cost. For the purposes of the Cash carried at original invoice amount less an allowance Flow Statement, cash and cash equivalents made for impairment of these receivables. An comprise cash on hand, deposits held at call with allowance for impairment of trade receivables and banks, other short-term highly liquid investments accrued property income is established when there with original maturities of three months or less is objective evidence that the Group will not be able and bank overdrafts. Bank overdrafts are included to collect all amounts due according to the original within borrowings in current liabilities on the terms of the receivables. The amount of the Balance Sheet. allowance is the difference between the carrying amount and the recoverable amount, being the Share Capital present value of expected cash flows, discounted at the market rate of interest for similar borrowers. Ordinary shares are classified as equity. Incremental The carrying amount of the asset is reduced external costs directly attributable to the issue of through the use of this impairment allowance and new shares, other than in connection with business the amount of the loss is recognised in the Income combinations, are shown in equity as a deduction, Statement. In future periods the unwinding of the net of tax, from the proceeds. discount is recognised within finance income. Where the Company or its subsidiaries purchases Borrowing Costs the Company’s equity share capital, the consideration paid including any attributable Borrowing costs are generally expensed as incremental external costs net of income taxes is incurred. The Group’s policy is to capitalise interest deducted from total shareholders’ equity as own and other borrowing costs directly incurred with shares held. Where such shares are subsequently respect to the acquisition or development of sold, any consideration received is included in qualifying assets. Such costs are capitalised and shareholders’ equity. included in the carrying value of the assets. Capitalisation of borrowing costs commences when: Borrowings Borrowings are recognised initially as the proceeds expenditures for the asset and borrowing costs received, net of transaction costs incurred. are incurred; and Borrowings are subsequently stated at amortised activities necessary to prepare the asset for its cost using the effective yield method; any difference 80 intended use or sale are in progress. between proceeds (net of transaction costs) and the redemption value is recognised in the Income If active development is interrupted for an extended Statement over the period of the borrowings. period, capitalisation is suspended. Capitalisation ceases when the asset is substantially ready for its intended use or sale. Accounting for Taxation The charge for taxation is based on the profit for the A weighted average cost of borrowing is used. period and takes into account deferred taxation.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Current tax rates in the relevant jurisdiction are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that In both cases, the Group makes a charge to the it is probable that future taxable profit will be Income Statement over the option period that available against which the temporary differences recognises the fair value of the share options at the can be utilised. date of their grant, having regard as appropriate to such factors as the weighted average share price, Deferred income tax is provided on temporary exercise price (where applicable), expected differences arising on investments in subsidiaries, dividends, the risk-free interest rate and the associates and joint ventures, except where the expected rates of early exercise. timing of the reversal of the temporary difference can be controlled and it is probable that the Financial Risk Management temporary difference will not reverse in the foreseeable future. Financial Risk Factors The Group’s activities expose it to a variety of Employee Benefits financial risks, including the effects of changes in debt prices, foreign currency exchange rates and Pension contributions are charged principally at a interest rates. The Group’s overall risk management rate calculated by the Actuary to provide, over the programme focuses on the unpredictability of expected remaining service lives of current financial markets and seeks to minimise potential employees, for all retirement benefits related to adverse effects on the financial performance of the projected final salaries and wages. Group. The Group may use derivative financial instruments such as foreign exchange contracts and The liability in respect of defined benefit pension interest rate swaps to hedge certain exposures. plans is the present value of the defined benefit obligation at the Balance Sheet date minus the fair Risk management is carried out by a central value of plan assets, together with adjustments for treasury function (Group Treasury), operating under past service cost. The defined benefit obligation is policies approved by the Board of Directors. Group calculated by independent actuaries using the Treasury identifies, evaluates and hedges financial projected unit credit method. The present value of risks in close co-operation with the Group’s the defined benefit obligation is determined by the operating units. estimated future cash outflows using market yields on high quality corporate bonds. Foreign Exchange Risk The Group has relatively little exposure to foreign Actuarial gains and losses are recognised in full as exchange risk. Where appropriate, entities in they arise in the Statement of Recognised Income the Group use forward contracts, transacted and Expense. by Group Treasury, to hedge their exposure to 81 foreign currency risk in connection with the Share Based Payment measurement currency. The Group awards shares in Forth Ports PLC to all Where appropriate, the Group hedges the foreign eligible Executive Directors and Senior Managers currency exposure of its contract commitments to under the LTIPs which were approved at the Annual purchase certain assets mainly from Europe. The General Meetings of the Company in May 2002 and forward contracts used in its programme mature in 2006. The shares are granted to the employee at nil twelve months or less, consistent with the related cost. In addition, all eligible employees were offered purchase commitments. the opportunity to take part in an approved Save As You Earn (“SAYE”) scheme which started in 2004 as approved at the Annual General Meeting of the Company in May 2004. The option price was granted to employees at a discount to the market price of the shares at the date of issue.
Annual Report and Accounts 2008 Principal Accounting Policies continued
Interest Rate Risk Compliance with banking covenants is discussed The Group borrows at variable rates and may use in the Chairman’s Statement. interest rate swaps as cash flow hedges of future interest payments, which have the economic effect Accounting for Derivative Financial of converting borrowings from floating rates to fixed rates. Under the interest rate swaps, the Group Instruments and Hedging Activities agrees with other parties to exchange, at specified Derivative financial instruments are initially intervals (mainly quarterly), the difference between recognised in the Balance Sheet at their fair value. fixed contract rates and floating rate interest The method of recognising the resulting gain or loss amounts calculated by reference to the agreed is dependent on the nature of the item being notional principal amounts. hedged. The Group designates certain derivatives as either a hedge of the fair value of a recognised Credit Risk asset or liability (fair value hedge) or a hedge of a The Group’s policy is to ensure that property sales forecasted transaction or of a firm commitment are covered by either controlled release of land (cash flow hedge). plots in exchange for cash, fixed charge securities or bank bonds. The Group also checks that Port Changes in the fair value of derivatives that are customers have an appropriate credit history when designated and qualify as fair value hedges and that likely future revenue exceeds limits agreed by the are highly effective, are recorded in the Income Board. Derivative counter-parties and cash Statement, along with any changes in the fair value transactions are limited to quality financial of the hedged asset or liability that is attributable to institutions with a long-term Standard & Poor’s the hedged risk. During the period the Group did credit index rating of at least A. not hold any fair value hedges.
Liquidity Risk Changes in the fair value of derivatives that are Prudent liquidity risk management implies designated and qualify as cash flow hedges and maintaining sufficient cash and marketable that are highly effective, are recognised in equity. securities, the availability of funding through an Where the forecasted transaction or firm adequate amount of committed credit facilities and commitment results in the recognition of an asset the ability to close out market positions. Due to the (for example, property, plant and equipment) or of a dynamic nature of the underlying businesses, liability, the gains and losses previously deferred in Group Treasury aims at maintaining flexibility in equity are transferred from equity and included in funding by keeping committed credit lines available. the initial measurement of the cost of the asset or liability. Otherwise, amounts deferred in equity are 82 Capital Risk Management transferred to the Income Statement and classified The Group’s objectives when managing capital are as revenue or expense in the same periods during to safeguard the Group’s ability to continue as a which the hedged firm commitments or forecasted going concern in order to provide returns for transaction affects the Income Statement (for shareholders and benefits for other stakeholders. example, when the forecasted sale takes place). The Group has the authority to return capital to shareholders. It may issue new shares or sell assets When a hedging instrument expires or is sold, or to reduce debt. when a hedge no longer meets the criteria for hedge accounting under IAS 39, any cumulative Consistent with others in the industry, the Group gain or loss existing in equity at that time remains in monitors capital on the basis of the gearing ratio. equity and is recognised when the committed or This ratio is calculated as net debt divided by total forecasted transaction ultimately is recognised in capital. Net debt is calculated as total borrowings the Income Statement. When a committed or (including “current and non-current borrowings” forecasted transaction is no longer expected to as shown in the consolidated Balance Sheet) occur, the cumulative gain or loss that was reported less cash and cash equivalents. Total capital is in equity is immediately transferred to the Income calculated as “equity” as shown in the consolidated Statement. Balance Sheet. The Group documents at the inception of the Key Assumptions and Estimates transaction, the relationship between hedging instruments and hedged items, as well as its risk The Group makes estimates and assumptions management objective and strategy for undertaking concerning the future. The resulting estimates will, various hedge transactions. This process includes by definition, seldom equal the related actual linking all derivatives designated as hedges to results. The Board has considered the critical specific assets and liabilities or to specific firm accounting estimates and assumptions used in the commitments or forecast transactions. The Group Accounts and concluded that the main area of also documents its assessment, both at the hedge significant risk which may cause a material inception and on an ongoing basis, of whether the adjustment to the carrying amount of assets and derivatives that are used in hedging transactions are liabilities within the next financial year is in respect highly effective in offsetting changes in fair values or of the assumptions used to calculate pension cash flows or hedged items. benefits. The assumptions include gilt yield at the year end, investment return (including a risk margin Fair Value Estimation of Financial over gilt yield), price and salary inflation and Instruments mortality assumptions. For example, a 0.25% change in the discount rate assumed could affect The fair value of publicly traded derivatives and the shortfall position within the Scheme positively or trading and available-for-sale securities is based on negatively by over £7.5m and a one year increase in quoted market prices at the Balance Sheet date. life expectancy would increase the liabilities by The fair value of interest rate swaps is calculated as nearly £4.0m. Full details of the assumptions used the present value of the estimated future cash flows. to calculate the pension assets and liabilities may be found in Note 32. In assessing the fair value of non-traded derivatives and other financial instruments, the Group uses a For information on key assumptions and estimates variety of methods and makes assumptions that are used in the property valuation please refer to based on market conditions existing at each Note 19. Balance Sheet date. Quoted market prices or dealer quotes for the specific or similar instruments are Impairment assumptions relating to Goodwill are as used for long-term debt. Other techniques, such as noted in Note 15. option pricing models and estimated discounted value of future cash flows, are used to determine fair value for the remaining financial instruments.
The face value less any estimated credit 83 adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate to their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments.
Annual Report and Accounts 2008 Notes on the Accounts
1. Business segments Primary reporting format – business
For management purposes, the Group is organised into two business segments: (1) Port operations; and (2) Property. The segment results for the year ended 31st December 2008 were as follows: Group Port Total Operations Property 2008 £m £m £m Total revenue* 184.3 1.6 185.9
Underlying** operating profit 47.6 0.5 48.1 Amortisation of intangibles (0.7) – (0.7)
Group operating profit before exceptional items and revaluations 46.9 0.5 47.4
Exceptional items and revaluations Proceeds from guarantor of a port tenant (net) 1.7 – 1.7 Gain on disposal of port asset 2.8 – 2.8 Change in fair value of investment properties (18.7) (0.5) (19.2) Provision for property bad debts – (3.9) (3.9) Write down of property inventory – (27.7) (27.7)
(14.2) (32.1) (46.3)
Operating profit/(loss)/segment result 32.7 (31.6) 1.1
Finance Income (Note 7) 0.7 1.5 2.2 Finance costs (Note 8) (10.8) (3.3) (14.1)
Share of operating results of joint ventures Operating profit – 2.5 2.5 Revaluation – (19.7) (19.7) Finance costs – (4.2) (4.2) Taxation – – – 84 Net share of results of joint ventures – (21.4) (21.4)
Share of operating results of associate Operating profit 3.7 – 3.7 Finance costs (0.2) – (0.2) Taxation – normal (1.0) – (1.0) – exceptional (1.0) – (1.0)
Net share of results of associate 1.5 – 1.5
Profit/(loss) before tax 24.1 (54.8) (30.7)
Taxation – normal (10.2) – exceptional (10.3)
Loss for the year (51.2)
*Total revenue and underlying operating profit are shown net of inter-segment trading of £0.1m. **Underlying is defined in Note 4 to the Glossary.
The segment results for the year ended 31st December 2007 were as follows:
Group Port Total Operations Property 2007 £m £m £m Total revenue* 159.5 5.5 165.0
Underlying** operating profit/(loss) 38.7 (1.3) 37.4 Amortisation of intangibles (0.4) – (0.4)
Group operating profit before exceptional items and revaluations 38.3 (1.3) 37.0
Exceptional items and revaluations Change in fair value of investment properties 12.2 0.6 12.8
Operating profit/(loss)/segment result 50.5 (0.7) 49.8
Finance Income (Note 7) 1.0 2.1 3.1 Finance costs (Note 8) (9.8) (3.6) (13.4)
Share of operating results of joint ventures Operating profit – 2.2 2.2 Revaluation – (7.7) (7.7) Finance costs – (4.2) (4.2) Taxation – – –
Net share of results of joint ventures – (9.7) (9.7)
Share of operating results of associate Operating profit 3.7 – 3.7 Finance costs (0.3) – (0.3) Taxation (0.9) – (0.9)
Net share of results of associate 2.5 – 2.5 85 Profit/(loss) before tax 44.2 (11.9) 32.3
Taxation – normal (6.8) – exceptional (0.6)
Profit for the year 24.9
*Total revenue and underlying operating profit are shown net of inter-segment trading of £0.3m and £0.2m respectively. **Underlying is defined in Note 4 to the Glossary.
Inter-segment transfers and transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.
Annual Report and Accounts 2008 Notes on the Accounts continued
1. Business segments (continued)
Other segment items included in the Income Statement are as follows:
Port Port Operations Property 2008 Operations Property 2007 £m £m £m £m £m £m
Change in fair value of investment property (Note 3) (18.7) (0.5) (19.2) 12.2 0.6 12.8 Depreciation of property, plant and equipment (Note 3) (13.9) (0.0) (13.9) (14.0) (0.0) (14.0) Amortisation of intangibles (Note 3) (1.4) – (1.4) (1.5) – (1.5) Amortisation of capital grants (Note 3) 0.7 – 0.7 0.8 – 0.8 Impairment of trade receivables (0.1) (3.9) (4.0) (0.7) (0.0) (0.7)
The segment assets, liabilities and capital expenditure were as follows:
Group Port Total Operations Property 2008 £m £m £m Assets Segment assets 478.0 56.6 534.6 Tax assets 4.5 – 4.5 Associate 9.6 – 9.6
Total assets 492.1 56.6 548.7
Liabilities Segment liabilities 202.1 45.3 247.4 Tax liabilities 67.3 0.3 67.6 Joint ventures – 3.5 3.5
Total liabilities 269.4 49.1 318.5
86 Capital expenditure Property, plant and equipment (Note 13) 26.7 0.0 26.7 Investment property (Note 14) 0.0 0.0 0.0 Intangible assets (Note 15) 0.1 – 0.1
Total capital additions 26.8 0.0 26.8
Group Port Total Operations Property 2007 £m £m £m Assets Segment assets 486.1 88.8 574.9 Joint ventures – 0.0 0.0 Associates 9.3 – 9.3
Total assets 495.4 88.8 584.2
Liabilities Segment liabilities 188.4 53.9 242.3 Tax liabilities 45.7 0.4 46.1 Joint ventures – 0.5 0.5
Total liabilities 234.1 54.8 288.9
Capital expenditure Property, plant and equipment (Note 13) 12.6 0.0 12.6 Investment property (Note 14) 0.1 – 0.1 Intangible assets (Note 15) 0.1 – 0.1
Total capital additions 12.8 0.0 12.8
Secondary reporting format – geographical segments
The Group operates principally in the UK.
2. Pilotage
The undernoted information is given in accordance with Article 4 of the Statutory Harbour Undertakings (Pilotage Accounts) Regulations 1988; this income is included within Group revenue. 2008 2007 £m £m 87 Pilotage revenue 5.0 4.9
Revenue from pilotage exemption certificates 0.0 0.1
Aggregate expenditure 4.6 4.5
Annual Report and Accounts 2008 Notes on the Accounts continued
3. Profit/(loss) before tax
Profit/(loss) before tax has been arrived at after charging/(crediting): 2008 2007 £m £m Depreciation – owned assets (cost of sales) 13.4 13.5 – owned assets (administrative expenses) 0.4 0.4 – assets held under finance leases and hire purchase contracts (cost of sales) 0.1 0.1 Amortisation – intangible assets – customer relationships (cost of sales) 0.7 0.4 – intangible assets – other (cost of sales) 0.0 0.0 – intangible assets – other (administrative expenses) 0.7 1.1 – capital grants (cost of sales) (0.7) (0.8) Impairment of trade receivables (cost of sales) 4.0 0.7 Profit on disposal of property, plant and equipment (other (expenses)/income) (2.8) – Other gains on disposal (cost of sales) (0.0) (0.1) Repairs and maintenance expenditure on property, plant and equipment (cost of sales) 7.5 7.4 Property rentals (revenue) (24.2) (17.7) Other operating lease rentals payable – plant and equipment (cost of sales) 4.7 4.3 – plant and equipment (administrative expenses) 0.3 0.3 Hire of plant and machinery 5.1 4.6 Inventories – cost of inventories recognised as an expense (property cost of sales) 0.8 7.7 – write off of obsolete materials and spare parts (cost of sales) – 0.1 – write-down of property inventories (property cost of sales) 27.7 – Employee costs (Note 6) – cost of sales 36.4 36.2 – administrative expenses 13.5 14.5 Foreign exchange gains (administrative expenses) (0.1) (0.0) Change in fair value of investment properties (other expenses/(income)) 19.2 (12.8) Auditors’ remuneration (administrative expenses) – fees payable to the Company’s auditor for audit of the Company’s annual accounts 0.4 0.3 – other services pursuant to legislation 0.0 0.1 88 – tax services – compliance work 0.0 0.0 – other services not covered above 0.0 0.1
The total amount charged against profits in respect of finance leases and hire purchase contracts is £0.1m (2007 – £0.1m) (of which part is shown as depreciation and the balance is shown as finance costs in Note 8). 4. Exceptional items and revaluations
Exceptional items and revaluations have been disclosed separately because of their quantum or incidence so as to give a clearer understanding of the Group’s financial performance and are charged/(credited) to the Income Statement as follows: 2008 2007 £m £m Revenue Amount receivable from a guarantor of a port tenant (1.9) –
Cost of sales Write-down of property inventory 27.7 – Provision for property bad debt 3.9 – Costs relating to amount receivable from a guarantor of a port tenant 0.2 –
31.8 –
Other expenses/(income) Change in fair value of investment properties 19.2 (12.8) Gain on disposal of port asset (2.8) –
16.4 (12.8)
Share of results of joint ventures Group’s share of change in fair value of investment property (Note 16) 19.7 7.7
Share of results of associate Group’s share of effect on taxation charge as a result of withdrawal of Industrial Buildings Allowances (Note 17) 1.0 –
Taxation Current taxation: Tax effect of amount receivable less costs from a guarantor of a port tenant 0.5 – Tax effect of write-down of property inventory (7.9) – Tax effect of provision for property bad debt (1.1) – 89 Tax effect of gain on disposal of port asset 0.2 –
(8.3) –
Deferred taxation: Tax effect of gain on disposal of port asset (0.0) – Tax effect of change in fair value of investment property (8.6) 0.6 Tax effect of withdrawal of Industrial Buildings Allowances 27.2 –
18.6 0.6
Total taxation 10.3 0.6
Annual Report and Accounts 2008 Notes on the Accounts continued
5. Directors’ emoluments
Detailed disclosures of Directors’ individual remuneration and share options are given within the tables in the Directors’ Remuneration Report on pages 59 to 61 and 63 to 66. These statutory disclosures form part of the accounts. 2008 2007 £m £m
Aggregate emoluments 2.2 2.6
Aggregate gains on exercise of share options 0.6 0.4
Retirement benefits are accruing to three Directors (2007 – three Directors) under The Forth Ports Group Pension Scheme, a defined benefit scheme. Only one Director (2007 – one Director) made contributions to the scheme.
6. Employee costs
The aggregate remuneration of all Employees and Directors was: Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Wages and salaries 40.9 41.2 14.5 18.0 Social security costs 3.8 3.8 1.6 1.9 Share options granted to directors and employees 1.9 1.1 1.9 1.1 Pension costs – defined benefit plans 3.2 4.5 3.2 4.5 – defined contribution plans 0.1 0.1 0.0 0.0
49.9 50.7 21.2 25.5
Average number of Employees and Directors: Group Group Company Company 2008 2007 2008 2007 No No No No Operational 760 815 236 250 Maintenance 123 115 52 50 90 Administrative 298 256 168 168
1,181 1,186 456 468 7. Finance income
2008 2007 £m £m Interest receivable on overpaid VAT 0.3 – Interest receivable on overpaid corporation tax – 0.2 Write-down of loan notes to amortised cost – 0.1 Interest receivable on bank and other deposits 0.6 0.8 Unwinding of discount on zero coupon loan stock at amortised cost 1.3 1.3 Unwinding of discount on long-term receivables at amortised cost – 0.7
2.2 3.1
8. Finance costs
2008 2007 £m £m Interest payable: On underpaid corporation tax 0.1 – On bank loans and overdrafts 13.8 13.0 On other loans 0.0 0.0 On loan notes – 0.1 Finance leases and hire purchase contracts 0.0 0.0 Amortisation of loan arrangement fees 0.2 0.2 Unwinding of discount on loan notes – 0.1
14.1 13.4
91
Annual Report and Accounts 2008 Notes on the Accounts continued
9. Taxation
2008 2007 £m £m Current tax – current year 2.4 6.2 – prior year 0.2 0.1 UK income tax at 40% (2007 – 40%) (ESOP) 0.0 0.0
Total current tax 2.6 6.3 Deferred tax charge (Note 21) – 1.2 Deferred tax charge/(credit) (Note 28) 17.9 (0.1)
Tax charge 20.5 7.4
The tax charge for the year is higher (2007 – lower) than the standard rate of corporation tax in the UK of 28%. The differences are explained below: 2008 2007 £m £m (Loss)/profit before tax (30.7) 32.3
(Loss)/profit multiplied by rate of corporation tax in the UK of 28.5% (2007 – 30%) (8.7) 9.7 Effects of: Impact of joint venture companies’ tax 6.1 2.9 Impact of associated undertakings’ tax (0.4) (0.8) Adjustments in respect of prior years – current tax 0.2 0.1 Adjustments in respect of prior years – deferred tax 0.2 0.1 Effect of tax rate change on deferred tax opening balance – (2.7) Effect of tax rate change on current year deferred tax (0.5) (0.4) Income not chargeable to tax (0.4) 0.0 Expenses not deductible for tax purposes 0.3 0.5 Non-taxable element of revaluation gains (3.1) (2.0) Effect of withdrawal of Industrial Buildings Allowances 27.2 – Capital transactions (0.4) – Income tax 0.0 0.0 92 Tax charge 20.5 7.4
The standard rate of corporation tax changed from 30% to 28% with effect from 1st April 2008. Accordingly, losses for this year are taxed at an effective rate of 28.5% and will be taxed at 28% in the future.
Deferred tax balances relating to temporary differences which will reverse after 1st April 2008 are calculated at 28% being the tax rate that will apply on reversal. 10. Holding Company’s (loss)/profit for the financial year
As permitted by Section 230 of the Companies Act 1985, the Holding Company’s Income Statement is not shown separately in these accounts. The (loss)/profit for the financial year is as follows: 2008 2007 £m £m Holding Company’s (loss)/profit after taxation for the year (27.8) 11.1
11. Dividends
2008 2007 £m £m Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31st December 2007 of 31.95p per share 14.5 – Final dividend for the year ended 31st December 2006 of 30.2p per share – 13.7 Interim dividend for the year ended 31st December 2008 of 16.6p per share 7.5 – Interim dividend for the year ended 31st December 2007 of 15.75p per share – 7.1
22.0 20.8
Proposed final dividend for the year ended 31st December 2008 of 12p (2007 – 31.95p) per share 5.5 14.5
Dividends amounting to £114,000 (2007 – £140,000) in respect of the Company’s shares held by the ESOP Trust (Note 30) have been deducted in arriving at the aggregate of dividends paid. The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these accounts.
93
Annual Report and Accounts 2008 Notes on the Accounts continued
12. (Loss)/earnings per share
Basic (loss)/earnings per share is calculated by dividing the (loss)/profit for the year attributable to shareholders by the weighted average number of shares in issue during the year, excluding those held by the ESOP Trust which are treated as cancelled.
For diluted earnings per share in 2007, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has two categories of dilutive potential ordinary shares, being those share options granted to employees under a SAYE share option scheme and the contingently issuable shares under the LTIP schemes. No dilution is applied in 2008 as the amount attributable to shareholders is a loss.
Underlying earnings are as defined in the Glossary. Underlying earnings per share divides underlying earnings attributable to shareholders by the weighted average number of shares in issue during the year as per the calculation for basic earnings per share.
Reconciliations of the (loss)/earnings and weighted average number of shares used in the calculations are set out below: 2008 2007 Weighted (Loss)/ Weighted Average Earnings Average Earnings Loss/ Number of per Number of per (Earnings) Shares Share Earnings Shares Share Continuing operations £m 000 Pence £m 000 Pence (Loss)/profit attributable to equity holders of the Company (49.0) 25.1 Total shares issued – 45,646 – 45,620 Shares held by ESOP Trust – (190) – (261)
Basic EPS (49.0) 45,456 (107.8) 25.1 45,359 55.3 Effect of dilutive securities (share options) – – – 364
Diluted EPS (49.0) 45,456 (107.8) 25.1 45,723 54.9
Share of profit attributable to equity holders 94 of the Company before exceptional items and revaluations 26.2 20.6
Amortisation charge arising from acquisition less tax effect 0.5 0.3
Underlying EPS 26.7 45,456 58.7 20.9 45,359 46.1
13. Property, plant and equipment
Operational Capital Land and Plant and Works in Buildings Equipment Progress Total £m £m £m £m Group Cost (net of capital grants) At 1st January 2008 258.4 125.0 7.9 391.3 Additions 2.0 3.8 18.6 24.4 Disposals (0.1) (3.3) – (3.4) Transfers between asset categories (12.6) 0.4 (8.3) (20.5)
At 31st December 2008 247.7 125.9 18.2 391.8
Accumulated depreciation (net of grant amortisation) At 1st January 2008 101.9 66.3 – 168.2 Depreciation charge (net of grant amortisation) 6.8 6.4 – 13.2 Transfers between asset categories (5.6) 0.0 – (5.6) Disposals (0.1) (3.2) – (3.3)
At 31st December 2008 103.0 69.5 – 172.5
Net book value at 31st December 2008 144.7 56.4 18.2 219.3
Group Cost (net of capital grants) At 1st January 2007 245.3 119.6 4.6 369.5 Acquired on purchase of subsidiary 6.7 2.7 – 9.4 Additions 1.3 3.0 8.3 12.6 Disposals (0.0) (1.0) – (1.0) Transfers between asset categories 5.1 0.7 (5.0) 0.8
At 31st December 2007 258.4 125.0 7.9 391.3
Accumulated depreciation (net of grant amortisation) 95 At 1st January 2007 95.3 60.9 – 156.2 Depreciation charge (net of grant amortisation) 6.8 6.4 – 13.2 Transfers between asset categories (0.2) – – (0.2) Disposals (0.0) (1.0) – (1.0)
At 31st December 2007 101.9 66.3 – 168.2
Net book value at 31st December 2007 156.5 58.7 7.9 223.1
The Directors are of the opinion that there is no material difference between the net book value of operational land and buildings above and their fair value in existing use. For the purposes of the DTZ valuation of the property development assets, the operational land within the Port of Leith, which incorporates the LDDF area, has been valued separately at an alternative use value. The difference in value between existing use and alternative use has not been reflected in the carrying value of these assets.
Annual Report and Accounts 2008 Notes on the Accounts continued
13. Property, plant and equipment (continued)
The net book value of plant and equipment includes £1.0m (2007 – £1.0m) in respect of assets held under finance leases and hire purchase contracts.
The net book value of property, plant and equipment also includes capitalised interest of £1.2m (2007 – £1.3m).
Included in transfers between asset categories are items transferred from property developments and land held for sale within inventories with a net book value of £2.3m (2007 – £nil).
Capital grants included in property, plant and equipment have the following net book amount:
Operational Land and Plant and Buildings Equipment Total £m £m £m Group Cost 18.9 7.0 25.9 Accumulated amortisation (10.3) (2.9) (13.2)
Net book amount at 31st December 2008 8.6 4.1 12.7
Cost 19.2 7.0 26.2 Transfers between asset categories (0.3) – (0.3) Accumulated amortisation (10.0) (2.7) (12.7) Transfers between asset categories 0.2 – 0.2
Net book amount at 31st December 2007 9.1 4.3 13.4
Operational Capital Land and Plant and Works in Buildings Equipment Progress Total £m £m £m £m Company Cost (net of capital grants) 96 At 1st January 2008 77.6 54.2 0.2 132.0 Additions 1.7 2.2 2.1 6.0 Disposals (0.1) (1.2) – (1.3) Transfers between asset categories 0.3 0.0 (0.2) 0.1
At 31st December 2008 79.5 55.2 2.1 136.8
Accumulated depreciation (net of grant amortisation) At 1st January 2008 37.6 29.8 – 67.4 Depreciation charge (net of grant amortisation) 1.8 2.5 – 4.3 Disposals (0.1) (1.2) – (1.3) Transfers between asset categories (0.0) – – (0.0)
At 31st December 2008 39.3 31.1 – 70.4
Net book value at 31st December 2008 40.2 24.1 2.1 66.4 Operational Capital Land and Plant and Works in Buildings Equipment Progress Total £m £m £m £m Company Cost (net of capital grants) At 1st January 2007 75.0 54.0 0.7 129.7 Additions 0.6 0.7 0.8 2.1 Disposals – (0.6) – (0.6) Transfers between group companies – (0.2) – (0.2) Transfers between asset categories 2.0 0.3 (1.3) 1.0
At 31st December 2007 77.6 54.2 0.2 132.0
Accumulated depreciation (net of grant amortisation) At 1st January 2007 35.6 27.9 – 63.5 Depreciation charge (net of grant amortisation) 2.0 2.7 – 4.7 Disposals – (0.6) – (0.6) Transfers between group companies – (0.2) – (0.2)
At 31st December 2007 37.6 29.8 – 67.4
Net book value at 31st December 2007 40.0 24.4 0.2 64.6
The net book value of plant and equipment includes £0.5m (2007 – £0.5m) in respect of assets held under finance leases and hire purchase contracts.
Capital grants included in property, plant and equipment have the following net book amount:
Operational Land and Plant and Buildings Equipment Total £m £m £m Company Cost 11.1 6.0 17.1 Accumulated amortisation (5.5) (1.9) (7.4) 97
Net book amount at 31st December 2008 5.6 4.1 9.7
Cost 11.1 6.0 17.1 Accumulated amortisation (5.1) (1.7) (6.8)
Net book amount at 31st December 2007 6.0 4.3 10.3
Annual Report and Accounts 2008 Notes on the Accounts continued
14. Investment property
2008 2007 £m £m Group Valuation At 1st January 182.9 164.1 Fair value movement – to Income Statement (19.2) 12.8 – to reserves 24.9 5.7 Additions 0.0 0.1 Disposals (0.1) (0.0) Transfers between asset categories 17.2 0.2
At 31st December 205.7 182.9
Company Valuation At 1st January 48.6 51.1 Fair value movement – to Income Statement (2.6) (1.5) – to reserves 0.4 – Disposals (0.1) (0.0) Transfers between asset categories (0.1) (1.0)
At 31st December 46.2 48.6
The Directors valued the Group’s investment properties at 31st December 2008 after receiving advice from Bidwells. The valuations were incorporated into the accounts at 31st December 2008 with the resulting decrease in fair value of £19.2m being taken to the Income Statement and the increase of £24.9m to reserves in relation to the transfer of property from operational land and buildings to investment property during the year. Deferred tax is provided on timing differences arising from the revaluation of investment property. The Group’s investment properties were valued at 31st December 2008 by Bidwells, as Independent Valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors (“RICS”) and the International Valuation Standards (IVS1). The valuation of each investment property was on the basis of Market Value, subject to the assumption that the investment properties would be sold subject to any existing leases. The 98 Market Value was primarily derived using comparable recent market transactions on arm’s length terms. Bidwells has assumed that each Port will continue to be operational and has made the special assumption that all investment properties are free from contamination and that any spillages or contamination will be removed by the tenant prior to the termination of the lease. In accordance with the Valuation Standards, Bidwells confirms that, although it has carried out the valuation of the assets since 1991, it has not provided other property advice. In relation to the firm’s preceding year the total fees paid by the Company as a percentage of the firm’s total fee income was less than 5%. Bidwells maintains a policy of rotating valuers in accordance with Practice Statement 5.2.2. of the RICS Appraisal and Valuation Standards (The Red Book). The property rental income earned by the Group from its investment property, all of which is leased out under operating leases, amounted to £24.2m (2007 – £17.7m). Direct operating expenses arising on the investment property in the year amounted to £0.6m (2007 – £0.5m). Included in transfers between asset categories are items transferred from property developments and land held for sale within inventories with a value of £nil (2007 – £1.2m). Capital grants included in investment property have a net book amount of £0.1m (2007 – £0.1m). 15. Intangible assets
Customer Work in Goodwill Relationships Software Progress Total £m £m £m £m £m Group Cost At 1st January 2008 27.9 11.4 7.6 0.0 46.9 Additions – – 0.1 0.0 0.1 Transfers between asset categories – – 0.0 (0.0) –
At 31st December 2008 27.9 11.4 7.7 0.0 47.0
Accumulated amortisation At 1st January 2008 – 0.4 4.9 – 5.3 Charge for the year – 0.7 0.7 – 1.4
At 31st December 2008 – 1.1 5.6 – 6.7
Net book value at 31st December 2008 27.9 10.3 2.1 0.0 40.3
Group Cost At 1st January 2007 – – 7.2 0.3 7.5 Additions – – 0.0 0.1 0.1 Acquisition of subsidiary 27.9 11.4 – – 39.3 Transfers between asset categories – – 0.4 (0.4) –
At 31st December 2007 27.9 11.4 7.6 0.0 46.9
Accumulated amortisation At 1st January 2007 – – 3.8 – 3.8 Charge for the year – 0.4 1.1 – 1.5
At 31st December 2007 – 0.4 4.9 – 5.3 99 Net book value at 31st December 2007 27.9 11.0 2.7 0.0 41.6
The net book value of software includes internally generated assets of £2.1m (2007 – £2.7m) and externally purchased assets of £0.0m (2007 – £0.0m). Goodwill arising on the acquisition of the Nordic Group is considered to have an indefinite life in accordance with IFRS 3 (Business Combinations). Customer relationships recognised on the acquisition of the Nordic Group are written off on a straight line basis over a period of up to fifteen years. Amortisation of customer relationships of £0.7m (2007 – £0.4m) is included in the cost of sales line in the Income Statement. Amortisation of software of £0.0m (2007 – £0.0m) is charged to cost of sales and £0.7m (2007 – £1.1m) to administrative expenses. Goodwill of £26.4m and £1.5m has been allocated for impairment purposes to individual cash generating units (CGUs), being two of the trading divisions of the Nordic Group – Nordic Recycling Limited (“NRL”) and Nordic Data Management Limited (“NDM”) respectively. The allocation was based on management’s expectation of future economic benefits from those CGUs, and is the lowest level at which goodwill is monitored. The goodwill is Annual Report attributable to the workforce of the acquired business and the significant synergies expected to arise after the and Accounts Group’s acquisition of Nordic. 2008 Notes on the Accounts continued
15. Intangible assets (continued)
The recoverable amount has been determined on a value in use basis. The calculations are based on five year pre-tax cash flow projections approved by management. Cash flows beyond the initial five year period are extrapolated using the growth rate below. The key assumptions used in determining the value in use are as follows:
Assumption How Determined Revenue Estimated revenue has been based on management projections taking into account experience and minimum contracted revenue. Operating margin Estimated operating margin has been based on management projections taking into account experience and changes in cost base following acquisition by the Group. This includes operating costs and maintenance capital expenditure. Growth rate Weighted average growth rate used is 2.25% which is consistent with the UK’s long-term average growth in GDP. Discount rate A pre-tax discount rate of 15.0% has been used and reflects the risks relating to the acquired group. Management consider that there is no difference between the risk profile of the Group and that of the CGUs.
Work in Software Progress Total £m £m £m Company Cost At 1st January 2008 7.6 0.0 7.6 Additions 0.1 0.0 0.1 Transfers between asset categories 0.0 (0.0) –
At 31st December 2008 7.7 0.0 7.7
Accumulated amortisation At 1st January 2008 4.9 – 4.9 Charge for the year 0.7 – 0.7
At 31st December 2008 5.6 – 5.6
100 Net book value at 31st December 2008 2.1 0.0 2.1
Company Cost At 1st January 2007 7.2 0.3 7.5 Additions 0.0 0.1 0.1 Transfers between asset categories 0.4 (0.4) –
At 31st December 2007 7.6 0.0 7.6
Accumulated amortisation At 1st January 2007 3.8 – 3.8 Charge for the year 1.1 – 1.1
At 31st December 2007 4.9 – 4.9
Net book value at 31st December 2007 2.7 0.0 2.7
The net book value of software includes internally generated assets of £2.1m (2007 – £2.7m) and externally purchased assets of £0.0m (2007 – £0.0m). 16. Investment in joint ventures
2008 2007 £m £m Group At 1st January (0.5) 9.0 Share of loss (21.4) (9.7) Movement in hedge reserve (4.1) 0.2 Dividend received (0.1) –
At 31st December (26.1) (0.5)
Shown as: Non-current assets – 0.0 Non-current liabilities (26.1) (0.5)
(26.1) (0.5) Loans owed by joint ventures (Note 20) 22.6 –
(3.5) (0.5)
Investment in joint ventures shown as non-current assets includes goodwill of £nil (2007 – £nil).
The Group’s share of the results of its principal joint ventures, all of which are unlisted, and its share of assets (including liabilities and goodwill) are as follows: 2008 2007 £m £m Non-current assets 43.6 63.4 Current assets 2.2 2.2 Current liabilities (5.9) (1.4) Non-current liabilities (61.5) (60.2) Unrealised profit eliminations (4.5) (4.5)
(26.1) (0.5)
Revenues 3.5 3.6 101 Other expenses (19.7) (7.7) Expenses (5.2) (5.6)
Loss for the year (21.4) (9.7)
Other expenses represents the Group’s share of the movement on revaluation of investment property within a joint venture company. 2008 2007 £m £m
Company Cost at 1st January 10.0 10.0 Impairment (10.0) –
Carrying value at 31st December – 10.0 Annual Report The Company has impaired the investment as a result of the net liabilities position shown above. and Accounts 2008 Notes on the Accounts continued
16. Investment in joint ventures (continued)
The Group’s significant interests in joint ventures are as follows:
Interest held Name of undertaking % Country of incorporation Ocean Terminal Limited 50 United Kingdom Ocean Terminal Services Limited 50 United Kingdom Ocean Terminal Developments Limited 50 United Kingdom Ocean Terminal Restaurants Limited 50 United Kingdom
17. Investment in associate
2008 2007 £m £m Group At 1st January 9.3 7.7 Share of profit 1.5 2.5 Dividend received (1.0) (0.7) Actuarial loss relating to retirement benefit obligations (0.1) (0.2) Cash flow hedge movement (0.1) 0.0
At 31st December 9.6 9.3
The Group’s share of the results of its principal associate, which is unlisted, and its share of assets and liabilities are as follows: 2008 2007 £m £m Assets 22.9 22.1 Liabilities (13.3) (12.8)
Net assets 9.6 9.3
Revenues 13.7 12.0 102 Profit 1.5 2.5
Actuarial loss relating to retirement benefit obligations (0.1) (0.2)
During the year, the Finance Act 2008 enacted changes to the Industrial Buildings Allowances available which resulted in increased deferred tax liabilities in respect of land and buildings. The effect on results for the year is to increase the tax charge in the Income Statement by £1.0m.
In 2007, as a result of the change in the UK Corporation Tax rate from 30% to 28% that took effect from 1st April 2008, deferred tax balances were remeasured. Deferred tax expected to reverse in the year to 31st December 2008 was measured using the tax rate at the period end of 28%. The Group’s significant interest is as follows:
Interest held Name of undertaking % Country of incorporation Tilbury Container Services Limited 33 United Kingdom
The interest in TCS (which has an accounting year end date of 31st December) is held by a subsidiary company.
18. Investment in subsidiaries
2008 2007 £m £m Company Cost at 1st January 164.7 132.4 Addition – 32.3
Cost at 31st December 164.7 164.7 Provisions at 1st January and 31st December (0.5) (0.5)
Net book value at 31st December 164.2 164.2
The following information relates to those subsidiary undertakings whose results or financial position, in the opinion of the Directors, principally affected the figures of the Group. All Group companies have year end dates of 31st December and will make individual Annual Returns to the Registrar of Companies.
Interest held Name of subsidiary undertaking % Description of undertaking International Transport Limited 100 Intermediate holding company Port of Tilbury London Limited 100 Port operator Port of Dundee Limited 100 Port operator Forth Estuary Towage Limited 100 Towage services Forth Properties Limited 100 Property development FP Newhaven Two Limited 100 Property development Nordic Limited 100 Intermediate holding company Nordic Forest Terminals Limited 100 Port operator 103 Nordic Recycling Limited 100 Waste paper and commercial waste management Nordic Data Management Limited 100 Secure paper storage and shredding Forth Property Investments Limited 90 Property investment company Forth Property Holdings Limited 90 Intermediate holding company Forth Property Developments Limited 90 Property development
The interests in International Transport Limited, Port of Dundee Limited, Forth Estuary Towage Limited and Forth Property Holdings Limited are held directly by Forth Ports PLC. In all other cases the interest is held by a subsidiary. The principal country of registration and operation of the above undertakings is Scotland, with the exception of International Transport Limited, Port of Tilbury London Limited and the Nordic group of companies which are registered and operate in England. Subsidiaries are accounted for by the Company at historical cost less provision for any impairments.
A full list of subsidiaries is included in the Company’s Annual Return to Companies House. Annual Report and Accounts 2008 Notes on the Accounts continued
19. Inventories
Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Materials and spare parts 2.0 2.0 0.6 0.6 Property developments and land held for sale 25.4 48.7 – –
27.4 50.7 0.6 0.6
Expenditure on property development projects is charged to inventories at cost. In determining whether the carrying value is at the lower of cost or net realisable value, a review is carried out on each individual development site (Granton Harbour, Western Harbour, The Harbour, Leith Docks and Leith Docks) at 31st December each year. The estimated sales receipts are assessed for each development as are the existing costs and the expected costs to complete (including sales costs) which are then compared with the carrying value. With the significant reduction in land values over the past year, the average unit selling price has reduced between 15% and 35% (depending on the development site location and property type). The effect of this has reduced the net realisable value of property work in progress by £27.7m (2007 – £nil) leaving a carrying value of £25.4m (2007 – £48.7m). This write-down has been expensed through the Income Statement as an exceptional item. For a more detailed commentary on the valuation approach, please see Glossary on page 128.
The amount recognised as an expense on the write-down of stock during the year was £27.7m (2007 – £0.1m) for the Group and £nil (2007 – £0.1m) for the Company.
The amount expected to be recovered after more than one year is £25.4m (2007 – £48.7m) for the Group and £nil (2007 – £nil) for the Company.
104 20. Trade and other receivables
Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Current assets: Trade receivables 31.4 40.8 9.3 8.6 Less: provision for allowance for credit losses (4.8) (1.1) (0.5) (0.4)
Trade receivables – net 26.6 39.7 8.8 8.2 Amounts owed by subsidiary undertakings – – 124.8 137.8 Other receivables 3.1 4.5 1.0 0.7 Prepayments and accrued income 5.9 3.6 2.0 1.6 Amounts owed by associated undertakings and joint ventures – trading balances 0.2 0.1 – –
35.8 47.9 136.6 148.3
The ageing of trade receivables is as follows: Not past due date 10.0 19.1 0.6 – Less than 30 days past due date 6.1 10.5 2.6 5.1 31-60 days past due date 5.6 4.5 3.5 2.4 61-90 days past due date 1.9 1.3 1.2 0.7 Over 90 days past due date 7.8 5.4 1.4 0.4
31.4 40.8 9.3 8.6
At 31st December 2008, Group and Company trade receivables of £10.0m and £0.6m (2007 – £19.1m and £nil) respectively were not past due or impaired. With respect to trade receivables that are neither past their due date nor impaired, there are no indications as at the reporting date that the payment obligations will not be met. Group and Company trade receivables of £4.8m and £0.5m (2007 – £1.1m and £0.4m) respectively were identified as being impaired, all of which are provided for and analysed below. The factor considered in providing for impaired trade receivables is mainly that of the financial position of the customer.
The other classes within Trade and other receivables do not contain impaired assets. 105 The ageing of the allowance for credit losses of trade receivables is as follows:
Not past due date – – – – Less than 30 days past due date (0.0) (0.0) (0.0) (0.0) 31-60 days past due date (0.0) (0.1) (0.0) (0.0) 61-90 days past due date (0.0) (0.1) (0.0) (0.0) Over 90 days past due date (4.8) (0.9) (0.5) (0.4)
(4.8) (1.1) (0.5) (0.4)
The movement on the allowance for credit losses is as follows: At 1st January (1.1) (0.5) (0.4) (0.4) Increase in year (4.0) (0.6) (0.1) (0.0) Amounts written off 0.3 0.0 – 0.0
At 31st December (4.8) (1.1) (0.5) (0.4) Annual Report and Accounts
2008 Notes on the Accounts continued
20. Trade and other receivables (continued)
There is no concentration of credit risk with respect to trade receivables as the Group has a large number of customers sufficiently dispersed. The maximum exposure to credit risk at the year end is the value of each class of receivable mentioned above. The Group does not hold any collateral as security over port receivables, however, property trade receivables which relate to land sales have the title of the land as standard security collateral. There is no material difference between the fair value of trade and other receivables and their carrying amount stated above. The amounts owed by subsidiary undertakings are unsecured and receivable on demand but are not expected to be fully received within the next twelve months.
Interest on amounts owed by subsidiary undertakings was applied at rates based on LIBOR and Bank of England base rate. Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Non-current assets: Amounts owed by joint ventures – loans – 21.3 – 21.3
In 2008, the Group has offset £22.6m of loans owed by joint ventures against the non-current liability investment in joint ventures (Note 16) and the Company has made full provision against the carrying value of the loans.
The effective interest rate used to fair value non-current trade receivables was nil% (2007 – nil%).
21. Deferred tax assets
Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Deferred tax asset Retirement benefit obligations 1.4 0.1 1.4 0.1
Deferred tax asset – movement Asset at 1st January 0.1 5.4 0.1 5.4 Deferred tax on actuarial losses/(gains) recognised 106 in Statement of Recognised Income and Expense 3.1 (3.5) 3.1 (3.5) Effect of tax rate change from 30% to 28% – credited to Income Statement (Note 9) – 0.2 – 0.2 – charged to equity (Note 31) – (0.6) – (0.6) Deferred tax on excess pension contributions – charged to Income Statement (Note 9) – (1.4) – (1.4) – charged to equity (Note 31) (1.8) – (1.8) –
Asset at 31st December 1.4 0.1 1.4 0.1
22. Current tax receivable
Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Recoverable within one year 4.5 – 3.9 0.5 23. Cash and cash equivalents
Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Cash at bank and in hand 4.7 2.6 2.5 0.0 Short-term bank deposits – 4.7 – 4.6
4.7 7.3 2.5 4.6
The effective interest rate on short-term deposits in 2007 was £4.7m at 5.38% maturing in one day.
24. Trade and other payables – current liabilities
Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Trade payables 8.4 6.9 2.5 2.3 Amounts owed to subsidiary undertakings – – 7.6 6.3 Other taxation and social security 1.3 1.3 0.6 0.6 Accruals and deferred income 19.2 19.2 9.2 6.9
28.9 27.4 19.9 16.1
Trade payables are mainly contractually due to be paid within one month. The amounts owed to subsidiary undertakings are unsecured and payable on demand but are not expected to be fully paid within the next twelve months. Interest on amounts owed to subsidiary undertakings was applied at rates based on LIBOR and Bank of England base rate.
25. Current tax liabilities
Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Due within one year – 3.3 – – 107
Annual Report and Accounts 2008 Notes on the Accounts continued
26. Borrowings
Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Non-current Bank borrowings 212.1 212.2 212.1 212.2 Other loans 0.5 0.5 0.5 0.5 Finance leases 0.0 0.0 – 0.0
212.6 212.7 212.6 212.7
Current Bank overdraft – – – 0.8 Finance leases 0.1 0.1 0.0 0.0
0.1 0.1 0.0 0.8
Total borrowings 212.7 212.8 212.6 213.5
The borrowings are repayable as follows: On demand or within one year 0.1 0.1 0.0 0.8 In the second year 0.0 87.9 – 87.9 In the third to fifth years inclusive 212.1 49.7 212.1 49.7 After five years 0.5 75.1 0.5 75.1
212.7 212.8 212.6 213.5
Less: amount due for settlement within one year (shown under current liabilities) (0.1) (0.1) (0.0) (0.8)
Amount due for settlement after one year 212.6 212.7 212.6 212.7
The minimum lease payments under finance leases are not materially different to the present value of the lease liabilities. 108 All borrowings are denominated in UK sterling.
The exposure of the Group and Company borrowings to interest rate changes and the contractual repricing dates at the year end are as follows: Group Group Company Company 2008 2007 2008 2007 £m £m £m £m 6 months or less 212.1 212.2 212.1 212.2 Over 5 years 0.5 0.5 0.5 0.5
212.6 212.7 212.6 212.7 Finance leases with no contractual repricing date 0.1 0.1 0.0 0.0
212.7 212.8 212.6 212.7
Group and Company The Group’s principal bank loans are as follows:
During 2008, the Group converted its term loan of £125m and revolving credit loan facility of £100m with Bank of Scotland to a revolving credit facility of £200m. Shortly after the year end, this was reduced to a facility of £150m with a repayment date of 30th June 2012. The loan is unsecured and carries interest at 1.7% over LIBOR. The Group fixed the interest rate on £100m of this loan at 2.8% plus margin for three years commencing 5th January 2009.
The Group also agreed further funding of £25m with Bank of Scotland in 2008 comprising a committed credit facility of £20m and an overdraft of £5m. These loans are unsecured. The committed credit facility carries interest at 1.7% over LIBOR and the overdraft carries interest at 3% over Bank of Scotland base rate. These facilities mature on 30th June 2010.
The Group also arranged, and drew down in full, a £50m revolving credit facility from Lloyds TSB. The loan was unsecured and carried interest at 0.6% over LIBOR. Shortly after the year end, the facility was increased to £100m and the interest margin was changed to 1.5% over LIBOR. The repayment date for the revised facility is 30th June 2012. The Group fixed the interest rate on the entire £100m loan at 2.77% plus margin for three years commencing 5th January 2009.
The other loan represents £0.5m (2007 – £0.5m) of funded debt. This debt was taken out prior to 1950 and there is no fixed repayment date. The debt is unsecured and carries interest at 3.75%.
The weighted average interest rates paid were as follows: 2008 2007 % % Bank borrowings 6.34 6.66 Bank overdraft 6.24 6.50 Other loan 3.75 3.75
The effective interest rates at the Balance Sheet date were as follows: 2008 2007 % % Bank borrowings 3.97 6.67 Bank overdraft 5.00 6.50 Other loan 3.75 3.75 109
The fair value of bank borrowings approximates to book value because the interest rate is reset after periods not greater than six months.
The Group has the following undrawn committed borrowing facilities available at 31st December: 2008 2007 £m £m Floating rate Expiring within one year – 25.0 Expiring in more than one year 62.0 12.0
62.0 37.0
The facilities expiring in more than one year are the undrawn element of the Bank of Scotland revolving credit loan, the committed credit facility and the overdraft. Annual Report and Accounts 2008 Notes on the Accounts continued
26. Borrowings (continued)
Interest on borrowings fall due as follows: Group and Group and Company Company 2008 2007 £m £m Amounts falling due within one year 8.5 14.2 Amounts falling due after more than one year but not more than two years 8.5 11.4 Amounts falling due after more than two years but not more than five years 12.7 21.7 Amounts falling due after more than five years – 6.0
29.7 53.3
Covenants The Group has arranged certain banking covenants which require minimum levels of tangible net worth, gearing and interest cover. If these covenants were to be breached, the Group’s bankers could demand the immediate repayment of all advances and interest outstanding. For further information, please refer to page 29.
Sensitivity Analysis At 31st December 2008, if interest rates on our borrowings at that date had been 0.25% higher or lower with all other variables held constant, pre-tax profits for the year would have been £0.5m (2007 – £0.5m) lower or higher than reported, as would net assets.
27. Provisions
Employers’ National Insurance Maintenance Insurance on Share of 2008 Claims Options Quay Walls Total £m £m £m £m Group At 1st January 0.6 0.2 0.8 1.6 Additional provision in year 0.3 0.1 – 0.4 110 Utilisation of provision (0.4) (0.1) (0.8) (1.3)
At 31st December 0.5 0.2 – 0.7
Included in current liabilities 0.4 Included in non-current liabilities 0.3
0.7
At 31st December 2007 the amount included in current liabilities was £1.2m and included in non-current liabilities was £0.4m.
Company At 1st January 0.3 0.2 – 0.5 Additional provision in year 0.0 0.1 – 0.1 Utilisation of provision (0.2) (0.1) – (0.3)
At 31st December 0.1 0.2 – 0.3
2008 Total £m Included in current liabilities 0.1 Included in non-current liabilities 0.2
0.3
At 31st December 2007 the amount included in current liabilities was £0.2m and included in non-current liabilities was £0.3m.
The Insurance Claims provision represents management’s best estimate of claims under the General, Marine and Employer’s Liability policies. Settlement of such claims is dependent on negotiation and, potentially, litigation with third parties, the timing of which cannot be predicted with complete accuracy.
The Employer’s National Insurance on Share Option provision is calculated in accordance with IFRS 2 (Share- based Payment) in respect of the LTIP share option plans. Settlement of the provision follows the maturity date of the LTIP options.
The provision for Maintenance of Quay Walls was made to provide for a contractual obligation in accordance with the terms and conditions relating to the contract for sale of certain property at the Port of Dundee.
28. Deferred tax liabilities
Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Deferred tax liability Intangible assets – customer relationships 2.9 3.1 – – Capital allowances 44.6 17.6 11.9 5.3 Short-term differences (1.2) (0.8) (1.2) (0.8) Rolled over capital gains 1.7 1.6 – – Investment property revaluation surplus 19.6 21.3 2.4 2.5
67.6 42.8 13.1 7.0 111
Deferred tax liability – movement Liability at 1st January 42.8 38.5 7.0 8.7 Acquisition of Nordic Group – 3.3 – – Effect of tax rate change from 30% to 28% – credited to Income Statement (Note 9) – (2.5) – (0.6) Amount charged/(credited) to Income Statement (Note 9) 17.9 2.4 6.1 (1.1) Amount charged to reserves (Note 31) 6.9 1.1 – –
Liability at 31st December 67.6 42.8 13.1 7.0
Deferred tax assets and liabilities are only offset where there is a legally enforceable right to offset and where the deferred tax relates to the same authority. Deferred tax assets are detailed in Note 21.
Annual Report and Accounts 2008 Notes on the Accounts continued
29. Share capital
2008 2007 £m £m Group and Company Authorised: 58 million Ordinary Shares of 50p (2007 – 58 million shares of 50p) 29.0 29.0
Allotted, called up and fully paid: 45.6 million Ordinary Shares of 50p (2007 – 45.6 million shares of 50p) 22.8 22.8
The Company has one class of Ordinary Share which carries no right to fixed income.
In 2007, the Company issued 53,620 Ordinary Shares with a nominal value of £28,610 as part consideration for the purchase of the Nordic Group. The shares were issued on 29th June 2007 on which date the bid price per share was £18.45. The total equivalent consideration for the shares was £989,289.
At the year end 161,000 Ordinary Shares (2007 – 245,000 Ordinary Shares) with a nominal value of £80,500 (2007 – £122,500) were treated as own shares held.
Potential issue of Ordinary Shares Under the Group’s LTIP, the Executive Directors and certain Senior Managers have rights that may result in the issue of shares (see pages 60 and 63).
In 2004, the Group introduced a SAYE Scheme and granted options to employees over 575,000 Ordinary Shares of 50p each. The shares are exercisable in the period 2009/10 at a price of £10.75 per share. At 31st December 2008 there were 392,000 options outstanding (2007 – 446,000 options).
29A Share based payments – equity settled transactions
Group and Company SAYE scheme The SAYE scheme was introduced during 2004. Options were granted to employees at a fixed price of £10.75 equal to 10% below market price on a three day average on and around the date of grant. The vesting period is five years. If the options remain unexercised after a period of six months from the vesting date, the options expire. 112 Exercise of an option is subject to continued employment although employees ceasing employment due to retiral or redundancy are able to exercise their options pro rata before the full term has elapsed. Employees who leave after three years have elapsed may exercise their options pro rata up to their date of leaving.
The estates of those option holders who die before the term of the savings period has elapsed may exercise options pro rata up to the date of death. Options were valued using the Black-Scholes option pricing model. No performance conditions were included in the fair value calculations. The inputs into the option pricing model are as follows:
Grant date 7.5.04 Share price at grant date £12.01 Exercise price £10.75 Shares under option 575,000 Vesting period 5.0 years Expected volatility 14.5% Option life 5.0 years Expected life 5.15 years Risk free rate 4.98% Expected dividends expressed as dividend yield 3.45% Possibility of ceasing employment prior to vesting 34.91% Fair value per option £2.25 Charge to the Income Statement 2008 £0.2m Charge to the Income Statement 2007 £0.2m
Expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous five years. The expected life is the average expected period to exercise. The risk free rate is the yield on zero coupon UK government bonds of a term consistent with the assumed option life.
Details of the share options outstanding during the year are as follows: 2008 2007 Weighted Weighted Number Average Number Average of Share Exercise of Share Exercise Options Price Options Price 000 £ 000 £ Outstanding at 1st January 446 10.75 483 10.75 Forfeited (22) – (26) – Exercised (32) 10.75 (11) 10.75
Outstanding at 31st December 392 10.75 446 10.75
Exercisable at 31st December 1 10.75 1 10.75 113
The weighted average share price at the date of exercise for those options exercised during the period was £18.96 (2007 – £19.98).
LTIP plans An outline of the terms and conditions appertaining to the LTIP plans is given in the Remuneration Report on pages 60 and 63.
Annual Report and Accounts 2008 Notes on the Accounts continued
29A Share based payments – equity settled transactions (continued)
1. 2002 LTIP Options were valued using the Monte-Carlo simulation model. The fair value calculations include the impact of the TSR hurdle. The inputs into the simulation model are as follows:
Grant date 4.10.05 Share price at grant date £13.29 Exercise price nil Shares under option 79,484 Vesting period 2.5 years Expected volatility 17.0% Option life 3.0 years Expected life 2.5 years Risk free rate 4.10% Expected dividends expressed as dividend yield 3.04% Possibility of ceasing employment prior to vesting nil Fair value per option £4.58 Credit to Income Statement 2008 £(0.0)m Charge to Income Statement 2007 £0.2m
Expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous five years. The expected life is the average expected period to exercise. The risk free rate is the yield on zero coupon UK government bonds of a term consistent with the assumed option life.
2. 2006 LTIP Options were valued using a present value calculation based on the share price at grant date and the expected dividends over the three year performance period. The inputs into the model are as follows:
Grant date 3.5.06 27.4.07 30.4.08 Share price at grant date £17.40 £19.96 £21.77 Exercise price nil nil nil Shares under option 111,555 108,019 145,682 Vesting period 3.0 years 3.0 years 3.0 years 114 Expected forfeiture 3% p.a. 3% p.a. 3% p.a. Option life 3.0 years 3.0 years 3.0 years Expected life 3.0 years 3.0 years 3.0 years Expected dividends expressed as dividend yield 2.8% p.a. 2.7% p.a. 2.5% p.a. Fair value per option £16.02 £18.42 £20.21 Charge to Income Statement 2008 £0.5m £0.6m £0.6m Charge to Income Statement 2007 £0.5m £0.4m n/a
29A Share based payments – equity settled transactions (continued)
Details of the share options outstanding during the year are as follows: 2008 2007 Weighted Weighted Number Average Number Average of Share Exercise of Share Exercise Options Price Options Price 000 £ 000 £ Outstanding at 1st January 299 nil 270 nil Granted 146 nil 108 nil Lapsed (25) nil (43) nil Exercised (55) nil (36) nil
Outstanding at 31st December 365 nil 299 nil
There were no options exercisable at 31st December 2008 or 31st December 2007.
The weighted average share price at the date of exercise for those options exercised during the period was £21.77.
30. Own shares held
2008 £m Group and Company Balance at 1st January 5.2 Disposed of on exercise of options (0.3)
Balance at 31st December 4.9
Forth Ports Trustees Limited holds ordinary shares in Forth Ports PLC as Trustee for the Employee Share Option Trust and as Trustee for the shares outstanding in respect of share options granted to Directors and certain Senior Managers.
The ESOP Trust was set up on the privatisation of Forth Ports Authority in 1992 to allow employees to save towards the purchase of shares in Forth Ports PLC. At 31st December 2008, Forth Ports Trustees Limited held 161,000 115 shares (2007 – 245,000) with a market value of £1,475,000 (2007 – £4,753,000). The number of shares held under option for employees by the Trustee of the ESOP at 31st December 2008 was 889 (2007 – 946).
Annual Report and Accounts 2008 Notes on the Accounts continued
31. Statement of changes in shareholders’ equity
Minority Total Attributable to equity holders of the Company interest equity Own Fair value Share Share shares and other Retained capital premium held reserves earnings £m £m £m £m £m £m £m Group Balance at 1st January 2007 22.8 18.2 (5.3) 17.5 220.0 4.3 277.5
Share of joint venture’s movement on cash flow hedge – – – 0.2 – – 0.2 Share of associate’s movement on cash flow hedge – – – 0.0 – – 0.0 Revaluation of investment property transferred from operational land and buildings – – – – 5.7 – 5.7 Deferred tax on revaluation – – – – (1.1) – (1.1) Actuarial gain in defined benefit pension scheme – – – – 12.6 – 12.6 Deferred tax on actuarial gain – – – – (3.5) – (3.5) Effect of tax rate change for deferred tax on actuarial gain – – – – (0.6) – (0.6) Share of associate’s actuarial loss in defined benefit pension scheme – – – – (0.3) – (0.3) Deferred tax on associate’s actuarial loss – – – – 0.1 – 0.1 Effect of tax rate change for deferred tax on associate’s actuarial loss – – – – (0.0) – (0.0)
Net income recognised directly in equity – – – 0.2 12.9 – 13.1 Profit/(loss) for the year – – – – 25.1 (0.2) 24.9
Total recognised income/(expense) 116 for the year – – – 0.2 38.0 (0.2) 38.0 New shares issued 0.0 1.0 – – – – 1.0 LTIP shares – value of services provided – – – – 0.9 – 0.9 SAYE scheme – value of services provided – – – – 0.2 – 0.2 Consideration received for own shares held – – 0.1 – – – 0.1 Dividends – – – – (20.8) (1.6) (22.4)
Balance at 31st December 2007 22.8 19.2 (5.2) 17.7 238.3 2.5 295.3
31. Statement of changes in shareholders’ equity (continued)
Minority Total Attributable to equity holders of the Company interest equity Own Fair value Share Share shares and other Retained capital premium held reserves earnings £m £m £m £m £m £m £m Group Balance at 1st January 2008 22.8 19.2 (5.2) 17.7 238.3 2.5 295.3 Share of joint venture’s movement on cash flow hedge – – – (4.1) – – (4.1) Share of associate’s movement on cash flow hedge – – – (0.1) – – (0.1) Revaluation of investment property transferred from operational land and buildings – – – – 24.9 – 24.9 Deferred tax on revaluation – – – – (6.9) – (6.9) Corporation tax on excess pension contributions – – – – 1.8 – 1.8 Deferred tax on excess pension contributions – – – – (1.8) – (1.8) Actuarial loss in defined benefit pension scheme – – – – (10.9) – (10.9) Deferred tax on actuarial loss – – – – 3.1 – 3.1 Share of associate’s actuarial loss in defined benefit pension scheme – – – – (0.1) – (0.1) Deferred tax on associate’s actuarial loss – – – – 0.0 – 0.0
Net (expense)/income recognised directly in equity – – – (4.2) 10.1 – 5.9 Loss for the year – – – – (49.0) (2.2) (51.2)
Total recognised expense for the year – – – (4.2) (38.9) (2.2) (45.3) LTIP shares – value of services provided – – – – 1.7 – 1.7 117 SAYE scheme – value of services provided – – – – 0.2 – 0.2 Consideration received for own shares held – – 0.3 – – – 0.3 Dividends – – – – (22.0) – (22.0)
Balance at 31st December 2008 22.8 19.2 (4.9) 13.5 179.3 0.3 230.2
The share premium, own shares held, fair value and other reserves are non-distributable. The purpose of the fair value and other reserves is to maintain the Company’s capital and they include the following cumulative amounts: special reserve £12.7m, capital reserve £3.8m, capital redemption reserve £1.5m and a cash flow hedge reserve of £(4.5)m. Retained earnings include the following non-distributable amounts: 2008 2007 £m £m Unrealised increases in fair value of investment properties net of deferred tax 97.5 90.1 Unrealised property gains in subsidiary 0.9 0.9 Investment in associates 9.6 9.3
Annual Report Balance at 31st December 108.0 100.3 and Accounts
2008 Notes on the Accounts continued
31. Statement of changes in shareholders’ equity (continued)
Own Fair value Share Share shares and other Retained Total capital premium held reserves earnings Equity £m £m £m £m £m £m Company Balance at 1st January 2007 22.8 18.2 (5.3) 66.3 124.9 226.9 Actuarial gain in defined benefit pension scheme – – – – 12.6 12.6 Deferred tax on actuarial gain – – – – (3.5) (3.5) Effect of tax rate change for deferred tax on actuarial gain – – – – (0.6) (0.6) Net income recognised directly in equity – – – – 8.5 8.5 Profit for the year – – – – 11.1 11.1
Total recognised income for the year – – – – 19.6 19.6 New shares issued in period 0.0 1.0 – – – 1.0 LTIP shares – value of services provided – – – – 0.9 0.9 SAYE scheme – value of services provided – – – – 0.2 0.2 Consideration received for own shares held – – 0.1 – – 0.1 Dividends – – – – (20.8) (20.8)
Balance at 31st December 2007 22.8 19.2 (5.2) 66.3 124.8 227.9
Revaluation of investment property transferred from operational land and buildings – – – – 0.4 0.4 Corporation tax on excess pension contributions – – – – 1.8 1.8 Deferred tax on excess pension contributions – – – – (1.8) (1.8) Actuarial loss in defined benefit pension scheme – – – – (10.9) (10.9) Deferred tax on actuarial loss – – – – 3.1 3.1
Net expense recognised directly in equity – – – – (7.4) (7.4) Loss for the year – – – – (27.8) (27.8)
Total recognised expense for the year – – – – (35.2) (35.2) 118 LTIP shares – value of services provided – – – – 1.7 1.7 SAYE scheme – value of services provided – – – – 0.2 0.2 Consideration received for own shares held – – 0.3 – – 0.3 Dividends – – – – (22.0) (22.0)
Balance at 31st December 2008 22.8 19.2 (4.9) 66.3 69.5 172.9
The share premium, own shares held, fair value and other reserves are non-distributable.
Fair value and other reserves include amounts of £64.8m and £1.5m in relation to a special reserve and a capital redemption reserve respectively. The special reserve arose from the reduction in share capital in 1995 and the capital redemption reserve arose in previous years on the repurchase of 2.9 million of the Company’s own shares. The purpose of these reserves is to maintain the Company’s capital. 31. Statement of changes in shareholders’ equity (continued)
Retained earnings include the following non-distributable amounts: 2008 2007 £m £m Unrealised increases in fair value of investment properties net of deferred tax 22.0 24.1
32. Retirement benefit schemes
The Group operates a defined benefit pension scheme called The Forth Ports Group Pension Scheme that covers the vast majority of employees. Other employees are covered by a national scheme. The Nordic Group operates a defined contribution pension scheme.
The pension cost relating to The Forth Ports Group Pension Scheme was assessed in accordance with the advice of a qualified actuary. The latest formal actuarial assessment of the scheme was as at 5th April 2008. The actuaries have provided updated figures for the scheme as at 31st December 2008.
Assets are taken at their market value. Liabilities are valued using various assumptions which are listed overleaf.
The total pension cost was £3.2m (2007 – £4.5m). Member contributions are paid in addition.
A number of employees are members of The Former Registered Dock Workers’ Pension Scheme (“FRDW scheme”). The Group also has a contractual relationship with self-employed pilots who operate within the Firth of Forth and the Firth of Tay to provide pilotage services. The self-employed pilots make payments into the Pilots’ National Pension Fund (“PNPF”).
The FRDW scheme is a multi-employer defined benefit scheme which was set up many years ago on a national basis to provide pensions to Registered Dock Workers. The most recent formal valuation of the FRDW scheme was carried out in 2007 which recorded a small surplus. On an ongoing basis, it was fully funded. The total assets and liabilities of the FRDW scheme are not assigned to specific employers. On the basis that the FRDW scheme is fully funded, the Group does not believe that it has any exposure to this pension scheme. The employers are not entitled to participate in any surplus arising in the FRDW scheme. The contributions paid by the Group are accounted for as a defined contribution scheme as the Group is unable to identify its share of the assets and liabilities in the scheme. The Group contributions during the year were £0.0m (2007 – £0.1m). 119 The Company and Port of Dundee Limited (“PODL”) are the Competent Harbour Authorities in the Firth of Forth and Firth of Tay respectively where they are responsible for the provision of pilotage services. The pilotage acts are provided by self-employed pilots. The Company and PODL have no liability arising under the PNPF Scheme on an ongoing basis, however, they may have a liability for certain members if the PNPF is wound up. Neither Company is aware of any such intention to wind up the Scheme. Both the Company and PODL have been notified by the Trustee of the PNPF Scheme that it has issued proceedings in the High Court in order to seek directions from the Court as to its liability under both the Rules of the Scheme and in law to make up the Scheme’s deficit. The Court has set a trial date of January 2010 to hear the case. As this case is extremely complex, it is not possible to state with certainty what the outcome is likely to be and, therefore, what financial effect, if any, there may be on PODL and the Company.
The employer contributions to the defined contribution pension scheme operated by the Nordic group of companies during the year was £0.1m (2007 part year – £0.0m).
Annual Report and Accounts 2008 Notes on the Accounts continued
32. Retirement benefit schemes (continued)
The key assumptions used in the valuation of the Group and Company pension scheme were as follows:
Assumptions used to determine benefit obligations at 31st December: 2008 2007 % % Discount rate 6.40 5.90 Rate of compensation increase 4.00 4.50 Pension increases 2.75 3.25 Inflation 2.75 3.25
Assumptions used to determine net pension costs for the year ended 31st December: 2008 2007 % % Discount rate 5.90 5.20 Expected long-term return on plan assets 6.24 5.97 Rate of compensation increase 4.50 4.15
Weighted average life expectancy for mortality tables used to determine benefit obligations at 31st December:
2008 2008 2007 2007 Male Female Male Female Member age 60 (current life expectancy) 23 26 21 24 Member age 45 (life expectancy at age 60) 24 27 23 26
Movements in the present value of defined benefit obligations and the fair value of the Scheme’s assets were as follows: Group Group and and Company Company 2008 2007 £m £m Change in benefit obligation Benefit obligation at 1st January 186.5 189.3 Current service cost 4.2 5.1 120 Interest cost 10.8 9.7 Plan members’ contributions 2.0 2.0 Actuarial gains (19.3) (13.7) Benefits paid (6.0) (5.9)
Benefit obligation at 31st December 178.2 186.5
Analysis of defined benefit obligation Plans that are wholly or partly funded 178.2 186.5 Plans that are wholly unfunded – –
Total 178.2 186.5 Group and Group and Company Company 2008 2007 £m £m Change in plan assets Fair value of plan assets at 1st January 186.0 171.2 Expected return on plan assets 11.8 10.3 Actuarial losses (30.2) (1.1) Employer contribution 9.5 9.5 Member contributions 2.0 2.0 Benefits paid (6.0) (5.9)
Fair value of plan assets at 31st December 173.1 186.0
Funded status/net amount recognised (5.1) (0.5)
The amounts recognised in the Group Income Statement in respect of these defined benefit schemes are as follows: Group and Group and Company Company 2008 2007 £m £m Components of pension cost Current service cost 4.2 5.1 Interest cost 10.8 9.7 Expected return on plan assets (11.8) (10.3)
Total pension cost recognised in the Income Statement 3.2 4.5
Total pension cost recognised in the Income Statement is analysed thus – cost of sales 2.6 3.6 – administrative expenses 0.6 0.9
3.2 4.5
Actuarial (losses)/gains immediately recognised as total pension cost in the Statement of Recognised Income and Expense (10.9) 12.6 121 Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Cumulative actuarial (losses)/gains recognised in the Statement of Recognised Income and Expense (0.6) 10.3 (1.8) 9.1
Plan assets The weighted average asset allocations at the year end were as follows: Group and Group and Company Company plan assets plan assets at 31 at 31 December December 2008 2007 Asset category % % Equities 53 60
Bonds 23 19 Annual Report Gilts 23 19 and Accounts Other 1 2
Total 100 100 2008 Notes on the Accounts continued
32. Retirement benefit schemes (continued)
To develop the expected long-term rate of return on assets assumptions, the Company considered the level of expected returns on risk free investments (primarily Government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio and an allowance made for expected expenses. This gave an assumed rate of 5.80% net of expenses at 31st December 2008.
The actual return on plan assets in the year ended 31st December 2008 was £(18.4)m (2007 – £9.2m).
History of experience gains and losses
Group Group and and Company Company Group Group Group Company Company Company 2008 2007 2006 2005 2004 2006 2005 2004 £m £m £m £m £m £m £m £m Difference between expected and actual return on scheme assets: Amount (30.2) (1.1) 4.2 12.8 3.1 5.7 8.2 2.0 Percentage of scheme assets (17%) (1%) 2% 8% 2% 3% 10% 3% Experience gains and losses on scheme liabilities: Amount (1.9) (1.6) (1.1) (5.0) (0.2) (1.1) (1.5) (0.5) Percentage of scheme liabilities (1%) (1%) (1%) (3%) (0%) (1%) (1%) (1%) Present value of scheme liabilities (178.2) (186.5) (189.3) (188.8) (149.4) (189.3) (111.0) (82.3) Fair value of scheme assets 173.1 186.0 171.2 152.5 126.9 171.2 86.1 72.0
Funding deficit (5.1) (0.5) (18.1) (36.3) (22.5) (18.1) (24.9) (10.3)
Contributions The Schedule of Contributions to the Pension Scheme requires the Group to contribute 17.1% of pensionable 122 salaries plus £3,300,000 in 2009.
33. Capital commitments
Capital commitments, including the value of work still to be carried out on contracts placed but not provided for, were £1.9m for the Group and £0.2m for the Company (2007 – Group £12.2m and Company £0.2m) all of which relate to property, plant and equipment. There were no such commitments in the Group’s joint ventures and associates. 34. Contingent assets and liabilities
During 2008, the Group acquired additional land adjacent the Port of Tilbury. In the event that planning permission is granted to develop that land for port-related use, then an additional payment is due to be made to the previous owner of that land. The amount is dependent on the acreage of land for which planning permission is granted, with the maximum amount payable being £9,750,000 (2007 – £nil).
35. Financial commitments
At 31st December the Group and Company had total commitments under non-cancellable operating leases for plant and machinery as follows: Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Within one year 3.8 4.6 0.4 0.2 Between two and five years inclusive 9.8 11.6 0.9 0.7 After five years 4.1 5.5 – –
17.7 21.7 1.3 0.9
The Group leases various items of plant and machinery under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The Group is required to give, on average, three months notice for the termination of these agreements. The lease expenditure charged to the Income Statement during the year is disclosed in Note 3.
The future minimum lease payments receivable under non-cancellable operating leases for investment property and certain property within inventories are as follows: Group Group Company Company 2008 2007 2008 2007 £m £m £m £m Within one year 21.2 17.4 3.9 4.4 Between two and five years inclusive 76.2 51.7 24.3 12.6 After five years 326.7 324.4 27.6 21.6
424.1 393.5 55.8 38.6 123
The Group leases out its investment property with a book value of £205.7m (2007 – £182.9m) (and certain property within inventories with a net book value of £9.3m (2007 – £9.3m)) under non-cancellable operating lease agreements. The leases are for various lengths of time and have varying terms, escalation clauses and renewal rights.
Annual Report and Accounts 2008 Notes on the Accounts continued
36. Reconciliation of (loss)/profit before tax to cash generated from operations
Group Group Company Company 2008 2007 2008 2007 £m £m £m £m (Loss)/profit before tax (30.7) 32.3 16.2 13.6 Adjustments for: – decrease/(increase) in fair value of investment properties 19.2 (12.8) 2.6 1.5 – net finance costs 11.9 10.3 1.1 0.4 – write-down of property inventory 27.7 – – – – provision for property bad debts 3.9 – – – – amounts receivable from guarantor of a port tenant less costs (1.7) – – – – share of results of joint ventures 21.4 9.7 – – – share of results of associates (1.5) (2.5) – – – depreciation of property, plant and equipment and amortisation of intangibles 14.6 14.7 5.0 5.8 – (gain)/loss on sale of property, plant and equipment (2.8) (0.1) 0.0 (0.1) – gain on sale of investment property (0.0) – (0.0) – – decrease in provisions 0.9 0.3 0.2 0.1 – decrease in retirement benefit obligations (6.3) (3.8) (6.3) (3.8) – transfer to property, plant and equipment from inventories (2.3) – – – – transfer to investment properties from inventories – (1.2) – – – share based payment 1.9 1.1 1.9 1.1 Movement in working capital: (Increase)/decrease in inventories (4.4) (7.5) 0.0 0.1 Decrease in receivables 8.5 24.8 13.7 24.9 (Decrease)/increase in payables (1.5) 0.5 1.5 0.7
Cash generated from operations 58.8 65.8 35.9 44.3
Reconciliation of decrease/(increase) in cash and cash equivalents to movement in net debt: (Decrease)/increase in cash and cash equivalents (2.6) 2.4 (1.3) 1.0 Cash outflow/(inflow) from movement in borrowings (net) 0.3 (26.7) 0.3 (26.8)
124 Change in net debt resulting from cash flows (2.3) (24.3) (1.0) (25.8) Loan notes issued – (4.2) – (4.2) Borrowings acquired on purchase of subsidiary – (0.2) – – Amortisation of loan arrangement fees (0.2) (0.2) (0.2) (0.2)
Movement in net debt (2.5) (28.9) (1.2) (30.2) Opening net debt (205.5) (176.6) (208.9) (178.7)
Closing net debt (208.0) (205.5) (210.1) (208.9)
Major non-cash transactions During 2007, as part of the consideration for the purchase of the Nordic Group, Forth Ports PLC issued 53,620 Ordinary Shares with a value of £1.0m and loan notes with a nominal value of £4.2m. The loan notes were subsequently redeemed prior to 31st December 2007. 37. Analysis of net debt
At Cash Other At 1.1.08 flow movement 31.12.08 £m £m £m £m Group Cash at bank and on deposit 7.3 (2.6) – 4.7 Debt due outwith one year (212.7) 0.3 (0.2) (212.6) Finance leases (0.1) 0.0 – (0.1)
Total net debt (205.5) (2.3) (0.2) (208.0)
The other movement of £0.2m related to the amortisation of arrangement fees for bank facilities.
38. Related party transactions
During the year ended 31st December 2008, the Group entered into material transactions with related parties as follows: Value of Value of Amount Amount Nature of transactions and related party Nature of Relationship Transactions Transactions Receivable Receivable 2008 2007 at 31.12.08 at 31.12.07 £m £m £m £m Group Management charges, port and other charges Tilbury Container Services Limited Associated company 2.5 2.6 0.2 0.1
Interest and loans Ocean Terminal Limited Joint venture company 1.3 1.3 22.6 21.3
Dividend received Tilbury Container Services Limited Associated company 1.0 0.7 – –
The Group has taken advantage of the exemption from disclosing intra-Group transactions as permitted by IAS 24 (Related Party Disclosures). 2008 2007 £m £m 125 Group Key management compensation (excluding Directors): Salaries and short-term employee benefits 0.9 1.2 Post employment benefits 0.1 0.1 Share based payments 0.3 0.1
1.3 1.4
Information about the remuneration of individual Directors is given in the audited part of the Directors’ Remuneration Report on page 64.
Annual Report and Accounts 2008 Notes on the Accounts continued
38. Related party transactions (continued)
The following transactions were carried out between the Company and its subsidiaries (unless stated otherwise):
2008 2007 Nature of transactions and related party £m £m Company (a) Revenue Sales of goods and services: Port of Tilbury London Limited 1.6 2.7 Port of Dundee Limited 0.1 0.1 Forth Property Developments Limited – 0.1 Forth Estuary Towage Limited 0.1 0.1 Forth Properties Limited – 0.2
1.8 3.2
Management fees: Port of Tilbury London Limited 0.8 0.9 Port of Dundee Limited 0.8 0.8
1.6 1.7
(b) Cost of sales Purchases of goods and services: Port of Tilbury London Limited 0.0 0.0 Forth Properties Limited 0.1 0.1
0.1 0.1
(c) Finance income Interest receivable: Port of Tilbury London Limited 2.3 3.5 International Transport Limited 2.2 2.1 Nordic Limited 3.6 1.9 126 Port of Dundee Limited 0.0 0.1 Forth Properties Limited 0.2 0.1 FP Newhaven Two Limited 0.4 0.3 Forth Property Developments Limited 2.7 3.2
11.4 11.2
(d) Finance costs Interest payable: Forth Estuary Towage Limited 0.4 0.3 FLM Realisations Limited 0.0 0.0
0.4 0.3
(e) Other income Dividends received: Morrison City Quay Dundee Limited 0.1 –
38. Related party transactions (continued)
2008 2007 £m £m (f) Year end balances Trade and other receivables – current: Port of Tilbury London Limited 29.8 41.3 International Transport Limited 32.9 27.9 Port of Dundee Limited 1.5 1.5 Nordic Limited 17.3 17.4 Edinburgh Forthside Holdings Limited 1.4 1.4 Forth Property Investments Limited 2.7 2.6 Forth Property Developments Limited 30.7 38.8 Forth Property Holdings Limited 1.0 0.7 Forth Properties Limited 2.9 1.3 FP Newhaven Two Limited 4.5 4.8 Non-significant companies 0.1 0.1
124.8 137.8
(g) Year end balances Trade and other receivables – non-current: Ocean Terminal Limited (joint venture company) (offset by investment in joint venture company) 22.6 21.3
(h) Year end balances Trade and other payables – current: Forth Estuary Towage Limited 5.8 4.6 Non-significant companies 1.8 1.7
7.6 6.3
2008 2007 £m £m Company Key management compensation: 127 Salaries and short-term employee benefits 0.5 0.6 Post employment benefits 0.0 0.0 Share based payments 0.2 0.1
0.7 0.7
39. Dividend
On 16th March 2009, the Board agreed to propose a final dividend of 12p for the year ended 31st December 2008. A resolution to this effect will be put to the Annual General Meeting of the Shareholders on 1st May 2009.
Annual Report and Accounts 2008 Glossary
1. The DTZ Valuations dated 31st August 2005, 31st December 2006, 31st December 2007 and 31st December 2008 include the terms “Market Value” and “Calculation of Worth” which are defined in the current version of The Appraisal and Valuation Manual issued by the Royal Institution of Chartered Surveyors (“the Red Book”) as:
Market Value “The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.
Calculation of Worth “The provision of a written estimate of the net monetary worth at a stated date of the benefits and costs of ownership of a specified interest in property to the instructing party reflecting the purpose(s) specified by that party”.
2. The “property development assets” which DTZ have valued include the undernoted assets: Land at the Port of Leith covered by the Group’s Leith Docks Outline Planning approval; The development sites called The Harbour, Leith Docks, Granton Harbour and Western Harbour, all of which are in Leith; Development sites at Grangemouth, Burntisland and Methil; and The Ocean Terminal Shopping Centre.
3. Property Valuation – Approach used by DTZ The undernoted paragraphs are taken from the DTZ valuation report as at 31st December 2008:
“As a result of the very dramatic changes in the property market and the general economic environment, we have considered it necessary to review our entire approach to the Valuation of the Group’s property development assets to reflect what we consider would be the approach the wider market would take were the property assets of the company to be sold at the date of Valuation.
In the past, our opinion of Value has been based on the approach that purchasers of the assets would take a very long term view of the principal properties in the portfolio and reflect future value on a discounted basis, taking account of future sale revenues of the sites after allowing for the cost of providing the infrastructure together with associated costs. Up until the early part of 2008, there had been a strong appetite from a wide variety of investors 128 seeking an involvement in major mixed use development projects, with both debt and equity available from a wide range of sources. Whilst the commercial property sector generally started to decline in the early part of 2007, it accelerated throughout the year and started affecting the residential sector in late 2007, with increasing impact throughout 2008, particularly after the various British Banking crises and the collapse of Lehman Brothers in September 2008.
The impact of the banking and economic environment and the downturn in the property sector has required us to reconsider the approach we consider the market would take to the property development assets. The effect of the downturn on land has been considerably more than the general decline in the value of completed properties in both the commercial and residential sectors. This is due to the value of land being a factor of end value (sale of the completed development) and therefore any reduction in end value results in an increased impact in percentage terms on land values. This clearly operates in the other direction in a rising market.
In terms of the Group’s major development projects, many of the sites are no longer viable depending upon what infrastructure has already been put in place. Our revised approach to the Valuation of the Group’s major property development assets is summarised below:
Granton Harbour – We have allowed development Value on a small section of the site at a discounted rate, but have otherwise disregarded the remainder of the land on the basis that it is not viable to develop/reclaim in the current market. Where land is income producing from the letting of existing property, we have valued on a conventional basis. Western Harbour – The approach has been the same as for Granton Harbour. We have allowed for the development of a small part of the site, but only included the land at a discounted rate, as viability is marginal. The Harbour, Leith Docks – This part of the proposed development has been significantly impacted by the downturn in the commercial markets, again making the viability of development very marginal. A value has been applied to the residual land as it does occupy the key part of the main site and the overall entrance to the scheme. Leith Docks – We have disregarded all previous planned development on the site on the basis of viability and reflected a value based on the ongoing use of the site in its Port use. Grangemouth – As with other sites, development land has been substantially marked down to reflect viability and existing income valued in perpetuity. Burntisland/Methil – The overall value of the land assets has been marked down, but there is now an improved planning scenario which might allow for a food retail development. Ocean Terminal – This asset has been valued separately by Drivers Jonas. The downward value reflects the impact on the market of both yield and rental movements in the retail sector and fits in line with our experience generally.
In overall terms, the number of residential development units being valued in the current exercise has fallen from approximately 17,000 to around 2,600. The result of this is that the overall sensitivity of the valuation is now far less affected by future movements in the residential market. Over 50% of the value of the assets is now a reflection of cash flow rather than residual development value which reflects the market requirements for certainty and sustainability in values going forward. The Group has continued to invest in the infrastructure of the various projects and although this has rightly been reduced going forward, it leaves the Group able to reflect future value in the assets as and when the market improves over the next five years. In the short term, the assumptions we have made assume plot values will continue to decline in the short term as residential values in Scotland continue to fall. 129 Whilst this revised approach reflects our perception of the wider market approach in the current economic environment, it does result in a very significant reduction in the value of the Group’s property development assets over the past twelve months, much of which has been driven in the second half of the year. The reduction in land values reflects what we are seeing across the UK where Companies are using Market Value as their basis of Valuation.”
4. Definition The definition of the word “underlying” in the context of an adjustment to a reported number is as follows: i) Underlying group/port/property operating profit refers to the reported group/port/property operating profit adjusted to exclude the effect of any revaluation of the investment properties, amortisation charge arising from acquisitions and any exceptional items. ii) Underlying profit before tax, underlying profit after tax and underlying earnings per share refer to reported profit before tax, reported profit after tax and reported basic earnings per share adjusted as above in 4(i) together with an adjustment for any revaluation of joint venture’s investment property. Annual Report and Accounts 2008 Five Year Record
2004 2005 2006 2007 2008 £m £m £m £m £m FINANCIAL STATISTICS Revenue and Profit Port revenue 118.3 134.2 140.3 159.5 184.3 Property revenue 43.9 17.3 13.3 5.5 1.6
Group revenue 162.2 151.5 153.6 165.0 185.9
Underlying port operating profit 31.0 34.3 34.1 38.7 47.6 Underlying property operating profit/(loss) 26.4 3.0 4.2 (1.3) 0.5
Underlying group operating profit 57.4 37.3 38.3 37.4 48.1 Other income/(expenses) 1.2 28.5 24.1 12.8 (16.4) One-off costs less income (0.6) (3.0) (1.8) (0.0) (29.9) Amortisation arising from acquisition – – – (0.4) (0.7) Net finance costs (6.7) (6.2) (8.2) (10.3) (11.9) Share of results of joint ventures 10.0 0.5 (3.0) (9.7) (21.4) Share of results of associates 1.3 1.2 2.0 2.5 1.5 Gain on disposal of investment in joint venture – – 4.2 – –
Profit/(loss) before tax 62.6 58.3 55.6 32.3 (30.7) Taxation (15.2) (13.9) (14.5) (7.4) (20.5)
Profit/(loss) for the year 47.4 44.4 41.1 24.9 (51.2)
Balance Sheet Non-current assets 399.9 421.8 423.7 478.3 476.3 Current assets 92.8 96.4 109.1 98.6 67.7 Current liabilities (43.6) (27.6) (21.2) (31.9) (29.3) Net current assets (excluding net debt) 49.2 68.8 87.9 66.7 38.4 Non-current liabilities (excluding net debt) (46.3) (67.1) (57.5) (44.2) (76.5) Net debt (161.8) (179.6) (176.6) (205.5) (208.0)
130 Net assets 241.0 243.9 277.5 295.3 230.2
Equity shareholders’ funds 235.1 239.7 273.2 292.8 229.9 Equity minority interests 5.9 4.2 4.3 2.5 0.3
Total capital employed 241.0 243.9 277.5 295.3 230.2
Basic earnings/(loss) per share 100.7p 97.6p 90.5p 55.3p (107.8)p Underlying earnings per share 72.8p 49.6p 47.0p 46.1p 58.7p Annualised dividend per share 39.9p 43.0p 45.2p 47.7p 28.6p Information for Shareholders
Information for shareholders may be obtained from:
Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA
Shareholder helpline: 0871 384 2149 Textel/hard of hearing line: 0871 384 2255 General fax: 0871 384 2100 http://www.shareview.co.uk Shareview dealing helpline: 0871 384 2020
Calls to these numbers are charged at 8p per minute from a BT landline. Other telephone providers costs may vary.
Shareholders Band Analysis
Number of Number of Share band holders % shares held % 1-500 2,426 55.3 579,557 1.3 501-1,000 818 18.6 627,522 1.4 1,001-2,500 567 12.9 901,378 2.0 2,501-5,000 204 4.7 702,329 1.5 5,001-10,000 103 2.4 765,732 1.7 10,001-50,000 158 3.6 3,673,009 8.0 50,001-100,000 45 1.0 3,159,583 6.9 over 100,000 67 1.5 35,237,103 77.2 131
Total 4,388 100.0 45,646,213 100.0
Annual Report and Accounts 2008 Notice of Annual General Meeting
Notice of Annual General Meeting – Friday 1st 9. To consider and if thought fit pass the following May 2009 at 11.00am in The Board Room, The Special Resolution: Caledonian Hilton Hotel, Princes Street, Edinburgh EH1 2AB. THAT subject to the passing of Resolution 8 above, the Directors be and they are hereby PLEASE NOTE that the eighteenth Annual General empowered pursuant to Section 95 of the Meeting of FORTH PORTS PLC will be held in The Companies Act 1985 to allot equity securities Board Room, The Caledonian Hilton Hotel, Princes (within the meaning of Section 94 of the said Street, Edinburgh EH1 2AB at 11.00am on Friday Act) for cash pursuant to the authority conferred 1st May 2009, for the following purposes: by Resolution 8 as if sub-section (1) of Section 89 of the said Act did not apply to any such Ordinary Business allotment provided that this power shall be 1. To receive the Directors’ Report and accounts limited: for the year ended 31st December 2008. i) to the allotment of equity securities for cash 2. To declare a final dividend of 12p per Ordinary in connection with or pursuant to a rights Share in the capital of the Company. issue or any other offer in favour of the holders of equity securities and any other 3. To re-elect Mr. C.D. Collins as a Director. persons entitled to participate therein in proportion (as nearly as may be practicable) 4. To re-elect Mr. C.G. Hammond as a Director. to the respective number of equity securities then held by them (or, as appropriate, the 5. To re-elect Mr. P.D. Glading as a Director. number of such securities which such other persons are, for those purposes, deemed to 6. To receive and consider the Directors’ hold) but not subject to such exclusions or Remuneration Report for the year ended 31st other arrangements as the Directors may December 2008. consider necessary, expedient or appropriate to deal with any functional 7. To ratify the re-appointment of entitlements or legal or practical difficulties PricewaterhouseCoopers LLP as auditors of the which may arise under the laws of, or the Company and to authorise the Directors to requirement of any recognised regulatory agree their remuneration. body or any stock exchange in, any territory or otherwise; and Special Business 132 8. To consider and if thought fit to pass the ii) to the allotment (otherwise than pursuant to following Ordinary Resolution: sub-paragraph (i) above) of equity securities and/or the transfer of shares out of Treasury the Directors be and they are hereby generally following purchase pursuant to Resolution and unconditionally authorised to exercise all 10 (vi) below up to an aggregate nominal powers of the Company to allot relevant value of £1.14m; and shall expire on the securities (within the meaning of Section 80 of date of the next Annual General Meeting of the Companies Act 1985) up to an aggregate the Company after the passing of this nominal amount of £6.2m during the period Resolution, or on 31st July 2010 whichever expiring on the date of the next Annual General is the earlier, (“the Prescribed Period”) save Meeting of the Company after the passing of that after such expiry, the Directors may allot this Resolution, or on 31st July 2010 whichever equity securities in pursuance of an offer or is the earlier, (“the Prescribed Period”) and at agreement made by the Company during any time after that pursuant to any offer or the Prescribed Period which would or might agreement made by the Company during the require relevant securities to be allotted after Prescribed Period which would or might require the expiry of the Prescribed Period. relevant securities to be allotted after the expiry of the Prescribed Period. 10. To consider and if thought fit pass the following Kingdom Listing Authority, to be held as Special Resolution: Treasury Shares.
THAT the Company be and is hereby generally 11. To consider and if thought fit pass the following and unconditionally authorised pursuant to and Special Resolution: in accordance with Section 166 of the Companies Act 1985 (“the Act”) to make one or THAT the draft regulations produced to the more market purchases (within the meaning of meeting and, for the purposes of identification, section 163(3) of the Act) on The London Stock initialled by the Chairman of the Meeting be Exchange of Ordinary Shares of 50p each in the adopted as the Articles of Association of the capital of the Company (“Ordinary Shares”) Company in substitution for, and to the entire upon and subject to the following conditions: exclusion of, the existing Articles of Association of the Company. i) the maximum number of such Ordinary Shares hereby authorised to be purchased is 6.846 million shares (representing 15% of By Order Of The Board the Company’s issued share capital); ii) the minimum price which may be paid by Morag McNeill the Company for each Ordinary Share is 50 Group Company Secretary pence (exclusive of any tax and expenses); 1 Prince of Wales Dock iii) the maximum price (exclusive of any tax and Leith expenses) which may be paid by the Edinburgh Company for an Ordinary Share is an EH6 7DX amount not more than 5% above the average of the middle market values for an 31st March 2009 Ordinary Share taken from The London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the Ordinary Share is purchased; iv) unless previously revoked or varied the authority hereby conferred shall expire on the date of the next Annual General Meeting of the Company after the passing of this Resolution or on 31st July 2010, whichever 133 shall be the earlier; v) the Company may enter into a contract or contracts for the purchase of Ordinary Shares under the authority hereby conferred before the expiry of this authority which would or might be completed wholly or partly after the expiry of such authority and may make a purchase or purchases of Ordinary Shares in pursuance of any such contract or contracts notwithstanding such expiry; vi) and any Ordinary Shares so purchased shall be cancelled or if the Directors so determine and subject to the provision of the Companies (Acquisition of Own Shares)
(Treasury Shares) Regulations 2003 and any Annual Report applicable regulations of the United and Accounts 2008 Notice of Annual General Meeting continued
Copies of the following documents will be available Corporate Representatives for inspection at the registered office of the In order to facilitate voting by corporate Company on any weekday, except Saturdays and representatives at the meeting, arrangements will be public holidays, during normal business hours until put in place at the meeting so that: 30th April 2009. They will also be available for inspection at the place of the meeting from 10.45am i) If a corporate member has appointed the until the meeting ends: Chairman of the meeting as his corporate representative with instructions to vote on a poll i) Service contracts between the Company and in accordance with the directions of all other the Executive Directors and of the letters of corporate representatives for that meeting at the appointment between the Company and the meeting, then, on a poll, those corporate Non-Executive Directors; and representatives will give voting directions to the Chairman and the Chairman will vote (or ii) A copy of the proposed new Articles of withhold a vote) as corporate representative in Association for the Company. accordance with those directions.
A copy of the proposed new Articles of Association ii) If more than one corporate representative for the of the Company will also be available for inspection same corporate member attends the meeting at the offices of McGrigors LLP, 5 Old Bailey, London but the corporate member has not appointed EC4M 7BA during normal business hours on any the Chairman of the meeting as his corporate week day up to and including the date of the Annual representative, a designated corporate General Meeting. representative will be nominated, from those corporate representatives who attend, who will The register of Directors’ shareholdings will be vote on a poll and the other corporate available for inspection at the place of the meeting, representatives will give voting directions to that from the beginning of the meeting until it ends. designated corporate representative.
Proxies Corporate members are referred to the guidance A member entitled to attend and vote at the meeting issued by the Institute of Chartered Secretaries and may appoint one or more persons as his proxy to Administrators on proxies and corporate attend, speak and vote on his behalf at the meeting. representatives – www.icsa.org.uk – for further A proxy need not be a member of the Company. A details of this procedure. The guidance includes a Form of Proxy is enclosed. Completion of a Form of sample form of representation letter to appoint the Proxy will not prevent a member from attending the Chairman as a corporate representative as 134 meeting and voting in person if he so wishes. In described in (i) above. order to be valid, a Form of Proxy must be lodged at the offices of the Company’s Registrars, Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6ZR not later than 48 hours before the time of the meeting.
A member may appoint more than one proxy, provided each proxy is appointed to exercise rights attached to different shares. A member may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, contact the Company’s Registrars, Equiniti Limited at the address stated above. Appendix to the Notice of Annual General Meeting
Summary of the material changes to the Articles meetings to consider special resolutions can now of Association of the Company be convened on 14 clear days’ notice whereas The principal changes arising from the adoption of previously 21 clear days’ notice was required. An the New Articles of Association pursuant to annual general meeting still requires 21 clear days’ Resolution 11 (the “New Articles”) are set out below. notice. References to Article numbers are references to a particular Article in the New Articles. Certain Votes of Members provisions in the current Articles which replicate The new Articles reflect the changes made under provisions contained in companies legislation are in the 2006 Act in relation to proxies. Proxies are now the main amended to bring them into line with the entitled to vote on a show of hands whereas under Companies Act 2006 (the “2006 Act”). Certain the previous legislation and under the existing examples of such provisions, including provisions Articles proxies were only entitled to vote on a poll. as to the convening of General Meetings and The time limits for the appointment of proxies have proxies, are detailed below. also been altered by the 2006 Act so that weekends and bank holidays do not need to be counted in Uncertificated Shares determining the time limits for lodging of proxies. The existing Articles contain provisions permitting Multiple proxies may be appointed provided that the holding of shares in uncertificated form in each proxy is appointed to exercise the rights accordance with the CREST uncertificated securities attached to a different share or class of shares held system. Under the Uncertificated Securities by the shareholder. Regulations 2001, Euroclear UK & Ireland Limited (“Euroclear”) is the holder of the register of the Corporate Representatives uncertificated shares in the issuer. The Registrar The 2006 Act permits a corporate shareholder to continues to hold the register of the certificated appoint multiple corporate representatives who can shares but it is only a copy record (obtained from attend, speak, vote and count towards a quorum at Euroclear) of uncertificated shares held by the any meeting. The New Articles have been amended issuer. to reflect these provisions.
The New Articles have been updated to include Retirement of Directors by Rotation reference to Euroclear and also to provide that the The Combined Code on Corporate Governance Company will not be liable for a failure of its recommends that all directors must submit obligation to maintain a register of uncertificated themselves for re-election at every third annual shares. general meeting following the meeting at which they were elected or last re-elected. The Company has Form of Resolution complied with the provisions of the Code and the 135 The existing Articles contain provisions referring to New Articles reflect this position. “extraordinary” resolutions and “extraordinary” general meetings. These terms have been abolished Conflicts of Interest under the 2006 Act. Meetings of shareholders other The New Articles reflect the new provisions of the than annual general meetings are now referred to 2006 Act in relation to directors’ conflicts of interest. simply as general meetings. Any resolution The 2006 Act sets out directors’ general duties requiring a 75% majority will be a special resolution. which largely codify the existing law but with some Where for any purpose an ordinary resolution is changes. Under the 2006 Act, a director must avoid required a special resolution is also effective. a situation where he has, or can have, a direct or indirect interest that conflicts, or may conflict, with Convening of General Meetings and Annual the Company’s interest. The requirement is very General Meetings broad and could apply, for example, if a director The provisions of the existing Articles dealing with becomes a director of another company. The 2006 the convening of general meetings and annual Act allows directors of public companies to general meetings and the length of notice required authorise conflicts and potential conflicts, where to convene such meetings are amended to conform appropriate, but only to the extent that the Articles Annual Report to the new provisions of the 2006 Act. General of Association contain a provision to this effect. and Accounts 2008 Appendix to the Notice of Annual General Meeting continued
The 2006 Act also allows Articles to contain other Electronic Communications provisions for dealing with directors’ conflicts of The New Articles contain amendments designed to interest to avoid a breach of duty. allow the Company to use electronic systems for communication with shareholders. Companies have There are safeguards which will apply when been able to communicate with shareholders by directors decide whether to authorise a conflict or electronic means in respect of certain types of potential conflict. First, only directors who have no information for some years. However the 2006 Act interest in the matter being considered will be able extends this method of communication to all to take the relevant decision, and secondly, in taking shareholder information and enables the Company the decision, the directors must act in a way they to invite shareholders to agree that information may consider, in good faith, will be most likely to be supplied via a website. The amendments to the promote the Company’s success. The directors will New Articles allow the Company to take advantage be able to impose limits or conditions when giving of these changes which may lead to administrative authorisation if they think this is appropriate. cost savings in the future and will benefit the environment. The New Articles also contain provisions relating to confidential information, attendance at board It is however important to note that before doing so meetings and the availability of board papers to the Company must write to all shareholders and protect a director being in breach of duty if a conflict give them the opportunity to decide whether they of interest or a potential conflict of interest arises. would prefer to receive documents in hard copy form. They are given a period to respond and, if The New Articles also give the directors authority to they do not, website communication becomes the approve situations involving directors’ conflicts of default method. interest and to allow conflicts of interest to be dealt with by the Board. Indemnity The 2006 Act extends the scope of the indemnities Directors’ Fees that may be offered to directors under the existing It is proposed that the cap on directors’ fees be law by allowing the company to indemnify the removed. Shareholders should note that this cap directors of a company that is a trustee of an applies to non-executive directors’ fees only. The occupational pension scheme against any liability remuneration of the executive directors is the incurred in connection with the Company’s activity responsibility of the Remuneration Committee. as trustee of the scheme. The New Articles have been amended to allow this form of indemnity to be Borrowing Powers granted by the Company. The Board believes that 136 The existing Articles of the Company place limits on the power of the Company to indemnify its directors the extent to which the Board can exercise the in the manner described above is fair and powers of the Company to borrow money. These reasonable and introduces a more appropriate restrictions provide that the Company shall not balance of risk and reward for any person asked to borrow more than three times its adjusted capital serve on the board of a pension trustee company. and reserves without the approval of the shareholders. This formula has proved somewhat complex to operate and it is therefore proposed that the formula is replaced by a monetary cap. The monetary cap proposed is £550 million which is the monetary equivalent of the limit in the existing Articles of Association.