The TransAtlantic Group conducts international contract-based shipping. The Group is organized into two business area – Offshore/Icebreaking and Industrial Shipping.
The Parent Company is a limited liability company registered in Sweden, with its domicile in Skärhamn and corporate identity number 556161-0113. The postal address for the head office is Box 32, SE-471 21 Skärhamn, Sweden, and the street address is Södra Hamngatan 27. The Parent Company is listed on Small Cap list of the NASDAQ OMX Stockholm.
The Board approved the consolidated accounts for publication on February 22, 2010.
The most significant accounting principles applied, and as noted below, have been consistently applied for the years presented, unless otherwise stated.
The consolidated accounts were prepared in accordance with IFRS, rules adopted by the EU and in accordance with recommendation RFR 1. 2 Supplementary Accounting Rules for Groups and the Swedish Annual Accounts Act.
Below is a description of which amended accounting policies the Group applies as of January 1, 2010. Other amendments to IFRS applied from 2009 had no material effect on the Group’s accounting.
Amendments to IFRS 7 Financial Instruments entail that disclosures as of January 1 affect TransAtlantic’s financial statements as of the 2009 Annual Report. The amendments mainly pertain to the new disclosure requirement for financial instruments valued at fair value in the balance sheet. The instruments are divided into three levels depending on the quality of the input data in the valuation. The division into levels determines how and what disclosures are to be provided regarding the instruments; level 3 with the lowest quality of input data is subject to higher disclosure requirements than the other levels. These disclosure requirements mainly impacted Note 33. Apart from this, amendments to IFRS 7 do not result in any changes pertaining to disclosures on liquidity risk.
This standard deals with the categorization of the Group’s operations by segment. According to the standard, the information should be based on internal reporting, viewed from the Group management’s perspective. The Group already applies a structure that proceeds on the basis of this internal reporting, and thus the standard does not entail any significant changes.
Amendment of the standard implies that borrowing costs shall be capitalized in conjunction with investments. This principle involves no changes, since the Group already applies this principle.
IAS 1 Presentation of financial statements
All changes in shareholders’ equity, excluding transactions with shareholders, are recognized in the Statement of Comprehensive Income. Comparative information was restated in accordance with the new standard.
The Parent Company’s accounts were prepared in accordance with recommendation RFR 2.2 “Accounting for legal entities” and in accordance with the Swedish Annual Accounts Act. In those instances the accounting principles of the Parent Company differ to those of the Group, these are presented under “Parent Company‘s accounting principles” in this note.
Preparing financial statements in agreement with IFRS requires that several crucial accounting estimations be applied and that management makes certain assumptions in the application of the company’s accounting principles. The main estimations and assumptions made are stated at the end of this note.
A number of new or amended IFRS become effective first during the next financial year and TransAtlantic has chosen not to apply any of these standards in advance. New and amended IFRS to be applied as of 2010 are not deemed to have any material impact on the financial statements.
The consolidated accounts comprise the Parent Company, subsidiaries, associated companies and joint ventures.
Subsidiaries are companies in which the Group has a controlling influence through holding more than 50% of the voting rights, or in which the Group can exercise controlling influence through contracts or other agreements (including SPE companies – special companies formed with a limited and well-defined purpose).
The consolidated accounts were prepared in accordance with the purchase method. Accordingly, consolidated shareholders’ equity – excluding the Parent Company’s shareholders’ equity – only includes the changes in subsidiaries’ shareholders’ equity that occurred following acquisition of the subsidiaries. The purchase price for the acquisition of a subsidiary is distributed among the company’s various assets and liabilities, taking into consideration the valuation conducted in conjunction with the acquisition, regardless of the extent of any minority interest. The portion of the purchase price that exceeds the acquisition’s net assets, valued at fair value, is recognized as goodwill and is subject to annual impairment testing. If the purchase price is lower than the net assets, the difference is recognized directly in profit and loss.
The minority share of shareholders’ equity in subsidiaries, including the subsidiary’s recognized net assets at fair value, is recognized among consolidated shareholders’ equity as a separate item. The minority share in net profit/loss for the year is recognized as a separate item in profit and loss.
Group-internal transactions and balance-sheet items and unrealized gains on transactions among Group companies are eliminated. Unrealized losses are also eliminated, unless the transaction represents evidence for the need to recognize impairment.
Associated companies are companies in which the Group has at least 20% but not more than 50% of the voting power, giving the Group a significant influence. Participations in associated companies are recognized in the consolidated accounts in accordance with the equity method. The equity method means that shares in a company are recognized at cost, including goodwill, at the time of the acquisition and are subsequently adjusted by the Group’s share of the change in the associated company’s net assets. The Group’s participation in the associated company’s earnings is recognized under “Profit share in associated companies.” The consolidated value of the holding is recognized as “Participations in associated companies.” Unrealized Intra-Group profit is eliminated by the share of the profit attributable to the Group. Unrealized losses are also eliminated unless the transaction represents evidence for the need to recognize impairment. Associated companies are recognized in the Parent Company accounts at their cost. Only dividends received after the acquisition are recognized as revenues.
Joint venture companies are companies in which the Group has a joint controlling influence together with other owners. The Group is only involved in joint ventures that represent a separate legal entity and these are recognized in the consolidated accounts in accordance with the proportional method, with the Group’s share of the company’s income statement and balance sheets being recognized. The Group recognizes the part of gains and losses on Group sales to joint venture companies corresponding to the ownership share of the other owners and only after the asset has been sold to an independent party.
Shares in shipping consortiums’ earnings are recognized as operating revenue/expense or as financial revenue/expense in accordance with the proportional method. The Group’s share in the assets and liabilities of shipping consortiums is included as special items under each asset and liability category.
All transactions included in the financial statements for each Group company are valued and recognized in the currency that provides the most accurate picture of the company’s operations, its “functional currency.” Goodwill and adjustments in fair value arising from the acquisition of foreign operations are treated as assets and liabilities in these operations and are translated at closing-date rates.
The reporting currency of the Group and the Parent Company is SEK. The Parent Company’s functional currency is SEK.
For Group companies that have a functional currency that is different to the Group’s reporting currency, the balance sheets are translated at the closing date rate and income statements are translated at the average exchange rate for the year, whereby the translation difference is included under shareholders’ equity. In the case of divestment or liquidation of such companies, the accumulated translation difference is recognized under capital gains/losses.
Income-statement items are translated at the transaction-date rate and any exchange-rate differences are entered in the profit/loss for the year. The exception is if the transaction represents hedging and meets the criteria for hedge accounting of cash flows or net investments, since gains and losses are recognized directly against shareholders’ equity. Receivables and liabilities are translated in accordance with the principles stated under “Financial instruments” below.
Revenues and expenses pertaining to cargo assignments undertaken are recognized successively in relation to the cargo assignment’s degree of completion on the balance-sheet date. The cargo assignment’s degree of completion is calculated on the basis of the number of travel days on the balance-sheet date in relation to the total number of travel days for the assignment. Other revenues, such as those for external Ship Management, are recognized only after agreement is reached with the customer and the service has been delivered. Direct costs that are invoiced to the customer are recognized as net amounts in profit and loss against the cost type under which the purchase was made. Interest revenues are recognized in profit and loss distributed across the period of maturity, applying the effective interest method. Dividend revenues are recognized when the right to receive payment has been established.
Expenses directly attributable to cargo assignments, such as bunkers, harbor expenses, etc., are recognized in profit and loss under the heading Direct travel expenses.
The Swedish State subsidy to ship owners is recognized as a net amount against the payroll expenses on which it is based. Settlement is made monthly.
Taxes included in the consolidated accounts pertain to current and deferred tax. The Group recognizes deferred tax on temporary differences between the book value and tax value of assets and liabilities. Deferred tax assets are only recognized if it is probable that the temporary differences can be utilized against future taxable surpluses. The current nominal tax rate in each country is used in calculating deferred tax. Deferred tax liabilities for temporary differences pertaining to investments in subsidiaries and associated companies are not recognized in the consolidated accounts as long as no decision on profit taking has been made. In all cases, the Parent Company can steer the timing for the reversal of the temporary differences, and it is not considered probable that a reversal will occur in the foreseeable future. The tax effect of items recognized in profit and loss is recognized in profit and loss. The tax effect of items recognized directly against other comprehensive income is recognized against other comprehensive income.
The segments contain services with differing risks and returns compared with those of other areas of operations. Internal reporting and follow-up is organized based on these segments. The Group has two segments, Offshore/Icebreaking and Industrial Shipping.
Fixed assets as described below are recognized at cost or after deductions for accumulated depreciation according to plan and possible impairment. Expenses that raise the value or return of the asset through, for example, capacity enhancements or cost rationalization, increase the carrying amount of the asset. Expenses incurred by the re-flagging of vessels are capitalized in accordance with this principle.
Major recurring inspection measures are capitalized as fixed assets, since they are considered to increase the vessel’s fair value, and are depreciated on a straight-line basis over the vessel’s useful life. Other outlay for repairs and maintenance is classed as expenses. Dry-docking expenses within the Group are also capitalized in accordance with this principle and are depreciated over a period of 30 months, which is the normal time between dry-dockings. Expenses, including interest, pertaining to vessels under construction are capitalized as fixed assets. Depreciation of vessels according to plan is based on an individual assessment of each vessel’s useful life and subsequent remaining residual value. Impairment is recognized if the asset’s estimated recoverable amount is lower than its carrying amount. The residual value and useful life of assets are tested on each balance-sheet date and adjusted if necessary. The type of fixed asset with the greatest residual value comprises vessels for which residual value comprises the estimated scrap value at the end of the vessel’s useful life.
– Vessels 20–32 years
– Dry-docking and major overhaul measures 2–5 years
– Computers 3–5 years
– Other equipment 5–10 years
– Buildings 20–50 years
– Land improvements 25 years
Intangible assets are recognized at cost or at impaired value after deductions for accumulated amortization according to plan. A useful life is determined for each asset and this is used for straight-line depreciation according to plan.
– Computer programs
– Route networks
Amortization shall not be applied for intangible assets considered to have the capacity to provide a financial return for an indefinite period. Instead, recoverable values shall be determined for assets on an annual basis or more frequently if there are indications that an asset’s value has changed.
The Group has goodwill and brands as intangible assets, for which amortization is not applied. Goodwill is tested annually to identify possible needs for impairment recognition and is recognized at cost less accumulated impairment. Goodwill is distributed among cash-generating units for impairment testing, whereby cash-generating units are the traffic areas within the segments. Branding pertains to TransAtlantic, for which the recoverable value of the asset is considerably higher than its carrying amount.
The Parent Company is the lessee of vessels through financial leasing agreements, which includes the right to acquire the vessels after the end of the lease period. Agreements are recognized differently in the Group and the Parent Company due to taxation regulations. In the Group, leasing agreements are recognized in accordance with the description under Leasing agreements below, while the Parent Company recognizes an intangible asset relating to the right to acquire the vessels.
– Right to acquire vessels 6 years
Assets with an indeterminate useful life are tested annually for the need to recognize impairment. For assets subject to amortization according to plan, an assessment is made regarding whether the value of the asset should be impaired whenever there are indications that its carrying amount is higher than its recoverable value. The recoverable value corresponds to the higher of fair value less selling costs and value in use. Impairment is recognized in an amount equivalent to the difference between the recoverable value and carrying amount.
Financial assets are classified according to the following categories: Loans and accounts receivable and Financial assets available for sale. The classification is determined for the purpose of the investment at the time of acquisition. The classification is reviewed annually.
Financial assets that can be sold are valued at fair value with transaction expenses.
Loan and accounts receivable are initially recognized at fair value and subsequently at amortized cost using the effective interest method less any provision for reduction in value. A provision for the reduction in value of receivables is made when there is clear evidence that the Group will not receive the full amount. The Group’s loan and accounts receivable comprise accounts and other receivables and cash and cash equivalents.
Borrowing is initially recognized at fair value, net after transaction costs. Borrowing is subsequently recognized at amortized cost. Any difference between the amount received and the repayment amount is recognized in profit and loss, distributed over the loan period using the effective interest method.
The Group acts both as lessor and lessee and has entered both financial and operational leasing agreements. In financial leasing agreements, in which the Group enjoys the financial benefits and assumes responsibility for the risks, the item leased is recognized in the balance sheet as a fixed asset. At the beginning of the lease period, the asset is recognized at the lower of the fair value of the leased item or the current value of the minimum lease fees. Each leased item is assigned a useful life in accordance with the principles stated under tangible fixed assets. Future leasing fees less financial expenses are recognized as a liability. Each lease payment is divided between the amortization of the liability and the financial expense.
Operational leasing agreements are recognized straight-line over the lease period in profit and loss as Operating revenue where the Group is the lessor and as Other external expenses where the Group is the lessee.
Inventories have been valued at the lower of cost and net realizable value. Inventories mainly comprise bunker and lubricating oils. Valuation has been made in accordance with the FIFO principle.
The Group has defined-benefit and defined-contribution pension plans. Defined-benefit pension plans provide employees with pension benefits corresponding to a predetermined amount and the Group is responsible for financing these plans so that these amounts can be paid in the future. For defined-contribution pension plans, the Group pays in an established fee to an independent legal entity. Fees are recognized as personnel expenses when they mature for payment. Subsequently, the Group has no further pension commitments towards employees.
Provisions are made for all defined-benefit plans on the basis of actuarial calculations in accordance with the project unit credit method, with the purpose of establishing the current value of future commitments to current and previous employees. Actuarial calculations are conducted annually and are based on actuarial assumptions applicable on the closing date. The size of the provision is determined by the current value of future pension commitments less deductions for the fair value of plan assets, unrecognized actuarial gains/losses and unrecognized liabilities for earlier periods of service. Actuarial gains/losses exceeding a “corridor” of 10% shall be recognized in profit and loss during employees’ average remaining period of service.
Borrowing costs for new building projects are capitalized as fixed assets during the project period. Other borrowing costs are expensed as they are incurred.
The cash-flow statements were prepared in accordance with the indirect method. The recognized cash flow comprises only transactions entailing payments received or paid out.
Cash and cash equivalents include cash and bank balances, as well as other current investments maturing within three months and overdraft facilities. In the balance sheet, overdraft facilities are recognized as borrowing among current liabilities.
The financial statements of the Parent Company were prepared in accordance with the Swedish Annual Accounts Act (1995:1554) and the Swedish Financial Accounting Standards Council’s recommendation RFR 2.2, Accounting for legal entities (early application). The Parent Company’s Annual Report shall apply all of the EU-approved IFRS and statements insofar as these do not conflict with the Annual Accounts Act and the relationship between accounting and taxation. The recommendation states which exceptions are to be made and can be made based on IFRS.
This means that the Parent Company applies the same accounting principles as the Group with the exception of the instances stated below:
Participations in associated companies and subsidiaries are recognized by the Parent Company using the cost method. Carrying amounts are tested on each balance-sheet date to determine any need for impairment. Only dividends received are recognized as revenue, on the condition that these are derived from profits earned after the acquisition. Dividends that exceed these profits are considered a repayment of the investment and reduce the participation’s carrying amount.
Shareholders’ contributions are recognized directly against shareholders’ equity for the recipient and are capitalized in shares and participations by the contributor to the extent that impairment is not required. Group contributions paid to reduce the Group’s tax expense are recognized directly against profit brought forward, less deductions for its current tax effect.
The amounts included in untaxed reserves comprises taxable temporary differences. As a result of the link between accounting and taxation, in a legal entity, the deferred tax liability attributable to untaxed reserves is not recognized separately, but is recorded in its gross amount in the balance sheet.
Net financial income in the Parent Company also includes dividends on shares in subsidiaries and these are only recognized when the right to receive payment has been established.
The Parent Company applies the same principles for financial instruments as the Group, with the exception of the valuation principles stipulated in IAS 39. In the Parent Company, financial fixed assets are valued at cost less any impairment losses, and financial current assets are valued at the lower of cost or market value.
When own shares are acquired, unrestricted shareholders’ equity is reduced by the expense for the acquisition. When own shares are transferred, unrestricted shareholders’ equity is increased by the income derived from the transfer.
The Group’s operations entail a number of operational and financial risks that may affect earnings. The most significant risks are:
– operational risks
– market risks
– liquidity risks
– credit risks
The Group’s overriding goal is to minimize the impact of financial and operational risks on the consolidated income statements and balance sheets.
The Board of Directors has identified these risks and developed a plan to avoid or minimize the impact on the consolidated income statement and balance sheets through various measures. Through clear policies and reporting paths, it is stated how these risks shall be managed and how presentation is to be made.
The Group’s policy is thus to work with various types of insurance or financial instruments to minimize various types of risks.
The general economic trend in the countries where the Group is active is a crucial factor for financial development, since the economic trend has a major effect on the flows of goods, volumes, and the resultant demand for maritime transports. The trend in markets other than those where the Group is active can also affect demand for the Group’s services, since the maritime transport market is highly international. The Group endeavors to maintain close contact with its customers and signs long-term cargo agreements with them to restrict the impact of economic fluctuations.
Earnings can be impacted by the loss of a vessel. These costs can be minimized through active service and damage-prevention work, resulting in lower risk of major individual cost increases. An offhire insurance that provides financial compensation in the event of prolonged operational disruption has been taken for part of the fleet of vessels, primarily those vessels involved in scheduled services.
The Group’s capital structure shall secure the operation of current business and enable desired future investments and development.
Capital is assessed on the basis of the debt/equity ratio, meaning net loan liabilities in relation to equity. Net loan liability comprises long and short-term borrowing less cash and cash equivalents.
Total borrowing amounted to SEK 1,381 M (1,188). Less cash and cash equivalents, it was negative in an amount of SEK 327 M (neg: 574). Net debt amounted to SEK 1,054 M (614) and shareholders’ equity was SEK 1,175 M (1,421). The debt/equity ratio was 90% (43).
The increase in indebtedness in 2009 is a result of the recognized earnings trend and negative cash flow, which is commented on in the Board of Directors’ Report.
Foreign-exchange risks
Shipping is a highly international business, which means that a very small portion of the Group’s cash flow is generated in SEK, and this entails that changes in foreign-exchange rates have a significant impact on the Group’s earnings and cash flow. The foreign-exchange risk is primarily restricted by matching the exposure to revenues and assets in various currencies to loans in the corresponding currency. The remaining exposure is hedged using various hedging instruments in accordance with Group policy, see Note 33.
Interest-rate risks
Shipping is a capital-intensive business, in which long-term loans are the principal form of financing. Accordingly, interest-rate fluctuations have a major impact on the Group’s earnings and cash flow. To reduce this risk, interest levels are hedged to a large extent for varying periods of time and using various types of hedging instruments, see Note 33.
Liquidity risks
To avoid disruptions in payments flows, the Group ensures the availability of sufficiently large liquidity reserves in the form of bank deposits and loan pledges to cope with unforeseen fluctuations in cash flow, see Note 25.
Credit risks
The Group only provides short working credit. These credits are mainly provided to major customers, with whom the Group has a long-term relationship. New customers are subject to a credit check prior to credit being provided. When longer-term credit is provided, this is conducted against collateral.
Bunker risks
Cost changes for bunker oil can have a significant impact on earnings. Cargo contracts often include clauses that imply that the customer carries the risk of price changes. For the portion of consumption for which the Group does not have such clauses, the Group uses forward contracts for bunker oil. For further information, see Note 33, which also includes a sensitivity analysis.
The Group uses hedges that secure the fair value of an asset (fair-value hedging), highly probable forecast transactions (cash-flow hedging) and changes in net investments in foreign subsidiaries.
The Group utilizes derivative instruments to cover the risks of exchange-rate fluctuations and changes in bunker prices and to hedge its exposure to interest-rate risks. The Group’s policy is to only hold instruments that qualify for hedge accounting. Hedge accounting requires that the explicit purpose of the hedging measure is classed as hedging, that it has an unequivocal connection with the hedged item and that the hedging measure effectively protects the hedged position.
When a hedge is established, the relationship between the hedging instrument and the hedged item is documented, as are the objective of the hedging and the strategy for implementing hedging measures. The Group also documents its assessment, both at the outset of the hedge and on an ongoing basis during its period of application, regarding the effectiveness of the hedge in evening out changes in fair value or cash flow for the hedged items.
Derivative instruments are recognized at their fair value at the time of acquisition and continuously revalued at their fair value. Unrealized value changes for hedging of fair value are recognized in profit and loss with the value change for the hedged asset for the effective portion of the hedge. Unrealized value changes for effective hedging pertaining to cash flow are recognized in other comprehensive income. When derivatives are divested, the value change is dissolved and recognized in profit and loss. For derivatives that do not qualify for hedge accounting, the unrealized value change, including the effective portion of the hedge, shall be recognized directly in profit and loss. Hedging of net investments in foreign operations is recognized in a similar way to cash-flow hedges.
The fair value of financial instruments is established through assessment in an active market (market valuation) or through established valuation methods if no active market exists.
Fair value of financial instruments traded on an active market is based on listed market prices and belongs to measurement level 1 according to IFRS 7. In the event that there are no listed market prices, fair value is measured through discounted cash flows. When measurements of discounted cash flows have been conducted, all variables, such as discount rates of interest and exchange rates for measurements, have been retrieved from market listings wherever possible. These measurements belong to measurement level 2. Other measurements, for which a a variable is based on own assessments, belong to measurement level 3.
The nominal value less any credits was used as fair value for accounts receivable and accounts payable.
Estimations and assessments are conducted continuously and are based on
historical experience and reasonable assumptions of future development.
Important estimations and assumptions for accounting purposes:
The Group makes estimations about the future that affect its income statements and balance sheets. The estimations with the greatest impact are:
– The useful life of tangible fixed assets and their residual value.
– Income taxes where the Group maintains operations in different countries with different tax systems (such as tonnage taxation).
– The pension liability and pension cost.
Useful life and residual value are assessed in connection with annual impairment testing, which, in 2009, did not necessitate any changes to the carrying amount, see Note 9. Pension calculations are conducted by an actuary based on assumptions established by the company.
The assessments made by the Group on the basis of its established accounting principles mainly consist of the classification of leasing agreements and assumptions concerning future cash flows for vessels. The assessment of future cash flows for vessels is based on forecasts prepared in connection with the Group’s budget process, which, taking into account the impact of economic fluctuations and other known changes, is calculated at its current value with a discount factor of 8–10%.
For the Group, it has been determined that the assumptions concerning future cash flows for vessels correspond to the assessment and estimation that have the greatest impact on the Group’s income statement and balance sheet.