Directors Report 1
Directors' report for the year ended 31 March 2010
The directors present their annual report and the consolidated audited financial statements of the group for the year ended 31 March 2010
Business review and principal activities The principal activities of the group are ship owning and ship management
The results of the group for the year are set out in the profit and loss account on page 5
Future outlook The performance of the Group dunng the year continued to be negatively affected due to the impact of the global economic cnsis on its pnncipal business, as freight rates remained low and the capacity of the fleet was reduced However, market conditions have improved in the 12 months prior to the signing of these accounts, and whilst conditions are expected to remain challenging, the Group will continue to seek new opportunities with a view to providing sustainable growth
Principal risks and uncertainties The key business nsks that affect the group are considered to relate to ship freight pncing, foreign exchange rates, the global economic environment and funding of the defined benefit pension scheme
Financial risk management The group's operations expose it to a variety of financial risks that include the effects of changes in debt market pnces, credit risk, liquidity nsk and interest rate risk The group seeks to limit the adverse effects on financial performance by monitoring levels of debt finance and the related finance costs Price risk The group is not exposed to commodity price nsk as a result of its operations and has no exposure to equity securities price risk as it holds no listed or other equity investments Credit risk Appropriate credit checks are made on potential significant customers before sales are made Where debt finance is utilised, this is subject to pre-approval by the board of directors Liquidity risk The group meets its day to day working capital requirements through banking facilities which are subject to periodic renewal The group also has a $12 5 million bank loan which is secured on the related vessel which it part financed The loan is repaid by quarterly instalments To manage its liquidity nsk the group regularly prepares cash flow forecasts and maintains on ongoing dialogue with its bankers Interest rate cash flow risk The interest rate on the loan that part-financed the purchase of a vessel was fixed in to order to limit the exposure to fluctuating interest rates The appropriateness of the group's policy will be reviewed should its operations change in size or nature Foreign exchange risk The group is exposed to foreign exchange risk as the result of its US Dollar borrowings, together with sales and purchases made in foreign currencies, principally US Dollars and Euros To manage this exposure the company holds separate Euro and US Dollar bank accounts and seeks to off-set sales, purchases and debt interest and repayments in the same currency The group does not hedge the retranslation risk on its US Dollar borrowings and, in consequence, there may be significant gains or losses recorded in a single financial year However, over the life of the loan, the group expects that its natural hedging will cover its foreign exchange risk
Key performance indicators ("KPIN") Turnover for the year decreased by 35 5% (2009 ? 10 4% increase) due to the impact of the global credit crunch, which led to reduced freight rates and a reduction in fleet capacity, and operating loss for the year expressed as a percentage of turnover was (14 4)% (2009 restated -(2 1)%)
International Maritime Group Limited
Directors' report for the year ended 31 March 2010 (continued)
Directors The directors, who held office during the year and up to the date of signing the financial statements, are given below Mr BE K Gilmour Mr B 1 Corlett Mr R K Campbell Mr W A Plant
Going concern The directors recognise that whilst trading conditions have improved over the 12 months up to the date these accounts were signed, the economic environment remains challenging and this does create a degree of uncertainty in some elements of the group's likely future performance The main factor that might impact the ongoing performance is the secunng of additional tonnage for its shipping activities on suitable charter terms In view of the above, the group prepared a number of alternative projections of trading performance and cash flow to March 2012 based on varying levels of fleet capacity In undertaking this process, the directors considered the financial facilities available to the group (comprising an overdraft facility and an asset-backed currency loan), and identified and estimated the financial impact of a number of measures available to them that would support the group's working capital requirements These measures include the renewal of bank facilities, the part deferral of loan repayments, and asset disposal, which have been used successfully in pnor penods, if appropnate
The overdraft facility is due for renewal on 30 Apnl 2011 and the group will open renewal negotiations with Bank of Scotland in due course and has at this stage not sought any wntten commitment that the facility will be renewed However, the group has held discussion with its bankers about its future borrowing needs and no matters have been drawn to its attention to suggest that renewal may not be forthcoming on acceptable terms As per note 14, the group is in breach of the debt service covenant on its currency loan with Allied Insh Bank plc Without commitment, the bank has confirmed in wntmg and in discussion that it does not intend to exercise any of its rights in relation to this breach for the foreseeable future Furthermore, discussion has been held with the bank regarding prospective future breaches of the debt service covenant and continuing with the current part-deferral of loan repayments, and no matters have been drawn to the group's attention to suggest that continuation of this agreement may not be forthcoming on acceptable terms In addition, the pension scheme to which the group is liable to fund a proportion of its deficit, the Merchant Navy Offices Pension Fund (MNOPF), issued a demand in May 2010 in respect of the 2009 actuanal valuation, which outlined a number of settlement options These included an option to pay in instalments over 10 years subject to the satisfactory completion of a credit review The directors believe that once the credit review has been completed, this option will be made available to the group by the Trustees, and therefore the group will be able to meet the liability out if its current agreed facilities, for the foreseeable future In view of the foregoing, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future For these reasons, they continue to adopt the going concern basis in prepanng the annual report and accounts
Interest and dividends A dividend for the year ended 31 March 2010 of ?1,278,000 (2009 ?1,278,000) has not been paid in respect of non-equity shares due to insufficient distributable reserves As the company has adopted FRS 25 "Financial Instruments disclosure and presentation", the financial statements recognise these dividends as an interest cost as the related shares are classified as liabilities A currency loan taken out to finance the purchase of a vessel has been retranslated at the 31 March 2010 exchange rate of $1 5159, with the resulting profit of ?495,000 (2009 ?2,146,000 loss) disclosed in interest receivable as a profit on translation of foreign currency borrowings The group's loss for the financial year was ?3,502,000 (2009 restated loss of ?2,590,000) which will be deducted from reserves The directors do not recommend the payment of a dividend (2009 thil)
2.0
International Maritime Group Limited
Directors' report for the year ended 31 March 2010 (continued)
Charitable donations During the year the group made various charitable donations totalling ?1,370 (2009 ?1,990) Donations were made to various manhme charities
Directors' responsibilities statement The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations Company law requires the directors to prepare financial statements for each financial year Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period In prepanng those financial statements, the directors are required to
?select suitable accounting policies and then apply them consistently, ?make Judgements and estimates that are reasonable and prudent, ?prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006 They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities
Auditors and disclosure of information to auditors Each director, as at the date of this report, has confirmed that insofar as they are aware there is no relevant audit information (that is, information needed by the company's auditors in connection with preparing their report) of which the company's auditors are unaware, and they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the company's auditors are aware of that information This confirmation is given and should be interpreted in accordance with the provisions of s418of the Companies Act 2006 Deloitte LLP have expressed their willingness to continue in office as auditors, and a resolution to reappoint them will be proposed at the Annual General Meeting R K Campbell Director 22 December 2010
rder of the Board
Independent auditors' report to the members of International Maritime Group Limited
We have audited the group and parent company financial statements (the "financial statements") of International Maritime Group Limited for the year ended 31 March 2010 which comprise the group profit and loss account, the group statement of total recognised gains and losses, the group and company balance sheets, the group cash flow statement, the statement of accounting policies and the related notes 1 to 26 The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed
Respective responsibilities of directors and auditors As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors
Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error This includes an assessment of whether the accounting policies are appropnate to the company's circumstances and have been consistently applied and adequately disclosed, the reasonableness of significant accounting estimates made by the directors, and the overall presentation of the financial statements
Opinion on financial statements In our opinion the financial statements ?give a true and fair view of the state of the group and parent company's affairs as at 31 March 2010 and of its loss for the year then ended, ?have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, and ?have been prepared in accordance with the requirements of the Companies Act 2006
Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements
Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion ?adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us, or ?the financial statements are not in agreement with the accounting records and returns, or ?certain disclosures of directors' remuneration specified by law are not made, or ?we have not received all the information and explanations we require for our audit
Paul Feechan (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors Newcastle upon Tyne, UK 22 ?cc,ALi02oic
International Maritime Group Limited
Group profit and loss account for the year ended 31 March 2010
Sheet1 There is no difference between the loss on ordinary activities before taxation and the retained loss for the year stated above, and their histoncal cost equivalents All activities denve from continuing operations
Statement of recognised gains and losses for the year ended 31 March 2010.0 Sheet2 5.0
International Maritime Group Limited Group balance sheet as at 31 March 2010 Sheet3 The financial statements of International Mantime Group Limited, registered number 3388707, on pages 5 to 30, were approved by the board of directors on 22 December 2010 and were signed on its behalf by aii. 1)64 W A Plant Director 6.0
International Maritime Group Limited Company balance sheet as at 31 March 2010
Sheet4 The financial statements of International Mantime Group Limited, registered number 3388707, on pages 5 to 30, were approved by the board of directors on 22 December 2010 and were signed on its behalf by
NY14,14-,4,44- W A Plant Director
7.0
International Maritime Group Limited
Group cash flow statement for the year ended 31 March 2010
Sheet5 8.0
International Maritime Group Limited Statement of accounting policies
Accounting convention These financial statements have been prepared on the going concern basis and under the historical cost convention and in accordance with the Companies Act 2006 and applicable accounting standards in the United Kingdom The principal accounting policies are set out below, which, with the exception of pension costs, have been applied consistently in the current and preceding year
Basis of preparation The directors recognise that whilst trading conditions have improved over the 12 months up to the date these accounts were signed, the economic environment remains challenging and this does create a degree of uncertainty in some elements of the group's likely future performance The main factor that might impact the ongoing performance is the securing of additional tonnage for its shipping activities on suitable charter terms In view of the above, the group prepared a number of alternative projections of trading performance and cash flow to March 2012 based on varying levels of fleet capacity In undertaking this process, the directors considered the financial facilities available to the group (compnsing an overdraft facility and an asset-backed currency loan), and identified and estimated the financial impact of a number of measures available to them that would support the group's working capital requirements These measures include the renewal of bank facilities, the part deferral of loan repayments, and asset disposal, which have been used successfully in prior periods, if appropnate
The overdraft facility is due for renewal on 30 April 2011 and the group will open renewal negotiations with Bank of Scotland in due course and has at this stage not sought any written commitment that the facility will be renewed However, the group has held discussion with its bankers about its future borrowing needs and no matters have been drawn to its attention to suggest that renewal may not be forthcoming on acceptable terms As per note 14, the group is in breach of the debt service covenant on its currency loan with Allied Irish Bank plc Without commitment, the bank has confirmed in wnting and in discussion that it does not intend to exercise any of its rights in relation to this breach for the foreseeable future Furthermore, discussion has been held with the bank regarding prospective future breaches of the debt service covenant and continuing with the current part-deferral of loan repayments, and no matters have been drawn to the group's attention to suggest that continuation of this agreement may not be forthcoming on acceptable terms In addition, the pension scheme to which the group is liable to fund a proportion of its deficit, the MNOPF, issued a demand in May 2010 in respect of the 2009 actuarial valuation, which outlined a number of settlement options These included an option to pay in instalments over 10 years subject to the satisfactory completion of a credit review The directors believe that once the credit review has been completed, this option will be made available to the group by the Trustees, and therefore the group will be able to meet the liability out if its current agreed facilities, for the foreseeable future In view of the foregoing, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts
Basis of consolidation The group profit and loss account and balance sheet include the financial statements of the company and its subsidiary undertakings made up to 31 March 2010 The results of subsidiaries disposed of during the year are accounted for up to the date of disposal
Turnover Turnover represents the invoiced amount of services provided, excluding value added tax, in carrying out the group's activities of ship owning and ship management Revenue is recognised as it is eamed, according to the services delivered
Leases Rentals payable under operating leases are charged in the profit and loss account on a straight line basis over the lease term
9.0
International Maritime Group Limited
Tangible fixed assets and depreciation Tangible fixed assets are stated at histonc purchase cost less accumulated depreciation Cost includes the onginal purchase pnce of the asset and the costs attnbutable to bnnging the asset to its working condition for its intended use Depreciation is provided at the following rates calculated to write off the cost, less estimated residual value, of assets over their expected useful lives using the straight line method Ships Equally over 25 years from date of launch Ships' dry docking costs 33% - 50% Plant and machinery 25% Furniture, fittings and equipment 10% -33 3% Motor vehicles 20% - 25% Leasehold improvements Equal instalments over the unexpired lease term
The expected useful lives of the assets to the business are reassessed penodically in the light of expenence
Investments in subsidiary undertakings Investments in subsidiary undertakings in the accounts of the company are stated at cost less provision for any impairment Taxation Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date With effect from 1 Apnl 2001 a group undertaking, Stephenson Clarke Shipping Limited elected to enter the tonnage tax regime in respect of their qualifying shipping activities This election is for ten years and tax is calculated by reference to the net tonnage of qualifying vessels Deferred taxation is recognised in respect of all timing differences that have onginated but not reversed at the