In EUR millions Note 2011 2010
Cash flows from operating activities (gross) Interest received
Cash flows from operating activities (net) Investments:
Cash flows from investing activities (excluding derivatives)
Settlement of derivatives (net investments hedges)
Cash flows from investing activities (including derivatives) Financing activities: Cash flows from financing activities Net cash flows
Exchange differences
Net change in cash and cash equivalents due to (de)consolidation Net change in cash and cash equivalents (including bank overdrafts) Net cash and cash equivalents (including bank overdrafts) at 1 January Net cash and cash equivalents (including bank overdrafts) at 31 December
455.1
Principles
General
Royal Vopak, with its registered office in Rotterdam (the Netherlands), is the world’s largest independent tank terminal operator specializing in the storage and transfer of liquid and gaseous chemical and oil products. Upon request, Vopak provides additional services to customers at the terminal.
The consolidated financial statements of the company for the year ended at 31 December 2011 contain the figures of the company and its subsidiaries (jointly referred to as the ‘Group’), as well as the interests of the Group in joint ventures and associates (to which the equity method is applied). The financial statements were approved by the Executive Board and the Supervisory Board on 28 February 2012 and are subject to adoption by the shareholders during the Annual General Meeting.
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). The amendments to standards and interpretations endorsed by the EU were as follows:
(a) New and amended standards adopted by the Group
There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on 1 January 2011 that have a material impact on the Group.
(b) New standards, amendments and interpretations issued but not effective for the financial year beginning on 1 January 2011 and not early adopted and also not yet endorsed by the EU
IAS 19, Employee benefits, was amended in June 2011. The Group intends to apply the amendments retrospectively for annual periods beginning on 1 January 2013 (effectively at 1 January 2012). The impact on the Group will be significant as the deferral of actuarial gains and losses or cost of plan changes will no longer be allowed as the 10% corridor smoothing mechanism will be eliminated. Further the amendment introduces significant changes to the recognition and measurement of defined benefit plan expenses and their presentation in the income statement. The revised standard requires expected returns on plan assets, recognized in profit or loss, to be calculated based on the rate used to discount the defined benefit obligation, which generally is a lower rate than used under the current IAS 19. The remeasured actuarial gains and losses are recognized in Other comprehensive income and will increase net pension liabilities. The unrecognized actuarial gains and losses at 31 December 2011 amounted to a loss of EUR 107.4 million.
IFRS 10, Consolidated financial statements, builds on the existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The Group is yet to assess IFRS 10’s full impact and will adopt IFRS 10 no later than the accounting period beginning on 1 January 2013, assuming endorsement by the EU in 2012.
IFRS 11, Joint Arrangements, replaces IAS 31 (Interest in Joint Ventures). A ‘Joint arrangement’ is defined as a contractual arrangement over which two or more parties have joint control. Joint control exists only when the decisions about activities that significantly affect the returns of an arrangement require unanimous consent of the parties sharing control. The focus is no longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties. In the new standard a distinction is made into two types of joint arrangements: joint operations and joint ventures.
Compared to IAS 31 the jointly controlled operations and jointly controlled assets are merged into joint operations in IFRS 11. The existing policy, choice of proportionate consolidation for jointly controlled entities, has been eliminated. Equity accounting is mandatory for participants in joint ventures. Entities that participate in joint operation will follow the methodology similar to proportionate consolidation (share of assets and liabilities, income and expenses). Some jointly controlled entities under IAS 31 may under IFRS 11 be classified as joint operation.
Since the adoption of IFRS, joint ventures within Vopak are accounted for by using the equity method.
The Group is yet to assess the other impacts of IFRS 11 and will adopt IFRS 11 no later than the accounting period beginning on 1 January 2013, assuming endorsement by the EU in 2012.
IFRS 12, Disclosures of interests in other entities, includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles. The Group is yet to assess IFRS 12’s full impact and will adopt IFRS 12 no later than the accounting period beginning on or after 1 January 2013, assuming endorsement by the EU in 2012.
IFRS 13, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. The Group is yet to assess IFRS 13’s full impact and will adopt IFRS 13 no later than the accounting period beginning on or after 1 January 2013.
There are no other amendments to existing standards or new IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.
Basis of preparation
The consolidated financial statements are presented in euros and rounded to hundred thousands. They are based on the historical cost principle unless stated otherwise in the accounting policies stated below.
Preparing the consolidated financial statements in accordance with IFRS means that the Group must use insights, estimations and assumptions that could affect the reported assets and liabilities and the information provided on contingent assets and liabilities as at the statement of financial position date as well as the reported income and expenses. The actual results may differ from these estimations.
The estimations and the underlying assumptions are continuously reviewed. Adjustments are made in the period in which the estimations were reviewed if the adjustment affects that period, or in the relevant period and the future periods if the adjustment affects both the current and future periods.
Management insights into the application of IFRS that have a major impact on the financial statements and estimations with a significant risk of a material adjustment in a subsequent year are:
(a) Useful life and residual value of property, plant and equipment
Property, plant and equipment form a substantial part of the total assets of the company, while period depreciation charges form a substantial part of the annual operating expenses.
The useful life and residual value determined by the Board based on its estimations and assumptions have a major impact on the measurement and determination of results of the property, plant and equipment. The useful life of property, plant and equipment is partly estimated based on their useful productive lives, experiences related to such assets, the maintenance history and the period during which economic benefits from utilization of the asset accrued to the company. Periodic reviews show whether changes have occurred in estimations and assumptions as a result of which the useful life and/or residual value need to be adjusted. Such an adjustment will be made prospectively.
(b) Estimated impairments
The Group annually reviews goodwill for impairment. This also applies to other assets if there is reason to do so. The principles explained under Impairments of assets (see page 99) are applied.
(c) Pensions and other employee benefits
The pension charges for defined benefit pension plans depend on future assumptions.
A sensitivity analysis is included in note 27.
(d) Taxes
Deferred tax assets, including those arising from carry-forward losses, are recognized if it is likely that taxable profit is available against which losses can be set off. In determining this, Vopak uses estimations and assumptions that also affect the measurement of the deferred tax assets. A maturity schedule of the unrecognized carry-forward losses is included in note 17.
(e) Environmental provisions
In accordance with the policies stated under Other provisions, environmental provisions are formed based on current legislation and the best estimate of future expenses (see also note 29 and note 36).
(f) Derivative financial instruments
The fair value of a derivative financial instrument not traded on active markets is measured as the present value of the expected future cash flows under the contract. In determining this value, a valuation model is used that is based on the interest rates and the exchange rates as at the end of the reporting period. For a sensitivity analysis we refer to the chapter Financial Risks and Risk Management.
The accounting policies based on IFRS, as described below, have been applied consistently for the years 2011 and 2010 by all entities.
Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the financial statements of Royal Vopak and its subsidiaries. Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies of a company by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Group’s voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies.
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control is obtained until the date on which control ends.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The consideration transferred for the acquisition of a subsidiary are the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any assets or liability resulting from a contingent consideration arrangement. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
The Group recognizes any non-controlling interests in the acquiree, on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred to the Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed.
If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
When the Group ceases to have control any retaining interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss.
The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amount previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group has directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.
For a list of the principal subsidiaries, please refer to page 183 of this report.
Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in loss of control are accounted for as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of the net asset of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
Determining the fair value of a business combination
Fair value is defined in IFRS as the amount for which an asset could be exchanged, or a liability settled between knowledgeable, willing parties in an arm’s length transaction. There are three generally accepted approaches for determining the fair value: the market approach, the income approach, and the cost approach.
The market approach measures value based on recent transactions for assets which can be considered reasonably similar to that being assessed.
The income approach is based on the premise that the value of an asset can be measured by the present value of the future earning capacity that is available for distribution to the owners of the asset. The most commonly used approach is the discounted cash flow method. This involves forecasting the appropriate cash flow stream over an appropriate period and then discounting it back at an appropriate discount rate given the time value of money, inflation and the risk inherent in ownership of assets being valued. The Greenfield approach is a derivative of the income approach and is used when valuation of an asset against market value is not possible due to lack of tendering prices. It values an asset by calculating the value of a hypothetical start-up company that starts its business with no assets except the asset to be valued. Since the company has no other assets, the value of the asset under consideration has to equal the value of the start-up company. To apply this method it is necessary to construct a business plan for a hypothetical start-up of the terminal.
The cost approach is based upon the principle of replacement and recognizes that a prudent investor will pay no more for an asset than the cost to replace it new. Use of the cost approach results in a concept referred to as depreciated replacement cost where the term depreciated refers to a reduction of utility.
Vopak uses all of these approaches depending on the business rationale. Property, plant and equipment is valued on depreciated replacement cost as there is no active market for these assets. Land and the intangible land use rights are based on market value. Concession rights, licenses and customer relationships are based on the income approach. For the other intangibles at each acquisition the business driver will be determined. The valuation is normally determined by an independent appraiser.
Joint ventures
A joint venture is a contractual agreement under which two or more parties conduct an economic activity and unanimous approval is required for the financial and operating policies.
Accounting policies of joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.
The results of joint ventures are recognized based on the equity method from the date on which the joint control begins until the date on which it ceases. If the share in the losses exceeds the carrying amount of an equity-accounted company, including any other receivables forming part of the net investment in the company, the carrying amount is written down to nil and (to the extent that the Group has not undertaken any further commitments or payments relating to the company in question) no further losses are allocated to the Group.
When an interest in a joint venture is acquired, the acquisition method of accounting is used.
The cost of the investment includes transaction costs. Under the equity method, goodwill (less accumulated impairments) is allocated to the carrying amount of the investment. When an interest in a joint venture is sold, the gain on the sale is recognized separately under Result of joint ventures and associates using the equity method.
For a list of the principal joint ventures, please refer to page 184 of this report.
Associates
Associates are all entities over which the group has significant influence but not control, generally accompanying a shareholding between 20% and 50% of the voting rights.
Investments in associates are accounted for using the equity method of accounting, whereby the accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. The Group’s investment in associates includes goodwill identified on acquisition. For the associates please refer to page 184 of this report.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income is reclassified to profit or loss where appropriate.
Other financial assets
The other interests in which the Group does not exercise any significant influence are classified under Other financial assets. This is generally the case if the interest is less than 20%. These interests are carried at fair value, unless a fair value cannot be estimated. In the latter case, they are carried at cost.
Dividends received are recognized in the statement of income.
Elimination of transactions in consolidated financial statements
All transactions between group companies, balances and unrealized gains and losses on transactions between group companies are eliminated when preparing the consolidated financial statements.
Unrealized gains arising from transactions with joint ventures and associates are eliminated to the extent of the interest of the Group in the equity. Unrealized losses are eliminated in the same manner as unrealized gains, but only to the extent that there is no evidence of impairment.
Unrealized gains arising from transactions with joint ventures and associates are eliminated to the extent of the interest of the Group in the equity. Unrealized losses are eliminated in the same manner as unrealized gains, but only to the extent that there is no evidence of impairment.