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106 A.P. Moller-Maersk Annual Report 2020 Financials Consolidated financial statements Notes index Amounts in USD million = Note 23 Significant accounting policies Basis of preparation The consolidated financial statements for 2020 for A.P. Moller-Maersk have been prepared on a going con- cern basis and in accordance with the International Finan- cial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements for listed com- panies. The consolidated financial statements are also in accordance with IFRS as issued by the International Accounting Standards Board (IASB). The consolidated financial statements of A.P. Moller Maersk are included in the consolidated financial statements of A.P. Møller Holding A/S. The accounting policies are consistent with those applied in the consolidated financial statements for 2019, except for the changes to the accounting standards that were ef- fective from 1 January 2020 and were endorsed by the EU. iXBRL reporting From 2020, A.P. Møller-Mærsk A/S is required to file the annual report in the new European Single Electronic Format (ESEF) and the annual report in 2020 is therefore prepared in the XHTML format that can be displayed in a standard browser. The primary statements in the consolidated financial statements are tagged using inline extensible Business Reporting Language (iXBRL). The iXBRL tags comply with the ESEF taxonomy, which is included in the ESEF Regulation and developed based on the IFRS taxonomy published by the IFRS Foundation. Where a financial statement line item is not defined in the ESEF taxonomy, an extension to the taxonomy has been created. Extensions are anchored to elements in the ESEF taxonomy, except for extensions which are subtotals. The annual report submitted to the Danish Financial Supervisory Authority consists of the XHTML document together with certain technical files, all included in a file named APMM-2020-12-31.zip. Change to reportable segments As part of the refinement of A.P. Moller - Maersk's seg- ment structure to further align with internal management structure and demarcation between the reportable seg- ment activities, a number of changes have been made. The main changes involve moving the Maersk Oil Trading activity to the Ocean segment from Manufacturing & Others, and the intermodal activity in Hamburg Süd to Logistics & Services from Ocean. Comparison figures for note 1 have been restated as if the changes had been implemented in 2019. The reportable segments are disclosed below. A number of changes to accounting standards are effec- tive from 1 January 2020 and endorsed by the EU: ⚫ Amendments to IAS 1 and IAS 8: Definition of Material Amendments to IFRS 3: Business Combinations. A.P. Moller-Maersk follows the guidelines in the above amendments, and the implementation did not change the accounting policies. Consolidation The consolidated financial statements comprise the parent company A.P. Møller-Mærsk A/S, its subsidiaries and proportionate shares in joint arrangements classified as joint operations. Subsidiaries are entities controlled by A.P. Møller Mærsk A/S. Control is based on the power to direct the relevant activities of an entity and the exposure, or right, to variable returns arising from it. In that connec- tion, relevant activities are those that significantly affect the investee's returns. Control is usually achieved by directly or indirectly owning or in other ways controlling more than 50% of the voting rights or by other rights, such as agreements on management control. Joint arrangements are entities in which A.P. Moller Maersk, according to contractual agree- ments with one or more other parties, has joint control. The arrangements are classified as joint ventures, if the contracting parties' rights are limited to net assets in the separate legal entities, and as joint operations, if the parties have direct and unlimited rights to the assets and obligations for the liabilities of the arrangement. Entities in which A.P. Moller-Maersk exercises a signifi- cant but non-controlling influence are considered associ- ated companies. A significant influence is usually achieved by directly or indirectly owning or controlling 20-50% of the voting rights. Agreements and other circumstances are considered when assessing the degree of influence. Consolidation is performed by summarising the financial statements of the parent company and its subsidiaries, including the proportionate share of joint operations, part-owned vessels and pool arrangements, which have been prepared in accordance with A.P. Moller-Maersk's accounting policies. Intra-group income and expenses, shareholdings, dividends, intra-group balances and gains on intra-group transactions are eliminated. Unrealised gains on transactions with associated companies and joint arrangements are eliminated in proportion to A.P. Moller-Maersk's ownership share. Unrealised losses are eliminated in the same way, unless they indicate impairment. Non-controlling interests' share of profit/loss for the year and of equity in subsidiaries is included as part of A.P. Moller Maersk's profit and equity respectively, but shown as separate items. Foreign currency translation The consolidated financial statements are presented in USD, the functional currency of the parent company. In the translation to the presentation currency for subsidiaries, associates or joint arrangements with functional curren- cies other than USD, the total comprehensive income is translated into USD at average exchange rates, and the balance sheet is translated at the exchange rates as at the balance sheet date. Exchange rate differences arising from such translations are recognised directly in other compre- hensive income and in a separate reserve of equity. The functional currency varies from business area to business area. For A.P. Moller-Maersk's principal shipping activities, the functional currency is typically USD. This means, among other things, that the carrying amounts of property, plant and equipment and intangible assets and, hence, depreciation and amortisation, are main- tained in USD from the date of acquisition. For other activities, including container terminal activities and land-based container activities, the functional currency is generally the local currency of the country in which such activities are performed, unless circumstances suggest a different currency is appropriate. Transactions in currencies other than the functional cur- rency are translated at the exchange rate prevailing at the date of the transaction. Monetary items in foreign curren- cies not settled at the balance sheet date are translated at the exchange rate as at the balance sheet date. Foreign exchange gains and losses are included in the income statement as financial income or expenses. Segment information The allocation of business activities into segments reflects A.P. Moller-Maersk's character as an integrated container logistics business and is in line with the internal manage- ment reporting. The reportable segments are as follows: Ocean Logistics & Services Terminals & Towage Manufacturing & Others Global container shipping activities including strategic transhipment hubs and sale of bunker oil Freight forwarding, supply chain management, inland haulage and other logistics services Gateway terminal activities, towage and related marine activities Production of reefer and dry containers, providing off-shore supply service and trading and other businesses Operating segments have not been aggregated. The reportable segments comprise: Ocean Ocean activities Activities under Maersk Line, Safmarine, Sealand - A Maersk company, and Hamburg Süd brands with Ocean container freight being the main revenue stream. Ocean container freight is defined as the cost-per-weight measure of transporting goods on board a container vessel across the ocean, including demurrage and detention, terminal handling, documentation services, container services as well as container storage.