Investor Presentaiton

110 A.P. Moller-Maersk Annual Report 2020 Financials Consolidated financial statements Notes index Amounts in USD million = Note 23 Significant accounting policies - continued contingent consideration at the time of sale. Contingent consideration is re-measured at fair value with changes recognised in the income statement. The effect of the purchase and sale of non-controlling interests without changes in control is included directly in equity. Discontinued operations and assets held for sale Discontinued operations represent a separate major line of businesses disposed of or in preparation for sale. The results of discontinued operations are presented separately in the income statement, and the cash flows from discontinued operations are presented separately in the cash flow statement with restatement of compar- ative figures. Assets and liabilities held for sale from discontinued operations are presented as separate items in the bal- ance sheet with no restatement of comparative figures. Elimination between continuing and discontinued oper- ations is presented to reflect continuing operations as post-separation, which entails the elimination of interest, borrowing, dividends and capital increases. Assets and liabilities from discontinued operations and assets held for sale, except financial assets, etc., are measured at the lower of carrying amount immediately before classification as held for sale and fair value less cost to sell, and impairment tests are performed imme- diately before classification as held for sale. Non-current assets held for sale are not depreciated. New financial reporting requirements A.P. Moller Maersk has not yet adopted the following accounting standards/requirements: IFRS 17-Insurance contracts IFRS 17: An analysis of the impact is being assessed and is expected to be concluded in due course ahead of the implementation date. Other changes to IFRS are not expected to have any significant impact on recognition and measurement. Note 24 Significant accounting estimates and judgements The preparation of the consolidated financial statements requires management, on an ongoing basis, to make judgements and estimates and form assumptions that affect the reported amounts. Management forms its judgements and estimates based on historical experience, independent advice and external data points, as well as on in-house specialists and on other factors believed to be reasonable under the circumstances. In certain areas, the outcome of business plans, including ongoing negotiations with external parties to execute those plans or to settle claims that are raised against A.P. Moller-Maersk, is highly uncertain. Therefore, as- sumptions may change, or the outcome may differ in the coming years, which could require a material upward or downward adjustment to the carrying amounts of assets and liabilities. This note includes the areas in which A.P. Moller-Maersk is particularly exposed to a material adjustment of the carrying amounts as at the end of 2020. Significant accounting judgements Determination of cash-generating units Judgement is applied in the definition of cash-generating units and in the selection of methodologies and assump- tions for impairment tests. The determination of cash-generating units differs for the various business areas. Ocean operates its fleet of container vessels and hub terminals in an integrated network. Consequently, the Ocean activities are tested for impairment as a single cash-generating unit. In addi- tion, the intermodal activities reported under Logistics & Services are included in the Ocean cash-generating unit for impairment testing to apply consistency between the asset base and related cash flows. In Logistics & Services, apart from intermodal, each main product is defined as a cash-generating unit. In gateway terminals, each terminal is considered individually in impairment tests, except when the capacity is managed as a port- folio. Towage groups vessels according to type, size, etc. in accordance with the structure governing manage- ment's ongoing follow-up. Projected cash flow models are used when fair value is not obtainable or when fair value is deemed lower than value in use. External data is used to the extent possible, and centralised processes, involving corporate functions, ensure that indices or data sources are selected consistently while observing differences in risks and other circumstances. Current market values for vessels, etc. are estimated using acknowledged brokers. Operations in countries with limited access to repatriating surplus cash A.P. Moller-Maersk operates worldwide, and in this respect, has operations in countries where access to repatriating surplus cash is limited. In these coun- tries, management makes judgements as to whether these cash positions can be recognised as cash or cash equivalents. Significant accounting estimates Aspects of uncertainty In its assumption setting, management deals with dif- ferent aspects of uncertainty. One aspect of uncertainty is whether an asset or liability exists, where the assess- ment forms the basis for recognition or derecognition decisions, including assessment of control. Another as- pect is the measurement uncertainty, where management makes assumptions about the value of recognised assets and liabilities. These assumptions concern the timing and amount of future cash flows, and the risks inherent in these. Impairment tests The outcome of impairment tests is subject to estimates of the development of freight rates, volumes, bunker prices and discount rates. The future development in freight rates is an uncertain and significant factor impacting especially the Ocean segment, whose financial results are directly affected by fluctuations in container freight rates. Freight rates are influenced by both regional and global economic environ- ment and trade patterns, as well as by industry-specific trends in respect of capacity supply and demand. The long- term economic consequences of COVID-19 are still un- known and could cause a shift in freight rates or volumes. The future development in the oil price is an uncertain and significant factor impacting accounting estimates across A.P. Moller - Maersk, either directly or indirectly. The Ocean segment is directly impacted by the price of bunker oil, where the competitive landscape determines the extent to which the development is reflected in the freight rates charged to the customer. APM Terminals is indirectly impacted by the oil price as terminals located in oil-producing countries, e.g. Nigeria, Angola, Egypt, Russia and Brazil, are indirectly impacted by the develop- ment in oil prices and the consequences on the countries' economies, which not only affect volume handled in the terminals, but also exchange rates. A.P. Moller-Maersk carries goodwill of USD 968m (USD 637m). In Ocean, the cash flow projection is based on forecasts as per Q3 2020, covering plans for 2021-2025. Management has applied an assumption of growth in volumes, pressure on freight rates and continued cost efficiency. The im- pairment test continues to show headroom from value in use to the carrying amount. Management is of the opinion that the assumptions applied are sustainable.