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FORTH PORTS PLC

08Annual Report and Accounts

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Head OfficeForth Ports PLC, 1 Prince of Wales Dock, Edinburgh EH6 7DXTelephone 0131 555 8700 Facsimile 0131 553 7462www.forthports.co.uk

Designed and produced by Tayburn Corporate

Notice of Annual General Meeting

The eighteenth Annual General Meeting of

Forth Ports PLC will be held in The Boardroom,

The Caledonian Hilton Hotel, Princes Street,

Edinburgh EH1 2AB at 11.00am on Friday 1st May

2009. The formal Notice of Meeting begins on

page 132.

Contents

01 Business Highlights02 Our businesses04 Chairman and Group Chief Executive’s Report 22 Directorate23 Business Review44 Directors’ Biographies45 Directors, Secretary and Advisers46 Directors’ Report50 Corporate Governance Report

55 Report of the Audit Committee58 Directors’ Remuneration Report67 Report of the Nomination Committee69 Independent Auditors’ Report71 Annual Accounts128 Glossary130 Five Year Record131 Information for Shareholders132 Notice of Annual General Meeting

Interim Report Dispatched 4th September 2009

Ex Dividend Date

(Interim Dividend) 7th October 2009

Record Date

(Interim Dividend) 9th October 2009

Interim Management Statement 30th October 2009

Payment of

Interim Dividend 2009 6th November 2009

Financial calendar

Year End 31st December 2008

Preliminary Announcement 16th March 2009

Dispatch of Annual Report 31st March 2009

Ex Dividend Date (Final Dividend) 8th April 2009

Record Date (Final Dividend) 14th April 2009

Annual General Meeting and

Interim Management Statement 1st May 2009

Payment of Final Dividend 2008 8th May 2009

Announcement of

Interim Results 2009 27th August 2009

01

Annual Report and Accounts

2008

500

400

300

200

100

50

40

30

20

10

0

50

40

30

20

10

0

Our focus is on: Delivering service excellence in the supply chain Control on costs and operating efficiency Conserving cash

Business highlights

Dividend per share – pence Underlying port operating profit – £m

DTZ property valuations

Calculation of Worth

Market Value£m 2000 2005 2006 2007 2008For the definition of Market Value and Calculation of Worth, see Glossary on page 128.

2004 2004

39.9

31.0

43.0

34.3

45.2

34.1

47.7

38.7

28.6

47.6

2005 20052006 20062007 20072008 2008

0

02

Our Businesses Ports

1. Dundee

The largest port on the Firth of Tay, it handled over 0.5

million tonnes each of liquid bulks and general cargo.

liquid bulks 50% agripods 26% fertiliser 14% other 10%

2. Braefoot Bay

The export terminal for LPG tonnages in the Firth of

Forth. It exported 3.1 million tonnes in 2008.

liquid bulks 100%

3. Fife/Rosyth

On the north side of the Firth of Forth, these ports

handled 0.2 million tonnes of general cargo.

dry cargo 100%

4. Grangemouth

Scotland’s largest container port, it handled 6.3

million tonnes of liquid bulks, 157,000 containers

and 0.3 million tonnes of general cargo in 2008.

liquid bulks 70% containers 25% general cargo 5%

5. Hound Point

The terminal for crude oil exports from the North

Sea, it handled 24.5 million tonnes last year.

liquid bulks 100%

6. Leith

Leith handled 2 million tonnes of cargo in 2008, the

principal commodities being coal, steel pipes and

agricultural products.

coal 55% dry bulks 28% grain 10% steel pipes 7%

7. Tilbury

London’s main port, it handled 8.4 million tonnes of

dry cargo in 2008 with a leading market position in

containers, forest products, agriculture and ro-ro.

containers 32% ro-ro 18% paper 18% agriculture 9% other 23%

8. Nordic

Based at Chatham in Kent, Nordic handles forest

products imports and baled waste paper for export.

It also has an export facility at Tilbury.

paper 71% recovered paper 29%

The Group owns the ports of Grangemouth, Leith,

Rosyth, Burntisland and Methil within the Firth of

Forth. It owns the Port of Dundee on the Firth of Tay.

The largest port within the Group is the Port of Tilbury

on the River Thames. We own the Nordic Group

which operates out of Chatham in Kent and Tilbury.

4.

1.

3.2.

6.

7. 8.

5.

03


2008

Property

Nordic RecyclingEnergy

Our extensive waterfront land ownership and the

expertise of the Property Team mean we are uniquely

placed to create long term value – financial value for

our shareholders, economic value for the City of

Edinburgh and Scotland.

We have the ability to source, process and export

waste. We have a strong customer base and

business model which is well placed for expansion

as markets recover.

Our strong asset base and deep water locations

allow us access to a pipeline of projects creating

energy from renewable sources. We have received

several enquiries for multi-fuel plants in Scotland and

Tilbury. These projects will create value and benefit

our ports, property and waste businesses.

1.

4. 3.

2.

1. Western Harbour

2. The Harbour, Leith Docks

3. Leith Docks

4. Granton

04

Chairman and Group Chief Executive’s Report

2008 was a year of considerable achievement but

was also affected by a very difficult external

environment.

We achieved our strongest ever ports trading

performance and levels of growth; we formed a

strategic joint venture in the renewable energy sector

with a good pipeline of potential projects; and we

achieved planning consent for the largest property

development ever proposed in the City of Edinburgh.

Inevitably, the year was materially impacted by a

number of external factors, notably the growing

economic downturn, the banking and liquidity crisis

and, of most relevance, the severe decline and virtual

shutdown of established property markets. In the

face of this, we have taken decisive action to control

cash spend and to extend the term of our financing

facilities. We are pleased to report that the Group’s

principal net debt was refinanced in December 2008

for a period of over three years to June 2012 and

interest rates were locked in for three years at a

significantly lower level than the average rate charged

in 2008.

We have therefore entered 2009 with a secure,

profitable, cash generative and well diversified ports

business, a property portfolio which continues to

have significant long-term potential (although from a

much reduced base in market value terms) and with

a secure financing position.

We are committed to developing a platform for

growth from our strong asset base. We will also

deliver excellent levels of service and seek to

enhance the quality of our customer base and

contracts. We believe that growth will come from all

of our principal activities – Ports, Property, Waste and

Renewable Energy.

Our key watchwords in running the business in these

difficult times are prudence and conservatism. This

applies to our control of costs, to our aim to conserve

cash and to our decision to rebase the dividend to a

more conservative level of cover.

The underlying ports operating profit increased by

23% in 2008 to £47.6m (2007 – £38.7m), our best

ever performance from our ports business with our

operations in both Tilbury and Scotland performing

strongly. The result from the Nordic group of

companies (“Nordic”) was earnings enhancing,

although disappointing, with profitability being

adversely affected by incremental costs and, in the

last quarter of 2008, by the fall in commodity prices

at the Materials Recycling Facility (“MRF”) in Tilbury.

The property division successfully achieved outline

planning approval from City of Edinburgh Council

(“CEC”) for the Leith Docks Outline Planning

Application (“LDOPA”). This approval was given in

less than twelve months which is a great credit to our

staff who managed the process and also reflects the

hard work of the planning officials within CEC.

As indicated in our pre-close trading statement, the

property downturn had a major effect on the

independent valuation of our development assets.

Debenham Tie Leung (“DTZ”), our Valuers, ascribed

a Market Value of £60m to these assets as at 31st

December 2008 (2007 – £282m) and now deem

about 80% of the development land bank to have

no immediate development value. This similarly

impacted the Calculation of Worth which is now

£82m (2007 – £408m). The effect of the property

downturn, notably the rise in property market yields,

also resulted in a decrease in the value of our

investment properties, most of which are secure

port related leases.

With the refinancing in place, and the significant

capital investment in recent years, we believe we are

well placed to deal with a challenging year in 2009.

05


2008

Financial

The financial results for 2008 are complicated by a number of adjustments, largely non-cash, to the underlying1

trading position of the Group which are separately identified in the table below.

2008 2008 2008 2007 Ports Property Total Total £m £m £m £m

Group revenue 184.3 1.6 185.9 165.0 Group operating profit before exceptional items and revaluations 46.9 0.5 47.4 37.0Add back: amortisation of intangibles 0.7 – 0.7 0.4 Underlying Group operating profit 47.6 0.5 48.1 37.4Net finance costs (10.1) (1.8) (11.9) (10.3)Share of results of joint ventures – (1.7) (1.7) (2.0)Share of results of associate 2.5 – 2.5 2.5 Underlying Group profit before tax 40.0 (3.0) 37.0 27.6Proceeds from guarantor (net) 1.7 – 1.7 –Provision re debtors – (3.9) (3.9) –Insurance proceeds on disposal 2.8 – 2.8 –Revaluation of investment properties (18.7) (0.5) (19.2) 12.8Provision against property development assets – (27.7) (27.7) –Decrease in valuation of Ocean Terminal – (19.7) (19.7) (7.7)Tax on associate (1.0) – (1.0) – Profit before tax and amortisation 24.8 (54.8) (30.0) 32.7Amortisation of intangibles (0.7) – (0.7) (0.4) Reported profit/(loss) before tax 24.1 (54.8) (30.7) 32.3

Group revenue increased by 13% to £185.9m (2007 – £165m). The underlying ports operating profit increased by

23% to £47.6m (2007 – £38.7m). The underlying property operating profit amounted to £0.5m compared with a loss

of £1.3m in 2007. The underlying group profit before tax was £37m (2007 – £27.6m), an increase of 34%. The

reported loss before tax amounted to £30.7m after net exceptional items and revaluations of £67.0m arising mainly

as a result of non-cash write-downs and provisions in the property business. The loss after tax amounted to £51.2m

compared with a profit of £24.9m in 2007.

The basic loss per share amounted to 107.8p (2007 – earnings of 55.3p). Underlying earnings per share were 58.7p

compared with 46.1p in 2007, an increase of over 27%.

Net debt at the end of the year amounted to £208m (2007 – £205.5m), an increase of £2.5m over the year.

Total committed facilities at the end of 2008 were £275m.

1 The full definition of “underlying” is shown in the Glossary on page 129 but broadly, it excludes revaluations and other items that are considered to be

one-off in nature. Full details of the exceptional items and revaluations referred to above may be found in Note 4 on page 89.

06

Chairman and Group Chief Executive’s Report continued

Within the property figures, there were four distinct

effects on the results. First, the mark to market of the

investment properties held by the Group which

includes land and buildings leased out to port related

tenants. The annual revaluation of these assets

produced a reduction in value of £19.2m compared

with an increase in value in 2006 and 2007 of £24.1m

and £12.8m respectively. This is a non-cash item and

arising from a shift in market yields and is not directly

reflective of the growth in overall ports income,

security of income or ports profitability.

The second effect was on the carrying value of our

property development assets. The mark to market

exercise was carried out by DTZ who have reviewed

the approach to the valuation of the Group’s property

development assets. A more detailed explanation of

the valuation approach by DTZ is covered in the

Glossary at page 128. We have reviewed the future

recoverability of the amounts included within

inventories in the Balance Sheet in the light of the

reduction in Market Value of the Group’s property

development assets at the year end. These assets

are, in the main, held at historic cost. As a result, the

total decrease in Market Value has not been reflected

in the Income Statement or Balance Sheet. However,

after taking into account the areas of the land bank

not currently considered realisable for development

by DTZ, the reduction in expected ultimate sales

proceeds, and the long-term nature of these

developments, we have written off £27.7m against

the previous carrying value of work in progress of

£53.1m. This write-down is a non-cash item.

The third effect was the £19.7m write-down in value

of the Group’s interest in Ocean Terminal (“OTL”),

which has arisen principally as a result of an adverse

market yield movement and is a non-cash item.

The fourth effect was the write-down of £3.9m in

respect of property trade receivables as a

consequence of the diminution in value of the

Group’s security over sites already sold. There are

no further sites in this category.

The tax charge in 2008 included a charge of £27.2m

to cover the increase in the deferred tax liability

arising from the change in the corporation tax rules

covering Industrial Buildings Allowances. This one-off

charge has no immediate cashflow effect in itself but

will increase the cash tax paid annually by

approximately £1.5m. The cash tax charge overall for

2009 will, however, be significantly reduced.

Dividend

In the light of the current economic climate, the

Board has reviewed the Group’s dividend policy

which was established in 2005. The Board remains

confident that the ports earnings are in the main

robust but, given the UK economic outlook and the

fact that property values are not expected to recover

materially in the near future, the Board considers that

it would be prudent for dividend cover to be higher

than it has been in recent years.

Accordingly, the Board has decided to rebase the full

year dividend. The recommended final dividend is

therefore 12p per share (2007 – 31.95p) making a

total dividend for 2008 of 28.6p (2007 – 47.7p). The

full-year dividend is twice covered by underlying

earnings per share of 58.7p. The Board intends that

the Company will continue to pay out dividends of

one third in November and two thirds in May. The

Board expects that this rebased full year dividend will

be sustainable.

If approved by the shareholders at the Annual

General Meeting, the final dividend will be paid on

8th May 2009 to all shareholders on the register as

at 14th April 2009.

Ports

Our ports business has a relatively even distribution

of revenues amongst the main commodity areas:

Liquid Bulks

Dry Bulks

Paper and Forest Products

07


2008

Containers and Ro-Ro

Imports or exports of these commodities will be

required, even in a period of economic downturn.

We estimate that some 80% of our revenues at the

beginning of the year are secure, either contractually

underpinned by lease or minimum volume guarantee

or evergreen given the recurring nature of

throughputs and the supply chain pattern of the

commodity. The balance of our revenue base is

generated from spot markets. Our ports revenues

are, therefore, substantially underpinned with

good visibility.

The ports business produced an excellent

performance in 2008. The underlying EBITDA2

increased to £61.5m compared with £53m in 2007.

At Tilbury, there were strong performances in grain,

at the Enterprise Distribution Centre and in the ro-ro

business. Scotland saw an increase in container

volumes of 11%. Coal and steel pipes were useful

contributors in 2008 and liquid bulks performed

strongly, particularly at Hound Point.

The requirement for land facilities and port services

at Tilbury remained strong throughout the year.

A number of customer contracts were renegotiated

successfully and several long-term customers,

recognising the relative shortage of facilities at

Tilbury, sought to renegotiate existing contracts

earlier than contractually required. The senior

management at Tilbury have worked hard with the

Olympic Delivery Authority (“ODA”) to promote

Tilbury as the prime waterborne distribution centre for

the Olympics. Tilbury has already seen an increase in

volume from the Olympics effect and expects further

substantial increases over the next few years. Good

progress has been made with the planning

authorities on our application to have our 65 acres of

land outside the port rezoned for port use. The

momentum to sign up new contracts has continued

into this year with over ten new or restructured

contracts being signed with customers.

At Grangemouth there was a strong performance

from the container business. In addition, we have

invested in four new Sennebogen hydraulic material

handlers for use in our general cargo business in

Scotland. These have already made significant

improvements to our productivity and efficiency in

handling short sea cargoes.

Our piped cargoes remained strong throughout the

year in Scotland, producing stable income flow for

the business.

The Nordic group financial result was adversely

affected by two factors: firstly, the significant collapse

of commodity prices from the end of the third quarter

in 2008; and secondly, the “bunching” of

commingled waste inflows into the MRF at Tilbury

which resulted in an uneven flow of recyclable

materials. This, in turn, increased the cost base at the

same time as the commodity price decrease.

Measures have already been instigated to improve

the revenue earning capacity of the MRF with

increased inward gate fees to offset the commodity

price risk, stricter controls on the inflow of materials,

tighter cost controls and process improvements to

the machinery.

Property

The property division made an underlying operating

profit of £0.5m in 2008 compared with a loss of

£1.3m in 2007.

The net decrease in the Market Value of the Group’s

property development assets and the change of

approach taken by the Valuers have been described

earlier. The overall change in value reflects a positive

movement of £55m being added to the valuation

offset by a net reduction of £277m.

The £55m increase in value was largely attributable

to steps taken or milestones achieved by the Group

in its development strategy, the main components

of which are:

2 Earnings before interest, tax, depreciation and amortisation

08

Chairman and Group Chief Executive’s Report continued

a achievement by the property division of targets

and milestones in improving the quality and

prospects of the development assets and the

development projects becoming more

established as a result of the consent for the

LDOPA (£46m); and

b value being added through infrastructure

expenditure incurred (£6.5m).

The £277m net reduction in value was a result

of deteriorating market conditions, the main

components of which are:

a a reduction in residential unit sales rates as a

result of falling values and lack of demand in

the property market (£135m);

b sales of residential units being deferred due to

the slow down in property markets (£79m);

c reduced long-term growth rates for residential

units (£54m);

d adverse yield movement in respect of Ocean

Terminal (£21m);

e reduction in commercial and industrial values

(£20m); and

f offset by a positive saving of £32m following

a review of development costs.

As a consequence of the change of approach and

market conditions, over 80% of the Group’s

development land bank is currently regarded by DTZ

as having no immediate value for development.

The Board continues to believe that the property

portfolio is a unique asset which has long-term

potential for development when there is a recovery in

property markets and infrastructure links to the site

become more established.

With the virtual shutdown of property markets, we

have already taken steps to reduce materially our

projected property spend and our property resource.

We will focus on maintaining and growing our

income, particularly at Ocean Terminal, obtaining

viable planning consents and working to facilitate

public sector spend on infrastructure for the site. The

achievement of these goals, together with a recovery

in property markets, will give us a strong platform in

the future to attract a development and/or financing

partner. This will allow the long-term potential of these

assets to be realised and, over time, to realise cash.

Notwithstanding the substantial reduction in Market

Value, the Group’s progressive approach to

developing its property estate over time has

generated a considerable amount of profit and cash

and gives the Group significant long-term potential.

Since 1991/1992, when Forth Property Developments

was established, a total of nearly £100m has been

spent on developing the Group’s property assets.

Over that period, the Group has generated cash of

£127m from land sales and has received dividends of

£38.6m in aggregate from its property subsidiaries3.

As at 31st December 2008, net debt in the property

subsidiaries was £40.2m.

A highlight of 2008 was the approval by CEC of the

LDOPA within a period of twelve months. The

property team also submitted an Outline Planning

Application (“OPA”) for The Harbour, Leith Docks

development on 10th December 2008 (the Hub

area is now known as The Harbour, Leith Docks).

The OPA incorporates proposals for the first two

villages of the Leith Docks plan which include a

mixed-use development of 1,900 residential units,

16,000sq.m. of retail, 99,000sq.m. of office and

19,000sq.m. of leisure.

2009 will see continuing discussions with CEC on the

OPA for The Harbour, Leith Docks which, we believe,

will position us well for a future upturn in the property

market. The property team has carried out a detailed

3 Excluding minority interests

09


2008

review of the property division’s cashflow

requirements which will result in a significantly

reduced spend in 2009 compared with 2008. Cash

will only be expended where there is a clear benefit

to valuation from the spend or in pursuance of a

viable planning approval. Our remaining obligated

expenditure is approximately £10m which will be

carried out over the next few years.

Renewable Energy

We have entered into a strategic joint venture with

Scottish and Southern Energy plc (“SSE”) to pursue

joint interests in renewable energy sources. In May

2008, planning approval was granted to Port of

Tilbury for the erection of four large wind turbines

within the port and we are considering whether to

lease or sell the site.

There is a growing recognition that deepwater ports

are ideal locations for energy generation plants from

renewable sources such as biomass and waste.

We see potential to develop a number of such plants

and have already received several enquiries.

At Tilbury, proposals are currently going through

planning and in Scotland several potential sites have

been identified and are the subject of interest. These

developments will help us create value through

consented sites and also through the benefits of

importing significant quantities of bulk materials.

People

We are extremely grateful to all who work for Forth

Ports for their efforts and contributions over the

last year.

Prospects

We continue to have a number of potential projects

offering attractive long-term growth prospects for the

ports business. In aggregate, these different projects

total over £50m of potential spend. In today’s market,

it is more a question of positioning the business to

capitalise on these growth opportunities, such as

the land outside the Port of Tilbury, in due course.

We believe that these projects have the potential

to generate attractive long-term returns for

our shareholders.

Outlook

The Group’s main focus in 2009 will be to manage

our businesses efficiently and prudently, in order to

withstand the recessionary pressures and develop

a growth platform to position us for a recovery in the

economy. This will involve increasing the customer

base and improving the quality of customer

contracts, managing our costs more efficiently and

our cash more effectively. Property expenditure will

be tightly controlled with the emphasis on increasing

the value of our property assets and continuing our

dialogue with CEC on our various planning

applications in order to take advantage of future

benefits from improved transport links.

Trading in January was lower than last year, although

many areas of our business continue to trade well.

Trading in February both at Tilbury and in Scotland

has shown signs of improvement over last year.

The stability of a large part of our ports revenue

base places us well to cope with the challenges that

we expect as a result of the weaker UK economic

environment. Against this background, we expect

to deliver a robust overall performance.

Christopher Collins Chairman

Charles HammondGroup Chief Executive

16th March 2009

10

2008 was the year where we demonstrated the quality and breadth of our ports business. We delivered results and created opportunity in 2008 despite a deteriorating economic and market situation.

11


2008

Our Progress in 2008

We achieved a great deal in 2008 despite economic

uncertainty. Our key achievements were:

A record performance in our ports business

at both Tilbury and Scotland

Approval of Edinburgh’s largest ever

planning application

Earnings enhancing performance from Nordic

Strategic joint venture in renewable energy

which will add value to our Group in the future

Decisive action was taken to refinance the Group

at a significantly lower net interest cost

The result of these achievements is a robust, well

diversified ports business, a secure and stable

financing platform and the ability to create a platform

of value when markets recover.

12

Our strategy continues to be one of using our asset base to create value for our shareholders. We have a secure core ports business and will continue to develop supply chain efficient solutions for our customers. Our asset base has long-term potential to add value for our shareholders through property, recycling and renewable energy developments.

Tilbury/Nordic Leith/Edinburgh Grangemouth Dundee Rosyth

Business assets

Economic grow

th and value for shareholders

Work in partnership with customers and stakeholders

Bus

ines

s fo

cus

Port Investment/Supply Chain Development

Waterfront Regeneration

Renewable Energy

Waste Management and Recycling

13


2008

The Key Points of Our Strategy

Working closely to understand our customer

supply chains

Through operating efficiencies, delivering

excellent service in the supply chain

Investing against secure and visible returns

Positioning our land bank for the upturn through

viable planning consents and working in

partnership with our public sector

Developing renewable energy proposals by

working in partnership to generate value, port

related revenues and a sustainable energy

platform for long term regeneration projects

Integrated waste management, recycling and

export propositions for major customers

14

In difficult times, it is important to do basic and essential things well. Our strategy of consistent investment will stand us in good stead to deliver excellent service to our customers and efficiencies in their supply chains. Those efficiencies also allow us to control costs and manage our finances. A good example of this philosophy in action is our productivity improvements at the Grangemouth Container Terminal. Shipside turnaround and landside operations have seen productivity improve in the last year after intensive investment and new working practices were introduced to the terminal. This will allow Scotland’s exports to leave Scotland’s largest container port and get to market more quickly and efficiently.

15


2008

Delivering excellent service to customers

With continued investment in the land side operations

at Grangemouth Container Terminal the overall time

taken to handle vehicles has steadily reduced since

2004. This investment has focused on infrastructure

and location of the vehicle drivers’ reception, as well

as IT developments. The graph shows the average

turnaround time for vehicles delivering and receiving

laden boxes at the Port of Grangemouth.

80

70

60

50

40

30

20

10

2008200720062005

Grangemouth turnaround times (minutes)

2004

35

40

5255

69

0

16

Health and safety: reduction in accidents

In 2008, we reduced our accident level across the

Group. We are committed to working in partnership

with our workforce and trade unions to reduce this

rate further. The Safety First for Forth and Behavioural

Safety campaigns are good examples of these

partnership initiatives in action.

Group Personal Injury Accident Statistics

Reporting of Injuries, Diseases and Dangerous

Occurrence Regulations 1995 (“RIDDOR”).

200

175

150

125

100

75

50

25

0

200

175

150

125

100

75

50

25

02008 20082007 2007

26–33%

119–23%

39

155

All RIDDOR Reportable Accidents Group personal injury accident statistics

17


2008

Security of revenue

Around 80% of the Group’s port revenue in 2008 was

derived from long-term contracts. We work closely

with our customers to ensure that we provide them

with consistently excellent service.

Liquid Bulks £20.5m

Containers £21.3m

Paper/Forest Products £26.6m

Dry Bulks £17.8m

Other Cargo £23.2m

Managing cash

During 2008, the Group refinanced its borrowings for

the period ending in June 2012. With effect from early

2009, £200m of the Group’s borrowings are at fixed

interest rates.

Net debt

300

250

200

150

100

50

2008200720062005£m 2004

208.0205.5

176.6179.6

161.8

0

18

Creating a Platform for Growth. Our strong asset base gives us the ability to develop a platform for growth to take advantage of recovering markets.

Operating efficiencies

The Scottish Operation has invested in Sennebogen

hydraulic material handling equipment for

deployment on its short-sea general cargo business.

The flexibility of the Sennebogens allows for

deployment at each of our Scottish Ports and

provides greater efficiency and productivity for

our customers.

19


2008

Nordic

The Nordic business is one of the most efficient

materials recycling facilities in the south east of

England. We aim to improve the recycling process

further to create growth opportunities in waste.

Holmen vessel, Chatham

Throughputs, although stronger in the first half of

2008, were in line with our expectations and reflected

the challenging market that our paper customers are

trading within.

London Olympics

We are the Waterborne Centre for Transport for the

London Olympics. These games will require a third

of all materials to be transported by sea, lowering

carbon footprint and giving Tilbury the opportunity

to enhance and diversify its revenue base.

20

Supply chain efficiencies

Transporting goods by sea is generally more cost

effective than any other mode of transportation. It

also generates a much lower carbon footprint than

other transport modes. The new Norfolkline ferry

service will save as much in carbon emissions as

we as a business emit in servicing our customers.

The more efficient our supply chains, the lower

the carbon footprint for moving goods in and

out of the UK.

Grain Drying Facility for Simpsons Malt, Dundee

Investment in grain dryers at the Port of Dundee

trebled the drying capacity at the port during 2008.

This investment supports the growing Scottish

agricultural and distilling industries.

Over 90% of goods worldwide are moved by sea –

only 67% are moved in and out of Scotland by

this mode of transport. We believe that creating

opportunities for coastal shipping in this country

will lead to better supply chain efficiencies, a

lower carbon footprint and a better return for the

public purse.

21


2008

ISO Accreditation for Marine Division

Assistant Harbour Master, Kelly Johnston, receives

the Certificate ISO 14001 Environmental Management

System on behalf of the Marine Division from Charles

Hammond, Group Chief Executive. This was

achieved after the Division developed a structural

approach to tackling environmental issues through

training, the extension of recycling facilities and

monitoring of energy usage. Also pictured is Martyn

Clark, Marine Manager Forth and Tay and Bob Baker,

Chief Harbour Master.

Strong container growth

Container volumes at Grangemouth increased by

11% over 2007 levels. In total, 157,225 boxes were

handled by the port in 2008.

22

Directorate Appreciation by Group Chief Executive

2009 will be my last year as Chairman of Forth Ports.

I plan to retire at the end of the year in advance of my

70th birthday. It has been a privilege to be involved.

A process to select my successor has been led by

Gerry Brown, our Senior Independent Director. I am

delighted that David Richardson has agreed to take

over and wish him well for the future. I will be sad to

leave but know that there is an excellent team in

place to steer the Company forward.

Christopher CollinsChairman

It has been my privilege to work closely with Chris

Collins for almost ten years. Throughout that period

he has led the Board both astutely and with great

cohesion. The Group will continue to see the benefit

of this through Chris’s successor, David Richardson.

Chris’s contribution to the Group has been both

understated and hugely significant. I have benefitted

greatly from his wisdom, insight and total integrity.

I wish him well for the future.

Charles HammondGroup Chief Executive

23


2008

Business Review

Group

The strong underlying trading performance of the

ports in 2008 was achieved against a backdrop of

a dramatic deterioration in the global economy and

a very steep decline in the value of property,

particularly in the second half of the year. As a result,

we achieved strong growth in our underlying port

operating profits with excellent trading performances

from Tilbury and Scotland.

As a result of market conditions, the Market Value of

our property assets decreased significantly although

the Board believes that their long-term potential

remains considerable.

Group revenue increased by 13% to reach £185.9m.

Port revenue increased by over 15% to £184.3m

(2007 – £159.5m). Property revenue amounted to

£1.6m compared with £5.5m in 2007 as there were

no land sales in 2008.

The underlying port operating profit amounted to

£47.6m, up from £38.7m in the previous year, an

increase of 23%. The revaluation decrease in the

port investment properties amounted to £18.7m,

compared with an increase in valuation in 2007 of

£12.2m. During the year insurance proceeds from the

collapse of a container crane and income received

under a rental guarantee amounted to £4.7m gross.

The underlying property operating profit amounted

to £0.5m compared with a loss of £1.3m in 2007.

Against this the carrying value of the property

development costs within inventory were written

down by £27.7m reflecting, principally, a large

reduction in the underlying value of the land available

for development. In addition, the security taken some

years ago to protect outstanding sums due on

previous years’ property sales fell to such an extent

that the remaining two major property debtors have

been written down by £3.9m.

Ports

Total volume of traffic through the ports increased by

5% to 48.7 million tonnes compared with 46.3 million

tonnes in 2007. Liquid bulk tonnages increased to

34.4 million tonnes, up 7% on 2007. Dry cargo

tonnages increased marginally to 14.3 million tonnes.

At the end of December 2008, Bidwells, as

independent Valuers, carried out a valuation of the

investment properties held by the Group. The

valuation produced a decrease of £18.7m in respect

of the port investment properties and £0.5m in the

property investment properties, an overall reduction

of £19.2m. This compares with a revaluation increase

in 2007 and 2006 of £12.8m and £24.1m respectively.

The downward movement in valuation of the

investment properties is only as a result of property

yield movements and has no bearing on the security

of the revenue shown or strong growth performance

in the ports business. Both Scottish Ports and Tilbury

continued to benefit from an increase in the

underlying rent per acre during the course of 2008,

however, this was not sufficient to offset the change

in the yield year on year.

TilburyTilbury produced yet another strong financial

performance on a throughput which was up

marginally at 8.4 million tonnes. There was a 10%

increase in throughput within the Conventional asset

area, driven mostly by ro-ro traffic where there was

a 70% increase in that traffic, a 10% increase in the

grain division which benefited from a major increase

in exports and a 5% increase in the volumes at the

Enterprise Distribution Terminal. Short sea container

volumes were down by nearly 6% at just over

145,000 boxes compared with just under 153,000

boxes in 2007. The volume of traffic handled by our

operating tenants in such areas as cement, scrap

and aggregates was also down in 2008, but this was

due principally to the reduced level of business from

Cemex to enable the new blending and milling facility

to be built and did not affect the increased

guaranteed tonnage.

24

Business Reviewcontinued

A large number of contracts were reviewed and

renewed during the course of 2008 as part of the

normal ongoing review process. At the end of 2008,

the Board approved an investment of under £3m to

upgrade the ro-ro facility in-dock at Tilbury subject to

reaching an agreement with the customer on an

increased guaranteed minimum throughput and an

extension to the existing contract through to 2013.

In May 2008, Tilbury received planning approval

to erect four large wind turbines within the port to

provide electricity for its own use and third party

use as part of its drive to lower its carbon energy

footprint. In conjunction with our new strategic

partner, SSE, we have been evaluating the cost of the

project against the increasing cost of the wind

turbines versus falling electricity prices. Separately,

we have also been looking at the value of the

planning approval to assess how we crystallise

this value. A decision is expected during the course

of 2009.

Following Tilbury’s purchase of 65 acres of land

just outside the port, we have had detailed meetings

with both the Thurrock and Thames Gateway

Development Corporation and Thurrock Council

over the future use of this land. The plan is subject

to public consultation. Thurrock Council are in

agreement with the plan and intend to include it in

their own local development plan due for completion

by mid-year 2009. We therefore intend to submit an

OPA this year for port-related expansion and

development on the site.

During the year we worked with the ODA in trialling

movements of various products from Tilbury to the

Olympics site. The ODA have recently approved

further dredging works to allow larger barge

movements to the site. This can only be to the benefit

of the existing barge operation from Tilbury.

Tilbury Container Services (“TCS”) increased its

volumes by 12% to reach 342,000 boxes. Our share

of the operating profit amounted to £3.7m (2007 –

£3.7m). The Group’s share of profit was up by 60% at

the half year but, as referred to in the Group’s Interim

Statement, the deep sea container market saw a

dramatic fall in volumes during the course of the

second half of the year. Having geared up for a much

higher annual volume, the cost base latterly was too

high to support the lower volume. In common with

many other deep sea ports, TCS has reviewed its

cost base in order to remain competitive in 2009.

NordicNordic had a difficult year but nevertheless produced

a profit which was still earnings enhancing. The port

business through Chatham was affected in the

second half of the year by a reduction in volume from

its two major paper customers, one of which was

significantly below budget in 2008. The recycling

business was affected by peaks and troughs in

delivery volumes to the Tilbury MRF which made the

control of costs much more difficult. In addition, the

collapse of prices for recycled materials could not be

counteracted immediately by increases in gate fee

income to compensate.

As part of the integration of Nordic, the accounting

information was transferred to the Group accounting

system. When this information was being validated

some control issues were identified. Further control

procedures have been implemented to raise

the quality of the management information in the

Nordic group.

In 2009, good progress has been made with Nordic’s

major customers to improve the port profitability

and to mitigate, as much as possible, the adverse

effects of the fall in commodity prices within the

recycling business.

The recycling joint venture in Lincoln was not

successful in obtaining planning approval for a new

MRF and so the planning costs of approximately

£150,000 were written off in the year.

25


2008

Scottish Ports and MarineThe Scottish business performed strongly in 2008.

Container volumes were again well up throughout

the year at Grangemouth. The Hound Point volumes

increased by over 8% and the Braefoot Bay volumes

increased by 14%. In addition, operating efficiencies

improved in all of the ports.

GrangemouthContainer volumes amounted to 157,225 boxes

in 2008, an increase of 11% compared with 2007.

Both shipside and roadside productivity improved

significantly during the year, benefitting customers.

Whisky exports were well up compared with last year.

A new drivers’ reception area was completed at the

end of the year and this has improved the flow of

landside and haulier operations at the terminal.

Dry cargo tonnages remained steady at 0.3 million

tonnes with increases recorded in paper and pulp

and fish and fishmeal being offset by a reduction in

iron and steel tonnages. The second half of the year

saw the introduction of the new Sennebogen

hydraulic handling machines which have significantly

improved the productivity and overall efficiency of our

general cargo operations. The final two machines

became fully operational in February 2009.

LeithTotal throughput remained steady at 2 million tonnes

with increases in grain, aggregates, iron ore and steel

pipes being offset by a reduction in the coal volume

which was down by 0.2 million tonnes (although still

above the guaranteed minimum throughput).

Discussions continue with CEC, and various other

parties, on a new cruise liner facility for Edinburgh

outside the existing lock gates of the port. It is

recognised that there would be a significant benefit

to Edinburgh and Scotland in having a cruise liner

facility which could take larger cruise liners which

would otherwise not be able to berth in the port.

Dundee

The tonnage at Dundee in 2008 amounted to

1 million tonnes (2007 – 1 million tonnes). Agripod/

agricultural tonnages were up by 7%; unfortunately

with the contraction in the house building sector,

timber tonnages reduced from 66,000 tonnes to

39,000 tonnes in 2008.

Rosyth and Fife PortsTonnage through Rosyth and Fife Ports amounted to

0.2 million tonnes compared with 0.6 million tonnes

in 2007. Although the coal traffic ceased at Rosyth in

March 2007, it still accounted for 0.4 million tonnes in

that year with no equivalent tonnage in 2008. Rosyth

also experienced its share of the economic downturn

in the timber and construction industry with a

reduction in timber and plasterboard tonnages of

approximately 76,000 tonnes.

The Superfast ferry service between Rosyth and

Zeebrugge ceased operations in September,

however, we are delighted that Norfolkline, a

subsidiary of Maersk, is due to start a new service

in mid-May. It is hoped that the service will build up

from the initial three sailings per week to six sailings

per week should the demand warrant it next year. The

new vessel will offer both a freight and passenger

service and there is a significant amount of interest in

the service from the freight community in Scotland.

Property

Our property business has been significantly affected

by the dramatic turnaround in the property sector in

the UK with, most notably, the massive fall off in

housebuilding and lack of available mortgages

contributing to a major decline in the value of land.

Within this context the positive work of the property

team in building value was more than offset by the

market decline.

On the planning front, the LDOPA which was

submitted in September 2007 was approved by

the Planning Committee of CEC in August 2008.

26


In December 2008, the Scottish Government decided

that the application would not be called in and

referred it back to CEC for determination. Also in

December, we submitted an OPA for The Harbour,

Leith Docks development formerly called the Hub.

Detailed discussions with CEC on this application will

take place during the course of 2009. Jones Lang

LaSalle have been appointed to review the scheme

and will advise the Group on its timing and marketing

to potential partners. This will only be taken forward

when market conditions improve.

The Granton Harbour revised masterplan was

approved by CEC on 25th February 2009. The effect

of this is to increase the number of townhouses and

open spaces within the development.

Since the Interim Statement, the value of OTL has

declined further, reducing to a Market Value of £90m

at the end of December 2008. This resulted in a

reduction in valuation borne by the Group of £19.7m

in the full year. At this valuation, OTL would have

been in breach of its Loan to Value covenant,

however, it was agreed with Bank of Scotland

(“BOS”) that the Loan to Value test would be

suspended until 30th April 2010 and retested at a

minimum lower level of £78m. The refinancing will

require Forth Ports to inject a further £5m into OTL

by way of loan stock. In addition, both shareholders

agreed to lend a further £1.5m each to cover the

likely cost of physical alterations to the shopping

centre and towards capital inducements for new

tenants. This latter sum will only be expended on the

basis that it produces a greater uplift in value than

the initial sum spent. Towards the end of 2008 we

received planning approval to carry out various

changes to the front entrance of Ocean Terminal.

In conjunction with Applecross Properties Limited,

we have prepared an OPA for up to 179 units on four

plots at Western Harbour. The OPA will be submitted

during the first quarter of this year.

Over the course of 2008, we have reviewed the

property infrastructure spend on three separate

occasions and have brought down the spend from

£22.6m to £4.4m in 2009. This spend covers an

ongoing requirement to meet existing commitments

together with a spend which is required to follow

through with The Harbour, Leith Docks OPA and the

other minor OPAs referred to earlier. Our aim is to

spend only where, with the grant of planning

approval or with the completion of works, value will

be created which is in excess of the actual spend.

27


2008

Key Performance Indicators

The Board uses the annual budget as the base for

measuring the Group’s performance. Financial and

non-financial targets are set for individual senior

managers and for the businesses within the Group.

At the Annual Strategy Review, the Board considers

the financial projections over a three year time

horizon. The overarching aim is to increase the value

of the Group for the benefit of the shareholders. In

the current economic climate, it is unlikely that there

will be a return to the high values ascribed to our

property assets in 2007/2008 for some years and so

this Key Performance Indicator (“KPI”) has been

eliminated.

The KPIs which are used to measure this increase

in value are:

1 Underlying port operating profit

2 Growth in value of the property assets

3 Growth in value of the port assets

4 Dividend per share

These KPIs are discussed in more detail in the

Business Review and Chairman and Group Chief

Executive’s Statement. In using the underlying port

operating profit as a KPI, the Board is looking to

increase the trading profit from the ports business

excluding certain other financial effects such as

revaluation changes to investment properties and

significant one-off costs.

The movement in the value of property assets is

measured on an annual basis by the independent

valuation carried out on the property development

assets.

Trends in the Ports BusinessPorts are increasingly finding themselves as active

participants in the supply chain for the movement of

goods. This means that, rather than just marketing

shipping and handling capabilities to shipping lines,

there are a variety of customers who, at various

points in the supply chain, can control the movement

of goods and to whom the port will be marketing its

services, including the producer of the commodity,

the shipping line, the distributor of the commodity

and in some cases agents and trade boards. Our

main ports all have good access for landside

distribution and also, in the case of both Tilbury and

Grangemouth, good access for the export of goods

from the UK.

None of the ports has the depth of water to handle

the new generation of container ships of 12,000 TEUs

and more. The normal capacity at Tilbury is ships of

about 4,500 TEUs and at Grangemouth less than

2,000 TEUs, although in 2007, a Maersk vessel of

over 8,000 TEUs came alongside the berth at TCS.

As ship size increases in the container market, fewer

main ports in Europe will be able to handle the

largest vessels but this will also entail a more

developed network of transhipment and feedering

terminals which may also see an increase in

vessel size. With this in mind, both Tilbury and

Grangemouth are well placed to see growth in this

sector of the market with additional capacity for at

least the next five years and with an anticipation of

increased feedering vessel size.

The trends in traffic type suggest that container and

ro-ro traffic will continue to increase at a rate greater

than the average GDP of the UK and nearly all of this

traffic will be European and therefore can be handled

easily by our ports.

28


Liquid bulk continues to be an important constituent

of the make up of the Group’s business. This

tonnage has gradually declined over the last five to

seven years although with the Buzzard Field now on

stream, there has been an increase in liquid bulk

movements in 2007 and 2008 which should continue

for the next few years. Prior to North Sea oil coming

on stream in the mid-70s, the UK was a net importer

of liquid bulk and already there are signs that this

may repeat itself with the import of LNG through

various ports in the UK.

Dry bulk cargoes have been consistent in total

volume terms over many years, however, the

individual commodity mix has changed over that

period of time. A good example of this would be that

although grain has played an important part in the

Tilbury traffic for many years, it was only in the

mid-1990s that bulk animal feed was imported

through the port.

The thrust of our ports business is to manage our

assets efficiently and improve the return we get from

individual operations through more efficient use of

our resources thereby releasing further assets for

future development either in the ports or property

businesses. This is unlikely to change in the near

future.

Resources

Our two greatest resources are our employees and

our physical asset base. We employ 1,250 people

throughout the Group and our pension scheme

encompasses over 900 pensioners and 400 deferred

pensioners. If the total number of persons employed

within our various ports is included, then our

economic activity encompasses many thousands

more who are reliant on the trade through our ports.

The ports industry is such that our employees tend

to remain with us for many years. Health and safety

is paramount and we pay particular attention to the

training and retraining of our employees,

encouraging dialogue between workforce and

management to identify potential problem areas to

minimise risk. We encourage national vocational

qualifications and support staff who wish to pursue

relevant academic qualifications. Our labour stability

index remained steady at 91% in 2008.

The land under our ownership covers 648 hectares

and we also own over 1,900 hectares of seabed

adjacent the waterfront at Edinburgh. The way in

which we manage these land assets is critical to the

future success of the Group. We have shown in

Tilbury that we have the expertise to work with our

customers to move businesses around the port to

obtain greater value from the asset but we also work

with our customers to help them maximise the

benefits that they receive from being located in our

ports. In Leith, a similar type of expertise is required

except that the interaction is between the continuing

port business at Leith and the requirements to

develop the assets for property use. In our view, this

can only be achieved by a unified management

structure which, although decentralised for the

day-to-day business, is controlled centrally at a

strategic level. We are therefore, as a Group, seeking

to increase the value of our port assets by

encouraging long-term agreements with major

customers to secure income stream and enhance

value and at the same time, develop our property

assets over a long-term period to regenerate the area

around the port and so increase the value of our land

both absolutely and by reducing the value gap

between the Waterfront and the City centre.

29


2008

Risk

The management of the business and the execution

of the Group’s strategy are subject to a number

of risks. The key business risks affecting the

Group are considered to relate to the retail

and property markets and the current global

economic environment.

Bank Funding and Financial CovenantsAs has been well publicised, the availability of bank

funding deteriorated markedly in 2008, increasing the

risk of refinancing for normal trading companies. With

this tightening in credit markets, the decision was

taken to refinance all of the Group’s borrowings

rather than wait until 2009 to complete the refinancing

of the £100m Revolving Credit Facility which matured

in that year. The Company entered into negotiations

with BOS to refinance that part of the facility which

matured in June 2009. At the same time, a number of

other banks were approached for funding. Following

prolonged discussions, the Company renegotiated its

total facilities with BOS and Lloyds TSB with the

result that, with effect from January 2009, the total

facilities available to the Group amounted to £275m

(2007 – £300m), comprising of two revolving credit

facilities totalling £250m which mature on 30th June

2012 and a multi-option finance facility of £25m which

matures on 30th June 2010. The BOS revolving credit

facility replaces the previous revolving credit facility

and the long-term loan. The average margin

increased by nearly 100% to 162 basis points.

The opportunity was taken to fix the interest rate

on £200m of borrowings which has resulted in an

average interest rate (including margin) of 4.4%

compared with 6.3% in 2008. The bank funding

is on an unsecured basis.

The banking covenants cover Tangible Net Worth

(“TNW”), gearing and interest cover. The minimum

TNW is £200m; the gearing level is based on not

more than 100% of TNW. The interest cover is based

on a minimum of 2.5 times profit before interest and

tax. The TNW covenant is tested monthly, with the

other covenants tested half yearly at 30th June and

31st December each year. The headroom on all

of the financial covenants at the end of 2008

was comfortable.

Business RiskThe Board does not consider that the Group faces

any substantive strategic risks as both business

segments are in business areas where there will be

ongoing demand for those services. The ports

business has evolved over many years and with

existing trade patterns, our ports are ideally located

for that business, whether it be mainly within Europe

as regards the Scottish Ports or serving London and

the South East of England from Tilbury and Chatham.

The Group has a strong record of investing in

modern plant and equipment and this, together with

increased training for our employees, will enable us

to meet the challenges of the future in offering our

port customers a quality cost effective service for

their needs.

30


The ports business has a very wide spread of

customers and commodities and is capable of

adapting to market change as witnessed over the last

ten years by the business in sludge traffic, bauxite,

fertiliser manufacture and export of coal being

replaced by increased container volumes, the import

of coal, new business such as animal feed, ro-ro

traffic and new paper customers.

The property business has its foundation in the

ownership of land which the Group has, particularly

at Leith. With the benefit of being able to develop

such a significant brownfield site over many years,

the main variable is what the take-up rate for this land

might be. Given the extent of our landholding, it is

more important to put in the infrastructure and add

value, development by development, rather than aim

for an artificial target of land sales. This is even more

important now in the current economic environment.

It is also more challenging to match spend on

infrastructure with adding value where there is little

or no third party transactional activity to rely on for

valuation purposes.

Financial RisksThe financial risks are limited to the normal

commercial risks associated with running a business.

We have no major currency exposure as all our

business is done within the UK, however, we do

acquire assets from overseas where we have seen

a significant deterioration in the £/€ exchange rate.

Our policy is to buy currency as soon as we know

we have a foreign exchange liability.

In 2008, with the unprecedented swift decline in

property values over a short period of time, we

experienced a situation where the recoverability of

the two remaining large property debtors outstanding

in 2008 changed from a position where the security

taken out to cover the indebtedness moved from full

cover to very little cover over the year. As a result, a

provision of £3.9m was made in this year’s accounts.

There are no other significant property debtors on the

Balance Sheet.

Valuation RisksAlthough the majority of the year end 2007 Market

Value of our property development assets was not

reflected in the Balance Sheet at that date, the

dramatic decline in property prices has had an even

greater effect on the underlying value of our property

development assets at the end of 2008 where we

have written down £27.7m in property infrastructure

costs. If there is a further fall in the value of land, then

this may require a further write-down of the property

development assets.

We have seen a fall in the valuation of our investment

properties by £19.2m in 2008 (compared to an

increase of £12.8m and £24.1m in 2007 and 2006).

This reduction would have been more severe but for

the fact that the rent per acre for such assets

continued to show reasonable increases in 2008

which offset, to some extent, the outward shift in the

yields used to value these assets. These are

long-term assets and fundamental to the business

and so are less likely to be sold. Nevertheless, if

property values continue to decline in 2009, our

investment properties will not be immune to the

general movement in values.

31


2008

Towards the end of 2008, the shift in yields reduced

the valuation of OTL from £130m at 31st December

2007 to £90m at 31st December 2008. As a result,

OTL was likely to breach its Loan to Value Covenant.

Following discussions with BOS, its lender, it was

agreed to refinance the company with additional

funds being made available from the shareholders

including up to £6.5m from the Company. It was also

agreed that the next date for the Loan to Value

Covenant to be tested would be 30th April 2010 with

the valuation as at 31st March 2010. The minimum

Loan to Value at that date is £78m allowing

headroom on the 2008 value of £12m. The bank

loans to OTL are non-recourse to the Company.

The Forth Ports Group Pension SchemeThe Group operates a defined benefit scheme which

is more fully explained in Note 32 of the accounts.

The triennial valuation of The Forth Ports Group

Pension Scheme (”the Scheme”) was carried out as

at 5th April 2008. The valuation showed a deficit at

that date of £30.7m compared with £23.9m as at 5th

April 2005. The funding level at April 2008 was up

marginally at 85%. Higher than assumed investment

returns and increased employer contributions in

excess of the cost of benefit accruals were more than

offset by the interest on the deficit and the changes in

the inflation and mortality assumptions.

The Company has agreed a Recovery Plan with the

Trustees of the Scheme which will require an increase

in contributions going forward, but at a lower cash

rate than previously when the Company made larger

payments into the Pension Scheme than required to

encourage the amalgamation of its two pension

schemes. The employer contribution rate will

increase from 14.6% to 17.1%. The Trustees agreed

that the employees should contribute towards the

increased costs of the Scheme. The way in which this

is achieved is being discussed. The Recovery Plan

agreed with the Actuary requires an additional annual

payment by the Company of £3.3m for the next seven

years. It is expected that this sum will be reduced by

approximately £600,000 per annum which is the

Company’s estimate of the increased contribution

required by the employees.

Modest changes to the assumptions can have a

significant effect on the liability position of the

Scheme. Full details of the assumptions used are

given in Note 32 to the Accounts, however, a 0.25%

increase or decrease in the discount rate would result

in a reduction/increase in the liabilities of £7.6m. If the

inflation assumption was varied by 0.25%, the effect

would be £4.2m. The other significant assumption is

life expectancy. The Scheme uses the PA92 Year of

Birth tables with medium cohort improvements, with

members treated as though they were four years

older than actual age. The average life expectancy of

the members has increased, on average, by one year

since the previous triennial valuation. The cost

approximates to an increase in liabilities of £3.9m.

32


The two principal fund managers remain Lazard

Asset Management and Legal and General. The

performances by the fund managers both exceeded

the benchmark returns over the pension year. The

Statement of Investment Principles has not changed

the allocation of the assets which remains at 60% in

equities and 40% in Government gilts/corporate

bonds. With the significant fall in equities over the

year, the actual allocation as at 31st December 2008

was 53% equities and 46% gilts/corporate bonds with

1% in cash and property.

The Scheme had an accounting net deficit after tax

under IAS19 of £3.7m at 31st December 2008 (2007

– £0.4m). As has been seen over the last two years,

the deficit position can vary widely. The Group paid

in £9.5m to the Scheme in 2008 (2007 – £9.5m).

GeneralWhilst the Board believes that the Group has a good

reputation in the market place, it cannot be

complacent. The nature of the ports industry is such

that the day-to-day work carried out requires our

employees to be totally aware of their working

environment as there is always the possibility of

accidents occurring. Some of the cargoes which are

handled are dangerous and require to be handled in

accordance with specific procedures. There is always

the risk of accident but we have emergency plans in

place which are reviewed regularly and updated

where necessary.

Any significant risk from any of the above risk

categories would be debated by the Board and an

agreed procedure of handling that risk would be

delegated to the relevant Executive Director as

appropriate. The Board has an annual review of the

key risks likely to be faced by the Group. This risk

matrix is updated annually by the Group Risk and

Insurance Manager who oversees the procedures

involved in the identification of business risks and

their compliance by the Group.

Essential Business RelationshipsAs part of the normal operation of the Group, we

have many business relationships to maintain be they

with major customers, major suppliers, elected

members of Parliament (UK, Scottish and European),

local elected councillors and council officials. We

also deal with many Government agencies such as

the MCA, Scottish Environmental Protection Agency,

Scottish Natural Heritage and others. In the Board’s

view, there is no one single business relationship or

group of business relationships which is, in itself,

material to the success of the Group. Nevertheless, it

is important for both business segments to be able to

communicate effectively with all the stakeholders with

whom we have a business relationship and to work

with them to achieve our joint aims.

33


2008

FinanceGroup revenue amounted to £185.9m (2007 –

£165m). The underlying Group operating profit

amounted to £48.1m compared with £37.4m in 2007.

Taxation Excluding joint ventures and associates, the effective

rate of tax for the Group before exceptional items and

revaluations for the year was 28.7% compared with

25.5% in 2007. The increase in the actual rate is due

principally to the previously announced decision by

the Chancellor of the Exchequer to withdraw

Industrial Buildings Allowances progressively over

the next three years. This measure was approved by

Parliament in July 2008, resulting in the Group’s

deferred tax liability increasing by £27.2m. As

reported in last year’s Annual Report and Accounts,

this increase in liability relates to long-life assets

which are unlikely to be sold. This change is

expected to increase the cash tax paid to HM

Revenue & Customs by approximately £1.5m

annually. With the significant losses in 2008, a refund

of corporation tax of £4.3m was made to the

Company in March this year. As a result, the cash tax

charge in 2009 will be significantly reduced.

Cash FlowThe Group operating cash flow amounted to £58.8m

(2007 – £65.8m). In 2008, £8.5m was collected from

property debtors leaving £1.6m to be collected (net

of provisions).

Capital ExpenditureCapital expenditure in 2008 amounted to £23.1m

(2007 – £13.4m). £10.8m was spent purchasing the

65 acres of land at Tilbury. The spend on property

development assets amounted to £6.5m.

Capital Structure The Company has 45.6m shares in issue with a

nominal value of 50p per share. No new shares were

issued during the year. The net debt at 31st

December 2008 amounted to £208m (2007 –

£205.5m). The level of gearing as measured by total

net debt divided by total shareholders’ equity

amounted to 90% compared with 70% at 31st

December 2007.

Should the Group, for any reason, seek to refinance

its borrowings with another financial institution, then

the facility agreements have the right to demand a

prepayment fee equal to 2% of the amount prepaid

and/or cancelled within the first twelve months and

1% thereafter.

The Group’s business is not particularly seasonal in

nature, however, its cash flow requirements may be

affected by the timing of major capital expenditure

projects. In 2008, the peak borrowing requirement

(net of cash) was £223m in June with a minimum

requirement of £210m in February. On the basis of

the budget for 2009, the Group will not require an

increase in its facility over the next twelve months.

Accounting PoliciesAs with most companies, the critical accounting

policies are Revenue Recognition and Employee

Benefits. In the former, the two key areas of

judgement are first the determination of any shortfall

positions on guaranteed minimum tonnage/minimum

revenue contracts in the ports business and second,

determining the liability for costs to complete the

various property developments and allocating those

costs over the various developments. The charge to

the Income Statement for pension costs will be

determined by the assumptions made by the Actuary

and accepted by the Company in relation to the

discount rate on gilts and corporate bonds, the

expected rate of return on the assets and the

mortality assumptions. These are discussed further

in Note 32 to the Accounts.

In addition to the above, the Group has brought out

a new accounting policy on Exceptional Items which

seeks to identify those material items of income and

expenditure which the Group has disclosed

separately because of their quantum or incidence

34


so as to give a clearer understanding of the Group’s

financial performance. This policy is particularly

important in relation to the 2008 accounts given the

very significant economic impact of the fall in the

property markets. The 2008 results were materially

affected as disclosed in Note 4 to the Accounts by

the property write downs covering both property

development assets and investment properties.

A change in the corporation tax law relating to the

abolition of Industrial Buildings Allowances also

had a major effect, although this was a one-off

occurrence.

The accounting policy on inventories and, in

particular, in relation to property development assets,

was also deemed to be critical in 2008 following a

major reduction in the market value of the Group’s

property development assets. This indirectly affected

the cost of the property development assets held on

the Balance Sheet by reference to the reduction in

expected sales proceeds, the fact that certain areas

of the land bank are not currently considered

realisable for development and the long-term nature

of the developments. The decision was taken

to provide £27.7m against the carrying value of

these assets.

New International Financial Reporting Standards

(“IFRS”) adopted in the year are discussed in the

Accounting Policies section.

GeneralCertain sections of the Business Review contain

forward-looking statements that are based on

management’s expectations, projections and

assumptions. We believe that these expectations,

projections and assumptions are reasonable, based

on the information available to us. However, these

statements are not guarantees of future performance

and involve inherent risks and uncertainties and other

factors which may cause actual achievements to

differ materially from those expressed or implied by

such statements. The Group does not undertake any

obligation to update or publicly release any revisions

to forward looking statements in light of new

information or future events.

35


2008

Corporate Social Responsibility (“CSR”)

We aim to provide excellent service to our customers,

to provide a safe working environment for our

employees and to create sustainable communities

through long term investment.

The Company has been a member of the Kempen/

SNS Smaller Europe Index since October 2003,

membership being available only to companies with

the very highest standards and practice in the three

areas of business ethics, human resources and the

environment. The Company is also a constituent

member of the FTSE 4 Good Index.

Health And SafetyThe health and safety of our employees and also

visitors, contractors and members of the public who

visit our places of business is of the utmost

importance to us. Our safety culture is underpinned

by the application of five strategic safety drivers:

Simplification, Education, Engineering, Engagement

and Enforcement. A Group Strategic Health and

Safety Plan for 2008-2010 was originally presented to

the Board in October 2007 and a further presentation

was made to the Board in October 2008 showing

progress against the plan and targets achieved to

date. This plan is available to all involved in the

Group’s business and is regularly reviewed.

Group Personal Injury Accident StatisticsReporting of Injuries, Diseases and Dangerous Occurrence Regulations 1995 (“RIDDOR”)

2008 versus 2007 Performance (Includes the Nordic Group data for 2007-2008)

2008 2007 All All RIDDOR RIDDOR Reportable Reportable % of Accidents Accidents change

Forth Ports PLC Group 26 39 –33%

2008 2007 All All % of Accidents Accidents change


Five Year Trend Analysis 2004-2008 (Includes the Nordic Group data for

2007-2008) 2008 2004 RIDDOR RIDDOR Reportable Reportable % of Accidents Accidents change


2008 2004 All All % of Accidents Accidents change


The Board set a target of overall reduction in personal

injury accidents of 10% in 2008. This target was met

and indeed exceeded.

PersonnelThe Group health and safety team was expanded

in 2008 by the appointment of a Safety, Health,

Environment and Quality Advisor to the

Nordic business.

36


Scottish Port OperationsAs part of the continuing behavioural safety

programme the strapline “Safety First for Forth” was

selected by the workforce at the annual health and

safety forum as the banner for all safety initiatives and

campaigns throughout Scottish Ports. The Director,

Scottish Operations formally launched the campaign

at road-shows during October 2008.

We also introduced a Safety Charter aimed at further

enhancing the safety culture within Scottish Ports.

This Charter was developed in consultation with the

Port Behavioural Safety Forums which include

representatives from the workforce, management and

the health and safety team.

Scottish Operations has published a workplace

transport safety DVD from a concept developed by all

of our safety committees working in conjunction with

the road transport industry and produced by the Port

of Dundee Safety Committee. The DVD contains

information on safety rules to be adhered to by

hauliers entering the ports and provides an overview

in several languages recognising that many hauliers

entering our ports are from outside the UK. The

Director, Scottish Operations, and an invited

audience from haulage companies, the Road

Haulage Association, Health and Safety Executive,

trade unions and Forth Ports Safety Committees

formally launched the DVD in October 2008. The DVD

has been made available to all of those who operate

within the Scottish Ports including our tenants.

The annual health and safety forum took place in

March 2008. Over 80 people attended including staff

and health and safety representatives from across

Scottish Ports and representatives from the Health

and Safety Executive. Staff from each of the Scottish

Ports delivered presentations on a number of port

safety improvement projects including slips, trips and

fall hazards, working safely near water and workplace

transport management. A motivational speaker who

had suffered a serious industrial injury delivered an

extremely moving presentation on the short and

long-term effects of his accident on himself, his family

and his work colleagues.

Port of Tilbury Last year we reported that Port of Tilbury and UNITE

had signed a Safety Partnership Agreement for

2008-2009. This document committed both parties

to further improving safety standards and reducing

accident rates by delivery of a series of objectives

and initiatives including the objectives of industry

wide Safer Ports Initiative 2. All of the targets and

objectives set for 2008 were met.

The Port of Tilbury/UNITE Partnership health and

safety awareness training programme continued in

2008 with Port of Tilbury employees attending a one

day workshop led by a tutor from the London

Metropolitan University. This programme was

extended to include the employees of agency labour

providers to ensure consistent standards and

understanding of safety requirements within the port.

The third annual safety, health and environment

forum took place in March 2008 and was attended by

over 70 staff and safety representatives from the port.

The event focused on accident reduction,

implementation of Safer Ports Initiative 2 and

sustainable improvement in health and safety

performance and monitoring in partnership with the

trade union health and safety representatives. Staff

gave presentations on the progress being made in

delivering safety and environmental objectives and a

keynote address was made by the Managing

Director, Port of Tilbury.

The Ports Skills and Safety National First Aid

Competition, the only national first aid event

designed solely for those working in the ports and

port related industries, was held in Llandudno in May

and the Port of Tilbury entered two teams. The Tilbury

teams did extremely well with Team A achieving 1st

place in their event and Team C achieving 3rd place

in their event out of a total of 19 teams.

37


2008

Nordic GroupFollowing the acquisition of the Nordic Group in June

2007 its integration into Forth Ports safety

management system continues with the

implementation of worker involvement in safety

committees, audit and inspection programmes, fire

management training, accident investigation training

and engineering modifications to equipment to

enhance safety.

Property During 2008 there were no Health and Safety

incidents reportable by our principal contractor to the

HSE under the RIDDOR 1995 Regulations on any of

our property development sites.

The health and safety statistics for the property

development sites during 2006 to 2008 are;

Total man hours worked – 519,214

Total number of reportable

Lost Time Incidents – 4

2008 Accident Frequency Rate (per 100,000hrs)

– 0.77 AFR

The latest available construction industry statistics

published by the Health and Safety Executive show

a three year average AFR of 1.67.

Throughout 2008 the property group continued to

promote Continuing Professional Development (CPD)

for all staff by hosting a series of presentations and

workshops. This year’s topics included risk

assessments.

Industry EngagementForth Ports PLC is involved in all of the core activities

of Port Skills and Safety, the industry body charged

with promoting high standards of health and safety

and skills competence. The Managing Director of the

Port of Tilbury is a member of the PSS management

Board and Forth Ports is represented at the Port

Safety Steering Group meetings where Health and

Safety Managers from across the Ports Industry meet

and share best practice.

The Group continues to progress the safety and

training objectives detailed in the industry wide Safer

Ports Initiative 2 and fully supports the regional

events organised to promote the initiative throughout

the industry.

In November the Group hosted a ports industry first

aid conference, a forum designed to share best

practice in first aid provision.

AuditAs reported last year Scottish Port Operations

achieved a 5 star audit from the British Safety Council

for the first time. Tilbury achieved this for the second

time in 2007 and the target is for Tilbury to maintain

its 5 star rating at its next audit in 2009. The British

Safety Council carried out a review audit of the

Nordic Group in 2008 as a baseline for preparation

for a 5 star audit in 2010.

The Group continues to use a hierarchical system

of internal and external process safety audits to

measure, monitor and demonstrate compliance with

all relevant health and safety legislation and internal

safety management procedures. It is the intention to

obtain certification to the OHSAS 18000 international

occupational health and safety management system

specification by 2010.

38


EmployeesIndustrial Relations and ManpowerThe Group headcount decreased during 2008 by

seventy-eight. At the year end the employee

headcount figures were as follows:

Scottish Operation 504

Tilbury 547

Nordic Group 117

Total 1,168

A significant factor in the reduction was the TUPE

transfer at Tilbury of fifty-eight employees within the

Finnish Terminal to one of our customers, Stanton

Grove. Aside from this we have a stable workforce

with relatively low turnover. More than forty per cent

of the Group’s employees have more than ten years

of service.

Good industrial relations are important to our

business and there have been no days lost due to

industrial disputes since 1989.

Employee InvolvementThe sixth group-wide information and consultation

forum took place during 2008. The employee

representatives take an active interest in health

and safety and environmental matters and are

encouraged to contribute ideas which would benefit

the business. The forum is augmented by local

communication forums and regular meetings with

the recognised trade unions to discuss matters of

common interest.

Training and DevelopmentThe Company remains committed to training for

employees at all levels. During 2008 182 employees

achieved certificates or qualifications. These include

NVQ Level II, NVQ Level III/IV, IOSH Health and Safety

Certificates, Higher National Certificates and Logistics

degrees.

2008 saw the introduction of the new corporate

manslaughter legislation; training on the new

regulations was delivered across the Group to

directors and senior and middle managers by

external legal advisers and the Group solicitor. The

seminars were attended by a total of 54 employees.

The training departments within the Scottish

Operation and Tilbury have active external

relationships with local colleges, universities and

government agencies, particularly those who have a

responsibility for skills development. 2008 culminated

in confirmation by the Sector Skills Council – Skills

for Logistics, that the consortium of which Port of

Tilbury forms part had won the bid to manage and

run the East of England Academy for Logistics.

Environment And SustainabilityOur Commitment to the Environment and SustainabilityThe Group recognises that our activities have an

impact on the environment and we strive to minimise

this where it is practical to do so. The main potential

environmental impacts associated from our activities

fall under the following broad categories:

Noise

Dust/air quality

Water pollution

Waste

Conservation

Climate change

All business areas in the Group have an important

role to play in engaging with the Governments of the

UK and Scotland on issues such as climate change,

recycling, sustainable development and the

production of renewable energy. Where appropriate

we aim to work with politicians and civil servants to

assist in the development of new legislation in these

areas, either directly or through trade groups (such

as the UK Major Ports Group). In the coming year the

focus of our discussions is likely to be the

39


2008

forthcoming Carbon Reduction Commitment, the final

versions of the Water Framework Directive River

Basin Management Plans, energy and building

efficiency legislation and policy and the new UK and

Scottish marine and climate change legislation.

Each port liaises with its tenants, customers,

regulators and other key stakeholders to

communicate and share information on

environmental and associated topics. Environmental

issues and performance against targets are reported

on and discussed at the Environmental Management

Committee Meetings in Tilbury and in Scotland at

operational management meetings.

In 2007 we reported that we had undertaken a

Climate Change Impact Assessment (CCIA) for the

Group’s activities. In 2008 we approached the

Edinburgh Centre for Carbon Management to assist

us with a CCIA of three of the shipping routes to and

from our ports: the Rosyth to Zeebrugge route,

Grangemouth to Felixstowe container line and the

Tilbury to Bilbao container line. Each of these routes

was compared with the same loads (or passengers)

travelling via an alternative land based route. The

results showed that these sea routes can be more

than ten times more carbon efficient than the land

based alternative. The announcement made in 2008

that Norfolk Line will take over the Rosyth to

Zeebrugge route will further enhance this contribution

as their vessels are expected to be 40 per cent more

efficient than the previous Superfast vessels, and

have greater freight capacity.

Much of the concern associated with climate change

is focussed on changes in relative sea level however

the Forth and Tay are relatively unstudied in this

regard. As part of developing a better understanding

of the potential geoenvironmental changes that may

face our assets in the Forth and Tay, we have funded

a Ph.D. student at the University of Dundee. The

student has already commenced work analysing

historical information from our tidal data and records

from other locations with the aim of producing

guidance as to the current changes in relative sea

level in this area of east central Scotland.

Inland Movement of GoodsWe continue to facilitate the movement of goods to

and from our ports using rail where this is

appropriate. In 2008 approximately 1.2 million tonnes

of coal were transported to Cockenzie Power Station

from the Port of Leith, saving more than three quarter

of a million lorry miles. Containers continue to be

delivered to and transported from the Ports of Tilbury

and Grangemouth via rail.

We were delighted that Sir Steve Redgrave agreed

to open the new barge terminal at the Port of Tilbury.

The terminal, operated by Green Barge Company

Ltd, moves materials to Stratford and the Olympic

Park via the River Thames rather than via the road

network.

Renewable Energy and Resource EfficiencyForth Energy, our joint venture with SSE, gives us

the ability to explore various renewable energy

opportunities including windpower and multi-fuel

generation at a number of locations across the

Group. In Edinburgh the property team is working

closely with SSE and CEC to devise a sustainable

energy solution for The Harbour, Leith Docks.

Options being looked at include district heating and

combined heat and power.

Planning approval was granted in 2008 for the

erection of four wind turbines at Tilbury and Express

Energy have also applied to convert the site leased to

Cargill plc at Tilbury to an energy from waste facility.

We have also been examining resource efficiency

across the Group, with a particular focus on energy

usage. Port of Tilbury set itself a target to reduce

energy usage relative to the tonnage handled in 2008

by 2% when compared to 2007. The port actually

achieved an overall reduction in excess of 6% with a

number of asset areas achieving savings of around

20%. Last year we reported that the Forth and Tay

40


Navigation Service building was being used as

an energy efficiency trial. This proved extremely

successful with a reduction in the energy usage of

the building during 2008 of over 16%. During the year

the Carbon Trust supported an energy efficiency

survey of all buildings at the Port of Grangemouth

with a view to expansion of the energy efficiency

campaign in 2009. A similar exercise is underway

throughout the Group in relation to water usage

and fuel.

Natural EnvironmentDredging, port and property development continue to

receive high levels of scrutiny through environmental

regulators, NGOs, media and local communities.

We are particularly aware of the environmental

sensitivities that surround our ports, particularly those

sites designated under the European Directives for

the conservation of birds and habitats. During 2008

many of the islands in the Firth of Forth that were

already designated as Special Protection Areas for

their bird interests had the designated areas

extended into the marine environment.

We continue to engage regularly and to be actively

involved in the Forth Estuary Forum, Tay Estuary

Forum and Thames Estuary Partnership. One

example of our engagement with environmental

regulators has been our discussions with Scottish

Natural Heritage regarding the planning consent for

Leith Docks and its relationship with the colony of

common terns within the docks. The Company is

also funding a Ph.D. student to study the colony and

the activities of its inhabitants.

Dredging continues to be an essential part of our

statutory responsibility to maintain the safety of

navigation in our waters. 2008 saw a slight increase

in the dredging figures when compared to

recent years.

Pollution Avoidance and Control All of our ports have emergency and spill response

plans. These are continually monitored, tested and

reviewed. During 2008 Scottish Ports undertook a

major review of its emergency plans and a new

generic emergency plan was created that covers all

of our Scottish Ports in consultation with emergency

services, local authorities and employees. The plans

dovetail with the estuary-wide, Emergency Forth Plan

and the Clearwater Forth Plan, which operate across

our harbour authority waters.

The annual testing of the Clearwater Forth Plan took

place via a live-play tier 2 exercise during October

2008. This year CEC was the local authority that

participated (with onlookers from a number of other

authorities around the Forth). Exercise ‘Black

Barnacle’ started in the early morning and tested the

callout procedure to mobilise Forth Ports staff and

relevant members of the various governmental

bodies, NGOs and local authorities. The exercise

was also designed to exercise our spill responder

and the Environment Group, a committee of experts

that provides environmental advice during such

an incident.

Waste Management The MRF at the Port of Tilbury, owned and operated

by our recycling division, Nordic Recycling,

processed a total of 100,004 tonnes of commingled

recyclables from local authorities in 2008. Mixed

recyclates are deposited in the facility and the MRF

then splits the recyclate into the individual

component parts (paper, plastic, glass etc.).

Inevitably there is an element of material that is

delivered with the recyclate that is not recycleable.

Where possible this material is sent for energy

recovery. In the MRF in Chatham Docks, also

operated by Nordic Recycling, a further 180,000

tonnes of clean paper waste was processed in 2008

and shipped to Sweden on vessels that bring

newsprint back to Chatham for distribution

throughout the UK. Nordic Recycling operate waste

management services for many PLCs across the UK,

41


2008

advising on recycling everything from fluorescent

tubes through to plastic cups.

In Scotland the recycling scheme operating across

the Scottish ports offices continues to be successful,

with greater volumes being recycled this year than

last. Excluding confidential waste paper (which is

shredded and recycled) the Scottish offices recycling

initiative diverted over 59 tonnes of paper, card,

plastic and metal from landfill.

Environmental ManagementThe Port of Tilbury remains fully compliant to the ISO

14001:2004 Environmental Management Standard

(EMS). As reported in the section on health and

safety, an electronic integrated environmental and

quality management system was launched at the

Port of Tilbury in early November 2008 enabling

integration of key safety and environmental

processes. The system was successfully audited by

LRQA in November 2008 to ISO 14001 and ISO 9001.

During 2008 Nordic Recycling achieved certification

to the ISO 14001: 2004 Standard for its facilities at

the Port of Chatham and in November of 2008, the

Marine Division in Scotland (which includes Forth

and Tay Navigation Services, pilotage, conservancy

and towage) achieved its certification. A key focus

element of the Marine EMS is ensuring integration

with the Port Marine Safety Code, a voluntary

management system for Harbour Authorities. The

Forth Ports Port Marine Safety Code can be found on

the company website: www.forthports.co.uk.

SecurityThe Port of Tilbury and Scottish Ports remain fully

compliant with the ISPS code and all UK and EU

implementing legislation. An inspection team from

the European Commission has recently tested

compliance at Tilbury. The team of five inspectors

found no deficiencies in any aspect of the security

requirements during their three day inspection.

As reported last year, we await final confirmation of

the impact of the EU Port Security Directive (2005/65)

on our ports. During 2008 the Department for

Transport consulted on their proposals for

implementation of the Directive. Both the Scottish

Ports and Port of Tilbury responded, in particular

highlighting concerns over bureaucracy, practical

benefits and costs. Tilbury will be part of a trial

regarding the implementation of the Directive for

all ports along the River Thames.

Community Responsibility and InvolvementEducationForth Ports PLC is a founder signatory of the

Waterfront Partnership Accord. The Accord is a

partnership between the Edinburgh waterfront

developers, CEC, Skills Development Scotland and

the Construction Academy, the aim of which is to

ensure that the developments on the waterfront

provide skills, training and employment for the local

communities. Since 2005 over 700 people have been

placed into work both at the waterfront and across

Edinburgh. The Accord was signed in October at the

official opening of the Forthside Construction Centre

of Excellence based at Telford College which will

provide facilities for up to 700 apprentices and 200

adult learners each year.

The property division continued its work with final

year students at Heriot Watt University on their

external site projects, this year investigating the

opportunity for a hotel and special event building

within The Harbour, Leith Docks. Presentations were

given by the student groups at both Heriot Watt and

Edinburgh School of Art and members of the

property team assisted in judging the quality of

the work.

42


The Port of Grangemouth has sponsored the

introduction of the Young International Trader

programme at Grangemouth High School in

academic years 2008/9 and 2009/10. The

sponsorship given by the port will allow access to

teaching materials from which the staff will now

develop a course.

In 2008 a consortium of which Port of Tilbury is a

member was appointed by the Sector Skills Council

– Skills for Logistics, to manage and run the East of

England Academy for Logistics.

Performing Arts in the CommunityPort of Tilbury continued its commitment to

involvement in the performing arts. In July the Royal

Opera House, Covent Garden transferred its

production workshop from London to the Cruise

Terminal at Tilbury to create a “people’s opera”. More

than 600 people from primary school children to

young offenders and pensioners came together for

week long rehearsals and set-building culminating in

the performance of Sun and Heir over five days at the

Cruise Terminal.

The Cruise Terminal again hosted the successful

Twelve Days of Christmas show. The show had over

1,500 community performers and an audience of

3,300 attended the event over its nine day run.

Tilbury’s continued commitment to this project was

recognised when the port in conjunction with

Thurrock Council won the national JTI Arts &

Business Community Award in November.

The Edinburgh Mela relocated its festival to the

waterfront with Forth Ports as one of the main

sponsors. The Edinburgh Mela is one of the twelve

Edinburgh festivals and is Scotland’s largest

inter-cultural event bringing together an eclectic and

innovative mix of diverse arts from a variety of cultural

origins. Established in 1995, it now supports more

than four hundred performers, and over seventy acts

and in 2008 attracted over 25,000 people. Earlier in

the year, Forth Ports supported the Scottish Firework

Championships at Western Harbour and was the title

sponsor of the increasingly popular Leith Festival.

Community Engagement and Charitable ActivitiesOcean Terminal Shopping Centre has supported

many charities, community groups and schools

during 2008. Many have been provided with space in

the Mall for fundraising and awareness raising

activities, for example, Guide Dogs for the Blind, the

Poppy Appeal and Bethany Christian Trust. There

have also been gifts of vouchers and support

provided through work placements and mock

interviews for local school children. At Christmas,

Ocean Terminal provided all the materials for a

charity gift wrap, where charities ran the stall and

kept the money collected for wrapping the

customers’ gifts. This raised over £4,000 for the

charities involved.

Forth Ports berthed the Spirit of Fairbridge over a five

day period at Prince of Wales Dock, Leith. The visit

was used to highlight the work that Fairbridge

undertakes within the community and in particular

with under privileged children. The event was well

attended by local politicians, dignitaries and

sponsors with former trainees giving accounts of their

lives and experiences.

43


2008

During 2008, Forth and Tay Navigation Service was

visited by a number of local groups, politicians and

civil servants to learn about statutory requirements of

a competent harbour authority and in particular how

the Forth and Tay are managed by Forth Ports.

The annual Tilbury/Scotland football match continues

to raise money for local charities, along with a host of

smaller departmental events and continued its

support of various groups including St. Luke’s

Hospital, Thurrock Rugby U13’s team, Tilbury FC and

a number of other local causes and charities. Tilbury

is also a Gold member of Essex Wildlife Trust. Tilbury

also took part in the 60th anniversary celebrations of

the arrival of the Empire Windrush at the Cruise

Terminal. The Windrush brought the first large group

of West Indian immigrants to the UK after the Second

World War and a plaque commemorating the event

was unveiled at the terminal.

The property division entered a team of three in the

King Sturge Property Triathlon. Approximately £2,000

was raised for the Sick Children’s Hospital in

Edinburgh. The triathlon took place in and around the

Olympic rowing lake at Dorney in Berkshire, where

over 2,000 people competed. The team came 35th in

the mixed relay class, out of around 200 teams.

Port of Dundee has again made an in-kind

contribution to both the North Carr and Unicorn

historic vessels berthed in Victoria Dock and the

Port of Leith continues to support the historic vessel

SS Explorer.

Management Involvement Members of the Management Team hold a variety of

posts in organisations whose aim is to improve the

community, environmental and economic health of

the areas in which our business operates:

Charles Hammond sits on the Waterfront

Development Partnership Board.

Perry Glading, the Managing Director, Port of

Tilbury, is the Chairman of the Academy of

Transport and Logistics for Thurrock and

Thames Gateway, represents the Group on the

management board of Port Skills and Safety

Limited, the organisation which promotes safety

in the port industry, and is Chair of its Ports

Partnership Project Steering Group.

Morag McNeill, the Group Company Secretary,

is a member of the Waterfront Recruitment

Initiative.

Nathan Thompson, the Managing Director of

the Property Division, sits on the Waterfront

Development Partnership Board.

Derek McGlashan, the Environment Manager,

is a Director of the Forth Estuary Forum and

represents the United Kingdom Major Ports

Group on the Scottish Government’s Sustainable

Seas Task Force.

Michaela Sullivan, the Head of Planning, is an

external examiner on the Master of Urban and

Regional Planning course at Heriot Watt

University.

Mark Tonge, Operations and Resource Director,

Port of Tilbury is a member of Cranfield Agile

Supply Chain Research Group.

Bob Cowan, the Group Financial Accountant,

is a member of the Audit Committee of Mercy

Corps Scotland, an International Aid and

Development Charity that exists to alleviate

suffering, poverty and oppression by helping

people build secure, productive and just

communities.

44

1

3

5

7

2

4

6

8

Board of Directors

1. Christopher Collins 69

Christopher Collins was appointed Chairman of Forth

Ports PLC in August 2000. He is Chairman of Old

Mutual PLC and was Chairman of Hanson PLC from

1998 to 2005.

2. Charles Hammond 47

Charles Hammond joined Forth Ports Authority as

Company Secretary in 1989 having been previously

with the law firm of McGrigor Donald. He became

Commercial Director in 1992, was appointed

Managing Director, Port of Tilbury London Limited in

December 1995 and became Group Chief Executive

in February 2001. He was recently appointed as

Deputy Chairman of the United Kingdom Major Ports

Group. He was also Chairman of Scottish Enterprise

Edinburgh and Lothian until May 2008.

3. Wilson Murray 58

Wilson Murray was appointed Finance Director of

Forth Ports Authority in 1986. Previously, he worked

in the accounting profession with Deloitte Haskins &

Sells and Price Waterhouse.

4. Perry Glading 50

Perry Glading joined Forth Ports PLC in February

1999 as the Deputy Managing Director of Port of

Tilbury London Limited. He was subsequently

appointed Managing Director in February 2001. He

was appointed to the Board of Forth Ports PLC in

June 2001. Previously he worked for a number of

years in the European logistics market. He is a senior

member of the Management Committee of Port Skills

and Safety, which is the lead body on safety and

training matters in the UK port industry and was

recently appointed to the Board of Skills for Logistics.

5. Struan Robertson 59

(Chairman of the Remuneration Committee)

Struan Robertson is a mechanical engineer with an

MBA. He was appointed as a Non-Executive Director

in September 2003. He joined BP in South Africa in

1977 and from 1989 to 2001 held a variety of senior

appointments with BP, both in the UK and overseas.

After retiring from BP he was appointed Group Chief

Executive of the Wates Group Ltd, one of the UK’s

largest privately owned construction and property

groups. He stepped down from this role in 2004.

45


2008

He is a Non-Executive Director of International Power

plc, Tomkins plc, Henderson TR Pacific Investment

Trust plc and Salamander Energy plc. He was

previously Senior Independent Director at Atkins plc

from 2000-2005.

6. Gerry Brown 64

(Senior Independent Director)

Gerry Brown was appointed as a Non-Executive

Director in September 2003. He is Chairman of

Biocompatibles plc, of Quintiles Transnational Europe

and of NFT Distribution Holdings Ltd. He is also the

Senior Independent Director of Keller plc. He was

formerly Chairman of Upol Ltd and a Non-Executive

Director of Vantec Ltd, CH Jones Ltd, Michael Gerson

Ltd and Datrontech plc. His Executive Career

included senior positions with Exel Logistics plc,

TDG plc and Tibbett & Britten plc.

7. David Richardson 57

(Chairman of the Audit Committee) David Richardson is a chartered accountant. He was

appointed as a Non-Executive Director in June 2005.

He is also a Non-Executive Director of Serco Group

Plc, Dairy Crest Group Plc and Tomkins plc. He

retired as Finance Director of Whitbread plc in 2005

after 22 years with the company.

8. James Tuckey 62

James Tuckey was appointed as a Non-Executive

Director on 1st July 2007. He is Chairman of

Brookfield Europe and the former Chief Executive

of MEPC plc. He is also an adviser to the BP

Pension Fund.

Directors

C.D. Collins (Chairman) (Non-Executive)C.G. HammondW.W. Murray P.D. GladingE.G.F. Brown (Non-Executive)D.D.S. Robertson (Non-Executive)D.H. Richardson (Non-Executive) J. L. Tuckey (Non-Executive)

Group Company Secretary Morag McNeill

Registered Office Forth Ports PLC1 Prince of Wales Dock,Leith, Edinburgh EH6 7DX

Company NumberSC 134741

Independent Registered AuditorsPricewaterhouseCoopers LLPChartered Accountants & Registered Auditors,Erskine House, 68-73 Queen Street,Edinburgh EH2 4NH

Stockbrokers And Financial Advisers Dresdner Kleinwort Securities LimitedPO Box 52715, 30 Gresham Street, London EC2P 2XY

Investec Bank plc 2 Gresham Street, London EC2V 7QP

Solicitors McGrigors LLPPrinces Exchange,1 Earl Grey Street, Edinburgh EH3 9AQ

Bankers Lloyds Banking Group PLCHenry Duncan House,120 George Street, Edinburgh EH2 4LH

Registrars Equiniti Limited1st Floor, 34 South Gyle Crescent, South Gyle Business Park, Edinburgh EH12 9EB

Website Addresswww.forthports.co.uk

46

Directors’ Report

The Directors present their report, on pages 46

to 127, which includes sections on Corporate

Governance and the audited accounts of the Group

for the year ended 31st December 2008. The

Directors also present their Business Review, which

includes a review of future outlook, principal risks

and uncertainties, employee involvement and KPIs,

on pages 23 to 43.

Principal Activities The principal activities of the Company together with

its subsidiaries are the provision of port, cargo

handling, towage and related services and facilities.

The Group also has extensive property interests.

Ordinary Shares of Ordinary Shares of 50p each subject to 50p each subject to Option under the Option under the Long-Term Long-Term Incentive Plan 2006 Incentive Plans Ordinary Shares of Ordinary Shares of and the 2002 and 2006 and the 50p each 50p each SAYE Scheme SAYE scheme

Held at 31st December 2008 2007 2008 2007

Christopher Collins 10,000 10,000 nil nilCharles Hammond 83,017 73,517 65,326 61,241Wilson Murray 163,000 153,000 41,192 38,828Perry Glading 15,100 10,202 39,341 36,160Gerry Brown 2,064 2,064 nil nilStruan Robertson 1,500 1,500 nil nilDavid Richardson 3,500 2,000 nil nilJames Tuckey 8,345 8,345 nil nil

None of the Directors had any non-beneficial interest in the share capital of the Company during the period to

31st December 2008 or the period from 31st December 2008 to 16th March 2009. The Directors’ beneficial interests

in the share capital of the Company did not change in the period from 31st December 2008 to 16th March 2009.

Directors A list of the Directors of the Company is given on

page 45. Christopher Collins, Charles Hammond

and Perry Glading retire by rotation and being

eligible, offer themselves for re-election at the Annual

General Meeting.

Directors’ Interests The beneficial interests of those Directors in office as

at 31st December 2008 in the share capital of the

Company at that date are set out in the table below.

The number of shares over which options are held by

the Executive Directors under the Forth Ports PLC

Long-Term Incentive Plan 2006 and the SAYE

Scheme are shown below and in the Directors’

Remuneration Report on pages 58 to 66.

47


2008

Final DividendThe Directors recommend a final dividend of 12p per

share (2007 – 31.95p). This brings the total dividend

per share for the year to 28.6p (2007 – 47.7p) (see

Note 11).

Substantial Shareholdings The following shareholders have notified substantial

interests in the Ordinary Shares of the Company as

at 16th March 2009. Percentage Number of issued of Ordinary Shares Share Capital

Babcock & Brown Ltd 10,735,875 23.5%

Schroders Investment

Management 4,111,000 9.0%

F&C Asset Management 3,521,130 7.7%

Legal & General

Investment Management 1,976,341 4.3%

Asset Value Investors 1,591,754 3.5%

Threadneedle

Asset Management 1,456,223 3.2%

The Takeovers DirectiveThe Company has one class of share capital,

ordinary shares. All the shares rank pari passu.

There are no special control rights in relation to the

Company’s shares. At 31st December 2008, the

trustee of The Forth Ports Employee Trust, Forth

Ports Trustees Limited, owned 161,000 shares in

the Company (0.4%); any voting or other similar

decisions relating to those shares would be taken

by the trustee, who may take account of any

recommendation of the Company. The rules

governing the appointment and replacement of Board

Members and changes to the Articles of Association

accord with usual Scottish company law provisions.

The Board has power to purchase its own shares and

is seeking renewal of that power at the forthcoming

AGM within the limits set out in the notice of that

meeting. There are no significant agreements to

which the Company is a party which take effect, alter

or terminate in the event of change of control of the

Company except that the Company’s bank facilities

give the banks the right to request repayment of the

facility on change of control. There are no

agreements providing for compensation for directors

or employees on change of control.

Ordinary and Special Resolutions to be proposed at the Annual General Meeting in relation to the Company’s Share CapitalIt is proposed that pursuant to an Ordinary

Resolution of the Company the Directors be given

renewed general authority under Section 80 of the

Companies Act 1985 to allot Ordinary Shares up to

an aggregate nominal amount of £6.2m, a sum

equivalent to the unissued share capital of the

Company. This authority shall expire on the date of

the next Annual General Meeting after the passing

of this Resolution or on 31st July 2010, whichever is

the earlier.

The Directors are also proposing that a Special

Resolution be submitted at the Annual General

Meeting to empower them to allot, wholly for cash,

Ordinary Shares up to an aggregate nominal amount

of £1.14m (which is equivalent to 5% of the issued

Ordinary Share Capital of the Company) without

offering them first to existing shareholders. This

authority shall expire on the date of the next Annual

General Meeting after the passing of this Resolution

or on 31st July 2010, whichever is the earlier.

The Directors believe it is in the best interests of the

Company that, as permitted by the Companies Act

and in line with current institutional guidelines, they

should have at their disposal a relatively small

number of shares in order that they may take

advantage of any appropriate opportunities that

may arise.

48

Directors’ Reportcontinued

The Directors are proposing that a Special Resolution

be submitted at the Annual General Meeting (as it

was last year) to empower them to buy back up to

15% of the issued share capital of the Company.

This authority shall expire on the date of the Annual

General Meeting in 2009 or on 31st July 2010,

whichever is the earlier. The Company may then

either cancel any shares it buys back, or hold them

as own shares held in terms of the Companies

(Acquisition of Own Shares) (Treasury Shares)

Regulations 2003.

Special Resolution to be proposed at the Annual General Meeting in relation to changes to the Company’s Articles of AssociationResolution 11 proposes, as a Special Resolution, the

adoption of new Articles of Association of the

Company. Company law has undergone substantial

change following the commencement of the staged

implementation of the Companies Act 2006 (“the

2006 Act”). As a result, the Board considers it

prudent to replace the Company’s existing Articles of

Association with new Articles (“the New Articles”) that

take account of these developments. It is also some

time since the existing Articles of Association were

amended and the New Articles also reflect current

best practice.

A summary of the material changes brought about by

the proposed adoption of the New Articles is set out

in the Appendix to the Notice of Annual General

Meeting on pages 135 to 136 of this document. Other

changes, which are of a minor, technical or clarifying

nature have not been noted in the Appendix.

Further amendments to the New Articles may be

required in the coming years as a result of full

implementation of the 2006 Act in October 2009.

Any further amendments will be put to shareholders

at the 2010 Annual General Meeting.

A copy of the New Articles of Association will be on

display at the registered office of the Company and

at the offices of McGrigors LLP, 5 Old Bailey, London

EC4M 7BA during normal business hours on any

week day up to and including the date of the Annual

General Meeting and at that meeting.

Copies of the new Articles of Association have also

been submitted to the UK Listing Authority and are

available for inspection at the UK Listing Authority’s

Document Viewing Facility, which is situated at:

Financial Services Authority, 25 North Colonnade,

Canary Wharf, London E14 5HS.

RecommendationYour Board considers the proposals and the

Resolutions to be proposed at the Annual General

Meeting of the Company to be in the best interests of

the Company and its shareholders as a whole and

accordingly your Directors unanimously recommend

that shareholders vote in favour of the Resolutions

set out in the Notice of Annual General Meeting, as

the Directors intend to do in respect of shares

beneficially owned by them.

Risk Management Policies and ObjectivesThe risk management policies and objectives may be

found on pages 81 and 82 of the Accounting Policies.

49


2008

Disabled PersonsThe Company provides Occupational Health Services

in-house which plays a significant part in monitoring

the health of employees and ensuring that those

members of staff who experience long-term illness or

disability receive the appropriate support to secure

their return to work. Where their return to work is

possible the Company has well-developed

procedures to ensure the employee continues to play

a productive role within the Group. These procedures

are evidenced by the numbers of employees who

remain in employment with disabilities or a restricted

capacity to carry out their normal duties. The Group

continues to fully endorse the aims of the Disability

Discrimination Act and our internal procedures

ensure compliance at all locations.

Creditor Payment Policy It is the Group’s policy to settle all debts with its

creditors on a timely basis, taking account of the

credit period given by each supplier. The Company’s

average creditor payment period at 31st December

2008 was 43 days (2007 – 42 days).

Charitable Donations Donations for local charitable purposes in 2008

amounted to £18,600 (2007 – £30,000). No

contributions were made for political purposes.

Auditors and Disclosure of Information to AuditorsEach 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 Group’s auditors in connection with preparing

their report) of which the Group’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 Group’s auditors are aware

of that information.

The auditors, PricewaterhouseCoopers LLP, have

indicated their willingness to continue in office and

a resolution concerning their re-appointment will be

proposed at the Annual General Meeting.

Morag McNeillGroup Company Secretary

16th March 2009

50

Corporate Governance Report

The Directors are committed to high standards of

corporate governance. The way in which the

Company applies the principles set out in the

Combined Code on Corporate Governance issued by

the Financial Reporting Council in June 2006 (the

“Combined Code”) is described below.

Compliance StatementThe Company has been in compliance with all

relevant provisions of the Combined Code

throughout the year under review.

The Combined Code – Application of Principles

A. DirectorsThe BoardChristopher Collins is the Non-Executive Chairman of

the Board and Charles Hammond is the Group Chief

Executive. Gerry Brown is Senior Independent

Director. At the beginning of the year, the Board of

Directors comprised five Non-Executive Directors and

three Executive Directors. The Board considers all its

Non-Executive Directors, with the exception of the

Chairman, to be independent.

No Non-Executive Director has served on the Board

for more than nine years from the date of his

appointment. The Board has adopted the principle

that Non-Executive Directors should normally serve

two three year terms and that any term beyond six

years should be subject to particularly rigorous

review. In any event, no Non-Executive Director shall

serve longer than nine years. Christopher Collins was

appointed for a third term in 2006.

As noted on page 22, Christopher Collins will be

retiring at the end of the year and David Richardson

will succeed him as Chairman.

The Directors believe that it is essential that the

Group should be led and controlled by an effective

Board. The Board has adopted a formal Schedule of

Matters specifically reserved to it on such matters as:

Agreeing objectives, policies and strategies and

monitoring the performance of the Executive

Directors and Senior Management;

Controlling and monitoring the financial

performance of the Group;

Reviewing strategic options on an annual basis

to include any major changes in organisation

and direction of the Group;

Approving major expenditure and transactions

with other companies including, for example,

acquisitions, disposals and joint ventures;

Ensuring compliance in relation to

a) Safety, health and environmental matters

b) Corporate Governance

Delegating clear responsibility and authority to

the Chairman, Committees of the Board, the

Group Chief Executive and other Directors;

Compliance with the Companies Act, UK Listing

Authority, London Stock Exchange and other

regulations; and

Consideration and approval of strategy, budgets

and major management/financial decisions as

determined from time to time by the Board.

Board MeetingsThe Board met seven times last year for regular

business and the Directors participated in the Annual

Strategy Conference. The Board meets as necessary

for any matters arising at other times. At each Board

meeting, the Board considers reports from each of

the Executive Directors covering his area of

responsibility.

An Annual General Meeting is held every year.

All Directors are subject to re-appointment by

shareholders at the first Annual General Meeting after

their appointment and thereafter to re-election at

intervals of no more than three years.

51


2008

The attendance at Board Meetings during 2008 was

as shown below: Meetings Name Attended

Christopher Collins 6

Charles Hammond 7

Wilson Murray 7

Perry Glading 7

Gerry Brown 7

Struan Robertson 7

David Richardson 7

James Tuckey 6

The Chairman holds one meeting with the

Non-Executive Directors without the Executive

Directors present.

Sub-Committees of the BoardThe Board has delegated certain matters to three

sub-committees of the Board comprising the Audit

Committee, the Remuneration Committee and the

Nomination Committee. Details of the membership of

each sub-committee are shown on pages 55 to 67.

The following table sets out the frequency of, and

attendance at, the various sub-committee meetings

for the period under review: Audit Remuneration Nomination Committee Committee Committee

No. of meetings held 3 4 1

Name

Christopher Collins n/a n/a 1

Gerry Brown 3 4 1

Struan Robertson 3 4 1

David Richardson 3 3 1

James Tuckey 3 3 1

Charles Hammond n/a n/a 1

Group Company SecretaryThe Group Company Secretary is responsible for

ensuring that Board procedures and applicable rules

and regulations are observed. All Directors have

access to the advice and services of the Group

Company Secretary. The Group Company Secretary

is also responsible for ensuring that the Directors

are fully aware of their duties and responsibilities

as Directors and that they undertake appropriate

training.

Independent AdviceThere is an agreed procedure for Directors to take

independent professional advice, if necessary, at the

Company’s expense.

Unresolved ConcernsWhere Directors have concerns which cannot be

resolved in connection with the running of the

Company or a proposed action, their concerns are

recorded in the Board Minutes. If a Non-Executive

Director resigns, he is required to provide a written

statement to the Chairman, for circulation to the

Board, if he has any such concerns.

Insurance Cover The Company purchases insurance to cover its

Directors and Officers and the Trustees of its pension

scheme against the costs of defending themselves in

civil legal proceedings taken against them in that

capacity and in respect of damages resulting from

the unsuccessful defence of any proceedings. To the

extent permitted by UK Law, the Company also

indemnifies its Directors, Officers and Trustees.

Neither the insurance nor the indemnity provides

cover where a Director, Officer or Trustee has acted

fraudulently or dishonestly.

52

Corporate Governance Reportcontinued

Annual Evaluation of PerformanceAn annual evaluation of the Board’s performance and

that of its sub-committees, individual Directors and

Chairman is undertaken. Each Director receives a

Board Performance Evaluation Questionnaire and

separate Committee Performance Evaluation Forms

where appropriate for use in assessing the Board’s

own performance and that of the Audit and

Remuneration Committees. As the Nomination

Committee meets infrequently, there is no separate

Performance Evaluation Questionnaire for that

Committee however any comments on the

Nomination Committee may be sent to the Group

Company Secretary as part of the Board

Questionnaire.

The Committee Performance Evaluation

Questionnaires consider fulfilment of terms of

reference, necessary skills and resources of

members, evaluation of the supporting processes

for the Committee and an overall view of the

effectiveness of the Committee. The results were

compiled and addressed by the Group Company

Secretary and reported to the Board. The results

were considered by the Board at its March meeting

in 2009. No major changes were implemented as a

result of this review.

An evaluation of the performance of the Group Chief

Executive and each of the other Non-Executive

Directors was undertaken by the Chairman.

The Non-Executive Directors, led by the Senior

Independent Director, met once without the Chairman

and the Executive Directors to evaluate the

performance of the Chairman.

As part of the annual budget presentation to the

Board, the Board reviews the targets which were

given to individual Executive Directors and Senior

Managers within the Group and subsequently

discusses and approves the targets to be given to

these individuals for the following year.

External Audit ProcessThe Audit Committee has reviewed and monitored

the effectiveness of the external audit process by way

of a questionnaire which reviewed, on a graded

scale, the robustness of the audit, the quality of

delivery and the quality of people and service. The

Audit Committee was satisfied as to the effectiveness

of the external audit process.

B. Directors’ Remuneration Reference is made to the Directors’ Remuneration

Report on page 58 which sets out the composition of

the Remuneration Committee, the Company’s

remuneration policy for Directors and details of such

remuneration (including bonus schemes and

pensions) for each Director, and the Committee’s

compliance with all relevant sections of the

Combined Code.

All Executive Directors are on one year rolling

contracts.

No Executive Director who has external Directorships

is currently paid for these Directorships.

C. Relations with ShareholdersThe Company encourages regular dialogue with

institutional shareholders based on a mutual

understanding of objectives.

The Board receives reports prepared by the

Company’s broker which reflect the views of the

major shareholders on an unattributable basis

following the half-yearly and annual presentations to

major shareholders. The Board also receives copies

of analysts’ reports on a regular basis.

In 2008, the Chairman met, or had discussions with

certain of the Company’s major shareholders. As part

of the governance process, other major shareholders

were offered the opportunity to meet the Chairman

should they so wish. The Senior Independent

Director is also available for meetings if requested.

53


2008

The Board uses the Annual General Meeting to

communicate with private investors and encourages

their participation both inside and outside the

formal meeting.

As in prior years, at the 2009 Annual General

Meeting, the Company will ensure that the level

of proxies for and against each resolution is intimated

to shareholders after each resolution has been

dealt with.

D. Financial Reporting and compliance with the 2005 Turnbull Committee Guidance on Internal Control (“the Guidance”)

Internal Control: The Board is responsible for and

has reviewed the effectiveness of the Group’s system

of internal control in accordance with the Guidance

throughout the year. Actions were taken in respect of

the Nordic Group internal controls as set out on page

24 of the Business Review. No other significant

findings were identified which required action to be

taken. The process of internal control has been in

place for the year under review and up to the date of

approval of the Annual Report and Accounts. It

should be recognised that such a system can provide

only reasonable, and not absolute, assurance against

material misstatement or loss. The key features of the

system which have been established are as follows:

Control EnvironmentThe Group’s control environment is the responsibility

of the Group’s Directors and managers at all levels.

The Group’s organisational structure has clear lines

of responsibility. Operating and financial

responsibility for subsidiary companies is delegated

to the local boards.

Identification of Business Risks and compliance with the Guidance

Throughout last year, the Group complied with the

Guidance. The Group Risk and Insurance Manager

oversees the procedures involved in the identification

of business risks and compliance with the Guidance.

The Board regularly reviews the process of

identifying, evaluating and managing the Group’s

key risks which allows it to take a view on the

effectiveness of these procedures. All subsidiaries

are required to assess key risks and related control

and monitoring procedures on an ongoing basis.

The Board monitors this process on a regular basis.

Major Corporate Information SystemsThe Group operates a comprehensive budgeting and

financial reporting system which, as a matter of

routine, compares actual results to budget.

Management accounts are compiled on a monthly

basis. Variances from budget are thoroughly

investigated and revisions to forecasts are made

twice during the year. Cash Flow projections are

prepared monthly and cover a rolling twelve month

period to ensure that the Group has adequate funds.

The port business uses the Integrated Port Operating

System (“IPOS”) to provide it with up-to-date

information on marine, general cargo and container

operations. Together with Cognos software, this

enables core information to be tailored to

management’s own particular requirements to assist

in the day-to-day operation of the business.

Main Control ProceduresDivisional management establishes control

procedures in response to each of the key risks

identified. Standard financial control procedures

operate throughout the Group to ensure the integrity

of the Group’s accounts. The Board has established

procedures for authorisation of capital expenditure

and exceptional maintenance. The Group has an

internal audit function which carries out a regular

programme of systematic reviews of the financial

control procedures.

54

Corporate Governance Reportcontinued

Monitoring System used by the BoardThe Board participates in an annual strategy

conference which includes a three year forward

financial review which is then updated on an annual

basis. The Board reviews and approves budgets and

monitors the Group’s performance against those

budgets. The Board receives reports on a regular

basis from the Audit Committee.

Audit Committee: Full details of the work of the Audit

Committee are contained in the Report of the Audit

Committee on page 55.

Directors’ Responsibilities for the Accounts: Company law requires the Directors to prepare

accounts for each financial year which give a true

and fair view of the state of affairs of the Company

and the Group and of the profit or loss of the Group

for that period. In preparing those accounts, the

Directors are required to:

select suitable accounting policies and then

apply them consistently

make judgements and estimates that are

reasonable and prudent

state that the accounts comply with IFRS as

approved by the European Union

prepare a Directors’ Remuneration Report

prepare the accounts on the going concern

basis unless it is inappropriate to presume that

the Group will continue in business

The Directors are responsible for keeping proper

accounting records which disclose with reasonable

accuracy at any time the financial position of the

Company and the Group to enable them to ensure

that the accounts comply with the Companies Act

1985. They are also responsible for safeguarding the

assets of the Company and the Group and hence for

taking reasonable steps for the prevention and

detection of fraud and other irregularities.

The maintenance and integrity of the Forth Ports PLC

website is the responsibility of the Executive

Directors; the work carried out by the auditors does

not involve consideration of these matters and,

accordingly, the auditors accept no responsibility for

any changes that may have occurred to the accounts

since they were initially presented on the website.

Legislation in the United Kingdom governing the

preparation and dissemination of accounts may differ

from legislation in other jurisdictions.

Going Concern: The Directors, having made

enquiries, have a reasonable expectation that the

Company and the Group have adequate resources to

continue in operational existence for the foreseeable

future, and that therefore it is appropriate to continue

to adopt the going concern basis in preparing the

accounts.

By Order of the Board

Morag McNeillGroup Company Secretary

16th March 2009

55


2008

Report of the Audit Committee

The members of the Audit Committee during the year

were:

David Richardson Non-Executive Director

(Chairman)

Gerry Brown Non-Executive Director

Struan Robertson Non-Executive Director

James Tuckey Non-Executive Director

The Group Chief Executive, the Group Finance

Director and Managing Director, Port of Tilbury, are in

attendance at the Audit Committee meetings,

however, they are not present for the full meeting as

the Audit Committee has separate sessions with only

the internal and external auditors present. The

Chairman is also in attendance.

The Group Company Secretary acts as Secretary to

the Committee.

Members of the Audit Committee serve for an initial

period of up to three years with the option to extend

by no more than two additional three year periods

provided the members are considered to be

independent. The Chairman of the Committee has

recent and relevant financial experience. The

Company has complied with the Combined Code

throughout the year.

The Audit Committee met on three occasions during

the year to receive reports on various matters

including the full year accounts (March), the Interim

Statement (August), and on planning work for the

2008 full year audit (December).

The Terms of Reference of the Audit Committee

authorise it to seek any information it requires from

any employee and all employees are required to

co-operate with any requests made by the Committee.

The Committee is authorised by the Board to obtain

outside legal or other independent professional advice

and to secure the attendance of outsiders with

relevant experience and expertise if it is considered

necessary.

The Terms of Reference of the Committee may be

summarised as follows:

a to consider the appointment of the external

auditors, the audit fee and any questions of

resignation or dismissal and to make

recommendations to the Board for it to put to

shareholders;

b to monitor and review the external auditor’s

independence and objectivity and the

effectiveness of the audit process, taking into

consideration relevant UK professional and

regulatory requirements;

c to discuss with the external auditors the nature

and scope of the audit and ensure co-ordination

where more than one audit firm is involved;

d to develop and implement a policy on the

engagement of the external auditor to supply

non-audit services, taking into account relevant

ethical guidance regarding the provision of

non-audit services by the external audit firm;

e to monitor and review the integrity of the

accounts focusing particularly on any changes in

accounting policies and practices, major

judgmental areas, significant adjustments

resulting from the audit, the going concern

assumption, compliance with Accounting

Standards and compliance with UK Listing

Authority, London Stock Exchange and legal

requirements;

f to monitor and review any formal announcements

relating to the Company’s financial performance,

including the Interim Management Statements;

g to monitor and review the Company’s internal

financial controls;

h to monitor and review the internal audit

programme, to review the co-ordination between

the internal and external auditors and to ensure

that the internal audit function is adequately

resourced to a level commensurate with the

Company’s requirements;

56

Report of the Audit Committeecontinued

i to ensure that all matters within the remit of the

Committee are dealt with in an open, fair and

transparent manner;

j to report to the Board, identifying any matters in

respect of which it considers that action or

improvement is needed and make

recommendations as to the steps to be taken;

and

k to review arrangements by which staff of the

Company may, in confidence, raise concerns

about possible improprieties in matters of

financial reporting or other matters, and to ensure

that arrangements are in place for the

proportionate and independent investigation

of such matters and for appropriate follow

up action.

The risk management system is reviewed by

the Board.

The Audit Committee has satisfied itself as to the

external auditors’ independence; it has considered

the external auditors’ quality control procedures and

has reviewed and approved the level of audit fees by

reference to the total level of fees which the external

auditor has been paid during the year; it also

compared the fees paid to the external auditor with

fees paid to other professional advisors for

accounting and other tax work. It received a

presentation from the external auditor in which the

views of the external auditor were expressed in

relation to the question of independence. It also

assessed the effectiveness of the external audit

process considering the quality of people and service

provided by the external auditor, the robustness of

the audit and the quality of delivery.

The Audit Committee’s policy on the external

auditors’ undertaking non-audit work is as follows:

1. Audit Related ServicesThis is the primary area of work for the external

auditors. If any additional accounting support is

required, then this should be considered on a

competitive basis.

2. Tax ConsultingIn cases where knowledge of the Group’s tax position

is important, Forth Ports may use the external

auditors and their associates but this does not

preclude the Group from using other tax consulting

firms. Significant additional tax work should be

evaluated competitively.

3. General and Systems ConsultingAll significant consulting projects, including due

diligence work, should be subject to competitive

tender. The Group Finance Director is required to

give prior approval of work to be carried out by the

external auditors if the fee proposal is between

£5,000 and £49,999. If the fee proposal is in excess

of £50,000 this should be pre-approved by the

Chairman of the Audit Committee if it is proposed to

give this work to the external auditors.

57


2008

During 2008, the Company used three different firms

of professional advisers to advise on accounting,

corporation tax, VAT and other financial matters.

The fees received by the external auditors were

as follows: 2008 2007 £000 £000

Statutory audit fees 434 448

Non-audit services:

Tax advisory services 9 28

Other 6 5

449 481

The Audit Committee carried out a review of its

effectiveness by considering such matters as skillsets

of members, quality of Audit Committee papers,

relationships with the external auditor and the internal

auditor and suggestions for improving the

Committee’s performance. The results were discussed

and approved by the Audit Committee which

expressed itself satisfied as to its effectiveness.

The Audit Committee also received a report at all of

the meetings from the internal auditor on the work

which he carried out. A separate Internal Audit Plan is

presented to the Audit Committee by the Internal

Auditor for consideration at the last Audit Committee

meeting of each year in respect of the following

year’s work programme. The Audit Committee

has reviewed the effectiveness of the internal audit

function and is satisfied as to the effectiveness of

that function given the size and complexity of

the business.

A “whistle blowing” policy is in operation throughout

the Group. This policy sets out the position whereby

any concerns, including those of a financial nature,

may be raised at the appropriate level within

the Group.

David RichardsonChairman

16th March 2009

58

Directors’ Remuneration Report

This report has been prepared in accordance with the

Directors’ Remuneration Report Regulations 2002. It

also meets the relevant requirements of the Rules of

the UK Listing Authority and describes how the Board

has applied the Principles of Good Governance

relating to Directors’ remuneration. As required by the

Regulations, a resolution to receive and consider the

report will be proposed at the Annual General Meeting

of the Company at which the accounts will be

approved.

The members of the Remuneration Committee during

the year were:


(Chairman)




The Group Chief Executive is in attendance at the

Remuneration Committee meetings.

The Group Company Secretary acts as Secretary

to the Committee.

Members of the Remuneration Committee serve for

an initial period of up to three years with the option to

extend for a further three years with, in exceptional

circumstances, up to a further three years.

During the year there were four meetings of the

Committee.



a to determine and agree with the Board the policy

for, and set, the remuneration of the Executive

Directors and the Chairman. In determining the

policy the Committee should take into account all

factors it deems necessary with the objective of

ensuring that the Executive Directors are

appropriately incentivised to encourage enhanced

performance and fairly rewarded for their

individual contribution to the success of the

Company;

b to consider all elements of the remuneration

package i.e. base pay, short and long-term

incentives, pension arrangements and

termination provisions;

c to review in general terms the remuneration

packages for employees directly below Board

level;

d to ensure compliance with all relevant legal

requirements and take account of the provisions

of the Combined Code and the UK Listing Rules;

e to report formally to the Board as necessary on

its proceedings; and

f to produce an annual report on the Company’s

remuneration policy which forms part of the

Company’s Annual Report to the shareholders at

the Annual General Meeting.

During the year the Remuneration Committee

received advice from Watson Wyatt and Towers

Perrin. Watson Wyatt, an independent firm of

Remuneration Consultants, provided advice in

relation to the 2002 Long-Term Incentive Plan (“LTIP”)

and calculated Total Shareholder Return (“TSR”) for

the Company in terms of the 2002 LTIP. Towers Perrin,

an independent firm of Remuneration Consultants,

were appointed by the Remuneration Committee to

provide advice in relation to Executive and Senior

Management remuneration and the 2006 LTIP.

Neither Watson Wyatt nor Towers Perrin has any

other connection with the Company.

The Group Chief Executive and the Group Company

Secretary take no part in determining their own

remuneration.

The Non-Executive Directors’ fees are determined by

the Chairman in consultation with Executive

Directors.

59


2008

Remuneration PolicyThe Company’s policy on remuneration is to attract,

retain and incentivise the best staff recognising that

they are key to the ongoing success of the business.

In accordance with this policy, the overall packages

awarded to Directors are intended to be competitive

and comprise a mix of performance related and basic

remuneration, taking into account the goals of

corporate governance. Basic remuneration

represents approximately one third of total potential

remuneration with the short-term bonus scheme and

long-term incentive plan each accounting for up to

one third of the balance.

Each of the Executive Directors, the Non-Executive

Directors, the Group Company Secretary, the

Managing Director of Property and the Director of

Scottish Ports have agreed to a freeze in their salary

or fees for 2009.

In 2008, the Company operated three variable

remuneration plans, the Short-Term Bonus Scheme,

the 2002 LTIP and the 2006 LTIP. Details of these are

set out on pages 60 to 63.

The Board continued the policy that only base salary

is used for pension purposes. Further details of the

pension arrangements for Executive Directors are set

out on pages 65 to 66.

Directors’ Service ContractsThe dates of the service contracts of the Executive

Directors are as follows:

Charles Hammond 11th March 1992

Wilson Murray 11th March 1992

Perry Glading 26th September 2001

Each of the service contracts is terminable on

12 months’ written notice by the Company or

on 6 months’ notice by the Executive Director.

New Executive Directors will be appointed on the

basis of a one year rolling contract unless there are

exceptional circumstances. Each service contract

provides that the termination payment for all

Executive Directors is based on their existing salary

and benefits.

The dates of the letters of appointment of the

Non-Executive Directors are as follows:

Christopher Collins 26th July 2000

Gerry Brown 4th September 2003

Struan Robertson 4th September 2003

David Richardson 6th May 2005

James Tuckey 26th June 2007

Non-Executive Directors are normally appointed for

up to two three year terms which may be extended

for a further three years after a rigorous review. The

Company also applies an age limit of seventy years

of age for Non-Executive Directors, however this age

limit is proposed to be removed in the New Articles of

Association. No termination payments are payable to

Non-Executive Directors.

Short-Term Bonus SchemeAwards under the Short-Term Bonus Scheme are

based on the achievement attained by the Executive

Director of the challenging targets approved by the

Remuneration Committee. These targets include

growth in the underlying profit of the ports

operations, increases in the net asset value of the

property portfolio and the achievement of operating

targets across the Group. A bonus of 70% of salary

may be earned by meeting these targets with a

maximum available bonus of 100% of salary for

achievement in excess of the targets. The weighting

is approximately 80% financial to 20% non-financial

targets.

The application of the metrics for 2008 would have

resulted in bonuses being payable in full to the

Executive Directors. The Remuneration Committee,

however, exercised its discretion to reduce the level

of bonuses payable because of the diminution in

value of the Company’s development properties.

60

Directors’ Remuneration Reportcontinued

Bonuses were awarded, in respect of performance in

2008, to each of the Executive Directors as follows:

£

Charles Hammond 299,000

Wilson Murray 185,250

Perry Glading 182,000

The bonus metrics set for 2009 are aligned with the

key areas of focus for the Company: ports’

performance, conservation of cash and control of

property spend. 40% of the bonus relates to ports’

profit, 30% to achieving positive cash flow (excluding

any reduction in the level of dividend payments year

on year) and 20% to non-financial targets half of which

relate to achievement of property milestones. The

entry point for the port element of the bonus is

achievement of 90% of the ports profit metric and the

stretch target is achievement of 110% of the ports

profit metric.

2002 LTIPNo further awards will be made under this plan.

Cycle Award At Vesting Ending Date 1.1.08 Vested Lapsed At 31.12.08 Date

Charles Hammond 2008 4.10.05 18,643 (12,771) (5,872) – 30.4.08Wilson Murray 2008 4.10.05 11,718 (8,027) (3,691) – 30.4.08Perry Glading 2008 4.10.05 10,653 (7,298) (3,355) – 30.4.08 41,014 (28,096) (12,918) –

The information in the table above has been subject to audit as required by the Companies Act 1985.

The 2002 LTIP was extended to apply to certain Senior Managers during 2003.

68.5% of the shares awarded in 2005 vested on 30th April 2008 in line with the relative TSR performance of Forth

Ports over the performance period against the comparator group of companies on which date the share price

was £21.77. The share price on the date of award was £14.08. The credit to the income statement in respect of the

value of the conditional awards and the related employers’ national insurance was £(0.0)m.

Under the 2002 LTIP, which was approved at the

Annual General Meeting in May 2002, the value of the

shares awarded may be up to 75% of basic salary

based on the share price at 1st April in the relevant

performance period. The shares vest with the

recipient after a period of three years and are

dependent on the TSR achieved by the Company

over that period compared to the TSR achieved by a

comparator group of sixty six companies in the FTSE

200-300 Index (see page 62). The number of shares

which vest, if the Company is at the median over the

three year period, is 25% of salary rising

proportionally to vest in full if the Company achieves

the upper quartile or above.

The Remuneration Committee changed the

comparator group in 2004 to sixty six companies

ranked between 200 and 300 in the FTSE Indices to

reflect the increase in the Company’s market

capitalisation.

As at 1st January 2008 shares conditionally awarded

to Executive Directors under the 2002 LTIP were as

follows:

61


2008

Performance Review of the 2002 LTIPThe following graph shows the historical TSR

performance growth in the value of a hypothetical

£100 holding in the Company and the comparator

group in the FTSE 200-300 Index over the five year

period to 31st December 2008 under the 2005 Award.

The comparison is based on spot values. The index,

and the comparator group within the index, of which

the Company was a constituent company, have been

selected as a benchmark against which the Company

can be measured.

Cumulative Total Shareholder Return

Forth Ports PLC versus Custom Peer Group

Forth Ports PLC

Custom Peer Group

(31st December 2003 = £100)

The following graph shows the historical TSR

performance growth in the value of a hypothetical

£100 holding in the Company and the FTSE 200-300

Index over the five year period to 31st December

2008. The comparison is based on spot values. The

FTSE 200-300 Index is an index of similar sized

companies to the Company and is the group from

amongst which the comparator list for the 2005

awards was selected.

Cumulative Total Shareholder Return

Forth Ports PLC versus FTSE 200-300

Forth Ports PLC

FTSE 200-300

(31st December 2003 = £100)

2004 2005 2006 2007 2008

£275

£250

£300

£225

£200

£175

£150

£125

£100

£75

£50

£25

£0

2003 2004 2005 2006 2007 2008

£275

£250

£300

£225

£200

£175

£150

£125

£100

£75

£50

£25

£0

2003

62


Comparator Group for 2005 AwardsCompany Name

Aggreko Plc McCarthy & Stone Limited *

Alba Plc The Mersey Docks and Harbour Company *

WS Atkins Plc Michael Page International Plc

Avis Europe Plc Minerva Plc

Bodycote International Plc MITIE Group Plc

Bovis Homes Group Plc The Morgan Crucible Company Plc

British Vita Unlimited * NHP Limited *

Carillion Plc Northgate Plc

Cookson Group Plc Novar Limited *

Crest Nicholson Plc * Pendragon Plc

Dairy Crest Group Plc PHS Group Plc *

De La Rue Plc Pillar Property Group Limited *

De Vere Group Limited * Quintain Estates and Development Plc

Derwent London Plc Redrow Plc

easyJet Plc Regus Group Plc

Eurotunnel Plc * Shaftesbury Plc

FKI Plc SIG Plc

Forth Ports PLC DS Smith Plc

Galiform Plc (formerly MFI Furniture Group Plc) Somerfield Limited *

Geest Limited * Spirax-Sarco Engineering Plc

The Go-Ahead Group Plc SSL International Plc

Great Portland Estates Plc Stanley Leisure Plc *

Greggs Plc Topps Tiles Plc

Halma Plc Tui Travel Plc (formerly First Choice Holidays Plc)

Homeserve Plc Ultra Electronics Holdings Plc

JJB Sports Plc VT Group Plc

John Laing Plc * The Weir Group Plc

lastminute.com Limited * Westbury Limited *

London Merchant Securities Limited * JD Wetherspoon Plc

Manchester United Limited * Woolworths Group Plc

Marshalls Plc Yule Catto & Co Plc

Marston’s Plc

(formerly The Wolverhampton & Dudley Breweries Plc)

* formerly listed Plc

63


2008

2006 LTIPThe 2006 LTIP was approved at the Annual General

Meeting on 3rd May 2006. The performance

conditions were chosen to align closely to the

Company’s strategy of growth in ports profits and

long-term value creation in property. Under the plan,

the value of the shares awarded may be up to 100%

of basic salary based on the share price at 1st April in

the relevant performance period. The shares awarded

in 2008 will vest with the recipient after a period of

three years and will be dependent on the extent to

which performance conditions relating to average

annual growth in underlying ports profits (“Ports

Profits Test”) and average annual growth in property

net asset value (“NAV Test”) have been satisfied over

that period.

No award shares subject to the relevant test will vest

if the threshold level of performance is not achieved

at the end of the performance period. The maximum

number of shares will vest if the stretch target is

achieved. Award shares will vest on a straight line

basis for performance between the threshold and the

stretch target. The threshold level and the stretch

target are set by the Remuneration Committee and

the Remuneration Committee also establishes, for

each participant, the percentage of award which is to

be dependent on achievement of performance under

each metric.

For awards granted in 2008, the threshold level for

the Ports Profits Test was set at 3% with a stretch

target of 8%. The threshold level for the NAV test was

set at 4% with a stretch target of 9%.

In relation to awards to be made in 2009, under the

rules of the 2006 LTIP the value of shares awarded

may be up to 100% of base salary. However, the

Remuneration Committee has given careful

consideration to the level of awards relative to

shareholder value and has decided, with the

agreement of the Executive Directors, that while the

policy of awards to the value of 100% should remain,

the maximum available award for 2009 will be shares

to the value of 75% of base salary. The Committee

believes that the metrics of growth in ports’ profit and

growth in property NAV continue to be aligned to the

Group’s strategy as outlined in the Business Review.

Shares conditionally awarded to Executive Directors under the 2006 LTIP are as follows:

Cycle Award At Awarded At Vesting Ending Date 1.1.08 2008 31.12.08 Date

Charles Hammond 2009 3.5.06 21,163 – 21,163 30.4.09 2010 27.4.07 19,915 – 19,915 30.4.10 2011 30.4.08 – 22,728 22,728 30.4.11Wilson Murray 2009 3.5.06 13,262 – 13,262 30.4.09 2010 27.4.07 12,328 – 12,328 30.4.10 2011 30.4.08 – 14,082 14,082 30.4.11Perry Glading 2009 3.5.06 12,133 – 12,133 30.4.09 2010 27.4.07 11,854 – 11,854 30.4.10 2011 30.4.08 – 13,834 13,834 30.4.11 90,655 50,644 141,299


Certain Senior Managers are also eligible for awards under the 2006 LTIP.

The total shares awarded in 2006 were 111,554 and, subject to achieving the performance criteria, these will vest

on 30th April 2009. The market price on 3rd May 2006 was £17.40. The charge to the income statement in respect

of the value of the conditional awards and the related employers’ national insurance cost was £0.4m for the year.

64


Remuneration Package

Directors’ Detailed Emoluments

Basic Salary Performance and Fees Bonus Scheme Other Benefits Total 2008 2007 2008 2007 2008 2007 2008 2007 £ £ £ £ £ £ £ £

Christopher Collins* 122,500 115,500 – – – – 122,500 115,500Charles Hammond 460,000 420,000 299,000 420,000 132,486 253,670 891,486 1,093,670Wilson Murray 285,000 260,000 185,250 260,000 88,671 147,949 558,921 667,949Perry Glading 280,000 250,000 182,000 250,000 24,070 73,146 486,070 573,146Gerry Brown* 40,000 37,000 – – – – 40,000 37,000Struan Robertson* 45,000 42,000 – – – – 45,000 42,000David Richardson* 46,000 43,000 – – – – 46,000 43,000James Tuckey ** 39,000 18,500 – – – – 39,000 18,500Bill Harkness** – 12,601 – – – – – 12,601 1,317,500 1,198,601 666,250 930,000 245,227 474,765 2,228,977 2,603,366

* denotes Non-Executive Director

** retired/appointed during the relevant year


Other benefits in 2008 include payments in lieu of company pension contributions for Charles Hammond and

Wilson Murray. In 2007, the other benefits include payment of the Special Bonus opportunity awarded in 2007

of £200,000 in aggregate to the three Executive Directors.

The other benefits also include car provision and medical health insurance and, for certain Executive Directors,

include fuel provision.

SAYE SchemeThe Directors hold options under the Group SAYE Scheme as follows: Exercise Date on Date of At At Price which first Expiry Grant 1.1.08 31.12.08 £ Exercisable Date

Charles Hammond 3.6.04 1,520 1,520 10.75 1.8.09 28.2.10Wilson Murray 3.6.04 1,520 1,520 10.75 1.8.09 28.2.10Perry Glading 3.6.04 1,520 1,520 10.75 1.8.09 28.2.10 4,560 4,560

The total shares awarded in 2007 were 108,019 and,

subject to achieving the performance criteria, these

will vest on 30th April 2010. The market price on 27th

April 2007 was £20.06. The charge to the income

statement in respect of the value of the conditional

awards and the related employers’ national insurance

cost was £0.6m for the year.

The total shares awarded in 2008 were 145,682 and,

subject to achieving the performance criteria, these

will vest on 30th April 2011. The market price on 30th

April 2008 was £21.77. The charge to the income

statement in respect of the value of the conditional

awards and the related employers’ national insurance

cost was £0.6m for the year.

65


2008

The information in the table has been subject to audit

as required by the Companies Act 1985.

The highest share price during the year was £22.12

and the lowest was £7.14. The share price as at

31st December 2008 was £9.16.

Directors’ PensionsExecutive Directors receive pension entitlements from

The Forth Ports Group Pension Scheme.

The Scheme is a defined benefit scheme that

provides the Directors with a pension of up to two

thirds of their final pensionable salary at age 60.

It is an HMRC Registered Pension Scheme and

all members are contracted out of the State

Second Pension.

Pensions in payment, earned prior to 31st December

2002, are guaranteed to increase each year by 3% or

the increase in the Retail Price Index (RPI) if higher,

up to a maximum of 5%. Pensions earned from 1st

January 2003 increase in accordance with Limited

Price Indexation.

The figures shown overleaf have been prepared in

accordance with the Statutory Instrument and the

Listing Rules of the UK Listing Authority. Actual

Company contribution rates are calculated as an

average of the cost of providing benefits for all

Scheme members over their future working lifetime.

This recognises features such as the increasing cost

of pension as members approach retirement age and

the pension commitments which the Company has

made for each member. Contributions are paid

(where appropriate) at rates recommended by

the Scheme Actuary, details of which are given in

Note 32.

As a result of changes introduced by the Finance Act

2004 which affected the taxation of pensions after 6th

April 2006 (“A-day”), employees, including Directors,

whose pension is likely to exceed the HMRC Lifetime

Allowance, were permitted to cease pension accrual

within the Scheme in favour of a cash allowance

(which will not compensate for the additional tax

arising from the new legislation). Individuals taking

this option will, however, continue to be entitled to life

insurance and ill-health benefits from the Scheme.

Effective from 16th March 2006, Charles Hammond

and Wilson Murray ceased accrual within the Scheme

and receive instead a cash allowance in lieu of

pension, equal to 25% of basic salary. The allowance

is not pensionable, nor does it count towards

entitlements in bonus or long-term incentive

schemes.

Following the abolition of the HMRC Earnings Cap,

all members of the Scheme will accrue pensions

based on the full, uncapped salary in respect of

service from A-day onwards. However, for any

member to whom the Cap previously applied, it will

continue to apply in respect of service prior to A-day.

Perry Glading is one such member. The cash

allowance in lieu of pension on salary above the Cap,

which he was previously receiving, ceased at A-day,

in recognition of his increased rate of pension

accrual.

Early retirement provisions for Directors are identical

to those for other members of the Scheme.

66


(A) (B) (C) Accrued Pension for Accrued Pension for Gross Increase in Service to 31.12.07 Service to 31.12.08 Accrued Pension (Note 2) (Note 1) £ £ £

Charles Hammond 175,000 191,667 16,667Wilson Murray 152,750 167,438 14,688Perry Glading 40,010 46,941 6,931 (D) (E) (F) Increase in Accrued Increase in (D) Increase in (D) Pension Net of Inflation due to Salary Increases due to Service Accrual £ £ £

Charles Hammond 9,838 9,838 –Wilson Murray 8,722 8,722 –Perry Glading 5,360 1,192 4,168 (G) (H) (I) Value of Net Pension Members’ Value of Net Pension Increase Contributions Increase (G) (Note 4) less (H) (Note 5) £ £ £

Charles Hammond 126,900 – 126,900Wilson Murray 171,900 – 171,900Perry Glading 71,100 16,725 54,375 (J) (K) (L) Transfer Value of Transfer Value of Net Increase Benefits at 31.12.07 Benefits at 31.12.08 in Transfer Value (Note 6) £ £ £

Charles Hammond 1,947,600 2,472,900 525,300Wilson Murray 2,669,200 3,302,100 632,900Perry Glading 490,700 642,900 135,475


Notes:1 The pension accrual for Perry Glading is the amount

that would have been paid annually on retirement based on service to the end of the year. For Wilson Murray and Charles Hammond it is based on service to 15th March 2006 at which point they stopped accruing further service.

2 The accrued pensions in column (A) are based on pensionable salary at 31st December 2007 and pensionable service to that date. The figure is then increased by 3.9% to allow for revaluation that would have applied to a leaver over 2008 before being deducted from (B) to give (D).

3 Transfer values have been calculated in accordance with the basis set by the Trustees in force at 31st December 2008.

4 The values in column (G) reflect the age and proximity to retirement of the Director as well as financial conditions at the year end.

5 The value of the net increase (I) represents the incremental value to the Director of his service

during the year, calculated on the assumption that service terminated at the year-end (or earlier in the case of Charles Hammond and Wilson Murray). It is based on the accrued pension increase (D) after deducting the Director’s contribution.

6 The change in the transfer value (L) includes the effect of fluctuations in the transfer value due to factors beyond the control of the Company and Directors, such as stockmarket movements. It is calculated after deducting the Director’s contribution.

7 Voluntary contributions paid by Directors and resulting benefits are not shown.

This report has been approved by the Board.

Struan RobertsonChairman

16th March 2009

67


2008

Report of the Nomination Committee

The members of the Nomination Committee during

the year were:

Christopher Collins Non-Executive Director

(Chairman)





Charles Hammond Group Chief Executive

The Group Company Secretary acts as Secretary to

the Committee.

Members of the Nomination Committee serve for an

initial period of up to three years with the option to

extend by no more than two additional three year

periods.

The Committee meets not less than once a year and

at such other times as business requires. During the

year one meeting was held.



a to prepare a description of the role and

capabilities required for a particular Board

appointment;

b to be responsible for identifying and nominating,

for approval of the Board, candidates to fill the

Board vacancies as and when they arise;

c to satisfy itself with regard to succession

planning;

d to ensure that new Board members have

sufficient time to undertake the role; and

e to ensure that an appropriate induction plan

has been put in place for every new Director.

The Committee shall also make recommendations to

the Board in respect of the following:

a the re-appointment of a Non-Executive Director;

b the re-election by shareholders of any Director

under the retirement by rotation provisions in the

Company’s Articles of Association;

c the continuation in office as a Director of any

Director at any time; and

d the appointment of any Director to Executive or

other office other than to the positions of

Chairman and Group Chief Executive, the

recommendation for which shall be considered at

a meeting of all the Directors regarding these two

appointments.

The Committee is authorised to seek any information

it requires from any employee of the Company in

order to perform its duties. It is authorised to obtain,

at the Company’s expense, outside legal or other

professional advice on any matters within its Terms

of Reference.

68

Report of the Nomination Committee continued

In 2008, the Committee met to discuss the process

for the appointment of a new Chairman to succeed

Christopher Collins. The meeting was chaired by

Gerry Brown as Senior Independent Director. The

Committee had before it a paper outlining the roles

and responsibilities of a chairman having regard to

the balance of the Board, the business experience of

the existing Non-Executive Directors and the

Combined Code. It also considered a paper prepared

by the Group Company Secretary outlining the

proposed selection process having regard to the

Combined Code and best practice in other listed

companies. As required by the Combined Code, the

Committee considered whether external candidates

should be sought. The Committee, however, believed

that the group of internal candidates was extremely

strong and that, therefore, external candidates should

not be sought. It was agreed that the selection

process would be led by the Senior Independent

Director. He would take confidential soundings from

Board members regarding each candidate and their

suitability for the position with a view to a consensus

being reached in respect of a candidate. As required

by the Terms of Reference for the Committee, the

appointment would require the approval of the Board.

Following the confidential soundings, the Committee

was delighted to recommend to the Board that David

Richardson should succeed Christopher Collins as

Chairman of the Company.

Following their appointment new Directors and

Senior Managers participate in the Company’s

induction programmes where each individual will

meet Senior Managers, be shown the principal

locations of the Group and be given presentations

on the Company’s strategy, targets and different

business units.

Christopher CollinsChairman

16th March 2009

69


2008

Independent Auditors’ Report to the Members of Forth Ports PLC

We have audited the Group and Parent company

financial statements (the “financial statements”) of

Forth Ports PLC for the year ended 31st December

2008 which comprise the Consolidated Income

Statement, the Group and Company Statements of

Recognised Income and Expense, the Group and

Company Balance Sheets, the Group and Company

Cash Flow Statements, the principal accounting

policies and the related notes. These financial

statements have been prepared under the

accounting policies set out therein. We have also

audited the information in the Directors’

Remuneration Report that is described as having

been audited.

Respective responsibilities of directors and auditors

The Directors’ responsibilities for preparing the

Annual Report, the Directors’ Remuneration Report

and the financial statements in accordance with

applicable law and International Financial Reporting

Standards (IFRSs) as adopted by the European

Union are set out in the Statement of Directors’

Responsibilities.

Our responsibility is to audit the financial statements

and the part of the Directors’ Remuneration Report to

be audited in accordance with relevant legal and

regulatory requirements and International Standards

on Auditing (UK and Ireland). This report, including

the opinion, has been prepared for and only for the

Company’s members as a body in accordance with

Section 235 of the Companies Act 1985 and for no

other purpose. We do not, in giving this opinion,

accept or assume responsibility for any other

purpose or to any other person to whom this report is

shown or into whose hands it may come save where

expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the

financial statements give a true and fair view and

whether the financial statements and the part of the

Directors’ Remuneration Report to be audited have

been properly prepared in accordance with the

Companies Act 1985 and, as regards the group

financial statements, Article 4 of the IAS Regulation.

We also report to you whether in our opinion the

information given in the Directors’ Report is

consistent with the financial statements. The

information given in the Directors’ Report includes

that specific information presented in the Business

Review that is cross referred from the Directors’

Report.

In addition we report to you if, in our opinion, the

company has not kept proper accounting records,

if we have not received all the information and

explanations we require for our audit, or if information

specified by law regarding directors’ remuneration

and other transactions is not disclosed.

We review whether the Corporate Governance

Statement reflects the Company’s compliance with

the nine provisions of the Combined Code (2006)

specified for our review by the Listing Rules of the

Financial Services Authority, and we report if it does

not. We are not required to consider whether the

Board’s statements on internal control cover all risks

and controls, or form an opinion on the effectiveness

of the Group’s corporate governance procedures or

its risk and control procedures.

We read other information contained in the Annual

Report and consider whether it is consistent with the

audited financial statements. The other information

comprises only Chairman and Group Chief

Executive’s Report, the Business Review, the

Directors’ Report, the Corporate Governance Report,

the Report of the Audit Committee, the unaudited part

of the Directors’ Remuneration Report, the Report of

the Nomination Committee and all of the other

information listed on the contents page. We consider

the implications for our report if we become aware

of any apparent misstatements or material

inconsistencies with the financial statements.

Our responsibilities do not extend to any other

information.

70

Independent Auditors’ Report to the Members of Forth Ports PLC continued

Basis of audit opinion

We conducted our audit in accordance with

International Standards on Auditing (UK and Ireland)

issued by the Auditing Practices Board. An audit

includes examination, on a test basis, of evidence

relevant to the amounts and disclosures in the

financial statements and the part of the Directors’

Remuneration Report to be audited. It also includes

an assessment of the significant estimates and

judgments made by the directors in the preparation

of the financial statements, and of whether the

accounting policies are appropriate to the group’s

and company’s circumstances, consistently applied

and adequately disclosed.

We planned and performed our audit so as to obtain

all the information and explanations which we

considered necessary in order to provide us with

sufficient evidence to give reasonable assurance that

the financial statements and the part of the Directors’

Remuneration Report to be audited are free from

material misstatement, whether caused by fraud or

other irregularity or error. In forming our opinion we

also evaluated the overall adequacy of the

presentation of information in the financial statements

and the part of the Directors’ Remuneration Report to

be audited.

Opinion

In our opinion:

the group financial statements give a true and

fair view, in accordance with IFRSs as adopted

by the European Union, of the state of the

group’s affairs as at 31st December 2008 and of

its loss and cash flows for the year then ended;

the parent company financial statements give a

true and fair view, in accordance with IFRSs as

adopted by the European Union as applied in

accordance with the provisions of the

Companies Act 1985, of the state of the parent

company’s affairs as at 31st December 2008 and

cash flows for the year then ended;

the financial statements and the part of the

Directors’ Remuneration Report to be audited

have been properly prepared in accordance with

the Companies Act 1985 and, as regards the

group financial statements, Article 4 of the IAS

Regulation; and

the information given in the Directors’ Report is

consistent with the financial statements.

PricewaterhouseCoopers LLPChartered Accountants and Registered Auditors

Edinburgh

16th March 2009

71


2008

Consolidated Income StatementFor the Year ended 31st December 2008

Before Before Exceptional Exceptional Exceptional Exceptional Items and Items and Total Items and Items and Total Revaluations Revaluations 2008 Revaluations Revaluations 2007 Notes £m £m £m £m £m £m

Group revenue 1,2,4 184.0 1.9 185.9 165.0 – 165.0Cost of sales 3,4 (112.5) (31.8) (144.3) (102.6) – (102.6)

Gross profit/(loss) 71.5 (29.9) 41.6 62.4 – 62.4Administrative expenses 3 (24.1) – (24.1) (25.4) – (25.4)Other (expenses)/income 4 – (16.4) (16.4) – 12.8 12.8

Group operating profit/(loss) 1 47.4 (46.3) 1.1 37.0 12.8 49.8Finance income 1,7 2.2 – 2.2 3.1 – 3.1Finance costs 1,8 (14.1) – (14.1) (13.4) – (13.4)Share of results of joint ventures 1,4 (1.7) (19.7) (21.4) (2.0) (7.7) (9.7)Share of results of associates 1,4 2.5 (1.0) 1.5 2.5 – 2.5

Profit/(loss) before tax 3 36.3 (67.0) (30.7) 27.2 5.1 32.3Taxation 4,9 (10.2) (10.3) (20.5) (6.8) (0.6) (7.4)

Profit/(loss) for the year 10 26.1 (77.3) (51.2) 20.4 4.5 24.9

(Loss)/profit attributable to minority interest (0.1) (2.1) (2.2) (0.2) 0.0 (0.2)Profit/(loss) attributable to equity shareholders 26.2 (75.2) (49.0) 20.6 4.5 25.1

26.1 (77.3) (51.2) 20.4 4.5 24.9

(Loss)/earnings per share Basic (loss)/earnings per share 12 (107.8p) 55.3pDiluted (loss)/earnings per share 12 (107.8p) 54.9p

All activities relate to continuing activities.

72

Statements of Recognised Income and ExpenseFor the Year ended 31st December 2008

Group Group Company Company 2008 2007 2008 2007 Notes £m £m £m £m

Share of joint venture’s movement on cash flow hedge 31 (4.1) 0.2 – –Share of associate’s movement on cash flow hedge 31 (0.1) 0.0 – –Revaluation of investment property transferred from operational land and buildings 31 24.9 5.7 0.4 –Deferred tax on revaluation 31 (6.9) (1.1) – –Corporation tax on excess pension contributions 31 1.8 – 1.8 –Deferred tax on excess pension contributions 31 (1.8) – (1.8) –Actuarial (loss)/gain in defined benefit pension scheme 31 (10.9) 12.6 (10.9) 12.6Deferred tax on actuarial (loss)/gain 31 3.1 (3.5) 3.1 (3.5)Effect of tax rate change for deferred tax on actuarial gain 31 – (0.6) – (0.6)Share of associate’s actuarial loss in defined benefit pension scheme 31 (0.1) (0.3) – –Deferred tax on associate’s actuarial loss 31 0.0 0.1 – –Effect of tax rate change for deferred tax on associate’s actuarial loss 31 – (0.0) – –

Income/(expense) recognised directly in equity 5.9 13.1 (7.4) 8.5(Loss)/profit for the year 10 (51.2) 24.9 (27.8) 11.1

Total recognised (expense)/income for the year (45.3) 38.0 (35.2) 19.6

Attributable to:Minority interest 31 (2.2) (0.2) – –Equity shareholders 31 (43.1) 38.2 (35.2) 19.6

(45.3) 38.0 (35.2) 19.6

73


2008

Balance SheetsAt 31st December 2008


ASSETS Non-current assets Property, plant and equipment 13 219.3 223.1 66.4 64.6Investment property 14 205.7 182.9 46.2 48.6Intangible assets 15 40.3 41.6 2.1 2.7Investment in joint ventures 16 – 0.0 – 10.0Investment in associate 17 9.6 9.3 – –Investment in subsidiaries 18 – – 164.2 164.2Trade and other receivables 20 – 21.3 – 21.3Deferred tax assets 21 1.4 0.1 1.4 0.1 476.3 478.3 280.3 311.5Current assets Inventories 19 27.4 50.7 0.6 0.6Trade and other receivables 20 35.8 47.9 136.6 148.3Current tax receivable 22 4.5 – 3.9 0.5Cash and cash equivalents 23 4.7 7.3 2.5 4.6 72.4 105.9 143.6 154.0LIABILITIES Current liabilities Trade and other payables 24 (28.9) (27.4) (19.9) (16.1)Current tax liabilities 25 – (3.3) – –Borrowings 26 (0.1) (0.1) (0.0) (0.8)Provisions 27 (0.4) (1.2) (0.1) (0.2) (29.4) (32.0) (20.0) (17.1)Net current assets 43.0 73.9 123.6 136.9Non-current liabilities Borrowings 26 (212.6) (212.7) (212.6) (212.7)Investment in joint ventures 16 (3.5) (0.5) – –Deferred tax liabilities 28 (67.6) (42.8) (13.1) (7.0)Retirement benefit obligations 32 (5.1) (0.5) (5.1) (0.5)Provisions 27 (0.3) (0.4) (0.2) (0.3) (289.1) (256.9) (231.0) (220.5)Total assets less total liabilities 230.2 295.3 172.9 227.9SHAREHOLDERS’ EQUITY Share capital 29,31 22.8 22.8 22.8 22.8Share premium 31 19.2 19.2 19.2 19.2Own shares held 30,31 (4.9) (5.2) (4.9) (5.2)Fair value and other reserves 31 13.5 17.7 66.3 66.3Retained earnings 31 179.3 238.3 69.5 124.8 Total shareholders’ equity 229.9 292.8 172.9 227.9Minority interest in equity 31 0.3 2.5 – –Total equity 31 230.2 295.3 172.9 227.9 The accounts on pages 71 to 127 were approved and authorised for issue by the Board of Directors on 16th March 2009 and signed on its behalf by:

Christopher Collins Wilson Murray Chairman Group Finance Director

74

Cash Flow StatementsFor the Year ended 31st December 2008


Cash flows from operating activities Cash generated from operations 36 58.8 65.8 35.9 44.3Interest paid (12.1) (12.8) (12.0) (12.9)Interest received 0.4 1.0 9.6 9.8Tax paid (8.6) (2.3) (7.2) (2.3)Dividend received from associated company 1.0 0.7 – –Dividend received from joint venture company 0.1 – 0.1 –

Net cash generated from operating activities 39.6 52.4 26.4 38.9

Cash flows from investing activities Purchase of property, plant and equipment and intangibles (23.1) (13.4) (5.7) (2.3)Purchase of investment property – (0.6) – (0.5)Acquisition of subsidiary – (27.1) – (27.1)Cash acquired with subsidiary – 0.8 – –Repayment of subsidiary’s borrowings – (13.9) – (13.9)(Expenses of)/proceeds from sale of interest in joint venture – (0.2) – (0.2)Sale of property, plant and equipment 2.9 0.1 0.0 0.1Sale of investment property 0.1 – 0.1 –

Net cash used in investing activities (20.1) (54.3) (5.6) (43.9)

Net cash inflow/(outflow) before financing activities 19.5 (1.9) 20.8 (5.0)

Cash flows from financing activities Loan drawdowns 50.0 31.0 50.0 31.0Loan repayments (50.0) – (50.0) –Arrangement fees for loans (0.3) – (0.3) –Capital element of finance leases (0.0) (0.1) (0.0) (0.0)Minority interest dividend paid – (1.6) – –Equity dividends paid (22.1) (20.9) (22.1) (20.9)Proceeds from sale of own shares held 0.3 0.1 0.3 0.1Repayment of loan notes – (4.2) – (4.2)

Net cash (used in)/generated from financing activities (22.1) 4.3 (22.1) 6.0

(Decrease)/increase in cash and cash equivalents 36 (2.6) 2.4 (1.3) 1.0

Cash and cash equivalents at start of year 7.3 4.9 3.8 2.8

Cash and cash equivalents at end of year 4.7 7.3 2.5 3.8

For the purposes of the Company Cash Flow Statement cash and cash equivalents as at 31st December 2007 comprised cash on short-term deposit of £4.6m net of bank overdraft of £0.8m.

75


2008

Principal Accounting Policies

General Information

Forth Ports PLC is a company incorporated in Scotland under the Companies Act 1985. The address of its registered office is given on page 45. The nature of the Group’s operations and its principal activities are the provision of port, cargo handling, towage and related services and facilities. The Group also has extensive property interests.

These consolidated accounts have been approved for issue by the Board of Directors on 16th March 2009.

Basis of Preparation

The results have been prepared in accordance with IFRS and IFRICS as adopted by the EU and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The consolidated accounts have been prepared under the historical cost convention as modified by the revaluation of investment properties at fair value.

The preparation of accounts, in accordance with IFRS as adopted by the EU, requires the use of

estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the accounts and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

In the current year, two Interpretations issued by the International Financial Reporting Interpretations Committee are effective. These are: IFRS 2 (Group and Treasury Share Transactions) and IFRIC 14 – IAS 19 (The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction). The adoption of these Interpretations has not led to any changes in the Group’s accounting policies.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

IFRS 1 (amended)/IAS 27 (amended) Cost of an Investment in a Subsidiary, Jointly Controlled Equity or Associate

IFRS 2 (amended) Share-based Payment – Vesting Conditions and CancellationsIFRS 3 (revised 2008) Business CombinationsIFRS 8 Operating SegmentsIAS 1 (revised 2007) Presentation of Financial StatementsIAS 23 (revised 2007) Borrowing CostsIAS 27 (revised 2008) Consolidated and Separate Financial StatementsIAS 32 (amended)/IAS 1 (amended) Puttable Financial Instruments and Obligations Arising on LiquidationIFRIC 12 Service Concession ArrangementsIFRIC 15 Agreements for the Construction of Real EstateIFRIC 16 Hedges of a Net Investment in a Foreign OperationImprovements to IFRSs (May 2008)

The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the accounts of the Group except for an amendment to IAS 40 (Investment Property) contained in Improvements to IFRS (May 2008). Investment property in the course of construction will be recognised in investment property and measured at fair value.

Currently investment property in the course of construction is included in Property, Plant and Equipment as Capital Work in Progress. The estimated impact that this is expected to have on the Group’s financial statements when the amendment is adopted will depend on market conditions at that time, but could be material.

76

Principal Accounting Policiescontinued

Exceptional Items

Exceptional items are those material items of income and expenditure which the Group has disclosed separately because of their quantum or incidence so as to give a clearer understanding of the Group’s financial performance. The Group has also separately disclosed the effect of revaluation of investment properties per IAS 40.

Consolidation

1. SubsidiariesSubsidiaries (which are those entities (including Special Purpose Entities) in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies) are consolidated.

The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The acquisition method of accounting is used to account for the purchase of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated fully on consolidation; unrealised losses are also eliminated unless costs cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

2. AssociatesAn associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. Under this method the Group’s share of the post-acquisition profits or losses of associates is

recognised in the Income Statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates.

3. Joint VenturesA joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. The Group’s interests in joint ventures are accounted for by the equity method of accounting. The investment in the joint venture is initially recorded at cost and is adjusted thereafter for the post-acquisition change in the Group’s share of net assets of the jointly controlled entity.

The Group Income Statement includes the Group’s share of the profit or loss of the joint venture. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the purchase of assets by the Group from the joint venture until it resells the assets to an independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately. When the Group’s share of losses of a joint venture equals or exceeds its interest in the joint venture, the Group does not recognise further losses unless the Group has incurred obligations or made payments on behalf of the joint venture.

77


2008

Goodwill

Goodwill is the excess of the cost of acquisition over the net fair value of the identifiable assets, liabilities and recognised contingent liabilities of the business acquired.

Goodwill on businesses acquired after 1st January 1999 is shown as an intangible asset with an indefinite useful life and is subject to an annual impairment test and is also subject to a test whenever there is an indication of impairment. Goodwill arising on acquisitions prior to 1st January 1999 was written off immediately against reserves.

Where there is an excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets over the purchase price (“negative goodwill”), this amount is taken to the Income Statement in the year of acquisition.

Segmental Reporting

The Group has identified two primary business segments that provide services that are subject to risks and returns that are different from one another. Information relating to Ports and Property segments are shown. All inter-segment transactions and balances are eliminated on consolidation. The Group considers that all revenues, costs, assets and liabilities can be identified as relating to either Ports or Property. Port income includes rental and other income from investment property located within or adjacent the port estates.

Revenue Recognition

Revenue from Port activities represents the income earned from the provision of port facilities, which comprise cargo handling, towage, pilotage, conservancy services and port related rental income. Such revenue is recorded once the service has been provided, and revenue from paper sales is shown on the basis of net commission. Revenue from Property includes rental income and sales of property developments. Rental income (net of any incentives given to lessees) is recognised on a straight line basis over the lease term. Revenue excludes value added tax and is shown on a gross basis in relation to recoverable charges such as utilities, recoverable overtime and recoverable plant hire costs.

Profits and losses arising on the sale of sites or completed developments are recognised when contracts for sale have been exchanged and all material conditions have been satisfied. The Board will have due regard to all the circumstances of any individual transaction in determining whether or not any conditions are material or have been satisfied.

Where sites or completed developments are sold to joint ventures or associates, profits are only recognised in proportion to third parties’ interests in those entities. The remaining profits are recognised when the sites or completed developments are sold by the joint ventures or associates to unrelated parties.

Consideration is given to the collectability of any debt outstanding arising from the sale of sites or property developments and provisions are made where necessary. The need for such provisions is reviewed on a regular basis.

Property, Plant and Equipment

Operational land and buildings and plant and equipment are stated at historical cost less depreciation. Land and capital works in progress are not depreciated. Cost is the original purchase price of the asset and the cost of bringing the asset to its current condition and includes transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchase costs where appropriate.

All operational buildings and plant and equipment in the course of construction are recorded as capital work in progress until such time as they are brought into use by the Group. Capital work in progress includes all direct expenditure and may include capitalised interest in accordance with the accounting policy on that subject. On completion, such assets are transferred to the appropriate asset category.

In circumstances where there is a change in use of operational land and buildings to investment property, the fair value of the asset is established at a date when it has been decided to transfer the asset from operational land and buildings to investment property.

78


Depreciation is charged to write off the cost less any residual value of the asset on a straight line basis over the estimated useful lives as follows;

Buildings and dock structures 15-50 yearsPlant and equipment 3-35 years

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

Gains and losses on disposals of assets are included in operating profit.

Repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the assets when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining life of the related asset.

Investment Property

Investment property, principally comprising tenanted land and buildings within the port estates, is held for long-term rental yields and is not occupied by the Group. Investment property is treated as a long-term investment and is carried at fair value determined annually or at interim balance sheet dates where there is a material change in fair value. Changes in fair values are recorded in the Income Statement in accordance with IAS 40 and are included in other income or taken directly to reserves as appropriate.

Intangible Assets

Intangible assets refer principally to computer software and customer relationships.

Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with identifiable and unique software products controlled by the Group and which will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include staff costs of those involved in the software development.

Expenditure which enhances or extends the performance of identifiable computer software products beyond their original specifications is recognised as a capital improvement and added to the original cost of the software.

Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives, not exceeding a period of 10 years.

If a business is acquired which has long-term customer relationships, those relationships are valued and an intangible asset set up to reflect that value and are written off on a straight line basis over a period of up to 15 years.

Impairment of Assets

Property, plant and equipment and other non-current assets, excluding goodwill, are reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of an asset exceeds its recoverable amount which is the higher of an asset’s net selling price and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows.

Investment in Subsidiaries

Investments in subsidiaries are stated at cost less any permanent diminution in value by the Company.

79


2008

Finance and Operating Leases

Leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired under finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset or the present value of the minimum lease payments, and are depreciated over their useful lives. The interest element of the rental payments is charged to the Income Statement over the period of the lease contract on the basis of the capital element outstanding. The finance charges outstanding are included in short-term and long-term payables as appropriate.

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. The cost of operating leases is charged to the Income Statement on a straight line basis over the life of the lease.

Lease Incentives

Any lease incentive paid or payable for the agreement of a new or existing operating lease is allocated over the term of the lease regardless of its form or cash flow effect. Such incentives are recognised over the lease term, unless another systematic basis is appropriate, in order to ensure the Income Statement reflects the true effective rental charge irrespective of the particular cash flow arrangements agreed.

Grants relating to the Purchase of Property, Plant and Equipment

Capital grants are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all conditions pertaining to the grant. Grants receivable are credited against the carrying value of the assets to which the grant relates. The amount amortised in each period is set against the depreciation charge of the asset to which it relates.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events where it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made.

The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract.

Restructuring provisions are recognised in the period in which the Group has a present legal or constructive obligation for payment. Costs relating to the ongoing activities of the Group are not provided in advance.

Dividends

Dividends are recorded in the Group’s accounts in the period in which they are approved by the shareholders or when paid in the case of interim dividends. Inter Group dividends are recorded in the period in which they are approved and paid by the subsidiary company’s Board.

Inventories

Property work in progress relates to expenditure on property development projects, land held for development and project work in progress and is included at cost less amounts written off which are deemed to be irrecoverable. Cost includes all direct expenditure and associated indirect costs and related costs of finance where appropriate. On completion, such assets are transferred to investment properties or sold to third parties.

80


Trade Receivables and Accrued Property Income

Trade receivables and accrued property income are carried at original invoice amount less an allowance made for impairment of these receivables. An allowance for impairment of trade receivables and accrued property income is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the allowance is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. The carrying amount of the asset is reduced through the use of this impairment allowance and the amount of the loss is recognised in the Income Statement. In future periods the unwinding of the discount is recognised within finance income.

Borrowing Costs

Borrowing costs are generally expensed as incurred. The Group’s policy is to capitalise interest and other borrowing costs directly incurred with respect to the acquisition or development of qualifying assets. Such costs are capitalised and included in the carrying value of the assets. Capitalisation of borrowing costs commences when:

expenditures for the asset and borrowing costs are incurred; and

activities necessary to prepare the asset for its intended use or sale are in progress.

If active development is interrupted for an extended period, capitalisation is suspended. Capitalisation ceases when the asset is substantially ready for its intended use or sale.

A weighted average cost of borrowing is used.

Cash and Cash Equivalents

Cash and cash equivalents are carried in the Balance Sheet at cost. For the purposes of the Cash Flow Statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the Balance Sheet.

Share Capital

Ordinary shares are classified as equity. Incremental external costs directly attributable to the issue of new shares, other than in connection with business combinations, are shown in equity as a deduction, net of tax, from the proceeds.

Where the Company or its subsidiaries purchases the Company’s equity share capital, the consideration paid including any attributable incremental external costs net of income taxes is deducted from total shareholders’ equity as own shares held. Where such shares are subsequently sold, any consideration received is included in shareholders’ equity.

Borrowings

Borrowings are recognised initially as the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the Income Statement over the period of the borrowings.

Accounting for Taxation

The charge for taxation is based on the profit for the period and takes into account deferred taxation.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Current tax rates in the relevant jurisdiction are used in the determination of deferred income tax.

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2008

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Employee Benefits

Pension contributions are charged principally at a rate calculated by the Actuary to provide, over the expected remaining service lives of current employees, for all retirement benefits related to projected final salaries and wages.

The liability in respect of defined benefit pension plans is the present value of the defined benefit obligation at the Balance Sheet date minus the fair value of plan assets, together with adjustments for past service cost. The defined benefit obligation is calculated by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by the estimated future cash outflows using market yields on high quality corporate bonds.

Actuarial gains and losses are recognised in full as they arise in the Statement of Recognised Income and Expense.

Share Based Payment

The Group awards shares in Forth Ports PLC to all eligible Executive Directors and Senior Managers under the LTIPs which were approved at the Annual General Meetings of the Company in May 2002 and 2006. The shares are granted to the employee at nil cost. In addition, all eligible employees were offered the opportunity to take part in an approved Save As You Earn (“SAYE”) scheme which started in 2004 as approved at the Annual General Meeting of the Company in May 2004. The option price was granted to employees at a discount to the market price of the shares at the date of issue.

In both cases, the Group makes a charge to the Income Statement over the option period that recognises the fair value of the share options at the date of their grant, having regard as appropriate to such factors as the weighted average share price, exercise price (where applicable), expected dividends, the risk-free interest rate and the expected rates of early exercise.

Financial Risk Management

Financial Risk FactorsThe Group’s activities expose it to a variety of financial risks, including the effects of changes in debt prices, foreign currency exchange rates and interest rates. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group may use derivative financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain exposures.

Risk management is carried out by a central treasury function (Group Treasury), operating under policies approved by the Board of Directors. Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units.

Foreign Exchange Risk The Group has relatively little exposure to foreign exchange risk. Where appropriate, entities in the Group use forward contracts, transacted by Group Treasury, to hedge their exposure to foreign currency risk in connection with the measurement currency.

Where appropriate, the Group hedges the foreign currency exposure of its contract commitments to purchase certain assets mainly from Europe. The forward contracts used in its programme mature in twelve months or less, consistent with the related purchase commitments.

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Interest Rate RiskThe Group borrows at variable rates and may use interest rate swaps as cash flow hedges of future interest payments, which have the economic effect of converting borrowings from floating rates to fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts.

Credit Risk The Group’s policy is to ensure that property sales are covered by either controlled release of land plots in exchange for cash, fixed charge securities or bank bonds. The Group also checks that Port customers have an appropriate credit history when likely future revenue exceeds limits agreed by the Board. Derivative counter-parties and cash transactions are limited to quality financial institutions with a long-term Standard & Poor’s credit index rating of at least A.

Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group Treasury aims at maintaining flexibility in funding by keeping committed credit lines available.

Capital Risk ManagementThe Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. The Group has the authority to return capital to shareholders. It may issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including “current and non-current borrowings” as shown in the consolidated Balance Sheet) less cash and cash equivalents. Total capital is calculated as “equity” as shown in the consolidated Balance Sheet.

Compliance with banking covenants is discussed in the Chairman’s Statement.

Accounting for Derivative Financial Instruments and Hedging Activities

Derivative financial instruments are initially recognised in the Balance Sheet at their fair value. The method of recognising the resulting gain or loss is dependent on the nature of the item being hedged. The Group designates certain derivatives as either a hedge of the fair value of a recognised asset or liability (fair value hedge) or a hedge of a forecasted transaction or of a firm commitment (cash flow hedge).

Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective, are recorded in the Income Statement, along with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. During the period the Group did not hold any fair value hedges.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective, are recognised in equity. Where the forecasted transaction or firm commitment results in the recognition of an asset (for example, property, plant and equipment) or of a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. Otherwise, amounts deferred in equity are transferred to the Income Statement and classified as revenue or expense in the same periods during which the hedged firm commitments or forecasted transaction affects the Income Statement (for example, when the forecasted sale takes place).

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting under IAS 39, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the committed or forecasted transaction ultimately is recognised in the Income Statement. When a committed or forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Income Statement.

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2008

The Group documents at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions. The Group also documents its assessment, both at the hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows or hedged items.

Fair Value Estimation of Financial Instruments

The fair value of publicly traded derivatives and trading and available-for-sale securities is based on quoted market prices at the Balance Sheet date. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows.

In assessing the fair value of non-traded derivatives and other financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each Balance Sheet date. Quoted market prices or dealer quotes for the specific or similar instruments are used for long-term debt. Other techniques, such as option pricing models and estimated discounted value of future cash flows, are used to determine fair value for the remaining financial instruments.

The face value less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate to their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments.

Key Assumptions and Estimates

The Group makes estimates and assumptions concerning the future. The resulting estimates will, by definition, seldom equal the related actual results. The Board has considered the critical accounting estimates and assumptions used in the Accounts and concluded that the main area of significant risk which may cause a material adjustment to the carrying amount of assets and liabilities within the next financial year is in respect of the assumptions used to calculate pension benefits. The assumptions include gilt yield at the year end, investment return (including a risk margin over gilt yield), price and salary inflation and mortality assumptions. For example, a 0.25% change in the discount rate assumed could affect the shortfall position within the Scheme positively or negatively by over £7.5m and a one year increase in life expectancy would increase the liabilities by nearly £4.0m. Full details of the assumptions used to calculate the pension assets and liabilities may be found in Note 32.

For information on key assumptions and estimates used in the property valuation please refer to Note 19.

Impairment assumptions relating to Goodwill are as noted in Note 15.

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Notes on the Accounts

1. Business segments Primary reporting format – business

For management purposes, the Group is organised into two business segments: (1) Port operations; and (2) Property. The segment results for the year ended 31st December 2008 were as follows: Group Port Total Operations Property 2008 £m £m £m

Total revenue* 184.3 1.6 185.9 Underlying** operating profit 47.6 0.5 48.1Amortisation of intangibles (0.7) – (0.7) Group operating profit before exceptional items and revaluations 46.9 0.5 47.4 Exceptional items and revaluations Proceeds from guarantor of a port tenant (net) 1.7 – 1.7Gain on disposal of port asset 2.8 – 2.8Change in fair value of investment properties (18.7) (0.5) (19.2)Provision for property bad debts – (3.9) (3.9)Write down of property inventory – (27.7) (27.7) (14.2) (32.1) (46.3) Operating profit/(loss)/segment result 32.7 (31.6) 1.1 Finance Income (Note 7) 0.7 1.5 2.2Finance costs (Note 8) (10.8) (3.3) (14.1) Share of operating results of joint ventures Operating profit – 2.5 2.5Revaluation – (19.7) (19.7)Finance costs – (4.2) (4.2)Taxation – – – Net share of results of joint ventures – (21.4) (21.4) Share of operating results of associate Operating profit 3.7 – 3.7Finance costs (0.2) – (0.2)Taxation – normal (1.0) – (1.0)

– exceptional (1.0) – (1.0) Net share of results of associate 1.5 – 1.5 Profit/(loss) before tax 24.1 (54.8) (30.7)

Taxation – normal (10.2) – exceptional (10.3)

Loss for the year (51.2) *Total revenue and underlying operating profit are shown net of inter-segment trading of £0.1m.**Underlying is defined in Note 4 to the Glossary.

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2008

The segment results for the year ended 31st December 2007 were as follows:

Group Port Total Operations Property 2007 £m £m £m

Total revenue* 159.5 5.5 165.0 Underlying** operating profit/(loss) 38.7 (1.3) 37.4Amortisation of intangibles (0.4) – (0.4) Group operating profit before exceptional items and revaluations 38.3 (1.3) 37.0 Exceptional items and revaluations Change in fair value of investment properties 12.2 0.6 12.8 Operating profit/(loss)/segment result 50.5 (0.7) 49.8 Finance Income (Note 7) 1.0 2.1 3.1Finance costs (Note 8) (9.8) (3.6) (13.4) Share of operating results of joint ventures Operating profit – 2.2 2.2Revaluation – (7.7) (7.7)Finance costs – (4.2) (4.2)Taxation – – – Net share of results of joint ventures – (9.7) (9.7) Share of operating results of associate Operating profit 3.7 – 3.7Finance costs (0.3) – (0.3)Taxation (0.9) – (0.9) Net share of results of associate 2.5 – 2.5 Profit/(loss) before tax 44.2 (11.9) 32.3

Taxation – normal (6.8) – exceptional (0.6)

Profit for the year 24.9 * Total revenue and underlying operating profit are shown net of inter-segment trading of £0.3m and £0.2m respectively.

**Underlying is defined in Note 4 to the Glossary.

Inter-segment transfers and transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.

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Notes on the Accountscontinued

1. Business segments (continued)

Other segment items included in the Income Statement are as follows:

Port Port Operations Property 2008 Operations Property 2007 £m £m £m £m £m £m

Change in fair value of investment property (Note 3) (18.7) (0.5) (19.2) 12.2 0.6 12.8Depreciation of property, plant and equipment (Note 3) (13.9) (0.0) (13.9) (14.0) (0.0) (14.0)Amortisation of intangibles (Note 3) (1.4) – (1.4) (1.5) – (1.5)Amortisation of capital grants (Note 3) 0.7 – 0.7 0.8 – 0.8Impairment of trade receivables (0.1) (3.9) (4.0) (0.7) (0.0) (0.7)

The segment assets, liabilities and capital expenditure were as follows: Group Port Total Operations Property 2008 £m £m £m

Assets Segment assets 478.0 56.6 534.6Tax assets 4.5 – 4.5Associate 9.6 – 9.6 Total assets 492.1 56.6 548.7 Liabilities Segment liabilities 202.1 45.3 247.4Tax liabilities 67.3 0.3 67.6Joint ventures – 3.5 3.5 Total liabilities 269.4 49.1 318.5 Capital expenditure Property, plant and equipment (Note 13) 26.7 0.0 26.7Investment property (Note 14) 0.0 0.0 0.0Intangible assets (Note 15) 0.1 – 0.1 Total capital additions 26.8 0.0 26.8

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2008

Group Port Total Operations Property 2007 £m £m £m

Assets Segment assets 486.1 88.8 574.9Joint ventures – 0.0 0.0Associates 9.3 – 9.3 Total assets 495.4 88.8 584.2 Liabilities Segment liabilities 188.4 53.9 242.3Tax liabilities 45.7 0.4 46.1Joint ventures – 0.5 0.5 Total liabilities 234.1 54.8 288.9 Capital expenditure Property, plant and equipment (Note 13) 12.6 0.0 12.6Investment property (Note 14) 0.1 – 0.1Intangible assets (Note 15) 0.1 – 0.1 Total capital additions 12.8 0.0 12.8 Secondary reporting format – geographical segments

The Group operates principally in the UK.

2. Pilotage

The undernoted information is given in accordance with Article 4 of the Statutory Harbour Undertakings (Pilotage Accounts) Regulations 1988; this income is included within Group revenue. 2008 2007 £m £m

Pilotage revenue 5.0 4.9 Revenue from pilotage exemption certificates 0.0 0.1 Aggregate expenditure 4.6 4.5

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3. Profit/(loss) before tax

Profit/(loss) before tax has been arrived at after charging/(crediting): 2008 2007 £m £m

Depreciation – owned assets (cost of sales) 13.4 13.5– owned assets (administrative expenses) 0.4 0.4– assets held under finance leases and hire purchase contracts (cost of sales) 0.1 0.1Amortisation – intangible assets – customer relationships (cost of sales) 0.7 0.4– intangible assets – other (cost of sales) 0.0 0.0– intangible assets – other (administrative expenses) 0.7 1.1– capital grants (cost of sales) (0.7) (0.8)Impairment of trade receivables (cost of sales) 4.0 0.7Profit on disposal of property, plant and equipment (other (expenses)/income) (2.8) –Other gains on disposal (cost of sales) (0.0) (0.1)Repairs and maintenance expenditure on property, plant and equipment (cost of sales) 7.5 7.4Property rentals (revenue) (24.2) (17.7)Other operating lease rentals payable – plant and equipment (cost of sales) 4.7 4.3– plant and equipment (administrative expenses) 0.3 0.3Hire of plant and machinery 5.1 4.6Inventories – cost of inventories recognised as an expense (property cost of sales) 0.8 7.7– write off of obsolete materials and spare parts (cost of sales) – 0.1– write-down of property inventories (property cost of sales) 27.7 –Employee costs (Note 6) – cost of sales 36.4 36.2– administrative expenses 13.5 14.5Foreign exchange gains (administrative expenses) (0.1) (0.0)Change in fair value of investment properties (other expenses/(income)) 19.2 (12.8)Auditors’ remuneration (administrative expenses) – fees payable to the Company’s auditor for audit of the Company’s annual accounts 0.4 0.3– other services pursuant to legislation 0.0 0.1– tax services – compliance work 0.0 0.0– other services not covered above 0.0 0.1

The total amount charged against profits in respect of finance leases and hire purchase contracts is £0.1m (2007 – £0.1m) (of which part is shown as depreciation and the balance is shown as finance costs in Note 8).

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2008

4. Exceptional items and revaluations

Exceptional items and revaluations have been disclosed separately because of their quantum or incidence so as to give a clearer understanding of the Group’s financial performance and are charged/(credited) to the Income Statement as follows: 2008 2007 £m £m

Revenue Amount receivable from a guarantor of a port tenant (1.9) – Cost of sales Write-down of property inventory 27.7 –Provision for property bad debt 3.9 –Costs relating to amount receivable from a guarantor of a port tenant 0.2 – 31.8 – Other expenses/(income) Change in fair value of investment properties 19.2 (12.8)Gain on disposal of port asset (2.8) – 16.4 (12.8) Share of results of joint ventures Group’s share of change in fair value of investment property (Note 16) 19.7 7.7 Share of results of associate Group’s share of effect on taxation charge as a result of withdrawal of Industrial Buildings Allowances (Note 17) 1.0 – Taxation Current taxation: Tax effect of amount receivable less costs from a guarantor of a port tenant 0.5 –Tax effect of write-down of property inventory (7.9) –Tax effect of provision for property bad debt (1.1) –Tax effect of gain on disposal of port asset 0.2 – (8.3) – Deferred taxation: Tax effect of gain on disposal of port asset (0.0) –Tax effect of change in fair value of investment property (8.6) 0.6Tax effect of withdrawal of Industrial Buildings Allowances 27.2 – 18.6 0.6 Total taxation 10.3 0.6

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5. Directors’ emoluments

Detailed disclosures of Directors’ individual remuneration and share options are given within the tables in the Directors’ Remuneration Report on pages 59 to 61 and 63 to 66. These statutory disclosures form part of the accounts. 2008 2007 £m £m

Aggregate emoluments 2.2 2.6

Aggregate gains on exercise of share options 0.6 0.4 Retirement benefits are accruing to three Directors (2007 – three Directors) under The Forth Ports Group Pension Scheme, a defined benefit scheme. Only one Director (2007 – one Director) made contributions to the scheme.

6. Employee costs

The aggregate remuneration of all Employees and Directors was: Group Group Company Company 2008 2007 2008 2007 £m £m £m £m

Wages and salaries 40.9 41.2 14.5 18.0Social security costs 3.8 3.8 1.6 1.9Share options granted to directors and employees 1.9 1.1 1.9 1.1Pension costs – defined benefit plans 3.2 4.5 3.2 4.5

– defined contribution plans 0.1 0.1 0.0 0.0 49.9 50.7 21.2 25.5 Average number of Employees and Directors: Group Group Company Company 2008 2007 2008 2007 No No No No

Operational 760 815 236 250Maintenance 123 115 52 50Administrative 298 256 168 168 1,181 1,186 456 468

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2008

7. Finance income 2008 2007 £m £m

Interest receivable on overpaid VAT 0.3 –Interest receivable on overpaid corporation tax – 0.2Write-down of loan notes to amortised cost – 0.1Interest receivable on bank and other deposits 0.6 0.8Unwinding of discount on zero coupon loan stock at amortised cost 1.3 1.3Unwinding of discount on long-term receivables at amortised cost – 0.7 2.2 3.1

8. Finance costs 2008 2007 £m £m

Interest payable: On underpaid corporation tax 0.1 –On bank loans and overdrafts 13.8 13.0On other loans 0.0 0.0On loan notes – 0.1Finance leases and hire purchase contracts 0.0 0.0Amortisation of loan arrangement fees 0.2 0.2Unwinding of discount on loan notes – 0.1 14.1 13.4

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9. Taxation

2008 2007 £m £m

Current tax – current year 2.4 6.2– prior year 0.2 0.1UK income tax at 40% (2007 – 40%) (ESOP) 0.0 0.0 Total current tax 2.6 6.3Deferred tax charge (Note 21) – 1.2Deferred tax charge/(credit) (Note 28) 17.9 (0.1) Tax charge 20.5 7.4 The tax charge for the year is higher (2007 – lower) than the standard rate of corporation tax in the UK of 28%. The differences are explained below: 2008 2007 £m £m

(Loss)/profit before tax (30.7) 32.3 (Loss)/profit multiplied by rate of corporation tax in the UK of 28.5% (2007 – 30%) (8.7) 9.7Effects of: Impact of joint venture companies’ tax 6.1 2.9Impact of associated undertakings’ tax (0.4) (0.8)Adjustments in respect of prior years – current tax 0.2 0.1Adjustments in respect of prior years – deferred tax 0.2 0.1Effect of tax rate change on deferred tax opening balance – (2.7)Effect of tax rate change on current year deferred tax (0.5) (0.4)Income not chargeable to tax (0.4) 0.0Expenses not deductible for tax purposes 0.3 0.5Non-taxable element of revaluation gains (3.1) (2.0)Effect of withdrawal of Industrial Buildings Allowances 27.2 –Capital transactions (0.4) –Income tax 0.0 0.0 Tax charge 20.5 7.4 The standard rate of corporation tax changed from 30% to 28% with effect from 1st April 2008. Accordingly, losses for this year are taxed at an effective rate of 28.5% and will be taxed at 28% in the future.

Deferred tax balances relating to temporary differences which will reverse after 1st April 2008 are calculated at 28% being the tax rate that will apply on reversal.

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2008

10. Holding Company’s (loss)/profit for the financial year

As permitted by Section 230 of the Companies Act 1985, the Holding Company’s Income Statement is not shown separately in these accounts. The (loss)/profit for the financial year is as follows: 2008 2007 £m £m

Holding Company’s (loss)/profit after taxation for the year (27.8) 11.1

11. Dividends 2008 2007 £m £m

Amounts recognised as distributions to equity holders in the year:

Final dividend for the year ended 31st December 2007 of 31.95p per share 14.5 –Final dividend for the year ended 31st December 2006 of 30.2p per share – 13.7Interim dividend for the year ended 31st December 2008 of 16.6p per share 7.5 –Interim dividend for the year ended 31st December 2007 of 15.75p per share – 7.1 22.0 20.8

Proposed final dividend for the year ended 31st December 2008 of 12p (2007 – 31.95p) per share 5.5 14.5

Dividends amounting to £114,000 (2007 – £140,000) in respect of the Company’s shares held by the ESOP Trust (Note 30) have been deducted in arriving at the aggregate of dividends paid. The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these accounts.

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12. (Loss)/earnings per share

Basic (loss)/earnings per share is calculated by dividing the (loss)/profit for the year attributable to shareholders by the weighted average number of shares in issue during the year, excluding those held by the ESOP Trust which are treated as cancelled.

For diluted earnings per share in 2007, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has two categories of dilutive potential ordinary shares, being those share options granted to employees under a SAYE share option scheme and the contingently issuable shares under the LTIP schemes. No dilution is applied in 2008 as the amount attributable to shareholders is a loss.

Underlying earnings are as defined in the Glossary. Underlying earnings per share divides underlying earnings attributable to shareholders by the weighted average number of shares in issue during the year as per the calculation for basic earnings per share.

Reconciliations of the (loss)/earnings and weighted average number of shares used in the calculations are set out below: 2008 2007

Weighted (Loss)/ Weighted Average Earnings Average Earnings Loss/ Number of per Number of per (Earnings) Shares Share Earnings Shares Share Continuing operations £m 000 Pence £m 000 Pence

(Loss)/profit attributable to equity holders of the Company (49.0) 25.1 Total shares issued – 45,646 – 45,620 Shares held by ESOP Trust – (190) – (261) Basic EPS (49.0) 45,456 (107.8) 25.1 45,359 55.3Effect of dilutive securities (share options) – – – 364

Diluted EPS (49.0) 45,456 (107.8) 25.1 45,723 54.9 Share of profit attributable to equity holders of the Company before exceptional items and revaluations 26.2 20.6

Amortisation charge arising from acquisition less tax effect 0.5 0.3 Underlying EPS 26.7 45,456 58.7 20.9 45,359 46.1

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2008

13. Property, plant and equipment

Operational Capital Land and Plant and Works in Buildings Equipment Progress Total £m £m £m £m

Group Cost (net of capital grants) At 1st January 2008 258.4 125.0 7.9 391.3Additions 2.0 3.8 18.6 24.4Disposals (0.1) (3.3) – (3.4)Transfers between asset categories (12.6) 0.4 (8.3) (20.5) At 31st December 2008 247.7 125.9 18.2 391.8 Accumulated depreciation (net of grant amortisation) At 1st January 2008 101.9 66.3 – 168.2Depreciation charge (net of grant amortisation) 6.8 6.4 – 13.2Transfers between asset categories (5.6) 0.0 – (5.6)Disposals (0.1) (3.2) – (3.3) At 31st December 2008 103.0 69.5 – 172.5 Net book value at 31st December 2008 144.7 56.4 18.2 219.3 Group Cost (net of capital grants) At 1st January 2007 245.3 119.6 4.6 369.5Acquired on purchase of subsidiary 6.7 2.7 – 9.4Additions 1.3 3.0 8.3 12.6Disposals (0.0) (1.0) – (1.0)Transfers between asset categories 5.1 0.7 (5.0) 0.8 At 31st December 2007 258.4 125.0 7.9 391.3 Accumulated depreciation (net of grant amortisation) At 1st January 2007 95.3 60.9 – 156.2Depreciation charge (net of grant amortisation) 6.8 6.4 – 13.2Transfers between asset categories (0.2) – – (0.2)Disposals (0.0) (1.0) – (1.0) At 31st December 2007 101.9 66.3 – 168.2 Net book value at 31st December 2007 156.5 58.7 7.9 223.1 The Directors are of the opinion that there is no material difference between the net book value of operational land and buildings above and their fair value in existing use. For the purposes of the DTZ valuation of the property development assets, the operational land within the Port of Leith, which incorporates the LDDF area, has been valued separately at an alternative use value. The difference in value between existing use and alternative use has not been reflected in the carrying value of these assets.

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13. Property, plant and equipment (continued)

The net book value of plant and equipment includes £1.0m (2007 – £1.0m) in respect of assets held under finance leases and hire purchase contracts.

The net book value of property, plant and equipment also includes capitalised interest of £1.2m (2007 – £1.3m).

Included in transfers between asset categories are items transferred from property developments and land held for sale within inventories with a net book value of £2.3m (2007 – £nil).

Capital grants included in property, plant and equipment have the following net book amount:

Operational Land and Plant and Buildings Equipment Total £m £m £m

Group Cost 18.9 7.0 25.9Accumulated amortisation (10.3) (2.9) (13.2) Net book amount at 31st December 2008 8.6 4.1 12.7 Cost 19.2 7.0 26.2Transfers between asset categories (0.3) – (0.3)Accumulated amortisation (10.0) (2.7) (12.7)Transfers between asset categories 0.2 – 0.2 Net book amount at 31st December 2007 9.1 4.3 13.4


Company Cost (net of capital grants) At 1st January 2008 77.6 54.2 0.2 132.0Additions 1.7 2.2 2.1 6.0Disposals (0.1) (1.2) – (1.3)Transfers between asset categories 0.3 0.0 (0.2) 0.1 At 31st December 2008 79.5 55.2 2.1 136.8 Accumulated depreciation (net of grant amortisation) At 1st January 2008 37.6 29.8 – 67.4Depreciation charge (net of grant amortisation) 1.8 2.5 – 4.3Disposals (0.1) (1.2) – (1.3)Transfers between asset categories (0.0) – – (0.0) At 31st December 2008 39.3 31.1 – 70.4 Net book value at 31st December 2008 40.2 24.1 2.1 66.4

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2008


Company Cost (net of capital grants) At 1st January 2007 75.0 54.0 0.7 129.7Additions 0.6 0.7 0.8 2.1Disposals – (0.6) – (0.6)Transfers between group companies – (0.2) – (0.2)Transfers between asset categories 2.0 0.3 (1.3) 1.0 At 31st December 2007 77.6 54.2 0.2 132.0 Accumulated depreciation (net of grant amortisation) At 1st January 2007 35.6 27.9 – 63.5Depreciation charge (net of grant amortisation) 2.0 2.7 – 4.7Disposals – (0.6) – (0.6)Transfers between group companies – (0.2) – (0.2) At 31st December 2007 37.6 29.8 – 67.4 Net book value at 31st December 2007 40.0 24.4 0.2 64.6

The net book value of plant and equipment includes £0.5m (2007 – £0.5m) in respect of assets held under finance leases and hire purchase contracts.

Capital grants included in property, plant and equipment have the following net book amount:

Operational Land and Plant and Buildings Equipment Total £m £m £m

Company Cost 11.1 6.0 17.1Accumulated amortisation (5.5) (1.9) (7.4) Net book amount at 31st December 2008 5.6 4.1 9.7 Cost 11.1 6.0 17.1Accumulated amortisation (5.1) (1.7) (6.8) Net book amount at 31st December 2007 6.0 4.3 10.3

98


14. Investment property 2008 2007 £m £m

Group Valuation At 1st January 182.9 164.1Fair value movement – to Income Statement (19.2) 12.8– to reserves 24.9 5.7Additions 0.0 0.1Disposals (0.1) (0.0)Transfers between asset categories 17.2 0.2 At 31st December 205.7 182.9 Company Valuation At 1st January 48.6 51.1Fair value movement – to Income Statement (2.6) (1.5)– to reserves 0.4 –Disposals (0.1) (0.0)Transfers between asset categories (0.1) (1.0) At 31st December 46.2 48.6 The Directors valued the Group’s investment properties at 31st December 2008 after receiving advice from Bidwells.

The valuations were incorporated into the accounts at 31st December 2008 with the resulting decrease in fair value of £19.2m being taken to the Income Statement and the increase of £24.9m to reserves in relation to the transfer of property from operational land and buildings to investment property during the year. Deferred tax is provided on timing differences arising from the revaluation of investment property.

The Group’s investment properties were valued at 31st December 2008 by Bidwells, as Independent Valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors (“RICS”) and the International Valuation Standards (IVS1). The valuation of each investment property was on the basis of Market Value, subject to the assumption that the investment properties would be sold subject to any existing leases. The Market Value was primarily derived using comparable recent market transactions on arm’s length terms.

Bidwells has assumed that each Port will continue to be operational and has made the special assumption that all investment properties are free from contamination and that any spillages or contamination will be removed by the tenant prior to the termination of the lease.

In accordance with the Valuation Standards, Bidwells confirms that, although it has carried out the valuation of the assets since 1991, it has not provided other property advice. In relation to the firm’s preceding year the total fees paid by the Company as a percentage of the firm’s total fee income was less than 5%. Bidwells maintains a policy of rotating valuers in accordance with Practice Statement 5.2.2. of the RICS Appraisal and Valuation Standards (The Red Book).

The property rental income earned by the Group from its investment property, all of which is leased out under operating leases, amounted to £24.2m (2007 – £17.7m). Direct operating expenses arising on the investment property in the year amounted to £0.6m (2007 – £0.5m).

Included in transfers between asset categories are items transferred from property developments and land held for sale within inventories with a value of £nil (2007 – £1.2m).

Capital grants included in investment property have a net book amount of £0.1m (2007 – £0.1m).

99


2008

15. Intangible assets

Customer Work in Goodwill Relationships Software Progress Total £m £m £m £m £m

Group Cost At 1st January 2008 27.9 11.4 7.6 0.0 46.9Additions – – 0.1 0.0 0.1Transfers between asset categories – – 0.0 (0.0) – At 31st December 2008 27.9 11.4 7.7 0.0 47.0 Accumulated amortisation At 1st January 2008 – 0.4 4.9 – 5.3Charge for the year – 0.7 0.7 – 1.4 At 31st December 2008 – 1.1 5.6 – 6.7 Net book value at 31st December 2008 27.9 10.3 2.1 0.0 40.3 Group Cost At 1st January 2007 – – 7.2 0.3 7.5Additions – – 0.0 0.1 0.1Acquisition of subsidiary 27.9 11.4 – – 39.3Transfers between asset categories – – 0.4 (0.4) – At 31st December 2007 27.9 11.4 7.6 0.0 46.9 Accumulated amortisation At 1st January 2007 – – 3.8 – 3.8Charge for the year – 0.4 1.1 – 1.5 At 31st December 2007 – 0.4 4.9 – 5.3 Net book value at 31st December 2007 27.9 11.0 2.7 0.0 41.6

The net book value of software includes internally generated assets of £2.1m (2007 – £2.7m) and externally purchased assets of £0.0m (2007 – £0.0m).

Goodwill arising on the acquisition of the Nordic Group is considered to have an indefinite life in accordance with IFRS 3 (Business Combinations). Customer relationships recognised on the acquisition of the Nordic Group are written off on a straight line basis over a period of up to fifteen years.

Amortisation of customer relationships of £0.7m (2007 – £0.4m) is included in the cost of sales line in the Income Statement. Amortisation of software of £0.0m (2007 – £0.0m) is charged to cost of sales and £0.7m (2007 – £1.1m) to administrative expenses.

Goodwill of £26.4m and £1.5m has been allocated for impairment purposes to individual cash generating units (CGUs), being two of the trading divisions of the Nordic Group – Nordic Recycling Limited (“NRL”) and Nordic Data Management Limited (“NDM”) respectively. The allocation was based on management’s expectation of future economic benefits from those CGUs, and is the lowest level at which goodwill is monitored. The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the Group’s acquisition of Nordic.

100


15. Intangible assets (continued)

The recoverable amount has been determined on a value in use basis. The calculations are based on five year pre-tax cash flow projections approved by management. Cash flows beyond the initial five year period are extrapolated using the growth rate below. The key assumptions used in determining the value in use are as follows:

Assumption How Determined

Revenue Estimated revenue has been based on management projections taking into account experience and minimum contracted revenue.

Operating margin Estimated operating margin has been based on management projections taking into account experience and changes in cost base following acquisition by the Group. This includes operating costs and maintenance capital expenditure.

Growth rate Weighted average growth rate used is 2.25% which is consistent with the UK’s long-term average growth in GDP.

Discount rate A pre-tax discount rate of 15.0% has been used and reflects the risks relating to the acquired group. Management consider that there is no difference between the risk profile of the Group and that of the CGUs.

Work in Software Progress Total £m £m £m

Company Cost At 1st January 2008 7.6 0.0 7.6Additions 0.1 0.0 0.1Transfers between asset categories 0.0 (0.0) – At 31st December 2008 7.7 0.0 7.7 Accumulated amortisation At 1st January 2008 4.9 – 4.9Charge for the year 0.7 – 0.7 At 31st December 2008 5.6 – 5.6 Net book value at 31st December 2008 2.1 0.0 2.1 Company Cost At 1st January 2007 7.2 0.3 7.5Additions 0.0 0.1 0.1Transfers between asset categories 0.4 (0.4) – At 31st December 2007 7.6 0.0 7.6 Accumulated amortisation At 1st January 2007 3.8 – 3.8Charge for the year 1.1 – 1.1 At 31st December 2007 4.9 – 4.9 Net book value at 31st December 2007 2.7 0.0 2.7 The net book value of software includes internally generated assets of £2.1m (2007 – £2.7m) and externally purchased assets of £0.0m (2007 – £0.0m).

101


2008

16. Investment in joint ventures

2008 2007 £m £m

Group At 1st January (0.5) 9.0Share of loss (21.4) (9.7)Movement in hedge reserve (4.1) 0.2Dividend received (0.1) – At 31st December (26.1) (0.5) Shown as: Non-current assets – 0.0Non-current liabilities (26.1) (0.5) (26.1) (0.5)Loans owed by joint ventures (Note 20) 22.6 – (3.5) (0.5) Investment in joint ventures shown as non-current assets includes goodwill of £nil (2007 – £nil).

The Group’s share of the results of its principal joint ventures, all of which are unlisted, and its share of assets (including liabilities and goodwill) are as follows: 2008 2007 £m £m

Non-current assets 43.6 63.4Current assets 2.2 2.2Current liabilities (5.9) (1.4)Non-current liabilities (61.5) (60.2)Unrealised profit eliminations (4.5) (4.5) (26.1) (0.5) Revenues 3.5 3.6Other expenses (19.7) (7.7)Expenses (5.2) (5.6) Loss for the year (21.4) (9.7) Other expenses represents the Group’s share of the movement on revaluation of investment property within a joint venture company. 2008 2007 £m £m

Company Cost at 1st January 10.0 10.0Impairment (10.0) –

Carrying value at 31st December – 10.0 The Company has impaired the investment as a result of the net liabilities position shown above.

102


16. Investment in joint ventures (continued)

The Group’s significant interests in joint ventures are as follows: Interest held Name of undertaking % Country of incorporation

Ocean Terminal Limited 50 United KingdomOcean Terminal Services Limited 50 United KingdomOcean Terminal Developments Limited 50 United KingdomOcean Terminal Restaurants Limited 50 United Kingdom

17. Investment in associate 2008 2007 £m £m

Group At 1st January 9.3 7.7Share of profit 1.5 2.5Dividend received (1.0) (0.7)Actuarial loss relating to retirement benefit obligations (0.1) (0.2)Cash flow hedge movement (0.1) 0.0 At 31st December 9.6 9.3 The Group’s share of the results of its principal associate, which is unlisted, and its share of assets and liabilities are as follows: 2008 2007 £m £m

Assets 22.9 22.1Liabilities (13.3) (12.8) Net assets 9.6 9.3 Revenues 13.7 12.0 Profit 1.5 2.5 Actuarial loss relating to retirement benefit obligations (0.1) (0.2) During the year, the Finance Act 2008 enacted changes to the Industrial Buildings Allowances available which resulted in increased deferred tax liabilities in respect of land and buildings. The effect on results for the year is to increase the tax charge in the Income Statement by £1.0m.

In 2007, as a result of the change in the UK Corporation Tax rate from 30% to 28% that took effect from 1st April 2008, deferred tax balances were remeasured. Deferred tax expected to reverse in the year to 31st December 2008 was measured using the tax rate at the period end of 28%.

103


2008

The Group’s significant interest is as follows: Interest held Name of undertaking % Country of incorporation

Tilbury Container Services Limited 33 United Kingdom The interest in TCS (which has an accounting year end date of 31st December) is held by a subsidiary company.

18. Investment in subsidiaries 2008 2007 £m £m

Company Cost at 1st January 164.7 132.4Addition – 32.3 Cost at 31st December 164.7 164.7Provisions at 1st January and 31st December (0.5) (0.5) Net book value at 31st December 164.2 164.2 The following information relates to those subsidiary undertakings whose results or financial position, in the opinion of the Directors, principally affected the figures of the Group. All Group companies have year end dates of 31st December and will make individual Annual Returns to the Registrar of Companies. Interest held Name of subsidiary undertaking % Description of undertaking

International Transport Limited 100 Intermediate holding companyPort of Tilbury London Limited 100 Port operatorPort of Dundee Limited 100 Port operatorForth Estuary Towage Limited 100 Towage servicesForth Properties Limited 100 Property developmentFP Newhaven Two Limited 100 Property developmentNordic Limited 100 Intermediate holding companyNordic Forest Terminals Limited 100 Port operatorNordic Recycling Limited 100 Waste paper and commercial waste

managementNordic Data Management Limited 100 Secure paper storage and shreddingForth Property Investments Limited 90 Property investment companyForth Property Holdings Limited 90 Intermediate holding companyForth Property Developments Limited 90 Property development The interests in International Transport Limited, Port of Dundee Limited, Forth Estuary Towage Limited and Forth Property Holdings Limited are held directly by Forth Ports PLC. In all other cases the interest is held by a subsidiary. The principal country of registration and operation of the above undertakings is Scotland, with the exception of International Transport Limited, Port of Tilbury London Limited and the Nordic group of companies which are registered and operate in England. Subsidiaries are accounted for by the Company at historical cost less provision for any impairments.

A full list of subsidiaries is included in the Company’s Annual Return to Companies House.

104


19. Inventories Group Group Company Company 2008 2007 2008 2007 £m £m £m £m

Materials and spare parts 2.0 2.0 0.6 0.6Property developments and land held for sale 25.4 48.7 – – 27.4 50.7 0.6 0.6 Expenditure on property development projects is charged to inventories at cost. In determining whether the carrying value is at the lower of cost or net realisable value, a review is carried out on each individual development site (Granton Harbour, Western Harbour, The Harbour, Leith Docks and Leith Docks) at 31st December each year. The estimated sales receipts are assessed for each development as are the existing costs and the expected costs to complete (including sales costs) which are then compared with the carrying value. With the significant reduction in land values over the past year, the average unit selling price has reduced between 15% and 35% (depending on the development site location and property type). The effect of this has reduced the net realisable value of property work in progress by £27.7m (2007 – £nil) leaving a carrying value of £25.4m (2007 – £48.7m). This write-down has been expensed through the Income Statement as an exceptional item. For a more detailed commentary on the valuation approach, please see Glossary on page 128.

The amount recognised as an expense on the write-down of stock during the year was £27.7m (2007 – £0.1m) for the Group and £nil (2007 – £0.1m) for the Company.

The amount expected to be recovered after more than one year is £25.4m (2007 – £48.7m) for the Group and £nil (2007 – £nil) for the Company.

105


2008

20. Trade and other receivables Group Group Company Company 2008 2007 2008 2007 £m £m £m £m

Current assets: Trade receivables 31.4 40.8 9.3 8.6Less: provision for allowance for credit losses (4.8) (1.1) (0.5) (0.4) Trade receivables – net 26.6 39.7 8.8 8.2Amounts owed by subsidiary undertakings – – 124.8 137.8Other receivables 3.1 4.5 1.0 0.7Prepayments and accrued income 5.9 3.6 2.0 1.6Amounts owed by associated undertakings and joint ventures – trading balances 0.2 0.1 – – 35.8 47.9 136.6 148.3

The ageing of trade receivables is as follows: Not past due date 10.0 19.1 0.6 –Less than 30 days past due date 6.1 10.5 2.6 5.131-60 days past due date 5.6 4.5 3.5 2.461-90 days past due date 1.9 1.3 1.2 0.7Over 90 days past due date 7.8 5.4 1.4 0.4 31.4 40.8 9.3 8.6 At 31st December 2008, Group and Company trade receivables of £10.0m and £0.6m (2007 – £19.1m and £nil) respectively were not past due or impaired. With respect to trade receivables that are neither past their due date nor impaired, there are no indications as at the reporting date that the payment obligations will not be met. Group and Company trade receivables of £4.8m and £0.5m (2007 – £1.1m and £0.4m) respectively were identified as being impaired, all of which are provided for and analysed below. The factor considered in providing for impaired trade receivables is mainly that of the financial position of the customer.

The other classes within Trade and other receivables do not contain impaired assets.

The ageing of the allowance for credit losses of trade receivables is as follows:

Not past due date – – – –Less than 30 days past due date (0.0) (0.0) (0.0) (0.0)31-60 days past due date (0.0) (0.1) (0.0) (0.0)61-90 days past due date (0.0) (0.1) (0.0) (0.0)Over 90 days past due date (4.8) (0.9) (0.5) (0.4) (4.8) (1.1) (0.5) (0.4) The movement on the allowance for credit losses is as follows:At 1st January (1.1) (0.5) (0.4) (0.4)Increase in year (4.0) (0.6) (0.1) (0.0)Amounts written off 0.3 0.0 – 0.0 At 31st December (4.8) (1.1) (0.5) (0.4)

106


20. Trade and other receivables (continued)

There is no concentration of credit risk with respect to trade receivables as the Group has a large number of customers sufficiently dispersed. The maximum exposure to credit risk at the year end is the value of each class of receivable mentioned above. The Group does not hold any collateral as security over port receivables, however, property trade receivables which relate to land sales have the title of the land as standard security collateral. There is no material difference between the fair value of trade and other receivables and their carrying amount stated above. The amounts owed by subsidiary undertakings are unsecured and receivable on demand but are not expected to be fully received within the next twelve months.

Interest on amounts owed by subsidiary undertakings was applied at rates based on LIBOR and Bank of England base rate. Group Group Company Company 2008 2007 2008 2007 £m £m £m £m

Non-current assets: Amounts owed by joint ventures – loans – 21.3 – 21.3

In 2008, the Group has offset £22.6m of loans owed by joint ventures against the non-current liability investment in joint ventures (Note 16) and the Company has made full provision against the carrying value of the loans.

The effective interest rate used to fair value non-current trade receivables was nil% (2007 – nil%).

21. Deferred tax assets

Group Group Company Company 2008 2007 2008 2007 £m £m £m £m

Deferred tax asset Retirement benefit obligations 1.4 0.1 1.4 0.1 Deferred tax asset – movement Asset at 1st January 0.1 5.4 0.1 5.4Deferred tax on actuarial losses/(gains) recognised in Statement of Recognised Income and Expense 3.1 (3.5) 3.1 (3.5)Effect of tax rate change from 30% to 28%– credited to Income Statement (Note 9) – 0.2 – 0.2– charged to equity (Note 31) – (0.6) – (0.6)Deferred tax on excess pension contributions– charged to Income Statement (Note 9) – (1.4) – (1.4)– charged to equity (Note 31) (1.8) – (1.8) – Asset at 31st December 1.4 0.1 1.4 0.1 22. Current tax receivable


Recoverable within one year 4.5 – 3.9 0.5

107


2008

23. Cash and cash equivalents


Cash at bank and in hand 4.7 2.6 2.5 0.0Short-term bank deposits – 4.7 – 4.6 4.7 7.3 2.5 4.6 The effective interest rate on short-term deposits in 2007 was £4.7m at 5.38% maturing in one day.

24. Trade and other payables – current liabilities


Trade payables 8.4 6.9 2.5 2.3Amounts owed to subsidiary undertakings – – 7.6 6.3Other taxation and social security 1.3 1.3 0.6 0.6Accruals and deferred income 19.2 19.2 9.2 6.9 28.9 27.4 19.9 16.1 Trade payables are mainly contractually due to be paid within one month. The amounts owed to subsidiary undertakings are unsecured and payable on demand but are not expected to be fully paid within the next twelve months. Interest on amounts owed to subsidiary undertakings was applied at rates based on LIBOR and Bank of England base rate.

25. Current tax liabilities


Due within one year – 3.3 – –

108


26. Borrowings


Non-current Bank borrowings 212.1 212.2 212.1 212.2Other loans 0.5 0.5 0.5 0.5Finance leases 0.0 0.0 – 0.0 212.6 212.7 212.6 212.7

Current Bank overdraft – – – 0.8Finance leases 0.1 0.1 0.0 0.0 0.1 0.1 0.0 0.8 Total borrowings 212.7 212.8 212.6 213.5 The borrowings are repayable as follows: On demand or within one year 0.1 0.1 0.0 0.8In the second year 0.0 87.9 – 87.9In the third to fifth years inclusive 212.1 49.7 212.1 49.7After five years 0.5 75.1 0.5 75.1 212.7 212.8 212.6 213.5

Less: amount due for settlement within one year (shown under current liabilities) (0.1) (0.1) (0.0) (0.8) Amount due for settlement after one year 212.6 212.7 212.6 212.7 The minimum lease payments under finance leases are not materially different to the present value of the lease liabilities.

All borrowings are denominated in UK sterling.

The exposure of the Group and Company borrowings to interest rate changes and the contractual repricing dates at the year end are as follows: Group Group Company Company 2008 2007 2008 2007 £m £m £m £m

6 months or less 212.1 212.2 212.1 212.2Over 5 years 0.5 0.5 0.5 0.5 212.6 212.7 212.6 212.7Finance leases with no contractual repricing date 0.1 0.1 0.0 0.0 212.7 212.8 212.6 212.7

109


2008

Group and CompanyThe Group’s principal bank loans are as follows:

During 2008, the Group converted its term loan of £125m and revolving credit loan facility of £100m with Bank of Scotland to a revolving credit facility of £200m. Shortly after the year end, this was reduced to a facility of £150m with a repayment date of 30th June 2012. The loan is unsecured and carries interest at 1.7% over LIBOR. The Group fixed the interest rate on £100m of this loan at 2.8% plus margin for three years commencing 5th January 2009.

The Group also agreed further funding of £25m with Bank of Scotland in 2008 comprising a committed credit facility of £20m and an overdraft of £5m. These loans are unsecured. The committed credit facility carries interest at 1.7% over LIBOR and the overdraft carries interest at 3% over Bank of Scotland base rate. These facilities mature on 30th June 2010.

The Group also arranged, and drew down in full, a £50m revolving credit facility from Lloyds TSB. The loan was unsecured and carried interest at 0.6% over LIBOR. Shortly after the year end, the facility was increased to £100m and the interest margin was changed to 1.5% over LIBOR. The repayment date for the revised facility is 30th June 2012. The Group fixed the interest rate on the entire £100m loan at 2.77% plus margin for three years commencing 5th January 2009.

The other loan represents £0.5m (2007 – £0.5m) of funded debt. This debt was taken out prior to 1950 and there is no fixed repayment date. The debt is unsecured and carries interest at 3.75%.

The weighted average interest rates paid were as follows: 2008 2007 % %

Bank borrowings 6.34 6.66Bank overdraft 6.24 6.50Other loan 3.75 3.75

The effective interest rates at the Balance Sheet date were as follows: 2008 2007 % %

Bank borrowings 3.97 6.67Bank overdraft 5.00 6.50Other loan 3.75 3.75 The fair value of bank borrowings approximates to book value because the interest rate is reset after periods not greater than six months.

The Group has the following undrawn committed borrowing facilities available at 31st December: 2008 2007 £m £m

Floating rate Expiring within one year – 25.0Expiring in more than one year 62.0 12.0 62.0 37.0 The facilities expiring in more than one year are the undrawn element of the Bank of Scotland revolving credit loan, the committed credit facility and the overdraft.

110


26. Borrowings (continued)

Interest on borrowings fall due as follows: Group and Group and Company Company 2008 2007 £m £m

Amounts falling due within one year 8.5 14.2Amounts falling due after more than one year but not more than two years 8.5 11.4Amounts falling due after more than two years but not more than five years 12.7 21.7Amounts falling due after more than five years – 6.0 29.7 53.3

CovenantsThe Group has arranged certain banking covenants which require minimum levels of tangible net worth, gearing and interest cover. If these covenants were to be breached, the Group’s bankers could demand the immediate repayment of all advances and interest outstanding. For further information, please refer to page 29.

Sensitivity Analysis At 31st December 2008, if interest rates on our borrowings at that date had been 0.25% higher or lower with all other variables held constant, pre-tax profits for the year would have been £0.5m (2007 – £0.5m) lower or higher than reported, as would net assets.

27. Provisions

Employers’ National Insurance Maintenance Insurance on Share of 2008 Claims Options Quay Walls Total £m £m £m £m

Group At 1st January 0.6 0.2 0.8 1.6Additional provision in year 0.3 0.1 – 0.4Utilisation of provision (0.4) (0.1) (0.8) (1.3) At 31st December 0.5 0.2 – 0.7 Included in current liabilities 0.4Included in non-current liabilities 0.3 0.7 At 31st December 2007 the amount included in current liabilities was £1.2m and included in non-current liabilities was £0.4m.

Company At 1st January 0.3 0.2 – 0.5Additional provision in year 0.0 0.1 – 0.1Utilisation of provision (0.2) (0.1) – (0.3) At 31st December 0.1 0.2 – 0.3

111


2008

2008 Total £m

Included in current liabilities 0.1Included in non-current liabilities 0.2 0.3 At 31st December 2007 the amount included in current liabilities was £0.2m and included in non-current liabilities was £0.3m.

The Insurance Claims provision represents management’s best estimate of claims under the General, Marine and Employer’s Liability policies. Settlement of such claims is dependent on negotiation and, potentially, litigation with third parties, the timing of which cannot be predicted with complete accuracy.

The Employer’s National Insurance on Share Option provision is calculated in accordance with IFRS 2 (Share-based Payment) in respect of the LTIP share option plans. Settlement of the provision follows the maturity date of the LTIP options.

The provision for Maintenance of Quay Walls was made to provide for a contractual obligation in accordance with the terms and conditions relating to the contract for sale of certain property at the Port of Dundee.

28. Deferred tax liabilities Group Group Company Company 2008 2007 2008 2007 £m £m £m £m

Deferred tax liability Intangible assets – customer relationships 2.9 3.1 – –Capital allowances 44.6 17.6 11.9 5.3Short-term differences (1.2) (0.8) (1.2) (0.8)Rolled over capital gains 1.7 1.6 – –Investment property revaluation surplus 19.6 21.3 2.4 2.5 67.6 42.8 13.1 7.0

Deferred tax liability – movement Liability at 1st January 42.8 38.5 7.0 8.7Acquisition of Nordic Group – 3.3 – –Effect of tax rate change from 30% to 28% – credited to Income Statement (Note 9) – (2.5) – (0.6)Amount charged/(credited) to Income Statement (Note 9) 17.9 2.4 6.1 (1.1)Amount charged to reserves (Note 31) 6.9 1.1 – – Liability at 31st December 67.6 42.8 13.1 7.0 Deferred tax assets and liabilities are only offset where there is a legally enforceable right to offset and where the deferred tax relates to the same authority. Deferred tax assets are detailed in Note 21.

112


29. Share capital 2008 2007 £m £m

Group and Company Authorised: 58 million Ordinary Shares of 50p (2007 – 58 million shares of 50p) 29.0 29.0 Allotted, called up and fully paid: 45.6 million Ordinary Shares of 50p (2007 – 45.6 million shares of 50p) 22.8 22.8 The Company has one class of Ordinary Share which carries no right to fixed income.

In 2007, the Company issued 53,620 Ordinary Shares with a nominal value of £28,610 as part consideration for the purchase of the Nordic Group. The shares were issued on 29th June 2007 on which date the bid price per share was £18.45. The total equivalent consideration for the shares was £989,289.

At the year end 161,000 Ordinary Shares (2007 – 245,000 Ordinary Shares) with a nominal value of £80,500 (2007 – £122,500) were treated as own shares held.

Potential issue of Ordinary SharesUnder the Group’s LTIP, the Executive Directors and certain Senior Managers have rights that may result in the issue of shares (see pages 60 and 63).

In 2004, the Group introduced a SAYE Scheme and granted options to employees over 575,000 Ordinary Shares of 50p each. The shares are exercisable in the period 2009/10 at a price of £10.75 per share. At 31st December 2008 there were 392,000 options outstanding (2007 – 446,000 options).

29A Share based payments – equity settled transactions

Group and CompanySAYE schemeThe SAYE scheme was introduced during 2004. Options were granted to employees at a fixed price of £10.75 equal to 10% below market price on a three day average on and around the date of grant. The vesting period is five years. If the options remain unexercised after a period of six months from the vesting date, the options expire. Exercise of an option is subject to continued employment although employees ceasing employment due to retiral or redundancy are able to exercise their options pro rata before the full term has elapsed. Employees who leave after three years have elapsed may exercise their options pro rata up to their date of leaving.

The estates of those option holders who die before the term of the savings period has elapsed may exercise options pro rata up to the date of death.

113


2008

Options were valued using the Black-Scholes option pricing model. No performance conditions were included in the fair value calculations. The inputs into the option pricing model are as follows:

Grant date 7.5.04Share price at grant date £12.01Exercise price £10.75Shares under option 575,000Vesting period 5.0 yearsExpected volatility 14.5%Option life 5.0 yearsExpected life 5.15 yearsRisk free rate 4.98%Expected dividends expressed as dividend yield 3.45%Possibility of ceasing employment prior to vesting 34.91%Fair value per option £2.25Charge to the Income Statement 2008 £0.2mCharge to the Income Statement 2007 £0.2m Expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous five years. The expected life is the average expected period to exercise. The risk free rate is the yield on zero coupon UK government bonds of a term consistent with the assumed option life.

Details of the share options outstanding during the year are as follows: 2008 2007 Weighted Weighted Number Average Number Average of Share Exercise of Share Exercise Options Price Options Price 000 £ 000 £

Outstanding at 1st January 446 10.75 483 10.75Forfeited (22) – (26) –Exercised (32) 10.75 (11) 10.75 Outstanding at 31st December 392 10.75 446 10.75 Exercisable at 31st December 1 10.75 1 10.75 The weighted average share price at the date of exercise for those options exercised during the period was £18.96 (2007 – £19.98).

LTIP plansAn outline of the terms and conditions appertaining to the LTIP plans is given in the Remuneration Report on pages 60 and 63.

114


29A Share based payments – equity settled transactions (continued)

1. 2002 LTIPOptions were valued using the Monte-Carlo simulation model. The fair value calculations include the impact of the TSR hurdle. The inputs into the simulation model are as follows:

Grant date 4.10.05Share price at grant date £13.29Exercise price nilShares under option 79,484Vesting period 2.5 yearsExpected volatility 17.0%Option life 3.0 yearsExpected life 2.5 yearsRisk free rate 4.10%Expected dividends expressed as dividend yield 3.04%Possibility of ceasing employment prior to vesting nilFair value per option £4.58Credit to Income Statement 2008 £(0.0)mCharge to Income Statement 2007 £0.2m Expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous five years. The expected life is the average expected period to exercise. The risk free rate is the yield on zero coupon UK government bonds of a term consistent with the assumed option life.

2. 2006 LTIPOptions were valued using a present value calculation based on the share price at grant date and the expected dividends over the three year performance period. The inputs into the model are as follows:

Grant date 3.5.06 27.4.07 30.4.08Share price at grant date £17.40 £19.96 £21.77Exercise price nil nil nilShares under option 111,555 108,019 145,682Vesting period 3.0 years 3.0 years 3.0 yearsExpected forfeiture 3% p.a. 3% p.a. 3% p.a.Option life 3.0 years 3.0 years 3.0 yearsExpected life 3.0 years 3.0 years 3.0 yearsExpected dividends expressed as dividend yield 2.8% p.a. 2.7% p.a. 2.5% p.a.Fair value per option £16.02 £18.42 £20.21Charge to Income Statement 2008 £0.5m £0.6m £0.6mCharge to Income Statement 2007 £0.5m £0.4m n/a

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2008

29A Share based payments – equity settled transactions (continued)

Details of the share options outstanding during the year are as follows: 2008 2007 Weighted Weighted Number Average Number Average of Share Exercise of Share Exercise Options Price Options Price 000 £ 000 £

Outstanding at 1st January 299 nil 270 nilGranted 146 nil 108 nilLapsed (25) nil (43) nilExercised (55) nil (36) nil Outstanding at 31st December 365 nil 299 nil There were no options exercisable at 31st December 2008 or 31st December 2007.

The weighted average share price at the date of exercise for those options exercised during the period was £21.77.

30. Own shares held

2008 £m

Group and Company Balance at 1st January 5.2 Disposed of on exercise of options (0.3)

Balance at 31st December 4.9 Forth Ports Trustees Limited holds ordinary shares in Forth Ports PLC as Trustee for the Employee Share Option Trust and as Trustee for the shares outstanding in respect of share options granted to Directors and certain Senior Managers.

The ESOP Trust was set up on the privatisation of Forth Ports Authority in 1992 to allow employees to save towards the purchase of shares in Forth Ports PLC. At 31st December 2008, Forth Ports Trustees Limited held 161,000 shares (2007 – 245,000) with a market value of £1,475,000 (2007 – £4,753,000). The number of shares held under option for employees by the Trustee of the ESOP at 31st December 2008 was 889 (2007 – 946).

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31. Statement of changes in shareholders’ equity Minority Total Attributable to equity holders of the Company interest equity

Own Fair value Share Share shares and other Retained capital premium held reserves earnings £m £m £m £m £m £m £m

Group Balance at 1st January 2007 22.8 18.2 (5.3) 17.5 220.0 4.3 277.5 Share of joint venture’s movement on cash flow hedge – – – 0.2 – – 0.2Share of associate’s movement on cash flow hedge – – – 0.0 – – 0.0Revaluation of investment property transferred from operational land and buildings – – – – 5.7 – 5.7Deferred tax on revaluation – – – – (1.1) – (1.1)Actuarial gain in defined benefit pension scheme – – – – 12.6 – 12.6Deferred tax on actuarial gain – – – – (3.5) – (3.5)Effect of tax rate change for deferred tax on actuarial gain – – – – (0.6) – (0.6)Share of associate’s actuarial loss in defined benefit pension scheme – – – – (0.3) – (0.3)Deferred tax on associate’s actuarial loss – – – – 0.1 – 0.1Effect of tax rate change for deferred tax on associate’s actuarial loss – – – – (0.0) – (0.0) Net income recognised directly in equity – – – 0.2 12.9 – 13.1Profit/(loss) for the year – – – – 25.1 (0.2) 24.9 Total recognised income/(expense) for the year – – – 0.2 38.0 (0.2) 38.0New shares issued 0.0 1.0 – – – – 1.0LTIP shares – value of services provided – – – – 0.9 – 0.9SAYE scheme – value of services provided – – – – 0.2 – 0.2Consideration received for own shares held – – 0.1 – – – 0.1Dividends – – – – (20.8) (1.6) (22.4)

Balance at 31st December 2007 22.8 19.2 (5.2) 17.7 238.3 2.5 295.3

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2008

31. Statement of changes in shareholders’ equity (continued) Minority Total Attributable to equity holders of the Company interest equity

Own Fair value Share Share shares and other Retained capital premium held reserves earnings £m £m £m £m £m £m £m

GroupBalance at 1st January 2008 22.8 19.2 (5.2) 17.7 238.3 2.5 295.3Share of joint venture’s movement on cash flow hedge – – – (4.1) – – (4.1)Share of associate’s movement on cash flow hedge – – – (0.1) – – (0.1)Revaluation of investment property transferred from operational land and buildings – – – – 24.9 – 24.9Deferred tax on revaluation – – – – (6.9) – (6.9)Corporation tax on excess pension contributions – – – – 1.8 – 1.8Deferred tax on excess pension contributions – – – – (1.8) – (1.8)Actuarial loss in defined benefit pension scheme – – – – (10.9) – (10.9)Deferred tax on actuarial loss – – – – 3.1 – 3.1Share of associate’s actuarial loss in defined benefit pension scheme – – – – (0.1) – (0.1)Deferred tax on associate’s actuarial loss – – – – 0.0 – 0.0 Net (expense)/income recognised directly in equity – – – (4.2) 10.1 – 5.9Loss for the year – – – – (49.0) (2.2) (51.2) Total recognised expense for the year – – – (4.2) (38.9) (2.2) (45.3)LTIP shares – value of services provided – – – – 1.7 – 1.7SAYE scheme – value of services provided – – – – 0.2 – 0.2Consideration received for own shares held – – 0.3 – – – 0.3Dividends – – – – (22.0) – (22.0)

Balance at 31st December 2008 22.8 19.2 (4.9) 13.5 179.3 0.3 230.2 The share premium, own shares held, fair value and other reserves are non-distributable. The purpose of the fair value and other reserves is to maintain the Company’s capital and they include the following cumulative amounts: special reserve £12.7m, capital reserve £3.8m, capital redemption reserve £1.5m and a cash flow hedge reserve of £(4.5)m. Retained earnings include the following non-distributable amounts: 2008 2007 £m £m

Unrealised increases in fair value of investment properties net of deferred tax 97.5 90.1Unrealised property gains in subsidiary 0.9 0.9Investment in associates 9.6 9.3 Balance at 31st December 108.0 100.3

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31. Statement of changes in shareholders’ equity (continued)

Own Fair value Share Share shares and other Retained Total capital premium held reserves earnings Equity £m £m £m £m £m £m

Company Balance at 1st January 2007 22.8 18.2 (5.3) 66.3 124.9 226.9Actuarial gain in defined benefit pension scheme – – – – 12.6 12.6 Deferred tax on actuarial gain – – – – (3.5) (3.5)Effect of tax rate change for deferred tax on actuarial gain – – – – (0.6) (0.6)Net income recognised directly in equity – – – – 8.5 8.5Profit for the year – – – – 11.1 11.1 Total recognised income for the year – – – – 19.6 19.6New shares issued in period 0.0 1.0 – – – 1.0LTIP shares – value of services provided – – – – 0.9 0.9SAYE scheme – value of services provided – – – – 0.2 0.2Consideration received for own shares held – – 0.1 – – 0.1Dividends – – – – (20.8) (20.8) Balance at 31st December 2007 22.8 19.2 (5.2) 66.3 124.8 227.9 Revaluation of investment property transferred from operational land and buildings – – – – 0.4 0.4 Corporation tax on excess pension contributions – – – – 1.8 1.8 Deferred tax on excess pension contributions – – – – (1.8) (1.8)Actuarial loss in defined benefit pension scheme – – – – (10.9) (10.9) Deferred tax on actuarial loss – – – – 3.1 3.1 Net expense recognised directly in equity – – – – (7.4) (7.4)Loss for the year – – – – (27.8) (27.8) Total recognised expense for the year – – – – (35.2) (35.2)LTIP shares – value of services provided – – – – 1.7 1.7SAYE scheme – value of services provided – – – – 0.2 0.2Consideration received for own shares held – – 0.3 – – 0.3Dividends – – – – (22.0) (22.0) Balance at 31st December 2008 22.8 19.2 (4.9) 66.3 69.5 172.9

The share premium, own shares held, fair value and other reserves are non-distributable.

Fair value and other reserves include amounts of £64.8m and £1.5m in relation to a special reserve and a capital redemption reserve respectively. The special reserve arose from the reduction in share capital in 1995 and the capital redemption reserve arose in previous years on the repurchase of 2.9 million of the Company’s own shares. The purpose of these reserves is to maintain the Company’s capital.

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2008

31. Statement of changes in shareholders’ equity (continued)

Retained earnings include the following non-distributable amounts: 2008 2007 £m £m

Unrealised increases in fair value of investment properties net of deferred tax 22.0 24.1

32. Retirement benefit schemes

The Group operates a defined benefit pension scheme called The Forth Ports Group Pension Scheme that covers the vast majority of employees. Other employees are covered by a national scheme. The Nordic Group operates a defined contribution pension scheme.

The pension cost relating to The Forth Ports Group Pension Scheme was assessed in accordance with the advice of a qualified actuary. The latest formal actuarial assessment of the scheme was as at 5th April 2008. The actuaries have provided updated figures for the scheme as at 31st December 2008.

Assets are taken at their market value. Liabilities are valued using various assumptions which are listed overleaf.

The total pension cost was £3.2m (2007 – £4.5m). Member contributions are paid in addition.

A number of employees are members of The Former Registered Dock Workers’ Pension Scheme (“FRDW scheme”). The Group also has a contractual relationship with self-employed pilots who operate within the Firth of Forth and the Firth of Tay to provide pilotage services. The self-employed pilots make payments into the Pilots’ National Pension Fund (“PNPF”).

The FRDW scheme is a multi-employer defined benefit scheme which was set up many years ago on a national basis to provide pensions to Registered Dock Workers. The most recent formal valuation of the FRDW scheme was carried out in 2007 which recorded a small surplus. On an ongoing basis, it was fully funded. The total assets and liabilities of the FRDW scheme are not assigned to specific employers. On the basis that the FRDW scheme is fully funded, the Group does not believe that it has any exposure to this pension scheme. The employers are not entitled to participate in any surplus arising in the FRDW scheme. The contributions paid by the Group are accounted for as a defined contribution scheme as the Group is unable to identify its share of the assets and liabilities in the scheme. The Group contributions during the year were £0.0m (2007 – £0.1m).

The Company and Port of Dundee Limited (“PODL”) are the Competent Harbour Authorities in the Firth of Forth and Firth of Tay respectively where they are responsible for the provision of pilotage services. The pilotage acts are provided by self-employed pilots. The Company and PODL have no liability arising under the PNPF Scheme on an ongoing basis, however, they may have a liability for certain members if the PNPF is wound up. Neither Company is aware of any such intention to wind up the Scheme. Both the Company and PODL have been notified by the Trustee of the PNPF Scheme that it has issued proceedings in the High Court in order to seek directions from the Court as to its liability under both the Rules of the Scheme and in law to make up the Scheme’s deficit. The Court has set a trial date of January 2010 to hear the case. As this case is extremely complex, it is not possible to state with certainty what the outcome is likely to be and, therefore, what financial effect, if any, there may be on PODL and the Company.

The employer contributions to the defined contribution pension scheme operated by the Nordic group of companies during the year was £0.1m (2007 part year – £0.0m).

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32. Retirement benefit schemes (continued)

The key assumptions used in the valuation of the Group and Company pension scheme were as follows:

Assumptions used to determine benefit obligations at 31st December: 2008 2007 % %

Discount rate 6.40 5.90Rate of compensation increase 4.00 4.50Pension increases 2.75 3.25Inflation 2.75 3.25

Assumptions used to determine net pension costs for the year ended 31st December: 2008 2007 % %

Discount rate 5.90 5.20Expected long-term return on plan assets 6.24 5.97Rate of compensation increase 4.50 4.15

Weighted average life expectancy for mortality tables used to determine benefit obligations at 31st December:

2008 2008 2007 2007 Male Female Male Female

Member age 60 (current life expectancy) 23 26 21 24Member age 45 (life expectancy at age 60) 24 27 23 26

Movements in the present value of defined benefit obligations and the fair value of the Scheme’s assets were as follows: Group Group and and Company Company 2008 2007 £m £m

Change in benefit obligation Benefit obligation at 1st January 186.5 189.3 Current service cost 4.2 5.1 Interest cost 10.8 9.7 Plan members’ contributions 2.0 2.0 Actuarial gains (19.3) (13.7) Benefits paid (6.0) (5.9)

Benefit obligation at 31st December 178.2 186.5

Analysis of defined benefit obligationPlans that are wholly or partly funded 178.2 186.5Plans that are wholly unfunded – –

Total 178.2 186.5

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2008

Group and Group and Company Company 2008 2007 £m £m

Change in plan assets Fair value of plan assets at 1st January 186.0 171.2Expected return on plan assets 11.8 10.3Actuarial losses (30.2) (1.1)Employer contribution 9.5 9.5Member contributions 2.0 2.0Benefits paid (6.0) (5.9)

Fair value of plan assets at 31st December 173.1 186.0

Funded status/net amount recognised (5.1) (0.5)

The amounts recognised in the Group Income Statement in respect of these defined benefit schemes are as follows: Group and Group and Company Company 2008 2007 £m £m

Components of pension cost Current service cost 4.2 5.1Interest cost 10.8 9.7Expected return on plan assets (11.8) (10.3) Total pension cost recognised in the Income Statement 3.2 4.5

Total pension cost recognised in the Income Statement is analysed thus – cost of sales 2.6 3.6– administrative expenses 0.6 0.9

3.2 4.5

Actuarial (losses)/gains immediately recognised as total pension cost in the Statement of Recognised Income and Expense (10.9) 12.6


Cumulative actuarial (losses)/gains recognised in the Statement of Recognised Income and Expense (0.6) 10.3 (1.8) 9.1

Plan assetsThe weighted average asset allocations at the year end were as follows: Group and Group and Company Company plan assets plan assets at 31 at 31 December December 2008 2007 Asset category % %

Equities 53 60 Bonds 23 19Gilts 23 19Other 1 2

Total 100 100

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32. Retirement benefit schemes (continued)

To develop the expected long-term rate of return on assets assumptions, the Company considered the level of expected returns on risk free investments (primarily Government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio and an allowance made for expected expenses. This gave an assumed rate of 5.80% net of expenses at 31st December 2008.

The actual return on plan assets in the year ended 31st December 2008 was £(18.4)m (2007 – £9.2m).

History of experience gains and losses

Group Group and and Company Company Group Group Group Company Company Company 2008 2007 2006 2005 2004 2006 2005 2004 £m £m £m £m £m £m £m £m

Difference between expected and actual return on scheme assets: Amount (30.2) (1.1) 4.2 12.8 3.1 5.7 8.2 2.0Percentage of scheme assets (17%) (1%) 2% 8% 2% 3% 10% 3%Experience gains and losses on scheme liabilities: Amount (1.9) (1.6) (1.1) (5.0) (0.2) (1.1) (1.5) (0.5)Percentage of scheme liabilities (1%) (1%) (1%) (3%) (0%) (1%) (1%) (1%)Present value of scheme liabilities (178.2) (186.5) (189.3) (188.8) (149.4) (189.3) (111.0) (82.3)Fair value of scheme assets 173.1 186.0 171.2 152.5 126.9 171.2 86.1 72.0

Funding deficit (5.1) (0.5) (18.1) (36.3) (22.5) (18.1) (24.9) (10.3) ContributionsThe Schedule of Contributions to the Pension Scheme requires the Group to contribute 17.1% of pensionable salaries plus £3,300,000 in 2009.

33. Capital commitments

Capital commitments, including the value of work still to be carried out on contracts placed but not provided for, were £1.9m for the Group and £0.2m for the Company (2007 – Group £12.2m and Company £0.2m) all of which relate to property, plant and equipment. There were no such commitments in the Group’s joint ventures and associates.

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2008

34. Contingent assets and liabilities

During 2008, the Group acquired additional land adjacent the Port of Tilbury. In the event that planning permission is granted to develop that land for port-related use, then an additional payment is due to be made to the previous owner of that land. The amount is dependent on the acreage of land for which planning permission is granted, with the maximum amount payable being £9,750,000 (2007 – £nil).

35. Financial commitments

At 31st December the Group and Company had total commitments under non-cancellable operating leases for plant and machinery as follows: Group Group Company Company 2008 2007 2008 2007 £m £m £m £m

Within one year 3.8 4.6 0.4 0.2Between two and five years inclusive 9.8 11.6 0.9 0.7After five years 4.1 5.5 – – 17.7 21.7 1.3 0.9 The Group leases various items of plant and machinery under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The Group is required to give, on average, three months notice for the termination of these agreements. The lease expenditure charged to the Income Statement during the year is disclosed in Note 3.

The future minimum lease payments receivable under non-cancellable operating leases for investment property and certain property within inventories are as follows: Group Group Company Company 2008 2007 2008 2007 £m £m £m £m

Within one year 21.2 17.4 3.9 4.4Between two and five years inclusive 76.2 51.7 24.3 12.6After five years 326.7 324.4 27.6 21.6 424.1 393.5 55.8 38.6 The Group leases out its investment property with a book value of £205.7m (2007 – £182.9m) (and certain property within inventories with a net book value of £9.3m (2007 – £9.3m)) under non-cancellable operating lease agreements. The leases are for various lengths of time and have varying terms, escalation clauses and renewal rights.

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36. Reconciliation of (loss)/profit before tax to cash generated from operations


(Loss)/profit before tax (30.7) 32.3 16.2 13.6Adjustments for: – decrease/(increase) in fair value of investment properties 19.2 (12.8) 2.6 1.5– net finance costs 11.9 10.3 1.1 0.4– write-down of property inventory 27.7 – – –– provision for property bad debts 3.9 – – –– amounts receivable from guarantor of a port tenant less costs (1.7) – – –– share of results of joint ventures 21.4 9.7 – –– share of results of associates (1.5) (2.5) – –– depreciation of property, plant and equipment and amortisation of intangibles 14.6 14.7 5.0 5.8– (gain)/loss on sale of property, plant and equipment (2.8) (0.1) 0.0 (0.1)– gain on sale of investment property (0.0) – (0.0) –– decrease in provisions 0.9 0.3 0.2 0.1– decrease in retirement benefit obligations (6.3) (3.8) (6.3) (3.8)– transfer to property, plant and equipment from inventories (2.3) – – –– transfer to investment properties from inventories – (1.2) – –– share based payment 1.9 1.1 1.9 1.1Movement in working capital: (Increase)/decrease in inventories (4.4) (7.5) 0.0 0.1Decrease in receivables 8.5 24.8 13.7 24.9(Decrease)/increase in payables (1.5) 0.5 1.5 0.7 Cash generated from operations 58.8 65.8 35.9 44.3 Reconciliation of decrease/(increase) in cash and cash equivalents to movement in net debt: (Decrease)/increase in cash and cash equivalents (2.6) 2.4 (1.3) 1.0Cash outflow/(inflow) from movement in borrowings (net) 0.3 (26.7) 0.3 (26.8) Change in net debt resulting from cash flows (2.3) (24.3) (1.0) (25.8)Loan notes issued – (4.2) – (4.2)Borrowings acquired on purchase of subsidiary – (0.2) – –Amortisation of loan arrangement fees (0.2) (0.2) (0.2) (0.2)

Movement in net debt (2.5) (28.9) (1.2) (30.2)Opening net debt (205.5) (176.6) (208.9) (178.7)

Closing net debt (208.0) (205.5) (210.1) (208.9)

Major non-cash transactionsDuring 2007, as part of the consideration for the purchase of the Nordic Group, Forth Ports PLC issued 53,620 Ordinary Shares with a value of £1.0m and loan notes with a nominal value of £4.2m. The loan notes were subsequently redeemed prior to 31st December 2007.

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2008

37. Analysis of net debt

At Cash Other At 1.1.08 flow movement 31.12.08 £m £m £m £m

Group Cash at bank and on deposit 7.3 (2.6) – 4.7Debt due outwith one year (212.7) 0.3 (0.2) (212.6)Finance leases (0.1) 0.0 – (0.1) Total net debt (205.5) (2.3) (0.2) (208.0) The other movement of £0.2m related to the amortisation of arrangement fees for bank facilities.

38. Related party transactions

During the year ended 31st December 2008, the Group entered into material transactions with related parties as follows: Value of Value of Amount Amount Nature of transactions and related party Nature of Relationship Transactions Transactions Receivable Receivable 2008 2007 at 31.12.08 at 31.12.07 £m £m £m £m

Group Management charges, port and other charges Tilbury Container Services Limited Associated company 2.5 2.6 0.2 0.1 Interest and loans Ocean Terminal Limited Joint venture company 1.3 1.3 22.6 21.3 Dividend received Tilbury Container Services Limited Associated company 1.0 0.7 – – The Group has taken advantage of the exemption from disclosing intra-Group transactions as permitted by IAS 24 (Related Party Disclosures). 2008 2007 £m £m

Group Key management compensation (excluding Directors): Salaries and short-term employee benefits 0.9 1.2Post employment benefits 0.1 0.1Share based payments 0.3 0.1 1.3 1.4 Information about the remuneration of individual Directors is given in the audited part of the Directors’ Remuneration Report on page 64.

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38. Related party transactions (continued)

The following transactions were carried out between the Company and its subsidiaries (unless stated otherwise): 2008 2007 Nature of transactions and related party £m £m

Company (a) Revenue Sales of goods and services: Port of Tilbury London Limited 1.6 2.7Port of Dundee Limited 0.1 0.1Forth Property Developments Limited – 0.1Forth Estuary Towage Limited 0.1 0.1Forth Properties Limited – 0.2 1.8 3.2

Management fees: Port of Tilbury London Limited 0.8 0.9Port of Dundee Limited 0.8 0.8 1.6 1.7

(b) Cost of sales Purchases of goods and services: Port of Tilbury London Limited 0.0 0.0Forth Properties Limited 0.1 0.1 0.1 0.1

(c) Finance income Interest receivable: Port of Tilbury London Limited 2.3 3.5International Transport Limited 2.2 2.1Nordic Limited 3.6 1.9Port of Dundee Limited 0.0 0.1Forth Properties Limited 0.2 0.1FP Newhaven Two Limited 0.4 0.3Forth Property Developments Limited 2.7 3.2 11.4 11.2

(d) Finance costs Interest payable: Forth Estuary Towage Limited 0.4 0.3FLM Realisations Limited 0.0 0.0 0.4 0.3

(e) Other income Dividends received: Morrison City Quay Dundee Limited 0.1 –

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2008

38. Related party transactions (continued)

2008 2007 £m £m

(f) Year end balances Trade and other receivables – current: Port of Tilbury London Limited 29.8 41.3International Transport Limited 32.9 27.9Port of Dundee Limited 1.5 1.5Nordic Limited 17.3 17.4Edinburgh Forthside Holdings Limited 1.4 1.4Forth Property Investments Limited 2.7 2.6Forth Property Developments Limited 30.7 38.8Forth Property Holdings Limited 1.0 0.7Forth Properties Limited 2.9 1.3FP Newhaven Two Limited 4.5 4.8Non-significant companies 0.1 0.1 124.8 137.8 (g) Year end balances Trade and other receivables – non-current: Ocean Terminal Limited (joint venture company) (offset by investment in joint venture company) 22.6 21.3 (h) Year end balances Trade and other payables – current: Forth Estuary Towage Limited 5.8 4.6Non-significant companies 1.8 1.7 7.6 6.3 2008 2007 £m £m

Company Key management compensation: Salaries and short-term employee benefits 0.5 0.6Post employment benefits 0.0 0.0Share based payments 0.2 0.1 0.7 0.7

39. Dividend

On 16th March 2009, the Board agreed to propose a final dividend of 12p for the year ended 31st December 2008. A resolution to this effect will be put to the Annual General Meeting of the Shareholders on 1st May 2009.

128

Glossary

1. The DTZ Valuations dated 31st August 2005, 31st December 2006, 31st December 2007 and 31st December 2008 include the terms “Market Value” and “Calculation of Worth” which are defined in the current version of The Appraisal and Valuation Manual issued by the Royal Institution of Chartered Surveyors (“the Red Book”) as:

Market Value“The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

Calculation of Worth“The provision of a written estimate of the net monetary worth at a stated date of the benefits and costs of ownership of a specified interest in property to the instructing party reflecting the purpose(s) specified by that party”.

2. The “property development assets” which DTZ have valued include the undernoted assets:

Land at the Port of Leith covered by the Group’s Leith Docks Outline Planning approval;

The development sites called The Harbour, Leith Docks, Granton Harbour and Western Harbour, all of which are in Leith;

Development sites at Grangemouth, Burntisland and Methil; and

The Ocean Terminal Shopping Centre.

3. Property Valuation – Approach used by DTZThe undernoted paragraphs are taken from the DTZ valuation report as at 31st December 2008:

“As a result of the very dramatic changes in the property market and the general economic environment, we have considered it necessary to review our entire approach to the Valuation of the Group’s property development assets to reflect what we consider would be the approach the wider market would take were the property assets of the company to be sold at the date of Valuation.

In the past, our opinion of Value has been based on the approach that purchasers of the assets would take a very long term view of the principal properties in the portfolio and reflect future value on a discounted basis, taking account of future sale revenues of the sites after allowing for the cost of providing the infrastructure together with associated costs. Up until the early part of 2008, there had been a strong appetite from a wide variety of investors seeking an involvement in major mixed use development projects, with both debt and equity available from a wide range of sources. Whilst the commercial property sector generally started to decline in the early part of 2007, it accelerated throughout the year and started affecting the residential sector in late 2007, with increasing impact throughout 2008, particularly after the various British Banking crises and the collapse of Lehman Brothers in September 2008.

The impact of the banking and economic environment and the downturn in the property sector has required us to reconsider the approach we consider the market would take to the property development assets. The effect of the downturn on land has been considerably more than the general decline in the value of completed properties in both the commercial and residential sectors. This is due to the value of land being a factor of end value (sale of the completed development) and therefore any reduction in end value results in an increased impact in percentage terms on land values. This clearly operates in the other direction in a rising market.

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2008

In terms of the Group’s major development projects, many of the sites are no longer viable depending upon what infrastructure has already been put in place. Our revised approach to the Valuation of the Group’s major property development assets is summarised below:

Granton Harbour – We have allowed development Value on a small section of the site at a discounted rate, but have otherwise disregarded the remainder of the land on the basis that it is not viable to develop/reclaim in the current market. Where land is income producing from the letting of existing property, we have valued on a conventional basis.

Western Harbour – The approach has been the same as for Granton Harbour. We have allowed for the development of a small part of the site, but only included the land at a discounted rate, as viability is marginal.

The Harbour, Leith Docks – This part of the proposed development has been significantly impacted by the downturn in the commercial markets, again making the viability of development very marginal. A value has been applied to the residual land as it does occupy the key part of the main site and the overall entrance to the scheme.

Leith Docks – We have disregarded all previous planned development on the site on the basis of viability and reflected a value based on the ongoing use of the site in its Port use.

Grangemouth – As with other sites, development land has been substantially marked down to reflect viability and existing income valued in perpetuity.

Burntisland/Methil – The overall value of the land assets has been marked down, but there is now an improved planning scenario which might allow for a food retail development.

Ocean Terminal – This asset has been valued separately by Drivers Jonas. The downward value reflects the impact on the market of both yield and rental movements in the retail sector and fits in line with our experience generally.

In overall terms, the number of residential development units being valued in the current exercise has fallen from approximately 17,000 to around 2,600. The result of this is that the overall sensitivity of the valuation is now far less affected by future movements in the residential market. Over 50% of the value of the assets is now a reflection of cash flow rather than residual development value which reflects the market requirements for certainty and sustainability in values going forward. The Group has continued to invest in the infrastructure of the various projects and although this has rightly been reduced going forward, it leaves the Group able to reflect future value in the assets as and when the market improves over the next five years. In the short term, the assumptions we have made assume plot values will continue to decline in the short term as residential values in Scotland continue to fall.

Whilst this revised approach reflects our perception of the wider market approach in the current economic environment, it does result in a very significant reduction in the value of the Group’s property development assets over the past twelve months, much of which has been driven in the second half of the year. The reduction in land values reflects what we are seeing across the UK where Companies are using Market Value as their basis of Valuation.”

4. DefinitionThe definition of the word “underlying” in the context of an adjustment to a reported number is as follows:

i) Underlying group/port/property operating profit refers to the reported group/port/property operating profit adjusted to exclude the effect of any revaluation of the investment properties, amortisation charge arising from acquisitions and any exceptional items.

ii) Underlying profit before tax, underlying profit after tax and underlying earnings per share refer to reported profit before tax, reported profit after tax and reported basic earnings per share adjusted as above in 4(i) together with an adjustment for any revaluation of joint venture’s investment property.

130

Five Year Record

2004 2005 2006 2007 2008 £m £m £m £m £m

FINANCIAL STATISTICS Revenue and Profit Port revenue 118.3 134.2 140.3 159.5 184.3Property revenue 43.9 17.3 13.3 5.5 1.6 Group revenue 162.2 151.5 153.6 165.0 185.9 Underlying port operating profit 31.0 34.3 34.1 38.7 47.6Underlying property operating profit/(loss) 26.4 3.0 4.2 (1.3) 0.5 Underlying group operating profit 57.4 37.3 38.3 37.4 48.1Other income/(expenses) 1.2 28.5 24.1 12.8 (16.4)One-off costs less income (0.6) (3.0) (1.8) (0.0) (29.9)Amortisation arising from acquisition – – – (0.4) (0.7)Net finance costs (6.7) (6.2) (8.2) (10.3) (11.9)Share of results of joint ventures 10.0 0.5 (3.0) (9.7) (21.4)Share of results of associates 1.3 1.2 2.0 2.5 1.5Gain on disposal of investment in joint venture – – 4.2 – – Profit/(loss) before tax 62.6 58.3 55.6 32.3 (30.7)Taxation (15.2) (13.9) (14.5) (7.4) (20.5) Profit/(loss) for the year 47.4 44.4 41.1 24.9 (51.2) Balance Sheet Non-current assets 399.9 421.8 423.7 478.3 476.3

Current assets 92.8 96.4 109.1 98.6 67.7Current liabilities (43.6) (27.6) (21.2) (31.9) (29.3)

Net current assets (excluding net debt) 49.2 68.8 87.9 66.7 38.4Non-current liabilities (excluding net debt) (46.3) (67.1) (57.5) (44.2) (76.5)Net debt (161.8) (179.6) (176.6) (205.5) (208.0) Net assets 241.0 243.9 277.5 295.3 230.2 Equity shareholders’ funds 235.1 239.7 273.2 292.8 229.9Equity minority interests 5.9 4.2 4.3 2.5 0.3 Total capital employed 241.0 243.9 277.5 295.3 230.2 Basic earnings/(loss) per share 100.7p 97.6p 90.5p 55.3p (107.8)pUnderlying earnings per share 72.8p 49.6p 47.0p 46.1p 58.7pAnnualised dividend per share 39.9p 43.0p 45.2p 47.7p 28.6p

131


2008

Information for Shareholders

Shareholders Band Analysis

Information for shareholders may be obtained from:

Equiniti LimitedAspect HouseSpencer RoadLancingWest SussexBN99 6DA Shareholder helpline: 0871 384 2149Textel/hard of hearing line: 0871 384 2255General fax: 0871 384 2100http://www.shareview.co.ukShareview dealing helpline: 0871 384 2020

Calls to these numbers are charged at 8p per minute from a BT landline. Other telephone providers costs may vary.

Number of Number of Share band holders % shares held %

1-500 2,426 55.3 579,557 1.3501-1,000 818 18.6 627,522 1.41,001-2,500 567 12.9 901,378 2.02,501-5,000 204 4.7 702,329 1.55,001-10,000 103 2.4 765,732 1.710,001-50,000 158 3.6 3,673,009 8.050,001-100,000 45 1.0 3,159,583 6.9over 100,000 67 1.5 35,237,103 77.2 Total 4,388 100.0 45,646,213 100.0

132

Notice of Annual General Meeting

Notice of Annual General Meeting – Friday 1st May 2009 at 11.00am in The Board Room, The Caledonian Hilton Hotel, Princes Street, Edinburgh EH1 2AB.

PLEASE NOTE that the eighteenth Annual General Meeting of FORTH PORTS PLC will be held in The Board Room, The Caledonian Hilton Hotel, Princes Street, Edinburgh EH1 2AB at 11.00am on Friday 1st May 2009, for the following purposes:

Ordinary Business 1. To receive the Directors’ Report and accounts

for the year ended 31st December 2008.

2. To declare a final dividend of 12p per Ordinary Share in the capital of the Company.

3. To re-elect Mr. C.D. Collins as a Director.

4. To re-elect Mr. C.G. Hammond as a Director.

5. To re-elect Mr. P.D. Glading as a Director.

6. To receive and consider the Directors’ Remuneration Report for the year ended 31st December 2008.

7. To ratify the re-appointment of PricewaterhouseCoopers LLP as auditors of the Company and to authorise the Directors to agree their remuneration.

Special Business8. To consider and if thought fit to pass the

following Ordinary Resolution:

the Directors be and they are hereby generally and unconditionally authorised to exercise all powers of the Company to allot relevant securities (within the meaning of Section 80 of the Companies Act 1985) up to an aggregate nominal amount of £6.2m during the period expiring on the date of the next Annual General Meeting of the Company after the passing of this Resolution, or on 31st July 2010 whichever is the earlier, (“the Prescribed Period”) and at any time after that pursuant to any offer or agreement made by the Company during the Prescribed Period which would or might require relevant securities to be allotted after the expiry of the Prescribed Period.

9. To consider and if thought fit pass the following Special Resolution:

THAT subject to the passing of Resolution 8 above, the Directors be and they are hereby empowered pursuant to Section 95 of the Companies Act 1985 to allot equity securities (within the meaning of Section 94 of the said Act) for cash pursuant to the authority conferred by Resolution 8 as if sub-section (1) of Section 89 of the said Act did not apply to any such allotment provided that this power shall be limited:

i) to the allotment of equity securities for cash in connection with or pursuant to a rights issue or any other offer in favour of the holders of equity securities and any other persons entitled to participate therein in proportion (as nearly as may be practicable) to the respective number of equity securities then held by them (or, as appropriate, the number of such securities which such other persons are, for those purposes, deemed to hold) but not subject to such exclusions or other arrangements as the Directors may consider necessary, expedient or appropriate to deal with any functional entitlements or legal or practical difficulties which may arise under the laws of, or the requirement of any recognised regulatory body or any stock exchange in, any territory or otherwise; and

ii) to the allotment (otherwise than pursuant to sub-paragraph (i) above) of equity securities and/or the transfer of shares out of Treasury following purchase pursuant to Resolution 10 (vi) below up to an aggregate nominal value of £1.14m; and shall expire on the date of the next Annual General Meeting of the Company after the passing of this Resolution, or on 31st July 2010 whichever is the earlier, (“the Prescribed Period”) save that after such expiry, the Directors may allot equity securities in pursuance of an offer or agreement made by the Company during the Prescribed Period which would or might require relevant securities to be allotted after the expiry of the Prescribed Period.

133


2008


THAT the Company be and is hereby generally and unconditionally authorised pursuant to and in accordance with Section 166 of the Companies Act 1985 (“the Act”) to make one or more market purchases (within the meaning of section 163(3) of the Act) on The London Stock Exchange of Ordinary Shares of 50p each in the capital of the Company (“Ordinary Shares”) upon and subject to the following conditions:

i) the maximum number of such Ordinary Shares hereby authorised to be purchased is 6.846 million shares (representing 15% of the Company’s issued share capital);

ii) the minimum price which may be paid by the Company for each Ordinary Share is 50 pence (exclusive of any tax and expenses);

iii) the maximum price (exclusive of any tax and expenses) which may be paid by the Company for an Ordinary Share is an amount not more than 5% above the average of the middle market values for an Ordinary Share taken from The London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the Ordinary Share is purchased;

iv) unless previously revoked or varied the authority hereby conferred shall expire on the date of the next Annual General Meeting of the Company after the passing of this Resolution or on 31st July 2010, whichever shall be the earlier;

v) the Company may enter into a contract or contracts for the purchase of Ordinary Shares under the authority hereby conferred before the expiry of this authority which would or might be completed wholly or partly after the expiry of such authority and may make a purchase or purchases of Ordinary Shares in pursuance of any such contract or contracts notwithstanding such expiry;

vi) and any Ordinary Shares so purchased shall be cancelled or if the Directors so determine and subject to the provision of the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 and any applicable regulations of the United

Kingdom Listing Authority, to be held as Treasury Shares.


THAT the draft regulations produced to the meeting and, for the purposes of identification, initialled by the Chairman of the Meeting be adopted as the Articles of Association of the Company in substitution for, and to the entire exclusion of, the existing Articles of Association of the Company.

By Order Of The Board

Morag McNeillGroup Company Secretary1 Prince of Wales DockLeithEdinburgh EH6 7DX

31st March 2009

134

Notice of Annual General Meetingcontinued

Copies of the following documents will be available for inspection at the registered office of the Company on any weekday, except Saturdays and public holidays, during normal business hours until 30th April 2009. They will also be available for inspection at the place of the meeting from 10.45am until the meeting ends:

i) Service contracts between the Company and the Executive Directors and of the letters of appointment between the Company and the Non-Executive Directors; and

ii) A copy of the proposed new Articles of Association for the Company.

A copy of the proposed new Articles of Association of the Company will also be available for inspection at the offices of McGrigors LLP, 5 Old Bailey, London EC4M 7BA during normal business hours on any week day up to and including the date of the Annual General Meeting.

The register of Directors’ shareholdings will be available for inspection at the place of the meeting, from the beginning of the meeting until it ends.

ProxiesA member entitled to attend and vote at the meeting may appoint one or more persons as his proxy to attend, speak and vote on his behalf at the meeting. A proxy need not be a member of the Company. A Form of Proxy is enclosed. Completion of a Form of Proxy will not prevent a member from attending the meeting and voting in person if he so wishes. In order to be valid, a Form of Proxy must be lodged at the offices of the Company’s Registrars, Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6ZR not later than 48 hours before the time of the meeting.

A member may appoint more than one proxy, provided each proxy is appointed to exercise rights attached to different shares. A member may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, contact the Company’s Registrars, Equiniti Limited at the address stated above.

Corporate RepresentativesIn order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that:

i) If a corporate member has appointed the Chairman of the meeting as his corporate representative with instructions to vote on a poll in accordance with the directions of all other corporate representatives for that meeting at the meeting, then, on a poll, those corporate representatives will give voting directions to the Chairman and the Chairman will vote (or withhold a vote) as corporate representative in accordance with those directions.

ii) If more than one corporate representative for the same corporate member attends the meeting but the corporate member has not appointed the Chairman of the meeting as his corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative.

Corporate members are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives – www.icsa.org.uk – for further details of this procedure. The guidance includes a sample form of representation letter to appoint the Chairman as a corporate representative as described in (i) above.

135


2008

Summary of the material changes to the Articles of Association of the CompanyThe principal changes arising from the adoption of the New Articles of Association pursuant to Resolution 11 (the “New Articles”) are set out below. References to Article numbers are references to a particular Article in the New Articles. Certain provisions in the current Articles which replicate provisions contained in companies legislation are in the main amended to bring them into line with the Companies Act 2006 (the “2006 Act”). Certain examples of such provisions, including provisions as to the convening of General Meetings and proxies, are detailed below.

Uncertificated SharesThe existing Articles contain provisions permitting the holding of shares in uncertificated form in accordance with the CREST uncertificated securities system. Under the Uncertificated Securities Regulations 2001, Euroclear UK & Ireland Limited (“Euroclear”) is the holder of the register of the uncertificated shares in the issuer. The Registrar continues to hold the register of the certificated shares but it is only a copy record (obtained from Euroclear) of uncertificated shares held by the issuer.

The New Articles have been updated to include reference to Euroclear and also to provide that the Company will not be liable for a failure of its obligation to maintain a register of uncertificated shares.

Form of ResolutionThe existing Articles contain provisions referring to “extraordinary” resolutions and “extraordinary” general meetings. These terms have been abolished under the 2006 Act. Meetings of shareholders other than annual general meetings are now referred to simply as general meetings. Any resolution requiring a 75% majority will be a special resolution. Where for any purpose an ordinary resolution is required a special resolution is also effective.

Convening of General Meetings and Annual General MeetingsThe provisions of the existing Articles dealing with the convening of general meetings and annual general meetings and the length of notice required to convene such meetings are amended to conform to the new provisions of the 2006 Act. General

meetings to consider special resolutions can now be convened on 14 clear days’ notice whereas previously 21 clear days’ notice was required. An annual general meeting still requires 21 clear days’ notice.

Votes of MembersThe new Articles reflect the changes made under the 2006 Act in relation to proxies. Proxies are now entitled to vote on a show of hands whereas under the previous legislation and under the existing Articles proxies were only entitled to vote on a poll. The time limits for the appointment of proxies have also been altered by the 2006 Act so that weekends and bank holidays do not need to be counted in determining the time limits for lodging of proxies. Multiple proxies may be appointed provided that each proxy is appointed to exercise the rights attached to a different share or class of shares held by the shareholder.

Corporate RepresentativesThe 2006 Act permits a corporate shareholder to appoint multiple corporate representatives who can attend, speak, vote and count towards a quorum at any meeting. The New Articles have been amended to reflect these provisions.

Retirement of Directors by RotationThe Combined Code on Corporate Governance recommends that all directors must submit themselves for re-election at every third annual general meeting following the meeting at which they were elected or last re-elected. The Company has complied with the provisions of the Code and the New Articles reflect this position.

Conflicts of InterestThe New Articles reflect the new provisions of the 2006 Act in relation to directors’ conflicts of interest. The 2006 Act sets out directors’ general duties which largely codify the existing law but with some changes. Under the 2006 Act, a director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or may conflict, with the Company’s interest. The requirement is very broad and could apply, for example, if a director becomes a director of another company. The 2006 Act allows directors of public companies to authorise conflicts and potential conflicts, where appropriate, but only to the extent that the Articles of Association contain a provision to this effect.

Appendix to the Notice of Annual General Meeting

136

Appendix to the Notice of Annual General Meetingcontinued

The 2006 Act also allows Articles to contain other provisions for dealing with directors’ conflicts of interest to avoid a breach of duty.

There are safeguards which will apply when directors decide whether to authorise a conflict or potential conflict. First, only directors who have no interest in the matter being considered will be able to take the relevant decision, and secondly, in taking the decision, the directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success. The directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate.

The New Articles also contain provisions relating to confidential information, attendance at board meetings and the availability of board papers to protect a director being in breach of duty if a conflict of interest or a potential conflict of interest arises.

The New Articles also give the directors authority to approve situations involving directors’ conflicts of interest and to allow conflicts of interest to be dealt with by the Board.

Directors’ FeesIt is proposed that the cap on directors’ fees be removed. Shareholders should note that this cap applies to non-executive directors’ fees only. The remuneration of the executive directors is the responsibility of the Remuneration Committee.

Borrowing PowersThe existing Articles of the Company place limits on the extent to which the Board can exercise the powers of the Company to borrow money. These restrictions provide that the Company shall not borrow more than three times its adjusted capital and reserves without the approval of the shareholders. This formula has proved somewhat complex to operate and it is therefore proposed that the formula is replaced by a monetary cap. The monetary cap proposed is £550 million which is the monetary equivalent of the limit in the existing Articles of Association.

Electronic CommunicationsThe New Articles contain amendments designed to allow the Company to use electronic systems for communication with shareholders. Companies have been able to communicate with shareholders by electronic means in respect of certain types of information for some years. However the 2006 Act extends this method of communication to all shareholder information and enables the Company to invite shareholders to agree that information may be supplied via a website. The amendments to the New Articles allow the Company to take advantage of these changes which may lead to administrative cost savings in the future and will benefit the environment.

It is however important to note that before doing so the Company must write to all shareholders and give them the opportunity to decide whether they would prefer to receive documents in hard copy form. They are given a period to respond and, if they do not, website communication becomes the default method.

IndemnityThe 2006 Act extends the scope of the indemnities that may be offered to directors under the existing law by allowing the company to indemnify the directors of a company that is a trustee of an occupational pension scheme against any liability incurred in connection with the Company’s activity as trustee of the scheme. The New Articles have been amended to allow this form of indemnity to be granted by the Company. The Board believes that the power of the Company to indemnify its directors in the manner described above is fair and reasonable and introduces a more appropriate balance of risk and reward for any person asked to serve on the board of a pension trustee company.

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