A P Møller Mærsk A/S : Accounting Policies 2020

ALL THE WAY

Accounting policies 2020

A.P. Møller - Mærsk A/S

Esplanaden 50, DK-1098 Copenhagen K / Registration no. 22756214

Note 23 Significant accounting policies

Basis of preparation

The consolidated financial statements for 2020 for A.P. Moller - Maersk have been prepared on a going con-cern basis and in accordance with the International Finan-cial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements for listed com-panies. The consolidated financial statements are also in accordance with IFRS as issued by the International Accounting Standards Board (IASB).

The consolidated financial statements of

A.P. Moller - Maersk are included in the consolidated financial statements of A.P. Møller Holding A/S.

The accounting policies are consistent with those applied in the consolidated financial statements for 2019, except for the changes to the accounting standards that were ef-fective from 1 January 2020 and were endorsed by the EU.

iXBRL reporting

From 2020, A.P. Møller - Mærsk A/S is required to file the annual report in the new European Single Electronic Format (ESEF) and the annual report in 2020 is therefore prepared in the XHTML format that can be displayed in a standard browser. The primary statements in the consolidated financial statements are tagged using inline eXtensible Business Reporting Language (iXBRL). The iXBRL tags comply with the ESEF taxonomy, which is included in the ESEF Regulation and developed based on the IFRS taxonomy published by the IFRS Foundation. Where a financial statement line item is not defined in the ESEF taxonomy, an extension to the taxonomy has been created. Extensions are anchored to elements in the ESEF taxonomy, except for extensions which are subtotals.

The annual report submitted to the Danish Financial Supervisory Authority consists of the XHTML document together with certain technical files, all included in a file named APMM-2020-12-31.zip.

Change to reportable segments

As part of the refinement of A.P. Moller - Maersk's seg-ment structure to further align with internal management structure and demarcation between the reportable seg-ment activities, a number of changes have been made.

The main changes involve moving the Maersk Oil Trading activity to the Ocean segment from Manufacturing & Others, and the intermodal activity in Hamburg Süd to Logistics & Services from Ocean.

Comparison figures for note 1 have been restated as if the changes had been implemented in 2019. The reportable segments are disclosed below.

A number of changes to accounting standards are effec-tive from 1 January 2020 and endorsed by the EU:

• • Amendments to IAS 1 and IAS 8: Definition of Material

• • Amendments to IFRS 3: Business Combinations.

A.P. Moller - Maersk follows the guidelines in the above amendments, and the implementation did not change the accounting policies.

Consolidation

The consolidated financial statements comprise the parent company A.P. Møller - Mærsk A/S, its subsidiaries and proportionate shares in joint arrangements classified as joint operations.

Subsidiaries are entities controlled by

A.P. Møller - Mærsk A/S. Control is based on the power to direct the relevant activities of an entity and the exposure, or right, to variable returns arising from it. In that connec-tion, relevant activities are those that significantly affect the investee's returns. Control is usually achieved by directly or indirectly owning or in other ways controlling more than 50% of the voting rights or by other rights, such as agreements on management control.

Joint arrangements are entities in which

A.P. Moller - Maersk, according to contractual agree-ments with one or more other parties, has joint control. The arrangements are classified as joint ventures, if the contracting parties' rights are limited to net assets in the separate legal entities, and as joint operations, if the parties have direct and unlimited rights to the assets and obligations for the liabilities of the arrangement.

Entities in which A.P. Moller - Maersk exercises a signifi-cant but non-controlling influence are considered associ-ated companies. A significant influence is usually achieved by directly or indirectly owning or controlling 20-50% of the voting rights. Agreements and other circumstances are considered when assessing the degree of influence.

Consolidation is performed by summarising the financial statements of the parent company and its subsidiaries, including the proportionate share of joint operations, part-owned vessels and pool arrangements, which have been prepared in accordance with A.P. Moller - Maersk's accounting policies. Intra-group income and expenses, shareholdings, dividends, intra-group balances and gains on intra-group transactions are eliminated. Unrealised gains on transactions with associated companies and joint arrangements are eliminated in proportion to

A.P. Moller - Maersk's ownership share. Unrealised losses are eliminated in the same way, unless they indicate impairment.

Non-controlling interests' share of profit/loss for the year and of equity in subsidiaries is included as part of A.P. Moller - Maersk's profit and equity respectively, but shown as separate items.

Foreign currency translation

The consolidated financial statements are presented in USD, the functional currency of the parent company. In the translation to the presentation currency for subsidiaries, associates or joint arrangements with functional curren-cies other than USD, the total comprehensive income is translated into USD at average exchange rates, and the balance sheet is translated at the exchange rates as at the balance sheet date. Exchange rate differences arising from such translations are recognised directly in other compre-hensive income and in a separate reserve of equity.

The functional currency varies from business area to business area. For A.P. Moller - Maersk's principal shipping activities, the functional currency is typically USD. This means, among other things, that the carrying amounts of property, plant and equipment and intangible assets and, hence, depreciation and amortisation, are main-tained in USD from the date of acquisition. For other activities, including container terminal activities and land-based container activities, the functional currencyis generally the local currency of the country in which such activities are performed, unless circumstances suggest a different currency is appropriate.

Transactions in currencies other than the functional cur-rency are translated at the exchange rate prevailing at the date of the transaction. Monetary items in foreign curren-cies not settled at the balance sheet date are translated at the exchange rate as at the balance sheet date. Foreign exchange gains and losses are included in the income statement as financial income or expenses.

Segment information

The allocation of business activities into segments reflects A.P. Moller - Maersk's character as an integrated container logistics business and is in line with the internal manage-ment reporting. The reportable segments are as follows:

Ocean	Global container shipping activities
including strategic transhipment hubs
and sale of bunker oil
Logistics	Freight forwarding, supply chain
& Services	management, inland haulage and
other logistics services
Terminals	Gateway terminal activities, towage
& Towage	and related marine activities
Manufacturing	Production of reefer and dry containers,
& Others	providing off-shore supply service and
trading and other businesses

Operating segments have not been aggregated.

The reportable segments comprise:

Ocean

Ocean activities

Activities under Maersk Line, Safmarine, Sealand - A Maersk company, and Hamburg Süd brands with Ocean container freight being the main revenue stream. Ocean container freight is defined as the cost-per-weight measure of transporting goods on board a container vessel across the ocean, including demurrage and detention, terminal handling, documentation services, container services as well as container storage.

Note 23 Significant accounting policies - continued

Hub activities

Activities under the APM Terminals brand generating revenue by providing port services only in major trans-shipment ports such as Rotterdam, Maasvlakte-II, Algeciras, Tangier, Tangier-Med II, Port Said, and joint ventures in Salalah, Tanjung Pelepas and Bremerhaven. The respective terminals are included under the Ocean segment, as the primary purpose of those ports is to provide transhipment services to A.P. Moller - Maersk's Ocean business, whereas third-party volumes sold in those locations are considered secondary.

Maersk Oil Trading

Sourcing marine fuels and lubricants for

A.P. Moller - Maersk's fleet in addition to refinery activities and sales to external parties, including Maersk Tankers.

Logistics & Services

Supply chain management

Activities within supply chain management and 4PL services.

Intermodal

Operating activities with the main stream of revenue de-riving from the transportation of containers from vendors (shippers) to the port of shipment, and from discharge port to the point of stripping (consignee) by truck and/or rail.

Inland services

Operating activities in inland activities facilities fully or partially controlled by APM Terminals, with the main rev-enue stream being inland services such as full container storage, bonded warehousing, empty depot, local trans-portation, etc.

Freight forwarding

Operating activities within sea and air freight forwarding services.

Other services

Operating activities within warehousing and distribution, trade finance with export finance solutions, post-shipment and import finance solutions, and Star Air, operating cargo aircrafts on behalf of UPS.

Terminals & Towage Terminals activities

Activities in ports fully or partially controlled by the APM Terminals brand, with the main revenue stream being port activities not considered a hub activity as described above.

Towage activities

Activities under the Svitzer brand, a provider of offshore towage and salvage services.

Manufacturing & Others Maersk Container Industry

Manufacturer that produces dry containers and reefer containers.

Maersk Supply Service

Provides marine services and integrated solutions to the energy sector worldwide with a large fleet of anchor han-dling tug supply vessels and subsea support vessels.

Hamburg Süd tramp activity

Bulk and tanker activity acquired as part of the Hamburg Süd acquisition.

Other businesses

Consists of Maersk Training, a provider of training services to the maritime, oil and gas, offshore wind and crane industries.

The reportable segments do not comprise costs in A.P. Moller - Maersk's corporate functions. These func-tions are reported as unallocated items.

Revenue between segments is limited, except for the Terminals & Towage segment, where a large part of the services is delivered to the Ocean segment as well as the sale of containers from Maersk Container Industry to the Ocean segment. Sales of products and services between segments are based on market terms.

Income statement

Revenue for all businesses is recognised when the per-formance obligation has been satisfied, which happens upon the transfer of control to the customer at an amount that reflects the consideration to which theGroup expects to be entitled in exchange for the goods and services.

Revenue from shipping activities is recognised over time as the performance obligation is satisfied, including a share of revenue from incomplete voyages at the balance sheet date. Invoiced revenue related to an esti-mated proportion of remaining voyage time and activi-ties at the destination port is deferred. Number of days of a voyage, as a percentage of the total number of days a voyage is estimated to last, is considered as a close ap-proximation of percentage of completion. Detention and demurrage fees are recognised over time up until the time of the customer's late return or pick-up of contain-ers. Retrospective volume rebates provided to certain customers which give rise to variable consideration are based on the expected value method and allocated to Ocean freight revenue.

Revenue from terminal operations and towing activities is recognised upon completion of the service. In container ter-minals operated under certain restrictive terms of pricing and service, etc., the value of tangible assets constructed on behalf of the concession grantor is recognised as reve-nue during the construction.

Revenue from most freight forwarding activities is recog-nised over time.

Revenue from the sale of goods is recognised upon the transfer of control to the buyer.

Share of profit/loss in associated companies and joint ven-tures is recognised net of tax and corrected for the share of unrealised intra-group gains and losses. The item also comprises any impairment losses for such investments and their reversal.

Tax comprises an estimate of current and deferred in-come tax as well as adjustments to previous years of those. Income tax is tax on taxable profits, and consists of corporation tax, withholding tax of dividends, etc. In addi-tion, tax comprises tonnage tax. Tonnage tax is classified as tax when creditable in, or paid in lieu of, income tax. Tax is recognised in the income statement to the extent

that it arises from items recognised in the income state-ment, including tax on gains on intra-group transactions that have been eliminated in the consolidation.

Earnings per share are calculated as the

A.P. Møller - Mærsk A/S' share of the profit/loss for the year divided by the number of shares (of DKK 1,000 each), excluding A.P. Moller - Maersk's holding of own shares. Diluted earnings per share are adjusted for the dilution effect of share-based compensation issued by the parent company.

Statement of comprehensive income

Other comprehensive income consists of gains and losses not recognised in the income statement, including ex-change rate adjustments arising from the translation from functional currency to presentation currency, fair value adjustments of other equity investments (at FVOCI), cash flow hedges, forward points and currency basis spread as well as actuarial gains/losses on defined benefit plans, etc. A.P. Moller - Maersk's share of other comprehensive income in associated companies and joint ventures is also included.

On disposal or discontinuation of an entity,

A.P. Moller - Maersk's share of the accumulated exchange rate adjustment relating to the relevant entity with a non-USD functional currency is reclassified to the income statement. Accumulated value adjustments of equity instruments classified as equity instruments at fair value through other comprehensive income will remain in equity upon disposal.

Other comprehensive income includes current and de-ferred income tax to the extent that the items recognised in other comprehensive income are taxable or deductible.

Balance sheet

Intangible assets are measured at cost less accumulated amortisation and impairment losses. Amortisation is calculated on a straight-line basis over the estimated useful lives of the assets. Intangible assets regarding ac-quired customer relationships and brand names are am-ortised over a useful life of 15 and 20 years, respectively. IT software is amortised over a useful life of 3-5 years.

Note 23 Significant accounting policies - continued

For container terminals operated under certain restrictive price and service conditions, etc., concessional rights to collect usage charges are included under intangible assets. The cost includes the present value of minimum payments under concession agreements and the cost of property, plant and equipment constructed on behalf of a grantor of a concession. The rights are amortised from the com-mencement of operations over the concession period.

Property, plant and equipment are valued at cost less ac-cumulated depreciation and impairment losses. Deprecia-tion is charged to the income statement on a straight-line basis over the useful lives at an estimated residual value. The useful lives of new assets are typically as follows:

Ships, etc.	20-25 years
Containers, etc.	12 years
Buildings	10-50 years
Terminal infrastructure	10-20 years or
concession period,
if shorter
Plant and machinery, cranes
and other terminal equipment	5-20 years
Other operating equipment,
fixtures, etc.	3-7 years

Estimated useful lives and residual values are reassessed on a regular basis.

The cost of an asset is divided into separate components, which are depreciated separately if the useful lives of the individual components differ. Dry-docking costs are recog-nised in the carrying amount of ships when incurred and depreciated over the period until the next dry-docking.

The cost of assets constructed by A.P. Moller - Maersk includes directly attributable expenses. For assets with a long construction period, borrowing costs during the construction period from specific as well as general borrowings are attributed to cost. In addition, the cost includes the net present value of estimated costs of re-moval and restoration.

Right-of-use assets: The Group mainly leases vessels, con-tainers, concessions arrangements and real estate prop-erty. Lease contracts for vessels and containers are typ-ically made for fixed periods of about five years but may have extension options as described below. Concession arrangements and real estate contracts are negotiated on an individual basis and contain a wide range of terms and conditions.

Leases are recognised as a right-of-use asset with a cor-responding leases liability at the date on which the leased asset is available for use by the Group. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Intercompany leases will continue to be presented ac-cording to IFRS 8 - Segment Reporting, as operating leases in accordance with the old lease standard, IAS 17.

Impairment losses are recognised when the carrying amount of an asset or a cash-generating unit exceeds the higher of the estimated value in use and fair value less costs of disposal. Goodwill is attributed to cash-generat-ing units on acquisition and impaired before other assets.

Intangible assets and property, plant and equipment are tested for impairment if there is an indication of impair-ment. However, annual impairment tests are carried out for goodwill and other intangible assets with indefinite useful lives as well as intangible assets that are not yet in use.

Assets are held for sale, when the carrying amount of an individual non-current asset, or disposal groups, will be re-covered principally through a sale transaction rather than through continuing use. Assets are classified as held for sale when activities to carry out a sale have been initiated, when the activities are available for immediate sale in their present condition, and when the activities are expected to be disposed of within 12 months. Liabilities directly asso-ciated with assets held for sale are presented separately from other liabilities.

Assets held for sale are measured at the lower of car-rying amount immediately before classification as heldfor sale and fair value less costs to sell, and impairment tests are performed immediately before classification as held for sale. Non-current assets are not depreciated or amortised while classified as held for sale. Measure-ment of deferred tax and financial assets and liabilities is unchanged.

Investments in associated companies and joint ventures are recognised as A.P. Moller - Maersk's share of the equity value inclusive of goodwill less any impairment losses. Goodwill is an integral part of the value of associated companies and joint ventures and is therefore subject to an impairment test together with the investment as a whole. Impairment losses are reversed to the extent the original value is considered recoverable.

Equity instruments, etc., including shares, bonds and sim-ilar securities, are recognised on the trading date at fair value, and subsequently measured at the quoted market price for listed securities and at estimated fair value for non-listed securities. Fair value adjustments from equity investments at fair value through other comprehensive income (FVOCI) remain in equity upon disposal. Dividends are recognised in the income statement.

Inventories mainly consist of bunker, containers (manu-facturing), spare parts not qualifying for property, plant and equipment, and other consumables. Inventories are measured at cost, primarily according to the FIFO method. The cost of finished goods and work in progress includes direct and indirect production costs.

Loans and receivables are initially recognised at fair value, plus any direct transaction costs, and subsequently measured at amortised cost using the effective interest method. For loans and other receivables, write-down is made for anticipated losses based on specific individual or group assessments. For trade receivables, the loss al-lowance is measured in accordance with IFRS 9 applying a provision matrix to calculate the minimum impairment. The provision matrix includes an impairment for non-due receivables.

Equity includes total comprehensive income for the year comprising the profit/loss for the year and other com-prehensive income. Proceeds on the purchase and sale of own shares and dividend from such shares are recognised in equity.

The translation reserve comprises A.P. Moller - Maersk's share of accumulated exchange rate differences arising on translation from functional currency into presentation currency. The reserve for other equity investments com-prises accumulated changes in the fair value of equity investments (at FVOCI), net of tax. Reserve for hedges includes the accumulated fair value of derivatives qualify-ing for cash flow hedge accounting, net of tax, as well as forward points and currency basis spread.

Equity-settled restricted shares and share options allocated to the executive employees of A.P. Moller - Maersk as part of A.P. Moller - Maersk's long-term incentive programme are recognised as staff costs over the vesting period at estimated fair value at the grant date and a corresponding adjustment in equity. Cash-settled performance awards allocated to employees below executive levels as part of A.P. Moller - Maersk's long-term incentive programme are recognised as staff costs over the vesting period and a corresponding adjustment in other payables.

At the end of each reporting period, A.P. Moller - Maersk revises its estimates of the number of awards that are expected to vest based on the non-market vesting condi-tions and service conditions. Any impact of the revision is recognised in the income statement with a corresponding adjustment to equity and other payables.

Provisions are recognised when A.P. Moller - Maersk has a present legal or constructive obligation from past events. The item includes, among other things, legal disputes, provisions for onerous contracts, unfavourable contracts acquired as part of a business combination, as well as provisions for incurred, but not yet reported, incidents under certain insurance programmes, primarily in the US. Provisions are recognised based on best estimates, and are discounted where the time element is significant and where the time of settlement is reasonably determinable.

Pension obligations are the net liabilities of defined ben-efit obligations and the dedicated assets adjusted for