Copenhagen Stock Exchange Announcement no. 3 Nikolaj Plads 6 29 March 2006 DK-1067 København K Page 1 of 95

Transcription

1 Dampskibsselskabet NORDEN A/S Copenhagen Stock Exchange Announcement no. 3 Nikolaj Plads 6 29 March 2006 DK-1067 København K Page 1 of 95 Record year for D/S NORDEN A/S The Board of Directors of D/S NORDEN A/S has today approved the Annual Report for The report follows in full after this and presents the following highlights: The profit for the year after tax amounted to USD 336 million (DKK 2,019 million), against the previously reported estimate of USD 320 million. The return on average equity was 71% (101% in 2004). Cash flows from operations amounted to USD 245 million (USD 191 million). Net Asset Value (NAV) per share at year-end was DKK 2,500 (DKK 1,424) (including the added value of the Company s fleet and newbuildings). The Company s 56 extension and purchase options (including charter parties) had a value of DKK 1,559 per share at the beginning of 2006, based on a theoretical valuation. Note, however, that the calculation of theoretical value is subject to significant uncertainty. The Board of Directors propose an ordinary dividend of DKK 200 per share. Expectations for 2006 Overall, NORDEN expects a profit after tax for 2006 in the region of USD million. In dry cargo, the Company expects a continued attractive market level for 2006, if lower than the average for The Dry Cargo Department expects an overall EBIT in the level of USD million, including a USD 25 million profit from already realised sales of vessels. For tankers, the Company expects the spot market to be marginally lower than in 2005, although still significantly higher than the historical average. Overall, the Tanker Department expects an EBIT in the region of USD million. The Management of NORDEN will today, 29 March 2006, present the annual report at a meeting at 10:00 a.m. at the head office, Amaliegade 49, where they will answer questions from analysts, investors and the press. The presentation can also be followed via conference call and webcast at the Company s website ( Those wishing to participate in the conference call from Denmark should call no later than 9:55 a.m. (CET) while those wishing to participate from abroad should call no later than 9:55 a.m. (CET). Yours sincerely Dampskibsselskabet NORDEN A/S Mogens Hugo Jørgensen Carsten Mortensen Chairman President & CEO Contacts at tel : Carsten Mortensen, CEO, and Jens Fehrn-Christensen, CFO. Dampskibsselskabet NORDEN A/S Amaliegade KØBENHAVN K

2 Annual Report 2005 Dampskibsselskabet NORDEN A/S

3 Contents Highlights 1 Key figures and ratios for the Group 2 Management s review 2005 at a glance 3 Dry cargo 7 Tankers 15 Outlook for Strategy 26 Risk management 32 Corporate governance 36 Board of Directors 37 Management group 38 Shareholder information 39 Financial review 42 Signatures 45 Consolidated and parent company accounts Accounting policies 47 Income statement 57 Balance sheet 58 Cash flow statement 60 Statement of changes in equity 61 Notes to the financial statements 63 Definitions of key figures and financial ratios 87 Technical terms and abbreviations 88

4 Company details and group structure The Company Dampskibsselskabet NORDEN A/S Amaliegade 49 DK-1256 Copenhagen K Telephone: Fax: Company registration (CVR) no: Financial year: 1 January 31 December Municipality of domicile: Copenhagen, Denmark Fax, Tanker Department: Fax, Dry Cargo Department: Fax, Technical Department: Website: admin@ds-norden.com Board of Directors Mogens Hugo Jørgensen, Chairman Alison J. F. Riegels, Vice Chairman Erik Gregers Hansen Erling Højsgaard Einar Fredvik Anton Kurt Vendelbo Christensen (employee representative) Ole Clausen (employee representative) Egon Christensen (employee representative) Management Carsten Mortensen, President & CEO Jens Fehrn-Christensen, Executive Vice President & CFO Auditors KPMG PricewaterhouseCoopers Borups Allé 177 Strandvejen 44 DK-2000 Frederiksberg DK-2900 Hellerup Annual general meeting The annual general meeting will be held at a.m. on Tuesday, 25 April 2006 at Forsikringens Hus, Amaliegade 10, DK-1256 Copenhagen K. Group structure DAMPSKIBSSELSKABET NORDEN A/S NORIENT product pool a/s denmark 50% NORTIDE SHIPPING limited bermuda 50% NORDEN tankers & bulkers pte. ltd. singapore 100% NORDEN tankers & bulkers (usa) inc. usa 100% NORDEN tankers & bulkers (brasil) ltda. brazil 100% NORDEN tankers & bulkers private ltd. india 100% NORDEN rep. office china NORDAFRIKA pte. ltd. singapore 100% NORDHVAL pte. ltd. singapore 100% NORMIT shipping s.a. panama 51%

5 NORDEN in brief Dampskibsselskabet NORDEN A/S was founded in 1871, making it one of Denmark s oldest internationally operating shipping companies. NORDEN operates in the dry cargo and tanker segments worldwide. In dry cargo, the Company is one of the world s largest operators of Handymax bulkcarriers and has significant activities in the Panamax and Capesize segments. In tankers, the Company is active in the Aframax segment (crude oil) and in the SR and MR product tanker segments. The product tanker activities are operated through Norient Product Pool, which is administered by the 50%-owned Norient Product Pool A/S. NORDEN has one of the most modern and competitive fleets in the industry. At the end of 2005, the Company operated 124 vessels, of which 10 were owned vessels and 20 were on long-term charters with purchase options. The remaining vessels were on short-term charters. The fleet is continuously being expanded. At year-end, the Company had 9 vessels under construction, while 36 vessels with purchase options had been chartered long-term but had yet to be delivered. NORDEN has its head office in Copenhagen and offices in Singapore, Shanghai (China), Annapolis (USA), Rio de Janeiro (Brazil) and Mumbai (India). At the end of 2005, the Company had 384 employees, of which 261 were employed on the Company s owned vessels. NORDEN s shares are listed on the Copenhagen Stock Exchange. The market capitalisation at 31 December 2005 was DKK 6.4 billion. Organisation structure BOARD OF DIRECTORS MANAGEMENT dry cargo department tanker department technical department finance/it chartering chartering newbuildings finance it operation operation staff and inspections accounting claims norient product pool quality control it controlling chartering operation controlling china usa india brazil singapore dry cargo dry cargo dry cargo dry cargo dry cargo and tankers

6 Highlights Highlights of proved the best year in the Company s history with a profit for the year of USD 336 million, equalling DKK 2,019 million translated at the average exchange rate for the year, (2004: USD 264 million) including a USD 128 million (USD 50 million) profit from the sale of vessels and fair value adjustments of certain hedging instruments of USD 26 million (USD 0 million). Revenue was up by 11% to USD 1,296 million. This rise was primarily attributable to an increased number of ship days and higher daily earnings for the product tankers. The Dry Cargo Department s profit before depreciation (EBITDA) amounted to USD 165 million (USD 198 million), constituting a 17% decrease. Long-term employment stabilised the bulkcarriers earnings in a declining market. The Tanker Department s profit before depreciation (EBITDA) rose by 37% to USD 57 million (USD 42 million) as a result of a higher level of activity and a strong spot market. Cash flows from operations amounted to USD 245 million (USD 191 million). The change in cash and cash equivalents for the year was USD 179 million (USD 75 million). Equity grew to USD 611 million (USD 340 million). The return on average equity was 71% (101%). The Board of Directors propose a dividend of DKK 200 per share, against DKK 275 in 2004, which corresponds to a payout-ratio of 22%. The fleet of owned vessels expanded from 7 to 10. The fleet and the 9 owned vessels under construction are estimated to have an added value of USD 246 million over the carrying amounts of the vessels and the expected newbuilding prices. The Company s 56 charter parties with extension and purchase options had a value of USD 533 million before tax at the beginning of 2006, based on a theoretical valuation. This corresponds to DKK 1,559 per share (USD 247). Note, however, that the calculation of theoretical value is subject to significant uncertainty. Highlights of 2006 The controlled expansion of the fleet continues, but with a stronger focus on owned vessels. NORDEN expects to invest USD million in new tonnage in In dry cargo, NORDEN aims to increase its market shares in Panamax and Handymax and maintain its Capesize fleet. The core fleet is to be expanded. The Tanker Department is also to expand its core fleet, especially in the SR and MR segments. In 2006, NORDEN expects a profit after tax in the level of USD million, including a profit of USD 25 million from two realised sales of vessels and negative fair value adjustments of certain hedging instruments of USD 19 million. Revenue and EBIT margin Profit from operations (EBIT) and equity Net Asset Value per share and return on equity 1

7 Key figures and ratios for the Group Key figures are in USD millions INCOME STATEMENT Revenue 1, , Costs -1, Profit before depreciation, etc. (EBITDA) Profits from the sale of vessels, etc Depreciation Share of results of joint ventures Profit from operations (EBIT) Fair value adjustment of certain hedging instruments Net financials Profit before tax Profit for the year Profit for the year for the NORDEN shareholders BALANCE SHEET Non-current assets Total assets Equity at year-end Liabilities Invested capital Net interest-bearing debt Cash and securities CASH FLOWS From operating activities From investing activities Of which gross investment in vessels From financing activities Change in cash and cash equivalents for the year FINANCIAL RATIOS AND PER-SHARE DATA No. of shares of DKK 20 each (excluding own shares) 2,161,985 2,200,890 2,182,500 2,182,500 2,302,000 Profit per share (DKK) (933) (718) 33.0 (217) 16.4 (129) 9.6 (80) Earnings per share (EPS) (DKK) (926) (709) Diluted earnings per share (diluted EPS) (DKK) (919) (695) ROE 71.0% 100.9% 48.6% 35.5% 26.5% ROIC 90.1% 90.0% 34.3% 7.0% 24.0% Dividend per share (DKK) Dividend for the year (%) 1000% 1375% 500% 50% 60% Payout-ratio (excluding own shares) 1) 21.68% 40.41% 51.36% 11.76% 13.38% Book value per share (DKK) (1,781) (840) (505) (362) (331) Equity ratio 74.1% 64.8% 49.3% 49.5% 37.4% Share price at year-end, DKK 2, , , Price/book value Net Asset Value (NAV) per share 2) (DKK) (2,500) (1,424) (636) 58.2 (412) 52.3 (440) Theoretical Net Asset Value per share 3) (DKK) (4,059) USD rate at year-end Average USD rate The ratios stated above were computed in accordance with the 2005 guidelines issued by the Danish Association of Financial Analysts, entitled Anbefalinger og nøgletal 2005". Please see the definitions in the section Definitions of key figures and financial ratios. The figures are adjusted for the Company s holding of own shares. The figures for the years have not been adjusted to reflect the transition to IFRS. 1) The payout-ratio was computed based on proposed dividends for the year, including extraordinary dividends paid during the year. 2) Excluding extension and purchase options on vessels. Added value of vessels on order was not included for the period ) Including value of 56 charter parties with extension and purchase options on vessels, declared at the optimum time (before tax). 2 norden management's review

8 Management s review 2005 at a glance Dry cargo At the beginning of the year, NORDEN expected a more volatile dry cargo market and slightly weaker than in the historically strong As a consequence, the Company focused on covering the free capacity in 2005 in order to make earnings less sensitive to the expected market fluctuations. At the first day of the year, 71% of all known ship days were already employed throughout the year. The expansion of the capacity continued, although the rate of expansion was adjusted to the market conditions. Overall, the Dry Cargo Department had at its disposal 39,180 ship days (including single trips), which represents a 13% increase, compared to a 46% increase the previous year. The market proved volatile. Spot rates peaked in February, followed by an almost constant slide until August, when they recovered slightly. The rates never came close to the 2004 level again, however. The average spot rates in the Company s two main segments Panamax and Handymax were down by 30% and 24%, respectively, while NORDEN s T/C equivalent was 12% and 11% above the spot market rate, respectively, because a large part of the vessels were covered early in the year. The combination of the high degree of coverage at the beginning of 2005 and the increased number of ship days resulted in profit before depreciation (EBITDA) of USD 165 million for the Dry Cargo Department, against USD 198 million the previous year. Despite the lower EBITDA, which had been expected, the profit is considered satisfactory in light of the declining market. Tankers NORDEN chose a different strategy in the tanker market, where 64% of all ship days known at the beginning of the year were to be employed in the spot market. The Aframax capacity was fully covered, while 78% of the product tanker ship days were held open. This reflected the Company s belief in a positive product tanker market as well as the decision to give the new Norient Product Pool the necessary capacity to bring it off to a good start. At the outset, the Norient Product Pool had at its disposal 18 product tankers from NORDEN and Interorient Navigation Company (INC). The pool has gained a strong foothold in the market and performed better than expected. The Tanker Department increased the number of ship days by 25% to 5,558 (including single trips), while the growth rate for the previous year was 31%. Among the explanations for the slightly lower growth rate is the fact that it became increasingly difficult to charter short-term tonnage on reasonable terms. The product tanker markets performed ahead of expectations, and NORDEN s exposure in the attractive spot market meant that the Company s daily earnings (T/C equivalent) in the largest segment SR were 33% higher than in 2004, while the T/C equivalent in MR was 7% higher. NORDEN's fleet At 31 december Vessels in operation Owned vessels 10 7 Chartered vessels (with purchase options) Chartered vessels (without purchase options) Total Vessels to be delivered Newbuildings (owned) 9 10 Chartered vessels (with purchase options) Chartered vessels (without purchase options) 5 1 Total Total Gross investments and proceeds from the sale of vessels 3

9 The increase in the number of ship days and the large exposure in the spot market meant that the Tanker Department s EBITDA was USD 57 million against USD 42 million the previous year. The 37% improvement was better than expected. Expansion of the fleet The expansion of the fleet continued, but with increased focus on owned vessels. The Company exercised eight purchase options all on bulkcarriers and took delivery of one bulkcarrier, for which an option had been exercised the previous year. The total gross investment in vessels and newbuildings was USD 336 million, against USD 64 million the previous year. In addition, NORDEN will be taking delivery of 10 bulkcarriers and 4 tankers on long-term charters with purchase options in the period to The Company holds purchase options for 56 vessels, of which 20 are already operated by NORDEN. Two options for bulkcarriers have been exercised for expected delivery in the first quarter of Meanwhile, NORDEN capitalised on the strong demand for modern tonnage by taking profit through the sale of vessels. The decision to sell vessels is based on a consideration of the profit from the sale relative to the earnings that the vessel is expected to generate through continued operation. During the year, NORDEN sold 12 vessels (of which two were part owned) at a total price of USD 349 million. This resulted in an accounting profit of USD 128 million before tax, of which USD 8 million was recognised in Share of results of joint ventures. Overall, the fleet of owned vessels increased from 7 to 10 during The active fleet owned as well as chartered vessels was 124 against 123 the previous year. In the coming years, the Company will take delivery of a further 44 vessels to be added to the core fleet. Value of charter parties with purchase options NORDEN has chartered 56 vessels on long-term charters with options to extend the charter period or to purchase the vessel. According to a theoretical valuation, as described below, the charter parties including options had a value of USD 533 million before tax at the beginning of This corresponds to USD 247 per share (DKK 1,559). Of the total value, USD 132 million is assessed to relate to the fixed charter period, while the remaining USD 401 million relates to the extension and purchase options. The valuation is based on a Black 76 model, according to which possible developments in freight rates and the prices of vessels are simulated under assumptions of volatility, correlation between freight rates and the prices of vessels and normalised rates and prices around historical levels. These significant inputs are based on analyses of long-term historical data for each segment. Furthermore, assumptions have been made in respect of interest rates, exchange rates and daily operating costs. Based on these assumptions, the utilisation of extension and purchase options is optimised for each vessel in each scenario. The valuation does not include the value of the hedging of charter parties, and purchase options denominated in JPY are translated at the forward USD/JPY rate. It is assessed that the inclusion of these two elements would increase the estimated value. Values, USD millions Assumed volatility Vessel values Freight rates (basic 5-year Charter Purchase (basic secondhand Number party option Total 1-year T/C) prices) Capesize % 17% Panamax % 17% Handymax % 15% MR (Tankers) % 15% Note that the calculation of theoretical values of charter parties including purchase options is subject to significant uncertainty, and that the value depends on the future development of freight rates and the values of vessels as well as on changes to other assumptions made. 4 norden management's review

10 Overall results Although the dry cargo market declined, the Company s overall freight income rose by 11% to USD 1,296 million. The rise was in part explained by the fact that the number of ship days rose by 14% to 44,738 and in part by the fact that product tanker rates were higher than expected. EBITDA amounted to USD 216 million against USD 233 million the previous year, which is considered satisfactory in light of the declining dry cargo markets. The profit for the year amounted to USD 336 million. This result exceeds the latest forecast from the third quarter of USD 320 million. A strong cash flow from operations of USD 245 million boosted cash to USD 312 million, leaving NORDEN in a very strong financial position. Expanding the organisation In January 2005, the fifth overseas office was established in India. The overseas offices generate an ever increasing proportion of the Company s revenue. The staff headcounts at the overseas offices and the head office were increased throughout the year, and the number of land-based employees rose from 93 to stand at 123 at the end of the year. The number of seamen at the end of the year was up 33% to 261 as a result of the increased number of owned vessels. In view of the planned expansion of the fleet, it was particularly satisfactory that the Company succeeded in recruiting ten senior officers in Denmark. New share option programme At the adoption of the annual report, the Board of Directors has granted share options for a total of 25,000 shares in NORDEN to a number of key employees. For further information, see the section Remuneration policy. Events after the balance sheet date At the beginning of January 2006, the Company took delivery of the product tanker NORD PRINCESS from the Chinese shipyard Guangzhou Shipyard International (GSI). The vessel is operated in the Norient Product Pool. The Company has also taken delivery of the Handymax bulkcarrier NORDVIND, acquired through the exercise of a purchase option in The vessels NORDVIND and NORDSTJERNEN were sold to German interests in 2005 for delivery in the first quarter of 2006 and will subsequently be taken back on timecharter for a three-year period at the prevailing market rate for the period. The Company has exercised the purchase option on the Panamax bulkcarrier NORDPOL, which is expected to be delivered in the second quarter of In February 2006, the Company s Tanker Department signed a contract for the long-term charter of 4 MR product tankers with purchase options. The vessels will be delivered in the period No other significant events have occurred up to the publishing date of this annual report, which have not been implemented and adequately stated in the annual report and materially affect the income statement or the balance sheet. 5

11 6 norden management's review dry cargo

12 Dry cargo Key figures and ratios USD' Revenue 1,171,917 1,062,005 Profit before depreciation, etc. (EBITDA) 165, ,878 Profits from sales of vessels, etc. 79,773 37,306 Profit from operations (EBIT) 239, ,813 Non-current assets 175,072 47,874 Liabilities 70,709 52,936 Profit margin 20% 22% Return on assets 85% 165% Average number of employees (incl. seamen) NORDEN's dry cargo fleet At 31 December 2005 Capesize Panamax Handymax Total Vessels in operation Owned vessels Chartered vessels (with purchase options) Chartered vessels (without purchase options) Total Vessels to be delivered Newbuildings (owned) 3 3 Chartered vessels (with purchase options) Chartered vessels (without purchase options) Total Total Global fleet (no.) 657 1,299 1,402 3,358 On order, global fleet (no.): Source: RS Platou Please also see the Company's fleet list at Facts NORDEN operates vessels in the Capesize, Panamax and Handymax segments. The large bulkcarriers (Capesize and Panamax) mainly transport iron ore and coal. The Handymax vessels also transport steel, grain, cement, sugar, fertiliser and other types of cargo. Handymax vessels are as a standard equipped with cranes, which enable them to operate more independently of port facilities. 7

13 Baltic Dry Index, Capesize Highlights The dry cargo market was characterised by declining rates and high volatility. Long-term employment of the vessels made NORDEN s earnings less sensitive. EBITDA fell by 17%, while the market rates fell by a total of 25% on the Baltic Dry Index. Spot rates are expected to be lower in 2006, although higher than the historical average. In 2006, EBIT is expected to be in the region of USD million. Operations and results for 2005 The Dry Cargo Department s operating profit was USD 239 million, slightly higher than last year. Profit from the sale of vessels contributed USD 80 million. The expansion of the fleet s capacity continued, and the activity level in the Dry Cargo Department was at a record high. A symbolic milestone was reached in the third quarter when, for the first time, the department operated more than 10,000 ship days in a single quarter. For the full year, overall activities rose by 13% to 39,180 ship days. M.v. NORD POWER is a Capesize bulkcarrier and is among NORDEN s largest vessels. She is 289 metres long, 45 metres wide and 170,000 dwt. From left to right: Towing on departure from Stigsnæs, Denmark. Discharging coal using a shore crane. Passing under the Storebælt Bridge in Denmark. 8 norden management's review dry cargo

14 Panamax Handymax Freight rates were down in all segments. In Capesize and Panamax, average spot rates were down on 2004 by 20% and 30%, respectively, and in NORDEN s largest segment, Handymax, they were down by 24%. NORDEN s daily earnings were quite strong, however, as the Company, expecting declining markets, entered the year with 71% of its known capacity covered on long-term contracts. NORDEN s daily earnings (T/C equivalent) in Handymax and Panamax consequently ended up 11% and 12% above the average spot rates for the year, respectively. In Capesize, traditionally the most volatile segment, NORDEN has fixed all four active units on long-term charter parties. Daily earnings in this segment were in line with the average three-year timecharter rate for the year. The long-term coverage meant that the Dry Cargo Department achieved a profit before depreciation (EBITDA) of USD 165 million. The 17% drop on the previous year is principally explained by the fact that it was more expensive for NORDEN to charter tonnage on a short-term basis. Another factor was that NORDEN had a certain number of open ship days, which were employed in declining markets. The fleet The Company capitalised on the strong demand for modern bulkcarriers, taking considerable profits by selling vessels. The sales generated a profit of USD 80 million before tax against USD 37 million the previous year. The 9

15 Company has chartered back one of the newbuildings sold for a seven-year period including purchase option, and it has chartered back two of the secondhand vessels sold for a two-year period. In respect of these two secondhand vessels, USD 10 million of the profit was accrued for setoff against the charter hire over the next two years. Furthermore, in 2005 agreements were signed to sell 2 Handymax bulkcarriers, to be delivered in 2006, at a total profit of USD 25 million. This amount will be recognised in the first quarter of Both vessels have been chartered back for a three-year period at prevailing market rates. The Dry Cargo Department acquired 9 vessels through the exercise of purchase options. The 9 vessels comprised 7 Handymax, 1 Panamax and 1 Capesize. Furthermore, the Company entered into long-term charter parties for 12 bulkcarriers with purchase options. These will be added to the fleet over the period This means that the fleet of owned vessels grew from 2 to 7, while the total fleet in operation grew from 107 to 110. A further 33 vessels will be added in the form of newbuildings and long-term charters with purchase options. At the end of the year, the department held 47 purchase options. Market developments 2005 After a super cycle of almost two years with record-high freight rates, the Baltic Dry Index (BDI) at year-end was down 45% on the year. The BDI average for the year was 25% below the 2004 average, although from a historical perspective this was still an attractive level. Dry cargo rates peaked in February, but then took an almost constant slide until August, when the Baltic Dry Index was 60% down on the beginning of the year. From August, the rates gained momentum again, but the upswing was short-lived and was succeeded by new setbacks. Overall demand for dry cargo transports was assessed to be up by almost 4% in This was a considerably lower rate of growth than the unusually high rates of 10-11% seen in 2003 and The lower growth rate was primarily explained by a lower rate of increase in transported volumes, although shorter transport distances also had a negative effect: The rate of growth in transports of steel-related products (iron ore, coking coal and steel products) fell from 12% to 5%. A drop in the rate in China s iron ore imports from 40% to 31% was particularly noticeable. China s iron ore imports have exploded in recent years, while imports in the rest of the world have remained largely the same. Coal transports also displayed a lower growth rate, mainly because Japan reopened its nuclear power plants, which reduced the country s need for coal for its power supply. According to RS Platou, the global coal transport growth rate was 4%, against 11% in norden management's review dry cargo

16 Newbuilding and secondhand prices (dry cargo) Global development in seaborne transports of dry cargo commodities Despite the declining rates, very few vessels were scrapped in 2005, and the global dry cargo fleet is assessed to have increased by some 5%. The lower increase in demand meant that the bottleneck problems in loading and discharging ports began to subside, thus releasing additional capacity, which further increased the pressure on rates. Prices of newbuildings as well as secondhand vessels were affected by the declining freight rates. Accordingly, the rise in newbuilding prices was halted in all segments, while prices of secondhand vessels fell by 15-25% during the year. Toward the end of the year, the price of five-yearold secondhand vessels was again lower than prices of newbuildings, as has historically been the pattern. Market outlook Supply the increase in the global dry cargo fleet is again expected to outgrow demand in Consequently, a certain market slump is projected. NORDEN expects the market to remain above the historical average, however. The attractive markets experienced in recent years have filled the shipyards order books, and the global order book at the end of 2005, measured in terms of number of vessels, was 19% of the fleet. However, the limited scrapping of vessels means that more than a quarter of the fleet today is over 20 years old. From left to right: M.v. NORD POWER. Excavator for cleaning out the coal hold is lifted aboard. Stevedores clean the vessel s holds in Stigsnæs, Denmark. Right: M.v. NORD FIGHTER transiting the Panama Canal. 11

17 NORDEN's dry cargo transports, 2004 & 2005 Employment and rates in 2005 Number of ship days, NORDEN Including Excluding T/C Spot single single equivalent T/C average trips** trips NORDEN market* Capesize 1,441 1,410 38,039 50,129 Panamax 12,674 9,475 27,675 24,701 Handymax 25,065 21,992 23,672 21,420 * Source: The Baltic Exchange ** Single trips Trips made with vessels chartered for a single trip. Overall, the global net fleet is estimated to increase by 6-7% in The growth is expected to be strongest in the Panamax segment, just ahead of the Capesize and Handymax segments. Global demand is expected to rise by % and will still be driven by the growth in the world economies and world trade. In 2006, the greatest contributors to the rise in demand are again expected to be steel-related products and coal. The development of the Chinese economy will remain a central factor. Despite the Chinese government s continuous attempts to slow down growth, the high growth rates seem set to continue. Following several upward adjustments, GDP growth for 2005 is now estimated to have been above 9.5%. Market analysts expect China s GDP to rise by 8.7% in China is important to NORDEN. An ever increasing proportion of the Company s business is related to China. China is also important because the growing Chinese demand is an important driving force behind the high freight rates in the dry cargo market in general. Strategy and market position NORDEN will maintain a strong focus on risk management. A large proportion of the ship days in were M.v. NORD-KRAFT in Australia. From left to right: The pilot arrives by helicopter. At the right, a life raft. Propeller. Bridge watch at anchorage. 12 norden management's review dry cargo

18 already covered in the higher markets in Accordingly, 64% and 22% of the known capacity in 2006 and 2007, respectively, was covered at the end of the year. NORDEN will continue expanding capacity in order to enhance economies of scale and broaden the geographical coverage and the overall product offering to customers. Customer focus will thus be maintained, and more riskand reward-sharing arrangements developed. The good years have changed the dynamics of the market, and the financially strong owners have become more risk tolerant and more willing to operate their tonnage themselves. This makes it more difficult to charter vessels on a short-term basis on reasonable terms. The Company will therefore primarily expand the fleet by purchasing vessels and entering into long-term charters with purchase options. The purchase options allow the Company to expand the fleet at reasonable prices, and the department can exercise a further three purchase options in NORDEN will continue expanding both the Handymax and the Panamax fleets. NORDEN s present global market shares are estimated to be 5% and 3%, respectively, of these two segments. To broaden geographical coverage and obtain greater synergies, the Company seeks to increase its market share in the period ahead. In Capesize, NORDEN expects to maintain the existing fleet. 13

19 14 norden management's review tankers

20 Tankers Key figures and ratios USD' Revenue 124, ,588 Profit before depreciation, etc. (EBITDA) 57,132 41,833 Profits from sales of vessels, etc. 40,313 12,451 Profit from operations (EBIT) 96,687 43,483 Non-current assets 179, ,913 Liabilities 26,238 10,819 Profit margin 78% 42% Return on assets 45% 18% Average number of employees (incl. seamen) NORDEN's tanker fleet At 31 December 2005 Product Tankers Aframax MR SR Total Vessels in operation Owned vessels Chartered vessels (with purchase options) 3 3 Chartered vessels (without purchase options) Total Vessels to be delivered Newbuildings (owned) 6 6 Chartered vessels (with purchase options) 6 6 Chartered vessels (without purchase options) Total Total Global fleet (no.) ,741 On order, global fleet (no.): Source: SSY Please also see the Company's fleet list at Facts NORDEN operates vessels in three segments of the tanker market: Aframax, Medium Range (MR) and Short Range (SR) product tankers. Aframax vessels transport crude and fuel oil and primarily sail in the North Sea and the Far East, while MR and SR vessels primarily carry refined oil products in the Atlantic region and the Far East. 15

21 SR product tankers MR product tankers Highlights The product tanker market was up on the previous year. The Tanker Department s EBITDA rose by 37% and its EBIT by 122%. Increased capacity and profit from the sale of vessels contributed to the improvement. Freight rates are expected to be marginally lower in Profit from operations (EBIT) is expected to be in the region of USD million in Operations and results for 2005 The Tanker Department s performance was significantly ahead of expectations. The profit from operations (EBIT) was the best ever at USD 97 million, corresponding to a 122% increase. The strong performance is attributable to three factors in particular: Increased capacity, the product tankers greater exposure in the attractive spot market and a profit from the sale of vessels amounting to USD 48 million, of which USD 8 million has been recognised in Share of results of joint ventures. Crew on m.t. NORD STEALTH. Overhaul (oiling) of steam valves. Operating the mooring winch. Far right: View along the deck of the 239 metre-long vessel. 16 norden management's review tankers

22 Aframax Growth in global tanker fleet With 5,558 ship days, the department had the greatest capacity in company history. In the Aframax segment, the number of ship days and earnings per ship day (T/C equivalent) was largely unchanged, as the crude oil tankers are fixed on long-term charter parties. For product tankers, NORDEN increased the number of ship days by 40% and employed a larger proportion of the ship days in the spot market, in part in expectation of an attractive spot market and in part to give the new Norient Product Pool the necessary capacity to get off to a good start. NORDEN s T/C equivalent per ship day in product tankers rose by 7% for MR and by 33% for SR. The good performance was primarily achieved through the Norient Product Pool, which was well received in the market and has benefited from its size and its broad geographical coverage. The product tankers strong earnings along with the increased capacity boosted total freight income by 19%. 17

23 Employment and rates in 2005 Baltic Clean Tanker Index, Number of ship days, NORDEN Total Number of 12-month Spot number these em- T/C T/C clean of ployed in equivalent average average ship days spot market NORDEN market* market** Aframax 1, ,796 34,221 40,897 Product Tanker MR 1,460 1,460 29,084 25,327 27,094 Product Tanker SR 2,704 1,966 23,826 24,135 25,897 * Source: ACM Shipbroker Ltd. ** Source: Clarksons The growth rate was affected by a change in the basis on which freight income is recognised, and without this change the growth rate would have been 45%. The difference is due to the fact that unlike last year the direct voyage costs of the product tonnage are now deducted from freight income in the financial statements of the pool before distribution among the pool participants based on timecharter equivalents. Consequently, the Company s participation in the pool means that its own revenue will in future be reduced; for 2005 a reduction in the region of USD 27 million. The fleet NORDEN exploited the strong demand for modern, doublehulled tonnage by selling vessels at a profit. The Company sold 3 product tankers (of which 2 were part owned from the shipyard) and 1 Aframax tanker. The profit from the four sales totalled USD 48 million, of which USD 8 million is included in Share of results of joint ventures. In addition, NORDEN sold the product tanker NORD SEA, held under finance lease, with delivery in 2008 when the Company can exercise its purchase option. The pre-tax profit of USD 11 million will be recognised on delivery in norden management's review tankers

24 At the end of the year, the department s active fleet consisted of 14 vessels. NORDEN contracted 2 newbuildings for delivery in 2008 and entered into contracts for 5 new long-term charters for delivery over the period to 2010, of which 4 are with purchase options. At the end of the year, the Company had 15 vessels for delivery, against 9 the previous year. Market developments 2005 Crude oil prices rose by 50% during the year to USD 60 per barrel. The rise in the demand for oil slowed from 3.8% in 2004 to 1.3% in The global fleet of tankers grew by 7.3% to 318 million dwt. For the full year, average spot rates in the SR and MR markets rose by 10% and 8%, respectively, while the spot rate for Aframax crude oil tonnage declined by 16%. The market returned to the traditional seasonal fluctuations, the winter season typically being better than the summer season. Despite the increased tonnage in the market and the reduced growth in oil demand, there is still a subtle balance between supply and demand in the market. The global tonnage employment rate is very high, which means that even minor unexpected events can have an immediate, significant effect on rates. This was seen when the hurricanes hit the Gulf in the third quarter of The typically weaker summer season was interrupted by the two hurricanes Katrina and Rita which swept over the Mexican Gulf in August and September, taking out 17% of the US refinery capacity. The increased demand for imported refined oil products in the USA pushed up product tanker spot rates significantly. The growth in the world s oil consumption declined to 1.3% against 3.8% in The lower growth rate can mainly be ascribed to the USA, where growth was down from 3.3% in 2004 to 0.5% in 2005, and China, where the growth rate was 2.9%, against 15.4% the previous year. The oil production increased by 2% in the OPEC countries and by 2.7% in Russia. The rate of increase in the Russian production is down on recent years, whereas export duties on crude oil have meant that a larger proportion of the crude oil is refined in Russia and exported as refined oil products, which benefits product tankers. Market outlook NORDEN expects marginally lower freight rates in 2006 relative to M.t. NORD STEALTH: The officer on watch in the cargo control room. View from the port-side bridge wing. Mooring. M.t. NORD STEALTH is currently employed on timecharter, distributing crude oil in the North Sea. 19

25 Newbuilding and secondhand prices (tankers) which has surpassed Japan as the world s number two oilconsuming country. In North America, the demand for oil is expected to increase by 1.9% in 2006, against 0.5% in 2005, while demand in China is expected to increase by 5.9% in 2006, against 2.9% in IEA expects the majority of the rise in the demand for oil to be covered by a production increase by non-opec countries primarily Russia and Africa. Russia is expected to increase its oil production by 3.3% in 2006, which will again increase Russian exports from the Black Sea as well as the Baltic, both of which are areas where the Norient Product Pool is active. The market is expected to retain its delicate balance between supply and demand and unexpected events strikes, weather, refinery break-downs, political unrest etc. may have a positive impact on the market for periods of time. Demand is expected to continue its upward trend in consequence of the general increase in global oil consumption and longer transport routes due to changing transport patterns. The IEA expects the rise in global demand for oil to accelerate in 2006 to 1.8%, against 1.3% in The rise is driven by the global GDP increase and will mainly derive from North America, which accounts for almost a third of global consumption and, not least, from China, Another important factor which increases demand is the change in transport patterns, both as a result of stricter environmental requirements of refined products in the USA and the EU and, not least, as a result of significant bottleneck problems in terms of refinery capacity. The capacity of the refineries in the world s consumption centres - Europe and the USA is more or less fully exploited, and environmental regulations make it very difficult to expand the capacity of refineries in the Western world. New refinery capacity is therefore primarily constructed in the Middle East and Asia, which means that refined products must be transported over longer distances to reach the consumer countries. This raises the ton-mile factor (the volume of transported oil times the distance), 20 norden management's review tankers

26 and the need for product tanker tonnage is therefore expected to increase significantly. The market for modern, double-hulled tonnage is expected to continue benefiting from the EU and IMO requirement from April 2005 that fuel oil may only be transported in double-hulled tonnage. In addition, several large oil companies now also require their oil to be transported in modern, double-hulled tonnage. On the supply side, SSY expects the total net addition of new tonnage in 2006 to be 5.3%, although very unevenly distributed among the segments. In SR, the global fleet is expected to remain largely the same in This is mainly due to the fact that the segment counts a relatively large number of old, singlehulled vessels, which must be phased out by 2010, according to IMO rules. In MR, the order book is larger and the fleet more modern. The addition of new vessels is therefore expected to exceed the IMO phase-out, and SSY expects the world fleet to grow by some 10% in 2006 and by 7.6% in In Aframax, SSY foresees a 6-6.5% rise in the world fleet in 2006 as well as in In the slightly longer term, the relatively large addition is expected to be countered by the fact that a large number of single-hulled vessels remain, and that customers will increasingly opt not to use these as the phase-out in 2010 draws nearer. Overall, around 30% of the total tanker fleet is assessed to consist of single-hulled tonnage. Strategy and market position NORDEN s strategic platform is a dedicated, experienced staff and a modern fleet. NORDEN s goal for the coming year is to establish a greater presence in the tanker market. The tanker market is marked by consolidation of suppliers, driven by large, listed shipping companies. The customers are getting larger and certain customers primarily global oil traders are themselves entering the shipping market, which makes it more difficult to charter capacity in the short market as the owners are reluctant to charter out vessels. Therefore, NORDEN will expand its modern, doublehulled tanker fleet in the period to 2008 through purchases and long-term charters. The expansion will primarily be in product tankers, where prospects are the most promising. The product tanker tonnage will be employed through the Norient Product Pool, which aims to be among the world s three largest pools in At the beginning of 2006, the pool operated 15 vessels. In 2006, 15 vessels will be added M.t. NORD STEALTH: Mooring operation on tanker. The bridge is 30 metres above sea level. View along the deck. The green walkways have a non-skid surface. 21

27 to the fleet, and an additional 7 will be added in With the current order book, the pool will thus operate 37 vessels in The pool aims to cover 35-40% of its capacity. In collaboration with its partner, Interorient Navigation Company, NORDEN is well positioned to make the Norient Product Pool a very significant operator in Europe within the SR segment. This segment is attractive because the global fleet is not growing whereas demand is. SR product tankers are the most profitable, efficient vessels for transports over short distances, and they are therefore employed in such places as the Black Sea, the Mediterranean, the Baltic and the English Channel. NORDEN further plans to increase its market share in the MR segment, where the fleet is expected to be expanded to 10 vessels in the period to The MR vessels are well-suited to absorb the expected continued growth in transports of refined products over long distances. NORDEN presently has a small market share in Aframax, but the Aframax segment nonetheless represents a presence in crude oil transports, and is therefore important for the Company s total product range. Already being established in the Segment, the Company will have better access to extending this activity at a future date. NORDEN plans to triple its active SR fleet in the period to 2008 and to increase its global market share from 1.4% to more than 4%. The expansion is to come from the 6 newbuildings already contracted from a Chinese shipyard as well as additional charters. Maintenance work on board m.t. NORD STEALTH. Sunset over the North Sea, seen from the bridge. A typical voyage in the North Sea takes 8-12 days. 22 norden management's review tankers

28 23

29 Outlook for 2006 In 2006, NORDEN expects a total profit after tax in the level of USD million, including a profit of USD 25 million from realised sales of vessels and negative fair value adjustments of certain hedging instruments of USD 19 million, corresponding to the unrealised value adjustment at the end of 2005 which will be realised in See also note 10 to the financial statements, Fair value adjustment of certain hedging instruments. Earnings expectations will to some extent be unaffected by market fluctuations as a large proportion of the known capacity is already covered. The coverage of known ship days for tanker and dry cargo was 62% and 64%, respectively, at the beginning of The capacity as well as the coverage will be adjusted to market conditions on a current basis. Dry cargo The department expects a continued attractive market level for 2006, if lower than the average for The department expects an overall EBIT in the level of USD million, including a USD 25 million profit from already realised sales of vessels. Tankers The spot markets are expected to be marginally lower than in 2005, although significantly higher than the historical average. At the beginning of 2006, the Tanker Department had 5,409 known ship days. The department s Aframax tonnage was covered throughout the year, while the aim for product tankers is to cover 35-40% of the capacity on a current basis. Overall, the Tanker Department expects an EBIT of around USD million. This amount does not include any profits from the sale of vessels. At the beginning of 2006, the Dry Cargo Department had 20,382 ship days at its disposal for % of these known ship days were already employed throughout the year, which reduces the sensitivity of earnings to market fluctuations. Forward-looking statements The annual report contains certain forward-looking statements reflecting the management s present judgment of future events and financial results. Statements relating to 2006 and the years ahead are naturally subject to uncertainty, and NORDEN s realised results may therefore differ from the projections. Factors that may cause such variance include, but are not limited to, changes in macro-economic and political conditions particularly in the Company s principal markets; changes to NORDEN s rate assumptions and operating expenses; volatility in rates and tonnage prices; regulatory changes; any disruptions to traffic and operations as a result of external events, etc. This annual report should not be interpreted as a recommendation to trade shares in Dampskibsselskabet NORDEN A/S. 24 norden management's review

30 25

31 Strategy NORDEN s long-term goal is to generate profitable growth. This is to be achieved by the continued development of the business model through which the Company has built a leading position in the dry cargo market over the past eight years. The most important elements of this business are: Customer focus Risk management Competent employees The expansion of a modern, high-quality fleet with a high degree of flexibility The Company regularly optimises the model and adapts it to current market conditions. The most important specific focal points for the strategic period are described below. The market terms, which to a large extent define the strategic challenges, are different for the two market segments. In the dry cargo market, freight rates are expected to gradually normalise after the historic super cycle. In the tanker market, NORDEN expects a somewhat smaller decline in rates, which are expected to remain a fair bit higher than the level witnessed during the 1990s, particularly in product tankers. The strategies for the two departments are detailed in the sections Dry cargo and Tankers. expanding the fleet NORDEN will continue expanding the dry cargo fleet in order to retain global market leadership in Handymax and increase the market share in Panamax. The fleet in the most volatile segment Capesize will be maintained. In tankers, NORDEN plans a more significant expansion. The expansion will primarily be in the SR and MR segments, in which NORDEN employs its tonnage through the Norient Product Pool. As previously, capacity will be increased in the manner ensuring the highest degree of flexibility, provided that it can be done on attractive terms. As fixing short-term charters on reasonable terms is expected to be more difficult, the importance of owned vessels and long-term charters will increase. A large proportion of the expansion of the fleet of owned vessels will be effected through the exercise of purchase options. At year-end 2005, NORDEN possessed 56 purchase options. A large number of option agreements were entered into in weaker freight markets with lower prices From left to right: M.t. NORDEUROPA is currently operating on timecharter and distributes refined products to the US East Coast. Here seen entering the port of Boston. Employees at NORDEN s offices in Brazil and the USA. 26 norden management's review

32 of new as well as secondhand tonnage, and NORDEN is therefore in a position to expand the fleet at prices below the present market level. Up to and including 2008, NORDEN has 17 exercisable purchase options, of which 1 is declared and 3 can be declared in The Company has 9 newbuildings, of which the first 4 will be delivered in Newbuilding programme at 31 December 2005 Delivery Ownership (%) Tanker Department Product tanker SR Q Product tanker SR Q Product tanker SR Q Product tanker SR Q Product tanker SR Q Product tanker SR Q Dry Cargo Department Handymax Q Handymax Q Handymax Q focus on risk management Active management of the primary commercial risks - fluctuations in freight rates, prices of vessels and bunker prices is a key element of the strategy to stabilize earnings. In response to spot market rate fluctuations, the Company will fix a large part of the fleet on long-term charters. NORDEN will keep a close watch of the markets and continually adapt coverage to market conditions and expectations. At the end of 2005, the Company had secured future freight income of USD 228 million through contracts of affreightment (COAs). The COAs typically have a term of twelve months and cover the period up to When physical alternatives are less advantageous or unattainable, NORDEN uses forward freight agreements (FFAs). At the end of 2005, the Company had sold FFAs corresponding to a net amount of USD 47 million. financial strategy NORDEN wishes to maintain strong financial resources in order to be able to take advantage of the opportunities arising in more volatile market conditions. The Board of Directors assesses that the current capital structure is adequate for the Company, taking into account the investment plans and market outlook. In addition, the capital structure allows the Company to consider the shareholders. In order to ensure a strong buffer, the Company has decided that cash should at all times at least equal the 27

33 Company s payment obligations one year ahead. At the end of 2005, cash amounted to USD 312 million. At the end of 2005, the present value of total net liabilities thus equals 80% of equity (86%). The relatively high solvency ratio should be seen in light of the Company s significant liabilities in the form of future timecharter payments and payments to shipyards for future newbuildings, which have not been recognised in the balance sheet. These unrecognised gross liabilities are disclosed in notes 31 (operating lease liabilities) and 32 (future delivery of newbuildings) to the financial statements. The Company has decided, as part of its risk management, that total net liabilities, recognised as well as unrecognised, must not exceed twice the amount of equity, equalling USD 1,222 million at year-end before dividend. Net liabilities are defined as the present value of future payments in respect of, among other things, timecharters excluding daily operating costs, lenders and shipyards, less expected known freight payments received excluding daily operating costs and cash and cash equivalents. At the end of 2005, the present value of future payments amounted to USD 1,377 million (USD 1,054 million) and the present value of future known payments received, including cash and cash equivalents, amounted to USD 890 million (USD 761 million). operating a larger fleet The Technical Department is responsible for recruitment, environment, safety, operation and maintenance of vessels and grabs in various ports as well as the Company s newbuildings. The department will expand as necessary to be able to handle the operation of a larger fleet of owned vessels and to support the commercial departments in operating a larger fleet of chartered vessels. Under the Company s flag policy, the vessels owned by the parent company are to sail under the Danish flag and be registered in the Danish International Register (DIS). DIS-registered vessels must have a Danish captain, however, NORDEN s DIS tankers have four Danish senior officers. The remaining vessels are registered in Singapore under local flag and with Indian or Philippine officers and crews. In 2005, NORDEN increased the staff on board the vessels by 35% to 261, and the anticipated expansion of the fleet will require NORDEN to hire new staff at sea. Everyday life on board m.t. NORD STEALTH. The captain monitoring the radar. Crew member during mooring operation. Security measures. 28 norden management's review

34 In 2006, the Company will therefore create a dedicated pool of young officers in the Philippines in collaboration with a local recruitment agency. The pool will allow the Company to fill vacancies with qualified staff who know the Company s vessels and procedures. In Denmark, NORDEN will draw on the experiences from 2005, when the Company recruited a large number of senior officers. The Company will also continue to train its own officers, in addition to the 16 apprentice officers who were already receiving training on vessels at the end of Fleet efficiency The fleet operating expenses are to be maintained at a low level. For several years, NORDEN has focused on efficiency, for example reporting monthly to all vessels on operations relative to budget and following up in connection with salary reviews with the officers and at seminars. For 2005, costs were competitive compared with other major shipping companies. The Company continuously adapts its procurement systems to the growing fleet in order to achieve economies of scale. In 2005, NORDEN experienced five minor disruptions of fleet operations, which led to a total of 15 off-hire days. This is more than previously, and the general explanation is the expansion of the fleet and, in particular, the bulkcarriers that NORDEN acquires through purchase options. Safety and environment NORDEN s environmental impact should be minimised. The objective remains Zero Incidents in the form of groundings, collisions or fires on the vessels and no pollution as a result of oil spills from the vessels. The Company achieved this objective in 2005 as well. Protecting the health and safety of the employees is the highest priority. strengthened organisation The organisation on land is to be strengthened to be able to handle the continued growth. New staff will be hired on an ongoing basis and the plans include opening one or more new offices. The challenge of attracting and retaining competent employees is becoming greater as competitors are also able to offer attractive salaries and working conditions following the recent profitable years. Also, there is a shortage of young people in Denmark and a low rate of unemployment. NORDEN has therefore improved the package offered to both new and existing employees. A strong corporate culture is an important component of this package. The organisation is flat and dynamic, the chains of command are short, significant decision-mak- 29

35 ing powers are delegated to the employees and customer focus is vital. The corporate culture is based on three core values: integrity, flexibility and empathy, and following a number of years with a significant inflow of new staff, the Company has decided to initiate a process to anchor the values more firmly in the employees behaviour. With the expansion of the organisation, it becomes all the more important for all employees to have an identical understanding of the values and the same perception of what NORDEN stands for. Recruitment Along with several other shipping companies, NORDEN will in 2006 take on the first trainees in a new training programme combining practical training with the first part of a bachelor of commerce degree, a shipping course as well as courses in maritime law and English. This initiative is designed to increase both the number and quality of trainees seeking employment with NORDEN. NORDEN will sharpen its profile through PR and exhibitions and by canvassing more at educational institutions. In addition, NORDEN will look more to industries other than shipping in recruiting experienced candidates. An increasing number of the employees at the offices outside Denmark are already local. Development of competences Management talent must be identified early on and be given an attractive scope for development, personally as well as professionally. NORDEN also seeks to strengthen the Company s competences in a broad sense, for example by strengthening the collaboration with IMD Lausanne and other schools on management training and by offering a broader range of supplementary and further education for all employees. NORDEN has already defined skills profiles for all employees on land and senior officers, determining what each employee needs in order to support the Company s strategy. Remuneration policy Shipping is an international business with a long-standing tradition of incentive-based payment. In 2005, NORDEN paid USD 7 million in individual bonuses to the employees (USD 7 million in 2004), based on predetermined financial targets as well as on individual performance. In addition, the Company paid an amount equalling four months pay (2004: six months pay) and also granted 6 shares from the Company s own portfolio of treasury shares to employees meeting a number of criteria. Left: Crew members storing spare hawser on board m.t. NORD STEALTH. Right: Employees at NORDEN s office in Copenhagen. 30 norden management's review

36 Going forward, NORDEN will still allocate a bonus amount based on the profit for the year. To strengthen the community of interest between employees and shareholders, NORDEN will also on a current basis consider using share-based incentive programmes. The options granted are distributed among the Management, executives and other employees in the proportion 7,230, 10,095 and 7,675 based on salary criteria and other factors deemed relevant by the Board of Directors at the time of grant. With the adoption of the annual report, the Board of Directors has granted share options for a total of 25,000 shares in NORDEN to a number of key employees. The options are exercisable from 29 March 2008 to 29 March 2010 and give the holder the right to purchase one share per option at an exercise price determined as the five-day average of the market price less all dividend payments following the grant and plus an effective interest rate of 8% p.a. until the exercise date. The structure of the programme ensures that the options are not in-the-money until after the shareholders are ensured a return on their investment. The market value of the granted options totals DKK 9.6 million, calculated using the Black-Scholes model and based on the assumptions that all options are granted and are exercised at the earliest possible date. The calculation is furthermore based on a volatility of 39.5% and a riskfree interest rate of 5.5%. 31

37 Risk management Active risk management is a cornerstone of NORDEN s strategy to ensure stable, high earnings. The shipping industry is highly sensitive to market fluctuations, which can be seen from the, at times, strong fluctuations in freight rates and tonnage prices. The overall risk management objective is to reduce the sensitivity of the Company s earnings to cyclical fluctuations. The overall guidelines for financial and commercial risk management are set out by the Board of Directors. The framework for the risk management is conservative and is handled by the Company s Finance Department in collaboration with the commercial departments. Chartering vessels implies a risk as the Company assumes a liability to pay T/C hire for an agreed period of time. The risk is less than that associated with the purchase of a vessel, however, as the Company charters vessels for a limited period of their economic lives only. Financial risks: Solvency risk - The risk of an undesirable proportion of equity to net liabilities. Liquidity risk - The risk of insolvency due to insufficient cash reserves. Currency risk - The risk of losses due to changes in exchange rates. Interest rate risk - The risk of losses due to changes in interest rates. Credit risk - The risk of losses due to customer or supplier default. Counterparty risk - The risk of losses on financial instruments due to counterparty default. Other risks The risk of incidents involving the Company s owned vessels. The risk of not being able to attract and retain key staff. The Company is particularly sensitive to the following risks: Commercial risks The risk of fluctuations in the purchase and sales prices of vessels. The risk of fluctuations in freight rates and oil prices. commercial risks Purchase and sales price fluctuations The planned expansion of the fleet of owned vessels is associated with certain risks, particularly in relation to changes in the value of the vessels. Left: Employee at NORDEN s office in Copenhagen. Right: M.t. NORD STEALTH. Crew member by crane used to handle oil hoses, among other things. M.v. NORD FIGHTER in the locks on the Panama Canal. 32 norden management's review

38 At the end of 2005, the Company held purchase options for 56 vessels. Risk is associated with the exercise of these options, in that the market value of the vessels may drop subsequent to acquisition. The risk is judged to be limited, however, as the majority of the options were entered into on favourable terms in lower freight markets. The Company s newbuilding programme was also entered into on favourable terms. Freight rate fluctuations The Company manages commercial risk from fluctuations in freight rates and imbalances in the relation of cargoes and cargo capacity (vessels) on a general level by employing a large proportion of its vessels on long-term COAs and timecharters at attractive rates. One way of covering is to enter into COAs, which typically have a term of twelve months, although certain contracts have terms of several years. At the end of 2005, the value of future COAs corresponded to freight income of USD 228 million (USD 276 million). Most of the contracts cover 2006 and 2007, but a few of them run to For more information, see note 34 COAs and operating lease income. FFAs are the only financial instrument NORDEN uses to supplement the actual, long-term employment of the vessels. They typically run twelve months forward and are used when physical alternatives are more expensive or unattainable. At the end of 2005, the Company had sold FFAs with a contract value of USD 47 million net up to and including At year-end 2004, the Company had open FFAs amounting to approximately USD 44 million. Oil price fluctuations The Company hedges its expected future bunkers (fuel for the vessels) requirements to eliminate the risk of future oil price fluctuations. The Company uses so-called bunker hedging contracts, which lock in the price of the part of the bunker requirement related to loading contracts for a fixed period. At the end of 2005, NORDEN had purchased bunker hedging contracts for USD 54 million covering (USD 43 million). For further information, see note 35 Financial instruments. financial risks NORDEN s risk model, which is central to the financial risk management, comprises the following: Net liabilities The risk of the Company s net liabilities becoming too great in proportion to equity is measured by current calculation of the net present value of total net liabilities. The Board regularly assesses the Company s net liabilities and defines upper limits based on market outlook. The limit for 2005 was that the present value of total net liabilities was at no time to be more than double the equity. For the time being, this limit is unchanged for At the end of 2005, net liabilities equalled 0.8 times equity. 33

39 Cash reserves The minimum requirement of cash reserves is that they should match the Company s net payment obligations for one year ahead. The size of these obligations is continuously calculated and adjusted to ensure that the buffer remains intact. Foreign exchange risk The Company s functional currency is USD, as the majority of the Company s transactions are made in this currency. Accordingly, the Company records and reports amounts in USD. The Company endeavours to match expenses against income and liabilities against assets by denominating as many expenses and liabilities as possible in USD. The actual foreign exchange risk is thus limited to those cash flows that are not denominated in USD, primarily administrative expenses (wages and salaries), certain commercial payments and shareholder dividends. For 2006, these payments are expected to total about USD 63 million (excluding dividends). The Company hedges these payments for a period of between 6-24 months, depending on the development of the USD/DKK exchange rate. At the end of 2005, the Company had sold USD forward in the total amount of USD 30 million at an average USD/DKK rate of 6.61, equalling approximately six months payments. In addition, the Company has hedged JPY 3,975 million relating to the purchase of a vessel at a USD/JPY rate of 109. For further information, see note 35 Financial instruments. Interest rate risks The shipping industry is capital intensive, and the interest to be paid on the financing of vessels can have a significant impact on earnings. All loans to finance vessels are raised in USD and usually constitute 60 80% of the total investment in a vessel. The repayment profile on loans is usually equivalent to at least half of the expected useful life of the vessel. As there seems to be no clear correlation between freight rates and vessel prices on the one hand and US interest rates on the other, Company policy is to lock the interest rate for the entire loan portfolio for a period of between two and six years. The interest rate is normally locked for each vessel loan individually on the basis of the degree and term of financing, the loan repayment profile, the duration of the vessel s fixed employment, anticipated sale, the interest rate level and the yield curve. In 2006, the Company will still place excess liquidity in bank deposits and possibly in investment-grade, liquid interest-bearing instruments of short duration and low risk. From left to right: Employees at NORDEN s offices in China, Singapore and India. 34 norden management's review

40 Credit and counterparty risk The Company s credit risk relating to customers and suppliers primarily comprises freight receivables, prepaid T/C hire, prepayments to shipyards on newbuildings and the placement of cash and cash equivalents. These items are included in the balance sheet at amounts corresponding to the maximum credit risk as of the balance sheet date. The Company s counterparty risks include forward sales of foreign currencies; interest rate swaps; bunker hedging contracts; forward freight agreements; prepaid T/C hire; port charges and loading contracts. The Company has limited credit and counterparty risks. Financial instruments and commodity instruments are only entered into with major banks with a high credit rating and with large, well-known, reputable partners with a satisfactory credit rating. See also note 35 Financial instruments. The risk on customers is limited by such measures as systematic assessment of customers credit rating and reputation and limits to the size and duration of the Company s engagements with new, unknown customers. other risks Insurance If an incident involving a vessel causes a spill of environmentally hazardous material, the Company may incur considerable liabilities. The Company minimises this risk by operating a modern fleet and by investing large amounts in the maintenance of the vessels and in the staff s awareness of both external and internal environments. For more information on this subject, please see the section Safety and environment. The Company s fleet is insured by recognised international insurance companies at competitive premiums and the vessels are always insured for an amount higher than their market values. Recruiting and retaining key employees NORDEN relies heavily on key employees and the Company needs to be able to attract and retain competent employees. The Company believes that the packages it offers to its executives and staff are sufficiently attractive to rise to this challenge. For more information, see the section Strengthened organisation. 35

41 Corporate governance NORDEN s management The Board of Directors is responsible for the overall management of the Company and defines strategies and action plans, goals and budgets. The Board of Directors also lays down the framework for NORDEN s active financial and market risk management and follows up on these policies. In addition, the Board of Directors appoints the Management and sets out its terms and tasks and controls the Management s work and the Company s procedures and responsibilities. Five members of the Board are elected at the general meeting and three are elected by the employees. The age limit for members elected at the general meeting is 72. All members elected at the general meeting are independent and have no interest in the Company other than their interests as shareholders. In 2005, the Board of Directors held nine meetings and one strategy seminar. NORDEN does not have any permanent board committees. NORDEN believes that the Board is effectively able to manage NORDEN as a result of its considerable shipping, finance and general management experience and competences. At the end of the year, the average seniority was 8.5 years, and 10 years excluding employee representatives. The Board has thus managed NORDEN during recent years marked growth, but it was also at the helm of the Company during times of much more difficult economic climates and tougher market conditions. Guidelines In 2005, the Copenhagen Stock Exchange adopted a set of recommendations on corporate governance which Companies are required to consider in their annual reports for 2006 in accordance with the comply or explain principle. NORDEN complies with the recommendations, but has chosen a different practice in the following areas: NORDEN has not, as recommended, set an upper limit for the number of directorships held by board members as what is important is each individual member s capacity, competences and contribution. The recommendations suggest that all board members should be elected for one year at a time. In NORDEN, two of five members are up for election each year to ensure the continuity of management. The Board of Directors has no formal procedure for annual self-assessment as the recommendations suggest, with discussion of the Board s composition, capabilities and activities and an assessment of the Management and the interaction between the Board of Directors and Management. The Board discusses these issues on an ongoing basis on the Chairman s initiative and according to the Company s needs. In 2006 the Board will begin to systematise this process further. The Board was granted 19,200 options in , of which 6,300 remain outstanding. The option programme was adopted by the general meeting as a revolving programme and the redemption price equalled the market price at the time the options were granted. The recommendations express some scepticism about options being granted to boards members, however, the Board considered the programme proper and purposeful at the time of grant. Therefore, NORDEN cannot rule out that new programmes might be implemented for the Board and others. NORDEN has no separate description of the Chairman s tasks and duties as the recommendations suggest. The description is part of the rules of procedure for the Board of Directors, which are revised annually. The recommendations suggest that the remuneration of each individual member of the Management is described in detail. NORDEN believes that focus should be on the total remuneration and any increase or decline therein. The "Governance" section at contains facts about general meetings, management, reporting, risk management, handling of inside information and trading in treasury shares. 36 norden management's review

42 Board of Directors The board members other directorships and shareholdings in NORDEN 1 Mogens Hugo Jørgensen, Managing Director, born in Member of the Board and Chairman since Most recently re-elected in No. of shares held: 0 Directorships etc. in other companies in Denmark and abroad: GN Store Nord as (CB), Amminex A/S (CB), Danelec Electronics A/S (CB), Nordea Danmark-Fonden (CB) and Twins Consulting ApS (BM) 2 Alison J. F. Riegels, Managing Director, born in Member of the Board and Vice Chairman since Most recently re-elected in Stands for re-election at the annual general meeting to be held in April No. of shares held: 155 Directorships etc. in other companies in Denmark and abroad: A/S Motortramp (MD, BM) 3 Erik G. Hansen, Managing Director, born in Member of the Board since Most recently re-elected in No. of shares held: 8,520 Directorships etc. in other companies in Denmark and abroad: Rigas Invest ApS (MD), DTU Innovation A/S (CB), Investeringsselskabet Energy Holding A/S (CB), enxco Invest A/S (CB), Polaris Management A/S (CB), T.T.I.T. A/S (CB), Bagger- Sørensen & Co. A/S (BM) and PFA Holding A/S (BM) 5 Einar K. Fredvik, Managing Director, born in Member of the Board since No. of shares held: 0 Directorships etc. in other companies in Denmark and abroad: Avantor ASA (CB) 6 Anton Kurt Vendelbo Christensen, Third Engineer, born in Substitute employee representative since Replaced Kirsten Hansen in February No. of shares held: Egon Christensen, Captain, born in Elected employee representative in No. of shares held: 6 8 Ole Clausen, Senior Claims Manager, born in Elected employee representative in No. of shares held: 6 CB: Chairman of the Board. VCB: Vice Chairman of the Board. BM: Board Member. MD: Managing Director. 4 Erling Højsgaard, Managing Director, born in Member of the Board since Most recently re-elected in Stands for re-election at the annual general meeting to be held in April No. of shares held: 1,600 Directorships etc. in other companies in Denmark and abroad: A/S Motortramp (VCB), Navision Shipping Company A/S (CB) and Danbulk A/S (BM) Board remuneration The Board receives an emolument determined at the annual general meeting. For 2005, the proposed total emolument is DKK 3,000,000 (DKK 1,662,500). Furthermore in 2005, the Chairman received a special remuneration of DKK 750,000 in connection with extraordinary tasks. 37

43 Management group Carsten Mortensen, President (CEO), born in Carsten Mortensen joined NORDEN in 1997 as head of the Dry Cargo Department after 11 years at A. P. Møller, where he received his training. He has a bachelor of commerce degree in international trade from the Copenhagen Business School, and has completed executive training programmes at INSEAD and Wharton Business School. Carsten Mortensen became a member of Management and was appointed COO in In January 2005, Carsten Mortensen was appointed President (CEO). Number of shares held: 281. Directorships outside NORDEN: Danmarks Rederiforening (BM). 2 Jens Fehrn-Christensen, Executive Vice President (CFO), born in Jens Fehrn-Christensen joined NORDEN in 1992 as head of finance and was appointed a member of Management in He has a master s degree in economics and business administration from the Copenhagen Business School. Jens Fehrn- Christensen was previously head of finance at J. Lauritzen A/S and a deputy director of Ove Skou Rederiaktieselskab. Number of shares held: 6. Directorships outside NORDEN: NCS Holding A/S (CB) and Sun-Air of Scandinavia A/S (BM). 3 Lars Bagge Christensen, Senior Vice President, born in Lars Bagge Christensen joined NORDEN in 1993 after ten years with A. P. Møller, where he received his training. He has also completed an INSEAD executive training programme. Lars Bagge Christensen has been in charge of the Tanker Department since Number of shares held: 67. Directorships outside NORDEN: Intertanko s European Reference Group (C), North of England P & I Club (BM). 4 Lars Lundegaard, Senior Vice President, born in Lars Lundegaard joined NORDEN in 2002 and heads the Technical Department. His qualifications include a master s certification and an MBA. Lars Lundegaard previously held executive positions in shipping companies in Denmark and abroad, most recently as CEO of ASN Marine. Number of shares held: 6. Directorships outside NORDEN: SIMAC (BM), member of Intertanko s technical committee and of the negotiations committee of the Danish Shipowners Association. 5 Jacob Meldgaard, Senior Vice President, born in Jacob Meldgaard joined NORDEN in 1997 after working for five years with A. P. Møller, where he received his shipping training, and for two years at J. Lauritzen A/S. Jacob Meldgaard also has a bachelor of commerce degree in international trade from the Copenhagen Business School and completed an INSEAD executive training programme. He was appointed general manager in 2002 and senior vice president and head of the Dry Cargo Department in Number of shares held: Kjeld Rasmussen, Senior Vice President, born in Kjeld Rasmussen joined NORDEN in 1987 and is in charge of finance, accounts and insurance. He received his training from the East Asiatic Company (EAC) and holds a bachelor of commerce degree in management accounting. Kjeld Rasmussen has held executive positions both in Denmark and abroad at EAC and other shipping companies. Number of shares held: 6. Other senior executives: Kristian Wærness, Vice President (6 shares held), Søren Huscher, General Manager in the Tanker Department, who at 1 May 2005 was seconded to the Norient Product Pool as CEO (547 shares held), Jens Christensen, Deputy Manager in the Technical Department (6 shares held), Peter Norborg, Deputy Manager in the Dry Cargo Department (6 shares held), Martin Badsted, Executive Assistant (15 shares held), Sture Freudenreich, IT Manager (12 shares held). C/CB: Chairman. VCB: Vice President of the Board. BM: Board Member. MD: Managing Director. Remuneration Carsten Mortensen has a bonus agreement which is pegged to the performance of NORDEN s earnings. Likewise, Lars Bagge Christensen and Jacob Meldgaard have bonus agreements which are pegged to the performance of their respective departments. These three bonus agreements are renegotiated annually. The other members of the management group and other key personnel received individual bonuses in The Management s remuneration is specified in note 6 Staff costs to the financial statements. 38 norden management's review

44 Shareholder information ISIN code and share capital NORDEN s shares are listed on the Copenhagen Stock Exchange under the symbol DNORD. The ISIN code is DK The share capital consists of 2,303,750 shares of DKK 20 each, equalling DKK 46,075,000. The Company has a single class of shares. There are no restrictions on the shares voting rights or ownership. Since June 2005, the share has been a component of the MidCap+ index of the second-most liquid group of shares on the Copenhagen Stock Exchange. Moreover, the share is a component of the specialist indices KFMXPI, CX20PI, CX2030PI and OMXCCAPGI. At 31 December 2005, the Company held 141,765 treasury shares, corresponding to 6.2% of the share capital. The management group holds 647 shares in the Company in aggregate and the Board of Directors hold 10,543 shares. Share price and trading volume The share price ended the year at DKK 2,925, an increase of 7% in The share price has increased significantly since the summer of 2002, and value added including dividends has substantially outperformed the other shares listed on the Copenhagen Stock Exchange both over the last three years and the last five years. An average of 36,505 shares were traded per month in 2005 corresponding to 1.6% of the share capital, against an average of 3.7% of the share capital per month in The cause of the decline was the fact that a couple of major shareholdings changed hands in 2004, which drove up the average. Disregarding this factor, the liquidity of the share increased, although it remained moderate. The explanation for the low trading volume is that approximately 85% of the share capital was held by three major shareholders or in the form of treasury shares. Ownership At 31 December 2005, the following shareholders had reported ownership of 5% or more of the Company s shares: No. of Ownership shares share (%) A/S Dampskibsselskabet TORM 752, % A/S Motortramp 592, % Kristiansands Tankrederi AS (wholly owned by Rasmussengruppen AS) 460, % Total major shareholders 1,805, % Allocation of other shares: NORDEN (treasury shares) 141, % Registered holdings below 5%: 263, % Unregistered shares: 92, % TOTAL 2,303, % Kristiansands Tankrederi (Rasmussengruppen) and Motortramp have concluded a shareholders agreement according to which the parties, among other things, cannot freely sell their shares until after October The Board of Directors considers Kristiansands Tankrederi (Rasmussengruppen) and Motortramp to be shareholders with a long-term investment horizon, enabling NORDEN to carry on its strategy and value creation as an independent listed company for the benefit of all shareholders. NORDEN's share price performance, (OMXC20 indexed to NORDEN) 39

45 Shareholders return NORDEN s business model aims to equalise the effect of the cyclical movements inherent in the shipping industry. Strong, long-term earnings are the prerequisite for NORDEN s ability to generate a return for its shareholders through dividends and share price increases. In 2005, NORDEN s shareholders received a total return of 10% from the share price increase and the ordinary dividend of DKK 100 per share which was distributed in April. Seen over a longer perspective, the objective of a reasonable, long-term return has been met. Over a period of five years until 31 December 2005, the shareholders have received an annual average return from share price increases and dividends of 71%. Seen over a period of three years, the return has been 107% p.a. In addition to the ordinary dividend of DKK 100 per share distributed in 2004, NORDEN also made an extraordinary dividend payment of DKK 175 per share to mark the quantum leap in the Company s earnings recorded that year. The Board proposes a dividend of DKK 200 per share for 2005, corresponding to a 22% payout-ratio for the year. The Board of Directors believes that the proposed dividend on the one hand provides a reasonable return to the shareholders and on the other hand ensures that the Company can maintain the financial latitude to make the investments required to generate long-term return to its shareholders, also in more turbulent market conditions. Investments are described in the section Strategy above. Investor relations In recent years, NORDEN has increased the depth and volume of information released to the equity market. Since the spring of 2005, the Company has made webcasts of its presentations of interim reports and general meetings available to the general public on its website, and the Company intends to continue to do so. In addition, the Management regularly holds meetings with analysts, investors and the media. The Management is responsible for the Company s investor relations. The person responsible for the day-to-day IR tasks is: Martin Badsted, Executive Assistant Telephone: direktion@ds-norden.com Information about NORDEN, subscription to mailing lists and an overview of stock exchange announcements in 2005 is available on Financial calendar for April: Annual general meeting 1 May: Payment of dividends 30 May: Interim report for the first quarter 23 August: Interim report for the first half of November: Interim report for the third quarter Board proposals to be submitted at the 2006 annual general meeting Among the proposals the Board of Directors intends to submit at the annual general meeting to be held on 25 April 2006 are the following: - that the Board of Directors be authorised to allow the Company to acquire up to 10% of the share capital at the market price prevailing at the time of acquisition plus/minus 10%, such authorisation to be valid until next year s annual general meeting. Dividends Annual value creation norden management's review

46 41

47 Financial review At 1 January 2005, the Company changed its accounting policies in compliance with the International Financial Reporting Standards (IFRS) and additional Danish disclosure requirements for annual reports of listed companies. As a consequence of the transition to IFRS, the accounting policies have been changed in the following areas compared with last year: Depreciation of vessels Share-based payment Fair value adjustments of certain hedging instruments Investments in subsidiaries and joint ventures in the parent company financial statements Securities Minority interests We refer to the section "Accounting policies" for more detailed information on the transition to IFRS. Comparative figures for 2004 have been restated in accordance with the new accounting policies. The effects of the accounting policy changes and changes to the format and presentation for 2004 on the profit, balance sheet and equity of the Group are as follows: USD million Profit for the year 0.4 Equity 3.7 Total assets 1.7 Equity amounted to USD 611 million, against USD 340 million at year-end 2004, equalling an 80% increase, which is specified as follows: Change in equity USD million Equity at 1 January Profit for the year 336 Write-down of acquisition of treasury shares -35 Sale of treasury shares 1 Value adjustment of hedging instruments and securities 6 Dividend paid -38 Share-based payment 1 Equity at 31 December Activities and profitability Revenue, in the form of freight income, increased by USD 130 million to USD 1,296 million, an 11% increase, which is attributable to a higher level of activity and higher daily earnings for product tankers. Dry cargo Despite declining freight rates, freight income from bulkcarriers was up by USD 110 million to USD 1,172 million. The increase is due to a high coverage, which stood at 71% at the beginning of the year, and a 13% increase in the number of ship days to 39,180 days in The Company owned 7 bulkcarriers at the end of The Company recognised profits from the sale of vessels of USD 80 million. profit for the year and equity The Company posted a profit for the year of USD 336 million after tax, against USD 264 million in 2004 including profits from the sale of vessels totalling USD 128 million in 2005 and USD 50 million in In 2005, profits from the sale of vessels in an amount of USD 8 million were recognised in the item Share of results of joint ventures. Before tax, the profit was USD 346 million against USD 267 million in The Dry Cargo Department s EBIT amounted to USD 239 million against USD 234 million in Tankers Freight income for tankers rose by USD 20 million to USD 124 million. The number of ship days was 5,558, equalling a 25% increase. Also, 64% of known ship days were open for product tankers at the beginning of the year, which allowed the Company to capitalise on the favourable market conditions. 42 norden management's review

48 The Company sold 4 tankers in 2005 at a profit of USD 48 million, of which 2 were part owned. Of this, USD 8 million has been recognised in Share of results of joint ventures. The Tanker Department s profit from operations (EBIT) was USD 97 million against USD 43 million in Financials Financial income was up by USD 1 million to USD 4 million. Financial costs were up by USD 6 million to USD 12 million. The increase was due to exchange rate adjustments resulting from decreases in primarily the DKK rate. Fair value adjustments of certain hedging instruments The fair value adjustments of derivative financial instruments that did not qualify for hedge accounting and were thus no longer recognised in equity represented a gain of USD 26 million. The item resulted from the transition to IFRS and was therefore USD 0 million in Tax on the profit for the year The Company s taxable income comprises income related to shipping activities as computed in accordance with the Danish Tonnage Tax Act and other income computed in accordance with the general tax rules. Income calculated in accordance with the Tonnage Tax Act comprises both taxable income calculated on the basis of the tonnage employed by the Company during the year and profits from the sale of vessels. Other income is based on the taxable income for the individual activity, calculated as the difference between the taxable income and the deductible costs. Tax on the profit for the year amounted to USD 10 million against USD 4 million in 2004, primarily relating to the profits from the sale of vessels. Vessels The Company took delivery of 9 bulkcarriers in 2005, of which 4 were resold. Value of vessels The Company s vessels are recognised in the balance sheet at cost less accumulated depreciation and impairment. The carrying amount of the vessels is continually compared with earnings opportunities and value indicators. If there are indications of a decrease in value exceeding the annual depreciation, the vessels are written down to the lower recoverable amount. To assist in evaluating the carrying amount of the vessels, the Company regularly has its vessels evaluated by three independent brokers. Average broker valuations (January 2006) of the Group s fleet and orders for 9 newbuildings were assessed to have an added value, including charter parties, of some USD 246 million at 31 December 2005 over their carrying amounts and the expected newbuilding prices. Joint ventures The Company s share of the results of Nortide Shipping Limited (50%) includes the profit from the sale of two newbuildings, USD 8 million. Effective from 1 January 2005, NORDEN and the shipping company Interorient Navigation Company jointly set up a product tanker pool. The pool is managed by Norient Product Pool A/S, of which the Company owns 50%. balance sheet Assets The Company s total assets at 31 December 2005 amounted to USD 822 million, representing an increase of USD 300 million or 57%. 43

49 Non-current assets increased by USD 93 million to USD 362 million, primarily from the addition of new tonnage, prepayments on newbuildings and investments in joint ventures. Current assets were up by USD 207 million to USD 460 million. Cash and bank balances were up by USD 177 million. Cash flows from financing activities amounted to USD -76 million and resulted from shareholder dividends of USD -38 million, purchase/sale of treasury shares of USD -33 million, net repayment of long-term debt amounting to USD -6 million and other items to USD 1 million. Tangible assets held for sale consisted of prepayments on vessels and newbuildings, USD 2 million (USD 7 million) and vessels held for sale, USD 16 million (USD 0 million). Liabilities The Company s equity rose by USD 271 million to USD 611 million, or by 80%. In 2005, the Company distributed dividends totalling USD 38 million, consisting of ordinary dividends for 2004 of DKK 100 per share. The Company s liabilities rose by USD 28 million to USD 210 million. Non-current liabilities were down from USD 92 million in 2004 to USD 69 million in 2005 due to repayments and instalments. Current liabilities were up by USD 51 million to USD 141 million, in part as a result of increased shortterm borrowing and trade credits. cash flows The Company s cash and cash equivalents increased by USD 177 million in 2005 against USD 75 million in Cash and cash equivalents at year-end consisted mainly of USD bank deposits. Operating activities contributed USD 245 million against USD 191 million in In 2005, USD 336 million was invested in vessels and newbuildings, and the net proceeds from the sale of vessels was USD 349 million. Cash flows from investing activities totalled USD 10 million. 44 norden management's review

50 Signatures statement of the board of directors and management The Board of Directors and Management have today reviewed and approved the Annual Report of Dampskibsselskabet NORDEN A/S for The Annual Report was prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for annual reports of listed companies. We consider the accounting policies applied to be appropriate. Accordingly, the Annual Report gives a true and fair view of the financial position at 31 December 2005 of the Group and the Parent Company and of the results of the Group s and the Parent Company s operations and cash flows for the financial year We recommend that the Annual Report be approved at the Annual General Meeting. Copenhagen, 29 March 2006 Management Carsten Mortensen PRESIDENT Jens Fehrn-Christensen EXECUTIVE VICE PRESIDENT Board of Directors Mogens Hugo Jørgensen Alison J.F. Riegels Erik Gregers Hansen CHAIRMAN VICE CHAIRMAN Einar Fredvik Anton Kurt Vendelbo Christensen Ole Clausen Erling Højsgaard Egon Christensen auditors report To the shareholders of Dampskibsselskabet NORDEN A/S We have audited the Annual Report of Dampskibsselskabet NORDEN A/S for the financial year 2005, prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for annual reports of listed companies. The Annual Report is the responsibility of Company management. Our responsibility is to express an opinion on the Annual Report based on our audit. Basis of opinion We conducted our audit in accordance with Danish Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the Annual Report is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Annual Report. An audit also includes assessing the accounting policies applied and significant estimates made by management, as well as evaluating the overall annual report presentation. We believe that our audit provides a reasonable basis for our opinion. Our audit has not resulted in any qualification. Opinion In our opinion, the Annual Report gives a true and fair view of the financial position at 31 December 2005 of the Group and the Parent Company and of the results of the Group s and the Parent Company s operations and cash flows for the financial year 2005 in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for annual reports of listed companies. Copenhagen, 29 March 2006 KPMG C. Jespersen Statsautoriseret Revisionsinteressentskab PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab Finn L. Meyer STATE AUTHORISED PUBLIC ACCOUNTANT Jørgen Skovbæk Johansen STATE AUTHORISED PUBLIC ACCOUNTANT Per Nørgaard Sørensen STATE AUTHORISED PUBLIC ACCOUNTANT Bo Schou-Jacobsen STATE AUTHORISED PUBLIC ACCOUNTANT 45

51 46 norden consolidated and parent company accounts

52 Accounting policies The annual report of Dampskibsselskabet NORDEN A/S for 2005 has been prepared in accordance with International Financial Reporting Standards (IFRS) and additional Danish disclosure requirements for annual reports of listed companies. This is the first annual report for the Group and the parent company presented under IFRS. For transition purposes, the Company applies the provisions of IFRS 1 on first-time adoption. The IFRS opening balance sheet at 1 January 2004 and comparative figures for 2004 have been prepared in accordance with the standards and interpretations effective at 31 December 2005 and in accordance with the transitional provisions of IFRS 1. In order to meet the users requirement for aggregate financial information, some of the information required under IFRS is disclosed in the management s report. The Group s functional currency is USD. USD is used as the functional and presentation currency in the preparation of the annual report. Changes to accounting policies etc. As a consequence of the transition to IFRS, the accounting policies have been changed in the following areas compared with last year: 1. Depreciation of vessels The calculation of depreciation of vessels has been changed, in that the development of scrap values is reassessed annually. The scrap value is assessed at the end of each financial year and determined based on the market price per lightweight ton for scrapping of the vessel. Previously, the scrap value was assessed at the acquisition of the vessel only. 2. Share-based incentive programme The value of services rendered by employees as consideration for share-based incentive payments is measured at the fair value of the granted options. For equity-settled arrangements granted after 7 November 2002 which had yet to be exercised at 1 January 2005, the fair value is measured at the grant date. This fair value is recognised as a salary cost in the income statement over the vesting period and is set off against equity. The fair value is determined using the Black-Scholes valuation model, taking into account the terms of the grant and the actual number of vested options. Previously, the fair value of share-based incentive payments was disclosed in a note only. 3. Fair value adjustments of certain hedging instruments As part of the overall risk management, the Company uses derivative financial instruments to hedge, among other things, bunker prices (bunker hedging contracts) and freight rates (FFAs). Despite the fact that bunker hedging contracts and FFAs provide effective financial hedging in accordance with the Group s risk management policy, they do not qualify for hedge accounting according to IAS 39, as a number of restrictive conditions are not met. Hedging instruments and hedged transactions are therefore accounted for separately, as if no hedge existed. Changes in the fair value of the hedge instruments are therefore recognised in the income statement under a new item called Fair value adjustments of certain hedging instruments. As the hedging instruments are realised, the accumulated fair value adjustments are reclassified to the same item as the hedged transaction. Previously, these hedging instruments were accounted for at hedges, and fair value adjustments in this respect were accordingly recognised in equity until the hedged transaction was realised. In accordance with IFRS 1, the provisions in IAS 39 concerning recognition and measurement of derivative financial instruments were applied as from 1 January 2005, and the transition therefore does not affect the comparative figures for Investments in subsidiaries and joint ventures in the parent company financial statements Investments in subsidiaries and joint ventures in the parent company financial statements are measured at the lower of cost and recoverable amount. In the income statement, dividends received are recognised in financials. 47

53 Accounting policies Previously, investments in subsidiaries and joint ventures in the balance sheet were measured at the proportionate share of the net asset values of the undertakings, and the proportionate share of the results was recognised in the income statement in financials. 5. Shares Unrealised fair value adjustments of listed shares and exchange rate adjustments of unlisted securities denominated in foreign currencies are recognised in equity until realisation. On realisation, they are recognised in the income statement. Unlisted shares are recognised at cost. Previously, unrealised fair value adjustments and exchange rate adjustments of shares were recognised in the income statement. The changes to IAS 39, The Fair Value Option, from June 2005 have been implemented prospectively. Changes in layout and presentation In addition to the above changes to the accounting policies, changes have been made to the layout of the financial statements, the names, contents and classification of the individual line items as a result of the transition to IFRS. The most important such changes are: 6. Minority interests Minority interests share of the results and equity of subsidiaries are included in the consolidated profits and consolidated equity. Previously, minority interests shares of the results were deducted from the consolidated profit and the minority interests share of the equity was presented as a separate item outside equity. Accordingly, the profit for the year and equity corresponded to D/S NORDEN A/S share. 7. Provisions Provisions are no longer presented as a separate group of liabilities (provisions) in the balance sheet, but are incorporated under non-current and current liabilities, respectively. 8. Tangible assets held for sale Tangible assets held for sale comprise vessels which will be sold within 12 months of the balance sheet date and prepayments on newbuildings under construction which will be sold on delivery within 12 months of the balance sheet date. Vessels and prepayments on vessels held for sale are measured at the lower of carrying amount and fair value less selling costs and are recognised under current assets. Vessels classified as held for sale are not depreciated. Gains and losses are included in the income statement in the item Profit from the sale of vessels, etc. and recognised on delivery. Previously, vessels held for sale and prepayments on newbuildings held for sale were recognised in Tangible assets. 9. Leasehold improvements Leasehold improvements have been reclassified as fixtures, fittings and equipment. 10. Cash flow statement Following the transition to IFRS, cash and cash equivalents in the cash flow statement comprises only cash and securities subject to an insignificant risk of changes in value. A security is considered to be subject to insignificant risk when it has a maturity of three months or less from the date of acquisition. According to the previous accounting policies, cash and cash equivalents comprised all securities. As a consequence of this change, securities in the total amount of USD 0.7 million have been classified under investment activities. 48 norden consolidated and parent company accounts

54 The changes to the accounting policies have the following effect on the profit, balance sheet and equity for 2004: group parent company Balance Balance Amounts in USD 000 Profit sheet Equity Profit sheet Equity Previous policy 263, , , , , , Depreciation of vessels 348 1,720 1, ,594 1, Share-based incentive programme Investments in subsidiaries and joint ventures ,626-55,140-55, Fair value adjustments of securities Minority interests , Total effect of IFRS 404 1,720 3,681-42,560-53,546-53,546 New accounting policies, IFRS 264, , , , , ,850 The effects of the transition to IFRS on the consolidated and parent company equity at 1 January 2004 amount to USD 10 million and USD -11 million, respectively. The effects are attributable to the same items as the effects of the translation to IFRS at 31 December 2004, as shown above. The changes to the accounting policies affect neither tax on the profit for 2004 nor tax liabilities recognised in the balance sheet at 31 December However, tax in subsidiaries and joint ventures is no longer recognised in the parent company s Tax on the profit for the year. See item 4 above. New IAS/IFRS adopted The adopted changes to IAS 19 on employee benefits and changes to IAS 39 on financial instruments, which take effect at 1 January 2006, are not expected to affect the future profit and equity of the Group or the parent company or lead to material changes to the disclosures in the annual report. IFRS 6 on exploration for minerals, which takes effect at 1 January 2006, is not relevant to the Group or the parent company. IFRS 7 on disclosure of financial instruments and the changes to IAS 1 on capital disclosures, which will take effect at 1 January 2007 are not, according to our preliminary analysis, expected to require any new disclosures for the Group or the parent company. In general The annual report is prepared on the basis of the historical cost principle. Subsequently, assets and liabilities are measured as described below in respect of each individual item. Revenue is recognised in the income statement for the financial year as earned. The determination of whether income is considered earned is based on the following criteria: a binding sales agreement has been made; the sales price has been determined; delivery has taken place and payment has been received or may reasonably be expected to be received. 49

55 Accounting policies Furthermore, all costs incurred to achieve the year s revenues are recognised in the income statement, including depreciation, amortisation, impairment losses and provisions as well as reversals made to reflect changed accounting estimates concerning amounts previously recognised in the income statement. In the recognition and measurement of assets and liabilities, all matters, including predictable risks and losses occurring prior to the presentation of the annual report that evidence conditions existing at the balance sheet date, are taken into account. Significant accounting judgments and estimates In the preparation of financial statements according to IFRS, the management is required to use judgements, estimates and assumptions that may affect the accounting policies applied as well as the carrying amounts of assets and liabilities, income and expenses. These include, among other things, estimates of the useful lives of tangible assets and their scrap values. Estimates and underlying assumptions are based on historical data and a number of other factors that the management considers relevant under the given circumstances. Estimates and underlying assumptions are reassessed on a regular basis. Changes to accounting estimates are recognised in the period when the estimate is changed if the change affects this period only or in the current and future periods if the change affects the current as well as future periods. Consolidation principles The annual report comprises the parent company, Dampskibsselskabet NORDEN A/S, and undertakings in which the parent company controls the operational and financial decisions, usually by directly or indirectly holding the majority of the voting rights (subsidiaries). In the determination of voting rights, share options exercisable by the Group at the balance sheet date are included. On consolidation, intra-group income and expenses, shareholdings, dividends and accounts as well as realised and unrealised intra-group gains and losses on transactions between the consolidated undertakings are eliminated. The financial statements used in the consolidation are prepared in accordance with the Group s accounting policies. The Group s annual report is prepared on the basis of the financial statements of the parent company and the subsidiaries by aggregating items of a uniform nature. Newly acquired or newly established undertakings are recognised in the consolidated financial statements from the date of acquisition using the purchase method. Undertakings divested or wound up are included in the consolidated income statement until the date of disposal. The comparative figures are not restated to reflect acquisitions, divestments or companies wound up. Undertakings which are contractually operated jointly with one or more other undertakings (joint ventures) and which are thus jointly controlled are recognised according to the equity method. Leases The Group and the parent company as lessee Agreements to charter vessels and to lease other tangible assets where substantially all risks and rewards of ownership have been transferred to the Group and the parent company (finance leases) are recognised in the balance sheet. Vessels and other tangible assets are recognised at the delivery date at a value corresponding to the present value of the finance charges set out in the agreements, including any purchase options expected to be exercised. For the purpose of calculating the present value, the zerocoupon rate with the addition of an interest margin is used as discount factor. Vessels and other tangible assets acquired under finance leases are depreciated and written down for impairment according to the same accounting policy as assets owned by the Group. The capitalised residual lease liability is recognised in the balance sheet as a liability, and the interest element of the lease payment is charged to the income statement as incurred. Other agreements to charter vessels and other leases are considered operating leases. Payments in connection with operating leases are recognised in the income statement over the term of the leases. The Group and the parent company as lessor Agreements to charter out vessels on timecharters where 50 norden consolidated and parent company accounts

56 substantially all risks and rewards of ownership have been transferred to the lessee (finance leases) are recognised as a receivable in the balance sheet. The receivable is measured in the same way as the lease liability in cases where the Group or the parent company is the lessee, as described above. Other agreements to charter out vessels are considered operating leases. Payments in connection with operating leases are recognised in the income statement over the term of the leases. Foreign currency translation For each of the reporting undertakings in the Group, a functional currency is determined. The functional currency is the currency in the primary economic environment in which the individual reporting entity operates. Transactions in currencies other than the functional currency are transactions denominated in foreign currencies. Transactions in foreign currencies during the year are translated at the exchange rates at the transaction date. Gains and losses arising between the exchange rate at the transaction date and the exchange rate at the date of payment are recognised in the income statement as Financial income or Financial costs. Receivables, payables and other monetary items denominated in foreign currencies that have not been settled at the balance sheet date are translated at the exchange rates at the balance sheet date. Differences between the exchange rates at the transaction date and the exchange rates at the balance sheet date are recognised in the income statement as Financial income or Financial costs. Unrealised fair value adjustments of shares, including exchange rate adjustments of shares denominated in foreign currencies, are recognised in equity. Derivative financial instruments Derivative financial instruments are recognised in the balance sheet at fair value. Positive and negative fair values of derivative financial instruments are recognised as assets under Other receivables or as liabilities under Other payables, respectively. Changes in the fair value of derivative financial instruments that are designated as fair value hedges of a recognised asset or a recognised liability are recognised in the income statement in the same item as any changes in the carrying amount of the hedged asset or hedged liability. Changes in the fair value of derivative financial instruments designated as hedges of expected future transactions are recognised in equity under Reserve for hedge transactions. Where the expected future transaction results in the acquisition of non-financial assets, any amounts deferred under equity are transferred from equity to the cost of the asset. Where the expected future transaction results in income or expense, amounts deferred under equity are transferred from equity to the income statement in the same item as the hedged transaction. All of the Group s derivative financial instruments provide effective financial hedging in accordance with the Group s risk management policy, but certain of the derivative financial instruments are not considered to qualify for hedge accounting according to accounting regulations. Changes in the fair value of derivative financial instruments not considered to qualify for hedge accounting are recognised in the income statement in a separate item under financials called Fair value adjustments of certain hedging instruments. As the hedging instruments are realised, the accumulated fair value adjustments are reclassified to the same item as the hedged transaction. Determination of fair value The fair value of listed derivative financial instruments and securities is determined as the quoted market price at the balance sheet date (the market value). Initial recognition is based on the quoted market price at the trade date. The fair value of interest rate swaps is determined as the present value of expected future cash flows. The fair value of forward exchange transactions is determined using the forward exchange rate at the balance sheet date. In determining the fair value of unlisted derivative financial instruments and other instruments, the Group and the parent company use a variety of methods and make assessments based on market conditions at the balance sheet date. For non-current liabilities, the fair value is based on a discounted value of future cash flows. The zero-coupon rate with the addition of the undertaking s interest margin is used as discount factor. For the remain- 51

57 Accounting policies ing instruments, the value of similar listed instruments is used, where possible. Where this is not possible, the fair value is based on the discounted value of future cash flows. The fair values of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their face values less any estimated credit adjustments. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rates available to the Group or the Company for similar financial instruments. Segment information Information is specified on the Group s two business segments, tanker and dry cargo. The information is based on the Group s returns and risks and on the Group s organisation and business management, including internal financial management. Information is not provided by geographical segment because the Group considers the global market as a whole, and the activities of the individual vessels are not limited to specific parts of the world. The items included in net profit for the year, including the share of results of joint ventures, are allocated to the extent that the items are directly or indirectly attributable to the segments. Items that are allocated through both direct and indirect calculation comprise Staff costs and Other external costs. Parts of these items are not attributable, whether directly or indirectly, to a segment and are therefore not allocated. Items allocated by indirect calculation are allocated on the basis of allocation keys that have been defined on the basis of each segment s drawings on key resources. Non-current segment assets consist of the assets used directly for segment operations, including Vessels and prepayment on newbuildings and Investments in joint ventures. Land and buildings, Fixtures, fittings and equipment and Software are not allocated as they are primarily used for the Group s headquarters. Current assets are allocated to segments to the extent that they are directly attributable to these, e.g. Inventories and Freight receivables. Some of the freight receivables cannot be allocated directly, and allocation is therefore based on an estimate. Segment liabilities comprise operating liabilities, including Provision for docking costs, Trade payables Payables to joint ventures and Other payables. Some of the liabilities are either not allocated or allocated solely by indirect allocation. income statement Revenue Revenue comprises freight income from vessels and management income. Revenue is recognised if it meets the criteria mentioned under General recognition and measurement criteria. Accordingly, freight income is recognised upon receipt of the services (percentage of completion) in accordance with the charter parties concluded, from the vessel s departure to the delivery of the cargo (discharge). The departure date is defined as the date of the most recent discharge, and the voyage ends at the date of the next discharge (discharge to discharge). For vessels operating on timecharters, the charter hire is recognised over the term of the agreement. Management income is recognised upon receipt of the services in accordance with the management agreements concluded. For vessels operating in pools, income is recognised on a timecharter basis, i.e. after set-offs of direct voyage costs, including bunker oil consumption, commissions and port charges. Other operating income Other operating income comprises items of a secondary nature relative to the Group s and the parent company s principal activity. This includes rents received. Vessel operating costs Operating expenses vessels comprise the expenses, excluding depreciation and staff costs, incurred to generate the revenue for the year. Operating expenses vessels therefore include charter hire for chartered vessels (operating leases), bunker oil consumption, other voyage costs such as commissions and port charges, repair and maintenance costs, insurance costs, provision for docking costs and other operating expenses. Like revenue, operating ex- 52 norden consolidated and parent company accounts

58 penses vessels are recognised upon receipt of services in accordance with the charter parties concluded Other external costs Other external costs comprise costs of properties, office expenses, external assistance, etc. Profits from the sale of vessels Profits from the sale of vessels are stated as the difference between the sales price for the vessel less selling costs and the carrying amount of the vessel in question at the time of delivery. Furthermore, any gains and losses upon repayment of related loans are included. Profits from the sale of other tangible assets are also included. Income from investments in subsidiaries and joint ventures In the parent company s income statement, the subsidiaries and the joint ventures dividends are recognised in the financial year when they are declared. In the Group s income statement, the Group s shares of the joint ventures results after tax are included in the item Investments in joint ventures. Net financials Financial income and costs comprise interest, financing costs of finance leases, realised and unrealised exchange rate adjustments, fair value adjustments of forward exchange contracts, market value adjustments of securities and dividends received on shares recognised in securities. Fair value adjustments of certain hedging instruments Fair value adjustments of certain hedging instruments comprise changes in the fair values of derivative financial instruments that are used to hedge future bunker purchases and freight income but do not qualify for hedge accounting. As the hedging instruments are realised, the accumulated fair value adjustments are reclassified to the same income statement item as the hedged transaction. Tax on the profit for the year The Company s current tax consists of tax paid according to the regulations of the Danish Tonnage Tax Act for shipping activities and according to general tax regulations for other activities. Other activities comprise letting of the Company s domicile and management income. balance sheet Tangible assets Tangible assets are measured at cost less accumulated depreciation and impairment losses. Land is not depreciated. Cost comprises the acquisition price and costs directly related to the acquisition up until the time when the asset is ready for use. Interest costs on loans taken up directly to finance the construction of tangible assets are included in cost over the period of construction. All borrowing costs that are indirectly attributable are recognised in the income statement. The basis of depreciation is calculated as the excess of cost over the estimated scrap value. The scrap value of vessels is determined based on the market price per lightweight ton for scrapping of the vessel. Depreciation is allocated on a straight-line basis over the estimated useful lives of the assets as follows: Buildings: Vessels, including vessels on finance leases Fixtures, fittings and equipment 50 years Max. 20 years 3-10 years The depreciation period for secondhand vessels is determined on the basis of the condition and age of the vessels at the time of acquisition, but the depreciation period does not exceed 20 years from delivery from the shipyard. Vessels held for sale are not depreciated if the scrap value (the sales value) of the vessel equals or exceeds its carrying amount. Docking costs relating to vessels recognised in the balance sheet are added to the carrying amounts of the vessels when incurred. Docking costs are allocated on a straightline basis over the estimated useful lives of the improvements. 53

59 Accounting policies Useful lives and scrap values are reassessed annually. Prepayments on newbuildings are recognised in assets as vessels under construction as payments are made. At the delivery of the vessel, they are reclassified to the item Vessels. Impairment of tangible and financial assets The carrying amounts of tangible and financial assets are analysed annually to determine whether there are any indications of impairment in excess of the amount provided for by normal depreciation. An impairment test is conducted if there is an indication that the carrying amount of an asset may exceed the expected future cash flows from the asset. If there is such an indication, the asset is written down to the lower recoverable amount. The recoverable amount of the asset is determined as the higher of the fair value less costs to sell and the value in use. If a recoverable amount for the individual assets cannot be determined, the smallest group of assets for which it is possible to determine the recoverable amount (cash-generating unit) is analysed for impairment. For investments in joint ventures, the cash-generating unit is the individual joint venture, and the recoverable amount is usually determined based on value in use. The same applies to investments in the parent company s subsidiaries. For vessels, the cash-generating unit is usually the total fleet within the Group s individual segments, and for financial assets (other than investments in subsidiaries and joint ventures) it is the individual security or investment. For vessels, the recoverable amount is usually determined based on the selling price including charter parties concluded, assessed by external brokers. For financial assets (other than investments in subsidiaries and joint ventures), the recoverable amount is also determined based on the selling price. In both cases, the selling price is used as a basis because active markets exist. Investments in subsidiaries and joint ventures Investments in subsidiaries and joint ventures in the parent company's financial statements are measured at the lower of cost and recoverable amount. In the Group s balance sheet, the Group s share of the net asset value of joint ventures is included in the item Investments in joint ventures, calculated on the basis of the Group s accounting policies and after deduction or addition for the Group s share of any unrealised intra-group gains or losses. Joint ventures with negative net asset values are measured at USD 0 million. If the Group has a legal or constructive obligation to cover the associate s negative balance, such obligation is recognised under liabilities. Inventories Inventories primarily comprise bunker oil kept on board vessels. Inventories are measured at the lower of cost according to the FIFO method and net realisable value. Receivables Receivables are measured in the balance sheet at the lower of amortised cost and net realisable value, which corresponds to the nominal value less provisions for bad debts. Provisions for bad debts are determined on the basis of an individual assessment of each receivable. Securities Shares and bonds available for sale are recognised under current assets at cost at the trade date and are subsequently measured at market price in respect of listed securities and at cost in respect of unlisted securities. If securities are impaired, they are written down. Value adjustments of shares are recognised in net financials when realised. Until realisation, value adjustments of listed securities are recognised in equity in the reserve for securities. Cash and bank balances Cash and bank balances are measured in the balance sheet at nominal value. Tangible assets held for sale Tangible assets held for sale comprise vessels which will be sold within 12 months of the balance sheet date and prepayments on newbuildings under construction which will be sold on delivery within 12 months of the balance sheet date. Vessels and prepayments on vessels held for sale are measured at the lower of carrying amount and fair value less selling costs and are recognised under current assets. 54 norden consolidated and parent company accounts

60 Vessels classified as held for sale are not depreciated. Gains and losses are included in the income statement in the item Profits from the sale of vessels, etc. and recognised on delivery. Statement of changes in equity Dividends Dividends are recognised as a liability at the time of adoption by the shareholders in general meeting. Dividends proposed by the management in respect of the year are stated under equity. Dividend is not paid in respect of treasury shares. Treasury shares The purchase and sale of treasury shares and dividends thereon are taken directly to retained earnings under equity. Share-based incentive programme The value of services rendered by employees as consideration for share-based incentive payments is measured at the fair value of the granted options. For equity-settled arrangements granted after 7 November 2002 which had yet to be exercised at 1 January 2005, the fair value is measured at the grant date. This fair value is recognised in the income statement over the vesting period. A corresponding increase is recognised in equity. The fair value is determined using the Black-Scholes valuation model, taking into account the terms of the grant and the actual number of vested options. On recognition, the number of options expected to vest is estimated. The estimate is adjusted over the vesting period to the actual number of vested options. Provisions Provisions are recognised when, as a consequence of an event that has occurred before or on the balance sheet date, the Group or the parent company has a legal or constructive obligation, and it is likely that economic benefits will flow from the Company to meet the obligation. Provisions for docking costs are recognised for bareboat chartered vessels where the agreement entails a commitment on the part of the Group to bring vessels into dock regularly. Provisions are made on a current basis at an amount equal to a pro rata share of the estimated cost of the next docking of each individual vessel, as the value of the liability increases continuously. The provisions are recognised in the income statement in the item Operating expenses vessels. Deferred tax The Company entered the Danish tonnage tax regime as from Based on NORDEN s planned use of vessels and recovery of recaptured depreciation, respectively, the tonnage tax regime does not result in a liability, hence it does not result in any deferred tax in the balance sheet. The liability is merely a contingent tax liability. The amount of contingent tax is stated in the note Company tax. Other activities of the Group and the parent company are not subject to deferred tax. Financial liabilities Bank debt is recognised at the time the loans are obtained in the amount of the proceeds after deduction of transaction costs. In subsequent periods, such loans are recognised at amortised cost, equivalent to the capitalised value applying the effective rate of interest at the inception of the loan, to the effect that the difference between the proceeds and the nominal value is recognised in the income statement over the term of the loan. In addition, the capitalised residual lease liability under finance leases is also considered a financial liability. Other liabilities comprising trade payables, prepayments received on vessels for resale, payables to subsidiaries and joint ventures and other payables are measured at amortised cost, corresponding substantially to nominal value. Prepayments and deferred income Prepayments comprise costs incurred relating to subsequent financial years such as charter hire, rent, insurance premiums, subscription fees and interest. Deferred income comprises payments received relating to revenue in subsequent years, such as freight income, charter hire, interest and insurance premiums. 55

61 consolidated cash flow statement The cash flow statement shows the Group s and the parent company s cash flows for the year distributed on operating, investing and financing activities, net changes for the year in cash and cash equivalents as well as the Group s and the parent company s cash and cash equivalents at the beginning and end of the year. Positive amounts indicate inflows, whereas negative a - mounts indicate outflows. Cash flow from operating activities Cash flows from operating activities are stated as the profit/loss adjusted for non-cash operating items such as depreciation and impairment, profits from the sale of vessels, provisions, fair value adjustments of certain hedging instruments and exchange rate adjustments of non-current liabilities, changes in working capital, interest received and paid and plus or minus corporation tax paid or received. Working capital includes current assets less current liabilities, excluding the items included in cash and cash equivalents. Cash flow from investing activities Cash flows from investing activities comprise cash flows from the purchase and sale of non-current assets. Cash flow from financing activities Cash flows from financing activities comprise cash flows from the raising and repayment of non-current liabilities as well as payment of dividends to shareholders. Cash and cash equivalents Cash and cash equivalents comprise marketable securities with a term of less than three months and cash. 56 norden consolidated and parent company accounts

62 Income statement 1 January 31 December group parent company Note Amounts in USD /2 Revenue 1,296,457 1,166,593 1,239,036 1,146,765 3 Other operating income Vessel operating costs -1,044, ,820-1,032, ,870 5 Other external costs -8,602-10,729-10,135-12,397 6 Staff costs -27,706-26,170-22,954-23,958 Profit before depreciation, etc. (EBITDA) 215, , , ,590 7 Profits from the sale of vessels, etc. 120,104 49,757 48,071 12,672 8 Depreciation -16,291-13,328-13,117-10,543 9 Share of results of joint ventures 8, Profit from operations (EBIT) 328, , , , Fair value adjustment of certain hedging instruments 25,965-25, Financial income 4,094 3,446 3,305 3, Financial costs -12,178-5,937-12,238-5,481 Profit before tax 345, , , , Tax on the profit for the year -9,557-2,966-9,206-2,731 PROFIT FOR THE YEAR 336, , , ,127 Attributable to: Shareholders of NORDEN 336, ,844 Minority interests , , Earnings per share (EPS) Basic earnings per share Diluted earnings per share

63 Balance sheet at 31 December assets group parent company Note Amounts in USD Land and buildings 4,069 4,154 4,069 4, Vessels 208, , , , Vessels acquired under finance leases 26,808 27,888 26,808 27, Fixtures, fittings and equipment 4,786 5,052 4,420 4, Prepayments on vessels and newbuildings 95,557 42,477 32,190 30,511 Tangible assets 339, , , , Investments in subsidiaries ,615 17, Investments in joint ventures 18,338 9,959 3,644 3,643 Financial assets 18,338 9,959 21,259 21, Other receivables 3, ,850 0 Other non-current assets 3, ,850 0 Non-current assets 361, , , ,587 Inventories 21,849 14,888 21,779 14, Freight receivables 35,924 41,549 35,724 41, Receivables from subsidiaries , Receivables from joint ventures 0 1, , Company tax Other receivables 13,853 3,199 11,959 2,632 Prepayments 54,930 49,083 51,704 47, Securities 2, , Cash and bank balances 312, , ,757 82, , , , , Tangible assets held for sale 18,411 7,083 18,411 0 Current assets 459, , , ,510 ASSETS 821, , , , norden consolidated and parent company accounts

64 Balance sheet at 31 December equity and liabilities group parent company Note Amounts in USD Share capital 7,321 7,321 7,321 7,321 Retained earnings 603, , , , Reserves -1,730-7,347-1,730-7,347 Equity (NORDEN s shareholders) 608, , , ,850 Minority interests 2,279 1, Equity 611, , , , Provision for docking costs (Bareboat) Bank debt 13,008 39,378 13,008 39, Danmarks Skibskredit 23,689 27,523 23,689 27, Lease liabilities 24,442 24,746 24,442 24, Prepayments received on vessels for resale 3, , Deferred income 4, Non-current liabilities 69,260 91,751 64,989 91, Provision for docking costs (Bareboat) Current portion of non-current debt 7,689 11,325 7,689 11, Bank debt 44,553 15,000 44,553 15,000 Prepayments received on vessels for resale 3,000 5,409 3,000 0 Trade payables 39,876 24,952 39,177 24,598 Payables to subsidiaries ,357 0 Payables to joint ventures 14, , Company tax Other payables 3,020 2,480 2,631 2,480 Deferred income 27,962 30,496 18,917 28,646 Current liabilities 141,068 90, ,292 82,496 Liabilities 210, , , ,247 EQUITY AND LIABILITIES 821, , , ,097 59

65 Cash flow statement 1 January 31 December group parent company Note Amounts in USD Profit from operations 328, , , ,719 8 Reversed depreciation 16,291 13,328 13,117 10,543 7 Reversed profits from the sale of vessels, etc. -120,104-49,757-48,071-12, Reversed change in provision for docking costs Reversed share of results of joint ventures -8, Other adjustments 1,444 1,319 2,040 1, Change in working capital 43,712-37, ,383-72,925 Financial payments received 4,094 3,446 3,305 3,620 Financial payments made -10,802-5,788-10,862-5,332 Company tax paid -9,996-3,121-9,645-2,886 Cash flows from operating activities 244, , , , Investments in vessels, excluding vessels acquired under finance leases -287,921-57, ,807-18,564 15/18 Investments in other tangible assets -1,656-3,232-1,428-2, Investments in joint ventures Change in prepayments on newbuildings -47,872-6,442-3, Net proceeds from the sale of vessels 349,038 87, ,919 31,091 Net proceeds from the sale of other tangible assets Acquisition of investment in subsidiary 0-6, Acquisition of securities -1, ,709 0 Sale of securities Cash flows from investing activities 10,106 13,523-42,287 8, Dividend paid to shareholders (excl. dividend on treasury shares) -38, ,049-38, , Acquisition of treasury shares -34,544-5,598-34,544-5, Sale of treasury shares 1,245 1,410 1,245 1,410 Net distribution to shareholders -71, ,237-71, ,237 Bank loans and vessel loans 29,553 15,000 29,553 15,000 Lease payment, assets acquired under finance leases -3,284-3,294-3,284-3,294 Instalments on/repayment of other non-current borrowings -32,353-40,606-32,353-24,322 Change in prepayments received on vessels for resale 1,441 3,606 6,850 0 Loan financing -4,643-25, ,616 Cash flows from financing activities -76, ,531-70, ,853 Change in cash and cash equivalents for the year 178,778 75, ,437 38,956 Cash and cash equivalents at 1 January 134,982 59,845 82,696 43,889 Exchange rate adjustments -1, , Change in cash and cash equivalents for the year 178,778 75, ,437 38, Cash and cash equivalents at 31 December 312, , ,757 82, norden consolidated and parent company accounts

66 Statement of changes in equity group shareholders in norden Share Retained Minority Note Amounts in USD 000 capital Reserves earnings Total interests Total Equity at 1 January , , , ,908 Changes in accounting policies on transition to IFRS ,166 1,372 8,384 9,756 Restated equity at 1 January , , ,280 8, , Value adjustment of hedging instruments - -6, , , Fair value adjustment of securities Net gains recognised directly in equity 0-6, , ,921 Profit for the year , , ,091 Change in minority interests ,670-6,670 Total recognised income for the year 0-6, , ,923-6, , Acquisition of treasury shares ,598-5, , Sale of treasury shares - - 1,410 1,410-1,410 Tax on equity entries Extraordinary dividend ,589-66, , Distributed dividends ,989-36, ,989 Dividends, treasury shares - - 3,529 3,529-3, Share-based payment Changes in equity 0-6, , ,836-6, ,413 Equity at 31 December ,321-7, , ,116 1, ,077 Equity at 1 January ,321-7, , , ,396 Changes in accounting policies on transition to IFRS ,448 1,720 1,961 3,681 Restated equity at 1 January ,321-7, , ,116 1, , Value adjustment of hedging instruments - 5,405-5,405-5, Fair value adjustment of securities Net gains recognised directly in equity 0 5, , ,617 Profit for the year , , ,336 Total recognised income for the year 0 5, , , , Acquisition of treasury shares ,544-34, , Sale of treasury shares - - 1,245 1,245-1, Distributed dividends ,036-40, ,036 Dividends, treasury shares - - 1,964 1,964-1, Share-based payment Changes in equity 0 5, , , ,126 Equity at 31 December ,321-1, , ,924 2, ,203 See the parent company s statement of changes in equity for a description of limitations to reserves available for distribution as dividends, as detailed in notes 40 and

67 Statement of changes in equity parent company Share Retained Note Amounts in USD 000 capital Reserves earnings Total Equity at 1 January , , ,908 Changes in accounting policies on transition to IFRS ,383-11,177 Restated equity at 1 January , , , Value adjustment of hedging instruments - -6, , Fair value adjustment of securities Net gains recognised directly in equity 0-6, ,921 Profit for the year , ,127 Total recognised income for the year 0-6, , , Acquisition of treasury shares ,598-5, Sale of treasury shares - - 1,410 1,410 Tax on equity entries Extraordinary dividend ,589-66, Distributed dividends ,989-36,989 Dividends, treasury shares - - 3,529 3, Share-based payment Changes in equity 0-6, , ,119 Equity at 31 December ,321-7, , ,850 Equity at 1 January ,321-7, , ,396 Changes in accounting policies on transition to IFRS ,818-53,546 Restated equity at 1 January ,321-7, , , Value adjustment of hedging instruments - 5,405-5, Fair value adjustment of securities Net gains recognised directly in equity 0 5, ,617 Profit for the year , ,576 Total recognised income for the year 0 5, , , Acquisition of treasury shares ,544-34, Sale of treasury shares - - 1,245 1, Distributed dividends ,036-40,036 Dividends, treasury shares - - 1,964 1, Share-based payment Changes in equity 0 5, , ,366 Equity at 31 December ,321-1, , ,216 Retained earnings and reserves are available for distribution as dividend. See notes 40 and norden consolidated and parent company accounts

68 Notes to the financial statements Note Page 1 Segment information 64 2 Revenue 66 3 Other operating income 66 4 Vessel operating costs 66 5 Fees to auditors appointed at the annual general meeting 66 6 Staff costs 67 7 Profits from the sale of vessels, etc Depreciation 68 9 Share of results of joint ventures Fair value adjustment of certain hedging instruments Financial income Financial costs Taxation Earnings per share (EPS) Land and buildings Vessels Vessels acquired under finance leases Fixtures, fittings and equipment Prepayments on vessels and newbuildings Investments in subsidiaries Investments in joint ventures Other receivables Receivables Securities Cash and bank balances Tangible assets held for sale Reserves Equity Provision for docking costs (Bareboat) Non-current liabilities and current bank debt Operating lease liabilities, Group Other contingent liabilities Mortgages and security COAs and operating lease income Financial instruments Related party disclosures and transactions with related parties Share-based payment Change in working capital Acquisition of investments in subsidiaries Dividends 86 63

69 Notes to the financial statements Note Amounts in USD 000 Dry cargo Tankers Not allocated Group total 1 Segment information 2005 Revenue external 1,171, , ,296,457 Other operating income Vessel operating costs -985,643-58, ,044,273 Other external costs -6, ,496-8,602 Staff costs -14,759-8,105-4,842-27,706 Profit before depreciation, etc. (EBITDA) 165,082 57,132-6, ,922 Profits from the sale of vessels, etc. 79,773 40, ,104 Depreciation -5,535-9,038-1,718-16,291 Share of results of joint ventures -3 8, ,277 Profit from operations (EBIT) 239,317 96,687-7, ,012 Vessels 132, , ,997 Prepayments on newbuildings 41,018 54, ,557 Other tangible assets 1, ,488 8,855 Investments in joint ventures 98 18, ,338 Other receivables 0 3, ,850 Non-current assets 175, ,037 7, ,597 Current assets 107,435 37, , ,934 hereof tangible assets held for sale 18, ,411 ASSETS 282, , , ,531 Non-current liabilities 4,271 3,850 61,139 69,260 Current liabilities 66,438 22,388 52, ,068 LIABILITIES 70,709 26, , ,328 Investments in tangible assets 286,244 1,677 1, ,577 Investments in joint ventures Average number of employees, excluding employees on timecharter vessels Profit margin 20% 78% - 25% Return on assets 85% 45% - 40% Brokers valuations of vessels, including newbuildings. See description in the management s review 319, , ,830 Material non-cash expenses included in the segment results other than depreciation solely consist in activity-specific fluctuations in trade payables, other payables and do not consists of such non-recurring expenses as provisions, bonuses, bad debts etc. 64 norden consolidated and parent company accounts

70 Note Amounts in USD 000 Dry cargo Tankers Not allocated Group total 1 Segment information 2004 Revenue external 1,062, , ,166,593 Other operating income Vessel operating costs -847,242-49, ,820 Other external costs -4,635-2,754-3,340-10,729 Staff costs -12,250-10,423-3,497-26,170 Profit before depreciation, etc. (EBITDA) 197,878 41,833-6, ,924 Profits from the sale of vessels, etc. 37,306 12, ,757 Depreciation -1,371-10, ,328 Share of results of joint ventures Profit from operations (EBIT) 233,813 43,483-7, ,548 Vessels 34, , ,136 Prepayments on newbuildings 12,138 30, ,477 Other tangible assets 1, ,991 9,206 Investments in joint ventures 0 9, ,959 Non-current assets 47, ,913 7, ,778 Current assets 93,921 23, , ,159 hereof tangible assets held for sale 7, ,083 ASSETS 141, , , ,937 Non-current liabilities ,647 91,751 Current liabilities 52,936 10,715 26,458 90,109 LIABILITIES 52,936 10, , ,860 Investments in tangible assets 55,084 2,728 3,232 61,044 Investments in joint ventures Average number of employees, excluding employees on timecharter vessels Profit margin 22% 42% - 23% Return on assets 165% 18% - 52% Brokers valuations of vessels, including newbuildings, see description in the management s review 182, , ,670 Material non-cash expenses included in the segment results other than depreciation solely consist in activity-specific fluctuations in trade payables, other payables and do not consists of such non-recurring expenses as provisions, bonuses, bad debts etc. 65

71 Notes to the financial statements group parent company Note Amounts in USD Revenue Dry cargo Freight income owned vessels 38,622 20,609 27, Freight income chartered vessels 1,132,848 1,041,291 1,094,002 1,046,711 Commercial management income ,171,917 1,062,005 1,121,075 1,047,533 Tankers Freight income owned vessels 48,663 55,733 42,196 50,377 Freight income chartered vessels 74,121 48,734 74,121 48,734 Commercial management income 1, , , , ,961 99,232 1,296,457 1,166,593 1,239,036 1,146,765 3 Other operating income Rental income Vessel operating costs Charter hire for vessels chartered for less than 1 year 531, , , ,213 Charter hire for vessels chartered for more than 1 year 248, , , ,491 Bunker oil 108,627 81, ,863 80,431 Other voyage costs 138, , , ,183 Other operating costs 16,427 14,350 13,137 11,552 1,044, ,820 1,032, ,870 5 Fees to auditors appointed at the annual general meeting Other external costs include total fees to audit firms for the past financial year: KPMG PricewaterhouseCoopers Including non-audit services of: KPMG PricewaterhouseCoopers norden consolidated and parent company accounts

72 group parent company Note Amounts in USD Staff costs Wages and salaries 25,098 24,327 20,797 22,375 Pensions, defined contribution plans 1,318 1,240 1,318 1,240 Other social security costs Share-based payment ,706 26,170 22,954 23,958 Average number of employees, excluding employees on timecharter vessels Salaries for 2005 include four months extra salary to a number of employees (2004: six months salary to all except Management and a number of executives). group Parent Parent Parent Parent company company company company Board of Manage- Other Board of Manage- Other Directors ment executives Directors ment executives Salaries 607 3,335 4, ,496 3,331 Pensions defined contribution plans Other social security costs Share-based payment ,393 4, ,550 3,517 parent company Board of Manage- Other Board of Manage- Other Directors ment executives Directors ment executives Salaries 607 3,335 3, ,496 2,390 Pensions defined contribution plans Other social security costs Share-based payment ,393 3, ,550 2,545 Management and a number of executives are covered by bonus and severance schemes. The bonus schemes are tied to predetermined performance targets. If members of Management and three executives resign in connection with a takeover of the Company, e.g. if the Company merges with or in any other way is combined with one or more companies outside NORDEN, a special severance payment will be paid for a one-year notice period, corresponding to one year s salary (two years salary for the president) in addition to the usual salary. See note 37, which describes the share option programme for members of management. 67

73 Notes to the financial statements group parent company Note Amounts in USD Profits from the sale of vessels, etc. Profit from the sale of vessels 94,658 29,429 48,055 12,672 Profit from the sale of newbuildings on delivery 25,428 20, Profit from the sale of fixtures, fittings and equipment ,104 49,757 48,071 12,672 8 Depreciation Vessels 13,492 10,607 10,429 7,908 Vessels acquired under finance leases 1,080 1,434 1,080 1,434 Buildings Fixtures, fittings and equipment 1,627 1,188 1,516 1,102 16,291 13,328 13,117 10,543 9 Share of results of joint ventures Norient Product Pool A/S, Denmark Nortide Shipping Ltd., Bermuda 8, Norient Cyprus Ltd., Cyprus 0 - ANL Maritime Services Pte. Ltd., Singapore -3-8, Including profits from the sale of vessels 7, Fair value adjustment of certain hedging instruments Fair value adjustment of derivative financial instruments that do not qualify for hedge accounting amounts to: Bunker hedging: ,499-7, ,057-6, ,690-14,690 - Forward Freight Agreements: ,275-11,275-11,275-11,275 - Fair value adjustment at 31 December 25,965-25,965 - In addition to the above fair value adjustments, fair value adjustments of hedging instruments entered into before 31 December 2004 relating to 2006 and future years are recognised in equity up to the realisation date in accordance with the exemption provision in IFRS 1. See also the description in Accounting policies. 68 norden consolidated and parent company accounts

74 group parent company Note Amounts in USD Financial income Dividends Interest income 4, ,300 1,104 Exchange rate adjustments 0 2, ,510 4,094 3,446 3,305 3, Financial costs Interest costs, non-current debt etc. 4,978 5,937 5,045 5,481 Exchange rate adjustments 7, , ,178 5,937 12,238 5, Taxation Tax on the profit for the year 10,253 2,966 9,902 2,731 Adjustment of tax regarding previous years Recognised tax according to income statement 9,557 2,966 9,206 2,731 Tax on equity entries Tax for the year 9,557 3,941 9,206 3,706 Which is broken down as follows: Profit before tax 345, , , ,858 of which under the tonnage tax scheme -223, , , , ,103 43,399 1, Calculated tax of this, 28% (2004: 30%) 34,189 13, Higher/lower tax rate in subsidiaries -33,280-12, Interest adjustment under the tonnage tax scheme Profits from the sale of vessels 7, , ,639 1,308 8,288 1,073 Tonnage tax 1,614 1,658 1,614 1,658 10,253 2,966 9,902 2,731 Tax on equity entries is broken down as follows: Capital gains on shares The Company joined the tonnage tax scheme at 1 January 2001 for a binding period of 10 years. Contingent tax under the tonnage tax scheme 16,606 20,396 16,606 20,396 Contingent tax is calculated at 28% (2004: 30%) equalling the current tax rate. If the Company s net investment in vessels decrease noticeably or if the Company is wound up, recaptured depreciation from before the Company joined the tonnage tax scheme will be taxed. 69

75 Notes to the financial statements group parent company Note Amounts in USD Earnings per share (EPS) Basic Profit for the year for NORDEN s shareholders 336, , , ,127 Weighted average number of shares (thousands) 2,178 2,234 2,178 2,234 Earnings per share (USD per share) Diluted Weighted average number of shares (thousands) 2,178 2,234 2,178 2,234 Adjusted for: share options (thousands) Weighted average number of shares for diluted earnings per share (thousands) 2,195 2,280 2,195 2,280 Diluted earnings per share (USD per share) Land and buildings Cost at 1 January 4,429 4,236 4,429 4,236 Additions for the year Cost at 31 December 4,436 4,429 4,436 4,429 Depreciation at 1 January Depreciation for the year Depreciation at 31 December Carrying amount at 31 December 4,069 4,154 4,069 4, Vessels Cost at 1 January 207, , , ,329 Transferred during the year from prepayments on vessels and newbuildings 84,833 18, Transferred during the year to tangible assets held for sale -16, ,536 0 Additions for the year 198,730 39, ,807 18,564 Disposals for the year -235,956-42, ,092-22,701 Cost at 31 December 238, , , ,192 Depreciation at 1 January -28,015-22,304-25,186-21,560 Depreciation for the year -13,492-10,607-10,429-7,908 Reversed depreciation on vessels disposed of 11,362 4,896 7,228 4,282 Depreciation at 31 December -30,145-28,015-28,387-25,186 Carrying amount at 31 December 208, , , ,006 Amount insured in USD millions norden consolidated and parent company accounts

76 group parent company Note Amounts in USD Vessels acquired under finance leases Cost at 1 January 30,000 30,000 30,000 30,000 Cost at 31 December 30,000 30,000 30,000 30,000 Depreciation at 1 January -2, , Depreciation for the year -1,080-1,434-1,080-1,434 Depreciation at 31 December -3,192-2,112-3,192-2,112 Carrying amount at 31 December 26,808 27,888 26,808 27, Fixtures, fittings and equipment Cost at 1 January 7,869 5,160 7,403 4,834 Additions for the year 1,649 3,039 1,421 2,780 Disposals for the year Cost at 31 December 8,541 7,869 7,964 7,403 Depreciation at 1 January -2,817-1,731-2,633-1,592 Depreciation for the year -1,627-1,188-1,516-1,102 Reversed depreciation on assets disposed of Depreciation at 31 December -3,755-2,817-3,544-2,633 Carrying amount at 31 December 4,786 5,052 4,420 4, Prepayments on vessels and newbuildings Cost at 1 January 42,477 43,118 30,511 29,648 Additions for the year 137,063 44,725 4,793 18,073 Disposals for the year 0-19,559-1,239-17,210 Transferred during the year to vessels -82,108-18, Transferred during the year to tangible assets held for sale -1,875-7,083-1,875 0 Carrying amount at 31 December 95,557 42,477 32,190 30,511 71

77 Notes to the financial statements group parent company Note Amounts in USD Investments in subsidiaries Cost at 1 January ,615 17,615 Cost at 31 December ,615 17,615 Carrying amount at 31 December ,615 17,615 Consolidated subsidiaries comprise: Ownership Ownership NORDEN Tankers & Bulkers Pte. Ltd., Sgp. 100% 100% NORDEN Tankers & Bulkers Ltd., USA 100% 100% NORDEN Tankers & Bulkers Ltd., Brazil 100% 100% NORDEN Tankers & Bulkers Pvt. Ltd., India 100% 100% Nordhval Pte. Ltd., Singapore 100% 100% Nordholm Pte. Ltd., Singapore 100% 100% Nordafrika Pte. Ltd., Singapore 100% 100% Normit Shipping S.A., Panama 51% 51% Guarantees relating to subsidiaries , ,323 No significant restrictions apply to distributions from subsidiaries. 21 Investments in joint ventures Cost at 1 January 3,643 3,600 3,643 3,600 Additions for the year Cost at 31 December 3,745 3,643 3,644 3,643 Value adjustments at 1 January 6,316 6, Share of results for the year 8, Value adjustments at 31 December 14,593 6, Carrying amount at 31 December 18,338 9,959 3,644 3,643 The carrying amount is specified as follows: Nortide Shipping Ltd., Bermuda 18,443 9,916 3,600 3,600 Norient Product Pool A/S, Denmark Norient Cyprus Ltd., Cyprus ANL Maritime Services Pte. Ltd., Singapore ,338 9,959 3,644 3, norden consolidated and parent company accounts

78 group parent company Note Amounts in USD Investments in joint ventures continued Investments in joint ventures comprise: Ownership Ownership Ownership Ownership Nortide Shipping Ltd., Bermuda 50% 50% 50% 50% Norient Product Pool A/S, Denmark 50% 50% 50% 50% Norient Cyprus Ltd., Cyprus 50% - 50% - ANL Maritime Services Pte. Ltd., Singapore 50% Key figures (100%) for joint ventures: Revenue and other income 24,517 5,279 24,431 5,279 Costs 7,962 4,890 7,870 4,890 Non-current assets 2, ,150 0 Current assets 6,414 19,853 6,373 19,853 Non-current liabilities Current liabilities 8, ,413 0 No significant restrictions apply to distributions from joint ventures. NORDEN has issued no guarantees or security to joint ventures. In addition, the Group and the parent company participate in normal profit sharing agreements (joint venture operations). No contingent liabilities or contribution requirements are related to joint ventures or profit sharing agreements. 22 Other receivables Non-current Other receivables : Carrying amount 3, ,850 0 Fair value 3, ,850 0 Maturities: Between 1 and 5 years: 3, , , , Receivables All receivables are expected to be realised within one year and carry no interest. The receivables have not been written down. 24 Securities Shares 2, , Bonds , ,

79 Notes to the financial statements group parent company Note Amounts in USD Cash and bank balances Current bank deposits 312, , ,664 82,633 Other cash , , ,757 82,696 Weighted average interest rate on current bank deposits, year-end 4% 2% 4% 2% Current bank deposits at year-end have an average term of 7 days 7 days 7 days 7 days As security for current accounts with Norwegian Future and Options Clearing House (NOS), cash and bank balances have been lodged in the amount of 1,346 5,009 1,346 5, Tangible assets held for sale Carrying amount at 1 January 7, Additions for the year, prepayments on vessels and newbuildings 1,875 7,083 1,875 0 Additions for the year, vessels held for sale. 16, ,536 0 Transferred during the year to vessels -2, Disposals for the year -4, Carrying amount at 31 December 18,411 7,083 18,411 0 Tangible assets held for sale comprise two vessels for delivery in the first quarter of Reserves Securities: Fair value adjustment at 1 January Fair value adjustment for the year Fair value adjustment at 31 December Hedging instruments: Fair value adjustment at 1 January -7, , Transferred to the income statement 6,490-1,184 6,490-1,184 Fair value adjustment for the year -1,085-5,803-1,085-5,803 Fair value adjustment at 31 December -2,214-7,619-2,214-7,619 Fair value adjustment at 31 December -1,730-7,347-1,730-7,347 Unrealised fair value adjustments of listed securities and exchange rate adjustment of unlisted securities denominated in foreign currencies are recognised in equity until realised. Reserve for hedging transactions comprises fair value adjustments of interest rate swaps and forward exchange transactions qualifying for hedge accounting as well as fair value adjustments of FFAs and bunker hedging contracts entered into before 31 December 2004 regarding transactions that will be realised in 2006 and onwards. The individual hedging transactions are recognised in equity until realisation. See also the description in the accounting policies section. 74 norden consolidated and parent company accounts

80 Note Amounts in USD' Equity The share capital consists of 2,303,750 shares of a nominal value of DKK 20 each. No shares are subject to any special rights or restrictions. Treasury shares Number of shares Nominal value (DKK 000) % of share capital 1 January 102, ,250 2,057 2, Purchased 63,718 12,960 1, Sold -24,813-31, December 141, ,860 2,835 2, The Company is authorised by the general meeting to acquire a maximum of 230,375 treasury shares, equal to 10% of the share capital. Treasury shares are among other things acquired for the purpose of share-based payment. See note 37 to the financial statements In 2005, the Company acquired 63,718 treasury shares, equalling a purchase price of DKK 200,793 thousand (USD 34,544 thousand). Furthermore, the Company has sold 24,813 treasury shares equalling a selling price of DKK 7,157 thousand (USD 1,245 thousand). In 2004, the Company acquired 12,960 treasury shares equalling a purchase price of DKK 32,990 thousand (USD 5,598 thousand). Furthermore, the Company sold 31,350 treasury shares equalling a selling price of DKK 8,549 thousand (USD 1,410 thousand). Of the Company s portfolio of outstanding shares, 22,921 have been lodged as security with Vækstfonden in connection with the employees exercise of share options comprised by the Company s share option programme. The shares can be released for cash at the share price existing from time to time. Vækstfonden has the right to receive dividends as long as the shares are lodged. The Company has 2,200,890 outstanding shares at 1 January 2005 of DKK 20 each and 2,161,985 shares at 31 December 2005 of DKK 20 each. group parent company Provision for docking costs (Bareboat) Balance at 1 January Provided during the year Utilised during the year The terms of provisions are expected to be as follows: Within one year Between 1 and 5 years

81 Notes to the financial statements group parent company Note Amounts in USD Non-current liabilities and current bank debt Interest-bearing liabilities are included in the following items: Non-current liabilities 36,697 66,901 36,697 66,901 Non-current lease liabilities 24,442 24,746 24,442 24,746 Current portion of non-current debt 7,689 11,325 7,689 11,325 Current bank debt 44,553 15,000 44,553 15, , , , ,972 Loan agreements contain a special clause that the market values of vessels are to correspond to a minimum of between 110% and 115% of the outstanding debt (Minimum Value Clause). Mortgages and security provided in relation to liabilities are disclosed in note 33 below. Interest rate risk on the liabilities has been rescheduled from less than one year to between 2 and 3 years, as shown in note 35 below. The Group s loans at the balance sheet date carry a floating rate of interest at USD LIBOR. The floating rate of interest is calculated on a quarterly or a six-month basis. Non-current liabilities and current portions of these, excluding finance lease liabilities, amount to: Carrying amount 43,688 76,040 43,688 76,040 Fair value 43,688 76,040 43,688 76,040 The terms to maturity are: Within one year 6,990 9,139 6,990 9,139 Between 1-5 years 27,960 36,557 27,960 36,557 More than 5 years 8,738 30,344 8,738 30,344 43,688 76,040 43,688 76,040 Terms to maturity for finance lease liabilities: GROUP 2005 GROUP 2004 Lease Carrying Lease Carrying payment Interest amount payment Interest amount Within one year 3,286 2, ,286 1,100 2,186 Between 1-5 years 28,859 4,417 24,442 27,027 2,281 24,746 32,145 7,004 25,141 30,313 3,381 26,932 Fair value 28,741 27, norden consolidated and parent company accounts

82 Note Amounts in USD' Non-current liabilities and current bank debt continued PARENT COMPANY 2005 PARENT COMPANY 2004 Lease Carrying Lease Carrying payment Interest amount payment Interest amount Within one year 3,286 2, ,286 1,100 2,186 Between 1-5 years 28,859 4,417 24,442 27,027 2,281 24,746 32,145 7,004 25,141 30,313 3,381 26,932 Fair value 28,741 27,290 The fair value has been calculated on the basis of discounted cash flows using a discount factor based on the borrowing rate expected by management at the balance sheet date. The fair values of current loans and current lease liabilities are assumed to be expressed by nominal values. The lease liability comprises a vessel with a purchase option exercisable in On this vessel, NORDEN also has a put option against the Company, which is also exercisable in The purchase option will be exercised in 2008, as the Company has signed an agreement to sell the vessel at that time. group parent company Deferred income Non-current deferred income: Carrying amount 4, Fair value 4, Terms: Between 1-5 years 4, , Prepayments received on vessels for resale Non-current prepayments received on vessels for resale Carrying amount 3, ,850 0 Fair value 3, ,850 0 Terms: Between 1-5 years 3, , , ,

83 Notes to the financial statements Note Amounts in USD Operating lease liabilities, Group Lease liabilities relating to delivered vessels on timecharter with purchase options: Number of delivered vessels with purchase options Dry cargo Tankers Total Dry cargo Tankers Total Within one year Between 1-5 years More than 5 years Charter hire including daily operating costs (excl. value of purchase option) Dry cargo Tankers Total Dry cargo Tankers Total Within one year 61,267 9,636 70,903 74,231 9,588 83,819 Between 1-5 years 154,928 19, , ,262 28, ,046 More than 5 years 35, ,876 16, ,918 Total 252,071 29, , ,411 38, ,783 Leases have been entered into with a mutually interminable lease period of up to 10 years. As a general rule, leases include an option to renew for one additional year at a time for up to three years. Leases include purchase options, typically exercisable as from the end of the third year to the expiry of the period of renewal. Exercise of the purchase option on the individual vessel is based on an individual assessment. None of the leases comprise contingent lease payments. Lease liabilities relating to delivered vessels on timecharter without purchase options: Number of delivered vessels without purchase options Dry cargo Tankers Total Dry cargo Tankers Total Within one year Between 1-5 years More than 5 years Charter hire, vessels on timecharter Dry cargo Tankers Total Dry cargo Tankers Total Within one year 193,519 23, , ,197 28, ,875 Between 1-5 years 62,683 40, ,912 72,334 39, ,400 More than 5 years Total 256,202 63, , ,531 67, ,275 Number of vessels on bareboat charter Dry cargo Tankers Total Dry cargo Tankers Total Within one year Between 1-5 years More than 5 years norden consolidated and parent company accounts

84 Note Amounts in USD Operating lease liabilities, Group continued Charter hire, vessels on bareboat charter Dry cargo Tankers Total Dry cargo Tankers Total Within one year 0 3,768 3, ,380 4,380 Between 1-5 years ,768 3,768 More than 5 years Total 0 3,768 3, ,148 8,148 Operating lease payments in the form of charter hire including daily operating costs recognised in the income statement for the financial year is disclosed in note 4 above. Lease liabilities relating to vessels not delivered: Number of vessels not delivered Dry cargo Tankers Total Dry cargo Tankers Total Within one year Between 1-5 years More than 5 years Lease liability on vessels not delivered Dry cargo Tankers Total Dry cargo Tankers Total Within one year 33,752 9,917 43,669 32, ,043 Between 1-5 years 441, , , ,333 37, ,381 More than 5 years 337, , , ,438 25, ,064 Total 812, ,683 1,067, ,222 63, ,488 79

85 Notes to the financial statements group parent company Note Amounts in USD Other contingent liabilities Guarantee commitments do not exceed The Company has entered into agreements for future delivery of newbuildings amounting to 266, ,620 97,650 97,650 Cargo claims have been made against the Company. The Company and its legal advisors consider the claims unjustified and do not perceive that the Company will incur any losses as a result of the actions for damages. The maximum risk is assessed to be 11,277 11,277 11,277 11, Mortgages and security As security for non-current liabilities 43,688 76,040 43,688 76,040 a total number of vessels of with a carrying amount of 75, ,936 75, ,936 have been mortgaged at 105, , , ,960 Finance lease assets with a carrying amount of 26,808 27,888 26,808 27,888 are provided as security for lease liabilities of 25,141 26,932 25,141 26, COAs and operating lease income At 31 December, the Group had entered into COAs with customers amounting to: Dry cargo Tankers Total Dry cargo Tankers Total Within one year 157, , , ,964 Between 1-5 years 71, ,180 86, ,528 More than 5 years Total 228, , , ,492 The Group has operating lease income amounting to: Dry cargo Tankers Total Dry cargo Tankers Total Within one year 104,040 46, , ,266 34, ,124 Between 1-5 years 79,747 80, , ,111 37, ,405 More than 5 years 0 7,751 7,751 2, ,138 Total 183, , , ,515 72, , norden consolidated and parent company accounts

86 Note Amounts in USD Financial instruments To hedge recognised and unrecognised transactions, the Group uses hedging instruments such as forward exchange contracts, interest rate swaps, FFAs and bunker hedging agreements. For more information on the Company s overall risk management, see the description in the management s review. Recognised transactions and currency exposure Receivables and payables in other currencies than USD amount to a net payable of USD 3,837 thousand (2004: USD 3,806 thousand), which is not hedged. Future transactions The Group s real currency exposure arises on costs not incurred in USD. The amount of the exposure is the equivalent value of USD 63 million, excluding dividend (2004: USD 40 million). It is the Group s policy to hedge these costs for a period of 6-24 months, depending on the development of the USD rate. In addition, the Company has agreed to purchase a vessel for delivery in the first quarter of The purchase is to be settled in JPY. To hedge this transaction, the Company has entered into hedging transactions in the amount of JPY 3,975 million, the equivalent of USD 37 million Forward exchange transactions Trading portfolio Cash flow hedge DKK/USD USD/JPY Contractual value 30,000 30,000 36,510 0 Market value: Contracts with an unrealised gain (asset) 1,369 6, Contracts with an unrealised loss (liability) 0 0 2,686 0 Recognised in equity at 31 December 0 0-2,686 0 The purpose of the trading portfolio is to hedge the Group s income and expenses denominated in DKK. All contracts entered into have a term to maturity of less than six months from the balance sheet date. Gains and losses on hedging transactions taken to the fair value reserve are recognised in the balance sheet at the same time as the hedged item as an addition/a deduction from cost. Recognition will happen within six months of the balance sheet date. Interest risk The Group s surplus cash is accumulated in USD as it is expected to be reinvested in vessels. As the Group wishes to limit its financial exposure, it has adopted the policy of fixing the interest rate for a period varying between two and six years for the Group s total loan portfolio excluding vessels acquired under finance leases. 81

87 Notes to the financial statements Note Amounts in USD Financial instruments continued Interest rate swaps cash flow hedging Contractual value (outstanding debt) 43,688 76,040 Market value: Contracts with an unrealised gain (asset) 57 0 Contracts with an unrealised loss (liability) 107 1,652 Recognised in equity at 31 December -50-1,652 All contracts entered into have a term to maturity of two to three years from the balance sheet date. At 31 December 2005, the fixed rate of interest is between 3.7% and 5.2% and the floating rate is primarily LIBOR. Gains and losses on hedging transactions taken to the fair value reserve are recognised in the income statement at the same time as the payment of interest on the underlying loans. Commodity instruments In the management of the Group s exposure to fluctuations in freight rates and oil prices, the Group enters into derivative financial instruments to hedge against such exposure. In connection with the Company s transition to IFRS, it is no longer possible to defer the effect in the income statement of value adjustments of bunker hedging contracts and FFAs to the date of the hedged transaction. Changes in the fair value of the hedging instruments will therefore be recognised in a separate item, Fair value adjustment of certain hedging instruments. Accordingly, in equity at the end of 2005 remains only the value at 31 December 2004 of the hedging instruments not yet realised at the end of Contractual value Recognised in equity at 31 December Forward Freight Agreements purchase 8,761 3, Forward Freight Agreements sale 56,133 47,649-2,840-10,912 Bunker hedging contracts purchase 54,389 42,841 3,364 5,422 Bunker hedging contracts sale Credit risk The Group s credit risk relates primarily to freight receivables, prepaid T/C hire, prepayments to shipyards for newbuildings and cash and bank balances. Generally, the Group s receivables are spread so that there is no concentration of credit exposure on any single customers. The amounts at which the mentioned items are stated in the balance sheet correspond to the Group s maximum credit exposure. The Group s credit exposure in relation with derivative financial instruments, including commodity instruments, is limited by the fact that these have been entered into with major Nordic banks with a high credit rating or with major, well-known manufacturers, shippers, consigneees and traders with a satisfactory credit rating. 82 norden consolidated and parent company accounts

88 Note Amounts in USD Related party disclosures and transactions with related parties The Company has no related parties exercising control. The Company s related parties exercising a significant influence comprise the companies Boards of Directors, Managements and executives and their relatives. Related parties also include companies in which the above persons have significant interests. Related parties also comprise the related parties of subsidiaries and joint ventures shown in notes 20 and 21, over which NORDEN exercises either control or a significant influence. group parent company Trading and accounts with related parties comprise: Sales of services - subsidiaries ,321 17,805 - joint ventures 2, ,180 0 Purchases of goods and services - subsidiaries - - 3,209 3,286 - joint ventures Interest received from subsidiaries Interest paid to - subsidiaries joint ventures Amounts owed by related parties - subsidiaries - - 3,694 44,214 - joint ventures 2,234 1,715 2,234 1,715 Amounts owed to related parties - subsidiaries ,046 1,849 - joint ventures 17, ,000 8 Dividends paid to related parties - A/S Motortramp 10,311 26,653 10,311 26,653 - Rasmussengruppen AS 8,018-8,018-83

89 Notes to the financial statements Note Amounts in USD Related party disclosures and transactions with related parties continued The stated transactions with subsidiaries are eliminated in the consolidated financial statements. Guarantees and security is mentioned in notes 20 and 21. Management remuneration Remuneration and share-based payment for the Board of Directors, Management and other executives are mentioned in notes 6 and 37. No other transactions took place during the year with the Board of Directors, Management or other executives. 37 Share-based payment Employee shares At the end of 2005, the Group set up an employee share scheme for its employees. The shares were allotted from the Company s holding of treasury shares. Employee shares were given to all permanent employees who at 1 December 2005 were not under notice and who at that date had at least 12 months seniority with the Company. Each employee received six shares, and a total of 888 shares were allotted. The price per share at the allotment date was DKK 2, The fair value of the allotted employee shares, which has been expensed, is USD 418 thousand. Share option programme As from 2001, the Company had established an incentive programme by way of share options offered to the Board of Directors (7 persons) the Management (2 persons) and other executives (6 persons). The share option programme was expanded in 2002 by 1,200 share options as a result of an increase of the number of board members, and the share option programme at 31 December 2002 therefore comprises a total of 97,012 share options. Each share option entitles the holder to acquire one share of DKK 20 in the Company. The share option programme corresponds to a right to acquire 4.21% of the share capital if all options are exercised. The share options were granted in equal portions at four different dates, twice in 2001, once in 2002 and once in The value of the share options granted to each of the above persons equals a specified percentage of that person s annual pensionable salary or emolument for The share options for 2003 (fourth round) were granted at 24 March The share options are funded by the Company through the acquisition of treasury shares. The option prices for the grant dates have been fixed at the average market price (price all deals at 5 p.m.) of the Company s shares listed at the Copenhagen Stock Exchange for the ten days following the Company s announcement of its financial statements for the financial year preceding the respective grant year. The share options may be exercised after at least three years and no more than five years from the respective grant dates. The Management and other executives may exercise their options on condition that the person in question is not under notice at the exercise date. Special provisions apply in case of illness or death. The granting of share options to the Board of Directors was approved at the annual general meeting on 2 May norden consolidated and parent company accounts

90 Note Amounts in USD Share-based payment continued The change in the number of outstanding shares and their weighted average exercise price is as follows: Average Average exercise price in Number of exercise price in Number of DKK per share options DKK per share options Outstanding at 1 January , ,012 Granted during the period Lapsed during the period Exercised during the period , ,906 Expired during the period Outstanding at 31 December , ,106 For the options exercised in 2005, the average market price at the exercise date was DKK 3, Outstanding shares are composed as follows at 31 December 2005: Number of shares Board of Other Directors Management executives Total Granted 22 March , ,200 Granted 24 March ,100 5,066 7,450 17,616 Outstanding at 31 December ,300 5,066 7,450 18,816 Exercise price per option, DKK Number Exercise period Granted 22 March ,200 22/ / Granted 24 March ,616 24/ / Outstanding at 31 December ,816 The fair value of granted share options in 2003 is recognised in the income statement over the vesting period and set off against equity. The expense for the year is USD 125 thousand*. * The calculated fair value at the grant date is based on the Black-Scholes option valuation model. The calculation at 31 December 2003 was based on the following assumptions: - That all options are granted and that the options are exercised at the earliest opportunity - A volatility of 40.8% - A dividend of 500% - A risk-free interest rate of 2.5% 85

91 Notes to the financial statements group parent company Note Amounts in USD Share-based payment continued The expected volatility is based on the historical volatility (calculated at the weighted average remaining term of granted share options) adjusted for expected changes to this resulting from publicly available information. The expected term is based on the historical term of previously allotted share options. The expected dividend per share is based on historical dividends. The risk-free interest rate is based on Danish government bonds. The expected volatility is based on the historical volatility (calculated at the weighted average remaining term of granted share options) adjusted for expected changes to this resulting from publicly available information. 38 Change in working capital Inventories on board vessels -6,961-6,103-7,110-5,905 Freight and other receivables, etc. 12,954-48,047 58,213-82,836 Trade and other payables, etc. 32,314 24, ,875 22,803 Fair value adjustments of hedging instruments taken to equity 5,405-6,987 5,405-6,987 43,712-37, ,383-72, Acquisition of investments in subsidiaries NORDEN Tankers & Bulkers Pte. Ltd., Singapore on 30 June 2004 acquired 34% of the subsidiary Nordafrika Pte. Ltd., Singapore and subsequently wholly owns the company. 40 Dividends The amount available for distribution as dividends comprises: Retained earnings 428, ,876 Reserves -1,730-7,347 Available for distribution 426, ,529 Dividends paid in 2005 and 2004 amount to USD 40,036 thousand (DKK 100 per share) and USD 103,578 thousand (DKK 275 per share including extraordinary dividend), respectively. The proposed dividend for 2005 is USD 72,856 thousand (DKK 200 per share). The proposed dividend for 2005 will be considered at the annual general meeting on 25 April The proposed dividend has not been recognised in the financial statements. 86 norden consolidated and parent company accounts

92 Definitions of key figures and financial ratios The financial ratios were computed in accordance with guidelines issued by the Danish Society of Financial Analysts entitled Anbefalinger & Nøgletal 2005 ( Recommendations & Ratios 2005 ). The ratios listed in the key figures and ratios section were calculated as follows: Return on invested capital (ROIC) = Profit or loss before tax and financial items Average invested capital Return on assets = Profit or loss from operations x 100 Total assets at year-end Share price at year-end per DKK 20 share = The last-quoted average share price on the Copenhagen Stock Exchange for all trade in the Company share at the balance sheet date Return on equity (ROE) = Profit or loss for the year x 100 Average equity excluding minority interests Book value per DKK 20 share = Year-end equity excluding minority interests Number of shares at year-end, excluding own shares Invested capital = Equity incl. minority interests + net interest-bearing debt at year-end Price/book value = Year-end price per DKK 20 share Intrinsic value per DKK 20 share Net asset value (NAV) per share = Equity excluding minority interests + added value of vessels and vessels on order relative to year-end carrying amounts Number of shares excluding own shares at year-end Net interest-bearing debt = Interest-bearing debt minus cash, cash equivalents and securities, at year-end Profit margin = Profit or loss from operations x 100 Net revenues Payout-ratio = Dividend x 100 Profit for the year, excluding minority interests Net profit per DKK 20 share = Profit or loss for the year Number of shares excluding own shares, at year-end Equity ratio = Equity at year-end excluding minority interests x 100 Total assets Dividend per DKK 20 share = Dividend yield x nominal share value 100 Dividend yield for the year = Parent company dividend yield The US dollar exchange rate at year-end = The US dollar exchange rate quoted on the Copenhagen Stock Exchange at the balance sheet date 87

93 Technical terms and abbreviations A B Aframax Tankers in the order of 80, ,000 dwt, typically vessels with load capacities of 600,000 barrels of crude oil. Baltic Dry Index Index of the rate development for Handymax, Panamax and Capesize. Bulk/Dry cargo Expression for bulk commodities. A term for everything stowed in bulk without packaging. Bulkcarrier/Dry cargo vessel A vessel with no twin-deck, used for bulk transport of grain, coal, ore, sugar, cement etc. Bunker Fuel used by the vessel. L M O IMO International Maritime Organisation international shipping organisation under the UN. Loading contract Agreement to transport one or more cargoes at a predetermined price per ton. Lorentzen og Stemoco Shipbroking company. MR (medium range) Product Product carriers for transport of refined oil products in the order of 35,000-50,000 dwt. OECD The Organisation for Economic Co-operation and Development. An association of the most industrialised nations with the main purpose of achieving increased economic growth. Bunker hedging Forward agreement to purchase or sell bunker oil at a predetermined price. C Capesize An indication of the size of a bulkcarrier 100, ,000 dwt. Charterer The party chartering a vessel, e.g. a cargo owner leasing the vessel for one voyage or for a short or long period. Charter party Lease or freight agreement between shipowner and charterer. Clarkson Shipbroking company. COA Contract of Affreightment. Agreement to transport one or more cargoes at a predetermined price per ton. The Company/The Group Dampskibsselskabet NORDEN A/S. P R Panamax Bulkcarrier of about 60, ,000 dwt. The largest type of vessel able to pass through the Panama Canal. Pool A group of vessels with similar characteristics, with different owners but commercially operated together. Product Tank The part of the tank segment covering voyages with refined oil products, including jet fuel, naphtha, diesel and gas oils. Purchase option A right, but not an obligation to purchase a vessel at a predetermined price. ROE Return On Equity. ROIC Return On Invested Capital. RS Platou Shipbroking company. D E F H I Dry cargo Transport of non-liquid cargo, for example bulk commodities such as grain, coal, ore, sugar and cement. Dwt Deadweight ton. A measure of a vessel s carrying capacity. EBIT Earnings Before Interest and Tax. EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation. FFA Forward Freight Agreement to purchase or sell the transport of cargo for a particular type of vessel and route at a predetermined price. Handymax An indication of the size of a bulkcarrier. 40,000-60,000 dwt. IAS International Accounting Standards. S T Secondhand Means used in relation to tonnage etc. Shipping Designates maritime activities. Spot market Market in which vessels are contracted for a single voyage for immediate delivery. SR (short range) Product Product tankers for transport of refined oil products in the order of 25,000-35,000 dwt. The term SR is used for tankers and corresponds to Handysize for bulkcarriers. SSY Shipbroking company. Super Handymax Handymax in the size of 50,000-60,000 dwt. Tank General designation of all vessels transporting oil, both crude oil and refined products. IEA International Energy Agency. IFRS International Financial Reporting Standards. IMD International Institute for Management Development. T/C Timecharter A lease of a vessel whereby the vessel is hired out for a short or long period. Timecharter equivalent Freight revenues reduced by bunker oil consumption and port charges, stated per day. IMF International Monetary Fund. Ton - Mile The distance covered by a quantity of cargo. Translation of Danish original. In case of any inconsistencies, the Danish version shall be governing. 88 norden consolidated and parent company accounts

94 Design and production Boje & Mobeck as Print PrintDivision A/S

95 Dampskibsselskabet NORDEN A/S Amaliegade 49 DK-1256 Copenhagen K Denmark Telephone: Fax: CVR no