Danish Ship Finance A/S (Danmarks Skibskredit A/S) 6 March 2006

Transcription

1 Danish Ship Finance A/S (Danmarks Skibskredit A/S) 6 March 2006 Announcement no. 2, 2006 Announcement of annual financial results The Board of Directors of Danish Ship Finance A/S (Danmarks Skibskredit A/S) has today considered the annual report for The annual report is presented in accordance with the Executive Order on Danish Ship Finance issued by the Danish Ministry of Economic and Business Affairs. The comparative figures are identical to those in the annual report for 2004 of Danish Ship Finance. The accounting policies are unchanged from those applied by Danish Ship Finance (Danmarks Skibskreditfond) for the 2004 financial year. Dividends of DKK million have been proposed for the financial year. The annual report will be submitted for approval to the general meeting to be held on 24 April Key figures, DKK million Danish Danish Ship Finance A/S Ship Finance Net interest income from lending operations Net interest income from financing operations Total net interest income Net interest and fee income Market value adjustments (148) (23) (83) Staff costs and administrative expenses (80) (74) (71) (65) (57) Provisions for bad and doubtful debts (44) 38 (390) Profit before tax 399 1, Profit for the year Loans 37,200 35,445 36,981 39,728 38,839 Capital and reserves 8,962 9,486 8,580 8,276 7,715 Total assets 62,530 59,907 64,810 60,232 57,969 Solvency ratio Return on equity

2 2 Return on equity is calculated as the profit for the year as a percentage of the average capital and reserves for the year. The guarantee capital, which amounted to DKK 300 million until 12 July 2005 when it was cancelled, is not included in the calculation of average capital and reserves for use in calculating return on equity. The key figures for are for Danish Ship Finance, whereas the figures for 2005 represent figures for the converted company Danish Ship Finance A/S. Upon the conversion, a profit totalling DKK 1,610 million was repaid to the Danish government and Danmarks Nationalbank. The repayment affected the capital and reserves recognised at 31 December The comparative figures have not been restated. The background for the conversion and the process involved are described in Activities During the Year. Activities During the Year Shipping market trends Unlike the very positive trends in 2004, the year 2005 did not bring the same unambiguous progress in the freight markets. Especially in the core segments of tanker, dry cargo and containers, growth in demand for transport started to weaken owing, among other factors, to weaker import growth in China, Europe and the USA. Freight rates were therefore adversely affected by the relatively stronger growth in fleets. However, freight rates remain relatively high. For some of the small segments, including LPG and especially the offshore sector, 2005 brought considerable progress on the back of the high energy prices. For 2005 as a whole, shipowners continued to improve their financial strength measured in terms of cash resources as well as solvency. Lending activity Again in 2005, Danish Ship Finance A/S recorded a substantial increase in the number of new customers even in a highly competitive market. This progress is considered to reflect broad acceptance of the company s business model, which builds on an obligation to provide loans to the shipping industry on a prudent basis. New lending amounted to DKK 11.7 billion compared with DKK 7.1 billion in The increase was attributable to a higher volume, but with more than 85% of new lending being granted in USD, the appreciation of the US dollar during the year also had a positive impact on the DKK-value of new lending. The company posted an increase in the balance for gross lending to DKK 36.2 billion from DKK 30.9 billion at the end of Using the exchange rate of the US dollar at 31 December 2004, the increase amounted to DKK 1.4 billion. So although 2005 brought higher prepayments than in previous years, the company managed to increase its lending volume. 2

3 3 Accepted loan offers represented the equivalent of DKK 13.3 billion as compared with DKK 12.3 billion in 2004 translated at year-end exchange rates. In 2005, international transactions accounted for most of the loan offers. At the end of the year, the holding of accepted loan offers that remained to be disbursed amounted to the equivalent of DKK 10.6 billion. Conversion into a limited liability company In January 2005, Danish Ship Finance, the Danish Ministry of Economic and Business Affairs and Danmarks Nationalbank (the Danish central bank) signed an agreement to convert Danish Ship Finance into a limited liability company. The main objective of the conversion was to reform the framework for the company s future operations, including a partial adjustment of the rules to match the rules applicable to other financial businesses. The conversion into a limited liability company took place through a merger with a whollyowned subsidiary, which then became the continuing company. The subsidiary Danish Ship Finance A/S adopted all agreements of the foundation Danish Ship Finance under the principles of universal succession. The merger was given final approval by the supreme authority of Danish Ship Finance, the Board of Representatives, and by the company s Board of Directors on 12 July 2005, but had retroactive effect from 1 January In connection with the conversion, the share capital of Danish Ship Finance A/S was raised to DKK million. A shares with a nominal value of DKK million were offered to Danish Ship Finance s guarantors, which included Danish banks, Danmarks Nationalbank, Danish shipyards and shipowners and Danish insurance companies. B shares with a total nominal value of DKK 33.3 million were granted to a newly established operating foundation Den Danske Maritime Fond (the Danish maritime fund). The establishment of the fund and the allocation of shares formed part of the agreement between Danish Ship Finance, the Danish Ministry of Economic and Business Affairs and Danmarks Nationalbank. In connection with the merger, the bulk of Danish Ship Finance s capital and reserves at 31 December 2004 was transferred to Danish Ship Finance A/S as tied-up reserves that may only be used to cover losses in Danish Ship Finance A/S when all of the company s distributable reserves have been used up. If at any time the company is dissolved or ceases to provide ship financing, the tied-up reserves shall be applied in accordance with the dissolution object clause of Danish Ship Finance. If such a situation occurs, the reserve will be transferred to Den Danske Maritime Fond, which oversees the fulfilment of the dissolution object. Dissolution or discontinuation to provide ship financing by Danish Ship Finance A/S can only be effected if the financing of ships is no longer possible on a financially prudent basis. As a result of this provision, the company will continue to be a long-term and committed provider of loans to the shipping industry. 3

4 4 In the conversion agreement, it was emphasised that the conversion should not adversely affect the existing high level of security for issued bonds that exists today. The conversion did not impact on the legal position of the financial counterparties or the bonds issued, including gilt-edged bonds. As part of the conversion, it was agreed to repay DKK 1,610 million to the Danish government and Danmarks Nationalbank. The amount equals Danish Ship Finance A/S profit from prepayment of loans raised on OECD terms. If the loans, granted during the period from 1969 to 1984, had been granted directly by a public body, the profit would have accrued to the Danish government. In connection with the conversion, it was therefore resolved to repay the profit. Prior to the conversion, it was necessary to amend the rules that related specifically to Danish Ship Finance. Among other things, it was necessary to replace the executive order on Danish Ship Finance with an executive order on a ship finance institute, which is currently available in a draft version. The new rules are more comprehensive than those that applying to Danish Ship Finance, but the central provisions concerning the company s structure and business platform remain unchanged. Profit and Loss Account and Balance Sheet The profit for the year after tax amounted to DKK million compared with DKK million in The decline in profit after tax relative to the previous year is primarily explained by the reversal in 2004 of large provisions for bad and doubtful debts. Reversals of provisions in 2005 were not of the same magnitude. In addition, the profit for 2005 is affected by higher losses on securities and foreign currency than in The most significant accounting items are described below. Net interest and fee income declined to DKK million from DKK million in The lower income is primarily ascribable to net interest income from financing operations, which fell by DKK 41.8 million due to the general decline in interest rates. Income from lending operations (net interest income and fees and commission income) declined by DKK 7.7 million relative to the year earlier. The decline was due to the fact that in 2005 funding was raised on less favourable terms and conditions than in Market value adjustments of securities and foreign exchange amounted to a loss of DKK million compared with a loss of DKK 22.7 million in The securities portfolio consists of Danish government bonds and mortgage bonds, bonds of a similar high security as well as of a few minor shareholding interests. The overall return on the securities portfolio has been calculated at 3.0% per annum. 4

5 5 Administrative expenses increased by DKK 5.4 million, or 7.3 %, on 2004 to stand at DKK 79.6 million. Of this increase, a little over DKK 5 million is attributable to costs related to the conversion into a limited liability company, so the ordinary expenses were on a level with the year earlier. Provisions for bad and doubtful debts amounted to a net income of DKK 56.1 million compared with a net income of DKK million in Total provisions for bad and doubtful debts fell from DKK 1,102.9 million in 2004 to DKK 1,005.5 million in 2005 after a reduction of actual losses, DKK 48.6 million. All actual losses were covered by provisions at the beginning of the year. Total provisions made up 2.6% of total lending as compared with 3.0 % in Tax for the year represented an expense of DKK million compared with DKK million in Total assets increased to DKK 62,530.2 million from DKK 59,907.3 million at 31 December Lending, calculated at hedged values, increased by DKK 1,663.0 million compared with last year to stand at DKK 38,204.6 million before provisions. The bond portfolio amounted to DKK million, net, against DKK 18,901.5 million the previous year. The increase over 2004 was primarily attributable to the fact that a proportion of the loans granted, but still not disbursed, is invested in short-term bonds until the loans are disbursed. Issued bonds rose from DKK 47,091.2 million to DKK 51,531.9 million at year-end After giving effect to the retained profit for the year, the company s capital and reserves amounted to DKK 8,962.0 million as compared with DKK 9,486.4 million at 31 December As described in the profit allocation, dividends of DKK million have been proposed for the financial year. The proposed dividend is included in capital and reserves but is expected to be disbursed after the approval of the shareholders at the annual general meeting in April 2006, and the amount has therefore been deducted in the solvency calculation below. The share capital, including a premium of DKK 1.1 billion, was fully paid on 12 July In connection with the conversion, DKK million was paid to the Danish government. Moreover, a provision of DKK million has been recognised in the balance sheet in respect of debt to Danmarks Nationalbank. The payment to Danmarks Nationalbank will be charged against the premium on the shares subscribed in Danish Ship Finance A/S. Note 22 in the annual report specifies movements in capital and reserves. The solvency ratio, calculated according to the Executive Order on Danish Ship Finance, stood at 17.5% at 31 December 2005, as compared with the statutory minimum requirement of 10%. At 31 December 2004, the solvency ratio was 22.2%. The draft Executive Order on a ship finance institute, which sets out the rules for Danish Ship Finance A/S, introduces new capital adequacy rules. As a result, the provisions on capital 5

6 6 adequacy set out in section 143 of the Danish Financial Business Act shall apply also for the company. The solvency ratio pursuant to these capital adequacy rules has been calculated at 18.6 % as at 31 December No events have occurred after the balance sheet date that have a material effect on the company s annual accounts. Outlook On the conversion into a limited liability company, the rules for Danish Ship Finance A/S were modernised and aligned to these applying to other institutions. This has given the company more space to manoeuvre in its sphere of activity, opening up for continuing growth in lending operations. As a result, the company can henceforth play a central role in funding the maritime sector. Earnings from lending operations and costs represent fairly predictable amounts, although the former item to some extent is subject to fluctuations in the DKK/USD exchange rate, as the bulk of the company s earnings are generated in this currency. The size of the loan portfolio will depend on the volume of new lending and the level of prepayments. Providing loans to a cyclical industry such as the maritime sector, Danish Ship Finance A/S s financial performance will hinge on movements in provisions for bad and doubtful debts. A slump in the freight markets will rub off on tonnage values and, other things being equal, adversely affect the company's net result. Developments in interest rates on the financial markets affect the price adjustments of the company's securities portfolio and are therefore also of great importance to the company's results. Danish Ship Finance A/S has resolved to continue recent years policy of not issuing quarterly accounts in The company s financial results, total assets and capital and reserves are strongly influenced by movements in the line item provisions for bad and doubtful debts. Presently, the item is calculated every six months on the basis of external broker assessments of the market value of the mortgaged vessels and Danish Ship Finance A/S own assessments of the financial standing of each shipowner. A more frequent calculation of the line item would require an excessive amount of resources and, it is believed, would not lead to fluctuations in the company s financial results, total assets and capital and reserves that would have an effect on the pricing of the bonds issued. 6

7 7 Management changes in Danish Ship Finance A/S In connection with the conversion into a limited liability company, the number of board members was reduced from 9 to 6 persons effective 12 July At the same date, Peter Falkenham joined the board as a new member. Members of the board are subsequently: Peter Schütze (Chairman) Eivind D. Kolding (Deputy Chairman) Thorkil H Christensen Peter Falkenham Per D. Skovhus Jens S. Thomsen Also as a result of the conversion, the Board of Representatives of Danish Ship Finance was dissolved on 12 July No changes were made to the general management. Copenhagen, 6 March 2006 Peter Schütze Chairman of the Board of Directors Bo Jagd Managing Director 7

8 PROFIT AND LOSS ACCOUNT 1 January - 31 December Note: 1 Interest income 2, , Interest expenses (1,770.0) (1,731.0) 3 Net interest income Dividends on shares Fee and commission income Fees and commissions paid (3.2) (6.0) Net interest and fee income Market value adjustments (147.9) (22.7) Other operating income Staff costs and administrative expenses (79.6) (74.2) 16 Depreciation and write-downs of tangible assets (0.9) (1.2) 12 Provisions for bad and doubtful debts Profit before tax , Tax (113.5) (385.8) Profit for the year Proposed allocation of profit Dividend for the financial year Retained earnings

9 BALANCE SHEET as at 31 December Note: ASSETS 9 Due from credit institutions and central banks 1, , ,11,12 Loans 37, , Bonds 22, ,021.4 Shares, etc Holdings in subsidiary undertakings Tangible assets Other assets 1, ,335.9 Commitments undertaken by guarantors Total assets 62, ,907.3 LIABILITIES, CAPITAL AND RESERVES Liabilities 18 Due to credit institutions and central banks , Issued bonds 51, , Bond obligation 0.0 1, Other liabilities 1, ,148.9 Total liabilities 53, , Capital and reserves Share capital Guarantee capital Undistributable reserve capital 8, Reserves - 8,279.6 Retained profit Total capital and reserves 8, ,486.4 of which dividend proposed for the financial year Total liabilities, capital and reserves 62, , Guarantee commitments 24 Other commitments 25 Related parties 26 Notional principals of outstanding derivative financial instruments as at 31 December 27 Market values of outstanding derivative financial instruments as at 31 December Exchange rate risk and use of derivative financial instruments at 31 December 2005

10 CASH FLOW STATEMENT Cash flows from operating activities Profit for the year after tax Adjustment for non-cash operating items (247.5) (870.3) Profit for the year adjusted for non-cash operating items Change in working capital Loans (1,656.9) 2,275.1 Issued bonds 4,440.7 (4,291.1) Other operating capital (335.6) 20.0 Total 2,448.2 (1,996.0) Cash flows from operating activities 2,486.3 (1,959.5) Cash flows from investing activities Acquisitions - - Purchase of tangible assets (1.2) (1.0) Sale of tangible assets Total (0.7) (1.0) Cash and cash equivalents, 1 January 20, ,535.4 Change in cash and cash equivalents 2,485.6 (1,960.5) Cash and cash equivalents, 31 December 23, ,574.9 Cash and cash equivalents, 31 December, consist of: Due from credit institutions and central banks 1, ,734.3 Bonds 22, ,021.4 Due to credit institutions and central banks (864.2) (1,060.9) Bond obligation 0.0 (1,119.9) Cash and cash equivalents, 31 December 23, ,574.9

11 NOTE 1. INTEREST INCOME Interest from credit institutions Interest on loans 1, ,270.9 Index revaluations of index-linked loans Interest on bonds Other interest income Derivative financial instruments Interest rate contracts (141.5) Foreign exchange contracts 11.3 (7.8) Total interest income 2, ,323.6 NOTE 2. INTEREST EXPENSES Interest to credit institutions (67.9) (63.4) Interest on issued bonds (1,641.2) (1,551.5) Index revaluations on issued bonds (39.1) (104.3) Other interest expenses (21.8) (11.8) Total interest expenses (1,770.0) (1,731.0) NOTE 3. NET INTEREST INCOME Net interest income from lending operations Interest on loans 1, ,373.0 Interest on bonds Interest on block issues included in interest due from credit institutions Interest to credit institutions (12.7) (15.0) Interest expenses on issued bonds (1,680.3) (1,655.9) Other interest expenses (6.9) - Derivative financial instruments Interest rate contracts (141.5) Foreign exchange contracts 11.3 (7.8) Total net interest income on lending operations Net interest income from financing operations Interest on bonds Interest on loans Interest due from credit institutions excluding interest on block issues Other interest income Interest to credit institutions (55.2) (48.3) Other interest expenses (14.9) (11.8) Total net interest income from financing operations Total net interest income

12 NOTE 4. FEE AND COMMISSION INCOME Guarantee commission Fee and other commission income Total fee and other commission income NOTE 5. MARKET VALUE ADJUSTMENTS Market value adjustments of bonds Realised gains/losses on redemption and sales (48.8) 10.6 Unrealised market value adjustment (76.5) (49.9) Total market value adjustment of bonds (125.3) (39.3) Market value adjustments of shares (0.1) (0.2) Exchange rate adjustments (20.4) 0.2 Market value adjustments of financial instruments (2.1) 16.6 Total market value adjustments (147.9) (22.7) NOTE 6. STAFF COSTS AND ADMINISTRATIVE EXPENSES Remuneration, Board of Directors and Board of Representatives (1.0) (1.2) Staff costs (45.2) (43.1) Other administrative expenses (33.4) (29.9) Total staff costs and administrative expenses (79.6) (74.2) Number of employees - full-time equivalents Average number of employees - full-time equivalents NOTE 7. AUDIT FEES Audit fees for statutory audit (0.8) (0.8) Fees for consultancy services and other professional services (1.3) (0.5) Total audit fees (2.1) (1.3)

13 NOTE 8. TAX Estimated tax on the profit for the year (107.3) (381.3) Change in deferred tax on the profit for the year (6.7) (4.5) Adjustment due to lowering of corporation tax rate to 28 per cent Prior-year adjustments of current tax (0.0) 0.0 Tax (113.5) (385.8) During the financial year, DKK 99.4 million was paid under the on-account tax scheme Underpayment of tax for 2004 amounted to DKK million. NOTE 9. DUE FROM CREDIT INSTITUTIONS AND CENTRAL BANKS Repo/reverse transactions 0.0 1,113.6 Other debtors 1, ,620.7 Total due from credit institutions and central banks 1, ,734.3 NOTE 10. LOANS At 1 January 35, ,981.0 Additions 11, ,115.5 Index revaluations during the year Ordinary repayments and redemptions (5,636.7) (5,361.0) Extraordinary prepayments (3,711.5) (2,260.4) Net change concerning debentures with Danmarks Nationalbank (760.7) (1,355.2) Exchange rate adjustment of additions and disposals at hedged exchange rate 21.2 (499.0) Provisions for bad and doubtful debts At 31 December 37, ,445.2

14 NOTE 11. LOANS Loans secured against a ship's mortgage 34, ,891.8 Financial debtors The Financial Administration Agency Compensation from the Danish State for interest subsidies and inflation guarantees Danmarks Nationalbank 1, ,082.5 Gross loans at exchange rates at the balance-sheet date 36, ,924.0 Exchange rate adjustments at hedged exchange rates 2, ,617.6 Provisions for bad and doubtful debts (1,004.9) (1,096.4) Total loans 37, ,445.2 "Exchange rate adjustments at hedged exchange rates" relate to the difference between the value of loans calculated a exchange rates at the balance-sheet date and the value of loans calculated at hedged exchange rates, as all significant foreign exchange risks are fully hedged. NOTE 12. ACCUMULATED PROVISIONS The following provisions have been made for debtors A provisions B provisions Total accumulated provisions 1, ,102.9 As a percentage of loans and provisions A provisions B provisions Total accumulated provisions Total accumulated provisions consist of: Set off against loans 1, ,096.4 Provisions made for other liabilities Total accumulated provisions 1, ,102.9 Movements in accumulated provisions At 1 January 1, ,848.7 New provisions made Provisions written back (583.8) (1,105.4) Write-offs covered by prior-year provisions (48.6) 0.0 Total accumulated provisions 1, ,102.9 Provisions for bad and doubtful debts New provisions made (534.6) (359.6) Provisions written back ,105.4 Write-offs not covered by prior-year provisions Recovered from claims previously written off Total provisions for bad and doubtful debts

15 NOTE 13. BONDS Bond portfolio Non-callable bonds 15, ,756.5 Callable bonds 6, ,264.9 Total bonds 22, ,021.4 Of which own bonds Bond obligation Non-callable bonds 0.0 1,119.9 Callable bonds Total bond obligation 0.0 1,119.9 Net bond portfolio Non-callable bonds 15, ,636.6 Callable bonds 6, ,264.9 Total net bond portfolio 22, ,901.5 NOTE 14. BOND HOLDINGS SPECIFIED BY TIME TO MATURITY Bond portfolio Bonds with a maturity of up to and including 1 year 5, ,341.0 Bonds with a maturity of over 1 year and up to and including 5 years 9, ,415.5 Bonds with a maturity of over 5 years and up to and including 10 years Bonds with a maturity of over 10 years 6, ,169.2 Total bond holdings specified by time to maturity 22, ,021.4 Bond obligation Bonds with a maturity of up to and including 1 year Bonds with a maturity of over 1 year and up to and including 5 years Bonds with a maturity of over 5 years and up to and including 10 years 0.0 1,119.9 Bonds with a maturity of over 10 years Total bond obligation specified by time to maturity 0.0 1,119.9 Net bond portfolio Bonds with a maturity of up to and including 1 year 5, ,341.0 Bonds with a maturity of over 1 year and up to and including 5 years 9, ,415.5 Bonds with a maturity of over 5 years and up to and including 10 years (1,024.2) Bonds with a maturity of over 10 years 6, ,169.2 Total net bond portfolio specified by time to maturity 22, ,901.5 The bond obligation arises as the result of a reverse transaction in which DSF has sold the bonds received.

16 NOTE 15. SHARES IN SUBSIDIARY UNDERTAKINGS Shares in subsidiary undertakings, 1 January Disposals during the period (0.5) 0.0 Shares in subsidiary undertakings, 31 December Share Ownership Profit for Book capital interest the year value Aktieselskabet Dansk Skibsfinansiering ,0 % Elite Rederi A/S i likvidation *) ,8 % - - Apart from the return on equity, Aktieselskabet Dansk Skibsfinansiering had no activities in *) The acquisition of Elite Rederi A/S i likvidation was made with a view to restructuring and winding up accounts previously made. The company is expected to be liquidated in the spring of The shares held in Corral Line A/S at the beginning of 2005 were sold in the spring of 2005.

17 NOTE 16. TANGIBLE ASSETS Office property: Purchase price including leasehold improvements, 1 January Leasehold improvements during year Purchase price including leasehold improvements, 31 December Accrued depreciation, 1 January Depreciation during the year Accrued depreciation, 31 December Total office property The asset comprises the office property at Sankt Annæ Plads 1-3, Copenhagen, the public valuation of which is assessed at DKK 60.0 million at 1 October Other tangible assets: Purchase price, 1 January Disposals during the year (0.5) - Additions during the year Purchase price, 31 December Accumulated depreciation, 1 January Disposals during the year (0.5) - Depreciation during the year Accumulated depreciation, 31 December Total other tangible assets Other tangible assets comprise acquisitions with a purchase price exceeding DKK 250, Total tangible assets NOTE 17. OTHER ASSETS Interest receivable 1, ,027.0 Accruals related to CIRR financing Market value of derivative financial instruments Miscellaneous receivables Total other assets 1, ,335.9

18 NOTE 18. Beløb i mio. DKK DUE TO CREDIT INSTITUTIONS AND CENTRAL BANKS Repo transactions 0.0 1,003.7 Debt to Danmarks Nationalbank Other creditors Total due to credit institutions and central banks ,060.9 NOTE 19. ISSUED BONDS At 1 January 47, ,382.3 Additions in conjunction with new loans and block issues 13, ,033.3 Index revaluations during the year Ordinary redemptions (4,451.5) (4,030.3) Extraordinary repayments and prepayments (4,835.3) (1,398.4) At 31 December 51, ,091.2 Specification of issued bonds: Bonds issued in DKK: Bullet bonds 45, ,096.9 Index-linked loans, nominal value 1, ,806.4 Total nominal value 46, ,903.3 Index premium 1, ,158.9 Total issued bonds in DKK 47, ,062.2 Bonds issued in foreign currency: Amortising CIRR bonds, at year-end exchange rates 2, Bullet bonds at exchange rates at the balance-sheet date Exchange rate adjustments at hedged exchange rates (23.3) 27.4 Total issued bonds in foreign currency 3, ,029.0 Total issued bonds 51, ,091.2

19 NOTE 20. OTHER LIABILITIES Interest payable 1, Income tax payable Amount payable to the Danish government concerning CIRR financing Guarantee commission payable Market value of derivative financial instruments Deferred tax Provision guarantees, etc Miscellaneous liabilities Total other liabilities 1, ,148.9 NOTE 21. DEFERRED TAX Deferred tax, 1 January Adjustment of prior-year tax charges 2.6 (0.9) Estimated deferred tax on the profit for the year Adjustment due to lowering of corporation tax rate to 28 per cent (0.5) - At 31 December

20 NOTE 22. CAPITAL AND RESERVES Share capital: A shares B shares Total share capital Total guarantee capital Tied-up reserve capital / reserves at 1 January 8, ,279.6 Distributable reserves Transferred from the profit and loss account Total capital and reserves 8, ,486.4 of which proposed dividend, cf. alocation of profit Solvency ratio calculated in accordance with Article 14 of the Executive Order on Danish Ship Finance Solvency ratio pursuant to the draft of the new Executive Order on a Ship Finance Institute 18.6 Specification of capital: Share capital Balance at 31 December 2004 in Danish Ship Finance A/S 0.5 Capital reduction (0.5) Capital increase Share capital at 31 December The share capital is divided into the following denominations: A shares 300,000,000 shares of DKK 1.00 each B shares 33,333,334 shares of DKK 1.00 each Each A share of DKK 1.00 entitles the holder to 10 votes Each B share of DKK 1.00 entitles the holder to 1 vote Tied-up reserve capital Balance at 31 December ,186.4 Payment to the Danish government (810.0) Transferred to share capital (33.3) Tied-up reserve capital at 31 December ,343.1 Distributable reserves Balance at 31 December Share premium at capital increase Payment to Danmarks Nationalbank (recognised in the balance sheet) (800.0) Distributable reserves at 31. December The conversion of Danish Ship Finance into a limited liability company was completed through a merger of DSF and its wholly owned subsidiary Danish Ship Finance A/S and was effected on 12 July 2005 with retrospective accounting effect from 1 January See announcement no. 10 of 12 July 2005.

21 NOTE 23. GUARANTEE COMMITMENTS In the ordinary course of its lending operations, Danish Ship Finance has undertaken guarantee commitments of In the ordinary course of its lending operations, Danish Ship Finance has undertaken obligations to take over loan commitments at the end of syndication periods expiring before the loans mature for an amount of Payment guarantee provided to the Danish Securities Centre Guarantees provided to the Danish Securities Centre Total guarantee commitments NOTE 24. OTHER COMMITMENTS As a normal part of its lending operations, DSF has undertaken obligations in connection with unutilised drawing rights on loans with revolving credit facilities in the amount of 2, ,278.5 NOTE 25. RELATED PARTIES Related parties comprise members of the company s Management and Board of Directors and subsidiaries. Related parties also comprise shareholders who hold more than 20% of the shares or more than 20% of the voting rights in the company. All related-party transactions involving deposits and debt and transactions with financial instruments in the form of swap agreements, forward currency agreements, forward rate agreements and forward securities transactions, etc. are made on an arm s length basis. In special cases, however, the terms and conditions are made in accordance with shipyard subsidy schemes or international rules on government participation in the financing of newbuildings.

22 NOTE 26. NOTIONAL PRINCIPALS OF OUTSTANDING DERIVATIVE FINANCIAL INSTRUMENTS AS AT 31 DECEMBER Swap agreements: Swap agreements have been made with the following parties to hedge the exchange rate exposure on loans and issued bonds: Danmarks Nationalbank 2, ,816.7 Banks 29, ,019.4 Swap agreements have been made with the following parties to hedge the interest rate exposure on loans and issued bonds: Banks 78, ,762.0 Matching swap agreements have been made with debtors and banks as follows: Debtors Banks Swap agreements, for which financial risks are not fully hedged, have been made with the following parties: Banks ,353.2 Forward currency agreements: Forward currency sales Forward Rate Agreements: Forward Rate Agreements with banks and debtors to hedge interest rate exposure Debtors - - Banks 2, ,000.0 Forward securities transactions: Buying 2, Selling 1,

23 NOTE 27. MARKET VALUES OF OUTSTANDING DERIVATIVE FINANCIAL INSTRUMENTS AS AT 31 DECEMBER 2005 Swap agreements: Positive Negative Swap agreements have been made with the following parties to hedge the exchange rate exposure on loans: Danmarks Nationalbank Banks 2, Swap agreements have been made with the following parties to hedge the interest rate exposure on loans: Banks ,630.3 Matching swap agreements have been made with debtors and banks as follows: Debtors Banks Swap agreements, for which financial risks are not fully hedged, have been made with the following parties: Banks Forward currency agreements: Forward currency sales Forward Rate Agreements: Forward Rate Agreements with banks and debtors to hedge interest rate exposure Debtors - - Banks Forward securities transactions: Buying Selling - 8.9

24 NOTE 28. EXCHANGE RATE RISK AND USE OF DERIVATIVE FINANCIAL INSTRUMENTS AT 31 DECEMBER 2005 The total unhedged foreign currency position at 31 December, translated at year-end exchange rates into DKK amounts to DKK (8.9) million. (DKK (57.2) million at 31. December 2004.) The net position is specified as follows: All amounts are translated into DKK at the year-end exchange rates: USD Other currencies Total foreign DKK I alt currency Loans at year-end exchange rates 28, , , , ,202.7 Foreign exchange adjustment at hedge price 2, ,001.9 Provision for loans (1,004.9) (1,004.9) Loans as per the balance sheet 37,199.7 Due from credit institutions and central banks , ,591.0 Bond portfolios , ,333.7 Interest receivable, etc ,099.8 Other assets Total assets as per the balance sheet 30, , , , ,530.2 Issued bonds at year-end exchange rates (3,126.5) (662.8) (3,789.3) (47,765.9) (51,555.2) Foreign exchange adjustment at hedge price Issued bonds as per the balance sheet (51,531.9) Due to banks 0.0 (7.0) (7.0) (857.2) (864.2) Interest payable (206.1) (107.4) (313.5) (697.9) (1,011.4) Other creditors (160.7) (160.7) Total capital and reserves (8,962.0) (8,962.0) Total liabilities as per the balance sheet (3,332.6) (777.2) (4,109.8) (58,420.4) (62,530.2) Derivative financial instruments - debtors ,210.1 Derivative financial instruments - creditors (27,259.6) (2,904.1) (30,163.7) Total net position (47.4) 38.5 (8.9) (translated into DKK)