J. Lauritzen in brief

Transcription

1 Annual Report 2010

2 J. Lauritzen in brief Founded in 1884, J. Lauritzen A/S (JL) is one of Denmark s leading shipping companies, confirming that traditions, ambitions and know-how continue to create added value for shareholders, customers, business partners and employees. During the last decade JL has undertaken a multi-layered strategic re-engineering and adjustment of its activities and business portfolio. In that period the company has grown its businesses considerably by multiplying the asset base while still posting strong results. From head office in Copenhagen and overseas offices in Brazil, China, Japan, the Philippines, Singapore, Spain and USA, our vision links all JL employees together and ensures that our values of Competence, Respect, Entrepreneurship, Accountability, Team Spirit and Enthusiasm form a vital part in our continuing aspirations to be a world-class business partner JL owns and operates a diversified, modern fleet of bulk carriers, gas carriers, product tankers and dynamically positioned support vessels servicing the offshore industry. With a broadly-based newbuilding portfolio scheduled to enter the fleet in the coming years, JL is dedicated to ensuring that expansion is achieved in a sustainable and environmentally responsible way.

3 Contents Management report Group key figures 2 Highlights 2010 and outlook Investment programme 10 Lauritzen Bulkers 12 Lauritzen Kosan 20 Lauritzen Offshore 28 Lauritzen Tankers 34 Corporate Governance 40 Corporate Social Responsibility (CSR) 46 Organisation and People 52 Risk Management 56 Financial Review 66 Accounts Income statement 74 Comprehensive income 75 Balance sheet 76 Equity statement 78 Cash flow statement 79 Notes 80 Overall group structure 114 List of group companies 115 Endorsements Management statement 116 The independent auditor s report 117 Board of directors 118 Management 120 Company details 122 1

4 Group key figures SELECTED KEY FIGURES USDm EBITDA EBIT Result for the year REVENUES USDm Reefer Lauritzen a.o. Bulkers Lauritzen Kosan Tankers Lauritzen Offshore Offshore Lauritzen Tankers Reefer a.o. CAPITAL STRUCTURE USDm 3,000 2,500 2,000 1,500 1, Total equity Non-current liab. Current liab. Key figures have been calculated as follows: Operating income x 100 Profit margin: Revenue Solvency ratio: Return on equity: Total equity, year-end x 100 Total equity and liabilities, year-end JL s share of the result x 100 JL s average share of equity CASH FLOW FROM OPERATIONS USDm Invested capital: Return on invested capital: Total assets less bank deposits, securities non operational assets and non interestbearing current liabilities (Operating income + result in joint ventures) x 100 Average invested capital

5 USD million Revenue Result before depreciation (EBITDA) Profit and loss on sale of vessels (12) Operating income (EBIT) Net result in joint ventures Result of financial items (56) (17) (38) 23 9 Result before tax Result for the year Minority shareholders' share of the result (5) (5) (5) (6) (2) The J. Lauritzen Group's share of the result Non current assets 2,062 1,671 1,399 1, including vessels under construction Current assets hereof cash and securities Total assets 2,411 2,188 1,768 1, Share capital JL's share of equity 1,239 1,126 1, Non current liabilities Current liabilities Cash flow from operating activities 164 (24) Cash flow from investment activities (325) (455) (237) (307) (137) - hereof investments in vessels, machinery and equipm. (538) (541) (714) (545) (369) Cash flow from financing activities (37) (68) Changes for the year in liquid assets (19) (153) (125) Cash and cash equivalents (209) (56) Average number of employees 1, DKK exchange rate year end Average DKK exchange rate Group key figures Profit margin 25.9% 15.7% 25.6% 46.4% 25.6% Solvency ratio 52% 52% 59% 71% 74% Solvency ratio (JL's share of equity) 51% 51% 59% 71% 73% Return on equity 11.1% 6.9% 14.7% 40.9% 19.3% Return on invested capital 10.2% 6.1% 17.1% 38.4% 25.7% 3

6 Highlights 2010 and outlook 2011 In a year characterised by global economic uncertainty and the sustained risk of overcapacity in major shipping segments, JL s net results totalled USD 130.7m in 2010 compared to USD 74.6 in 2009, cf. Figure 1. Return on invested capital was 10.2% compared to 6.1% in Results were better than expectations and satisfactory considering the global financial situation. The business environment Global industrial production bottomed out during the first quarter of 2009 and has grown since then, however with a slightly reduced rate in the second half of This taken together with strongly rising commodity prices which induced many businesses to apply a more cautious raw materials buying policy, resulted in reduced growth in demand for seaborne trade. As most shipping markets received large volumes of new tonnage, freight markets in many segments weakened during the year. The following characterized JL s main markets in 2010: After very strong performance in the first half of 2010, freight rates for bulk carriers started a decline that has continued into Volatility remained very high. Considering the state of the world economy, freight rates for smaller gas carriers were satisfactory with a general upward trend during most of the year. A number of new orders and the emergence of new suppliers were seen during the year in the period market for shuttle tankers. The market for accommodation saw a rising number of new employment opportunities, although the April 2010 well incident in the Gulf of Mexico put the whole market into flux for some time. Freight rates for product tankers held up reasonably well during the first quarter but in general 2010 proved to be another disappointing year. Despite slippage and non-performance, deliveries of new tonnage to the global fleet increased in dwt terms by approximately 30% in 2010 and contracting for new vessels increased by 130% compared to Some of the new orders might have been replacements for orders that had been cancelled or changed due to the world economic crisis. At year-end 2010, the world order book was down by 11% compared to year-end The current order book equates to about 33% of the existing world fleet for delivery within the next three years. The increased interest in new orders meant that yards were able to increase prices slightly during JL Group JL continued to implement the growth and investment programme it initiated in 2004 and during the year, JL took delivery of six bulk carrier newbuildings, three product tanker newbuildings and one fully pressurized gas carrier newbuilding. In addition, six bulk carrier newbuildings were taken on long-term time-charter. 4

7 FIG 1: RESULT FOR THE YEAR USDm Bulk Gas Offshore Tank Result before tax Tax a.o. Result for the year

8 FIG 2: INVESTED CAPITAL YEAR-END USDm 2,500 2,000 1,500 1, Offshore Tank Bulk Gas Reefer Reefer Gas Bulk Tank Offshore 6

9 Total vessel days increased to more than 54,300 in 2010, up 6% from about 51,000 in Due to significant fleet renewal and expansion efforts in recent years, JL owns a modern, efficient fleet of bulk carriers with an average age of 1.5 years, gas carriers 9.6 years, product tankers 2.3 years, and offshore support vessels 6 years. At year-end 2010, JL s asset base had increased by a factor of more than six since 2004, cf. Figure 2 and its asset base will further increase in 2011 with the completion of the current investment programme. During the year, JL broadened its sources of financing to also include Export Credit Agency (ECA) supported funding and corporate bonds. Lauritzen Tankers joined the newly established product tankers pool led by Hafnia Management as a partner. JL expanded its presence in Asia by strengthening its commercial and operational organisations in Singapore, Shanghai and Tokyo. The strategic Must-win Battle (MwB) concept focusing on the critical challenges for sustaining JL s success continued in Some of the MwBs introduced in 2009 were completed in 2010, others are on-going, and new MwB s have been identified with the aim of ensuring the continuing success of JL. JL s business units continued a broad range of initiatives in order to enhance fuel efficiency. JL also remained actively involved in the Danish Green Ship of the Future initiative in developing strategies to reduce emissions. As a consequence of the bonds issued by JL and the listing on Oslo Stock Exchange in 2010, JL s accounting class changed from Class C to Class D according to the Danish Financial Statements Act, and so a three member Audit Committee was set up in June Assets and solvency JL s order book of own vessels at yearend 2010 represented a total cost of USD 1,427m, down from USD 1,656m at yearend 2009, mainly due to deliveries of newbuildings during the year. A considerable proportion of the order book enjoys longterm employment contracts. During 2010, investments in fleet expansion amounted to USD 535.7m compared to USD 534.0m in Divestments totalled USD 216.1m compared to USD 91.6m in Total invested capital was USD 2,048.9m at year-end 2010, up from USD 1,813.7m at year-end At the end of 2010, JL s newbuilding portfolio comprised a total of 29 wholly-owned vessels, including 15 bulk carriers, five gas carriers, seven product tankers, and two dynamically positioned shuttle tankers for delivery in JL will also be taking delivery of ten long-term time-char- 7

10 tered newbuildings and partners will commit another eight newbuildings to the fleet controlled by JL for delivery in During 2010, JL controlled a combined average fleet of 149 vessels compared to 140 vessels in 2009, cf. Figure 3, of which 40 were wholly-owned vessels (32 in 2009). At year-end 2010, JL s solvency ratio was 52% and unchanged compared to Outlook for 2011 As of the beginning of 2011, the corporate sector, apart from the banks, has in general strong balance sheets in both advanced and emerging economies. Households in most advanced economies are still in a difficult position due to the weakness of the real estate sector, which has a significant negative bearing on the banking sector. Governments in many advanced countries have weak balance sheets. At the same time, many emerging economies are facing the risk of overheating. This is the background for the general sentiment that economic growth will continue in 2011, albeit slightly less briskly than in This implies further growth in seaborne trade in 2011, although most likely at a moderate pace. Output of new ships is anticipated to be at approximately the same level in 2011 as in 2010, which is below scheduled orders due to slippage and non-performance. A reduction in deliveries of MR product is anticipated, whereas deliveries of dry bulk carriers and smaller gas carriers are expected to level out. Demolition is expected to increase due to a combination of rising scrap prices and trading pressures in most markets. Dry bulk markets are expected to experience strong volatility with average rates below those of 2010 and with an increased pressure on particularly larger vessels. MR product tanker markets are set for a weak start but improvements during the year are on the cards. Smaller gas carriers entered 2011 at acceptable rates and are anticipated to deliver fairly healthy rates. The market for offshore service units is in the process of adjusting to the shock of the Gulf of Mexico incident in April More business is expected as the outlook for oil prices continues to be quite high. JL plans to take delivery of a total of 21 wholly-owned vessels, including five Capesize bulk carrier newbuildings, four- Handymax newbuildings, and three Handysize newbuildings. Five pressurized gas carrier newbuildings, two MR product newbuildings and two shuttle tanker newbuildings will also be added to the fleet. In early 2011, a sizeable part of forecast revenues are secured by contracts. Net results for 2011 are expected to be significantly down on 2010 primarily due to one-offs included in the 2010 results, including settlements and the reversal of write-downs (USD 73.8m in total), changed employment pattern for the accommodation and support vessel, Dan Swift and lower earnings in the Capesize segment. The contribution from the increased tonnage capacity is offset by increased depreciations and financial costs compared to

11 FIG 3: AVERAGE NUMBER OF VESSELS Budget Own Part owned Chartered Shared charter Other 9

12 Investment programme 10

13 Own vessels Time charters and via partners Type dwt Delivery Type dwt Delivery Lauritzen Bulkers A/S Lauritzen Bulkers A/S Capesize 180,000 01/2011 Handysize 32,000 03/2011 Handymax 58,000 02/2011 Handysize* 32,500 03/2011 Handysize 31,800 03/2011 Handymax 61,000 06/2011 Capesize 180,000 04/2011 Handysize* 33,000 08/2011 Capesize 180,000 04/2011 Handysize* 28,000 10/2011 Capesize 180,000 04/2011 Handymax 58,000 12/2011 Handymax 58,000 05/2011 Handysize 38,000 08/2011 Handymax 58,000 06/2011 Handymax 58,000 09/2011 Handysize 31,800 09/2011 Handymax 58,000 10/2011 Capesize 180,000 09/2011 Handymax 58,000 11/2011 Handymax 58,000 10/2011 Handymax 61,000 01/2012 Handysize 37,800 12/2011 Handysize* 28,000 02/2012 Handysize 37,800 01/2012 Handysize 32,000 02/2012 Handysize 37,800 05/2012 Handysize 32,000 04/2012 Handysize 31,800 10/2013 Handysize* 32,500 07/2012 Handysize* 32,500 09/2012 Handysize* 32,500 10/2012 Handysize* 32,500 01/2013 * Partners Own vessels Own vessels Type cbm Delivery Type dwt Delivery Lauritzen Kosan A/S Lauritzen Tankers A/S Fully pressurized 3,678 03/2011 Product MR 50,500 03/2011 Fully pressurized 3,678 05/2011 Product MR 50,500 04/2011 Fully pressurized 3,678 07/2011 Product MR 50,500 02/2012 Fully pressurized 3,678 09/2011 Product MR 50,500 04/2012 Fully pressurized 3,678 10/2011 Product MR 50,500 02/2013 Product MR 50,500 04/2013 Product MR 50,500 05/2013 Own vessels Type dwt Delivery Lauritzen Offshore Services Shuttle tank 59,000 06/2011 Shuttle tank 59,000 12/2011 Delivery schedule: Own vessels 2013 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Bulk carriers Gas carriers Product tankers Shuttle tankers 1 1 Total

14 Lauritzen Bulkers In 2010, Lauritzen Bulkers net results amounted to USD 129.7m compared to USD 167.5m in The 2010 results include reversal of write-downs on vessels, gains and losses from disposal of vessels and other assets as well as counterparty settlements totalling USD 55.0m, whereas the 2009 results included use and reversals of provisions, reversal of write-downs on vessels and other one-off items totalling USD 142.5m. When adjusted for these one-off items, net results for 2010 amounted to USD 74.7m, significantly higher than the similarly adjusted figure of USD 25.0m in Results were better than expected and satisfactory in view of the volatile trading conditions during the year. Business model Lauritzen Bulkers controls a fleet of modern Handysize, Handymax, Panamax and Capesize bulk carriers with an average age of 5.5 years. The fleet comprises a portfolio of wholly-owned, part-owned, and time-chartered vessels as well as vessels committed by partners. Active fleet portfolio management via sale, purchase and time-charter in and out of vessels is an important element of the business model. The Handysize operation, which is Lauritzen Bulkers largest business activity, comprises a significant fleet of homogeneous vessels, ensuring economies of scale, operational optimisation and extensive customer service. For the fifth consecutive year, earnings from Handysize activities outperformed the BHSI (Baltic Handysize Index). Lauritzen Bulkers policy is to secure high forward coverage in the Capesize, Panamax and Handymax segments, with more exposure to the spot market for Handysize bulk carriers. Main events Due to its global business profile and reputable market position, Lauritzen Bulkers enjoys strong customer loyalty and was successful in attracting important additional customers during the year. Relations with cargo owners were further developed and due to its operational competencies and know-how, Lauritzen Bulkers increased the amount of business based on single cargo contracts in all geographical areas, in particular in the Far East. The commercial, operational and technical organisations were strengthened in Copenhagen, Singapore, Tokyo and Shanghai thus enhancing the global business platform to support the growth strategy. The fleet expansion and renewal strategy continued resulting in a modern, fuel-efficient, versatile fleet. During the year Lauritzen Bulkers core fleet increased by 14 vessels, including seven Handysize bulk carriers, of which six were newbuildings and one a second-hand vessel. Five 12

15 KEY FIGURES USDm Revenue EBITDA Depreciation and write-downs (1.4) 18.4 Profit on sale of vessels etc. (20.4) 17.0 Operating income Result in joint ventures Finance net (14.6) (4.4) Result before tax JL's share of the result Invested capital (average) Return on invested capital 15.6% 28.8% Average no. of employees FIG 4: AVERAGE EARNINGS USD 000/DAY Jan Jul Jan Jul Jan Jul BSI - average of 5 Supramax routes (TCE) BHSI - average of 6 Handysize routes (TCE) BPI - average of 4 Panamax routes (TCE) BCI -average of 4 Capesize routes (TCE) Source: Clarkson Research Services 13

16 FIG 5: STRUCTURE OF DEMAND BY COMMODITY IN 2009 & % 5% 5% 2% 31% 8% 5% 5% 3% 29% 3% 3% 2% 1% 2% 11% 3% 3% 3% 1% 2% 10% 27% 28% Iron ore Coal Grains Ba Iron ore Coal Grains Bauxite/alumina Phosphate rock Fertilizers Scrap Cement Steel products Agribulks Forest products Other Source: Clarkson Research Services 14

17 Photo: Hannes Van Rijn Handymax newbuildings and one Capesize newbuilding were taken on long-term time-charter together with a second-hand Handysize vessel. Pool partners contributed two additional Handysize newbuildings and three second-hand Handysize bulk carriers to the controlled fleet. A Capesize bulk carrier was sold and a Handysize bulk carrier was sold with lease-back. Three long-term time-chartered bulk carriers were redelivered as planned. Two 32,500 dwt Handysize bulk carriers were ordered together with Dansk Rederi A/S at Jiangmen Nanyang Ship Engineering in China for delivery in The Baltic Dry Index (BDI) fluctuated between 1,700 and 4,209 with an average of 2,758 for the year. Volatility was highest for Capesize bulk carriers with spot market rates ranging from a high above USD 60,000 per day to a low of USD 12,000 per day. Demand for bulk carriers Overall, international seaborne trade with dry bulks is estimated to have increased by some 10% to 3,300m tonnes in 2010, according to Clarkson Research Services. Seaborne trade with minor bulks, including bauxite/alumina and phosphate rock, is estimated to have increased by some 10% to almost 1,050m tonnes in 2010, which mainly supported the Handysize and Handymax segments. Lauritzen Bulkers further strengthened its monitoring systems of counterparty risks. Results for 2010 included settlements from customers unable to meet their contractual obligations. Lauritzen Bulkers was the runner-up in the category Bulk Ship Operator of the Year at the International Bulk Journal IBJ Awards Asia did not have the same impact on demand in 2010 as in In particular, China s imports of iron ore were actually on par with the level in 2009 and coal imports evened out from the second quarter onwards, whereas Europe s imports of iron ore shot up, although not sufficiently to maintain the relative importance of iron ore in the overall commodity picture, cf. Figure 5. Global market developments In terms of freight levels, 2010 turned out to be stronger than expected, although with more strength during the first half of the year and high volatility throughout the entire period, cf. Figure 4. The contribution to overall growth from longer distances was minimal, whereas falling productivity of the fleet from for example more ballasting, reduced load ratio and port congestion, was a significant contributor. 15

18 Supply of bulk carriers The world dry bulk fleet grew by approximately 17% during 2010 to 536m dwt. Deliveries of new bulk carriers amounted to 79m dwt up from 43m dwt in 2009 and conversions totalled 4m dwt compared to 9m dwt, whereas demolitions fell to 6m dwt versus 10m dwt in Contracting of new bulk carriers amounted to 77m dwt, up by 43m dwt on At the end of 2010, the world order book amounted to 278m dwt or some 50% of the existing fleet. The Handysize order book represents 32% of the existing fleet, Handymax 45%, Panamax 57%, and Capesize 59%. Scheduled deliveries amount to 137m dwt in 2011 and 101m dwt in 2012 cf. Figure 6 but it is expected that deliveries will be around 80m dwt in 2011 and 74m in Lauritzen Bulkers fleet In 2010, Lauritzen Bulkers total number of ship days reached 32,959 with 90.3 vessels on average, 15% up on the figure reported in 2009, cf. Figure 7. Lauritzen Bulkers fleet of Handysize bulk carriers, including wholly-owned, partowned, time-chartered and partner tonnage, averaged 63 vessels compared to 59 vessels in At year-end 2010, the combined Handysize fleet comprised 69 vessels. On average, the Handymax fleet in 2010 comprised 11.4 vessels compared to 5.8 vessels in 2009, with a further 3.9 Panamax vessels (5.1 in 2009) and 5.4 Capesize vessels (2.8 in 2009). At year-end 2010, Lauritzen Bulkers operated 27 long-term time-chartered vessels, with purchase options for six of these, in addition to its fleet of owned vessels. The wholly-owned fleet comprised 14 vessels at the end of 2010 (9 in 2009) with Lauritzen Bulkers having part ownership of a further 23 vessels (22 in 2009). At the end of 2010, the average age of the owned fleet was 1.5 years. Fleet management Technical management including crewing for Lauritzen Bulkers fleet of owned bulk carriers was undertaken by part-owned New Century Overseas Management Inc., Manila (NCO), a subsidiary of Good Hope Overseas Management Inc., and by Fleet Management Ltd., Hong Kong. Lauritzen Bulkers technical department works closely with external technical managers on all aspects of achieving safe and cost-effective vessel operations. Reducing fuel oil consumption and thus reducing emissions of SOx, NOx and CO 2 is an important part of Lauritzen Bulkers ongoing efforts to protect the environment. Selected initiatives have been implemented such as propeller boss cap fins, changing the water flow near the boss cap and cutting fuel oil consumption by 2-3%, trim optimization and weather routing. 16

19 FIG 6: BULK CARRIER ORDER BOOK DWTm ( by scheduled delivery year and expected deliveries) FIG 7: AVERAGE NUMBER OF VESSELS Deliveries incl. Order book year-end Expected deliveries i conversions 2010 incl. conversions Other Shared charter Chartered Part owned Own Total order book Source: Clarkson Research Services 17

20 18

21 The off-hire rate for Lauritzen Bulkers own fleet, including scheduled dry docking was 0.6%. Outlook for ended on a disappointing note inasmuch as the general consensus was for stronger freight levels in the fourth quarter. Instead rates kept falling and with flooding in Queensland, Australia, and heavy rain falls in Brazil, Colombia and Indonesia and other disruptions to the supply of dry bulk commodities, 2011 opened with a market in retreat. A short-term recovery is expected later in 2011 but it is anticipated that overall supply growth will outpace demand growth, implying lower average freight rates than in Factors such as industrial production, inventory behavior and commodity price developments will leave their mark on demand for dry bulk carriers, making 2011 another year of high volatility. Five Handymax newbuildings and two Handysize newbuildings will enter the fleet in 2011 on long-term time-charter. One second-hand Handysize vessel will also enter the fleet. Finally three Handysize newbuildings will be delivered via pool partners, cf. p. 11. Contract coverage for Capesize bulk carriers, including deliveries during the year, is 95% for 2011 with coverage for Panamax at 90%, Handymax at 31% and Handysize at 37%. In 2011, Lauritzen Bulkers net results are expected to be significantly lower than in 2010, among other things, due to oneoffs, including settlements, reversal of write-downs and sale of vessels and other assets of USD 55.0m net being included in the results for In addition, lower average rates compared to 2010 and renegotiated rates on long-term contracts will affect the expected results. In 2011, Lauritzen Bulkers will take delivery of five Capesize newbuildings. In addition, four Handymax newbuildings and three Handysize bulk carrier newbuildings are scheduled for delivery. 19

22 Lauritzen Kosan Net results were USD 2.9m in 2010, down from USD 9.2m in This was mainly due to the fact that a large proportion of Lauritzen Kosan s fleet was covered under contracts made during the second half of 2009 when trading conditions were still difficult as a result of the global financial crisis. Gains from the sale of vessels of USD 4.3m were up USD 4.1m on Results were in line with expectations and considered acceptable in view of the generally poor trading conditions. Business model Lauritzen Kosan controls a fleet of modern semi-refrigerated/ethylene and fully pressurized gas carriers with an average age of 10.5 years. The fleet comprises a portfolio of wholly-owned, part-owned, time-chartered vessels and vessels committed by partners. Active fleet portfolio management via cargo contracts and the sale and purchase of vessels is an important element of the business model. Lauritzen Kosan operates the fleet with high forward coverage, primarily with cargo contracts with major oil and petrochemical companies. A number of ethylene carriers are also employed on timecharter. Main events Early in 2010, a commercial and operational gas carrier organisation was established in Singapore to serve customers in the eastern hemisphere. The former Unigas Kosan partnership based in Hong Kong was dissolved and as of 1 July 2010, the operation of Lauritzen Kosan s fleet of fully pressurized gas carriers was transferred to J. Lauritzen Singapore Pte. Ltd. and thereby centralising the Asian activities for pressurized and ethylene carriers in one regional office. Lauritzen Kosan s stronger presence in the Far East resulted in new contracts, including the commencement of a contract with Shell Chemicals, Singapore, for intra- Asian distribution of ethylene. Lauritzen Kosan took delivery of the first 3,600 m 3 fully pressurized gas carrier of a series of six newbuildings from Yangzhou Kejin Shipyard in China built specifically for the growing Asian gas industry. Two 3,360 m 3 semi-refrigerated newbuildings were taken on long-term bareboat contracts from GAS and HEAT S.p.a., Italy. One 8,000 m 3 ethylene gas carrier was sold to Chinese interests. Global market developments 2010 was characterized by more balanced trends in supply and demand for smaller gas carriers following the more difficult trading conditions in 2009 as a result of falling demand and rising tonnage supply. Spot market earnings were thus on a rising trend from the second quarter of 2010 and ended the year at levels not seen since the turn of , cf. Figure 8. Period rates for smaller gas carriers declined in 2009 but remained stable in

23 KEY FIGURES USDm Revenue EBITDA Depreciation (27.9) (25.6) Profit on sale of vessels etc Operating income Result in joint ventures Finance net (7.3) (1.8) Result before tax JL's share of the result Invested capital (average) Return on invested capital 1.9% 2.4% Average no. of employees FIG 8: SPOT RATES GAS CARRIERS USD 000/MONTH* Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 ETH 10,000 cbm F/P 3,500 cbm (East of Suez) *) Unadjusted for waiting time if any Source: Fearnleys Weekly 21

24 FIG 9: STRUCTURE OF DEMAND BY PRODUCT IN 2009 & % 13% 28% 32% 20% 17% 10% 12% 16% 8% 14% 15% Source: ViaMar AS Ammonia Ethylene Propylene Butadiene VCM LPG 22

25 Demand for gas carriers After a decline in demand for smaller gas carriers of approximately 4% in 2009, demand is estimated to have increased by 7% in Whereas transportation of VCM and propylene were the contributors to demand growth in 2009, a broader range of products drove demand growth in 2010, in particular butadiene and LPG, cf. Figure 9. With new cracker facilities coming on stream in Abu Dhabi, Middle East Gulf, ethylene exports increased very rapidly during the second half of 2010 with particularly Asia importing. Ethylene production in the Far East was running at a reduced rate due to plants being taken out for repair and maintenance, and due to constraints stemming from reduced supplies of naphtha feedstock from refineries having increased diesel oil production at the expense of naphtha production. Imports of butadiene into USA more than doubled in the second half of 2010 due to rising demand for rubber from the car industry and reduced domestic butadiene output, as the feedstock composition changed in favour of ethane. The petrochemical industry has entered a period of restructuring due to increasing surplus capacity as a reflection of the build-up of production capacity in the Middle East Gulf. This is likely to lead to the closure of smaller, uncompetitive crackers in European OECD countries, the more so as the introduction of EU s Emissions Trading System will increase production costs. Leading industry sources assess the number of crackers at risk of closure in the medium term as representing a potential annual cut in ethylene of 2m tons (ICIS Chemical Business, January 10-16, 2011). This indicates the potential for rising demand for longer-haul imports of petrochemical gases into Europe. For example, Ineos has confirmed its plan to build and operate a new 1m tonne ethylene terminal and storage facility in Antwerp, Belgium, reportedly opening in Supply of gas carriers The fleet of smaller gas carriers in the 3,000-22,000 m 3 segment is estimated to have increased by some 6% in 2010 to a total of 3.3m m 3. Ethylene carriers, representing a combined carrying capacity of 1,030,000 m 3, witnessed stronger supply growth. Total deliveries of smaller gas carriers amounted to 250,000 m 3 (160,000 m 3 in 2009). With new contracts in 2010 up from 78,000 m 3 in 2009 to 293,000 m 3, the order book for smaller gas carriers amounts to some 23% of the existing fleet. Orders for ethylene carriers amounted to 212,000 m 3, up from none the previous year. Scheduled deliveries in 2011 will mainly be fully pressurized tonnage with existing ethylene orders scheduled for delivery in 2012 bearing the brunt of the backlog, cf. Figure 10. Total scrappings more than doubled to 171,000 m 3 from 63,000 m 3 in Oil majors and chemical producers are putting increasing pressure on owners of tonnage that is 25 years old or more. At the end of 2010, some 15% of the fleet was in this category. 23

26 Lauritzen Kosan s fleet Lauritzen Kosan s fleet comprised 30 wholly or part-owned and bareboat chartered vessels at year-end The average age of the company s owned fleet was 9.6 years compared to 8.7 years at year-end The average age of the ethylene fleet was 2.9 years compared to 1.9 years at year-end On average the operated fleet consisted of 30 semi-refrigerated/ethylene gas carriers (25 vessels in 2009) and 17 fully pressurized gas carriers (21 in 2009) with a combined capacity of about 165,000 m 3 (152,000 m 3 in 2009). Total ship days reached 15,652 for 42.9 vessels on average compared to 17,020 days for the average of 46.6 vessels reported in 2009, cf. Figure 11. The decline in ship days mainly related to the termination of the Unigas Kosan partnership in Hong Kong. Fleet Management During the year, Lauritzen Kosan Fleet Management handled the technical management for ethylene and semi-refrigerated gas carriers. Part-owned Star Management Associates, Tokyo, handled the technical management for the fully pressurized vessels. Five scheduled dry-dockings were completed during 2010 (six in 2009). Scheduled and unscheduled off-hire including scheduled dry-docking amounted to 3.9% in 2010 compared with 3.6% in Technical fleet management is based on health, safety, security, environmental and technical policies to ensure efficient vessel operations in order to comply with the rules and regulations as well as stringent customer expectations. A total of 152 customer vetting inspections were performed in 2010 in order to maintain pertinent customer approvals of the vessels. On average, 6.3 observations were received compared with 7.5 observations in Ship-specific observations that could have been prevented by the crew, declined from 3.6 to 2.9 in The crews of the vessels play a crucial part in delivering the service expected by customers. Initiatives started in 2009 were continued to improve the skills and attitudes of seamen and to ensure that they are in a position to do their work in line with the company s standards and values. Several training initiatives are underway targeting general as well as gas carrier specific topics. Lauritzen Kosan continued to work with various projects to reduce environmental impacts and enhance fuel economy. The company also participates in a working group headed by the Danish Maritime Authority to investigate and map the future possible needs for LNG as an alternative fuel for commercial vessels in the English Channel, the North Sea and the Baltic. The International Code for the Construction and Equipment of Ships Carrying Liquefied Gases in Bulk, referred to as the IGC Code, is the IMO code that sets the inter- 24

27 FIG 10: ETHYLENE GAS CARRIER ORDER BOOK CBM ( by scheduled delivery year and expected deliveries) FIG 11: AVERAGE NUMBER OF VESSELS Deliveries i Order book Expected 2010 year-end deliveries Other Chartered Part owned Own Total order book Source: Clarkson Research Services 25

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29 national standards for gas carriers. During the last three years, the industry has been engaged in a revision of the Code led by SIGTTO (Society of International Gas Tanker and Terminal Operators), a non-profit industry organisation that aims to promote high operating standards and best practice in gas tankers and at terminals. As a member of SIGTTO, Lauritzen Kosan is actively involved in the revision of the Code that is expected to come into force in 2014 or HSSEQ Health, safety and security as well as protection of the environment and high quality standards (HSSEQ) are imperatives for Lauritzen Kosan. Security for crews, vessels and cargoes is also important for Lauritzen Kosan Fleet Management. In 2010, thorough monitoring and risk assessment of current intelligence were used to prepare operations at sea and ashore for vessels transiting high-risk areas such as the Gulf of Aden. Using naval convoys, on board anti-piracy measures, best practice and anti-piracy networks are all risk mitigation factors aimed of keeping crews, vessels and cargoes safe. Outlook for 2011 The smaller gas carrier segment opened on a strong note due to improvements in the global economy, which have led to rising demand from the car industry and from emerging economies investments in housing. In addition, re-pricing ethane in USA has led to changes in the normal pattern with higher requirements for butadiene imports. Finally, the delay in getting the polymer industry on stream in the Middle East Gulf has led to a rising surplus of petrochemical gases for export. These trends are expected to continue in 2011 and with low level supply growth for the larger sizes of the smaller gas carrier segment, continuation of the strengthened market noted in the second half of 2010 is on the cards. Lauritzen Kosan is scheduled to take delivery of the remaining five of a series of six 3,600 m 3 capacity pressurized gas carriers from China, cf. p. 11. A part of total 2011 fleet capacity has been covered by time-charter contracts, which is expected to account for about 28% of total budgeted revenues for the year. In 2011, Lauritzen Kosan s results are expected to be better than in After year-end events As part of the ongoing fleet renewal strategy, two 1987 built semi-refrigerated gas carriers were sold in 2010 to Greek buyers and delivered early 2011, reducing the average age of the wholly-owned fleet as per end of 2010 from 9.6 years to 9.0 years. 27

30 Lauritzen Offshore Net results were USD 23.6m in 2010 compared to USD (7.4)m in The increase was mainly attributable to a full year s employment for both the shuttle tanker, Dan Eagle, and the Accommodation and Support Vessel, Dan Swift. Results were better than expectations and very satisfactory. Business model Lauritzen Offshore is building a fleet of modern, technologically advanced and dynamically positioned vessels for the offshore industry. Currently, the fleet comprises one Accommodation and Support Vessel and three shuttle tankers two of which will be delivered in The aim is to secure long-term employment for the fleet. Main events On delivery in late December 2009, Dan Swift immediately started operating with Statoil on the Peregrino field offshore Brazil where it stayed employed until early The performance of the accommodation unit exceeded expectations and Lauritzen Offshore gained further confidence in the operational concept. Dan Swift was runner-up as Ship of the Year at the Lloyd s List Global Awards 2010 in recognition of the innovative design solution with the unique combination of features making the hybrid vessel a sailing hotel, shipyard, and heliport at the same time. The bareboat charter parties signed in 2009 with Transpetro for two shuttle tanker newbuildings for delivery in 2011 were expanded with technical management contracts by Lauritzen Offshore Services. Dan Eagle continued its five-year employment contract with Petrobras offshore Brazil and performed according to plan. Commercial management of the offshore activities is placed with Lauritzen Offshore Pte. Ltd., Singapore, whereas technical management of the fleet is carried out by Copenhagen-based Lauritzen Offshore Services A/S. Global market developments Oil prices (Brent) averaged USD 79.5 per barrel during 2010, oscillating around the USD level through the fourth quarter of the year. Due to the adverse world economic conditions in 2009, new startups for floating production projects were modest into 2010 with global drilling markets remaining fairly depressed. The April 2010 Deepwater Horizon incident in the Mexican Gulf caused immediate reaction from both oil companies and investors, which spilled over from drilling markets into adjacent segments such as accommodation services and led to many offshore projects being put on hold. Shuttle tankers The global shuttle tanker fleet currently comprises 60 vessels with 24 newbuild- 28

31 KEY FIGURES USDm Revenue EBITDA Depreciation (20.1) (5.2) Profit on sale of vessels etc Operating income 41.2 (1.3) Result in joint ventures Finance net (12.2) (5.8) Result before tax 29.0 (7.1) JL's share of the result 23.6 (7.4) Invested capital (average) Return on invested capital 9.9% (0.4)% Average no. of employees FIG 12: GLOBAL SHUTTLE TANKER FLEET AND AGE PROFILE No. of vessels <<< Fleet <<< Orderbook Av. Age >>> Average age (years) Source: Lauritzen Offshore (own research) 29

32 FIG 13: GLOBAL HIGH-END ASV FLEET AND AGE PROFILE <<< Semi-subs <<< Semi-sub potential orderbook <<< Monohulls <<< Monohull potential orderbook Semi-sub fleet av. age >>> 30

33 ings on order for delivery in , cf Figure 12. Eleven newbuildings were ordered in 2010 with new entrants also appearing, attracted by the long-term employment opportunities. Accommodation units The current high-end accommodation fleet consists of 21 semi-submersibles in addition to Dan Swift. Further, approximately 5-6 units are on order with possible delivery from 2011 onwards. However, except for one of these units, actual delivery remains uncertain. In addition to the above mentioned highend units, the market includes a fairly large number of accommodation units catering for the lower end of the market. Fleet management Excellence in fleet management is vital in the offshore industry and all issues relating to crewing, health, safety and environment were performed in-house by Lauritzen Offshore Services. Operational performance was very satisfactory in In order to meet the fast growing demand for officers with the necessary certification for offshore vessels and dynamic positioning, a new training programme was implemented during the year. This aims to upgrade the qualifications of JL officers presently employed on JL s reefer and tanker fleet, thereby securing new jobs for existing employees and improving the retention rate. HSSEQ Health, safety and security as well as protection of the environment and high quality standards (HSSEQ) are imperative for Lauritzen Offshore Services. Lauritzen Offshore Services is constantly engaged in safeguarding the health and safety of employees. It is the aim to conduct all operations in a reliable and efficient manner through the systematic management of all technical aspects, occupational health and safety, property and the environment to achieve world-class performance. During the year, our Health, Safety and Environment (HSE) policies were aligned towards adopting a zero mindset operation. In 2010, our environmental management system received ISO accreditation and 2010 also saw the implementation of a Dropped Object Management System on Dan Swift. A management system for operational risks, aligning risk management procedures and processes with the guidelines of the OHSAS (Occupational Health and Safety Assessment Series) 18001:

34 standard is under implementation. In 2010, Lauritzen Offshore Services underwent a pre-assessment with Lloyds Register with accreditation scheduled for Outlook for 2011 A rebound in oil prices generated by the recovery in oil demand and fairly strict adherence by OPEC to quotas led to new oil and gas investments picking up during the latter part of With conventional oil and gas reserves ashore and in shallow waters growing increasingly sparse, deepwater exploration is expected to continue to grow as a relative contributor to the energy mix. The rising pressure on the oil companies to ensure safe and reliable operations has been intensified by the Mexican Gulf incident. This will favour owners of modern, high-end equipment and will be a strong driver for utilization rates in the offshore accommodation segment. Further, the pressure for increased maintenance programmes and to focus on enhanced oil recovery from mature fields is expected to influence demand positively. Lauritzen Offshore will take delivery of two shuttle tankers for long-term operations in Brazilian waters in In 2011 Lauritzen Offshore s results are expected to be significantly lower than in 2010 due to changed employment of Dan Swift. From being employed on a shorterterm contract Dan Swift is employed on an interim contract for Shell offshore Nigeria, whereafter the vessel is expected to be employed on a long-term contract currently being negotiated. 32

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36 Lauritzen Tankers KEY FIGURES USDm Revenue EBITDA 12.1 (9.8) Depreciation and write-downs (3.9) (58.8) Profit on sale of vessels etc Operating income 11.8 (68.5) Result in joint ventures 0.6 (4.5) Finance net (1.0) (1.2) Result before tax 11.3 (74.2) JL's share of the result 8.4 (79.7) Invested capital (average) Return on invested capital 8.2% (47.3)% Average no. of employees FIG 14: MONTHLY SPOT MARKET FREIGHT RATES USD 000/DAY Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 MR earnings (average of selected routes) Source: Clarkson Research Services 34

37 In 2010, net results amounted to USD 8.4m compared to USD (79.7)m in Due to the poor trading conditions in 2009 and the weak market outlook, 2009 results included provisions and write-downs on vessels and vessels under construction totalling USD 71.6m. The results for 2010 include use of provisions of USD 6.7m. When adjusted for one-off items including use of provisions and gains from the disposal of vessels etc., net results for 2010 amounted to USD (6.0)m, slightly better than the similarly adjusted figure of USD (8.1)m in 2009 due to the increased capacity. Results were unsatisfactory but in line with expectations. Business model Lauritzen Tankers controls a fleet of modern MR product tankers with an average age of 2.3 years. The fleet is a mix of owned, part-owned, and time-chartered vessels as well as vessels committed by partners. Active fleet portfolio management via sale and purchase of vessels as well as chartering of tonnage constitutes part of the business model. Vessels not covered by long-term contracts are commercially and operationally managed by Hafnia Management in their MR pool. Main events In accordance with the long-term strategy of achieving critical mass and stronger market presence, Lauritzen Tankers accepted an invitation to join a newly established product tanker pool led by Hafnia Management, Denmark, as a partner. Other partners include Marinvest, Sweden, Gotlandsbolaget, Sweden, and LGR di Navigazione, Italy. The latter is already a trusted partner with Lauritzen Kosan in the gas carrier industry. Lauritzen Tankers also became part-owner of Hafnia Management. During the second-half of the year, Lauritzen Tankers vessels with no period charter commitments were placed with Hafnia Management and as part of the transferring the vessels to the pool, four employees were also transferred from Lauritzen Tankers to Hafnia Management. Two 53,000 dwt MR product tanker newbuildings and one 50,500 dwt MR product tanker newbuilding were delivered to the fleet in Lauritzen Tankers sold one 50,500 dwt MR product tanker and one 53,000 MR product tanker to a close business partner. Global market developments Average spot rates for MR product tankers were USD 7,200 per day in 2010 and thus remained at the poor level that also characterized 2009, cf. Figure 14. Seasonal factors meant that the market was unexpectedly tight in early 2010 but 35

38 weakened during the second quarter. The summer was better than feared, whereas the end of the year was disappointing. With the gradual disappearance of the strongly rising forward curve for crude oil prices, the incentive to use product tankers as floating storage declined and towards the end of the year the number of vessels used for such purposes was low. In general, the Atlantic Basin showed stronger rates than the Pacific. The period market offered higher rates than spot earnings but numbers of concluded charter parties were limited. Despite the continuous influx of new product carriers, the period market improved marginally in 2010 compared to the fourth quarter of Demand for product tankers The weak market was in part due to higher oil prices that kept a lid on demand growth in advanced countries. Global oil demand went up by almost 3% with emerging countries accounting for the vast majority of the increase. This pattern of demand led to domestic refining capacity being able to satisfy a high proportion of domestic consumption in advanced countries, thereby containing demand for imports of oil products. Biofuels also increased their market share although so far they are only traded in very limited volumes internationally. It is estimated that demand for product tankers grew by 3% in Due to falling US imports of gasoline the composition of imports into OECD, cf. Figure 15, reflects two strong forces at work. One is increased biofuel use and low demand in relation to domestic output capacity in the USA which has kept gasoline imports into USA low. The other is higher imports of naphtha reflecting the recovery of the petrochemical industry in the OECD area. Supply of product tankers The global product tanker fleet grew by some 10% in 2010 after double digit growth figures in the previous couple of years. The MR product tanker fleet increased by 9% in 2010 compared to some 15% the previous year. Demolition sales of MR product tankers amounted to 3m dwt in 2010 compared to 2m dwt in 2009, reflecting the combined effect of the weak market conditions and the phase-out scheme for single hull tankers. As deliveries were down from approximately 7m dwt in 2009 to 4m dwt in 2010, overall supply growth was reduced. Contracting went up in 2010 compared with For all product tankers, new orders increased from 1.7m dwt to 3.9m dwt and new orders for MR product tankers increased from 0.8m dwt to 1.4m dwt. At year-end 2010, the order book for all product tankers amounted to 20% of the existing fleet. For MR product tankers, too, the order book amounts to almost 17% of the existing fleet. Approximately 60% of the respective order books are scheduled for delivery in 2011 cf. Figure

39 FIG 15: IMPORT OF REFINED OIL PRODUCTS INTO OECD 2009 & % 17% 26% 20% 17% 16% 13% 17% 8% 14% 17% 8% Naphtha Gasoline Jet & Kerosene Gasoil/Diesel Heavy Fuel Oil Other Products Source: IEA 37

40 FIG 16: MR PRODUCT TANKER ORDER BOOK DWTm ( by scheduled delivery year and expected deliveries) FIG 17: AVERAGE NUMBER OF VESSELS Deliveries i in Order book Expected 2010 year-end 2010 deliveries in Total order book Other Shared charter Chartered Part owned Own Source: Clarkson Research Services, Oil Trade & Tanker Outlook 38

41 Lauritzen Tankers fleet In 2010, total ship days reached 4,652 with 12.7 vessels on average compared to the 3,823 days with 10.5 vessels on average reported in 2009, cf. Figure 17. At the end of 2010, Lauritzen Tankers controlled a fleet of 14 MR product tankers. Fleet management Technical management was transferred during 2010 to Wallem Shipmanagement, Hong Kong, MMS, Tokyo and Lauritzen Offshore Services, Copenhagen. Ship management practices remain in line with the high standards demanded for all JL vessels. Total off-hire for the owned fleet, including planned off-hire, was 1,1%. Outlook for 2011 Demand for product tankers is projected to rise by 11% in 2011 compared with 2010, despite an expected reduction of oil consumption growth globally due in part to high oil prices. The reason for this is partly the strengthening of the US economy with more gasoline likely to be consumed, partly the reduced refining capacity in advanced economies due to economic and/or technical obsolescence. Furthermore, emerging market thirst for oil continues to rise, and with the aggressiveness of modern export-oriented refineries in the Middle East Gulf and India, demand for product tankers is likely to benefit. Preliminary figures suggest that not all single hull tankers or tankers 25 years or older have been phased out yet. This implies a continuation in 2011 of a high level of demolition. Although there is a sizeable scheduled order book for 2011, it is envisaged that slippage and other factors will continue to reduce actual deliveries into the market. This implies rising fleet utilization in 2011 compared with 2010 with the potential of higher freight rates, however still at fairly low levels. In 2011, Lauritzen Tankers will take delivery of two 50,500 dwt newbuildings from China. Contract coverage for the product tanker fleet amounts to about 36% for In 2011, Lauritzen Tankers net results are expected to be lower than in However, adjusted for one-off items such as use and reversal of provisions and fewer gains on the disposal of vessels being included in the 2010 results, results in 2011 are expected to be in line with those reported in

42 Corporate Governance Good corporate governance is the key to building and maintaining candid relationships with our owners, employees, customers, partners, and suppliers. JL is determined to ensure that the company s management structure and control systems are appropriate and work satisfactorily in order to make certain that JL s business operations are being reliably and profitably conducted. The basis for JL s corporate governance includes the Danish Companies Act, the fundamental principles and recommendations from the Danish Committee on Corporate Governance considered relevant for a company owned by a commercial foundation, the company s Articles of Association, the Board of Directors Rules of Procedure and its directions to the Executive Management. Ownership JL s history goes back to Ownership of the company was anchored in the Lauritzen family until 1945 when the gradual process of transferring ownership to JL-Fondet (JL Foundation) was started. Late in 2009, a corporate restructuring of the Lauritzen Group was completed with Danish title of the Foundation changing from JL-Fondet to Lauritzen Fonden. The Lauritzen Foundation is a commercial foundation and as such is a self-governing institution in Danish law. It is governed by the Danish Foundation Act and the Danish Ministry of Justice and the Danish Ministry of Economic and Business Affairs oversee the Foundation. According to the Foundation s charter, one major aim of Lauritzen Fonden is to improve Denmark s reputation by promoting and developing the Danish Shipping industry. Companies owned by the Lauritzen Foundation are also required under the terms of its charter and its core policies to: Operate a prudent dividend policy, taking account of the continued existence and development of the affiliated enterprises. Pay special attention to its shipping business. Ensure the independence of affiliated enterprises from the Foundation. Take an open-minded approach towards capital increases in affiliated enterprises. In terms of ownership, the focus of the Lauritzen Foundation is long-term, profitable growth and the goal is to continuously develop the businesses of the companies belonging to the Group and to achieve stable, reasonable returns within the risk framework of the different markets and operations. General meeting The general meeting is JL s supreme governing body and the annual general meeting is required to be held before the end of April. Board of Directors The Board of Directors consists of at least four and no more than seven members 40

43 CORPORATE STRUCTURE The Lauritzen Foundation LF Investment ApS * 100 % J. Lauritzen A/S 100% DFDS A/S 36% ** Lauritzen Bulkers Lauritzen Kosan Lauritzen Tankers Lauritzen Offshore * Besides ship owning, transport and logistics activities, LF Investment ApS has holdings in the oil analysis, measuring equipment, software, biotechnology and real estate sectors. ** DFDS is a leading sea transport network integrating freight and passenger services, headquartered in Copenhagen and quoted on NASDAQ OMX, the Nordic Exchange Copenhagen. The Lauritzen Foundation and A. P. Moller Maersk, are the majority shareholders in DFDS A/S. 41

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45 elected by the general meeting. Members of the Board of Directors serve for one year and may stand for re-election. Board members cannot be re-elected after their 70th birthday. An additional two, and no more than four members of the Board of Directors, are required to be elected by the employees of the company and its subsidiaries in Denmark, pursuant to the Danish Companies Act and associated rules. Board members elected by the employees have four-year tenure and may also stand for re-election. JL s Board of Directors has eight members, five of whom are elected at the general meeting and three by the employees. At year-end 2010, the average length of service of the Board of Directors was seven years. The Board is broadly composed of members with diverse, extensive experience. At year-end 2010, the average age of the Directors was 56. The Board ensures that an annual strategic plan and an annual budget are drawn up and approved and that monthly and quarterly reports are submitted. The Board met six times in 2010, including a mid-year strategy review meeting. Otherwise, the Board convenes when deemed necessary. Between meetings, recommendations may be submitted to the Board for written resolution. As a consequence of the bonds issued by JL and the listing on Oslo Stock Exchange in 2010, JL s accounting class changed from Class C to class D in accordance with the Danish Financial Statements Act and so a three member Audit Committee was set up in June The objective of the Audit Committee is to support the Board of Directors in monitoring the controlling of accounts, the financial reporting process and risk management system. The committee held two meetings in At the same time, a Nomination and Remuneration Committee was established with the objective of supporting the Board of Directors in establishing and maintaining appropriate succession plans for the Board of Directors, Executive Management and other leading employees as well as ensuring a competitive remuneration policy for the company. The committee held two meetings in Management structure JL has a two-tier management structure consisting of a non-executive Board of Directors and an Executive Management. Day-to-day management is conducted by the Executive Management in line with rules and procedures laid down by the Board of Directors. Activities relating to day-to-day business are delegated insofar as possible to the individual business units, subject to welldefined financial and risk limits. Opera- 43

46 tional efficiency is supported by centralised shared corporate services such as business control, human resources, IT, legal and insurance, procurement, and treasury. Further, Group standards apply to financial management, investment considerations, risk management etc. Executive Management The Executive Management is appointed by the Board of Directors and consists of President & CEO Torben Janholt, Executive Vice President & CFO Birgit Aagaard- Svendsen, and Executive Vice President Jan Kastrup-Nielsen. Extraordinary or major dispositions may only be implemented by the Executive Management on the basis of specific authorization granted by the Board. An executive committee functions as the coordinating forum for the day-to-day management of the JL Group and consists of the Executive Management together with Ejner Bonderup (President, Lauritzen Bulkers), Thomas Wøidemann (President, Lauritzen Kosan), Erik Donner (President, Lauritzen Tankers), Erik Bierre (Senior Vice President, Business Control), John M. Jørgensen (Senior Vice President, Treasury), and Tove E. Nielsen (Senior Vice President, Human Resources). Financial management and reporting JL s financial management comprises long-term financial projections and annual budgets followed up by quarterly and monthly reporting. Internal quarterly reports include profit forecasts for the full year. Annual profit forecasts are also drawn up twice a year for following years. Effective, credible reporting requires welldefined levels of authorisation, segregation of duties and transparent reporting structures. The Group s IT systems promote the requisite knowledge-sharing and transparency. Statutory reporting and internal management reporting are based on common policies, common databases and a common reporting system. These reporting policies apply to the entire Group, its business units, JL as parent company as well as subsidiaries. JL s Business Control is responsible for the group financial management and reporting including the internal control of business units and subsidiaries. The Executive Management routinely defines and reviews policies and procedures to support the business, risk management and reporting and to benchmark these against generally accepted international practice. An anti-fraud policy has operated since 2006 and this was updated in 2010 regarding whistleblower reporting and protection, whereby reporting can be made not only to the Executive Management, but also to the Chairman of the Audit Committee. 44

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48 Corporate Social Responsibility FIG 18: LOST TIME INJURY FREQUENCY (LTIF) LTIF * LTIF is an expression for the frequency of lost time injuries per one million man hours 46

49 Responsibility and good corporate citizenship are an important part of JL s history. With business activities set to grow in coming years, JL remains dedicated to ensuring that expansion continues to be achieved in a responsible way. JL is in a process of aligning its Corporate Social Responsibility (CSR) effort and initiatives with its on four main CSR thematics: Health, safety and security Social responsibility Environment and climate Business practices JL strives to strengthen its CSR goals and initiatives and our target is to sign up to the United Nations Global Compact in Health, safety and security JL constantly works to strengthen the health, safety and security aspects of our procedures with the aim of providing a working environment that is healthy, safe and secure for all employees and promotes a no-blame culture in order to ensure open and timely communication throughout the organisation. JL identifies risks and eliminates possible hazards which could result in personal injury, illness or accidents caused by substandard conditions or acts. Systems are in place to prevent hazardous situations, accidents and environmental damage. Should these occur, every employee is required to participate in determining and eliminating possible causes in order to prevent any repetition at sea. The trend for work-related incidents, measured as Lost Time Incident Frequency (LTIF), has been declining since 2006 and developed satisfactorily from 2.64 in 2009 to 1.44 in However, 2010 figures were still slightly above 2008, cf. Figure 18. While progress has been made, there is always room for improvement and JL works closely with contractors and suppliers to raise awareness of the risks involved in their operations. Social responsibility JL employees are the company s most important assets. The key to success is our commitment to attracting, training, developing and retaining capable, committed employees whose professionalism and personal qualifications and competencies can continue the drive towards our world-class vision, by living and leading our core values at sea and ashore. Human and employee rights JL supports and respects the protection of human and employee rights and refrains from any actions that could directly or indirectly encourage or contribute to infringement of these rights. In compliance with our core value of respect, JL regards diversity as an important element in building a global business. JL respects and treats employees equally and fairly and does not accept any form 47

50 of harassment or discrimination. We do not accept acts of abuse or threats in the workplace, whether committed by managers or fellow employees. JL will not participate in or benefit from any forms of forced labour or child labour, nor will JL interfere with our employees rights to form and join unions and to bargain collectively. Community As a shipping company with global operations, JL is creating a growing number of job opportunities at sea and ashore for the benefit of communities in different parts of the world. The JL Group has a long tradition of community involvement. The Lauritzen Foundation is the sole owner of JL and in addition to its commercial activities, the Foundation has explicit charitable aims and is engaged in a broad range of social, cultural, humanitarian, educational and research-related activities in Denmark and internationally. For additional information, please visit the website of the Lauritzen Foundation at Diversity JL supports increased gender diversity at managerial and staff level and JL is one of the co-signatories to the Recommendation for more women on supervisory boards initiated by the Danish Ministry for Gender Equality. Environment and climate JL s controlled fleet of about 150 vessels, not including vessels under construction, obviously has an impact the environment due, for instance, to combustion of fossil fuels and the resulting emissions of CO 2, sulphur oxide (SOx) and nitrogen oxide (NOx). From an environmental point of view, though, ocean transport remains by far the most climate efficient means of transport. As a general rule, emissions decline with ship size per transported unit, but actual emissions are highly dependent on a complex combination of factors, including speed, trading patterns, ballast voyages, etc. JL pursues a range of initiatives that aim to improve fuel efficiency and reduce emissions such as improved hull and propeller design, since fossil fuels will remain indispensable for propulsion for the foreseeable future. Energy consumption In 2010, cargo vessels technically managed by JL and JL s external ship managers consumed bunker oil equivalent to 2.6m MWh of energy. Average energy efficiency was KWh/tonkilometer compared to in 2009, cf. Figure 19. As the markets started to recover in 2010, so did average energy efficiency and the figures are again in line with the energy efficiency experienced in 2008, mainly due to fewer waiting days and ballast miles. 48

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52 FIG 19: ENERGY CONSUMPTION KWh/TONKILOMETER FIG 20: CO 2 ENERGY EMISSIONS G/TONKILOMETER FIG 21: SOx AND NOx EMISSIONS SOx g/tonkilometer NOx g/tonkilometer 50

53 Air emissions The CO 2 emissions were gram per tonkilometer (transport of one tonne at a distance of one kilometer) in 2010 which was down on the emissions figure of in 2009, cf. Figure 20, primarily due to the reduction in waiting days and ballast miles. NOx emissions fell to 0.40 gram per tonkilometer which was in line with the 2008 levels, whereas emissions of SOx per tonkilometer remained at 2009 levels and slightly below the 2008 figures. Emissions figures are based on actual consumption, oil quality and engine emission factors and are calculated in accordance with IMO MEPC.1/Circ.684. Innovation JL encourages entrepreneurship, creativity and innovation as illustrated by the development and the construction of the series of gas carriers completed in The vessels environmental credentials were built to Bureau Veritas Clean Ship notation and to the requirements of IMO Green Passport. In 2008, Lauritzen Kosan received the Ship of the Year award at the Lloyd s List London Awards for Isabella Kosan, the first vessel of this series. The Accommodation and Support Vessel Dan Swift was runner-up as Ship of the Year at the Lloyd s List Global Awards 2010 in recognition of the innovative design solution with the unique combination of features making the hybrid vessel a sailing hotel, shipyard, and heliport at the same time. Lauritzen Bulkers supports the development of the Lab-On-A-Ship (LOAS) system with the aim of enhancing combustion and fuel efficiency. The system is developed by NanoNord A/S, majority-owned by the Lauritzen Foundation. Lauritzen Bulkers works closely together with NanoNord and Lloyd s Register and the collaboration is part of the Danish trans-industrial Green Ship of the Future project. Business practices In compliance with our core value of accountability, reliable business practices are an essential part of our way of doing business. Anti corruption JL firmly distances itself from any actions that unjustly or unlawfully influence officials and/or the judiciary. The implemented whistleblower system enables employees to report cases on corruption and fraud to JL s Executive Management or the Chairman of the Audit Committee. 51

54 Organisation and people The backbone of JL is an organisation of highly professional and dedicated employees, who are tied together by strong values and a preparedness to meet changes in a demanding business environment. Recruitment JL s increased activity level was also reflected in the number of employees recruited in 2010, which was significantly up on the previous year when the company was cautious about taking on new staff due to the global recession. Recruitment was almost in line with 2008, when the company took on the greatest number of new employees for many years. It was not only the organisation in Copenhagen that expanded. JL s office in Singapore was strengthened together with newbuilding site teams in China and South Korea. Competency development JL continued to pay great attention to competency development in The Group has been routinely modifying its competency development programme, partly to support its strategies and goals and partly to deal with the increasing demands being imposed on employees professional and personal competencies in an international industry with increasing complexity, challenges and changes, and demands for new knowledge and understanding of interpersonal relations with colleagues and business partners coming from different cultural backgrounds. Competency development was undertaken in Den mark and abroad. In 2010, JL resumed its internal management development programme for middle managers. This involves an ambitious programme with professors from some of the leading business schools in Europe. JL s Danish shipping trainee programme continued in The academic part of the training pogramme was run in conjunction with other Danish shipping companies at Copenhagen Business School and other educational institutions. JL s office in Singapore also offered four-month internships for undergraduate students from Nanyang Technological University, Singapore, during the year. Competency development at sea Considerable sums have been spent updating and heightening the competencies of JL officers being employed on reefer and product tanker vessels so as to give them the skills needed to operate offshore units, since JL s entry into the offshore industry has given an entirely new dimension to the requirement for training and retraining. While retention rates remain very high, several activities were directed towards gas officers and ratings in an effort to raise safety awareness and competencies, including systematic debriefing of senior officers after completion of contracts, safety awareness and work attitude courses for all crew members. Performance Management For a number of years, performance management has been an integral part of JL s corporate culture and this will be further developed. For example, changes to the bonus scheme were introduced in 2010, which will result in greater emphasis being placed on individual targets and performance in coming years. 52

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56 FIG 22: TOTAL WORKFORCE YEAR-END FIG 23: DISTRIBUTION OF WORKFORCE YEAR-END , % % 5% 1% Seagoing Head office Overseas offices Site teams Seagoing Head office Overseas offices Site teams 54

57 Since 2004, JL has undertaken surveys for its Danish-based companies with Key Performance Indicators being measured right down to departmental level. In 2010, JL also undertook a survey on the provision and quality of the corporate services offered to business units. As part of annual appraisal interviews, in 2010 JL reintroduced specific goals in action plans for the performance of individual employees. Managers are also assessed for their leadership skills, including their ability to manage, motivate, delegate and develop employees. Terms of employment Again in 2010, JL s focus was on the terms and conditions of employment and the staff benefits that the company offers its employees to ensure they are in line with general developments and can compete with other companies in the sector. In addition to salary, the flexible remuneration package includes for example a pension scheme, health insurance, bonus scheme and communication tools. JL also regularly reviews its personnel policies to ensure that they always reflect the community and the world of which JL is a part. Employee development At year-end 2010, JL s total headcount was 1,200 compared to 1,032 in A total of 181 were working at head office in Copenhagen, 52 in the overseas offices, 15 at site teams, and 952 at sea, cf. Figures The total workforce, in particular seagoing personnel, increased due to the growing number of owned vessels. The relatively lower increase of the land-based staff was due to JL s LEAN activities under Project World Class, which has increased efficiency across the organisation, but also due to the fact that the land-based organisation saw an extensive expansion in Staff turnover at head office increased to 15.2% from 12.6% in 2009 and included employees outsourced to other companies. Average years of service decreased to 9.2 years in 2010 compared to 9.7 years in 2009, and average age increased from 41.9 years in 2009 to 43.9 years in The increase in age was due to the fact that the majority of the outsourced employees were less than 35 years old. Outlook for 2011 JL is constantly increasing its demands on competencies and skills to enable employees to perform in a world and in an industry that is characterized by increasing complexity, capital intensity, and competition. Accordingly, JL has decided to adapt the content and processes in its trainee programmes and primarily recruit candidates with bachelor degrees or with a similar educational background. JL also wishes not just to offer traineeships to candidates in Copenhagen but also to candidates in selected foreign offices to ensure greater cultural diversity in JL. As a result of the changes to JL s bonus scheme implemented in 2010, in coming years the Group will be further extending its performance management culture throughout the whole organisation, with a sharper focus on the managerial and behavioural aspects involved in performance management thinking. 55

58 Risk Management As a global industry, shipping is exposed to a large number of risk factors, ranging from macroeconomic fluctuations, to political intervention, legal and regulatory adjustments and to piracy. All such risk factors have the potential to fundamentally alter the way business is conducted. Effective risk management is achieving the highest possible level of reward for the risks incurred. Thus to be effective, numerous sources of risk, financial as well as non-financial, need to be identified, assessed and controlled. JL has identified and is monitoring and managing four main types of risk deemed important to our operations: Industry risks, corporate risks, operational risks, and financial risks. Risk management is an integral part of JL s corporate governance. Policies on risk management and risk limitation are approved by the Board of Directors. Further, the Group and individual business units have procedures in place to ensure consistent day-to-day risk management. These procedures involve continuously measuring exposure as well as making appropriate adjustments whenever exposure levels fall outside target ranges. Industry risks Industry risks relate primarily to market volatility and cyclicality that JL cannot influence or can only do so to a very limited extent. However, such risk factors are assessed on a daily basis in reviewing shortterm market conditions and they form the basis for the medium to long-term strategy of the company. In addition, geopolitical risks such as sanctions and protectionist measures may negatively affect profitability as well as JL s ability to implement its strategies. JL transports bulk commodities, liquefied gasses, crude and refined oil products and there is a close correlation between global economic trends, political interventions, the demand for such commodities and the associated requirement for ocean transportation. Similar factors create the business environment for the extraction of oil and gas which forms the basis for JL s offshore services. Changes in global demand affect revenues, costs, utilization of assets and subsequently asset values. Shipping, including servicing the offshore industry, is a cyclical industry with shorter or longer market cycles that create freight rate volatilities. JL seeks to manage such risks through a balanced portfolio of owned and part-owned vessels, timechartered tonnage and contract coverage supplemented with fuel oil hedging and to some extent Forward Freight Agreements (FFAs). Business strategies, comprising policies for contract coverage by vessel segments including FFAs, overall limits for off-balance sheet exposure (chartered tonnage) and fuel oil hedging are approved by JL s Board of Directors and reporting on these is an integral part of JL s reporting routines. Risks associated with fluctuations in asset values are assessed using models that incorporate forecast economic/physical service lives, shipping cycles and av- 56

59 FIG 24: TYPES OF RISK Industry risks Corporate risks Operational risks Financial risks 57

60 58

61 erage costs per fleet unit. Further, it is JL s policy to hold part of the owned fleet free of mortgage to support fulfilment of minimum value clauses in case of a significant drop in vessel values. Corporate risks Corporate risks primarily refer to the overall risks relating to the actual management and operation of JL. People JL is extremely dependent on being able to attract and retain skilled and competent employees at all levels, e.g. seagoing personnel, technicians, general managers, employees and staff responsible for customer and partner relations. JL constantly works to create a stimulating workplace with good opportunities for employees to develop. Brand and image JL enjoys strong brand recognition and has for many years been a quality ship owner with high standards in all aspects of safety. A prudent insurance policy covering the financial risks related to incidents is in place. However, any incident or accident could have an impact on the company to the detriment of JL s brand recognition. Guarding against this type of risk is difficult and can only be achieved by extensive preventive work and complete transparency should an incident or accident nevertheless occur. Strategy and business portfolio Shipping is a volatile industry with significant fluctuations in freight rates and values. With the aim of securing stable revenue streams, JL s strategy is to control a balanced business portfolio covering both open markets and more industrial/niche markets. In terms of tonnage, JL seeks to have a balanced portfolio of owned, partowned, and short or long-term chartered tonnage. Operational risks Operational risks arise from running our business operations. Safety Casualties from ship operations can have serious consequences and so merchant shipping is one of the most heavily regulated industries in the world and was among the first to adopt widely implemented international safety standards. Further, the oil majors have implemented additional requirements relating to safety, environmental protection, etc. Any accident could have serious consequences for JL s financial position due to loss of income, repair costs, claims and damages and consequential loss of customer satisfaction. JL recognizes the risks and potential hazards involved in owning, operating and managing a large, diversified fleet of ships worldwide. These risks include vessel 59

62 performance in accordance with statutory requirements and additional customer requirements for health and safety, security, quality and environmental issues. One major prerequisite for handling these risks is to ensure that all ships under JL s control comply with comprehensive internal management systems that are in line with or exceed the requirements of the International Safety Management (ISM) code. Management systems and reporting practices are regularly revised so as to communicate best practice across the fleet, thus avoiding or minimizing the risk of incidents, accidents and time loss. Finally, ongoing training of crews is the key to reducing risks relating to ship and cargo handling operations. Piracy Piracy represents an increasing risk in certain parts of the world and JL strictly adheres to recommendations from relevant national and international bodies. Insurance A policy on insurance has been adopted with the aim of reducing the financial risks of incidents and casualties. JL s insurances cover JL s assets, hired and operated fleet, cargo and non-marine risks. Insurance is taken out with first class international insurance companies. As a general rule, insurances are always taken out with a certain financial safety margin to avoid any serious consequential impact of an incident or casualty on JL s financial status. Counterparty Managing counterparty risk has become an increasingly important part of the shipping industry, particularly in view of the current economic crisis and the substantial entry of new players into the market. JL s policy comprises both suppliers (e.g. critical IT systems) and customers (e.g. charterers). Important counterparties are monitored and rated and limits to exposure have been established. Very large contracts and very long-term commitments are reviewed and approved by the Executive Management and in some cases by the Board of Directors. Seeking the highest degree of guarantees from counterparties is part of the policy. JL is constantly reviewing its policies with a view to extending the measures available for minimising counterparty risks. IT systems IT is critical for the conduct of our business. JL s IT systems are available roundthe-clock and are accessible worldwide. Core IT systems were replaced in 2010 and IT infrastructure and application management were outsourced to a third party. JL s internal IT organisation has the authority, the capabilities and capacity to manage the relationship in order to ensure the consistency of the IT services provided by a third party. 60

63 61

64 TABLE 25: FACTS ABOUT 10.50% J. LAURITZEN A/S SENIOR UNSECURED BOND ISSUE 2010/2015 ISIN: Size: NO NOK 700m Coupon: 10.5% fixed (paid annually) swapped into five-year USD fixed interest of 9.46% Maturity 5 May 2015 Listing Type: Profile Issue price: Oslo Stock Exchange Senior unsecured Bullet Par (100%) Ticket size NOK 500,000 Rating: Unrated Managers: Nordea Bank Danmark and BNP Paribas 62

65 Redundant systems and duplicate infrastructure are in place and systems are frequently tested to ensure that they can be restored within pre-defined time limits. The company s IT security policy defines the overall system, platform and infrastructure requirements and defines the framework for user behaviour and access to systems. Financial risks Financial risks relate to capital management risks (including access to funding and liquidity) and in general to the financial markets (currency exchange rates, interest rates, and fuel oil prices) as well as credit risks (loss deriving from counterparties failure to fulfil their contractual obligations towards JL). Financial risk management, including hedge transactions, only applies when underlying financial risks have been identified. Risks primarily relate to non-usd currencies, net interest rate and credit risks and access to well-functioning financial markets. Capital management The purpose of capital management is to ensure sufficient capital for day-to-day operations and financial commitments. Managing capital requirements is an integral part of JL s long-term financial planning and is included in our reporting system. The general guidelines on capital approved by the Board of Directors include requirements for the level of equity for the Group defined by minimum solvency ratio, minimum liquidity and the requirement for external funding to be drawn on or post delivery of vessels. Capital requirement (equity and financing) are constantly assessed in various scenarios and sensitivity analyses. Being wholly-owned by the Lauritzen Foundation, JL pursues a prudent dividend policy that supports JL s ability to grow its business organically. With the aim of further expanding the funding base, including funding to expand business activities, for the first time JL launched corporate bonds in 2010 and successfully completed the issue of NOK 700m (approximately gross USD 119m) listed on the Oslo Stock Exchange, cf. Table 25 and Figure 26. At year-end 2010, financing for JL s entire investment program was in place. During the year, JL s loan portfolio consisted of traditional mortgage-backed ship finance, ECA (Export Credit Agency) backed agreements as well as unsecured (nonmortgage) corporate bonds. With the diversification of financial sources and the entrance to the corporate bond market, JL has further secured the possibility of accessing additional funding for future business growth. Currency risk JL s operating and reporting currency is USD and thus all amounts are recorded 63

66 and reported in USD. Matching income and expenses and assets and liabilities minimises the net currency risk, leaving net positions to be focused on. JL s policy is to use derivative instruments to hedge the currency risks relating to net non-usd cash flows from operating activities, investments and financing. The general hedging policy is approved by the Board of Directors. Operating cash inflows are mainly in USD and costs are also mainly in USD. The most important non-usd cost currency is DKK arising mainly from head office costs and Danish crew expenses, and EUR mainly relating to the technical management of vessels. Currency risk from non- USD investments in ships relates to JPY and EUR. Currency risk from non-usd interest bearing debt relates to JPY, DKK and NOK. Interest rate risks Part of JL s indebtedness is subject to floating interest rates, meaning exposure to fluctuations in these. JL s policy is to hedge risks associated with changes in interest rates to limit the negative financial effects of adverse changes in interest rates by converting variable interest rates to fixed interest rates. Net interest rate risk may be hedged via forward rate agreements, interest rate swaps and related instruments if assessed as advantageous. The general hedging policy is approved by the Board of Directors. Please refer to Note 22 of the financial statements for further detail. Bunker oil price risk Bunker oil is a significant cost element for JL, although oil price risk only relates to contracted cargo volumes not covered by BAF (Bunker Adjustment Factor). Curently, most of the fleet is contracted either in the spot market, re-let or on timecharter and hence bunker oil price risk is limited. Credit risk Credit risk is the risk of incurring a financial loss if a customer or counterparty fails to fulfil its contractual obligations. JL assesses customers for creditworthiness based on historical trading and payment records as well as industry knowledge and customer reputation. Further, customers and counterparties are accepted only when fulfilling general requirements. In certain cases contracts are guaranteed by parent companies or similar. The risks relating to financial instruments, bonds and cash funds are minimized by trading only with financial institutions with a long-term A1 credit rating from Moody s. 64

67 FIG 26: PRICE DEVELOPMENT FOR J. LAURITZEN A/S NOK 700m BOND ISSUE May-2010 Jul-2010 Sep-2010 Nov

68 Financial review 66

69 JL s net result in 2010 was USD 130.7m (USD 74.6m in 2009), which included USD (12.5)m net profits from the sale of vessels and other fixed assets (USD 17.1m in 2009). Adjusted for one-off items including settlements, provisions, write-downs, reversals, and net profits on the sale of assets, net results in 2010 were USD 56.9m, up from USD 3.7m in The increase in profits mainly related to the improved market conditions for bulk carriers and additional capacity mainly due to newbuildings delivered to the fleet but also profits from the two offshore units, which both had their first full year of operation in The same factors also had a significant impact on revenues, which increased from USD 482.9m in 2009 to USD 718.8m in Hire of chartered vessels amounted to USD 244.0m, up from USD 170.2m in In 2009, hire of chartered vessels included use and reversal of provisions for onerous bulk carrier time-charter contracts of USD 86.0m and provisions for onerous product tanker time-charter contracts of USD 9.3m of which USD 6.7m was used in Hire of chartered vessels was up by only USD 3.8m after adjusting for these items. Operating costs for owned and bareboat chartered vessels totalled USD 55.9m, up by USD 10.5m due to a significant increase of the owned fleet. Other operating costs including bunkers, port expenditures and other voyage-related costs amounted to USD 72.7m, up from USD 55.3m in 2009 primarily due to changed employment for the gas carriers and costs relating to offshore activities. Office and fleet staffing costs and other sales and administrative costs totalled USD 114.7m, up from USD 97.5m in 2009 mainly due to the expanding fleet of owned vessels, costs related to replacement of core IT systems and one-offs related to outsourcing IT infrastructure and application management. EBITDA amounted to USD 252.2m, up from USD 134.9m in The increase related to all business units apart from Lauritzen Kosan which reported EBITDA in line with The sale of two bulk carriers, two product tankers, one gas carrier and other assets generated a net loss of USD (12.5)m. For comparison, 2009 saw the disposal of six bulk carriers and other assets which generated net gains of USD 17.1m. By the end of 2010, two additional gas carriers were sold for delivery in Depreciation and write-downs totalled USD 53.2m including reversal of writedowns on bulk carriers of USD 21.7m, compared to USD 76.4m in 2009, which included write-downs on product tankers and reversal of write-downs on bulk carriers of USD 26.7m net. Adjusting for write-downs and reversals, depreciation 67

70 was up by USD 25.2m as a result of the expanding fleet of owned vessels, mainly bulk carriers and offshore units. Net results in joint ventures totalled USD 11.0m, down from USD 17.0m in 2009, mainly due to the net effect of writedowns and reversals in Net financial costs of USD (56.3)m increased from USD (16.5)m in 2009 primarily due to increasing interest charges on post delivery financing of newbuildings, interest charges on the bond issue and a net currency exchange rate loss in 2010 compared to a net gain in Result before tax was USD 141.2m, up from USD 76.0m in Income tax amounted to USD (5.7)m compared to USD 3.6m in The change was mainly due to Brazilian tax on offshore activities and tax adjustments for previous years. The result of USD 135.5m for 2010, up from USD 79.6m in 2009, was better than expectations and satisfactory considering the global financial conditions. Balance sheet At year-end 2010, total assets amounted to USD 2,410.8m up by USD 222.4m from USD 2,188.4m in 2009 due to net investments in vessels. The total book value of vessels amounted to USD 1,251.6m, up USD 213.9m on 2009, whereas brokers valuations of vessels in the fleet totalled USD 1,243m. The value in use of the vessels, taking contract coverage into account, was significantly higher than broker valuations. Vessels under construction amounted to USD 663.1m (28% of total assets), up USD 218.2m from USD 444.9m in 2009 (20% of total assets) due to investments during the year being partly offset by delivery of newbuildings. Investments in joint ventures totalled USD compared to USD 121.3m in Broker valuations of vessels owned by partnerships totalled USD 185.0m compared to their book value of USD 184.7m, whereas the value in use of the vessels was significantly above book value. Other non-current receivables were nil down from USD 16.0m in Current receivables including fair value adjustments on FFAs and other derivate financial instruments amounted to USD 120.2m, compared to USD 123.8m in Total shareholders equity was up USD 113.2m at USD 1,243.7m, giving a return on JL s share of equity of 11.1% compared to 6.9% in Solvency was 52%, similar to the figure reported in At year-end 2010, total liabilities amounted to USD 1,167.0m, up USD 109.1m on Total interest bearing debt increased to USD 1,053.6m from USD 936.4m in

71 69

72 70

73 Other current payables including fair value adjustments on FFAs and other derivate financial instruments amounted to USD 78.3m (2009: USD 72.8m). Cash flow statement Cash flow from operations totalled USD 163.5m, up from USD (24.1)m in 2009 reflecting the improved EBITDA. In 2010 cash flows from investment activities amounted to USD (325.0)m, down from USD (455.0)m in 2009 due to decreasing net investments in vessels. Cash flows from financing activities (net proceeds from loans) amounted to USD 142.2m compared to USD 507.9m in The decrease mainly related to a decrease in at-delivery financing of vessels partly offset by proceeds from the bond issue. Cash and cash equivalents at year-end amounted to USD 154.4m compared to USD 172.1m at year-end At year-end financial resources including committed facilities available upon delivery of vessels amounted to USD 900.0m up USD 286.5m compared to end of

74 Accounts J. Lauritzen A/S 72

75 73

76 Income Statement Group Parent company Note USD ' Income 3, 4 Revenue 718, , Other operating income 20,701 20,363 14,048 12, , ,255 14,048 12,728 Hire of chartered vessels (243,952) (170,208) - - Operating costs of vessels (55,942) (45,394) Other operating costs (72,722) (55,264) Staff costs, office and fleet (89,840) (77,273) (12,958) (15,375) 6 Other sales and administrative costs (24,821) (20,197) (12,195) (7,968) (487,276) (368,337) (25,153) (23,344) Result before depreciation (EBITDA) 252, ,918 (11,105) (10,616) Profit and loss on sale of vessels (12,003) 16, Profit and loss on sale of other assets (512) Depreciations and write-downs (53,219) (76,428) (3) (8) Operating income 186,514 75,557 (11,108) (10,624) 17 Net result in Joint ventures 11,012 16, Financial income 9,622 11,878 28,630 16,879 9 Financial expenses (65,922) (28,389) (44,983) (94,439) Result before tax 141,226 76,000 (27,461) (88,184) 10 Income tax (5,686) 3,633 2,203 4,745 Result for the year 135,540 79,633 (25,258) (83,440) Attributable to: The J. Lauritzen Group 130,652 74,616 Minority shareholders share of result in subsidiaries 4,888 5, ,540 79,633 Proposed allocation of the result: Proposed dividend - - Transferred to other reserves (25,258) (83,440) (25,258) (83,440) 74

77 Statement of comprehensive income Group Parent company Note USD ' Net income recognised in the Income Statement 135,540 79,633 (25,258) (83,440) Other comprehensive income Exchange rate adjustments concerning foreign companies (3,220) (1) - - Fair value adjustment of hedging instruments during the year (22,045) 3,352 (22,045) 3,352 Hedging instruments transferred to financial expenses 6,704 4,158 6,704 4,158 Share of equity movements in joint ventures 1, Tax on other comprehensive income Other comprehensive income net of tax (17,304) 7,653 (15,341) 7,510 Total comprehensive income 118,236 87,286 (40,599) (75,929) Attributable to: The J. Lauritzen Group 113,348 82,269 Minority shareholders share of result in subsidiaries 4,888 5, ,236 87,286 75

78 Balance sheet assets Group Parent company Note USD ' ASSETS Non current assets Intangible assets 11 Goodwill Vessels, property and equipment 12 Vessels 1,251,625 1,037, Land and buildings 2,916 2, Machinery, tools and equipment 11,054 15,896 1,420 1, Vessels under construction 663, , ,928,653 1,501,410 1,420 1,415 Financial assets 16 Investments in subsidiaries , , Investments in Joint ventures 112, , Deferred tax assets 2,747 3,580 2,675 3,513 Shares available for sale 3,279 3,530 3,268 3,530 Receivables from Joint ventures 15,584 25, , 22 Other receivables - 15, , , , ,273 Total non current assets 2,062,319 1,670, , ,689 Current assets Bunkers 3,130 1, Receivables Trade receivables 34,935 10, , 22 Other receivables 41,373 64,448 6,832 23,842 Receivables from affiliated companies , ,932 Receivables from Joint ventures Prepayments 43,929 49,015 16,726 8, , , , , Securities 9,930 13,103 9,930 13, Cash and bank deposits 213, , , , , , , ,026 12, 15 Assets held for sale 1, , Total current assets 348, , , ,026 Total assets 2,410,779 2,188,403 1,426,908 1,286,715 76

79 Balance sheet liabilities Group Parent company Note USD ' LIABILITIES Equity Share capital 60,633 60,633 60,633 60,633 Reserve for hedging instruments (18,505) (3,164) (18,505) (3,164) Reserve for exchange rate adjustments (5,777) (2,557) - - Other reserves 1,202,623 1,070, , ,552 Proposed dividend JL's share of equity 1,238,974 1,125, , ,021 Minority shareholders' share of equity 4,761 4, Total Equity 1,243,735 1,130, , ,021 Non current liabilities 20 Provisions 251 3, Interest bearing debt 966, , , ,966 Total non current liabilities 967, , , ,966 Current liabilities 21 Interest bearing debt 86,780 53,809 35,373 13,033 Trade payables 21,568 22,480 8,163 2,332 Other payables 78,323 72,836 46,045 37, Provisions 5,521 13, Prepayments 1,908 3, Debt to affiliated companies , , Corporate tax 5,864 6,239 1,568 5,348 Total current liabilities 199, , , ,728 Total liabilities 1,167,043 1,057, , ,694 Total equity and liabilities 2,410,779 2,188,403 1,426,908 1,286, Financial instruments and financial risks 24 Leasing 28 Mortgages 29 Contingent liabilities 30 Contractual commitments 31 Related parties 32 Events after the balance sheet date 33 New accounting regulations 77

80 Equity Statement Group USD '000 Reserve for Reserve for Result Share hedging exchange carried Proposed Minority capital instruments rate adj. forward dividend Total interests Total Equity 1/ ,633 (10,675) (2,556) 995,954-1,043,357 4,356 1,047,713 Net result of the year ,616-74,616 5,017 79,633 Exchange rate adjustments concerning foreign companies - - (1) - - (1) - (1) Share of equity movements in Joint ventures Deferred (gain)/loss on hedging instruments transferred to financial expenses - 4, ,158-4,158 Fair value adjustment of hedging instruments during the period - 3, ,352-3,352 Total comprehensive income - 7,510 (1) 74,760-82,269 5,017 87,286 Paid dividend (4,500) (4,500) Proposed dividend Equity 31/ ,633 (3,164) (2,557) 1,070,715-1,125,626 4,873 1,130,499 Net result of the year , ,652 4, ,540 Exchange rate adjustments concerning foreign companies - - (3,220) - - (3,220) - (3,220) Share of equity movements in Joint ventures ,256-1,256-1,256 Deferred (gain)/loss on hedging instruments transferred to financial expenses - 6, ,704-6,704 Fair value adjustment of hedging instruments during the period - (22,045) (22,045) - (22,045) Total comprehensive income - (15,341) (3,220) 131, ,348 4, ,236 Paid dividend (5,000) (5,000) Proposed dividend Equity 31/ ,633 (18,505) (5,777) 1,202,623-1,238,974 4,761 1,243,735 Parent Company USD '000 Reserve for Reserve for Result Share hedging exchange carried Proposed Minority capital instruments rate adj. forward dividend Total interests Total Equity 1/ ,633 (10,675) - 508, , ,950 Net result of the year (83,440) - (83,440) - (83,440) Deferred (gain)/loss on hedging instruments transferred to financial expenses - 4, ,158-4,158 Fair value adjustment of hedging instruments during the period - 3, ,352-3,352 Total comprehensive income - 7,510 - (83,440) - (75,929) - (75,929) Paid dividend Proposed dividend Equity 31/ ,633 (3,164) - 425, , ,021 Net result of the year (25,258) - (25,258) - (25,258) Deferred (gain)/loss on hedging instruments transferred to financial expenses - 6, ,704-6,704 Fair value adjustment of hedging instruments during the period - (22,045) (22,045) - (22,045) Total comprehensive income - (15,341) - (25,258) - (40,599) - (40,599) Paid dividend Proposed dividend Equity 31/ ,633 (18,505) - 400, , ,422 78

81 Cash Flow Statement Note USD ' Group Parent company Result of operating income 186,514 75,557 (11,108) (10,624) 7 Depreciation carried back 53,219 76, Adjustments (28,729) (79,978) 8,755 25, Change in working capital 5,525 (79,272) (75,622) (216,337) Cash flow from operations before financial items 216,528 (7,265) (77,972) (201,912) Ingoing financial payments 9,232 6,673 3,643 4,796 Outgoing financial payments (57,180) (27,656) (44,983) (20,683) Cash flow from ordinary operations 168,580 (28,247) (119,312) (217,800) 10 Paid corporate tax (5,065) 4,133 (739) 5,255 Cash flow from operating activities 163,515 (24,114) (120,051) (212,545) 12 Purchase of vessels (279,182) (431,975) Payments on vessels under construction (256,487) (102,069) Purchase of land and buildings (172) Purchase of machinery and equipment (2,179) (6,694) (8) - 17 Purchase of Joint ventures (9,174) (4,556) - - Sale of vessels 216,050 91, Sale of other non current assets 1, Increase of share capital in subsidiaries - - (38,457) (363) Purchase and sales of securities 3,564 26,819 3,564 26,819 Cash and cash equivalents pledged as security for debt (26,588) (32,950) (24,976) (20,300) Dividend received from subsidiaries Dividend received from Joint ventures 28,152 4, Cash flow from investment activities (324,968) (455,021) (59,877) 6,156 Financial receivables 25,474 (14,098) Instalment on long-term debt (166,778) (189,681) (125,357) (68,749) 21 Proceeds from loans 283, , , ,629 Dividend paid Cash flow from financing activities 142, , , ,880 Changes for the year in cash and cash equivalents (19,269) 28,774 (29,131) 114,491 Cash and cash equivalents at beginning of year 172, , ,567 38,159 Currency adjustments on cash and cash equivalents 1,592 (1,083) 1,242 (1,083) 27 Cash and cash equivalents at the end of the year 154, , , ,567 Undrawn committed credit facilities at end of year 47,882 23,200 24,682 - Financial resources at the end of the year 202, , , ,526 Committed facilities available upon delivery of vessels 697, , , ,200 Financial resources incl. committed facilities available upon delivery of vessels 900, , , ,726 79

82 Notes Note 1 Accounting policies J. Lauritzen A/S is a private limited company with domicile in Denmark. The Annual Report for the period 1 January 31 December 2010 comprise consolidated financial statements for J. Lauritzen A/S and its subsidiaries (The Group) as well as separate financial statements for the parent entity. The annual report has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements for annual reports of reporting class D, see the statutory order on the adoption of IFRS issued pursuant to the Danish Financial Statements Act. In addition, the annual report has been prepared in compliance with the International Financial Reporting Standards issued by the IASB. Change in accounting policies and new financial reporting standards Due to a listing of bonds on the Oslo Stock exchange J. Lauritzen applies as from January with class D regulations under the Danish disclosure requirements instead of class C- large. JL apply with the disclosure requirements under class D for companies with listed debt instruments, not the requirements applicable for companies with listed equity instruments. In 2010, JL has adopted the following new or revised standards and interpretations endorsed by EU effective for the accounting period beginning on 1 January 2010: Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards Amendments to IFRS 2 Share based payments Amendment to IFRS 3 (revised 2008) Business combinations Amendment to IAS IAS 27 (revised 2008) Consolidated and Separate Financial Statements Part of Annual improvements to IFRSs ( ) with effective dates no later than 1 January 2010 Amendments to IAS 32 and 39 Financial Instruments: Recognition and Measurement Neither these IFRSs nor the change of class under the Danish disclosure requirements have affected recognition or measurement in the Financial Statements of Basis of preparation The financial statements are presented in US dollars, rounded to the nearest thousand. They are prepared under the historical cost convention, except that the following assets and liabilities are stated at their fair value: Derivative financial instruments Investments held for trading Investments available for sale The accounting policies set out below have been applied consistently by all JL entities and to all periods presented in these consolidated financial statements. Basis of consolidation The Annual Report comprises the Parent Company, J. Lauritzen A/S, and subsidiaries in which the Parent Company has directly or indirectly the power to govern the financial and operating policies. This is normally accomplished by holding more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether JL has control or significant influence over another entity. Enterprises in which JL has a significant influence, but not control are classified as associates. Joint ventures are recognised in the consolidated financial statements, and in the financial statements of the parent company using the equity method. The Consolidated Financial Statements are prepared on the basis of the financial statements of the Parent Company and its subsidiaries, by combining items of a uniform nature and eliminating inter-company transactions and balances, and are based on financial statements prepared in compliance with JL s accounting policies. 80

83 Acquisitions, disposals and entities formed during the year are included in the financial statements during the period of JL s control or significant influence. Comparative figures are not adjusted for acquisitions. Disposals or liquidations are presented as discontinued operations. On acquisition of businesses, the purchase method is applied, according to which the identifiable assets, liabilities and contingent liabilities acquired are measured at their fair values on the date of acquisition. The excess of the cost of acquisition over the fair value of JL s share of the identifiable assets, liabilities and contingent liabilities acquired are recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the business acquired (negative goodwill), the difference is recognised directly in the income statement. Gains or losses from the disposal or liquidation of subsidiaries or associates are stated as the difference between the proceeds from disposal or liquidation and the book value of the net assets at the date of disposal or liquidation. This includes any goodwill as well as any anticipated disposal or liquidation costs. Translation of foreign currencies Items included in the financial statements of each of JL s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated and the parent company s financial statements of JL are stated in USD which is both JL s functional and presentation currency. Foreign currency transactions are translated into the functional currency at the exchange rate of the date when initially recognised. Gains and losses arising between the exchange rate of the transaction date and that of the settlement date are recognised in the income statement under financial items. The results and financial position of any JL entity that has a functional currency different from JL s presentation currency are translated into the presentation currency as follows: Assets and liabilities, including goodwill and fair value adjustments arising on consolidation are translated at the closing rates at the date of the balance sheet. Income and expenses for each income statement are translated at exchange rates approximating the exchange rate of the date of transaction date, and all resulting exchange differences are recognised as a separate component of equity. Exchange differences arising from the translation of the net investment in foreign subsidiaries or associates, and of borrowings or other currency instruments relating to hedging such investments are recognised directly in the translation reserve of equity. Exchange differences are released to the income statement upon disposal of the net investment. Derivative financial instruments and hedging activities JL uses derivative financial instruments to hedge its exposure to foreign exchange risks, interest rate risks and price risks arising from operational, financing and investment activities. In accordance with its treasury policy, JL does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivatives are recognised initially at fair value. Subsequently, derivatives are re-measured at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the income statement, unless the derivative is classified as and qualifies for hedge accounting, where recognition of any fair value changes depends upon the nature of the item being hedged. Receivables, payables and other monetary items in foreign currencies that have not been settled at the balance sheet date are translated at the exchange rates then prevailing. Any differences between the exchange rates at the balance sheet date and the transaction date rates are recognised in the income statement under financial items. JL documents at the inception of the transaction the relationship between the hedge and the items hedged, as well as its risk management objectives and strategy for undertaking various hedge transactions. JL also documents from start to finish of a hedge whether the derivatives used in the hedge are highly effective in offsetting changes in the fair values or cash flows of the hedged items. 81

84 Notes Fair value hedge Changes in the fair value of derivatives designated as and qualifying for recognition as a hedge of the fair value of a recognised asset or liability are recognised in the income statement together with changes in the fair value of the hedged asset or liability. Cash flow hedge Where a derivative financial instrument is designated as a hedge of a highly probable forecasted transaction, the effective part of any gain or loss on it is recognised directly in equity. When the forecasted transaction subsequently is realised, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or periods during which the hedged forecasted transaction affects profit or loss. The ineffective part of any gain or loss is recognised in the income statement immediately. When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction still is expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised in the income statement immediately. Net investment hedge Derivatives used to hedge net investments in foreign subsidiaries, associated companies or joint ventures are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity; the gain and loss relating to the ineffective portion is recognised immediately recognised in the income statement. Derivatives that do not qualify for hedge accounting For derivatives that do not qualify for hedge accounting, changes in fair value are recognised in the income statement as they occur. Methods for determination of fair value A number of the Group s accounting policies and disclosures require the determination of fair value. Fair value has been determined for measurement and/or disclosure purposes based on the following methods: Vessels Fair value, used in the annually impairment testing, has been determined by independent brokers. Listed shares For listed shares the fair value is determined as the stock exchange closing price at the balance sheet date. The fair value of investments in bonds is based on the closing price at the balance sheet date obtained directly from the market or from third parties. The fair value of bond related products where an active and liquid market does not exist, is obtained by using a best approximation value calculated by the counterparty with whom JL has made the relevant trade. Unlisted shares Unlisted shares are measured at cost if no reliable valuation model can be applied. Derivatives The fair values of derivative instruments are based on their listed market price, if available, or estimated using appropriate market rates prevailing at the balance sheet date. These are based on rates obtained from third parties (banks, oil companies, brokers and trading houses). Non-derivative financial liabilities and non-current receivables The fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market interest rate at the balance sheet date. Segment information Segment information on key business areas is disclosed in line with JL s internal financial management, risks and accounting policies. 82

85 JL has only one geographical segment because JL considers the global market as a whole and individual vessels are not limited to specific parts of the world. Assets in a segment comprise those that are directly attributable to the segment s operations, including intangible assets, vessels, property, equipment, investments in associated companies and joint ventures, inventories, trade and other receivables, prepayments and cash. Liabilities in a segment comprise those that are directly employed in the segment s operation, including trade payables, accruals and other liabilities. Income statement Revenues Revenues comprise freight and demurrage revenues from the vessels, and miscellaneous income. Revenues are recognised in the income statement as services are delivered. Uncompleted voyages are recognised with the share related to the financial year. Earnings from vessels which are engaged in jointly controlled operation are recognised in revenue on a net distribution basis. In addition revenue comprises changes in fair value on forward freight agreements (FFA) used as hedging of JL s freight income. Hedge accounting is not applied on FFA s. Operating cost of vessels Operating cost of vessels includes maintenance and repairs, insurance of hulls and machinery, consumption of lubricants and supplies etc. Other operating costs Other operating costs include bunker oil, port costs, agent s commissions and other voyage related costs. Furthermore other operating costs include fair value changes on financial bunkers contracts which are entered into for the purpose of hedging JL s bunkers costs as hedge accounting is not applied for these transactions. Results in associated companies and joint ventures The proportionate share of the net result after tax in associated companies and joint ventures, after the elimination of inter-company profits/losses is recognised in the consolidated income statement of JL. Financial items Financial items include interest income and expense, realised and unrealised exchange gains and losses, financial expenses in respect of finance leases, adjustments to the value of securities and certain financial instruments and other financial income and expenses. Borrowing costs related to the financing of assets under construction are capitalised as part of the cost of the asset. In the income statement of the parent company dividends received during the year from subsidiaries, associated companies and joint ventures are shown under financial income. Income tax Income tax consists of tax calculated according to the regulations of the Danish Tonnage Tax Act for shipping activities and according to general tax regulations for other activities, as well as adjustments related to deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Balance sheet Goodwill All business combinations are accounted for by applying the purchase method. Goodwill represents the excess of acquisition price over the net fair value of acquired identifiable assets and liabilities arising on acquisition of subsidiaries, associates and joint ventures. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment. In respect of associates, the 83

86 Notes carrying amount of goodwill is included in the carrying amount of the investment in the associate or joint venture. Vessels, property and equipment Vessels Vessels are measured at cost less accumulated depreciation and accumulated impairment losses. Cost of vessels acquired by way of finance leases are stated at the lower of fair value, and the present value of the minimum lease payments at the inception of the lease. Costs relating to dry dockings are capitalised and depreciated over the period between dockings, which range from 30 to 60 month. Rebuilding of vessels is capitalised if the rebuilding is intended to extend the service life and/or improve the earning potential. Rebuilding is depreciated over the expected service life of the investment. Vessels under construction are measured at cost incurred until the time the vessel is taken into service. The costs of Accommodation and Support Vessels (ASV s) are divided into components with minor wear, such as hulls and engines, and component with hard wear, such as part of the accommodation area. Vessels are depreciated on a straight line method to an estimated scrap value. The estimated scrap value and estimated service life of a vessel are assessed annually and adjusted if appropriate. The carrying amounts of vessels are tested for impairment annually and are written down to the recoverable amount if this is lower than the carrying amount. The recoverable amount of is the higher of the fair value less costs to sell and the value in use. Broker valuations are used to estimate Fair value less costs to sell. Value in use is calculated as present value of future cash flows to be derived from the vessels during their useful life including charter agreements and COA s and estimated spot rates for open ship days. The impairment test is carried out on the lowest cash generating unit. The cash generating unit can be a single vessel or a group of vessels and directly attributable other assets and contracts when the cash inflows from the vessels are not largely independent of those from other vessels. Land Land is measured at cost. Buildings Buildings are measured at cost less accumulated depreciation and accumulated impairment losses. Machinery, tools and equipment Machinery, tools and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Depreciation The straight-line method of depreciation is applied and the expected useful life of the assets is as follows: Asset Years Bulk carriers 25 Gas carriers 25 Product tankers 25 Shuttle tankers 25 Accommodation and Support vessels, 25 components with minor wear Accommodation and Support vessels, components with hard wear Dry dockings 3-5 Buildings 50 Machinery, tools and equipment 5-10 Gains and losses on the disposal of tangible assets are calculated as the difference between the sales price less cost of sales and the net book value at the time of sale. Gains and losses on the disposal of machinery and equipment are recog- 84

87 nised in the income statement under the line item other sales and administrative costs. Gains and losses on the disposal of vessels are recognised in the income statement as a separate line item. Investments in associates and joint ventures consolidated financial statements In JL s consolidated financial statements, investments in associates and joint ventures are recognised according to the equity method of accounting. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. In discounting the estimated future cash flows, JL uses its risk adjusted weighted average cost of capital (WACC). Any goodwill resulting from the acquisition is included in the carrying value of the investment. It is tested for impairment as described below. Associates and joint ventures with negative equity are measured at USD 0 (nil), unless JL has a legal or constructive obligation to cover the negative balance of the associate. Investments in subsidiaries, associates and joint ventures parent company financial statements In the financial statements of the parent company, investments in subsidiaries, associates and joint ventures are carried at cost less accumulated impairment losses. Dividends are recognised in the income statement as received. Impairment The carrying amount of vessels and goodwill are tested annually for impairment. The carrying amounts of other non-current assets, other than deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated based on either discounted future expected cash flows (value in use) or broker s valuations (fair value less costs to sell). Inventories Bunker oil is measured at cost according to the FIFO principle. Major spare parts purchased and stored ashore for subsequent use are measured at cost less individually assessed write-down. Other inventories are recognised at the lower of cost or net realisable value. Financial assets JL classifies its investments in the following categories: Financial assets at fair value through profit or loss (financial derivatives), Loans and receivables and Available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments on initial recognition and re-evaluates this designation at every reporting date to the extent that such a designation is permitted and required. Financial assets at fair value through profit or loss Comprise financial derivatives on which hedge accounting is not applied and securities which is classified as held for trading. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are included in Trade receivables and Other receivables in the Balance sheet. Trade receivables and Other receivables are stated at amortised cost less 85

88 Notes allowances for doubtful trade receivables. The allowances are based on an individual assessment of each receivable. redemption value is recognised in the income statement over the lifetime of the loan. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are not classified held for trading. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Marketable securities under current assets are classified as available-forsale. Recognition and measurement of financial assets Purchases and sales of investments are recognised on the settlement date. Investments are initially recognised at fair value plus transaction costs for all financial assets not classified as fair value through profit or loss. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Unrealised gains and losses arising from changes in the fair value of financial assets classified as available-for-sale are recognised in equity. When financial assets classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the Income statement as gains and losses from available-for-sale financial assets. Prepayments Prepayments recognised under assets include payments relating to costs in subsequent periods after the balance sheet date. Equity Proposed dividend is recognised as a separate item under equity until approved at the Annual General Meeting, when it is recognised as a liability. Liabilities Mortgage debt and other interest bearing debt to credit institutions are initially recognised as the proceeds received less any transaction costs incurred. Subsequently, financial liabilities are measured at amortised cost using the effective interest rate method, such that the difference between the proceeds and the Financial liabilities also include lease obligations on finance leases. Trade payables and other amounts payable are measured at amortised cost. Provisions A provision is recognised in the balance sheet when JL has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and it is possible make a reliable estimate of amount of the provision. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Accruals Accruals include prepayments regarding income relating to periods after the balance sheet date. Corporate and deferred tax Corporate tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, nor differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. 86

89 A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. J. Lauritzen A/S is jointly taxed with various Danish subsidiaries to the commercial foundation Lauritzen Fonden. Cash flow statement The cash flow statement has been prepared according to the indirect method and shows the cash flows from operating, investing and financing activities for the year. Cash flows from operating activities are calculated as the results for the year as adjusted for non-cash operational items, changes in working capital and corporate tax payments. Cash flows from investment activities cover receipts or payments related to acquisition and disinvestment of companies and/or activities, transactions relating to non-current assets and purchase or sale of securities. Cash flows from financing activities comprise changes in the size and mix and the JL s share capital including related costs, raising and re-payment of interest bearing debt, plus payment of dividend to shareholders. Cash and cash equivalents include bank deposits and short term deposits that without restriction can be exchanged into cash funds and where there is insignificant risk of value fluctuations, with the deduction of short term bank loans. 87

90 Notes Note 2 Accounting estimates and judgments The preparation of the financial statements in conformity with IFRS requires management to make estimates and judgements that affect the reported carrying amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported performance. Management bases its estimates on historical experience and various other assumptions and sources that are believed to be reasonable. Actual results could differ from those estimates. JL believes the following are the significant accounting estimates and related judgments used in the preparation of its consolidated financial statements. Critical accounting estimates and judgments Estimated service life, scrap value and recoverable amount of vessels and vessels under construction: The estimated service life and scrap value of the vessels are assessed annually and adjusted if appropriate. Irrespective of indications of impairment the recoverable values of vessels and of vessels under construction are determined minimum annually based on broker s valuations and calculated values in use. Vessels which are held for sale are measured at the lower of the carrying amount and fair value based on broker s valuation less costs to sell. Significant changes in the estimated service life and scrap values and the result of the impairment test of vessels and of vessels under construction may have an impact on operating income. The carrying amount of vessels is disclosed in note 12 and the carrying amount of payments for vessels under construction is disclosed in note 15. Contractual commitments regarding shipyard contracts are disclosed in note 30. The key assumptions for the calculation of the value in use are the estimated future earnings and operating costs, the identified cash-generating units and a risk adjusted weighted average cost of capital of 7% (2009: 7%). The cash generating units applied in the impairment test for 2010 are identical to those applied for The product tanker market recovered only marginally in 2010 from the severe downturn seen in According to the impairment test as at 31 December 2010, the basic assumptions leading to write-downs of product tankers; product tankers owned by joint ventures as well as product tankers under construction in 2009 remain unchanged, and neither additional write-downs nor reversal of write-downs can be justified. No other vessels or vessels under construction were determined as at risk of impairment as at 31 December 2010 and no reasonably possible short term changes in key assumptions will cause other vessels or other vessels under construction to be impaired. In 2010, two bulk carriers classified as held for sale were transferred to depreciable category resulting in reversals of impairment losses. Provision for onerous charter contracts: The charter commitments for operating leased vessels are disclosed in note 24. The estimated benefits to be derived by JL from employing its chartered fleet of vessels are assessed minimum annually. The chartered vessels are allocated to CGU s using the same principles as for owned vessels. A provision for onerous charter contract is recognised in case the net present value of the estimated future cash flows for the lowest cash generating unit, in which the charter vessel is allocated, is negative and provided the net present value of estimated future cash flows for the specific charter vessel is negative. Due to the severe downturn of the product tanker market in 2009, provisions were recognised in 2009 to cover onerous time charters of products tankers. The provisions were partially used in

91 Write-downs on vessels etc. and provisions for onerous contracts are summarized below: USDm Assets held for sale Vessels and vessels under construction Onerous contracts Joint ventures Goodwill Total ment. Writedown Writedown Reversal Provision Reversal Writedown Writedown impairment loss, net Reversal Reversal 2010 Lauritzen Bulkers (21.7) (21.7) Lauritzen Kosan Lauritzen Offshore Serv. Lauritzen Tankers Non reportable segm. 1.7 (0.7) 1.0 Total Group (21.7) 2.2 (0.7) (20.1) 2009 Lauritzen Bulkers 22.6 (21.3) 20.2 (51.1) (24.5) (9.0) (63.1) Lauritzen Kosan Lauritzen Offshore Serv. Lauritzen Tankers Non reportable segm Total Group 25.2 (21.3) 77.5 (51.1) 9.3 (24.5) 5.1 (9.0) Reference is made to note 11 Goodwill, note 12 Vessels, note 15 Vessels under construction and note 20 Provisions. Critical accounting judgments in applying JL s accounting policies Leases: The Group enters into different contracts regarding chartering (leasing) of vessels. The majority of these contacts can easily be categorized as either operational or financial leases. However, some contracts may require judgment as to the substance of the agreement in order to recognise and measure them in accordance with JL s accounting policies. Joint operations: Categorising of joint operations as subsidiaries, associates or joint ventures is based on managerial judg- 89

92 Notes NOTE 3 Segment information USDm Lauritzen Lauritzen Lauritzen Lauritzen Total Non- Un- Total Bulkers Kosan Offshore Tankers reportable reportable allocated Group Services segments segments 2010 Revenue Result before depreciation (2.2) (5.1) Depreciations (23.0) (27.9) (20.1) (3.9) (74.9) (74.9) Reversal of impairment losses Profit and loss on sale of assets (20.4) (12.5) (12.5) Operating income (2.2) (5.1) Net result in Joint ventures Result before tax (2.3) (26.2) Income tax for the year (5.5) 2.0 (0.3) 0.6 (6.0) (5.7) Result for the year (1.7) (32.2) Hereof minority interest Other material non-cash items included in the result: Unrealized gains/loss on FFA's Provisions, net Result excl. other non-cash items (4.2) (32.2) Non current assets 1, , ,062.3 Investments in Joint ventures Current assets Total assets 1, , ,410.8 Liabilities ,167.0 Net Assets , (419.5) 1,243.7 Average number of employees Profit margin 33.1% 5.7% 38.1% 15.8% 27.2% (34.7)% N/A 25.9% Return on invested capital 15.6% 1.9% 9.9% 9% 8.2% 10.6% N/A N/A 10.2% Investments during the year Invested Capital - Year end 1, ,095.1 (3.4) (42.8) 2,048.9 Invested capital - Average ,934.1 (9.0) 6.2 1,

93 NOTE 3 Segment information (continued) USDm Lauritzen Lauritzen Lauritzen Lauritzen Total Non- Un- Total Bulkers Kosan Offshore Tankers reportable reportable allocated Group Services segments segments 2009 Revenue Result before depreciation (9.8) (11.9) Depreciations (11.3) (25.6) (5.2) (3.3) (45.4) (0.7) (0.0) (46.2) Impairment losses (42.8) - - (55.5) (98.3) (4.5) - (102.8) Reversal of impairment losses Profit and loss on sale of assets (0.1) Operating income (1.3) (68.5) 92.2 (4.7) (11.9) 75.6 Net result in Joint ventures (4.5) Result before tax (7.1) (74.2) 95.9 (3.7) (16.2) 76.0 Income tax for the year (0.5) (0.0) (0.3) (0.5) (1.3) Result for the year (7.4) (74.7) 94.6 (3.1) (11.8) 79.6 Hereof minority interest Other material non-cash items included in the result: Unrealized gains/loss on FFA's Provisions, net (9.3) Result excl. other non-cash items (7.4) (65.4) (56.0) (10.7) (11.8) (78.5) Non current assets , ,670.9 Investments in Joint ventures Current assets Total assets , ,188.4 Liabilities ,057.9 Net Assets ,417.7 (6.3) (280.9) 1,130.5 Average number of employees Profit margin 56.5% 8.0% (5.8)% (109.0)% 19.6% (35.7)% N/A 15.7% Return on invested capital 28.8% 2.4% (0.4)% (47.3)% 7.1% N/A N/A 6.1% Investments during the year Invested Capital - Year end ,773.1 (14.7) ,813.7 Invested capital - Average ,527.2 (14.9) 7.1 1,519.4 The reportable segments in the J. Lauritzen Group consist of the four business units Lauritzen Bulkers (Bulk carriers), Lauritzen Kosan (Gas carriers), Lauritzen Tankers (Product tankers) and Lauritzen Offshore Services (ASV and shuttle tankers). The four reportable segments are identical with how the J. Lauritzen Group is organized around the different services in the four segments. Each business unit is operated independently from the other business units, as each business unit services different customers and demands different types of vessels. The revenue reported represents revenue from external customers. There are no inter-segment sales in 2010 or The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 1. Unallocated income and expenses include group administration costs, finance costs and corporate services not allocated to the business units. Non-reportable operating segments include Lauritzen Reefers and other non-material activities. Unallocated assets and liabilities include mainly financial assets and financial liabilities not allocated to reportable segments. No vessels in any segment is limited to specific geographical area of the world and JL consider the global market as a whole hence no geographical information is relevant or available. No customer information is given as J. Lauritzen is not reliant on any single major customers. 91

94 Notes Note 4 Revenue and operating costs Group Parent Company USD ' Revenue includes: Fair value change on Forward Freight Agreement contracts 4,733 18, Compensation for cancellation of charter parties 53, Other operating costs includes: Fair value change on financial bunkers contracts - (319) - - Note 5 Staff costs, office and fleet Group Parent Company USD ' Staff costs include: Wages and salaries 84,615 71,766 11,705 13,827 Pensions (defined contribution plan) 3,614 3, ,186 Social security 1,256 1, Contract labour ,840 77,273 12,958 15,375 Remuneration to J. Lauritzen A/S' Executive Management - salaries 4,170 2,200 4,170 2,200 Executive Management - pensions Executive Management - long term employment bonus 2, , Board of Directors ,691 3,200 6,691 3,200 Average number of employees 1, Number of employees at year-end 1,200 1, Management and a number of executives are members of a bonus and/or severance scheme. Note 6 Other sales and administrative costs Group Parent Company USD ' Total fees to elected auditors Specified as follows: Statutory audit Tax advisory services Fee for other services

95 Note 7 Depreciations and write-downs Group Parent Company USD ' Goodwill - (1,735) - - Vessels (67,561) (55,994) - - Vessels under construction 19,900 (17,032) - - Land and buildings (99) (89) - - Machinery and equipment (5,459) (1,580) (3) (8) (53,219) (76,428) (3) (8) Note 8 Financial income Group Parent Company USD ' Interest income on cash and deposits 9,173 5,355 3,585 3,478 Interest on receivables from subsidiaries ,580 9,555 Total interest income on financial assets measured at amortised costs 9,173 5,355 28,165 13,033 Realised and unrealised currency exchange gains and losses, net - 5, ,529 Realised and unrealised gains and losses on securities at fair value though P&L Dividends received on shares at fair value through profit and loss Interest on securities at fair value through profit and loss Gain/loss on recognised firm commitments under fair value hedge accounting 311 3, Gain/loss on financial derivatives under fair value hedge (311) (3,568) - - Dividend received from subsidiaries Financial income 9,622 11,878 28,630 16,879 Note 9 Financial expenses Group Parent Company USD ' Interest expenses on loans (57,180) (27,656) (44,549) (19,700) Interest on debt to subsidiaries - - (435) (250) Total interest expenses on financial liabilities measured at amortised costs (57,180) (27,656) (44,983) (19,950) Realised and unrealised currency exchange gains and losses, net (8,742) Realised and unrealised gains and losses on securities at fair value though P&L - (733) - (733) Impairment write-down of subsidiaries (73,756) Financial expenses (65,922) (28,389) (44,983) (94,439) 93

96 Notes Note 10 Tax Group Parent Company USD ' Certain group companies are jointly taxed with subsidiaries to the commercial foundation Lauritzen Fonden. Tax in the Income Statement consist of: Current tax (4,848) 3,993 3,041 5,113 Deferred tax (838) (360) (838) (368) Income tax (5,686) 3,633 2,203 4,745 Tax on the result is specified as follows: Calculated 25% of result before tax (35,306) (19,000) 6,865 22,046 Adjustment in foreign companies deviating from 25% tax 6,196 1, Tax effect of: Tonnage tax 18,000 4,235 (7,923) - Non-taxable items 4,306 7,282 3,650 (22,793) Adjustments previous year 981 5,626 (389) 5,492 Net result in joint ventures 137 4, (5,686) 3,633 2,203 4,745 Effective tax percent 4% -5% 8% 5% Deferred tax on the Balance Sheet: Deferred tax 1 January 3,580 3,940 3,513 3,881 Exchange rate adjustments in foreign companies Tax on result (838) (360) (838) (368) Deferred tax 31 December 2,747 3,580 2,675 3,513 Deferred tax concerns: Taxable losses carried forward 2,747 3,580 2,675 3,513 2,747 3,580 2,675 3,513 Corporate tax payable can be specified as follows: Balance 1 January 6,239 5,937 5,348 4,911 Exchange rate adjustments (157) Paid during the year (5,065) 4,133 (739) 5,255 Provision for the year, incl. jointly taxed subsidiaries 4,848 (3,993) (3,041) (5,113) 5,864 6,239 1,568 5,348 In 2005 the Danish based companies entered the Danish tonnage taxation system, the adoption of which is binding until at least JL does not expect to leave the system and therefore no deferred tax provision is made on the assets or liabilities effected by the Danish tonnage taxation system. If, however, JL should leave the Danish tonnage taxation system there could be a deferred tax liability of up to a maximum of USD 9m. In excess of deferred tax assets recognised as specified above, the group and parent company have deductible unused tax losses of USD 7m and USD 4m respectively as per 31 December

97 Note 11 Goodwill Group Parent Company USD ' Cost as at 1 January 2,069 2, Additions during the year Cost as at 31 December 2,069 2, Write-down as at 1 January (2,069) (335) - - Write-down during the year - (1,735) - - Write-down as at 31 December (2,069) (2,069) - - Balance as at 31 December In 2004 JL acquired all the shares in Quantum Tankers A/S (now Lauritzen Tankers A/S), a company operating and managing product tankers, thereby adding a new business area to JL s business portfolio. The carrying amount of the goodwill was tested for impairment as at 31 December 2009 by testing the CGU for product tankers to which the goodwill was allocated. As the carrying amount of the CGU exceeded the recoverable amount of the CGU an impairment loss of USD 1.7m was recognised. Note 12 Vessels Group Parent Company USD ' Cost as at 1 January 1,336, , Exchange rate adjustments in foreign companies (4,220) Additions during the year 400, , Disposals during the year (253,887) (115,727) - - Cost as at 31 December 1,478,922 1,336, Depreciation and write-down as at 1 January (163,732) (147,760) - - Exchange rate adjustments in foreign companies 3,900 (740) - - Transferred from vessels under construction (24,496) - Depreciation (69,314) (42,768) - - Write down during the year - (13,226) Reversal of write down 1,753 - Disposals during the year 25,834 40, Depreciation and write-down as at 31 December (226,056) (163,732) - - Balance as at 31 December 1,252,866 1,172, Classification of vessel in Statement of Balance: Fixed assets 1,251,625 1,037,704 Assets held for sale 1, , Insurance sum including interest against total loss 1,663,675 1,524, *) As at 31 December two gas carriers were classified as held for sale (2009: one product tanker and one bulk carrier). The vessels are recognized at the lower of carrying amount and fair value less cost to sell. The classifiction did not result in write downs in 2010 (2009: loss of USD 5.2m). 95

98 Notes Note 13 Land and buildings Group Parent Company USD ' Cost as at 1 January 3,180 3, Exchange rate adjustments in foreign companies (115) Additions during the year Cost as at 31 December 3,237 3, Depreciation and write-down as at 1 January (246) (154) - - Exchange rate adjustments in foreign companies 24 (3) - - Depreciation during the year (99) (89) - - Depreciation and write-down as at 31 December (321) (246) - - Balance as at 31 December 2,916 2, Note 14 Machinery, tools and equipment Group Parent Company USD ' Cost as at 1 January 20,821 15,572 1,615 1,615 Exchange rate adjustments in foreign companies 338 (4) - - Additions during the year 2,179 6, Disposals during the year (6,084) (1,440) - - Cost as at 31 December 17,253 20,821 1,623 1,615 Depreciation and write-down as at 1 January (4,925) (4,412) (200) (192) Exchange rate adjustments in foreign companies (339) Depreciation during the year (1,874) (1,580) (3) (8) Write down during the year (3,585) Disposals during the year 4, Depreciation and write-down as at 31 December (6,199) (4,925) (203) (200) Balance as at 31 December 11,054 15,896 1,420 1,415 96

99 Note 15 Vessels under construction Group Parent Company USD ' Cost as at 1 January 568, , Additions during the year 256, , Disposal during the year *) - (50,103) Transferred to depreciable category (121,291) (299,163) - - Cost as at 31 December 703, , Write-down as at 1 January (85,270) (96,890) - - Write-down during the year **) - (89,434) - - Disposal during the year - 28, Transferred to depreciable category 24,496 - Reversal of write-down during the year **) 19,900 72, Write-down as at 31 January (40,873) (85,270) - - Balance as at 31 December 663, , Hereof classified to assets held for sale - 38, *) During 2009 contracts for building of four bulk carriers and one product tanker were cancelled. **) No vessels under contruction are classified as held for sale at ( : Contracts for building of one bulk carrier). During 2010 the bulk carrier previous held for sale was reclassified and remeasured to cost from fair value less costs to sell. The remeasurement results in a reversal of write-down of USD 19.9m in 2010 (In 2009 classification to held for sale resulted in a write-down of USD 19.9m). Reference is made to note 2 for further disclosure on impairment testing. 97

100 Notes Note 16 Investments in subsidiaries Parent Company Ownership Lauritzen Bulkers A/S, Denmark 100.0% 100.0% Lauritzen Kosan A/S, Denmark 100.0% 100.0% Lauritzen Reefers A/S, Denmark 100.0% 100.0% Lauritzen Tankers A/S, Denmark 100.0% 100.0% Lauritzen Ship Owner A/S, Denmark 100.0% 100.0% Lauritzen Tankers Shipowner A/S, Denmark 100.0% 100.0% J. Lauritzen Inversiones (Chile) Ltda., Chile 100.0% 100.0% J Lauritzen (Japan) K.K., Japan 100.0% 100.0% J. Lauritzen Singapore Pte., Singapore 100.0% 100.0% J. Lauritzen UK Limited., UK 100.0% 100.0% KRK 4 ApS, Denmark 100.0% 100.0% Segetrans Argentina S.A., Argentina 100.0% 100.0% ShipInvest A/S, Denmark 100.0% 100.0% LB Shipowner A/S, Denmark 100.0% 100.0% LB Shipowner II A/S, Denmark 100.0% N/A LK Shipowner A/S, Denmark 100.0% 100.0% Lauritzen Offshore Services A/S, Denmark 100.0% 100.0% LT Shipowner A/S, Denmark 100.0% 100.0% Parent Company USD ' Cost as at 1 January 772, ,755 Additions during the year 38, Cost as at 31 December 810, ,118 Accumulated impairment losses at 1 January (332,888) (259,132) Impairment during the year - (73,756) 756) Accumulated impairment losses at 31 December (332,888) (332,888) Carrying amount at 31 December 477, ,230 98

101 Note 17 Investments in Joint ventures Group Parent Company USD ' Cost as at 1 January 98, , Additions during the year 9,174 4, Disposal during the year (3,499) (11,625) - - Cost as at 31 December 103,944 98, Revaluation as at 1 January 44,115 28, Exchange rate adjustments in foreign companies 13 (0) - - Dividends received (28,152) (4,288) - - Revaluations during the year 10,820 17, Share of Equity movements (1,256) (144) Disposal during the year 3,279 2, Revaluation as at 31 December 28,818 44, Write-down as at 1 January (21,243) (21,243) - - Write-down as at 31 December (21,243) (21,243) - - Balance as at 31 December 111, , Net Liabili- Group share of 2010 Revenue Result Assets ties Net result Equity In total 226,442 37, , ,700 10, ,636 Internal profit 509 (7,116) 11, ,520 Negative equity set off against receivables , ,056 Hereof associated companies amount to Net Liabili- Group share of Revenue Result Assets ties Net result Equity In total 182,539 19, , ,880 15, ,401 Internal profit 1,476 (8,259) 16, ,141 Negative equity set off against receivables , ,321 Hereof associated companies amount to

102 Notes Note 18 Other receivables and Prepayments Group Parent Company USD ' Specification of Other receivables Financial lease receivables *) 8,936 20, Financial derivatives 9,579 21,928 5,373 15,389 Other short-term receivables 22,859 38,277 1,459 8,454 Total Other receivables 41,373 80,407 6,832 23,842 Hereof: Non current 'Other receivables' - 15, Current 'Other receivables' 41,373 64,448 6,832 23,842 *) In 2005 three (sublease) bareboat agreements were entered into. The agreements are treated as finance lease agreements with maturity dates in 2010 and 2011 respectively. Reference is made to notes 21 and 24. Prepayments Prepayments (not specified above) include USD 15.1m (2009: USD 20.6m) related to a bulk carrier charter agreement with a remaining maturity of three years of which USD 9.9m (2009: USD 14.8m) relates to charter periods later than Note 19 Equity The authorized and issued share capital of J. Lauritzen A/S has remained unchanged in 2010 with 29 shares of DKK 50,000 or multiples of this. The proposed dividend for 2010 amounts to USD 0 per share (2009: USD 0). Note 20 Provisions Provisions have been recognized to cover certain onerous charter parties and technical management agreements. The provisions are subject to changes in expected vessel earnings and operating costs. Reference is made to note 2 for further disclusure on provisions for onerous contracts related to impairment test. Group Parent Company USD ' Provision as at 1 January 16, , Additional provision during the year 2,228 9, Used during the year (12,427) (74,865) - - Reversal of provision during the year (686) (24,515) - - Provision as at 31 December 5,771 16, Hereof: Non current liabilities 251 3, Current liabilities 5,521 13, Provision as at 31 December 5,771 16,

103 Note 21 Interest bearing debt Group Parent Company USD ' Mortgage on vessels 761, , , ,651 Financial leasing 8,936 20, Subordinated loan *) 163, , , ,604 Issued bonds 117, ,340 - Other debt 2,285 2,745 2,285 2,745 1,053, , , ,999 Market value of non current debt 1,064, , , ,999 Non current interest bearing debt at 1 January 936, , , ,202 Exchange rate adjustments 478 8, ,917 Proceeds from loans 283, , , ,629 Repayments and redemption (166,778) (189,681) (125,357) (68,749) Balance as at 31 December 1,053, , , ,999 Long-term debt due for payment next year (86,780) (53,809) (35,373) (13,033) Non current interest bearing debt 966, , , ,966 The instalments for next year are specified as follows: Mortgage on vessels 77,844 42,092 35,373 13,033 Debt concerning financial leasing 8,936 11, Current interest bearing debt 86,780 53,809 35,373 13,033 Due for payment between 1 and 5 years Mortgage on vessels 490, , , ,702 Debt concerning financial leasing - 8, Subordinated loan *) 163, , , ,604 Issued bonds 117, ,340 - Other debt 2,285 2,745 2,285 2, , , , ,051 Due for payment after more than 5 years: Mortgage on vessels 193, , , , , , , ,915 *) The loan is granted from LF Investment ApS and is subordinated to all other debts, liabilities and obligations. 101

104 Notes Note 22 Financial instruments and financial risks Financial risks relate to capital management risks (access to funding and liquidity) and in general to the financial markets (currency exchange rates, interest rates, stock market share prices) as well as credit risks (loss deriving from counterparties failure to fulfil their contractual obligations towards JL). As defined by JL s Board of Directors, overall policies and objectives for financial risks were generally unchanged from 2009 although internal capital requirements have been tightened up due to the recent financial crisis. Financial risk management, including hedge transactions, only applies when underlying financial risks have been identified. Risks primarily relate to non-usd currencies, net interest rate and credit risks and access to well-functioning financial markets. Capital management risk The purpose of capital management is to ensure sufficient capital for day-to-day operations and financial commitments. Managing capital requirements is an integral part of JL s long-term financial planning and is included in our reporting system. The general guidelines on capital approved by the Board of Directors include requirements for the level of equity for the Group defined by minimum solvency ratio, minimum liquidity and the requirement for external funding to be drawn on or post delivery of vessels. Capital requirements (equity and financing) are constantly assessed in various scenarios and sensitivity analyses. Being wholly-owned by the Lauritzen Foundation, JL pursues a prudent dividend policy that supports JL s ability to grow its business organically. With the aim of further expanding the funding base, including funding to expand business activities, for the first time JL launched corporate bonds in 2010 and successfully completed the issue of NOK 700m (approximately gross USD 119m) listed on the Oslo Stock Exchange. At year-end 2010, financing for JL s entire investment program was in place. During the year, JL s loan portfolio consisted of traditional mortgage-backed ship finance, ECA (Export Credit Agency) backed agreements as well as unsecured (non-mortgage) corporate bonds. With the diversification of financial sources and the entrance to the corporate bond market, JL has further secured the possibility of accessing additional funding for future business growth. Liquidity risk Liquidity risk relates to the risk that JL will not be able to fulfil its financial obligations as they fall due. Liquidity is continuously monitored and assessed based on forecasts for the current year and years to come, outstanding capital expenditure, proceeds from committed and expected credit facilities and future liabilities from existing and expected future credit facilities. This is done to ensure liquidity is adequate at all times. External financing is based on credit facilities with a group of core banks, credit facilities with new financial counterparties, credit facilities with major banks guaranteed by ECAs (Export Credit Agencies) and by issuing corporate bonds. With some banks JL has agreed to make margin payments if some predefined financial limits are met. As of 31 December 2010, JL has made additional security available for one financial institution in the form of cash in order to counteract any potential breach of minimum value clauses in the existing credit facility (ref. note 27). There have been no breaches of credit facilities. Besides having an unsecured overdraft facility of DKK 100m for multi-currency short-term financing needs at the Group's disposal, JL had at year-end 2010 unused credit facilities and signed term sheets in place totalling JPY 11.5bn and USD 556.4m (total USD equiv m). These funds are to cover future liabilities on new buildings to be mortgaged post delivery for a total of USD 722.6m, please refer to note 30. Below is a maturity analysis of JL s financial liabilities at 31 December A maturity analysis of the Group's/Parent's operational lease obligations is included in note 24b. 102

105 Note 22 Financial instruments and financial risks (continued) USD 1000 Non-derivative financial instruments: Carrying amount Group 2010 Contractual cash flows <1 year 1 5 years >5 years Mortgage on vessels, bank debt and other interest-bearing debt *) (1,044,674) (1,204,930) (117,557) (876,173) (211,200) Finance lease commitments *) (8,936) (8,996) (8,996) - - Trade and other payables (69,812) (69,812) (69,812) - - Derivatives, liabilities at fair value: Forward exchange contracts (4,367) (4,367) (4,367) - - Interest rate swaps (21,241) (21,241) (5,356) (14,226) (1,660) FFA s (4,471) (4,471) (4,471) - - Total at 31 December 2010 (1,153,501) (1,313,817) (210,558) (890,399) (212,860) USD '000 Non-derivative financial instruments: Carrying amount Group 2009 Contractual cash flows <1 year 1 5 years >5 years Mortgage on vessels, bank debt and other interest bearing debt *) (916,219) (1,015,776) (64,863) (645,168) (363,179) Finance lease commitments *) (20,202) (21,021) (12,475) (8,546) - Trade payable and other payables (75,658) (75,658) (75,658) - - Derivative, liabilities at fair value: Forward exchange contracts (4,215) (4,215) (442) (3,773) - Interest rate swaps (5,497) (5,497) (1,257) (3,487) (752) FFA s (9,946) (9,946) (5,293) (4,653) - Total at 31 December 2009 (1,031,737) (1,132,113) (159,989) (655,627) (363,931) *) Contractual cash flows include undiscounted interest payments based on interest levels at year end. 103

106 Notes Note 22 Financial instruments and financial risks (continued) USD '000 Non-derivative financial instruments: Carrying amount Parent company 2010 Contractual cash flows <1 year 1 5 years >5 years Mortgages on vessels, bank debt and other interest-bearing debt *) (778,274) (900,660) (67,379) (718,679) (114,601) Trade payable and other payables (28,601) (28,601) (28,601) - - Debt to affiliated companies (150,435) (150,435) (150,435) - - Derivative, liabilities at fair value: Forward exchange contracts (4,367) (4,367) (4,367) - - Interest rate/currency swaps (21,241) (21,241) (5,356) (14,226) (1,660) Total at 31 December 2010 (982,918) (1,105,304) (256,138) (732,905) (116,261) USD '000 Non-derivative financial instruments: Carrying amount Parent company 2009 Contractual cash flows <1 year 1 5 years >5 years Mortgages on vessels, bank debt and other interest-bearing debt *) (626,999) (690,731) (28,278) (370,116) (292,337) Trade and other payables (18,500) (18,500) (18,500) Debt to affiliates (131,556) (131,556) (131,556) - - Derivatives, liabilities at fair value: Forward exchange contracts (15,794) (15,794) (8,907) (6,887) - Interest rate swaps (5,497) (5,497) (1,257) (3,487) (752) Total at 31 December 2009 (798,346) (862,078) (188,499) (380,490) (293,089) *) Contractual cash flows include undiscounted interest payments based on interest levels at year end. Market risks Except as described below, JL does not apply hedge accounting to manage profit or loss volatility stemming from the use of derivatives. Sensitivity information is calculated at balance sheet date and comprises only sensitivity relating to financial instruments, so the amounts disclosed do not necessarily give a complete picture of JL's risks relating to the different categories of risk. Currency risk JL s operating and reporting currency is USD and thus all amounts are recorded and reported in USD. Matching income and expenses and assets and liabilities minimises the net currency risk, leaving net positions to be focused on. JL s policy is to use derivative instruments to hedge the currency risks relating to net non-usd cash flows from operating activities, investments and financing. General hedging policy is approved by the Board of Directors. Operating cash inflows are mainly in USD and costs are also mainly in USD. The most important non-usd cost currency is DKK arising mainly from head office costs and Danish crew expenses, and EUR mainly relating to the technical management of vessels. Currency risk from non-usd investments in ships relates to JPY and EUR. Currency risk from non-usd interest-bearing debt relates to JPY, DKK and NOK. 104

107 Note 22 Financial instruments and financial risks (continued) The hedging strategy for operating costs is based on estimated annual net non-usd cash flows, i.e. 12 month rolling cash flow. JL s policy is to use forward currency contracts to provide cover for least 25% or the equivalent of three months forward. JL may hedge up to 100% net 12 month rolling non-usd operational cash flow to secure minimum budget exchange rates for DKK and EUR. Expenses in other insignificant currencies are not hedged. Hedge accounting is not applied to forward currency contracts relating to future costs in non-usd currencies. The hedging strategy for non-usd cash flows for investments in ship new-buildings is based on the total portfolio of outstanding capital expenditure payable JL s policy is to hedge non-usd payments on vessels when the exchange rate is viewed as advantageous with a minimum predefined target level at payment due date. JL uses fair value hedge accounting for the Group for derivatives associated with firm commitments for vessels under construction. At balance sheet date, the Group held the following forward currency contracts for firm commitments and cash flow hedges: Nominal Fair value Duration Nominal Fair value Duration million USD '000 months million USD '000 months Firm Commitments Purchase of JPY *) ,741 11, Purchase of EUR *) 15 (3,328) (3,773) 0-24 Cash Flow Hedge Purchase of DKK **) (978) 0-2 *) Hedge accounting applies to forward currency contracts fair value recognized as part of cost of the purchased vessels and recycled through P/L over the lifetime of the vessel. **) Hedge accounting does not apply to hedging cash flows. Fair value adjustments are recognized in the Income Statement over the period concerned. The parent company has no hedge transactions relating to firm commitments. At balance sheet date, the Group and the parent company had the following significant non-derivative assets and liabilities denominated in non-usd: USD 000 DKK NOK LVL JPY DKK NOK LVL JPY Shares available for sale 3, , Shares at fair value - P/L - 2,853 3, ,584 3,819 - Mortgages on vessels , Issued bonds *) - (117,340) Subordinated loan (163,339) (120,604) Bank deposits 150, , *) Swapped into USD on issue At 31 December 2010, the Group had hedge transactions relating to currency risks in investments in shares denominated in NOK (2009: NOK). Hedge accounting is not applied to forward currency contracts used to hedge risk relating to investments in securities in non-usd currencies. JL has non-usd interest-bearing debt in DKK, NOK and JPY. JL uses fair value hedge accounting for the Group for derivatives associated with hedging of interest-bearing debt commitments. Regarding the currency risk related to the DKK subordinated loans JL aims to limit the effect on P/L by placing funds in DKK deposits. Regarding the Bond issue denominated in NOK the full amount was swapped to USD on the date of issue. To measure currency risk in accordance with IFRS 7, sensitivity is calculated as the change in fair value of future cash flows from financial instruments as a result of fluctuations in exchange rates on balance sheet date. Sensitivity to fluctuations in non-usd currencies at balance sheet date is based (other things being equal and after tax) on a 10% increase in currency translation rates against USD (assuming 100% effectiveness): 105

108 Notes Note 22 Financial instruments and financial risks (continued) Group Parent USD ' Net profit Equity Net profit Equity Net profit Equity Net profit Equity DKK 3,135 3,135 4,273 4,273 3,135 3,135 4,273 4,273 EUR 2,016 2, ,016 2, NOK LVL ,580 5,580 4,748 4,748 5,580 5,580 4,748 4,748 The effect of a 10% decrease in the above currency translation rates would result in corresponding losses. Interest rate risk Part of JL s indebtedness is subject to floating interest rates, meaning exposure to fluctuations in these. JL s policy is to hedge risks relating to changes in interest rates to limit the financial impact of adverse changes in interest rates by converting variable interest rates to fixed interest rates. Credit facilities with maturity longer than two years may be hedged up to 100%. Other facilities with maturity up to two years are kept open. JL covers net interest rate risk via forward rate agreements, interest rate swaps and related instruments if interest rates are regarded as advantageous. JL uses cash flow hedge accounting in respect of interest rate derivatives and the Group and the parent company have the following contracts classified at balance sheet date as hedge transactions. These are recycled in the income statement over the term of the hedged loans: Nominal Fair value Duration Nominal Fair value Duration Million USD '000 months million USD '000 months Interest rate derivatives 268,150 (13,061) ,656 (3,804) JL's net interest bearing debt and hence, the exposure towards interest rate fluctuations can be illustrated as follows: Group Rate USD 000 Term (mths) USD 000 Term (mths) Other non-current receivables Fixed 8, , Portfolio Management, bonds Variable 3, , Bank deposits Variable 210, ,011 0 Finance lease obligation Fixed (8,936) 6 (20,202) 18 Mortgages on vessels Variable (761,709) (792,870) Interest rate derivatives Variable 268, , Interest rate derivatives Fixed (268,150) (255,656) Subordinated loans Fixed (163,339) (120,604) 52 Issued bonds Fixed (117,340) 53 0 N/A Other loans Fixed (2,285) (2,745) Net interest-bearing debt (829,809) (704,508) Term indicates the underlying term of the interest rate from balance sheet date. 106

109 Note 22 Financial instruments and financial risks (continued) Parent Rate USD 000 Term (mths) USD 000 Portfolio Management, bonds Variable 3, , Bank deposits Variable 168, ,867 0 Receivables from affiliated companies Variable 739, , Mortgage on vessels Variable (495,310) (503,651) 1-96 Interest rate derivatives Variable 268, , Interest rate derivatives Fixed (268,150) (255,656) Subordinated loans Fixed (163,339) (120,604) 52 Issued bonds Fixed (117,340) 53 0 N/A Debt to affiliated companies Variable (150,435) 0-12 (131,556) 0-12 Other loans Fixed (2,285) (2,745) Net interest-bearing debt (16,397) 41,943 Term indicates the underlying term of the interest rate from balance sheet date. Term (mths) To measure interest rate risk in accordance with IFRS 7, sensitivity is calculated as the change in fair value of future cash flows from financial instruments as a result of fluctuations in interest rates at balance sheet date. Inability to reliably measure the sensitivity of share prices to interest rate changes means that shares available for sale and shares at fair value through profit or loss are not included in sensitivity calculations. The carrying amount of shares available for sale and shares at fair value through profit or loss amounts to USD 9.3m hence the sensitivity of interest rate changes on share prices is considered insignificant. Calculations are also made on the assumption that changes in interest rates are global and thus the impact on the fair value of forward currency contracts and similar derivatives is not considered. The calculated effect on financial instruments after tax measured at fair value based on a 1% decrease in interest rates (assuming 100% effectiveness): Group Parent USD '000 Net profit Equity Net profit Equity Net profit Equity Net profit Equity Interest rate derivatives - (10,301) - (12,342) - (10,301) - (12,342) A 1% increase in interest rates would have a corresponding inverse effect. The sensitivity analysis above is not representative for the total effect on the income statement and equity of an annual change in interest rates as this would also affect interest expenses on variable interest loans. The calculated effect after tax on the finance cost of a 1% annual increase in interest rates in 2009 and 2010 (assuming 100% effectiveness): Group Parent USD '000 Finance costs Finance costs Finance costs Finance costs Interest-bearing debt with variable interests (4,936) (5,372) (2,272) (2,486) Interest-bearing receivables with variable interests 2,148 2,567 9,123 8,005 Net interest-bearing debt with variable interests (2,966) (2,805) 6,760 5,519 A 1% decrease in interest rates would have a corresponding inverse effect. 107

110 Notes Note 22 Financial instruments and financial risks (continued) Freight rates Forward Freight Agreements (FFAs) are used by JL in the ordinary course of business to hedge the Group's risk relating to fluctuations in freight rates. JL does not apply hedge accounting to FFAs. Days bought Days sold Settlement rate, USD per day Days bought Days sold Settlement rate, USD per day Bulk: Handymax/Supramax 365 1,085 15, ,500 18,500 At 31 December 2010, the net fair value of the FFAs amounted to USD 3,063,000 (2009: USD 365,000). The contracts were for terms of 1-12 months (2009: 1-24 months). Sensitivity at balance sheet date to fluctuations in freight rates (after tax) based on a 10% increase in average freight rates per day amounted to: USD 1000 Net profit Equity Net profit Equity Forward Freight Agreements (1,080) (1,080) 0 0 The effect of a 10% decrease in the above freight rates would result in corresponding gains. The parent company had no FFAs at year-end 2010 or Oil price risk Bunker oil is a significant cost element for the Group, although oil price risk only relates to contracted cargo volumes not covered by BAF (Bunker Adjustment Factor). JL s policy is generally to hedge forecasts for bunker oil needed for contracted cargo volumes not covered by BAF. Decisions on whether to hedge fully or partially are made periodically depending on future oil price trend forecasts. Hedge accounting is not applied to oil price contracts. As most of the fleet on balance sheet date was contracted either in the spot market, re-leted or on T/C, JL's oil price risk is insignificant. This tendency is expected to continue during At year-end 2010 no future bunker oil consumption had been hedged (2009: 0 t). The parent company does not make oil price contracts. Share price risk Share price risk arises from listed shares classified as financial instruments at fair value through profit and loss. For shares classified as available for sale, the risk is considered to be immaterial as these shares are primarily valued at cost. Summary quantitative information and sensitivity: Carrying Sensitivity (+10%) Carrying Sensitivity (+10%) USD 1000 amount Net result Equity amount Net result Equity Shares available for sale 3, , Shares at fair value through profit or loss 6, , Total 9, , Sensitivity is measured at balance sheet date and only includes changes in equity prices calculated after tax. A decrease in share prices would result in a corresponding loss. Amounts for the parent company are the same. Management of currency risks from non-usd investments in equity securities is described in the Currency risk section above. 108

111 Note 22 Financial instruments and financial risks (continued) Credit risk Credit risk is the risk of incurring a financial loss if a customer or counterparty fails to fulfil its contractual obligations towards JL JL assesses customers for creditworthiness based on historical trading and payment records as well as industry knowledge and customer reputation. Further, customers and counterparties are accepted only when fulfilling general requirements. In certain cases contracts are guaranteed by parent companies or similar. In 2010 no provisions were made for expected losses on trade receivables (2009: USD 0m). At 31 December 2010, JL did not have any further overdue trade receivables (2009: USD 0m). The risks relating to financial instruments, bonds, cash and bank deposits and funding are minimized by trading only with financial institutions with an A1 long-term credit rating from Moody s. At year-end 2010, all but one of our financial counterparties had credit ratings of or above A1. The financial counterparty with credit rating below A1 is a funding bank only. JL's exposure to credit risks at balance sheet date can be illustrated as follows: Group Parent USD Other long-term receivables 15,584 41, Trade receivables 34,935 10, Financial derivatives 9,579 21,928 5,373 15,389 Other short-term receivables 31,795 38,277 1,459 8,454 Portfolio management, bonds 3,942 6,700 3,942 6,700 Cash and bank deposits 213, , , ,867 Maximum credit risk 309, , , ,410 The maximum credit risk corresponds to the carrying value of the individual assets. Other long-term receivables are disclosed in note 18. JL has collateral for payments by way of rights to income from the vessel pool in which the vessels are managed. Additionally, JL has non-monetary receivables relating to payments on vessel under construction. Risks relating to payments on vessels under construction are in general limited by agreements such as refund guarantees. Categories of financial assets and liabilities The following categories of financial assets and liabilities are recognized in the balance sheet: Group Parent USD Financial assets at fair value through P/L *) 19,509 35,031 15,303 28,492 Loans and receivables**) 296, , , ,379 Financial assets available for sale**) 3,279 3,530 3,268 3,530 Financial liabilities - at fair value through P/L *) (30,080) (19,658) (25,608) (21,291) Financial liabilities - at amortized cost**) (1,123,421) (958,900) (1,122,628) (767,803) *) Figure includes financial derivatives designated for hedge accounting **) Amounts recognized for financial asset and liabilities at amortized cost do not differ materially from their fair value with the exception of issued bonds. Fair value of issued bonds amount to USD 128.5m whereas the carrying amount totalled USD 117.3m. Fair value hierarchy With the exception of listed bonds and shares at USD 9.9m (2009: USD 13.1m) (level 1) as disclosed in note 23, all financial instruments are stated at fair value on the basis of observable market prices (level 2), directly as prices or indirectly derived from prices. Cash at bank and in hand, receivables from credit institutions and lending Fair value is calculated by means of valuation models where all estimated and fixed cash flows are discounted using zero-coupon yield curves. The forecast cash flows of individual contracts are based on observable market data, e.g. interest rate curves. When determining the fair value of floating rate loans, cash flows are estimated on the basis of the forward rate curve. 109

112 Notes Note 22 Financial instruments and financial risks (continued) Derivative financial instruments The fair value of derivatives is calculated using valuation models such as discounted cash flow models. The forecast cash flows of individual contracts are based on observable market data, such as interest rate curves and foreign exchange rates. Note 23 Securities Group Parent Company USD ' Listed bonds pledged as collateral 3,942 6,700 3,942 6,700 Listed shares at fair value 5,988 6,403 5,988 6,403 Securities 9,930 13,103 9,930 13,103 Securities are classified as financial instruments at fair value through profit or loss as the portfolio serves as a cash reserve in accordance with JL's risk and investment strategy. The portfolio is regularly monitored and reported to management at fair value. Note 24 Leasing JL has entered into leases with mutually interminable lease periods. Leases can include options to renew, and some leases can also include options to purchase. Exercise of purchase options is based on individual assessment. None of the leases comprise contingent lease payments. Note 24a Finance Leases (vessels) JL as lessor of vessels Group Lease Carrying Lease Carrying USD '000 payment Interest amount payment Interest amount Within 1 year 8, ,936 12, ,717 Between 1-5 years , ,485 Total 8, ,936 21, ,202 Fair value 8,936 25,648 JL as lessee of vessels Group Lease Carrying Lease Carrying payment Interest amount payment Interest amount Within 1 year 8, ,936 12, ,717 Between 1-5 years , ,485 Total 8, ,936 21, ,202 Fair value 8,936 25,648 The parent company of JL does not have any finance leases in either 2010 or

113 Note 24b Operating Leases (vessels) At the balance sheet date JL has the following contractually committed charter income Group USDm Year 1-5 Year > 5 Year 0-1 Year 1-5 Year > 5 Year Time charter and bareboat contracts At the balance sheet date JL has the following operational lease liabilities: Group USDm Year 1-5 Year > 5 Year 0-1 Year 1-5 Year > 5 Year Time charter and bareboat contracts The parent company of JL does not have any operating leases in either 2010 or Number of vessels on time charter and bareboat contracts Bulk carriers Gas carriers 4 4 Product tankers 6 8 Reefer vessels - 1 Includes the number of vessels: JL has purchase options on at the balance sheet date 5 5 JL has options to extend on at the balance sheet date 2 3 Note 25 Adjustments Group Parent Company USD ' Exchange rate adjustments (29,851) 28,678 8,755 25,041 Profit on the sale of other assets 512 (397) - - Internal profit - Joint ventures (509) (1,476) - - Profit and loss on sale of tangible fixed assets 12,003 (16,670) - - Changes in provisions (10,885) (90,113) - - (28,729) (79,978) 8,755 25,041 Note 26 Change in working capital Group Parent Company USD ' Change in stocks (1,219) (299) - - Change in receivables 3,534 24,179 (108,918) (275,402) Change in payables 3,210 (103,152) 33,297 59,065 5,525 (79,272) (75,622) (216,337) 111

114 Notes Note 27 Cash and cash equivalents at end of year Group Parent Company USD ' Cash and bank deposits 213, , , , , , , ,867 Cash and cash equivalents pledged as security for debt (59,538) (32,950) (45,276) (20,300) Cash and cash equivalents at end of year 154, , , ,567 Note 28 Mortgages Group Parent Company USDm Debt for a total of has been secured by mortgage in assets at the following book values: Vessels 1,149 1, Cash and cash equivalents ,208 1, As collateral security for the finance leasing liability the following security has been provided: Pledged bonds with credit institutions Note 29 Contingent liabilities Group Parent Company USDm Guarantees undertaken for debt in subsidiaries Guarantees undertaken for debt in Joint ventures Maximum obligation to pay in capital into Joint ventures Guarantees regarding newbuildings (refer to note 30) Certain claims have been raised against JL. The judgment of the management is that the outcome of these claims will not have any material impact on JL's financial position. JL has issued certain guarantees in connection with the sale of assets. Note 30 Contractual commitments JL has entered into newbuilding contracts with a remaining contractual commitment of USD million. These contracts cover the construction of 15 bulk carriers, 5 gas carriers, 7 product tankers and 2 shuttle tankers due for delivery in 2011, 2012 and

115 Note 31 Related parties As owners of J Lauritzen A/S the commercial foundation Lauritzen Fonden and its subsidiaries are related parties. Other related parties with a significant influence of the activities of J Lauritzen A/S is the company's Board of Directors and the Executive Management (Key management personel). Finally, additional related parties comprise those subsidiaries and Joint ventures (ref. notes 16 and 17) in which J Lauritzen A/S has a controlling or significant influence. Subsidiaries and Joint ventures together with J Lauritzen's shareholding is shown in the Group Structure on pages Transactions with subsidiaries, Joint ventures and other related parties are conducted at arms length and have comprised the following: Group Parent company USD ' Management fee, income/(expenses) from group companies ,424 12,060 Management fee, income/(expenses) from LF Investment ApS Currency hedging income/(expenses) from group companies - - 6,769 (399) Guarantee commission income/(expenses) from group companies Rental and lease income/(expenses) from group companies ,135 Rental and lease income/(expenses) from LF Investment ApS (1,916) (2,038) (1,916) (2,038) Transactions with Joint Ventures and associated companies 2,147 1, Transactions with subsidiaries are eliminated in the group accounts in accordance with the accounting policies. Receivables, debt and interest to and from related parties are shown in the balance sheet and notes 8 and 9. There have been no other transactions with related parties other than those stated above. Consideration to key management personnel is disclosed in note 5. Note 32 Events after the balance sheet date There have been no events after the balance sheet date that could materially affect the accounts as presented. Note 33 New accounting regulations The IASB has issued the following new or revised accounting standards (IAS and IFRS) and interpretations (IFRS), that are not compulsory for JL in the preparation of the annual report for 2010: IFRS 9, amendments to IFRIC 14, IFRIC 19, revised IAS 24, amendments to IFRS 1 (Jan 2010), amendments to IFRS 7, amendments to IAS 32, "improvements to IFRSs (May 2010)", amendments to IAS12 og amendments to IFRS 1 (Dec 2010). IFRS 9, amendments to IFRS 1 (Dec 2010), IFRS 7 and IAS 12 as well as "improvements to IFRSs (May 2010)" have not yet been endorsed by the EU. J. Lauritzen A/S expects to implement the standards and interpretations, according to effictive dates issued by the IASB. None of the new standards and interpretations is expected to have material effect going forward. 113

116 Overall group structure J. Lauritzen A/S Denmark Lauritzen Bulkers A/S Lauritzen Kosan A/S Lauritzen Tankers A/S Lauritzen Offshore Denmark Denmark Denmark Services A/S 100% 100% 100% 100% J. Lauritzen Singapore Pte. Ltd. 100% J. Lauritzen (USA) Inc. J. Lauritzen Hafnia Management A/S Shanghai Co. Ltd. 100% 100% 12% J. Lauritzen (Japan) K.K. Gasnaval S.A. Spain 100% 100% Shipinvest A/S Star Management Ass. Denmark Japan 100% 30% Handyventure LKT Gas Carriers Pte. Ltd. Singapore Pte. Ltd. Singapore 50% 50% * Dan Swift Singapore Pte. Ltd. 100% Lauritzen Offshore Pte. Ltd. 100% Lauritzen Shuttletankers Singapore Pte. Ltd. 100% Dan Swift do Brasil Lauritzen Shuttletankers Serviços Ltda. Netherlands B. V. 100% 100% Good Hope Overseas Mngmt. Panama 25% * Companies owned by J. Lauritzen Singapore Pte. Ltd. 114

117 List of group companies Company name Country Ownership % J. Lauritzen A/S Denmark - Segetrans Argentina S.A. Argentina 100 Greden Limited Bahamas 100 Labas (Bahamas) Ltd. Bahamas 100 Shoreoff Invest Bermuda Ltd. Bermuda 100 Dan Swift do Brasil Serviços Ltda Brazil 100 J. Lauritzen Inversiones (Chile) Ltda. Chile 100 East Gate Shipping Ltd. China 100 J.Lauritzen Shanghai Co. Ltd China 100 Owneast Shipping Limited China 100 De Forenede Sejlskibe I/S **** Denmark 43 Freja Polaris A/S * Denmark 49 ID Handysize A/S * Denmark 40 KRK 4 ApS Denmark 100 KRK 4a ApS Denmark 100 K/S Bulkinvest 30 * Denmark 18 K/S Danred I * Denmark 44 K/S Danred II * Denmark 40 K/S Danred III * Denmark 35 K/S Danred V * Denmark 50 K/S Danskib 30 * Denmark 10 K/S Danskib 34 * Denmark 20 K/S Danskib 63 * Denmark 14 K/S Danskib 72 * Denmark 20 K/S Danskib 77 * Denmark 20 K/S Handybulk * Denmark 27 LauritzenBlueC A/S * Denmark 33 Lauritzen Bulkers A/S Denmark 100 Lauritzen Kosan A/S Denmark 100 Lauritzen Offshore Services A/S Denmark 100 Lauritzen Reefers A/S Denmark 100 Lauritzen Ship Owner A/S Denmark 100 Lauritzen Tankers A/S Denmark 100 Lauritzen Tankers Ship Owner A/S Denmark 100 LB Ship Owner A/S Denmark 100 LB Ship Owner II A/S Denmark 100 LK Ship Owner A/S Denmark 100 LT Ship Owner A/S Denmark 100 Quantum Tankers A/S *** Denmark 50 Shipinvest A/S Denmark 100 Zuper Logistics Private Limited ** India 33 J. Lauritzen (Japan) K.K. Japan 100 Star Management Associates ** Japan 30 Good Hope Overseas Management Inc. ** Panama 25 Dan Swift Netherlands B.V. The Netherlands 100 Lauritzen Shuttletankers Netherlands B.V. The Netherlands 100 Dan Swift (Singapore) Pte. Ltd. Singapore 100 Handyventure Singapore Pte. Ltd. * Singapore 50 J. Lauritzen Singapore Pte. Ltd. Singapore 100 Lauritzen Offshore Pte. Ltd. Singapore 100 Lauritzen Shuttletankers Singapore Pte. Ltd. Singapore 100 LBS Shipowner Pte. Ltd. Singapore 100 LKT Gas Carriers Pte. Ltd. * Singapore 50 Milau Pte. Ltd. * Singapore 50 Gasnaval S.A. Spain 100 J. Lauritzen UK Limited UK 100 J. Lauritzen (USA) Inc. USA 100 * Joint venture ** Associated company *** Treated as subsidiary as JL has more than 50% of the voting rights **** Joint Venture. Annual reports are not published (reference is made to the Danish Financial Statements Act 5). 115

118 Management statement The Board of Directors and Executive Management have today discussed and approved the annual report of J. Lauritzen A/S for the financial year The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies. It is our opinion that the consolidated financial statements and parent company financial statements give a true and fair view of the Group s and the parent company s financial position at 31 December 2010 and of the results of the Group s and the parent company s operations and cash flows for the financial year 1 January 31 December Further, in our opinion, the Management s review gives a fair review of the development in the Group s and the parent company s operations and financial matters, the results of the Group s and the parent company s operations and financial position and describes the material risks and uncertainties affecting the Group and the parent company. We recommend that the annual report be approved at the Annual General Meeting Copenhagen, 17 March 2011 Executive Management Torben Janholt President & CEO Birgit Aagaard-Svendsen Executive Vice President & CFO Jan Kastrup-Nielsen Executive Vice President Board of Directors Bent Østergaard, Chairman Ingar Skaug, Vice Chairman Peter Poul Lauritzen Bay Niels Heering Vagn Rosenkilde Søren Berg* Ulrik Danstrøm* Per Gommesen* * Elected by the employees 116

119 The independent auditor s report To the shareholders of J. Lauritzen A/S We have audited the consolidated financial statements and the parent company financial statements of J. Lauritzen A/S for the financial year 1 January 31 December 2010, pp The consolidated financial statements and the parent company financial statements comprise income statement, statement of comprehensive income, balance sheet, equity statement, cash flow statement and notes for the Group as well as for the parent company. The consolidated financial statements and the parent company financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies. In addition to our audit, we have read the Management s review prepared in accordance with the Danish Financial Statements Act and issued a statement in this regard. Management s responsibility Management is responsible for the preparation and fair presentation of the consolidated financial statements and the parent company financial statements in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements and parent company financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Further, it is the responsibility of Management to prepare a Management s review that gives a fair review in accordance with Danish disclosure requirements for listed companies. those risk assessments, the auditors consider internal control relevant to the Company s preparation and fair presentation of the consolidated financial statements and the parent company financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the consolidated financial statements and the parent company financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit did not result in any qualification. Opinion In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the Group s and the parent company s financial position at 31 December 2010 and of the results of the Group s and the parent company s operations and cash flows for the financial year 1 January 31 December 2010 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies. Statement on the Management s review Pursuant to the Danish Financial Statements Act, we have read the Management s review. We have not performed any other procedures in addition to the audit of the consolidated financial statements and the parent company financial statements. On this basis, it is our opinion that the information given in the Management s review is consistent with the consolidated financial statements and the parent company financial statements. Auditors responsibility and basis of opinion Our responsibility is to express an opinion on the consolidated financial statements and the parent company financial statements based on our audit. We conducted our audit in accordance with Danish Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements and the parent company financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements and the parent company financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the consolidated financial statements and the parent company financial statements, whether due to fraud or error. In making Copenhagen, 17 March 2011 KPMG Statsautoriseret Revisionspartnerselskab Kurt Gimsing State Authorised Public Accountant Henrik Kronborg Iversen State Authorised Public Accountant 117

120 Board of Directors BENT ØSTERGAARD, CHAIRMAN President, LF Investment ApS & Lauritzen Fonden Chairman of the Board of Directors of: DFDS A/S Kayxo A/S Frederikshavn Maritime Erhvervspark A/S NanoNord A/S Cantion A/S Fonden Kattegat Silo Board member of: Comenxa A/S Million Brains A/S Mama Mia Holding A/S Royal Arctic Line A/S With Fonden Durisol UK INGAR SKAUG, VICE CHAIRMAN Chairman of the Board of Directors of: Bery Maritime A/S Ragni Invest A/S Center for Creative Leadership Board member of: Berg-Hansen Reisebureau AS DFDS A/S Miros Petroleum Geo-Services Performance Leadership AS Member of Advisory Board of: Bremen Lagerhaus Gesellschaft, GmbH & Co Kg VAGN ROSENKILDE Chairman of the Board of Directors of: Bramming Plast Industri A/S Enkotec Holding A/S - Enkotec A/S Erik Blacha Holding A/S - Carl Andersen Motorcykler A/S NIELS HEERING Chaiman of the Board, partner Gorrissen Federspiel Chairman of the Board of Directors of: Amagerbanken af 2011 A/S Jeudan A/S NTR Holding A/S (+ subsidiary company ) Ellos A/S EQT Partners A/S Helgstrand Dressage A/S Nesdu A/S Plaza Ure & Smykker A/S Stæhr Holding A/S (+ subsidiary company) Stæhr Invest II A/S Civ. Ing. N.T. Rasmussens Fond Board member of: Scandinavian Private Equity Partners A/S Ole Mathiesen A/S 15. juni Fonden Lise og Valdemar Kählers Familiefond Director of CCKN Holding ApS (+ two subsidiaries) SØREN BERG* Project Manager, Lauritzen Kosan A/S PETER POUL LAURITZEN BAY Lean Director Carlsberg Breweries A/S ULRIK DANSTRØM* Vice President, Lauritzen Bulkers A/S PER GOMMESEN* Captajn, Lauritzen Offshore * Elected by the employees 118

121 AUDIT COMMITTEE Niels Heering (Chairman) Ingar Skaug (Member) Peter Poul Lauritzen Bay (Member) NOMINATION AND REMUNERATION COMMITTEE Bent Østergaard (Chairman) Ingar Skaug (Member) Niels Heering (Member) 119

122 Management From left: Ejner Bonderup, Erik Donner, Jan Kastrup-Nielsen, Birgit Aagaard-Svendsen, Torben Janholt, Thomas Wøidemann, Tove Elisabeth Nielsen, Erik Bierre and John Jørgensen 120

123 EXECUTIVE MANAGEMENT Torben Janholt President & CEO Board member of: Danish Shipowners Association (DSA) (Chairman of DSA ) A/S United Shipping & Trading Ltd Post Norden AB ECSA - European Community Shipowners Associations Birgit Aagaard-Svendsen Executive Vice President & CFO Board member of: Danske Bank A/S** FUHU Landlov A/S Metroselskabet I/S The West of England Ship Owners Mutual Insurance Association (Luxembourg) West of England Insurance Services S.A (Luxembourg) Jan Kastrup-Nielsen Executive Vice President MANAGEMENT - BUSINESS UNITS Ejner Bonderup President Lauritzen Bulkers Thomas Wøidemann* President Lauritzen Kosan Jesper Kragh Andresen Managing Director Lauritzen Offshore Singapore Erik Donner* President Lauritzen Tankers MANAGEMENT - SHARED SERVICES Erik Bierre Senior Vice President Business Control John Jørgensen Senior Vice President Treasury Tove Elisabeth Nielsen Senior Vice President Corporate Human Resources * As of 1 March 2011 ** Until end of March

124 Company details Address J. Lauritzen A/S 28, Sankt Annae Plads PO Box 2147 DK-1291 Copenhagen K Telephone: (+45) Fax: (+45) Web: info@j-l.com Company Registration Number (CVR) Auditors KPMG Borups Allé 177 DK-2000 Frederiksberg Financial year: 1 January 31 December 122

125 Major operator of bulk carriers engaged in ocean transport of dry bulk cargoes world-wide. At the end of 2010, Lauritzen Bulkers controlled a combined fleet of about 100 Handysize, Handymax, Panamax and Capesize bulk carriers. The controlled fleet will increase by more than 30 newbuildings in coming years. Leading carrier of liquefied gases, including petrochemical gasses such as ethylene and propylene. At the end of 2010, Lauritzen Kosan controlled a combined fleet of about 40 semi- refrigerated/ethylene and fully pressurised gas carriers in the 3,000-10,000 m 3 segment. The controlled fleet will increase by five newbuildings over the next few years.. Provider of innovative and technologically advanced support vessels for the offshore industry. The focus is to serve the deep water oil exploration and production sectors using dynamic positioning (DP) technology. In 2010 the fleet comprised one DP shuttle tanker and the DP Accommodation and Support vessel Dan Swift. The fleet will see the addition of two additional DP2 shuttle tankers for employment offshore Brazil in Global provider of medium range (MR) product tankers for ocean transport of oil products ranging from vegetable oils to petroleum products, fuel oils, and chemicals. At year-end 2010, Lauritzen Tankers controlled/managed 13 modern, double-hulled, medium range (MR) product tankers. The fleet will increase by seven newbuildings in the next few years. 123