J. Lauritzen in brief

Transcription

1 Annual Report 2009

2 J. Lauritzen in brief In April 2009, J. Lauritzen (JL) celebrated its 125 years anniversary. JL has thus been servicing the maritime trade worldwide for several generations, confirming that our traditions, ambitions and know-how continue to create added value for our shareholders, customers, business partners and employees. Together, we create a world-class shipping company is our vision. A vision that requires constant commitment in our endeavors to become world-class, whether working independently or together with partners and business associates. From head office in Copenhagen and our 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. As a leader in international ocean transport, JL owns and operates a modern fleet of bulk carriers, gas carriers, product tankers and dynamically positioned support vessels servicing the offshore industry. With a diversified newbuilding portfolio for all our business activities, JL will also in the future be able to meet rising demand for safe world-class services with Oceans of knowhow.

3 Contents Management report Group key figures 2 Highlights 2009 and outlook Investment programme 12 Lauritzen Bulkers 14 Lauritzen Kosan 20 Lauritzen Offshore Services 26 Lauritzen Tankers 32 Corporate Governance 38 Corporate Social Responsibility (CSR) 44 Organisation and People 52 Risk Management 56 Financial Review 64 Accounts Statements and notes 68 Overall group structure 108 List of group companies 109 Endorsements Management statement 110 The independent auditor s report 111 Board of directors 112 Management 114 Company details 116 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 2,500 2,000 1,500 1,000 Key figures have been calculated as follows: Operating income x 100 Profit margin: Revenue Total equity Non-current liab. Current liab. 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 USDm Revenue Result before depreciation (EBITDA) Profit and loss on sale of vessels Operating income (EBIT) Net result in joint ventures Result of financial items (17) (38) 23 9 (0) Result before tax Result for the year Minority shareholders' share of the result (5) (5) (6) (2) (1) The J. Lauritzen Group's share of the result Non current assets 1,671 1,399 1, hereof vessels under construction Current assets hereof cash and securities Total assets 2,188 1,768 1, Share capital JL's share of equity 1,126 1, Non current liabilities Current liabilities Cash flow from operating activities (24) Cash flow from investment activities (455) (237) (307) (137) (162) - hereof investments in vessels, machinery and equipm. (541) (714) (545) (369) (157) Cash flow from financing activities (37) (68) (103) Changes for the year in liquid assets (153) (125) (48) Cash and cash equivalents (209) (56) 70 Average number of employees DKK exchange rate year end Average DKK exchange rate Group key figures Profit margin 15.7% 25.6% 46.4% 25.6% 36.2% Solvency ratio 52% 59% 71% 74% 74% Solvency ratio (JL's share of equity) 51% 59% 71% 73% 74% Return on equity 6.9% 14.7% 40.9% 19.3% 39.8% Return on invested capital 6.1% 17.1% 38.4% 25.7% 60.5% 3

6 Highlights 2009 and outlook 2010 In a year of global recession and a sharp drop in international trade and seaborne transports, JL s share of results totalled USD 74.6m in 2009 compared to USD 149.5m in 2008, cf. Figure 1. Return on invested capital was 6.1% compared to 17.1% in Results were better than expected and acceptable in the light of the difficult trading conditions. The business environment The international financial crisis that emerged in late 2008 continued into 2009 and developed into a deep world economic recession with severe impacts on the shipping industry. After plummeting freight markets in the last few months of 2008, the following characterized JL s main markets in 2009: Freight rates bottomed out in the dry bulk market during the first quarter with huge volatility during the year. Freight rates for product tankers started the year at reasonable levels but dropped to lay-up levels during the second quarter. Freight rates for smaller gas carriers were fairly flat at reasonable levels, whereas spot market rates for ethylene carriers declined over the year, albeit from very high levels. The offshore market saw a slight decline. However with oil prices rising, business seemed to pick up towards the end of the year. Deliveries of new tonnage were generally lower than anticipated, mainly due to slippage. The greatest impact was felt in the dry bulk sector with actual deliveries 35% down on scheduled compared to 25% for smaller gas carriers and for product tankers respectively. The prime reason for the difference in delivery outcomes was that product tankers and gas carriers had been ordered at an earlier stage than bulk carriers and were thus further into their delivery schedules than bulk carriers. In addition to supply changes, the fiscal initiatives taken to combat the economic crisis have tended to favour the dry bulk markets, inasmuch as the emerging markets, mainly China and India, increased their imports of commodities. Newbuilding prices came under pressure as a result of the steep decline in new orders and this had a negative impact on second-hand prices in addition to the impact from earnings. JL Group In April 2009, JL celebrated its 125 years anniversary. During the year, JL succeeded in establishing even closer ties with long-term customers and business relations were also established with new customers. JL s growth strategy, including its considerable investment programme, was challenged by the changes in the internation- 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: INVESTMENT PROGRAMME BY YEAR OF DELIVERY USDm Year-end 2008 Year-end

9 al business and financial environment. JL took prompt measures to protect its business through planned redelivery of timecharter tonnage and worked successfully with the shipyards to restructure the newbuilding programme, cf. Figure 2. Sixteen newbuildings in all were added to the controlled fleet, including nine bulk carriers, five gas carriers, and one product tanker. An Accommodation and Support Vessel was also delivered after extensive conversion. Finance was arranged in 2009 for the delivery of newbuildings stretching into 2011, not only through JL s lead banks, but also through new sources of finance including export credit agencies with loans ranging from three to twelve years. The strategic Must-win Battle concept was introduced in 2009 focusing on the critical challenges of sustaining JL s success. Due to the growing strategic importance of health and safety and environmental issues, technical fleet management previously operated centrally by Lauritzen Fleet Management was transferred to the individual business units at January 1st A technical committee was established with representatives from each business unit to ensure coordination of technical issues and to share best practice. To support JL s growing offshore activities in Brazilian waters, a new office was opened in Rio de Janeiro, Brazil, with another in Manila, Philippines, with the aim of strengthening important business relations with crewing agencies and to facilitate knowledge-sharing and best practice among crews. Jan Kastrup-Nielsen, the president of Lauritzen Kosan, was also appointed president of Lauritzen Tankers during the year and took over responsibility for JL s product tanker activities from Anders Mortensen, who became president of Lauritzen Offshore Services. Jan Kastrup- Nielsen was also promoted to Executive Vice President and became member of the Executive Management together with Torben Janholt and Birgit Aagaard- Svendsen. Ejner Bonderup was appointed president of Lauritzen Bulkers after Jens Ditlev Lauritzen, who left JL after being appointed chairman of Lauritzen Fonden. Assets and solvency JL s order book of own vessels at yearend 2009 represented a total value of USD 1,656m, down from USD 2,400m at yearend 2008, mainly due to deliveries during the year. A considerable proportion of the order book enjoys long-term employment contracts. During 2009, investments in fleet expansion amounted to USD 534.0m compared to USD 707.1m in Divestments totalled USD 91.6m compared to USD 423.6m in Total invested capital was USD 1,813.7m at year-end 2009, up from USD 1,225.1m at year-end 2008, cf. Figure 3. 7

10 At the end of 2009, JL s newbuilding portfolio comprised a total of 38 wholly-owned vessels, including 21 bulk carriers, six gas carriers, nine product tankers, and two dynamically positioned shuttle tankers for delivery Partners will commit another 3 newbuildings to the fleet controlled by JL. During 2009, JL controlled a combined average fleet of 140 vessels compared to 135 vessels in JL s investment programme is self-funded during the construction process and credit lines are in place covering deliveries into At year-end 2009, the solvency ratio was 52% compared to 59% at year-end Lean and skilled organisation Implementation of LEAN processes continued in 2009 under Project World- Class with the aim of permanently streamlining our organisation and business procedures. Since its introduction in 2007, efficiency gains have amounted to approximately 10% in business and corporate units where LEAN processes have been applied. Skills and competencies amongst personnel at sea and ashore continue to support JL s world-class vision. Outlook for will be a critical year for the world economy and international trade. The easing of financial policies is likely to be reversed as the room for further fiscal initiatives has narrowed considerably in view of rising public debt in many countries. Low interest rates are unlikely to be maintained unless the deflationary scenario develops. Signs of rising protectionism may also have to be contained if shipping is to prosper. Whereas there seem to be many difficult issues, developments in consumer confidence, in business sentiment and expectations for future developments suggest that the world economy is recovering and that 2010 may witness economic growth with the possibility of ending rising unemployment. In this environment, international trade and shipping is bound to grow. Product tankers and bulk carriers are seeing sizeable growth in demand early in 2010, whereas the trends for gas carrier demand are slightly more subdued. Order books are at present large in relative terms and despite slippage, fleet growth in all shipping markets will be high. Scrapping will be an important issue, particularly for tankers with the approaching deadline for single-hull phase-out. 8

11 FIG 3: INVESTED CAPITAL YEAR-END USDm Bulk Gas Offshore Tank JL

12 10

13 During 2010, JL is expecting to take delivery of two Capesize bulk carrier newbuildings, both covered by long-term contracts, and six Handysize newbuildings. Three pressurized gas carrier newbuildings and three product tanker newbuildings will also be added to the fleet. Freight rate volatility is expected to be high in all shipping markets. The dry bulk market is expected to enjoy relatively strong levels during the first half of the year. Tanker markets are likely to experience difficult freight markets for most of the year due to large inventories including floating storage, with some strengthening possible towards the end of the year. The smaller gas carrier segment is expected to be exposed to a slight downward pressure on rates in the first part of the year, unadjusted for seasonal fluctuations. Forecast oil price levels combined with the focus on energy supply security are expected to boost already strong demand growth for dynamically positioned support vessels. In early 2010, a considerable amount of forecast revenues are secured by contracts and as a result of positive, albeit volatile, market trends, revenues are expected to increase significantly. Apart from financing costs, costs are expected to increase more slowly and therefore cash generating EBITDA is expected to be USD m and thus considerably higher than in The cost of finance is expected to increase due to rising debt associated with deliveries during the year. Net results for 2010 are expected to be USD 45-60m, down on 2009 due to the reversal of provisions and write-downs included in 2009 results. When excluding such one-off items, the results for 2010 are expected to be significantly better than those reported in

14 Investment programme Own vessels Time charters and through partners Type dwt Delivery Type dwt Delivery Lauritzen Bulkers A/S Handysize 32, Handymax 58, Handysize 31, Handymax 58, Handysize 32, Handymax 58, Handysize 32, Handymax 58, Handysize 32, Handymax 58, Handysize 31, Handysize* 32, Capesize 180, Capesize 180, Capesize 180, Handysize 33, Handymax 58, Handysize* 32, Handysize 31, Handysize 32, Capesize 180, Handymax 61, Capesize 180, Handysize 28, Handymax 58, Handysize 33, Handymax 58, Handymax 61, Handymax 58, Handysize* 38, Capesize 180, Handymax 58, Handysize 31, Handymax 58, Handysize 38, Handysize 28, Handysize 38, Handymax 58, Handysize 38, Handymax 58, Handysize 31, * Partners Own vessels Type cbm Delivery Lauritzen Kosan A/S Fully pressurized 3, Fully pressurized 3, Fully pressurized 3, Fully pressurized 3, Fully pressurized 3, Fully pressurized 3, Own vessels Type dwt Delivery Lauritzen Tankers A/S Product MR 53, Product MR 53, Product MR 50, Product MR 50, Product MR 50, Product MR 50, Product MR 50, Product MR 50, Product MR 50, Own vessels Type dwt Delivery Lauritzen Offshore Services Shuttle tank 59, Shuttle tank 59,

15 13

16 Lauritzen Bulkers KEY FIGURES USDm Revenue EBITDA Depreciation and write-downs 18.4 (100.2) Profit on sale of vessels Operating income Result in joint ventures Finance net (4.4) (6.6) Result before tax JL's share of the result Invested capital (average) Return on invested capital 28.8% 39.5% Average no. of employees FIG 4: 12 MONTHS PERIOD RATES USD 000/DAY Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Capesize Panamax Handysize Source: Clarkson Research Services 14

17 In 2009, Lauritzen Bulkers net results amounted to USD 167.5m compared to USD 157.0m in The collapse of the bulk carrier markets in late 2008 was then expected to have an impact on the market in coming years and thus the 2008 results included provisions and write-downs on vessels, including vessels under construction, totaling USD 192.7m. The figures for 2009 include use and reversals of provisions some of which relate to subsequent years and reversal of write-downs on vessels due to the recovery of the market in 2009 totaling USD 135.5m. When adjusted for one-off items such as reversal of write-downs and provisions and for gains of USD 17.0m from the disposal of vessels and other assets, net results for 2009 amounted to USD 15.0m, significantly lower than the similarly adjusted figure of USD 232.7m in Results were better than expected and acceptable in view of the depressed and volatile trading conditions during the year. Main events Despite the difficult trading conditions, Lauritzen Bulkers enjoyed strong customer loyalty and was successful in attracting important new customers during the year. The tonnage renewal process continued as part of the tonnage strategy aimed at controlling a modern, fuel-efficient, versatile fleet. During the year Lauritzen Bulkers took delivery of three Capesize bulk carrier newbuildings, and one Handysize newbuilding. Five time-chartered vessels were also added to the fleet, including three newbuildings and two second-hand vessels. Pool partners contributed two additional Handysize newbuildings to the controlled fleet and Genco Shipping & Trading Ltd. became a new member of the Handysize pool founded by Lauritzen Bulkers and Island View Shipping. Five Handysize bulk carriers and one Handymax bulk carrier were sold and ten long-term time-chartered bulk carriers were redelivered as planned. Lauritzen Bulkers satisfactorily managed to adjust its newbuilding portfolio during the year in conjunction with the shipyards. Global market developments 2009 was a very volatile year with the Baltic Dry Index (BDI) ranging from 772 at the beginning of the year to 4,660 in mid November. Average earnings fell across all vessel sizes compared to 2008 although the trend during the year was upward, cf. Figure 4. Demand for bulk carriers The most significant market development in 2009 was the dramatic decline in trade in the Atlantic Basin coinciding with strong growth both in the Pacific Basin and in the cross trade between the Atlantic and Pacific basins, as the dry bulk trade became even more driven by the Asian economies. In volume terms, world demand for seaborne dry bulk trade fell by 1% in 2009 compared to 3% growth in A signifi- 15

18 cant rise in port congestion meant that average fleet efficiency declined which contributed to demand growth in dwt terms of the order of 4%. The driving force between the comparatively favourable development in demand in 2009 was a considerable rise in Chinese imports of iron ore and coal. Thus total iron ore movements in 2009 went up by an estimated 8% compared with 2008, whereas most other commodities fell. The decline in coal movements is estimated at around 1%. Minor bulks including bauxite/alumina and phosphate rock are estimated to have fallen by 8-9% with steel products, cement and other commodities with a high degree of cyclicality leading the way, cf. Figure 5. Supply of bulk carriers The world dry bulk fleet increased by 10% in 2009 to 460m dwt. Fleet growth was due to deliveries of 43m dwt, conversions of tankers into bulk carriers amounting to 8m dwt and scrapping of 10m dwt. About one half of deliveries took place in the Capesize segment, whereas almost half of the scrapped vessels were in the Handysize segment. Contracting fell from 98m dwt in 2008 to 21m dwt in Significant uncertainty characterizes the actual size of the current order book and its delivery schedule, due in part to cancellations and slippage and partly due to conversion of orders from one vessel type to another. Recent contracting with fairly early delivery schedules suggests that the latter factor is at play. Scheduled deliveries will amount to 122m dwt in 2010 and 94m dwt in 2011 cf. Figure 6 but it is generally expected that deliveries will be of the order of 63m dwt in 2010 and 63m in Lauritzen Bulkers fleet Lauritzen Bulkers aims to secure high forward coverage for larger bulk carriers, with more exposure to the spot market for Handysize bulk carriers. Thus, high contract coverage has been secured in the Capesize, Panamax and Handymax segments, whereas contract coverage for Handysize is limited, albeit at a higher level than in the past few years. In 2009, Lauritzen Bulkers total number of ship days reached 28,655 with 78.5 vessels on average, 4% up on the figure reported in 2008, cf. Figure 7. Lauritzen Bulkers fleet of Handysize bulk carriers, including owned, part-owned, time-chartered and partner tonnage, averaged 63 vessels compared to 62 vessels in 2008 with Island View Shipping as the major pool partner. At year-end 2009, the combined Handysize fleet comprised 53 vessels. On average, the Handymax fleet in 2009 comprised 7.8 vessels compared to 6.8 vessels in 2008, with a further 5.1 Panamax vessels (4.2 in 2008), and 2.8 Capesize vessels (2.4 in 2008). At year-end 2009, Lauritzen Bulkers operated 22 long-term time-chartered vessels, with purchase options for five of these, in 16

19 FIG 5: STRUCTURE OF DEMAND BY COMMODITY IN 2008 & % 3% 5% 9% 6% 27% 8% 6% 5% 30% 3% 3% 3% 3% 3% 3% 1% 1% 3% 11% 26% 2% 10% 26% Iron ore Coal Grains Bauxite/alumina Phosphate rock Fertilizers Scrap Cement Steel products Agribulks Forest products Other Source: Clarkson Research Services 17

20 FIG 6: BULK CARRIER ORDER BOOK DWTm by scheduled delivery year and estimated deliveries 350 FIG 7: AVERAGE NUMBER OF VESSELS Estimated deliveries 2009 incl. conversions Order book year-end 2009 Expected deliveries incl. conversions Other Shared charter Chartered Part owned Own Total order book Source: Clarkson Research Services 18

21 addition to its fleet of owned vessels. The wholly-owned fleet comprised nine vessels at the end of 2009 (12 in 2008) with Lauritzen Bulkers having part ownership of a further 22 vessels (18 in 2008). Fleet management Technical management including crewing for Lauritzen Bulkers fleet of own 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. During the year, Fleet Management Ltd. received the Lloyd s List Asian 2009 Ship Manager of the Year award as well as the Seatrade Asia Ship Manager of the Year award. Off-hire for Lauritzen Bulkers own fleet, including scheduled dry docking was 1.5%. Prospects for 2010 The general consensus for 2010 seems to indicate that the market will maintain a reasonable level during the first quarters, as cancellations, non-performance and slippage will delay deliveries. With demand for bulk carriers recovering and China targeting fast development of the country, high imports of iron ore as well as coal will support demand growth is expected to show relatively strong spot market rates during the first half, with these gradually leveling off during the second half as higher numbers of new deliveries enter the market. However, considerable freight market volatility is expected, particularly in the larger segments due to their dependency upon iron ore imports into China. In 2010, Lauritzen Bulkers will take delivery of two Capesize newbuildings, both chartered out on long-term contracts, and six Handysize newbuildings plus one additional second-hand Handysize bulk carrier. One Capesize newbuilding (chartered out on long-term time-charter) as well as five Handymax newbuildings and one Handysize newbuilding will enter the fleet in 2010 on long-term time-charter. Contract coverage for Capesize bulk carriers, including deliveries during the year, is 100% for Likewise, coverage for Panamax is 100%, Handymax 81% and Handysize 40%. In 2010, Lauritzen Bulkers net results are expected to be significantly lower than in However, adjusted for one-off items such as reversal of provisions and writedowns and less gains on the disposal of vessels included in the 2009 results, results in 2010 are expected to be better than those reported in

22 Lauritzen Kosan Net results were USD 9.2m in 2009 compared to USD 37.9m in The decline was mainly due to the weaker trading conditions for gas carriers and smaller gains from the sale of vessels, down USD 18.7m compared to Results were in line with expectations and considered acceptable in view of the general trading conditions. Main events Lauritzen Kosan continued its fleet buildup in the market for maritime transportation of petrochemical gases and four additional 8,000 cbm ethylene gas carriers from Sekwang Heavy Industries, Korea entered the fleet, two of which owned by J. Lauritzen Singapore Pte. Ltd. and two by pool partner LGR di Navigazione S.p.A of Naples, Italy, completing the series of ten identical vessels. With three additional part-owned 9,000 cbm ethylene carriers, delivered in 2008, a solid platform with 13 modern units has been established in the ethylene carrier segment. Pool partner LGR di Navigazione also contributed one 4,000 cbm semi-refrigerated (S/R) newbuilding to the controlled fleet. A purchase option for the 1994-built, 5,638 cbm S/R gas carrier Telma Kosan was declared for delivery in With the agreement of the builders, two pressurized gas carriers scheduled for delivery in 2010 were postponed to A contract was made with Shell Chemicals, Singapore, for inter-asian distribution of ethylene to start in Due to the increasing importance of the Asian market for transporting petrochemical gasses, a decision was made to strengthen the commercial organisation in Singapore in During the year, Lauritzen Kosan chaired one of the working groups tasked with reviewing and revising IMO s International Code for the Construction and Equipment of Ships Carrying Liquefied Gases in Bulk (IGC Code). Global market developments Spot market rates for ethylene carriers in the 8,000-10,000 cbm segment weakened during the year by approximately 20% compared to 2008, whereas the spot market for S/R 6,500 cbm and fully pressurized (F/P) 3,500 cbm gas carriers trading East of Suez, after some volatility, ended the year at the same level as end of 2008, cf. Figure 8. Period rates for ethylene carriers and smaller S/R gas carriers declined by about 15%, whereas F/P gas carriers of 3,500 cbm trading East of Suez, saw period rates decline by 5% in Demand for gas carriers 2009 was a difficult year for demand for the smaller gas carrier segment up to 20,000 cbm. Overall, world seaborne trade is estimated to have declined by about 9% during the year with LPG seeing sizeable volume reductions, cf. Figure 9. The decline was to some extent counterbalanced by a huge rise in Chinese imports of VCM, propylene and ethylene which overall led to an increase in movements of petrochemical gases compared to

23 KEY FIGURES USDm Revenue EBITDA Depreciation (25.6) (20.7) Profit on sale of vessels Operating income Result in joint ventures Finance net (1.8) (4.9) Result before tax JL's share of the result Invested capital (average) Return on invested capital 2.4% 10.1% Average no. of employees FIG 8: SPOT RATES GAS CARRIERS USD 000/MONTH* Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 ETH 8,000 cbm 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 2008 & % 14% 31% 28% 20% 20% 10% 12% 13% 10% 12% 16% Source: ViaMar AS Ammonia Ethylene Propylene Butadiene VCM LPG 22

25 Petrochemical gas prices were on a rising trend in 2009, due in part to rising feedstock costs. During the year numerous opportunities for arbitrage emerged and this had a positive impact on demand for seaborne transportation of petrochemical gases. The petrochemical industry is entering a period of re-structuring due to increasing surplus capacity which reflects the buildup of production capacity in the Middle East Gulf. This is likely to lead to the closure of smaller, uncompetitive crackers in the OECD area, thereby creating rising demand for imports as cracker expansion in these areas is relatively costly. Supply of gas carriers Fleet growth in the 3,000-20,000 cbm gas carrier segment was estimated to be about 7% in 2009, but slippage and higher demolition took actual fleet growth down to some 3% in Deliveries of ethylene carrying capacity are declining and fewer than half deliveries in 2009 had ethylene capacity. Scrapping amounted to nine units compared to six units in 2008 with an unchanged average scrapping age of 31 years. The order book includes roughly 675,000 m3 carrying capacity, equivalent to about 20% of the existing fleet. Less than one fourth of vessels on order have ethylene carrying capacity. New orders amounted to 70,000 cbm in 2009, of which none with ethylene capacity, down from 240,000 cbm in The ethylene order book amounts to some 15% of the existing fleet, the majority of which will be delivered next year cf. Figure 10. Another rise in scrapping seems likely due to a combination of age and increasing customer requirements with an additional associated impact on costs, particularly for older tonnage. Lauritzen Kosan s fleet Lauritzen Kosan operates with a high proportion of coverage for the fleet through cargo contracts with a number of the ethylene carriers being employed on longterm time charter. Lauritzen Kosan s fleet comprised 29 fully or part-owned and bareboat chartered vessels at year-end The average age of the company s own fleet was 8.6 years compared to 7.6 years at year-end On average the operated fleet consisted of 25 semi-refrigerated/ethylene gas carriers (23 vessels in 2008) with a capacity of about 152,000 cbm. Further, Unigas Kosan Ltd, Hong Kong, the 50:50 partnership with Othello Shipping, the Schulte Group and Sloman Neptun operated a fleet of 20 fully pressurized gas carriers in 2009, down from 21 vessels in 2008, with a combined capacity of about 74,000 cbm. Total ship days reached 17,020 for 46.6 vessels on average compared to 16,077 days for the average of 43.9 vessels reported in 2008, cf. Figure 11. The increase in ship days reflected the increasing number of ethylene carriers employed. Lauritzen Kosan is highly conscious of health and safety and environmental issues and complies with strict technical 23

26 and operational standards and procedures for the fleet. Customer inspections and vetting of vessels are conducted at regular intervals and the company works closely with customers to ensure that the fleet complies with their requirements. During 2009, the company s fleet underwent close to 170 customer vetting inspections. Fleet Management At January 1st 2009, technical fleet management, previously undertaken by Lauritzen Fleet Management, was transferred to the individual business units and nowadays Lauritzen Kosan Fleet Management is an integrated part of Lauritzen Kosan. The transfer was a natural consequence of the growing strategic importance of environmental, health and safety issues in which Lauritzen Kosan customers take an active, direct interest. Some of Lauritzen Kosan s semi-refrigerated gas carriers were technically managed by wholly-owned Gasnaval S.A., Bilbao, whereas fleet management of the fully pressurized vessels was handled by part-owned Star Management Associates, Tokyo. Six scheduled dry-dockings were completed during 2009 (nine in 2008). Scheduled and unscheduled off-hire including scheduled dry-docking was 3.6% in 2009 compared to 3.9% in Several initiatives are under way to ensure that high quality and safety levels can be sustained and improved. In addition to continuous administrative improvements, the focus is on training and developing our crews. In 2009, an initiative was launched to strengthen office to vessel communications and to ensure that seafarers are in the best position to carry out their work in line with our standards and values. A representative office in Manila was established to support this initiative and to facilitate closer contact with our crews and crewing agent. Prospects for 2010 The prime drivers of demand for smaller gas carriers - sales of durable consumer goods and new construction - are recovering globally, albeit from a very low level. This means that whereas demand forecasts for 2010 are fairly positive, the net fleet growth of close to 5% precludes an improvement in trading conditions in the first part of the year. As such, spot market rates are expected to remain under pressure with a high degree of volatility. Lauritzen Kosan is scheduled to take delivery of the three of the series of six identical 3,600 cbm capacity pressurised gas carriers from China, cf. p. 12. A significant part of total fleet capacity has been covered on time-charter contracts, which is expected to account for about 69% of total budgeted revenues for the year. In 2010, Lauritzen Kosan s results are expected to be lower than in

27 FIG 10: ETHYLENE GAS CARRIER ORDER BOOK CBM ( by scheduled delivery year and estimated deliveries) FIG 11: AVERAGE NUMBER OF VESSELS Estimated t Order book Expected deliveries 2009 year-end 2009 deliveries Other Chartered Part owned Own Total order book Source: Clarkson Research Services 25

28 Lauritzen Offshore Services KEY FIGURES USDm Revenue EBITDA 4.0 (0.1) Depreciation (5.2) (0.7) Profit on sale of vessels etc Operating income (1.3) (0.7) Result in joint ventures Finance net (5.8) (6.4) Result before tax (7.1) (7.2) JL's share of the result (7.4) (7.2) Invested capital (average) Return on invested capital (0.4)% (0.5)% Average no. of employees FIG 12: GLOBAL SHUTTLE TANKER FLEET AND AGE PROFILE No. of ves sels (years) average age <<< Fleet <<< Order book <<< Order book (questionable) Average age >>> Source: Lauritzen Offshore Services (own research) 26

29 During its first year as an independent business unit, Lauritzen Offshore Services focused on implementing its strategy in the dynamically positioned shuttle tanker and accommodation markets. The first year of operation gave a net result of USD (7.4)m. This was lower than expected due to later than expected contractual employment for the first shuttle tanker, Dan Eagle, and delayed finalisation and delivery of the Accommodation and Support Vessel, Dan Swift. Main events A dedicated offshore services organization was established during the year with the aim of optimizing compliance with increasing customer requirements and business development. In November, Lauritzen Offshore Services in Singapore took delivery of Dan Swift, an advanced Accommodation & Support Vessel (ASV), after extensive reconstruction at Blohm & Voss Shipyard, Germany. The Dan Swift is a mono-hull vessel differing from traditional semi-submersible and platform accommodation units due in particular to its propulsion system, which enables independent navigation without the support of anchor handling and support vessels. Key design features comprise two gangways ensuring redundancy and operational flexibility, while the vessel s DP2 system ensures superior stationkeeping ability. The vessel also provides modern, high standard accommodation and recreational facilities for approximately 250 passengers. In June 2009, the Dan Swift secured a contract from the Norwegian oil and gas company, Statoil, for employment in Brazil. The contract commenced at the end of December 2009 and is expected to employ the vessel for most of Shuttle tanker Dan Eagle entered into long-term employment with the Brazilian energy major Petrobras starting in August The Dan Eagle will be followed by the Dan Sabiá and Dan Cisne, two shuttle tanker newbuildings under construction in China that are contracted to Transpetro, a subsidiary of Petrobras, with delivery during A Brazilian office in Rio de Janeiro was established during the fourth quarter to provide shore-based support for the Dan Swift contract and as a platform for further Brazilian market involvement. Global market developments Oil prices have lingered at the USD 70+ level since summer 2009 and while deepwater drilling activity has not been seriously impacted by the adverse world economic conditions during 2009, new startups for floating production projects remained slow. However, the market for specialized, deepwater offshore vessels remained firm, and thus both Dan Swift and Dan Eagle were committed on attractive contracts. 27

30 Shuttle tankers The global shuttle tanker fleet currently comprises 56 vessels and ten newbuildings on order, cf. Figure 12, with delivery of three units in 2010 and seven in 2011, two of which are dedicated Jones Act shuttle tankers for operation in US waters. It is not likely that additional newbuildings will become available within this timescale. As all existing shuttle tankers are tied up on contracts and conventional tankers cannot be used as substitutes without conversion, additional tonnage requirement generated by new field developments will necessitate investments in new vessels. As production levels fall in the North Sea, some existing shuttle tankers may become available for redeployment, but these will be few and they will not be sufficient to satisfy future demand. Accommodation units The current high-end accommodation fleet consists of 21 semi-submersibles in addition to Dan Swift. Further, four semisubmersibles are on order with possible delivery during 2010 of which two are currently considered uncertain. While several mono-hull new-build and conversion projects were planned, only a limited number still exists. One high-end unit will probably be delivered in 2011, while another two remain uncertain but may possibly be delivered in 2011 or later. It is not considered possible for additional highend ASVs to enter the fleet in the short to medium term. Lauritzen Offshore Services fleet In its first year of operation, Lauritzen Offshore Services total number of ship days only reached 390 (59 days in 2008). At year-end 2009, the operation included Dan Swift and Dan Eagle. Fleet management Lauritzen Offshore Services performs inhouse ship management functions for the offshore units. Being a pioneer in the development of a new accommodation vessel concept demands close attention to quality management, which is a strong driver for retaining technical management and competencies. This applies to project development where accrued knowhow gives a significant competitive edge but also in day-today operations and maintenance where increasing experience leads to a better balance between cost control and quality assurance. Health, Safety and Environment Lauritzen Offshore Services has obviously implemented high Health, Safety and Environment (HSE) standards as required by the offshore oil & gas industry. Our HSE philosophy is based on a ZERO mindset in which we commit ourselves to the active prevention of all incidents and accidents. HSE is always at the forefront of our approach and forms an integral part of our operations. 28

31 FIG 13: OFFSHORE PROJECTS POTENTIALLY REQUIRING FLOATING PRODUCTIONS SYSTEMS 7 / 12 - / 6 3 / 22 3 / 7 2 / 2 - / 2 11 / 15 7 / 24 6 / 28 4 / 9 Projects in bidding & final design stage / Projects in planning or study stage 29

32 30

33 Outlook for 2010 Even though the global energy markets have been affected by the global economic downturn, a rebound in oil demand is increasingly likely during With conventional oil reserves ashore and in shallow waters growing increasingly sparse, deepwater exploration is expected to continue to grow, so the market for offshore services is expected to remain firm in With demand picking up on the back of global economic recovery, Lauritzen Offshore Services is pursuing additional new business opportunities in the offshore services markets. Towards the end of 2009, new orders for floating production systems were reported for the first time since mid This will generate demand for shuttle tankers and accommodation vessels in the near to medium term. It is estimated that a total of 170 offshore projects potentially requiring a floating production system are in the planning cycle. Such projects are expected to also require accommodation services in the construction and installation phase (and eventually also repair & maintenance), while shuttle tanker services will be required when oil production starts from the field. Brazil is the most active region for these future projects with a total of 34 projects potentially requiring installation of floating production systems, cf. Figure 13. Operations will benefit from high contract coverage and thus results in 2010 are expected to be considerably better than in

34 Lauritzen Tankers 2009 was a difficult year with net results of USD (79.7)m being significantly adversely impacted by provisions and write-downs amounting to a total of USD (71.6)m. Results were lower than expected and very unsatisfactory. EBITDA in 2009 was USD (9.8)m down from USD 18.9m in The decline was due to the deteriorating product tanker market in early 2009 that evolved into a virtual market collapse, which also affected operations in joint ventures with a result of USD (4.5)m, down USD (4.5)m on Part of the business was generated in a joint venture in which Lauritzen Tankers has a controlling interest. The minority shareholders share of profits was USD 5.0m compared to USD 5.3m in Results were heavily affected by the poor trading conditions and the weak market outlook. Adjusted for one-offs (provisions and write-downs and gains on asset disposals), results amounted to USD (8.1)m in 2009 compared to a similarly adjusted figure of USD 3.1m in Both years were based on operating an average of about 11 vessels. Main events One major focus in 2009 was to realign the order programme and in agreement with the builders, the delivery plan for seven MR product tanker newbuildings with scheduled delivery in was deferred into 2013, cf. p. 12. A 40,000 dwt newbuilding scheduled for delivery in early 2009 was cancelled as the shipyard was unable to meet the contractual delivery date. The sale of a 50,500 dwt product tanker newbuilding for delivery 2009 could not be completed since the buyer was unable to take delivery. Agreement on compensation has subsequently been reached. Global market developments With the start of the increasingly difficult trading conditions following the financial crisis late 2008, earnings for MR product tankers started a decline that did not stop until early in the fourth quarter of The problems were primarily in the Pacific Basin with new product tankers entering service increasingly facing problems in finding employment. By early March 2009, the Atlantic Basin had been hit practically as hard and spot market earnings fell below operating costs with second-hand prices following suit. Average spot rates were down by 55% in 2009 compared with 2008, cf. Figure 14. Demand for product tankers Crude oil prices dropped from almost USD 150 per barrel in the second quarter 2008 to around USD 35 per barrel in late 2008 and early Production cuts by OPEC led oil prices recovering to USD 80 per barrel at year-end Despite lower prices, declining global economic activity in early 2009 led to a fall in the annualised consumption of oil products of 3.4% and 2.6% respectively in the first two quar- 32

35 KEY FIGURES USDm Revenue EBITDA (9.8) 18.9 Depreciation and write-downs (58.8) (20.0) Profit on sale of vessels Operating income (68.5) 9.6 Result in joint ventures (4.5) 0.0 Finance net (1.2) (7.2) Result before tax (74.2) 2.4 JL's share of the result (79.7) (2.2) Invested capital (average) Return on invested capital (47.3)% 4.4% Average no. of employees FIG 14: MONTHLY SPOT MARKET FREIGHT RATES USD 000/DAY Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 MR earnings (average of selected routes) Source: Clarkson Research Services 33

36 FIG 15: IMPORT OF REFINED OIL PRODUCTS INTO OECD 2008 & % 15% 30% 28% 20% 18% 12% 15% 7% 14% 17% 8% Naphtha Gasoline Jet & Kerosene Gasoil/Diesel Heavy Fuel Oil Other Products Source: IEA 34

37 ters of the year according to the IEA. Refineries cut back on utilization in order to restrain inventory growth and defend already strongly declining margins. As a result, world seaborne trade in oil products fell by 3% in 2009 compared with 2008 according to Maritime Strategies International. Imports into North America declined especially whereas imports into OECD Europe and OECD Pacific were slightly up on 2008 levels, according to IEA. Gasoline particularly but also other products saw a decline in transported volumes whereas strong increases were noted for movements of jet fuel/kerosene, gasoil/diesel and heavy fuel. The composition of products transported into the OECD area 2009 was skewed towards heavier products compared to 2008, cf. figures 15. Demand for product tankers was also affected by the build-up of floating storage of middle distillates, with LR2 and LR1 product tankers being mostly used for this. Supply of product tankers For the second consecutive year, the global MR product tanker fleet of between 25,000 and 60,000 dwt is estimated to have increased by about 8% after deliveries of about 8m dwt and scrapping of 2m dwt. The precise figures are uncertain as many owners were working with yards to alter delivery schedules, which could stretch the order book over a longer period than previously projected. At year-end 2009, the world MR product tanker fleet was estimated to amount to approximately 72m dwt. In 2009, new orders almost ceased and at year-end 2009, the order book stood at 20m dwt or some 30% of the existing fleet. Based on the current delivery schedule, more than half the order book will be delivered in 2010, cf. Figure 16. Demolition of single hull tankers in the 25-60,000 dwt segment only had a limited impact on scrapping in 2009, but due to the depressed freight markets, a huge proportion of the app 10m dwt single hull tankers is likely to be phased out within the next few years. Lauritzen Tankers fleet Lauritzen Tankers operates with a high proportion of coverage for the fleet with time-charters to first class charterers. In 2009, total ship days reached 3,824 with 10.5 vessels on average compared to the 4,229 days with 11.6 vessels on average reported in 2008, cf. Figure 17. At the end of 2009, Lauritzen Tankers controlled a fleet of 10 MR product tankers. Fleet management At January 1st 2009 technical fleet management, previously undertaken by Lauritzen Fleet Management, was transferred to the individual business units and today 35

38 fleet management is an integrated part of Lauritzen Tankers operations. Lauritzen Tankers focuses constantly on the efficiency of technical management in order to meet increasing customer requirements. The figure for own fleet off-hire, including scheduled dry docking, was 3% Prospects for 2010 Demand growth for product tankers is estimated at about 4% in 2010 by for example Maritime Strategies International on the basis of oil consumption picking up on the back of the forecast recovery of the world economy. Due to the large inventories on and offshore, the product tanker market will need additional time to recover from the slightly improved conditions in late 2009 and early Another factor hampering a sizeable rise in demand is the increased use of ethanol which substitutes part of the increase in North American gasoline demand. The potential impact of the upcoming final date of the phase-out scheme for single hull tankers has gathered steam in recent months with a number of countries having decided to ban such tankers from their waters and ports. This implies that fleet growth might be reduced to the same order of magnitude as demand growth. This might pave the way for a recovery in earnings in the product tanker market in the latter part of 2010 or early In 2010, Lauritzen Tankers will take delivery of one 50,500 dwt newbuilding from China and two 53,000 dwt MR3 newbuildings from Japan. At year-end 2009, contract coverage for the product tanker fleet amounts to about 62% for Lauritzen Tankers results are expected to be considerably better in 2010 than However, excluding one-offs (e.g. provisions, reversals and write-downs), results in 2010 are expected to be in line with the similarly adjusted figure for

39 FIG 16: MR PRODUCT TANKER ORDER BOOK DWTm ( by scheduled delivery year and estimated deliveries) FIG 17: AVERAGE NUMBER OF VESSELS , Estimated deliveries in Order book year-end Expected deliveries in Other Shared charter Chartered Part owned Own Total order book Source: Clarkson Research Services, Oil Trade & Tanker Outlook 37

40 Corporate Governance CORPORATE STRUCTURE Lauritzen Fonden LF Investment Aps (former Vesterhavet A/S) 100 % J. Lauritzen A/S 100% DFDS A/S 56% * Lauritzen Bulkers Lauritzen Kosan Lauritzen Tankers Lauritzen Offshore Services 38 Lauritzen Fonden through 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. * In December 2009, DFDS A/S acquired Norfolk Line from A. P. Moller Maersk, creating Northern Europe s leading sea-based transport network. This made the latter a major shareholder in DFDS A/S, although Lauritzen Fonden via Vesterhavet Holding A/S remains the majority shareholder. The transaction is subject to customary conditions..

41 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 non stock-listed company, the company s Articles of Association, the Board of Directors Rules of Procedure, and its directions to the Executive Management. 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. 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. December 2009 saw the completion of the Lauritzen Group s corporate restructuring with JL-Fondet being renamed Lauritzen Fonden (Lauritzen Foundation). At the same time, Vesterhavet A/S was transformed from a public limited company to a private limited company and renamed LF Investment ApS. Accordingly, Vesterhavet s previous holdings in J. Lauritzen A/S were allotted to Lauritzen Fonden. Lauritzen Fonden 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 as well as 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. Lauritzen Fonden s charter also lays down how it should exercise its role as owner of its affiliated companies and its core policies are 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. 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 May. 39

42 Board of Directors The Board of Directors consists of at least four and no more than seven members 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. Additional 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 elected by the employees. At year-end 2009, the average length of service of the Board of Directors was six years. The board is broadly composed of members with diverse and extensive experience. At year-end 2009, the average age of the members of the Board of Directors was 55. 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 seven times in 2009, including a mid-year strategy review meeting. Otherwise, the board convenes when deemed necessary. Between meetings, recommendations are submitted to the board for written resolution. No board committees have been established. Management structure JL has a two-tier management structure consisting of a Board of Directors and 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. Operational 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 (President, Lauritzen Kosan and Lauritzen Tankers). Extraordinary or major dispositions may only be 40

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45 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) and Anders Mortensen (President, Lauritzen Offshore Services). 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. The Executive Management defines and controls policies and procedures to support our business, risk management, reporting and benchmark these against generally accepted international practice. An anti-fraud policy has been enforced since 2006 and was updated in late 2009 to include guidelines on whistleblower reporting and related employee protection. 43

46 Corporate Social Responsibility JL recognises its responsibilities to society. With growing business activities in coming years, JL is dedicated to ensuring that expansion is achieved in a socially and environmentally responsible way. Part of our heritage is to practise responsibility for our employees and society as well as support for humanitarian causes and involvement in philanthropic activities. Lauritzen Fonden (Lauritzen Foundation) is the sole owner of JL. In addition to its commercial activities, it has an explicit charitable aim and is engaged in a broad range of social, cultural, humanitarian, educational and research related activities in Denmark and internationally. Sustainability JL s mission is to create added value for customers, partners and owners and this can best be achieved by managing operations and the use of resources with respect and accountability. Human and employee rights JL supports and respects the protection of human and employee rights and refrains from any actions that may directly or indirectly encourage or contribute to infringement of these rights. In compliance with our core value of respect, we regard diversity as an important element in building a global business. JL employees are the company s most important assets. The key to success is our commitment to attracting, training, developing and retaining capable and 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. JL respects and treats employees equally and fairly and does not accept any form of harassment or discrimination. We seek to protect our employees from acts of abuse or threats in the workplace, whether committed by managers or fellow employees, and also when determining and implementing disciplinary measures. JL will not knowingly participate in or benefit from any forms of forced labour or child labour, nor will we interfere with our employees rights to form and join unions and to bargain collectively. Security JL recognizes the importance of international requirements for maintaining high security standards at sea and ashore in order to prevent acts of terrorism, piracy, armed robbery and other criminal acts which could threaten the security of crews, personnel, assets, the public and the environment. Health, safety and environmental responsibility JL aims to actively promote a culture of safety and environmental excellence at all levels of the organisation. JL seeks to provide a safe, healthy work environment for 44

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48 FIG 18: ENERGY CONSUMPTION KWh/TONKILOMETER FIG 19: CO 2 ENERGY EMISSIONS G/TONKILOMETER FIG 20: SOx AND NOx EMISSIONS SO2 g/tonkilometer NOx g/tonkilometer 46

49 all employees and to promote a no-blame culture in order to ensure open and timely communication throughout the organization. JL s policy is for all employees, whatever their capacity, to be able to perform their duties properly in healthy, safe conditions. JL aims to identify risks and eliminate possible hazards which could result in personal injury, illness or accidents caused by substandard conditions or acts. JL gives priority to health and safety and environmental management and we emphasise that our standards can only be met with the total commitment of every individual in the organisation. Throughout the organisation, at sea and ashore, management must lead by example. Health and safety and environmental efforts must be aimed at preventing 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 repetition. Lost Time Injury Frequency (LTIF) statistics developed unsatisfactorily from 1.13 in 2008 to 2.64 in The injuries, often involving third party contractors, have been analysed and the lessons learnt are being incorporated into our HSE procedures. In our continuous efforts to manage our working and operational environment we are aware that uncontrolled deviations from our business processes remain the real target and challenge for continuous improvement. JL s performance trends for observations during port state controls, vetting inspections, etc., were again satisfactory. With respect to safeguarding the environment, we manage our activities in compliance with all applicable national and international laws and regulations. Executive management and the management of each business division and segment aim to ensure that all individual employees work to: Endeavour to prevent pollution through operational procedures and to ensure compliance by means of audits and inspections, and by providing the means for their review and revision. Endeavour to use environmentally responsible practices in our activities, to set targets and monitor improvements. Endeavour to reduce the environmental impact of our activities by efficient use of resources employing responsible disposal practices. Demonstrate accountability by disclosing our environmental performance figures. Follow technological developments for environmental improvements that are relevant to the business. Support and participate in R&D initiatives. Ensure that awareness, enthusiasm and respect for the environment is an integral part of the company s daily routines through education/training and continuous improvement of the competencies of employees, both at sea and ashore. 47

50 Energy consumption and emissions In 2009, vessels technically managed by JL and JL s external ship managers consumed a total of 218,406 tonnes of fuel oil to produce 2.5m MWh of energy. Average energy efficiency was KWh/tonkilometer compared to in 2008, cf. Figure 18. The decrease in efficiency was due to an increased number of waiting days and ballast miles due to the constrained trading conditions. Total CO 2 emissions declined by 4.5% from 720,608 tonnes in 2008 to 688,471 tonnes in However, CO 2 emissions per tonkilometer saw a slight increase from in 2008 to in 2009, cf. Figure 19, attributable to the reduction of tonkilometers caused by the increased number of waiting days and ballast miles. NOx emissions were slightly up on 2008 due to the reduction in tonkilometres, whereas emissions of SOx per tonkilometres slightly decreased in 2009 due to greater use of low sulphur oil, cf. Figure 20. Emissions figures are based on actual consumption, oil quality and engine emission factors and are calculated in accordance with IMO MEPC.1/Circ.684. Copenhagen climate summit It is imperative that legally binding global rules should apply to CO 2 reductions for the carriage of world trade, 90% of which is carried by ships, the form of commercial transport that is acknowledged as the most carbon efficient. The UN Climate Change Conference (UN- FCC) in Copenhagen in December 2009 did not give a clear mandate for the IMO to build on the combination of technical, operational and economical measures developed by IMO for reducing shipping s global CO 2 emissions. JL will use its membership of the Danish Shipowners Association to continuously support the work of the IMO and other international bodies in this respect. Anti-corruption In compliance with our core value of accountability, JL firmly distances itself from any actions that unjustly or unlawfully influence officials and/or the judiciary. Innovation JL encourages entrepreneurship, creativity and innovation as illustrated by the development and the construction of the series of ten identical 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. Creativity and technological innovation are also a driving force behind the development of JL s new business activities in dynamically positioned support vessels for the offshore industry. The recent delivery of Dan Swift is an example of a unique, technologically advanced accommodation vessel specifically designed for servicing the demanding offshore market. 48

51 ENVIRONMENTAL INITIATIVES In 2009, Lauritzen Kosan became ISO14001 certified as part of the continuous commitment to optimize environmental performance. During 2009 Lauritzen Kosan worked on various environmental programs aimed at reducing its environmental impact that will continue into 2010 together with additional programs that are under development. One of the programs has involved the development of a benchmarking tool for vessel performance and environmental data allowing Lauritzen Kosan to develop vessel specific environmental targets based on KPI s as well as providing important performance data which enable early intervention in case of performance deterioration resulting in increased fuel usage. Another program initiated in 2009 is the development of a catalogue of Ship Energy Efficiency Improvement Areas. This catalogue will form base for further specific projects and ideas aimed at reducing our environmental impacts Lauritzen Bulkers has initiated a number of projects aiming at minimizing the environmental impact of its fleet of owned vessels and at increasing their fuel efficiency. Lauritzen Bulkers is working with NanoNord A/S and Lloyd s Register to test the Lab-On-A-Ship (LOAS) system which aims to reduce emissions through enhanced control of engine combustion, lubrication and exhaust gases. In applying modern technology and improved methods on its newbuildings, Lauritzen Bulkers is seeking to achieve a rise in fuel efficiency via propeller design and main engine cylinder lube oil control mechanisms, and has also undertaken a project involving biodegradable cleaning products for hold washing. 49

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53 In addition to development and innovation conducted by JL, Lauritzen Fonden (Lauritzen Foundation) supports initiatives and contributes to identifying new technical solutions that could benefit the entire shipping industry. Through its majority holding in NanoNord A/S, Lauritzen Fonden is working together with Lloyd s Register and Lauritzen Bulkers to support development of the Lab- On-A-Ship (LOAS) system with the aim of enhancing combustion and fuel efficiency. The collaboration is part of the trans-industry Danish Green Ship of the Future project. The recent development of complex software aiming at reducing emissions has been supported at the Danish Technical University (DTU). This software is also able to determine impact on the so-called Energy Efficiency Design Index (EEDI) which the IMO with strong Danish input headed up by the Danish Maritime Authority is working to implement as a requirement aimed at making new vessels more energy efficient. Community The Lauritzen Fonden supports and sponsors a broad range of community initiatives directly or through collaboration with NGOs. During 2009, the Foundation intensified its assistance to disaster centres. Typhoon victims in the Philippines were among those who received support. For several years, including 2009, the Foundation has been contributing to the Danish charity Danmarks Indsamling which raises funds to support 12 of Denmark s largest humanitarian organisations. In early 2010, the Foundation also contributed to fund-raising to support women in Africa and the victims of the devastating earthquake in Haiti. Outlook JL strives to enhance its CSR goals and to establish a CSR governance structure to ensure guidance from the Executive Management as well as decentralised involvement and responsibility and our aim is sign up to the United Nations Global Compact. 51

54 Organisation and people JL s vision and values aim to deliver sustained world-class maritime services and require an efficient organisation and highly skilled, competent employees. In 2009, the turbulent global business environment affected the organisation in the way that JL cut back on new recruitment. JL s LEAN activities under Project World- Class, which increase efficiency across the organization, further reduced the need for additional staff. JL s growth strategy and the delivery of new tonnage, however, did mean additional competent employees were required. Vacancies were filled and staff were recruited for new positions in all business units, for overseas offices and for newbuilding site teams in the Far East. Even so, total recruitments amounted to just a third of the figure for 2008 when JL took on the largest number of new staff during the past ten years. Competency development ashore JL s competency programme, known as the JL Academy, continued in 2009 as did JL s management and leadership programme with lecturers from international business schools. In 2009, employees also attended open programmes at international business schools or courses offered by national academies. A number of employees were enrolled in degree and EMBA programmes. Internal courses on various themes and classes in English, Spanish, and Chinese were run throughout during the year. JL s various trainee programmes also continued in 2009 although the intake of new trainees was lower than in will see JL Academy being upgraded and a number of new courses will be offered, including a post graduate programme. Competency development at sea Skills development courses were also in focus in 2009, particularly in the expanding offshore service operations where mandatory courses were conducted due to flag state requirements. We also ran training programmes for HSE (Health, Safety and Environment) to upskill the crews aboard our vessels. Organisational assessment As an integrated part of our world-class vision, JL regularly conducts organisational surveys and survey results are used for the development of educational and training programmes throughout the organisation saw the introduction of the Denison Organizational Culture Survey, based on more than 20 years of research on over 1,500 organisations and 50,000 individuals, measuring involvement, consistency, adaptability, and mission. The survey again confirmed JL as a high performing company. 52

55 JL S VISION AND VALUES Competence Enthusiasm Team spirit Together we CREATE a world-class shipping company Respect Entrepreneurship Accountability 53

56 FIG 21: TOTAL WORKFORCE YEAR-END FIG 22: DISTRIBUTION OF WORKFORCE YEAR-END % % 5% 2% Seagoing Head office Overseas offices Site teams Seagoing Head office Overseas offices Site teams 54

57 Employment terms and conditions JL offers competitive remuneration packages including salary and pension schemes and employees also enjoy a broad range of additional welfare benefits. Optimising our business requires the full commitment of all staff and their well-being is vital for the company. Employees are offered regular medical checks, quitsmoking and similar programmes. Sports activities and gym memberships are also financially supported. JL considers that its responsibilities include ensuring that employees have an appropriate work-life balance. Where imbalances have resulted in stress or a stress-related disorder for an employee whether due to private or work reasons JL offers support by way of professional counselling as well as reviewing their work situation in general. Effective introduction schemes are in place to ensure that new employees swiftly become part of JL and procedures are also in place in case JL has to dismiss an employee, for whatever reason. JL always considers how best the company can assist employees in a difficult situation either through outplacement schemes, counseling or other initiatives. Senior employees are often highly knowledgeable and experienced, which is of great value for the company. JL s seniors policy provides employees approaching retirement with an alternative to early retirement or pension and JL s seniors employment schemes benefit individual employees as well as the company by providing a smooth transition of know-how and experience to younger employees. Employee development At year-end 2009, JL s total headcount was 769 compared to 684 in A total of 182 were working at head office in Copenhagen, 36 in the overseas offices, and 551 at sea. Furthermore 18 worked at newbuilding site teams cf. Figures Staff turnover at head office increased to 12.6% from 8.5% in 2008 and included a number of retirements. Average years of service increased to 9.7 years in 2009 compared to 7.3 years in 2008, and average age also increased from 40.6 years in 2008 to 41.9 years in The increase in age was due to a smaller intake of younger employees compared to the year before. 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. JL monitors and manages three main types of risk deemed important to our operations: Industry risks, operational risks, and financial risks. Risk management is an integrated 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. 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 opportunities and they form the basis for the medium to long-term strategy of the company. 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 vessels, time-chartered tonnage and contract coverage supplemented with fuel oil hedging and to some extent Forward Freight Agreements (FFAs). Business strategies with limits for contract coverage relating to individual vessel segments including FFAs, overall limits for offbalance 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. JL s exposure to off-balance sheet operations (e.g. time-charter commitments) is limited on the basis of net exposure of each segment of the entire fleet and thus takes due account of contract coverage. Risks associated with fluctuations in asset values are assessed using models that incorporate forecast economic/physical service lives, shipping cycles and average costs per fleet unit. Operational risks Operational risks arise from running our business operations. 56

59 TYPES OF RISKS Industry risks Operational risks Financial risks The figure illustrates the relationship between overall industry risks and specific operational and financial risks associated with JL s business activities. 57

60 58

61 Safety Casualties from ship operations can have serious consequences and so merchant shipping is one 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 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 cutting risks relating to ship and cargo handling operations. Insurance A policy on insurance has been adopted with the aim of reducing the financial risks of any 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 currently reviewing its policies with a view to extending the measures available to minimise counterparty risks. IT systems IT is critical for the conduct of our busi- 59

62 ness. JL s IT systems are available 24/7 and are accessible worldwide. Systems for vessels-online are being implemented, adding even further to the demands being made on our systems, platforms and infrastructure. Redundant systems and duplicate infrastructure are in place. JL frequently tests to see that restoring systems can be done 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 (access to funding and liquidity) and in general to the financial markets (exchange rates, interest rates, stock market share prices). Capital management The purpose of capital management is to ensure sufficient capital for the day-to-day operations, investment programs 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 (35-40%) figures, predefined minimum liquidity (USD m) and the requirement for external funding to be drawn on or post delivery of vessels. Being wholly-owned by Lauritzen Fonden, JL pursues a prudent dividend policy that supports JL s ability to grow its business organically. During periods of tight financial markets, as in , dividends are suspended. Otherwise, JL normally pays dividends of up to 25% of JL s share of profits. JL is strongly solvent. At year-end 2009, solvency was 52% down from the 59% reported at year-end 2008 due to a significant increase in the number of owned vessels. Prior to the financial crisis, JL had adopted a growth strategy for its own fleet and at year-end 2009, the order book amounted to approximately USD 1,656m (down from 2,400m at year-end 2008), with 38% being self-funded (32% end of 2008). The collapse of the financial sector in late 2008 and the subsequent collapse of shipping markets meant that a larger part of the newbuilding program had to be selffinanced. Lauritzen Fonden confirmed its long-term commitment by granting JL a subordinated loan of initially USD 100m. By including the subordinated loan as equity share, the solvency ratio at year-end 2009 amounted to 57%. Capital requirement (equity and financing) are constantly assessed in various scenar- 60

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65 ios and sensitivity analyses. Even though JL had expected significant reductions in rates compared to 2007 and 2008, the strength and the speed of the collapse of the shipping markets had not been included in our scenarios. In the light of the events following the collapse of the financial and the shipping markets, JL s general capital guidelines and transparent financial management and reporting have demonstrated their prudence in helping JL maintain and increase the funding required for newbuilding program. At year-end 2009, the financing for JL s investment program with deliveries stretching far into 2011 was confirmed. The average tenor of current commitments is 6.2 years. For further details on drawn commitments please refer to Note 21 of the financial statements. Other financial risks The overall policies and objectives for financial market risks, e.g. foreign exchange risks and interest rate risks, are defined by JL s Board of Directors. Financial risk management only applies to underlying financial risks and hedging contracts are made to reduce these risks. Risks primarily relate to non-usd currencies, net interest rate and credit risks and access to the financial markets. Please refer to Note 22 of the financial statements for further detail. 63

66 Financial review JL s net result in 2009 was USD 74.6m (USD 149.5m in 2008), which included USD 17.1m profits from the sale of vessels and other fixed assets (USD 153.8m in 2008) as well as provisions, write downs and reversals of these which affected EBITDA, operating income and net results in joint ventures. Adjusted for these one-off items (provisions, write downs, reversals, and profits from the sale of assets), net results were USD (6.3)m, down from USD 204.4m in The decline mainly related to the top line effects of the collapsing shipping markets. Revenues totalled USD 482.9m compared to USD 665.8m in The decline was due to the downturn in the shipping markets that particularly affected JL s dry bulk and product tanker activities. The decrease was partly off-set by increasing revenues from the expanding fleet of ethylene gas carriers and offshore units and net gains on Forward Freight Agreements (FFAs) compared to net losses in Hire of chartered vessels amounted to USD 170.2m, down from USD 322.2m in In 2008, chartered vessels hire included USD 86.0m provisions for onerous time-charters for dry bulk activities, which were all used or reversed in However, due to the depressed product tanker market, provisions of USD 9.3m have been included in 2009 to accommodate onerous time-charters for Lauritzen Tankers. Operating costs for owned and bareboat chartered vessels totalled USD 54.7m, slightly down from 2008 due to cost savings on an increasing fleet of owned vessels. Other operating costs including bunkers, port expenditures and other voyage-related costs amounted to USD 55.3m, up from USD 46.5m in 2008 primarily due to changes in trading patterns. Office and fleet staffing costs and other sales and administrative costs totalled USD 88.2m, down from USD 99.5m in 2008 due to cost savings and the appreciation of USD against DKK and EUR. EBITDA amounted to USD 134.9m, down from USD 158.9m in The decrease mainly related to Lauritzen Tankers and Lauritzen Kosan. The sale of six bulk carriers and other assets generated gains of USD 17.1m. For comparison, 2008 saw the disposal of three bulk carriers, three gas carriers, two product tankers and other assets, generating net gains of USD 153.8m. Depreciation and write-downs totalled USD 76.4m, down from USD 142.6m in 2008 due to the reversal of write-downs on bulk carriers, partly off-set by additional write-downs on product tankers in 2009, and by increased depreciation on the expanding fleet of owned vessels. Net results in joint ventures totalled USD 17.0m, down from USD 27.3m in 2008 due to decreasing profits from partowned bulk carriers and write-downs on part-owned product tankers. Net financial income totalled USD (16.5) m, up from USD (38.1)m in 2008 primarily due to foreign exchange rate gains and gains on securities partly off-set by increasing interest charges relating to financing fleet expansion. 64

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69 Result before tax was USD 76.0m, down from USD 159.3m in Income tax amounted to USD 3.6m compared to USD (4.6)m in The change in income tax was mainly related to tax adjustments in previous years. The result of USD 79.6m for 2009, down from USD 154.7m in 2008, was better than expected and is regarded as acceptable considering the global financial crisis and the world economic recession. Balance sheet At year-end 2009, total assets amounted to USD 2,188.4m up by USD 420.7m from USD 1,767.7m in 2008 due to substantial investments in vessels. The total book value of vessels amounted to USD 1,037.7m, up USD 465.3m on 2008, whereas brokers vessel valuations of the fleet totalled USD 1,034.0m. The value in use of the vessels, taking contract coverage into account, was significantly higher than broker valuations. Vessels under construction amounted to USD 444.9m (20% of total assets), down USD 213.7m from USD 658.5m in 2008 (37% of total assets) following the delivery of vessels in Investments in joint ventures increased to USD 121.3m, up from USD 118.3m in Broker valuations of vessels owned by partnerships totalled USD 559.3m compared to their book value of USD 718.8m, whereas the value in use of the vessels exceeded the book value. Other non-current receivables amounted to a total of USD 16.0m down from USD 27.0m in Current receivables, including fair value adjustments on FFAs and other derivate financial instruments amounted to USD 123.8m compared to USD 148.0m in Total shareholders equity was up USD 82.8m at USD 1,130.5m, giving a return on JL s share of equity of 6.9% compared to 14.7% in At year-end 2009, total liabilities amounted to USD 1,057.9m, up USD 338.0m on Total interest bearing debt increased to USD 936.4m from USD 405.5m in Other current payables including fair value adjustments on FFAs and other derivate financial instruments amounted to USD 72.8m (2008: USD 184.9m). Cash flow statement Cash and cash equivalents amounted to USD 172.1m compared to USD 144.4m at year-end Cash flow from operations totalled USD (24.1)m, down from USD 299.9m in 2008 reflecting the difficult trading conditions for bulk carriers and product tankers. In 2009 cash flows from investment activities amounted to USD (455.0)m, up from USD (237.3)m in 2008 due to investments in vessels and less proceeds from the sale of vessels. Cash flows from financing activities (net proceeds from loans) amounted to USD 507.9m compared to USD 290.5m in The increase was mainly due to atdelivery financing of vessels delivered in 2009 and also a subordinated loan from Lauritzen Fonden via LF Investment ApS, cf. p

70 Statements and notes J. Lauritzen A/S 68

71 Income Statement Group Parent company Note USD ' Income 3, 4 Revenue 482, , Other operating income 20,363 19,432 12,728 11, , ,196 12,728 11,232 Hire of chartered vessels (170,208) (322,234) - - Operating costs of vessels (54,682) (58,114) Other operating costs (55,264) (46,496) Staff costs, office and fleet (67,985) (76,379) (15,375) (20,092) 6 Other sales and administrative costs (20,197) (23,078) (7,968) (12,776) (368,337) (526,301) (23,344) (32,868) Result before depreciation (EBITDA) 134, ,895 (10,616) (21,636) Profit and loss on sale of vessels 16, , Profit and loss on sale of other assets 397 7, Depreciations and write-downs (76,428) (142,563) (8) (8) Operating income 75, ,146 (10,624) (21,644) 17 Net result in Joint ventures 16,954 27, Financial income 11,878 19,700 16, ,107 9 Financial expenses (28,389) (57,772) (94,439) (51,755) Result before tax 76, ,335 (88,184) 101, Income tax 3,633 (4,603) 4,745 (4,188) Result for the year 79, ,732 (83,440) 97,519 Attributable to: The J. Lauritzen Group 74, ,468 Minority shareholders share of result in subsidiaries 5,017 5,264 79, ,732 Proposed allocation of the result: Proposed dividend - - Transferred to other reserves (83,440) 97,519 (83,440) 97,519 69

72 Statement of comprehensive income Group Parent company Note USD ' Net income recognised in the Income Statement 79, ,732 (83,440) 97,519 Other comprehensive income Exchange rate adjustments concerning foreign companies 143 (1,288) - - Fair value adjustment of hedging instruments during the year 3,352 (10,544) 3,352 (10,544) Hedging instruments transferred to the income statement 4,158 (130) 4,158 (130) Tax on other comprehensive income Other comprehensive income net of tax 7,653 (11,963) 7,510 (10,675) Total comprehensive income 87, ,769 (75,929) 86,845 Attributable to: The J. Lauritzen Group 82, ,506 Minority shareholders share of result in subsidiaries 5,017 5,264 87, ,769 70

73 Balance sheet assets Group Parent company Note USD ' ASSETS Non current assets Intangible assets 11 Goodwill 0 1, , Vessels, property and equipment 12 Vessels 1,037, , Land and buildings 2,934 3, Machinery, tools and equipment 15,896 11,160 1,415 1, Vessels under construction 444, , ,501,410 1,245,139 1,415 1,423 Financial assets 16 Investments in subsidiaries , , Investments in Joint ventures 121, , Deferred tax assets 3,580 3,940 3,513 3,881 Shares available for sale 3,530 3,411 3,530 3,411 Receivables from Joint ventures 25, , 22 Other receivables 15,960 26, , , , ,915 Total non current assets 1,670,899 1,399, , ,339 Current assets Bunkers 1,911 1, Receivables Trade receivables 10,249 16, , 22 Other receivables 64, ,467 23,842 36,717 Receivables from affiliated companies , ,834 Receivables from Joint ventures 60 5, Prepayments 49,015 9,751 8, , , , , Securities 13,103 35,192 13,103 35, Cash and bank deposits 205, , ,867 38, , , , ,006 12, 15 Assets held for sale 173,709 39, Total current assets 517, , , ,006 Total assets 2,188,403 1,767,654 1,286, ,344 71

74 Balance sheet liabilities Group Parent company Note USD ' LIABILITIES Equity Share capital 60,633 60,633 60,633 60,633 Reserve for hedging instruments (3,164) (10,675) (3,164) (10,675) Reserve for exchange rate adjustments (2,413) (2,556) - - Other reserves 1,070, , , ,991 Proposed dividend JL's share of equity 1,125,626 1,043, , ,950 Minority shareholders' share of equity 4,873 4, Total Equity 1,130,499 1,047, , ,950 Non current liabilities 20 Provisions 3,517 31, Interest bearing debt 882, , , ,202 Total non current liabilities 886, , , ,202 Current liabilities 21 Interest bearing debt 53,809 23,794 13,033 - Trade payables 22,480 14,757 2,332 13,541 Other payables 72, ,867 37,458 52, Provisions 13,139 75, Prepayments 3,272 2, Debt to parent company Debt to affiliated companies ,556 45, Corporate tax 6,239 5,937 5,348 4,911 Total current liabilities 171, , , ,193 Total liabilities 1,057, , , ,395 Total equity and liabilities 2,188,403 1,767,654 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 72

75 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 - (1,268) 846,486 85, ,220 4, ,962 Total comprehensive income - (10,675) (1,288) 149, ,506 5, ,769 Paid dividend (85,368) (85,368) (5,650) (91,018) Proposed dividend Equity 31/ ,633 (10,675) (2,556) 995,954-1,043,357 4,356 1,047,713 Total comprehensive income - 7, ,616-82,269 5,017 87,286 Paid dividend (4,500) (4,500) Proposed dividend Equity 31/ ,633 (3,164) (2,413) 1,070,571-1,125,626 4,873 1,130,499 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/ , ,472 85, , ,474 Total comprehensive income - (10,675) - 97,519-86,845-86,845 Paid dividend (85,368) (85,368) - (85,368) Proposed dividend Equity 31/ ,633 (10,675) - 508, , ,950 Total comprehensive income - 7,510 - (83,440) - (75,929) - (75,929) Paid dividend Proposed dividend Equity 31/ ,633 (3,164) - 425, , ,021 73

76 Cash Flow Statement Note USD ' Group Parent company Result of operating income 75, ,146 (10,624) (21,644) 7 Depreciation carried back 76, , Adjustments (79,978) (117,024) 25,041 6, Change in working capital (79,272) 109,794 (216,337) 876 Cash flow from operations before financial items (7,265) 305,479 (201,912) (13,947) Ingoing financial payments 6,673 19,700 4,796 9,946 Outgoing financial payments (27,656) (24,571) (20,683) (51,755) Cash flow from ordinary operations (28,247) 300,608 (217,800) (55,756) 10 Paid corporate tax 4,133 (708) 5,255 (306) Cash flow from operating activities (24,114) 299,900 (212,545) (56,062) 12 Purchase of vessels (431,975) (237,686) Payments on vessels under construction (102,069) (469,459) Purchase of land and buildings - (1,612) Purchase of machinery and equipment (6,694) (5,599) - (1,288) 17 Purchase of Joint ventures (4,556) (36,596) - - Sale of vessels 91, , Sale of other non current assets Sale of shares - 7,232-7, Increase of share capital in subsidiaries - - (363) (70,047) Purchase and sales of securities 26,819 61,878 26,819 61,878 Cash and cash equivalents pledged as security for debt (32,950) - (20,300) - Dividend received from subsidiaries , Dividend received from Joint ventures 4,288 20, Cash flow from investment activities (455,021) (237,311) 6, ,775 Financial receivables (14,098) 11, Instalment on long-term debt (189,681) (17,982) (68,749) - 21 Proceeds from loans 711, , , ,411 Dividend paid - (85,368) - (85,368) Cash flow from financing activities 507, , , ,043 Changes for the year in cash and cash equivalents 28, , , ,756 Cash and cash equivalents at beginning of year 144,370 (208,968) 38,159 (264,850) Currency adjustments on cash and cash equivalents (1,083) 249 (1,083) Cash and cash equivalents at the end of the year 172, , ,567 38,159 Undrawn committed credit facilities at end of year*) 281, , , ,367 Financial ressources at the end of the year 453, , , ,526 *) Of the USD 281.4m undrawn credit facilities at the end of 2009 USD 258.2m (2008: USD 0m) is committed to financing of specified vessel deliveries during After year end additional financing of 2011 deliveries of the equivalent of USD 160m as agreed to in 2009 has been committed. 74

77 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 December 2009 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 C large enterprises, 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. New financial reporting standards In 2009, JL has adopted the following new or revised standards and interpretations endorsed by EU effective for the accounting period beginning on 1 January 2009: IAS 1 (Revised 2007) Presentation of Financial Statements IAS 23 (Revised 2007) Borrowing costs IFRS 8 Operating Segments, IFRS 2 (Revised 2008) Share-based Payment Amendments to IAS 32 and IAS 1 (2008): Puttable Financial Instruments and Obligations Arising on liquidation Amendments to IFRS 1 and IAS 27 (2008): Cost of an investment in a Subsidiary, Jointly Controlled Entity or Associate Amendments to IFRS 7 (2009): Improving Disclosures about Financial Instruments Part of Improvements to IFRSs (2008) with effective dates 1 January 2009 IFRIC s 12, 13, 15, 16, 17 and 18 IAS 1 changes the primary statements by requiring a Statement of Comprehensive Income and changes to the Equity Statement. IFRS 8 effects the disclosure on segment to a minor extend, whereas amendments to IFRS 7 enhances the disclosure on liquidity risk and fair value disclosure. None of the new standards and interpretations has 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. 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. 75

78 Notes 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. 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. 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. 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. 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. 76

79 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. 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. 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. 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. 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. 77

80 Notes 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 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 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 78

81 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. 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 recognised 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. Buildings Buildings are measured at cost less accumulated depreciation and accumulated impairment losses. Any goodwill resulting from the acquisition is included in the carrying value of the investment. It is tested for impairment as described below. 79

82 Notes 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. 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. 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). 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). 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 allowances for doubtful trade receivables. The allowances are based on an individual assessment of each receivable. 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-for-sale. 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. 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. 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 rec- 80

83 ognised 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 redemption value is recognised in the income statement over the lifetime of the loan. 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. 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. 81

84 Notes 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. 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. 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. The key assumptions for the calculation of the value in use are the estimated future earnings and operating costs, the identified cash-generating units (CGU) and a risk adjusted weighted average cost of capital of 7% (2008: 7%). Note 2 Accounting estimates and judgments The preparation of the financial statements in conformity with IFRS requires management to make estimates and judgments 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. Compared to 2008 the aggregation of assets for identifying cash generating units has been modified in accordance with the current organisational structure and operation of the fleet and the general market practice. In 2008 impairment tests of vessels were carried out on a vessel by vessel basis. In 2009 vessels are aggregated into cash generating units based on the organisational structure and vessel types, comprising fully and partially owned vessels as well as vessels under charter contracts re. below. In 2009 the product tanker market experienced a severe downturn resulting in declining broker s valuations and estimated future income and thus also values in use. In the same period, the dry bulk market recovered partly from the downturn in the 4th quarter of The impairment test as at 31 December 2009 resulted in write-downs to the recoverable amount of product tankers; product tankers owned by joint ventures as well as product tankers under construction, whereas write-downs on bulk carriers were reversed. Goodwill related to the product tanker operation was also written-off. Furthermore, one product tanker and two bulk carriers were transferred to held for sale classification in 2009 resulting in impairment losses. Except for the product tankers no other vessels or vessels under construction were determined as at risk of impairment as at 31 December 2009 and no reasonably possible short term changes in key assumptions will cause other vessels or other vessels under construction to be impaired. 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 mini- 82

85 mum annually. The chartered vessels are allocated to CGU s using the same principles as for fully and partially 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 chartered vessel is included, is negative and provided the net present value of estimated future cash flows for the specific chartered vessel is negative. Due to the severe downturn on the product tanker market, provisions have been recognised to cover onerous time charters of products tankers, while provisions related to time charters of bulk carriers have been reversed due to the recovery of the bulk market. Write-downs on vessels etc. and provisions for onerous contracts are summarized below: 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 ventures: Categorising of corporations and ownership interests as subsidiaries, associates or joint ventures is based on managerial judgment. USDm Assets held for sale Vessels and vessels under construction Onerous contracts Joint ventures Goodwill Total Write down Reversal Write down Reversal Provision Reversal Write down Reversal Write down impairment loss, net 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) Lauritzen Bulkers 21.3 Lauritzen Kosan Lauritzen Offshore Serv. Lauritzen Tankers 16.0 Non reportable segm. Total Group

86 Notes NOTE 3 Segment information USD '000 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) (14.0) (46.2) Impairment losses (55.5) (25.8) (4.5) - (30.3) 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% 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,

87 NOTE 3 Segment information (continued) USD '000 Lauritzen Lauritzen Lauritzen Lauritzen Total Non- Un- Total Bulkers Kosan Offshore Tankers reportable reportable allocated Group Services segments segments 2008 Revenue Result before depreciation (0.1) (6.7) (18.2) Depreciations (19.3) (20.7) (0.7) (4.0) (44.7) (1.0) (0.0) (45.7) Impairment losses (80.9) - - (16.0) (96.9) - - (96.9) Profit and loss on sale of assets Operating income (0.7) (0.4) (18.2) Net result in Joint ventures (0.0) Result before tax (7.2) (31.8) Income tax for the year (0.0) (0.8) (0.1) 0.1 (4.6) (4.6) Result for the year (7.2) (36.4) Hereof minority interest Other material non-cash items included in the result: Unrealized gains/loss on FFA's (90.0) (90.0) - - (90.0) Provisions, net (90.4) (3.4) - - (93.8) (86.5) Result excl. other non-cash items (7.2) (7.0) (36.4) Non current assets , ,399.5 Investments in Joint ventures Current assets Total assets , ,767.6 Liabilities Net Assets ,297.7 (0.8) (249.1) 1,047.7 Average number of employees Profit margin 31.8% 33.1% (43.1)% 11.2% 29.1% (2.3)% N/A 25.6% Return on invested capital 39.5% 10.1% (0.5)% 4.4% 17.9% N/A N/A 17.1% Investments during the year Invested Capital - Year end ,281.2 (15.3) (40.8) 1,225.1 Invested capital - Average ,209.9 (19.1) (34.9) 1,155.9 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 is identical with how the J. Lauritzen 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 2009 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 central service not allocated to the business units. Non-reportable operating segments include Fleet management, Lauritzen Reefers and other miscellaneous 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. 85

88 Notes Note 4 Fair value changes on financial contracts Group Parent Company USD ' The fair value changes on: Forward Freight Agreement contracts included in revenue are 18,244 (29,066) - - Financial bunkers contracts included in other operating costs are (319) (528) - - Note 5 Staff costs, office and fleet Group Parent Company USD ' Staff costs include: Wages and salaries 62,478 70,949 13,827 18,013 Pensions (defined contribution plan) 3,785 3,937 1,186 1,686 Social security 1,351 1, Contract labour ,985 76,379 15,375 20,092 Remuneration to J. Lauritzen A/S' Executive Management - salaries 2,200 3,394 2,200 3,394 Executive Management - pensions Executive Management - long term employment bonus 186 1, ,651 Board of Directors ,200 5,755 3,200 5,755 Average number of employees Number of employees at year-end 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

89 Note 7 Depreciations and write-downs Group Parent Company USD ' Goodwill (1,735) Vessels (55,994) (44,515) - - Vessels under construction (17,032) (96,890) - - Land and buildings (89) (44) - - Machinery and equipment (1,580) (1,113) (8) (8) (76,428) (142,563) (8) (8) Note 8 Financial income Group Parent Company USD ' Interest income on cash and deposits 5,355 14,564 3,478 4,810 Interest on receivables from subsidiaries - - 9,555 7,928 Total interest income on financial assets measured at amortised costs 5,355 14,564 13,033 12,739 Realised and unrealised currency exchange gains and losses, net 5,205-2,529 - Dividends received on shares at fair value through profit and loss 990 4, ,119 Interest on securities at fair value through profit and loss 328 1, ,016 Gain/loss on recognised firm commitments under fair value hedge accounting 3,568 (21,269) - - Gain/loss on financial derivatives under fair value hedge (3,568) 21, Profit on sales of shares in subsidiaries and Joint ventures ,232 Dividend received from subsidiaries ,000 Financial income 11,878 19,700 16, ,107 Note 9 Financial expenses Group Parent Company USD ' Interest expenses on loans (27,656) (24,571) (19,700) (18,151) Interest on debt to parent company - (166) - (166) Interest on debt to subsidiaries - - (250) (833) Total interest expenses on financial liabilities measured at amortised costs (27,656) (24,737) (19,950) (19,149) Realised and unrealised currency exchange gains and losses, net - (18,367) - (17,938) Realised and unrealised gains and losses on securities at fair value though P&L (733) (14,668) (733) (14,668) Impairment write-down of subsidiaries - - (73,756) - Financial expenses (28,389) (57,772) (94,439) (51,755) 87

90 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 3,993 (6,200) 5,113 (5,743) Deferred tax (360) 1,598 (368) 1,555 Income tax 3,633 (4,603) 4,745 (4,188) Tax on the result is specified as follows: Calculated 25% of result before tax (19,000) (39,834) 22,046 (25,427) Adjustment in foreign companies deviating from 25% tax 1,251 1, Tax effect of: Tonnage tax 4,235 40,645 - (1,660) Non-taxable items 7,282 (10,073) (22,793) 25,873 Adjustments previous year 5,626 (3,364) 5,492 (2,974) Net result in joint ventures 4,239 6, ,633 (4,603) 4,745 (4,188) Effective tax percent -5% 3% 5% 4% Deferred tax on the Balance Sheet: Deferred tax 1 January 3,940 2,356 3,881 2,326 Exchange rate adjustments in foreign companies 0 (13) - - Tax on result (360) 1,598 (368) 1,555 Deferred tax 31 December 3,580 3,940 3,513 3,881 Deferred tax concerns: Taxable losses carried forward 3,580 3,940 3,513 3,881 3,580 3,940 3,513 3,881 Corporate tax payable can be specified as follows: Balance 1 January 5, ,911 (465) Exchange rate adjustments 163 (105) 295 (61) Paid during the year 4,133 (708) 5,255 (306) Provision for the year, incl. jointly taxed subsidiaries (3,993) 6,200 (5,113) 5,743 6,239 5,937 5,348 4,911 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 11m. 88

91 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 (335) (335) - - Write-down during the year (1,735) Write-down as at 31 December (2,069) (335) - - Balance as at 31 December 0 1, 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 has been 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 has been recognised. Reference is made to note 2 for further disclosure of the impairment test and impairment loss of the product tankers unit. Note 12 Vessels Group Parent Company USD ' Cost as at 1 January 720, , Exchange rate adjustments in foreign companies 957 2, Additions during the year 731, , Disposals during the year (115,727) (320,883) - - Cost as at 31 December 1,336, , Depreciation and write-down as at 1 January (147,760) (143,914) - - Exchange rate adjustments in foreign companies (740) (2,130) - - Depreciation (42,768) (44,515) - - Write down during the year (13,226) - Disposals during the year 40,761 42, Depreciation and write-down as at 31 December (163,732) (147,760) - - Balance as at 31 December 1,172, , Hereof classified to assets held for sale *) 135, Insurance sum including interest against total loss 1,524,150 1,097, *) As at 31 December one product tanker and one bulk carrier were classified as held for sale (2008: none). The vessels are recognized at fair value less cost to sell and thereby resulted in write downs amounting to USD 5.2 mill (2008: USD 0m). 89

92 Notes Note 13 Land and buildings Group Parent Company USD ' Cost as at 1 January 3,163 1, Exchange rate adjustments in foreign companies 17 (65) - - Additions during the year - 1, Cost as at 31 December 3,180 3, Depreciation and write-down as at 1 January (154) (115) - - Exchange rate adjustments in foreign companies (3) Depreciation during the year (89) (44) - - Depreciation and write-down as at 31 December (246) (154) - - Balance as at 31 December 2,934 3, Note 14 Machinery, tools and equipment Group Parent Company USD ' Cost as at 1 January 15,572 12,114 1, Exchange rate adjustments in foreign companies (4) Additions during the year 6,694 5,599-1,288 Disposals during the year (1,440) (2,176) - - Cost as at 31 December 20,821 15,572 1,615 1,615 Depreciation and write-down as at 1 January (4,412) (5,154) (192) (184) Exchange rate adjustments in foreign companies 108 (14) - - Depreciation during the year (1,580) (1,113) (8) (8) Disposals during the year 959 1, Depreciation and write-down as at 31 December (4,925) (4,412) (200) (192) Balance as at 31 December 15,896 11,160 1,415 1,423 90

93 Note 15 Vessels under construction Group Parent Company USD ' Cost as at 1 January 794, , Additions during the year 123, , Disposal during the year *) (50,103) - Transfers to depreciable category (299,163) (170,865) - - Cost as at 31 December 568, , Write-down as at 1 January (96,890) Write-down during the year **) (89,434) (96,890) - - Disposal during the year 28, Reversal of write-down during the year 72, Write-down as at 31 January (85,270) (96,890) - - Balance as at 31 December 483, , Hereof classified to assets held for sale 38,589 39, *) During the year contracts for building of four bulk carriers and one product tanker have been cancelled. **) Contracts for building of one bulk carrier (Lauritzen Bulkers) has been classified as held for sale (2008: One Bulk carrier and five product tankers). The contracts have been measured at fair value less costs to sell. Write-downs relating to assets held for sale amount to USD 19.9m (2008: USD 37.4m). Reference is made to note 2 for further disclosure on impairment testing. 91

94 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% - LK Shipowner A/S, Denmark 100.0% - Lauritzen Offshore Services A/S, Denmark 100.0% - LT Shipowner A/S, Denmark 100.0% - Parent Company USD ' Cost as at 1 January 771, ,708 Additions during the year ,047 Cost as at 31 December 772, ,755 Accumulated impairment losses at 1 January (259,132) (259,132) Impairment during the year (73,756) - Accumulated impairment losses at 31 December (332,888) (259,132) Carrying amount at 31 December 439, ,623 92

95 Note 17 Investments in Joint ventures Group Parent Company USD ' Cost as at 1 January 105,338 68, Additions during the year 4,556 36, Disposal during the year (11,625) Cost as at 31 December 98, , Revaluation as at 1 January 28,509 17, Exchange rate adjustments in foreign companies (0) Dividends received (4,288) (20,666) - - Revaluations during the year 17,049 31, Disposal during the year 2, Revaluation as at 31 December 44,115 28, 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 121, , Net Liabili- Group share of 2009 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 Net Liabili- Group share of Revenue Result Assets ties Net result Equity In total 251,684 54, , ,752 17, ,339 Internal profit 10,184 (9,735) 27, ,604 Negative equity set off against receivables - 1,306 Provision for negative Equity - 4,388 27, ,298 Hereof associated companies amount to (22)

96 Notes Note 18 Other receivables and Prepayments Group Parent Company USD ' Non current 'Other receivables' 15,960 26, Current 'Other receivables' 64, ,467 23,842 36,717 Total Other receivables 80, ,426 23,842 36,717 Specification of Other receivables Financial lease receivables *) 20,202 38, Financial derivatives 21,928 82,836 15,389 33,429 Other short-term receivables 38,277 20,995 8,454 3,288 Total Other receivables 80, ,426 23,842 36,717 *) 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. The 2008 figures include a financial lease agreement related to a reefer vessel sold in 2007 on financial lease terms. In 2009 the counterpart defaulted and vessel was redelivered to Lauritzen Reefers A/S and subsequently sold. Prepayments Prepayments (not specified above) include USD 20.6m related to a bulk carrier charter agreement with a maturity of four years of which 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 2009 with 29 shares of DKK 50,000 or multiples of this. In relation to the restructuring of the corporate structure of Lauritzen Fonden (previously named JL Fondet) the shares of J. Lauritzen A/S was allotted from LF Investment APS (formerly named Vesterhavet A/S) to Lauritzen Fonden. The allotment took effect as from The proposed dividend for 2009 amounts to USD 0 per share (2008: 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 106,769 20, Additional provision during the year 9,267 95, Used during the year (74,865) (7,855) - - Reversal of provision during the year (24,515) (1,016) - - Provision as at 31 December 16, , Non current liabilities 3,517 31, Current liabilities 13,139 75, Provision as at 31 December 16, ,

97 Note 21 Interest bearing debt Group Parent Company USD ' Mortgage on vessels 792, , , ,000 Financial leasing 20,202 30, Subordinated loan *) 120, ,604 - Other debt 2,745 2,202 2,745 2, , , , ,202 Market value of non current debt 941, , , ,202 Non current interest bearing debt at 1 January 405,496 41, , Exchangerate adjustments 8,917-8,917 - Proceeds from loans 711, , , ,411 Repayments and redemption (189,681) (17,982) (68,749) - Balance as at 31 December 936, , , ,202 Long-term debt due for payment next year (53,809) (23,794) (13,033) - Non current interest bearing debt 882, , , ,202 The instalments for next year are specified as follows: Mortgage on vessels 42,092 12,975 13,033 - Debt concerning financial leasing 11,717 10, Current interest bearing debt 53,809 23,794 13,033 - Due for payment between 1 and 5 years Mortgage on vessels 356,584 98, ,702 48,334 Debt concerning financial leasing 8,485 19, Subordinated loan *) 120, ,604 - Other debt 2,745 2,202 2,745 2, , , ,051 50,536 Due for payment after more than 5 years: Mortgage on vessels 394, , , , , , , ,666 *) The loan is granted from LF Investment ApS and is subordinated to all other debts, liabilities and obligations. 95

98 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 arriving from counterparts failure to fulfill its contractual obligations towards JL). The overall policies and objectives for financial risks are defined by JL s Board of Directors. The overall policies and objectives are in general unchanged compared to Financial risk management only applies to underlying financial risks and hedging contracts are made to reduce these risks. Risks primarily relate to non-usd currencies, net interest rate and credit risks and access to the financial markets. Capital management risk The purpose of capital management is to ensure we have sufficient capital for our 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 (35-40%) figures, predefined minimum liquidity (USD m) and the requirement for external funding to be drawn on or post delivery of vessels. Being wholly-owned by Lauritzen Fonden, JL pursues a prudent dividend policy that supports JL s ability to grow its business organically. During periods of tight financial markets, as in , dividends are suspended. Otherwise, JL normally pays dividends of up to 25% of JL s share of profits. JL is strongly solvent. At year-end 2009, solvency was 52% down from the 59% reported at year-end 2008 due to a significant increase in the number of owned vessels. Prior to the financial crisis, JL had adopted a growth strategy for its own fleet and at year-end 2009, the order book amounted to approximately USD 1,656m (down from 2,400m at year-end 2008), with 38% being self-funded (32% end of 2008). The collapse of the financial sector in late 2008 and the subsequent collapse of shipping markets meant that a larger part of the newbuilding program had to be self-financed. Lauritzen Fonden confirmed its long-term commitment by granting JL a subordinated loan of initially USD 100m. By including the subordinated loan as equity share, the solvency ratio at year-end 2009 amounted to 57%. Capital requirement (equity and financing) are constantly assessed in various scenarios and sensitivity analyses. Even though JL had expected significant reductions in rates compared to 2007 and 2008, the strengths and the speed of the collapse of the shipping markets had not been included in our scenarios. In the light of the events following the collapse of the financial and the shipping markets, JL s general capital guidelines and transparent financial management and reporting have demonstrated their prudence in helping JL maintain and increase the funding required for newbuilding program. Financing for JL s investment program with deliveries stretching far into 2011 was confirmed. The average tenor of credit facilities is 6.2 years. For further details regarding drawn commitments please refer to Note 21. Liquidity risk Liquidity risk relates to the risk that JL will not be able to fulfill its financial obligations as they fall due. Liquidity is continuously monitored and assessed based on the expected EBITDA for the current year and years to come, the outstanding capex payments, the proceeds from committed and expected credit facilities and the future liabilities from existing and expected future credit facilities. This is done to ensure liquidity is adequate at all times. External financing is primarily based on credit facilities with a group of core banks and credit facilities with major banks guaranteed by ECA s (Export Credit Agencies). With some banks JL have agreed to make margin payments if some predefined financial limits are met. Due to a decline in vessel values measured by brokers, JL has made additional security available for financial institutions in form of cash in order to counteract any potential breach of minimum value clauses in existing credit facilities (ref note 27). There have been no breaches of credit facilities. Furthermore, for multi-currency short-term financing needs, an unsecured overdraft facility of DKK 100m is at the Group's disposal. A maturity analysis of JL s financial liabilities as per 31 December 2009 is shown below. A maturity analysis of the Group's/Parent's operational lease obligations is included in note 24b. 96

99 Note 22 Financial instruments and financial risks (continued) USD '000 Carrying amount Contractual cash flows Group 2009 Within 1 year Between 1 5 years More than 5 years Non derivative financial instruments: 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 (75,685) (75,685) (75,685) - - Derivative financial instruments, 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) Bunker hedging contracts FFA s* *) (9,946) (9,946) (5,293) (4,653) - Total at 31 December 2009 (1,031,764) (1,132,140) (160,015) (665,627) (363,931) USD '000 Carrying amount Contractual cash flows Group 2008 Within 1 year Between 1 5 years More than 5 years Non derivative financial instruments: Mortgage on vessels, bank debt and other interest bearing debt *) (374,892) (422,190) (21,303) (128,575) (272,313) Finance lease commitments *) (30,605) (33,079) (12,475) (20,604) - Trade payable and other payables (199,625) (199,625) (199,625) - - Derivative financial instruments, liabilities at fair value: Forward exchange contracts (8,563) (8,563) (3,374) (5,190) - Interest rate swaps (11,842) (11,842) (2,085) (7,090) (2,667) Bunker hedging contracts (317) (317) (317) - - FFA s* *) (122,135) (122,135) (122,135) - - Total at 31 December 2008 (747,979) (797,751) (361,314) (161,459) (274,980) *) Contractual cash flows include undiscounted interest payments based on interest levels at year end. **) FFA contracts in the money amounts to USD 10.3m (2008: USD 54.6m) 97

100 Notes Note 22 Financial instruments and financial risks (continued) USD '000 Carrying amount Contractual cash flows Parent company 2009 Within 1 year Between 1 5 years More than 5 years Non derivative financial instruments: Mortgage on vessels, bank debt and other interest bearing debt *) (626,999) (690,731) (28,278) (370,116) (292,337) Trade payable and other payables (18,500) (18,500) (18,500) Debt to affiliated companies (131,556) (131,556) (131,556) - - Derivative financial instruments, 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) (188,498) (380,490) (293,089) USD '000 Carrying amount Contractual cash flows Parent company 2008 Within 1 year Between 1 5 years More than 5 years Non derivative financial instruments: Mortgage on vessels, bank debt and other interest bearing debt *) (297,202) (339,085) (6,726) (75,268) (257,092) Trade payable and other payables (66,398) (66,398) (66,398) - - Debt to affiliated companies (45,882) (45,882) (45,882) - - Derivative financial instruments, liabilities at fair value: Forward exchange contracts (3,374) (3,374) (3,374) - - Interest rate swaps (11,842) (11,842) (2,085) (7,090) (2,667) Total at 31 December 2009 (424,698) (466,581) (124,465) (82,358) (259,759) *) Contractual cash flows include undiscounted interest payments based on interest levels at year end. Market risks Except to the extent described below, JL does not apply hedge accounting to manage volatility in profit or loss stemming from the use of derivative financial instruments. Sensitivity information is calculated at the balance sheet date and comprises only sensitivity related to financial instruments. Therefore, the amounts disclosed do not necessarily give a complete picture of JL's risks related to the different categories of risks. Currency risk The Groups functional and reporting currency is USD and thus all amounts are recorded and reported in USD. By matching income and expenses and assets and liabilities the net currency risk is minimized leaving net positions to be focused on. It is JL s policy to use derivative instruments to hedge the currency risks related to net non-usd cash flows from operating activities and investments. JL s operating cash inflows are mainly in USD (85%) (2008: 89%) and costs are also mainly in USD (68%) (2008: 69%). The most important non-usd cost currency is DKK arising mainly from head office costs and Danish crew expenses and EUR mainly related to the technical management of vessels. Currency risk related to non-usd investments in ships relates to JPY and EUR. 98

101 Note 22 Financial instruments and financial risks (continued) The currency composition of the assets and liabilities at the balance sheet date corresponds in general to the currency composition of the operating cash inflows and outflows. Furthermore, the Group and the parent company have the following significant non-derivative assets and liabilities denominated in non-usd at the balance sheet date: USD 000 DKK NOK ZAR LVL DKK NOK ZAR LVL Shares available for sale 3, , Shares at fair value through profit or loss - 2,584-3,819 2,615 1,671 11,053 5,990 Subordinated loan (120,604) Bank deposit 119, The hedging strategy for operating costs is based on estimated annual net non-usd cash flows, i.e. 12-month rolling cash flow. It is JL s policy to cover minimum 25% or the equivalent of three months forward by use of forward currency contracts. 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 related to future costs in non- USD currencies. The hedging strategy for non-usd cash flows regarding investments in ship new-buildings is based on two years rolling cash flows. It is JL s policy to hedge non-usd payments on vessels at the earliest possible point in time when the average exchange rate used in a given board recommendation can be achieved at the payment due date. JL uses fair value hedge accounting on a Group level in respect of derivatives in connection with firm commitments for vessels under construction. At the balance sheet date, the Group has the following forward currency contracts connected to 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 *) 7,741 11, ,429 26, Purchase of EUR *) 35 (3,773) (5,190) 0-36 Cash Flow Hedge Purchase of DKK**) 25 (978) (315) 0-9 Purchase of EUR**) (3,019) 0-3 *) Hedge accounting applies to the forward currency contracts **) Hedge accounting does not apply to the hedging of cash flows, hence fair value adjustments are recognized in the Income statement over the duration period. The parent company does not have any hedge transactions related to firm commitments. The currency risk related to non-usd investments in shares at fair value through profit or loss are hedged if 1) no "large forward premium" exists in the market and 2) if the investment is viewed as a short term investment. At 31 December 2009, the Group has hedge transactions related to currency risks in investments denominated in NOK (2008: NOK and DKK). Hedge accounting is not applied to forward currency contracts related to investments in securities in non-usd currencies. To measure currency risk in accordance with IFRS 7, the sensitivity, measured as the change in fair value of future cash flows from financial instruments as a result of fluctuations in exchange rates on the balance sheet date, is calculated. Sensitivity towards fluctuations in non-usd currencies at the balance sheet date, everything else being equal, (after tax), based on a 10% increase in currency translation rates against USD (assuming 100% effectiveness): Group Parent USD ' Net profit Equity Net profit Equity Net profit Equity Net profit Equity DKK/USD 4,273 4,273 6,103 6,103 4,273 4,273 6,103 6,103 EUR/USD - - 4,934 4, ,934 4,934 JPY/USD NOK/USD (646) (646) (646) (646) ZAR/USD - - 1,105 1, ,105 1,105 LVL/USD ,748 4,748 12,095 12,095 4,748 4,748 12,095 12,095 The effect of a 10% decrease in the above currency translation rates would result in corresponding losses. 99

102 Notes Note 22 Financial instruments and financial risks (continued) Interest rate risk The Groups interest rate risk is determined from net interest bearing debt. It is JL s policy to hedge risks related to changes in interest rates to limit the negative economic effect of changes in interest rates by converting variable interest rates to fixed interest rates. USD credit facilities with a maturity longer than three years may be hedged up to 100%. Other facilities, with maturity up to three years, are presently not hedged. JL will cover the net interest rate risk via forward rate agreements, interest rate swaps and related instruments if the interest rate is viewed as being advantageous. JL uses cash flow hedge accounting in respect of interest rate derivatives and the Group and the Parent have, at the balance sheet date, the following contracts classified as hedge transactions and will be recycled in the Income statement over the tenor of the hedged loans: Nominal Fair value Duration Nominal Fair value Duration Million USD '000 months million USD '000 months Interest rate derivatives (3,804) (11,842) 0-95 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 Other non-current receivables Fixed 20, , Portfolio Management, bonds Variable 6, ,000 0 Bank deposits Variable 205, ,370 0 Finance lease obligation Fixed (20,202) 18 (30,605) 24 Mortgage on vessels Variable (792,870) (372,690) 1-97 Subordinated loan Fixed (120,604) Term (mths) Other loans Fixed (2,745) (2,202) Net interest-bearing debt (704,508) (212,532) Term illustrates the underlying term of the interest rate as from the balance sheet date. Parent Rate USD 000 Term (mths) USD 000 Portfolio Management, bonds Variable 6, ,000 0 Bank deposits Variable 171, ,159 0 Mortgage on vessels Variable (503,651) 1-96 (295,000) Subordinated loan Fixed (120,604) Debt to affiliated companies Variable (131,556) 0-12 (45,882) 0-12 Other loans Fixed (2,745) (2,202) Net interest-bearing debt (579,989) (294,925) Term illustrates the underlying term of the interest rate as from the balance sheet date. Term (mths) To measure interest rate risk in accordance with IFRS 7, the sensitivity, measured as the change in fair value of future cash flows from financial instruments as a result of fluctuations in interest rates on the balance sheet date, is calculated. Due to lack of reliable measures of sensitivity of share prices to interest rate changes, shares available for sale and shares at fair value through profit or loss are not included in the sensitivity calculations. Also, the calculation is made assuming a global change in interest rates and thus fair value effect in respect of forward currency contracts and similar derivatives is not considered. 100

103 Note 22 Financial instruments and financial risks (continued) The calculated after tax effect on financial instruments 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 - (12,342) - (8,518) - (12,342) - (8,518) 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 loans with variable interest rates. The calculated after tax effect on finance cost of a 1% annual increase in interest rates in 2008 and 2009 (assuming 100% effectiveness): Group Parent USD '000 Finance costs Finance costs Finance costs Finance costs Interest bearing debt with variable interests (5,372) (2,195) (2,486) (1,877) A 1% decrease in interest rates would have a corresponding inverse effect. Freight rates Forward Freight Agreements (FFAs) are used by JL in the ordinary course of business to hedge the Group's risk related to fluctuations in freight rates. JL does not apply hedge accounting to FFAs. Bulk: Days bought Days sold Settlement rate, USD per day Days bought Days sold Settlement rate, USD per day Handysize , ,375 7,000 Handymax/Supramax ,500 18,500 1,460 1,460 9,500 11,000 Panamax Capesize , ,466 2,006 - At 31 December 2009, the net fair value of the FFAs amounts to tusd 365 (2008: tusd (67,639)). The contracts' terms are 1-24 month (2008: 1-12 months). The sensitivity at the balance sheet date towards fluctuations in freight rates (after tax) based on a 10% increase in average freight rates per day amounts to: USD 000 Net profit Equity Net profit Equity Forward Freight Agreements 0 0 1,825 1,825 The effect of a 10% decrease in the above freight rates would result in corresponding losses. The parent company does not have FFAs at 31 December 2009 or

104 Notes Note 22 Financial instruments and financial risks (continued) Oil price risk Bunker oil is a significant cost element for the Group, though oil price risk only relates to contracted cargo volumes not covered by BAF (Bunker Adjustment Factor). Generally, it is JL s policy to hedge projected consumption of 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 the balance sheet date is 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 2009 no future bunker oil consumption has been hedged (2008: 750 MT). The parent company does not enter into oil price contracts. Share price risk Share price risk arises from the 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 measured at cost. Summary quantitative information and sensitivity: Carrying Sensitivity (+10%) Carrying Sensitivity (+10%) USD 000 amount Net result Equity amount Net result Equity Shares available for sale 3, , Shares at fair value through profit or loss 6, ,192 2,519 2,519 Total 9, ,603 2,519 2,860 Sensitivity is measured at the balance sheet date and includes changes in equity prices only and is 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. Credit risk Credit risk is the risk of incurring a financial loss if a customer or counterparty fails to fulfill its contractual obligations towards JL. JL evaluates 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 JL's general requirements. In certain cases contracts are guaranteed by parent companies or similar. In 2009 provision for expected loss on trade receivables of USD 0m (2008: USD12m) has been recognized. At 31 December 2009 JL does not have any further overdue trade receivables (2008: USD 0m). The risks relating to financial instruments, bonds and cash funds are minimized by trading only with financial institutions with a long term credit rating from Moody s of A2 for financial products with a maturity of less than one year and Aa3 for financial products with a maturity of more than one year. At year-end 2009, all but one of the financial counterparties have credit ratings higher than specified. JL's exposure to credit risks at the balance sheet date can be illustrated as follows: Group Parent USD ' Other long-term receivables 41,057 26, Trade receivables 10,249 17, Financial derivatives 21,928 82,836 15,389 33,429 Other short-term receivables 38,277 32,631 8,454 3,288 Portfolio management, bonds 6,700 10,000 6,700 10,000 Cash and bank deposits 205, , ,867 38,159 Maximum credit risk 323, , ,410 84,876 The maximum credit risk corresponds to the carrying value of the individual assets. 102

105 Note 22 Financial instruments and financial risks (continued) Other long-term receivables are disclosed in note 18. JL has obtained collateral for the payments through transportation of rights to income from the vessel pool in which the vessels are managed. Further to the above, JL has non-monetary receivables related to payments on vessel under construction. Risks related to payments on vessels under construction are limited through agreements such as refund guarantees where Builders ability to deliver may be uncertain and limited installment payments. Categories of financial assets and liabilities The following categories of financial assets and financial liabilities are recognized in the balance: Group Parent USD ' Financial assets at fair value through P/L *) 35, ,028 28,492 68,621 Loans and receivables**) 273, , ,379 41,503 Available for sale financial assets**) 3,530 3,411 3,530 3,411 Financial liabilities at fair value through P/L *) (19,658) (130,798) (21,291) (3,374) Financial liabilities measured at amortized cost**) (958,900) (420,255) (767,803) (356,626) *) Include financial derivatives designated for hedge accounting **) The recognized amounts of financial asset and liabilities measured at amortized cost does no differ material from its fair value. Fair value hierarchy With exception of listed bonds and shares USD 13.3m (2008: USD 35.2m) (level 1) as disclosed in note 23 all financial instruments at fair value are measured based on 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 The fair value is calculated by means of valuation models where all estimated and fixed cash flows are discounted using zero-coupon yield curves. The expected cash flows of the individual contract are based on observable market data, e.g. interest rate curves. When determining the fair value of floating rate loans, cash flows are estimated based on the forward rate curve. Derivative financial instruments The fair value of derivative financial instruments is calculated by means of valuation models such as discounted cash flow models. The expected cash flows of the individual contract are based on observable market data, e.g. interest rate curves as well as foreign exchange rates. 103

106 Notes Note 23 Securities Group Parent Company USD ' Listed bonds pledged as collateral 6,700 10,000 6,700 10,000 Listed shares at fair value 6,403 25,192 6,403 25,192 Securities 13,103 35,192 13,103 35,192 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 12, ,717 13,927 2,170 11,757 Between 1-5 years 8, ,485 28,069 1,231 26,838 Total 21, ,202 41,996 3,401 38,595 Fair value 25,648 45,647 JL as lessee of vessels Group Lease Carrying Lease Carrying payment Interest amount payment Interest amount Within 1 year 12, ,717 12,475 1,656 10,819 Between 1-5 years 8, ,485 20, ,786 Total 21, ,202 33,079 2,475 30,605 Fair value 25,648 36,961 The parent company of JL does not have any finance leases in either 2009 or

107 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 Others Total The parent company of JL does not have any operating leases in either 2009 or Number of vessels on time charter and bareboat contracts Bulk carriers Gas carriers 4 6 Product tankers 8 7 Reefer vessels 1 4 Includes the number of vessels: JL has purchase options on at the balance sheet date 5 9 JL has options to extend on at the balance sheet date 3 18 Note 25 Adjustments Group Parent Company USD ' Exchange rate adjustments 28,678 (30,134) 25,041 14,045 Profit on the sale of other assets (397) (7,325) - - Internal profit - Joint ventures (1,476) (10,184) - - Profit and loss on sale of tangible fixed assets (16,670) (146,489) - - Changes in provisions (90,113) 77, (79,978) (117,024) 25,041 14,045 Note 26 Change in working capital Group Parent Company USD ' Change in stocks (299) Change in receivables 24,179 (41,957) (275,402) (45,038) Change in payables (103,152) 151,403 59,065 45,914 (79,272) 109,794 (216,337)

108 Notes Note 27 Cash and cash equivalents at end of year Group Parent Company USD ' Cash and bank deposits 205, , ,867 38, , , ,867 38,159 Cash and cash equivalents pledged as security for debt (32,950) - (20,300) - Cash and cash equivalents at end of year 172, , ,567 38,159 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, Cash and cash equivalents , 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 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 1,018.1 million. These contracts cover the construction of 21 bulk carriers, 6 gas carriers, 10 product tankers, 2 shuttle tankers due for delivery in 2010, 2011, 2012 and In addition JL has a purchase obligation of USD 28.4 million covering one second hand vessel for delivery in

109 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 ,060 6,524 Management fee, income/(expenses) from LF Investment ApS Currency hedging income/(expenses) from group companies - - (399) (298) Guarantee commission income/(expenses) from group companies Rental and lease income/(expenses) from group companies - - 1,135 1,388 Rental and lease income/(expenses) from LF Investment ApS (2,038) (2,364) (2,038) (2,364) Paid dividend to parent company - (85,368) - (85,368) Received dividend from group companies ,000 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 have issued the following new or revised accounting standards and interpretations, that are not compulsory for JL in the preparation of the annual report for 2009: IFRS 3, amendments to IAS 27, further amendments to IAS 32 and 39 and IFRIC 9, amendments to IFRS 2, amendments to IFRS 1, part of "improvements to IFRSs (May 2008)", "Improvements to IFRSs (April 2009)", IFRIC 17-19, amendment to IFRIC 14, revised IAS 24 and IFRS 9. Amendments to IFRS 2, amendments to IFRS 1, Improvements to IFRS (April 2009), IFRIC 19, amendment to IFRIC 14, revised IAS 24 and IFRS 9 have not yet been endorsed by the EU. J. Lauritzen A/S expects to implement the standards and interpretations, when they become compulsory for JL. None of the new standards and interpretations is expected to have material effect going forward. 107

110 Overall group structure J. Lauritzen A/S Denmark Lauritzen Ship Owner Denmark 100% Lauritzen Kosan A/S Denmark 100% Lauritzen Bulkers A/S Denmark 100% Lauritzen Tankers A/S Denmark 100% Lauritzen Offshore Services A/S 100% LB Ship Owner A/S 100% Shoreoff Invest Bermuda 100% J. Lauritzen (USA) Inc. 100% Quantum Tankers A/S 50% Lauritzen Reefer A/S Denmark 100% LK Ship Owner A/S 100% Gasnaval S.A. Spain 100% Labas (Bahamas) Ltd. 100% Freja Sirius A/S Denmark 25% LT Ship Owner A/S 100% Unigas Kosan Ltd. Hong Kong SAR 50% Owneast Shipping Ltd. Hong Kong SAR 100% Freja Polaris A/S Denmark 25% J. Lauritzen Japan K.K. 100% East Gate Shipping Ltd Hong Kong SAR 100% Greden Ltd. Bahamas 100% Lauritzenbluec Denmark 33% J. Lauritzen Singapore Pte. Ltd. 100% Star Management Ass. Japan 30% Shipinvest A/S Denmark 100% Lauritzen Tankers Ship Owner A/S 100% Good Hope Overseas Mngmt. Panama 25% Lauritzen Kosan Shanghai Co. Ltd. 100% Zuper Logistics Private Limited, India 33,3% Lauritzen Offshore Services Singapore Pte. Ltd. 100% Lauritzen Shuttletankers Singapore Pte. Ltd. 100% Handyventure Singapore Pte. Ltd. 50% LBS Shipowner Pte. Ltd 100% Dan Swift Pte. Ltd. Singapore 100% Dan Swift Netherland B.V. 100% Dan Swift do Brasil Serviços Ltda. 100% LKT Gas Carriers Pte. Ltd. Singapore 50% Milau Pte Ltd Singapore 50% 108

111 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 Frio Grande do Norte Ltda. ** Brazil 33 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 Unigas Kosan Ltd. * China 50 Freja Sirius A/S * Denmark 25 Freja Polaris A/S * Denmark 25 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 IV * Denmark 30 K/S Danskib 30 * Denmark 10 K/S Danskib 34 * Denmark 20 K/S Danskib 63 * Denmark 14 K/S Danskib 68 * Denmark 40 K/S Danskib 69 * Denmark 40 K/S Danskib 72 * Denmark 20 K/S Danskib 73 * Denmark 33 K/S Danskib 74 * Denmark 40 K/S Danskib 77 * Denmark 20 K/S Handybulk * Denmark 34 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 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 Netherland 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 Services Singapore 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 109

112 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 additional disclosure requirements in the Danish Financial Statements Act. 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 2009 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, 16 March 2010 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 110

113 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 2009, 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 additional disclosure requirements in the Danish Financial Statements Act. 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 additional disclosure requirements in the Danish Financial Statements Act. 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 disclosure requirements in the Danish Financial Statements Act. 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 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 2009 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 2009 in accordance with International Financial Reporting Standards as adopted by the EU and additional disclosure requirements in the Danish Financial Statements Act. 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. Copenhagen, 16 March 2010 KPMG Statsautoriseret Revisionspartnerselskab Kurt Gimsing State Authorised Public Accountant Henrik Kronborg Iversen State Authorised Public Accountant 111

114 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: Million Brains A/S Mama Mia Holding A/S Royal Arctic Line A/S With Fonden Durisol UK Ingar Skaug, Vice Chairman Group Chief Executive Officer Wilh. Wilhelmsen ASA Board member of: Berg-Hansen Reisebureau AS Center for Creative Leadership DFDS A/S Miros Wallenius Wilhelmsen Logistics Wilh. Wilhemsen ASA Wilhelmsen Maritime Services Petroleum Geo-Services EUKOR Gard P & I Bery Maritime 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 Norisol A/S SKAKO Industries A/S Niels Heering Chairman of the Board, partner Gorrissen Federspiel Chairman of the Board of Directors of: Ellos A/S EQT Partners A/S Helgstrand Dressage A/S Jeudan A/S Nesdu A/S NTR Holding A/S Stæhr Holding A/S Board member of: Ole Mathiesen A/S Scandinavian Private Equity Partners A/S Roskilde Bank A/S (appointed by the National Bank of Denmark) Søren Berg* Project Manager, Lauritzen Kosan A/S Ulrik Danstrøm* Vice President, Lauritzen Bulkers A/S Peter Poul Lauritzen Bay Lean Director Carlsberg Breweries A/S Per Gommesen* Captain, Lauritzen Offshore Services * Elected by the employees 112

115 113

116 Management From left: Anders Mortensen, Birigit Aagaard- Svendsen, Torben Janholt, Jan Kastrup-Nielsen and Ejner Bonderup. 114

117 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 MANAGEMENT - BUSINESS UNITS Jan Kastrup-Nielsen President Lauritzen Kosan & Lauritzen Tankers Ejner Bonderup President Lauritzen Bulkers Anders Mortensen President Lauritzen Offshore Services Birgit Aagaard-Svendsen Executive Vice President & CFO Board member of: Danske Bank A/S Metroselskabet I/S Jan Kastrup-Nielsen Executive Vice President 115

118 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 116

119 Major operator of bulk carriers engaged in ocean transport of dry bulk cargoes world-wide. At the end of 2009, Lauritzen Bulkers controlled a combined fleet of about 80 Handysize, Handymax, Panamax and Capesize bulk carriers. The controlled fleet will increase by some 40 vessels in coming years. Leading carrier of liquefied gases, including petrochemical gasses such as ethylene, energy gases (LPG) and ammonia. At the end of 2009, Lauritzen Kosan controlled a combined fleet of about 50 semi- refrigerated/ethylene and fully pressurised gas carriers in the 3,000-10,000 cbm segment. The controlled fleet will increase by six newbuildings over the next few years. Provider of dynamically positioned (DP) support vessels for the offshore industry. Towards the end of 2009, Lauritzen Offshore Services took delivery of Dan Swift, an innovative, technologically advanced DP2 (2nd generation) Accommodation and Support vessel. The fleet also comprises the DP2 shuttle tanker Dan Eagle. The fleet will see the addition of two additional DP2 shuttle tankers in Global provider of ocean transport for oil products ranging from vegetable oils to petroleum products, fuel oils, and chemicals. At year-end 2009, Lauritzen Tankers controlled ten modern, double-hulled, medium range (MR) product tankers. The fleet will increase by nine newbuildings in the next few years. 117