Financial documents. Preem Petroleum Annual Report

Transcription

1 44 Preem Petroleum Annual Report 2006

2 Financial documents The financial report includes the Directors report, treatment of earnings and auditors report. It also summarizes the Group operation from 2002 and onwards. Preem Petroleum Annual Report

3 Directors report PREEM PETROLEUM AB (publ) Corporate ID number Preem Petroleum AB (publ) is wholly-owned by Corral Petroleum Holdings AB (publ). MERGERS During the year, Preem Holdings AB (publ) was merged into Preem Petroleum AB (publ) through a downstream merger. The main effects of the merger were that Preem Petroleum s indebtedness increased by around SEK 841 million, and the Company recognized goodwill of SEK 439 million which was included in the Preem Holdings Group s accounts as at 31 December The overall Group structure was also changed in that Corral Investment AB (publ) was merged with the Parent Company Corral Petroleum Holdings AB (publ). This makes Corral Petroleum Holdings the direct owner of Preem Petroleum, which on 31 December is Corral Petroleum Holding s sole shareholding. THE MARKET 2006 was a very volatile year in the oil market. The trend of rising prices for both crude oil and finished products which began in 2002, continued and accelerated up until the summer, when the price of crude oil reached an all time high of over USD 78/barrel. The price increase was a result of several different incidents; the conflict between the USA and Iran, the disturbances in Nigeria, an interruption in the flow from Alaska and the risk of new hurricanes, especially in the Gulf of Mexico. When these influences turned out to be less serious than expected prices began to fall, at the same time there was stagnation in demand and very high stocks, as well as the sale by a large number of investment funds of their holdings of oil securities. At the end of the year, the price was just below USD 59/barrel. Global demand for oil products increased by 1.7 % in 2006 to around 84.7 million barrels per day, a rate of increase which was, however, lower than in recent years. Some stagnation in consumption in China, as well as the very warm weather in the fourth quarter had a dampening effect on demand. Product prices moved broadly in line with crude prices, with the exception of the fourth quarter. Refining margins fell somewhat during 2006 but were still at a high level. This was especially the case during the first half-year, when gasoline demands were high and concerns over hurricanes also led to stockpiling of both gasoline and gas oil. Margins declined sharply towards the end of the year, when the gasoline season came to an end and the warm weather during the fall led to a reduced demand for gas oil. The oil market in Sweden reflected the continued decline in heating-oil demands due to the mild weather and the change to other forms of energy. The heavy oil marked grew satisfactorily, against the background of relatively high electricity prices. The widespread price war in the gasoline market continued during 2006, and, as a result, profitability was very low throughout the business. The diesel market continued to grow strongly, with increased volumes and strengthen the marketing position for Preem. A new diesel product, ACP-diesel, which keeps engines clean and reduces fuel consumption, was launched during the year, and was well received by the market. A comprehensive change to Preem s Marketing organization was implemented during the year, under which parts of the operation were transferred to partners. This applied both to sales to smaller customers in the bulk market and to the operation of filling stations, which went from being company-operated to being dealer-operated. In parallel with this, a new store concept and station layout was introduced as part of an extensive exterior renovation program on Preem s filling stations. These comprehensive changes to the sales operation involved a relatively substantial reduction in personnel in the Marketing organization and supporting staff groups. During the year, an agreement was signed with Hoyer Svenska AB, who will gradually be taking over responsibility for Preem s transports with tanker vehicles. The changes in the Marketing and supporting staff groups will lead to a reduction in personnel, a considerable reduction in costs and improved ability to meet the demands of the future. 46 Preem Petroleum Årsredovisning 2006

4 PRODUCTION The Group s main operation consists of refining crude oil in two refineries, Preemraff Lysekil and Preemraff Gothenburg. Total production during the year amounted to 17.3 (17.4) million m 3. The sourcing of crude oil divided as follows; North Sea 48 (48) %, Russia 50 (47) %, Mid-East 2 (4) % and other (1) %. 57 (61) % of products sold were exported. In February 2006, the new investment in an Isocracker came on stream at Preemraff Lysekil. The facility converts high-sulfur vacuum gas oil into sulfur-free diesel and gasoline. The investment totaled SEK 3.1 billion, which was 10 % below the estimate, and the project was completed ahead of time. The facility was officially opened on 18 May by Prime Minister Göran Persson and Preem s owner, Mohammed Al-Amoudi. The new plant experienced some start-up related problems. The Isocracker gives the Lysekil refinery a much higher upgrading capability which makes it possible to reduce production of heating oil to a minimum and increase production of transportation fuels. Furthermore, investments in increased de-sulfurization capacity make it now possible to increase the utilization of high-sulfur crude oil up to 100 %. During the fall, there were planned production stops at the MHC (Mild Hydro Cracker) and FCC (Fluid Catalytic Cracker) in Lysekil. Production in Gothenburg during the year had an exceptionally high level of operational availability. THE ENVIRONMENT Preem Petroleum AB carries on a number of activities which are licensable and notifiable under the Environmental Code, for which the main environmental impact is through the discharge into the atmosphere of carbon dioxide, nitrogen oxide, sulfur oxides and volatile hydrocarbons, as well as the emission of water and noise. Preem s refineries in Lysekil and Gothenburg carry on licensable A activities with licenses for the refining of petroleum products under the Environmental Code. The impact on the environment is mainly through the discharge to the atmosphere of carbon dioxide, nitrogen oxide, sulfur oxides and volatile hydrocarbons. The license is subject to conditions and an associated control program, both for the operation itself and for the environment. The environmental conditions cover capacity limitation, discharges to the atmosphere and to water, noise and waste. The emission control program has been set by the County Council. The control program describes in detail the checks and reports which apply to the refineries own checks on raw materials consumption and production, discharges to the atmosphere and to water, as well as noise and waste. Preemraff Lysekil is licensed under the Environmental Code to carry on the production of fuel etc. at the refinery complex on Brofjorden, with production limited to an annual throughput of 11.4 million Mt. The license was granted through a part judgment from the Environmental Court on 30 June During 2006, the Company had 32 final conditions and ten provisional conditions, all of which were complied with. In a part judgment in 2005, Preem was instructed to submit eleven trial reports which will be used as the basis for determining the final conditions to replace the provisional conditions. Ten of the trial reports were submitted, and the final one was submitted in January During the year, the refinery commissioned a survey of the noise situation around the refinery, and this has led to an action plan to reduce the noise from the refinery. As part of a pending environmental application, the refinery commissioned the Environmental Medicine Center of the County of Västra Götaland to study the health of people living near the refinery. The report of the study stated that there had recently been an increased number of leukemia cases in some of the neighboring parishes. The report gave no clear evidence about the cause of the increased numbers so the study will continue and look in greater depth at individual level during In addition, a comprehensive measurement program will be set up in 2007 to determine the refineries emissions of hydrocarbons into the surrounding atmosphere. Preemraff Gothenburg has a license under the Environmental Code to carry on the production of fuel etc. at the refinery complex on Hisingen. Production is limited to a throughput of six million tons. The license was granted in a part judgment from the Environmental Court on 3 July 2002 and 20 December 2004, with a total of 14 final conditions. All the test reports have been submitted with the exception of two with extended test times which are to be submitted before 1 July A further part judgment was handed down on 17 November 2006, which included seven additional final conditions. The Swedish Society for Nature Conservation has appealed three of the Court s conditions, and has requested one additional condition. All the conditions currently affecting the refinery were complied with in Emission rights for carbon dioxide have been allocated to Preem s refineries for the first three-year period. The total allocated to Gothenburg is 1,758,000 tons, and to Lysekil, 4,924,000 tons, for the three-year period The emission rights are considered to be sufficient for the needs of the refineries. Preem Petroleum Årsredovisning

5 Preem s depots falls operationally under Preemraff Gothenburg, and the seven depots, as B operations, have licenses for storing and handling petroleum products in excess of 50,000 tons. The depot in Oskarshamn was sold during the year. The depot in Gävle has held a license under the Environmental Code since The depots in Karlshamn and Helsingborg were reviewed in 2006 due to the expansion of activity, and were granted new licenses under the Environmental Code. Applications for licenses under the Environmental Code have been submitted for the depots in Loudden and Skarvik. The application for Skarvik covers both the depot and the review of Preemraff Gothenburg s discharging terminal which is currently licensed under the Environmental Protection Act. The Norrköping depot has a current license under the Environmental Protection Act. The majority of Preem s filling stations and diesel facilities are notifiable C operations. Notification under the new foodstuffs regulations have been submitted for the relevant filling stations. The decontamination of ground has been carried out and completed within the depot areas in Ystad, Eskilstuna, Västerås, Holmsund and three of the petroleum rock chamber stores at Loudden. Decontamination is in progress at the storage chambers at Finnberget, the ground in Sala, and ground and ground water at Sundsvall. The decontamination and restoration will be accounted for within the framework of the funds set aside in the 2005 accounts. In addition, over 30 ground surveys have been carried out and decontamination has taken place at key counters and filling stations where required. Decontamination has been carried out and completed at five decontamination projects within Preem s depot areas. At present, decontamination projects are under way in three depot areas. In addition, over 30 ground surveys have been carried out at tank installations, and decontamination has been carried out where required. RESULTS 2006 was notable for continued very good profitability in the refinery operations, even though the result did not match the record profits of In the Marketing Division, the price war on gasoline and reduced volumes led to unsatisfactory results for the Retail operation, while the Business-to-Business operation, despite reorganization, had their best result ever. The total result was negatively affected by the merger with Preem Holdings through impairment of goodwill and interest expense, as well as non-recurring costs in connection with extensive changes in the sales organization. Consolidated net sales amounted to SEK 75,459 million (61,524). Excluding excise duty, the consolidated sales revenues were SEK 67,435 million (53,374). After deducting the cost of goods sold, gross profit totaled SEK 3,132 million (5,378). The rise in crude oil prices in 2005 led to price gains on inventories of SEK 1,649 million, while in 2006, the price level was largely unchanged over the year, with a small price loss of SEK 35 million. The weakness of the USD and EUR exchange rates resulted in exchange gains on the Company s loans in these currencies. Profit after financial items amounted to SEK 1,859 million (4,102). The return on capital employed was 21 (35) percent, and on adjusted stockholders equity, 18 (43) percent. s net sales totaled SEK 75,386 million (61 441), with a profit after financial items of SEK 1,768 million (4,083). Preem Petroleum AB made a Group contribution to Corral Petroleum Holdings AB of SEK 225 million. An application was submitted to the Swedish Companies Registration Office at the beginning of 2007, for a reduction in the statutory reserve of SEK 1,000 million with the aim of paying an equivalent dividend to the Parent Company. INVESTMENTS The Group s investments in non-current assets amounted to SEK 831 million (2,455). A large part of this related to the Isocracker project at Preemraff Lysekil, which was completed during the first quarter. During the year, the construction was completed of a new jetty and de-sulfuring plant in Lysekil to take full advantage of the increased capacity resulting from the Isocracker project. The investment amounted to SEK 300 million. 48 Preem Petroleum Årsredovisning 2006

6 FINANCING AND LIQUIDITY The Group s cash and cash equivalents of SEK 1,274 million (389) together with unutilized credit facilities of SEK 4,460 million (4,162) amounted at 31 December to a total of SEK 5,734 million (4,551). In February 2006, the Corral Group was granted bridging finance of USD 2,100 million for the purpose of refinancing the Group s external borrowing. Of this amount, USD 1,150 million was attributable to Preem Petroleum. On 4 July, the bridging finance was converted into a long-term credit facility, which is encumbered with a number of covenants. The refinancing led to a lower future interest burden, but involved initial costs in the early redemption of the outstanding bond loans (see note 7). Net indebtedness after the merger was 0.95 (0.51). For management of financial risks, see the accounting policies. PERSONNEL The average number of employees in the Group was 1,697 (1,760), of whom 1,655 (1,714) worked in the Parent Company. At the end of the year, the average number of employees was 1,599 (1,768), of whom 1,560 (1,721) worked in the Parent Company. The reduction in the number of employees was due to the operational changes implemented in Preem s marketing organization. FUTURE PROSPECTS The current balance on the global market between refinery capacity and demand for products, combined with as strong world economy, should mean that profitability will remain relatively strong in the refinery operation, even if seasonal fluctuations in oil prices and refining margins may lead to volatility in results. Profitability at the market stage is expected to improve. PROPOSED APPROPRIATION OF PROFITS Non-restricted equity in the Parent Company amounts to SEK 70,066,000. The Board of Directors proposes that this amount should be appropriated as follows (in SEK thousand): Dividend to stockholders 70,000 Carried forward 66 Total 70,066 THE BOARD S EXPLANATION Statement, including explanations, to the annual general meeting 2007 in relation to the proposed dividend to stockholders for financial 2006 The annual report submitted shows that a Group contribution of SEK 225 million has been made to the Parent Company Corral Petroleum Holdings AB, and that a dividend of SEK 70 million is to be proposed to the annual general meeting. Explanation The Company s stockholders equity has been calculated in accordance with Swedish law through the application of the Swedish Financial Accounting Standards Council s recommendation RR 30. It is further noted that the proposed dividend constitutes 11 percent of the Company s profit after tax. The Board of Directors is satisfied that full cover exists for the restricted equity of the Company and the Group after the payment of the proposed dividend. In the light of: n the annual report for 2006, n the strategic plan (especially section 4, Financial plan, and section 5, Business Environment and Preem s current position), n the financial plan for refinancing the Corral Group s structure (especially section 12, Projections ), and the business plan for 2007 (especially section 2, Financial plan ), and the revised business plan for The Board is also satisfied that the proposed dividend and the Group contribution made to the stockholders are justifiable with reference to the parameters set out in Chapter 17 3 sections 2 and 3 of the Companies Act (the nature of the operation, scope and risks, the consolidation requirements, liquidity and general position of the Company and the Group, and the Group s estimated performance during 2007). At an extraordinary general meeting held on 29 November 2006, it was resolved to submit an application to the Swedish Companies Registration Office for a reduction of SEK 1,000,000,000 in the statutory reserve from SEK 1,266,277,000 to SEK 266,277,000 for repayment to the Parent Company, Corral Petroleum Holdings AB. A decision is expected in spring Preem Petroleum Årsredovisning

7 Consolidated income statement Amounts in MSEK Net sales 75,459 61,524 Excise duties (note 3) -8,024-8,150 Sales revenue (note 1) 67,435 53,374 Cost of goods sold -64,303-47,996 Gross profit (notes 2, 4) 3,132 5,378 Selling expenses Administrative expenses Other operating income (note 5) Other operating expense - - Operating profit (note 1, 4 and 25 31) 2,282 4,568 Financial income (note 7) Financial expense (note 7) Profit after financial items 1,859 4,102 Tax on net profit for the year (note 9) ,235 Minority interest -2-2 Net profit for the year 1,291 2,865 Earnings per share (in SEK) 2,116 4, Preem Petroleum Årsredovisning 2006

8 Consolidated balance sheet Amounts in MSEK Assets Non-current assets Intangible assets Goodwill (note 10) Tangible assets Land and buildings (note 11) Plant and machinery (note 11) 7,521 5,105 Capitalized turn-around cost (note 11) Equipment, tools, fixtures and fittings (note 11) Construction in progress (note 11) 468 3,071 9,576 9,727 Financial assets Participations in associated companies (note 13) 5 5 Receivables from associated companies 0 0 Other securities held as fixed assets (note 14) 2 2 Other non-current receivables Total non-current assets 10,139 9,767 Current assets Inventories, etc. Raw materials and consumables 3,058 4,174 Finished products 3,573 4,702 6,631 8,876 Current receivables Accounts receivable 3,501 3,137 Receivables from associated companies 0 1 Receivables from Parent Company Other receivables Prepaid expenses and accrued income ,363 4,401 Short-term investments Cash and bank balances Total current assets 12,268 13,666 Total assets 22,407 23,433 Preem Petroleum Årsredovisning

9 Total equity, provisions and liabilities Amounts in MSEK Equity Capital stock Restricted reserves 4,936 3,784 Profit brought forward ,343 Net profit for the year 1,291 2,865 Total equity 5,881 4,916 Minority interest 8 8 Provisions Provisions for pensions (note 16) Provisions for deferred tax (note 18) 1,713 1,348 Other provisions (note 17) ,934 1,612 Liabilities Non-current liabilities Stockholders loan - 2,277 Bond loans (note 19) Liabilities to credit institutions (note 19 and 21) 6,006 1,769 Bank overdraft facilities (note 20) Other non-current liabilities 0 0 6,006 5,127 Current liabilities Liabilities to credit institutions (note 21) Advance payment from customers Accounts payable 3,459 4,229 Liabilities to Parent Company 213 3,353 Liabilities to associated companies 3 1 Current tax liabilities Other liabilities (note 22) 1,529 1,384 Accrued expenses and deferred income (note 23) 2,465 1,712 8,578 11,770 Total equity, provisions and liabilities 22,407 23,433 Pledged assets and contingent liabilities Pledged assets Endowment insurance 1 0 Deposits Contingent liabilities Guarantee undertakings in favour of associated companies Guarantee undertakings, other 1 2 Guarantee obligations FPG/PRI 3 3 Other contingent liabilities (note 24) Preem Petroleum Årsredovisning 2006

10 Changes in equity, group Amounts in MSEK Profit Capital Restricted brought Total stock reserves forward Equity Equity ,814 1,022 4,446 Group contribution made -3,325 Tax effect of Group contribution 931 Transfers between restricted and non-restricted equity Translation difference 1-2 Net profit for the year 2,865 Equity , ,916 Group contribution made -225 Tax effect of Group contribution 64 Transfers between restricted and non-restricted equity 1,152-1,152 Dividend -312 Merger difference 147 Translation difference 0 0 Net profit for the year 1,291 Equity , ,881 Restricted reserves Restricted reserves are made up of statutory restricted reserves and the share of equity of untaxed reserves. Profit brought forward The Group s profit brought forward consists of the Parent Company s non-restricted equity with the addition of the Group s share in subsidiaries non-restricted equity, to the extent that it can be divided without the Parent Company requiring to impair its participations in the subsidiary. From this value, a deduction has been made for the effect on equity of the eliminated intra-group profit and any difference in accounting policies. Merger In May 2006, Preem Holdings AB, Corporate ID No , formerly the Parent Company of Preem Petroleum AB, merged with Preem Petroleum AB in a downstream merger. As a result of the merger, a merger gain of MSEK 147 has been recognized in both the Parent Company and the Group Specification of the exchange rate difference for the year in equity: Exchange rate difference for the year in foreign subsidiaries 0-1 Total exchange rate difference for the period 0-1 Specification of accumulated exchange rate difference in equity: Accumulated exchange rate difference at start of year 1 2 Exchange rate difference for the year in foreign subsidiaries 0-1 Total exchange rate differences for the period 0-1 Accumulated exchange rate difference at end of year 1 1 Preem Petroleum Årsredovisning

11 Cash flow statement, group*) Amounts in MSEK Operating activities Profit after financial items 1,859 4,102 Adjustment for items that are not included in cash flow 1,241 1,245 3,100 5,347 Tax paid Cash flow from operating activities before changes in working capital 3,086 5,342 Cash flow from changes in working capital Increase (-)/Decrease (+) in inventories 1,884-4,134 Increase (-)/Decrease (+) in operating receivables Increase (+)/Decrease (-) in operating liabilities -6 2,960 Cash flow from operating activities 4,971 3,188 Investment activities Acquisition of subsidiaries Acquisition of tangible assets ,455 Sale of tangible assets Decrease/Increase in financial receivables Cash flow from investment activities -1,049-2,512 Financing activities Loans raised 6,895 1,297 Amortization of liability -6,582-1,083 Amortization of stockholders loan Cash received on the merger 72 - Dividend paid Group contribution paid -2,868-1,163 Cash flow from financing activities -3, Cash flow for the year Cash and cash equivalents at start of year Cash and cash equivalents at end of year 1, Preem Petroleum Årsredovisning 2006

12 Supplementary disclosures to the cash flow statement Interest paid and dividends received Interest received Interest paid Adjustment for items that are not included in cash flow Depreciation and impairment of non-current assets 1, Write down of inventories/reversed write down Unrealized exchange rate differences Unrealized loss (+)/gain (-) on oil swaps Expensed portion of capitalized loan expense Provisions Capital gain on sale of non-current assets ,241 1,245 Acquisition of subsidiaries **) Tangible assets Total Assets Provisions Total Provisions and Liabilities Purchase price paid Deduct: Cash and cash equivalents in the acquired operation - 0 Impact on cash and cash equivalents Cash and cash equivalents The following subcomponents are included in cash and cash equivalents Short-term investments 843 Cash and bank balances , Downstream merger ***) Goodwill 439 Other receivables 0 Prepaid expenses and accrued income 56 Cash and cash equivalents 72 Total assets 567 Stockholders loan 242 Bond loans 2,876 Accounts payable 0 Liability to Group companies 2,856 Other current liabilities 0 Accrued expenses and deferred income 76 Total liabilities 6,050 Elimination of intra-group transactions -5,630 Total liabilities net as provided after merger 420 Merger difference recognized in equity 147 *) The cash flow statement has been drawn up to take account of the merger with the Parent Company, Preem Holdings AB **) Refers to additional purchase price for the acquisition of 25% of the stock of Skandinaviska Raffinaderi AB Scanraff. ***) Refers to the downstream merger of the Parent Company, Preem Holdings AB, into Preem Petroleum AB. The values in the above table have also affected the Parent Company s cash flow statement by the same amount. Preem Petroleum Årsredovisning

13 Income statement parent company Amounts in MSEK Net sales 75,386 61,441 Excise duties (note 3) -7,977-8,099 Sales revenue 67,409 53,342 Cost of goods sold -64,295-47,994 Gross profit (note 4) 3,114 5,348 Selling expenses Administrative expenses Other operating income (note 5) Other operating expense - - Operating profit (note 4 and 25-31) 2,220 4,516 Results from participations in Group companies (note 6) 8 11 Financial income (note 7) Financial expense (note 7) Profit after financial items 1,768 4,083 Appropriations (note 8) -1, Tax on net profit for the year (note 9) Net profit for the year 76 1, Preem Petroleum Årsredovisning 2006

14 Balance sheet parent company Amounts in MSEK Assets Non-current assets Intangible assets Goodwill (note 10) Tangible assets Land and buildings (note 11) Plant and machinery (note 11) 6,993 4,512 Capitalized turn-around cost (note 11) Equipment, tools, fixtures and fittings (note 11) Construction in progress (note 11) 466 3,071 9,036 9,122 Financial assets Participations in Group companies (note 12) Receivables from Group companies (note 15) Participations in associated companies (note 13) 5 5 Receivables from associated companies 0 0 Other securities held as fixed assets (note 14) 2 2 Other non-current receivables Total non-current assets 10,128 9,702 Current assets Inventories Raw materials and consumables 3,058 4,174 Finished products 3,572 4,701 6,630 8,875 Receivables Accounts receivable 1, Receivables from Group companies 1,614 2,285 Receivables from associated companies 0 0 Other receivables Prepaid expenses and deferred income ,935 3,940 Short-term investments Cash and bank balances Total current assets 11,781 13,039 Total assets 21,909 22,741 Preem Petroleum Årsredovisning

15 Equity, provisions and liabilities Amounts in MSEK Equity Restricted equity Capital stock (610,258 shares) Statutory reserve 1,266 1,266 1,876 1,876 Non-restricted equity Loss brought forward -5-1,541 Net profit for the year 76 1, Total equity 1,947 2,187 Untaxed reserves Accumulated additional depreciation 5,065 3,465 Provisions Provisions for pensions (note 16) Provisions for deferred tax (note 18) Other provisions (note 17) Liabilities Non-current liabilities Stockholders loan - 2,277 Bond loans (note 19) Liabilities to credit institutions (note 19 and 21) 6,006 1,271 Liabilities to Group companies Bank overdraft facilities (note 20) Other non-current liabilities 0 0 6,306 4,934 Current liabilities Liabilities to credit institutions (note 21) Advance payment from customers 3 2 Accounts payable 3,453 4,225 Liabilities to Group companies 488 3,533 Liabilities to associated companies 2 1 Current tax liabilities Other liabilities (note 22) 1,510 1,335 Accrued expenses and deferred income (note 23) 2,403 1,648 8,180 11,648 Total equity, provisions and liabilities 21,909 22,741 Pledged assets and contingent liabilities Pledged assets Endowment insurance 1 0 Deposits Contingent liabilities Guarantee commitments on behalf of Group companies Guarantee commitments on behalf of associated companies Guarantee commitments, other 1 2 Guarantee commitments FPG/PRI 3 3 Liability as a partner in partnerships Other contingent liabilities (note 24) 58 Preem Petroleum Årsredovisning 2006

16 Changes in equity parent company Amounts in MSEK Non- Capital Statutory restricted Total stock reserve equity Equity Equity , ,756 Group contribution made-received -3,362 Tax effect of Group contribution 941 Merger difference 0 Net profit for the year 1,852 Equity , ,187 Group contribution made-received -212 Tax effect of Group contribution 60 Dividend -311 Merger difference 147 Net profit for the year 76 Equity , ,947 Statutory reserve The statutory reserve consists of restricted equity and is a provision under the previous Companies Act (1975:1385). At an extraordinary general meeting held on 29 November 2006, it was resolved to submit an application to the Swedish Companies Registration Office for a reduction in the Statutory reserve of MSEK 1,000 from MSEK 1,266 to MSEK 266 for repayment to the Parent Company, Corral Petroleum Holdings AB. A decision is expected in spring Non-restricted equity Non-restricted equity comprises the preceding year s non-restricted equity with the addition of net profit for the year, unconditional stockholders contribution received and Group contribution made and received. Number of shares and appropriation of profits The number of shares issued is 610,258, all of which are shares of series A. The shares are fully paid-up, and the number of shares was the same at the end of the year as it was at the beginning. The Board of Directors and the President and CEO propose a dividend of MSEK 70. Mergers In May 2006, Preem Holdings AB, Corporate ID No , formerly the Parent Company of Preem Petroleum AB, merged with Preem Petroleum AB in a downstream merger. As a result of the merger, a merger gain of MSEK 147 was recognized in both the Parent Company and the Group. In addition, six dormant companies were merged with Preem Petroleum AB during the year at a total merger gain of TSEK 56. Preem Petroleum Årsredovisning

17 Cash flow statement parent company*) Amounts in MSEK Operating activities Profit after financial items 1,768 4,083 Adjustment for items that are not included in cash flow 1,256 1,014 3,024 5,097 Tax paid -2 - Cash flow from operating activities before changes in working capital 3,022 5,097 Cash flow from changes in working capital Increase (-)/Decrease (+) in inventories 1,884-4,134 Increase (-)/Decrease (+) in operating receivables -14-1,100 Increase (+)/Decrease (-) in operating liabilities 182 2,980 Cash flow from operating activities 5,074 2,843 Investing activities Acquisition of subsidiaries 0-75 Acquisition of tangible assets ,452 Sale of tangible assets Investment in (-)/Disposal of (+) interest-bearing loans Group companies Investment in financial assets 0 0 Cash flow from investing activities -1,046-2,509 Financing activities Loans taken out 6,895 1,297 Amortization of loan -6, Amortization of stockholders loan Dividend paid Group contribution paid -2,868-1,163 Cash received on merger Cash flow from financing activities -3, Cash flow for the year Cash and cash equivalents at start of year Cash and cash equivalents at end of year 1, *) The cash flow statements were drawn up taking account of the effects of the mergers of the Parent Company, Preem Holdings, and six dormant companies during 2006, as well as the mergers with Preemraff Gothenburg and Preemraff Lysekil in Preem Petroleum Årsredovisning 2006

18 Supplementary information on the Parent Company s cash flow statement Interest paid and dividends received Dividends received 8 11 Interest received Interest paid Adjustment for items that are not included in cash flow Depreciation and impairment of non-current assets 1, Write down of inventories/reversed write down Unrealized exchange rate differences Unrealized loss (+)/gain (-) on oil swaps Expensed portion of capitalized loan expenditure Capital gain on sale of non-current assets 4 47 Provisions ,256 1,014 Cash and cash equivalents The following subcomponents are included in cash and cash equivalents Short-term investments Cash and bank balances , Notes with accounting policy and comments on notes to the financial statements Amounts in MSEK unless otherwise specified. General accounting policy The annual report has been drawn up in accordance with the Annual Accounts Act and the Swedish Financial Accounting Standards Board s recommendations RR 1 RR 29, as well as with the Board s Emerging Issues Task Force statements URA 1 3 and Registered office Corral Petroleum Holdings AB (publ) carries on the operation in the form of a stock corporation, with the registered office in Stockholm, Sweden. The address of the Head Office is Sandhamnsgatan 51, SE Stockholm, Sweden. The Company s operations The Company owns the stock of Preem Petroleum AB, which, with its two refineries Preemraff Lysekil and Preemraff Gothenburg refines crude oil into finished oil products. More than half of production is exported, mainly to the Northern European market. That part of production that is sold in Sweden, is sold partly through the Company s own market channels, and partly through other oil companies. Reporting by segment The primary basis for classifying the Group s segments is line of business. The Group s internal reporting system is based on the return on the group s products, which is why lines of business are the primary classification basis. Classification etc. Non-current assets, non-current liabilities and provisions consists essentially solely of the amounts which are expected to be recovered or paid after more than twelve months counted from the balance sheet date. Current assets and current liabilities consists essentially solely of amounts expected to be recovered or paid within twelve months of the balance sheet date. Valuation principles etc. Assets, provisions and liabilities have been valued at cost unless otherwise stated below. Intangible assets Intangible assets acquired by the Company are recognized at cost minus accumulated amortization and impairment. Expenditure for internally-generated goodwill and trade marks is recognized as an expense in the income statement as it arises. Future expenditure on an intangible asset is added to cost only if it substantially increases the future economic benefits. All other expenditure is expensed as it arises. Preem Petroleum Årsredovisning

19 Amortization according to plan is based on original cost less the residual value. Straight line amortization is applied over the useful life of the asset. The following amortization periods are applied Useful life The Group Goodwill 5-15 years 5-15 years Depreciation principles for tangible assets Depreciation according to plan is based on original cost less estimated residual value. Straight line depreciation is applied over the estimated useful life of the asset. No depreciation is applied to platinum and palladium, which are recognized under Plant and machinery, since these are used as catalysts in reformer and isomerization plants, and are not consumed. The recoverable amount exceeds the carrying amount. Buildings and rock chambers years years Land improvements 20 years 20 years Plant and machinery 3-20 years 3-20 years Capitalized turn-around cost 4 years 4 years Equipment, tools, fixtures and fittings 3-20 years 3-20 years Loan expense Loan expense is charged to profit-loss in the period to which it refers, apart from that portion which is included, apart from that portion included in the cost of asset. Capitalization of loan expense is carried out in accordance with the precautionary principle in RR 21. Capitalized interest expense in the Group amounted to MSEK 17 (95) relating mainly to balance sheet item Plant and machinery. The average interest rate used is around 6.0%. Impairment losses The carrying amount of the Group s assets is reviewed on each balance sheet date to ascertain whether there is any indication that impairment is necessary. If any such indication exists, the recoverable amount of the asset is measured as the higher of value in use and net selling price. Impairment is applied if the recoverable amount is less than the carrying amount. In calculating value in use, future cash flows are discounted at a pre-tax interest rate that reflects current market assessment of the risk-free rate of return and the risks specific to the asset. For an asset which does not, independently of other assets generate a cash flow, the recoverable amount is measured for the cash-generating unit to which the asset belongs. Receivables Receivables have been recognized at the amount which, after individual valuation, is expected to be received. Receivables and liabilities in foreign currency Receivables and liabilities in foreign currency have been translated at the closing day rate in accordance with RR 8. Exchange differences on operating receivables and operating liabilities are included in the operating profit, while differences on financial receivables and liabilities are recognized among financial items. To the extent that receivables and liabilities in foreign currency have been hedged, they are translated at forward rate. Inventories Inventories, valued in accordance with RR 2:02, are recognized at the lower of cost under the first-in, first-out method and net selling price. Inventory purchases of petroleum products in USD are recognized at the exchange rate in force on the bill of lading date. For products produced in-house, the acquisition value consists of direct production costs anda reasonable share of overheads. The net selling price of finished products is made up of the selling price less estimated selling expenses. For crude oil, replacement cost is the best available measure of net selling price. Since crude oil is held for use in production, the value of the crude oil is not impaired below cost in the event that it is, at the same time, expected that it will be possible to sell finished products at a price higher than the cost of the products. The acquisition cost of the inventories in the Group includes the equivalent of MSEK 51 (51) relating to loaned inventory volumes borrowed inventory volumes equivalent to a total inventory value of MSEK 583 (174) are not included in the inventory value. 62 Preem Petroleum Årsredovisning 2006

20 Short-term investments Short-term investments are valued at the lower of cost and fair value. Tax The Company and the Group apply RR 9 Income Taxes. Total tax consists of current tax and deferred tax. Taxes are recognized in profit or loss, except where the underlying transaction is recognized directly in equity, in which case the associated tax effect is recognized in equity. Current tax is the tax which is to be paid or received in the current year. It also includes adjustments of current tax attributable to previous periods. Deferred tax is calculated using the balance sheet method from temporary differences between the carrying amounts and taxation values of assets and liabilities. The amount is calculated on the basis of how the temporary differences are expected to be evened out, using the tax rates and tax rules adopted or announced as at the balance sheet date. Temporary differences are not taken into account in consolidated goodwill nor in differences attributable to participations in subsidiaries and associated companies that are not expected to be taxed in the foreseeable future. In corporations, untaxed reserves are recognized including deferred tax liabilities. In the consolidated financial statements, on the other hand, untaxed reserves are divided into deferred tax liability and equity. Deferred tax assets in respect of deductible temporary differences and loss carry-forwards are recognized only to the extent that it is probable that they will lead to reduced tax payments in the future. Provisions (excluding negative goodwill and deferred tax) A provision is recognized in accordance with RR 16 Provisions, contingent liabilities and contingent assets in the balance sheet when the Company has a legal or constructive obligation as a consequence of a past event, and it is probable that an outflow of resources will be required to settle the obligation, and the amount can be estimated reliably. Present value calculations are made to take account of the time effects of significant future payments. Remuneration to employees Remuneration to employees is recognized in the consolidated financial statements in accordance with RR 29, Remuneration to employees. The Swedish companies that are members of the Group mainly offer defined benefit retirement plans to employees, but there are also defined contribution retirement plans in existence. The retirement benefits have been secured through occupational pension insurance policies, entered as liabilities in the account.provisions for retirement benefits (FPG/PRI) or through payment to a pension fund (KP fund) under the provisions of the Safeguarding of Pension Commitments Act. With defined contribution plans, the Company pays stipulated contributions to a separate juridical unit, and has no obligation to pay additional contributions. The Group s results are charged with the cost as the benefits are accrued. With defined benefit retirement plans, payments are made to employees and former employees based on their salary on retirement and the number of years of service. The Group bears the risk of paying the promised pension. The defined benefit retirement plans are both funded and unfunded. Where the plans are funded, assets have been ring-fenced in pension funds. These managed assets may be used only for the payment of benefits under the retirement agreements. In the balance sheet, the net of the estimated present value of the obligations and the fair value of the managed assets is recognized either as a provision or as a non-current financial receivable. Where a surplus in a plan cannot be wholly utilized only that part of the surplus which the Company can recover through reduced future contributions or repayments is recognized. Offsetting a surplus in one plan against a deficit in another plan can be done only if the Company has a right to utilize a surplus in one plan to clear a deficit in another plan, or if the obligations are considered to be settled on a net basis. Retirement benefit costs and obligations for defined benefit retirement plans are calculated using the Projected Unit Credit Method. The method allocates the cost of retirement benefits as the employees carry out the services for the Company that increase their right to future payment. The Company s obligations are calculated by independent actuaries The obligations consist of the present value of the expected future payments. The discount rate used is equivalent to the yield on first-class corporate bonds or government bonds with a term corresponding to the average term of the obligations and the currency. The most important actuarial assumptions are listed in note 16. During the determination of the present value of the obligations and the fair value of the managed assets, actuarial gains and losses may arise. These arise either through the actual outcome differing from the assumptions previously made, or the assumptions being changed. That part of the accumulated actuarial gains and losses at the close of the previous year which exceed 10% of the greater of the present value of the obligations and the fair value of the managed assets are recognized in profit or loss over the expected average remaining period of service of the employees covered by the plan. The accounting policies described above are applied only in the consolidated financial statements. Preem Petroleum Årsredovisning

21 Revenue recognition Revenue is recognized in accordance with recommendation RR 11, Revenue. Revenue is recognized in profit and loss when it is probable that the future economic benefits will flow to the Company, and these benefits can be measured reliably. Revenue includes only the gross inflow of economic benefits that the Company receives or may receive on its own account. Revenue from the sale of goods is recognized as revenue when the Company has transferred to the purchaser the significant risks and rewards ownership of the goods, and the Company no longer exercises effective control over the goods sold. The revenue is recognized at the fair value of the consideration received or to be received less any discounting granted. The consideration is received in cash and cash equivalents and the revenue consists of the consideration. Leasing leasee Recommendation RR 6:99 is applied. Leasing is classified in the consolidated financial statements either as finance or operating leasing. A finance lease exists when all the risks and rewards incident to ownership are transferred to the leasee. If this is not the case, it is an operating lease. Assets hired under a finance lease agreement have been recognized as assets in the consolidated balance sheet. The obligation to pay future leasing charges has been recognized as non-current and current liabilities. These assets are depreciated according to plan, while leasing payments are recognized as interest and amortization of liabilities. Operating leasing means that the leasing charge is expensed over the term on the basis of utilization. Financial risk management and financial instruments The Group and the Parent Company are exposed to various types of financial risk, including price risks, credit risks, liquidity risks and cash flow risks. The management of risk is governed by common Group-wide policies laid down by the Board of Directors. A financial instrument is a contract that gives rise to a financial asset or financial liability. Risk policy and goal All activities associated with the management of the risks surrounding financial instruments are managed by the subsidiary, Preem Petroleum AB. The goal of the Company s derivative trading is to obtain protection against unpredictable price fluctuations on the priced crude oils and refined products that are included in the refining process. Preem Petroleum AB has a defined normal position in inventories, which is the volume of fixed-price oil required to maximize the contribution from the refining system in the most efficient way, without making use of derivative instruments. The price risk on this volume is the Company s business risk that the Board has accepted. Starting from this, the Board has laid down a number of risk limits that define the extent to which the volume exposure is permitted to deviate from the normal position, and the maximum risk, expressed in USD, the Company is prepared to accept on the total of these deviations in volume from the normal position. As part of this, the Company trades in derivative instruments to keep price exposure within the risk limits laid down by the Board. Within the framework of these limits, starting from the Company s assessment of the oil market at each given date, the goal is to increase the financial contribution partly by trading in derivative instruments. The Group s outstanding loans on the balance sheet date, for both long-term and short-term loans, including bank overdraft facilities, taken out with credit institutions and, in previous years, also on the bond market, amounted to MSEK 6,670 (3,754). The due date varies, depending on the economic life of the underlying asset. The loans were raised with a mix of variable and fixed interest. The Company s goal is to keep the risk profile as low as possible at a reasonable cost for the assets being financed. Preem Petroleum AB pays about MSEK 1,000 per month in product taxes and Value Added Tax, which means that there can be a high requirement for access to short-term credit. Preem Petroleum AB takes out or redeems loans in USD to minimize the risk of loss on inventories where the price is set in USD. Price risk In Preem Petroleum AB s operations, the price risks of financial instruments are linked mainly to the market risk, i.e.the risk of unforeseen price fluctuations on the oil market and currency risk, i.e. principally the risk of fluctuations in the value of the US Dollar. Currency risk can be further divided into transactions risk (income and expense in different currencies) and translation risk (translation of foreign subsidiaries). In order to minimize the risk of loss of working capital linked to changes in the value of the USD in relation to the value of the SEK, the Company raises or amortizes loans in USD. The Corral Petroleum Holdings Group s transactions exposure in working and financial capital is distributed over the following currencies, translated into SEK as at balance sheet date. Figures preceded by a minus sign are to be read as a liability exposure; 64 Preem Petroleum Årsredovisning 2006

22 2006 % 2005 % EUR USD Other Total Interest rate risk With respect to the Group s borrowings from credit institutions, interest rate risk is offset through a combination of fixedrate loans and variable-rate loans, see note 21. During 2006, an interest rate swap was entered into which means that variable rates were changed to a fixed rate with a ceiling of 5.75%. If the ceiling is reached, the loan reverts to variable rate. The contract runs from November 2006 to November Credit risk The Group is exposed to the risk of failure to pay by any of the large number of customers who buy on credit. To limit this risk, there are common Group-wide credit policies. Liquidity risk/financing risk Financing risk is the risk that the need for a substantial loan may arise in strained credit market situation. To safeguard the group s access to external finance in all circumstances, credit commitments, both short and long term, must always be available. The lender base must also be reasonably diversified to prevent dependence on individual sources of finance. Cash flow risk Commercial flows The purchase of petroleum products, and a large percentage of sales, take place in USD. This means that the Group has a long position in USD. The exposure is counterbalanced by loans taken out in USD. Forward contracts, options and swap agreements in oil products and swap agreements in currencies are valued at the closing day market price. The difference between acquisition price and closing day market price has affect operating profit and the balance sheet. carrying Fair Carrying Fair amount value amount value The value of financial instruments in the Group Assets Non-current financial assets Accounts receivable 3,501 3,501 3,137 3,137 Other current receivables Accrued income Oil swaps Currency swaps Short-term investments, cash and bank balances 1,274 1, ,455 5,455 4,487 4,487 Liabilities Stockholders loan - - 2,277 2,277 Bond loan ,132 Interest rate swap Non-current liabilities to credit institutions 1) 5,793 5,820 1,842 1,872 Current liabilities to credit institutions Accounts payable 3,459 3,459 4,229 4,229 Other current liabilities 1,744 1,744 4,738 4,738 Accrued expenses 2,465 2,465 1,712 1,712 Oil swaps ,123 14,150 16,674 16,893 1) In the table above, that part of non-current financial assets relating to expenditure in connection with taking out loans has been recognized net under the item non-current liabilities to credit institutions, and this has led to a reduction in this item of MSEK 213 (65) Preem Petroleum Årsredovisning

23 Consolidated financial statements The consolidated financial statements have been drawn up in accordance with recommendation RR 1:00. Subsidiaries Subsidiaries are companies in which the Parent Company directly or indirectly holds more than 50% of the number of votes or otherwise has a governing influence over the operational and financial control. Subsidiaries are normally accounted for in accordance with the purchase method. The purchase method means that an acquisition of a subsidiary is treated as a transaction through which the Parent Company indirectly acquires the subsidiary s assets and assumes its liabilities. From and including the acquisition date, the acquired company s income and expense, identifiable assets and liabilities and any goodwill or negative goodwill arising, are included in the consolidated financial statements. Goodwill Consolidated goodwill arises when the acquisition value on the acquisition of participations in a subsidiary exceeds the fair value of the acquired company s identifiable net assets. Goodwill is recognized at cost less accumulated amortization and any impairment. Associated companies Stockholdings in associated companies, in which the Group has a minimum of 20% and a maximum of 50% of the votes or otherwise has a significant influence over the operational and financial control, are recognized in accordance with the equity method. Elimination of transactions between Group companies Intra-Group receivables and liabilities, as well as transactions between companies in the Group, along with associated unrealized gains are eliminated in their entirety. Unrealized gains arising from transactions with associated companies are eliminated to the extent that the Group owns stock the company. Mergers Mergers are recognized in accordance with BFNAR 1999:1 Merger of wholly-owned corporations. The consolidated value method is applied, which means that the Parent Company has recognized the assets and liabilities of the merged subsidiaries at the values these had in the consolidated financial statements. Translation of foreign subsidiaries or other foreign operations Currency translation is carried out in accordance with the Swedish Financial Accounting Standards Council s recommendation RR 8 Current method is applied to the currency translation of income statements and balance sheets in autonomous foreign operations. The current method means that all assets, provisions, and liabilities are translated at the closing day rate, and all items in the income statement are translated at. Exchange differences arising are recognized directly in equity. On the disposal of an independently run foreign operation, the accumulated translation differences attributable to the operation are realized in the consolidated income statement. Group contribution and stockholders contribution The Company recognizes Group contribution and stockholders contribution in accordance with the Swedish Financial Accounting Standards Council s Emerging Issues Task Force s statement. Stockholders contributions are recognized directly in equity by the recipient and are capitalized in stocks and participations by the giver, to the extent that impairment is not required. Group contributions are recognized in accordance with their financial purpose. This means that a Group contribution made with the aim of minimizing the Group s total tax is recognized directly against profit brought forward after deducting the relevant tax effect. Events after the balance sheet date: No significant events occurred between the balance sheet date and the date on which the financial statements were authorized for issue. Emission rights Preem Petroleum s refineries, Preemraff Lysekil and Preemraff Gothenburg, have been allotted emissions rights for carbon dioxide equivalent to a total of 6,682,224 tonnes over a three-year period, The allocation and consumption has not, therefore, affected either the reported results nor the Company s position. The disposal of emission rights is recognized under the heading, net sales in the income statement at an amount corresponding to the purchase price received. 66 Preem Petroleum Årsredovisning 2006

24 Lysekil Gothenburg Number of allocated rights for the three-year period 4,923,834 1,758,390 Number of rights consumed ,169, ,721 Number of rights consumed ,710, ,923 Number of rights sold ,000 - Total number of remaining rights 1,878, ,746 During the current year, 165,000 emission rights have been sold for a total of MSEK 16 in consequence of the set-up period for the new liquefied petroleum gas plant in Lysekil being longer than originally planned. The remaining emission rights are expected in the light of current estimates to be sufficient to cover consumption for the whole period. Group information The company is a wholly-owned subsidiary of Moroncha Holdings Company Limited, which has its registered office in Cyprus. Related parties Related party relationships that involve a significant influence The Group Corral Petroleum Holdings AB exercises a significant influence over the Group. In addition to the related party relationships noted for the Group, the Parent Company has related party relationships involving a significant influence with its subsidiaries, see note 12. Related party transactions The Group With Parent Company The Group has related party transactions with its Parent Company, Corral Petroleum Holdings AB in the form of of Group contribution made. With associated companies The associated companies AB Djurgårdsberg and Göteborg s Smörjmedelsfabrik (Scanlube) AB provide storage services and manufacture lubricants which are marketed via the owning company at market prices. With subsidiaries In addition to the related party transactions noted for the Group, the Parent Company, Corral Petroleum Holdings AB has related party transactions with its subsidiaries, see note 12. With other related companies Preem Petroleum AB has an agreement with Capital Trust Management Ltd. regarding the purchase of financial services. Capital Trust Management Ltd. Is partly owned by Directors John P. Oswald and Bassam Aburdene, members of the Board of the Corral Petroleum Holdings Group. During the year, payments amounting to MSEK 102 (19) were made. Companies within the Midroc Group in Scandinavia carry out a certain amount of construction and repair work at the Group s two refineries on market terms. During the year, payments amounting to MSEK 182 (223) were made. During the year, sales of LPG took place to Société Anonyme Marocaine de l Industrie du Raffinage (Samir) at market price of a total amount of MSEK 310 (209). The company is a public majority-owned subsidiary of Corral Morocco Holdings AB, with operations in Morocco. Corral Morocco Holdings AB is wholly-owned by Corral Morocco Gas & Oil AB, which is itself wholly-owned by Moroncha Holdings Co. Limited (Cyprus). Preem Petroleum Årsredovisning

25 Notes (Amounts in MSEK unless otherwise stated) Note 1. Information on lines of business (primary segment) Lines of business The Group is involved in two lines of business; Supply & Refining Crude oil is purchased for the two refineries, Preemraff Lysekil and Preemraff Gothenburg, where it is refined into finished oil products. More than half of production is exported, mainly to the Northern European market. That portion of production which is sold in Sweden is sold partly through the Group s own market channels and partly through other oil companies. Marketing Refined oil products purchased from the Supply & Refining segment are sold through this segment. Sales take place directly to consumers via the Company s network of filling stations, and to corporate customers and consumers through direct sales. Within the Marketing segment, shop goods supplied through filling stations are also sold Internal pricing Prices are set on market terms at prices based on the official market price on the oil market. Apportionment of results, assets and liabilities The results, assets and liabilities of the segments include directly attributable items and items that can be reasonably and reliably apportioned to the segments. Non-apportioned profit/loss items consist mainly of exchange differences on trading with foreign counterparties and central Group costs. The segments investments in tangible and intangible assets include all investments apart from investments in short-term inventories and inventories of negligible value. Supply & Exchange Rate The Group 2006 Refining Marketing Difference Elim / other The Group External sales 54,251 13, ,435 Internal sales 12, ,227 0 Total sales revenue 66,407 13, ,227 67,435 Operating profit/loss per line of business 2, ,714 Exchange differences on current payments 779 Currency effect on normal inventories -926 Common Group -285 Total operating profit 2,282 Financial income and expense -423 Tax expense for the year -566 Minority participation in net profit for the year -2 Net profit for the year 1,291 Other information Assets 14,867 5, ,525 Unapportioned assets 1,882 Total assets 22,407 Liabilities 6,108 1, ,544 Unapportioned liabilities 8,982 Total liabilities 16,526 Investment per segment Depreciation/amortization per segment , Preem Petroleum Årsredovisning 2006

26 Supply & Exchange Rate The Group 2006 Refining Marketing Difference Elim / other The Group External sales 40,926 12, ,374 Internal sales 10, ,846 0 Total sales revenue 51,705 12, ,846 53,374 Operating profit per line of business 4, ,711 Exchange differences on current payments -815 Currency effect on normal inventories 857 Common Group -185 Total operating profit 4,568 Financial income and expense -466 Tax expense for the year -1,235 Minority participation in net profit for the year -2 Net profit for the year 2,865 Other information Assets 16,196 6, ,530 Unapportioned assets 903 Total assets 23,433 Liabilities 6,600 1, ,298 Unapportioned liabilities 10,219 Total liabilities 18,517 Investment per segment 2, ,559 Depreciation/amortization per segment Geographical areas Geographical areas are the secondary division criterion in the Group. The information presented regarding revenue relates to geographical areas grouped by customer location. Information regarding the segments assets and investments during the period in non-current assets are based on geographical areas grouped by asset location. In the table below, Other Nordic refers primarily to Finland and Denmark, and Other countries primarily to Germany, the UK, the Netherlands and the USA. Other Other The Group 2006 Sweden Nordic countries The Group External sales 25,962 12,640 28,833 67,435 Assets 21, ,025 Investment The Group 2005 External sales 23,388 10,441 19,545 53,374 Assets 23, ,433 Investment 2, ,559 Preem Petroleum Årsredovisning

27 Note 2. Gross profit Purchases and sales of oil products on the market are essentially USD-based. Exchange differences on sales are recognized under net sales, and exchange differences on purchases are recognized under cost of goods sold. The consolidated gross profit includes exchange differences on the purchase and sale of oil products of net MSEK 779 (-815). Note 3. Excise duties Excise duties refer to energy tax, petrol duty, carbon dioxide tax, sulfur tax and alcohol duty. Note 4. Depreciation/Amortization according to plan Amortization of goodwill has been applied at 6.67 and 20% (15 and 5 years respectively) on acquisition value. The longer period is applied to corporate acquisitions made for strategic reasons. Under the present accounting policy, all goodwill be written off in Audit inspection refers to oversight expenses and preventive maintenance in the refineries. These expenses are apportioned over the period until the next audit inspection. The Group Apportionment of depreciation/amortization Goodwill Buildings and land improvements Plant and machinery Capitalized turn-around costs Equipment, tools, fixtures and fittings Total 1, , The Group Classified according to function Cost of goods sold Selling expenses Administrative expenses Total 1, , Note 5. Other operating income The Group Heat supply Rental income Harbor income Storage certificates Income from commission Service payments Other Total Note 6. Results from participations in Group companies Dividend 8 11 Depreciation/Impairment - - Total Preem Petroleum Årsredovisning 2006

28 Note 7. Financial income and expense The Group Financial income Interest income Group companies Interest income, other Other financial income Exchange gain (+) / exchange loss (-) Total Financial expense Interest expense Group companies Interest expense, other 1) Redemption fees on early redemption of bond loans Other financial expense Exchange gain (+) / exchange loss (-) Total ) The increase in interest expense in 2006 compared with 2005 is attributable primarily to the merger with Preem Holdings AB, but is also due to the capitalization of interest expense on the construction of the isocracker in Lysekil during the construction period. For the current effective interest rate on the balance sheet date, see note 21. Note 8. Appropriations Additional depreciation for the year 1,600 1,390 1,600 1,390 Preem Petroleum Årsredovisning

29 Note 9. Tax on net profit for the year The Group Current tax expense(-)/tax income(+) Tax expense for the period Tax expense recognized on Group contribution Deferred tax expense(-)/tax income(+) Deferred tax relating to temporary differences Total recognized tax expense , Reconciliation of effective tax Profit/loss before tax 1,859 4, ,693 Tax in accordance with applicable tax rate 521 1, Amortization of goodwill Other non-deductible expenses Non-taxable income Effect of other tax rates on foreign companies Utilization of loss carry-forwards not previously capitalized Revaluation of tax liability previously estimated Other Recognized tax 566 1, Tax items recognized directly in equity Current tax on Group contribution received/made Note 10. Intangible assets The Group Goodwill Opening acquisition values 631 1, Disposals Merger 1,099-1, Closing accumulated acquisition values 1, , Opening amortization 608 1, Amortization for the year Disposals Merger Closing accumulated depreciation 1, , Carrying amount Preem Petroleum Årsredovisning 2006

30 Note 11. Tangible assets The Group Land and buildings Opening acquisition value 1,706 1,669 1, Investment for the year Sales/Disposals Completion of construction in progress Merger Closing accumulated acquisition values 1,947 1,706 1,915 1,675 Opening depreciation Sales/Disposals Depreciation for the year Merger Closing accumulated depreciation and impairment Carrying amount The Group Plant and machinery 1) Opening acquisition value 11,546 11,196 10,370 - Investment for the year Sales/Disposals Completion of construction in progress 3, , Merger ,006 Closing accumulated acquisition values 14,572 11,546 13,396 10,370 Opening depreciation 6,441 5,954 5,858 - Sales/Disposals Depreciation for the year Merger ,430 Closing accumulated depreciation 7,051 6,441 6,403 5,858 Carrying amount 7,521 5,105 6,993 4,512 1) Residual value according to plan includes MSEK 115 (115) for platinum and palladium. The Group Capitalized turn-around costs Opening acquisition values Investment for the year Sales/Disposals Merger Closing accumulated acquisition values Opening depreciation Depreciation for the year Sales/Disposals Merger Closing accumulated depreciation Carrying amount Preem Petroleum Årsredovisning

31 The Group Equipment, tools, fixtures and fittings Opening acquisition value 1,409 1,567 1,371 1,337 Investment for the year Sales/Disposals Completion of construction in progress Merger Closing accumulated acquisition values 1,361 1,409 1,324 1,371 Opening depreciation Sales/Disposals Depreciation for the year Merger Closing accumulated depreciation and impairment Carrying amount The Group Construction in progress Opening acquisition value 3,071 1,191 3, Investment for the year 810 2, Sales/disposals Completion of construction in progress -3, , Merger ,133 Closing accumulated acquisition values 467 3, ,071 The Group Tax assessment value Buildings Land Plant and machinery 4,359 3,938 3,716 3,295 5,483 5,038 4,828 4,387 The Group Lease payments in respect of operating leases Minimum lease payment Variable payments Total leasing expense Contracted future minimum lease payment Within one year Between one and five years Later than five years The Group Lease income in respect of operating leases Minimum lease payment Variable payments Total leasing expense Contracted future minimum lease income Within one year Between one and five years Later than five years Preem Petroleum Årsredovisning 2006

32 Note 12. Participations in Group companies Nominal Carrying Registered Number Stock- value in amount in Corporate ID No. office of shares holding % SEK thousand SEK thousand Swedish companies Operating Preem Finans AB Stockholm 150, , ,211 Preem Gas AB Stockholm 1, ,750 6,348 Svensk Petroleum Stockholm Förvaltning AB DSP Investment AB Stockholm 1, ,486 - Preem Technology AB Lysekil 4, Syrhåla Handelsbolag Stockholm Dormant ODAB Svensk Falun 2, Oljedistribution AB Svenska Petroleum AB Stockholm 1, Såifa Drivmedel AB Stockholm 5, ,058 Foreign companies Preem Insurance Company Ltd., Ireland Dublin 7, SEK 7,500 3,018 Preem Petroleum Wybrzeze Sp.z.o.o., Gdynia 3, PLN 3,000 0 Polen RHB ,018 Total 517, Accumulated acquisition values (TSEK) At start of year 574,276 3,719,322 Merger -48,083-3,145, , ,276 Accumulated impairment/depreciation (TSEK) At start of year -55,878-1,868,166 Merger 46,761 1,812,288-9,117-55,878 Carrying amount at close of period 517, ,398 Corporate ID No. Subsidiaries merged during the year; AB Gefle Kolimport Eurobensin AB Slangen I Norrköping AB Slangen i Sala AB Slangen i Västerås AB Indco AB Preem Petroleum Årsredovisning

33 Note 13. Participations in associated companies Nominal Carrying Registered Number Stock- value in amount in Corporate ID No. office of shares holding % SEK thousand SEK thousand Company AB Djurgårdsberg Stockholm Göteborgs Smörj Gothenburg 50, ,000 5,000 medelsfabrik (Scanlube) AB Total 5,018 Note 14. Other securities held as fixed assets Nominal Carrying Registered Number Stock- value in amount in Corporate ID No. office of shares holding % SEK thousand SEK thousand Company NGI Naturgasinvest AB Stockholm 1, SPIMFAB Stockholm SPI Miljösaneringsfond AB Släckmedelscentralen Stockholm SMC AB BasEl i Sverige AB Stockholm VindIn AB *) Stockholm Götene E.D.F. Elföreningen, 10 ek förening SSH Svensk Servicehandel 1 Bostadsrättsföreningen Ekerum 945 Bostadsrättsföreningen Solhyllan 425 Total 1,848 *) Under the provisions of a stockholders agreement, there is an investment commitment of an additional MSEK 2 in the form of a stockholders contribution. Note 15. Receivables from Group companies Opening acquisition value 28 1,992 Merger - -1,964 Closing accumulated acquisition values Preem Petroleum Årsredovisning 2006

34 Note 16. Provisions for pensions The Group Defined-benefit obligations and the value of managed assets Fully or partly-funded obligations Present value of defined-benefit obligations Fair value of managed assets Net fully or partly-funded obligations Unfunded obligations Present value of unfunded defined-benefit obligations Net obligations, total, before adjustments Adjustments; Accumulated unrecognized actuarial gains(+) and losses (-) Unrecognized expense in respect of service in previous years - - Net amount in the balance sheet (obligation+, asset -) Net amount recognized in the following items in the balance sheet; Provisions for retirement benefits The net amount is distributed over the following countries; Sweden Retirement benefit costs Defined-benefit plans Cost of retirement benefits earned during the year Cost relating to service in previous years - - Interest expense Expected return on managed assets Actuarial gains (-) and losses (+) recognized during the year 2 0 Total cost of defined-benefit plans Reconciliation of net amounts for retirement benefits in the balance sheet Net amount in the balance sheet at start of year Cost of defined-benefit plans Payment of benefits Payment of contributions from the Company Exchange difference Total Accumulated unrecognized actuarial gains or losses Accumulated unrecognized losses at start of year Actuarial loss recognized in the income statement 2 - Actuarial loss for the year on obligations Actuarial gain for the year on managed assets Accumulated losses at end of year Accumulated unrecognized losses at end of year % corridor limits Surplus Projected average remaining period of service 14 years 14 years Preem Petroleum Årsredovisning

35 Actuarial assumptions Discount rate 4.0% 4.0% Projected return on managed assets 6.5% 6.5% Future salary increases 3.0% 3.0% Staff turnover 2.0% 2.0% Inflation 2.0% 2.0% Projected remaining period of service 14 år 16 år Opening balance Payments for the year, liability reduction -9-9 Changes in value for the year, net 6 5 Merger 0 42 Closing balance Of this credit insured via FPG/PRI Note 17. Other provisions 1) The Group Opening balance Provisions for the year Reclassification from other current liabilities Amount claimed Unitized amount that has been reversed Closing balance ) Se e also note 24 Other contingent liabilities Note 18. Provisions for deferred tax The Group Deferred Deferred Deferred Deferred Tax assets tax liability Tax assets tax liability Land and buildings Machinery and equipment - -1, Other Net asset/liability -1, Land and buildings Machinery and equipment - -1, Other Net asset/liability -1, Preem Petroleum Årsredovisning 2006

36 Recognized Amount at in income Other Amount at Change in deferred tax in temporary differences start of year statement receivables close of year The Group Land and buildings Machinery and equipment -1, ,693 Other , ,713 Land and buildings Machinery and equipment Other Not 19. Non-current liabilities Other non-current interest-bearing liabilities Loans in EUR, Bond loans Loans in SEK 1) 2, Loans in USD 1) 3,771 1,232 Deduct amortization within 1 year - 6, ,213 Group companies Loans in SEK Loans in USD Deduct amortization within 1 year The Group 6,006 2,712 Amortization plan Total ,393-6,006 Group companies The Group , ,006 1) includes syndicated loans in SEK and USD which contain requirements for interest coverage ratio, net debt-equity ratio and investment limits. Preem Petroleum Årsredovisning

37 Note 20. Bank overdraft facilities etc. The Group Credit facilities granted Unutilized part Utilized credit Other unutilized facilities Short-term credit facilities 1,778 1,699 1,778 1,699 Medium-term credit facilities 2,512 2,431 2,512 2,431 Total 4,290 4,130 4,290 4,130 Total unutilized facilities 4,460 4,162 4,460 4,162 Note 21. Loan conditions, effective interest rate and due date structure Due date structure (in MSEK) Nominal value Effective Less than The Group local currency interest rate 1 year 1-5 years >5 years Non-current liabilities credit institutions - USD, fixed interest USD, variable interest , SEK, fixed interest SEK, variable interest 2, ,000 - Current liabilities credit institutions - USD, variable interest ,006 - Note 22. Other liabilities The Group Value Added Tax Excise duties Other liabilities ,529 1,384 1,510 1,335 Note 23. Accrued expenses and deferred income The Group Purchase of crude oil and products 1, , Staff Interest Other ,465 1,712 2,403 1, Preem Petroleum Årsredovisning 2006

38 Note 24. Other contingent liabilities Preem Petroleum AB guarantees the credit risk in respect of accounts receivable in the subsidiary, Preem Finans AB, amount MSEK 1,874 (2,289 MSEK). A future close-down of operations within the Corral Petroleum Holdings Group could involve claims for decontamination and restoration work. This is, however, expected to lie a long time in the future, and the future expenditure cannot be reliably measured., through its subsidiary, Preem Insurance Company Ltd., has paid an insurance premium of MSEK 148 for known and planned decontamination work. This is recognized under Other provisions in the balance sheet. Note 25. Number of employees No of Of whom No of Of whom Average number of employees employees men percent employees men percent Sweden 1, , Group companies Sweden Poland Ireland The Group total 1, , Note 26. Gender distribution in Company management Percentage of women Percentage of women The Board of Directors 0 0 Other key management personnel The Group total The Board of Directors 0 0 Other key management personnel Note 27. Salaries and social security contributions Social security Social security Salaries and contributions Salaries and contributions other remun- (of which other remun- (of which eration pension costs) eration pension costs) (89.8) * (95.4) * Group companies (1.7) ** (4.0) ** The Group total * Of the Parent Company s pension costs, MSEK 1.9 (1.0) relates to the Board and the CEO ** Of the Group s pension costs, MSEK 2.4 (1.5) MSEK relates to the Board and the CEO. (91.5) (99.4) Preem Petroleum Årsredovisning

39 Note 28. Salaries and other remuneration divided by region and between Board/CEO and employees Board Board and CEO Other and CEO Other (of which bonus) employees (of which bonus) employees (0.0) (1.4) Group companies in Sweden (0.0) (0.0) Group companies abroad Total in Group companies The Group total (0.0) (1.4) Note 29. Absence due to illness of staff in the Parent Company Total absence due to illness in relation to total regular working hours 3.9% 4.6% Percentage of absence due to illness lasting 60 days or longer 55.2% 60.0% (long-term sick leave) Absence due to illness for men in relation to total regular 6.1% 7.6% working hours for men Absence due to illness for women in relation to total regular 3.0% 3.5% working hours for women Absence due to illness for age-group 29 and younger in relation to total regular 2.6% 3.0% working hours for this group Absence due to illness for age-group in relation to total regular 4.1% 4.4% working hours for this group Absence due to illness for age-group 50 and over in relation to total regular 3.9% 5.6% working hours for this group 82 Preem Petroleum Årsredovisning 2006

40 Note 30. Information on benefits for key management personnel Key management personnel Key management personnel refers both to the highest level of management and to other senior executives. The highest level of management group includes the Chairman of the Board, other members of the Board who receive payment from the Company over and above current Directors fees and who are not employees of the Company, as well as the President and CEO. The group of other senior executives includes 7 (7) executives who are part of the Parent Company s management team, along with CEO, all of whom are employees of the Parent Company. Preparation and decision process for determining the remuneration of key management personnel The remuneration conditions for the CEO and the salary-setting principles for members of the Company s management team are prepared by a Remuneration Committee appointed by the Board of Directors, which consists of the Vice-Chairman of the Board and 3 other members of the Board. The Committee s proposals are decided by the Board. The annual salary review for the CEO and other members of the management team is carried out by the Remuneration Committee. Remuneration of key management personnel The Chairman of the Board and the members of the Board are paid fees in accordance with a resolution of the annual general meeting. No separate payment is made for committee work. The remuneration of the CEO and other key management personnel consists of basic salary, variable remuneration, other benefits and retirement benefits. The division between basic salary and variable remuneration will be in proportion to the executives responsibility and authority. For the CEO, the variable remuneration will be a maximum of 30% of basic salary. For other key management personnel, the variable remuneration will be payable up to a set maximum percentage of basic salary. The CEO and certain key management personnel have the right to take the variable remuneration in the form of a defined-contribution retirement benefit insurance policy. In these cases, the Company contributes under the agreement an additional amount equal to the variable remuneration multiplied by The Remuneration Committee determines the conditions for the variable remuneration on an annual basis. Retirement benefits and other benefits to the CEO and other key management personnel are paid as part of total remuneration. Other benefits consist largely of a company car. Basic salary/ Variable Other Pension Other Directors fees remuneration benefits cost remuneration Total Remuneration and benefits during the year Chairman of the Board Other Directors President and CEO Other key management personnel (7 people) Pensions The CEO has the right on his own initiative and an obligation on the Company s initiative to retire at the age of 60. The pension is defined-contribution. The pension premiums amount to 45% of the pensionable salary in respect of retirement and survivor s pension. The pensionable salary is the basic salary plus an average of the variable remuneration for the three latest years. For other key management personnel, the national pension plan applies, as well, where appropriate, as individual solutions. All retirement benefits are vested benefits, i.e. they are not conditional on future employment. Severance pay Between the Company and the CEO, a period of notice of 24 months and 6 months respectively applies up to the age of 60. In the event of notice from the Company s side, there will be a non-working pair notice period of a maximum of 24 months. In the event of notice from the CEO s side, the equivalent condition will apply of 6 months salary. The severance pay will be set off against other income from new employment during the period of notice. On notice being given by either party after the age of 60, no remuneration will be payable. Between the Company and other key management personnel, a period of notice of a maximum of 24 and 6 months applies respectively. In the event of notice from the Company s side, there will be a non-working pair notice period of a maximum of 24 months. In the event of notice from the key management personnel s side, no severance pay will be payable. The severance pay will be set off against other income from new employment during the period of notice. Preem Petroleum Årsredovisning

41 Note 31. Auditors fee The Group KPMG audit assignments other assignments SET audit assignments other assignments Stockholm den 21 mars 2007 Mohammed Al-Amoudi Chairman of the Board Bassam Aburdene Ghazi Habib Jan Henricsson Employee representative Karim Karaman Cristian Mattsson Lars Nelson Employee representative John P. Oswald Lennart Sundén Sven-Erik Zachrisson Carl Johan Åberg Michael G:son Löw Richard Öhman President and CEO Our auditors report was submitted on 21 March 2007 Roland Nilsson Authorized Public Accountant KPMG Bohlins AB Willard Möller Authorized Public Accountant 84 Preem Petroleum Årsredovisning 2006

42 Audit Report To the annual meeting of the shareholders of Preem Petroleum AB (publ) Corporate identity number We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and the President of Preem Petroleum AB (publ) for the year These accounts and the administration of the company and the application of the Annual Accounts Act when preparing the annual accounts and the consolidated accounts are the responsibility of the Board of Directors and the President. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain high but not absolute assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the President and significant estimates made by the Board of Directors and the President when preparing the annual accounts and the consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any Board member or the President. We also examined whether any Board member or the President has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and give a true and fair view of the company s and the group s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The statutory administration report is consistent with the other parts of the annual accounts and the consolidated accounts. We recommend to the annual meeting of shareholders that the income statements and balance sheets of the parent company and the group be adopted, that the profit of the parent company be dealt with in accordance with the proposal in the administration report and that the members of the Board of Directors and the President be discharged from liability for the financial year. Stockholm, March 21, 2007 Roland Nilsson Authorized Public Accountant KPMG Bohlins AB Willard Möller Authorized Public Accountant Preem Petroleum Årsredovisning

43 The Preem Petroleum Group s operation in brief Sales revenue, MSEK 67,435 53,374 40,192 34,789 33,323 Profit after financial items, MSEK 1,859 4,102 2, Return on capital employed, % Return on adjusted equity, % Investments in plant 1) MSEK 831 2,455 1, ,028 Self-financing rate, multiple Balance sheet total, MSEK 22,407 23,433 16,777 16,327 14,187 Capital employed, MSEK 12,743 11,251 10,302 10,766 9,156 Adjusted equity, MSEK 5,881 7,193 6,723 5,372 4,910 Equity/assets ratio, % Net debt/equity ratio Average number of employees 1,697 1,760 1,794 1,766 1,995 1) Excluding plant acquired through corporate acquisitions. Definitions Capital employed Total assets minus interest-free operating liabilities. Interest-free operating liabilities includes deferred tax in untaxed reserves. Adjusted equity Equity including stockholders loan. Return on capital employed Profit before borrowing expenses as a percentage of average capital employed. Self-financing rate Net financing from the operation for the year in accordance with the consolidated cash flow statement in relation to investments in plant. Return on adjusted equity Profit after tax as a percentage of opening adjusted equity. Equity/assets ratio Adjusted equity as a percentage of the balance sheet total. Net debt/equity ratio Interest-bearing liabilities minus cash and cash equivalents in relation to adjusted equity. 86 Preem Petroleum Årsredovisning 2006

44 Preem Petroleum Årsredovisning

45 Senior management Freddie Linder Executive Vice President, Sales and Marketing Per Olsson Executive Vice President, Refining Ingrid Bodin Executive Vice President, Supply & Trading Michael G:son Löw President and CEO Lo Hjorth Senior Vice President, Human Resources Johan Jervehed Senior Vice President, Services Per Höjgård Executive Vice President and CFO 88 Preem Petroleum Annual Report 2006

46 Board of directors Front row: Carl Johan Åberg Nacka. Born 1930 Sven-Erik Zachrisson Lidingö. Born 1950 Back row: Richard Öhman London. Born 1951 Ghazi Habib Jeddah. Born 1950 Lars Nelson Fiskebäckskil. Born 1941 John P. Oswald New York. Born 1959 Sofia Sundström Västra Frölunda. Born 1973 Employee Representantive Mohammed Al-Amoudi Jeddah. Born 1946 Chairman of the Board Michael G:son Löw Stockholm. Born 1951 President and CEO Cristian Mattsson Kungshamn. Born 1968 Employee Representantive Lennart Sundén Almunge. Born 1952 Bassam Aburdene London. Born 1948 Jan Henricsson Stockholm. Born 1963 Employee Representantive Karim Karaman London. Born 1966 not present Preem Petroleum Annual Report

47 90 Preem Petroleum Årsredovisning 2006

48 Preem Petroleum Årsredovisning