J. LAURITZEN A/S ANNUAL REPORT J. Lauritzen in brief 1 Key figures for the group 2 Newbuilding programme as at 31 December

Transcription

1 Annual Report 2006

2 J. LAURITZEN A/S ANNUAL REPORT 2006 J. Lauritzen in brief 1 Key figures for the group 2 Newbuilding programme as at 31 December Report by the board of directors and executive management Highlights Outlook Result for the year 6 Corporate governance 8 Lauritzen Bulkers 9 Lauritzen Kosan 12 Lauritzen Reefers 15 Lauritzen Tankers 17 Fleet management 20 Human capital 23 Risk management 25 Accounts Accounting policies 27 Statements and notes 32 Overall group structure and company details 50 Group companies 51 Endorsements Management statement 52 The independent auditors report 53 Board of directors and executive management 54

3 J. Lauritzen in Brief J. Lauritzen A/S (JL) was founded in 1884 and is one of the oldest Danish shipping companies. JL is domiciled in Copenhagen, Denmark and has overseas offices in Singapore, Tokyo (Japan), Stamford (USA), Shanghai (China), Bilbao (Spain) and Cambridge (UK). The focus at JL is on continuous development of our various business activities world-wide with constant emphasis on customer service, innovation, safety at sea, and environmental protection. In 2006, JL reported revenues of USD a result of USD 125.6m and a 25.8% return on invested capital. At year-end 2006, JL employed a staff of 708 world-wide. JL owns and operates bulk carriers, gas carriers, reefer vessels and product tankers. At the end of 2006, JL alone or together with associates controlled a combined fleet of some 175 vessels. A total of 49 newbuildings will be added to the JL fleet over the coming years as owned and time-chartered vessels or vessels committed by partners. Lauritzen Bulkers Lauritzen Bulkers is a major operator of bulk carriers engaged in ocean transportation of dry bulk cargoes world-wide. In partnership with Island View Shipping, Lauritzen Bulkers controls some 55 Handysize bulk carriers, making it a leading player in this segment. Lauritzen Bulkers is also engaged in the Handymax, Panamax and Capesize bulk carrier segments and operates a combined fleet of about 70 vessels. Lauritzen Bulkers will take delivery of 22 newbuildings between 2007 and 2011 as owned and time-chartered vessels or vessels committed by partners, cf. p. 3. Lauritzen Kosan Lauritzen Kosan has a leading position in the transportation of petrochemical and liquefied petroleum gasses (LPG) with a combined fleet of 36 semi-refrigerated, pressurised and ethylene gas carriers in the 3,000 to 8,000 m 3 capacity segment. Together with Unigas, Lauritzen Kosan operates a combined fleet of 20 pressurised gas carriers predominantly in the Far East in the Unigas venture in Hong Kong. Lauritzen Kosan will take delivery of 12 newbuildings in the period to 2011 as owned vessels or vessels committed by partners, cf. p. 3. Lauritzen Reefers Lauritzen Reefers controls a fleet of 18 bare-boat and time-chartered specialised reefer vessels. All vessels are commercially operated by NYKLauritzenCool AB, which is jointly owned by JL and NYK Reefers Ltd. NYKLauritzenCool is a leading reefer operator employing a combined fleet of about 60 specialised reefer vessels worldwide. LauritzenCool Logistics (LCL), a subsidiary of NYKLauritzenCool, offers single entry, one-stop-shop logistics services for shippers of fruit and other perishable commodities. Lauritzen Tankers Established in early 2004, Lauritzen Tankers is engaged in ocean transportation of refined oil products with medium range product tankers. The fleet build-up continued during 2006 supported by leading cargo interests and important tonnage suppliers to a total of eight vessels. Lauritzen Tankers will take delivery of 15 newbuildings between 2007 and 2011 as owned and time-chartered vessels or vessels committed by partners, cf. p. 3. Mission, vision and values The strategic development of JL continues to be guided by our vision Together, we create a world-class shipping company. JL s vision is closely inter linked with our core values of Competence, Respect, Entrepreneurship, Accountability, Team Spirit and Enthusiasm all vital elements for our ability to create value for clients, partners and owners. Mission Together, we CREATE added value We optimise the operations of our business partners through safe, trouble-free, innovative and value-creating transportation services We create a working environment that gives job satisfaction, stimulates professional and personal development and acknowledges the values of all employees We ensure that JL is an attractive investment for its owners Vision Together, we CREATE a world-class shipping company Values Competence Respect Entrepreneurship Accountability Team spirit Enthusiasm 1

4 Key figures for the group USDm Income statement Revenue Result before depreciation (EBITDA) Profit and loss on sale of vessels (1) Operating income (EBIT) (23) Net result in associated companies Result of financial items 9 (0) (2) (7) (7) Result before tax (29) Result for the year (33) Minority shareholder s share of the result (2) (1) (0) (1) - The J. Lauritzen Group s share of the result (33) Balance sheet Non current assets including prepayments Current assets including cash and securities Total assets Share capital JL s share of equity Non current liabilities Current liabilities Cash flow statement Cash flow from operating activities Cash flow from investment activities (137) (162) (80) (52) (12) - including investments in vessels, property and equipment (369) (157) (151) (78) (67) Cash flow from financing activities (68) (103) (96) 7 (7) Changes for the year in liquid assets (125) (48) (1) Average number of employees ,011 1,041 DKK exchange rate year end Average DKK exchange rate Financial ratios Profit margin 25.7% 36.2% 37.2% 5.6% (3.2%) Solvency ratio 74% 74% 77% 46% 39% Solvency ratio (JL s share of equity) 73% 74% 76% 45% 38% Return on equity 19.3% 39.8% 58.4% 38.8% (23.0)% Return on invested capital 25.8% 60.5% 68.6% 16.4% (8.8)% Main figures and financial ratios for 2003 and earlier have not been adjusted to comply with International Financial Reporting Standards (IFRS). Key figures have been calculated as follows: Profit margin: Operating income x 100 Revenue Invested capital: Total assets less bank deposits, securities, non operational assets and non interest-bearing current liabilities Solvency ratio: Total equity, year-end x 100 Total equity and liabilities, year-end Return on Invested capital: Operating income + result in associates x 100 Average invested capital Return on equity: JL s share of the result x 100 JL s average share of equity 2

5 newbuilding programme as at 31 december 2006 Own vessels Type Size * Delivery Remarks Lauritzen Bulkers Handysize 28,700 January 2007 Amine Bulker Handysize 28,700 March 2007 Sofie Bulker Handysize 31,800 March 2008 Handysize 31,800 July 2008 Handysize 31,800 August 2008 Handysize 31,800 January 2009 Handysize 31,800 March 2010 Handysize 31,800 July 2010 Handymax 58,000 March 2011 Handysize 31,800 March 2011 Handymax 58,000 April 2011 Handymax 58,000 July 2011 Handymax 58,000 October 2011 Handysize 31,800 October 2011 Lauritzen Kosan Ethylene 8,000 April 2007 Isabella Kosan Ethylene 8,000 June 2007 Helena Kosan Ethylene 8,000 September 2007 Sold to Allocean Ethylene 8,000 November 2007 Ethylene 8,000 February 2008 Sold to Allocean Ethylene 8,000 April 2008 Ethylene 8,000 November 2008 Ethylene 8,000 January 2009 Lauritzen Tankers Product/chemical 40,000 February 2007 Sold at delivery Product/chemical 40,000 December 2007 Product/chemical 40,000 January 2008 Product/MR 53,000 December 2009 Product/MR 53,000 October 2010 Time charters (newbuildings) Type Size * Delivery Remarks Lauritzen Bulkers Panamax 76,000 September 2007 Handysize 32,000 September 2007 Handysize 32,000 February 2008 Panamax 76,000 January 2009 Lauritzen Tankers Product MR 53,000 February 2007 Freja Dania Product MR 48,000 March 2007 Belaia Product MR 53,000 March 2007 Freja Selandia Product MR 53,000 July 2007 Freja Fionia Product MR 47,000 April 2008 Product MR 47,000 November 2009 Product MR 47,000 July 2010 Product MR 47,000 January 2011 Other newbuildings In addition to newbuildings owned or time-chartered by JL, partners will deliver four Handysize bulk carrier, two semi-refrigerated as well as two ethylene carrier and three MR product tanker newbuildings to the JL fleet. *) Bulk carriers and product tankers recorded in dwt. Gas carriers recorded in m 3 3

6 Highlights 2006 The result totalled USD 125.6m in 2006 compared to USD 210.4m in This included profits of USD 43.7m from the sale of vessels, down from USD 52.7m in Results were better than expected and very satisfactory. Return on invested capital was 25.8% compared to 60.5% in 2005 and return on equity was 19.3% compared to 39.8% in Lauritzen Bulkers was the main contributor to JL s 2006 net earnings, although Lauritzen Kosan, Lauritzen Reefers and Lauritzen Tankers all made positive contributions, cf. Figure 1. Tax amounted to USD 10.8m in 2006, compared to USD 21.2m in Lauritzen Kosan sold its fleet of gas carriers below 3,000 m 3, and strengthened its focus on larger sized vessels by entering new strategic alliances on semi-refrigerated tonnage, including ethylene carriers. Lauritzen Tankers continued its fleet build up through additional newbuilding contracts and acquisition of second-hand vessels. Land-based activities relating to the reefer business, including the Euroamerica port terminal in Campana, Argentina, were disposed of in the course of 2006 and early 2007 at a small profit. JL s newbuilding programme was expanded during 2006 with additional bulk carriers, gas carriers and product tankers and at the end of the year, JL had the largest ever number of vessels on order. chartered vessels comprised 36 vessels, including 18 bulk carriers, six gas carriers, and 12 product tankers. The order book for own vessels represents a total value of approximately USD 820m. Revolving credit facilities have been established with banks to meet financial needs, if necessary. In addition to the already committed newbuilding investments JL s medium term investment capacity amounts to about USD 1bn. Based on present contracts, JL partners will contribute a further four bulk carriers, six gas carriers and three product tanker newbuildings to the JL managed fleet; this in addition to JL s own newbuilding programme. New offices were opened in Shanghai, China and Cambridge, UK in In 2006, JL alone or together with associates controlled an average fleet of 184 vessels, which was similar to 2005, cf. Figure 2. Investments in fleet expansion amounted to USD 364.8m compared to USD 155.1m in Divestments amounted to USD 121.1m compared to USD 213.3m in Total invested capital amounted to USD 626.9m at year-end 2006, up from USD 357.4m at year-end Average invested capital was USD 492.2m, cf. Figure 3. After year-end, Lauritzen Bulkers became part owner in two second-hand Handysize bulk carriers. Lauritzen Reefers sold a 378,000 ft 3 reefer vessel. This left Lauritzen Reefers fleet with only bare-boat and time-chartered tonnage. Finally, a 37,200 dwt product tanker was acquired and a 40,000 dwt product tanker newbuilding was sold. At the end of 2006, JL s combined order book of own and time- Figure 1: Result for the year, USDm Figure 2: Average no. of vessels Figure 3: Invested capital average, USDm Bulk Gas Reefer Tank Result before tax Tax a.o. Result after tax Own Part owned Chartered Shared charter Other 0 Bulk Gas Reefer Tank JL

7 Outlook 2007 At the beginning of 2007, most shipping markets are characterized by historically high or very high freight rates, which has also served to keep second-hand prices at very high levels. Newbuilding prices have increased as owners placed contracts of the order of 150m dwt during 2006, equal to 15% of the existing global merchant fleet and the highest ever recorded annual orders. Strong economic growth will support demand for shipping in 2007 but some markets may be negatively affected by the large numbers of new vessels entering the market, with few likely to be scrapped due to the strength of the markets. Bulk carriers Demand for bulk carriers is expected to remain healthy, benefiting from the current strength of the world economy and continuing growth in China. With deliveries of new vessels estimated at about 7% of the current fleet, tonnage supply growth might outpace demand growth in the last half of Although the age profile of the fleet in general indicates a strong basis for scrapping, owners present financial strength combined with expected rate levels suggest another year of modest demolition. Gas carriers Employment for small gas carriers is expected to remain healthy in 2007 as demand for petrochemical gasses is forecast to benefit from continuing global economic growth. are either fully pressurized gas tankers (in the 3,500-7,200 m 3 segment) or ethylene carriers (6,500-10,000 m 3 ). Reefer vessels Demand for reefer vessels is expected to remain healthy. Availability of modern reefer vessels is becoming ever scarcer due to the limited number of deliveries and vessels on order. The continued influx of container ships with large reefer plug capacities is increasing competition in the traditional reefer trades. Product tankers The strength of the global economy with lower oil prices than in 2006 is expected to support continued strong demand for oil in 2007, and thus maintain a healthy demand for product and oil/chemical tankers. The product tanker fleet will see yet another year of high growth possibly surpassing demand growth. JL consolidated Overall, market scenarios support yet another year of satisfactory earnings in 2007 with profits before tax in line with Changes in activity levels including sale and purchase, energy prices and world economic trends may impact forecast results. Based on the existing order book, 2007 deliveries will amount to about 9% of the current fleet. Practically all the new deliveries 5

8 Result for the year Revenues Revenues totalled USD 457.6m in 2006 compared to USD 591.7m in The USD 134.1m decrease mainly related to a strategic reduction in chartered vessels at Lauritzen Bulkers as well as declining spot rates in the bulk market. Sale of reefer vessels in 2005 and 2006 affected revenues, although this was partly off-set by an increase in Lauritzen Tankers revenues. Revenues of Lauritzen Kosan decreased due to employment of vessels in jointly controlled operations, cf. Figure 4. Other operating income amounted to USD 17.2m, up from USD 4.4m in The increase is mainly related to technical management. Costs Hire of chartered vessels amounted to USD 219.1m, down USD 37.7m from the USD 256.8m reported in The decrease was mainly due to re-delivery of chartered bulk carriers, partly off-set by a small increase in the number of chartered reefer vessels and product tankers. Operating costs of vessels totalled USD 43.1m, up from USD 34.5m in 2005 primarily due to an increased number of owned bulk carriers. Other operating costs including bunkers, port expenditures and other voyage-related costs amounted to USD 39.1m compared to USD 53.1m in The decrease is due to the reduction of chartered bulk vessels. Staff costs, office, fleet and other administration costs totalled USD 73.4m, up from USD 65.1m in 2005 mainly as a result of increased average headcount as well as higher wages. Result before depreciation (EBITDA) EBITDA amounted to USD 100.1m compared to USD 186.6m in 2005, cf. Figure 5. EBITDA for Lauritzen Bulkers fell from USD 130.8m in 2005 to USD 77.6m in 2006 primarily due to the softening of the bulk market. EBITDA for Lauritzen Kosan was USD 33.5m in line with The effect of improved market conditions was off-set by a change in the size and mix of the gas tanker fleet. EBITDA for Lauritzen Reefers was USD (0.2)m, down from USD 24.5m in 2005 mainly as a result of the sale of reefer vessels in 2005 and 2006, but also due to reduced margins on chartered vessels. EBITDA for Lauritzen Tankers amounted to USD 6.4m, slightly below the figure of USD 6.8m for EBITDA reported for EBITDA for land-based activities and unallocated items decreased from USD (8.4)m in 2005 to USD (17.1)m in 2006 due to down-sizing of land-based operations as well as increases in other costs. The increase in other costs was primarily due to USD exchange rate, internal hedging and organisational growth related to JL s newbuilding programme. Depreciation and sale of vessels Two bulk carriers, nine gas carriers and one reefer vessel were sold in 2006 generating a profit of USD 43.7m. In 2005 three bulk carriers, three gas carriers and seven reefer vessels were sold generating gains of USD 52.7m. Depreciation amounted to USD 27.2m, compared to USD 25.6m in Depreciation on vessels increased by USD 1.6m as a result of changes to the size and mix of owned vessels. Figure 4: Revenues (USDm) 1, Lauritzen Bulkers Lauritzen Reefers Other Lauritzen Kosan Lauritzen Tankers Figure 5: Selected key figures (USDm) EBITDA EBIT Result for the year 6 Figures and financial ratios for 2003 and earlier have not been adjusted to comply with International Financial Reporting Standards (IFRS).

9 Net result in associated companies totalled USD 9.7m compared to USD 17.7m in The decrease mainly related to sales of vessels owned in joint ventures partly off-set by an increase in JL s share of the profits of NYKLauritzenCool and new investments in part-owned vessels during the second half of the year. Financial items Net financial income totalled USD 9.2m, up from USD (0.1)m in 2005 due to an improved average net cash position and due to net gains on securities and currency positions. Tax and results Profits before tax were USD 136.3m, down from USD 231.6m in The income tax was USD (10.8)m compared to USD (21.2)m in The result for 2006 was USD 125.6m compared to the USD 210.4m reported in This result was better than expected, primarily due to gains from the sale of vessels and the improved bulk market in the second half of the year. Balance sheet Total assets were up by USD 105.0m on 2005 from USD 824.7m to USD 929.7m. Goodwill amounted to USD 1.7m at year-end 2006 in line with year-end This related to the acquisition of Quantum Tankers in Vessel values amounted to USD 394.4m compared to USD 268.1m in 2005, an increase mainly due to the acquisition of bulk carriers and a product tanker. All vessels are recognised at values below or equal to their utility values or broker valuations or both. Broker valuations totalled USD 638.4m. Prepayments were up USD 139.1m to 211.4m due to the bulk, gas carrier and product tanker newbuilding programme. Investments in associated companies increased to USD 48.9m, up from USD 44.8m in The increase was mainly due to net investments in vessels owned by partnerships and the Group s share of the net results reported by joint ventures. The book value of vessels owned in joint ventures amounted to USD 129.2m, whereas their broker valuation was USD 207.7m. Other non-current receivables amounted to a total of USD 40.2m, down from USD 51.8m in These were mainly due to subleases of financially leased reefer vessels. Total shareholders equity was up USD 72.3m at USD 686.1m, cf. Figure 6. Return on JL s share of equity was 19.3% compared to 39.8% in At year-end 2006, total liabilities amounted to USD 243.6m, up USD 32.7m on Mortgages on vessels and lease debt including next year s repayments fell by USD 27.3m to USD 49.9m. Debts of USD 49.1m relating to financially leased vessels were off-set by a corresponding amount related to subleases of these vessels included in other receivables. At year-end, debt attributable to JL s own fleet amounted to USD nil. Cash flow Cash and cash equivalents amounted to USD (55.7)m compared to USD 69.7m at year-end 2005, cf. Note 27. Cash flow from operations totalled USD 79.8m, down from USD 217.0m in 2005, cf. Figure 7. In 2006, cash flow from investment activities decreased to USD (137.2)m from USD (161.6)m in 2005, mainly as a result of less investments in securities partly off-set by an increase in investments in vessels. Cash flow from financing activities (loan repayments and dividends) amounted to USD (68.0)m in 2006 compared to USD (103.4)m in Figure 6: Capital structure (USDm) 1, Figure 7: Cash flow from operations (USDm) Total equity Non-current liab. Current liab Figures and financial ratios for 2003 and earlier have not been adjusted to comply with International Financial Reporting Standards (IFRS). 7

10 Corporate governance JL is fully-owned by JL-Fondet (the JL Foundation). Ownership is exercised through Vesterhavet A/S which is also fully-owned by JL-Fondet. JL is managed by a non-executive Board of Directors and JL s Executive Management. The non-executive Board is appointed by JL-Fondet. The Board of Directors has eight members, three of whom are elected by the employees according to Danish legislation. the Executive Management on the basis of a specific authorization granted by the Board of Directors. Relationship to Vesterhavet A/S and JL-Fondet Vesterhavet A/S holds the entire share capital in JL on behalf of JL-Fondet, cf. Figure 8. Figure 8: Group structure JL-Fondet Non-executive Board members serve for one year and may stand for re-election. Board members elected by the employees have four-year tenure and may also stand for re-election. At the end of 2006, average length of service on the Board of Directors was 5.4 years. Board members cannot be re-elected after their 70th birthday. DFDS 56% Vesterhavet A/S J. Lauritzen A/S 100% Other The principles of corporate governance applied by JL are by and large determined by JL s Articles of Association, the Rules of Procedure of the Board of Directors and the powers vested in Executive Management. JL complies with the generally recognized corporate governance guidelines to the greatest possible extent where relevant for a company owned by a Foundation. Board of Directors and Executive Management JL s Rules of Procedure for the Board of Directors specify that the Board and the Executive Management are jointly responsible for the management and organisation of the company. The day-to-day management of the company is carried out by the Executive Management in accordance with the Rules of Procedure laid down by the Board of Directors. The Board of Directors ensures that an annual strategic plan and a budget are prepared and approved and that monthly and quarterly reports are submitted. The Board of Directors appoints the Executive Management. Exceptional or major dispositions may only be implemented by Lauritzen Bulkers Lauritzen Kosan Lauritzen Reefers Lauritzen Tankers JL-Fondet s policy is to grant the greatest possible degree of autonomy to its subsidiaries, allowing JL s Board of Directors and the Executive Management extensive independence in strategy formulation and execution. Financial management JL s financial management comprises long-term financial projections and annual budgets followed up in quarterly and monthly reports. Internal quarterly reports include profit forecasts for the full year and semi-annual estimates for the next year. Risk management JL s policy for managing operational and financial risks is described on p Compliance management To ensure JL compliance with national and international competition regulations, memos and instructions regarding international competition law have been drawn up and made available to all employees. Memos and instructions are kept updated and are available on JL s Intranet (Sh@renet) issued by Executive Management. 8

11 Lauritzen Bulkers President Jens Ditlev Lauritzen EBITDA was USD 77.6m in 2006 compared to USD 130.8m in Earnings were influenced by a softening of freight rates in the first half of the year. However, overall results were better than expected and most satisfactory. Profits before tax were USD 93.4m compared to USD 165.9m in This included gains from the sale of vessels of USD 16.9m down from USD 23.6m in 2005 and also included result of USD 5.7m from associated companies compared to USD 9.6m in Main events During the year, six additional 32,000 dwt Handysize bulk carriers were ordered from the Hakodate Shipyard in Japan for delivery in , bringing the total number of newbuildings in the series to eight. Four 58,000 dwt Handymax bulk carriers were also ordered from Tsuneishi, Japan for delivery in 2011 from their Cebu shipyard in the Philippines. One second-hand Handymax bulk carrier was acquired and two Handymax bulk carriers were sold in Four second-hand Handysize bulk carriers were acquired as well as the remaining 50% of two part-owned Handysize bulk carriers. Three part-owned Handysize and one part-owned Handymax bulk carriers were acquired in Finally, a Handysize newbuilding for delivery in 2007 was taken on longterm time-charter. Two Capesize bulk carriers were taken on long-term timecharter, thus strengthening Lauritzen Bulkers presence in this segment. Market trends Spot market rates opened on a fairly weak note in In June, however, a broadly based recovery of the market started doubling spot market rates. Period rates took off at the same time. Towards the end of the year congestion was building up again in Australia and South America, putting further upward pressure on market rates, cf. Figure 9, p. 10. Second-hand prices increased modestly during the first half of 2006 but ended the year by having improved by about 35% on average depending on vessel size and age. New building prices for bulk carriers increased by 10-20% during the year. Key figures USDm Revenue EBITDA Depreciation (10.4) (5.1) Profit on sale of vessels Operating income Result before tax Invested capital (average) Return on invested capital 48.1% 144.6% Average no. of employees Demand for bulk carriers Global seaborne shipments of bulk cargoes increased by about 4% in 2006, slightly less than in Iron ore shipments enjoyed yet another year of strong growth, again led by China but also supported by increased imports into Europe and Japan. Shipments of coal also rose considerably whereas grain movements continued to be subdued. Movements of minor bulks benefited from strong activity in the building and construction sectors in North America and Europe, leading to a strong rise in movements of cement and steel products, for example, from the Black Sea and Asia. Prices of most dry bulk commodities are currently higher than 12 months ago with metals on a generally falling trend at the end of Price trends supported the build up of stocks, which has in turn had a positive effect on demand for bulk carriers. Tonnage supply The global bulk carrier fleet grew by an estimated 7% in 2006 to more than 365m dwt. In terms of fleet growth, the Handysize segment was static whereas the Handymax, Panamax and Capesize segments all grew by 7-9% between year-end 2005 and year-end Deliveries amounted to approximately 300 bulk carriers, equivalent to approximately 23m dwt during 2006, compared to 21m dwt in 2005, cf. Table 1. In 2006, orders amounted to 34.5m dwt, up from 27m dwt in In terms of numbers of vessels, the first half saw 168 units being 9

12 Panamax Table 1: Number of vessels delivered in 2006*) Handysize Handymax Panamax Cape Size January-June July-December Total *) Excluding bulk carriers 10-25,000 dwt. Source: Clarkson Research Services, Professional register ordered, with a further 257 units during the second half of 2006, cf. Table 2. In dwt terms and as a percentage of the existing fleet, the order book stood at approximately 22% at year-end 2006 compared with 19% at year-end Capesize and Handymax currently have the largest order books, whereas the Handysize order book accounts for 11% of the existing fleet. During 2006, scrapping of bulk carriers remained modest as total deletions were estimated at 3m dwt, or 0.9% of the global bulk fleet compared to 2m dwt in Fleet In 2006, Lauritzen Bulkers total number of ship days reached 22,799 (62.5 vessels on average) up 1.8% on the 22,386 days (61.3 vessels on average) reported in Table 2: Number of vessels ordered in 2006 *) Handysize Handymax Cape Size January-June July-December Total On order end *) Excluding bulk carriers 10-25,000 dwt. Source: Clarkson Research Services, Professional register Lauritzen Bulkers fleet of Handysize bulk carriers which is commercially managed in joint-venture with Island View Shipping (IVS) averaged 47 vessels over the year, up from 45 vessels in On average during 2006, Lauritzen Bulkers Handymax fleet comprised 8 vessels (11 vessels in 2005), the Panamax fleet comprised 4 vessels (4-5 vessels in 2005), and the Capesize fleet 2 vessels (1 vessel in 2005). At year-end 2006, Lauritzen Bulkers operated about 35 longterm time-chartered vessels, some of them with purchase options, in addition to its fleet of owned vessels. The fully owned fleet comprised 11 vessels at the end of 2006 and Lauritzen Bulkers also owns 7 vessels in partnerships. Figure 9: Charter rates for Handysize bulk carriers (USD per day) 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 6 months period 12 months period 3 years period Source: Clarkson Research Services, Shipping Intelligence Network 10

13 Fleet management for Lauritzen Bulkers fleet of owned bulk carriers is undertaken by New Century Overseas Management Inc., Manila (NCO), a subsidiary of Good Hope Overseas Management Inc. Owned vessels are registered in Singapore, Malta and Panama. The figure for off-hire of the owned fleet, including scheduled dry docking, was 3.0%. Events after year-end In January 2007, Lauritzen Bulkers acquired 35% of a 33,000 dwt second-hand Handysize bulk carrier. In February 2007, Lauritzen Bulkers acquired 30% of a 28,000 dwt second-hand bulk carrier. Prospects for 2007 Growth in the demand for bulk carriers is expected to remain healthy and to continue to benefit from the current strength of the world economy and continuing growth in China. Some weakening in demand trends may be expected if global economic growth slows during the latter part of Based on the current order books deliveries amounting to about 7% of the existing fleet are anticipated. Although the age profile of the fleet in general indicates a strong basis for scrapping, owners present financial strength combined with expected rate levels suggest another year of modest demolition in 2007, although probably above the mere 0.9% seen in Annualized net growth of the order of 5% is thus expected for the fleet. The forecast is for the supply of Handysize bulk carriers to grow very slowly, if at all, whereas the Handymax, Panamax, and Capesize segments all are expected to grow by about 6% in Freight rates and tonnage prices are expected to remain at a high level, with risk of a downward adjustment as supply may overtake demand in the second half of However, port congestion may contribute to volatility. In 2007, Lauritzen Bulkers will take delivery of two Handysize newbuildings from Japan and one part-owned second-hand Handysize vessel. One time-chartered Handysize newbuilding and one time-chartered Panamax newbuilding will also be added to the fleet during the year, as will one time-chartered second-hand Handysize and one time-chartered Handymax. Results for 2007 are again expected to be satisfactory and in line with Profits before tax are expected to be about USD 85-90m excluding possible gains from sale of assets. 11

14 Lauritzen Kosan President Jan Kastrup-Nielsen In 2006, EBITDA was USD 33.5m compared to USD 33.0m in Improved earnings due to continued strong market conditions for sea transportation of liquefied gasses were off-set by changes in fleet composition and size as well as additional operational expenses. Results were better than expected and most satisfactory. Profits before tax were USD 38.3m compared to USD 32.0m in 2005 and included USD 18.7m gains from the sale of vessels compared to USD 9.4m in Profits also included USD 0.8m results in associated companies compared to USD 6.2m in Main events 2006 marked a decisive year for Lauritzen Kosan s fleet adjustment strategy. Early in 2006, Lauritzen Kosan entered into a commercial venture with Allocean Ltd., London, owners of a diversified fleet portfolio. In this venture, Allocean have placed all their gas carriers under commercial management with Lauritzen Kosan. At the same time, Allocean purchased Gerda Kosan and placed the vessel in commercial management with Lauritzen Kosan and in technical management with Lauritzen Fleet Management. Allocean also acquired two of Lauritzen Kosan s ethylene carrier newbuildings under construction at INP Heavy Industries in Korea for delivery in At the same time as selling the two newbuildings to Allocean, Lauritzen Kosan ordered two additional 8,000 m 3 ethylene newbuildings with INP Heavy Industries for delivery in Key figures USDm Revenue EBITDA Depreciation (13.6) (12.3) Profit on sale of vessels Operating income Result before tax Invested capital (average) Return on invested capital 17.9% 20.1% Average no. of employees At the end of 2006, Lauritzen Kosan entered into another venture with LGR di Navigazione S.p.A. of Naples, which will see LGR place all their future semi-refrigerated and ethylene gas carriers in commercial management with Lauritzen Kosan. LGR has two 4,000 m 3 semi-refrigerated vessels under construction for delivery during 2008 and two 8,000 m 3 ethylene carriers at INP Heavy Industries for delivery in With these ventures and associated newbuildings, Lauritzen Kosan will own a fleet of six newbuildings and have four additional sister vessels in commercial management in the ethylene gas carrier segment from Early in 2006, Lauritzen Kosan acquired a minority shareholding in Star Management Associates, Tokyo. Star Management has for a number of years undertaken technical management for Lauritzen Kosan s fleet of fully pressurized gas carriers. 12

15 In June, the four fully pressurized vessels jointly owned with Exmar were taken over by Lauritzen Kosan. Towards the end of 2006, Lauritzen Kosan opened an office in Shanghai, China. The office will primarily be responsible for pursuing gas business in China, including marketing the new ethylene carriers to clients in South East Asia, Japan and Korea. During the second half of 2006, Lauritzen Kosan sold its 50% shareholding in Sigas Kosan as well as the eight vessels in the segment below 3,000 m 3 carrying capacity to Eitzen Gas, its partner in Sigas Kosan. The vessels were delivered to Eitzen Gas during the fourth quarter of Market trends The trend for spot market rates was downwards for most of 2006 in North Western Europe, although they stayed at comparatively high levels. In the Far East, spot market rates dropped by two thirds as high LPG prices reduced consumption and eventually also distribution of LPG during the first half of In the middle of the year spot rates started to recover, leading the spot market to end 2006 only slightly below the strong market levels of January 2006, cf. Figure 10. Period rates for fully pressurised tonnage declined slightly whereas period rates for semi-refrigerated gas carriers were fairly stable in Second-hand prices for gas carriers up to 8,000 m 3 saw rises of 5-10% depending on type and age. Demand for gas carriers Petrochemical gas prices, being influenced by feedstock costs and the demand and supply balance, fluctuated during 2006, Table 3: Number of vessels ordered in 2006* Segment in 1000 m Total 3-23 Ethylene Semi refrigerated Fully pressurized Fully refrigerated Total *) Orders may include options Source: Clarkson Research Services, Professional register creating arbitrage opportunities for long haul transportation of petrochemical gasses. From time to time this added to normal balancing trades. European petrochemical plants ran at almost full capacity during the year as demand for plastics and other chemicals rose on the back of the sharp rise in building and construction in Europe. Tonnage supply Deliveries of gas carriers in the segment 3-23,000 m 3 increased from two units in 2005 to 23 units in 2006, five of which were ethylene carriers. Only one gas carrier was scrapped in 2006 compared to five in In 2006 total net fleet growth amounted to 140,000 m 3 or some 4% after zero growth in In terms of numbers, new orders were down on 2005 as newbuilding prices went up and delivery times increased. Compared to 2005, there was a noticeable decline in contracting for ethylene and fully pressurized gas tankers in Figure 10: Spot market freight rates for 3,200 cbm gas carriers (USD per month)* 350, , , , , ,000 jan-05 apr-05 jul-05 okt-05 jan-06 apr-06 jul-06 okt-06 Far East (F/P) North Western Europe (S/R) *) Unadjusted for waiting days if any; Source: Fearnleys weekly 13

16 At year-end 2006, the total order book amounted to 1.1 million m 3 or approximately one third of the existing fleet, cf. Table 3. New owners having entered the market over the past couple of years continued to build up fleets by acquiring existing tonnage and by ordering new vessels. Fleet In 2006, Lauritzen Kosan s total number of ship days reached 18,381 for 50.4 vessels on average in line with the 18,506 days for 50.7 vessels on average reported in Lauritzen Kosan operated a fleet of 16 semi-refrigerated gas carriers (15 vessels year-end 2005) with a total capacity of about 71,500 m 3. Unigas Kosan Ltd, the 50:50 partnership with Othello Shipping, Schulte Group and Sloman Neptun operating from Hong Kong, controlled a fleet of 20 vessels (unchanged from 2005) with a total capacity of about 72,000 m 3. This partnership solely operates fully pressurized gas carriers, predominantly in the Far East. At the beginning of 2007, Lauritzen Kosan directly and via associates controlled a combined fleet of 36 gas carriers (51 vessels at year-end 2005) of which 20 vessels were fully owned, owned through associated companies or were on bareboat charter, cf. Figure 11. The fleet decline is due to the sale of eight gas carriers in the segment below 3,000 m 3 carrying capacity, cf. p. 13. The average age of the company s owned fleet was 11.0 years compared to 12.0 years at the end of In comparison, the average age of the global fleet in the 3,000-7,000 m 3 range was 14.0 years. Figure 11: Fleet by type of control Fleet management of Lauritzen Kosan s semi-refrigerated gas carriers is undertaken by Lauritzen Fleet Management in Copenhagen and by wholly-owned Gasnaval S.A, Bilbao, Spain. The pressurized vessels are managed by Star Management Associates, Tokyo. Fleet technical operations were generally satisfactory with eight scheduled dry-dockings completed during 2006 compared to 13 in Off-hire including scheduled dry-docking was 3.1% down from 5.9% in The Lauritzen Kosan fleet operates under British, Spanish, Portuguese, Singapore, Hong Kong and Panamanian flags. Lauritzen Kosan is highly aware of safety, health and environment issues and adheres to strict technical and operational standards for its fleet. Customer inspection and vetting of vessels are carried out with regular intervals and Lauritzen Kosan maintains close contact with customers in order to ensure that the fleet complies with customers standards and requirements. During 2006, Lauritzen Kosan s fleet underwent 126 customer vetting inspections. The Zero Remarks Bonus Program introduced in 2005 to heighten crew safety awareness has proved to be an effective tool and has reduced the number of vetting inspection remarks noticeably. Prospects for 2007 Employment for gas carriers is expected to remain healthy in 2007 as demand for petrochemical gasses is forecast to benefit from continuing global economic growth. Based on the existing order book deliveries will amount to about 9% of the current fleet in Practically all new deliveries are either fully pressurized gas tankers in the 3,500-7,200 m 3 range or ethylene carriers in the 6,500-10,000 m 3 segment. During 2007, Lauritzen Kosan will take delivery of four of the series of ethylene carriers on order in Korea. Lauritzen Kosan s earnings before depreciation are expected to be slightly below 2006; however increased financing costs and lower profits from the sale of vessels will reduce earnings compared to The company is forecasting satisfactory profits before tax of about USD 18m * 2006* 2007** Own Part owned T/C Other * Average during the year ** Beginning of the year 14

17 Lauritzen reefers President Torben Janholt In 2006, EBITDA for JL s combined reefer activities was USD (0.2)m down from USD 24.5m in The decline in earnings was mainly due to the sale of tonnage in 2005 and 2006 and reduced margins on time-chartered tonnage. Profits before tax were USD 13.2m compared to USD 36.0m in This included USD 8.3m gains from the sale of vessels compared to USD 19.7m in Results are considered satisfactory. JL s reefer activities During the year, JL s reefer activities comprised Lauritzen Reefers A/S (ship-owning) and the 50% shareholding in NYKLauritzenCool AB (operations). JL s revenues derive exclusively from earnings from its owned, bareboat chartered and time-chartered reefer vessels commercially operated by NYKLauritzenCool. JL s share of the net results of NYKLauritzenCool is included in the figures for the results from associated companies. Lauritzen Reefers At the end of 2006 Lauritzen Reefers controlled a fleet of 18 bareboat chartered and time-chartered reefer vessels, all commercially operated by NYKLauritzenCool AB. During the year, one medium sized reefer vessel was acquired and one was sold and the charter parties of some time-chartered vessels were extended. NYKLauritzenCool NYKLauritzenCool is one of the world s largest operators of specialized reefer vessels. The company employs around 60 specialized reefer vessels ranging from 300, ,000 ft 3 with additional capacity for reefer containers on deck, equivalent to about 20% of the under deck capacity. All vessels are employed in the Leonina system to which JL and NYK Reefers each contribute about 35% of the total fleet capacity. LauritzenCoolLogistics LauritzenCool Logistics (LCL), the reefer logistics service of NYKLauritzenCool, continued its growth during 2006 with an increase in excess of 50% of cargo volumes handled. LCL now operates from 35 offices in 21 countries world-wide serving increased demand for specialized perishable logistics services, connecting producers and retailers in a seamless operation. Key figures USDm Revenue EBITDA (0.2) 24.5 Depreciation (0.7) (6.0) Profit on sale of assets Operating income Result before tax Invested capital (average) (1.6) 52.5 Return on invested capital N/A 77.0% Average no. of employees Market trends Spot market rates did not live up to expectations during the first half of 2006 as the depressed freight levels from the 2005 off-season continued into During the second half of the year the market strengthened considerably and was sufficiently strong to take the average annual spot rate for a large reefer vessel 2-3% higher than in 2005, cf. Figure 12, p. 16. Demand for specialized reefer vessels Demand for specialized reefer vessels was fairly modest in the first half of 2006 but increased significantly during the second half of the year. At the beginning of the year, Caribbean/Central American banana production was down due to tropical storms in 2005 and harsh weather conditions. Further, a late start to the Chilean season, an initial shortage of grape volumes in South Africa and the ban on Brazilian beef in major importing countries all contributed to a weaker peak season than in After a slow summer, banana markets finally started firming up. At the same time, the South African citrus season ended more favourably than it began. On the meat exporting side, some restrictions were lifted on Brazilian and Argentinean meat and trade could be resumed while the US poultry industry saw strong demand for its products. The year ended on an impressively high note. Many factors contributed at the end of 2006: the strong Moroccan and Chilean export seasons started early, there were many fish and poultry shipments and banana production kept up and was not interrupted due to the mild hurricane season. 15

18 The spot market improvement noted during the autumn had a positive impact on contract rates for Increases fixed at 5-7% confirmed on-going demand for versatile, modern reefer vessels. Tonnage supply At year-end 2006, the global fleet of specialized reefer vessels in the segment above 250,000 ft 3 amounted to about 520 units with total capacity of approximately 225m ft 3 down by around 1% from Only two 585,000 ft 3 capacity newbuildings entered the market in Scrapping remained low as only eight units with a capacity of 3m ft 3 were deleted from the fleet. The sales and purchase market for reefer vessels in 2006 was not quite as intense as in 2005 but there was still a lot of activity as almost 40 vessels changed owners at high average prices. Events after year-end At the beginning of January 2007, a 378,000 ft 3 reefer vessel was sold with prompt delivery, leaving the Lauritzen Reefers fleet solely consisting of bare-boat and time-chartered tonnage. Outlook for 2007 The tight supply of modern reefer tonnage is expected to continue to lead to occasional periods of very high freight rates in response to spikes in demand. However, the continued influx of container vessels with large reefer plug capacities and the growing presence of container lines in traditional reefer trades is increasing competition in the market for transportation of all cargoes requiring temperature control. Production forecasts in exporting regions are positive although there is a risk that El Niño and other weather phenomena may have a negative impact on export volumes. Reefer activities are expected to generate satisfactory results although gains from tonnage sales will be considerably lower than in Profits before tax are forecast at about USD 7m in Figure 12: Spot market freight rates for reefer vessels (US cents per ft 3 per 30 days) jan-05 apr-05 jul-05 okt-05 jan-06 apr-06 jul-06 okt ,000 cbft 400,000 cbft Source: Fearnleys weekly 16

19 Lauritzen Tankers President Anders Mortensen In 2006, Lauritzen Tankers third year of operations, EBITDA was USD 6.4m compared to USD 6.8m in Profits before tax were USD 3.8m compared to USD 4.1m in Results were in line with expectations. Main events Lauritzen Tankers continued to build up its fleet of medium range (MR) product tankers during In February, Lauritzen Tankers took delivery of a 53,000 dwt MR product tanker newbuilding from Shin Kurushima Dockyard in Japan, the first of a series of six sister vessels to be delivered to Lauritzen Tankers. A 46,200 dwt 1999-built product tanker was acquired in November 2006 with prompt delivery. During the year, two 53,000 dwt newbuildings scheduled to be delivered on long-term time-charter were converted to purchase contracts and will thus be owned by Lauritzen Tankers on delivery in In 2006, Lauritzen Tankers signed long-term time-charters for three 47,000 dwt MR product tankers for delivery in Further, two 53,000 dwt MR product tankers to be delivered in 2007 were taken on time-charter securing further expansion of the fleet. Key figures USDm Revenue EBITDA Depreciation (1.8) (1.6) Profit on sale of vessels Operating income Result before tax Invested capital (average) Return on invested capital 5.4% 11.8% Average no. of employees Based on current contracts, Lauritzen Tankers fleet of owned, time-chartered and managed vessels will increase by 15 newbuildings (with five in 2007) to a total of 23 vessels by Market trends The impact from the devastating hurricanes in 2005 faded to a large extent during the first part of However, increased political turmoil in the Middle East and disruptions to production in West Africa increased crude oil prices, peaking in September at about USD 75 a barrel before falling to the mid-usd 50s in December, cf. Figure 13. Prices of refined products increased due to higher crude oil prices and continued high utilization of refineries, as illustrated in Figure 13. The rises led to a fall in demand for refined products Figure 13: Daily crude oil and gasoline prices during (USD per barrel) jan-05 maj-05 sep-05 jan-06 maj-06 okt Source: Energy Information Administration WTI spot price in USD/barrel NY Harbour gasoline price Cents/gallon (RHS) 17

20 in many markets, including the USA. Although prices of crude oil and refined products have fallen since September, they are still comparatively high. The spot market for MR product tankers opened on a very strong note in 2006 with spot rates of around USD 38,000 per day before falling to about USD 7,000 per day in late March in the Far East. Average earnings recovered to about USD 30,000 per day in July. The subsequent set-back ended with spot market rates in the Far East below USD 8,000 per day in November. In 2006, the winter seasonal upswing did not start until second half of November, cf. Figure 14. During 2006, spot market rates for MR product tankers were 13% lower on average than in 2005, whereas 12 month period rates were up by about 5%. Second-hand prices for modern tonnage settled at a fairly stable level in Demand for product tankers Global demand for oil increased by 1.0% in 2006, down from 1.6% the previous year. Falling demand was reported in all regions of the OECD. Strong growth was recorded only in China and the Middle East, which together accounted for about 15% of the global market. During 2006, demand for gasoline, gas/diesel oil and other products increased in the OECD area, whereas demand for naphtha, kerosene and heavy fuel oil declined. As requirements Table 4: Number of vessels in 2006 >25,000 dwt Deliveries Demolitions Orders January -June July - December Total Source: Clarkson Research Services Professional Register for gasoline as well as diesel oil specifications constantly increase in response to new regulatory conditions, local refineries continued to have difficulty in matching local demand. This contributed to demand for product tankers, which grew more than expected in New regulations for the seaborne transportation of edible oils had a positive impact on demand. Tonnage supply During 2006, deliveries of tanker vessels classified as product tankers or oil/chemical carriers of 25,000 dwt or more amounted to 9.6m dwt, up 9% on the previous year. The number of tankers delivered in this segment increased by 17 units to 181 product tankers/oil-chemical tankers. The pace of delivery eased slightly in the second half compared with the first, cf. Table 4. Demolition of product tankers increased to 1.5m dwt (38 vessels) compared to 0.8m dwt (23 vessels) in 2005, cf. Table 4. Published records indicate that the number of product tankers Figure 14: Weekly spot market earnings by route (USD per day) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 APG Japan 55K Caribs - USEC 30K APG Japan 30K Source: Clarkson Research Services, Shipping Intelligence Network 18

21 and oil/chemical tankers contracted more than doubled between 2005 and 2006 from 164 vessels to 368 vessels, cf. Table 4. The total order book of oil/chemical and product tankers 25,000 dwt or more amounts to almost 39m dwt or 48% of the existing fleet. Fleet In 2006, Lauritzen Tankers total number of ship days reached 2,489 (6.8 vessels on average) compared with 2,151 days (5.9 vessels on average) reported in At the end of 2006, the company controlled a fleet of eight MR product tankers employed either in the period market or on a spot basis. Technical management of Lauritzen Tankers own vessels was handled by Lauritzen Fleet Management. Events after year-end A 37,200 dwt 2004-built ice-class product tanker was acquired with delivery in January Furthermore, a 40,000 dwt product tanker newbuilding was sold and delivered to buyers in February This will boost demand for product and oil/chemical tankers, which is expected to increase by about 4-5%. If ongoing requirements and changes to fuel quality continue to make it difficult for refineries to match the local demand mix, further growth might be induced. Although located far away from their customers, export refineries remain competitive due to scale and feedstock costs and they continued to expand capacity which helped boost demand due to longer transport distances. Even after deducting (possibly) higher demolition sales, additions to the product tanker and oil/chemical fleet will lead to an even higher rate of growth in the tanker fleet than in During 2007, Lauritzen Tankers will take delivery of a 40,000 dwt vessel. Three 53,000 dwt and one 48,000 dwt long-term timechartered product tankers will also be added to the fleet. Results for 2007 are expected to be better than 2006, primarily due to the continued expansion of the fleet. Profits before tax are forecast at about USD 16m. Prospects for 2007 The health of the global economy combined with lower oil prices is expected to ensure a stronger rise in demand for oil than in 19

22 Fleet management Ship Management Quality is paramount to all JL businesses and this is also reflected in the fleet management operations performed for the JL fleet of bulk and gas carriers, reefer vessels and product tankers. JL continuously develops its ship management activities worldwide in order to create value for clients, partners and owners. Accountable and skilled staff in offices and onboard our vessels ensure the safety of people, ships, cargo and the environment. JL is determined to meet the stringent demands of the shipping industry for maritime security and the safety of seafarers, cargo and vessels, while protecting the environment and providing our clients with uniform, high quality service. Activities Ship management services are provided by Lauritzen Fleet Management (semi refrigerated gas carriers, product/chemical tankers and reefer vessels) and by Gasnaval S.A. (semi refrigerated gas carriers) as well as by New Century Overseas Management Inc. (bulk carriers) and Star Management Associates (pressurized gas carriers). In 2006, JL s ship management providers were responsible for managing an average of 46 owned or long-term operated vessels comprising 11 bulk carriers, 23 gas tankers, 2 product tankers, and 10 reefer vessels. Quality The interaction between JL s ship management providers and the officers and crew on board our vessels is a key factor to ensure high-quality operations at all levels. Recruitment and retention of seagoing staff with the right qualifications is a critical factor to ensure the high quality operations of JL s fleet. Seagoing staff are continuously trained in order to ensure that JL and customer requirements are lived up to and in order to secure a safe and professional conduct. In 2006 Lauritzen Fleet Management joined the Tanker Management Self Assessment (TMSA) programme. The programme encourages ship managers to assess their management systems against specified key performance indicators, with the aim of continuous improvement in line with best practice. Underlining our dedication to quality ship management, our aim is to reach the highest level of performance in all TMSA categories. Environment JL is committed to protecting the environment and to minimizing the environmental impact of our operations. Prevention, optimization and preparedness are keywords in our approach to environmental protection. 20

23 In 2006, JL formulated a corporate environmental policy and Lauritzen Fleet Management started implementation of an environmental management system, aiming at achieving ISO14001 certification during Energy consumption JL ships consumed a total of 201,213 tonnes of oil in 2006 to produce 1,732,437 MWh of energy. In 2006, average energy efficiency was kwh/ton-mile, which is better than previous years mainly due to larger, newer and more environmentally friendly ships entering service, cf. Figure 15. Reductions in emissions were achieved by focusing on propulsion performance, optimised engine performance and trading patterns, and by minimising ballast time. Emission figures are based on actual consumption, oil quality and engine emission factors, cf. Figures 16 and 17. Accountability 2006 saw the introduction of a common set of Key Performance Indicators (KPIs) across ship management entities, making it easier for JL to measure, document and report the full impact and results of activities. Lost Time Injury Frequency (LTIF) for 2006 was This was a satisfactory improvement on previous years. All accidents can be avoided and it is JL s goal to reach zero accidents. A total of 125 port state controls were carried out on JL ships all around the world, with an average of 1.55 deficiencies. Shipboard personnel The crews aboard JL vessels are Danish, Filipino, Spanish, Cuban or from the Baltic states. Regardless of nationality, vessel type and trading area, we have a common commitment to safety, environmental protection and the drive for continuous improvements, through continuity training and education for all employees. In future, the availability of sufficient skilled crew and staff at sea and ashore will be crucial to support JL s growth strategies and plans. We shall face these challenges by ensuring that we remain and develop our position as an attractive employer on the global scale, by adjusting employment terms to match competition and by innovative use of technology, IT and systems such as ships on-line, and especially by enhancing crew welfare. Fig. 15: Energy consumption KwH/tonmile* Fig. 16: CO 2 Emissions, g/tonmile* Fig. 17: All vessels SO 2 and NO x Emissions* All vessels *) : Lauritzen Fleet Management only. 2006: All JL ship management entities. All vessels SO2 g/tonmile NOx g/tonmile 21

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25 Human capital JL is guided by our vision Together, we create a world-class shipping company. This vision is closely interlinked with our core values of Competence, Respect, Entrepreneurship, Accountability, Team Spirit and Enthusiasm all vital elements for our ability to create value for clients, partners and owners. JL s human resources are a vital precondition for our value creation, and the personal and professional qualifications of staff are critical for the ongoing development of JL s business activities and our endeavours to achieve our vision. Globalisation, changes in the competitive environment, rising complexity and demands for business acumen, technology, finance, IT and compliance with increasing national and international regulatory requirements constantly impose new, tougher demands on our employees. Thus it is imperative for JL to attract, develop and retain staff who by virtue of their professional and personal skills can support JL s business strategies. Recruitment and retention JL is constantly aware of ever-increasing competition at sea and ashore in attracting the best suited employees. Especially at JL s head office in Copenhagen, competition for the most qualified staff has increased as a result of the surge in the Danish shipping industry and in the Danish economy as a whole. JL s overseas offices have also seen increasing demand for skilled staff with international experience. JL s shipping trainee programme plays a very important role in our HR strategy. The trainee programme serves as a knowledge base for coming generations of professional shipping staff in operations and chartering, many of whom have the potential to become part of key management. Over the past couple of years, the Danish shipping industry has improved the standards of the theoretical education for shipping trainees. As an important employer, JL also contributes to the education of trainees in such other fields as finance and procurement. As a result of increasing commercial complexity, JL is also recruiting a greater number of graduates from business schools and/or universities. During 2006, JL recruited the largest ever number of employees in the past ten years at head office in Copenhagen. In 2006, JL took the initial steps towards implementing a senior employee policy with the dual aim of retaining the know-how 23

26 J. Lauritzen A/S / Annual Report 2006 of senior employees and providing them with the possibility of phased retirement. Competency development JL regards learning and competency development as important strategic elements for the development of our activities. Continuous maintenance of skills, knowledge and competencies are thus pivotal to ensuring that JL has the human resources required in the future. All JL employees participate in continuous training and education, the purpose of which is to qualify them for future challenges. Executive training, including MBA programmes at IMD, INSEAD and Copenhagen Business School are also part of JL s Business Academy. JL uses various tools when determining the need for competency development including annual appraisals and a general Company Performance Driver (CPD) survey, which provides an overall assessment of our ability to perform not only within selected areas of business but also in terms of human relations. Maritime personnel JL s DIS registered fleet (Danish International Register of Shipping) are manned by Danish officers. Vessels registered in other registers are manned by officers primarily from other European nations and the Philippines. By working closely together with reputable crew agencies in these countries, JL gets access 24 to well qualified and well trained staff, who with their personal capabilities will secure retaining of marine engineering and operational skills in JL. Terms of employment JL offers attractive terms of employment not just by way of competitive employment packages (salary, pension, incentive schemes, health insurance and other benefits) but also by way of challenging careers at head office, overseas offices or on board our vessels. JL has a long tradition of employing staff with sea-going experience ashore, a policy that now also includes the possibility for attending executive training programmes. HR Profile At year-end 2006, total headcount was 708 employees (907 at year-end 2005), of whom 159 were working at head office in Copenhagen, 26 at overseas offices, 170 at terminals and 353 were serving with the fleet. The decrease in total headcount was primarily due to the downsizing of land-based activities in South America. Staff turnover in 2006 was 7% at head office. Average length of service was 9.3 years and average age was 43.2 years, almost the same as A good working environment and challenging tasking means that JL saw a low level of sick leave at 3.5 days per employee during 2006.