Annual Report 2010 - J. Lauritzen A/Sstatic.j-l.com/imce/2010_Annual Report_0.pdfJ. Lauritzen A/S,...

Annual Report 2010

Founded in 1884, J. Lauritzen A/S (JL) is one of Denmark’s leading shipping companies, confirming that traditions, am-bitions and know-how continue to create added value for shareholders, customers, business partners and employees.

During the last decade JL has undertaken a multi-layered strategic re-engineering and adjustment of its activities and business portfolio. In that period the company has grown its businesses considerably by multiplying the asset base while still posting strong results.

From head office in Copenhagen and overseas offices in Brazil, China, Japan, the Philippines, Singapore, Spain and USA, our vision links all JL employees together and ensures that our values of Competence, Respect, Entrepreneurship,

Accountability, Team Spirit and Enthusiasm form a vital part in our continuing aspirations to be a world-class business partner

JL owns and operates a diversified, modern fleet of bulk car-riers, gas carriers, product tankers and dynamically posi-tioned support vessels servicing the offshore industry.

With a broadly-based newbuilding portfolio scheduled to en-ter the fleet in the coming years, JL is dedicated to ensuring that expansion is achieved in a sustainable and environmen-tally responsible way.

J. Lauritzen in brief

J. Lauritzen A/S, Annual Report 2010

Contents

Management report

Group key figures 2

Highlights 2010 and outlook 2011 4

Investment programme 10

Lauritzen Bulkers 12

Lauritzen Kosan 20

Lauritzen Offshore 28

Lauritzen Tankers 34

Corporate Governance 40

Corporate Social Responsibility (CSR) 46

Organisation and People 52

Risk Management 56

Financial Review 66

Accounts

Income statement 74

Comprehensive income 75

Balance sheet 76

Equity statement 78

Cash flow statement 79

Notes 80

Overall group structure 114

List of group companies 115

Endorsements

Management statement 116

The independent auditor’s report 117

Board of directors 118

Management 120

Company details 122


1

Group key figures

Key figures have been calculated as follows:

Profit margin:Operating income x 100 Revenue

Solvency ratio: Total equity, year-end x 100 Total equity and liabilities, year-end

Return on equity:JL’s share of the result x 100JL’s average share of equity

Invested capital:Total assets less bank deposits, securities non operational assets and non interest-bearing current liabilities

Return on invested capital:

(Operating income + result in joint ventures) x 100 Average invested capital

SELECTED KEY FIGURES 2006-2010 USDm

REVENUES 2006-2010 USDm

CAPITAL STRUCTURE 2006-2010 USDm

CASH FLOW FROM OPERATIONS 2006-2010 USDm

0

50

100

150

200

250

300

350

2006 2007 2008 2009 2010

EBITDA EBIT Result for the year

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200

300

400

500

600

700

800

2006 2007 2008 2009 2010Reefer a.o. Lauritzen Tankers Lauritzen OffshoreLauritzen Kosan Lauritzen Bulkers

0

500

1,000

1,500

2,000

2,500

3,000

2006 2007 2008 2009 2010

Total equity Non-current liab. Current liab.

-50

0

50

100

150

200

250

300

350

2006 2007 2008 2009 2010

0100200300400500600700

2005 2006 2007 2008 2009

Lauritzen Bulkers Lauritzen Kosan Lauritzen Offshore

Lauritzen Tankers Reefer a.o.


2

USD million 2010 2009 2008 2007 2006

Revenue 719 483 666 657 460

Result before depreciation (EBITDA) 252 135 159 262 100

Profit and loss on sale of vessels (12) 17 146 79 44

Operating income (EBIT) 187 76 170 305 117

Net result in joint ventures 11 17 27 24 10

Result of financial items (56) (17) (38) 23 9

Result before tax 141 76 159 352 136

Result for the year 136 80 155 347 126

Minority shareholders' share of the result (5) (5) (5) (6) (2)

The J. Lauritzen Group's share of the result 131 75 149 341 124

Non current assets 2,062 1,671 1,399 1,101 714

- including vessels under construction 663 445 659 496 211

Current assets 348 518 368 303 216

- hereof cash and securities 224 218 180 195 155

Total assets 2,411 2,188 1,768 1,405 930

Share capital 61 61 61 61 61

JL's share of equity 1,239 1,126 1,043 991 680

Non current liabilities 967 886 413 43 62

Current liabilities 200 172 307 366 181

Cash flow from operating activities 164 (24) 300 191 80

Cash flow from investment activities (325) (455) (237) (307) (137)

- hereof investments in vessels, machinery and equipm. (538) (541) (714) (545) (369)

Cash flow from financing activities 142 508 290 (37) (68)

Changes for the year in liquid assets (19) 29 353 (153) (125)

Cash and cash equivalents 154 172 144 (209) (56)

Average number of employees 1,148 940 662 575 839

DKK exchange rate year end 561 519 528 508 566

Average DKK exchange rate 563 536 510 544 595

Group key figures

Profit margin 25.9% 15.7% 25.6% 46.4% 25.6%

Solvency ratio 52% 52% 59% 71% 74%

Solvency ratio (JL's share of equity) 51% 51% 59% 71% 73%

Return on equity 11.1% 6.9% 14.7% 40.9% 19.3%

Return on invested capital 10.2% 6.1% 17.1% 38.4% 25.7%


3

Highlights 2010 and outlook 2011In a year characterised by global eco-nomic uncertainty and the sustained risk of overcapacity in major shipping segments, JL’s net results totalled USD 130.7m in 2010 compared to USD 74.6 in 2009, cf. Figure 1.

Return on invested capital was 10.2% compared to 6.1% in 2009.

Results were better than expectations and satisfactory considering the global fi-nancial situation.

The business environmentGlobal industrial production bottomed out during the first quarter of 2009 and has grown since then, however with a slightly reduced rate in the second half of 2010. This taken together with strongly rising commodity prices which induced many businesses to apply a more cautious raw materials buying policy, resulted in re-duced growth in demand for seaborne trade. As most shipping markets received large volumes of new tonnage, freight markets in many segments weakened during the year. The following character-ized JL’s main markets in 2010:

• After very strong performance in the first half of 2010, freight rates for bulk carri-ers started a decline that has continued into 2011. Volatility remained very high.

• Considering the state of the world econ-omy, freight rates for smaller gas carri-ers were satisfactory with a general up-ward trend during most of the year.

• A number of new orders and the emer-gence of new suppliers were seen dur-

ing the year in the period market for shuttle tankers. The market for accom-modation saw a rising number of new employment opportunities, although the April 2010 well incident in the Gulf of Mexico put the whole market into flux for some time.

• Freight rates for product tankers held up reasonably well during the first quarter but in general 2010 proved to be an-other disappointing year.

Despite slippage and non-performance, deliveries of new tonnage to the global fleet increased in dwt terms by approxi-mately 30% in 2010 and contracting for new vessels increased by 130% com-pared to 2009. Some of the new orders might have been replacements for orders that had been cancelled or changed due to the world economic crisis. At year-end 2010, the world order book was down by 11% compared to year-end 2009. The current order book equates to about 33% of the existing world fleet for delivery within the next three years.

The increased interest in new orders meant that yards were able to increase prices slightly during 2010.

JL GroupJL continued to implement the growth and investment programme it initiated in 2004 and during the year, JL took delivery of six bulk carrier newbuildings, three product tanker newbuildings and one fully pressu-rized gas carrier newbuilding. In addition, six bulk carrier newbuildings were taken on long-term time-charter.


4

FIG 1: RESULT FOR THE YEAR USDm

-100

-50

0

50

100

150

200

Bulk Gas Offshore Tank

Result before tax Tax a.o. Result for the year

2009 2010


5

0,000

0,500

1,000

1,500

2,000

2,500

2004 2005 2006 2007 2008 2009 2010

Reefer Gas Bulk Tank Offshore

FIG 2: INVESTED CAPITAL YEAR-END USDm

0

500

1,000

1,500

2,000

2,500

2004 2005 2006 2007 2008 2009 2010

Offshore Tank Bulk Gas Reefer


6

Total vessel days increased to more than 54,300 in 2010, up 6% from about 51,000 in 2009.

Due to significant fleet renewal and ex-pansion efforts in recent years, JL owns a modern, efficient fleet of bulk carriers with an average age of 1.5 years, gas carriers 9.6 years, product tankers 2.3 years, and offshore support vessels 6 years.

At year-end 2010, JL’s asset base had in-creased by a factor of more than six since 2004, cf. Figure 2 and its asset base will further increase in 2011 with the comple-tion of the current investment programme.

During the year, JL broadened its sources of financing to also include Export Credit Agency (ECA) supported funding and cor-porate bonds.

Lauritzen Tankers joined the newly estab-lished product tankers pool led by Hafnia Management as a partner.

JL expanded its presence in Asia by strengthening its commercial and opera-tional organisations in Singapore, Shang-hai and Tokyo.

The strategic “Must-win Battle” (MwB) concept focusing on the critical chal-lenges for sustaining JL’s success con-tinued in 2010. Some of the MwBs intro-duced in 2009 were completed in 2010, others are on-going, and new MwB’s have been identified with the aim of ensuring the continuing success of JL.

JL’s business units continued a broad range of initiatives in order to enhance fuel efficiency. JL also remained actively in-volved in the Danish “Green Ship of the Future” initiative in developing strategies to reduce emissions.

As a consequence of the bonds issued by JL and the listing on Oslo Stock Exchange in 2010, JL’s accounting class changed from Class “C” to Class “D” according to the Danish Financial Statements Act, and so a three member Audit Committee was set up in June 2010.

Assets and solvencyJL’s order book of own vessels at year-end 2010 represented a total cost of USD 1,427m, down from USD 1,656m at year-end 2009, mainly due to deliveries of new-buildings during the year. A considerable proportion of the order book enjoys long-term employment contracts.

During 2010, investments in fleet expan-sion amounted to USD 535.7m compared to USD 534.0m in 2009. Divestments to-talled USD 216.1m compared to USD 91.6m in 2009. Total invested capital was USD 2,048.9m at year-end 2010, up from USD 1,813.7m at year-end 2009.

At the end of 2010, JL’s newbuilding port-folio comprised a total of 29 wholly-owned vessels, including 15 bulk carriers, five gas carriers, seven product tankers, and two dynamically positioned shuttle tank-ers for delivery in 2011-13. JL will also be taking delivery of ten long-term time-char-


7

tered newbuildings and partners will com-mit another eight newbuildings to the fleet controlled by JL for delivery in 2011-2012.

During 2010, JL controlled a combined average fleet of 149 vessels compared to 140 vessels in 2009, cf. Figure 3, of which 40 were wholly-owned vessels (32 in 2009).

At year-end 2010, JL’s solvency ratio was 52% and unchanged compared to 2009.

Outlook for 2011As of the beginning of 2011, the corpo-rate sector, apart from the banks, has in general strong balance sheets in both advanced and emerging economies. Households in most advanced econo-mies are still in a difficult position due to the weakness of the real estate sector, which has a significant negative bear-ing on the banking sector. Governments in many advanced countries have weak balance sheets. At the same time, many emerging economies are facing the risk of overheating.

This is the background for the general sentiment that economic growth will con-tinue in 2011, albeit slightly less briskly than in 2010. This implies further growth in seaborne trade in 2011, although most likely at a moderate pace.

Output of new ships is anticipated to be at approximately the same level in 2011 as in 2010, which is below scheduled orders due to slippage and non-performance. A reduction in deliveries of MR product is anticipated, whereas deliveries of dry bulk carriers and smaller gas carriers are expected to level out. Demolition is ex-

pected to increase due to a combination of rising scrap prices and trading pres-sures in most markets.

Dry bulk markets are expected to expe-rience strong volatility with average rates below those of 2010 and with an increased pressure on particularly larger vessels. MR product tanker markets are set for a weak start but improvements during the year are on the cards. Smaller gas carriers entered 2011 at acceptable rates and are anticipated to deliver fairly healthy rates. The market for offshore service units is in the process of adjusting to the shock of the Gulf of Mexico incident in April 2010. More business is expected as the outlook for oil prices continues to be quite high.

JL plans to take delivery of a total of 21 wholly-owned vessels, including five Capesize bulk carrier newbuildings, four-Handymax newbuildings, and three Handysize newbuildings. Five pressurized gas carrier newbuildings, two MR product newbuildings and two shuttle tanker new-buildings will also be added to the fleet.

In early 2011, a sizeable part of forecast revenues are secured by contracts.

Net results for 2011 are expected to be significantly down on 2010 primarily due to one-offs included in the 2010 re-sults, including settlements and the re-versal of write-downs (USD 73.8m in to-tal), changed employment pattern for the accommodation and support vessel, Dan Swift and lower earnings in the Capesize segment. The contribution from the in-creased tonnage capacity is offset by in-creased depreciations and financial costs compared to 2010.


8

100

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180

0

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80

2009 2010 2011 Budget

Own Part owned Chartered Shared charter Other

100

120

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2009 2010 2011 Budget

Own Part owned Chartered Shared charter Other

FIG 3: AVERAGE NUMBER OF VESSELS


9

Investment programme


10

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Bulk carriers 3 5 2 2 1 1 1

Gas carriers 1 1 2 1

Product tankers 1 1 1 1 1 2

Shuttle tankers 1 1

Total 5 8 4 4 2 2 1 2 1

2013Delivery schedule: 2011 2012Own vessels

Type dwt Delivery Type dwt Delivery

Lauritzen Bulkers A/S Lauritzen Bulkers A/SCapesize 180,000 01/2011 Handysize 32,000 03/2011Handymax 58,000 02/2011 Handysize* 32,500 03/2011Handysize 31,800 03/2011 Handymax 61,000 06/2011Capesize 180,000 04/2011 Handysize* 33,000 08/2011Capesize 180,000 04/2011 Handysize* 28,000 10/2011Capesize 180,000 04/2011 Handymax 58,000 12/2011Handymax 58,000 05/2011 Handysize 38,000 08/2011Handymax 58,000 06/2011 Handymax 58,000 09/2011Handysize 31,800 09/2011 Handymax 58,000 10/2011Capesize 180,000 09/2011 Handymax 58,000 11/2011Handymax 58,000 10/2011 Handymax 61,000 01/2012Handysize 37,800 12/2011 Handysize* 28,000 02/2012Handysize 37,800 01/2012 Handysize 32,000 02/2012Handysize 37,800 05/2012 Handysize 32,000 04/2012Handysize 31,800 10/2013 Handysize* 32,500 07/2012

Handysize* 32,500 09/2012Handysize* 32,500 10/2012Handysize* 32,500 01/2013

* Partners

Type cbm Delivery Type dwt Delivery

Lauritzen Kosan A/S Lauritzen Tankers A/SFully pressurized 3,678 03/2011 Product MR 50,500 03/2011Fully pressurized 3,678 05/2011 Product MR 50,500 04/2011Fully pressurized 3,678 07/2011 Product MR 50,500 02/2012Fully pressurized 3,678 09/2011 Product MR 50,500 04/2012Fully pressurized 3,678 10/2011 Product MR 50,500 02/2013

Product MR 50,500 04/2013Product MR 50,500 05/2013

Type dwt Delivery

Lauritzen Offshore ServicesShuttle tank 59,000 06/2011Shuttle tank 59,000 12/2011

Own vessels

Own vessels Time charters and via partners

Own vessels Own vessels


11

Lauritzen Bulkers In 2010, Lauritzen Bulkers’ net results amounted to USD 129.7m compared to USD 167.5m in 2009. The 2010 results in-clude reversal of write-downs on vessels, gains and losses from disposal of vessels and other assets as well as counterparty settlements totalling USD 55.0m, whereas the 2009 results included use and revers-als of provisions, reversal of write-downs on vessels and other one-off items to-talling USD 142.5m. When adjusted for these one-off items, net results for 2010 amounted to USD 74.7m, significantly higher than the similarly adjusted figure of USD 25.0m in 2009.

Results were better than expected and satisfactory in view of the volatile trading conditions during the year.

Business model Lauritzen Bulkers controls a fleet of mod-ern Handysize, Handymax, Panamax and Capesize bulk carriers with an aver-age age of 5.5 years. The fleet comprises a portfolio of wholly-owned, part-owned, and time-chartered vessels as well as vessels committed by partners. Active fleet portfolio management via sale, pur-chase and time-charter in and out of ves-sels is an important element of the busi-ness model.

The Handysize operation, which is Lau-ritzen Bulkers’ largest business activity, comprises a significant fleet of homoge-neous vessels, ensuring economies of scale, operational optimisation and exten-sive customer service. For the fifth con-

secutive year, earnings from Handysize activities outperformed the BHSI (Baltic Handysize Index).

Lauritzen Bulkers’ policy is to secure high forward coverage in the Capesize, Pan-amax and Handymax segments, with more exposure to the spot market for Handysize bulk carriers.

Main events Due to its global business profile and rep-utable market position, Lauritzen Bulkers enjoys strong customer loyalty and was successful in attracting important addi-tional customers during the year.

Relations with cargo owners were fur-ther developed and due to its operational competencies and know-how, Lauritzen Bulkers increased the amount of business based on single cargo contracts in all ge-ographical areas, in particular in the Far East.

The commercial, operational and tech-nical organisations were strengthened in Copenhagen, Singapore, Tokyo and Shanghai thus enhancing the global busi-ness platform to support the growth strat-egy.

The fleet expansion and renewal strategy continued resulting in a modern, fuel-effi-cient, versatile fleet. During the year Lau-ritzen Bulkers’ core fleet increased by 14 vessels, including seven Handysize bulk carriers, of which six were newbuild-ings and one a second-hand vessel. Five


12

FIG 4: AVERAGE EARNINGS 2008-10 USD ‘000/DAY

Source: Clarkson Research Services

0

50

100

150

200

250

Jan- 2008 Jul- 2008 Jan- 2009 Jul- 2009 Jan- 2010 Jul- 2010

BSI - average of 5 Supramax routes (TCE)

BHSI - average of 6 Handysize routes (TCE)

BPI - average of 4 Panamax routes (TCE)

BCI -average of 4 Capesize routes (TCE)BCI average of 4 Capesize routes (TCE)

KEY FIGURES USDm

2010 2009

Revenue 404.1 270.7EBITDA 155.5 117.4Depreciation and write-downs (1.4) 18.4Profit on sale of vessels etc. (20.4) 17.0Operating income 133.8 152.8Result in joint ventures 9.3 19.6Finance net (14.6) (4.4)Result before tax 128.4 168.0JL's share of the result 129.7 167.5

Invested capital (average) 919.1 598.0Return on invested capital 15.6% 28.8%Average no. of employees 340 184


13

FIG 5: STRUCTURE OF DEMAND BY COMMODITY IN 2009 & 2010


31%

3%

8%

5%5% 2%

27%

11%2%1%2%3%

Iron ore Coal Grains Bauxite/alumina

Phosphate rock Fertilizers Scrap Cement

Steel products Agribulks Forest products Other

29%

3%

8%

5%5% 3%

28%

10%

2%1%3%3%

3%




29%

3%

8%

5%5% 3%

28%

10%

2%1%3%3%

3%





14

Handymax newbuildings and one Cape-size newbuilding were taken on long-term time-charter together with a second-hand Handysize vessel.

Pool partners contributed two additional Handysize newbuildings and three sec-ond-hand Handysize bulk carriers to the controlled fleet.

A Capesize bulk carrier was sold and a Handysize bulk carrier was sold with lease-back. Three long-term time-char-tered bulk carriers were redelivered as planned.

Two 32,500 dwt Handysize bulk carriers were ordered together with Dansk Rederi A/S at Jiangmen Nanyang Ship Engineer-ing in China for delivery in 2012.

Lauritzen Bulkers further strengthened its monitoring systems of counterparty risks. Results for 2010 included settlements from customers unable to meet their con-tractual obligations.

Lauritzen Bulkers was the runner-up in the category “Bulk Ship Operator of the Year” at the International Bulk Journal IBJ Awards 2010.

Global market developmentsIn terms of freight levels, 2010 turned out to be stronger than expected, although with more strength during the first half of the year and high volatility throughout the entire period, cf. Figure 4.

The Baltic Dry Index (BDI) fluctuated be-tween 1,700 and 4,209 with an average of 2,758 for the year. Volatility was highest for Capesize bulk carriers with spot mar-ket rates ranging from a high above USD 60,000 per day to a low of USD 12,000 per day.

Demand for bulk carriersOverall, international seaborne trade with dry bulks is estimated to have increased by some 10% to 3,300m tonnes in 2010, according to Clarkson Research Services.

Seaborne trade with minor bulks, includ-ing bauxite/alumina and phosphate rock, is estimated to have increased by some 10% to almost 1,050m tonnes in 2010, which mainly supported the Handysize and Handymax segments.

Asia did not have the same impact on de-mand in 2010 as in 2009. In particular, China’s imports of iron ore were actually on par with the level in 2009 and coal im-ports evened out from the second quar-ter onwards, whereas Europe’s imports of iron ore shot up, although not sufficiently to maintain the relative importance of iron ore in the overall commodity picture, cf. Figure 5.

The contribution to overall growth from longer distances was minimal, whereas falling productivity of the fleet from for ex-ample more ballasting, reduced load ra-tio and port congestion, was a significant contributor.

Photo: Hannes Van Rijn


15

Supply of bulk carriersThe world dry bulk fleet grew by approxi-mately 17% during 2010 to 536m dwt. De-liveries of new bulk carriers amounted to 79m dwt up from 43m dwt in 2009 and conversions totalled 4m dwt compared to 9m dwt, whereas demolitions fell to 6m dwt versus 10m dwt in 2009.

Contracting of new bulk carriers amounted to 77m dwt, up by 43m dwt on 2009. At the end of 2010, the world or-der book amounted to 278m dwt or some 50% of the existing fleet. The Handysize order book represents 32% of the exist-ing fleet, Handymax 45%, Panamax 57%, and Capesize 59%.

Scheduled deliveries amount to 137m dwt in 2011 and 101m dwt in 2012 cf. Figure 6 but it is expected that deliveries will be around 80m dwt in 2011 and 74m in 2012.

Lauritzen Bulkers’ fleetIn 2010, Lauritzen Bulkers’ total number of ship days reached 32,959 with 90.3 ves-sels on average, 15% up on the figure re-ported in 2009, cf. Figure 7.

Lauritzen Bulkers’ fleet of Handysize bulk carriers, including wholly-owned, part-owned, time-chartered and partner ton-nage, averaged 63 vessels compared to 59 vessels in 2009. At year-end 2010, the combined Handysize fleet comprised 69 vessels.

On average, the Handymax fleet in 2010 comprised 11.4 vessels compared to 5.8 vessels in 2009, with a further 3.9 Pan-

amax vessels (5.1 in 2009) and 5.4 Cape-size vessels (2.8 in 2009).

At year-end 2010, Lauritzen Bulkers oper-ated 27 long-term time-chartered vessels, with purchase options for six of these, in addition to its fleet of owned vessels.

The wholly-owned fleet comprised 14 vessels at the end of 2010 (9 in 2009) with Lauritzen Bulkers having part ownership of a further 23 vessels (22 in 2009).

At the end of 2010, the average age of the owned fleet was 1.5 years.

Fleet managementTechnical management including crewing for Lauritzen Bulkers’ fleet of owned bulk carriers was undertaken by part-owned New Century Overseas Management Inc., Manila (NCO), a subsidiary of Good Hope Overseas Management Inc., and by Fleet Management Ltd., Hong Kong.

Lauritzen Bulkers’ technical department works closely with external technical managers on all aspects of achieving safe and cost-effective vessel operations.

Reducing fuel oil consumption and thus reducing emissions of SOx, NOx and CO

2 is an important part of Lauritzen Bulkers’ ongoing efforts to protect the environ-ment. Selected initiatives have been im-plemented such as propeller boss cap fins, changing the water flow near the boss cap and cutting fuel oil consumption by 2-3%, trim optimization and weather routing.


16

0

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2009 2010

Other Shared charter Chartered Part owned Own


200

250

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350

0

50

100

150

2006 2007 2008 2009 Deliveries 20 0 i l

Order book d

Expected d li i2010 incl.

conversionsyear-end

2010deliveries

incl. conversions

2011

2010 2011 2012 2013 2014 2015 Total order book

FIG 7: AVERAGE NUMBER OF VESSELSFIG 6: BULK CARRIER ORDER BOOK DWTm 2006-10(2009-10 by scheduled delivery year and expected deliveries)


17


18

The off-hire rate for Lauritzen Bulkers’ own fleet, including scheduled dry dock-ing was 0.6%.

Outlook for 20112010 ended on a disappointing note inas-much as the general consensus was for stronger freight levels in the fourth quarter. Instead rates kept falling and with flood-ing in Queensland, Australia, and heavy rain falls in Brazil, Colombia and Indone-sia and other disruptions to the supply of dry bulk commodities, 2011 opened with a market in retreat.

A short-term recovery is expected later in 2011 but it is anticipated that overall sup-ply growth will outpace demand growth, implying lower average freight rates than in 2010. Factors such as industrial pro-duction, inventory behavior and com-modity price developments will leave their mark on demand for dry bulk carriers, making 2011 another year of high volatility.

In 2011, Lauritzen Bulkers will take deliv-ery of five Capesize newbuildings. In ad-dition, four Handymax newbuildings and three Handysize bulk carrier newbuildings are scheduled for delivery.

Five Handymax newbuildings and two Handysize newbuildings will enter the fleet in 2011 on long-term time-charter. One second-hand Handysize vessel will also enter the fleet. Finally three Handy-size newbuildings will be delivered via pool partners, cf. p. 11.

Contract coverage for Capesize bulk car-riers, including deliveries during the year, is 95% for 2011 with coverage for Pan-amax at 90%, Handymax at 31% and Handysize at 37%.

In 2011, Lauritzen Bulkers’ net results are expected to be significantly lower than in 2010, among other things, due to one-offs, including settlements, reversal of write-downs and sale of vessels and other assets of USD 55.0m net being included in the results for 2010. In addition, lower average rates compared to 2010 and re-negotiated rates on long-term contracts will affect the expected results.


19

Lauritzen Kosan Net results were USD 2.9m in 2010, down from USD 9.2m in 2009. This was mainly due to the fact that a large proportion of Lauritzen Kosan’s fleet was covered un-der contracts made during the second half of 2009 when trading conditions were still difficult as a result of the global finan-cial crisis. Gains from the sale of vessels of USD 4.3m were up USD 4.1m on 2009.

Results were in line with expectations and considered acceptable in view of the gen-erally poor trading conditions.

Business model Lauritzen Kosan controls a fleet of mod-ern semi-refrigerated/ethylene and fully pressurized gas carriers with an average age of 10.5 years. The fleet comprises a portfolio of wholly-owned, part-owned, time-chartered vessels and vessels com-mitted by partners. Active fleet portfolio management via cargo contracts and the sale and purchase of vessels is an impor-tant element of the business model.

Lauritzen Kosan operates the fleet with high forward coverage, primarily with cargo contracts with major oil and petro-chemical companies. A number of ethyl-ene carriers are also employed on time-charter.

Main eventsEarly in 2010, a commercial and opera-tional gas carrier organisation was estab-lished in Singapore to serve customers in the eastern hemisphere.

The former Unigas Kosan partnership based in Hong Kong was dissolved and as of 1 July 2010, the operation of Lau-

ritzen Kosan’s fleet of fully pressurized gas carriers was transferred to J. Lauritzen Singapore Pte. Ltd. and thereby centralis-ing the Asian activities for pressurized and ethylene carriers in one regional office.

Lauritzen Kosan’s stronger presence in the Far East resulted in new contracts, in-cluding the commencement of a contract with Shell Chemicals, Singapore, for intra-Asian distribution of ethylene.

Lauritzen Kosan took delivery of the first 3,600 m3 fully pressurized gas carrier of a series of six newbuildings from Yangzhou Kejin Shipyard in China built specifically for the growing Asian gas industry.

Two 3,360 m3 semi-refrigerated newbuild-ings were taken on long-term bareboat contracts from GAS and HEAT S.p.a., It-aly.

One 8,000 m3 ethylene gas carrier was sold to Chinese interests.

Global market developments 2010 was characterized by more bal-anced trends in supply and demand for smaller gas carriers following the more difficult trading conditions in 2009 as a re-sult of falling demand and rising tonnage supply. Spot market earnings were thus on a rising trend from the second quarter of 2010 and ended the year at levels not seen since the turn of 2008-09, cf. Fig-ure 8.

Period rates for smaller gas carriers de-clined in 2009 but remained stable in 2010.


20

FIG 8: SPOT RATES GAS CARRIERS USD ‘000/MONTH*

*) Unadjusted for waiting time if any

Source: Fearnleys Weekly

600

700

800

900

200

300

400

500

600

100

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

ETH 10,000 cbm F/P 3,500 cbm (East of Suez)

KEY FIGURES USDm

2010 2009

Revenue 125.4 114.1EBITDA 30.7 34.6Depreciation (27.9) (25.6)Profit on sale of vessels etc. 4.3 0.2Operating income 7.2 9.1Result in joint ventures 1.2 1.9Finance net (7.3) (1.8)Result before tax 1.0 9.2JL's share of the result 2.9 9.2

Invested capital (average) 448.7 459.6Return on invested capital 1.9% 2.4%Average no. of employees 431 424


21

14%14%

20%

10%

28%

16%12%

Ammonia Ethylene Propylene Butadiene VCM LPG

13%

32%

17%

15%

14%

8%

Ammonia Ethylene Propylene Butadiene VCM LPGSource: ViaMar AS

FIG 9: STRUCTURE OF DEMAND BY PRODUCT IN 2009 & 2010

13%

32%

17%

15%

14%

8%

Ammonia Ethylene Propylene Butadiene VCM LPG


22

Demand for gas carriersAfter a decline in demand for smaller gas carriers of approximately 4% in 2009, de-mand is estimated to have increased by 7% in 2010. Whereas transportation of VCM and propylene were the contribu-tors to demand growth in 2009, a broader range of products drove demand growth in 2010, in particular butadiene and LPG, cf. Figure 9.

With new cracker facilities coming on stream in Abu Dhabi, Middle East Gulf, ethylene exports increased very rapidly during the second half of 2010 with partic-ularly Asia importing. Ethylene production in the Far East was running at a reduced rate due to plants being taken out for re-pair and maintenance, and due to con-straints stemming from reduced supplies of naphtha feedstock from refineries hav-ing increased diesel oil production at the expense of naphtha production. Imports of butadiene into USA more than doubled in the second half of 2010 due to rising demand for rubber from the car industry and reduced domestic butadiene output, as the feedstock composition changed in favour of ethane.

The petrochemical industry has entered a period of restructuring due to increas-ing surplus capacity as a reflection of the build-up of production capacity in the Mid-dle East Gulf. This is likely to lead to the closure of smaller, uncompetitive crackers in European OECD countries, the more so as the introduction of EU’s Emissions Trading System will increase production costs. Leading industry sources assess the number of crackers at risk of closure

in the medium term as representing a po-tential annual cut in ethylene of 2m tons (ICIS Chemical Business, January 10-16, 2011). This indicates the potential for rising demand for longer-haul imports of petro-chemical gases into Europe. For example, Ineos has confirmed its plan to build and operate a new 1m tonne ethylene terminal and storage facility in Antwerp, Belgium, reportedly opening in 2012.

Supply of gas carriers The fleet of smaller gas carriers in the 3,000-22,000 m3 segment is estimated to have increased by some 6% in 2010 to a total of 3.3m m3. Ethylene carriers, repre-senting a combined carrying capacity of 1,030,000 m3, witnessed stronger supply growth. Total deliveries of smaller gas car-riers amounted to 250,000 m3 (160,000 m3 in 2009).

With new contracts in 2010 up from 78,000 m3 in 2009 to 293,000 m3, the order book for smaller gas carriers amounts to some 23% of the existing fleet. Orders for ethyl-ene carriers amounted to 212,000 m3, up from none the previous year. Scheduled deliveries in 2011 will mainly be fully pres-surized tonnage with existing ethylene or-ders scheduled for delivery in 2012 bear-ing the brunt of the backlog, cf. Figure 10.

Total scrappings more than doubled to 171,000 m3 from 63,000 m3 in 2009. Oil majors and chemical producers are putting increasing pressure on owners of tonnage that is 25 years old or more. At the end of 2010, some 15% of the fleet was in this category.


23

Lauritzen Kosan’s fleetLauritzen Kosan’s fleet comprised 30 wholly or part-owned and bareboat char-tered vessels at year-end 2010. The av-erage age of the company’s owned fleet was 9.6 years compared to 8.7 years at year-end 2009. The average age of the ethylene fleet was 2.9 years compared to 1.9 years at year-end 2009.

On average the operated fleet consisted of 30 semi-refrigerated/ethylene gas carri-ers (25 vessels in 2009) and 17 fully pres-surized gas carriers (21 in 2009) with a combined capacity of about 165,000 m3

(152,000 m3 in 2009).

Total ship days reached 15,652 for 42.9 vessels on average compared to 17,020 days for the average of 46.6 vessels re-ported in 2009, cf. Figure 11. The decline in ship days mainly related to the termi-nation of the Unigas Kosan partnership in Hong Kong.

Fleet ManagementDuring the year, Lauritzen Kosan Fleet Management handled the technical man-agement for ethylene and semi-refriger-ated gas carriers. Part-owned Star Man-agement Associates, Tokyo, handled the technical management for the fully pres-surized vessels.

Five scheduled dry-dockings were com-pleted during 2010 (six in 2009). Sched-uled and unscheduled off-hire includ-ing scheduled dry-docking amounted to 3.9% in 2010 compared with 3.6% in 2009.

Technical fleet management is based on health, safety, security, environmen-tal and technical policies to ensure effi-cient vessel operations in order to comply with the rules and regulations as well as stringent customer expectations. A total of 152 customer vetting inspections were performed in 2010 in order to maintain pertinent customer approvals of the ves-sels. On average, 6.3 observations were received compared with 7.5 observations in 2009. Ship-specific observations that could have been prevented by the crew, declined from 3.6 to 2.9 in 2010.

The crews of the vessels play a crucial part in delivering the service expected by customers. Initiatives started in 2009 were continued to improve the skills and attitudes of seamen and to ensure that they are in a position to do their work in line with the company’s standards and values. Several training initiatives are un-derway targeting general as well as gas carrier specific topics.

Lauritzen Kosan continued to work with various projects to reduce environmental impacts and enhance fuel economy. The company also participates in a working group headed by the Danish Maritime Au-thority to investigate and map the future possible needs for LNG as an alternative fuel for commercial vessels in the English Channel, the North Sea and the Baltic.

The International Code for the Construc-tion and Equipment of Ships Carrying Liq-uefied Gases in Bulk, referred to as the IGC Code, is the IMO code that sets the inter-


24


FIG 10: ETHYLENE GAS CARRIER ORDER BOOK CBM ‘000 2006-10(2009-10 by scheduled delivery year and expected deliveries)


20

40

60

0

20

2009 2010

Other Chartered Part owned Own

250

300

350

400

450

500

0

50

100

150

200

250

2006 2007 2008 2009 D li i O d b k E t d2006 2007 2008 2009 Deliveries 2010

Order book year-end

2010

Expected deliveries

2011

2010 2011 2012 2013 2014 Total order book


25


26

national standards for gas carriers. Dur-ing the last three years, the industry has been engaged in a revision of the Code led by SIGTTO (Society of International Gas Tanker and Terminal Operators), a non-profit industry organisation that aims to promote high operating standards and best practice in gas tankers and at termi-nals. As a member of SIGTTO, Lauritzen Kosan is actively involved in the revision of the Code that is expected to come into force in 2014 or 2015.

HSSEQHealth, safety and security as well as pro-tection of the environment and high qual-ity standards (HSSEQ) are imperatives for Lauritzen Kosan.

Security for crews, vessels and cargoes is also important for Lauritzen Kosan Fleet Management. In 2010, thorough monitor-ing and risk assessment of current intel-ligence were used to prepare operations at sea and ashore for vessels transiting high-risk areas such as the Gulf of Aden. Using naval convoys, on board anti-pi-racy measures, best practice and anti-pi-racy networks are all risk mitigation fac-tors aimed of keeping crews, vessels and cargoes safe.

Outlook for 2011The smaller gas carrier segment opened on a strong note due to improvements in the global economy, which have led to

rising demand from the car industry and from emerging economies’ investments in housing. In addition, re-pricing ethane in USA has led to changes in the normal pattern with higher requirements for buta-diene imports. Finally, the delay in get-ting the polymer industry on stream in the Middle East Gulf has led to a rising surplus of petrochemical gases for export. These trends are expected to continue in 2011 and with low level supply growth for the larger sizes of the smaller gas carrier seg-ment, continuation of the strengthened market noted in the second half of 2010 is on the cards.

Lauritzen Kosan is scheduled to take de-livery of the remaining five of a series of six 3,600 m3 capacity pressurized gas carri-ers from China, cf. p. 11.

A part of total 2011 fleet capacity has been covered by time-charter contracts, which is expected to account for about 28% of total budgeted revenues for the year.

In 2011, Lauritzen Kosan’s results are ex-pected to be better than in 2010.

After year-end eventsAs part of the ongoing fleet renewal strat-egy, two 1987 built semi-refrigerated gas carriers were sold in 2010 to Greek buyers and delivered early 2011, reducing the av-erage age of the wholly-owned fleet as per end of 2010 from 9.6 years to 9.0 years.


27

Lauritzen OffshoreNet results were USD 23.6m in 2010 com-pared to USD (7.4)m in 2009. The increase was mainly attributable to a full year’s em-ployment for both the shuttle tanker, Dan Eagle, and the Accommodation and Sup-port Vessel, Dan Swift.

Results were better than expectations and very satisfactory.

Business model Lauritzen Offshore is building a fleet of modern, technologically advanced and dynamically positioned vessels for the off-shore industry. Currently, the fleet com-prises one Accommodation and Support Vessel and three shuttle tankers two of which will be delivered in 2011.

The aim is to secure long-term employ-ment for the fleet.

Main eventsOn delivery in late December 2009, Dan Swift immediately started operating with Statoil on the Peregrino field offshore Bra-zil where it stayed employed until early 2011. The performance of the accommo-dation unit exceeded expectations and Lauritzen Offshore gained further confi-dence in the operational concept.

Dan Swift was runner-up as “Ship of the Year” at the Lloyd’s List Global Awards 2010 in recognition of the innovative de-sign solution with the unique combina-tion of features making the hybrid vessel a sailing hotel, shipyard, and heliport at the same time.

The bareboat charter parties signed in 2009 with Transpetro for two shuttle tanker newbuildings for delivery in 2011 were expanded with technical manage-ment contracts by Lauritzen Offshore Services.

Dan Eagle continued its five-year employ-ment contract with Petrobras offshore Brazil and performed according to plan.

Commercial management of the offshore activities is placed with Lauritzen Offshore Pte. Ltd., Singapore, whereas technical management of the fleet is carried out by Copenhagen-based Lauritzen Offshore Services A/S.

Global market developmentsOil prices (Brent) averaged USD 79.5 per barrel during 2010, oscillating around the USD 80-90 level through the fourth quar-ter of the year. Due to the adverse world economic conditions in 2009, new start-ups for floating production projects were modest into 2010 with global drilling mar-kets remaining fairly depressed.

The April 2010 Deepwater Horizon inci-dent in the Mexican Gulf caused immedi-ate reaction from both oil companies and investors, which spilled over from drilling markets into adjacent segments such as accommodation services and led to many offshore projects being put on hold.

Shuttle tankersThe global shuttle tanker fleet currently comprises 60 vessels with 24 newbuild-


28

FIG 12: GLOBAL SHUTTLE TANKER FLEET AND AGE PROFILE

Source: Lauritzen Offshore (own research)

8

9

10

11

12

13

0

10

20

30

40

50

60

70

80

90

2010 2011 2012 2013

Ave

rage

age

(yea

rs)

No.

of

vess

els

<<< Fleet <<< Orderbook Av. Age >>>

KEY FIGURES USDm

2010 2009

Revenue 108.2 22.0EBITDA 61.3 4.0Depreciation (20.1) (5.2)Profit on sale of vessels etc. 0.0 0.0Operating income 41.2 (1.3)Result in joint ventures 0.0 0.0Finance net (12.2) (5.8)Result before tax 29.0 (7.1)JL's share of the result 23.6 (7.4)

Invested capital (average) 415.9 315.0Return on invested capital 9.9% (0.4)%Average no. of employees 101 61


29

FIG 13: GLOBAL HIGH-END ASV FLEET AND AGE PROFILE

1516171819202122232425262728

0

5

10

15

20

25

30

35

2009 2010 2011 2012+<<< Semi-subs <<< Semi-sub potential orderbook

<<< Monohulls <<< Monohull potential orderbook

Semi-sub fleet av. age >>>


30

ings on order for delivery in 2011-13, cf Figure 12.

Eleven newbuildings were ordered in 2010 with new entrants also appearing, at-tracted by the long-term employment op-portunities.

Accommodation unitsThe current high-end accommodation fleet consists of 21 semi-submersibles in addition to Dan Swift. Further, approxi-mately 5-6 units are on order with possi-ble delivery from 2011 onwards. However, except for one of these units, actual deliv-ery remains uncertain.

In addition to the above mentioned high-end units, the market includes a fairly large number of accommodation units ca-tering for the lower end of the market.

Fleet managementExcellence in fleet management is vital in the offshore industry and all issues re-lating to crewing, health, safety and en-vironment were performed in-house by Lauritzen Offshore Services. Operational performance was very satisfactory in 2010.

In order to meet the fast growing demand for officers with the necessary certifica-tion for offshore vessels and dynamic po-sitioning, a new training programme was implemented during the year. This aims

to upgrade the qualifications of JL offic-ers presently employed on JL’s reefer and tanker fleet, thereby securing new jobs for existing employees and improving the re-tention rate.

HSSEQHealth, safety and security as well as pro-tection of the environment and high qual-ity standards (HSSEQ) are imperative for Lauritzen Offshore Services.

Lauritzen Offshore Services is constantly engaged in safeguarding the health and safety of employees. It is the aim to con-duct all operations in a reliable and effi-cient manner through the systematic management of all technical aspects, oc-cupational health and safety, property and the environment to achieve world-class performance.

During the year, our Health, Safety and Environment (HSE) policies were aligned towards adopting a “zero mindset” opera-tion. In 2010, our environmental manage-ment system received ISO accreditation and 2010 also saw the implementation of a Dropped Object Management System on Dan Swift.

A management system for operational risks, aligning risk management proce-dures and processes with the guidelines of the OHSAS (Occupational Health and Safety Assessment Series) 18001:2009


31

standard is under implementation. In 2010, Lauritzen Offshore Services un-derwent a pre-assessment with Lloyds Register with accreditation scheduled for 2011.

Outlook for 2011A rebound in oil prices generated by the recovery in oil demand and fairly strict ad-herence by OPEC to quotas led to new oil and gas investments picking up during the latter part of 2010. With conventional oil and gas reserves ashore and in shal-low waters growing increasingly sparse, deepwater exploration is expected to con-tinue to grow as a relative contributor to the energy mix.

The rising pressure on the oil companies to ensure safe and reliable operations has been intensified by the Mexican Gulf inci-dent. This will favour owners of modern,

high-end equipment and will be a strong driver for utilization rates in the offshore accommodation segment. Further, the pressure for increased maintenance pro-grammes and to focus on enhanced oil recovery from mature fields is expected to influence demand positively.

Lauritzen Offshore will take delivery of two shuttle tankers for long-term operations in Brazilian waters in 2011.

In 2011 Lauritzen Offshore’s results are expected to be significantly lower than in 2010 due to changed employment of Dan Swift. From being employed on a shorter-term contract Dan Swift is employed on an interim contract for Shell offshore Ni-geria, whereafter the vessel is expected to be employed on a long-term contract cur-rently being negotiated.


32


33

Lauritzen Tankers

FIG 14: MONTHLY SPOT MARKET FREIGHT RATES USD ‘000/DAY


30

40

10

20

0

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

MR earnings (average of selected routes)

KEY FIGURES USDm

2010 2009

Revenue 74.7 62.8EBITDA 12.1 (9.8)Depreciation and write-downs (3.9) (58.8)Profit on sale of vessels etc. 3.5 0.0Operating income 11.8 (68.5)Result in joint ventures 0.6 (4.5)Finance net (1.0) (1.2)Result before tax 11.3 (74.2)JL's share of the result 8.4 (79.7)

Invested capital (average) 150.3 154.5Return on invested capital 8.2% (47.3)%Average no. of employees 98 55


34

FIG 14: MONTHLY SPOT MARKET FREIGHT RATES USD ‘000/DAY

In 2010, net results amounted to USD 8.4m compared to USD (79.7)m in 2009. Due to the poor trading conditions in 2009 and the weak market outlook, 2009 re-sults included provisions and write-downs on vessels and vessels under construc-tion totalling USD 71.6m. The results for 2010 include use of provisions of USD 6.7m.

When adjusted for one-off items including use of provisions and gains from the dis-posal of vessels etc., net results for 2010 amounted to USD (6.0)m, slightly better than the similarly adjusted figure of USD (8.1)m in 2009 due to the increased ca-pacity.

Results were unsatisfactory but in line with expectations.

Business model Lauritzen Tankers controls a fleet of mod-ern MR product tankers with an aver-age age of 2.3 years. The fleet is a mix of owned, part-owned, and time-chartered vessels as well as vessels committed by partners. Active fleet portfolio manage-ment via sale and purchase of vessels as well as chartering of tonnage constitutes part of the business model.

Vessels not covered by long-term con-tracts are commercially and operationally managed by Hafnia Management in their MR pool.

Main eventsIn accordance with the long-term strategy

of achieving critical mass and stronger market presence, Lauritzen Tankers ac-cepted an invitation to join a newly es-tablished product tanker pool led by Haf-nia Management, Denmark, as a partner. Other partners include Marinvest, Swe-den, Gotlandsbolaget, Sweden, and LGR di Navigazione, Italy. The latter is already a trusted partner with Lauritzen Kosan in the gas carrier industry. Lauritzen Tankers also became part-owner of Hafnia Man-agement.

During the second-half of the year, Lau-ritzen Tankers’ vessels with no period charter commitments were placed with Hafnia Management and as part of the transferring the vessels to the pool, four employees were also transferred from Lauritzen Tankers to Hafnia Management.

Two 53,000 dwt MR product tanker new-buildings and one 50,500 dwt MR prod-uct tanker newbuilding were delivered to the fleet in 2010. Lauritzen Tankers sold one 50,500 dwt MR product tanker and one 53,000 MR product tanker to a close business part-ner.

Global market developmentsAverage spot rates for MR product tank-ers were USD 7,200 per day in 2010 and thus remained at the poor level that also characterized 2009, cf. Figure 14.

Seasonal factors meant that the market was unexpectedly tight in early 2010 but


35

weakened during the second quarter. The summer was better than feared, whereas the end of the year was disappointing. With the gradual disappearance of the strongly rising forward curve for crude oil prices, the incentive to use product tank-ers as floating storage declined and to-wards the end of the year the number of vessels used for such purposes was low. In general, the Atlantic Basin showed stronger rates than the Pacific.

The period market offered higher rates than spot earnings but numbers of con-cluded charter parties were limited. De-spite the continuous influx of new prod-uct carriers, the period market improved marginally in 2010 compared to the fourth quarter of 2009.

Demand for product tankersThe weak market was in part due to higher oil prices that kept a lid on de-mand growth in advanced countries. Glo-bal oil demand went up by almost 3% with emerging countries accounting for the vast majority of the increase. This pattern of demand led to domestic refin-ing capacity being able to satisfy a high proportion of domestic consumption in advanced countries, thereby containing demand for imports of oil products. Bio-fuels also increased their market share al-though so far they are only traded in very limited volumes internationally. It is estimated that demand for product tankers grew by 3% in 2010.

Due to falling US imports of gasoline the

composition of imports into OECD, cf. Figure 15, reflects two strong forces at work. One is increased biofuel use and low demand in relation to domestic out-put capacity in the USA which has kept gasoline imports into USA low. The other is higher imports of naphtha reflecting the recovery of the petrochemical industry in the OECD area.

Supply of product tankersThe global product tanker fleet grew by some 10% in 2010 after double digit growth figures in the previous couple of years. The MR product tanker fleet in-creased by 9% in 2010 compared to some 15% the previous year.

Demolition sales of MR product tankers amounted to 3m dwt in 2010 compared to 2m dwt in 2009, reflecting the combined effect of the weak market conditions and the phase-out scheme for single hull tank-ers. As deliveries were down from approx-imately 7m dwt in 2009 to 4m dwt in 2010, overall supply growth was reduced.

Contracting went up in 2010 compared with 2009. For all product tankers, new orders increased from 1.7m dwt to 3.9m dwt and new orders for MR product tank-ers increased from 0.8m dwt to 1.4m dwt. At year-end 2010, the order book for all product tankers amounted to 20% of the existing fleet. For MR product tankers, too, the order book amounts to almost 17% of the existing fleet. Approximately 60% of the respective order books are scheduled for delivery in 2011 cf. Figure 16.


36

FIG 15: IMPORT OF REFINED OIL PRODUCTS INTO OECD 2009 & 2010

17%

17%

28%

17%

8%17%

13%

Naphtha Gasoline Jet & Kerosene

Gasoil/Diesel Heavy Fuel Oil Other Products

20%26%

16%

8%17%

14%

17%



Source: IEA

17%

17%

28%

17%

8%17%

13%




37

FIG 16: MR PRODUCT TANKER ORDER BOOK DWTm 2006-10(2009-10 by scheduled delivery year and expected deliveries)

Source: Clarkson Research Services, Oil Trade & Tanker Outlook


0

5

10

15

2009 2010

Other Shared charter Chartered Part owned Own

20

25

30

35

0

5

10

15

2006 2007 2008 2009 D li i i O d b k E t d2006 2007 2008 2009 Deliveries in 2010

Order book year-end

2010

Expected deliveries in

2011

2010 2011 2012 2013 Total order book


38


Lauritzen Tankers’ fleetIn 2010, total ship days reached 4,652 with 12.7 vessels on average compared to the 3,823 days with 10.5 vessels on aver-age reported in 2009, cf. Figure 17.

At the end of 2010, Lauritzen Tankers con-trolled a fleet of 14 MR product tankers.

Fleet managementTechnical management was transferred during 2010 to Wallem Shipmanagement, Hong Kong, MMS, Tokyo and Lauritzen Offshore Services, Copenhagen. Ship management practices remain in line with the high standards demanded for all JL vessels.

Total off-hire for the owned fleet, including planned off-hire, was 1,1%.

Outlook for 2011Demand for product tankers is pro-jected to rise by 11% in 2011 compared with 2010, despite an expected reduc-tion of oil consumption growth globally due in part to high oil prices. The reason for this is partly the strengthening of the US economy with more gasoline likely to be consumed, partly the reduced refining capacity in advanced economies due to economic and/or technical obsolescence. Furthermore, emerging market thirst for oil

continues to rise, and with the aggressive-ness of modern export-oriented refineries in the Middle East Gulf and India, demand for product tankers is likely to benefit.

Preliminary figures suggest that not all single hull tankers or tankers 25 years or older have been phased out yet. This im-plies a continuation in 2011 of a high level of demolition. Although there is a sizeable scheduled order book for 2011, it is envis-aged that slippage and other factors will continue to reduce actual deliveries into the market. This implies rising fleet utiliza-tion in 2011 compared with 2010 with the potential of higher freight rates, however still at fairly low levels.

In 2011, Lauritzen Tankers will take deliv-ery of two 50,500 dwt newbuildings from China.

Contract coverage for the product tanker fleet amounts to about 36% for 2011.

In 2011, Lauritzen Tankers’ net results are expected to be lower than in 2010. How-ever, adjusted for one-off items such as use and reversal of provisions and fewer gains on the disposal of vessels being in-cluded in the 2010 results, results in 2011 are expected to be in line with those re-ported in 2010.


39

Corporate GovernanceGood corporate governance is the key to building and maintaining candid relation-ships with our owners, employees, cus-tomers, partners, and suppliers. JL is de-termined to ensure that the company’s management structure and control sys-tems are appropriate and work satisfacto-rily in order to make certain that JL’s busi-ness operations are being reliably and profitably conducted.

The basis for JL’s corporate governance includes the Danish Companies Act, the fundamental principles and recommen-dations from the Danish Committee on Corporate Governance considered rele-vant for a company owned by a commer-cial foundation, the company’s Articles of Association, the Board of Directors’ Rules of Procedure and its directions to the Ex-ecutive Management.

OwnershipJL’s history goes back to 1884. Owner-ship of the company was anchored in the Lauritzen family until 1945 when the grad-ual process of transferring ownership to JL-Fondet (JL Foundation) was started. Late in 2009, a corporate restructuring of the Lauritzen Group was completed with Danish title of the Foundation changing from JL-Fondet to Lauritzen Fonden.

The Lauritzen Foundation is a commercial foundation and as such is a self-governing institution in Danish law. It is governed by the Danish Foundation Act and the Danish Ministry of Justice and the Danish Ministry of Economic and Business Affairs oversee the Foundation.

According to the Foundation’s charter, one major aim of Lauritzen Fonden is to “improve Denmark’s reputation by pro-moting and developing the Danish Ship-ping industry”.

Companies owned by the Lauritzen Foun-dation are also required under the terms of its charter and its core policies to:

• Operate a prudent dividend policy, tak-ing account of the continued existence and development of the affiliated enter-prises.

• Pay special attention to its shipping business.

• Ensure the independence of affiliated enterprises from the Foundation.

• Take an open-minded approach to-wards capital increases in affiliated en-terprises.

In terms of ownership, the focus of the Lauritzen Foundation is long-term, prof-itable growth and the goal is to continu-ously develop the businesses of the com-panies belonging to the Group and to achieve stable, reasonable returns within the risk framework of the different markets and operations.

General meetingThe general meeting is JL’s supreme gov-erning body and the annual general meet-ing is required to be held before the end of April.

Board of DirectorsThe Board of Directors consists of at least four and no more than seven members


40

CORPORATE STRUCTURE

The Lauritzen Foundation

J. Lauritzen A/S100%

LF Investment ApS *100 %

DFDS A/S 36% **

Lauritzen Bulkers

Lauritzen Kosan

Lauritzen Tankers

Lauritzen Offshore

* Besides ship owning, transport and logistics activities, LF Investment ApS has holdings in the oil analysis, measuring equipment, software, biotechnology and real estate sectors.

** DFDS is a leading sea transport network integrating freight and passenger serv-ices, headquartered in Copenhagen and quoted on NASDAQ OMX, the Nordic Ex-change Copenhagen. The Lauritzen Foundation and A. P. Moller Maersk, are the ma-jority shareholders in DFDS A/S.


41


42

elected by the general meeting. Members of the Board of Directors serve for one year and may stand for re-election. Board members cannot be re-elected after their 70th birthday.

An additional two, and no more than four members of the Board of Directors, are required to be elected by the employ-ees of the company and its subsidiaries in Denmark, pursuant to the Danish Com-panies Act and associated rules. Board members elected by the employees have four-year tenure and may also stand for re-election.

JL’s Board of Directors has eight mem-bers, five of whom are elected at the gen-eral meeting and three by the employ-ees. At year-end 2010, the average length of service of the Board of Directors was seven years.

The Board is broadly composed of mem-bers with diverse, extensive experience. At year-end 2010, the average age of the Directors was 56.

The Board ensures that an annual strate-gic plan and an annual budget are drawn up and approved and that monthly and quarterly reports are submitted.

The Board met six times in 2010, includ-ing a mid-year strategy review meeting. Otherwise, the Board convenes when deemed necessary. Between meetings, recommendations may be submitted to the Board for written resolution.

As a consequence of the bonds issued by JL and the listing on Oslo Stock Exchange in 2010, JL’s accounting class changed from Class “C” to class “D” in accordance with the Danish Financial Statements Act and so a three member Audit Committee was set up in June 2010. The objective of the Audit Committee is to support the Board of Directors in moni-toring the controlling of accounts, the fi-nancial reporting process and risk man-agement system. The committee held two meetings in 2010.

At the same time, a Nomination and Re-muneration Committee was established with the objective of supporting the Board of Directors in establishing and maintain-ing appropriate succession plans for the Board of Directors, Executive Manage-ment and other leading employees as well as ensuring a competitive remuneration policy for the company. The committee held two meetings in 2010.

Management structureJL has a two-tier management structure consisting of a non-executive Board of Di-rectors and an Executive Management. Day-to-day management is conducted by the Executive Management in line with rules and procedures laid down by the Board of Directors.

Activities relating to day-to-day business are delegated insofar as possible to the individual business units, subject to well-defined financial and risk limits. Opera-


43

tional efficiency is supported by central-ised shared corporate services such as business control, human resources, IT, legal and insurance, procurement, and treasury.

Further, Group standards apply to finan-cial management, investment considera-tions, risk management etc.

Executive ManagementThe Executive Management is appointed by the Board of Directors and consists of President & CEO Torben Janholt, Execu-tive Vice President & CFO Birgit Aagaard-Svendsen, and Executive Vice President Jan Kastrup-Nielsen. Extraordinary or major dispositions may only be imple-mented by the Executive Management on the basis of specific authorization granted by the Board.

An executive committee functions as the coordinating forum for the day-to-day management of the JL Group and con-sists of the Executive Management to-gether with Ejner Bonderup (President, Lauritzen Bulkers), Thomas Wøidemann (President, Lauritzen Kosan), Erik Donner (President, Lauritzen Tankers), Erik Bierre (Senior Vice President, Business Control), John M. Jørgensen (Senior Vice Presi-dent, Treasury), and Tove E. Nielsen (Sen-ior Vice President, Human Resources).

Financial management and reportingJL’s financial management comprises long-term financial projections and an-nual budgets followed up by quarterly

and monthly reporting. Internal quarterly reports include profit forecasts for the full year. Annual profit forecasts are also drawn up twice a year for following years.

Effective, credible reporting requires well-defined levels of authorisation, segrega-tion of duties and transparent reporting structures. The Group’s IT systems pro-mote the requisite knowledge-sharing and transparency.

Statutory reporting and internal manage-ment reporting are based on common policies, common databases and a com-mon reporting system. These reporting policies apply to the entire Group, its busi-ness units, JL as parent company as well as subsidiaries.

JL’s Business Control is responsible for the group financial management and re-porting including the internal control of business units and subsidiaries.

The Executive Management routinely de-fines and reviews policies and procedures to support the business, risk manage-ment and reporting and to benchmark these against generally accepted interna-tional practice.

An anti-fraud policy has operated since 2006 and this was updated in 2010 re-garding whistleblower reporting and pro-tection, whereby reporting can be made not only to the Executive Management, but also to the Chairman of the Audit Committee.


44


45

Corporate Social Responsibility

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2006 2007 2008 2009 2010

LTIF

* LTIF is an expression for the frequency of lost time injuries per one mil-lion man hours

FIG 18: LOST TIME INJURY FREQUENCY (LTIF) 2006-10


46

Responsibility and good corporate citi-zenship are an important part of JL’s his-tory. With business activities set to grow in coming years, JL remains dedicated to ensuring that expansion continues to be achieved in a responsible way.

JL is in a process of aligning its Corpo-rate Social Responsibility (CSR) effort and initiatives with its on four main CSR the-matics:

• Health, safety and security• Social responsibility• Environment and climate• Business practices

JL strives to strengthen its CSR goals and initiatives and our target is to sign up to the United Nations Global Compact in 2011.

Health, safety and securityJL constantly works to strengthen the health, safety and security aspects of our procedures with the aim of provid-ing a working environment that is healthy, safe and secure for all employees and promotes a no-blame culture in order to ensure open and timely communication throughout the organisation.

JL identifies risks and eliminates possible hazards which could result in personal in-jury, illness or accidents caused by sub-standard conditions or acts.

Systems are in place to prevent hazardous situations, accidents and environmental damage. Should these occur, every em-

ployee is required to participate in deter-mining and eliminating possible causes in order to prevent any repetition at sea.

The trend for work-related incidents, measured as Lost Time Incident Fre-quency (LTIF), has been declining since 2006 and developed satisfactorily from 2.64 in 2009 to 1.44 in 2010. However, 2010 figures were still slightly above 2008, cf. Figure 18. While progress has been made, there is always room for improve-ment and JL works closely with contrac-tors and suppliers to raise awareness of the risks involved in their operations.

Social responsibilityJL employees are the company’s most important assets. The key to success is our commitment to attracting, training, developing and retaining capable, com-mitted employees whose professional-ism and personal qualifications and com-petencies can continue the drive towards our world-class vision, by living and lead-ing our core values at sea and ashore.

Human and employee rightsJL supports and respects the protection of human and employee rights and re-frains from any actions that could directly or indirectly encourage or contribute to in-fringement of these rights. In compliance with our core value of respect, JL regards diversity as an important element in build-ing a global business.

JL respects and treats employees equally and fairly and does not accept any form


47

of harassment or discrimination. We do not accept acts of abuse or threats in the workplace, whether committed by man-agers or fellow employees.

JL will not participate in or benefit from any forms of forced labour or child labour, nor will JL interfere with our employees’ rights to form and join unions and to bar-gain collectively.

CommunityAs a shipping company with global oper-ations, JL is creating a growing number of job opportunities at sea and ashore for the benefit of communities in different parts of the world. The JL Group has a long tradition of com-munity involvement. The Lauritzen Foun-dation is the sole owner of JL and in ad-dition to its commercial activities, the Foundation has explicit charitable aims and is engaged in a broad range of so-cial, cultural, humanitarian, educational and research-related activities in Den-mark and internationally. For additional in-formation, please visit the website of the Lauritzen Foundation at www.lauritzen-fonden.com.

DiversityJL supports increased gender diversity at managerial and staff level and JL is one of the co-signatories to the “Recommen-dation for more women on supervisory boards” initiated by the Danish Ministry for Gender Equality.

Environment and climateJL’s controlled fleet of about 150 vessels,

not including vessels under construction, obviously has an impact the environment due, for instance, to combustion of fossil fuels and the resulting emissions of CO

2, sulphur oxide (SOx) and nitrogen oxide (NOx).

From an environmental point of view, though, ocean transport remains by far the most climate efficient means of trans-port.

As a general rule, emissions decline with ship size per transported unit, but ac-tual emissions are highly dependent on a complex combination of factors, including speed, trading patterns, ballast voyages, etc.

JL pursues a range of initiatives that aim to improve fuel efficiency and reduce emissions such as improved hull and pro-peller design, since fossil fuels will remain indispensable for propulsion for the fore-seeable future.

Energy consumptionIn 2010, cargo vessels technically man-aged by JL and JL’s external ship man-agers consumed bunker oil equivalent to 2.6m MWh of energy.

Average energy efficiency was 0.046 KWh/tonkilometer compared to 0.048 in 2009, cf. Figure 19. As the markets started to recover in 2010, so did average energy efficiency and the figures are again in line with the energy efficiency experi-enced in 2008, mainly due to fewer wait-ing days and ballast miles.


48

49


49

FIG 21: SOx AND NOx EMISSIONS 2006-10

FIG 20: CO2 ENERGY EMISSIONS G/TONKILOMETER 2006-10

0.00

0.20

0.40

0.60

2006 2007 2008 2009 2010

SOx g/tonkilometer NOx g/tonkilometer

0.00

5.00

10.00

15.00

20.00

2006 2007 2008 2009 2010

FIG 19: ENERGY CONSUMPTION KWh/TONKILOMETER 2006-10

0.000

0.020

0.040

0.060

2006 2007 2008 2009 2010


50

Air emissionsThe CO2 emissions were 12.76 gram per tonkilometer (transport of one tonne at a distance of one kilometer) in 2010 which was down on the emissions figure of 13.40 in 2009, cf. Figure 20, primarily due to the reduction in waiting days and bal-last miles.

NOx emissions fell to 0.40 gram per tonk-ilometer which was in line with the 2008 levels, whereas emissions of SOx per tonkilometer remained at 2009 levels and slightly below the 2008 figures.

Emissions figures are based on actual consumption, oil quality and engine emis-sion factors and are calculated in accord-ance with IMO MEPC.1/Circ.684.

InnovationJL encourages entrepreneurship, crea-tivity and innovation as illustrated by the development and the construction of the series of gas carriers completed in 2009. The vessels’ environmental credentials were built to Bureau Veritas’ Clean Ship notation and to the requirements of IMO Green Passport. In 2008, Lauritzen Ko-san received the “Ship of the Year” award at the Lloyd’s List London Awards for Isa-bella Kosan, the first vessel of this series. The Accommodation and Support Ves-sel Dan Swift was runner-up as “Ship of

the Year” at the Lloyd’s List Global Awards 2010 in recognition of the innovative de-sign solution with the unique combina-tion of features making the hybrid vessel a sailing hotel, shipyard, and heliport at the same time.

Lauritzen Bulkers supports the develop-ment of the Lab-On-A-Ship (LOAS) sys-tem with the aim of enhancing combustion and fuel efficiency. The system is devel-oped by NanoNord A/S, majority-owned by the Lauritzen Foundation. Lauritzen Bulkers works closely together with Na-noNord and Lloyd’s Register and the col-laboration is part of the Danish trans-in-dustrial “Green Ship of the Future” project.

Business practicesIn compliance with our core value of ac-countability, reliable business practices are an essential part of our way of doing business.

Anti corruptionJL firmly distances itself from any actions that unjustly or unlawfully influence offi-cials and/or the judiciary.

The implemented whistleblower system enables employees to report cases on corruption and fraud to JL’s Executive Management or the Chairman of the Au-dit Committee.

FIG 20: CO2 ENERGY EMISSIONS G/TONKILOMETER 2006-10


51

Organisation and peopleThe backbone of JL is an organisation of highly professional and dedicated em-ployees, who are tied together by strong values and a preparedness to meet changes in a demanding business envi-ronment.

RecruitmentJL’s increased activity level was also re-flected in the number of employees re-cruited in 2010, which was significantly up on the previous year when the company was cautious about taking on new staff due to the global recession. Recruitment was almost in line with 2008, when the company took on the greatest number of new employees for many years. It was not only the organisation in Copenhagen that expanded. JL’s office in Singapore was strengthened together with newbuilding site teams in China and South Korea.

Competency developmentJL continued to pay great attention to competency development in 2010. The Group has been routinely modifying its competency development programme, partly to support its strategies and goals and partly to deal with the increasing de-mands being imposed on employees’ professional and personal competencies in an international industry with increas-ing complexity, challenges and changes, and demands for new knowledge and un-derstanding of interpersonal relations with colleagues and business partners coming from different cultural backgrounds. Com-petency development was undertaken in Den mark and abroad.

In 2010, JL resumed its internal manage-ment development programme for mid-dle managers. This involves an ambitious

programme with professors from some of the leading business schools in Europe.

JL’s Danish shipping trainee programme continued in 2010. The academic part of the training pogramme was run in con-junction with other Danish shipping com-panies at Copenhagen Business School and other educational institutions. JL’s of-fice in Singapore also offered four-month internships for undergraduate students from Nanyang Technological University, Singapore, during the year.

Competency development at seaConsiderable sums have been spent up-dating and heightening the competencies of JL officers being employed on reefer and product tanker vessels so as to give them the skills needed to operate offshore units, since JL’s entry into the offshore in-dustry has given an entirely new dimen-sion to the requirement for training and re-training.

While retention rates remain very high, several activities were directed towards gas officers and ratings in an effort to raise safety awareness and competencies, in-cluding systematic debriefing of senior of-ficers after completion of contracts, safety awareness and work attitude courses for all crew members.

Performance ManagementFor a number of years, performance man-agement has been an integral part of JL’s corporate culture and this will be further developed. For example, changes to the bonus scheme were introduced in 2010, which will result in greater emphasis being placed on individual targets and perform-ance in coming years.


52


53

0

200

400

600

800

1,000

2008 2009 2010

Seagoing Head office Overseas offices Site teams

0

200

400

600

800

1,000

2008 2009 2010


0

200

400

600

800

1,000

2008 2009 2010


15%

79%

5%1%

Seagoing Head office Overseas offices Site teamsSeagoing Head office Overseas offices Site teams

FIG 22: TOTAL WORKFORCE 2008-10 YEAR-END FIG 23: DISTRIBUTION OF WORKFORCE YEAR-END 2010


54

Since 2004, JL has undertaken surveys for its Danish-based companies with Key Performance Indicators being measured right down to departmental level. In 2010, JL also undertook a survey on the provi-sion and quality of the corporate services offered to business units.

As part of annual appraisal interviews, in 2010 JL reintroduced specific goals in action plans for the performance of indi-vidual employees. Managers are also as-sessed for their leadership skills, including their ability to manage, motivate, delegate and develop employees.

Terms of employmentAgain in 2010, JL’s focus was on the terms and conditions of employment and the staff benefits that the company offers its employees to ensure they are in line with general developments and can compete with other companies in the sector. In ad-dition to salary, the flexible remuneration package includes for example a pension scheme, health insurance, bonus scheme and communication tools. JL also regu-larly reviews its personnel policies to en-sure that they always reflect the commu-nity and the world of which JL is a part.

Employee developmentAt year-end 2010, JL’s total headcount was 1,200 compared to 1,032 in 2009. A total of 181 were working at head office in Copenhagen, 52 in the overseas offices, 15 at site teams, and 952 at sea, cf. Fig-ures 22-23.

The total workforce, in particular seagoing personnel, increased due to the growing number of owned vessels. The relatively lower increase of the land-based staff was

due to JL’s LEAN activities under “Project World Class”, which has increased effi-ciency across the organisation, but also due to the fact that the land-based or-ganisation saw an extensive expansion in 2008.

Staff turnover at head office increased to 15.2% from 12.6% in 2009 and included employees outsourced to other compa-nies. Average years of service decreased to 9.2 years in 2010 compared to 9.7 years in 2009, and average age increased from 41.9 years in 2009 to 43.9 years in 2010. The increase in age was due to the fact that the majority of the outsourced employees were less than 35 years old.

Outlook for 2011JL is constantly increasing its demands on competencies and skills to enable em-ployees to perform in a world and in an industry that is characterized by increas-ing complexity, capital intensity, and com-petition. Accordingly, JL has decided to adapt the content and processes in its trainee programmes and primarily re-cruit candidates with bachelor degrees or with a similar educational background. JL also wishes not just to offer traineeships to candidates in Copenhagen but also to candidates in selected foreign offices to ensure greater cultural diversity in JL.

As a result of the changes to JL’s bonus scheme implemented in 2010, in coming years the Group will be further extend-ing its performance management culture throughout the whole organisation, with a sharper focus on the managerial and be-havioural aspects involved in performance management thinking.


55

Risk ManagementAs a global industry, shipping is exposed to a large number of risk factors, ranging from macroeconomic fluctuations, to po-litical intervention, legal and regulatory ad-justments and to piracy. All such risk fac-tors have the potential to fundamentally alter the way business is conducted. Effective risk management is achieving the highest possible level of reward for the risks incurred. Thus to be effective, nu-merous sources of risk, financial as well as non-financial, need to be identified, as-sessed and controlled.

JL has identified and is monitoring and managing four main types of risk deemed important to our operations: Industry risks, corporate risks, operational risks, and financial risks.

Risk management is an integral part of JL’s corporate governance. Policies on risk management and risk limitation are approved by the Board of Directors. Fur-ther, the Group and individual business units have procedures in place to ensure consistent day-to-day risk management. These procedures involve continuously measuring exposure as well as making appropriate adjustments whenever expo-sure levels fall outside target ranges.

Industry risksIndustry risks relate primarily to market volatility and cyclicality that JL cannot in-fluence or can only do so to a very limited extent. However, such risk factors are as-sessed on a daily basis in reviewing short-term market conditions and they form the basis for the medium to long-term strat-egy of the company.

In addition, geopolitical risks such as sanctions and protectionist measures may negatively affect profitability as well as JL’s ability to implement its strategies.

JL transports bulk commodities, liquefied gasses, crude and refined oil products and there is a close correlation between global economic trends, political interven-tions, the demand for such commodities and the associated requirement for ocean transportation. Similar factors create the business environment for the extraction of oil and gas which forms the basis for JL’s offshore services. Changes in global de-mand affect revenues, costs, utilization of assets and subsequently asset values.

Shipping, including servicing the offshore industry, is a cyclical industry with shorter or longer market cycles that create freight rate volatilities. JL seeks to manage such risks through a balanced portfolio of owned and part-owned vessels, time-chartered tonnage and contract coverage supplemented with fuel oil hedging and to some extent Forward Freight Agreements (FFAs).

Business strategies, comprising policies for contract coverage by vessel segments including FFAs, overall limits for off-bal-ance sheet exposure (chartered tonnage) and fuel oil hedging are approved by JL’s Board of Directors and reporting on these is an integral part of JL’s reporting rou-tines.

Risks associated with fluctuations in as-set values are assessed using models that incorporate forecast economic/phys-ical service lives, shipping cycles and av-


56

Industry risks

Financialrisks

Operational risks

Corporate risks

FIG 24: TYPES OF RISK


57


58

erage costs per fleet unit. Further, it is JL’s policy to hold part of the owned fleet free of mortgage to support fulfilment of mini-mum value clauses in case of a significant drop in vessel values.

Corporate risksCorporate risks primarily refer to the over-all risks relating to the actual management and operation of JL.

PeopleJL is extremely dependent on being able to attract and retain skilled and compe-tent employees at all levels, e.g. seagoing personnel, technicians, general manag-ers, employees and staff responsible for customer and partner relations. JL con-stantly works to create a stimulating work-place with good opportunities for employ-ees to develop.

Brand and imageJL enjoys strong brand recognition and has for many years been a quality ship owner with high standards in all aspects of safety. A prudent insurance policy cov-ering the financial risks related to incidents is in place. However, any incident or acci-dent could have an impact on the com-pany to the detriment of JL’s brand rec-ognition. Guarding against this type of risk is difficult and can only be achieved by extensive preventive work and complete transparency should an incident or acci-dent nevertheless occur.

Strategy and business portfolioShipping is a volatile industry with signifi-cant fluctuations in freight rates and val-ues. With the aim of securing stable rev-enue streams, JL’s strategy is to control a balanced business portfolio covering both open markets and more industrial/niche markets. In terms of tonnage, JL seeks to have a balanced portfolio of owned, part-owned, and short or long-term chartered tonnage. Operational risksOperational risks arise from running our business operations.

SafetyCasualties from ship operations can have serious consequences and so merchant shipping is one of the most heavily reg-ulated industries in the world and was among the first to adopt widely imple-mented international safety standards. Further, the oil majors have implemented additional requirements relating to safety, environmental protection, etc.

Any accident could have serious conse-quences for JL’s financial position due to loss of income, repair costs, claims and damages and consequential loss of cus-tomer satisfaction. JL recognizes the risks and potential haz-ards involved in owning, operating and managing a large, diversified fleet of ships worldwide. These risks include vessel


59

performance in accordance with statutory requirements and additional customer re-quirements for health and safety, security, quality and environmental issues.

One major prerequisite for handling these risks is to ensure that all ships under JL’s control comply with comprehensive inter-nal management systems that are in line with or exceed the requirements of the International Safety Management (ISM) code. Management systems and report-ing practices are regularly revised so as to communicate best practice across the fleet, thus avoiding or minimizing the risk of incidents, accidents and time loss.

Finally, ongoing training of crews is the key to reducing risks relating to ship and cargo handling operations.

Piracy Piracy represents an increasing risk in certain parts of the world and JL strictly adheres to recommendations from rele-vant national and international bodies.

Insurance A policy on insurance has been adopted with the aim of reducing the financial risks of incidents and casualties.

JL’s insurances cover JL’s assets, hired and operated fleet, cargo and non-ma-rine risks. Insurance is taken out with first class international insurance companies. As a general rule, insurances are always taken out with a certain financial safety margin to avoid any serious consequential

impact of an incident or casualty on JL’s financial status.

Counterparty Managing counterparty risk has become an increasingly important part of the ship-ping industry, particularly in view of the current economic crisis and the substan-tial entry of new players into the market. JL’s policy comprises both suppliers (e.g. critical IT systems) and customers (e.g. charterers).

Important counterparties are monitored and rated and limits to exposure have been established. Very large contracts and very long-term commitments are re-viewed and approved by the Executive Management and in some cases by the Board of Directors. Seeking the highest degree of guarantees from counterparties is part of the policy.

JL is constantly reviewing its policies with a view to extending the measures availa-ble for minimising counterparty risks.

IT systemsIT is critical for the conduct of our busi-ness. JL’s IT systems are available round-the-clock and are accessible worldwide. Core IT systems were replaced in 2010 and IT infrastructure and application man-agement were outsourced to a third party. JL’s internal IT organisation has the au-thority, the capabilities and capacity to manage the relationship in order to en-sure the consistency of the IT services provided by a third party.


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61

ISIN: NO0010572381

Size: NOK 700m

Coupon: 10.5% fixed (paid annually) – swapped into five-year USD fixed interest of 9.46%

Maturity 5 May 2015

Listing Oslo Stock Exchange

Type: Senior unsecured

Profile Bullet

Issue price:

Par (100%)

Ticket size NOK 500,000

Rating: Unrated

Managers: Nordea Bank Danmark and BNP Paribas

TABLE 25: FACTS ABOUT “10.50% J. LAURITZEN A/S SENIOR UNSECURED BOND ISSUE 2010/2015


62

Redundant systems and duplicate infra-structure are in place and systems are fre-quently tested to ensure that they can be restored within pre-defined time limits.

The company’s IT security policy defines the overall system, platform and infra-structure requirements and defines the framework for user behaviour and access to systems.

Financial risksFinancial risks relate to capital manage-ment risks (including access to funding and liquidity) and in general to the finan-cial markets (currency exchange rates, in-terest rates, and fuel oil prices) as well as credit risks (loss deriving from counter-parties’ failure to fulfil their contractual ob-ligations towards JL).

Financial risk management, including hedge transactions, only applies when underlying financial risks have been iden-tified. Risks primarily relate to non-USD currencies, net interest rate and credit risks and access to well-functioning finan-cial markets.

Capital managementThe purpose of capital management is to ensure sufficient capital for day-to-day operations and financial commitments.

Managing capital requirements is an inte-gral part of JL’s long-term financial plan-ning and is included in our reporting sys-tem. The general guidelines on capital ap-proved by the Board of Directors include

requirements for the level of equity for the Group defined by minimum solvency ratio, minimum liquidity and the requirement for external funding to be drawn on or post delivery of vessels.

Capital requirement (equity and financing) are constantly assessed in various sce-narios and sensitivity analyses.

Being wholly-owned by the Lauritzen Foundation, JL pursues a prudent div-idend policy that supports JL’s ability to grow its business organically.

With the aim of further expanding the funding base, including funding to ex-pand business activities, for the first time JL launched corporate bonds in 2010 and successfully completed the issue of NOK 700m (approximately gross USD 119m) listed on the Oslo Stock Exchange, cf. Ta-ble 25 and Figure 26.

At year-end 2010, financing for JL’s entire investment program was in place. During the year, JL’s loan portfolio consisted of traditional mortgage-backed ship finance, ECA (Export Credit Agency) backed agreements as well as unsecured (non-mortgage) corporate bonds.

With the diversification of financial sources and the entrance to the corporate bond market, JL has further secured the pos-sibility of accessing additional funding for future business growth.

Currency riskJL’s operating and reporting currency is USD and thus all amounts are recorded


63

and reported in USD. Matching income and expenses and assets and liabilities minimises the net currency risk, leaving net positions to be focused on.

JL’s policy is to use derivative instruments to hedge the currency risks relating to net non-USD cash flows from operating ac-tivities, investments and financing. The general hedging policy is approved by the Board of Directors.

Operating cash inflows are mainly in USD and costs are also mainly in USD. The most important non-USD cost currency is DKK arising mainly from head office costs and Danish crew expenses, and EUR mainly relating to the technical manage-ment of vessels. Currency risk from non-USD investments in ships relates to JPY and EUR. Currency risk from non-USD in-terest bearing debt relates to JPY, DKK and NOK.

Interest rate risksPart of JL’s indebtedness is subject to floating interest rates, meaning exposure to fluctuations in these.

JL’s policy is to hedge risks associated with changes in interest rates to limit the nega-tive financial effects of adverse changes in interest rates by converting variable inter-est rates to fixed interest rates. Net inter-est rate risk may be hedged via forward rate agreements, interest rate swaps and

related instruments if assessed as advan-tageous. The general hedging policy is approved by the Board of Directors.

Please refer to Note 22 of the financial statements for further detail.

Bunker oil price riskBunker oil is a significant cost element for JL, although oil price risk only relates to contracted cargo volumes not cov-ered by BAF (Bunker Adjustment Factor). Curently, most of the fleet is contracted ei-ther in the spot market, re-let or on time-charter and hence bunker oil price risk is limited.

Credit riskCredit risk is the risk of incurring a finan-cial loss if a customer or counterparty fails to fulfil its contractual obligations.

JL assesses customers for creditworthi-ness based on historical trading and pay-ment records as well as industry knowl-edge and customer reputation. Further, customers and counterparties are ac-cepted only when fulfilling general re-quirements. In certain cases contracts are guaranteed by parent companies or similar.

The risks relating to financial instruments, bonds and cash funds are minimized by trading only with financial institutions with a long-term A1 credit rating from Moody’s.


64

FIG 26: PRICE DEVELOPMENT FOR J. LAURITZEN A/S NOK 700m BOND ISSUE

100.00

101.00

102.00

103.00

104.00

105.00

106.00

107.00

108.00

109.00

May-2010 Jul-2010 Sep-2010 Nov-2010


65

Financial review


66

JL’s net result in 2010 was USD 130.7m (USD 74.6m in 2009), which included USD (12.5)m net profits from the sale of vessels and other fixed assets (USD 17.1m in 2009).

Adjusted for one-off items including set-tlements, provisions, write-downs, revers-als, and net profits on the sale of assets, net results in 2010 were USD 56.9m, up from USD 3.7m in 2009. The increase in profits mainly related to the improved mar-ket conditions for bulk carriers and addi-tional capacity mainly due to newbuildings delivered to the fleet but also profits from the two offshore units, which both had their first full year of operation in 2010.

The same factors also had a significant impact on revenues, which increased from USD 482.9m in 2009 to USD 718.8m in 2010.

Hire of chartered vessels amounted to USD 244.0m, up from USD 170.2m in 2009. In 2009, hire of chartered vessels included use and reversal of provisions for onerous bulk carrier time-charter con-tracts of USD 86.0m and provisions for onerous product tanker time-charter con-tracts of USD 9.3m of which USD 6.7m was used in 2010. Hire of chartered ves-sels was up by only USD 3.8m after ad-justing for these items.

Operating costs for owned and bareboat chartered vessels totalled USD 55.9m, up by USD 10.5m due to a significant in-crease of the owned fleet.

Other operating costs including bunkers, port expenditures and other voyage-re-lated costs amounted to USD 72.7m, up from USD 55.3m in 2009 primarily due to changed employment for the gas carriers and costs relating to offshore activities. Office and fleet staffing costs and other sales and administrative costs totalled USD 114.7m, up from USD 97.5m in 2009 mainly due to the expanding fleet of owned vessels, costs related to replace-ment of core IT systems and one-offs re-lated to outsourcing IT infrastructure and application management.

EBITDA amounted to USD 252.2m, up from USD 134.9m in 2009. The increase related to all business units apart from Lauritzen Kosan which reported EBITDA in line with 2009.

The sale of two bulk carriers, two product tankers, one gas carrier and other assets generated a net loss of USD (12.5)m. For comparison, 2009 saw the disposal of six bulk carriers and other assets which gen-erated net gains of USD 17.1m. By the end of 2010, two additional gas carriers were sold for delivery in 2011.

Depreciation and write-downs totalled USD 53.2m including reversal of write-downs on bulk carriers of USD 21.7m, compared to USD 76.4m in 2009, which included write-downs on product tank-ers and reversal of write-downs on bulk carriers of USD 26.7m net. Adjusting for write-downs and reversals, depreciation


67

was up by USD 25.2m as a result of the expanding fleet of owned vessels, mainly bulk carriers and offshore units. Net results in joint ventures totalled USD 11.0m, down from USD 17.0m in 2009, mainly due to the net effect of write-downs and reversals in 2009.

Net financial costs of USD (56.3)m in-creased from USD (16.5)m in 2009 prima-rily due to increasing interest charges on post delivery financing of newbuildings, interest charges on the bond issue and a net currency exchange rate loss in 2010 compared to a net gain in 2009.

Result before tax was USD 141.2m, up from USD 76.0m in 2009. Income tax amounted to USD (5.7)m compared to USD 3.6m in 2009. The change was mainly due to Brazilian tax on offshore ac-tivities and tax adjustments for previous years.

The result of USD 135.5m for 2010, up from USD 79.6m in 2009, was better than expectations and satisfactory considering the global financial conditions. Balance sheetAt year-end 2010, total assets amounted to USD 2,410.8m up by USD 222.4m from USD 2,188.4m in 2009 due to net invest-ments in vessels.

The total book value of vessels amounted to USD 1,251.6m, up USD 213.9m on

2009, whereas brokers’ valuations of ves-sels in the fleet totalled USD 1,243m. The value in use of the vessels, taking contract coverage into account, was significantly higher than broker valuations.

Vessels under construction amounted to USD 663.1m (28% of total assets), up USD 218.2m from USD 444.9m in 2009 (20% of total assets) due to investments during the year being partly offset by de-livery of newbuildings.

Investments in joint ventures totalled USD 112.1 compared to USD 121.3m in 2009. Broker valuations of vessels owned by partnerships totalled USD 185.0m com-pared to their book value of USD 184.7m, whereas the value in use of the vessels was significantly above book value.

Other non-current receivables were nil down from USD 16.0m in 2009. Current receivables including fair value adjust-ments on FFAs and other derivate financial instruments amounted to USD 120.2m, compared to USD 123.8m in 2009.

Total shareholders’ equity was up USD 113.2m at USD 1,243.7m, giving a return on JL’s share of equity of 11.1% compared to 6.9% in 2009. Solvency was 52%, simi-lar to the figure reported in 2009.

At year-end 2010, total liabilities amounted to USD 1,167.0m, up USD 109.1m on 2009. Total interest bearing debt increased to USD 1,053.6m from USD 936.4m in 2009.


68


69


70

Other current payables including fair value adjustments on FFAs and other derivate financial instruments amounted to USD 78.3m (2009: USD 72.8m).

Cash flow statementCash flow from operations totalled USD 163.5m, up from USD (24.1)m in 2009 reflecting the improved EBITDA. In 2010 cash flows from investment activities amounted to USD (325.0)m, down from USD (455.0)m in 2009 due to decreasing net investments in vessels.

Cash flows from financing activities (net proceeds from loans) amounted to USD

142.2m compared to USD 507.9m in 2009. The decrease mainly related to a decrease in at-delivery financing of ves-sels partly offset by proceeds from the bond issue.

Cash and cash equivalents at year-end amounted to USD 154.4m compared to USD 172.1m at year-end 2009.

At year-end financial resources including committed facilities available upon deliv-ery of vessels amounted to USD 900.0m up USD 286.5m compared to end of 2009.


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Accounts J. Lauritzen A/S


72


73

Income Statement

Group Parent companyNote USD '000 2010 2009 2010 2009

Income3, 4 Revenue 718,824 482,891 - -

Other operating income 20,701 20,363 14,048 12,728 739,524 503,255 14,048 12,728

Hire of chartered vessels (243,952) (170,208) - - Operating costs of vessels (55,942) (45,394) - -

4 Other operating costs (72,722) (55,264) - - 5 Staff costs, office and fleet (89,840) (77,273) (12,958) (15,375) 6 Other sales and administrative costs (24,821) (20,197) (12,195) (7,968)

(487,276) (368,337) (25,153) (23,344)

Result before depreciation (EBITDA) 252,248 134,918 (11,105) (10,616)

Profit and loss on sale of vessels (12,003) 16,670 - - Profit and loss on sale of other assets (512) 397 - -

7 Depreciations and write-downs (53,219) (76,428) (3) (8)

Operating income 186,514 75,557 (11,108) (10,624)

17 Net result in Joint ventures 11,012 16,954 - - 8 Financial income 9,622 11,878 28,630 16,879 9 Financial expenses (65,922) (28,389) (44,983) (94,439)

Result before tax 141,226 76,000 (27,461) (88,184)

10 Income tax (5,686) 3,633 2,203 4,745

Result for the year 135,540 79,633 (25,258) (83,440)

Attributable to:The J. Lauritzen Group 130,652 74,616 Minority shareholders´ share of result in subsidiaries 4,888 5,017

135,540 79,633

Proposed allocation of the result:Proposed dividend - - Transferred to other reserves (25,258) (83,440)

(25,258) (83,440)


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Statement of comprehensive income

Group Parent companyNote USD '000 2010 2009 2010 2009

Net income recognised in the Income Statement 135,540 79,633 (25,258) (83,440)

Other comprehensive incomeExchange rate adjustments concerning foreign companies (3,220) (1) - - Fair value adjustment of hedging instruments during the year (22,045) 3,352 (22,045) 3,352 Hedging instruments transferred to financial expenses 6,704 4,158 6,704 4,158 Share of equity movements in joint ventures 1,256 144 - - Tax on other comprehensive income - - - - Other comprehensive income net of tax (17,304) 7,653 (15,341) 7,510

Total comprehensive income 118,236 87,286 (40,599) (75,929)

Attributable to:The J. Lauritzen Group 113,348 82,269 Minority shareholders´ share of result in subsidiaries 4,888 5,017

118,236 87,286

Proposed allocation of the result:Proposed dividend - - Transferred to other reserves (40,599) (75,929)

(40,599) (75,929)


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GroupNote USD '000 2010 2009 2010 2009

ASSETSNon current assets

Intangible assets11 Goodwill 0 0 - -

0 0 - -

Vessels, property and equipment12 Vessels 1,251,625 1,037,704 - -13 Land and buildings 2,916 2,934 - -14 Machinery, tools and equipment 11,054 15,896 1,420 1,41515 Vessels under construction 663,058 444,876 - -

1,928,653 1,501,410 1,420 1,415

Financial assets16 Investments in subsidiaries - - 477,687 439,23017 Investments in Joint ventures 112,056 121,321 - -10 Deferred tax assets 2,747 3,580 2,675 3,513

Shares available for sale 3,279 3,530 3,268 3,530Receivables from Joint ventures 15,584 25,098 - -

18, 22 Other receivables - 15,960 - -133,666 169,488 483,630 446,273

Total non current assets 2,062,319 1,670,899 485,050 447,689

Parent company

Current assets

Bunkers 3,130 1,911 - -

ReceivablesTrade receivables 34,935 10,249 - -

18, 22 Other receivables 41,373 64,448 6,832 23,842Receivables from affiliated companies - - 739,416 621,932Receivables from Joint ventures - 60 - 58

18 Prepayments 43,929 49,015 16,726 8,224120,237 123,771 762,974 654,056

23 Securities 9,930 13,103 9,930 13,103

27 Cash and bank deposits 213,922 205,011 168,954 171,867

347,219 343,795 941,858 839,026

12, 15 Assets held for sale 1,241 173,709 - -

Total current assets 348,460 517,505 941,858 839,026

Total assets 2,410,779 2,188,403 1,426,908 1,286,715

Balance sheet assets


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Balance sheet liabilities

Note USD '000 2010 2009 2010 2009

LIABILITIESEquityShare capital 60,633 60,633 60,633 60,633 Reserve for hedging instruments (18,505) (3,164) (18,505) (3,164) Reserve for exchange rate adjustments (5,777) (2,557) - - Other reserves 1,202,623 1,070,715 400,294 425,552 Proposed dividend - - - - JL's share of equity 1,238,974 1,125,626 442,422 483,021 Minority shareholders' share of equity 4,761 4,873 - -

19 Total Equity 1,243,735 1,130,499 442,422 483,021

Non current liabilities20 Provisions 251 3,517 - - 21 Interest bearing debt 966,829 882,612 742,901 613,966

Total non current liabilities 967,080 886,129 742,901 613,966

Current liabilities21 Interest bearing debt 86,780 53,809 35,373 13,033

Trade payables 21,568 22,480 8,163 2,332 Other payables 78,323 72,836 46,045 37,458

20 Provisions 5,521 13,139 - - Prepayments 1,908 3,272 - - Debt to affiliated companies - - 150,435 131,556

10 Corporate tax 5,864 6,239 1,568 5,348 Total current liabilities 199,963 171,775 241,585 189,728

Parent companyGroup

Total liabilities 1,167,043 1,057,904 984,486 803,694

Total equity and liabilities 2,410,779 2,188,403 1,426,908 1,286,715

22 Financial instruments and financial risks24 Leasing28 Mortgages29 Contingent liabilities30 Contractual commitments31 Related parties32 Events after the balance sheet date33 New accounting regulations


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Equity Statement

Group USD '000 Reserve for Reserve for ResultShare hedging exchange carried Proposed Minoritycapital instruments rate adj. forward dividend Total interests Total

Equity 1/1 2009 60,633 (10,675) (2,556) 995,954 - 1,043,357 4,356 1,047,713

Net result of the year - - - 74,616 - 74,616 5,017 79,633 Exchange rate adjustmentsconcerning foreign companies - - (1) - - (1) - (1) Share of equity movements in Joint ventures - - - 144 - 144 - 144 Deferred (gain)/loss on hedging instruments transferred to financial expenses - 4,158 - - - 4,158 - 4,158 Fair value adjustment of hedging instruments during the period - 3,352 - - - 3,352 - 3,352 Total comprehensive income - 7,510 (1) 74,760 - 82,269 5,017 87,286 Paid dividend - - - - - (4,500) (4,500) Proposed dividend - - - - - - - Equity 31/12 2009 60,633 (3,164) (2,557) 1,070,715 - 1,125,626 4,873 1,130,499

Net result of the year - - - 130,652 - 130,652 4,888 135,540 Exchange rate adjustmentsconcerning foreign companies - - (3,220) - - (3,220) - (3,220) Share of equity movements in Joint ventures - - - 1,256 - 1,256 - 1,256 Deferred (gain)/loss on hedging instruments transferred to financial expenses - 6,704 - - - 6,704 - 6,704 Fair value adjustment of hedging instruments during the period - (22,045) - - - (22,045) - (22,045) Total comprehensive income - (15,341) (3,220) 131,908 - 113,348 4,888 118,236

Paid dividend - - - - - - (5,000) (5,000) Proposed dividend - - - - - - - - Equity 31/12 2010 60,633 (18,505) (5,777) 1,202,623 - 1,238,974 4,761 1,243,735

Parent Company USD '000 Reserve for Reserve for ResultShare hedging exchange carried Proposed Minoritycapital instruments rate adj. forward dividend Total interests Total

Equity 1/1 2009 60,633 (10,675) - 508,991 - 558,950 - 558,950

Net result of the year - - - (83,440) - (83,440) - (83,440) Deferred (gain)/loss on hedging instruments transferred to financial expenses - 4,158 - - - 4,158 - 4,158 Fair value adjustment of hedging instruments during the period - 3,352 - - - 3,352 - 3,352 Total comprehensive income - 7,510 - (83,440) - (75,929) - (75,929) Paid dividend - - - - - - - - Proposed dividend - - - - - - - - Equity 31/12 2009 60,633 (3,164) - 425,552 - 483,021 - 483,021

Net result of the year - - - (25,258) - (25,258) - (25,258) Deferred (gain)/loss on hedging instruments transferred to financial expenses - 6,704 - - - 6,704 - 6,704 Fair value adjustment of hedging instruments during the period - (22,045) - - - (22,045) - (22,045) Total comprehensive income - (15,341) - (25,258) - (40,599) - (40,599)

Paid dividend - - - - - - - - Proposed dividend - - - - - - - - Equity 31/12 2010 60,633 (18,505) - 400,294 - 442,422 - 442,422


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Cash Flow Statement

Note USD '000 2010 2009 2010 2009

Result of operating income 186,514 75,557 (11,108) (10,624) 7 Depreciation carried back 53,219 76,428 3 8

25 Adjustments (28,729) (79,978) 8,755 25,041

26 Change in working capital 5,525 (79,272) (75,622) (216,337) Cash flow from operations before financial items 216,528 (7,265) (77,972) (201,912) Ingoing financial payments 9,232 6,673 3,643 4,796 Outgoing financial payments (57,180) (27,656) (44,983) (20,683) Cash flow from ordinary operations 168,580 (28,247) (119,312) (217,800)

10 Paid corporate tax (5,065) 4,133 (739) 5,255

Cash flow from operating activities 163,515 (24,114) (120,051) (212,545)

12 Purchase of vessels (279,182) (431,975) - - 15 Payments on vessels under construction (256,487) (102,069) - - 13 Purchase of land and buildings (172) - - - 14 Purchase of machinery and equipment (2,179) (6,694) (8) - 17 Purchase of Joint ventures (9,174) (4,556) - -

Sale of vessels 216,050 91,636 - - Sale of other non current assets 1,048 481 - -

16 Increase of share capital in subsidiaries - - (38,457) (363) Purchase and sales of securities 3,564 26,819 3,564 26,819 Cash and cash equivalents pledged as security for debt (26,588) (32,950) (24,976) (20,300) Dividend received from subsidiaries - - - -

17 Dividend received from Joint ventures 28,152 4,288 - -

Cash flow from investment activities (324,968) (455,021) (59,877) 6,156

Financial receivables 25,474 (14,098) - -

Group Parent company

Financial receivables 25,474 (14,098) 21 Instalment on long-term debt (166,778) (189,681) (125,357) (68,749) 21 Proceeds from loans 283,489 711,688 276,154 389,629

Dividend paid - - - -

Cash flow from financing activities 142,184 507,909 150,797 320,880

Changes for the year in cash and cash equivalents (19,269) 28,774 (29,131) 114,491 Cash and cash equivalents at beginning of year 172,061 144,370 151,567 38,159 Currency adjustments on cash and cash equivalents 1,592 (1,083) 1,242 (1,083)

27 Cash and cash equivalents at the end of the year 154,384 172,061 123,678 151,567

Undrawn committed credit facilities at end of year 47,882 23,200 24,682 -

Financial resources at the end of the year 202,266 195,261 148,360 251,526

Committed facilities available upon delivery of vessels 697,780 418,200 697,780 418,200

Financial resources incl. committed facilities availableupon delivery of vessels 900,046 613,461 846,140 669,726


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Notes

Note 1 Accounting policies

J. Lauritzen A/S is a private limited company with domicile in Denmark. The Annual Report for the period 1 January – 31 De-cember 2010 comprise consolidated financial statements for J. Lauritzen A/S and its subsidiaries (The Group) as well as sepa-rate financial statements for the parent entity.

The annual report has been prepared in accordance with Inter-national Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements for an-nual reports of reporting class D, see the statutory order on the adoption of IFRS issued pursuant to the Danish Financial State-ments Act. In addition, the annual report has been prepared in compliance with the International Financial Reporting Stand-ards issued by the IASB.

Change in accounting policies and new financial reporting standardsDue to a listing of bonds on the Oslo Stock exchange J. Lau-ritzen applies as from January 1 2010 with class D regulations under the Danish disclosure requirements instead of class C-large. JL apply with the disclosure requirements under class D for companies with listed debt instruments, not the require-ments applicable for companies with listed equity instruments. In 2010, JL has adopted the following new or revised standards and interpretations endorsed by EU effective for the accounting period beginning on 1 January 2010:

Amendments to IFRS 1 First-time Adoption of International Fi-nancial Reporting StandardsAmendments to IFRS 2 Share based paymentsAmendment to IFRS 3 (revised 2008) Business combinationsAmendment to IAS IAS 27 (revised 2008) Consolidated and Separate Financial StatementsPart of ‘Annual improvements to IFRSs’ (2008+2009) with effec-tive dates no later than 1 January 2010Amendments to IAS 32 and 39 Financial Instruments: Recogni-tion and Measurement

Neither these IFRSs nor the change of class under the Danish disclosure requirements have affected recognition or measure-ment in the Financial Statements of 2010.

Basis of preparation The financial statements are presented in US dollars, rounded to the nearest thousand. They are prepared under the historical cost convention, except that the following assets and liabilities are stated at their fair value:

Derivative financial instrumentsInvestments held for tradingInvestments available for sale

The accounting policies set out below have been applied con-sistently by all JL entities and to all periods presented in these consolidated financial statements.

Basis of consolidation The Annual Report comprises the Parent Company, J. Lau-ritzen A/S, and subsidiaries in which the Parent Company has directly or indirectly the power to govern the financial and oper-ating policies. This is normally accomplished by holding more than 50% of the voting rights. The existence and effect of poten-tial voting rights that are currently exercisable or convertible are considered when assessing whether JL has control or signifi-cant influence over another entity.

Enterprises in which JL has a significant influence, but not con-trol are classified as associates.

Joint ventures are recognised in the consolidated financial statements, and in the financial statements of the parent com-pany using the equity method.

The Consolidated Financial Statements are prepared on the basis of the financial statements of the Parent Company and its subsidiaries, by combining items of a uniform nature and eliminating inter-company transactions and balances, and are based on financial statements prepared in compliance with JL’s accounting policies.


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Acquisitions, disposals and entities formed during the year are included in the financial statements during the period of JL’s control or significant influence. Comparative figures are not ad-justed for acquisitions. Disposals or liquidations are presented as discontinued operations.

On acquisition of businesses, the purchase method is applied, according to which the identifiable assets, liabilities and contin-gent liabilities acquired are measured at their fair values on the date of acquisition. The excess of the cost of acquisition over the fair value of JL’s share of the identifiable assets, liabilities and contingent liabilities acquired are recorded as goodwill. If the cost of acquisition is less than the fair value of the net as-sets of the business acquired (negative goodwill), the difference is recognised directly in the income statement.

Gains or losses from the disposal or liquidation of subsidiar-ies or associates are stated as the difference between the pro-ceeds from disposal or liquidation and the book value of the net assets at the date of disposal or liquidation. This includes any goodwill as well as any anticipated disposal or liquidation costs.

Translation of foreign currencies Items included in the financial statements of each of JL’s entities are measured using the currency of the primary economic en-vironment in which the entity operates (the functional currency). The consolidated and the parent company’s financial state-ments of JL are stated in USD which is both JL’s functional and presentation currency.

Foreign currency transactions are translated into the functional currency at the exchange rate of the date when initially recog-nised. Gains and losses arising between the exchange rate of the transaction date and that of the settlement date are recog-nised in the income statement under financial items.

Receivables, payables and other monetary items in foreign cur-rencies that have not been settled at the balance sheet date are translated at the exchange rates then prevailing. Any differ-ences between the exchange rates at the balance sheet date and the transaction date rates are recognised in the income statement under financial items.

The results and financial position of any JL entity that has a functional currency different from JL’s presentation currency are translated into the presentation currency as follows:

Assets and liabilities, including goodwill and fair value adjust-ments arising on consolidation are translated at the closing rates at the date of the balance sheet.

Income and expenses for each income statement are translated at exchange rates approximating the exchange rate of the date of transaction date, and all resulting exchange differences are recognised as a separate component of equity.

Exchange differences arising from the translation of the net in-vestment in foreign subsidiaries or associates, and of borrow-ings or other currency instruments relating to hedging such in-vestments are recognised directly in the translation reserve of equity. Exchange differences are released to the income state-ment upon disposal of the net investment.

Derivative financial instruments and hedging activities JL uses derivative financial instruments to hedge its exposure to foreign exchange risks, interest rate risks and price risks arising from operational, financing and investment activities. In accord-ance with its treasury policy, JL does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Derivatives are recognised initially at fair value. Subsequently, derivatives are re-measured at fair value. The gain or loss on re-measurement to fair value is recognised immediately in the in-come statement, unless the derivative is classified as and quali-fies for hedge accounting, where recognition of any fair value changes depends upon the nature of the item being hedged.

JL documents at the inception of the transaction the relation-ship between the hedge and the items hedged, as well as its risk management objectives and strategy for undertaking vari-ous hedge transactions. JL also documents from start to finish of a hedge whether the derivatives used in the hedge are highly effective in offsetting changes in the fair values or cash flows of the hedged items.


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Notes

Fair value hedgeChanges in the fair value of derivatives designated as and qual-ifying for recognition as a hedge of the fair value of a recog-nised asset or liability are recognised in the income statement together with changes in the fair value of the hedged asset or liability.

Cash flow hedgeWhere a derivative financial instrument is designated as a hedge of a highly probable forecasted transaction, the effec-tive part of any gain or loss on it is recognised directly in equity. When the forecasted transaction subsequently is realised, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or pe-riods during which the hedged forecasted transaction affects profit or loss. The ineffective part of any gain or loss is recog-nised in the income statement immediately.

When a hedging instrument expires or is sold, terminated or ex-ercised, or the entity revokes designation of the hedge relation-ship but the hedged forecast transaction still is expected to oc-cur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised in the income statement im-mediately.

Net investment hedgeDerivatives used to hedge net investments in foreign subsidiar-ies, associated companies or joint ventures are accounted for similarly to cash flow hedges. Any gain or loss on the hedg-ing instrument relating to the effective portion of the hedge is recognised in equity; the gain and loss relating to the ineffec-tive portion is recognised immediately recognised in the income statement.

Derivatives that do not qualify for hedge accounting For derivatives that do not qualify for hedge accounting, changes in fair value are recognised in the income statement as they occur.

Methods for determination of fair value A number of the Group’s accounting policies and disclosures re-quire the determination of fair value. Fair value has been deter-mined for measurement and/or disclosure purposes based on the following methods:

VesselsFair value, used in the annually impairment testing, has been determined by independent brokers.

Listed sharesFor listed shares the fair value is determined as the stock ex-change closing price at the balance sheet date.

The fair value of investments in bonds is based on the closing price at the balance sheet date obtained directly from the mar-ket or from third parties. The fair value of bond related products where an active and liquid market does not exist, is obtained by using a “best approximation” value calculated by the counter-party with whom JL has made the relevant trade.

Unlisted sharesUnlisted shares are measured at cost if no reliable valuation model can be applied.

DerivativesThe fair values of derivative instruments are based on their listed market price, if available, or estimated using appropriate market rates prevailing at the balance sheet date. These are based on rates obtained from third parties (banks, oil compa-nies, brokers and trading houses).

Non-derivative financial liabilities and non-current receivablesThe fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market inter-est rate at the balance sheet date.

Segment information Segment information on key business areas is disclosed in line with JL’s internal financial management, risks and accounting policies.


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JL has only one geographical segment because JL considers the global market as a whole and individual vessels are not lim-ited to specific parts of the world.

Assets in a segment comprise those that are directly attribut-able to the segment’s operations, including intangible assets, vessels, property, equipment, investments in associated com-panies and joint ventures, inventories, trade and other receiva-bles, prepayments and cash.

Liabilities in a segment comprise those that are directly em-ployed in the segment’s operation, including trade payables, ac-cruals and other liabilities.

Income statementRevenues Revenues comprise freight and demurrage revenues from the vessels, and miscellaneous income. Revenues are recognised in the income statement as services are delivered. Uncom-pleted voyages are recognised with the share related to the fi-nancial year. Earnings from vessels which are engaged in jointly controlled operation are recognised in revenue on a net distri-bution basis.

In addition revenue comprises changes in fair value on forward freight agreements (FFA) used as hedging of JL’s freight in-come. Hedge accounting is not applied on FFA’s.

Operating cost of vessels Operating cost of vessels includes maintenance and repairs, in-surance of hulls and machinery, consumption of lubricants and supplies etc.

Other operating costsOther operating costs include bunker oil, port costs, agent’s commissions and other voyage related costs. Furthermore other operating costs include fair value changes on financial bunkers contracts which are entered into for the purpose of hedging JL’s bunkers costs as hedge accounting is not applied for these transactions.

Results in associated companies and joint ventures The proportionate share of the net result after tax in associated companies and joint ventures, after the elimination of inter-com-pany profits/losses is recognised in the consolidated income statement of JL.

Financial items Financial items include interest income and expense, realised and unrealised exchange gains and losses, financial expenses in respect of finance leases, adjustments to the value of securi-ties and certain financial instruments and other financial income and expenses.

Borrowing costs related to the financing of assets under con-struction are capitalised as part of the cost of the asset.

In the income statement of the parent company dividends re-ceived during the year from subsidiaries, associated companies and joint ventures are shown under financial income.

Income taxIncome tax consists of tax calculated according to the regula-tions of the Danish Tonnage Tax Act for shipping activities and according to general tax regulations for other activities, as well as adjustments related to deferred tax. Income tax is recog-nised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recog-nised in equity.

Balance sheetGoodwill All business combinations are accounted for by applying the purchase method. Goodwill represents the excess of acquisi-tion price over the net fair value of acquired identifiable assets and liabilities arising on acquisition of subsidiaries, associates and joint ventures.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment. In respect of associates, the


83

carrying amount of goodwill is included in the carrying amount of the investment in the associate or joint venture.

Vessels, property and equipment Vessels Vessels are measured at cost less accumulated depreciation and accumulated impairment losses. Cost of vessels acquired by way of finance leases are stated at the lower of fair value, and the present value of the minimum lease payments at the incep-tion of the lease.

Costs relating to dry dockings are capitalised and depreciated over the period between dockings, which range from 30 to 60 month.

Rebuilding of vessels is capitalised if the rebuilding is intended to extend the service life and/or improve the earning potential. Rebuilding is depreciated over the expected service life of the investment.

Vessels under construction are measured at cost incurred until the time the vessel is taken into service.

The costs of Accommodation and Support Vessels (ASV’s) are divided into components with minor wear, such as hulls and en-gines, and component with hard wear, such as part of the ac-commodation area. Vessels are depreciated on a straight line method to an esti-mated scrap value. The estimated scrap value and estimated service life of a vessel are assessed annually and adjusted if appropriate.

The carrying amounts of vessels are tested for impairment an-nually and are written down to the recoverable amount if this is lower than the carrying amount. The recoverable amount of is the higher of the fair value less costs to sell and the value in use. Broker valuations are used to estimate Fair value less costs to sell. Value in use is calculated as present value of fu-ture cash flows to be derived from the vessels during their use-

ful life including charter agreements and COA’s and estimated spot rates for open ship days. The impairment test is carried out on the lowest cash generating unit. The cash generating unit can be a single vessel or a group of vessels and directly attribut-able other assets and contracts when the cash inflows from the vessels are not largely independent of those from other vessels.

LandLand is measured at cost.

Buildings Buildings are measured at cost less accumulated depreciation and accumulated impairment losses.

Machinery, tools and equipment Machinery, tools and equipment are measured at cost less ac-cumulated depreciation and accumulated impairment losses.

Depreciation The straight-line method of depreciation is applied and the ex-pected useful life of the assets is as follows:

Asset Years

Bulk carriers 25

Gas carriers 25

Product tankers 25

Shuttle tankers 25

Accommodation and Support vessels, components with minor wear

25

Accommodation and Support vessels, components with hard wear

10-15

Dry dockings 3-5

Buildings 50

Machinery, tools and equipment 5-10

Gains and losses on the disposal of tangible assets are cal-culated as the difference between the sales price less cost of sales and the net book value at the time of sale. Gains and losses on the disposal of machinery and equipment are recog-

Notes


84

nised in the income statement under the line item “other sales and administrative costs”. Gains and losses on the disposal of vessels are recognised in the income statement as a separate line item.

Investments in associates and joint ventures – consolidated financial statements In JL’s consolidated financial statements, investments in associ-ates and joint ventures are recognised according to the equity method of accounting.

Any goodwill resulting from the acquisition is included in the car-rying value of the investment. It is tested for impairment as de-scribed below.

Associates and joint ventures with negative equity are meas-ured at USD 0 (nil), unless JL has a legal or constructive obliga-tion to cover the negative balance of the associate.

Investments in subsidiaries, associates and joint ventures – parent company financial statements In the financial statements of the parent company, investments in subsidiaries, associates and joint ventures are carried at cost less accumulated impairment losses. Dividends are recognised in the income statement as received.

Impairment The carrying amount of vessels and goodwill are tested annu-ally for impairment.

The carrying amounts of other non-current assets, other than deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is esti-mated based on either discounted future expected cash flows (value in use) or broker’s valuations (fair value less costs to sell).

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its re-

coverable amount. Impairment losses are recognised in the in-come statement.

Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

In discounting the estimated future cash flows, JL uses its risk adjusted weighted average cost of capital (WACC).

Inventories Bunker oil is measured at cost according to the FIFO princi-ple. Major spare parts purchased and stored ashore for sub-sequent use are measured at cost less individually assessed write-down. Other inventories are recognised at the lower of cost or net realisable value.

Financial assetsJL classifies its investments in the following categories: Finan-cial assets at fair value through profit or loss (financial deriv-atives), Loans and receivables and Available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the clas-sification of its investments on initial recognition and re-evalu-ates this designation at every reporting date to the extent that such a designation is permitted and required.

Financial assets at fair value through profit or loss Comprise financial derivatives on which hedge accounting is not applied and securities which is classified as held for trading. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are included in Trade receiva-bles and Other receivables in the Balance sheet. Trade receiv-ables and Other receivables are stated at amortised cost less


85

allowances for doubtful trade receivables. The allowances are based on an individual assessment of each receivable.

Available-for-sale financial assetsAvailable-for-sale financial assets are non-derivatives that are not classified held for trading. They are included in non-current assets unless management intends to dispose of the invest-ment within 12 months of the balance sheet date. Marketable securities under current assets are classified as available-for-sale.

Recognition and measurement of financial assetsPurchases and sales of investments are recognised on the set-tlement date. Investments are initially recognised at fair value plus transaction costs for all financial assets not classified as fair value through profit or loss.

Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost us-ing the effective interest method.

Unrealised gains and losses arising from changes in the fair value of financial assets classified as available-for-sale are rec-ognised in equity. When financial assets classified as availa-ble-for-sale are sold or impaired, the accumulated fair value ad-justments are included in the Income statement as gains and losses from available-for-sale financial assets.

Prepayments Prepayments recognised under assets include payments relat-ing to costs in subsequent periods after the balance sheet date.

Equity Proposed dividend is recognised as a separate item under eq-uity until approved at the Annual General Meeting, when it is recognised as a liability.

Liabilities Mortgage debt and other interest bearing debt to credit insti-tutions are initially recognised as the proceeds received less any transaction costs incurred. Subsequently, financial liabilities are measured at amortised cost using the effective interest rate method, such that the difference between the proceeds and the

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

Financial liabilities also include lease obligations on finance leases.

Trade payables and other amounts payable are measured at amortised cost.

ProvisionsA provision is recognised in the balance sheet when JL has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and it is possible make a relia-ble estimate of amount of the provision. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assess-ments of the time value of money and, where appropriate, the risks specific to the liability.

Accruals Accruals include prepayments regarding income relating to pe-riods after the balance sheet date.

Corporate and deferred taxCorporate tax is the expected tax payable on the taxable in-come for the year, using tax rates enacted or substantially en-acted at the balance sheet date, and any adjustment to tax pay-able in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carry-ing amounts of assets and liabilities for financial reporting pur-poses and the amounts used for taxation purposes. The fol-lowing temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, nor differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected man-ner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

Notes


86

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are re-duced to the extent that it is no longer probable that the related tax benefit will be realised.

J. Lauritzen A/S is jointly taxed with various Danish subsidiaries to the commercial foundation Lauritzen Fonden.

Cash flow statement The cash flow statement has been prepared according to the in-direct method and shows the cash flows from operating, invest-ing and financing activities for the year.

Cash flows from operating activities are calculated as the re-sults for the year as adjusted for non-cash operational items, changes in working capital and corporate tax payments.

Cash flows from investment activities cover receipts or pay-ments related to acquisition and disinvestment of companies and/or activities, transactions relating to non-current assets and purchase or sale of securities.

Cash flows from financing activities comprise changes in the size and mix and the JL’s share capital including related costs, raising and re-payment of interest bearing debt, plus payment of dividend to shareholders.

Cash and cash equivalents include bank deposits and short term deposits that without restriction can be exchanged into cash funds and where there is insignificant risk of value fluctua-tions, with the deduction of short term bank loans.


87

Notes

Note 2 Accounting estimates and judgments

The preparation of the financial statements in conformity with IFRS requires management to make estimates and judgements that affect the reported carrying amounts of assets and liabili-ties and disclosure of contingent assets and liabilities at the date of the financial statements and the reported performance. Man-agement bases its estimates on historical experience and vari-ous other assumptions and sources that are believed to be rea-sonable. Actual results could differ from those estimates.

JL believes the following are the significant accounting esti-mates and related judgments used in the preparation of its con-solidated financial statements.

Critical accounting estimates and judgmentsEstimated service life, scrap value and recoverable amount of vessels and vessels under construction:

The estimated service life and scrap value of the vessels are assessed annually and adjusted if appropriate. Irrespective of indications of impairment the recoverable values of vessels and of vessels under construction are determined minimum annu-ally based on broker’s valuations and calculated values in use. Vessels which are held for sale are measured at the lower of the carrying amount and fair value based on broker’s valuation less costs to sell. Significant changes in the estimated service life and scrap values and the result of the impairment test of ves-sels and of vessels under construction may have an impact on operating income.

The carrying amount of vessels is disclosed in note 12 and the carrying amount of payments for vessels under construction is disclosed in note 15. Contractual commitments regarding ship-yard contracts are disclosed in note 30. The key assumptions for the calculation of the value in use are the estimated future earnings and operating costs, the identi-fied cash-generating units and a risk adjusted weighted aver-

age cost of capital of 7% (2009: 7%). The cash generating units applied in the impairment test for 2010 are identical to those ap-plied for 2009.

The product tanker market recovered only marginally in 2010 from the severe downturn seen in 2009. According to the im-pairment test as at 31 December 2010, the basic assump-tions leading to write-downs of product tankers; product tank-ers owned by joint ventures as well as product tankers under construction in 2009 remain unchanged, and neither additional write-downs nor reversal of write-downs can be justified.

No other vessels or vessels under construction were deter-mined as at risk of impairment as at 31 December 2010 and no reasonably possible short term changes in key assumptions will cause other vessels or other vessels under construction to be impaired.

In 2010, two bulk carriers classified as held for sale were trans-ferred to depreciable category resulting in reversals of impair-ment losses.

Provision for onerous charter contracts:The charter commitments for operating leased vessels are dis-closed in note 24. The estimated benefits to be derived by JL from employing its chartered fleet of vessels are assessed mini-mum annually. The chartered vessels are allocated to CGU’s using the same principles as for owned vessels. A provision for onerous charter contract is recognised in case the net present value of the estimated future cash flows for the lowest cash gen-erating unit, in which the charter vessel is allocated, is nega-tive and provided the net present value of estimated future cash flows for the specific charter vessel is negative.

Due to the severe downturn of the product tanker market in 2009, provisions were recognised in 2009 to cover onerous time charters of products tankers. The provisions were partially used in 2010.


88

Write-downs on vessels etc. and provisions for onerous con-tracts are summarized below:

Reference is made to note 11 “Goodwill”, note 12 “Vessels”, note 15 “Vessels under construction” and note 20 “Provisions”.

Critical accounting judgments in applying JL’s ac-counting policies

Leases: The Group enters into different contracts regard-ing chartering (leasing) of vessels. The majority of these con-tacts can easily be categorized as either operational or finan-cial leases. However, some contracts may require judgment as to the substance of the agreement in order to recognise and measure them in accordance with JL’s accounting policies.

Joint operations: Categorising of joint operations as subsidiar-ies, associates or joint ventures is based on managerial judg-ment.

USDm Assets held for sale Vessels and vessels under construction Onerous contracts Joint ventures Goodwill Total

Write‐down Reversal

Write‐down Reversal Provision Reversal

Write‐down Reversal

Write‐down

impairment loss, net

2010Lauritzen Bulkers ‐ (21.7) ‐ ‐ ‐ ‐ ‐ ‐ (21.7) Lauritzen Kosan ‐ ‐ ‐ ‐ 0.6 ‐ ‐ ‐ ‐ 0.6 Lauritzen Offshore Serv. ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Lauritzen Tankers ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Non reportable segm. ‐ ‐ ‐ ‐ 1.7 (0.7) ‐ ‐ ‐ 1.0 Total Group ‐ (21.7) ‐ ‐ 2.2 (0.7) ‐ ‐ ‐ (20.1)

2009Lauritzen Bulkers 22.6 (21.3) 20.2 (51.1) ‐ (24.5) ‐ (9.0) ‐ (63.1) Lauritzen Kosan ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Lauritzen Offshore Serv. ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Lauritzen Tankers 2.6 ‐ 52.9 ‐ 9.3 ‐ 5.1 ‐ 1.7 71.6 Non reportable segm. ‐ ‐ 4.5 ‐ ‐ ‐ ‐ ‐ ‐ 4.5 Total Group 25.2 (21.3) 77.5 (51.1) 9.3 (24.5) 5.1 (9.0) 1.7 13.0


89

NotesNOTE 3 Segment information

USDm Lauritzen Lauritzen Lauritzen Lauritzen Total Non- Un- TotalBulkers Kosan Offshore Tankers reportable reportable allocated Group

Services segments segments2010Revenue 404.1 125.4 108.2 74.7 712.3 6.5 0.0 718.8Result before depreciation 155.5 30.7 61.3 12.1 259.6 (2.2) (5.1) 252.2Depreciations (23.0) (27.9) (20.1) (3.9) (74.9) 0.0 - (74.9)Reversal of impairment losses 21.7 - - 0.0 21.7 0.0 - 21.7Profit and loss on sale of assets (20.4) 4.3 0.0 3.5 (12.5) 0.0 - (12.5)Operating income 133.8 7.2 41.2 11.8 193.9 (2.2) (5.1) 186.5Net result in Joint ventures 9.3 1.2 - 0.6 11.0 - - 11.0Result before tax 128.4 1.0 29.0 11.3 169.7 (2.3) (26.2) 141.2Income tax for the year 1.3 1.9 (5.5) 2.0 (0.3) 0.6 (6.0) (5.7)Result for the year 129.7 2.9 23.6 13.3 169.5 (1.7) (32.2) 135.5Hereof minority interest 0.0 0.0 0.0 4.9 4.9 0.0 0.0 4.9

Other material non-cash items included in the result:Unrealized gains/loss on FFA's 2.7 - - - 2.7 - - 2.7Provisions, net - 1.7 - 6.7 8.4 2.5 - 10.9Result excl. other non-cash items 127.1 1.2 23.6 6.6 158.4 (4.2) (32.2) 122.0

Non current assets 1,010.7 411.9 452.8 179.1 2,054.3 0.1 7.9 2,062.3Investments in Joint ventures 94.7 15.5 0.0 1.4 111.6 0.0 0.5 112.1Current assets 26.4 45.6 60.2 12.6 144.7 27.3 176.5 348.5Total assets 1,037.1 457.4 512.9 191.6 2,199.0 27.4 184.4 2,410.8Liabilities 219.3 76.6 210.0 44.5 550.4 12.7 603.9 1,167.0

Net Assets 817.7 380.8 302.9 147.1 1,648.6 14.7 (419.5) 1,243.7

Average number of employees 340 431 101 98 970 91 87 1148

Profit margin 33.1% 5.7% 38.1% 15.8% 27.2% (34.7)% N/A 25.9%R t i t d it l 15 6% 1 9% 9 9% 8 2% 10 6% N/A N/A 10 2%Return on invested capital 15.6% 1.9% 9.9% 8.2% 10.6% N/A N/A 10.2%Investments during the year 322.5 51.1 28.7 135.7 538.0 0.0 0.0 538.0Invested Capital - Year end 1,021.5 426.5 472.1 175.0 2,095.1 (3.4) (42.8) 2,048.9Invested capital - Average 919.1 448.7 415.9 150.3 1,934.1 (9.0) 6.2 1,931.3


90

NOTE 3 Segment information (continued)

USDm Lauritzen Lauritzen Lauritzen Lauritzen Total Non- Un- TotalBulkers Kosan Offshore Tankers reportable reportable allocated Group

Services segments segments2009Revenue 270.7 114.1 22.0 62.8 469.6 13.3 0.0 482.9Result before depreciation 117.4 34.6 4.0 (9.8) 146.2 0.5 (11.9) 134.9Depreciations (11.3) (25.6) (5.2) (3.3) (45.4) (0.7) (0.0) (46.2)Impairment losses (42.8) - - (55.5) (98.3) (4.5) - (102.8)Reversal of impairment losses 72.5 - - - 72.5 - - 72.5Profit and loss on sale of assets 17.0 0.2 - 0.0 17.2 (0.1) - 17.1Operating income 152.8 9.1 (1.3) (68.5) 92.2 (4.7) (11.9) 75.6Net result in Joint ventures 19.6 1.9 - (4.5) 17.0 - - 17.0Result before tax 168.0 9.2 (7.1) (74.2) 95.9 (3.7) (16.2) 76.0Income tax for the year (0.5) (0.0) (0.3) (0.5) (1.3) 0.6 4.3 3.6

Result for the year 167.5 9.2 (7.4) (74.7) 94.6 (3.1) (11.8) 79.6

Hereof minority interest 0.0 0.0 0.0 5.0 5.0 0.0 0.0 5.0

Other material non-cash items included in the result:Unrealized gains/loss on FFA's 68.0 - - - 68.0 - - 68.0Provisions, net 90.4 1.5 - (9.3) 82.6 7.5 - 90.1Result excl. other non-cash items 9.2 7.7 (7.4) (65.4) (56.0) (10.7) (11.8) (78.5)

Non current assets 690.3 442.1 444.1 76.8 1,653.4 8.6 9.0 1,670.9Investments in Joint ventures 103.9 16.2 0.0 0.5 120.6 0.0 0.5 121.1Current assets 192.5 37.2 35.0 83.1 347.8 21.7 148.0 517.5Total assets 882.8 479.3 479.2 159.9 2,001.2 30.3 156.9 2,188.4Liabilities 205.5 41.9 321.5 14.6 583.5 36.5 437.9 1,057.9

Net Assets 677.3 437.4 157.6 145.3 1,417.7 (6.3) (280.9) 1,130.5

Average number of employees 184 424 61 55 724 120 96 940

Profit margin 56.5% 8.0% (5.8)% (109.0)% 19.6% (35.7)% N/A 15.7%Return on invested capital 28.8% 2.4% (0.4)% (47.3)% 7.1% N/A N/A 6.1%Investments during the year 302.7 45.4 135.5 49.3 532.9 7.8 0.0 540.7Invested Capital - Year end 816.7 470.9 359.8 125.6 1,773.1 (14.7) 55.3 1,813.7Invested capital - Average 598.0 459.6 315.0 154.5 1,527.2 (14.9) 7.1 1,519.4

The reportable segments in the J. Lauritzen Group consist of the four business units Lauritzen Bulkers (Bulk carriers), Lauritzen Kosan (Gascarriers), Lauritzen Tankers (Product tankers) and Lauritzen Offshore Services (ASV and shuttle tankers). The four reportable segments areidentical with how the J. Lauritzen Group is organized around the different services in the four segments. Each business unit is operatedindependently from the other business units, as each business unit services different customers and demands different types of vessels.

The revenue reported represents revenue from external customers. There are no inter-segment sales in 2010 or 2009.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 1. Unallocated income andexpenses include group administration costs, finance costs and corporate services not allocated to the business units. Non-reportable operatingsegments include Lauritzen Reefers and other non-material activities. Unallocated assets and liabilities include mainly financial assets and financialliabilities not allocated to reportable segments. No vessels in any segment is limited to specific geographical area of the world and JL consider theglobal market as a whole hence no geographical information is relevant or available.

No customer information is given as J. Lauritzen is not reliant on any single major customers.


91

Note 4 Revenue and operating costsGroup

USD '000 2010 2009 2010 2009

Revenue includes:Fair value change on Forward Freight Agreement contracts 4,733 18,244 - - Compensation for cancellation of charter parties 53,700 - - -

Other operating costs includes:Fair value change on financial bunkers contracts - (319) - -

Parent Company

Note 5 Staff costs, office and fleet

USD '000 2010 2009 2010 2009

Staff costs include:Wages and salaries 84,615 71,766 11,705 13,827 Pensions (defined contribution plan) 3,614 3,785 847 1,186 Social security 1,256 1,351 51 58 Contract labour 354 371 354 304

89,840 77,273 12,958 15,375

Remuneration to J. Lauritzen A/S'Executive Management - salaries 4,170 2,200 4,170 2,200 Executive Management - pensions 19 317 19 317 Executive Management - long term employment bonus 2,030 186 2,030 186 Board of Directors 472 497 472 497

6,691 3,200 6,691 3,200

Average number of employees 1,148 940 66 75

Number of employees at year-end 1,200 1,032 61 66

Management and a number of executives are members of a bonus and/or severance scheme.

Group Parent Company

Note 6 Other sales and administrative costs

USD '000 2010 2009 2010 2009

Total fees to elected auditors 458 564 211 223

Specified as follows:Statutory audit 382 395 172 121Tax advisory services 41 98 7 41Fee for other services 35 71 32 61


Notes


92

Note 8 Financial income

USD '000 2010 2009 2010 2009

Interest income on cash and deposits 9,173 5,355 3,585 3,478 Interest on receivables from subsidiaries - - 24,580 9,555 Total interest income on financial assets measured at amortised costs 9,173 5,355 28,165 13,033 Realised and unrealised currency exchange gains and losses, net - 5,205 16 2,529 Realised and unrealised gains and losses on securities at fair value though P&L 390 - 390 - Dividends received on shares at fair value through profit and loss - 990 - 990 Interest on securities at fair value through profit and loss 58 328 58 328 Gain/loss on recognised firm commitments under fair value hedge accounting 311 3,568 - - Gain/loss on financial derivatives under fair value hedge (311) (3,568) - - Dividend received from subsidiaries - - - -

Financial income 9,622 11,878 28,630 16,879


Note 7 Depreciations and write-downs

USD '000 2010 2009 2010 2009

Goodwill - (1,735) - - Vessels (67,561) (55,994) - - Vessels under construction 19,900 (17,032) - - Land and buildings (99) (89) - - Machinery and equipment (5,459) (1,580) (3) (8)

(53,219) (76,428) (3) (8)


Note 9 Financial expenses

USD '000 2010 2009 2010 2009

Interest expenses on loans (57,180) (27,656) (44,549) (19,700) Interest on debt to subsidiaries - - (435) (250) Total interest expenses on financial liabilities measured at amortised costs (57,180) (27,656) (44,983) (19,950) Realised and unrealised currency exchange gains and losses, net (8,742) - - - Realised and unrealised gains and losses on securities at fair value though P&L - (733) - (733) Impairment write-down of subsidiaries - - - (73,756)

Financial expenses (65,922) (28,389) (44,983) (94,439)



93

NotesNote 10 Tax

USD '000 2010 2009 2010 2009

Certain group companies are jointly taxed with subsidiaries to the commercial foundation Lauritzen Fonden.

Tax in the Income Statement consist of:Current tax (4,848) 3,993 3,041 5,113 Deferred tax (838) (360) (838) (368)

Income tax (5,686) 3,633 2,203 4,745

Tax on the result is specified as follows: Calculated 25% of result before tax (35,306) (19,000) 6,865 22,046 Adjustment in foreign companies deviating from 25% tax 6,196 1,251 - - Tax effect of: Tonnage tax 18,000 4,235 (7,923) - Non-taxable items 4,306 7,282 3,650 (22,793) Adjustments previous year 981 5,626 (389) 5,492 Net result in joint ventures 137 4,239 - -

(5,686) 3,633 2,203 4,745

Effective tax percent 4% -5% 8% 5%

Deferred tax on the Balance Sheet:Deferred tax 1 January 3,580 3,940 3,513 3,881 Exchange rate adjustments in foreign companies 6 0 - - Tax on result (838) (360) (838) (368)

Deferred tax 31 December 2,747 3,580 2,675 3,513

Deferred tax concerns:Taxable losses carried forward 2,747 3,580 2,675 3,513

2,747 3,580 2,675 3,513

Corporate tax payable can be specified as follows:Balance 1 January 6,239 5,937 5,348 4,911 Exchange rate adjustments (157) 163 - 295 Paid during the year (5,065) 4,133 (739) 5,255 Provision for the year, incl. jointly taxed subsidiaries 4,848 (3,993) (3,041) (5,113)

5,864 6,239 1,568 5,348

In 2005 the Danish based companies entered the Danish tonnage taxation system, the adoption of which is binding until at least2014. JL does not expect to leave the system and therefore no deferred tax provision is made on the assets or liabilities effectedby the Danish tonnage taxation system. If, however, JL should leave the Danish tonnage taxation system there could be adeferred tax liability of up to a maximum of USD 9m.In excess of deferred tax assets recognised as specified above, the group and parent company have deductible unused taxlosses of USD 7m and USD 4m respectively as per 31 December 2010.



94

Note 11 Goodwill

USD '000 2010 2009 2010 2009

Cost as at 1 January 2,069 2,069 - - Additions during the year - - - -

Cost as at 31 December 2,069 2,069 - -

Write-down as at 1 January (2,069) (335) - - Write-down during the year - (1,735) - -

Write-down as at 31 December (2,069) (2,069) - -

Balance as at 31 December 0 0 - -


In 2004 JL acquired all the shares in Quantum Tankers A/S (now Lauritzen Tankers A/S), a company operating and managing producttankers, thereby adding a new business area to JL’s business portfolio. The carrying amount of the goodwill was tested for impairment as at 31 December 2009 by testing the CGU for product tankers to which the goodwill was allocated. As the carrying amount of the CGUexceeded the recoverable amount of the CGU an impairment loss of USD 1.7m was recognised.

Note 12 Vessels

USD '000 2010 2009 2010 2009

Cost as at 1 January 1,336,557 720,189 - - Exchange rate adjustments in foreign companies (4,220) 957 - - Additions during the year 400,473 731,137 - - Disposals during the year (253,887) (115,727) - -

Cost as at 31 December 1,478,922 1,336,557 - -

Depreciation and write-down as at 1 January (163,732) (147,760) - - Exchange rate adjustments in foreign companies 3,900 (740) - - Transferred from vessels under construction (24,496) - Depreciation (69,314) (42,768) - - Write down during the year - (13,226) Reversal of write down 1,753 - Disposals during the year 25,834 40,761 - -

Depreciation and write-down as at 31 December (226,056) (163,732) - -

Balance as at 31 December 1,252,866 1,172,824 - -

Classification of vessel in Statement of Balance:Fixed assets 1,251,625 1,037,704Assets held for sale 1,241 135,120 - -

Insurance sum including interest against total loss 1,663,675 1,524,150 - -

*) As at 31 December two gas carriers were classified as held for sale (2009: one product tanker and one bulk carrier). Thevessels are recognized at the lower of carrying amount and fair value less cost to sell. The classifiction did not result in writedowns in 2010 (2009: loss of USD 5.2m).



95

NotesNote 13 Land and buildings

USD '000 2010 2009 2010 2009

Cost as at 1 January 3,180 3,163 - - Exchange rate adjustments in foreign companies (115) 17 - - Additions during the year 172 - - -


Depreciation and write-down as at 1 January (246) (154) - - Exchange rate adjustments in foreign companies 24 (3) - - Depreciation during the year (99) (89) - -

Depreciation and write-down as at 31 December (321) (246) - -

Balance as at 31 December 2,916 2,934 - -


Note 14 Machinery, tools and equipment

USD '000 2010 2009 2010 2009

Cost as at 1 January 20,821 15,572 1,615 1,615 Exchange rate adjustments in foreign companies 338 (4) - - Additions during the year 2,179 6,694 8 - Disposals during the year (6,084) (1,440) - -

Cost as at 31 December 17,253 20,821 1,623 1,615

Depreciation and write-down as at 1 January (4,925) (4,412) (200) (192) Exchange rate adjustments in foreign companies (339) 108 - - Depreciation during the year (1,874) (1,580) (3) (8) Write down during the year (3,585) - - - Disposals during the year 4,524 959 - -

Depreciation and write-down as at 31 December (6,199) (4,925) (203) (200)

Balance as at 31 December 11,054 15,896 1,420 1,415



96

Note 15 Vessels under construction

USD '000 2010 2009 2010 2009

Cost as at 1 January 568,735 794,480 - - Additions during the year 256,487 123,520 - - Disposal during the year *) - (50,103) Transferred to depreciable category (121,291) (299,163) - -


Write-down as at 1 January (85,270) (96,890) - - Write-down during the year **) - (89,434) - - Disposal during the year - 28,652 - - Transferred to depreciable category 24,496 - Reversal of write-down during the year **) 19,900 72,402 - -

Write-down as at 31 January (40,873) (85,270) - -


Hereof classified to assets held for sale - 38,589 - -

*) During 2009 contracts for building of four bulk carriers and one product tanker were cancelled.

**) No vessels under contruction are classified as held for sale at 31.12.2010 (31.12.2009: Contracts for building of one bulkcarrier). During 2010 the bulk carrier previous held for sale was reclassified and remeasured to cost from fairvalue less costs to sell. The remeasurement results in a reversal of write-down of USD 19.9m in 2010 (In 2009 classification toheld for sale resulted in a write-down of USD 19.9m).

Reference is made to note 2 for further disclosure on impairment testing.



97

NotesNote 16 Investments in subsidiaries

2010 2009

Lauritzen Bulkers A/S, Denmark 100.0% 100.0%Lauritzen Kosan A/S, Denmark 100.0% 100.0%Lauritzen Reefers A/S, Denmark 100.0% 100.0%Lauritzen Tankers A/S, Denmark 100.0% 100.0%Lauritzen Ship Owner A/S, Denmark 100.0% 100.0%Lauritzen Tankers Shipowner A/S, Denmark 100.0% 100.0%J. Lauritzen Inversiones (Chile) Ltda., Chile 100.0% 100.0%J Lauritzen (Japan) K.K., Japan 100.0% 100.0%J. Lauritzen Singapore Pte., Singapore 100.0% 100.0%J. Lauritzen UK Limited., UK 100.0% 100.0%KRK 4 ApS, Denmark 100.0% 100.0%Segetrans Argentina S.A., Argentina 100.0% 100.0%ShipInvest A/S, Denmark 100.0% 100.0%LB Shipowner A/S, Denmark 100.0% 100.0%LB Shipowner II A/S, Denmark 100.0% N/ALK Shipowner A/S, Denmark 100.0% 100.0%Lauritzen Offshore Services A/S, Denmark 100.0% 100.0%LT Shipowner A/S, Denmark 100.0% 100.0%

USD '000 2010 2009

Cost as at 1 January 772,118 771,755 Additions during the year 38,457 363

Cost as at 31 December 810,575 772,118

Accumulated impairment losses at 1 January (332,888) (259,132) Impairment during the year (73 756)

Parent Company

Parent Company

Ownership

Impairment during the year - (73,756)

Accumulated impairment losses at 31 December (332,888) (332,888)

Carrying amount at 31 December 477,687 439,230


98

Note 17 Investments in Joint ventures

USD '000 2010 2009 2010 2009

Cost as at 1 January 98,269 105,338 - - Additions during the year 9,174 4,556 - - Disposal during the year (3,499) (11,625) - -


Revaluation as at 1 January 44,115 28,509 - - Exchange rate adjustments in foreign companies 13 (0) - - Dividends received (28,152) (4,288) - - Revaluations during the year 10,820 17,193 - - Share of Equity movements (1,256) (144) Disposal during the year 3,279 2,845 - -

Revaluation as at 31 December 28,818 44,115 - -

Write-down as at 1 January (21,243) (21,243) - -

Write-down as at 31 December (21,243) (21,243) - -


Net Liabili-2010 Revenue Result Assets ties Net result Equity

In total 226,442 37,244 779,209 397,700 10,503 118,636 Internal profit 509 (7,116)

11,012 111,520 Negative equity set off against receivables - 536

11,012 112,056 Hereof associated companies amount to 108 429


Group share of

Hereof associated companies amount to 108 429

2009 Net Liabili-Revenue Result Assets ties Net result Equity

In total 182,539 19,493 857,969 504,880 15,478 129,401 Internal profit 1,476 (8,259)

16,954 121,141 Negative equity set off against receivables - 179

16,954 121,321 Hereof associated companies amount to 67 333

Group share of


99

Notes

Note 19 Equity

The authorized and issued share capital of J. Lauritzen A/S has remained unchanged in 2010 with 29 shares of DKK 50,000 or multiples of this.

The proposed dividend for 2010 amounts to USD 0 per share (2009: USD 0).

Note 20 Provisions

Provisions have been recognized to cover certain onerous charter parties and technical management agreements.The provisions are subject to changes in expected vessel earnings and operating costs. Reference is made to note 2 for furtherdisclusure on provisions for onerous contracts related to impairment test.

USD '000 2010 2009 2010 2009

Provision as at 1 January 16,656 106,769 - - Additional provision during the year 2,228 9,267 - - Used during the year (12,427) (74,865) - - Reversal of provision during the year (686) (24,515) - -

Provision as at 31 December 5,771 16,656 - - Hereof:Non current liabilities 251 3,517 - - Current liabilities 5,521 13,139 - -

Provision as at 31 December 5,771 16,656 - -


Note 18 Other receivables and Prepayments

USD '000 2010 2009 2010 2009Specification of Other receivables

Financial lease receivables *) 8,936 20,202 - - Financial derivatives 9,579 21,928 5,373 15,389 Other short-term receivables 22,859 38,277 1,459 8,454 Total Other receivables 41,373 80,407 6,832 23,842 Hereof:Non current 'Other receivables' - 15,960 - - Current 'Other receivables' 41,373 64,448 6,832 23,842

*) In 2005 three (sublease) bareboat agreements were entered into. The agreements are treated as finance lease agreementswith maturity dates in 2010 and 2011 respectively. Reference is made to notes 21 and 24.

PrepaymentsPrepayments (not specified above) include USD 15.1m (2009: USD 20.6m) related to a bulk carrier charter agreement with aremaining maturity of three years of which USD 9.9m (2009: USD 14.8m) relates to charter periods later than 2010.



100

Note 21 Interest bearing debt

USD '000 2010 2009 2010 2009

Mortgage on vessels 761,709 792,870 495,310 503,651 Financial leasing 8,936 20,202 - - Subordinated loan *) 163,339 120,604 163,339 120,604 Issued bonds 117,340 - 117,340 - Other debt 2,285 2,745 2,285 2,745

1,053,609 936,421 778,274 626,999

Market value of non current debt 1,064,788 941,867 789,453 626,999

Non current interest bearing debt at 1 January 936,420 405,496 626,999 297,202 Exchange rate adjustments 478 8,917 478 8,917 Proceeds from loans 283,489 711,688 276,154 389,629 Repayments and redemption (166,778) (189,681) (125,357) (68,749) Balance as at 31 December 1,053,609 936,420 778,274 626,999 Long-term debt due for payment next year (86,780) (53,809) (35,373) (13,033)

Non current interest bearing debt 966,829 882,612 742,901 613,966

The instalments for next year are specified as follows:Mortgage on vessels 77,844 42,092 35,373 13,033 Debt concerning financial leasing 8,936 11,717 - -

Current interest bearing debt 86,780 53,809 35,373 13,033

Due for payment between 1 and 5 yearsMortgage on vessels 490,018 356,584 350,671 202,702 Debt concerning financial leasing - 8,485 - - Subordinated loan *) 163,339 120,604 163,339 120,604 Issued bonds 117,340 - 117,340 - Other debt 2,285 2,745 2,285 2,745


, , , ,

772,983 488,417 633,635 326,051

Due for payment after more than 5 years:Mortgage on vessels 193,847 394,195 109,266 287,915

193,847 394,195 109,266 287,915 *) The loan is granted from LF Investment ApS and is subordinated to all other debts, liabilities and obligations.


101

NotesNote 22 Financial instruments and financial risks

Financial risks relate to capital management risks (access to funding and liquidity) and in general to the financial markets (currency exchange rates, interest rates, stock market share prices) as well as credit risks (loss deriving from counterparties’ failure to fulfil their contractual obligations towards JL).

As defined by JL’s Board of Directors, overall policies and objectives for financial risks were generally unchanged from 2009 althoughinternal capital requirements have been tightened up due to the recent financial crisis.

Financial risk management, including hedge transactions, only applies when underlying financial risks have been identified.Risks primarily relate to non-USD currencies, net interest rate and credit risks and access to well-functioning financial markets.

Capital management riskThe purpose of capital management is to ensure sufficient capital for day-to-day operations and financial commitments.

Managing capital requirements is an integral part of JL’s long-term financial planning and is included in our reporting system.

The general guidelines on capital approved by the Board of Directors include requirements for the level of equity for the Group defined by minimum solvency ratio, minimum liquidity and the requirement for external funding to be drawn on or post delivery of vessels.

Capital requirements (equity and financing) are constantly assessed in various scenarios and sensitivity analyses.

Being wholly-owned by the Lauritzen Foundation, JL pursues a prudent dividend policy that supports JL’s ability to grow its business organically.

With the aim of further expanding the funding base, including funding to expand business activities, for the first time JL launched corporate bonds in 2010 and successfully completed the issue of NOK 700m (approximately gross USD 119m) listed on the Oslo Stock Exchange.

At year-end 2010, financing for JL’s entire investment program was in place. During the year, JL’s loan portfolio consisted of traditional mortgage-backed ship finance, ECA (Export Credit Agency) backed agreements as well as unsecured (non-mortgage) corporate bonds.

With the diversification of financial sources and the entrance to the corporate bond market, JL has further secured the possibility of accessing additional funding for future business growth.

Liquidity riskLiquidity risk relates to the risk that JL will not be able to fulfil its financial obligations as they fall due.

Liquidity is continuously monitored and assessed based on forecasts for the current year and years to come, outstanding capital expenditure, proceeds from committed and expected credit facilities and future liabilities from existing and expected future credit facilities. This is done to ensure liquidity is adequate at all times.

External financing is based on credit facilities with a group of core banks, credit facilities with new financial counterparties, credit facilities with major banks guaranteed by ECAs (Export Credit Agencies) and by issuing corporate bonds. With some banks JL hasagreed to make margin payments if some predefined financial limits are met. As of 31 December 2010, JL has made additional security available for one financial institution in the form of cash in order to counteract any potential breach of minimum value clauses in the existing credit facility (ref. note 27). There have been no breaches of credit facilities.

Besides having an unsecured overdraft facility of DKK 100m for multi-currency short-term financing needs at the Group's disposal, JL had at year-end 2010 unused credit facilities and signed term sheets in place totalling JPY 11.5bn and USD 556.4m (total USD equiv. 697.8m). These funds are to cover future liabilities on new buildings to be mortgaged post delivery for a total of USD 722.6m, please refer to note 30.

Below is a maturity analysis of JL’s financial liabilities at 31 December 2010. A maturity analysis of the Group's/Parent's operational lease obligations is included in note 24b.


102

Note 22 Financial instruments and financial risks (continued)

Group 2010

USD 1000Carrying amount

Contractual cash flows <1 year 1 – 5 years >5 years

Non-derivative financial instruments:

Mortgage on vessels, bank debt and other interest-bearing debt *) (1,044,674) (1,204,930) (117,557) (876,173) (211,200)

Finance lease commitments *) (8,936) (8,996) (8,996) - -

Trade and other payables (69,812) (69,812) (69,812) - -

Derivatives, liabilities at fair value:

Forward exchange contracts (4,367) (4,367) (4,367) - -

Interest rate swaps (21,241) (21,241) (5,356) (14,226) (1,660)

FFA’s (4,471) (4,471) (4,471) - -

Total at 31 December 2010 (1,153,501) (1,313,817) (210,558) (890,399) (212,860)

Group 2009

USD '000Carrying amount



Mortgage on vessels, bank debt and other interest bearing debt *) (916,219) (1,015,776) (64,863) (645,168) (363,179)

Finance lease commitments *) (20,202) (21,021) (12,475) (8,546) -

Trade payable and other payables (75,658) (75,658) (75,658) - -

Derivative, liabilities at fair value:

Forward exchange contracts (4,215) (4,215) (442) (3,773) -

Interest rate swaps (5,497) (5,497) (1,257) (3,487) (752)

FFA’s (9,946) (9,946) (5,293) (4,653) -

Total at 31 December 2009 (1,031,737) (1,132,113) (159,989) (655,627) (363,931)

*) Contractual cash flows include undiscounted interest payments based on interest levels at year end.


103

NotesNote 22 Financial instruments and financial risks (continued)

Parent company 2010




Mortgages on vessels, bank debt and other interest-bearing debt *) (778,274) (900,660) (67,379) (718,679) (114,601)

Trade payable and other payables (28,601) (28,601) (28,601) - -

Debt to affiliated companies (150,435) (150,435) (150,435) - -

Derivative, liabilities at fair value:

Forward exchange contracts (4,367) (4,367) (4,367) - -

Interest rate/currency swaps (21,241) (21,241) (5,356) (14,226) (1,660)

Total at 31 December 2010 (982,918) (1,105,304) (256,138) (732,905) (116,261)

Parent company 2009




Mortgages on vessels, bank debt and other interest-bearing debt *) (626,999) (690,731) (28,278) (370,116) (292,337)

Trade and other payables (18,500) (18,500) (18,500)

Debt to affiliates (131,556) (131,556) (131,556) - -

Derivatives, liabilities at fair value:

Forward exchange contracts (15,794) (15,794) (8,907) (6,887) -

Interest rate swaps (5,497) (5,497) (1,257) (3,487) (752)

Total at 31 December 2009 (798,346) (862,078) (188,499) (380,490) (293,089)

*) Contractual cash flows include undiscounted interest payments based on interest levels at year end.

Market risksExcept as described below, JL does not apply hedge accounting to manage profit or loss volatility stemming from the use of derivatives.

Sensitivity information is calculated at balance sheet date and comprises only sensitivity relating to financial instruments, so the amounts disclosed do not necessarily give a complete picture of JL's risks relating to the different categories of risk.

Currency riskJL’s operating and reporting currency is USD and thus all amounts are recorded and reported in USD. Matching income and expenses and assets and liabilities minimises the net currency risk, leaving net positions to be focused on.

JL’s policy is to use derivative instruments to hedge the currency risks relating to net non-USD cash flows from operating activities, investments and financing. General hedging policy is approved by the Board of Directors.

Operating cash inflows are mainly in USD and costs are also mainly in USD. The most important non-USD cost currency is DKK arising mainly from head office costs and Danish crew expenses, and EUR mainly relating to the technical management of vessels. Currency risk from non-USD investments in ships relates to JPY and EUR. Currency risk from non-USD interest-bearing debt relates to JPY, DKK and NOK.


104


The hedging strategy for operating costs is based on estimated annual net non-USD cash flows, i.e. 12 month rolling cash flow. JL’s policy is to use forward currency contracts to provide cover for least 25% or the equivalent of three months forward. JL may hedge up to 100% net 12 month rolling non-USD operational cash flow to secure minimum budget exchange rates for DKK and EUR. Expenses in other insignificant currencies are not hedged. Hedge accounting is not applied to forward currency contracts relating to future costs in non-USD currencies.

The hedging strategy for non-USD cash flows for investments in ship new-buildings is based on the total portfolio of outstanding capital expenditure payable 2011-2013. JL’s policy is to hedge non-USD payments on vessels when the exchange rate is viewed as advantageous with a minimum predefined target level at payment due date. JL uses fair value hedge accounting for the Group for derivatives associated with firm commitments for vessels under construction.

At balance sheet date, the Group held the following forward currency contracts for firm commitments and cash flow hedges:

2010 2009

Nominal Fair value Duration Nominal Fair value Duration

million USD '000 months million USD '000 monthsFirm CommitmentsPurchase of JPY *) - - - 7,741 11,579 0-4Purchase of EUR *) 15 (3,328) 0-12 35 (3,773) 0-24

Cash Flow HedgePurchase of DKK **) 144 660 0-1 128 (978) 0-2

*) Hedge accounting applies to forward currency contracts – fair value recognized as part of cost of the purchased vessels and recycled through P/L over the lifetime of the vessel.**) Hedge accounting does not apply to hedging cash flows. Fair value adjustments are recognized in the Income Statement over the period concerned.

The parent company has no hedge transactions relating to firm commitments.

At balance sheet date, the Group and the parent company had the following significant non-derivative assets and liabilities denominated in non-USD:

2010 2009

USD ’000 DKK NOK LVL JPY DKK NOK LVL JPY

Shares available for sale 3,216 - - - 3,479 - - -

Shares at fair value - P/L - 2,853 3,134 - - 2,584 3,819 -

Mortgages on vessels - - - 39,215 - - - -

Issued bonds *) - (117,340) - - - - - -

Subordinated loan (163,339) - - - (120,604) - - -

Bank deposits 150,424 - - - 119,266 - - -

*) Swapped into USD on issue

At 31 December 2010, the Group had hedge transactions relating to currency risks in investments in shares denominated in NOK (2009: NOK). Hedge accounting is not applied to forward currency contracts used to hedge risk relating to investments in securities in non-USD currencies.

JL has non-USD interest-bearing debt in DKK, NOK and JPY. JL uses fair value hedge accounting for the Group for derivatives associated with hedging of interest-bearing debt commitments. Regarding the currency risk related to the DKK subordinated loans JL aims to limit the effect on P/L by placing funds in DKK deposits. Regarding the Bond issue denominated in NOK the full amount was swapped to USD on the date of issue.

To measure currency risk in accordance with IFRS 7, sensitivity is calculated as the change in fair value of future cash flows from financial instruments as a result of fluctuations in exchange rates on balance sheet date. Sensitivity to fluctuations in non-USD currencies at balance sheet date is based (other things being equal and after tax) on a 10% increase in currency translation rates against USD (assuming 100% effectiveness):


105


Group Parent

USD '000 2010 2009 2010 2009

Net profit Equity Net profit Equity Net profit Equity Net profit Equity

DKK 3,135 3,135 4,273 4,273 3,135 3,135 4,273 4,273

EUR 2,016 2,016 - - 2,016 2,016 - -

NOK 81 81 51 51 81 81 51 51

LVL 348 348 424 424 348 348 424 424

5,580 5,580 4,748 4,748 5,580 5,580 4,748 4,748The effect of a 10% decrease in the above currency translation rates would result in corresponding losses.

Interest rate riskPart of JL’s indebtedness is subject to floating interest rates, meaning exposure to fluctuations in these.

JL’s policy is to hedge risks relating to changes in interest rates to limit the financial impact of adverse changes in interest rates by converting variable interest rates to fixed interest rates. Credit facilities with maturity longer than two years may be hedged up to 100%. Other facilities with maturity up to two years are kept open. JL covers net interest rate risk via forward rate agreements, interest rate swaps and related instruments if interest rates are regarded as advantageous.

JL uses cash flow hedge accounting in respect of interest rate derivatives and the Group and the parent company have the following contracts classified at balance sheet date as hedge transactions. These are recycled in the income statement over the term of the hedged loans:

2010 2009

Nominal Fair value Duration Nominal Fair value Duration

Million USD '000 months million USD '000 months

Interest rate derivatives 268,150 (13,061) 48-71 255,656 (3,804) 58-72

JL's net interest bearing debt and hence, the exposure towards interest rate fluctuations can be illustrated as follows:

Group

2010 2009

Rate USD ‘000Term (mths) USD ‘000

Term (mths)

Other non-current receivables Fixed 8,936 6 20,202 18

Portfolio Management, bonds Variable 3,942 0-4 6,700 0-16

Bank deposits Variable 210,922 0 205,011 0

Finance lease obligation Fixed (8,936) 6 (20,202) 18

Mortgages on vessels Variable (761,709) 1-137 (792,870) 1-143

Interest rate derivatives Variable 268,150 48-71 255,656 58-72

Interest rate derivatives Fixed (268,150) 48-71 (255,656) 58-72

Subordinated loans Fixed (163,339) 40-49 (120,604) 52

Issued bonds Fixed (117,340) 53 0 N/A

Other loans Fixed (2,285) 24-48 (2,745) 36-60

Net interest-bearing debt (829,809) (704,508)

Term indicates the underlying term of the interest rate from balance sheet date.

Notes


106


Parent

2010 2009

Rate USD ‘000Term (mths) USD ‘000

Term (mths)

Portfolio Management, bonds Variable 3,942 0-4 6,700 0-16

Bank deposits Variable 168,954 0 171,867 0

Receivables from affiliated companies Variable 739,416 0-12 621,932 0-12

Mortgage on vessels Variable (495,310) 1-137 (503,651) 1-96

Interest rate derivatives Variable 268,150 48-71 255,656 58-72

Interest rate derivatives Fixed (268,150) 48-71 (255,656) 58-72

Subordinated loans Fixed (163,339) 40-49 (120,604) 52

Issued bonds Fixed (117,340) 53 0 N/A

Debt to affiliated companies Variable (150,435) 0-12 (131,556) 0-12

Other loans Fixed (2,285) 24-48 (2,745) 36-60

Net interest-bearing debt (16,397) 41,943

Term indicates the underlying term of the interest rate from balance sheet date.

To measure interest rate risk in accordance with IFRS 7, sensitivity is calculated as the change in fair value of future cash flows from financial instruments as a result of fluctuations in interest rates at balance sheet date. Inability to reliably measure the sensitivity of share prices to interest rate changes means that shares available for sale and shares at fair value through profit or loss are not included in sensitivity calculations. The carrying amount of shares available for sale and shares at fair value through profit or loss amounts to USD 9.3m hence the sensitivity of interest rate changes on share prices is considered insignificant. Calculations are also made on the assumption that changes in interest rates are global and thus the impact on the fair value of forward currency contracts and similar derivatives is not considered.

The calculated effect on financial instruments after tax measured at fair value based on a 1% decrease in interest rates (assuming 100% effectiveness):

Group Parent

2010 2009 2010 2009

USD '000 Net profit Equity Net profit EquityNet

profit Equity Net profit Equity

Interest rate derivatives - (10,301) - (12,342) - (10,301) - (12,342)

A 1% increase in interest rates would have a corresponding inverse effect.

The sensitivity analysis above is not representative for the total effect on the income statement and equity of an annual change in interest rates as this would also affect interest expenses on variable interest loans.

The calculated effect after tax on the finance cost of a 1% annual increase in interest rates in 2009 and 2010 (assuming 100% effectiveness):

Group Parent

2010 2009 2010 2009

USD '000 Finance costs Finance costs Finance costs Finance costs

Interest-bearing debt with variable interests (4,936) (5,372) (2,272) (2,486)

Interest-bearing receivables with variable interests 2,148 2,567 9,123 8,005

Net interest-bearing debt with variable interests (2,966) (2,805) 6,760 5,519

A 1% decrease in interest rates would have a corresponding inverse effect.


107


Freight ratesForward Freight Agreements (FFAs) are used by JL in the ordinary course of business to hedge the Group's risk relating to fluctuations in freight rates. JL does not apply hedge accounting to FFAs.

2010 2009

Days bought

Dayssold

Settlement rate, USD per day

Days bought

Dayssold

Settlement rate, USD per day

Bulk:

Handymax/Supramax 365 1,085 15,000 730 730 14,500 – 18,500

At 31 December 2010, the net fair value of the FFAs amounted to USD 3,063,000 (2009: USD 365,000). The contracts were for terms of 1-12 months (2009: 1-24 months).

Sensitivity at balance sheet date to fluctuations in freight rates (after tax) based on a 10% increase in average freight rates per day amounted to:

2010 2009

USD 1000 Net profit Equity Net profit Equity

Forward Freight Agreements (1,080) (1,080) 0 0

The effect of a 10% decrease in the above freight rates would result in corresponding gains.

The parent company had no FFAs at year-end 2010 or 2009.

Oil price riskBunker oil is a significant cost element for the Group, although oil price risk only relates to contracted cargo volumes not covered by BAF (Bunker Adjustment Factor).

JL’s policy is generally to hedge forecasts for bunker oil needed for contracted cargo volumes not covered by BAF. Decisions on whether to hedge fully or partially are made periodically depending on future oil price trend forecasts. Hedge accounting is not applied to oil price contracts.

As most of the fleet on balance sheet date was contracted either in the spot market, re-leted or on T/C, JL's oil price risk is insignificant. This tendency is expected to continue during 2011. At year-end 2010 no future bunker oil consumption had been hedged (2009: 0 t).

The parent company does not make oil price contracts.

Share price riskShare price risk arises from listed shares classified as financial instruments at fair value through profit and loss. For shares classified as available for sale, the risk is considered to be immaterial as these shares are primarily valued at cost.

Summary quantitative information and sensitivity:

2010 2009

Carrying Sensitivity (+10%) Carrying Sensitivity (+10%)

USD 1000 amount Net result Equity amount Net result Equity

Shares available for sale 3,216 - 322 3,479 - 348

Shares at fair value through profit or loss 6,040 604 604 6,455 646 646

Total 9,256 604 926 9,934 646 994

Sensitivity is measured at balance sheet date and only includes changes in equity prices calculated after tax. A decrease in share prices would result in a corresponding loss. Amounts for the parent company are the same.

Management of currency risks from non-USD investments in equity securities is described in the “Currency risk” section above.

Notes


108


Credit riskCredit risk is the risk of incurring a financial loss if a customer or counterparty fails to fulfil its contractual obligations towards JL

JL assesses customers for creditworthiness based on historical trading and payment records as well as industry knowledge and customer reputation. Further, customers and counterparties are accepted only when fulfilling general requirements. In certain casescontracts are guaranteed by parent companies or similar.

In 2010 no provisions were made for expected losses on trade receivables (2009: USD 0m). At 31 December 2010, JL did not have any further overdue trade receivables (2009: USD 0m).

The risks relating to financial instruments, bonds, cash and bank deposits and funding are minimized by trading only with financial institutions with an A1 long-term credit rating from Moody’s . At year-end 2010, all but one of our financial counterparties had credit ratings of or above A1. The financial counterparty with credit rating below A1 is a funding bank only.

JL's exposure to credit risks at balance sheet date can be illustrated as follows:

Group Parent

USD 1000 2010 2009 2010 2009

Other long-term receivables 15,584 41,057 - -

Trade receivables 34,935 10,249 - -

Financial derivatives 9,579 21,928 5,373 15,389

Other short-term receivables 31,795 38,277 1,459 8,454

Portfolio management, bonds 3,942 6,700 3,942 6,700

Cash and bank deposits 213,922 205,011 168,954 171,867

Maximum credit risk 309,757 323,222 179,728 202,410

The maximum credit risk corresponds to the carrying value of the individual assets.

Other long-term receivables are disclosed in note 18. JL has collateral for payments by way of rights to income from the vessel pool in which the vessels are managed.

Additionally, JL has non-monetary receivables relating to payments on vessel under construction. Risks relating to payments on vessels under construction are in general limited by agreements such as refund guarantees.

Categories of financial assets and liabilitiesThe following categories of financial assets and liabilities are recognized in the balance sheet:

Group Parent

USD 1000 2010 2009 2010 2009

Financial assets at fair value through P/L *) 19,509 35,031 15,303 28,492

Loans and receivables**) 296,236 273,799 909,829 180,379

Financial assets available for sale**) 3,279 3,530 3,268 3,530

Financial liabilities - at fair value through P/L *) (30,080) (19,658) (25,608) (21,291)

Financial liabilities - at amortized cost**) (1,123,421) (958,900) (1,122,628) (767,803)

*) Figure includes financial derivatives designated for hedge accounting**) Amounts recognized for financial asset and liabilities at amortized cost do not differ materially from their fair value with the exception of issued bonds. Fair value of issued bonds amount to USD 128.5m whereas the carrying amount totalled USD 117.3m.

Fair value hierarchy With the exception of listed bonds and shares at USD 9.9m (2009: USD 13.1m) (level 1) as disclosed in note 23, all financial instruments are stated at fair value on the basis of observable market prices (level 2), directly as prices or indirectly derived from prices.

Cash at bank and in hand, receivables from credit institutions and lendingFair value is calculated by means of valuation models where all estimated and fixed cash flows are discounted using zero-coupon yield curves. The forecast cash flows of individual contracts are based on observable market data, e.g. interest rate curves. When determining the fair value of floating rate loans, cash flows are estimated on the basis of the forward rate curve.


109

Notes

Note 24 Leasing

JL has entered into leases with mutually interminable lease periods. Leases can include options to renew, and some leases canalso include options to purchase. Exercise of purchase options is based on individual assessment. None of the leases comprisecontingent lease payments.

Note 24a Finance Leases (vessels)

JL as lessor of vessels

Lease Carrying Lease Carrying USD '000 payment Interest amount payment Interest amount

Within 1 year 8,996 60 8,936 12,475 758 11,717 Between 1 - 5 years - - - 8,545 60 8,485

Total 8,996 60 8,936 21,020 818 20,202

Fair value 8,936 25,648

JL as lessee of vessels

Lease Carrying Lease Carrying payment Interest amount payment Interest amount


Total 8,996 60 8,936 21,020 818 20,202

Fair value 8,936 25,648

The parent company of JL does not have any finance leases in either 2010 or 2009.

Note 24b Operating Leases (vessels)

Group2010 2009

Group2010 2009


At the balance sheet date JL has the following contractually committed charter income

USDm.0 - 1 Year 1 - 5 Year > 5 Year 0 - 1 Year 1 - 5 Year > 5 Year

Time charter and bareboat contracts 176.9 436.9 587.6 205.5 759.9 714.3

At the balance sheet date JL has the following operational lease liabilities:



The parent company of JL does not have any operating leases in either 2010 or 2009.

Number of vessels on time charter and bareboat contracts 2010 2009Bulk carriers 40 43 Gas carriers 4 4 Product tankers 6 8 Reefer vessels - 1

Includes the number of vessels:JL has purchase options on at the balance sheet date 5 5 JL has options to extend on at the balance sheet date 2 3

Group2010 2009

Group2010 2009

Note 23 Securities

USD '000 2010 2009 2010 2009

Listed bonds pledged as collateral 3,942 6,700 3,942 6,700 Listed shares at fair value 5,988 6,403 5,988 6,403

Securities 9,930 13,103 9,930 13,103

Securities are classified as financial instruments at fair value through profit or loss as the portfolio serves as a cash reserve inaccordance with JL's risk and investment strategy. The portfolio is regularly monitored and reported to management at fair value.



Derivative financial instrumentsThe fair value of derivatives is calculated using valuation models such as discounted cash flow models. The forecast cash flows of individual contracts are based on observable market data, such as interest rate curves and foreign exchange rates.


110

Note 25 Adjustments

USD '000 2010 2009 2010 2009

Exchange rate adjustments (29,851) 28,678 8,755 25,041 Profit on the sale of other assets 512 (397) - - Internal profit - Joint ventures (509) (1,476) - - Profit and loss on sale of tangible fixed assets 12,003 (16,670) - - Changes in provisions (10,885) (90,113) - -

(28,729) (79,978) 8,755 25,041


Note 24 Leasing

JL has entered into leases with mutually interminable lease periods. Leases can include options to renew, and some leases canalso include options to purchase. Exercise of purchase options is based on individual assessment. None of the leases comprisecontingent lease payments.

Note 24a Finance Leases (vessels)

JL as lessor of vessels

Lease Carrying Lease Carrying USD '000 payment Interest amount payment Interest amount


Total 8,996 60 8,936 21,020 818 20,202

Fair value 8,936 25,648

JL as lessee of vessels

Lease Carrying Lease Carrying payment Interest amount payment Interest amount


Total 8,996 60 8,936 21,020 818 20,202

Fair value 8,936 25,648

The parent company of JL does not have any finance leases in either 2010 or 2009.


Group2010 2009

Group2010 2009


At the balance sheet date JL has the following contractually committed charter income



At the balance sheet date JL has the following operational lease liabilities:



The parent company of JL does not have any operating leases in either 2010 or 2009.

Number of vessels on time charter and bareboat contracts 2010 2009Bulk carriers 40 43 Gas carriers 4 4 Product tankers 6 8 Reefer vessels - 1

Includes the number of vessels:JL has purchase options on at the balance sheet date 5 5 JL has options to extend on at the balance sheet date 2 3

Group2010 2009

Group2010 2009

Note 26 Change in working capital

USD '000 2010 2009 2010 2009

Change in stocks (1,219) (299) - - Change in receivables 3,534 24,179 (108,918) (275,402) Change in payables 3,210 (103,152) 33,297 59,065

5,525 (79,272) (75,622) (216,337)



111

Note 27 Cash and cash equivalents at end of year

USD '000 2010 2009 2010 2009

Cash and bank deposits 213,922 205,011 168,954 171,867 213,922 205,011 168,954 171,867

Cash and cash equivalents pledged as security for debt (59,538) (32,950) (45,276) (20,300) Cash and cash equivalents at end of year 154,384 172,061 123,678 151,567


Note 28 Mortgages

USDm 2010 2009 2010 2009

Debt for a total of 762 793 495 504 has been secured by mortgage in assets at the following book values:

Vessels 1,149 1,129 932 701 Cash and cash equivalents 60 33 45 20

1,208 1,162 977 721

As collateral security for the finance leasing liabilitythe following security has been provided:

Pledged bonds with credit institutions 4 7 4 7


Note 29 Contingent liabilities

USDm 2010 2009 2010 2009

Guarantees undertaken for debt in subsidiaries - - 225 263 Guarantees undertaken for debt in Joint ventures 20 6 20 4 Maximum obligation to pay in capital into Joint ventures 27 43 - - Guarantees regarding newbuildings (refer to note 30) 34 104 34 104

Certain claims have been raised against JL. The judgment of the management is that the outcome of these claims will not have anymaterial impact on JL's financial position.

JL has issued certain guarantees in connection with the sale of assets.


Note 30 Contractual commitments

JL has entered into newbuilding contracts with a remaining contractual commitment of USD 722.6 million. These contracts coverthe construction of 15 bulk carriers, 5 gas carriers, 7 product tankers and 2 shuttle tankers due for delivery in 2011, 2012 and2013.

Notes


112

Note 31 Related parties

As owners of J Lauritzen A/S the commercial foundation Lauritzen Fonden and its subsidiaries are related parties.

Other related parties with a significant influence of the activities of J Lauritzen A/S is the company's Board ofDirectors and the Executive Management (Key management personel).

Finally, additional related parties comprise those subsidiaries and Joint ventures (ref. notes 16 and 17) inwhich J Lauritzen A/S has a controlling or significant influence. Subsidiaries and Joint ventures togetherwith J Lauritzen's shareholding is shown in the Group Structure on pages 114 - 115.

Transactions with subsidiaries, Joint ventures and other related parties are conducted at arms length andhave comprised the following:

Group Parent companyUSD '000 2010 2009 2010 2009

Management fee, income/(expenses) from group companies - - 13,424 12,060 Management fee, income/(expenses) from LF Investment ApS 165 165 165 165 Currency hedging income/(expenses) from group companies - - 6,769 (399) Guarantee commission income/(expenses) from group companies - - 704 753 Rental and lease income/(expenses) from group companies - - 983 1,135 Rental and lease income/(expenses) from LF Investment ApS (1,916) (2,038) (1,916) (2,038) Transactions with Joint Ventures and associated companies 2,147 1,497 - -

Transactions with subsidiaries are eliminated in the group accounts in accordance with the accounting policies.Receivables, debt and interest to and from related parties are shown in the balance sheet and notes 8 and 9.There have been no other transactions with related parties other than those stated above.Consideration to key management personnel is disclosed in note 5.

Note 32 Events after the balance sheet date

There have been no events after the balance sheet date that could materially affect the accounts as presented.

Note 33 New accounting regulations

The IASB has issued the following new or revised accounting standards (IAS and IFRS) and interpretations (IFRS), that are notcompulsory for JL in the preparation of the annual report for 2010: IFRS 9, amendments to IFRIC 14, IFRIC 19, revised IAS 24,amendments to IFRS 1 (Jan 2010), amendments to IFRS 7, amendments to IAS 32, "improvements to IFRSs (May 2010)",amendments to IAS12 og amendments to IFRS 1 (Dec 2010). IFRS 9, amendments to IFRS 1 (Dec 2010), IFRS 7 and IAS 12as well as "improvements to IFRSs (May 2010)" have not yet been endorsed by the EU.

J. Lauritzen A/S expects to implement the standards and interpretations, according to effictive dates issued by the IASB.None of the new standards and interpretations is expected to have material effect going forward.


113

Overall group structure

Companies owned by J. Lauritzen Singapore Pte. Ltd.

100%Singapore Pte. Ltd.

Lauritzen Shuttletankers

*

*

Shipinvest A/S Star Management Ass.

J. Lauritzen (USA) Inc. Hafnia Management A/S

100%100% 100%

J. LauritzenLauritzen Bulkers A/S Lauritzen Tankers A/SSingapore Pte. Ltd.Denmark Denmark

Shanghai Co. Ltd.100%

J. Lauritzen (Japan) K.K.

J. Lauritzen

Gasnaval S.A.Spain

Lauritzen Offshore Pte. Ltd.100%

25%

100%

Dan Swift do Brasil Lauritzen Shuttletankers

Good Hope Overseas Mngmt.

Dan Swift Singapore

Panama

Pte. Ltd.

Handyventure LKT Gas Carriers Pte. Ltd.Singapore Pte. Ltd. Singapore

50% 50%

100%

Denmark Japan100% 30%

Serviços Ltda. Netherlands B. V.100% 100%

100%

100% 12%

J. Lauritzen A/SDenmark

Lauritzen Kosan A/S Lauritzen Offshore Denmark Services A/S

100% 100%

F:\regnsk_rapporter\2010\Annual report 2010\InDesign\Excel filer\JL Group Structure 2010 12 31 til årsrapporten.xlsx Side 1


114

List of group companiesCompany name Country Ownership %

J. Lauritzen A/S Denmark -Segetrans Argentina S.A. Argentina 100 Greden Limited Bahamas 100 Labas (Bahamas) Ltd. Bahamas 100 Shoreoff Invest Bermuda Ltd. Bermuda 100 Dan Swift do Brasil Serviços Ltda Brazil 100 J. Lauritzen Inversiones (Chile) Ltda. Chile 100 East Gate Shipping Ltd. China 100 J.Lauritzen Shanghai Co. Ltd China 100 Owneast Shipping Limited China 100 De Forenede Sejlskibe I/S **** Denmark 43 Freja Polaris A/S * Denmark 49 ID Handysize A/S * Denmark 40 KRK 4 ApS Denmark 100 KRK 4a ApS Denmark 100 K/S Bulkinvest 30 * Denmark 18 K/S Danred I * Denmark 44 K/S Danred II * Denmark 40 K/S Danred III * Denmark 35 K/S Danred V * Denmark 50 K/S Danskib 30 * Denmark 10 K/S Danskib 34 * Denmark 20 K/S Danskib 63 * Denmark 14 K/S Danskib 72 * Denmark 20 K/S Danskib 77 * Denmark 20 K/S Handybulk * Denmark 27 LauritzenBlueC A/S * Denmark 33 Lauritzen Bulkers A/S Denmark 100 Lauritzen Kosan A/S Denmark 100 Lauritzen Offshore Services A/S Denmark 100 Lauritzen Reefers A/S Denmark 100 Lauritzen Ship Owner A/S Denmark 100 Lauritzen Tankers A/S Denmark 100 Lauritzen Tankers Ship Owner A/S Denmark 100 LB Ship Owner A/S Denmark 100 LB Ship Owner II A/S Denmark 100 LK Ship Owner A/S Denmark 100 LT Ship Owner A/S Denmark 100 Quantum Tankers A/S *** Denmark 50 Shipinvest A/S Denmark 100 Zuper Logistics Private Limited ** India 33 J. Lauritzen (Japan) K.K. Japan 100 Star Management Associates ** Japan 30 Good Hope Overseas Management Inc. ** Panama 25 Dan Swift Netherlands B.V. The Netherlands 100 Lauritzen Shuttletankers Netherlands B.V. The Netherlands 100 Dan Swift (Singapore) Pte. Ltd. Singapore 100 Handyventure Singapore Pte. Ltd. * Singapore 50 J. Lauritzen Singapore Pte. Ltd. Singapore 100 Lauritzen Offshore Pte. Ltd. Singapore 100 Lauritzen Shuttletankers Singapore Pte. Ltd. Singapore 100 LBS Shipowner Pte. Ltd. Singapore 100 LKT Gas Carriers Pte. Ltd. * Singapore 50 Milau Pte. Ltd. * Singapore 50 Gasnaval S.A. Spain 100 J. Lauritzen UK Limited UK 100 J. Lauritzen (USA) Inc. USA 100

* Joint venture** Associated company*** Treated as subsidiary as JL has more than 50% of the voting rights

**** Joint Venture. Annual reports are not published (reference is made to the Danish Financial Statements Act 5).


115

Management statement

Jan Kastrup-NielsenExecutive Vice President

Ingar Skaug, Vice Chairman

Niels Heering

Søren Berg*

Per Gommesen*

Executive Management

Torben JanholtPresident & CEO

Birgit Aagaard-SvendsenExecutive Vice President & CFO

Board of Directors

Bent Østergaard, Chairman

Peter Poul Lauritzen Bay

Vagn Rosenkilde

Ulrik Danstrøm*

* Elected by the employees

The Board of Directors and Executive Management have today discussed and approved the annual report of J. Lauritzen A/S for the financial year 2010.

The annual report has been prepared in accordance with Inter-national Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies. It is our opinion that the consolidated financial statements and par-ent company financial statements give a true and fair view of the Group’s and the parent company’s financial position at 31 December 2010 and of the results of the Group’s and the par-

ent company’s operations and cash flows for the financial year 1 January – 31 December 2010.

Further, in our opinion, the Management’s review gives a fair re-view of the development in the Group’s and the parent compa-ny’s operations and financial matters, the results of the Group’s and the parent company’s operations and financial position and describes the material risks and uncertainties affecting the Group and the parent company.

We recommend that the annual report be approved at the An-nual General Meeting

Copenhagen, 17 March 2011


116

The independent auditor’s report

those risk assessments, the auditors consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements and the parent company financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of ex-pressing an opinion on the effectiveness of the Company’s in-ternal control. An audit also includes evaluating the appropri-ateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evalu-ating the overall presentation of the consolidated financial state-ments and the parent company financial statements.We believe that the audit evidence we have obtained is suffi-cient and appropriate to provide a basis for our audit opinion.Our audit did not result in any qualification.

OpinionIn our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the Group’s and the parent company’s financial position at 31 December 2010 and of the results of the Group’s and the par-ent company’s operations and cash flows for the financial year 1 January – 31 December 2010 in accordance with International Financial Reporting Standards as adopted by the EU and Dan-ish disclosure requirements for listed companies.

Statement on the Management’s reviewPursuant to the Danish Financial Statements Act, we have read the Management’s review. We have not performed any other procedures in addition to the audit of the consolidated finan-cial statements and the parent company financial statements. On this basis, it is our opinion that the information given in the Management’s review is consistent with the consolidated finan-cial statements and the parent company financial statements.

Copenhagen, 17 March 2011

KPMGStatsautoriseret Revisionspartnerselskab

Kurt Gimsing State Authorised Public Accountant

Henrik Kronborg IversenState Authorised Public Accountant

To the shareholders of J. Lauritzen A/SWe have audited the consolidated financial statements and the parent company financial statements of J. Lauritzen A/S for the financial year 1 January – 31 December 2010, pp. 72-115. The consolidated financial statements and the parent company fi-nancial statements comprise income statement, statement of comprehensive income, balance sheet, equity statement, cash flow statement and notes for the Group as well as for the parent company. The consolidated financial statements and the par-ent company financial statements have been prepared in ac-cordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies.In addition to our audit, we have read the Management’s review prepared in accordance with the Danish Financial Statements Act and issued a statement in this regard.

Management’s responsibilityManagement is responsible for the preparation and fair presen-tation of the consolidated financial statements and the parent company financial statements in accordance with International Financial Reporting Standards as adopted by the EU and Dan-ish disclosure requirements for listed companies. This respon-sibility includes: designing, implementing and maintaining inter-nal control relevant to the preparation and fair presentation of consolidated financial statements and parent company financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate ac-counting policies; and making accounting estimates that are reasonable in the circumstances. Further, it is the responsibility of Management to prepare a Management’s review that gives a fair review in accordance with Danish disclosure requirements for listed companies.

Auditors’ responsibility and basis of opinionOur responsibility is to express an opinion on the consolidated financial statements and the parent company financial state-ments based on our audit. We conducted our audit in accord-ance with Danish Standards on Auditing. Those standards re-quire that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements and the parent company fi-nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements and the parent company financial statements. The procedures selected depend on the auditors’ judgement, includ-ing the assessment of the risks of material misstatement of the consolidated financial statements and the parent company fi-nancial statements, whether due to fraud or error. In making


117

Board of Directors

BENT ØSTERGAARD, CHAIRMANPresident, LF Investment ApS & Lauritzen Fonden

Chairman of the Board of Directors of:DFDS A/SKayxo A/SFrederikshavn Maritime Erhvervspark A/SNanoNord A/SCantion A/SFonden Kattegat Silo

Board member of:Comenxa A/SMillion Brains A/SMama Mia Holding A/SRoyal Arctic Line A/SWith FondenDurisol UK

INGAR SKAUG, VICE CHAIRMANChairman of the Board of Directors of:Bery Maritime A/SRagni Invest A/SCenter for Creative Leadership

Board member of:Berg-Hansen Reisebureau ASDFDS A/SMirosPetroleum Geo-ServicesPerformance Leadership AS

Member of Advisory Board of:Bremen Lagerhaus Gesellschaft, GmbH & Co Kg

PETER POUL LAURITZEN BAY Lean DirectorCarlsberg Breweries A/S

VAGN ROSENKILDEChairman of the Board of Directors of:Bramming Plast Industri A/S Enkotec Holding A/S - Enkotec A/S Erik Blacha Holding A/S - Carl Andersen Motorcykler A/S

NIELS HEERING Chaiman of the Board, partnerGorrissen Federspiel

Chairman of the Board of Directors of:Amagerbanken af 2011 A/SJeudan A/S NTR Holding A/S (+ subsidiary company )Ellos A/SEQT Partners A/SHelgstrand Dressage A/SNesdu A/SPlaza Ure & Smykker A/SStæhr Holding A/S (+ subsidiary company) Stæhr Invest II A/SCiv. Ing. N.T. Rasmussens Fond

Board member of:Scandinavian Private Equity Partners A/SOle Mathiesen A/S15. juni Fonden Lise og Valdemar Kählers FamiliefondDirector of CCKN Holding ApS (+ two subsidiaries)

SØREN BERG*Project Manager, Lauritzen Kosan A/S

ULRIK DANSTRØM*Vice President, Lauritzen Bulkers A/S

PER GOMMESEN*Captajn, Lauritzen Offshore

* Elected by the employees


118

Niels Heering (Chairman)

Ingar Skaug (Member)

Peter Poul Lauritzen Bay (Member)

AUDIT COMMITTEE

Bent Østergaard (Chairman)

Ingar Skaug (Member)

Niels Heering (Member)

NOMINATION AND REMUNERATION COMMITTEE


119

Management

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


120

EXECUTIVE MANAGEMENTTorben Janholt President & CEO

Board member of:Danish Shipowners’ Association (DSA)(Chairman of DSA 2005-09)A/S United Shipping & Trading LtdPost Norden AB ECSA - European Community Shipowners’ Associations

Birgit Aagaard-Svendsen Executive Vice President & CFO

Board member of:Danske Bank A/S**FUHULandlov A/SMetroselskabet I/SThe West of England Ship Owners Mutual Insurance Association (Luxem-bourg)West of England Insurance Services S.A (Luxembourg)

Jan Kastrup-NielsenExecutive Vice President

MANAGEMENT - BUSINESS UNITSEjner BonderupPresidentLauritzen Bulkers

Thomas Wøidemann*PresidentLauritzen Kosan

Jesper Kragh AndresenManaging DirectorLauritzen Offshore Singapore

Erik Donner*PresidentLauritzen Tankers

MANAGEMENT - SHARED SERVICESErik BierreSenior Vice PresidentBusiness Control

John JørgensenSenior Vice PresidentTreasury

Tove Elisabeth NielsenSenior Vice PresidentCorporate Human Resources

* As of 1 March 2011

** Until end of March 2011


121

Company details

Address J. Lauritzen A/S28, Sankt Annae PladsPO Box 2147DK-1291 Copenhagen K

Telephone: (+45) 3396 8000Fax: (+45) 3396 8001 Web: www.j-l.comE-mail: [email protected]

Company Registration Number (CVR)55 70 01 17

AuditorsKPMGBorups Allé 177DK-2000 Frederiksberg

Financial year: 1 January – 31 December


122

Leading carrier of liquefied gases, including petrochemi-cal gasses such as ethylene and propylene. At the end of 2010, Lauritzen Kosan controlled a combined fleet of about 40 semi- refrigerated/ethylene and fully pressu-rised gas carriers in the 3,000-10,000 m3 segment.

The controlled fleet will increase by five newbuildings over the next few years.

.

Major operator of bulk carriers engaged in ocean trans-port of dry bulk cargoes world-wide. At the end of 2010, Lauritzen Bulkers controlled a combined fleet of about 100 Handysize, Handymax, Panamax and Capesize bulk carriers.

The controlled fleet will increase by more than 30 new-buildings in coming years.

Global provider of medium range (MR) product tankers for ocean transport of oil products ranging from vegeta-ble oils to petroleum products, fuel oils, and chemicals. At year-end 2010, Lauritzen Tankers controlled/managed 13 modern, double-hulled, medium range (MR) product tankers.

The fleet will increase by seven newbuildings in the next few years.

Provider of innovative and technologically advanced support vessels for the offshore industry. The focus is to serve the deep water oil exploration and production sec-tors using dynamic positioning (DP) technology. In 2010 the fleet comprised one DP shuttle tanker and the DP Accommodation and Support vessel Dan Swift.

The fleet will see the addition of two additional DP2 shut-tle tankers for employment offshore Brazil in 2011.


123

www.j-l.com

HEAD OFFICEJ. Lauritzen A/S28, Sankt Annae PladsPO Box 2147DK-1291 Copenhagen KPhone: +45 3396 8000Fax: +45 3396 8001Email: [email protected]

OWNERLauritzen Fonden28, Sankt Annae Plads DK- 1291 Copenhagen KPhone: +45 3396 8425Fax: +45 3396 8434 Email: [email protected]: www.lauritzenfonden.com

OVERSEAS OFFICES:

BRAZILDan Swift do Brasil Serviços LtdaEd. Argentina Praia de Botafogo, 228 sala 60422.250-040 Rio De JaneiroBrazilPhone: +55 21 3266 1550Email: [email protected]

CHINAJ. Lauritzen Shanghai Co. Ltd.Unit 2306, Chong Hing Finance Center No. 288 Nanjing Road West Huangpu District, Shanghai CHINA 200003 Phone: +86 21 6358 0066Fax: +86 21 6358 0077Email: [email protected]

JAPANJ. Lauritzen (Japan) K.K. Kioicho Building 3 A, 3-12 Kioicho Chiyoda-ku Tokyo 102-0094 Japan Phone: +81 3 3237 7431Fax: +81 3 3237 7858Email: [email protected]

PHILIPPINESLauritzen Kosan Manila Officec/o Crossworld Marine Services Inc.7th Floor, Sage HouseV.A. Rufino StreetLegaspi Village, Makati City 1233Phone: +63 2750 5268Fax: +63 2892 7242Email: [email protected]

SINGAPOREJ. Lauritzen Singapore Pte. Ltd. 1 Harbour Front Avenue #13-01/02 Keppel Bay Tower Singapore 098632 Phone: +65 6275 8000Fax: +65 6275 7208Email: [email protected]

SPAINGasnaval S.A. PAE Ibarrabarri Edificio A-1 Avda. Sabino Arana 18 E-48940 Leioa, Vizcaya Spain Phone: +34 94 479 5600Fax: +34 94 416 7316Email: [email protected]

USAJ. Lauritzen (USA) Inc. 4 Landmark Square, Suite 150 Stamford, CT 06901 USA Phone: +1 203 961 8661Fax: +1 203 964 0350Email: [email protected]

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