Annual Report 2005
A year of expansion In 2005 Broström acquired a large number of vessels and stakes in vessels. In addition, Broström both bought and sold companies. Major events during the year included the following, among other things:
Partnership with Dünya (Turkey) gave stronger positions in Asia
Contents 1
2005 in summary
2
CEO’s statement
4
Business concept, vision, goals and strategy
6
A day with Broström
10
Shipping
Acquisition of Nordtank (Denmark) and co-operation with Furetank (Sweden)
10
Business offer
Acquisition of Vroon’s stake in Iver Ships, toward global expansion
13
Market conditions
Sale of the subsidiary Nordic Bulkers
16
Competitors
Naming of the two first D-class vessels in China
17
Market development 2005
20
Business development
22
Broström’s partners
On the whole, Broström laid the foundation during the year for global expansion according to the same strategy that has proved to be very successful in the European market. Including the vessels ordered by Broström and its partners, the fleet
24
will be nearing 100 vessels.
Marine & Logistics Services 24
Travel Agency
26
Ship Agencies
28
Employees
30
The fleet
34
Quality, safety and the environment
37
IT
38
Several-year overview
41
Broström Logistics Index (BLX)
42
Broström’s shares
44
Share data
45
Key ratios
46
Risk factors and sensitivity analysis
48
Directors’ Report
53
Income statements
54
Balance sheets
56
Changes in shareholders’ equity
57
Cash flow statements
58
Auditors’ Report
59
Accounting and valuation principles
62
Notes to the income statements and balance sheets
71
Corporate Governance Report
76
Board of Directors and Management
78
Addresses
79
Glossary
BrostrĂśm in brief A leading logistics company for the oil and chemical industry
Under these contracts, BrostrĂśm undertakes to transport
BrostrĂśm is one of the leading logistics companies for the
customers over a set period of time.
agreed volumes between a number of ports decided by its
oil and chemical industry, focusing on product and chemical tanker shipping, and marine services. Operations are organised into two areas – Shipping and Marine & Logistics Services.
A large, modern eet offers customers exibility Contracts of affreightment, combined with BrostrÜm’s
Shipping – BrostrÜm’s largest area of operation
large and modern eet, provide a large degree of exibility.
In Shipping, BrostrĂśm provides the oil and chemical industry
standards of quality and safety. The average age of BrostrÜm’s
with comprehensive global transport solutions with a distinct
eet is 8.3 years, compared with 14.8 years for the global
Customers are offered transport capacity that meets high
focus on quality and safety. Services include the transport
eet in BrostrÜm’s size class. The BrostrÜm eet is present-
of reďŹ ned oil products such as gasoline, diesel and heating
ed on pages 30-33.
oil, and chemicals such as methanol, ethanol, and MTBE. systems, with vessels travelling mainly from reďŹ neries to stor-
BrostrÜm meets its customers’ needs for global logistics solutions
age depots and between different depots. Read more about
BrostrĂśm offers comprehensive geographic coverage to its
the Shipping operations on pages 10-23.
customers. From Archangel in the north to Cape Horn in
Transports are often integrated with the customers’ logistics
the south, from Japan in the east to California in the west
BrostrĂśm puts logistics in the centre
– BrostrÜm’s vessels are available wherever there is a need for
BrostrĂśm differs from many other companies in the
transport. This gives BrostrĂśm a strong vantage point as com-
shipping business through its emphasis on transport and
panies in the oil and chemical industry seek to consolidate and
logistics services. This is reected in the company’s strategic
co-ordinate their logistics purchasing internationally. BrostrÜm’s
focus on contracts of affreightment, among other things.
global presence is illustrated in the spread on pages 7-9.
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ProďŹ t after net ďŹ nancial items
Disposable liquidity and cash ow
BrostrÜm’s net sales rose 19% in 2005, which was clearly higher than the target of 10%.
Stable cash ows have contributed to a high level of disposable liquidity for BrostrÜm.
Marine & Logistics Services
Financial stability
In Marine & Logistics Services, BrostrĂśm offers a broad
BrostrÜm’s focus on the commercial operation of vessels
spectrum of logistics-related services. BrostrĂśms ResebyrĂĽ
employed on long-term contracts of affreightment reduces
specialises in business and marine travel for seamen around
the risk for speculative wrong investments in new vessels.
the globe. The BrostrĂśm Ship Agency Network is a unique
BrostrÜm’s growth strategy, which is based in part on co-
Swedish network of shipping agents. Read more about the
operation with strategic partners, also helps minimise the
Marine & Logistics Services business on pages 24-27.
company’s risk in connection with growth and expansion. BrostrĂśm’s ďŹ nancial target is that its equity/assets ratio II
BrostrÜm’s employees – the key to effective logistics
will be in excess of 30%. In 2005 it was 37.2%.
BrostrÜm’s business is based on competent employees who can offer customers effective and exible logistics solutions.
Strong trend in share price and attractive dividend yield
BrostrÜm’s employees are instilled with a large sense of
BrostrÜm’s shares have outperformed the Stockholm Stock
responsibility and conďŹ dence, with good opportunities for
Exchange general index for several years running. BrostrÜm’s
development. Read more about BrostrÜm’s employees on
dividend policy calls for steady growth in the dividend. In
pages 28-29.
recent years, BrostrÜm’s dividend yield has been among the highest on the Stockholm Stock Exchange.
SEK 3.8 bn in sales and 15.9% return on capital employed BrostrÜm’s net sales in 2005 amounted to SEK 3,818 m (3,207). The return on capital employed was 15.9%. In 2005 the company formulated new targets for growth and returns, among other things. BrostrÜm’s new targets are set out on page 4.
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Breakdown of sales – Shipping and Marine & Logistics Services
Total return and earnings per share
BrostrÜm conducts operations in two areas – Shipping and Marine & Logistics Services.
A stable dividend yield and strong price trend have contributed to a high total return.
2 0 0 5 I N S U M M A RY
2005 in summary The year was characterised by a relatively good freight market in which individual events caused major fluctuations in the spot market. Net sales rose 19%, to SEK 3,818 m. Operating profit was SEK 812 m, corresponding to an operating margin of 21.3%. Profit after net financial items improved by SEK 395 m, to SEK 720 m. Disposable liquidity was SEK 1,295 m. The return on capital employed was 15.9%. The equity/assets ratio II was 37.2%. The Board proposes a dividend of SEK 8.00. SEK m
Net sales Shipping Marine & Logistics Services Operating profit (EBIT) Shipping
2005
2004
2003
3,818.1
3,206.8
3,267.3
3,073.0
2,451.9
2,437.6
743.3
754.5
829.1
812.4
403.8
355.1 374.0
807.3
434.2
Marine & Logistics Services
22.7
14.0
13.5
Profit after net financial items
720.1
324.7
238.1
Net profit
622.9
486.7
178.8
1,620.0
943.3
409.3
619.3
429.6
343.9
1,294.9
827.8
800.7
15.9
9.9
7.5
Investments Cash flow from operating activities Disposable liquidity Return on capital employed, % Equity/assets ratio II, %
37.2
38.0
31.9
Net profit per share, SEK
18.89
16.33
6.14
Net profit per share after dilution, SEK
18.76
15.10
6.08
Cash flow from operating activities per share, SEK
19.15
14.65
11.81
8.00
5.00
4.50
Dividend (proposed by the Board), SEK
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Financial Calendar 2006 3 May
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per share for 2005. For more information, visit www.brostrom.se.
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Annual General Meeting, 5 p.m., Lorensbergsteatern, Göteborg, Sweden. The Board proposes a dividend of SEK 8.00
3 May
Q1 interim report
25 August
Q2 interim report
31 October
Q3 interim report
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Profit after net financial items The fourth quarter of 2005 was the strongest single quarter ever for Broström.
4
C E O ’ S S TAT E M E N T
Strategic deals and interesting market 2005 was an eventful year for Broström as well as in the market. We carried out several important deals to strengthen our positions in Europe and around the world. At the same time, we witnessed several examples of how individual events can affect the balance that currently exists between supply and demand in both the energy and transport markets. All of the 24 years that I have had the benefit to work for Broström have been eventful. 2005 was no exception. In parallel with the strategic deals we carried out during the year, developments in the market played well into the strategy that we have been pursuing for decades.
The year began with a strategic partnership with the Turkish
quality tonnage and quality operators. Steadily greater interest
company Dünya Shipping. Once Dünya’s vessels – including
is now being directed to the overall transport organisation,
eight newbuildings – have joined our fleet, we will have dou-
which is an entirely proper development in our view.
bled our capacity in Asia. This venture was further enhanced in April when we acquired the outstanding 50% of Iver
An eventful year in the market
Ships. We also entered into an agreement with our former
In 2005 we saw several examples of the sensitive bal-
partner Vroon on the acquisition of four of its vessels, which
ance that currently exists between supply and demand in
were delivered in late 2005 and early 2006.
both the energy and transport markets. The market came
Shortly after signing the agreement with Dünya, we
to be affected by a number of specific events that will be
acquired the Danish company Nordtank Shipping, which
remembered for some time to come. The most tangible
commercially operates 16 product and chemical tankers for
was the effects of the hurricanes that swept across the
Scandinavian shipowners. In connection with this acqui-
Gulf of Mexico and battered the US southern coast, which
sition, we entered into a partnership with the Swedish
is the heart of the US oil industry. Many refineries were
company Furetank Rederi and purchased stakes in three of
shut down, and oil products had to be shipped over longer
its vessels.
distances than normal. Longer voyages reduce available transport capacity. This, in turn, has a direct impact on
An extension of our customers’ developments
freight rates in the spot market.
As a result of these acquisitions and partnerships – along with our existing newbuilding orders – our combined fleet
Strategy for reliability and flexibility
will be nearing 100 vessels within a few years.
Due to Broström’s focus on contracts of affreightment, we are
This expansion should be seen against the backdrop of
not fully affected by fluctuations in the spot market. As a result,
developments experienced by our customers in the oil and
we have been able to maintain relatively stable capacity utilisa-
chemical industry. The industry today is global, and we
tion and profitability, regardless of fluctuations in the market.
now serve the same customers in northern European and Atlantic traffic as we do in Asia.
For our customers, this strategy means that we can offer them a high degree of reliability and flexibility. They know that there will always be available transport capacity that
Sensitive interplay
meets high demands for quality, safety and the environment.
Consolidation in the oil and chemical industry is also contributing to recent years’ changes in the transport
Newbuildings
market. From having previously worked with large, national
At year-end 2005 Broström was financially involved in four
depots, oil and chemical companies have moved toward
newbuildings. Added to these are ten other newbuildings
“just-in-time” thinking, in which the transport apparatus
that have been ordered through our partners.
has become a critical link in the value chain. This increases
One of the most interesting newbuilding projects con-
demand for reliable transport solutions that can also with-
cerns our four new D-class vessels. These include state-of-
stand sudden external disruptions.
the-art features in everything from propulsion systems and
This tendency is being intensified by a growing focus on
2
cargo handling to emission control and communications.
quality, safety and the environment. As older, single-hulled
Quality and safety features, in particular, have played a
vessels are being phased out, demand is rising for modern,
major role in the design of the D-class vessels – something
C E O ’ S S TAT E M E N T
that won praise during the year when Lloyd’s List, the leading daily journal of the shipping industry, named one of our new vessels as “Ship of the Year”.
Earnings and financial position Commercially 2005 was a success. Net sales rose 19%, to SEK 3,818 m, which is higher than our target growth rate of 10%. We also achieved our 20% growth target for commercial activity (including partners). In terms of earnings, we delivered a 15.9% return on capital employed, which was higher than the minimum 9.1% target we had set for 2005. Our result for the year led to a further strengthening of our financial position. Moreover, for the first time since our introduction on the stock market, in 2005 we financed acquisitions of vessels and stakes in vessels through the issuance of shares.
Marine & Logistics Services In October we sold Nordic Bulkers to the Swiss company Bertschi AG. Nordic Bulkers was part of Broström for 17 years and has developed to become a market-leading player in
Lennart Simonsson at the Yuejiang Tower temple in Nanjing. China has emerged in recent years to become the world’s leading shipbuilding nation. Broström and its business partners have ordered a total of 17 vessels from Chinese shipyards during the past few years.
northern Europe. Bertschi is an internationally leading company, and we believe that through the sale, Nordic Bulkers
to have a positive outlook for the future. Those who have
will obtain the best conditions for continued positive growth.
been with us a while have enjoyed a very positive perform-
Broströms Resebyrå now appears to have withstood the
ance of their holdings. Our market capitalisation has risen
challenges brought on by changes in the travel industry. The
from slightly more than SEK 300 m seven years ago to
travel agency has embarked on a new venture in the marine
more than SEK 5,000 m at year-end 2005.
segment by acquiring a travel agency in Manila, Philippines, and carrying out an extensive cost-cutting programme. The Ship Agencies business area had another year of stable growth, helped in part by strong Swedish exports.
Thanks In closing I want to take this opportunity to thank all of our employees, customers, business partners and shareholders for the contributions you have made towards our
Future outlook
development and for the confidence you have held in us.
Broström stands strong both competitively and financially. 2006
I look forward to yet another year in which we can take
will be the first year in which our recently acquired operations
further steps together towards our common vision. My
will have full impact on earnings. It is also a year in which we
sincere thanks!
expect delivery of a large number of newly built vessels. Moreover, the start of 2006 has been characterised by a
Göteborg, Sweden, March 2006
continued strong spot market, and there is reason to believe that the year will be characterised by a continued interesting market trend. We will likely see wide swings in the spot market, but where the overall trend is favourable for Broström. In Sweden, we are looking forward to a swift legislative process and the introduction of a tonnage tax, which will create competitive neutrality for Swedish-flagged tonnage.
Lennart Simonsson CEO
In summary, Broström’s shareholders have every reason
3
B U S I N E S S C O N C E P T, V I S I O N , G O A L S A N D S T R AT E G Y
Successful strategy lays the foundation for expansion Broström has worked according to the same strategy since the early 1990s when it formed United Tankers (today Broström Tankers AB) together with other operators. This same strategy that has made Broström a European leader now lays the foundation for the company’s global expansion.
Business concept
• Average annual growth in commercial activity (mea-
Broström offers competitive logistics solutions to custom-
sured as net sales including partners) of 20% over a
ers in the oil and chemical industry, focusing on industrial
three-year period.
tanker shipping and marine services.
Return Vision
• A return on capital employed that is higher than the
Broström will be a market-leading provider of marine logis-
average yield on 10-year US government bonds during
tics services for customers in the oil and chemical industry.
the last three years plus a risk premium of 5%. For
Broström’s vision includes being the biggest in the markets
2005 this corresponded to a return target of 9.1%. The
and segments in which the company operates. Broström
target for 2006 is 9.2%.
seeks close and long-term customer relationships and will be the natural choice whenever oil and chemical companies request marine logistics solutions.
Financial targets Growth • Average annual growth in net sales of 10% over a threeyear period.
Equity/assets ratio • Equity/assets ratio II in excess of 30%. Broström revised its targets in 2005. The growth target has been broken down into a net sales target and a commercial activity target. The latter target includes growth for Broström’s entire business offer (including partners). The levels are based on an anticipated continued need for consolidation in product and chemical tanker shipping. In pace with consolidation in the oil and chemical industry, companies are outsourcing services such as logistics to external partners to a growing extent. At the same time, oil and chemical companies are growing larger and becoming increasingly global, which puts similar demands on their suppliers. The return target is related to overall interest rates. Consequently, the target coincides with the trend for alternative capital investments. Finally, the financial strength target has been renamed equity/assets ratio II instead of adjusted equity/assets ratio as previously. The level is based on what Broström believes is needed to maintain financial stability and freedom to manoeuvre during periods of growth and expansion.
Strategy • Broström will lead the development of logistics solutions primarily for the oil and chemical industry by meeting its customers’ service needs. One of Broström’s D-class vessels being built at the shipyard in Nanjing, China.
4
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Return on capital employed
Equity/assets ratio II
Growth
During the last ďŹ ve years BrostrĂśm has had an average return on capital employed of 11.6%.
The average equity/assets ratio during the last ďŹ ve years was 34.1%.
BrostrÜm’s net sales have risen by an average of 13.9% during the last three years.
• BrostrÜm will grow by increasing contract volumes, developing new markets, and acquiring companies. • BrostrÜm will lead the market in terms of quality, safety and the environment. • BrostrÜm’s production will be cost-effective and im-
of new vessels and the sale of older vessels, the company continued its initiatives involving its employees, organisation and work processes. Additionally, toward the end of the year, the Group’s business focus was narrowed with the sale of Nordic Bulkers.
proved continuously. • BrostrÜm will develop improved logistics solutions for its customers through its strategic alliance with Vopak.
Focus for 2006 In 2006 BrostrÜm intends to: • increase shipping contract volumes in pace with the
Strategic follow-up 2005 BrostrĂśm continued to strengthen its competitiveness in 2005 through further expansion. Through a partnership with the Turkish company DĂźnya Shipping, a total of nine vessels will be successively added to the commercial eet operated by BrostrĂśm. Through this co-operation BrostrĂśm aims to strengthen its market positions in Asia. Toward this end, BrostrĂśm also acquired the remaining 50% of Iver Ships (name changed to BrostrĂśm Tankers Ltd), with ofďŹ ces in Sandefjord,
growth of its eet, • strengthen its market positions, primarily in the large vessel segments in Europe, • expand its capacity in Asia through existing partnerships, • continue to participate actively in the consolidation of the markets in which the company operates, • continue expanding its operations through new partnerships, and • further develop its strategic alliance with Vopak.
Norway, and Singapore, which will serve as the hub for BrostrÜm’s Asian operations. Following the acquisition of Iver Ships, BrostrÜm is the sole owner of all of the Group’s commercially operated
The BrostrĂśm brand
shipping businesses. This increases the Group’s oppor-
In 2005 BrostrĂśm initiated a wide-reaching project to further
tunities to develop similar logistical solutions in all of its
strengthen the company’s brand. The aim of the project is to
markets, based on BrostrÜm’s strategic focus on contracts of
increase BrostrÜm’s attractiveness among its customers,
affreightment. In the European operations, BrostrÜm initiated cooperation with the Swedish company Furetank Rederi and acquired stakes in three of Furetank’s existing vessels. At
partners, employees and ďŹ nancial players. The project is also aimed at ensuring that the company’s brand and values are in line with the company’s strategies and objectives. The actual brand-building project is expected to be completed
the same time, the Danish company Nordtank Shipping
during the second half of 2006. At this time, new guidelines and
was acquired, with commercial responsibility for 16 vessels.
practical tools will be available as support for all employees who
BrostrĂśm thereby strengthened its position as a market-
work with brand issues. The important day-to-day work will
leader in European product and chemical shipping.
then begin, which will ultimately determine how the BrostrĂśm
During the year, BrostrĂśm also strengthened its position
brand is perceived.
as a leading quality operator. In addition to taking delivery
5
A D AY W I T H B R O S T R Ö M
The entire world as a workplace EUROPE 1. TRAPPER Discharging gasoline, low-sulphur diesel and jet fuel in Belfast, Northern Ireland, from Finnart, England. 2. TRAVESTERN En route from Whitegate, Ireland, to Hamburg, Germany, with residual oil. 3. RHEINSTERN Loading gas oil in Pembroke, Wales, for discharging in Thames, England. 4. BRO GEMINI Loading gas oil in Pembroke, Wales, for discharging in Whitegate, Ireland. 5. BRO AXEL Loading diesel, gas oil, kerosene and gasoline in Pembroke, Wales, for discharging in Plymouth, England. 6. BRO GRANITE Loading gasoline, diesel, gas oil, and kerosene in Pembroke, Wales, for discharging in Belfast, Northern Ireland. 7. BRO TRADER Discharging kerosene, gas oil, diesel and gasoline in Cardiff, Wales, from Pembroke, Wales. 8. BRO GENIUS En route to Milford Haven, Wales, to load kerosene for discharging in Whitegate, Ireland. 9. WEICHELSTERN En route from Wilhelmshaven, Germany, to Lisbon and Lexioes, Portugal, with gas oil. 10. PRIMULA En route from Borgå, Finland, to Lisbon and Lexioes, Portugal, with diesel. 11. EURO SWAN Waiting to discharge gasoline in Bordeaux, France, loaded in Port Jerome, France. 12. BRO ETIENNE Discharging gas oil in La Pallice, France, loaded in Ventspils, Latvia.
39. DONAUSTERN En route from Immingham, England, to Bilbao, Spain, with low-sulphur fuel oil.
21. WOLGASTERN En route to Riga, Latvia, from Le Havre, France, to load gas oil.
40. BRO GRATITUDE Loading diesel and gasoline, Slagen, Norway, for discharging in Aalborg, Denmark.
22. ALSTERSTERN En route to Riga, Latvia, from Cardiff, Wales, to load gas oil. 23. MARELD En route from Fos, France, to Hamburg, Germany, with gas oil components. 24. RAMONA En route from Stanlow, England, to Wilhelmshaven, Germany, with gas oil components. 25. BRO ATLAND Discharging condensate in Ternueuzen, Netherlands, loaded in Braefoot Bay, Scotland. 26. BRO ANTON Discharging naphtha in Rotterdam, Netherlands, loaded in Kårstö, Norway. 27. LEINESTERN Discharging naphtha in Rotterdam, Netherlands, loaded in Teesport, England. 28. NANNY Waiting to load fuel oil in Coryton, England, for discharging in Liverpool, England. 29. BRO GLOBE Discharging gasoline components in Grangemouth, Scotland, loaded in Amsterdam, Netherlands. 30. IVER EXACT Loading gasoline in Antwerp, Belgium, for discharging in Charleston and Savannah, USA. 31. GREAT SWAN En route from Vysotsk, Russia, to Rouen, France, with diesel. 32. ISARSTERN En route from Slagen, Norway, to Kokkola, Finland, with heating oil.
13. BONITO En route to Donges, France, to load fuel oil for discharging in Ambes, France.
33. BRO ELLEN En route from Skikda, Algeria, to Terneuzen, Netherlands, with naphtha.
14. BRO JOINVILLE En route after having discharged residual oil in Santander, Spain, loaded in Fawley, England.
34. FURE STAR Discharging diesel in Gulfhavn, Denmark, loaded in Rotterdam, Netherlands.
15. BRO STELLA En route from Novorossiysk, Russia, to Fos, France, with crude oil.
35. BRO GRACE Discharging jet fuel in Malmö, Sweden, loaded in Kalundborg, Denmark.
16. HAVELSTERN Loading gas oil in Fawley, England, for discharging in Bordeaux, France.
36. THEMSESTERN En route from Rouen, France, to Ventspils, Latvia, to load gas oil.
17. EVINCO Waiting to load gas oil components in Fawley, England, for discharging in Antwerp, Netherlands.
37. BRO TRAVELLER Waiting to load gasoline in Gdansk, Poland, for discharging in Norrköping, Sweden.
18. BRO GALAXY En route to Fawley England, to load gasoline components for discharging in Amsterdam, Netherlands.
38. FURE NORD Waiting to load petroleum products in Göteborg, Sweden, for discharging in Luleå, Sweden.
19. BRO TRANSPORTER Discharging gasoline in Thames, England, loaded in Hamburg, Germany.
6
20. BRO JUNO Loading gas oil components in Coryton, England, for discharging in Amsterdam, Netherlands.
41. FURENÄS Waiting to load petroleum products in Slagen, Norway, for discharging in Karleby and Kemi, Finland. 42. VINGA HELENA Discharging fuel oil in Mongstad, Norway, loaded in Gdansk, Poland. 43. PROSPERO Waiting to discharge gas oil and gasoline in Mongstad, Norway, loaded in Oslo, Norway. 44. BRO GLORY En route to Mongstad, Norway, to load gas oil for discharging in Halmstad, and Helsingborg, Sweden. 45. RHONESTERN Loading gas oil in Archangel, Russia, for discharging in Donges, France. 46. NORDIC SWAN En route from St. Petersburg, Russia, to Turku, Finland, with petroleum products. 47. GEESTESTERN En route from Alexandria, Egypt, to Rotterdam, Netherlands, with naphtha. 48. BRO SINCERO Waiting to load low-sulphur fuel oil in Lexioes, Portugal, for discharging in Antwerp, Netherlands. 49. FIONA SWAN Waiting to load naphtha in Cartagena, Spain, for discharging in Tarragona, Spain. 50. BRO JUPITER En route to Tarragona, Spain, to load residual oil, for discharging in Porvoo, Finland. 51. NAVIGO Loading gas oil in Skikda, Algeria, for discharging in Arzew, Algeria. 52. BRO ELISABETH Loading naphtha in Skikda, Algeria, for discharging in Dunkirk, France. 53. MARISP En route from Fawley, England, to Ravenna, Italy, with residual oil. 54. FURE SUN Discharging residual oil in Malta, loaded in Pembroke, Wales, and Fawley, England.
ATLANTIC 57. BRO PRIORITY Discharging gasoline components in San Francisco, USA, loaded in Vancouver, Canada. 58. IVER EXAMPLE Discharging methanol in Point Lisas, Trinidad, loaded in Houston, USA. 59. BRO CATHERINE En route from Punta Arenas, Chile, to Fos, France, Barcelona, Spain, and Rotterdam, Netherlands, with methanol. 60. VEGA SPRING En route from Ravenna, Italy, to José, Venezuela, with methanol. 61. BRO CECILE En route from Punta Arena, Chile, to Rotterdam, the Netherlands, Fos, France, Valencia and Barcelona, Spain, with methanol. 62. VEGA SPIRIT En route from José, Venezuela, to Houston, USA. 63. ATLANTIC SWAN Discharging lubrication oil in Houston, USA, loaded in Port Harcourt, Nigeria. 64. IVER LIBRA Anchored in Wilmington, USA. 65. BRO PROVIDER Discharging methanol in New York, USA, loaded in José, Venezuela. 66. TREGUIER En route from Teesport, England, to Boston, USA, with gas oil.
ASIA-PACIFIC 67. CILAOS En route from Singapore to Reunion Island. 68. SETO EAGLE En route to New Mangalore, India, to load naphtha for discharging in Singapore. 69. BRO CHARLOTTE Loading gasoline and gas oil in Singapore for discharging in Honiara, the Salomon Islands, Vuda and Suva, Fiji, Pago-Pago, Samoa, and Papeete, in French Polynesia. 70. BRO ALBERT Loading gasoline and gas oil in Singapore for discharging in Esperance, Adelaide and Port Lincoln, Australia. 71. BRO CAROLINE En route from Singapore to Kwinana and Adelaide, Australia, with gas oil and gasoline.
55. BRO ELLIOT En route from Lavera, France, to Tuapse, Russia.
72. BRO ARTHUR En route from Singapore to Kwinana, Esperance and Adelaide, Australia, with jet fuel, gasoline and gas oil.
56. BRO EDWARD En route from Fawley, England, to Dakar, Senegal, and Conakry, Guinea, with gas oil.
73. BRO ALEXANDRE Discharging gasoline and gas oil in Kwinana, Australia, loaded in Singapore. 74. GÖNEN En route from Singapore to Melbourne and Botany Bay, Australia, with jet fuel.
A D AY W I T H B R O S T R Ă– M
Vessel positions on 9 January 2006 On 9 January 2006 BrostrÜm’s vessels were loaded with a total of
1.3 million tonnes of oil and chemical products. Transportation of the same volume by land would have required roughly 24,500 tanker lorries which, lined up end-to-end, would stretch by road
from BrostrĂśm’s head ofďŹ ces in GĂśteborg to Bremen, Germany.
On that same day, BrostrÜm’s Resebyrü received 647 phone
calls and performed 286 travel bookings, and the companies in
BrostrĂśm Ship Agency Network cleared approximately 21 vessels.
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A vital link in the distribution chain The BRO GRANITE is the youngest in a series of eight vessels ordered by Broström in partnership with Erik Thun AB. The vessel was delivered in 2004 from the shipyard in the Netherlands and is operating today in Broström’s northern European operations.
On 9 January 2006, the BRO GRANITE loaded gasoline,
ports. In 2005 the vessel paid 39 visits to the sister ports
diesel and jet fuel in Pembroke, Wales, for transport to Bel-
of Pembroke and Milford Haven. In all, Broström’s vessels
fast, Northern Ireland. Loading in Pembroke usually takes
make approximately 400 calls on these two ports every
about ten hours. The journey to Belfast would take up to
year.
20 hours. Vessels in this size class make an average of 80 voyages
Pembroke and Milford Haven are in Pembrokeshire, south-west Wales, on either side of Milford Haven bay. The
per year, while some vessels can make as many as 140
towns have a long tradition of marine activity. Today they
voyages during a twelve-month period. The short voyages
form a hub of activity for ferries, cruise ships, and for the
and relatively large portion of operating time that the BRO
oil industry.
GRANITE spends in port puts high demands on efficient systems and routines onboard and ashore. Efficiency is improved by frequent calls on the same
BRO GRANITE – key data Commercial operation: Broström Tankers AB Crewing and technical operation: Marine Ship Management Crew: Dutch, Polish and Philippine Flag state: Netherlands Length: 115 metres Breadth: 15 metres Deadweight tonnage: 7,600 dwt Speed: 13 knots Cargo capacity: 8,000 cubic metres Hull type: double
Every year some 3,500 vessels traffic Pembroke and Milford Haven. Cargo volume amounts to nearly 40 million tonnes, of which 22 million tonnes consist of oil products.
51° 42’ N. 4° 57’ W.
SHIPPING
Market leader in product tanker shipping Shipping is Broström’s largest area of operation, accounting for 81% of net sales. The core of activities involves the commercial operation of 74 product tankers that are operated from offices in Sweden, Norway, Denmark, France and Singapore.
Operations were expanded in 2005 through the acquisition of the Danish company Nordtank Shipping A/S, the
KEY EVENTS
outstanding half of the Norwegian company Iver Ships Ltd, and a number of vessels. In addition, Broström began
New partnership with the Turkish company Dünya
commercial partnerships with the Turkish company Dünya
• Investment in strong positions in Asia.
Shipping & Trading Inc. and with the Swedish company
• Gradual addition of nine new vessels to the fleet, in
Furetank Rederi AB.
addition to one already operated by Broström. Acquisition of Nordtank (Denmark) and new co-operation
Business offer
with Furetank
Broström offers effective and flexible marine logistics
• 16 vessels owned by numerous Scandinavian shipowners
solutions to the global oil and chemical industry. Services include the transport of refined oil products such as gaso-
added to the fleet.
line, diesel and heating oil, and chemicals such as methanol,
• Acquisition of stakes in three of Furetank’s vessels.
ethanol and MTBE. Transports are often integrated into customers’ own dis-
Acquisition of Vroon’s share in Iver Ships • Agreement with Vroon on the acquisition of four product and chemical tankers.
tribution chains and go from refineries to storage depots as well as between depots. The size and scope of assignments
• Iver Ships changed its name to Broström Tankers Ltd.
vary depending on the cargo, transport distances and the type of contract agreed upon for the assignment.
Naming of two of Broström’s four new D-class vessels in China • The first of these, the BRO DELIVERER, was delivered in early 2006 and was named “Ship of the Year” by Lloyd’s List.
In 2005, 51% (61%) of Broström’s transports were conducted under contracts of affreightment. Total cargo volume was 42.4 million tonnes (35.3), which is roughly three times as much as total annual oil consumption in Sweden. The in-
Sale of three older product and chemical tankers.
crease compared with a year earlier is attributable to organic At year-end 2005, Broström was financially involved in four
growth, acquisitions and to partnerships agreements made
newbuildings. Added to these are a further eleven vessels that
during the year. Activities involve commercial operation,
will be added to the fleet through various partnerships.
ownership, technical operations and crewing of vessels. Broström’s service offering is characterised by:
SEK m
Net sales Operating profit (EBIT) Operating margin, %
2005
2004
2003
3,073
2,452
2,438
807
434
374
26
18
15
850
826
865
735
734
958
Total assets
7,979
5,544
5,886
Investments
1,513
919
370
Number of port calls
7,033
5,156
5,819
42.4
35.3
37.4
Average number of employees 1)
Number of employees on 31 Dec.
Transported volume, million tonnes 1)
Including associated companies.
• a high degree of service through opportunities for custom-tailored logistics solutions, • far-reaching quality and safety initiatives, • a large, modern fleet that provides effectiveness and flexibility, and • extensive market knowledge gained through local and global presence and enduring customer relationships. At the core of Broström’s business offer is its focus on contracts of affreightment. Under these contracts, Broström undertakes to transport agreed volumes between a number
10
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Share of BrostrÜm’s total net sales
Sales and proďŹ t – Shipping
Shipping accounts for 81% of BrostrÜm’s net sales.
Net sales for the Shipping business area have risen by an average of 22% during the last three years.
of ports chosen by its customers over a set period of time.
the relationship between supply and demand for transport
In contrast with time charters, for example, contracts of
capacity. A more detailed description of how tanker ship-
affreightment allow BrostrÜm to participate in its customers’
ping works and the factors that steer supply and demand is
logistics planning. Since these contracts extend over a long
presented on pages 13-15.
period of time and represent a total solution, the customers
Since individual operators have limited opportunities
gain efďŹ ciency and can concentrate on their core businesses.
to inuence prices, efďŹ cient use of the eet is BrostrĂśm’s primary means of enhancing its proďŹ tability. The company’s
Focus on customer beneďŹ t
strategic focus on contracts of affreightment plays a decisive
Contracts of affreightment, combined with BrostrÜm’s
role in this endeavour since it affords greater opportunities
large and modern eet, enable a large degree of exibility.
for planning and thereby minimises ballast voyages.
In the event of disruptions, BrostrĂśm has access to replace-
Cargo handling in ports is also highly signiďŹ cant for ca-
ment tonnage. Delivery reliability and dependability are
pacity utilisation and efďŹ ciency, especially in segments with
key features of BrostrÜm’s quality concept.
short transport distances and numerous port calls. Here, a
With customer relationships that often endure over
large share of vessels spend nearly half of their operational
several decades, BrostrĂśm has a deep-rooted understanding
time in port, which places special demands on efďŹ cient
of its customers’ preferences and conditions.
cargo handling. This efďŹ ciency is enhanced by the fact that
BrostrÜm’s logistics offering is enhanced through its
the vessels regularly return to the same ports with similar
strategic alliance with Vopak, the world’s largest provider
cargoes. Due to the long-term nature of contracts of af-
of oil storage, with a global network of tank terminals and
freightment, BrostrĂśm can work together with its custom-
inland tanker tonnage.
ers to affect cargo installations at speciďŹ c ports and thereby work continuously to improve its cargo handling.
EfďŹ ciency important for proďŹ tability The price of product and chemical transports (freight rates)
Development of the business offer
is set by the market and is controlled to a great extent by
BrostrĂśm is working continuously to develop its business offer
BrostrÜm’s place in the value chain
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11
SHIPPING
in consultation with its customers. Within the framework of assignments, improvements are made in routines both onboard and ashore. Internal development work pertains primarily to processes and routines concerning quality, safety and the environment. This is described in more detail on pages 34-36. Development of vessel and technical equipment is also based on customers’ transport needs and demands on efficiency improvement. A discussion of Broström’s current shipbuilding activities is provided on pages 30-33. IT systems for communication between vessels and shore-based organisations are being developed continuously. A description of this is provided on page 37. On the strategic plane, Broström’s business offer has been refined over the years towards a clearer focus on vessel segments in which the company has an opportunity to achieve critical mass and market-leading positions. These measures include the sale in recent years of a number of large product tankers and a few smaller chemical tankers.
Award-winning development work In February 2006, the BRO DELIVERER, the first of Broström’s four new D-class vessels, received the “Ship of the Year” award from Lloyd’s List, the internationally leading daily journal of the shipping industry. As a basis for its deci-
“I was shooting to be a stockbroker...”
sion, the jury studied a range of factors, including innovativeness, safety, environmental aspects and operational efficiency.
“Following four years of economics studies in college in the US, I was
Broström’s D-class vessels are a new generation of prod-
quite certain that I was on track for a job in the stock market and stock
uct tanker that are being built according to Broström’s own
trading. But then an opening popped up in the shipping industry in my
design along with specifications drawn up in dialogue with
home town of Lidköping. It was sheer luck – and more exciting than the
the company’s customers in the oil industry. The customers
stock market job that I had dreamt about. “After eight years as an operator I switched trades. But the sea beckons, as they say, and after a couple of years I was back again. This time as a charterer, which has opened up new vistas. Simply put, my job is to find
provide information on their future distribution systems, cargo sizes, product mix, refinery capacity, and terminal capacities and limitations. The D-class vessels are the first tankers to be built according
suitable cargoes for our tankers. It’s a stressful job with great responsibil-
to DNV’s “Clean Design” class. Qualifying for this class requires
ity, but extremely stimulating and fun.
that the vessels have minimal emissions to the air and sea during operation as well as added safety features in the event of an
“For a guy like me, who works best when there is a lot to do and who
accident. For example, all diesel engines have been fitted with
likes talking with people, this is perfect. Having a broad contact network
catalytic converters to reduce nitrogen oxide emissions.
of brokers and customers is paramount. Plus I have good colleagues – we make up a good team and work closely together. We share advice freely.
The vessel designs incorporate enhanced safety features for narrow and heavily trafficked shipping lanes. Safety has
“Broström’s international character is inspiring, and it opens up many
also been improved by fitting the vessels with twin pro-
opportunities. But what’s most important is that our vessels and services
pulsion systems. Their efficiency is optimised by modern
maintain the highest standards. I know I have a quality offering. And our
systems for fast cargo handling.
customers all know that as well. However, as an economist, I also feel it is important that the finance world has an accurate picture of us.”
Broström’s D-class vessels are being built at the Jinling shipyard in Nanjing, China. The BRO DELIVERER is scheduled for delivery in March, and the other three will
Mats Andersson, Charterer, Broström Tankers AB
follow in 2006 and early 2007. Read more about the D-class vessels on pages 32-33.
12
SHIPPING
The market – a complex interplay The market for product and chemical tanker shipping is a
amounted to 45.4 million dwt at year-end 2005. Growth
complex interplay between macroeconomic and industry-
was approximately 7.3% during the year and is expected
specific factors that affect demand for transport as well as
to be 6.1% in 2006. Clarkson estimates that demand for
supply of transport capacity.
tonnage in the 10,000-60,000 dwt size class will grow by
Product and chemical tanker shipping very closely resem-
approximately 6.1% per year between 2004 and 2006.
bles what is referred to as perfect competition, that is, a situation in which price is almost exclusively a function of supply
Demand factors
and demand, and where individual companies have very small
Demand for transport services is driven by the trend in the
opportunities for product or service differentiation. Although
oil industry, which is affected by global energy consumption,
this is most apparent in the spot market, contract shipping is
which in turn is dependent on global economic growth.
also subject to these fundamental conditions.
Macroeconomic and political factors Market size and growth
There is a strong correlation between economic activity
The size of the market is very difficult to estimate. This
and energy consumption. In a strong economy, energy
is due to problems in drawing a distinction against the
consumption rises as result of higher electric and industrial
market for crude oil shipping and the way in which various
production, and greater transports.
companies choose to organise themselves and report their
Trade patterns and technological development are ad-
activities. In addition, some activity is still handled by the
ditional factors. Political factors include countries’ energy
oil and chemical industry’s internal organisations and, in
policies as well as environmental and trade policy issues.
some cases, is under state ownership.
War and conflicts are also political factors.
Consequently, the development of the global fleet is
Added to this, weather and seasonal variations play a major
the most reliable data available for judging the size of the
role in demand for various types of energy. A cold winter leads
market. According to the research firm Clarkson Research
to higher demand above all for heating oil, while gasoline
Studies, the global fleet of product tankers (10,000-60,000 dwt)
consumption is usually highest during the summer months.
Factors that affect the transport market
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13
SHIPPING
The energy market Aside from oil, the most important forms of energy are coal, hydroelectric power, nuclear power and natural gas. These forms of energy compete with each other in some respects. For example, if a number of several nuclear power plants are closed for maintenance, demand rises for alternatives such as oil. In recent years, various types of transported alcohol, such as ethanol, have emerged as alternatives to gasoline and diesel.
The oil market Demand for transport is also affected by factors within the oil market itself. One important factor is refinery capacity utilisation as well as the location of refineries in relation to demand for oil products. Maintenance requirements, labour conflicts or other production disruptions lead to regional imbalances between supply and demand, which increases the need for transport. In addition, Europe is experiencing a strategic shift in which diesel is increasingly replacing gasoline as car fuel, which is adding to regional imbalances. The difference between spot and futures prices for oil and refined oil products also affects the balance between production and oil stock consumption, which in turn af-
”I always try to ask myself: What happens if...?”
fects the short-term need for transport.
“Structured, disciplined and analytical – yes, that would be a fitting
of the oil industry and by strategic decisions made by oil
description of me. They are also typical qualities of an analyst. But I think
companies. Consolidation in the oil and chemical industry
imagination and creativity are also important qualities. Things don’t al-
in recent years has resulted in larger, but fewer, production
ways go as planned, so it is good to keep an open mind when predicting
units as well as a growing reliance on “just-in-time” think-
Further, the transport market is affected by the structure
the consequences of an event. “You could describe my job as a support and advisory function – mainly to those in the company who work with transactions in the near term. I work literally at the heart of operations, at a large table together with
ing, with lower oil stock levels and more frequent deliveries as a result. This is putting higher demands on the reliability and flexibility of transport systems. Moreover, many oil companies have divested their own
a gang of charterers, operators and their assistants. It’s lively, hectic and
shipping activities and have instead chosen to outsource
noisy – and I love it!
their logistics services to external providers.
“For me it is absolutely essential that I can ensure the quality of the
Supply factors
information I take in and provide. I am constantly searching for informa-
The supply of transport services is steered primarily by
tion from public sources and my own personal networks. Everything that pertains to our market is of interest. Because it is there, somewhere, that the answers lie.
the availability of transport capacity and how the various participants in the market act.
“Working for Broström makes a big difference. It is a flat organisation in
Shipowners and logistics operators
which you can make yourself heard. They appreciate initiative and sup-
Transport services are provided by shipowners and other
port competence development. Maybe it’s because we have always been
logistics operators. Certain companies concentrate only on
so keen on quality.”
commercial operation of vessels, others on technical operation, and a few others on vessel ownership. At the same
Erik Jensen Nordby, Market Analyst, Broström Tankers Ltd, Sandefjord, Norway
time, it is common for a single company to be responsible for all or a couple of these aspects.
14
SHIPPING
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Global oil consumption
Oil consumption 2005, by region
Economic growth in Asia in recent years has had a steadily rising impact on global oil consumption.
Asia is today the world’s largest market for oil products.
The structure of the market is also affected by the strate-
Various contract forms – cost breakdown
gies pursued by the various players and by who owns the companies. A large share of operators with ties to individual oil and chemical companies reduces competition in the open
Capital costs1
Contracts of affreightment*
market, as do individual players who limit their operations to
Spot market
a speciďŹ c geographic market or to clearly deďŹ ned segments.
Time charter
The choice of contract form also affects the competitive
Bareboat charter
situation. For example, if a shipping company charters out a vessel on a long-term bareboat or time charter to an oil company, this removes the vessel from the open market to some extent. The difference between the various contract forms is shown in the chart at right.
Supply consists fundamentally of the total eet available to meet the current transport need in the market. The size of the eet is steered by the balance between the number of
• • • •
• • •
• •
Ordinarily approximately 50%-60% of BrostrÜm’s transports are conducted under contracts of affreightment. During the rest of the time, the vessels operate in the spot market. 1 2
3
Transport capacity
Operating expenses2 Voyage costs3
Depreciation, interest. Personnel costs, maintenance costs, repair costs, insurance premiums, docking charges. Bunker (fuel), port charges.
* Contracts of affreightment differ from other long-term contracts in that the logistics operator or shipping company takes total responsibility for the transport service, including everything from capital costs to voyage costs in the form of bunker oil and port charges, for example. The long-term nature of the contracts creates opportunities for effective eet planning at the same time that customers are guaranteed stability in the transport chain.
newbuilding deliveries and the rate of scrapping. Scrapping has been traditionally governed by the technical age of ves-
BrostrÜm’s 10 largest customers*
sels and by trade conditions in the freight market. In recent years, however, increased demand for quality
BP
and safety has led to a rise in scrapping of single-hulled vesChevronTexaco
sels. At the same time, the use of older, outdated tonnage
Ecofuel
has decreased. Vessel age and hull design, as well as crew qualiďŹ cations and the shipping companies’ organisation,
ExxonMobil
have thus become increasingly important for determining Lukoil
how well supply meets demand.
Methanex
Newbuilding activity
Petroruss
The ability to rejuvenate the eet and thereby increase
Shell
supply is dependent on the available capacity to build new vessels, which is also affected by demand from other
Statoil
shipping segments. Added to this are factors such as labour
Total
costs and raw material prices – mainly steel. In the ďŹ nal analysis, supply is also affected by macroeconomic factors such as interest rates and access to capital.
*
In alphabetical order.
15
SHIPPING
Competitors are joining forces The competitive situation is difďŹ cult to describe due to the
during the year also became involved in the smaller 10,000-
different ways of operating vessels on the market. For ex-
20,000 dwt size segment. Other competitors consist of the
ample, if a shipowner puts a vessel on time charter to a com-
British company James Fisher, Denmark’s Herning Shipping, and
mercial operator, which in turn works under contract for an
the German companies BĂźttner and German Tankers. In addi-
oil company, there is a risk of the same vessel being counted
tion to these can be mentioned the Swedish company Tärntank
twice. In addition, geographic mobility in the large vessel seg-
and Norway’s Stenersen and OAS Knutsen, which have a more
ments is great, and operators and shipping companies move
pronounced time charter strategy. There are also a number of
their vessels around the world, depending on where demand
players with ties to various oil companies and which compete to
is the greatest.
a lesser extent directly with the independent players.
Consequently, there are no independent and reliable mar-
In the Mediterranean, BrostrĂśm competes primarily with
ket share statistics available. The most accurate picture can
Handytankers and a number of Italian, Spanish and Greek ship-
be gained by looking at the total capacity in operation during
ping companies, such as Montanari, Marpetrol and Andromeda.
the past year in a speciďŹ c geographic market. But even these statistics draw on a large measure of estimation and deďŹ nition.
In 2005 all of the players were active in the newbuilding or second-hand markets, and most are awaiting additions of new tonnage in the coming years.
European competition European product and chemical tanker shipping has long
Global product and chemical tanker shipping
been characterised by a large number of small players. In
The competitive picture in the global segment is more frag-
recent years, however, there has been a clear consolidation
mented, and tonnage can be moved from one area to another.
trend, and numerous operators have joined together.
A large share of the vessels are employed on time charter with
In the smallest size segments (small and intermediate), the ties between customers and shipping companies are often strong and
oil companies and oil traders, which makes the competitive situation difďŹ cult to discern. In that area of oil product transport, BrostrĂśm’s main
the share of contracts of affreightment relatively large. The larger segments (handy and handy max) are characterised by greater
competitors are the Danish company Torm and the Japanese
market uctuations and an ability to move vessels between
companies Mitsui and NYK. The American companies OMI
geographic markets at the same time that the more long-term
and Overseas Shipholding Group operate large eets, but with a
contracts consist primarily of time charters. In a market with high
strategy oriented more towards time charters. Competition for chemical transports in the Atlantic and Carib-
freight rates, players that ordinarily work in the global market take a greater interest in intra-European trafďŹ c. BrostrĂśm is a market leader in European product tanker
bean comes primarily from Blystad/Team Tankers (USA), the Asian companies FairďŹ eld/lino and Aurora Tankers, and the two
shipping. The company’s eet covers more size segments than
Norwegian companies Stolt Nielsen and Odfjell. This sub-segment
any other shipping company. Consequently, BrostrĂśm can
consists predominantly of long-term contracts of affreightment.
build up more exible transport systems for its customers.
In this segment, the number of newbuilding orders decreased
In individual segments and regions, BrostrÜm’s chief com-
during the second half of the year, but the anticipated addition of
petitor in northern Europe is the Danish company Maersk/AP
tonnage is nevertheless large. There is also a trend toward consoli-
Møller, which operates the Handytankers vessel pool and which
dation, above all through the formation of large vessel pools.
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16
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Competitive situation in northern European product tanker shipping BrostrÜm is clearly the market leader in northern Europe. Due to the size of BrostrÜm’s eet, the company can offer its customers a high degree of exibility and reliability.
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Delivery and scrapping of world product tanker fleet (10,000-60,000 dwt)
Spot market freight rates for light oil products
Today the shipyards’ order books are well-filled, and a large number of vessels are scheduled for delivery in the years ahead.
Due to more stringent demands on quality and safety, many older vessels will be replaced by modern tonnage.
Through contracts of affreightment, BrostrĂśm offers its customers stability in a market in which freight rates fluctuate widely and frequently.
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Light oil products – stock levels in Western Europe
Light oil products – stock levels in North America
Players in the oil market are striving to lower their level of tied up capital by reducing stock levels. This is leading to greater sensitivity to production and delivery disruptions, which in turn is increasing demand for reliable transports.
Strong freight market in 2005 In 2005 the close connection between supply and demand
beginning to achieve substantial size in absolute figures,
for refined oil products as well as transport capacity was
which is bearing an impact on the global level.
clear. Neglected investments in refinery capacity and the oil industry’s focus on “just-in-time� thinking, entailing lower
Hesitant start to the year
stock levels, led to higher demand for flexible and reliable
The start of the year, with mild weather and relatively high
transports. At the same time, the continued focus on quality,
stock levels of fuel oil and gasoline, resulted in a relatively
safety and the environment moderated the effect of the large
weak freight market. At the same time, severe storms caused
volume of new tonnage that was delivered during the year.
problems for shipping, especially in the North Sea. However,
As a result, even small disruptions in the production
following the arrival of cold weather in mid-February, activity
and distribution chain had a rapid impact in the form of higher freight rates. When the Gulf of Mexico and the US
increased in both the North Atlantic and European markets. Atlantic traffic was driven primarily by higher demand
were then hit by severe hurricanes in the early autumn, the
for fuel oil in both North America and Europe, at the same
effects were periodically great.
time that closed refineries in Venezuela contributed to
The strong world economy contributed to a positive
greater regional imbalances and longer transport distances.
market trend, with higher demand for transport primarily
The European freight market also benefited from the rise
of light oil products, such as gasoline and diesel. Growth
in demand for fuel oil and by a troubling ice situation in
was especially strong in China and the US, however, India
Russian ports and in the Baltic Sea.
also contributed to higher demand for transport capacity. Asia, which has long had a high growth rate, is now also
The Asian market was more stable. However, high oil prices, which led to stock consumption, had a negative
17
SHIPPING
impact on the freight market, as did the fact that most
oil and gasoline fell sharply, since US refinery capacity had
newbuildings are delivered from Asian shipyards, which
temporarily decreased by approximately 20%. This, in turn,
temporarily increases competition in the region.
led to decreasing stocks in Europe and a rise in exports of
Activity in the newbuilding market remained high
oil and oil products from Russia. The OECD’s Interna-
during the first quarter, which also affected demand and
tional Energy Agency went so far as to release emergency
led to rising prices for quality second-hand tonnage. At the
stocks of gasoline and diesel in Europe for shipping to the
same time, a large number of previously ordered vessels
US. Altogether, this also resulted in a positive effect on
were delivered from shipyards.
European product tanker shipping.
Strong start to spring
summer due to higher demand for longer transports to
The second quarter was characterised by rising oil prices.
Australia, among other places. Toward the end of the quar-
Although stock levels were higher than in the correspond-
ter, freight rates were pushed up by higher exports from
ing period in 2004, freight rates were strong in most mar-
South-east Asia and the Middle East to the US.
In Asia, the market gained momentum during the
kets in which Broström operates, and small disruptions had a relatively large impact on freight rates. A contributing factor to the favourable freight market at
Normalisation toward the end of the year The very high level of activity in the freight market con-
the start of the quarter was the high capacity utilisation at
tinued into November, but thereafter levelled out in pace
refineries. Higher demand for chemicals also contributed to
with a normalisation of the situation and the progressive
the favourable freight market. In the early summer months,
return of American refineries to normal operations. The
activity was dampened by customary seasonal variations.
fluctuations were the sharpest in the size segments that are
The trend in the newbuilding and second-hand tonnage markets remained strong through the spring.
active in trans-Atlantic traffic, while intra-European traffic was more stable. Milder weather than usual in November and December also contributed to the market slowdown.
Better development than usual in late summer The start of the third quarter was characterised by a seasonal
Future outlook
decline. However, due to the close correlation between supply
The start of 2006 has been characterised by a continued strong
and demand, small disruptions in the production and distribution
market in Broström’s segments. This market is being driven
chain rapidly bore an impact on freight rates in the spot market.
in part by a strong global economy and structural changes in
In the latter part of the quarter, the market was dramati-
the oil and chemical industry towards more distinct “just-in-
cally affected by hurricanes Katrina and Rita, which hit the
time” thinking and lower oil stocks, which increases the risk for
Gulf of Mexico and the US. The price of oil hit 70 dollars
regional imbalances and thereby gives rise to a greater need for
in early September. Closed and damaged refineries, and
transport. At the same time, the more stringent demands from
unusable pipelines, led to higher imports to the US, which
authorities and customers with respect to quality, safety and the
contributed to strong demand for transport capacity.
environment, entail that a large number of older vessels are no
In the aftermath of the hurricanes, stock levels of fuel
longer being considered for most assignments.
The BRO PROVIDER outside New Orleans, Louisiana, USA. The effects of hurricanes Katrina and Rita led to a greater need for transport and higher demand for safe and reliable transports.
29° 13’ N. 89° 16’ W.
18
SHIPPING
Hurricanes Katrina and Rita swept over the Gulf of Mexico and battered the US Gulf Coast in autumn 2005. The devastation was enormous and affected US oil distribution, among other things.
2005 – A dramatic year in the oil market Record-high oil prices, more expensive home heating oil and speculation about depleted oil supplies. The situation in the oil market touched most people’s everyday lifes in 2005. The situation culminated during the autumn, when a series of hurricanes – first Katrina followed by Rita – swept through the Gulf of Mexico and up into the US mainland. Natural disasters are always dramatic. Moreover, Katrina
refineries increases the sensitivity to disruptions at the
and Rita hit the Gulf Coast of the US, the world’s most
same time that it opens up for price speculation.
media-intense country, and TV viewers around the
Moreover, the sensitive balance between supply
world could see live on TV the flooding of New Orleans
and demand has been intensified by reductions in
and soon thereafter the evacuation of Houston.
stock levels by the oil industry in favour of “just-in-
The images of flooded and evacuated cities, and
time” thinking. This, in turn, has led to a greater
wind-torn oil rigs, were accompanied by experts who
risk for regional imbalances. A sudden cold snap in
prophesied the end of the oil-based economy.
the US, for example, could relatively quickly cause a
The question, however, is what lay behind the
greater need to import heating oil.
dramatic development and if there is reason to believe the most dramatic prophesies.
Transport and logistics are key factors Taken together, this is leading to higher demands
A sensitive interplay
on the oil industry’s distribution chain. High capacity
From a long-term perspective, high gasoline and oil
utilisation in production and low stock levels require
prices have very little to do with individual hur-
effective and reliable logistics and transport solu-
ricanes or the notion that the world’s oil wells are
tions. Added to this, due to more stringent demands
drying up. The price has risen due to higher demand
on quality and safety, many older vessels are no
for light oil products, such as gasoline and diesel,
longer available in the market. The freight market is
and to limited refinery capacity.
therefore also more sensitive than before to sudden
Demand for oil and oil products is dependent
disruptions, such as bad weather, ice, or changed
more on economic growth. Apart from ordinary
transport patterns which make voyages longer and
economic fluctuations, the Asian market has now
tie up vessels over longer periods of time.
achieved such size that its growth is having an impact on oil consumption in absolute figures.
Broström’s focus on quality and safety, and its reliance on contracts of affreightment, contribute to greater reliability, flexibility and efficiency. This
Refinery production lagging behind
lowers the risk that customers will be hurt by disrup-
However, production has not kept pace with de-
tions. In such way, Broström is helping to secure the
mand. It is primarily investments in refinery capacity
supply of gasoline, diesel and heating oil to consum-
that have lagged behind. High capacity utilisation at
ers around the world.
19
SHIPPING
Broström expanding locally and globally Broström conducted a number of strategic deals in late
works in alliance with the Philippine crewing company Net
2004 and early 2005. First, the company acquired several
Ship Management. The vessels that are not operated from
outstanding stakes in partly owned vessels. Thereafter,
Paris or Skärhamn are operated by Broström’s partners.
Broström acquired the Danish operator Nordtank Shipping, which handles the commercial operation of 16 vessels
European expansion and global venture
owned by a number of Scandinavian shipowners. In addi-
Broström is clearly the market leader in European product
tion to this deal, Broström entered into a partnership with
and chemical tanker shipping, and is represented in most
the Swedish shipping company Furetank Rederi and at the
size segments. In the global operations, Broström’s strongest
same time acquired stakes in three of Furetank’s vessels.
positions are in the North Atlantic and Asia, including the
Only a few days before the acquisition of Nordtank,
entire Asia-Pacific region.
Broström entered into a partnership with the Turkish company Dünya Shipping. This co-operation is an impor-
Strong positions in Europe
tant step in Broström’s venture into the Asian market – a
Activity in Broström’s European operations during the first
venture that gained extra importance when Broström in
quarter reflected the trend in the market. Capacity utilisa-
April acquired the remaining 50% of Iver Ships from its
tion under contracts of affreightment was very high, partly
partner Vroon. In connection with this deal, an agreement
due to refinery problems encountered by one major custo-
was signed to acquire four of Vroon’s vessels, which were
mer. However, the prolonged ice conditions in northern
delivered to Broström Tankers AB in late 2005 and early
Europe had a certain negative effect, as did severe storms
2006. These vessels, which had been chartered in from
in the North Sea.
Vroon during 2005, are operated commercially by Broström Tankers Ltd. Together with previously ordered vessels, the completed transactions entail that the fleet operated by Broström will be nearing 100 vessels within a few years.
Ordinarily, few contract negotiations are held early in the year. However, Broström managed to gain extensions for the contracts that were renegotiated. The quarter was also distinguished by the acquisition of Nordtank, the acquisition of vessel stakes, and the cooperation agreement that was entered into with Furetank.
Business focus
In all, the acquisitions entailed that Broström increased its
The Shipping area of operations today consists exclusively
customer offer by 16 vessels to a total of 57 commercially
of tanker shipping, covering commercial and technical
operated units in the European market.
operation as well as crewing. Commercial operation of vessels is conducted from five
followed the market trend. However, contract coverage
offices. European activities are run from offices in Göte-
decreased compared with the first quarter. Apart from
borg, Paris and Holbaek, Denmark, while global operations
seasonal factors, this was due to the rectification of the
are conducted from Sandefjord, Norway, and Singapore. In
refinery problems during the opening months of the year.
all, Broström is responsible for the commercial operation of 74 modern product and chemical tankers. Ownership of Broström’s 37 wholly and partly owned vessels is administered from the company’s offices in
All transport contracts that were up for renegotiation during the second quarter were extended. In addition, Broström entered into agreements with several new customers. During the ordinarily calmer summer months, Broström
Göteborg and Paris. The other 37 vessels are owned by
noted a rise in contract volumes, partly as a result of fa-
Broström’s partners (see page 22) or have been chartered
vourable market conditions. The contracts that were up for
in from external parties.
renegotiation during the quarter were renewed at existing
Technical operation and crewing of the vessels is handled by Broström’s offices in Paris and in Skärhamn, Swe-
20
Also during the spring, Broström’s European operations
or improved terms. Broström thereafter benefited from the sharp upswing
den. The office in Skärhamn also has Group responsibility
in the market during the fourth quarter. At the same time,
for matters pertaining to quality, safety and the environment
the company managed to extend the contracts of affreight-
in the operations area. With respect to crewing, Broström also
ment that were up for renegotiation prior to year-end.
SHIPPING
The ongoing rejuvenation and expansion of the European fleet entailed the addition of a total of 20 vessels to Broström’s operations, of which 16 are operated by Nordtank. The number of newbuildings delivered was five, while two older vessels were sold. At year-end Broström and its partners had a total of six vessels on order for European operations.
Investment in global operations Activity in Broström’s global operations got off to a somewhat sluggish start. However, Atlantic operations picked up momentum when the market turned upward in mid-February. The partnership with Dünya did not have any direct effect on operations, since one of the vessels was already being commercially operated by Broström, and the other one was not added to the fleet until 2006. The eight newbuildings will join the fleet that is commercially operated by Broström in pace with their delivery. This transaction shows Broström’s distinct focus on attaining strong positions in Asia. Capacity utilisation was high during the second quarter, and both Asian and Atlantic operations developed well.
”I look, listen and always try to find the best solution.”
Broström’s Atlantic operations benefited from, among other things, large American imports of gasoline and diesel
“A first mate at a desk job? Shore-side for a year? Sure, it may seem
as well as from a structural shortfall of diesel and jet fuel in
strange, but the time I spent in the quality and safety department has
Europe. The contracts that were up for renegotiation dur-
actually helped me do a better job at sea! In a logistics company like
ing the period were extended at unchanged or better terms.
Broström, it is crucial to co-ordinate shore and sea activities in detail
In May Broström acquired Vroon’s 50% stake in Iver Ships Ltd, which thereby became a wholly owned subsidiary with the new name Broström Tankers Ltd. In connection with this, Broström acquired four of Vroon’s vessels. During the third quarter, Broström was favourably affected by the upswing in the market, which was intensified by the effects of hurricanes Katrina and Rita. Contract
– and that is one of our strengths. Now I know what effects my decisions at sea will have on land. “I have always been fascinated by the sea. As a boy I lived near the port of Barsebäck, and with a grand-dad who worked at the old Kockums shipyard, my career path was obvious. Following my studies, internships on boats and a job as a seaman, I was advised to study to become a first mate. Now I am 26 and haven’t regretted my career choice a second.
volumes developed well during the quarter. The positive trend continued during the last three
“In February 2006 I’ll be off to sea again, on the BRO PREMIUM. As
months of the year. Also in this segment, Broström suc-
first mate I will be in charge of the crew on deck and also of loading
ceeded in extending the contracts that were up for renego-
and maintenance onboard. Being able to lead means everything, but
tiation prior to year-end.
so are listening and learning. I don’t give the high standards a second
No new vessels were added to Broström’s global operations during the year. One older vessel was sold, however. At year-end the company and its partners had eight vessels on order, of which three will be delivered in 2006.
thought: I know what has to be done – and I know that I have to have my men along with me. “I am proud to work for Broström. We have high demands, high standards, and we are good at what we do. And because of this, we all have opportunities to develop – both as a company and as individuals.” Thomas Nettelhed, First Mate, Broström Ship Management, Skärhamn, Sweden
21
SHIPPING
Partners – a vital part of our strategy Broström handles the commercial operation of 74 modern product and chemical tankers, of which the company owns 37 in whole or in part. The rest of the vessels are owned mainly by long-term partners, which often also provide technical support and crewing for the vessels. Through this type of strategic partnership, Broström has expanded its fleet with limited financial risk. At the same time, the company’s financial partners are offered stable, good earnings over a long period of time. These mutual benefits have enabled Broström to continuously build upon existing co-operation agreements while making the company attractive for new co-operation partners. Rigel Schiffahrts GmbH & Co KG
www.rigel-hb.com
Rigel Schiffahrts is engaged in crewing and technical operation of slightly more than 20 modern product and chemical tankers ranging in size from 9,000 to 37,000 dwt. Co-operation with Broström involves the commercial operation of 13 product and chemical tankers in which Rigel Schiffahrts is responsible for crewing and technical operation. Rigel Schiffahrts was founded in 1990 in Bremen, Germany.
Rederi AB Donsötank
www.donsotank.se
Donsötank has ownership interests in five product and chemical tankers and in one dry cargo vessel. In addition, the company has one tanker and one dry cargo vessel on order. Broström is responsible for the commercial operation of four of the product tankers, in which it also has an ownership interest. The fifth vessel is operated by Nordtank. The product tanker that is on order will also be commercially operated by Broström. Donsötank, based on the island of Donsö in the southern Göteborg archipelago, was established in 1953 and is owned by a number of individuals, of whom most are active in the company.
Koninklijke Vopak N.V.
www.vopak.com
Since 2002 Broström has been working in a commercial alliance with its former owner, Vopak. Vopak is a world leader in liquid bulk tank storage and has a global network of some 70 tank terminals in 29 countries. The company is also active in inland tanker shipping. Vopak has approximately 3,400 employees worldwide and had sales of nearly SEK 6,000 m in 2005.
Erik Thun AB
www.thun.se
Erik Thun operates and crews more than 30 product tankers and dry cargo vessels, in which the company also has ownership interests. Broström and Erik Thun have a joint involvement in ten product tankers. In 1990 Broström and Erik Thun formed United Tankers (now Broström Tankers AB), which was listed on the Stockholm Stock Exchange until 1997. Erik Thun remained as one of the company’s principal owners until 1995. The company is based in Lidköping, Sweden, and has been owned and operated since 1938 by the Källsson family.
Dünya Shipping & Trading Inc.
www.dunyashipping.com
Dünya owns and performs technical operation of three product tankers and has an additional 12 vessels on order. Broström’s and Dünya’s partnership covers two of the existing vessels and eight newbuildings, which will be delivered successively in the coming years. One of the existing vessels, the GÖNEN, is already operated commercially by Broström, and the other, the GANMUR, will join Broström’s fleet in 2006. Dünya is domiciled in Istanbul, Turkey, and has been owned and run by Suay Umut since its formation in 1986.
Furetank Rederi AB
www.furetank.se
Furetank owns and conducts technical operation of four product tankers, of which Broström has ownership interests in three. All four vessels are operated commercially by Nordtank – a company that Furetank at one time helped establish. Furetank has an additional vessel on order. Furetank is domiciled on the island of Donsö in Göteborg’s southern archipelago. The company has been owned since its founding by the Höglund family, and has a heritage dating back to the 18th century.
22
SHIPPING
Furetank’s managing director, Lars Höglund, in connection with the naming of the BRO DELIVERER. In recent years Furetank has placed its own newbuilding orders with Chinese shipyards.
Furetank – quality thinking through generations Broström’s partner Furetank is a modern shipping company with a heritage dating back to the 18th century. Today’s Furetank was founded in 1955 and has been owned and operated since then by the Höglund family. The small island of Donsö in Göteborg’s southern
Extensive experience and practical work are also
archipelago is a veritable shipping stronghold. The
the two factors that Höglund names when asked
locals say that people who grow up here have one of
about Furetank’s contribution in its partnership with
two choices: work in fishing or with one of the often
Broström.
family-owned shipping companies on the island. One of these shipping companies is Furetank,
“Our co-operation with Broström makes us part of a larger commercial unit – something that
which is owned and operated today by its managing
customers in the oil industry ask for,” says Höglund.
director, Lars Höglund, and two of his cousins, Per-
“We want to nurture this co-operation and be an
Anders and Bo. They are third-generation members
active partner when Broström renews its fleet.”
of the family which in 1955 started the shipping
Currently Furetank is involved in one newbuild-
company and which since then has focused on
ing, a sister vessel to the FURE NORD, which will be
tanker shipping. But the family’s shipping heritage
built in China.
dates back as far as the 18th century. “We are a small firm and have always been
“The vessels are built according to a concept that we began working on in 1990. They are designed to
driven by a dedication to the environment, ships and
speed up the work between and at ports. Furetank’s
people. In this way we can also guarantee our cus-
vessels must also meet current and future requirements
tomers quality,” says Lars Höglund, who takes a very
regarding quality, safety and the environment.”
active role in operations both ashore and onboard. “I try to keep myself up-to-date with technical
Höglund returns to these factors when describing the future of shipping in the Baltic Sea and northern Europe.
developments as well as with regulatory matters,”
“If you want to be active in this region, you’ll
says Höglund, who spent the past year working on-
have to have modern vessels. Our modern fleet ena-
board as master of the company’s vessel FURE NORD.
bles us to benefit from this trend.”
23
M A R I N E & L O G I S T I C S S E RV I C E S
Services for customers with sophisticated needs Broström’s Marine & Logistics Services operations consist of the Travel Agency and Ship Agencies business areas. The former Bulk Logistics business area was discontinued in October 2005 in connection with the sale by Broström of the subsidiary Nordic Bulkers. Bulk Logistics is included in the 2005 accounts through 17 October 2005.
Travel Agency KEY EVENTS
The Travel Agency business area consists of Broströms Resebyrå, which strengthened its position in 2005 as a
The Bulk Logistics business area was discontinued in connec-
Swedish market leader in marine travel, i.e., travel for sea-
tion with Broström’s sale in October of the subsidiary Nordic
men to and from vessels. Broström’s Resebyrå is also one of
Bulkers to the Swiss company Bertschi.
western Sweden’s leading business travel agencies. Broströms Resebyrå’s business is divided into three seg-
Travel Agency
ments: Business Travel (63% of sales), Marine Travel (26%),
• Broströms Resebyrå noted a positive trend in sales and
and Group Travel and Events (11%). The Incoming Travel
earnings. • New office established in Manila, Philippines, to strengthen the travel agency’s offering in the marine travel segment.
Service segment was discontinued during the year. Broströms Resebyrå’s business offer involves travel bookings and planning. Each year the agency performs approxi-
Ship Agencies
mately 50,000 travel bookings. Customers are also offered
• The Ship Agencies business area experienced strong
travel administration, travel statistics, 24-hour service and a
development during the year, with higher sales and
personal contact. By using Broström’s Resebyrå, customers ob-
improved earnings.
tain better control over their travel arrangements. In 2005 the
• August Leffler, Simon Edström Shipping and Percy Tham
agency also initiated an extensive venture into self-booking.
were favourably affected by the trend in the tanker shipping market.
Market conditions
• Uddevalla Hamnterminal noted positive effects of a
Broströms Resebyrå’s customers consist primarily of ship-
changed cost structure and an increase in the handling
ping companies and marine crewing companies, as well as
of chemicals in ports. • Unér Shipping benefited from a rise in project transports
companies and institutions in western Sweden. Broströms Resebyrå is estimated to have an approximate
and large transports of bioenergy.
70% share of the Swedish market for marine travel, which SEK m
Net sales Operating profit (EBIT) Operating margin, % Average number of employees 1)
is worth an estimated SEK 100 m per year. In business
2005
2004
2003
743
755
829
travel, which is defined as travel from Landvetter Airport in
23
14
14
Göteborg, the market share is 10%-15%. The total value of this market is approximately SEK 2 bn per year excluding
3
2
2
135
144
154
direct bookings.
Number of employees on 31 Dec.
190
258
269
Total assets
117
200
201
Express and Bennett BTI, each of which has an approxi-
Investments
15
14
17
mate 25% share of the business travel market in western
1)
Incl. associated companies.
The main competitors are Nyman & Schultz/American
Sweden. In addition, Nyman & Schultz/American Express has an approximate 10% share of the market for marine travel. All travel agencies are encountering substantial competition from direct bookings via the Internet. While the large players in the business travel market are focusing on economies of scale and downward pressure on transaction prices, Broströms Resebyrå competes primarily
24
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Share of Broström’s total net sales
Sales and earnings – Marine & Logistics Services
The Marine & Logistics Services operations area (including the sold company Nordic Bulkers) accounts for 19% of Broström’s net sales.
Operating profit for the business area improved sharply in 2005 on relatively stable sales.
with speed, flexibility, personal service and high availability
offering. The Philippines is a major maritime nation, and
through its own 24-hour service.
most international shipping companies rely heavily on Philippine crews. By being on location in Manila, Broströms
Market development
Resebyrå believes the company can also strengthen its posi-
The business travel market is growing by a couple per cent
tion in the European market for marine travel.
per year. However, due to a rising portion of direct bookings via the Internet, the share of travel booked through
Bold venture into self-booking
travel agencies is declining. In association with this, travel
The Business Travel and Group Travel & Event segments
agencies are finding fewer opportunities to charge for
experienced a slightly positive trend during the year.
value-added services. Moreover, many companies have
To meet competition from online bookings, Broströms
replaced travel with other options, such as teleconferences, at the same time that the willingness to travel on business has decreased due to growing time constraints.
In 2005 Broströms Resebyrå opened an office in Manila, Philippines, which is a centre of recruitment for international shipping companies.
The trend for marine travel is different than for the business travel market. Demand in this segment is relatively constant at the same time that the nature of marine travel, with high demands on flexibility, makes it difficult to handle via direct bookings.
Travel agency in 2005 Broströms Resebyrå noted a recovery in both sales and earnings in 2005. The number of bookings also increased, although the average size of assignments decreased slightly, to SEK 1,950 (1,968). The earnings improvement can be credited both to higher sales and to the fact that the previously carried out cost-cutting programmes have now begun to generate their desired effects. The closure of Broströms Resebyrå’s office on Norra Älvstranden in Göteborg marks the completion of major cost-cutting measures.
New office in Manila In the marine travel segment, Broströms Resebyrå increased its share of the Swedish market during the year, and the agency acquired a number of new customers. Parallel with this, the company acquired Travel Team, a travel agency in Manila, Philippines, in an effort to broaden the customer
25
M A R I N E & L O G I S T I C S S E RV I C E S
Resebyrå has developed its own self-booking system, called
Future outlook
B.O.S.S. Through this system, customers are given access to
With the completion of the savings programmes, Broströms
the same information as Broströms Resebyrå’s agents in a
Resebyrå believes that it has a cost level which, combined with
single portal. The system shows all travel options available
bold new market ventures, will enable a positive earnings trend.
to the customer, including all discount alternatives. B.O.S.S.
The business travel market is expected to remain under
also facilitates efficient invoice handling and cost follow-up,
continued price pressure. Broströms Resebyrå is addressing
where customers can see how much they have saved by al-
this trend with a sharp focus on service and the launch of
lowing the system to search for the best travel alternatives.
its online booking system. A major marketing campaign for
The system also keeps track of information on the location
online booking, targeting existing as well as new custom-
of customers’ employees, such as in the event of war or
ers, will be carried out during the first half of 2006. The
other emergencies.
long-term goal is that 50% of the agency’s business travel
The launch of B.O.S.S. represents a strategic shift for Broströms Resebyrå. From previously having been focused
volume will be handled by direct booking within five years. Through the newly opened office in Manila, Broströms
solely on value-added and margins, the company is now moving
Resebyrå will be targeting new European customers in the
directly into price competition. This bold venture is aimed at
marine travel segment.
giving the travel agency a leading position in online bookings.
Ship Agencies The Ship Agencies business area consists of the Broström
Most of the companies in the network are 100%-owned
Ship Agency Network – comprising seven companies
by Broström, except for SwanFalk Shipping, which is
working with vessel clearance, chartering, linear agency and
owned by Uddevalla Hamnterminal – in which Broström
forwarding. The companies are represented in 15 ports along
is a part-owner – and Percy Tham in Oxelösund, which
the Swedish coast, which together account for over half of
is jointly owned by Broström and Paltrans/Transatlantic
total goods volume at Swedish ports. Together the compa-
European Services.
nies assist their customers with 3,500 port calls each year. Customer benefit is achieved by shortening the time
The business area’s customers consist primarily of shipping
and better earnings. The scope of individual assignments
companies, transport companies, various purchasing or
varies depending on the size of the vessel. The companies
trading companies, and Swedish exporters. For example,
also provide occasional assistance in finding suitable ton-
the oil and chemical industry is an important customer
nage for sea transport of specific cargoes or marketing route
group for August Leffler, Simon Edström Shipping and
traffic between ports in Sweden and abroad.
Percy Tham, while many of the customers of SwanFalk
The network’s key competitive strengths are its ability
Shipping/Uddevalla Hamnterminal have ties with the
to meet customers’ requirements and a consistent high
forest products and paper industries. Unér Shipping’s oper-
level of quality. The companies in the network have good
ations are distinguished by the local business structures at
knowledge of the business, excellent customer relation-
the various ports at which the company is active.
ships, and committed and knowledgeable employees. The Broström Ship Agency Network combines the local
26
Market conditions
customers’ vessels spent in port, which leads to lower costs
On average, the companies clear vessels corresponding to 35% of the total cargo volume in the ports they oper-
companies’ proximity to customers with opportunities
ate in. The differences between individual ports are great,
to co-ordinate market activities and resources in the aim
however. Competitors consist primarily of local shipping
of reaching international agency agreements with large
agents and of foreign agency networks. Uddevalla Hamn-
customers. Such a network is unique in Sweden, but is
terminal also encounters competition from other ports and
common elsewhere in the world.
modes of transport.
M A R I N E & L O G I S T I C S S E RV I C E S
Market development
also benefited from a focus on cruise traffic in Göteborg.
Following several years of rising price pressure and lower
Simon Edström Shipping and Percy Tham were also favour-
margins, the market developed favourably in 2005. For
ably affected by the trend in the tanker shipping market.
example, oil exports rose strongly, as did exports from
During the year, Uddevalla Hamnterminal noted
Swedish industry.
positive effects of a changed cost structure, with a larger
One trend that has characterised the entire industry is
portion of variable costs. Greater handling of chemicals in
the more stringent requirements from authorities, which
ports and continued development of third-party logistics
is requiring more documentation and administrative work,
also contributed to the favourable performance.
among other things. This gives more established players like
Unér Shipping benefited from a rise in project transports
the companies in the Broström Agency Network a com-
and large transports of bioenergy. Sales were stable, and the
petitive edge while making it less attractive for shipping
company showed strong earnings.
companies to handle agency work on their own. The trend toward increasingly larger vessels entails that as-
Future outlook
signments are decreasing in relative numbers, but also that it is
Ship Agencies is by its nature a very stable business. The
growing more difficult to find tonnage for smaller cargoes.
trend in the oil industry is expected to lead to a continued high level of activity at the oil ports in Brofjorden, Göteborg,
Ship Agencies in 2005
Karlshamn and Oxelösund. Uddevalla Hamnterminal has
The Ship Agencies’ business area experienced strong
favourable prospects for strengthening its position in the
development during the year, with all companies reporting
framework of its co-operation with West Sweden Seaports.
stable or growing sales. At the same time, a clear earnings
In addition, new shuttle traffic for rail container transports
improvement was noted.
between Göteborg and Uddevalla is opening up new op-
August Leffler experienced a continued positive trend
portunities for the port. Unér Shipping is expected to be
due to the strong tanker shipping market, which resulted in
able to continue benefiting from a rising number of project
higher sales and further earnings improvements. The company
transports as well as transports in the bioenergy sector.
The Broström Ship Agency Network
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The Broström Ship Agency Network consists of seven companies working with vessel clearance, chartering, linear agency and forwarding. The companies are represented in 15 ports along the Swedish coast.
27
EMPLOYEES
Advanced logistics require high level of expertise Broström attaches a premium to employee development. With competent and experienced employees, the company can offer customers effective and flexible logistics solutions that meet the highest standards of quality.
Due to rising demands on quality, safety and the environ-
onboard vessels. This inventory will serve as the basis for a
ment, knowledge of internal systems and processes is grow-
detailed training plan in 2006.
ing increasingly important. For Broström, this means ensur-
Apart from these training initiatives, all employees par-
ing that all employees work as a team in which everyone is
ticipate on a regular basis in education and training in qual-
involved and given opportunities for development.
ity, safety and the environment, among other things. Yearly performance dialogues form the basis of individual competence
Competence development ashore and onboard
development initiatives. In addition, all new shore-based em-
In 2004 a training initiative was concluded for all managers
ployees participate in an individual orientation programme in
in Broström’s shore-based organisation and onboard vessels.
which they are assigned a personal contact, among other things.
This was followed up in 2005 with complementary training
The total cost of competence development initiatives
for ship officers and engineers. Follow-up and continuation
during the year was SEK 8.6 m (8.7), corresponding to
programmes are planned for 2006.
SEK 10,200 (8,800) per employee.
A major employeeship course was concluded during the year for all employees in the Group’s Swedish, Norwegian
Net Ship Management – a valued alliance
and French shore-based organisations.
Broström has worked in alliance with the crewing agency Net
During the years, Broström also inventoried the training needs of permanent as well as temporary employees
Ship Management in Manila, Philippines, since 2002. The aim of this co-operation is to ensure access to temporary employees
”Finding the right person for the right job is a challenge.” “What’s most fun is working with people. As crew manager I am in close contact with both the ship masters as well as with ‘my’ employees. What’s most important is finding the right person for the job, but also providing support to younger crew members. “I can arrange almost everything with the help of my computer and telephone. But those of us who work in crewing also have to travel quite a bit. Having personal contact with the merchant marine schools is important and stimulating, as is meeting Broström people from other countries. “I really have an exciting job, where no single day is like the next. The job is mostly about problem-solving, so it is good to be creative and have a large measure of common sense. But above all, you have to like people! “My work is made a lot easier by the fact that Broström takes such good care of its employees. It makes it easier for me to do a good job. Everyone sees how the company is developing and can feel the enterprising spirit. And of course, that makes it easier for us to attract the best sailors to work with us.” Helén Bengtsson, Crew Manager, Broström Ship Management, Skärhamn, Sweden
28
:FBST
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Age structure
Share of men and women
BrostrĂśm has an even age distribution among its employees.
Shipping is traditionally a male-dominated industry. However, 36% of the employees in BrostrÜm’s shore-based organisation are women.
Net sales and value-added per employee BrostrÜm’s employees create value for both customers and shareholders.
with the right competence and training. Net Ship currently
employees’ physical activity was promoted through participa-
has a network of 1,500 seamen, of whom around 700 are
tion in a walking competition.
concurrently on duty, and 30 ofďŹ ce employees. Net Ship serves slightly more than 60 vessels for 13 shipping companies. Net Ship is quality assured according to ISO 9001 and has
Internal communication – a path to participation Internal information is essential for ensuring that all employees
carried out extensive competence development programmes
have access to the same knowledge about events and develop-
in recent years. These have covered everything from training
ments within the Group. Information also inspires a sense of
required by law and various regulations to courses in leadership
participation and that everyone is working toward the same goals.
and understanding cultural differences. Naturally, BrostrĂśm sets
In 2005 BrostrĂśm launched Bro Connection, a quarterly
the same quality standards and takes an equally large training
company newsletter. All employees also have access to the
responsibility for all staff working onboard vessels.
company’s intranet. A third source of internal information is
During the past year Net Ship and BrostrĂśm received sev-
Lessons to Learn, a newsletter that is used to share experiences
eral distinctions from the Philippine government, the country’s
about onboard incidents. Further information channels can be
President and from government authorities. However, the most
found at the local company level.
tangible proof that the alliance with Net Ship works can be seen in the fact that more than 95% of all Philippine seamen
Poised for recruitment
regularly return to BrostrÜm’s vessels.
Following reductions in the workforce associated with vessel sales, BrostrĂśm is now facing a recruitment need as the company
Employee turnover and sickness-related absence
adds to its eet. This will be taking place at the same time that
Statistics on employee turnover, sickness-related absence
the global shipping industry is facing extensive retirement-related
and accidents show that BrostrĂśm is an attractive workplace.
attrition and limited access to trained and experienced seamen.
Employee turnover with respect to replacement recruitment
BrostrĂśm has a strong vantage point, however. The com-
was 6.7% during the year (6.9%). BrostrÜm’s workforce
pany managed the previous reductions without having to
decreased during the year by 6.7%, mainly due to the sale of
serve redundancy notices, and it has a good reputation in the
vessels and of Nordic Bulkers. Sickness-related absence was
industry. BrostrĂśm has a long-standing co-operation with mer-
2.1% (1.8%) in the Swedish shore-based organisation.
chant marine schools in France and Sweden, and offers intern-
BrostrĂśm works continuously to improve its work envi-
ships onboard its vessels, among other things. Staff increases
ronment and reduce the risk for work injuries. Accidents and
will be solved through a combination of internal promotion,
other safety-related factors are reported and analysed.
offers of permanent positions to temporary employees, and new recruitment.
Health and work environment initiatives BrostrĂśm encourages a range of health initiatives for its employ-
Employee data
2005
2004
2003
ees. All permanent employees receive an exercise subsidy, and
Average number of employees
1,009
992
1,042
Of which, Shipping
850
826
865
Of which, Marine & Logistics Services
135
144
154
24
22
23
925
992
1,227
extensive exercise activities are conducted onboard most vessels. In 2005 and early 2006 a health promotion project was also
Of which, parent company
carried out for Swedish shore-based employees. In addition
Number of employees at 31 Dec.1)
to seminars on health awareness, nutrition and ergonomics,
1)
Including associated companies.
29
THE FLEET
Broström has a modern fleet The fleet that Broström commercially operates consists of 74 modern product and chemical tankers with combined deadweight of 1.7 million dwt. Within a few years the fleet will be nearing 100 vessels.
A total of 20 vessels were added to Broström’s fleet in 2005,
in December 2005, while the other two joined the fleet in
of which 16 came with the acquisition of Nordtank Ship-
early 2006. Broström sold three older vessels during the year.
ping. Of these vessels, Broström acquired stakes in three
The average age of Broström’s wholly or partly owned
vessels owned by Furetank Rederi. During the year, three
vessels at year-end was 8.4 years, or 8.3 years for the entire
vessels of 37,300 dwt each were delivered, which had been
fleet that is commercially operated by Broström. The aver-
ordered in co-operation with the German company Rigel
age age of the world fleet is 14.8 years. Ninety-four per
Schiffahrts. Two of the newly delivered vessels are owned by
cent of Broström’s tonnage has double hull, compared with
Broström, while Rigel Schiffahrts owns the third. During the
62% of the world fleet’s tonnage in Broström’s size seg-
autumn, an additional vessel of 19,500 dwt was delivered,
ment (0-80,000 dwt).
which had been ordered in partnership with Donsötank.
At year-end Broström was financially involved in four
During the year, Broström also acquired stakes in three
newbuildings at Chinese shipyards, each of 14,500 dwt.
partly owned vessels. Further, in connection with the acquisi-
Added to these are an additional ten newbuildings ordered
tion of Vroon’s stake in Iver Ships, Broström acquired four
by Broström’s partners.
vessels that were previously owned by Vroon and operated
In addition to the newbuildings, Dünya Shipping’s
by Iver Ships. Two of these vessels, which were already
vessel, the GANMUR, will join Broström’s commercially
operated commercially by Broström, were added to the fleet
operated fleet in 2006.
Broström’s fleet, February 2006 Vessel name
Vessel name
Dwt Year built Ownership form/% stake Commercial operator
5,500
2001
C/M
Nordtank
FURE SUN
15,000
1995
9
VINGA HELENA
6,400
1985
C/M
Nordtank
FIONIA SWAN
15,000
2005
C/M
Nordtank
BRO GRACE
6,900
1999
50
BTAB
RAMONA
16,000
2004
C/M
Nordtank
Nordtank
BRO GLORY
6,900
2000
50
BTAB
FURE NORD
16,000
2004
9
Nordtank
MARISP
7,100
2003
C/M
Nordtank
NB EDWARDS
16,000
2006
C/M
Nordtank
MARELD
7,100
2004
C/M
Nordtank
NAVIGO
16,300
1992
29.75
BTAB
BRO GLOBE
7,600
2001
253)
BTAB
BRO ANTON
16,800
1998
100
BTAB
BRO GALAXY
7,600
2001
253)
BTAB
BRO ATLAND
16,800
1999
70
BTAB
BRO GEMINI
7,600
2003
253)
BTAB
BRO AXEL
16,800
1998
100
BTAB
BRO GENIUS
7,600
2003
253)
BTAB
ALSTERSTERN
17,080
1994
C/M
BTAB
BRO GRATITUDE
7,600
2003
50
BTAB
HAVELSTERN
17,080
1994
C/M
BTAB
BRO GRANITE
7,600
2004
50
BTAB
RHEINSTERN
17,080
1993
C/M
BTAB BTAB
NANNY
30
Dwt Year built Ownership form/% stake Commercial operator
BONITO
9,200
1993
C/M
Nordtank
TRAVESTERN
17,080
1993
C/M
ATLANTIC SWAN1)
10,500
1982
C/M
Nordtank
DONAUSTERN
17,080
1995
C/M
BTAB
NORDIC SWAN4)
10,600
1986
C/M
Nordtank
ISARSTERN
17,080
1995
C/M
BTAB
BRO JOINVILLE
13,000
1993
100
BTAB
PROSPERO
18,000
2000
30
BTAB
FURENÄS
13,000
1998
C/M
Nordtank
BRO SINCERO
18,000
2002
50
BTAB
TRAPPER1)
14,300
1985
T/C
BTAB
NB EDWARDS
19,500
2007
C/M
BTAB
BRO TRAVELLER1)
14,320
1988
100
BTAB
EVINCO
20,000
2005
30
BTAB
BRO TRADER1)
14,320
1988
100
BTAB
WEICHSELSTERN
21,150
1999
C/M
BTAB
BRO JUNO
14,350
1999
100
BTAB
WOLGASTERN
21,150
1999
C/M
BTAB
BRO JUPITER
BTAB
14,350
1999
100
BTAB
THEMSESTERN
21,850
2000
C/M
BRO TRANSPORTER1) 14,400
1989
77.50
BTAB
RHONESTERN
21,850
2000
C/M
BTAB
NB DELIVERER
14,500
2006
100
BTAB
VEGA SPIRIT
22,800
2001
T/C
BTLTD
NB DESIGNER
14,500
2006
100
BTAB
VEGA SPRING
22,800
2001
T/C
BTLTD
NB JINLING
14,500
2006
100
BTAB
PRIMULA
23,400
1992
C/M
Nordtank
NB JINLING
14,500
2007
100
BTAB
GREAT SWAN
23,400
1991
C/M
Nordtank
EURO SWAN
14,800
1991
C/M
Nordtank
VOYAGER A
31,300
1994
T/C
BTLTD
FURE STAR
15,000
1995
9
Nordtank
BRO PROVIDER
31,700
2001
100
BTLTD
THE FLEET 4NBMM EXU
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Size structure of the eet (number of vessels)
Ownership structure of the tanker eet (number of vessels)
BrostrÜm can offer customers great exibility by having a large number of vessels in several different segments. The chart illustrates BrostrÜm’s eet excluding newbuildings.
Through a combination of wholly and partly owned vessels and partnerships, BrostrĂśm has been able to grow the eet with limited risk. The chart illustrates BrostrĂśm’s eet excluding newbuildings. *Reported as a ďŹ nancial lease.
/VNCFS PG WFTTFMT
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Development of tanker eet In ten years’ time, BrostrÜm’s tanker eet has grown from 26 to 89 product and chemical tankers, including vessels on order.
Vessel name
Dwt Year built Ownership form/% stake Commercial operator
Vessel name
Dwt Year built Ownership form/% stake Commercial operator
BRO PRIORITY
31,700
2001
100
BTLTD
GĂ–NEN
47,100
2000
T/C
BTLTD
TREGUIER2)
32,000
1986
50
BTSAS
GANMUR6)
47,100
2000
C/M
BTLTD
BRO EDWARD
36,800
2005
B/B5)
BTSAS
BRO ELLIOT
36,800
2005
B/B5)
BTSAS
LEINESTERN
37,100
2005
BTSAS
Double hull unless indicated otherwise
BRO ELIZABETH
37,000
2001
B/B5)
BTSAS
1)
Double bottom
BRO ELLEN
37,000
2002
B/B5)
BTSAS
2)
Single hull, double sides
BRO ETIENNE
37,300
2004
B/B5)
BTSAS
3)
Reports further 25% as financial lease
GEESTESTERN
37,300
2004
C/M
BTSAS
4)
Stainless steel tanks
HUNTESTERN
37,300
2004
C/M
BTSAS
5)
Reported as financial lease
BRO CATHERINE
44,800
1997
100
BTLTD
6)
BRO CECILE
44,800
1997
100
BTLTD
Small = 5-10 kdwt
CILAOS
44,900
1996
50
BTSAS
Intermediate = 10-20 kdwt
BRO CAROLINE
45,000
1996
100
BTLTD
Handy = 20-40 kdwt
BRO CHARLOTTE
45,000
1997
100
BTLTD
BRO PREMIUM
45,000
1999
100
BTLTD
C/M
GANMUR, scheduled for delivery in summer 2006
Handy max = 40-50 kdwt NB = Newbuilding
BRO PROMOTION
45,000
1999
100
BTLTD
BRO ARTHUR
46,000
1995
100
BTLTD
BRO ALEXANDRE
46,000
1995
100
BTLTD
BRO ALBERT
46,000
1995
100
BTLTD
SETO EAGLE
47,000
2004
T/C
BTLTD
Nordtank = Nordtank Shipping AS, Holbaek (Denmark)
DĂœNYA NB
47,000
2006
C/M
BTLTD
BTAB = BrostrĂśm Tankers AB, GĂśteborg (Sweden)
DĂœNYA NB
47,000
2006
C/M
BTLTD
BTSAS = BrostrĂśm Tankers SAS, Paris (France)
DĂœNYA NB
47,000
2006
C/M
BTLTD
BTLTD = BrostrĂśm Tankers Ltd (Sandefjord, Norway and Singapore)
DĂœNYA NB
47,000
2007
C/M
BTLTD
DĂœNYA NB
47,000
2007
C/M
BTLTD
DĂœNYA NB
47,000
2007
C/M
BTLTD
DĂœNYA NB
47,000
2007
C/M
BTLTD
DĂœNYA NB
47,000
2008
C/M
BTLTD
B/B = Bareboat charter T/C = Time charter C/M = Commercial management
31
THE FLEET
Shipbuilding based on the customers’ needs Ordering and building a ship is a major investment and
3
Design in co-operation with shipyard
a process that takes several years. Broström has great
The final design is produced in co-operation with the ship-
experience in shipbuilding and orders vessels based on its
yard. It is here that the customers’ preferences take concrete
customers’ existing and anticipated transport needs. This
shape and various priorities are balanced against each other.
puts special demands on vessel designs and requires a keen
Within the scope of a vessel’s size, the number and size of
focus on the work of drawing up vessel specifications.
cargo tanks are optimised, along with the loading capacity. Efficient discharging and loading are important criteria.
1
Specifications drawn up Broström bases its newbuilding orders on the transport
2
4
The ship is built
needs of its customers in the oil and chemical industry.
The hull and tanks are built in sections which are then
The customers provide information on future distribu-
assembled in larger sections, which in turn are welded
tion systems, cargo sizes, product mixes and refinery
together. Once the hull and tanks have been completed,
capacity, among other things. Information on planned
the upper section – which is built in parallel – is put in
investments in ports and terminals is also important
place. The work is conducted under the supervision of
for optimising the technical design of vessels.
the orderer, who has a representative at the shipyard.
Procurement
5
Propulsion and manoeuvring systems
Procurement of the shipbuilding work takes several
The vessel’s propulsion and manoeuvring systems
aspects into account. The shipyard must be able to de-
include engine, fuel and steering systems. For example,
liver on schedule, at an acceptable price and with a high
Broström’s D-class vessels are fitted with twin stern
standard of quality. Protracted and in-depth negotia-
propellers that can rotate 360o and a bow propeller to
tions are carried out before an order is firmly placed.
ensure the best possible manoeuvrability in narrow ports.
”Ships, shipping and technology – what a wonderful combination!” “My career choice was simple – a civil engineering degree with a focus on shipbuilding was the first step. Following work in a shipyard, among other places, today I am a Technical Manager at Broström. This means that I prepare dockings and, assisted by a group of inspectors, I am responsible for technical maintenance of vessels in operation. I also draw up technical specifications for newbuildings, which means I get to visit the shipyards for inspections and negotiations. “I have varying job duties. And a lot of responsibility. But being a leader requires that I am clear and can define what needs to be done. This is facilitated a lot by the fact that Broström has such clear goals for its operations. “Modern vessels are growing increasingly complex. For us, this means more work per boat. In addition, our customers – quite rightly – are putting higher demands on us. Added to this are new regulatory requirements. So a lot is happening, but we see these as positive challenges. And then there’s the goal of being at the cutting edge of development, which goes without saying.” Peter Stenberg, Technical Manager, Broström Ship Management, Skärhamn, Sweden
32
THE FLEET
6 Efficient cargo handling
tion and so on is installed, at the same time that the
Cargo handling systems include technical equipment
vessel is furnished. Thereafter, the vessel and all of
such as pumps, control systems and equipment for
its technical systems are tested in the presence of the
minimising air emissions.
orderer and authorities.
9
7 Launching
Crew training
A ceremony is often held in connection with a vessel’s
In connection with testing, the employees who will
launch. Sometimes launching is combined with a
be working onboard the vessel undergo training. This
naming ceremony.
begins with the captain and technical officer, and is followed by the other crew members.
8 Installation and testing 10 Virgin voyage
Once the vessel has been launched, all equipment needed for its operation and monitoring of propulsion,
The virgin voyage is the first “real” voyage the vessel
power supply, cargo handling, navigation, communica-
takes after testing, in waters outside the shipyard.
The ten steps of the shipbuilding process 2003
1
2
2004
3
2005
5 6
2006
10
7
4
8 9
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"CMF TFBNBO
$IJFG $PPL
A floating microcosm Life onboard a ship is special. A small team of people living and working together for several weeks at a time – each with his own unique expertise and background. Many factors are required to make this microcosm work well and fulfil its function in the logistics chain. Clear areas of responsibility and close co-operation between the various trade categories make the work go smoothly and efficiently. It doesn’t matter where onboard you work – on the bridge, in the engine room, in the mess hall or on deck. Everyone has a key role onboard. At the same time, this microcosm is dependent on contact with the outside world. Professionally it requires smooth communication with the shorebased organisation. For the individual seaman, the opportunity to get in contact with family and friends means a great deal. Consequently, all of Broström’s vessels are equipped with modern systems for communicating both in voice and print. Navigation, loading, discharging, etc. are also dependent on advanced technical solutions to ensure a high and consistent level of safety onboard and in ports. Knowledgeable people, co-operation and technical development – these are the same factors that contribute to societal progress, no matter how large or small.
33
Q U A L I T Y, S A F E T Y A N D T H E E N V I R O N M E N T
Broström is a leading quality operator Quality, safety and the environment play an important part in Broström’s strategy. Every year the company invests large amounts of money and work in modern vessels and in maintaining a quality organisation. Broström is therefore wellpositioned to offer its customers reliable logistics services at flexible and competitive terms.
Quality
equipment and routines, rescue equipment, fire-fighting
All of Broström’s shipping activities work according to a
equipment, cargo handling systems, oil clean-up equip-
joint quality system involving uniform work models and a
ment, crisis-management routines, vessel construction and
uniform level of quality, among other things. This ensures
their general condition. In addition, controls are performed
that all customers receive the same high standards of
of crew numbers and certification, as well as of the ves-
service and quality.
sels’ logs and certificates. The results of port state controls are on public record. Onshore operations are controlled
Controls by multiple bodies
through audits of all processes and routines that are subject
Broström is continuously subject to external quality evalu-
to certification.
ations. The most important of these are the oil industry’s
The average number of remarks per inspection for
vetting of suppliers, the yearly inspections conducted by
Broström’s vessels was 0.6 (0.9) according to the Paris
flag states, port state controls, and the inspections per-
MOU, compared with 3.4 for the commercial world fleet.
formed by the classification societies. Added to these are
Of Broström’s vessels, 77% (63%) pass inspections entirely
Broström’s own internal controls.
without comment, compared with 46% for the commercial
These controls involve the inspection of navigation
world fleet.
The BRO JUPITER in the Gulf of Finland. Ninety per cent of the vessels in Broström’s European operations are ice-classed.
59° 56.3’ N. 26° 4.9’ E.
34
#SPTUSĂšNhT UBOLFS nFFU
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Age structure (size of eet)
World tanker eet older than 20 years
Breakdown of tanker eet by hull type
BrostrÜm has a modern eet. Sixty-four per cent of BrostrÜm’s eet is younger than 10 years.
Despite extensive newbuilding activity, a large part of the world eet in BrostrÜm’s segment is still older than 20 years.
Ninety-four per cent of BrostrÜm’s tonnage has double hulls, compared with 62% for the world eet in BrostrÜm’s size segment.
TMSA – a challenge for the entire industry
the over-arching international regulatory body for environ-
In 2005 BrostrĂśm laid down an extensive effort to live up to
mental and safety matters. The EU also has major inuence,
the oil companies’ new, industry-wide Tanker Management
as do the maritime authorities in the countries called on by
Self Assessment (TMSA) guidelines, which cover twelve
vessels or under whose ag they sail. The international clas-
central areas of management systems. Vessel operators are
siďŹ cation societies are yet another group of regulators.
individually responsible for evaluating and reporting to a
The EU’s regulations contain stipulations calling for
database, which customers can access to see the results. The
the phase-out of single-hulled tankers and a ban on all
oil companies also conduct their own spot checks.
transports of heavy oil in single-hulled tankers. These rules
The system is based on four levels, in which the ďŹ rst consists of stipulations made by law and other regulatory bodies.
apply for transports within the EU, as well as for EUagged vessels around the world.
The requirements then become increasingly stringent with each level. Today BrostrĂśm meets level two, and the goal is
Oil spills are rare
to measure up to level three in the relatively near future.
Today oil spills are very rare. Through strict reporting routines, BrostĂśm has complete control over every single spill
Marine & Logistics Services Quality work also has a prominent position for BrostrÜm’s
incident. No serious incidents were reported during the year. Environmental impact is minimised and serious acci-
Marine & Logistics Services unit. At the travel agency
dents are avoided by having competent and well-trained
BrostrĂśms ResebyrĂĽ, quality metrics include accessibility,
crews, well-working routines, and top-notch vessels and
the amount of savings that the travel agency generates for
technical equipment. Today double hulls are a basic pre-
its customers, and the extent to which customers are of-
requisite for long-term contracts of affreightment with
fered more than one travel alternative in connection with a
customers in the oil industry, for example.
booking. In addition, BrostrĂśms ResebyrĂĽ was quality-certiďŹ ed in 2005 according to ISO 9001. Quality work for Ship
Limited CO2 emissions
Agencies is based on the speciďŹ c conditions that apply for
With respect to vessel exhaust emissions, there is still po-
each of the six companies, their respective operations, and
tential for improvement, despite a sharpening of standards
the ports they work at.
in this area in 2005 through application of the IMO’s new rules for newly built vessels. By the same token, it should
Safety and the environment
be noted that shipping today accounts for only 2% of the
Safety and environmental issues are closely tied to each
world’s total CO2 emissions. The EU Commission esti-
other. BrostrÜm’s Group-wide Safety, Health and Environ-
mates that shipping exhaust emissions amount to approxi-
mental (SHE) policy sets minimum standards and require-
mately 10g CO2 per tonne-kilometre, compared with 20g
ments for reporting in a number of areas, such as environ-
for rail and 90g for road transport.
mental emissions, incidents and accidents, and absences caused by illness and work injuries.
Moreover, compared with other modes of transport, shipping is highly energy-efďŹ cient. A small product tanker consumes only about 0.3 megajoules per tonne-kilometre, com-
Requirements from several bodies
pared with 0.6 megajoules for rail and 0.7-1.2 megajoules
The UN’s International Maritime Organisation (IMO) is
for road transport. From a socio-economic standpoint as
35
Q U A L I T Y, S A F E T Y A N D T H E E N V I R O N M E N T
well, shipping offers major advantages compared with other modes of transport, including very limited external costs in
Quality certifications
the form of noise, environmental impact and accidents. Shipping is also better than both road and rail transport with respect to nitrogen oxide emissions. While the shipping industry’s nitrogen oxide emissions amount to approximate-
ISO 9001:2000 Broström Tankers AB Broström Tankers SAS Broström Ship Management AB
ly 0.3g per tonne-kilometre, the corresponding figure for rail
Broström Tankers Ltd
and road transport is 0.5g and 1.0g, respectively. The only
AB August Leffler & Son
area where shipping still lags behind road and rail transport is in sulphur dioxide emissions, where a vessel discharges far more per tonne-kilometre than a lorry or train.
Broström’s new vessels are being fitted with fuel tanks that allow them to handle several different fuel grades and
Modern vessels for a better environment
will thus be equipped to be able to use more environmen-
A number of Broström’s vessels are prepared to be fitted
tally friendly fuels as their availability increases.
with catalytic converters. However, the infrastructure to date has not been sufficiently developed to make it feasible
Vessel security standards
to install complete equipment for this type of cleaning.
Vessel security involves protection against external threats
Broström’s most recently ordered vessels are equipped with
such as terrorist attacks, hijackings and maritime piracy.
catalytic converters upon delivery, however.
This work is governed by the IMO’s International Ship and
Emissions of nitrogen oxides and sulphur dioxide are
Port Facilities Security (ISPS) code, which came into force
mainly dependent on choice of fuel. But even in considera-
in 2004. The ISPS code sets standards for vessel equipment
tions of changing over to more environmentally friendly
and requires every vessel to have an Action Plan Manual
fuels, extensive infrastructure investments are needed at
onboard as well as a crew member who is trained in taking
ports and terminals. At the same time, environmentally
responsibility for these matters. All of Broström’s vessels
friendly fuels need to be made more readily available.
meet the requirements of the ISPS code.
”Change, adapt and challenge old truths” “How do you end up in the shipping industry when the closest relative you have in the trade sailed on a small inland cargo boat in the 17th century? For me, it was out of an interest in logistics. I had experience in transport, logistics and IT, so for me Broström was the perfect combination. “I have a broad area of responsibility that covers everything from making sure the Group has a sustainable IT strategy to ensuring that everyone’s computers work. I am also responsible for project activities and for negotiations and agreements related to the IT operations. “As a leader I feel it is important to be a generalist and to be able to see the forest for the trees. And above all, to find – and surround myself with – talented employees. We have a flat organisation with short contact channels which makes it simple to work and influence. “Working with IT and shipping is special. The pace of development is fast, and you always have to be prepared to rethink your views. It’s highly stimulating to be in a position to influence, execute and see the results. But I must also admit, after five years in shipping I am still only a junior.” Per-Erik Holmberg, Group ICT Manager, Broström AB
36
IT
IT – central role in modern logistics With a large number of vessels working under assignment for customers with a great need for reliability and clear information, communication between vessels and land is becoming increasingly important. In 2006 several of Broström’s vessels will be equipped with continuous online communication systems, offering advantages for customers, companies and employees.
Broström has made extensive investments in information technology in recent years and today has a uniform IT
years to competitive levels. Two of Broström’s vessels in European traffic have test-
structure for both its shore-based and onboard operations.
ed the system, with favourable results. Crews, in particular,
This ensures quality in the implementation of new IT sys-
appreciate the greater opportunity for “social IT,” i.e., keep-
tems, while support can be provided to all units via remote
ing in touch with family and friends ashore and being able
control.
to keep up to date with Swedish media, for example. The
Broström’s IT system consists of three levels – business systems, operative IT solutions and customer applications.
global operations require a slightly different technology, which will require further evaluation.
All operations in the Shipping operations area share a joint business system. In addition, Broströms Resebyrå has speci-
Tying customers closer to Broström
fically adapted systems for its business.
IT-based customer applications are another area in which developments are progressing very rapidly today. Today
Good communication at sea
customers of Broström Tankers Ltd can precisely monitor
Broström has a modern, uniform IT platform on all vessels
“their” vessel and have access to extensive business infor-
that are technically operated by Broström. The advantage
mation at a so-called partner site. Other companies in the
of this is, among other things, that the new system provides
Group are currently evaluating opportunities to include
an opportunity for remote control and support from land.
their vessels in the system. At the same time, a project is
In 2005 Broström developed a new document and re-
currently in progress to develop a web service that will in-
porting system that is being installed on vessels. The system
tegrate Broström’s and its customers’ systems and thereby
makes it possible to feed the shore-based organisation and
give customers access to all information within the system.
customers with information directly from the vessels. In addition to communication and reporting with shore-
Broströms Resebyrå
based units, the vessels are also equipped with IT systems
Apart from the Shipping operations, Broströms Resebyrå
for navigation, cargo handling and administration, among
has the highest IT dependence. In 2005 the travel agency
other things.
made extensive investments in new ticket and booking systems, a new back-office system and a new self-booking
Toward continuous online status
system.
The next challenge for Broström and the rest of the shipping industry entails equipping vessels with continuous
Investments that must be protected
online communication.
Like all other investments, IT systems must also be pro-
There are many advantages to continuous online com-
tected. Accordingly, Broström takes a proactive stance on
munication, to the benefit of the company and employees
IT security. This work is focused primarily on protection
alike. Such systems make it simpler and more effective to
against spam, virus attacks and intrusions. Broström be-
send documents and work with shore-based databases, at
lieves that its IT security and accessibility are good and the
the same time that support and maintenance of equip-
company has not suffered any serious operational disrup-
ment onboard vessels can be handled from the central
tions or incidents in recent years.
IT department. Compared with today’s systems, this also involves lower variable costs for communication with land. Although the fixed costs for continuous online communication are still relatively high, they have fallen in recent
37
S E V E R A L - Y E A R O V E RV I E W
Several-year overview Condensed income statements SEK m
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
3,818.1
3,206.8
3,267.3
2,587.1
2,642.0
2,498.7
2,033.9
2,126.8
1,807.5
1,758.3
Operating profit (EBIT)
812.4
403.8
355.1
324.7
580.2
499.1
90.3
158.0
199.6
134.0
Net financial items
-92.3
-79.1
-117.0
-185.4
-145.8
-180.0
-120.2
-128.7
-84.9
-58.7
Profit/loss after net financial items
720.1
324.7
238.1
139.3
434.4
319.1
-29.9
29.3
114.7
75.3
Tax on profit for the year
-97.2
162.0
-47.9
-42.4
-122.8
-104.3
1.2
-11.6
-34.2
-29.2
Consolidated profit/loss for the year
622.9
486.7
190.2
96.9
311.6
214.8
-28.7
17.7
80.5
46.1
11.8
8.5
11.4
1.7
3.9
3.3
0.5
1.9
20.1
7.9
Net sales
Of which, minority interest
Net sales
of Nordtank and the outstanding 50% share in Iver Ships.
Broström’s net sales target is to achieve average annual
This added a large number of vessels to the fleet.
growth of 10% over a three-year period. For the commercial operations in the form of net sales including business
Operating overhead
partners the growth target is 20%. During the last three
Broström’s operating overhead consists of variable costs
years, average annual growth has been 13.9%.
(mainly port calling fees, bunker charges and other contract
Net sales have increased both organically and as a result
expenses), operating expenses (mainly charter rates and
of acquisitions. In 1998 Broström acquired Van Ommeren’s
vessel operating and maintenance costs), personnel costs
product tanker operations and 40% of Iver Ships. The
and depreciation. In recent years the proportion of variable
decrease from 1998 to 1999 was due primarily to the very
costs has increased slightly, while the proportion of operat-
weak freight market caused by the Asian crisis, among other
ing overheads has been unchanged.
things. After 1999, Broström expanded its fleet with a large number of newly built vessels, and the company benefited
Earnings
from the strong freight market and strong dollar.
Broström’s earnings trend has essentially reflected the growth
A bit into the new decade, the effects of a sensitive bal-
in sales. Profit in 2000 was favourably affected by repayment
ance between supply and demand began to be noticeable
of SEK 161.3 m in surplus pension funds from Alecta. The
in the freight market. Due to rising demands on quality and
average return on capital employed is shown in the table be-
safety, many older vessels disappeared from the market,
low. Broström’s target is that the return on capital employed
which has led to a situation in which even minor events
should exceed the interest rate on 10-year US government
have a large impact on freight rates.
bonds during the past three years plus a risk premium of 5%.
Broström’s net sales in 2003 were affected primarily by
For 2005, this target amounted to 9.1%.
a cold winter and a number of other factors that contributed to high freight rates. Parallel with this, Broström increased its ownership in Iver Ships. The market conditions remained favourable in 2004, although the weaker dollar had a negative impact.
Return on capital employed
%
2003-2005 (3 years)
11.1
2001-2005 (5 years)
11.6
1996-2005 (10 years)
11.2
The dollar recovered in 2005 at the same time that Broström expanded its operations through the acquisitions Sales and earnings per quarter 2005 SEK m
2003
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
1,127.5
943.8
986.2
760.5
845.5
742.4
813.0
805.9
770.6
Operating profit (EBIT)
310.0
120.8
198.6
183.0
106.7
61.9
109.3
125.9
55.8
Profit after net financial items
280.4
92.6
185.5
161.6
83.5
43.8
97.5
100.0
22.1
Moving 12 months
720.1
523.2
474.4
386.4
324.8
263.4
250.6
223.1
238.1
Net sales
38
2004
4&, N
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#BMBODF TIFFU UPUBM &RVJUZ BTTFUT SBUJP **
Net debt and debt/equity ratio
Equity/assets ratio II
The trend in BrostrÜm’s debt/equity ratio is relatively stable, despite the rise in net debt in 2005.
The equity/assets ratio II has averaged 36% during the last three years.
Condensed balance sheets SEK m Fixed assets Current assets excluding liquid assets
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
5,787.2
4,061.5
3,984.5
4,157.3
3,611.0
3,173.5
3,333.6
3,061.1
1,430.5
1,234.9
646.9
524.4
717.7
565.3
602.2
649.5
464.8
482.7
253.8
252.3
Liquid assets
1,480.5
954.9
944.6
971.8
1,150.5
598.0
432.8
651.2
419.3
394.4
Total assets
7,914.6
5,540.8
5,646.8
5,694.4
5,363.7
4,421.0
4,231.2
4,195.0
2,103.6
1,881.6
Shareholders’ equity, incl. minority interests
2,709.5
1,799.5
1,501.5
1,416.1
1,467.5
1,154.6
863.3
957.2
333.8
352.6
30.7
160.3
230.6
250.9
237.0
221.0
221.0
221.0
112.5
150.0
Equalisation reserve
205.3
107.3
105.9
143.3
72.9
81.2
116.1
162.0
–
–
Deferred tax
473.1
344.5
561.5
520.4
495.9
353.5
308.6
315.3
108.1
69.1
3,800.9
2,363.2
2,465.9
2,622.5
2,318.7
1,973.9
2,153.4
1,979.6
1,181.3
955.6
695.1
766.0
781.4
741.2
771.7
636.8
568.8
559.9
367.9
354.3
7,914.6
5,540.8
5,646.8
5,694.4
5,363.7
4,421.0
4,231.2
4,195.0
2,103.6
1,881.6
Debenture loan
Long-term liabilities and provisions Current liabilities Total shareholders’ equity and liabilities
Shipping is traditionally very capital-intensive. BrostrÜm’s
Liabilities in the balance sheet consist primarily of: 2005
2004
Long-term liabilities and provisions, %
51
48
Shareholders’ equity, %
34
32
Current liabilities, %
9
14
Deferred tax, %
6
6
focus on commercial operation, where vessel ownership in many cases is shared in full or in part with extra partners, helps keep the company’s tied up capital to a minimum. BrostrÜm’s assets consist of: 2005
2004
and vessel contracts, %
73
73
Liquid assets, %
19
17
8
10
Fixed assets in the form of vessels
Current assets, %
Shareholders’ equity increased from 2003 to 2005, primarily as a result of new issues in connection with vessel purchases and the addition of retained earnings. Deferred tax pertains primarily to the difference between taxable and book depreciation of vessels.
Fixed assets increased in 1998 in connection with BrostrÜm’s
The average equity/assets ratio and debt/equity ratio
acquisition of Van Ommeren’s product tanker business,
are shown in the table below. One of BrostrĂśm’s ďŹ nancial
whereby BrostrÜm’s shareholders’ equity increased at
targets is to maintain an equity/assets ratio of greater than
the same time through a non-cash issue of SEK 332 m. A
30%.
new issue in connection with the company’s listing on the Stockholm Stock Exchange added SEK 215 m in equity.
Equity/assets ratio II, %
Debt/equity ratio (multiple)
Fixed assets thereafter increased rapidly between 2000 and
2003-2005 (3 years)
35.7
1.0
2002, mainly due to newbuilding deliveries and acquisi-
2001-2005 (5 years)
34.1
1.1
tions of vessels. The same applied for 2005, when a large
1996-2005 (10 years)
30.9
1.5
number of vessels was added to the BrostrÜm eet.
39
S E V E R A L - Y E A R O4&, N V E RV I E W
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Liquid assets and cash ow
Share dividend in relation to shareholders’ equity
BrostrÜm has a relatively stable cash ow, which also improved during the past two years.
BrostrĂśm has paid a stable, high share dividend.
C o n d e n s e d c a s h f l o w s t a t e m e n t s 1) SEK m
2005
2004
2003
2002
2001
2000
1999
1998
Operating activities
776.5
334.5
420.6
419.6
612.1
371.4
52.1
165.3 184.5
Change in working capital
-157.2
95.1
-76.7
-5.9
174.5
-109.6
26.9
Cash flow from operating activities
619.3
429.6
343.9
413.7
786.6
261.8
79.0
349.8
Cash flow from investing activities
-491.3
-441.7
0.7
-517.6
-218.5
85.0
-523.7
393.0 -458.1
Cash flow from financing activities
457.2
92.1
-239.9
116.9
61.2
-154.8
168.0
-172.8
-131.6
-87.1
-122.5
-57.6
-7.2
-14.4
-13.3
Translation difference
–
–
1.1
-16.3
-41.3
-36.5
49.8
-39.4
Cash flow for the year
412.4
-51.6
18.7
-125.8
530.4
148.3
-241.3
232.0
Liquid assets at start of year
954.9
944.5
971.8
1,150.5
598.0
432.8
651.2
419.2
–
25.7
21.7
–
–
–
–
–
113.2
36.3
-67.7
-52.9
22.1
16.9
22.9
–
1,480.5
954.9
944.5
971.8
1,150.5
598.0
432.8
651.2
Dividend to shareholders and minority holders
Liquid assets pertaining to change in consolidation Exchange rate difference in liquid assets Liquid assets at year-end 1),
Due to changed accounting principles, comparison figures are missing for 1996-1997.
BrostrÜm’s focus on transport services and the company’s
positive cash ow from investing activities and negative
relatively even earnings capacity puts special focus on the
cash ow from ďŹ nancing activities in 1998 and 2002 per-
company’s ability to generate stable cash ows.
tain mainly to sales of vessels and the repayment of loans in
During the eight years that BrostrÜm has presented cash ow statements, average cash ow from operating activities has been SEK 410.5 m. As result of the stable cash ow from operating activi-
40
connection with these. A stable and positive cash ow is a prerequisite in order for BrostrÜm to be able to provide a steady, high dividend to its shareholders. During its time as a listed company,
ties, BrostrĂśm has been able to ďŹ nance a large part of its
BrostrĂśm has paid a dividend every year. The average divi-
substantial vessel investments with own funds. These
dend, including the proposed dividend for 2005, has been
investments were the main reason for the outow from
SEK 3.44 per share, corresponding to an average dividend
investing activities in 1999, 2001, 2002 and 2004. The
yield of 6.4%.
Market capitalisation at 31 December 2005 Company
SEK m
4RANSATLANTIC
BrostrĂśm
554
5,220
&RANS -AAS
DFDS
410
3,868
$&$3
Frans Maas
219
2,069
*AMES &ISHER /-) #ORPORATION
James Fisher
273
2,577
Odfjell
2,287
21,568
OMI Corporation
1,137
10,719
100
944
Transatlantic
#SPTUSĂšN
EUR m
BLX
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#-9
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BrostrĂśm Logistics Index (BLX) The BrostrĂśm Logistics Index includes seven companies with market capitalisation ranging from approximately SEK 1 billion to slightly more than SEK 21 billion.
BrostrÜm Logistics Index (BLX) – Price trend for individual companies in 2005 BrostrÜm’s shares performed the best of seven companies included in the BLX in 2005.
BrostrÜm Logistics Index (BLX) BrostrÜm’s shares outperformed the BLX once again in 2005.
BrostrĂśm Logistics Index (BLX) Since 1999 BrostrĂśm has been the only listed Swedish company to present its own share index, in which its B-shares are compared with the shares of a peer group of Swedish and foreign companies.
Following the merger of NordsjĂśfrakt and Gorthon Lines,
industry. These changes put clearer focus on the actual
and Stelmar Shipping’s acquisition, the BrostrÜm Logistics
transport and logistics services. This makes comparisons
Index (BLX) includes seven companies with operations in
with traditional tanker shipping companies less relevant,
transport and logistics. The BLX is updated on a daily basis.
since these concentrate to a great extent on ownership,
The aim of the BLX is to facilitate an understanding and analysis of BrostrÜm and thereby contribute to a correct valuation of the company’s shares. The index was created
purchases and sales of vessels but are less active in commercial operations. BrostrÜm’s shares clearly outperformed the BLX in
against the background of changes taking place in the mar-
2005. The same applies with respect to the long-term per-
ket for product and tanker shipping as a result of signiďŹ cant
formance since the creation of the index in 1999.
restructuring among customers in the oil and chemical
Companies in the BrostrĂśm Logistics Index DFDS
www.dfds.dk
DFDS provides land and sea-based transports of passengers and goods. Its head ofďŹ ces are in Copenhagen, Denmark. DFDS is an associated company of J. Lauritzen Holding A/S.
Frans Maas
www.fransmaas.com
Frans Maas is an international forwarding company that provides cargo transport by land, sea and air. The company’s head ofďŹ ces are in Venlo, Netherlands.
James Fisher & Sons
www.james-fisher.co.uk
James Fisher & Sons owns and operates slightly more than 15 small product tankers (5,000-14,000 dwt) in the European coastal market, as well as special vessels. The company also provides services to the offshore industry. James Fisher & Sons’ head ofďŹ ces are located in Barrow-in-Furness, UK.
Odfjell
www.odfjell.no
Odfjell is a logistics company focused on the chemical industry. Activities include tanker shipping, tank storage and the supply of tanker containers. Odfjell operates a eet of nearly 100 chemical tankers (4,000-45,000 dwt), including several parcel tankers. The company’s head ofďŹ ces are in Bergen, Norway.
OMI Corporation
www.omicorp.com
OMI Corporation is a large international shipowner that operates a eet of slightly more than 40 tankers (35,000-165,000 dwt). OMI’s head ofďŹ ces are located in Stamford, Connecticut, USA.
Transatlantic
www.rabt.se
Transatlantic was formed through a merger between B&N NordsjĂśfrakt and Gorthon Lines. The company conducts industrial shipping and ship management, with some 30 small and mid-size bulk and ro-ro vessels and a number of icebreakers. The company’s head ofďŹ ces are located in Skärhamn, Sweden.
41
BROSTRÖM’S SHARES
Broström’s shares Broström’s shares showed continued strong performance in 2005. The share price rose 62%, and shares were traded for a total value of SEK 4,049 m (2,136).
Broström’s B-shares were first listed on the Stockholm
Per Dreijer family (through the company Lunaria AB),
Stock Exchange O-list on 17 June 1998 and have been
Lennart Simonsson and institutional investors. At year-end
quoted on the Attract 40 list since July 2002. A round lot is
2004, the shares owned up until that time by Shipinvest
100 shares. The abbreviation is BRO-B and the ISIN code is
Intressenter were sold to that company’s shareholders.
SE0000254880.
Shipinvest Intressenter thereby ceased to be an owner of Broström.
Trading volume and price trend
Foreign ownership on 31 December 2005 amounted to
Trading volume in Broström’s shares in 2005 was 30.8
32.4% (27.8%) of the share capital and 21.2% (18.3%) of the
million shares (25.0), for a total value of SEK 4,049
votes. Total institutional ownership (according to the defini-
m (2,136), corresponding to a turnover rate of 104%
tion provided by SIS Ägarservice) was 30% of the capital
(108%). Average trading volume per business day was
(33%) and 38% of the votes (39%). The Board and manage-
121,929 shares (98,902), or SEK 16,002 thousand (8,444).
ment (including related companies) together control 21.3% of
Broström’s shares closed the year at SEK 160.00 (98.75),
the number of shares and 46.0% of the number of votes.
and the market capitalisation, including A-shares, was SEK 5,220 m (3,100). The highest price paid during the
Agreement between holders of A-shares
year was SEK 163.50 (27 December 2005) and the lowest
Broström’s A-shareholders have had an agreement since
price paid was SEK 90.25 (5 January 2005).
2004 concerning consensus on the election of board members and that the A-shares shall carry a right of first refusal.
Share capital On 31 December 2005 the share capital in Broström AB was
Dividend policy and proposed dividend
SEK 65.2 m (62.8). The number of shares was 32,622,842,
The Board’s aim is that the dividend should reflect the
divided among 2,125,728 A-shares and 30,497,114 B-shares.
company’s current level of profit, financial position and capital
The shares have a par value of SEK 2.00 each. Each A-share
requirement. In consideration of these factors, the aim is for
carries entitlement to ten votes, while each B-share carries
the dividend to be around 40%-50% of profit after tax. It is
entitlement to one vote. All shares carry equal entitlement to
also the Board’s aspiration to maintain steady dividend growth.
participation in the company’s profit and assets. In accordance with a resolution made by an extraordinary
The Board proposes a dividend of SEK 8.00 per share (5.00) for 2005, corresponding to 42% (36%) of profit after tax.
general meeting in December 2004, a number of directed new issues were made in spring 2005 in connection with the
Investor relations at Broström
acquisition of Nordtank Shipping and purchases of stakes in
Broström aspires to maintain good relations with all share-
vessels. In addition, a new issue was carried out as part of the
holders. In 2005 the company participated in a large num-
warrant programme that is described on page 74.
ber of stock market and customer meetings at banks, as well as at “Stora Aktiedagen”, an annual investor conference
Ownership On 31 December 2005 Broström had 14,975 shareholders (12,965), an increase of 16% compared with the preceding year. Since the stock market introduction in 1998, few
42
arranged by the Swedish Shareholders’ Association. In connection with the publication of financial reports during the year, Broström met with analysts and other professional investors, either on location in Stockholm or
major ownership changes have taken place. In May 2002,
via teleconferences. On these occasions Broström also held
Broström’s former principal owner, Vopak, sold its entire
webcasts on its website, making the information readily
holding to a number of institutions. Two years later, Siem
available for all shareholders. Broström’s management also
Industrikapital AB sold all of its shares in Broström to
conducted road shows during the year in Boston, Geneva,
Arvid Svensson Invest AB, Shipinvest Intressenter AB, the
Copenhagen, London, New York, Oslo, Paris and Zurich.
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Price trend, BrostrÜm B, 17 June 1998–31 December 2005
Trading in BrostrĂśm shares has risen steadily during the past ďŹ ve years. This has led to greater interest from both personal and professional investors.
BrostrÜm’s shares have clearly outperformed the General Index since the end of 2001. A stable dividend is also apparent in the high total return.
B-shareholders by size class (on 31 December 2005)
Shareholders (on 31 December 2005) Shareholder
Number of A-shares
Number of B-shares
1,037,984
3,320,991
13.4
26.5
1-500
2,027,197
6.6
10,459
69.8
734,954
1,558,205
7.0
17.2
501-1,000
2,238,342
7.3
2,569
17.2
3,050,174
9.3
5.9
1,001-2,000
1,635,171
5.4
978
6.5
320,560
1.5
3.9
2,001-5,000
1,888,287
6.2
560
3.7
1,341,722
4.1
2.6
5,001-10,000
1,460,466
4.8
190
1.3
Arvid Svensson Invest AB The Dreijer families Odin Fonder, Oslo BjĂśrnram family
171,840
JP Morgan Chase Bank
Percentage of capital votes
Size of holding
Number of shares
% Number of shareholders %
Lennart Simonsson
96,042
205,270
0.9
2.3
10,001-20,000
1,156,089
3.8
79
0.5
Kenneth Nilsson
84,908
267,072
1.1
2.2
20,001-50,000
1,984,453
6.5
64
0.4
Handelsbanken Fonder
775,286
2.4
1.5
50,001-100,000
2,248,063
7.4
33
0.2
Royal Trust Corporation of Canada
740,800
2.3
1.4
>100,001
15,859,046
52.0
43
0.4
Orkla ASA
500,000
1.5
1.0
Total
30,497,114
100.0
14,975
100.0
Par value
Total number of shares
Total share capital
Others*
18,417,034
56.5
35.5
Total
2,125,728
30,497,114
100.0
100.0
Sweden
2,079,328
19,990,574
67.8
78.8
Year
Abroad
46,400
10,506,540
32.2
21.2
1981
*Non-Swedish shareholders reported under this heading are nominee shareholders, entailing that the individual shareholders are not officially registered.
Shareholder categories (on 31 December 2005) Owners Legal entities
Number of shares
Number of votes
Percentage of capital votes
20,328,082
30,263,938
62.3
58.5
Natural persons
12,294,760
21,490,456
37.7
41.5
Total
32,622,842
51,754,394
100.0
100.0
Growth of share capital Change in number of shares
100
800
80,000
600
100
1,400
140,000
1983 New/bond issue
58,600
100
60,000
6,000,000
1987 New issue
28,572
100
88,572
8,857,200
1994 Bond issue/split
2,568,588
8
2,657,160
21,257,280
1995 New issue
1,200,000
8
3,857,160
30,857,280
1997 New issue
576,922
8
4,434,082
35,472,656
13,302,246
2
17,736,328
35,472,656
1998 Non-cash issue
4,936,803
2
22,673,131
45,346,262
1998 New issue
6,142,857
2
28,815,988
57,631,976
2002 New issue
212,000
2
29,027,988
58,055,976
2003 New issue
212,000
2
29,239,988
58,479,976
2004 Non-cash issue
2,154,818
2
31,394,806
62,789,612
2005 Non-cash/new issues
1,228,036
2
32,622,842
65,245,684
1982 New issue
1998 Split
43
S H A R E D ATA
Share data 2005
2004
2003
2002
2001
2000
1999
1998
Price-related share data Share price at year-end (closing price paid), SEK
160.00
98.75
72.00
38.50
42.00
18.40
11.70
12.10
Highest share price during the year (price paid), SEK
163.50
103.50
73.50
54.00
42.00
20.00
16.00
35.00
Lowest share price during the year (price paid), SEK
90.25
68.00
34.70
31.00
17.00
9.30
11.00
11.00
Market capitalisation at year-end, SEK m
5,220
3,100
2,105
1,118
1,196
530
337
349
P/E ratio
8.5
6.0
11.7
11.7
3.9
2.5
negative
16.9
P/EBITDA
4.8
4.6
3.5
2.0
1.6
0.8
1.3
1.0
P/EBIT
6.4
7.2
5.9
3.4
2.1
1.1
3.7
1.9
P/CE
8.4
8.4
6.1
2.6
1.5
2.1
5.0
0.9
Dividend yield, %
5.0
5.1
6.3
7.8
10.1
10.9
2.1
4.1
EBITDA
33.08
21.63
20.53
18.91
26.32
23.22
8.77
12.42
EBIT (operating profit)
25.12
13.79
12.10
11.23
20.13
17.32
3.13
6.40
Profit/loss after net financial items
22.26
11.09
8.17
4.82
15.07
11.08
-1.04
1.19
Profit/loss for the year
18.89
16.33
6.14
3.28
10.68
7.34
-1.01
0.64
Profit/loss for the year including dilution
18.76
15.10
6.08
3.27
10.61
7.34
-1.01
0.64
Shareholders’ equity
82.69
56.30
50.51
48.31
50.53
39.96
29.90
33.14
Shareholders’ equity including dilution
82.13
55.79
50.22
48.09
50.20
39.96
29.90
33.14
Cash flow from operating activities
19.15
14.65
11.81
14.31
27.30
9.09
2.83
14.35
Cash flow for the year
12.75
-0.67
0.64
-4.35
18.40
5.15
-8.37
9.40
8.00
5.00
4.50
3.00
4.25
2.00
0.25
0.50
Per-share data (SEK)
Proposed dividend Number of shares outstanding At year-end
32,622,842
31,394,806
29,239,988
29,027,988
28,815,988
28,815,988
28,815,988
28,815,988
Average
32,346,920
29,287,217
29,119,946
28,901,613
28,815,988
28,815,988
28,815,988
24,686,223
Stock options outstanding
675,750
648,500
648,500
212,000
424,000
424,000
–
–
Dilutive shares
218,771
283,583
167,611
130,550
185,700
–
–
–
32,841,613
31,678,389
29,407,599
29,158,538
29,001,688
28,815,988
28,815,988
28,815,988
At year-end with full dilution
Definitions P/E ratio
Shareholders’ equity per share
Earnings per share
Market price at year-end divided by profit
Shareholders’ equity excluding minority inter-
Net profit for the year less minority interests
for the year less minority interest per
ests divided by the number of shares.
divided by the average number of shares.
share.
Shareholders’ equity per
Earnings per share including dilution
P/EBITDA
share including dilution
Net profit for the year less minority interests
Market price at year-end divided by oper-
Shareholders’ equity excluding minority inter-
divided by the average number of shares including
ating profit per share before depreciation.
ests divided by the average number of shares
dilution shares.
including dilution shares.
P/EBIT
Cash flow from operating activities per
Market price at year-end divided by oper-
EBITDA per share
share
ating profit per share.
Operating profit before depreciation divided
Cash flow from operating activities, after change
by the average number of shares.
in working capital, divided by the average number
P/CE
of shares.
Market price at year-end divided by cash
EBIT per share
flow from operating activities per share.
Operating profit divided by the average
Cash flow for the year per share
number of shares.
Cash flow for the year divided by the average
Dividend yield Dividend in relation to the market price at year-end.
number of shares.
Profit after net financial items per share Profit after net financial items divided by the average number of shares.
44
K E Y R AT I O S
Key ratios 2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
EBITDA margin, %
28.0
19.8
18.3
21.1
28.7
26.8
12.4
14.4
15.1
11.4
EBIT margin (operating margin), %
21.3
12.6
10.9
12.6
22.0
20.0
4.4
7.4
11.0
7.6
Profit margin, %
18.9
10.1
7.3
5.4
16.4
12.8
negative
1.4
6.3
4.3
Margins
Returns Return on: Capital employed, %
15.9
9.9
7.5
7.2
17.7
16.2
5.2
8.3
13.8
10.0
Shareholders’ equity, %
27.1
30.0
12.4
6.7
23.6
21.0
negative
2.4
21.0
16.7
Total capital, %
13.6
8.0
5.9
5.7
13.9
13.1
4.2
7.1
11.3
8.1
Working capital, %
18.5
11.7
9.8
9.6
19.6
17.3
3.2
8.0
–
–
Capital structure Capital turnover rate, multiple
0.9
0.9
0.9
0.8
0.9
0.9
0.7
1.1
–
–
Debt/equity ratio, multiple
1.0
0.9
1.2
1.3
1.0
1.4
2.1
1.5
2.3
1.8
Interest cover ratio, multiple
5.7
4.2
3.4
1.8
2.8
2.3
0.9
1.2
2.1
2.1
Equity/assets ratio I, %
34.2
32.5
26.6
24.9
27.4
26.1
20.4
22.8
15.9
18.7
Equity/assets ratio II, %
37.2
38.0
31.9
30.9
32.6
32.3
27.4
30.5
21.2
26.7
Share of risk-bearing capital, %
43.2
44.2
42.5
40.9
42.4
41.0
35.7
39.5
26.4
31.9
Net sales per employee, SEK 000s
3,785
3,231
3,136
3,113
3,145
2,608
2,064
2,204
–
–
Value-added per employee, SEK 000s
1,322
912
823
754
1 031
777
438
470
–
–
805
407
341
342
626
456
79
141
–
–
9.7
8.9
8.9
6.2
8.4
5.0
0.8
1.5
–
–
Capital employed, weighted average 1)
5,484
4,338
4,489
4,400
3,906
3,496
3,377
2,500
1,627
1,480
Capital employed, year-end 2)
6,825
4,637
4,438
4,541
4,259
3,553
3,438
3,315
1,714
1,540
Working capital 3)
5,521
3,760
3,563
3,666
3,107
2,818
2,947
2,681
–
–
Net debt 4)
2,578
1,657
1,745
1,895
1,394
1,568
1,846
1,402
856
647
Average number of employees 5)
1,009
992
1,042
831
840
958
985
965
673
556
Employees
Operating profit per employee, SEK 000s Appropriation of profits Dividend in relation to shareholders’ equity, % Other
1)
Weighted average balance sheet total for the year, less non-interest-bearing liabilities.
2)
Balance sheet total less non-interest-bearing liabilities.
3)
Balance sheet total less liquid assets, interest-bearing financial fixed assets, non-interest-bearing liabilities and deferred tax.
4)
Interest-bearing liabilities less liquid assets including short-term investments.
5)
Excluding temporary employees.
EBITDA margin
Return on total capital
Equity/assets ratio II
Operating profit before depreciation as a percent-
Operating profit plus financial income in
Shareholders’ equity, debenture loans and
age of net sales for the year.
relation to average balance sheet total.
equalisation reserve in relation to balance
EBIT margin
Return on operating capital
EBIT (operating profit) as a percentage of net sales
Operating profit in relation to average work-
Share of risk-bearing capital
for the year.
ing capital.
Shareholders’ equity plus debenture loans,
sheet total.
equalisation reserve and deferred tax in
Profit margin
Capital turnover rate
Profit after financial items as a percentage of net
Net sales divided by average working capital.
relation to balance sheet total.
Net sales per employee
sales for the year.
Debt/equity ratio
Net sales divided by average number of
Net debt in relation to shareholders’ equity.
employees.
exchange rate differences of assets, in relation to
Interest cover ratio
Value-added per employee
average capital employed.
Profit after net financial items plus inter-
Operating profit plus costs for employed
est expenses as a percentage of interest
personnel divided by the number of
expenses.
employees.
relation to average shareholders’ equity excluding
Equity/assets ratio I
Operating profit per employee
minority interests.
Shareholders’ equity in relation to balance
Operating profit divided by the average
sheet total.
number of employees.
Return on capital employed Operating profit plus financial income including
Return on shareholders’ equity Profit for the year excluding minority interests in
45
R I S K FA C T O R S A N D S E N S I T I V I T Y A N A LY S I S
Risk factors and sensitivity analysis Broström’s strategy is based on long-term contracts of affreightment and close customer relationships. This strategy helps minimise the risk exposure that is traditionally associated with shipping.
The financial risks that Broström is exposed to are described
Freight rates
in the Directors’ Report on page 50. These consist primarily of
Freight rates in product and chemical tanker shipping vary
currency and interest rate risks. However, due to the possibility
greatly. A higher or lower level of earnings per day results for
to use marine liens, shipping is less sensitive to credit risks.
the most part in an equal change in profit after net financial items. The fluctuations are greatest in the global segments,
Global risks
while prices are more stable in coastal shipping. However,
The main global risks consist of economic cycle depen-
Broström’s strategy of working with a high proportion of long-
dency, freight rates, political factors, oil prices, and risks
term contracts reduces its sensitivity to fluctuation in freight rates.
associated with war and terrorism.
Oil prices Economic cycle dependency
Oil prices have always fluctuated considerably. Price variations
Demand for transports of oil and chemical products is
affect Broström primarily through changes in the price of
partly dependent on demand for these products, which is
bunker oil. Sensitivity to bunker prices is limited by the fact
steered to a high degree by the economy. The effects of
that certain volume contracts contain clauses that partly
an economic decline are greatest in the global shipping
compensate for large bunker price fluctuations. However,
segment and in the spot market. In coastal shipping, where
Broström does not work with forward hedges of bunker prices.
vessels work to a greater extent within the oil and chemical
In addition to the bunker price effect, there is also
industry’s internal distribution systems and under longer
some correlation between the price of oil and demand for
contracts of affreightment, the sensitivity is less. Broström
transport capacity. If the spot price of oil is higher than the
limits economic cycle dependency through its strategy of
forward rate, demand for transports tends to decrease. For
working under contracts of affreightment and by operating
Broström, however, this risk decreases since high oil prices
primarily within its customers’ distribution systems.
result in higher consumption of the oil products stored in depots. When the consumption pattern changes, a greater
Political factors
need arises to transport products in order to level out dif-
Product and chemical tanker shipping is affected by political
ferences in supply in various regions.
decisions regarding the environment and safety, various tax rules and to some extent by international trade regulations. Environmental legislation covers vessel design and
A large amount of the world’s oil production takes place in
operation as well as the employees’ competence and the
regions with a relatively high risk of war, which could limit access
company’s routines onboard and ashore. In recent years,
to vital oil assets and the supply of oil products. How this would
regulations and inspections have been made considerably
affect the need for transport is uncertain, however. The negative
more stringent. This trend is expected to continue in the
effects of lower supply and a global economic downturn caused
future and to lead to a decline in demand for older ton-
by a war could be offset by greater transports to and from various
nage. As a quality shipper, Broström views this trend as an
storage depots, and by an increase in transport distances.
opportunity rather than a risk for the company. Greater consensus and competitive neutrality within the
46
Risks associated with war and terrorism
Terrorism risk consists of the risk of being subject to acts of terrorism. Broström takes all the actions required by au-
EU have led to a reduction in tax policy risk. At the same
thorities and customers in an effort to minimise the risk of
time, increasingly freer global trade has also put limitations
being subject to acts of terrorism. Due to tried and tested
on trade policy factors, which consist primarily of actions
routines onboard and surrounding the vessels, Broström
taken by various countries to protect domestic shipping
meets the standards set by the UN’s International Maritime
and various types of trade restrictions.
Organisation and individual countries.
4&, &63
4&, 64%
4&, &63
64% UPO RISK FACTORS AND SENSITIVITY ANALYSIS
4PVSDF 4*9 )BMMWBSTTPO )BMWBSTTPO
4&, 64%
The dollar strengthened in 2005, which had a positive effect on BrostrÜm’s earnings.
3PUUFSEBN
4PVSDF 4*9 )BMMWBSTTPO )BMWBSTTPO
Currency rate movement
4JOHBQPSF 4PVSDF $MBSLTPO 3FTFBSDI 4UVEJFT
Interest rate trend (USD Libor 6 months)
Bunker prices (IFO 380) Bunker prices follow the trend in oil prices, but have a limited impact on BrostrÜm’s earnings.
US interest rates have risen sharply compared with the very low levels a couple of years ago.
Operational risks
ashore and at sea have been offered to participate in
Operational risks include risks associated with vessel opera-
BrostrÜm’s employee warrant programme (see page 74).
tion, investment and expansion, and employee-related risks.
Risks associated with investments and expansion Vessel operation and insurance matters
Purchases of vessels and growth through company acquisi-
In addition to preventive work, BrostrĂśm strives to mini-
tions entail a risk of weakening the company’s ďŹ nancial
mise injuries sustained by employees and damage caused
position. BrostrĂśm minimises this risk through a growth
to customers’ property and the marine environment in
strategy that combines various forms of structural deals with
the event an accident should occur, despite all prevention
strategic partnerships, where BrostrĂśm takes responsibility
measures. BrostrĂśm has taken out insurance cover which is
for the commercial operation of vessels while all or parts
customary for the industry.
of ownership as well as technical operations lie with the
The vessels are insured against damage and loss in an
partner. BrostrÜm’s focus on commercial operation of vessels
amount corresponding to their market value. BrostrÜm’s li-
based on long-term contracts of affreightment also minimis-
ability insurance (P&I) applies without limit, except for with
es the risk of speculative wrong investments in new vessels.
respect to oil damage, where the maximum indemniďŹ cation is limited to USD 1 billion per claim. In order to receive a
Sensitivity analysis
CertiďŹ cate of Financial Responsibility (COFR) in the US
Certain risks have a direct impact on BrostrÜm’s earnings. In
pursuant to the Oil Petroleum Act of 1990, BrostrĂśm has
other cases, the effect is indirect and less predictable. Therefore,
contracted the services of the insurance company SIGCO.
in addition to the above-mentioned risks, the table below takes
BrostrÜm’s Group-wide insurance contracts were signed in
into account calculations of BrostrÜm’s sensitivity to changes in
2003 and continue indeďŹ nitely, with premium renegotiation
a number of central income and expense items. All calculations
every 12 months. Premiums are based on claim and accident
are based on isolated changes of the indicated factor.
statistics. The contracts can be cancelled by either of the par-
The third column shows how great the average change
ties not later than 14 months before the end of the 12-month
has been in the respective factors during the last three
period after which the cancellation is to take effect.
years. However, the freight rate and interest rate data are based on market levels, not on the freight rates or interest
Employee-related risks
rates that apply for BrostrÜm’s operations.
In its operations, BrostrĂśm is dependent on its ability to attract and retain employees with a high level of profes-
ProďŹ t after net ďŹ nancial items
sional skill and experience in a number of different areas.
Parameter
This applies not least to customer contacts, where personal
Freight rate/day
USD +/– 500
SEK
–/+
32 m
relationships are of vital importance. BrostrĂśm is therefore
Dollar rate
SEK +/– 0.10
SEK
+/–
15 m
actively committed to fostering a workplace where em-
Change
Bunker price Net sales
Effect on profit
+/– 10 %
SEK
–/+
37 m
+/– 1%
SEK
+/–
38 m 24 m
ployees feel comfortable and can develop professionally as
External costs
+/– 1%
SEK
–/+
well as personally (see page 28). Moreover, all employees of
Personnel costs
+/– 1%
SEK
–/+
4m
the shore-based organisation are included in the company’s
Depreciation and write-downs
+/– 1%
SEK
–/+
3m
proďŹ t-sharing scheme. In addition, all permanent employees
Interest rates
+/- 1%-pt.
SEK
–/+
11 m
47
F I N A N C I A L R E P O RT S
Directors’ report Operations Broström AB (publ), reg. no. 556005-1467, with registered office in Göteborg, Sweden, is one of the leading logistics providers to the oil and chemical industry, focusing on industrial product tanker shipping and marine services.
Business development – Shipping Market overview The year started with a strong freight market during the first half of the year, after which a seasonal decline during the third quarter resulted in generally lower volumes and lower spot market prices, although not to the same extent as in previous years. The freight market was strong again during the fourth quarter. Supply and demand in the oil energy sector is largely in balance, entailing that disruptions in the production and distribution chain are having a rapid impact on the freight market. The market effects following the hurricanes that hit the US late in the third quarter are a further example of the sensitive balance that currently exists, which resulted in higher spot market prices for transports. Transports were also made over ever-greater distances, which increased the need for transport. The market has undergone a structural change in recent years, with lower stock levels measured in consumption-days, rising demands on reliability in the transport chain and growing regional imbalances between supply and demand of oil and chemical products. The ability to quickly adapt to market changes and at the same time offer reliable transports is growing in importance. Critical mass and geographic presence are now becoming a more significant competitive advantage in a market in which the number of transported tonne-miles is increasing. The shipyards’ order books continue to be well-filled, and prices for newbuildings have risen to a high level. The price trend for second-hand quality tonnage has followed the same pattern.
acquisition and partnership that Broström entered into in early 2005 will result in further increases in Broström’s business volume and even more efficient use of the fleet. Among other things, this will lead to a doubling of capacity in Asia by 2007. Broström intends to continue taking advantage of possible consolidation opportunities in the areas in which the company is active.
Tonnage-based taxation Starting in 2004, Broström’s entire French operation is affiliated with the tonnage tax system, in accordance with the EU’s shipping policy. The one-off effect in 2004 was SEK 181 m. In Sweden a proposal on the introduction of a tonnage tax has now been submitted. This proposal entails that Sweden now will also adopt the EU’s maritime policies and thereby achieve competitive neutrality with respect to other maritime nations within the EU. The proposal, which will be adopted by Sweden’s Parliament in 2006, is proposed to apply for the 2005 tax year. Since a formal decision has not been made as of this report’s publication, this report has been prepared in accordance with the old system of traditional taxation. However, as soon as a formal decision has been made, Broström intends to apply for affiliation to the tonnage tax system, provided that the pending proposal is approved in its entirety. Of the total deferred tax in the balance sheet as per 31 December 2005, amounting to SEK 473.1 m, SEK 419.1 m stems from the Swedish shipping operations.
Sales and earnings Sales for the Shipping operations area amounted to SEK 3,073.0 m (2,451.9) for the full year. Operating profit was SEK 807.3 m (434.2). Performance and earnings were very satisfactory during the year.
Business development – Marine & Logistics Services
48
Development for Broström
Market overview
During the year, Broström continued to strengthen its positions in product and chemical tanker shipping through further additions of new vessels, and the company has a modern fleet at its disposal. Broström’s focus on contracts of affreightment, with volumes that account for 50%-60% of total capacity, has enabled the company to maintain steady, high utilisation of fleet capacity. This has been made possible to an increasing extent by the size (critical mass) of the fleet that Broström has achieved. At the same time, the company has benefited from the trend in the spot market. Completed negotiations for transport contracts have had a favourable outcome with respect to both price and volume. Early in the year, Broström entered into a long-term partnership with the Turkish shipping company Dünya. Under this agreement, ten 47,000 dwt vessels will successively be added to the Broström fleet. In addition, Broström entered into close cooperation with Furetank Rederi AB, Donsö, in connection with the acquisition of Nordtank Shipping A/S. In pace with the delivery of vessels, the effects of the
The business travel market showed slightly positive growth for the year. Most of the volume increase for air travel was derived from online bookings directly with airlines. A high level of activity in international shipping contributed to higher demand for marine travel. The strong shipping market also contributed to a high level of activity at most Swedish ports.
Development for Broström All of the shares in Nordic Bulkers AB were sold in October to Bertschi AG, Switzerland. The sale generated a capital gain of SEK 10.7 m and a liquidity surplus of SEK 50.9 m. The sale should be regarded as a further step in Broström’s strategic focus on tanker shipping. Nordic Bulkers AB has annual sales of approximately SEK 400 m and approximately 60 employees. Broströms Resebyrå noted a sales increase as well as earnings improvement compared with a year earlier. Marine travel accounted for the largest volume increase, with growth coming from both new and existing customers. Internally, the year was characterised by continued savings measures. During the
F I N A N C I A L R E P O RT S
autumn, an internet-based self-booking system was launched, which had a very positive reception in the market. At the end of the year, a new sales office was opened in Manila in the aim of offering travel agency service for the Philippine crews of the company’s marine customers. Activity at most Swedish ports at which Broström Ship Agency Network is represented has been high. This applies especially for ports that are called on regularly by tankers and enabled the business area to achieve better earnings performance than a year earlier.
Sales and earnings
expected to gradually contribute to improved earnings in pace with the addition of vessels to Broström’s fleet. The shipyards’ order books are at historically high levels, and a large number of vessels will be delivered in the years immediately ahead. However, Broström believes that this addition of tonnage will largely be offset by the great need for replacement tonnage and structural changes in the market. The value of the US dollar in relation to the Swedish krona is an uncertain factor to contend with. All else equal, a weakening of the US dollar would have a negative impact on Broström’s sales, earnings and shareholders’ equity, while a strengthening would have a positive impact.
Sales for Marine & Logistics Services amounted to SEK 743.3 m (754.5). Operating profit was SEK 22.7 m (14.0).
Investments and divestments
Significant developments after year-end In January 2006 Broström entered into an agreement on the sale of the product tanker BRO STELLA. This vessel of 70,000 dwt, built in 1995, was delivered to the buyer in early March. The sale gave rise to a pre-tax profit of approximately SEK 85 m and a cash contribution of roughly SEK 215 m. In February and March 2006, Broström took delivery of the two vessels that remained under the acquisition agreement with Vroon from 2005 – BRO PROMOTION and BRO PREMIUM, each of 45,000 dwt and built in 1999.
Consolidated sales and earnings Consolidated net sales for the year amounted to SEK 3,818.1 m (3,206.8). The increase can be credited to higher volumes and freight prices as well as to company acquisitions. The share in profit from associated companies was SEK 12.5 m (16.3). The decrease is due to the fact that two of the companies are now wholly owned subsidiaries. Operating profit was SEK 812.4 m (403.8) and included a capital gain of SEK 122.4 m (0.8) on sales of vessels and businesses. Net interest income/expense was SEK -105.1 m (-72.9). The USD Libor (6 month) interest rate changed during the year from 2.8% on 31 December 2004 to 4.7% on 31 December 2005. Net financial items were SEK -92.3 m (-79.1), which resulted in a profit after net financial items of SEK 720.1 m (324.7). The year’s tax charge was SEK -97.2 m (162.0), which corresponds to 13.5% (-49.9%) of pre-tax profit. Current tax amounted to SEK -17.6 m (-31.1). The return on capital employed was 15.9% (9.9%).
Future outlook The start of 2006 has been characterised by a strong freight market in Broström’s area of operation. The driving force behind this trend is an oil energy market that is essentially in balance. Transports are being made over ever-greater distances. Regional imbalances are expected to continue increasing. The rapidly growing Chinese economy, US oil needs and Russian exports of oil via the Baltic Sea are also contributing to strong demand for transports of oil and chemical products. The increasingly stringent requirements from authorities and customers concerning quality, safety and the environment are putting greater demands on the overall organisation that is involved in the logistics chain. Together these factors point to continued favourable development for Broström, and the outlook for 2006 as a whole is considered to be good. Completed acquisitions and co-operation agreements that have been entered into are
Total investments within the Group amounted to SEK 1,620.0 m (943.3). Divestments amounted to SEK 405.5 m (35.2). Of total investments, SEK 1,398.2 m (904.9) pertained to vessels and newbuilding contracts. All of the shares in Nordtank Shipping A/S were acquired at the start of the year. The above-mentioned acquisitions were paid for in part through the issuance of 952,286 new B-shares in Broström, made possible through the exercise of part of the authorisation that an extraordinary general meeting had previously granted to the Board of Directors, and in part through cash payment. During the second quarter, the remaining 50% of the shares in Iver Ships Ltd were acquired. Payment was made in cash.
Vessel acquisitions and newbuilding deliveries in 2005 Name
Built
Dwt
Ownership
BRO EDWARD
2005
37,300
100%
EVINCO
2005
19,500
30%
BRO ELLIOT
2005
37,300
100%
BRO PRIORITY
2001
31,180
100%
BRO PROVIDER
2001
31,180
100%
Partner Rederi AB Donsötank
During the third quarter, Broström took delivery of the two newbuildings BRO EDWARD (37,300 dwt, 100% ownership stake) and EVINCO (19,500 dwt, 30% ownership stake), while during the fourth quarter the company took delivery of the BRO ELLIOT (37,300 dwt, 100% ownership stake). During the final weeks of December, Broström took delivery of the first two vessels acquired from Vroon, the BRO PRIORITY and the BRO PROVIDER. These vessels are both of 31,180 dwt and were built in 2001.
Sold vessels 2005 Name
Built
Dwt
Ownership
BRO SELMA
1987
81,350
100%
BRO TONY
1982
4,160
100%
BRO TINA
1987
27,820
100%
During the first quarter, the BRO SELMA (81,350 dwt, built in 1987) and the BRO TONY (4,160 dwt, built in 1982) were delivered to the buyers, while the BRO TINA (27,820 dwt, built in 1987) was delivered during the second quarter. The sales of these vessels generated a capital gain of SEK 94.4 m and a liquidity contribution of SEK 154.0 m. The shareholding in Seawise Australia Pty was sold during the first quarter, giving rise to a gain of SEK 16.6 m and a liquidity contribution of SEK 17.9 m.
49
F I N A N C I A L R E P O RT S
During the fourth quarter, all of the shares in Nordic Bulkers AB were sold, generating a gain of SEK 10.7 m and a liquidity contribution of SEK 50.9 m. Broström is currently financially engaged in investments in four newbuildings.
least 50% of net debt should be at fixed rates of interest for terms of longer than one year. In accordance with this interest rate policy, Broström works actively with interest rate swaps. For floating rate loans (less liquid assets), a 1 percentage point change in interest rates would affect profit after net financial items on a yearly basis by SEK 11 m.
Newbuildings on order Name
Built
Dwt
Ownership
NB JLZ 507
2006
14,500
100%
NB JLZ 508
2006
14,500
100%
NB JLZ 509
2006
14,500
100%
NB JLZ 510
2007
14,500
100%
Added to these, 11 vessels and newbuildings will be added to the fleet through various partnerships. A complete list of Broström’s current fleet can be found at www.brostrom.se.
Cash flow Cash flow from operating activities was SEK 619.3 m (429.6), or SEK 19.15 (14.65) per share. In 2005 a shareholder dividend of SEK 161.7 m (131.6) was paid, corresponding to SEK 5.00 per share (4.50).
With respect to exchange rates, Broström is affected primarily by changes in the US dollar in relation to the Swedish krona. The most important companies in Broström’s shipping segments have the US dollar as their functional currency, which is why reporting to the parent company is done in that currency. Exchange rate movements vis-à-vis the US dollar pertaining to net investments in these subsidiaries are reported directly in shareholders’ equity. The investments have not been hedged. Exchange rate differences in shareholders’ equity pertaining to the functional currency amounted to SEK 335.3 m during the year. The holdings on the balance sheet date in these companies were: 2005
2004
Broström Tankers AB
192
196
Financing and liquidity
Broström Tankers SAS
141
135
The Group’s disposable liquidity amounted to SEK 1,294.9 m (827.8) on 31 December 2005, including SEK 52.5 m in unutilised overdraft facilities (52.3). Net debt increased during the year from SEK 1,656.9 m to SEK 2,577.5 m, mainly due to further investments in vessels and operations. Shareholders’ equity was SEK 2,709.5 m (1,799.5) on 31 December 2005, and the equity/assets ratio I was 34.2% (32.5%). The equity/assets ratio II was 37.2% (38.0%), which is above Broström’s target of 30%. Taken together, this entails that shareholders’ equity, excluding the shareholder dividend and the completed non-cash issue, increased by SEK 964 m during the year, corresponding to SEK 29.54 per share. According to the new reporting standards, the functional currency of Broström’s shipping operations is the US dollar, which is why most of the currency movements are now reported only on the balance sheet. Thus in addition to reported profit for the year, an analysis of Broström should also take into account the currency movement that is reported under exchange rate differences in shareholders’ equity. It should be noted that in connection with the adoption of IFRS, the company has chosen not to restate the book values of vessels to fair value. Given the current market values of the vessels in Broström’s fleet, it can be asserted that they represent significant surplus values compared with the book values. Broström’s financial position is strong and enables continued investments in and participation in any structural changes in the industry.
Broström Tankers Ltd
23
13
Financial risk management
Personnel
Interest rates
The average number of employees in 2005 was 1,009 (992).
Broström’s sensitivity to interest rate fluctuations is similar to its sensitivity to changes in the US dollar rate. Broström’s interest rate policy is based on structuring interest rates in such a way that adjustments of fixed rates for the various loans are staggered over time. The aim is also that at
50
Currency exposure and currency policy
USD m
In addition, the parent company has liquid assets and bond borrowings in US dollars that match each other for the most part and thus have only a negligible exchange rate impact. The impact on Broström’s profit after net financial items of a change in the dollar rate by SEK 0.10 would be approximately SEK 15 m. See also the section ”Effects of changes in foreign exchange rates” in the Accounting and valuation principles.
Financing During the year the Group’s borrowings were affected by changes in the fleet. Five newly delivered vessels, purchases of additional stakes in three vessels and current newbuildings were financed. In addition, loans were dissolved in connection with the sales of three vessels. Further, the parent company borrowed SEK 318 m (USD 40 m) during the year through a bond issue. Together with other loan transactions, the net change in loans – including currency movements – was an increase of SEK 1,277 m. This includes a change in financial leasing liabilities, totalling SEK 538 m. Approximately 27% of net debt is at fixed rates of interest for terms in excess of 12 months. The six-month USD Libor interest rate increased during the year from 2.8% at year-end 2004 to 4.7% on the balance sheet date.
Contingent liabilities Contingent liabilities increased by SEK 5.8 m compared with the start of the year and amounted to SEK 113.9 m (108.1).
The work of the Board Since the 2005 Annual General Meeting the Board held eight meetings up until the adoption of this Annual Report. The main items of business covered at these meetings were:
F I N A N C I A L R E P O RT S
(PPEXJMM FUD
%FQSFDJBUJPO
'JOBODJBM mYFE BTTFUT
0QFSBUJOH FYQFOTFT
7BSJBCMF DPTUT
7FTTFMT FRVJQNFOU
1FSTPOOFM DPTUT
$VSSFOU BTTFUT
-JRVJE BTTFUT
Operating expenses
Assets
$VSSFOU MJBCJMJUJFT
-POH UFSN JOUFSFTU CFBSJOH MJBCJMJUJFT
-POH UFSN OPOJOUFSFTU CFBSJOH MJBCJMJUJFT
4IBSFIPMEFSTh FRVJUZ BOE NJOPSJUZ JOUFSFTUT
Shareholders’ equity and liabilities
April April Aug. Oct. Oct. Dec. Feb. March
Interim report January–March Statutory meeting, adoption of rules of procedure and instructions for MD Interim report January–June and strategy discussions Sale of Nordic Bulkers Interim report January–September Budget and business plan for 2006 Preliminary report on 2005 results, report on evaluation of the Board’s work Annual Report 2005
Board committees Audit Committee The Board has an audit committee that is tasked with examining and preparing decisions by the Board with respect to financial information and with monitoring the focus of the company’s external audit and the auditors’ independence. The members of the Audit Committee are Lars-Olof Gustavsson (committee chair), Stig-Arne Blom and Leif Rogersson. During the time up until the publication of this Annual Report, the Audit Committee held three meetings.
tion of the Managing Director and Deputy Managing Director. During the time up until the publication of this Annual Report, the Compensation Committee held four meetings.
Parent company The activities of the parent company, BrostrÜm AB, consist primarily of Group management and administration of jointGroup functions. The parent company’s assets consist primarily of shares in subsidiaries and liquid investments. Full year SEK m
2005
Net sales
29.2
24.4
429.6
170.4
Profit before allocations and tax
2004
Of which, dividends from subsidiaries 436.5
233.3
Investments
and associated companies
92.4
107.7
Divestments
68.8
-
1,092.0
651.5
52.5
37.3
Disposable liquidity Of which, unutilised overdraft facilities
Accounting and valuation principles BrostrÜm’s accounting and valuation principles are presented on page 59.
Compensation Committee The Board has also appointed a Compensation Committee consisting of Chairman of the Board Lars-Olof Gustavsson and Board member Leif Rogersson. The Committee is tasked with drawing up recommendations to the Board on compensa-
51
F I N A N C I A L R E P O RT S
Proposed appropriation of profits The Annual General Meeting has at its disposal: Parent company Profit brought forward Group contribution for the year after tax Profit for the year Total
SEK 272,060,698 54,989,510 440,740,787 767,790,995
The Board of Directors and Managing Director propose the following appropriation of profits to the Annual General Meeting: Dividend to shareholders, SEK 8.00 per share Profit carried forward Total
260,982,736 506,808,259 767,790,995
The results and financial position of the Group and parent company are shown in the following income statements, balance sheets, cash flow statements and notes. The income statements and balance sheets will be adopted by the Annual General Meeting on 3 May 2006.
Göteborg, 20 March 2006
Lars-Olof Gustavsson, Chairman
Stig-Arne Blom
Peter Cowling
Carel van den Driest
Claes Lundblad
Leif Rogersson
Fredrik Svensson
Wilhelm Wilhelmsen
Rolf Öström
Lennart Simonsson, Managing Director
Our audit report was submitted on 20 March 2006.
Pär Sundaeus,
52
Authorised Public Accountant
Lars Nordberg,
Authorised Public Accountant
F I N A N C I A L R E P O RT S
Income Statements Group SEK m
Net sales
Parent company
Note
2005
2004
2005
2004
2
3,818.1
3,206.8
29.2
24.4
14.1
5.3
Capitalised work for own account Other income
3
149.6
4.3
39.1
0.2
Share in associated companies’ profit after tax
4
12.5
16.3
–
–
External expenses
5
-2,403.1
-2,098.0
-26.0
-32.3
Personnel costs
6
-521.2
-501.3
-32.9
-26.5
13, 14, 16
-257.6
-229.6
-6.1
-3.9
812.4
403.8
3.3
-38.1
Depreciation and write-downs Operating profit/loss (EBIT) Profit/loss/dividends from Participations in Group companies
–
–
436.5
186.9
Participations in associated companies
–
–
–
46.4
0.1
0.6
–
–
Securities and receivables
7
Financial income
8
61.1
25.4
34.5
8.5
Financial expenses
9
-153.5
-105.1
-44.7
-33.3
Net financial items
-92.3
-79.1
426.3
208.5
Profit after net financial items
720.1
324.7
429.6
170.4
–
–
-3.4
–
720.1
324.7
426.2
170.4
-97.2
162.0
14.5
15.8
622.9
486.7
440.7
186.2
611.1
478.2
11.8
8.5
18.89
16.33
18.76
15.10
8.00
5.00
Appropriations Pre-tax profit Tax on profit for the year
10
PROFIT FOR THE YEAR Profit for the year attributable to Equity holders of the parent Minority interests Profit for the year per share Profit for the year per share with dilution Proposed dividend per share
11
Average exchange rates SEK/USD
7.48
7.35
SEK/EUR
9.28
9.12
53
F I N A N C I A L R E P O RT S
Balance Sheets Group SEK m
Note
31/12/2005
Parent company
31/12/2004
31/12/2005
31/12/2004
ASSETS Fixed assets Intangible fixed assets Goodwill
12
141.1
49.7
–
–
Other intangible fixed assets
13
3.7
7.6
1.0
1.1
144.8
57.3
1.0
1.1
Total intangible fixed assets Tangible fixed assets Vessels
14
5,141.5
3,552.5
–
–
Newbuilding contracts
15
357.4
268.7
–
–
Other tangible fixed assets
16
50.8
103.8
22.7
25.9
5,549.7
3,925.0
22.7
25.9
Total tangible fixed assets Financial fixed assets Participations in Group companies
17
–
–
1,943.7
1,803.7
Receivables from Group companies
18
–
–
8.9
8.9
and joint ventures
19
64.4
50.0
–
80.8
Deferred tax asset
27
–
–
–
0.8
Other financial fixed assets
20
28.3
29.2
–
–
92.7
79.2
1,952.6
1,894.2
5,787.2
4,061.5
1,976.3
1,921.2
59.1
26.3
–
–
276.8
251.6
–
0.5
–
–
586.7
57.8
5.4
–
–
–
122.8
137.6
324.6
66.5
182.8
108.9
5.4
3.9
587.8
498.1
916.7
128.7
Participations in associated companies
Total financial fixed assets Total fixed assets Current assets Inventories, etc.
21
Current receivables Accounts receivable – trade Receivables from Group companies Derivative instruments
22
Other receivables Prepaid expenses and accrued income
23
Total current receivables Short-term investments
24
260.6
215.5
22.9
36.3
Liquid assets
24
1,219.9
739.4
1,016.6
578.0
Total current assets
2,127.4
1,479.3
1,956.2
743.0
TOTAL ASSETS
7,914.6
5,540.8
3,932.5
2,664.2
SEK/USD
7.95
6.61
SEK/EUR
9.43
9.01
Year-end exchange rates
54
F I N A N C I A L R E P O RT S
Group SEK m
Note
31/12/2005
Parent company
31/12/2004
31/12/2005
31/12/2004
SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity
25
Share capital
65.2
62.8
65.2
62.8
870.3
764.7
–
–
62.3
-287.6
–
–
–
–
933.3
827.6
1,676.9
1,227.5
327.1
247.6
–
–
440.7
186.2
2,674.7
1,767.4
1,766.3
1,324.2
34.8
32.1
–
–
2,709.5
1,799.5
1,766.3
1,324.2
–
–
3.4
–
26
205.3
107.3
–
–
Deferred tax
27
473.1
344.5
–
–
Other long-term non-interest-bearing liabilities
28
26.5
25.1
–
–
704.9
476.9
–
–
318.0
–
318.0
–
30.7
160.3
–
131.0
2,354.2
1,698.4
91.0
125.2 3.1
Other capital contributions Other reserves Restricted reserves Profit brought forward Profit for the year Minority interest Total shareholders’ equity Untaxed reserves Long-term non-interest-bearing liabilities Equalisation reserve
Total long-term non-interest-bearing liabilities Long-term interest-bearing liabilities Bond issues Debenture loans
29
Credit institutions Group companies Other long-term interest-bearing liabilities Total long-term interest-bearing liabilities
30
–
–
668.1
1,102.2
639.7
–
–
3,805.1
2,498.4
1,077.1
259.3
283.6
313.8
40.0
57.5
78.7
109.1
3.7
3.9
–
–
1,021.1
1,004.8
Current liabilities Credit institutions and other, interest-bearing Accounts payable – trade Group companies Current tax Other current liabilities Accrued expenses and prepaid income
31
Total current liabilities TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
11.5
30.2
6.1
–
100.3
99.0
0.7
5.9
221.0
213.9
14.1
8.6
695.1
766.0
1,085.7
1,080.7
7,914.6
5,540.8
3,932.5
2,664.2
Pledged assets
32
5,482.1
5,467.9
3.5
1,298.9
Contingent liabilities
33
113.9
108.1
2,700.6
1,499.6
55
F I N A N C I A L R E P O RT S
Changes in shareholders’ equity Attributable to equity holders of the parent
SEK m
EQUITY AT 1/1/2004
Minority interests
Other capital Share contriOther Profit brought capital butions reserves* forward
Parent company
Total shareholders’ equity
Share capital
Un- Total shareRestricted restricted holders’ reserves reserves equity
58.5
559.8
-80.9
880.9
24.5
1,442.8
58.5
622.7
Exchange rate differences
–
–
-199.6
–
-0.9
-200.5
–
–
–
–
Tax pertaining to functional currency
–
–
-7.1
–
–
-7.1
–
–
–
–
PROFIT FOR THE YEAR
–
–
–
478.2
8.5
486.7
–
–
186.2
186.2
Dividend
–
–
–
-131.6
–
-131.6
–
–
-131.6
-131.6
Group contribution after tax
–
–
–
–
–
–
–
–
41.4
41.4
4.3
204.9
–
–
–
209.2
4.3
204.9
–
209.2
New share issue
EQUITY AT 31/12/2004
337.8 1,019.0
62.8
764.7
-287.6
1,227.5
32.1
1,799.5
62.8
827.6
Exchange rate differences
–
–
406.8
–
1.7
408.5
–
–
433.8 1,324.2 –
–
Acquisition of minority interest
–
–
–
–
0.3
0.3
–
–
–
–
Tax pertaining to functional currency
–
–
-62.1
–
–
-62.1
–
–
–
–
cash flow hedging
–
–
5.4
–
–
5.4
–
–
–
–
Tax pertaining to cash flow hedging
–
–
-0.2
–
–
-0.2
–
–
–
–
PROFIT FOR THE YEAR
–
–
–
611.1
11.8
622.9
–
–
440.7
440.7
Dividend
–
–
–
-161.7
-11.1
-172.8
–
–
-161.7
-161.7
Group contribution after tax
–
–
–
–
–
–
–
–
55.0
55.0
2.4
105.6
–
–
–
108.0
2.4
105.6
–
108.0
65.2
870.3
62.3
1,676.9
34.8
2,709.5
65.2
933.3
Derivative instruments,
New share issue
EQUITY AT 31/12/2005
767.8 1,766.3
* For specification of other reserves, see note 25.
The year’s exchange rate differences are mainly due to changes in the USD exchange rate, which is the reporting currency for the subsidiaries and the associated companies Broström Holding BV (the owner of Broström Tankers SAS), Broström Tankers Ltd and Broström Tankers AB.
56
F I N A N C I A L R E P O RT S
Cash flow statements* Group SEK m
Note
2005
Parent company
2004
2005
2004
OPERATING ACTIVITIES Operating profit/loss (EBIT)
812.4
403.8
3.3
-38.1
Depreciation
257.6
229.6
6.1
3.9
-210.5
-193.8
-38.4
–
47.1
32.9
21.6
13.3
Other adjustment items
35
Interest received Dividends received Interest paid Income tax paid
0.9
3.1
436.5
233.3
-113.4
-110.0
-41.3
-35.4
-17.6
-31.1
-6.1
–
Increase/decrease in Inventories Current receivables Current operating liabilities
-24.1
14.7
–
–
-128.9
175.5
-765.4
-20.1
-4.2
-95.1
136.6
-130.0
619.3
429.6
-247.1
26.9
-1.5
-2.0
–
–
-1,015.2
-522.8
-2.9
-9.2
543.8
35.5
–
209.2
36
-58.2
-100.7
-187.7
-138.0
37
37.1
–
50.9
–
2.7
148.3
17.9
–
-491.3
-441.7
-121.8
62.0
-161.7
-131.6
-161.7
-131.6
-11.1
–
–
–
17.7
–
108.2
0.1
1,099.6
321.0
777.8
–
-660.1
-228.9
–
77.6
Cash flow from operating activities INVESTING ACTIVITIES Purchase of Intangible fixed assets Tangible fixed assets Sale of Tangible fixed assets Acquisition of/shareholders’ contribution to Subsidiaries Sale of Subsidiaries Change in other financial fixed assets Cash flow from investing activities
38
FINANCING ACTIVITIES Dividend to shareholders Dividend to minority owners New share issue New loans raised Repayment of loans Group contribution received
–
–
57.6
-6.5
Cash flow from financing activities
284.4
-39.5
781.9
-60.4
CASH FLOW FOR THE YEAR
412.4
-51.6
413.0
28.5
954.9
944.5
614.3
591.4
–
25.7
–
–
113.2
36.3
12.2
-5.6
1,480.5
954.9
1,039.5
614.3
Liquid assets and short-term investments Opening balance Opening balance in company for which the consolidation method was changed Exchange rate difference Liquid assets and short-term investments, closing balance * Indirect method.
57
F I N A N C I A L R E P O RT S
Auditors’ Report To the Annual General Meeting of Broström AB (publ.) company reg. no. 556005-1467 We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the managing director of Broström AB for the year 2005. The board of directors and the managing director are responsible for these accounts and the administration of the company as well as for application of the Annual Accounts Act when preparing the annual accounts and the application of International Financial Reporting Standards (IFRSs) as adopted by the EU and the Annual Accounts Act when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain high but not absolute assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of directors and the managing director and significant estimates made by the board of directors and the managing director when preparing the annual accounts and consolidated accounts as well as when evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the managing director. We also examined whether any board member or the managing director has, in any way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts have been prepared in accordance with the Annual Accounts Act and give a true and fair view of the company’s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the Annual Accounts Act and give a true and fair view of the Group’s financial position and results of operations. The statutory directors’ report is consistent with other parts of the annual accounts and the consolidated accounts. We recommend to the Annual General Meeting of shareholders that the income statements and balance sheets of the parent company and the Group be adopted, that the profit of the parent company be dealt with in accordance with the proposal in the directors’ report, and that the members of the board of directors and the managing director be discharged from liability for the financial year. Göteborg, 20 March 2006
Pär Sundaeus,
58
Authorised Public Accountant
Lars Nordberg,
Authorised Public Accountant
F I N A N C I A L R E P O RT S
Accounting and valuation principles Starting on 1 January 2005, the Broström Group applies International Financial Reporting Standards (IFRS) as adopted by the EU, along with the additional rules applicable through recommendation RR30 of the Swedish Financial Accounting Standards Council and the Swedish Annual Accounts Act. Application of the new rules has entailed changes in accounting principles for certain accounting areas. The areas in which application of IFRS has entailed significant differences compared with previous accounting for Broström are measurement of goodwill (IFRS 3, IAS 36 and IAS 38), property, plant and equipment (IAS 16), effects of changes in foreign exchange rates (IAS 21), accounting for investments in associates (IAS 28) and financial instruments (IAS 39). The reports have been prepared using the cost method, with exception for financial instruments, which are measured at fair value. The Group has analysed the IFRSs and interpretations that have not yet taken force and which have not been applied in the 2005 Annual Report. Only IFRS 7 Financial Instruments: Disclosures, which takes effect in 2007, is judged to affect the Group. This new standard pertains to the scope and content in the presentation of financial instruments and risks in the Annual Report and is not expected, upon adoption, to have any significant impact on the company’s profit or position.
Parent company’s accounting principles The Annual Report has been prepared in accordance with the Swedish Annual Accounts Act and Swedish Financial Accounting Standards Council recommendation RR32.
Goodwill Goodwill consists of the amount in which the cost exceeds the fair value of the Group’s share of an acquired subsidiary’s/associated company’s identifiable net assets at the time of acquisition. Goodwill is reported as an asset with an indefinite useful life and is therefore not amortised. Instead, it is tested annually for impairment. When testing for impairment, the book value of the cash-generating unit to which the goodwill is attributable is compared with the higher of the fair value and value in use of the aggregate parts included in the unit. If this value is higher than the book value, then there is no need to recognise impairment.
Residual value of vessels In the 2005 annual accounts, Broström has adopted a changed method for determining the residual value in vessels’ depreciation schedules. The residual value, which is represented as an estimated scrapping value, is calculated by multiplying a vessel’s lightweight by the last five years’ average quoted scrapping prices of tankers in USD per tonne.
- The hedge is very effective in achieving counteracting changes in the cash flows that are attributable to the hedged risk. - The prognosticated, hedged transaction is very likely and entails an exposure to changes in cash flow that can affect consolidated earnings. - The effectiveness of the hedge can be measured in a reliable manner. - The hedge is assessed on a continuing basis. It shall also be made very effective during the period for which the hedge was identified. The effective portion of the change of a derivative instrument’s fair value that has been identified as a cash flow hedge and which meets the requirements for hedge accounting as above, is reported in shareholders’ equity. Changes that are attributable to ineffective portions are reported directly in the income statement. The change in the value of shareholders’ equity that is attributable to hedge accounting is booked in the income statement in the period in which the hedged item affects profit. If a hedge instrument is sold, expires or no longer meets the requirements for hedge accounting, the accumulated changes in the income statement pertaining to shareholders’ equity are returned to the income statement in the same period as the prognosticated transaction is reported in the income statement. In cases where the prognosticated transaction is no longer anticipated to occur, the accumulated changes in value in shareholders’ equity are reported immediately in the income statement. In 2004, derivative instruments were reported in accordance with the principles that applied at that time, which entails that derivative instruments were reported on a continuing basis as interest expense, which was deferred over the contract period.
Minority shares Minority shares are reported as a part of shareholders’ equity. In the consolidated income statement, minority shares are included in the profit for the year.
Transitional rules IFRS 1, which governs the transition to IFRS, includes certain exemptions regarding retroactive application of the IFRSs. The Group has chosen to apply the exemptions pertaining to the recalculation of acquisition analyses. Thus no restatement has been made of acquisitions conducted prior to 2004. Comparison figures for the Group have been restated in accordance with the new reporting standards. However, with application of the exemption allowed for by IFRS 1, no restatement according to IAS 39 has been made of the comparison figures pertaining to financial instruments.
Consolidated accounting
Docking expenses
Subsidiaries
Docking expenses are reported as a tangible fixed asset.
The consolidated accounts include the parent company, Broström AB, and all companies in which the parent company directly or indirectly holds more than half of the votes or in some other way has a controlling interest. The consolidated accounts have been prepared in accordance with the acquisition method, which entails that subsidiaries’ identifiable assets and liabilities at the time of acquisition are carried in the consolidated accounts at fair value. Thus only the part of subsidiaries’ equity that has arisen after the date of acquisition is included in the Group’s equity. The balance sheet is translated at the year-end rate of exchange and the income statement at the average rate of exchange. Income statements of subsidiaries acquired or sold during the year are included from the date of acquisition or date of sale, respectively. Internal Group transactions and balance sheet items as well as unrealised transactions within the Group are eliminated, taking into account minority share.
Functional currency IAS 21 stipulates that a functional currency is to be decided for each legal entity. The functional currency is defined as the currency in which the company has most of its revenues and expenses, and which is the most significant financing currency. Broström has determined that the largest shipping companies in the Group have USD as their functional currency, while the other companies’ functional currencies consist of their respective local currencies. This means that vessels have been booked at their historical cost in USD, taking into account normal depreciation schedules and their loans in nominal USD amounts. These values are then translated in the consolidated accounts to the year-end USD exchange rate to SEK.
Participations in associated companies According to IAS 28, the share in profit from associated companies is to be reported after tax.
Derivative instruments Derivative instruments are reported at fair value under a separate heading in the balance sheet. Broström identifies all of its derivative instruments as cash flow–hedging instruments, since the following criteria have been met: - There is a formal identification and documentation of the hedge situation and of the company’s goal for risk management and risk management strategies.
Associated companies Companies in which the number of votes held directly or indirectly by the parent company entails a significant but not controlling interest are classified as associated companies. Associated companies are consolidated in accordance with the equity method, which entails that the book value of the shares in the associated company is adjusted with the associated companies’ change in equity and amortisation of goodwill and/or surplus values related to the associated company. In the consolidated income statement, changes in equity and/or surplus values are reported as participations in associated companies after tax.
59
F I N A N C I A L R E P O RT S
Shipping partnerships and joint ventures Participations in shipping partnerships are reported directly in the owning company’s income statement and balance sheet in accordance with the proportional method. Shipping partnerships are joint ventures that are not autonomous legal entities and whose assets belong jointly to the part-owners. Joint ventures include holdings in which the Group has a joint controlling interest with other owners. They are consolidated in accordance with the proportional method, which entails that the share of ownership in the respective item in the joint venture company’s income statement and balance sheet is consolidated. This method gives a better picture of the Group’s market position and business volume.
Translation of foreign currencies Effects of changes in foreign exchange rates Reporting is done in accordance with IAS 21 Effects of Changes in Foreign Exchange Rates.
Functional currency and reporting currency Items included in the financial reports for the various units in the Group are reported in the currency used in the economic environment in which the respective companies are active (functional currency). For the largest shipping companies, the functional currency is USD. In the consolidated accounts, Swedish kronor (SEK) is used, which is the parent company’s functional and reporting currency.
Transaction and balance sheet items Goodwill and surplus value related to acquired foreign subsidiaries and associated companies are included in foreign net investment and are therefore measured in the foreign currency. Translation is made at the year-end rate. Exchange rate differences pertaining to the recalculation of subsidiaries and associated companies are applied directly to shareholders’ equity. Receivables and liabilities in foreign currencies are valued at the year-end exchange rate. All exchange rate differences are considered to be bound by financial positions, and thus all exchange rate differences are reported under financial items. Exchange rate differences on loans – positive as well as negative – are reported among interest expenses. Other exchange rate differences – positive as well as negative – are reported among interest income. However, exchange rate differences related to the redemption of loans in connection with sales of vessels are reported together with capital gains/ losses among capital gains on sales of vessels. Exchange rate differences in the income statement arise only if a receivable or liability is denominated in another currency than the company’s functional currency.
Revenues Net sales include income derived from Broström’s business activities. Freight income and voyage expenses or other assignment costs are distributed over time on the accounting date in relation to the total number of voyage days or assignment days. Other income includes other operating income that is not derived from the actual business activities, such as capital gains on sales of fixed assets and insurance benefits. Capital gains on sales of vessels include, in addition to the gain on the actual sale of the vessel, also the exchange rate difference that arises in connection with the dissolution of loans in connection with the vessel sale as well as the remaining docking expense that has not been recognised in income.
Personnel costs Personnel costs include all costs related to employed personnel. Vessel crews employed by a manager and where the obligation is equivalent to employment are classified as employed personnel, and the costs for such are reported as personnel costs. The company has a Compensation Committee consisting of Chairman of the Board Lars-Olov Gustavsson and Board member Leif Rogersson. The Committee is tasked with drawing up recommendations to the Board on compensation of the Managing Director and Deputy Managing Director. All employees of the Group are included in a profit-sharing system that is described in note 6 on page 64. The Group has both defined contribution and defined benefit pension plans. In addition to the ITP plan, which is secured through contributions to Alecta and which is classified as a defined contribution
60
plan, there are no significant defined benefit pension plans. A defined contribution pension plan is one in which the Group makes a set level of contributions to a separate legal entity.
Borrowing costs Borrowing costs are reported in accordance with IAS 23 Borrowing Costs. The main principle is used for legal entities, i.e., borrowing costs are charged against profit for the period that they pertain to. In the consolidated accounts, the alternative principle is used with respect to borrowing costs attributable to the acquisition and building of vessels, i.e., expenses are included in the acquisition cost. Such capitalisation of interest is done up until the vessel’s contracted date of delivery. In the event of late delivery whereby penalty fees are paid by the shipyard, interest is not capitalised but is instead booked as an expense for the corresponding period. Borrowing costs under interest rate swap agreements are reported using the nominal interest rate in the swap agreement. On the accounting date the nominal interest in loan or swap agreements is allocated over time.
Income taxes Reported income taxes include tax that is to be paid or received with respect to the current year, adjustments pertaining to previous years’ current tax, and changes in deferred tax. Valuation of all tax liabilities/ assets is done at the nominal amount and according to the tax rules and tax rates that have been decided on or announced and will be implemented with a large degree of certainty. Thus for items reported in the income statement, the related tax effects in the income statement are also reported. Tax effects of items reported directly against shareholders’ equity are reported against shareholders’ equity. Deferred tax is calculated on all temporary differences that arise between reported and tax values of assets and liabilities, in accordance with the balance sheet method. The temporary differences have mainly arisen through depreciation of vessels and tax-loss carryforwards. Deferred tax assets pertaining to tax-loss carryforwards or other future tax deductions are reported to the extent it is likely that the deduction can be offset against surpluses in future taxation.
Fixed assets Intangible assets Internally developed values in intangible fixed assets, such as software development, are reported as an asset under the condition that they meet the requirements for such in accordance with IAS 38 Intangible Assets.
Vessels For vessels, the purchase price, interest on borrowed capital and own inspection work in newbuilding activities is capitalised. Vessels are reported for sale when a binding agreement has been signed with a buyer.
Docking of vessels Docking expenses are capitalised as a prepaid expense and are allocated linearly over a period of 30 months. If the remaining charter period for vessels chartered-in is less, then the docking expenses are capitalised over the remaining period. Docking expenses are reported under the heading “Depreciation and write-downs”.
Newbuilding contracts Expenses for ongoing investments in shipbuilding in which delivery has not yet been made from the shipyard are reported as newbuilding contracts. No depreciation is made of such contracts.
Depreciation/amortisation Tangible and intangible fixed assets are depreciated or amortised systematically over their estimated useful life as follows:
Vessels Computers Software, including internally developed Machinery and equipment Buildings
Method Linear Linear Linear Linear Linear
Years Residual value 25 Estimated scrap value 3-5 – 3-5 5-10 25-50
– – –
F I N A N C I A L R E P O RT S
Major value- or performance-enhancing renovations are depreciated within the original schedules. With respect to vessels, newbuildings are depreciated over 25 years, while second-hand vessels acquired during the year are depreciated up to and including 25 years after their original delivery from the shipyard. The residual value, which is represented as an estimated scrapping value, is calculated by multiplying a vessel’s lightweight by the last five years’ average quoted scrapping prices of tankers in USD per tonne. Depreciation of all assets is reported under the heading “Depreciation and write-downs” in the income statement.
Group equity Share capital The share capital consists of the quota value of shares in issue. The share capital amounted to SEK 65,245,684 on 31 December 2005.
Other capital contributions Pertains to equity contributed by the owners.
Other reserves
Leasing Leasing and charter contracts are classified in the consolidated accounts as financial or operational leases. Assets are reported among financial leases when the economic benefit and risks associated with the ownership has been transferred for all intents and purpose to the lessee. Further, the accounting effects shall have material value in the income statement and balance sheet. Taking into account these criteria, a bareboat charter with a call option is ordinarily classified as a financial lease.
Valuation of inventories Bunker and lubricating oil stocks are valued at cost. The cost of inventories purchased in foreign currency is based on the exchange rate on the date of purchase. Other inventories are valued at the lower of cost according to the first-in first-out (FIFO) method and net sales value.
Pertains to all exchange rate differences that arise in translation of financial reports from foreign operations that have prepared their financial reports in another currency than the currency that the Group’s financial reports are presented in. Also includes items that are booked directly against shareholders’ equity, e.g., certain changes in the value of derivative instruments.
Profit brought forward Profit brought forward includes earned profits plus profit for the year for the parent company and its subsidiaries, associated companies and joint venture companies.
Parent company equity Statutory reserve
Current receivables
The purpose of the statutory reserve is to save part of net profit that is not used to cover losses brought forward.
Trade accounts receivable and other current receivables are valued individually on the accounting date.
Share premium reserve
Short-term investments include money market investments and cash deposits. Money market investments and cash deposits are valued at the closing date with allocation over time of the nominal interest in the investment. Investments in foreign currency are valued at the year-end exchange rate.
When shares are issued at a premium, i.e,. when the price paid for shares is higher than their nominal amount, an amount corresponding to the received amount that is higher than the nominal value of the shares is allocated to the share premium reserve. The share premium reserve was transferred to the statutory reserve as per 31 December 2005.
Liquid assets
Unrestricted equity
Liquid assets include bank accounts in all currencies and certificates of deposit. Foreign currencies have been valued at the year-end exchange rate. Certificates of deposit are valued at the closing date with allocation over time of the nominal interest of the certificate.
Profit brought forward Consists of the previous year’s unrestricted equity after any allocation to the statutory reserve and after any appropriation of profits. This, together with profit for the year, makes up the amount that is available for distribution to the owners.
Short-term investments
Government assistance Government assistance is reported in accordance with IAS 20. The maritime subsidies received by Broström are considered to be “earnings related” and are therefore reported as a reduction of the costs they are intended to cover during the pertinent periods.
Derivative instruments Reporting is done in accordance with IAS 39 Financial instruments: Recognition and Measurement. Interest rate swap agreements offset the Group’s interest rate exposures to changes in interest rates. Interest rate swaps are reported at fair value. According to the cash flow hedging method, the effective portion of changes in fair value of derivative instruments is identified as a cash flow hedge and reported in shareholders’ equity. Any interest difference that is received or paid as a result of swap agreements is reported as interest income or expense allocated over the term of the contract. Gains or losses arising in connection with the termination of a forward contract or the early repayment of loans are recognised immediately.
Supplementary disclosures to the cash flow statements The cash flow statements are prepared using the indirect method. The reported cash flow includes only transactions that involve incoming or outgoing payments. Aside from cash and bank deposits, liquid assets include short-term financial investments that are exposed only to an insignificant value-fluctuation risk and are traded on the open market at recognised prices, or which have a remaining duration of less than three months from the time of acquisition. Acquisition and disposal amounts concerning subsidiaries include the subsidiaries’ liquid assets. Shareholders’ contributions are also included in acquisition amounts.
Contingent liabilities A contingent liability is reported when there is a potential obligation that stems from events that have occurred and whose occurrence is confirmed only by one or more uncertain future events or when there is an obligation that is not reported as a liability or provision on account of the fact that it is not likely that an outflow of resources will be necessary.
Financial risk management Interest rates Broström’s sensitivity to fluctuations in interest rates is largely similar to its sensitivity to changes in the US dollar exchange rate. Broström’s interest rate policy is based on structuring interest rates in such a way that adjustments of fixed rates for the various loans are staggered over time. In accordance with the Group’s interest rate policy, Broström works actively with interest rate swaps. For floating rate loans, less liquid assets, a 1 percentage point change in interest rates would affect profit after net financial items on a yearly basis by SEK 11 m.
Currency exposure and currency policy With respect to exchange rates, Broström is affected primarily by changes in the US dollar in relation to the Swedish krona. The most important companies in Broström’s shipping segments have the US dollar as their functional currency, which is why reporting to the parent company is done in that currency. The impact on Broström’s profit after net financial items of a change in the dollar rate by SEK 0.10 would be +/–SEK 15 m.
61
F I N A N C I A L R E P O RT S
Notes Note 1 Reporting by activity (primary classification) Shipping SEK m 2005 2004 Income and expenses External income 3,186.7 2,459.1 Internal income 275.5 241.4 Share in associated companies’ profit 11.5 21.5 Total income 3,473.7 2,722.0 Operating expenses Depreciation Operating profit/loss
-2,424.7 -241.7 807.3
Marine & Logistics Services Other 2005 2004 2005 2004
-2,075.0 -212.8 434.2
Eliminations 2005 2004
745.2 19.3 1.0 765.6
756.7 18.3 2.1 777.1
30.4 28.0 58.4
0.6 24.7 -7.3 18.0
19.5 -322.9 -303.4
-284.4 -284.4
-733.3 -9.5 22.7
-750.5 -12.6 14.0
-69.7 -6.4 -17.6
-58.2 -4.2 -44.4
303.4 -
284.4 -
Total 2004
3,981.8 12.5 3,994.3
3,216.4 16.3 3,232.7
-2,924.3 -2,599.3 -257.6 -229.6 812.4 403.8
Net financial items Profit after net financial items
-92.3 720.1
-79.1 324.7
Tax on profit for the year Net profit for the year
-97.2 622.9
162.0 486.7
Assets and liabilities Goodwill 135.2 Tangible fixed assets 5,516.6 Participations in associated companies 49.6 Other assets 2,277.8 Current liabilities Long-term liabilities Investments Average number of employees
44.0 3,826.3 35.7 1,637.9
5.9 3.0 2.1 105.6
5.7 62.4 3.2 128.6
30.1 12.7 2,047.8
36.3 11.1 798.0
-2,300.2
-1,077.6
141.1 5,549.7 64.4 2,131.0
49.7 3,925.0 50.0 1,486.9
271.8 231.8
328.9 132.4
102.6 -
124.3 -
1,114.8 -
1,065.3 -
-1,077.7 -
-1,066.3 -
411.5 231.8
452.2 132.4
1,512.9
919.2
14.7
14.4
92.4
9.8
-
-
1,620.0
943.3
850
826
135
144
24
22
-
-
1,009
992
Expenses other than depreciation not corresponding to payments are negligible.
Other disclosures The principles for pricing of internal sales are the same as for external sales.
Reporting by geographic area (secondary classification) Reporting by geographic area is not performed since publication of the recommended accounting is not relevant for Broström’s operations with respect to the location of assets or customers. The company’s assets, which consist primarily of vessels, are employed to a great extent worldwide and not strictly in geographic markets. With respect to customers, the location can be entirely different than the geographic area in which the freight assignments are conducted in. Reporting by geographic area is therefore not meaningful for Broström.
Types of services in the respective activities: Shipping - Tanker shipping for distribution of refined oil products and chemicals - Ship Management Marine & Logistics Services - Shipping agencies - Travel agency business - Distribution of solid and liquid bulk products Other - Primarily administration in the parent company
Note 2 Net sales
Note 4 Share in associated companies’ profit after tax
Net sales per business area
SEK m Shipping Marine & Logistics Services Other
Group 2005 2004 3,073.0 2,451.9 743.3 754.5 1.8 0.4 3,818.1 3,206.8
Parent company 2005 2004 29.2 24.4 29.2 24.4
Group 2005 2004 94.4 2.0 10.7 -
Parent company 2005 2004 22.6 -
Note 3 Other income SEK m Profit on sales of vessels Profit on sales of subsidiaries Profit on sales of associated companies Insurance reimbursements, monetary Other
62
2005
16.6
-
15.8
-
19.5 8.4 149.6
1.8 0.5 4.3
0.7 39.1
0.2 0.2
SEK m ISAB-Verbrugge Iberica SRL (37.4%) SCS Port Catherine (49.0%) SCS Port Charlotte (49.0%) Seawise Australia Pty Ltd (30.0%) SNC Union Maritime de l’Ocean Indien (50.0%) Percy Tham i Oxelösund AB (50.0%) Uddevalla Hamnterminal AB (39.9%)
Group 2005 2004 0.3 0.4 3.1 4.1 1.7 11.5 5.9 0.5 0.3 0.2 0.8 12.5 16.3
The share in associated companies’ profit after tax is reported as a part of operating profit.
F I N A N C I A L R E P O RT S
Note 5 External expenses External expenses in the Group have decreased by SEK 8.5 m (7.4) with respect to government maritime subsidies. Auditors’ fees and remuneration
SEK m Öhrlings PricewaterhouseCoopers Auditing assignment Other assignments Acrevi Revision Auditing assignment Other auditors Auditing assignments
Group 2005 2004
Parent company 2005 2004
1.8 1.5
1.8 1.7
0.4 1.1
0.4 1.6
0.4
0.4
0.3
0.3
0.3 4.0
0.3 4.2
1.8
2.3
Shore-based employees Parent company Sweden Subsidiaries Sweden France Denmark Norway* Singapore* Philippines
Onboard employees Swedish crew French crew Norwegian crew
Breakdown of salaries and other remuneration before payroll overhead by country Remuneration from profit-sharing schemes or similar are shown in parentheses. 2005 Board, MD and Dep. MD
Note 6 Personnel costs Average number of employees
Obligations for retirement pension and family pension for salaried employees in Sweden are secured through insurance with Alecta. According to a pronouncement from the Emerging Issues Task Force of the Swedish Financial Accounting Standards Council, URA 42, this is classified as a multi-employer defined benefit plan. For the 2005 financial year, the company did not have access to such information that made it possible to report this obligation as a defined benefit plan. The ITP pension plan that is secured through insurance with Alecta is therefore classified as a defined contribution plan. Costs during year for pension insurance taken out with Alecta amounted to SEK 19.5 m (20.0). The corresponding amount for the parent company amounted to SEK 1.2 m (0.8). Alecta’s surplus can be apportioned among the policyholders and/or the insureds.
2005 2004 No. Of whom, No. Of whom, employees men employees men
24
11
22
9
204 54 13 22 4 3 324
129 29 10 14 3 1 197
211 52 13 3 301
129 26 9 2 175
SEK m Parent company Sweden 9.8 (2.2) Parent company, total 9.8 (2.2) Subsidiaries Sweden France Denmark Norway Singapore Philippines Subsidiaries, total Group, total
2004 Other Board, MD Other employees and Dep. MD employees 10.9 (1.3) 10.9 (1.3)
6.7 (-) 6.7 (-)
8.3 (-) 8.3 (-)
3.8 (0.4) 2.9 (0.6) - (-) 1.3 (-) 0.5 (-) 0.1 (-) 8.6 (1.0)
212.5 (2.6) 122.9 (1.8) 13.2 (0.7) 14.1 (1.3) 3.9 (-) 0.1 (-) 366.7 (6.4)
4.1 (0.3) 218.4 (2.7) 2.4 (-0.2) 94.6 (-1.9) - (-) - (-) 1.4 (0.5) 21.0 (2.8) - (-) 1.2 (0.1) - (-) - (-) 7.9 (0.6) 335.2 (3.7)
18.4 (3.2)
377.6 (7.7)
14.6 (0.6) 343.5 (3.7)
Sick leave as percentage of employees’ normal working hours (parent company) 341 344 685
327 342 669
377 264 50 691
359 262 50 671
Total average number of employees 1,009
866
992
846
* 2004 pertains to joint-venture (Broström Tankers Ltd) 50%. Salaries, other remuneration and payroll overhead SEK m Parent company Salaries and other remuneration 15.4 Remuneration from profit-sharing scheme, etc. 3.5 Payroll overhead (excl. pension costs) 7.4 Pension costs 4.4 Other personnel costs 2.2 Reduced personnel costs due to French government shipping subsidies Reduced personnel costs due to Swedish government shipping subsidies 32.9 SEK m Parent company Salaries and other remuneration 13.8 Remuneration from profit-sharing scheme, etc. Payroll overhead (excl. pension costs) 5.5 Pension costs 4.4 Other personnel costs 2.8 Reduced personnel costs due to French government shipping subsidies Reduced personnel costs due to Swedish government shipping subsidies 26.5
2005 Subsidiaries 369.6
Group 385.0
7.4 137.8 34.5 11.9
10.9 145.2 38.9 14.1
-23.1
-23.1
-49.8 488.3
-49.8 521.2
2004 Subsidiaries 342.2
Group 356.0
4.3 126.2 49.5 18.1
4.3 131.7 53.9 20.9
-26.4
-26.4
-39.1 474.8
-39.1 501.3
Of the parent company’s pension cost, SEK 2.7 m (3.1) pertains to the MD and Deputy MD. The corresponding amount for the Group is SEK 5.5 m (9.4). In addition, future obligations totalling SEK 0.2 m (0.2) are reported under contingent liabilities. There are no pension costs related to the Board.
Percentage of sick leave in the respective categories 2005 All employees 1.8% Women 2. 8% Men 0.5% Employees aged 29 or younger * Employees aged 30-49 2.7% Employees aged 50 or older 0.8% Proportion of all employees’ sick leave that exceeded 60 days
-
2004 4.3% 3.1% 6.1% * 1.7% 6.7% 68.4%
* Fewer than 11 employees. Remuneration and benefits of senior executives Board of Directors The Annual General Meeting resolved on 27 April 2005 that the directors’ fees shall amount SEK 1,725,000 (1,350,000). In addition, the Annual General Meeting resolved that the Board’s committees would receive a fixed fee of SEK 100,000, to be apportioned among the members at the Board’s discretion. In 2005 director’s and committee fees of SEK 520,000 (375,000) were paid to the Chairman of the Board, Lars-Olof Gustavsson. No other remuneration or benefits were paid to the Chairman of the Board. In 2005 a fee of SEK 95,000 (138,300) was paid to the law firm in which Board member Claes Lundblad is employed, for assignments he was consulted for. In 2005 a fee of SEK 915,080 (1,265,300) was paid to the law firm in which Board member Claes Lundblad is employed, for assignments that the law firm was consulted for. Directors’ fees totalling SEK 1,167,500 (850,000) were paid to the other company directors. No other remuneration or benefits were paid out. Managing Director Costs for salary and taxable benefits and other remuneration were during the year for Broström AB’s MD, Lennart Simonsson, as follows: SEK m Salary Profit-sharing for 2005 Other benefits
Amount 3.5 1.6 0.1
Of which, pensionable 3.5 -
63
F I N A N C I A L R E P O RT S
During the year, pension premiums totalling SEK 1.3 m in excess of the ITP plan were booked as an expense. The pension is a defined benefit plan and is vested. Pension benefits are payable from 60 to 65 years of age. The pension amount between 60 and 65 years of age is 75% of yearly salary at 60 years of age. After 65 years of age, no pension benefits are payable other than the statutory retirement pension and ITP pension. An agreement has been made with the MD for severance pay amounting to two years’ salary in the event the company serves notice. The MD cannot trigger severance pay himself. Other senior executives Costs for salary and taxable benefits and other remuneration to other senior executives were during the year, as follows: SEK m Salary Profit-sharing for 2005 Other benefits
Amount 8.5 2.0 0.6
Of which, pensionable 8.5 -
During the year, pension premiums totalling SEK 1.0 m in excess of the ITP plan were booked as an expense. One senior executive is entitled to pension benefits from 60 to 65 years of age, and the pension amount is 70% of yearly salary at 60 years of age. After 65 years of age, no pension benefits are payable other than the statutory retirement pension and ITP pension or similar. One senior executive is entitled to pension benefits from 63 to 65 years of age. The pension is a defined contribution obligation. After 65 years of age no pension benefits are payable other than the statutory retirement pension and ITP pension. One senior executive is entitled to a lifetime pension from 65 years of age. This is a defined contribution obligation. One senior executive is entitled to no pension other than the statutory retirement pension and ITP pension or similar. Agreements have been made with other senior executives entitling them to severance pay equivalent to two years’ salary, with another for severance pay equivalent to 18 months’ salary, and with two executives entitling them to one year’s salary in the event the company serves notice. There is no possibility for any of these executives to trigger severance pay themselves. In addition to the senior executives referred to above, an agreement has been made with the Managing Director of a subsidiary for severance pay equivalent to one year’s salary in the event the company serves notice. This Managing Director has no possibility to trigger severance pay himself. Profit-sharing systems The management of subsidiaries, all salaried employees and onboard employees are included in a profit-sharing system that is based in part on earnings of their respective companies and in part on consolidated profit. Employees of certain large subsidiaries participate only in the profit-sharing scheme based on consolidated profit. The profit-sharing system is linked to interest rate movements based on STIBOR as per 1 January in the current year. Dividends from consolidated profit begin to accrue to employees when the return on capital employed exceeds STIBOR by 3 percentage points, and increases gradually to STIBOR plus 11 percentage points. For 2005 this entailed an interval between 5.3% and 13.3%. The total dividend ranges in size between onefourth of the Base Amount and 2 times the Base Amount, depending on the employee’s position. A similar system has been in place for the Group Management since 2002, which pays a dividend when the return on capital employed reaches 10%-15% according to a progressive scale. The MD can receive a maximum of 50% of his yearly salary, and the other executives a maximum of 30% of their yearly salary. Based on the consolidated profit for 2005, the dividend from the profit-sharing system will amount to SEK 7.3 m for shore-based employees. For onboard employees, the dividend for 2005 will amount to SEK 5.7 m. For the members of the Group Management, the dividend will amount to SEK 3.6 m for 2005.
Note 8 Interest income and similar profit/loss items SEK m Interest income External Group companies Exchange rate differences Liquid assets Other
Group 2005 2004
Parent company 2005 2004
47.2 -
32.5 -
19.3 2.1
11.6 1.4
13.0 0.9 61.1
4.2 -11.3 25.4
12.1 1.0 34.5
-4.4 -0.1 8.5
Note 9 Interest expenses and similar profit/loss items SEK m Interest expenses Loans Group companies Exchange rate differences Realised Unrealised Other
Of the above expenses, financial leasing accounts for
Group 2005 2004
Parent company 2005 2004
-151.4 -
-105.4 -
-14.9 -20.5
-16.7 -17.7
-8.4 7.1 -0.8 -153.5
-0.8 1.1 -105.1
-8.7 -0.6 -44.7
1.1 -33.3
-30.1
-9.0
-
-
Note 10 Tax on profit for the year
SEK m Significant sub-amounts Current tax on profit for the year Deferred tax, temporary differences Deferred tax, loss carry-forward
Group Parent company 2005 2004 2005 2004 -17.6 -78.9 -0.7 -97.2
Relationship between pre-tax profit and tax expense for the period Reported profit before tax 720.1 Tax according to national tax rates -188.2 Effect of tonnage-based income tax 95.0 Effect of non-taxable profit/loss items -3.2 Adjustment of current tax for previous years -0.8 -97.2 Current and deferred tax booked directly against shareholders’ equity Effect of Group contribution Effect of functional currency Exchange rate differences Derivative instruments
62.1 -7.8 0.2 54.5
-31.2 322.8* -129.6 162.0
-6.1 21.4 -0.8 14.5
16.1 -0.3 15.8
324.7 -78.4 239.1 1.3
426.2 -119.4 133.9
170.4 -47.7 63.5
162.0
14.5
15.8
7.1 4.9 12.0
-21.4 -21.4
-16.1 -16.1
* Includes acquired deferred tax of SEK 23.1 m.
Note 11 Earnings per share Group
Gender breakdown of board and management Group % Men Women Board of Directors 79% 21% Management 84% 16%
Parent company Men Women 100% 0% 83% 17%
Note 7 Profit from securities and receivables SEK m Dividends
64
Group 2005 2004 0.1 0.6 0.1 0.6
Parent company 2005 2004 -
SEK m Profit used as basis for calculating earnings per share before and after dilution Average number of shares outstanding before dilution Dilution shares Total average number of shares after dilution
2005
2004
611.1
478.2
32,346,920 218,771
31,394,806 283,583
32,565,691
31,678,389
F I N A N C I A L R E P O RT S
Note 12 Goodwill SEK m Opening acquisition value New acquisition/capitalisation Exchange rate difference Closing acquisition value
Group 2005 2004 49.7 55.3 82.5 8.9 -5.6 141.1 49.7
Parent company 2005 2004 -
Testing for goodwill impairment Goodwill pertains to the Group’s cash-generating unit – Shipping. The Shipping unit comprises several collaborating companies that jointly operate the Group’s commercial fleet. The combined fleet is included in Broström’s global logistics system, which operates across national borders, which is why any breakdown of goodwill into legal entities is irrelevant. Goodwill is tested for impairment annually and when a need for goodwill impairment becomes evident. The recoverable value has been determined based on calculations of value in use. These calculations are based on estimated future cash flows. The WACC interest rate used was 6.25%. There was no need to recognise impairment as per 31/12/2005. In the company’s opinion, a change of 1% did not result in any difference.
Note 13 Other intangible fixed assets SEK m Opening acquisition value New acquisition/capitalisation Sales and scrapping Exchange rate difference Closing acquisition value
Group Parent company 2005 2004 2005 2004 19.6 17.6 1.4 1.2 1.2 2.0 0.2 -4.7 0.3 16.4 19.6 1.4 1.4
Opening amortisation Sales and scrapping Amortisation for the year Exchange rate difference Closing accumulated amortisation
-12.0 1.7 -2.1 -0.3 -12.7
-10.5 -2.7 1.2 -12.0
-0.3 - 0.1 -0.4
-0.2 -0.1 -0.3
3.7
7.6
1.0
1.1
0.4 3.3
0.4 7.2
1.0
1.1
Closing residual value according to plan Of which Patents and trademarks Licence rights for software
Note 14 Vessels Group SEK m Opening acquisition value New acquisition/capitalisation Acquisition of subsidiary Sales and scrapping Reclassifications Exchange rate difference Closing acquisition value
2005 4,439.6 1,175.4 -281.8 84.1 843.8 6,261.1
2004 4,238.2 505.6 31.0 -85.4 83.5 -333.3 4,439.6
Opening depreciation Sales and scrapping Depreciation for the year Reclassifications Exchange rate difference Closing accumulated depreciation
-987.7 125.6 -202.8 25.0 -185.2 -1,225.1
-909.3 55.0 -195.5 - 3.5 65.6 -987.7
Closing residual value according to plan, vessels 5,036.0 Closing residual value according to plan, docking 105.5 Total residual value according to plan 5,141.5
3,451.9 100.6 3,552.5
In the 2005 Annual Report, Broström has changed its method for determining residual values pertaining to the depreciation schedules for vessels. The residual value, which is represented as the scrapping value, is calculated as a vessel’s lightweight multiplied by the 5 most recent years’ average quoted scrapping prices for tankers in USD per tonne. This change in method in the 2005 accounting has increased the residual value and decreased planned depreciation for vessels on a yearly basis by an amount corresponding to SEK 11.5 m.
Note 15 Newbuilding contracts Group SEK m 2005 2004 Opening balance 268.7 176.0 Expenses incurred during the year 227.4 196.9 Reclassifications -140.6 -106.7 Exchange rate difference 1.9 2.5 Closing balance 357.4 268.7
Parent company 2005 2004 -
Newbuilding contracts include both the expenses relating to the projects and advances to shipyards. Group Parent company SEK m 2005 2004 2005 2004 Capitalised interest in newbuilding contracts During the year 10.0 4.1 Accumulated 11.5 7.1 -
Note 16 Other tangible fixed assets SEK m Opening acquisition value New acquisition/capitalisation Sales and scrapping Reclassifications Exchange rate difference Closing acquisition value
Group 2005 2004 226.1 205.0 33.9 29.4 -158.5 -6.0 -2.7 -0.3 0.4 101.2 226.1
Parent company 2005 2004 38.3 29.0 2.9 9.3 -2.6 38.6 38.3
Opening depreciation -117.3 Sales and scrapping 93.3 Depreciation for the year -19.1 Reclassifications Translation difference -2.3 Closing accumulated depreciation -45.4
-106.9 5.6 -18.2 2.7 -0.5 -117.3
-12.4 2.6 -6.1 -15.9
-8.6 -3.8 -12.4
Closing accumulated write-downs -5.0 Closing residual value according to plan 50.8
-5.0 103.8
22.7
25.9
-
14.8 -6.2 8.6
-
-
22.0 2.9 4.2 21.7 -
20.6 2.9 3.3 75.3 1.7
9.4 13.3 -
9.3 16.6 -
16.7
23.4
9.4
9.3
8.4
8.6
8.4
5.1
6.7
7.6
6.7
4.1
Of which, financial leasing Acquisition value Accumulated depreciation Residual value according to plan Residual value according to plan consists of: Buildings Land Machinery Equipment Construction in progress Planned residual value of property in Sweden Assessed taxable value of property in Sweden Of which Building value
Of which, financial leasing Closing acquisition value Closing accumulated depreciation Residual value according to plan The cost of vessels includes capitalised interest: During the year Accumulated
1,419.5 -105.0 1,314.5
734.2 -55.9 678.3
0.5 130.8
126.6
65
F I N A N C I A L R E P O RT S
Note 17 Participations in Group companies Parent company 2005 2004 1,975.2 1,876.9 89.5 98.3 -28.2 78.6 2,115.1 1,975.2
SEK m Opening acquisition value Acquisitions during the year Sales during the year Reclassifications Closing acquisition value Opening write-ups Closing accumulated write-ups Opening write-downs Closing accumulated write-downs Closing book value
1.1 1.1
1.1 1.1
-172.5 -172.5
-172.6 -172.6
1,943.7
1,803.7
Participations in subsidiaries and Group companies
Note 19 Participations in associated companies and joint ventures SEK m Opening acquisition value Sales during the year Reclassifications Exchange rate difference Closing acquisition value
Group 2005 2004 9.4 86.7 -3.8 7.0 -78.0 0.3 0.7 12.9 9.4
Opening change in share of equity Change in share of equity for the year Reclassifications Exchange rate difference Closing change in share of equity
40.6 11.2 -1.9 1.6 51.5
90.4 15.4 -64.6 -0.6 40.6
-
-
Closing value of participations
64.4
50.0
-
80.8
No. of shares/ participations
Group book value
No. Share of Share of shares/ Book equity, % votes, % participations value Foreign subsidiaries Broström Holding BV (Group) Broström Tankers SAS (Group) Broström Tankers Ltd (Group) Broström Shipping Company, Inc. Swedish subsidiaries Rederi AB Ankaret (Group) Nordia Shipping AB (Group) Broström Oil AB (Group) Broström Ship Agency Network AB (Group) Broström Ship Management AB (Group) Broström Tankers AB (Group) Broströms Resebyrå AB (Group) Wintria AB
100 100 100 100
100 100 100 100
1,500 850,000 10,000 410
455.3
100 100 100
100 100 100
20,500 10,000 10,000
2.6 2.5 1.3
100
100
1,000
15.1
100 100 100 100
100 200,000 0,8 100 13,819,891 1,295,3 100 1,000 2,2 100 1,000 0,1 1,943,7
168.1 0.4
Information on subsidiaries’ and Group companies’ registered numbers and registered offices
Foreign subsidiaries Broström Holding BV (Group)
Reg. no.
Registered office
B.V.327.944
Rotterdam, Netherlands Paris, France Bahamas Delaware, USA
Broström Tankers SAS* R.C.S. B 308 276 591 Broström Tankers Ltd 21,798 B Broström Shipping Company, Inc. 8044976 Swedish subsidiaries Rederi AB Ankaret* Nordia Shipping AB* Broström Oil AB* Broström Ship Agency Network AB* Broström Ship Management AB* Broström Tankers AB* Broströms Resebyrå AB* Wintria AB *
556028-0504 556243-7243 556212-6234 556202-7218 556001-0596 556308-1545 556243-5601 556237-1947
Göteborg Göteborg Göteborg Göteborg Tjörn Göteborg Göteborg Göteborg
Group
Share of equity/ votes, % Owned by subsidiaries SNC Union Maritime de l’Ocean Indien, France 1) 50 Percy Tham i Oxelösund AB, Sweden 50 Uddevalla Hamnterminal AB, Sweden 39.9
Parent company 2005 2004 80.8 80.8 -2.1 -78.7 80.8
500 9,576
49.6 1.0 13.8 64.4
The book value in the Group exceeds the Group’s share in associated companies’ and joint ventures’ equity by SEK 6.4 m (5.3) and consists in its entirety of consolidated goodwill. If the share in equity in associated companies had been reported in accordance with the acquisition accounting method, it would have had an immaterial impact on the Group’s equity. 1)
This company form is equivalent to a Swedish limited partnership. Broström Tankers SAS has joint and severable liability as partner in the company.
Information on associated companies’ registered numbers and registered offices Reg. no. Registered office SNC Union Maritime de l’Ocean Indien R.C.S. B 333 231 207 Bordeaux, France Percy Tham i Oxelösund AB 556022-4908 Oxelösund, Sweden Uddevalla Hamnterminal AB 556064-2745 Uddevalla, Sweden
Note 20 Other financial fixed assets SEK m Opening acquisition value Cleared receivables/disposals Exchange rate differences Closing acquisition value
Group 2005 2004 29.2 32.1 -0.3 -0.6 -2.9 28.3 29.2
Parent company 2005 2004 -
Consists of Receivables from associated companies Deposits in USD, fixed interest, maturity 2011 Other
17.2
18.6
-
-
10.8 0.3
10.8 0.7
-
-
Minor changes have been made in subsidiary groups.
Note 21 Inventories, etc. Note18 Receivables from Group companies SEK m Opening acquisition value Closing book residual value
Parent company 2005 2004 8.9 8.9 8.9
8.9
SEK m Bunkers and lubrication oil Goods for resale Advances to suppliers
Group 2005 2004 58.8 25.5 0.2 0.1 0.1 0.7 59.1 26.3
Parent company 2005 2004 -
Bunkers and lubrication oil are used exclusively in the Group’s own operations and are not sold secondarily as traditional inventory. There is no need for write-downs or obsolescence.
66
F I N A N C I A L R E P O RT S
Number of shares At start of year
Note 22 Derivative instruments SEK m Assets Interest-rate swaps Total
Group 2005 2004 5.4 5.4
New subscription during the year At year-end
-
The fair value of interest-rate swaps has been calculated as the expense/ income that would have arisen if the contracts had been closed as per the balance sheet date. The nominal value of the interest-rate swaps as per 31 December 2004 amounted to SEK 0.9 m. However, this amount is not shown on the balance sheet.
Note 23 Prepaid expenses and accrued income SEK m Accrued interest income Prepaid vessel expenses Prepaid charter hires Other prepaid expenses Other accrued income Total
Group 2005 2004 1.3 1.2 42.6 53.4 6.9 3.7 68.2 37.3 63.8 13.3 182.8 108.9
Parent company 2005 2004 5.4 3.9 5.4 3.9
Note 24 Liquid assets and short-term investments SEK m Short-term investments Money market investments Deposits Total short-term investments
Group 2005 2004
Parent company 2005 2004
22.9 237.7 260.6
36.3 179.2 215.5
22.9 22.9
35.7 0.6 36.3
265.6 583.6 370.7 1 219.9
101.9 341.6 295.9 739.4
265.6 583.6 167.4 1 016.6
81.9 341.6 154.5 578.0
Unutilised bank overdraft facility 52.5 Less: pledged funds -238.1 Disposable liquidity 1 294.9
52.3 -179.4 827.8
52.5 1 092.0
37.3 651.6
Money market investments Deposits Cash and bank balances Liquid assets
410.5 32.9 35.7 179.9 659.0
729.5 119.7 22.9 872.1
390.6 32.9 35.7 0.6 459.8
The granted amount in the bank overdraft facility is SEK 52.5 m for the Group and SEK 52.5 m for the parent company.
Note 25 Shareholders’ equity SEK m Restricted shareholders’ equity Share capital Share premium reserve Statutory reserve Total restricted shareholders’ equity Unrestricted shareholders’ equity Profit brought forward Profit for the year Total unrestricted shareholders’ equity Total shareholders’ equity Proposed dividend for AGM decision, SEK per share Total amount, SEK m
Parent company 2005 2004 65.2 933.3 998.5
62.8 770.6 57.0 890.4
327.1 247.6 440.7 186.2 767.8 433.8 1,766.3 1,324.2 8.00 261.0
There are no preferential rights to accumulative dividends.
5.00 161.7
2,125,728 29,269,078
Class B Quota value SEK 2.00 Class A Quota value SEK 2.00 Class B Quota value SEK 2.00
1,228,036 2,125,728 30,497,114
All shares are fully paid for. A-shares carry entitlement to 10 votes per share and B-shares carry entitlement to 1 vote per share. Both classes carry equal entitlement to dividends, payment in connection with reductions in share capital or reserves, or in the event of the company’s liquidation. The company, subsidiaries or associated companies hold no treasury shares in the company. No shares are reserved for transfer according to warrants or agreements. The company has 675,750 warrants remaining, of which 642,300 have been subscribed for. 275,750 warrants can be exercised in September 2006, 183,275 can be exercised in September 2007, and 183,275 can be exercised in September 2008. The warrants are not employee stock warrants, but are based entirely on market value. Other reserves, Group SEK m Opening balance, 1/1/2004 Exchange rate differences Tax, functional currency Closing balance, 31/12/2004
Revaluation reserve -80.9 -199.6 -7.1 -287.6
Derivatives -
Total -80.9 -199.6 -7.1 -287.6
Exchange rate differences Tax, functional currency Derivative instruments Tax, derivative instruments Closing balance, 31/12/2005
406.8 -62.1 57.1
5.4 -0.2 5.2
406.8 -62.1 5.4 -0.2 62.3
Note 26 Equalisation reserve SEK m
Dissolved Position
Year
2005 31/12/2005 06 US Pickle-lease French tax leasing French subsidies for shipping
Maturities of short-term investments within 1 month 729.5 within 1-3 months 119.7 within 3-6 months 22.9 after 6 months 237.7 1 109.8
Class A Quota value SEK 2.00 Class B Quota value SEK 2.00
4.6
-
22.6
205.3
3.7
-
32.8
07
08
09
32.8 32.8 30.4
10
11
12
13
Tot
24.6 20.9 20.8 10.2 205.3
US Pickle-lease In 1995, Broström Tankers SAS entered into a pure financial tax leasing arrangement with three of its 46,000 dwt product tankers. This means that Broström Tankers can benefit from the tax-savings based on vessel values of USD 119 m. The partner in the agreement has received a corresponding amount. Part of the amount received, USD 100 m, has been offset in the accounts against future undertakings in an equivalent amount. The amount has been placed in a blocked bank account and is only available for the undertaking in question. The income statement shows the profit from the pickle-lease arrangement in net financial items. The leasing arrangement started in 1996 and will run until the end of 2012.The total gain for Broström Tankers is USD 18.9 m. In 1996 the present value of this amount was calculated at USD 6.9 m, and it was decided to release this over ten years, which ended as per 31/12/2005. In addition to the release plan, interest income will be added each year up until 2012 equal to the above-mentioned discounting. In conjunction with Broström’s acquisition of Van Ommeren’s product tanker operation, Koninklijke Vopak NV has guaranteed the future profits from the pickle-lease arrangement. As the opening and closing cash flows of the pickle-lease use the same currency, USD, and match each other, Broström is taking no currency risk with the exception of the future profit. During the year 2002, USD 10 m of the balance was converted to EUR as a hedge. French tax leasing Broström has participated in a tax leasing arrangement for the vessels BRO ELIZABETH, BRO ELLEN, BRO ETIENNE, BRO EDWARD and BRO ELLIOT, which is approved by the French authorities. The French authorities’ aim is to support and develop the French shipping industry. The vessels are owned by several investors and are bareboat chartered by two of Broström’s subsidiaries. The vessels are reported as financial leases in Broström’s accounts. One condition for receiving
67
F I N A N C I A L R E P O RT S
the tax benefit is that the vessels are operated under French flag for at least eight years, which is why Broström has chosen to report its agreed share of the saving in its accounts for the same period. French subsidies for shipping Repayment of the subsidies for shipping may come into question if the vessels are transferred to a different flag earlier than agreed. The release will be made approximately in step with the cessation of the payment liability.
Note 27 Deferred tax Group 2005 2004
SEK m Deferred tax liabilities Pertaining to Fixed assets Docking expenses Other
Parent company 2005 2004
472.3 2.8 2.2 477.3
388.0 14.6 3.9 406.5
-
-
2.1 0.2 1.9 4.2
59.0 0.2 2.8 62.0
-
0.8 0.8
Deferred tax assets Pertaining to Fixed assets Associated companies Loss carry-forwards
Total deferred tax (net) 473.1 344.5 0.8 All loss carry-forwards deemed possible to utilise have been taken into account. Deferred tax assets and liabilities are offset when there is a legal offsetting right. The offset amounts are as follows: SEK m Deferred tax liabilities Paid after more than 12 months Paid within 12 months Deferred tax assets Utilised after more than 12 months Utilised within 12 months
68
Maturity within 1 year Long-term interest-bearing liabilities
2005
Group 2004
Parent company 2005 2004
168.3 3,575.6 344.8 4,088.7
242.7 2,186.6 382.9 2,812.2
799.1 318.0 1,117.1
191.6 125.2 316.8
-283.6
-313.8
-40.0
-57.5
3,805.1
2,498.4
1,077.1
259.3
846.1 1,652.3 2,498.4
409.0 668.1 1,077.1
131.0 128.3 259.3
453.0 24.3 477.3
382.1 24.4 406.5
The majority of interest-bearing liabilities are renewed over interest periods of 6-12 months. On the accounting date there were interest swap agreements and restricted loans with remaining duration in excess of:
2.1 2.1 4.2
4.2 57.8 62.0
473.1
344.5
2004 502.6 4.9 23.1 - 193.2 7.1 344.5
Parent company Pensions Other -
Note 29 Debenture loans Group 2005 2004 131.0 30.7 29.3 30.7 160.3
SEK m Broken down by currency SEK USD EUR Interest-bearing liabilities
2004
The pension liability (not defined-benefit) pertains primarily to employees of the French subsidiary Broström Tankers SAS.
SEK m Vopak (formerly Van Ommeren) Partners in foreign subsidiaries
Note 30 Long-term interest-bearing liabilities
2005
Note 28 Other long-term non-interest-bearing liabilities Group Pensions Other 23.8 1.3 1.7 -1.3 -0.1 1.1 26.5 -
Partners in foreign subsidiaries Pertains to debenture loans in two subsidiaries of Broström Tankers SAS, Paris, in which Broström’s ownership amounts to 78.75%. The loans give the right to a 12% annual aggregate return if the earnings of the companies allow. The subsidiaries bareboat charter the vessels BRO ELIZABETH and BRO ELLEN. Through the exercise of call options, the vessels will come under the subsidiaries’ ownership in 2006 and 2007, respectively. If the lender has not received said return, after 8 years (2009 and 2010, respectively) it can call for the sale of the vessels and demand repayment of the loans plus an additional 4% annual return for the entire holding period if the earnings of the companies allow.
Maturity after 1 year but within 5 years 1,401.0 Maturity after 5 years 2,404.1 3,805.1
The gross change pertaining to deferred taxes is as follows: SEK m 2005 At start of year 344.5 Exchange rate differences -7.0 Acquisition of subsidiaries (note 36) 2.9 Sale of subsidiaries (note 37) - 9.2 Reporting in income statement (note 10) 79.6 Tax reported in shareholders’ equity (note 25) 62.3 At year-end 473.1
SEK m At start of year Provision during the year Utilised during the year Reversed during the year Exchange rate difference Liability at year-end
Vopak The debenture loan, with limited conversion rights, was floated in connection with the acquisition of Van Ommeren’s product tanker operation in 1998. The loan had a term of 10 years. Broström had the right at any time during the term of the loan to repay the loan. Broström exercised this right in 2005.
Parent company 2005 2004 131.0 131.0
Group SEK m 2005 2004 12 months with the following amounts 700.7 551.2
Parent company 2005 2004 131.0
Financial leasing Financial leasing consists primarily of bareboat chartering of vessels where the minimum leasing fees are charter fees, consisting of a principal and interest, plus an option price for purchasing the asset at the end of the charter period. The interest sum of the lease is variable and set according to the prevailing interest rate of the respective interest period, which is why discounting to present value does not result in any difference, as the nominal value and fair value correspond to each other. Principal/option sum maturity date SEK m Within 1 year After 1 but within 5 years After 5 years Net debt (at booked rate) Interest-bearing liabilities Liquid assets
Group 2005 2004 48.8 26.7 223.9 126.0 665.5 349.0 938.2 501.7
Parent company 2005 2004 -
4,088.7
2,812.2
-
-
-1,480.5 2,608.2
-954.9 1,857.3
-
-
Note 31 Accrued expenses and prepaid income SEK m Accrued expenses Vessel expenses Forwarding expenses Personnel expenses Interest Other expenses Charter hires Other income
Group 2005 2004
Parent company 2005 2004
82.3 82.5 24.5 20.4 10.0
81.4 11.9 82.0 16.6 12.2 3.7
9.7 3.5 -
4.7 3.2 -
1.3 221.0
6.1 213.9
0.9 14.1
0.7 8.6
F I N A N C I A L R E P O RT S
Group
Note 32 Pledged assets SEK m For own liabilities and provisions Pensions and similar obligations: Liquid assets Liabilities to credit institutions: Liquid assets Shares and subsidiaries Floating charges Property mortgages Vessel mortgages
Group 2005 2004
Parent company 2005 2004
-
0.1
238.1 1,171.0 3.5 4,069.5 5,482.1
179.2 2,451.9 33.2 5.9 2,797.6 5,467.9
-
-
- 1,295.4 3.5 3.5 3.5 1,298.9
Note 33 Contingent liabilities SEK m 2005 Guarantees and other contingent liabilities 29.2 Contingent liabilities for the benefit of: Subsidiaries Associated companies 84.7 113.9 Assets in associated companies concerned
Group 2004
190.2
Parent company 2005 2004
28.4 79.7 108.1
-
-
2 700.6 1 499.6 2 700.6 1 499.6
193.0
-
-
Contingent liabilities for associated companies are a joint and several payment obligation that the Group has for financing of the vessel CILAOS.
Note 34 Related party agreements No related party agreements were made during the year. With respect to remuneration of key persons, see note 6.
2005 -76.9 -75.0 -2.0 -8.7 -61.9 2.9 34.8 38.1 90.5
2004 -209.5 -1.3 2.8 84.7 22.6 -
-58.2
-100.7
Liquid assets in acquired subsidiaries Total purchase price
-39.1 -97.3
-26.8 -127.5
Note 37 Sale of subsidiary Nordic Bulkers AB was sold on 17 October 2005. Group SEK m Intangible fixed assets Tangible fixed assets Shares in associated companies Financial fixed assets Current assets Deferred tax Long-term liabilities Current liabilities Book value of associated companies Total cash flow attributable to sale of subsidiary Liquid assets in sold companies Total purchase price paid
2005 2.9 64.5 1.2 0.1 68.9 -9.2 -19.6 -82.4 10.7
2004 -
37.1
-
13.8 50.9
-
Note 38 Cash flow from investing activities
Note 35 Other adjustment items
Group
Group SEK m Share of associated companies’ profit/loss Change in equalisation reserve Financial leasing fees Capital gain/loss on sale of assets Change in provisions Docking expenses Other
SEK m Intangible fixed assets Tangible fixed assets Financial fixed assets Inventories Current assets Equalisation reserve Deferred tax Long-term liabilities Current liabilities Issuance of own shares Total cash flow pertaining to acquisitions of subsidiaries
2005 -12.5 -15.0 -62.0 -122.4 1.4 -210.5
2004 -16.3 -26.7 -26.4 -3.3 8.6 -131.2 1.5 -193.8
SEK m Investments as per balance sheet Adjustment to net investment Issuance of own shares Exchange rate differences Liquid assets in acquired companies that are consolidated Financial leasing not affecting cash flow Divestments Change in long-term receivables Cash flow from investing activities
2005 -1,620.0 24.5 90.5 33.5
2004 -943.3 84.7 209.2 -3.8
39.1 357.5 580.9 2.7 -491.3
26.8 142.2 35.5 7.0 -441.7
Note 36 Acquisitions of subsidiaries On 24 January 2005 the shipbroker Nordtank Shipping A/S was acquired. On 2 May the remaining 50% of the shares in Iver Ships Ltd was acquired. Stakes in shipping partnerships were also acquired during the year. Specification of acquired net assets and goodwill Cash purchase price paid including acquisition costs Purchase price paid via new issue Market value of acquired assets Goodwill
97.3 90.5 - 110.6 77.2
Note 39 Accounting principles IFRS/IAS With effect on 1 January 2005 the Broström Group applies International Financial Reporting Standards (IFRS) approved by the EU. Comparison figures have been restated as per 1 January 2004 with the exception of IAS 39, where in accordance with the transitional rules in IFRS 1, no comparison figures for 2004 are required. For financial years before 2004, no adjustment has been made for acquisition analysis, which is also in accordance with the transitional rules of IFRS 1. The Group has also reset the exchange rate difference in shareholders’ equity to zero. The areas in which IFRS entails significant differences compared to Broström’s current accounting are measurement of goodwill (IFRS 3, IAS 36 and IAS 38), property, plant and equipment (IAS 16), effects of changes in foreign exchange rates (IAS 21), accounting for investments in associates (IAS 28) and financial instruments (IAS 39). The changed accounting principles pertaining to these areas are described and quantified below in terms of their significant impact on Broström’s net profit as per 31 December 2004 and their impact on shareholders’ equity.
69
F I N A N C I A L R E P O RT S
Goodwill – IFRS 3, IAS 36 and 38 According to IAS 38, goodwill is to be recognised as an asset with an indefinite useful life and should therefore not be amortised. Instead, goodwill is to be tested for impairment annually. Broström tested its goodwill for impairment on 31 December 2004 and 2005. According to these tests, there is no need for any goodwill write-down. Property, plant and equipment – IAS 16 Docking expenses make up a component of vessels and are capitalised under the heading “vessels”, instead of under “prepaid expense” as previously. As previously, this amount is depreciated over a period of 30 months, but is reported under the heading “Depreciation and write-downs”, instead of under “External costs” as previously. The change in accounting principle entails that docking expenses are included in reported investments and that in the cash flow statement they are charged against “investing activities” instead of “change in operating capital” as previously. The effect of this change in principle is included in the reported comparison figures for 2004. Effects of changes in foreign exchange rates – IAS 21 IAS 21 stipulates that a functional currency is to be decided for each legal entity. The functional currency is defined as the currency in which the company has most of its revenues and expenses, and which is the most significant financing currency. Broström has determined that the largest shipping companies in the Group have USD as their functional currency, while the other companies’ functional currencies consist of their respective local currencies. With respect to functional currency, the 2004 accounts have been recalculated. The vessels have been booked at their historical cost in USD, taking into account normal depreciation schedules and their loans in nominal USD amounts. These values have then been recalculated to the year-end USD rate vs. SEK using the current method. The change was SEK -486.5 m as per 1/1/2004 and SEK -647.0 m as per 31/12/2004. Deferred tax on the changed asset and liability values in recalculations to the functional currency has been taken into account. As a result of the accounting technique described above, the temporary differences between the book value and tax value will vary along with changes in exchange rates. The tax effect arising from this is reported against shareholders’ equity. At the start of 2005, a steadily weaker USD in relation to SEK had had a negative effect on shareholders’ equity, since the companies in which the vessels are included use USD as their functional currency. On the other hand, the accounting of vessel loans entailed a positive effect on shareholders’ equity, since the exchange rates used to calculate historical cost was higher than the exchange rates in effect on the balance sheet date at 31/12/2004. Accounting for investments in associates – IAS 28 According to IAS 28, participating interests in associated companies are to be reported after tax. Broström previously reported these before tax. The comparison figures for 2004 have been adjusted. Financial instruments: recognition and measurement – IAS 39 Starting in 2005, derivative instruments are measured at fair value on the balance sheet date and are reported under a separate heading on the balance sheet. The change is reported directly against shareholders’ equity. Application of IAS 39 did not have any impact on shareholders’ equity at the start of 2005. Effects on income statements and balance sheets (only for comparison) If IFRS had been implemented in 2004, the effects on the income statement and balance sheet as per 31/12/2004 would have been a positive earnings impact of SEK 35.0 m and a negative impact on shareholders’ equity in the amount of SEK -180.5 m (see table below). Condensed income statement and balance sheets Balance sheet
SFASC rec.
IFRS
1/1/2004 Adjusted Goodwill
65.6
-3.2
62.4
Tangible fixed assets
3,708.3
-486.5
3,221.8
Other assets
1,872.9
11.8
1,884.7
Total assets
5,648.8
-477.9
5,168.9
Shareholders’ equity
1,477.0
-34.3
1,442.7
24.5
-24.5
–
Debenture loans. interest-bearing
230.6
-
230.6
Deferred tax
561.5
-58.8
502.7
Equalisation reserve. provisions
122.5
-38.5
84.0
Other liabilities
3,230.7
-321.8
2,908.9
Total shareholders’ equity and liabilities
5,646.8
-477.9
5,168.9
Minority interests
Of which, minority interest
70
1/1/2004
24.5
SEK m
SFASC rec.
Income statement
IFRS
2004 Adjusted
Net sales Other income Total income Share in associated companies’ profit/loss Operating expenses
2004
3,206.8
–
8.5
1.1
3,206.8 9.6
3,215.3
1.1
3,216.4
22.1
-5.8
16.3
-2,626.5
27.2
-2,599.3
Depreciation and write-downs
-233.9
4.3
-229.6
-2,860.4
31.5
-2,828.9
Operating profit
377.0
26.8
403.8
Net financial items
-72.5
-6.6
-79.1
Profit after net financial items
304.5
20.2
324.7
Tax
156.1
5.9
162.0
-8.9
8.9
-
451.7
35.0
486.7
Total operating expenses
Minority shares (in profit/loss for the year) Profit for the year Of which, minority share Balance sheet
8.5 SFASC rec.
IFRS
31/12/2004
Adjusted 31/12/2004
Goodwill
51.5
5.8
57.3
Tangible fixed assets
4,572.0
-647.0
3,925.0
Other assets
1,671.1
-112.6
1,558.5
Total assets
6,294.6
-753.8
5,540.8
Shareholders’ equity
1,980.0
-180.5
1,799.5
32.6
-32.6
–
Debenture loans, interest-bearing
200.3
-40.0
160.3
Deferred tax
389.2
-44.7
344.5
Equalisation reserve, provisions
157.6
-50.3
107.3
Other liabilities
3,534.9
-405.7
3,129.2
Total shareholders’ equity and liabilities
6,294.6
-753.8
5,540.8
Minority interests
Of which, minority interest
32.1
SFASC = Swedish Financial Accounting Standards Council recommendations.
Note 40 Significant developments after year-end In January 2006 Broström entered into an agreement on the sale of the product tanker BRO STELLA. This vessel of 70,000 dwt, built in 1995, was delivered to the buyer in early March. The sale gave rise to a pre-tax profit of approximately SEK 85 m and a cash contribution of roughly SEK 215 m. In February and March 2006, Broström took delivery of the two vessels that remained under the acquisition agreement with Vroon from 2005 – BRO PROMOTION and BRO PREMIUM, each of 45,000 dwt and built in 1999. In Sweden a proposal on the introduction of a tonnage tax has now been submitted. This proposal entails that Sweden now will adopt the EU’s maritime policies and thereby achieve competitive neutrality with respect to other maritime nations within the EU. The proposal, which will be adopted by Sweden’s Parliament in 2006, is proposed to apply for the 2005 tax year. Since a formal decision has not been made as of this report’s publication, this report has been prepared in accordance with the old system of traditional taxation. However, as soon as a formal decision has been made, Broström intends to apply for affiliation to the tonnage tax system, provided that the pending proposal is approved in its entirety.
C O R P O R AT E G O V E R N A N C E R E P O RT
Corporate Governance Report Broström, its Board and its Management strive to live up to its shareholders’ and other stakeholders’ demands on corporate governance, as far as it is considered suitable. In addition, the Board strives through a large measure of openness to help individual shareholders monitor the company’s decision-making processes and understand where responsibility and authorisation are based within the organisation.
Broström is not required to comply with the Swedish Code of Corporate Governance, since its average stock market capitalisation during the measurement period was less than SEK 3 billion. The company has nevertheless decided to conform to the Code’s guidelines in most respects.
Annual General Meeting The Annual General Meeting (AGM) of Broström AB (publ) is the Broström Group’s highest decision-making body and the shareholders’ forum for exercising their direct influence over the company. The AGM’s duties are governed by the Swedish Companies Act and the company’s Articles of Association, which are available at www.brostrom.se. According to the Articles of Association, all shareholders have an equal right to present proposals and participate at general meetings of shareholders. Each B-share carries entitlement to one vote, and each A-shares carries entitlement to ten votes. (See page 43 for a report on the share capital.) Notice of the AGM must be issued not earlier than six weeks and not later than four weeks prior to the meeting. The last Annual General Meeting was held on 27 April 2005 at Konserthuset, Stora Salen, in Göteborg. At the meeting, 286 (233) shareholders participated, representing 29% (43%) of the number of shares and 55% (63%) of the votes. The company’s directors at that time – StigArne Blom, Peter Cowling, Lars-Olof Gustavsson, Carel van den Driest, Lars-Olof Gustavsson, Claes Lundblad, Leif Rogersson and Wilhelm Wilhelmsen, were re-elected. Fredrik Svensson was elected as a new director. The AGM also authorised the Board to decide on acquisitions and transfers of the company’s own shares corresponding to one-tenth of all of the shares in the company. In addition, the AGM approved the Board’s proposal to issue a debenture loan with detachable warrants for the subscription of new shares. The Board was also authorised – pursuant to the Articles of Association and without pre-emption rights for the shareholders – to decide on a new share issue of a total of 3,200,000 B-shares on one or more occasions, during the period until the next AGM, for a consideration of capital contributed in kind. The share dividend was set at SEK 5.00 per share.
Board of Directors Between general shareholders’ meetings, the Board of Directors is the highest decision-making body in the Broström Group. The Board’s duties are governed by the Articles of Association and the Swedish Companies Act, as well as by the rules of procedure adopted by the Board each year. These stipulate the division of duties and responsibility between the Board, its Chairman, and the company’s Managing Director (MD). The Board is responsible for adopting strategies, business plans and budgets, and interim reports and a preliminary earnings report. In addition, the Board is empowered to appoint and remove the MD and make material changes in Broström’s organisation and operations. The rules of procedure also define monetary limits for when a Board decision is required for investment, acquisitions and loans.
Composition of the Board The Board consists of eight AGM-elected directors, who are elected for a term of one year without any limit for how long an individual director can remain on the Board. However, according to practice there is an upper age limit of 70 for Board members. None of the AGM-elected directors may have an operative role within the Broström Group. Nor have any of these directors been employed by the Broström Group within the past five years. With the exception of Fredrik Svensson, who is Managing Director of Arvid Svensson AB (see page 43), at year-end no AGM-elected director had any directorships or other relations with any of Broström’s ten largest shareholders. The other six AGM-elected directors meet all of the requirements made by the Swedish Code of Corporate Governance regarding directors’ independence to the company or major shareholders. In addition to the AGM-elected directors, the Board has two employee representatives, who are appointed by the employees’ unions. In 2005 these two members were Stellan Werne (Salaried Employees Association, HTF) and Rolf Öström (Swedish Ship Officers Association, SFBF). However, in connection with the sale of Nordic Bulkers, Stellan Werne left the Board.
71
C O R P O R AT E G O V E R N A N C E R E P O RT
Chairman of the Board At its statutory meeting on 27 April 2005, the Board reelected Lars-Olof Gustavsson as Chairman of the Board. The Chairman monitors the development of the company’s business and is responsible for ensuring that the other directors are continuously provided with the information they need to perform their board duties and maintain quality in accordance with the Swedish Companies Act. Lars-Olof Gustavsson has been Chairman of the Board since 1995.
In 2005, an evaluation of the Board’s work was performed by an external consultant. The conclusions drawn from this evaluation are that the Board work has been performed very well and is characterised by stability and continuity. The evaluation also concluded that the Board has a well balanced combination of expertise. The table below shows the attendance at board and committee meetings: Director
Board committees Audit Committee
Stig-Arne Blom
8
Peter Cowling
8
The Board has an audit committee that is tasked with examining and preparing decisions by the Board with respect to financial information and with monitoring the focus of the company’s external audit and the auditors’ independence. The members of the Audit Committee are Lars-Olof Gustavsson (committee chair), Stig-Arne Blom and Leif Rogersson. During the time up until the publication of this Annual Report, the Audit Committee had held three meetings.
Carel van den Driest
7
Compensation Committee The Board has also appointed a compensation committee consisting of Lars-Olof Gustavsson and Board member Leif Rogersson. The Committee is tasked with drawing up recommendations to the Board on compensation of the MD and Deputy Managing Director. During the time up until the publication of this Annual Report, the Compensation Committee had held four meetings. Directors’ fees are set by the AGM after recommendations from Broström’s A-shareholders.
The work of the Board The Board constitutes itself at the statutory Board meeting held directly after the AGM. At this meeting the Board also adopts its rules of procedure and instructions for the Managing Director. Since the 2005 AGM the Board had held eight meetings up until the adoption of this Annual Report. The main items of business covered at these meetings are outlined below: April
Interim report January-March
April
Statutory meeting, adoption of rules of procedure and instructions for the MD
Lars-Olof Gustavsson
8
Claes Lundblad
7
Leif Rogersson
8
Stellan Werne, (resigned in November)
5
Compensation Audit Committee Committee 3
4
3
4
3
2
3
Fredrik Svensson, (newly elected in 2005) 7 Wilhelm Wilhelmsen
8
Rolf Öström
6
Total number of meetings
8
Average no. of attending directors
9.0
Nominating procedure Broström does not have a nominating committee, since an agreement exists between the company’s A-shareholders (see page 43). One of the aims of this agreement is to establish consensus on nominating matters, which are drafted by the A-shareholders, who jointly submit their recommendations to the AGM for a decision. This procedure was adopted by the 2005 AGM. The nomination work also includes drawing up recommendations for directors’ fees. The Board’s aspiration is to maintain extensive breadth and diversity regarding the expertise and experience of its members. Certain directors on the Board have depth of experience in both Swedish and international shipping, while others have a background in more traditional logistics companies. One of the directors has experience from the oil industry. In addition, several directors have extensive knowledge in economics, financing matters and law. The A-shareholders strive for the greatest possible openness and welcome proposals and views from other shareholders. Shareholders who wish to nominate a director to the board, or who for other reason want to contact a representative of the A-shareholders, are instructed to contact the Chairman of the Board.
August
Interim report January-June, and strategy discussions
October
Sale of Nordic Bulkers AB
October
Interim report January-September
December
Budget and business plan for 2006
February
Preliminary report on 2005 results, report on evaluation of the Board’s work
Managing Director and Group Management
March
Annual Report 2005
The MD manages the business in accordance with the adopted rules of procedure and the Board’s instructions The MD is responsible for ensuring that the Board receives information and necessary decision-making documentation,
The Board’s administrative director, Margareta Alestig Johnson, served as company secretary for the Board during the year.
72
Board
C O R P O R AT E G O V E R N A N C E R E P O RT
and makes presentations at Board meetings. However, following a policy decision in 1998, neither the MD nor any other senior executives of the company are members of the Board. The MD keeps the Board and Chairman informed about the company’s and Group’s financial position and development. Assisting the MD is a Group Management Team comprising five other members, who are presented on page 77. One member of the Group Management, Hans Jörgen Firing, left his assignment on 31 December 2005, at which time his employment was ended. In 2005 the Group Management had six formal meetings and a large number of informal meetings. These meetings are presided by the MD, who makes decisions in consultation with the other members.
Organisation, reporting systems and internal control The Broström Group consists of the parent company, Broström AB (publ), 12 subsidiaries and 3 associated companies, which are listed in note 17 (page 66) and note 19 (page 66). All operating subsidiaries and associated companies report directly to the MD or Deputy MD, as well as to an additional three executives of Broström AB. Reporting is conducted on a monthly basis. The subsidiary and associated company boards consist preferentially of members of Broström’s Group Management. All chairman positions are held by MD Lennart Simonsson or Deputy MD Anders Dreijer. The Board has overall responsibility for ensuring that an effective system is in place for internal control and risk management. The MD has been delegated responsibility for maintaining an effective environment for working with these issues. The managers at the various levels of the company have this responsibility within their respective areas. Responsibility and authority are defined in – among other things – policies, guidelines, instructions for authorisation routines and manuals, which all employees must comply with. Risk assessment entails that Broström first identifies potential risks, and then identifies and measures specific risks in the business. The choice of control strategy depends on the type of risk. The work on internal control and risk management is evaluated on a continuous basis.
Audit Broström’s auditors are elected by the AGM for a term of four years. The current term was begun in 2003, and the next election will take place at the 2007 AGM. The company’s auditors are Pär Sundaeus, from Öhrlings PricewaterhouseCoopers AB, and Lars Nordberg, from Acrevi Revision KB. Authorised Public Accountant Pär Sundaeus is Group Auditor. Öhrlings PricewaterhouseCoopers and Acrevi Revision have had auditing assignments from Broström since 1982 and 2000, respectively.
Auditors
Assignment
Name
Title
Born
since
Pär Sundaeus
Auth. Publ. Acc. Öhrlings PricewaterhouseCoopers AB
Company
1947
1986
Lars Nordberg
Auth. Publ. Acc. Acrevi Revision KB
1943
1994
Deputy Auditors
Assignment
Name
Title
Company
Bror Frid
Auth. Publ. Acc. Öhrlings PricewaterhouseCoopers AB
Berth Hilmersson Auth. Publ. Acc. Acrevi Revision KB
Born
since
1957
1998
1948
1996
In brief, the auditing assignment has been performed through continuous audits and examination of the Annual Report. The auditors have also held special meetings for reporting to the Group Management. Aside from regular auditing duties, Öhrlings PricewaterhouseCoopers assists Broström primarily with consulting on tax matters. This consulting is not considered to constitute any conflict of interest. No senior executives at Broström have had any other position with either of the auditing firms during the past five years or vice versa. Information on the auditors’ fees is provided in note 5 on page 63.
Related party agreements There are no related party agreements.
Compensation matters To be able to attract and retain competent employees, Broström strives to offer its employees an attractive and competitive compensation package. Reward is performance-related and linked to results both for the company and the individual employees over the short and long term. All of Broström’s permanent employees receive compensation in the form of a fixed salary. All employees are also included in a general profit-sharing scheme. Additionally, all permanent employees of the Group have been invited to participate in warrant programmes offered by Broström.
Profit-sharing scheme The management of subsidiaries, all salaried employees and seamen are included in a profit-sharing scheme that is based in part on earnings of their respective companies and in part on consolidated profit. Employees of certain large subsidiaries and seamen participate only in the profit-sharing scheme based on consolidated profit. The amount distributable in the profit-sharing scheme is based on the return on capital employed. Profit shares become payable when the return exceeds the STIBOR rate as per 1 January in the current year by 3 percentage points, and increases gradually to a maximum level of STIBOR plus 11 percentage points. For 2005 this entailed an interval between 5.3% and 13.3%. The total profit share is
73
C O R P O R AT E G O V E R N A N C E R E P O RT
equivalent to one-fourth of the Base Amount to two times the Base Amount, depending on the employee’s position. A similar scheme has been in place for the Group Management since 2002, which pays a profit share when the return on capital employed reaches from 10%-15% according to a progressive scale. The MD can receive a maximum of 50% of his annual salary, and the other executives a maximum of 30%. Based on consolidated profit for 2005, the dividend from the profit-sharing scheme will amount to SEK 7.3 m for shore-based employees. The profit share will amount to SEK 5.7 m for seamen and SEK 3.6 m for Group Management. For 2004, the bonus based on consolidated profit was SEK 2.0 m for members of subsidiary management and salaried employees, and SEK 0.0 m for the Group Management.
Warrant programmes Broström has two warrant programmes in progress, which were approved by a nine-tenths majority at the 2003 and 2005 AGMs, respectively, and which are directed at all permanent employees of the Broström Group and to employees of partly owned companies in which Broström’s ownership amounts to more than 50%. The aim of the warrant programmes is to stimulate interest in the company’s operations and earnings performance, as well as to energise employees and enhance their sense of belonging with the company.
2003 warrant programme The warrant programme from 2003 is based on the issuance of two debentures, each with a nominal value of SEK 1,000 and linked to two warrant series containing a total of 1,520,000 detachable warrants for the subscription of 1,520,000 B-shares. All permanent employees have been offered to purchase 2,000 warrants per person. As the warrant series were not fully subscribed for, the employees were offered an extra grant of a maximum of 100,000 warrants. The subscription period ran through September 2003, and the debenture loan was subscribed at its nominal amount without interest. The loan fell due for payment on 1 October 2003. The warrants were purchased at market value based on the Black-Scholes option pricing model. The valuation was performed by an independent expert. The price of each warrant was SEK 3.80 for series 2003:1 and SEK 4.35 for series 2003:2. Holders of warrants in series 2003:1 were entitled during the period 1 September 2005–15 September 2005 to purchase one newly issued B-share in Broström AB (publ) at a price of SEK 58.40, which corresponds to 130% of the average volume-weighted price paid for the B-shares on the Stockholm Stock Exchange during the period 2 June 2003– 13 June 2003. For series 2003:2, the same right applied during the period 1 September 2006–15 September 2006. The warrants that were not purchased were offered to
74
future new employees. An offer was made in autumn of 2004 to new employees. The price was SEK 34.00 per warrant for both series. In September 2005, 275,750 warrants were exercised. On 31 December 2005, a total of 275,500 warrants had been exercised and 968,500 had been cancelled, and no outstanding warrants were remaining. Warrants exercised in the warrant programme entailed an increase in the number of shares and votes by 0.8% and 0.5%, respectively. The dilutive effect on the balance sheet date was 0.6%.
2005 warrant programme The warrant programme from 2005 is based on the same principles as the 2003 programme and consists of two warrant series with exercise dates in September 2007 and September 2008, respectively. The number of detachable warrants was 500,000, giving holders the right to subscribe for 1,000,000 newly issued B-shares. Each employee had the right to 1,250 warrants. In the event the programme was not fully subscribed, an additional grant of a maximum of 98,750 warrants could be subscribed. The price of a warrant in series 2005:1 was SEK 6.25, and the price of a warrant in series 2005:2 was SEK 8.50. Each warrant carries entitlement to purchase one share at a price of SEK 157.20, corresponding to 130% of the average volume-weighted price paid for the B-shares on the Stockholm Stock Exchange during the period 1 June 2005–14 June 2005. On 31 December 2005 a total of 366,550 warrants had been subscribed for and 600,000 had been cancelled. The number of warrants outstanding was 33,450. Warrants exercised in the warrant programme entail an increase in the number of shares and votes by 1.2% and 0.8%, respectively. The dilutive effect on the balance sheet date was 0.1%.
Previous incentive programmes The company has previously directed a total of two warrant programmes at employees, which both expired prior to 2004.
Other benefits Aside from the use of a company car for a limited number of persons, in 2005 Broström’s employees did not receive any material benefits other than their fixed and variable salaries.
Directors’ fees The AGM-elected directors are paid a directors’ fee that is set according to a decision by the AGM, which is to be apportioned among the directors at the Board’s discretion. The AGM on 27 April 2005 resolved that the directors’ fee up until the next AGM shall amount to SEK 1,725,000 (1,350,000). In addition, the AGM resolved that the committees appointed by the Board would receive a fixed fee of SEK 100,000, to the apportioned at the Board’s discretion.
C O R P O R AT E G O V E R N A N C E R E P O RT
The Chairman of the Board, Lars-Olof Gustavsson, was paid a director’s fee of SEK 475,000 (375,000) in 2005, plus a fee of SEK 45,000 (0) for committee work. No other remuneration or benefits were paid. The other directors received a combined total of SEK 1,062,500 (850,000) in directors’ fees, which was paid out in the amount of SEK 162,500 per director, except for Fredrik Svensson, who received a fee of SEK 87,500, since he was elected as a director by the 2005 AGM. A fee of SEK 105,000 (0) was apportioned among the other directors for committee work. The law firm at which company director Claes Lundblad works received SEK 95,000 (138,300) in fees in 2005 for assignments he was requested to perform. A combined total of SEK 915,080 (1,265,300) in fees have been paid to this law firm for assignments it has been hired to perform. In addition to reimbursement for travel expenses, no other remuneration or benefits were paid. The employee representatives on the Board do not receive any fee for their board duties, other than reimbursement for costs in connection with their board work.
between 60 and 65 years of age in an amount equivalent to 75% of the MD’s annual salary at 60 years of age. After the MD has turned 65, no pension is payable other than statutory retirement pension and ITP pension. For three other members of the Group Management, pension premiums totalling SEK 1.0 m (1.0) above and beyond the ITP plan were booked during the year as an expense. For one of these executives, the pension is a defined benefit obligation. The pension is vested. Pension benefits are payable between 60 and 65 years of age in an amount equivalent to 70% of the executive’s annual salary at 60 years of age. After this executive has turned 65, no pension is payable other than statutory retirement pension and ITP pension. One senior executive is entitled to pension benefits from 63 to 65 years of age. The pension is a defined contribution obligation. After 65 years of age no pension benefits are payable other than the statutory retirement pension and ITP pension. One senior executive is entitled to a lifetime pension from 65 years of age. This is a defined contribution obligation. One senior executive is not entitled to any pension other than statutory retirement pension and ITP pension.
Compensation to MD and Group Management Compensation and the terms of employment for the MD and Deputy MD are set by the Board, based on recommendations made by the Compensation Committee. The MD decides on the salary and terms of employment for the other four members of the Group Management (see page 77). All remuneration booked in 2005 to the MD and Group Management is shown in the table below. Aside from the current Group Management, no salary or other remuneration was paid during the year to former senior executives. Since the current warrant programmes have been subscribed at the going rate in the market, they are not classified as compensation or benefits.
Pension terms for the MD and Group Management Pension premiums of SEK 1.3 m (1.5) above and beyond the ITP plan were booked during the year as an expense for the MD. This pension is a defined benefit obligation. The pension is vested, which means that it will remain unaffected by any future employment. Pension benefits are payable
Term of notice and severance pay In the event the company serves notice, the Managing Director is entitled by an agreement to two years’ salary, regardless of whether he receives compensation from another employer. The MD cannot trigger severance pay himself. The MD and Broström are each bound to a six-month term of notice. An agreement has been made with one senior executive entitling him to severance pay equivalent to two years’ salary, with another for severance pay equivalent to 18 months’ salary, and with two executives entitling them to one year’s salary in the event the company serves notice. Compensation from Broström remains if payment is received from another employer. There is no possibility for any of these executives to trigger severance pay themselves. In addition to the senior executives referred to above, an agreement has been made with the managing director of a subsidiary for severance pay equivalent to one year’s salary in the event the company serves notice. This managing director has no possibility to trigger severance pay himself.
Remuneration of Managing Director and Group Management Fixed salary
Profit share
Other benefits
Pension costs
Managing Director
3.5 (3.2)
1.6 (0.0)
0.1 (0.1)
Other members of Group Management
8.5 (7.1)
2.0 (0.4)
0.6 (0.4)
12.0 (10.3)
3.6 (0.4)
0.7 (0.5)
SEK m
Total
Total
Number of warrants granted
1.3 (1.5)
6.5 (4.8)
102,250
1.0 (1.0)
12.1 (8.9)
115,750
2.3 (2.5)
18.6 (13.7)
218,000
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BOARD OF DIRECTORS AND MANAGEMENT
Board of Directors
Lars-Olof Gustavsson
Stig-Arne Blom
Peter Cowling
Elected 1995, Chairman of the Board, member of the Compensation Committee and the Audit Committee.
Elected 2002, director, member of the Audit Committee.
Elected 1999, director.
Born 1943, Swedish citizen.
Born 1948, Swedish citizen.
Education: MBA.
Education: M.Sc. Engineering.
Education: Fellow of the Institute of Chartered Shipbrokers.
Primary occupation: Venture capitalist.
Primary occupation: CEO, IRO AB.
Primary occupation: Shipbroker.
Professional background: 20 years as Executive Chairman of Four Seasons Venture Capital AB, plus prior extensive experience from various positions at Sveriges Investeringsbank AB, including Deputy Managing Director from 1979 to 1983.
Professional background: Extensive experience from senior positions at IRO and Volvo.
Professional background: Has served in various senior positions for British shipping companies, including Managing Director of Wallem Group Ltd.
Other directorships: Chairman of Four Seasons Venture Capital Management AB, Four Seasons Venture II A/S and Memstore AB. Director of Siem Industrikapital AB, Siem Capital AB and SJ AB.
Other directorships: Chairman of Borås Wäfveri AB, AP&T and Lidhs Förvaltnings AB. Director of Pulsen AB, Handelsbanken Västra Sverige, Eton AB, Westergyllen AB, UEAB and Atlet. Holdings of shares and warrants in Broström AB: None.
Born 1939, British citizen.
Other directorships: Vice Chairman of the International Maritime Industries Forum (IMIF). Director of Pole Star Space Applications Ltd, Wallem Ltd, The London Steamship Owners’ Mutual Insurance Association Ltd and The General Committee of Lloyd’s Register. Holdings of shares and warrants in Broström AB: None.
Holdings of shares and warrants in Broström AB: 77,000 B-shares, of which 35,000 are owned through a part-owned company.
Wilhelm Wilhelmsen
Carel van den Driest
Claes Lundblad
Elected 2004, director.
Elected 2004, director.
Elected 1998, director.
Born 1937, Norwegian citizen.
Born 1947, Dutch citizen.
Born 1946, Swedish citizen.
Education: Company economist and internal education assignments for the Wilh. Wilhelmsen Group.
Education: MBA.
Education: LL.B.
Primary occupation: Board assignments.
Primary occupation: Shipowner.
Professional background: Has served in various senior positions at Vopak N.V. (formerly Van Ommeren) since 1974, with exception for a term as Managing Director of Europe Combined Terminals B.V.
Primary occupation: Member of the Swedish Bar and partner of Mannheimer Swartling Advokatbyrå.
Professional background: Has served in various senior positions at Wilh. Wilhelmsen ASA since 1964, including President & CEO. Other directorships: Chairman of Wilh. Wilhelmsen ASA and director of numerous companies in the Wilh. Wilhelmsen Group. Council member of the Norwegian Shipowners’ Association and member of the Board of Norges Investor AS. Chairman of the ForArts Council. Australian Honorary Consul in Norway.
Other directorships: Director of Anthony Veder Group N.V., Dura Vermeer Groep N.V., Darlin N.V., Goudse Verzekeringen N.V., H.E.S. Beheer N.V. and Havenziekenhuis Rotterdam, Honorary Consul General for Singapore in the Netherlands. Holdings of shares and warrants in Broström AB: None.
Holdings of shares and warrants in Broström AB: 50,000 B-shares, of which 40,000 are owned through companies.
No board member or member of Broström’s Group Management has any substantial shareholdings in companies with which Broström has significant business relations.
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Professional background: Practising attorney at Mannheimer Swartling Advokatbyrå and its predecessor, Mannheimer & Zetterlöf, since 1972. Partner since 1977. Other directorships: Swedish Arbitration Association, Swedish member of ICC International Court of Arbitration. Holdings of shares and warrants in Broström AB: None.
BOARD OF DIRECTORS AND MANAGEMENT
Leif Rogersson
Fredrik Svensson
Rolf Öström
Elected 1994, director, member of the Compensation Committee and the Audit Committee.
Elected 2005, director. Born 1961, Swedish citizen.
Elected 1999, director, employee representative elected by the Swedish Ship Officers’ Association.
Born 1940, Swedish citizen.
Education: M.Sc. Econ.
Born 1944, Swedish citizen.
Education: MBA, B.Sc. Engineering.
Primary occupation: Managing Director of AB Arvid Svensson.
Education: LL.B., Master Mariner.
Primary occupation: Board assignments. Professional background: CEO and Chairman, plus various other senior positions at Alfa Laval AB. Other directorships: Chairman of De Laval AB. Holdings of shares and warrants in Broström AB: 7,000 B-shares.
Professional background: Various positions within the Arvid Svensson Group and for the last 10 years Managing Director of AB Arvid Svensson. Other directorships: Chairman of Case Investment AB. Director of Klövern, Sardus, Balder, SHB Western Sweden Regional Bank, Ramnäs Bruk AB and United Logistics. Holdings of shares and warrants in Broström AB: 1,037,984 A-shares through AB Arvid Svensson and 3,320,991 B-shares.
Primary occupation: Ship Master, Broström Ship Management AB. Professional background: More than 30 years’ experience as Ship Officer for Broström and, prior to that, for Johnson Line. Holdings of shares and warrants in Broström AB: None.
Not present during photographing.
Management
Margareta Alestig Johnson
Anders Dreijer
Administrative Director, employed since 2003.
Born 1953, Swedish citizen.
Born 1961, Swedish citizen. Education: B.Sc. Econ. Professional background: Senior positions in administration and finance for Swisslog, Applied Biosystems, SwedPower and SveaBanken. Holdings of shares and warrants in Broström AB: 1,000 B-shares, 6,500 warrants.
Deputy Managing Director, employed since 1984. Education: M.Sc. Engineering. Professional background: Senior positions within the Broström Group. Formerly employed by Atlanticargo and the Johansson Group. Holdings of shares and warrants in Broström AB: 98,721 A-shares, 316,138 B-shares and 102,250 warrants.
Lennart Simonsson Managing Director, employed since 1982. Born 1950, Swedish citizen. Education: Business Economist. Professional background: Senior positions within the Broström Group. Prior to this, served with Peabody Group and Iwema Pack. Significant assignments outside Broström: Chairman of the European Community Shipowners’ Associations and member of the Swedish Club, Vice Chairman of the Swedish Shipowners’ Association and Vice Chairman of the Swedish Shipowners’ Employers’ Association.
Patrick Decavèle
Tore Angervall
Managing Director of Broström Tankers SAS, employed since 1980.
Managing Director of Broström Tankers AB, employed since 1970.
Born 1950, French citizen.
Born 1944, Swedish citizen.
Education: Ph.D. Econ.
Education: B.A.
Professional background: Senior positions within the Broström Group. Previous employed by Alstom.
Professional background: Senior positions within the Broström Group, including subsidiary Managing Director and Shipping Manager.
Holdings of shares and warrants in Broström AB: 2,400 Bshares and 4,000 warrants.
Holdings of shares and warrants in Broström AB: 3,500 Bshares and 3,000 warrants.
Holdings of shares and warrants in Broström AB: 96,042 A-shares, 205,270 B-shares and 102,250 warrants.
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ADDRESSES
Addresses Broström AB (publ), SE-403 30 Göteborg, Sweden. Östra Hamng 7. Tel +46 31 61 61 00, fax +46 31 711 80 30 info@brostrom.se, www.brostrom.se
Shipping Tanker Shipping Broström Tankers AB SE-403 30 Göteborg, Sweden Östra Hamngatan 7 Tel: +46 31 61 60 00 Fax: +46 31 61 60 12 Telex 21060 brotank s brotank@brostrom.se
Broström Tankers SAS 52 avenue Champs Elysées, FR-75008 Paris France Tel: +33 1 42 99 66 66 Fax: +33 1 42 99 66 20 brotank.paris@brostrom.fr
Broström Tankers AS P.O. Box 2243 NO-3203 Sandefjord, Norway Ranvikstranda 2 Tel: +47 33 42 52 00 Fax: +47 33 42 52 10 atlantic@brostrom.no www.brostrom.no
Broström Tankers Asia Pte Ltd 460 Alexandra road # 32-03 PSA Building Singapore 119963 Tel: +65 6273 5677 Fax: +65 6273 3607 pacific@brostrom.no
Broström Ship Management AB Box 39 SE-471 21 Skärhamn, Sweden Industrivägen 7 Tel: +46 304 67 67 00 Fax: +46 304 67 11 10 Telex 2428 fman s shipman@brostrom.se
Broström Ship Management AS Nedre Vollgate 1, NO-0158 Oslo, Norway Tel: +47 22 34 62 00 Fax: +47 22 34 62 20 singa@singa.no
Broström Tankers SAS 52 avenue Champs Elysées FR-75008 Paris France Tel: +33 1 42 99 66 66 Fax: +33 1 42 99 66 20 brotank.paris@brostrom.fr
Nordtank Shipping A/S Lindevej 16 DK-4300 Holbaek Denmark Tel: +45 59444466 Telex: 19505 Fax: +45 59444460 nordtank@nordtank.com www.nordtank.com
Ship Management Bromarin AB SE-403 30 Göteborg, Sweden Östra Hamngatan 7 Tel: +46 31 61 61 66 Fax: +46 31 61 60 17 info@brostrom.se
Marine & Logistics Services Ship Agencies Blidberg, Metcalfe & Co AB SE-403 30 Göteborg, Sweden Östra Hamngatan 7 Tel: +46 31 61 61 80 Fax: +46 31 13 72 42 Telex 20814 goagent s agency@blidbergs.se AB August Leffler & Son SE-403 30 Göteborg, Sweden Östra Hamngatan 7 Tel: +46 31 61 61 80 Fax: +46 31 13 72 42 Telex 20814 goagent s gothenburg@leffler.se www.leffler.se Box 13 SE-453 21 Lysekil, Sweden Marinbyggnaden Brofjordens hamn Tel: +46 523 66 04 55 Fax: +46 523 66 03 96 Telex 42182 auglef s brofjorden@leffler.se
Travel Agency Uddevalla Hamnterminal AB SwanFalk Shipping AB Box 543, SE-451 21 Uddevalla, Sweden Bastiongatan 5 Tel: +46 522 912 00, 913 00 Fax: +46 522 336 30, 359 14 info@uddevalla-hamn.se mail@swanfalk.se www.uddevalla-hamn.se www.swanfalk.se Simon Edström Shipping AB Box 23, SE-374 21 Karlshamn, Sweden Drottninggatan 11 Tel: +46 454 154 75 Fax: +46 454 156 23 Telex 4553 edstrom s shipagent@edstromshipping.se Percy Tham i Oxelösund AB Box 1400, SE-613 24 Oxelösund, Sweden Hamnkontoret, Oxelösunds hamn Tel: +46 155 306 00 Fax: +46 155 323 02 Telex 64006 thamalm s percy.tham@thams.se
Unér Shipping AB Box 743 SE-601 16 Norrköping, Sweden Sjötullsgatan 9 Tel: +46 11 21 10 00 Fax: +46 11 18 81 70 (agency) Fax: +46 11 18 22 40 (forwarding/project) Agency 24 hrs: 010-6927093 E-mail for all offices: agency@uner.se Kalmar Magasin 6 Styrmannen 3 Tjärhovsplan SE-392 31 Kalmar, Sweden Tel: +46 11 211000 Fax: +46 11 188170 Halmstad Agent for Falkenberg and Varberg Turbingatan, Box 333 SE-301 08 Halmstad, Sweden Tel: +46 11 211000, +46 35 15 62 84 Fax: +46 11 188170, +46 35 15 62 89 Bergkvara Agent for Karlskrona Hamngatan1 SE-385 42 Bergkvara, Sweden Tel: +46 11 211000 Fax: +46 11 188170 Västervik Agent for Flivik & Gamleby See Oskarshamn Oskarshamn Varvsgatan 10 SE-572 33 Oskarshamn, Sweden
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Broströms Resebyrå AB www.brostromsresebyra.se Affärsresor Holmen (Business travel, Holmen) SE-403 30 Göteborg, Sweden Gullbergs Strandgata 6 Tel: +46 31 724 55 00, +46 31 724 58 00 Fax: +46 31 724 55 99, +46 31 724 58 99 travel.holmen@brostrom.se Marina resor (Marine travel) SE-403 30 Göteborg, Sweden Gullbergs Strandgata 6 Tel: +46 31 724 57 00 Fax: +46 31 724 57 69 travel.marine@brostrom.se Conference & Events SE-403 30 Göteborg, Sweden Gullbergs Strandgata 6 Tel: +46 31 724 59 10 Fax: +46 31 724 59 19 travel.group@brostrom.se Marina resor (Marine travel) Broström Travel Team 1053 Pablo Ocampo st Malate 1004 Manila Philippines
Glossary Ballast trip Sea time without cargo, positioned to port of loading. Bareboat charter Shipowner charters out vessels without crew, often for a lengthy period. The charterer pays all running costs while the bareboat hire is paid to the shipowner at a fixed amount on a monthly basis. Bunker The term for a vessel’s fuel, i.e.,the oil used in the vessel’s machinery. CERA Cambridge Energy Research Associates. www.cera.com Chemical tanker A tanker built for transporting chemicals. Clarkson Research Studies British company that provides statistical and analytical services concentrating on international shipping. www.clarkson.co.uk Commercial Management The shipowner transfers the marketing and operation of a vessel to an outside party against payment, often in the form of commission on gross income – and sometimes with an element of profit-sharing. Condensate A mixture of the heaviest components in natural gas. Condensate is in a liquid state under normal pressure and temperature. Contract of affreightment The shipowner agrees to transport a designated amount of cargo between agreed destinations over a certain period. It is often stipulated how long the intervals should be between each trip and the largest vessel size allowed. Deadweight (dwt) The weight of the cargo, bunker and loose equipment that the vessel can hold. DNV The leading international classification society, located in Norway. www.dnv.com IEA International Energy Agency. www.iea.org IMO International Maritime Organisation. The UN body for maritime issues located in London. www.imo.org IMO class Classification of product and chemical tankers for which type of cargo the vessel may transport. A vessel with IMO classification 1 meets the highest demands, which means that the vessel can transport the most advanced chemical products. ISPS International Ship and Port facility Security – a code issued by the IMO for port and vessel security against external threats in the form of terrorist attacks, highjacking and sea piracy. Hull insurance A shipowner’s primary insurance covering the vessel. LIBOR London Inter Bank Offered Rate, for interest rate levels.
MTBE Methyl Tertiary Butyl Ether – additive in gasoline to improve combustion and reduce air pollution. Naphtha A clear, colourless, highly volatile liquid extracted from petroleum through distillation, consisting primarily of paraffin hydrocarbons. A semi-finished component of the production of gasoline. OPEC Organisation of Petroleum Exporting Countries. OPEC is located in Vienna, Austria and consists of 11 oil producing countries. www.opec.org Parcel tanker A company/shipowner that focuses on transport of small parcels of chemicals. Parcel tanker operator A shipping company that focuses on transporting chemicals in small lots. Product tanker A ship transporting refined oil products. PSSA Particularly Sensitive Sea Area – IMO classification entailing especially stringent environmental and safety rules for shipping in designated sea areas. Residual oil Fuel oil from the lower part of the distillation column with a high heating value. Used as fuel in large plants for production of electricity and heat and for bunker fuel onboard vessels. Ship clearance Carrying out various formalities, services and payment of port fees, excise duties etc., in connection with a vessel arriving or leaving a port. Clearing agents employed by the shipping company’s agents at the port carry out the clearance. Spot market Freight market where vessels are hired for single trips. SQAS Security and Quality Assessment System – a quality assurance system for transports developed by the chemical industry. Time charter The shipowner charters out its vessel complete and crewed against payment of a certain sum per day or a certain sum per deadweight tonne and month. The charterer of the vessel pays for bunker and port fees. TMSA Tanker Management and Self Assessment – guidelines for self inspection of a vessel’s own management system, developed by the oil companies’ forum for sea transports. Tonnage tax (tonnage-based tax) A type of standard tax based on the vessel owner paying tax in relationship to the size of the fleet, instead of on the annual profit. Transport alcohols Alcohol variants, such as ethanol, that are used as fuel in vehicles. Vetting control Oil companies’ examination of standard equipment, procedures and organisation of their suppliers of marine transport services. Worldscale An international freight index system for tankers. When tankers are contracted for a cargo this is often expressed as a percentage of the Worldscale index.
Concept and project management: Hallvarsson & Halvarsson, Design: Hallvarsson & Halvarsson and Adera, Text: Sund Kommunikation, English translation: Joe Brennan, Printing and repro: Göteborgstryckeriet, Photos: Magnus Eklöf & Peter Bartholdsson (This Annual Report is a translation of the Swedish original. In the event of any inconsistency between the English and Swedish versions, the Swedish version shall take precedence.)
79
ร stra Hamngatan 7 SE-403 30 Gรถteborg, Sweden Tel +46 31 61 61 00 Fax +46 31 711 80 30 www.brostrom.se