Annual report 2006 by Joachim Granath

CO N T EN T S

1 2006 in summary 2 CEO’s statement 4 Business concept, vision, goals and strategy 6 The Broström brand 9 A day with Broström 10 Shipping

One Clear Direction

10 Business offer 13 Market conditions

Broström Annual Report 2006

16 Competitors 17 Market development 2006 20 Business development 22 Broström’s partners

New vessels and deeper partnerships

24 Marine & Logistics Services 26 Employees 29 The fleet 32 Quality, safety, the environment and IT 36 Several-year overview

In 2006 Broström and its partners took delivery of a total of eight vessels. In addition, co-operation was deepened with two of the company’s partners. Among more noteworthy events during the year: •

Developed partnership with Dünya (Turkey) and Thunbolaget (Sweden)

•

Delivery of three D-class vessels, the ﬁrst of which was named Ship of the Year by Lloyd’s List

•

Start of physical expansion in Asia

•

Sale of subsidiary Broströms Resebyrå

•

Implementation of brand project, engaging the entire Group

39 Broström Logistics Index (BLX) 40 Broström’s shares 42 Share data 43 Key ratios 44 Risk factors and sensitivity analysis 46 Directors’ Report 49 Consolidated income statement 50 Consolidated balance sheet 52 Changes in shareholders’ equity – Group 53 Cash flow statement – Group 54 Parent company income statement 55 Parent company balance sheet 56 Changes in shareholders’ equity – parent company 57

Cash flow statement – parent company

Accounting and valuation principles

Notes to the income statements and balance sheets

Auditors’ Report

Corporate Governance Report

82 The Board’s Report

Östra Hamngatan 7 SE-403 30 Göteborg, Sweden Tel +46 31 61 61 00 Fax + 46 31 711 80 30 www.brostrom.se

83 Management and Board of Directors 86 Addresses

Annual Report 2006

87 Glossary

In early 2007, Broström also initiated a new partnership with the German company Reederei Claus-Peter Oﬀen, covering eight 37,000 dwt product chemical tankers currently being built.

CO N T EN T S

1 2006 in summary 2 CEO’s statement 4 Business concept, vision, goals and strategy 6 The Broström brand 9 A day with Broström 10 Shipping

One Clear Direction

10 Business offer 13 Market conditions

Broström Annual Report 2006

16 Competitors 17 Market development 2006 20 Business development 22 Broström’s partners

New vessels and deeper partnerships

24 Marine & Logistics Services 26 Employees 29 The fleet 32 Quality, safety, the environment and IT 36 Several-year overview

Developed partnership with Dünya (Turkey) and Thunbolaget (Sweden)

•

Delivery of three D-class vessels, the ﬁrst of which was named Ship of the Year by Lloyd’s List

•

Start of physical expansion in Asia

•

Sale of subsidiary Broströms Resebyrå

•

Implementation of brand project, engaging the entire Group

Cash flow statement – parent company

Accounting and valuation principles

Notes to the income statements and balance sheets

Auditors’ Report

Corporate Governance Report

82 The Board’s Report

Östra Hamngatan 7 SE-403 30 Göteborg, Sweden Tel +46 31 61 61 00 Fax + 46 31 711 80 30 www.brostrom.se

83 Management and Board of Directors 86 Addresses

Annual Report 2006

87 Glossary

In early 2007, Broström also initiated a new partnership with the German company Reederei Claus-Peter Oﬀen, covering eight 37,000 dwt product chemical tankers currently being built.

G LO S S A RY

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.

BrostrĂśm in three minutes

Bunker The term for a vesselâ&#x20AC;&#x2122;s fuel, i.e.,the oil used in the vesselâ&#x20AC;&#x2122;s machinery.

Why BrostrĂśm?

What does BrostrĂśm offer?

large and modern ďŹ&#x201A;eet, provide a high degree of ďŹ&#x201A;exibility.

cargo handling. Due to its long-term customer relationships,

In pace with globalisation of the oil and chemical industry,

BrostrĂśm oďŹ&#x20AC;ers eďŹ&#x20AC;ective and ďŹ&#x201A;exible marine logistics services

In the event of a disruption, BrostrĂśm has access to replace-

BrostrĂśm can also inďŹ&#x201A;uence cargo installations at speciďŹ c ports

logistics have become an increasingly critical factor as compa-

for the global oil and chemical industry. BrostrĂśmâ&#x20AC;&#x2122;s services

ment tonnage. Delivery reliability and dependability are key

and thereby contribute to improvements in cargo handling.

nies in the industry have become fewer but larger.

involve transports of reďŹ ned oil products, such as gasoline,

features of BrostrĂśmâ&#x20AC;&#x2122;s quality concept.

Previously, oil companies typically had a local base, with large national depots of reďŹ ned oil products. Reducing tied-

diesel and heating oil, as well as chemicals such as methanol, ethanol and MTBE. These transports are often integrated

up capital in the form of oil stocks has been one of the driving

in the customersâ&#x20AC;&#x2122; distribution chains and are made from

forces behind restructuring in the industry. According to

reďŹ neries to depots and between depots. BrostrĂśmâ&#x20AC;&#x2122;s service

this strategy, oil stocks are in motion on the worldâ&#x20AC;&#x2122;s seas in a

oďŹ&#x20AC;er is characterised by:

pronounced â&#x20AC;&#x153;just-in-timeâ&#x20AC;? thinking.

â&#x20AC;˘ â&#x20AC;˘

At the same time, demands on tanker shipping have become considerably more stringent with respect to quality, safety and the environment. This entails, in turn, that many

â&#x20AC;˘

Read more on pages 14 - 15

role, since it aďŹ&#x20AC;ords greater opportunities for planning and

rable to sudden disruptions caused by production stops or bad

CERA Cambridge Energy Research Associates. www.cera.com

LIBOR London Inter Bank Offered Rate, for interest rate levels. MTBE Methyl Tertiary Butyl Ether â&#x20AC;&#x201C; additive in gasoline to improve combustion and reduce air pollution.

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.

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Sales and proďŹ t

Disposable liquidity and cash ďŹ&#x201A;ow

Excluding the divested travel agency business, BrostrĂśmâ&#x20AC;&#x2122;s net sales increased by SEK 193 million in 2006.

BrostrĂśmâ&#x20AC;&#x2122;s high level of disposable liquidity gives the company freedom to act when the conditions are most favourable.

(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.)

20 0 6 I N SU M M A RY

SEK m

2006

2005

2004

Net sales

3,386.1

3,818.1

3,206.8

Shipping operations area Marine & Logistics Services operations area

3,171.2 210.2

3,073.0 743.3

2,451.9 754.5

Operating profit (EBIT)

771.7

812.4

403.8

Shipping operations area Marine & Logistics Services operations area

779.2 9.0

807.3 22.7

434.2 14.0

Profit after net financial items

579.8

720.1

324.7

Net profit

503.0

622.9

486.7

1,687.5

1,620.0

943.3

Investments Cash flow from operating activities

853.7

619.3

429.6

1,109.7

1,294.9

827.8

Return on capital employed, %

11.3

15.9

9.9

Equity/assets ratio II, %

35.0

37.2

38.0

Net profit per share, SEK

15.14

18.89

16.33

Net profit per share after dilution, SEK

15.14

18.76

15.10

Cash flow from operating activities per share, SEK

26.11

19.15

14.65

8.00

5.00

Disposable liquidity

Dividend (proposed by the Board), SEK

â&#x20AC;˘ The year was characterised by a relatively good freight market in which individual events caused major ďŹ&#x201A;uctuations in the spot market.

â&#x20AC;˘ Net sales decreased by 11%, due to the divestment of businesses, and totalled SEK 3,386 million. â&#x20AC;˘ Operating proďŹ t was SEK 772 m, corresponding to an operating margin of 22.8%. â&#x20AC;˘ ProďŹ t after net ďŹ nancial items was SEK 580 m. â&#x20AC;˘ Disposable liquidity was SEK 1,110 m. â&#x20AC;˘ The return on capital employed was 11.3%. â&#x20AC;˘ The equity/assets ratio II was 35.0%. â&#x20AC;˘ The Board proposes a dividend of SEK 8.00.

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ProďŹ t after net ďŹ nancial items The ďŹ rst quarter of 2006 was the strongest single quarter ever for BrostrĂśm.

Breakdown of sales Shipping and Marine & Logistics Services Following the sale of BrostrĂśms ResebyrĂĽ, Shipping accounts for 94% of BrostrĂśmâ&#x20AC;&#x2122;s net sales.

CEO ’ S S TAT EM EN T

Strategic deals and interesting market 2006 was a year without any perceptible drama in the market or major changes for Broström. Still, we could see how both oil prices and freight rates varied widely. For us at Broström, this was further conﬁrmation that our long-term strategy is on target – a strategy in which reliability and security are fundamental features.

When we looked ahead at 2006 a year ago we predicted a

customer focus in which a premium is attached to eﬃciency, qual-

continued volatile freight market, and so it turned out. We en-

ity and safety. These vessels were the ﬁrst to be built according to

countered strong and weak freight rates one after another, even

the international classiﬁcation society DNV’s Clean Design, which

though this was a year without the type of dramatic disruptions

puts extra high demands on the vessels’ environmental perform-

that we have experienced in recent years. The sharp variation

ance. Moreover, the ﬁrst D-class vessel, the BRO DELIVERER,

in freight rates nevertheless shows how delicate the balance is

was named as Ship of the Year by Lloyd’s List, the premier interna-

between supply and demand in transport capacity. This, despite

tional journal of the shipping industry. All four D-class vessels have

the fact that new tonnage is steadily showing up in the market

now been delivered and are operating in our European traﬃc.

and the shipyards’ orderbooks remain full. By and large, 2006 was a good year for Broström.

Our expansion has taken place in both Europe and Asia. In Asia, we are currently in phase two of our long-term strategy, and together with our partner Dünya we will soon have doubled our

More and longer transports – raising the bar for quality

presence in the region. The trend we see in our customers forms

A key underlying factor in the market situation is that the expan-

the foundation of this expansion. Our goal in Asia is also to be able

sion of reﬁnery capacity has not kept pace with changes in con-

to oﬀer our customers a ﬂexible and stable business solution based

sumption patterns, and the expansion that is taking place is farther on contracts of aﬀreightment, in the same way as in our European and farther away from the consumption centres. For instance,

and Atlantic traﬃc.

today there is an imbalance between Europe and North America with respect to supply and demand of gasoline and diesel. This

Experts in partnership

imbalance is further accentuated by shifting product demands

However, drawing the full beneﬁt of our strategies and ﬂeet re-

between diﬀerent countries and regions.

quires that we have skilled and energised employees. This was one

Naturally, strong growth in Asia is another signiﬁcant factor

of our starting points during the year as we took yet another step

behind the growing need for transport. The region has now passed in our extensive brand project. North America as the world’s largest market for oil products. The current trend in the market – regionally and globally – is

Working from the basic precept that everyone is an expert in their respective areas, employees from all parts of the company

contributing to more and longer transports, something that we

were engaged also in this phase of our branding work. The result

commonly refer to as an increase in tonne-miles. Thanks to an

of this work has been compiled in a brand manual, which lays out

increasingly eﬀective transport apparatus, investments in new re-

our shared values and our new brand promise, among other things.

ﬁneries can be made at the locations where they are most suitable

The brand is one of our most valuable assets, and I see the process

from a strict production and investment perspective.

of continuously building our brand as a priority matter moving

Moreover, everywhere in the world, demands are being raised with respect to quality, safety and the environment. At Broström

forward. By regarding people as experts in their areas, we also instil

our goal is to be among the best in this regard, and as the bar is

a solid foundation for co-operation, both internally within

raised, our strategic choice appears increasingly meaningful.

Broström and externally toward our customers and partners. This also facilitates the interaction between colleagues from a

Continued expansion – delivery of D-class vessels

multitude of cultural backgrounds.

Our competitive edge has been strengthened by the fact that we and our partners took delivery during the year of a total of

Shipping continuously facing new challenges

eight vessels. This means that together we both modernised

Employee issues are especially important in view of the challenges

and expanded our ﬂeet.

that marine shipping will be facing in the coming years. The

Above all, our D-class vessels exemplify our far-reaching

number of fresh graduates emerging from merchant marine schools

will not measure up to the high level of natural attrition that is

Our ﬁnancial position also remains very strong, which can be seen

expected. At the same time, new rules governing quality and the

in the equity/assets ratio, whose target we outperformed again

environment call for an increase in the aggregate number of years

in 2006. In reality, however, the sharp rise in newbuilding prices

in service by existing crews.

means that we have an even stronger position, taking into account

We are meeting these challenges by actively and continuously

the surplus values that exist in our ﬂeet. This is a result of the

working with our human resources. Naturally, in this regard the

long-term strategy that we have had for our operations, which has

brand project plays a key role as it helps strengthen the shared

enabled the progressive build-up of a newbuilding programme

identity and kinship in the company. Here, too, we have a signiﬁ-

over time, and of the fact that vessels have been ordered from

cant advantage in the scope of our operations and the large number

shipyards during times when prices were considerably lower than

of vessels at our disposal, which enables us to crew our vessels in

they are today.

a way that ensures that we live up to demands such as number of years in the profession.

Approaching 100 vessels Owing to our performance in 2006, we are well poised for 2007.

Reciprocity and respect uphold long-term relationships

The market outlook points to a continued volatile trend in which

During the year, we also continued the work on our strategic

we – by virtue of our transport capacity – can oﬀer our customers

partnerships with external shipowners, not least with the Turkish

ﬂexibility and stability.

company Dünya, through a joint order for six product tankers for

The vessels that we and our partners have on order entail

employment in European traﬃc. In addition, Dünya took delivery

continued expansion of our operations. And owing to our ﬁnancial

during the year of the ﬁrst three of a total of eight vessels that will

position, we also have the opportunity to be active in the ongoing

join our commercially operating ﬂeet in Asia. We are thus now in

consolidation in the market.

the implementation phase of our expansion in what is today the world’s largest market for oil products. Strategic partnerships are a key part of our strategy and make

In early 2007 we entered into a new, strategic partnership with the German company Reederei Claus-Peter Oﬀen. This partnership covers eight 37,000 dwt product tankers, which will join

it possible for us to grow without having to bear the cost of all

Broström’s commercial ﬂeet in Europe in pace with their delivery

vessel investments. Moreover, through partnerships we create even

from the shipyard in Korea. Together with our existing ﬂeet and

better conditions to eﬀectively utilise our jointly operated ﬂeet,

other newbuildings on order, this means that Broström’s commer-

which in turn contributes to more stable earnings both for us and

cial ﬂeet will now amount to about 100 vessels by year-end 2008.

our partners. As in everything else we do, these partnerships are a long-term investment and are built upon reciprocity and respect.

Thanks In closing I want to take this opportunity to thank all of our

Strong ﬁnancial position

employees, customers, business partners and shareholders for the

On the whole, we had relatively strong earnings in 2006, which

contributions you have made towards our development and for the

were weighted down by the weak US dollar, however. And once

conﬁdence you have instilled in us. I look forward to yet another

again we exceeded our long-term ﬁnancial target for return on

year together. My sincere thanks and, as we say at Broström:

capital employed.

“Going for Excellence. Together!”

This, along with the outlook for 2007, allows the Board to propose a dividend of SEK 8.00 to the shareholders, which is in the upper end of our goal to pay a dividend corresponding to 40%– 50% of proﬁt after tax. A dividend of SEK 8.00 corresponds to a dividend yield of 5.3%, based on the average share price in 2006.

Lennart Simonsson, CEO

BUSINESS CONCEPT, VISION, GOALS AND STRATEGY

Expansion according to a tried and tested strategy Broström’s strategy has given the company a market-leading position in European product and chemical tanker shipping. This same strategy now forms the basis of Broström’s expansion in Asia.

Business concept

has been established for Broström’s entire business oﬀer (in-

Broström oﬀers competitive logistics solutions to customers

cluding partners). The levels are based on an anticipated con-

in the oil and chemical industry, focusing on industrial tanker

tinued need for consolidation in product and chemical tanker

shipping and marine services.

shipping. In pace with consolidation in the oil and chemical industry, companies are outsourcing services such as logistics to

Vision

external partners to a growing extent. At the same time, oil and

Broström will be recognised as the most attractive provider of

chemical companies are growing larger and becoming increas-

logistics services based on performance, reliability and respect.

ingly global, which puts similar demands on their suppliers. The return target is related to the general trend in interest

Financial targets

rates. Consequently, the target coincides with the trend for

Growth

alternative capital investments. The equity/assets ratio target

• Average annual growth in net sales of 10% over a three-year

is based on what Broström believes is needed to maintain

period

ﬁnancial stability and freedom to manoeuvre during periods of

• Average annual growth in commercial activity (measured as

growth and expansion.

net sales including partners) of 20% over a three-year period

Strategy • Broström will lead the development of logistics solutions

Return • A return on capital employed that is higher than the average yield of a 10-year US government bond during the last three years plus a risk premium of 5%. For 2006 this corresponded to a return target of 9.2%. The target for 2007

primarily for the oil and chemical industry by meeting its customers’ service needs. • Broström will grow by increasing contract volumes, developing new markets, and acquiring companies. • Broström will lead the market in terms of quality, safety and

is 9.4%.

the environment. • Broström’s production will be cost-eﬀective and continu-

Equity/assets ratio

ously improved.

• Equity/assets ratio II in excess of 30%

• Broström will develop improved logistics solutions for its Through its two-pronged growth target, a set growth objective

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customers through its strategic alliance with Vopak.

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Return on capital employed

Equity/assets ratio II

During the last ﬁve years Broström has had an average return on capital employed of 10.4%.

The average equity/assets ratio during the last ﬁve years was 34.6%.

T H E B RO S T RĂ&#x2013; M B R A N D

Going for Excellence. Together. BrostrĂśm conducted a wide-reaching brand project in 2006, and internal implementation of the new brand platform is now under way in an effort to further build the BrostrĂśm brand. The platform consists of a uniform set of shared values that are coupled to the companyâ&#x20AC;&#x2122;s vision, business mission and strategy. The BRO PROVIDER approaching New Orleans in the USA. 2006 was a year without dramatic disruptions in the freight market. The build-up of oil stocks ahead of the feared hurricane season had a negative impact on the transport market, due to the absence of both hurricanes and subsequent cold weather later in the year.

Strategic follow-up 2006

training initiatives with special focus on the oil companiesâ&#x20AC;&#x2122;

BrostrĂśm continued to develop its business oďŹ&#x20AC;er in 2006.

vetting controls.

The company acquisitions that were carried out and the

In recent years, branding has come to play an increasingly im-

Toward this end, BrostĂśm has energised employees from th-

portant role for companies, their customers and for consumers

roughout the organisation to participate in the Brand Project.

in general. In pace with never-ending technological develop-

The project was launched in early 2006, and along

ment and as products and services are quickly copied, compa-

the way a series of workshops were carried out to ensure

niesâ&#x20AC;&#x2122; brands are taking on ever-greater signiďŹ cance.

the participation of as many employees as possible. A foundation has thereby been laid to enable all employees

Learning from consumer products companies

Internally, work during the year was characterised by conti-

to â&#x20AC;&#x153;live the brandâ&#x20AC;?.

partnerships entered into in 2005 had an increasingly

nued business development, and a Group-wide brand project

This trend is clearest in the area of consumer products, where

stronger impact on operations. In Europe, additional vessels

was carried out. Employees from all operating areas and all

the impressions we have of companies are actually conveyed

New vision and shared values

were brought into the ďŹ&#x201A;eet. Parallel with this, BrostrĂśmâ&#x20AC;&#x2122;s

levels of the organisation participated in the project.

by brands that symbolise speciďŹ c values. For example, in the

The guiding components of the branding work include a

auto industry today, the technology is often the same for dif-

reformulated vision that is coupled to BrostrĂśmâ&#x20AC;&#x2122;s business

physical expansion began in Asia through delivery of the ďŹ rst two of eight large vessels ordered by the companyâ&#x20AC;&#x2122;s Turkish

In addition, the Groupâ&#x20AC;&#x2122;s operations were further reďŹ ned during the year through the sale of BrostrĂśms ResebyrĂĽ.

partner DĂźnya. In addition, in early 2007 a partnership was established with the German company Reederi Claus-Peter OďŹ&#x20AC;en. The partnership covers eight 37,000 dwt product chemical tankers, which will join BrostrĂśmâ&#x20AC;&#x2122;s commercial ďŹ&#x201A;eet in Europe in pace with their delivery from a shipyard in Korea during the second half of 2008. BrostrĂśm is thereby also strengthening its position in the large size segments in European traďŹ&#x192;c. The increase in size brought about by the acquisitions and partnerships has given the company greater ďŹ&#x201A;exibility and eďŹ&#x20AC;ectiveness in its vessel operations, creating conditions for

Focus 2007

During the year, BrostrĂśm also developed its strong position

mission and strategy. In addition, three core values have also

same applies for sporting goods and many other consumer

been formulated to guide employees in their daily work.

products sectors.

In 2007 BrostrĂśm intends to:

For customers and consumers, the underlying technology

â&#x20AC;˘ increase its contract volumes in pace with the growth of its ďŹ&#x201A;eet, â&#x20AC;˘ strengthen its market positions, primarily in the large-vessel segments in Europe and in Atlantic traďŹ&#x192;c,

Together with BrostrĂśmâ&#x20AC;&#x2122;s vision, mission and strategy, the core values â&#x20AC;&#x153;Reliability, Respect and Excellence in Perfor-

or where the product was made are becoming less signiďŹ cant.

manceâ&#x20AC;? form a totality that will ensure that all employees

On the other hand, it is important that the product lives up to

act as one company and that BrostrĂśm always lives up to its

the expectations they have for a product with a speciďŹ c brand,

brand promise: â&#x20AC;&#x153;Going for Excellence. Together.â&#x20AC;?

both in terms of quality and comfort, but also that they can

â&#x20AC;˘ expand its capacity in Asia through existing partnerships

identify with the values that the brand stands for.

Teamwork The brand promise indicates that BrostrĂśm always strives

and through additional acquisitions and partnerships, â&#x20AC;˘ continue to actively participate in the consolidation of the markets in which the company operates, and â&#x20AC;˘ continue expanding its operations through new

continued high contract volumes.

ferent models and makes within the same car company. The

partnerships.

Even more important for service companies

for excellence and that this is done through a team eďŹ&#x20AC;ort.

Just because there are major diďŹ&#x20AC;erences between product- and

Advanced logistics services require eďŹ&#x20AC;ective internal routines

service-producing companies doesnâ&#x20AC;&#x2122;t mean that branding is less

as well as a good measure of co-operation between suppliers

important for a service company like BrostrĂśm. On the cont-

and customers.

as a leading quality operator. In pace with the modernisation

rary, it can be even more important to have a strong brand when

of the ďŹ&#x201A;eet, the company continued to implement extensive

there is no tangible product to touch and feel. The brand serves

mean that brand issues are new for BrostrĂśmâ&#x20AC;&#x2122;s employees.

as a guarantee that customers will receive the exact same, good

The company has long had a strong brand. Whatâ&#x20AC;&#x2122;s new is

service no matter where in the world they come in contact with

a more structured way of working and a set of tools that

the company and regardless of whom in the company they do

will enable the employees to do their branding work more

business with. This is why uniform values are so important.

eďŹ&#x20AC;ectively in the future.

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Growth In its continuing operations, BrostrĂśm has grown by an average of approximately 9% per year during the last three years.

Although the Brand Project is new in itself, this does not

In a queue from Göteborg to Amsterdam On 9 January 2007 Broström’s vessels were loaded with 1

a total of 1.7 million tonnes of oil and chemical products. Transportation of the same volume by land would have required more than 37,000 tanker trucks, which lined up endto-end, would stretch 890 km, which is nearly as far as the journey by road from Broström’s head ofﬁces in Göteborg to

Amsterdam, the Netherlands.

On that same day, the companies in the Broström Agency 30

Network cleared 17 vessels.

24-25 27

11 8

9 10

16-17

32 33-37 38

3 4-7

57 43

19-23 26

45 59

46 47

54 48

.ORTH !TLANTIC

.ORTH 0ACIFIC /CEAN

55 69

62 63

56 73

)NDIAN /CEAN

3OUTH 0ACIFIC /CEAN 3OUTH !TLANTIC

75 74

77 76

A DAY W I T H B RO S T RÖ M

The entire world as a workplace Europe 1. BRO GLORY Loading gasoline and gas oil in Mongstad, Norway, for discharging in the Faroe Islands. 2. NANNY Loading heating oil in Slagen, Norway, for discharging in Göteborg, Sweden.

22. MARISP Waiting to discharge fuel oil in Rotterdam, Netherlands, loaded in Swinoujscie, Poland.

41. ATLANTIC SWAN En route from Guaybal, Cuba, to Rotterdam, Netherlands, with light chemicals.

60. VEGA SPRING En route to José, Venezuela, to load methanol for discharging in Ravenna, Italy.

23. DONAUSTERN Waiting to do a port transfer of high-sulphur heating oil in Rotterdam, Netherlands.

42. BRO ELLEN En route from El Dekhelia, Egypt, to Rotterdam, Netherlands, with jet fuel.

61. VOYAGER A En route to José, Venezuela, to load methanol for discharging in New York, USA.

43. WEICHSELSTERN En route to Teesport, England, from Donges, France, with reformate.

3. BRO DISTRIBUTOR At the shipyard in Falkenberg, Sweden.

24. BRO DESIGNER Unloading jet fuel in Coryton, England, loaded in Grangemouth, Scotland.

4. BRO GRACE Loading gas oil in Fredericia, Denmark, for discharging in Kiel, Germany.

25. BRO TRADER Waiting for travel orders outside Themsen, England.

5. BRO GLOBE Discharging gas oil in Åbenrå, Denmark, loaded in Slagen, Norway.

26. BRO JOINVILLE Loading fuel oil in Dunkirk, France, loaded in St Petersburg, Russia.

45. EURO SWAN En route from Amsterdam, Netherlands, to Cape Verde, Spain, with gas oil and gasoline.

6. BRO GEMINI Loading gasoline in Kalundborg, Denmark, for discharging in Malmö.

27. FURE SUN Waiting to load low-sulphur gas oil in Fawley, England, for discharging in Sines, Portugal.

46. FURE STAR En route to Bilbao, Spain, to load gas oil and gasoline, for discharging in Gijon, Spain.

28. BRO SINCERO Loading high-sulphur heating oil in Port Jerome, France, for discharging in Rotterdam, Netherlands.

47. GREAT SWAN Loading diesel in Bilbao, Spain, for discharging in Leixoes and Lisbon, Portugal.

29. BRO GRANITE Discharging jet fuel in Shannon, Ireland, loaded in Rotterdam, Netherlands.

48. FIONIA SWAN Waiting to load a lubrication component in Leixoes, Portugal, for discharging in Zawia, Algeria.

30. BRO DELIVERER Discharging low-sulphur gasoline, kerosene and jet fuel in Belfast, Northern Ireland, loaded in Finnart, England.

49. WOLGASTERN En route from Huelva, Spain, to Amsterdam, Netherlands, with naphtha and reformate.

7. BRO JUNO Waiting to load low-sulphur diesel in Kalundborg, Denmark, for discharging in Themsen, England. 8. BRO ERIK En route to Tallinn, Estonia, to load gas oil from Rotterdam, Netherlands. 9. PROSPERO En route from Riga, Latvia, to Dunkirk, France, with gas oil. 10. THEMSESTERN Discharging gas oil in Gdansk, Poland, loaded in Fredericia, Denmark. 11. FURE NORD En route from St Petersburg, Russia, to Hamburg, Germany, with gas oil. 12. NORDIC SWAN Loading gasoline and diesel in Ventspils, Latvia, for discharging in Hamina, Finland.

31. GRO GRATITUDE Loading gasoline in Stanlow, England, for discharging in Amsterdam, Netherlands. 32. BRO GENIUS Loading naphtha in Milford Haven, Wales, for discharging in Le Havre, France.

13. RAMONA En route to St Petersburg, Russia, to load gas oil for discharging in Amsterdam, Netherlands.

33. ALSTERSTERN Loading benzene in Pembroke, Wales, for discharging in Teesport, England.

14. BRO ATLAND En route to Braefoot Bay, Scotland, to load condensate for discharging in Terneuzen, Netherlands.

34. ISARSTERN Loading kerosene, low-sulphur diesel and gasoline in Pembroke, Wales, for discharging in Dublin, Ireland.

15. FURENÄS Loading residual oil in Wilhemshaven, Germany, for discharging in Immingham, England.

35. MARELD Loading residual oil in Pembroke, Wales, for discharging in Stanlow, England.

16. BRO ANTON Waiting to load gasoline in Amsterdam, Netherlands, loaded in Brindsi, Italy.

36. NAVIGO Waiting to load gasoline, kerosene, low-sulphur diesel and gas oil in Pembroke, Wales, for discharging in Plymouth, England.

17. RHONESTERN Discharging low-sulphur diesel in Amsterdam, Netherlands, loaded in Tallinn, Estonia. 18. BRO JUPITER En route from Port Jerome, France, to Amsterdam, Netherlands, with fuel oil. 19. VINGA HELENA Discharging residual oil in Rotterdam, Netherlands, loaded in Coryton, England. 20. RHEINSTERN Discharging naphtha in Rotterdam, Netherlands, loaded in Kårstø, Norway. 21. EVINCO Waiting to load gas oil and residual oil in Rotterdam, Netherlands, loaded in Grangemouth, Scotland.

37. TRAVESTERN Discharging fuel oil in Pembroke, Wales, loaded in Leixoes, Portugal. 38. BRO AXEL En route to Pembroke, Wales, to load jet fuel, low-sulphur diesel and gasoline for discharging in Dublin, Ireland.

44. HAVELSTERN En route from St Petersburg, Russia, to Bordeaux, France, with gas oil.

50. FURE WEST En route from Lahad Datu, Malaysia, to Rotterdam, Netherlands, with palm oil. 51. BRO ELLIOT Discharging gas oil in Mohammedia, Marocco, loaded in Lavera, France. 52. BRO ELIZABETH En route to Sarroch, Italy, to load gas oil bound for Koper, Yugoslavia. 53. BRO EDWARD Passing through the Bosporus Strait en route from Novorossisk, Russia, to La Skhirra, Tunisia, with gas oil. 54. BRO ETIENNE Passing through the Bosporus Strait en route from Novorossisk, Russia, to Aliaga, Turkey, with gas oil. 55. BRO EDGAR Passing through the locks in the Suez Canal en route from Yanbu, Saudi Arabia, to Fiumicino, Italy, with jet fuel. 56. CILAOS Waiting to load oil products in Singapore for discharging in Le Port, La Reunion.

Atlantic 57. BRO PRIORITY Loading gasoline in Dunkirk, France, for discharging in Puerto Limon, Costa Rica.

39. BRO GALAXY En route from Milford Haven, Wales, to load gas oil, diesel, kerosene and gasoline for discharging in Belfast, Northern Ireland.

58. HUNTESTERN En route from Delaware City, USA, and Aruba to St Romuald, Canada, with jet fuel and naphtha.

40. BRO TRANSPORTER En route to Immingham, England, to load gasoline for discharging in Milford Haven, Wales.

59. BRO PREMIUM En route to Sines, Portugal, to load gasoline and alcylate for discharging in New York, USA.

62. BRO CECILE En route from Point Lisas, Trinidad, to Houston and Beaumont, USA, with methanol. 63. BRO PROMOTION Discharging gasoline and alcylate in El Palito, Venezuela, loaded in Amsterdam, Netherlands. 64. BRO PROVIDER En route from Santos, Brazil, to Kingston, Jamaica, and Philadelphia, USA, with ethanol. 65. VEGA SPIRIT En route from Santos, Brazil, to Acajutla, El Salvador, with ethanol. 66. BRO CATHERINE En route from Punta Arenas, Chile, to Ulsan, Korea, with ethanol. Asia–Paciﬁc 67. GAN-SHIELD Waiting to load gas oil in Dalian, China, for discharging in Singapore and Surabaya, Indonesia. 68. BRO ARTHUR Discharging gasoline and jet fuel in Hong Kong, China, loaded in Singapore. 69. BRO ALEXANDRE En route to Hong Kong, China, for further voyage to Kikuma, Japan, with naphtha loaded in Port Bonython, Australia. 70. BRO CAROLINE Loading gasoline, jet fuel and diesel in Singapore for discharging in Marsden Point, Mt Maunganui and Wellington, New Zealand. 71. GONEN Loading jet fuel in Singapore for discharging in Okinawa and Chiba, Japan. 72. GANMUR Waiting to load gasoline, gas oil and jet fuel in Singapore for discharging in Kwinana and Adelaide, Australia. 73. GAN-SURE En route to Singapore to load gasoline and gas oil for discharging in Botany Bay, Australia. 74. BRO ALBERT En route from Kwinana to Adelaide, Australia, with gasoline and gas oil, loaded in Singapore. 75. SETO EAGLE En route from Esperance to Adelaide, Australia, with gasoline and gas oil, loaded in Singapore. 76. BRO CHARLOTTE Discharging gasoline and jet fuel in Wellington, New Zealand, loaded in Singapore. 77. GAN-VENTURE Discharging gasoline, gas oil and jet fuel in Lyttelton, New Zealand, loaded in Singapore.

SHIPPING

Market leader in product tanker shipping Broström has built up a strong presence in specific size segments in clearly defined geographic markets. Together with a strong focus on contracts of affreightment, this enables Broström to offer its customers flexible and efficient transport solutions.

Activities of the business area include commercial operation, ownership, technical operation and vessel crewing. The core

K E Y E V EN T S

business activity consists of the commercial operation of 78 product tankers from oﬃces in Sweden, Norway, Denmark,

Start of physical expansion in Asia

France and Singapore.

• Delivery of the ﬁrst two of eight vessels ordered together with Dünya

Following the acquisitions in 2005 of the Danish company Nordtank Shipping A/S and the outstanding half of the Nor-

Expanded co-operation with existing partners

wegian company Iver Ships Ltd, and new commercial partner-

• Six vessels ordered together with Dünya for European

ships with the Turkish company Dünya Denizcilik ve Ticaret A.Ş. and the Swedish company Furetank Rederi AB, 2006 was

trafﬁc

characterised by organic growth as well as internal consolida-

• An additional two vessels ordered together with

tion and integration.

Thunbolaget Naming ceremony in Göteborg for the BRO DISTRIBUTOR, the third of four new D-class vessels

• The ﬁrst D-class vessel, the BRO DELIVERER, was named Ship

During the year, the preceding year’s acquisitions and partnerships had a full impact on Broström’s accounts. The company and its partners took delivery of eight vessels, and an additional eight product and chemical tankers were ordered. In

of the Year by Lloyd’s List

pace with the delivery primarily of the large vessels ordered by The German company Reederei Claus-Peter Offen new partner in early 2007

• The partnership covers eight 37,000 dwt product chemical tankers currently being built

Broström’s partner Dünya, the major expansion in Asia charted out by Broström a number of years ago has now been initiated.

Business offer

Sale of three older product and chemical tankers

Broström offers effective and flexible marine logistics solu-

At year-end 2006, Broström was ﬁnancially involved in ﬁve

tions to the global oil and chemical industry. Services include

newbuildings. Added to these are another ten vessels that will

the transport of reﬁned oil products such as gasoline, diesel

be added to the ﬂeet through various partnerships.

and heating oil, and chemicals such as methanol, ethanol and MTBE.

SEK m

2006

2005

2004

Transports are often integrated into customers’ own distri-

3,171

3,073

2,452

bution chains and are made from reﬁneries to storage depots as

779

807

434

well as between depots, which puts great demands on reliabil-

ity and delivery ability. The size and scope of assignments vary

Average number of employees

964

850

826

depending on the cargo, transport distances and the type of

Number of employees at 31 Dec.1)

990 2)

735

734

contract agreed upon for the assignment.

Net sales Operating proﬁt (EBIT) Operating margin, %

Total assets

8,560

8,004

5,489

In 2006, 43% (51) of Broström’s transports were carried out

Investments

1,685

1,513

919

under contracts of aﬀreightment. Total cargo volume was 40.1

Number of port calls

6,312

7,033

5,156

million tonnes (42.4), which is roughly three times as much as

Transported volume, million tonnes 40.1

42.4

35.3

Including associated companies.

Including contract employees.

total annual oil consumption in Sweden. Broström’s service oﬀering is characterised by: • reliability and predictability, • far-reaching quality and safety initiatives,

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Share of Broström’s total net sales

Sales and proﬁt – Shipping

Shipping accounts for 94% of Broström’s net sales.

Net sales for the Shipping business area have risen by an average of 9% during the last three years.

• a high degree of service through opportunities for customtailored logistics solutions,

These qualities are enhanced by the fact that Broström has built up critical mass in more size segments than most of its

• a large, modern fleet that provides effectiveness and flexibility, and

competitors – Small (5,000-10,000 dwt), Intermediate (10,00020,000 dwt), Handy (20,000-40,000 dwt) and Handy max

• extensive market knowledge gained through local and global presence and enduring customer relationships.

(40,000-50,000 dwt). This adds further to Broström’s ﬂexibility and eﬀectiveness. With customer relationships that often endure over several

At the heart of Broström’s business oﬀer is its focus on con-

decades, Broström has a deep-rooted understanding of and

tracts of aﬀreightment. These entail that Broström undertakes

respect for its customers’ preferences and conditions.

to transport agreed volumes between a number of ports

Broström’s logistics oﬀering is enhanced through its

decided by its customers over a set period of time. In contrast

strategic alliance with Vopak, the world’s largest provider of

to time charters, for example, contracts of aﬀreightment entail

oil storage, with a global network of tank terminals and inland

that Broström plays an integral role in its customers’ logistics

tanker tonnage.

planning. Since the contracts span a long period of time and represent an end-to-end solution, customers gain eﬃciency

Efﬁciency important for proﬁtability

and can concentrate on their core business.

The price of product and chemical transports (freight rates) is set by the market and is controlled to a great extent by the

Focus on customer beneﬁt

relationship between supply and demand for transport capacity.

Contracts of aﬀreightment, combined with Broström’s large

A more detailed description of how tanker shipping works and

and modern ﬂeet, enable a large degree of ﬂexibility. In the

the factors that steer supply and demand is presented on page 13.

event of disruptions, Broström has access to replacement ton-

Since individual operators have limited opportunities to

nage. Delivery reliability and dependability are key features

influence prices, efficient use of the fleet is Broström’s primary

of Broström’s quality concept.

means of enhancing its proﬁtability. The company’s strategic

Broström’s place in the value chain

Crude oil tanker Crude oil is shipped in large vessels from oil wells to reﬁneries.

Oil well Oil is pumped from underground wells either on land or offshore.

Reﬁnery Reﬁneries produce oil products – such as gasoline, diesel and heating oil – from crude oil.

Broström Broström transports oil and chemical products from reﬁneries to storage depots and between depots to even out regional supply imbalances.

Land transport Large volumes of oil and chemical products are transported by tanker trucks for use in industry or consumption.

Oil depots Oil and chemical products are stored in depots that are run by oil and chemical companies or by independent oil storage companies.

Industry and consumption Oil and chemical products are used either for industrial production or consumption.

SHIPPING

focus on contracts of aﬀreightment plays a decisive role in this

in consultation with its customers. Within the framework of

endeavour since it aﬀords greater opportunities for planning

assignments, improvements are made in routines both onboard

and thereby minimises ballast voyages.

and ashore. Internal development work pertains primarily to

Cargo handling in ports is also highly signiﬁcant for capacity utilisation and eﬃciency, especially in segments with short transport distances and numerous port calls. Here, a large share

processes and routines concerning quality, safety and the environment. This is described in more detail on pages 32–34. Development of vessels and technical equipment is also

of vessels spend nearly half of their operational time in port,

based on customers’ transport needs and demands for eﬃciency

which places special demands on eﬃcient cargo handling.

improvement. IT systems for communication between vessels

Due to the long-term nature of contracts of aﬀreightment,

and shore-based organisations are also under continuous devel-

Broström can work together with its customers to exert

opment. A description of this is provided on page 35.

inﬂuence over cargo installations at speciﬁc ports and thereby work continuously to improve its cargo handling.

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

Development of the business offer

mass and market-leading positions. Accordingly, in recent years

Broström is working continuously to develop its business oﬀer

Broström has sold a number of large product tankers as well as a few small chemical tankers.

World’s best product tanker? In February 2006, the BRO DELIVERER, the ﬁrst of Broström’s four new D-class vessels, was named “Ship of the Year”

“It’s a bit like juggling”

by Lloyd’s List, the internationally leading daily journal of the shipping industry. The distinction takes into account such factors as innovativeness, safety, environmental aspects and operational eﬃciency.

“On my business card it says ’Chartering & Operations’, but I see myself more as an ‘optimiser’. My job is to ensure the optimal utilisation of our vessels while also making sure that all our customers get their full money’s worth. My aim is always to make sure that everyone is happy – and achieving that is a bit of a juggling act. “My father worked with safety, including with vessels, and it was when I got a chance to take a tour with him onboard a vessel that my interest in shipping and vessels was sparked. I began my professional career in the oil and gas industry. It was there I came in contact with people in the shipping business and gained insight into what it was all about. So when I got the opportunity to switch industries, I didn’t hesitate. I am still as enthusiastic today as I was on my ﬁrst day at the job.

Broström’s D-class vessels are a new generation of product tanker that have been built according to Broström’s own design along with specifications drawn up in dialogue with customers in the oil industry. The customers have provided 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 to the classification society DNV’s “Clean Design” class. To qualify for this class, a vessel must meet stringent air and water emissions standards as well as have numerous safety features in the event of an accident. For example, all diesel engines have

“I also get job satisfaction from the fact that I work for a company that has a clear business focus. The feeling of stability is tangible when you know that you share your goals with all of your colleagues. You can then focus on doing a good job – and on growth.

been ﬁtted with catalytic converters to reduce nitrogen dioxide

“My biggest challenge is staying a step ahead and trying to predict what will happen – both for big and small things. Here I think my curiosity is my greatest asset: I want to know everything.”

with twin propulsion systems. Their eﬃciency is optimised by

Joo Jin Tan, Chartering & Operations, Broström Tankers Asia Pte Ltd, Singapore

emissions. Regarding safety, Broström’s D-class vessels incorporate enhanced safety features for narrow and heavily traﬃcked shipping lanes. Safety has also been improved by ﬁtting the vessels modern systems for fast cargo handling. The D-class vessels are thereby an outgrowth of Broström’s tradition of building vessels according to special design. For example, the six vessels that the company is now building in partnership with the Turkish company Dünya are further developments of the concept drawn up when the BRO ANTON, the BRO AXEL, and the BRO ATLAND were built.

SHIPPING

The market – a chain of interrelated factors New consumption patterns and growth in Asia in recent years have changed the conditions for product and chemical tanker shipping. Since shipowners have not expanded their capacity in pace with the changed demand, a large share of transports today are made over longer distances, which is stimulating demand for tonnage. The market for product and chemical tanker shipping is a

estimates that demand for tonnage in the 10,000-60,000 dwt

complex interplay between macroeconomic and industry-

size class is growing by an average of 1.8% per year.

speciﬁc factors that aﬀect demand for transport as well as

Demand factors

supply of transport capacity. In product and chemical tanker shipping, price is almost

Demand factors include the trend in the world economy, in-

exclusively a function of supply and demand. This is most

cluding political factors and global energy consumption, as well

apparent in the spot market, although contract shipping is

as factors in the oil industry and energy sector.

also subject to these fundamental conditions. Macroeconomic and political factors

Market size and growth

There is a strong correlation between economic activity and

The size of the market is very diﬃcult to estimate. This is due to

energy consumption. In a strong economy, energy consumption

problems in drawing a distinction against the market for crude

rises as result of higher electricity and industrial production as

oil shipping and the way in which various companies choose

well as a greater general need for transports.

to organise themselves and report their activities. In addition,

Trade patterns and technological development are addition-

some activity is still handled by the oil and chemical industry’s

al factors. Political factors include countries’ energy policies as

internal organisations and, in some cases, is under state owner-

well as environmental and trade policy issues. War and conﬂicts

ship. Consequently, growth of the global ﬂeet is the most reli-

are also political factors. However, it is unclear what eﬀect

able data available for judging the size of the market. According

the latter has on the market. Although wars and conﬂicts can

to the research ﬁrm Clarkson Research Studies, the global ﬂeet

have a negative eﬀect on demand for oil products, the regional

of product tankers (10,000-60,000 dwt) amounted to 50.1

imbalances that can arise as a result of these can often lead to a

million dwt at year-end 2006. Growth was approximately 6.6%

greater need for transports. As for environmental policy issues,

during the year and is expected to be 9.0% in 2007. Clarkson

demand is aﬀected primarily by various decisions, such as taxes

Factors that affect the transport market

FACTORS DRIVING DEMAND

FACTORS DRIVING SUPPLY

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The tanker shipping market 13

SHIPPING

on various fuels and which additives are allowed. For example,

addition, in Europe a strategic shift is taking place in which

with respect to the latter, some time ago the US banned the use

diesel is increasingly replacing gasoline as car fuel, which is

of MTBE as an octane-enhancing additive in gasoline, which

adding to regional imbalances. The diďŹ&#x20AC;erence between spot and

has instead been replaced by ethanol. One eďŹ&#x20AC;ect of this ban is

forward prices for crude oil and reďŹ ned oil products also aďŹ&#x20AC;ects

that components in transport fuels are blended in at a later

the balance between production and consumption of stored oil,

part of the distribution chain, and transports of additives and

which in turn aďŹ&#x20AC;ects the short-term need for transport.

components have increased in recent years. Added to this, weather and seasonal variations play a major

Further, the transport market is aďŹ&#x20AC;ected by the structure of the oil industry and by strategic decisions made by oil compa-

role in demand for various types of energy. A cold winter leads

nies. Consolidation in the oil and chemical industry in recent

to higher demand primarily for heating oil, while gasoline con-

years has resulted in larger, but fewer, production units as well

sumption usually peaks during the summer months.

as a growing reliance on â&#x20AC;&#x153;just-in-timeâ&#x20AC;? thinking, with lower oil stock levels and more frequent deliveries as a result. This

The energy market

is putting higher demands on the reliability and ďŹ&#x201A;exibility of

Aside from oil, the most important forms of energy are coal,

transport systems.

hydroelectric power, nuclear power and natural gas. These

Moreover, many oil companies have divested their own

forms of energy compete with each other in some respects.

shipping activities and have instead chosen to outsource their

For example, a drop in hydroelectric generation caused by

logistics services to external providers.

drought will lead to higher demand for alternative sources of electricity generation, such as oil. In recent years, various

Supply factors

alternative fuels, such as ethanol, have emerged as alternatives

The supply of transport services is driven primarily by the avail-

to gasoline and diesel. A large share of BrostrĂśmâ&#x20AC;&#x2122;s vessels can

ability of transport capacity and how the various participants in

also accommodate transports of these fuels.

the market act.

The oil market

Shipowners and logistics operators

Demand for transport is also aďŹ&#x20AC;ected by factors within the oil

Transport services are provided by shipowners and other

market itself. One important factor is capacity utilisation and

logistics operators, as well as by oil and chemical companies that

the location of reďŹ neries in relation to where consumption of

charter vessels on time charters and thereby take responsibility

oil products takes place. In recent decades, virtually all new

for their operation. Certain shipowners and logistics operators

reďŹ neries have been built in Asia and other markets outside

concentrate strictly on commercial operation of vessels, others

Europe and North America, where the greatest share of con-

on technical operation, and a few others on vessel ownership.

sumption is taking place.

At the same time, it is common for a single company to be

Maintenance requirements, labour conďŹ&#x201A;icts or other production disruptions also lead to regional imbalances between supply and demand, which aďŹ&#x20AC;ects the need for transport. In

responsible for all or a couple of these aspects. The structure of the market is also aďŹ&#x20AC;ected by the strategies pursued by the various players and by who owns the companies.

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Global oil consumption

Oil consumption 2006, by region

Global oil consumption shows no signs of slowing.

Asia is today the worldâ&#x20AC;&#x2122;s largest market for oil products.

Refinery capacity plays an important role in the need for transports of oil products. Temporary disruptions or changed consumption patterns result in individual products having to be transported from one region to another.

Having a large share of vessel operators with strong ties to indi-

Newbuilding activity

vidual oil and chemical companies reduces competition in the

The ability to rejuvenate the ﬂeet and thereby increase supply is

open market, as do individual players who limit their operations

dependent on the available capacity to build new vessels, which

to a speciﬁc geographic market or to clearly deﬁned segments.

is also aﬀected by demand from other shipping segments. Added

The choice of contract form also aﬀects the competitive

to this are factors such as labour costs and prices of input goods

situation. For example, if a shipping company charters out a

– mainly steel. By extension, supply is also aﬀected by macro-

vessel on a long-term bareboat or time charter to an oil compa-

economic factors such as interest rates and access to capital.

ny, this removes the vessel from the open market for some time. The diﬀerence between the various contract forms is shown in

Various contract forms – cost breakdown

the chart at right.

Contracts of affreightment*

Transport capacity

Capital costs: Depreciation, interest

Supply consists fundamentally of the total ﬂeet available to

Operating expenses: Personnel costs, maintenance, repairs, insurance premiums, docking charges

meet the current transport need in the market. The size of the ﬂeet is steered by the relation between the number of newbuilding deliveries and the rate of scrapping. Scrapping has traditionally been steered by the technical age of vessels and by trade conditions in the freight market. In recent years, however, increased demand for quality and safety has led to a sharper focus on vessel ages and hull design. Crew qualiﬁcations and the shipping companies’ organisation have thus become increasingly important for determining how well supply meets demand.

Chevron

Methanex

EcoFuel

Petroruss

ExxonMobil Shell

Statoil

Voyage costs: Bunker (fuel), port charges

• • •

Spotmarket

Time charter

Bareboat charter

• • • • • •

Ordinarily approximately 50%–60% of Broström’s transports are conducted under contracts of affreightment. During the rest of the time, the vessels operate in the spot market. *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 ﬂeet planning at the same time that customers are guaranteed stability in the transport chain.

Lukoil Total

Broström’s ten largest customers (in alphabetical order)

SHIPPING

Competition in consolidating market Shipping is a global industry, and the ability to dispatch vessels to

consist of the Danish company Herning Shipping and the German

diďŹ&#x20AC;erent markets based on demand complicates any description of

companies BĂźttner and German Tankers. In addition to these

the competitive situation. Moreover, there are diďŹ&#x20AC;erent ways of op-

can be mentioned the Swedish company TĂ¤rntank and Norwayâ&#x20AC;&#x2122;s

erating vessels, and as a result, there is a risk of the same vessel being

Stenersen and OAS Knutsen, which have a more pronounced time

counted twice, depending on who owns, operates or charters it.

charter strategy, and the British company James Fisher. During the

In all, there are slightly more than 2,700 product and chemical

year, US-based Heidmar and its Marida pool, and the Norwegian

tankers in the world in BrostrĂśmâ&#x20AC;&#x2122;s size segments. Of these, 37% lack

company Eitzen Chemical, also increased their presence in the

double hulls and 34% are older than 20 years, which diminishes

market. Added to these are a number of players with ties to oil

their competitiveness. There are no independent and reliable mar-

companies and which compete to a lesser extent directly with the

ket share statistics available. However, an estimation can be made

independent players. In the Mediterranean, BrostrĂśm competes

by looking at the total capacity operating during a given time in a

primarily with Handytankers and a number of Italian, Spanish and

speciďŹ c geographic market.

Greek shipping companies, such as Montanari and Andromeda. In 2006 all of the players were active in the newbuilding or

European competition

second-hand markets, and many are awaiting delivery of new

In recent years the European product and chemical tanker shipping

tonnage in the coming years.

market has been undergoing consolidation and concentration. In the smallest size segments (Small and Intermediate), the ties

Global product and chemical tanker shipping

between customers and shipping companies are often strong, with

The competitive picture in the global segment is fragmented, and

contracts of aďŹ&#x20AC;reightment accounting for a large share of business.

tonnage can be moved from one area to another. A large share of

The larger segments (Handy and Handy Max) are characterised by

the vessels are employed on time charter with oil companies and oil

greater market ďŹ&#x201A;uctuations and an ability to move vessels between

traders, which makes the competitive situation diďŹ&#x192;cult to discern.

geographic markets. The more long-term contracts consist prima-

With respect to transports of oil products in Asia, BrostrĂśmâ&#x20AC;&#x2122;s

rily of time charters. In a market with high freight rates, players

main competitors are the Danish company Torm and the Japanese

that ordinarily operate in the global market take a greater interest

companies Mitsui and NYK. Competition for chemical transports

in European traďŹ&#x192;c.

in the Atlantic and Caribbean comes primarily from Eitzen Chemi-

BrostrĂśm is the market leader in European product tanker

cal, the Asian companies FairďŹ eld/Iino and Aurora Tankers, and the

shipping. The companyâ&#x20AC;&#x2122;s ďŹ&#x201A;eet covers more size segments than any

two Norwegian companies Stolt Nielsen and Odfjell. Long-term

other shipping company. As a result, BrostrĂśm can build up more

contracts of aďŹ&#x20AC;reightment are the predominant contract form in

ďŹ&#x201A;exible transport systems for its customers.

this sub-segment, which also expects a signiďŹ cant addition of new

In individual sub-segments, BrostrĂśmâ&#x20AC;&#x2122;s chief competitor in

tonnage. There is also a trend toward consolidation through merg-

northern Europe is the Danish company Maersk/AP MĂ¸ller,

ers and acquisitions as well as through the formation of large vessel

which operates the Handytankers vessel pool. Other competitors

pools by the various shipowners.

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Competitive situation for northern European product tanker shipping

Product tankers on order in the world at year-end (10,000 - 80,000 dwt)

BrostrĂśm is clearly the market leader in northern Europe. Due to the size of its ďŹ&#x201A;eet, BrostrĂśm can offer its customers a high degree of ďŹ&#x201A;exibility and reliability.

The shipyardsâ&#x20AC;&#x2122; orderbooks continued to grow in 2006, and newbuilding prices rose further.

The BRO CAROLINE in Sydney, Australia. The Asia-Pacific region is a growing market for oil products. In the years immediately ahead, BrostrĂśm will be doubling its capacity in the region.

Continued volatile freight market Rising demand and more stringent requirements on quality, safety and the environment have led to a sensitive balance between supply and demand of transport capacity. As a result, even small events can have a large impact on the market. Supply and demand for oil products remained in balance in

and the environment tempered the eďŹ&#x20AC;ects of the large volume

2006. As a result, even small disruptions in the production

of new tonnage delivered during the year. On account of the

and distribution chain quickly made an impact on freight rates

strong market, scrapping of older tonnage did not quite gain

and the spot market. The swings in the Asian market had the

momentum. However, as a result of the introduction of new

greatest impact.

and more stringent rules adopted by the UNâ&#x20AC;&#x2122;s International

This sensitivity was intensiďŹ ed by the fact that reďŹ nery

Maritime Organisation (IMO) on transports of vegetable

capacity in Western Europe and the US is poorly adapted to

oils and certain chemicals, the scrapping rate is expected to

the higher demand for diesel and gasoline, and by the oil in-

accelerate considerably.

dustryâ&#x20AC;&#x2122;s focus on â&#x20AC;&#x153;just-in-timeâ&#x20AC;? thinking, with lower oil stocks.

The shipyardsâ&#x20AC;&#x2122; orderbooks remained well-ďŹ lled in 2006,

These factors together contributed to a steady rise in demand

and delivery times for new tonnage are still long. This also

for ďŹ&#x201A;exible and reliable transports, while transport distances

aďŹ&#x20AC;ected the market for quality second-hand tonnage, where

are growing increasingly longer.

prices stayed at relatively high levels.

This generally favourable market trend was enhanced by a strong global economy, with good growth in all major markets.

Strong start for Europe, weaker globally

Demand was highest primarily for light oil products, such as

The year began with a strong freight market, which slowed

gasoline and diesel. Asia is a strong engine of growth and is

toward the end of the ďŹ rst quarter, however. The main reason

today the worldâ&#x20AC;&#x2122;s largest market for oil products.

for the slowdown was relatively warm weather in the US

At the same time, the continued focus on quality, safety

and the build-up of oil stocks ahead of planned maintenance

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Deliveries and scrapping of world tanker ďŹ&#x201A;eet (10,000 - 60,000 dwt) Due to more stringent demands on quality and safety, many older vessels will be replaced by modern tonnage.

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Spot market freight rates for light oil products In 2006 as well, the market was characterised by large ďŹ&#x201A;uctuations in freight rates in the spot market. The year started out very strong, followed by a slowing trend.

SHIPPING

shutdowns at a large number of reﬁneries early in the second

Major ﬂuctuations during the spring

quarter. The main reason for the latter is that reﬁneries had

The second quarter was characterised by the closure of a large

previously been granted dispensation from planned mainte-

number of reﬁneries early in the period and by uncertain-

nance in order to oﬀset the eﬀects of the hurricanes that struck

ties surrounding Iran’s nuclear weapons programme and the

reﬁneries in the US in autumn 2005.

conﬂict between Israel and Hizbollah. This resulted in, among

The slowdown later in the quarter mainly aﬀected global segments, while the European market was more stable, due much in part to a cold winter, which drove imports of oil

other things, very high prices of crude oil and ﬂuctuations in the market for oil products. With respect to the transport market, the trend in Asia was

products from Russia. The ice conditions in the Baltic also

very volatile, while Atlantic traﬃc was relatively stable, mainly

had a favourable impact on ice-classed tonnage.

due to large imports of gasoline by the US. European traﬃc was characterised by a seasonal decline in the early spring. However, toward the end of the period, a general upswing was noted in freight rates when the reﬁneries were put back into operation and the build-up of stock levels resumed ahead of the summer vacation season.

“Being at sea has always been natural for me”

Stable in late summer and early autumn The upswing toward the end of the ﬁrst quarter continued some time into the third quarter, when a slight levelling occurred. Compared with the preceding year, the market was not aﬀected by any major hurricanes in the Gulf of Mexico, and

“The captain’s role has changed quite a lot in recent decades. In the old days – say, thirty years ago – many people looked up to the captain with awe. Today it is viewed almost as an ordinary management job. But it does require a broad competence base, and that suits me perfectly. For me, it’s about taking advantage of the crew’s knowledge and working together to do a perfect job – maintaining quality in everything we do is absolutely essential. “The work as captain has two almost diametrically opposed sides. One is the calm, routine work at sea, where everything just ﬂows, and the other is the hectic and intensive work as we approach land and when we are in port. Regardless of where we are, it is important for me in all situations to stay calm and patient, and always to be in full control – everyone beneﬁts from that. “On an average work day at sea I actually spend only an hour on the bridge. The rest of the time I’m doing something else. But when passing through a restricted area or having a pilot onboard I will attend the wheelhouse uninterruptedly for hours. Apart from having ultimate responsibility as captain of the vessel and her crew, my chief duties are to be in charge of navigation and information, and to make sure we adhere to the company’s policies. “My career choice was a natural outgrowth of my lifetime interest in the sea and sailing. I have in fact worked on land too, at a shipyard, but today I don’t long for anything else.” Gilles Kermaïdic, Master Mariner, Broström Tankers SAS, Paris, France

the build-up of stocks that took place ahead of the feared hurricane season contributed to a slowing toward the end of the period, which mainly aﬀected global operations. As in the early part of the year, the ﬂuctuations were greatest in Asia.

Weak end to the year The well-filled stocks had a restraining effect on the market also during the fourth quarter. On top of this, mild winter weather in the northern hemisphere resulted in lower consumption of oil products, which entailed that the usual freight upturn did not materialise. Moreover, contract volumes from northern Russia decreased due to production disruptions at refineries. At the same time, Asia was also characterised by a weak freight market.

Future outlook The freight market has gradually improved during the opening months of 2007. At the same time, there are no signs that indicate any major changes in the fundamental market conditions. Structural changes and greater regional imbalances are expected to give rise to a continued greater need for transport.

B RO S T RÖ M E X T R A

Demand for diesel has risen in recent years in Europe. At the same time, a lot of gasoline is still produced in the region. This has given rise to a greater need for product transports.

There’s a difference between gasoline and gasoline In recent years, the balance between supply and demand in the oil market has become delicate with respect to both crude oil and oil products. This is due to an unusually large overall drop in production of crude oil, limited reserve capacity, and to the fact that investments in reﬁneries have not kept pace with changed consumption patterns.

Production drop and lower reserve capacity

diesel, have come into increasingly high demand. At the same

In mid-2006 the energy analysis company CERA estimated

time, a growing portion of the crude oil that is being extracted

the total production loss of crude oil to be 2 million barrels a

is of heavier grades.

day. At the same time, the world’s reserve capacity, which

This is presenting a challenge to the reﬁnery industry, since

exists almost exclusively in the OPEC countries, has decreased

many reﬁneries require lighter grades of crude oil in order to

in recent years and is now just under 2 million barrels a day.

optimise their production of light oil products. This, in turn,

Production picked up somewhat during the autumn, par-

has given rise to an increase in demand and thus in the price of

ticularly in non-OPEC countries. However, the gap between

lighter grades of crude oil.

consumption and production still remains very small. In most cases, shortfalls are oﬀset by drawing from com-

Satisfying demand for the products in question will require investments in modern reﬁnery processes that are not as

mercial and government oil reserves. The reserve capacity

dependent on the grade of crude oil. Historically, reﬁnery

has not been utilised this time around, either. However, when

margins have not provided scope for such investments. Even

the production shortfall and reserve capacity are level with

though margins have now improved, lead times for investments

each other, this sends an important psychological message to

in reﬁnery capacity are long. Consequently, today’s situation is

the market.

expected to last for a relatively long time.

Naturally, the eﬀect of the drop in crude oil production and limited reserve capacity is enhanced by the fact that the

Cleaner cars a challenge for reﬁneries

rise in demand for oil is very large from a historical perspective

A change is also taking place in demand with respect to

– mainly due to strong growth in Asia.

transport fuels, caused by changes in consumer behaviours and political decisions. The sharp rise in the percentage of

Limitations in reﬁnery capacity

diesel-powered cars in recent years in Europe is one example of

It may seem like a contradiction in terms that limited reﬁnery

changed consumer behaviour. As a result, Europe has devel-

capacity is intensifying the eﬀects of a crude oil market in

oped a surplus of gasoline, which in turn is exported primarily

which the diﬀerence between supply and demand is very

to the US.

small. The problem, however, is that reﬁnery capacity has

Politically, demand is aﬀected by which additives are al-

not fully been adapted to changes in demand for various oil

lowed in gasoline, among other things. The shift toward more

products.

environmentally friendly and cleaner fuels is a continuously

The use of oil in stationary energy production has decreased

ongoing process that is unfolding in parallel in many markets

in recent years, while demand for transport fuels has been on

around the world. However, the lack of co-ordination between

the rise. This has led to a drop in demand for heavier products,

countries and regions entails that the conditions are constantly

such as heavy oil, while lighter products, such as gasoline and

changing, and thus also the demands on reﬁneries.

SHIPPING

Strengthened positions in Europe – expansion in Asia Broström further strengthened its position in the European product tanker shipping market in 2006. At the same time, the company’s physical expansion began in Asia with the addition of the ﬁrst vessels to Broström’s commercial ﬂeet out of a series of eight ordered by the Turkish partner Dünya. In many respects, 2006 came to be characterised by the results

expansion in Asia. The large addition of commercially operat-

and further development of company acquisitions that were

ing vessels brought to the company through last year’s acquisi-

made and the strategic partnerships that were entered into in

tion of Nordtank had a favourable outcome, and Broström was

2005. Through these, Broström strengthened its positions in

able to maintain high capacity utilisation of its commercially

Europe at the same time that the company initiated its physical

operating ﬂeet.

Business focus Operations cover both commercial and technical operation of

“The international perspective is exciting”

product and chemical tankers, as well as crewing. Commercial operation of the fleet’s 78 vessels is conducted from five offices. European operations are run from offices in Göteborg, Paris and Holbaek, while global operations are directed from Sandefjord and Singapore. Ownership of Broström’s 42 wholly and partly owned ves-

“When I was hired by Broström, I had no prior experience in the shipping business. And even though my work doesn’t differ much from one industry to another, I found myself in a new environment with a different terminology. I was greatly attracted by the fact that Broström works in an international environment. Coming into daily contact with people from other cultures is both exciting and stimulating. “My work involves looking after the accounts for the logistics assignments that our vessels perform. This includes overseeing incoming and outgoing payments and settling with agents, among other things. Having a talent for numbers and being meticulous are valuable qualities. Everything must be done correctly – it must be accurate and – even more important – it must be done on time. So naturally things can be a bit hectic at times, but the job is never monotonous or boring. “Broström is a company in development – that is clear to everyone. And even though we have acquired several new vessels, we would surely like to have more. As I see it, it’s important that we continue to grow at a controlled pace and that we can live up to our promises and achieve our objectives – both external and internal. I’m convinced that we will succeed, due to the high level of cooperation we have throughout the entire Group.”

sels is managed from the company’s offices in Göteborg and Paris. The other 36 vessels are owned by Broström’s partners (see page 22) or have been chartered in from external parties. Technical operation and crewing of vessels is handled by Broström’s offices in Paris and in Skärhamn, Sweden. The office in Skärhamn, which will be moving to Göteborg in summer 2007, also has Group responsibility for matters pertaining to quality, safety and the environment in the Shipping operations area. With respect to crewing, Broström works in alliance with the Philippine crewing company Net Ship Management. Vessels not operated from Paris or Skärhamn are operated by Broström’s partners.

Consolidation and expansion Broström is clearly the market leader in European product and chemical tanker shipping, and is represented in size segments ranging from 5,000-40,000 dwt. In global operations, Broström’s strongest positions are in the North Atlantic and Asia, including the Asia-Paciﬁc region. In these segments, larger vessels ranging from 20,000-50,000 dwt dominate.

Europe – high capacity utilisation and larger fleet With its large fleet of ice-classed vessels, Broström benefited

Anne Hasle Johansen, Accountant, Broström Tankers Ltd, Sandefjord, Norway

from the unusually cold winter in northern Europe in 2006.

Capacity utilisation under the company’s contracts of aﬀreight-

Toward the end of the year, Broström’s partner Furetank took

ment was relatively high. Ordinarily, few contract negotiations

delivery of the FURE WEST, which is operated by Nordtank,

are held early in the year. Most of the contracts that were

and of an additional newly built vessel that is owned by a

renegotiated were extended.

Turkish shipowner. Broström also increased its ownership in

During the ﬁrst quarter, Broström and the Turkish company Dünya further developed their partnership by ordering six

Furetank’s vessel, the FURE NORD. In all, ﬁve new vessels were added to Broström’s European

new 17,000 dwt vessels from a Turkish shipyard. The vessels

tanker ﬂeet in 2006, including vessels owned by partners.

are of the highest ice class and have a modern design, which

Two older vessels were also sold during the year.

further strengthens Broström’s business oﬀer. Broström’s performance during the spring was largely a re-

At year-end Broström and its partners had a total of ten vessels on order for European traﬃc.

ﬂection of developments in the market. However, contract covthe large number of closed reﬁneries. The degree of contract

Global operations – start of physical expansion in Asia

coverage was stable. During the period, the ﬁrst two D-class

The strong freight market made its mark on the start of the

vessels were delivered from the shipyard in China. In addition,

year. However, activity fell toward the end of the ﬁrst quarter,

two new 7,500 dwt vessels were ordered together with Erik

especially in Asia, due to the build-up of stocks that took place

Thun AB. Both are sister vessels to the eight vessels already

ahead of the reﬁnery closures later in the year.

erage decreased compared with the ﬁrst quarter, mainly due to

operated by Broström. The contract negotiations carried out

During the ﬁrst quarter, Broström took over the last two of

during the spring had a favourable outcome for the most part.

the four vessels that the company purchased from its former

Broström managed to boost volumes under a number of large

Dutch partner, Vroon, and which were already operated by

contracts, while a few smaller agreements expired. However,

Broström. These vessels are included in Broström’s Atlantic

individual customers chose to work to a greater extent with

traﬃc. In early March the BRO STELLA was sold, marking the

vessels chartered in on time charters. The strong market trend

conclusion of Broström’s concentration of the ﬂeet to a limited

around mid-year also aﬀected Broström, as did the subsequent

number of size segments. Spring continued with a strong up-

slowdown. Contract volumes fell slightly during the quarter,

swing before the Asian market once again turned downward.

which was compensated by longer transport distances. At the

Broström managed this downturn well, however, despite its

same time, this entailed that the contract coverage and capac-

still relatively limited presence in the region.

ity utilisation were upheld. No major contract renegotiations were made during the summer and early autumn. In July Broström acquired two vessels from the company’s German partner, Rigel, plus an option on a third vessel. All of

In the third quarter as well, Broström felt the effects of the sharp fluctuations in the Asian market. This time, however, Atlantic traffic was also affected by movements in the market. Contract volumes developed relatively well during the quarter.

these vessels were previously already operated commercially

In other respects, the last three months of the year were

by Broström. In connection with the acquisition, the two ves-

characterised by a relatively weak market. The contracts that

sels’ names were changed to the BRO EDGAR and the BRO

were up for renegotiation prior to year-end were extended.

ERIK. In September the BRO DISTRIBUTOR was deliv-

Three new vessels were added to Broström’s global opera-

ered as the third of four D-class vessels. During the period,

tion during the year, all during the second half. Two of the

Broström also sold two older vessels, the BRO TRAVELLER

vessels are the ﬁrst of the eight ordered by Dünya, which will

and the TREGUIER. Due to mild weather in the northern

be commercially operated by Broström. The third is Dünya’s

hemisphere during the latter part of 2006, the normal freight

vessel, the GANMUR, which has been included in Broström’s

upturn during the fourth quarter did not materialise. In ad-

commercial ﬂeet since autumn 2006.

dition, during the quarter, contract volumes from northern

At the same time, one older vessel was sold. At year-end,

Russia decreased due to production disruptions at reﬁneries,

Broström and its partners had ﬁve vessels on order for global

which had an adverse eﬀect on Broström’s activity.

traﬃc, of which four will be delivered in 2007.

SHIPPING

Partners – a vital part of our strategy Broström handles the commercial operation of 78 modern product and chemical tankers, of which the company wholly or partly owns 42. The rest of the vessels are owned primarily by a number of long-term partners, many of which 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 partners are offered stable, good earnings over a long period of time. These mutual benefits have enabled Broström to continuously build upon existing partnerships while making the company attractive for new partners. In addition to the partners described below, Broström works with other companies, including Uni-Tankers, Swedia Rederi AB, Rederi AB Älvtank and Rederi AB Väderö Tank.

Rigel Schiffahrts GmbH & Co KG www.rigel-hb.com Rigel Schiffahrts is engaged in crewing and technical operation of 17 modern product and chemical tankers ranging in size from 9,000 to 37,000 dwt. Its partnership with Broström involves the commercial operation of 11 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 owns four product and chemical tankers, and two dry cargo vessels. In addition, the company has one product tanker on order and is a part-owner of the BRO ATLAND. Broström is responsible for commercial operation of the ﬁve product tankers, in which it is also a part-owner. 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 group of families, 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 75 tank terminals in 30 countries. The company is also active in inland tanker shipping. Vopak has approximately 3,400 employees worldwide, with 2006 sales of slightly more than SEK 7,200 m.

Erik Thun AB www.thun.se Erik Thun operates and crews more than 30 product tankers and dry cargo vessels, in which it also has ownership interests. The company is also involved in four newbuildings. Broström and Erik Thun have a joint involvement in nine product tankers and two newbuildings. In 1990 Broström and Erik Thun formed United Tankers (today 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 run since 1938 by the Källsson family.

Dünya Shipping & Trading Inc. www.dunyashipping.com Dünya owns and performs technical operation of eight product and chemical tankers and has an additional seven vessels on order. Broström and Dünya’s partnership covers two existing vessels of 47,000 dwt each and eight newbuildings between 47,000 and 51,000 dwt each – two of which were delivered in 2006 from a shipyard in Korea, with delivery of the other six taking place successively in 2007 and 2008. The partnership also includes six newbuildings of 17,000 dwt each, of which the ﬁrst will be delivered in 2007 from the shipyard in Turkey and the others in 2008. 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 ﬁve product tankers, of which Broström has ownership interests in three. All ﬁve vessels are operated commercially by Nordtank – a company that Furetank co-founded. In 2006 Broström increased its ownership in one of the vessels. Furetank is domiciled on the island of Donsö in Göteborg’s southern archipelago. The company has been owned since its founding in 1955 by the Höglund family, and has a heritage dating back to the 1700s.

B RO S T RÖ M E X T R A

In 2006 Broström and Dünya developed their partnership by ordering six vessels for European traffic. At the same time, the two companies launched their expansion in Asian by taking delivery of the first of eight large vessels.

Partners in global expansion At year-end 2006 the ﬁrst two of eight vessels ordered by Broström’s Turkish partner from a shipyard in Korea were delivered. The vessels, which are between 47,000 and 51,000 dwt in size, will be owned and technically operated by Dünya, while Broström will be responsible for their commercial operation. With these deliveries, Broström’s expansion in Asia got off to a serious start.

Dünya is a family-owned company with roots in London. Today

the Asian market are based on a speciﬁcation drawn up by

its head oﬃces are in Turkey, and the company is one of the

two of Korea’s leading shipyards. The speciﬁcation was

leading players in Turkey’s fast-growing shipping industry.

subsequently modiﬁed based on both Dünya’s and Broström’s experience in Asian traﬃc. According to Suay Umut, this

Based on experience

has given the vessels a competitive edge – a view that is also

The contacts between Dünya and Broström date back to 1995,

conﬁrmed by the reactions that have come in to date from

when Dünya bought one of Broström’s vessels. But it was not

Broström and Dünya’s customers.

until a couple of years ago that the partnership really took form, when Broström was given responsibility for the commercial operation of Dünya’s vessel, the GÖNEN, under a time charter. “Chartering out the GÖNEN to Broström gave us a closer

The new vessels are joining a market characterised by a strong belief in the future. “We expect demand for oil products in Asia to continue rising at a fast rate,” says Suay Umut. “At the same time, the

look at their commercial operation and a chance to compare

completion of new reﬁneries in the region will give rise to

it with the competitors. And we liked what we saw,” says Suay

opportunities for both Broström and Dünya.”

Umut, Dünya’s founder and owner.

Vessels also for European trafﬁc Aligned with the customers’ needs

In 2006 the partnership between Broström and Dünya came

In early 2005 the two companies therefore made the decision

to involve a total of six vessels ordered by Dünya from Turkish

on a more far-reaching partnership involving eight vessels that

shipyards.

Dünya had ordered for Asian traﬃc. “Our decision to work with Broström was based on the trend

“With the Asian shipyards’ orderbooks full and prices rising to new heights, we made a reality of an ambition we have long

toward larger, but fewer, players among our customers in the oil

had – to order vessels from our own home market,” Suay Umut

industry,” says Umut. “This has led to steadily higher demand for

explains. “Turkish shipyards have built up a reputation in the

reliable and ﬂexible transport solutions from suppliers that can

design of high-quality small and intermediate oil and chemical

meet their needs for size and strength.”

tankers.

In Suay Umut’s view, Broström’s focus on transports of af-

“Once we had placed our order, we looked around ourselves

freightment and the company’s ambition to build long-term cus-

for alternatives to their commercial operation. But it was pretty

tomer relationships are on target for the new market situation.

obvious that our choice would fall on Broström, which will also own three of the vessels.”

Expansion in the far East The vessels that are now being gradually delivered for traﬃc in

The new vessels will be successively added to Broström’s European operations in 2007 and 2008.

M A R I N E & LO G I S T I C S S E RV I C E S

Increasing efﬁciency at ports Activities of the Marine & Logistics Services operations area have decreased in recent years in pace with the divestment of businesses. Following the sale of Nordic Bulkers in 2005 and of Broströms Resebyrå in 2006, operations consist solely of the Ship Agencies business area. The Ship Agencies business area consists of the Broström Ship

earnings capacity for their customers. The scope of individual

Agency Network – comprising seven companies working with

assignments varies depending on the size of the vessel.

vessel clearance, chartering, linear agency and forwarding.

The network’s key competitive strengths are its ability to

The companies are represented in 15 ports along the Swedish

meet customers’ requirements and a consistent high level of

coast, which together account for roughly half of total goods

quality. The companies in the network have good knowledge

volume at Swedish ports. Together the companies assist their

of the business, excellent customer relationships, and com-

customers with some 3,000 port calls each year.

mitted and knowledgeable employees.

By shortening the time customers’ vessels spend in port,

The Broström Ship Agency Network combines the local

the companies in the network help cut costs and improve the

companies’ proximity to customers with opportunities to coordinate market activities and resources in the aim of reaching international agency agreements with large customers. Most of the companies in the network are 100%-owned by Broström, except for SwanFalk Shipping, which is owned by Uddevalla Hamnterminal – in which Broström is a part-

K E Y E V EN T S

owner – and Percy Tham in Oxelösund, which is jointly The Travel Agency business area was discontinued in connec-

owned by Broström and Transatlantic European Services.

tion with Broström’s sale in May of the subsidiary Broströms

Market conditions

Resebyrå to the Norwegian company VIA Travel.

Ship Agencies’ customers consist primarily of shipping Ship Agencies

companies, transport companies, various purchasing or trad-

• The Ship Agencies business area performed well during the

ing companies, and Swedish exporters. The oil and chemical

year, with higher sales and improved earnings.

industry is an important customer group for August Leﬄer,

• August Leffler, Simon Edström Shipping and Percy Tham benefited from the continued strong trend in the tanker shipping market. • Uddevalla Hamnterminal expanded its operations for both new and existing customers. • Unér Shipping benefited from a rise in project transports

Simon Edström Shipping and Percy Tham, while many of the customers of SwanFalk Shipping/Uddevalla Hamnterminal have ties with the forest products and paper industries. Unér Shipping’s operations are distinguished by the local business structures in the various ports at which the company is active. Project transports are one of Unér Shipping’s specialist

and large transports of biofuel.

competencies. The companies’ market shares vary widely between the SEK m

2006

2005

2004

210

743

755

Operating proﬁt (EBIT)

Operating margin, %

Net sales

Average number of employees

various ports at which the network is represented. Competitors consist primarily of local shipping agents and foreign agency networks. Uddevalla Hamnterminal encounters competition from other ports and modes of transport.

135

144

Number of employees on 31 Dec.1) 110

190

258

Market development

Total assets

128

200

The market developed favourably in 2006, mainly due to an

Investments

Incl. associated companies.

upswing in oil and chemical transports and a strong year for the Swedish export industry. Parallel with this, the authorities continued to issue more stringent requirements, requiring more documentation and

The Broström Ship Agency Network

AB August Lefﬂ er & Son, Brofjorden

Uddevalla Hamnterminal AB and SwanFalk Shipping AB, Uddevalla

10 Unér Shipping AB, Oskarshamn

Unér Shipping AB, Västervik

AB August Lefﬂ er & Son, Stenungsund

11 Unér Shipping AB, Kalmar

AB August Lefﬂ er & Son/Blidberg, Metcalfe & Co AB, Göteborg

12 Unér Shipping AB, Halmstad

Percy Tham i Oxelösund AB, Oxelösund

13 Unér Shipping AB, Åhus

Simon Edström Shipping AB, Karlshamn

Unér Shipping AB, Bergkvara

Unér Shipping AB, Stockholm

Unér Shipping AB, Karlskrona

Unér Shipping AB, Norrköping

administrative work, among other things. This gives more

the year, the company reached an extended ﬁve-year co-

established players like the companies in the Broström

operation agreement with an existing customer, which will

Agency Network a competitive edge while making it less

generate higher volumes in the years ahead. In addition, the

attractive for shipping companies to handle agency work

company noted clear growth in volume following several

on their own.

years of relatively stable volumes.

The trend toward increasingly larger vessels entails that

Unér Shipping beneﬁted from a continued rise in project

assignments are decreasing in relative numbers, while it is also

transports and a large volume of biofuel transports. Sales were

growing more diﬃcult to ﬁnd tonnage for smaller cargoes.

stable, and the company showed strong earnings.

Ship Agencies in 2006

Future outlook

The Ship Agencies business area performed strongly for the

Despite the fact that Ship Agencies is by its nature a very sta-

second year in a row. All companies posted stable or growing

ble business, there is good reason to believe that sales will con-

sales along with earnings improvements.

tinue to rise in 2007. The trend in the oil industry is expected

August Leﬄer experienced a continued strong trend in oil

to lead to a continued high level of activity at the oil ports in

transports both from and to Göteborg and Brofjorden. In the

Brofjorden, Göteborg, Karlshamn and Oxelösund. Moreover,

latter case, however, competition intensiﬁed by the establish-

reﬁnery investments made in Brofjorden are expected to lead

ment of a new player at the port, which had a negative impact

to high volumes.

on the number of assignments. However, the decline in Brofjorden was offset by sharp growth in volume in Göteborg. Simon Edström Shipping benefited from the strong market for oil and chemical transports and reported higher revenues. The same applied for Percy Tham, which also benefited from the trend in the tanker shipping market. Uddevall Hamnterminal benefited from newly established shuttle traffic for container transports to Göteborg. During

Uddevalla Hamnterminal is expected to be favourably aﬀected by the further development of its co-operation with West Sweden Seaports, at the same time that a recently signed agreement with an existing customer is expected to lead to higher business volumes. Unér Shipping is expected to be able to continue beneﬁting from a rising number of project transports as well as transports in the bioenergy sector.

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Share of Broström’s total net sales

Sales and earnings – Marine & Logistics Services

Following the sale of Broströms Resebyrå, the Marine & Logistics Services operations area accounts for 6% of Broström’s net sales.

Both net sales and operating proﬁt in 2006 were affected by the sale of Broströms Resebyrå.

EM P LOY EES

Shared values for continued success Broström is an attractive employer. The company’s internal climate is distinguished by shared values and openness to new ideas. Regardless of where one works in the Broström Group, co-operation with other parts of the organisation is both intensive and stimulating.

With approximately 1,100 employees around the world, most

get at their job interviews is in agreement with the one they

of whom work onboard vessels that are in constant motion,

have later during their employment.

establishing the feeling of a single company is a challenge. This challenge is made tougher by the relatively large percentage

Everyone included in proﬁt-sharing system

of contract employees. As a result, Broström is working on

Broström actively strives to promote broad-based and frequent

developing a cohesive company culture that is based on shared

co-operation between the various parts of the Group – not

values and respect for employees and customers alike.

least between the organisations ashore and onboard the vessels. In addition, all employees are included in the companys’ proﬁt-

Employer branding

sharing system, including contract employees onboard the

In 2006 Broström conducted a wide-reaching brand project

vessels. (For further information, see page 80.)

which resulted in a revised company vision, a set of shared company values and a brand promise.

An employee survey that was conducted during the year of Broström’s Swedish employees ashore and onboard vessels

However, equally important as the results of the project is

showed positive results. Perhaps one of the most gratifying

the process it entailed and which involved employees

ﬁndings was that 95% of respondents stated that Broström

from all parts of the company. The foundation has thereby

has an open climate in which employees’ opinions and views

been laid for every employee to be able to “live the brand”.

are welcome. The results also show that both shore-based

A vital part of the Brand Project has consisted of

and onboard employees have roughly the same impression of

employer branding. It is essential that every employee

the company.

realises and understands what the shared values mean for

Competence development handled centrally

him or her. The aim of employer branding is to create an attractive

In accordance with Broström’s “Excellence in Performance”

workplace for existing as well as prospective employees.

core value, the company invests both time and resources in

This means ensuring that the impression new recruits

continuous competence development. One key area concerns

An assignment – from order to discharging

The captain receives a travel order and takes responsibility during the entire journey for the ongoing contact with the shore-based organisation as well as with ports, authorities, customers, etc.

At sea

Ashore

The chief ofﬁcer is responsible for cargo-monitoring and -handling from the command bridge.

Negotiation/travel order

The charterer is the salesperson who makes the agreement with the customer for a transport.

Voyage to loading port

The operator is in charge of the daily operation of the vessel and is responsible for communication with vessels, customers, ports and agents.

Every voyage made by Broström’s vessels is unique. However, in very simplified terms, a voyage contracted on the spot market can be described according to the model above. In addition to the persons described in the illustration, naturally many more people are involved during a voyage.

Marine logistics are largely concerned with communication and the interplay between vessels and the shore-based organisation. Pictured here are Åke Isaksson, Master of the BRO PROVIDER, and Evelyne Iliou, Senior Assistant to Crew Manager at Broström’s office in Paris.

matters related to quality, safety and the environment, where

The total cost of competence development initiatives during

major emphasis is put on knowledge of internal systems and

the year was SEK 9.7 m (8.6), corresponding to SEK 12,400

processes.

(10,200) per employee.

In 2006 a course on vetting, i.e., oil companies’ inspections of vessels, was initiated for ship oﬃcers. The course covers a

Close co-operation in the Philippines

number of areas and is a continuation of “Bro Leadership”,

Since 2002 Broström has been working in alliance with the

the Group’s previous training programme.

crewing agency Net Ship Management in Manila, Philippines. The aim of this co-operation is to ensure access to contract

In the shore-based organisation, the second step was taken during the year in the Employeeship training initia-

employees with the right competence and training. Net Ship

tive, which is closely linked with the performance dialogues

currently has a network of some 1,300 seamen, of whom

that are conducted each year with all employees. The aim of

around 900 are concurrently employed, and approximately 30

Employeeship Step 2 is to learn how to handle change pro-

oﬃce employees. Net Ship serves slightly more than 70 vessels

cesses and stimulate self-motivation. Step 2 also aims to make

for 14 shipping companies. Net Ship is quality certiﬁed according to ISO 9001 and has

performance dialogues better-suited to lead to individual

carried out extensive competence development programmes

development plans.

in recent years. These have covered everything from training

Apart from joint training activities in speciﬁc areas and individual competence development initiatives, all newly

required by law and various regulations to courses in leader-

recruited employees in the shore-based organisation are

ship and intercultural relations. The success of these initia-

oﬀered an orientation programme in which they are assigned

tives can be seen not least in the fact that more than 95% of all

a personal contact, among other things.

Philippine seamen regularly return to Broström’s vessels.

A seaman handles and monitors the cargohandling on deck.

Journey to discharging port

Discharging

Invoicing and administration

Broström’s lawyers review the legal aspects of the agreement.

These include everyone from the second officer, who attends to navigation and other matters, to the machinist, who is responsible for the vessel’s machinery and electrical system, to the bunker department on shore.

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Share of men and women

Age structure

Shipping is traditionally a male-dominated industry. However, one in three of employees in BrostrĂśmâ&#x20AC;&#x2122;s shore-based organisation are women.

BrostrĂśm has good age distribution among its employees.

Employee turnover and sicknessrelated absence

vessels are most active in exercise and wellness activities.

Statistics on employee turnover and sickness-related absence

Attractive for new employees

show that BrostrĂśm is an attractive employer. Employee

The shipping industry in general is facing substantial chal-

turnover for replacement recruitment was 8.6% in 2006

lenges, including extensive retirement-related attrition at the

(6.7). BrostrĂśmâ&#x20AC;&#x2122;s workforce increased during the year by 6%.

same time that access to experienced seamen is limited around

Sickness-related absence was 2.2% (2.1) in the Swedish shore-

the world. BrostrĂśm has a strong vantage point, however. A

based organisation.

few years ago the company successfully managed a temporary

BrostrĂśm works continuously to improve its work environ-

decrease in the Swedish ďŹ&#x201A;eet without having to serve notice to

ment and reduce the risk for work injuries. Accidents and

any crew members. Because of this, in a short period of time

other safety-related factors are reported and analysed.

BrostrĂśm has been able to crew a total of three new vessels, in which each unit requires two parallel crews. As further

Continued wellness initiatives

evidence that BrostrĂśm is an attractive employer, the company

Employee health and well-being is important. BrostrĂśm works

receives approximately 115 spontaneous job applications every

actively with wellness initiatives to maintain a low level of sick-

month â&#x20AC;&#x201C; about equally divided between the shore-based and

ness-related absences. In 2006 a wellness council was estab-

onboard organisations â&#x20AC;&#x201C; and the average period of employment

lished with representatives from all of the Groupâ&#x20AC;&#x2122;s Swedish

is high â&#x20AC;&#x201C; 9.5 years.

companies. During the year, it worked on formulating a Group health and wellness policy. All permanent employees receive an exercise subsidy, and an ambitious exercise programme is oďŹ&#x20AC;ered onboard most

Employee data

2006

2005

Average number of employees

1,034

1,009

992

964

850

826 144

Of which, Shipping Of which, Marine & Logistics Services

135

vessels. In addition, during the last few years, an internal

Of which, parent company

competition has been held to determine which of BrostrĂśmâ&#x20AC;&#x2122;s

Number of employees at 31 Dec.1)

1,100

925

992

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Net sales and value-added per employee BrostrĂśmâ&#x20AC;&#x2122;s employees create value for both customers and shareholders.

2004

Including associated companies.

The orderbooks are full at the world’s shipyards. By virtue of its size, Broström can plan its vessel purchases for periods when newbuilding prices are more favourable.

A ﬂeet undergoing constant rejuvenation A total of eight vessels joined Broström’s commercially operating ﬂeet of tankers in 2006. Three of these were Broström’s D-class vessels of 14,500 dwt, which were built at a shipyard in China and are wholly owned by Broström (see page 12). Through the partnership with Dünya, two larger vessels were

its ownership stake in Furetank’s vessel, the FURE NORD,

added to the ﬂeet, and these will be joined by another six in the

from 9% to 30%.

same series – all of which will be owned by Dünya. In addition, one of Dünya’s existing vessels also joined the ﬂeet.

During the year, Broström sold three older vessels. The tanker ﬂeet was also aﬀected during the year by the sale of two

The part of the ﬂeet that is operated by Broström-owned Nordtank grew by two vessels during the year; these are owned by external partners.

vessels by Broström’s partners, at the same time that one vessel that had been chartered-in left the ﬂeet. The average age of Broström’s wholly or partly owned

Broström also acquired four vessels and increased its

vessels at year-end was 7.2 years, or 8.0 years for the entire ﬂeet

ownership stake in another one, which the company already

that is commercially operated by Broström. The average age

operated. Two of these, the BRO PROMOTION and the BRO

of the world ﬂeet is 14.4 years in the segment that Broström

PREMIUM, were acquired from Broström’s former partner,

operates in. 98% of Broström’s tonnage is double hulled,

Vroon, while the other two, the BRO EDGAR and the BRO

compared with 63% of tonnage in the world ﬂeet in Broström’s

ERIK, were acquired from Broström’s current partner Rigel.

size segments.

Broström also has an option to acquire an additional vessel

At year-end Broström was ﬁnancially involved in ﬁve new-

from Rigel of the same series, which already consists of three

buildings. Added to these are an additional ten newbuildings

sister vessels. Further, during the autumn Broström increased

that have been ordered by Broström’s partners.

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Growth of the tanker fleet In ten years’ time, Broström’s tanker fleet has grown from 24 to 93 product and chemical tankers, including vessels on order. Within two years the fleet will comprise about 100 vessels.

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Ownership structure of the tanker fleet (number of vessels) Through a combination of wholly and partly owned vessels and partnerships, Broström has grown the fleet with limited risk. The chart illustrates Broström’s fleet excluding newbuildings.

T H E FL EE T

Broström’s ﬂeet, February 2007 Ownership

Commercial

dwt

Year built

form/% stake

operator

Ownership

Commercial

dwt

Year built

form/% stake

VINGA HELENA

6,200

1985

C/M

Nordtank

operator

BRO PROVIDER

31,700

2001

100

BRO GLORY

6,900

2000

BTLTD

BTAB

BRO PRIORITY

31,700

2001

100

BRO GRACE

6,900

1999

BTLTD

BTAB

BRO EDWARD

37,000

2005

B/B5)

MARISP

7,100

BTSAS

2003

C/M

Nordtank

BRO ELLIOT

37,000

2005

B/B5)

MARELD

BTSAS

7,100

2004

C/M

Nordtank

BRO EDGAR

37,000

2004

100

BTSAS

NB FERUS SMIT 386

7,500

2009

BTAB

BRO ELIZABETH

37,000

2001

100

BTSAS

NB FERUS SMIT 387

7,500

2009

BTAB

BRO ELLEN

37,000

2002

B/B5)

BTSAS

BRO GLOBE

7,600

2001

253)

BTAB

BRO ETIENNE

37,000

2004

B/B5)

BTSAS

BRO GALAXY

7,600

2001

253)

BTAB

BRO ERIK

37,000

2005

100

BTSAS

BRO GEMINI

7,600

2003

253)

BTAB

HUNTESTERN

37,000

2004

C/M

BTSAS

BRO GENIUS

7,600

2003

253)

BTAB

NB OFFEN 1

37,000

2008

C/M

BTSAS

Vessel name

BRO GRATITUDE

7,600

2003

BTAB

NB OFFEN 2

37,000

2008

C/M

BTSAS

BRO GRANITE

7,600

2004

BTAB

NB OFFEN 3

37,000

2008

C/M

BTSAS

NANNY ATLANTIC SWAN1)

Vessel name

9,200

1993

C/M

Nordtank

NB OFFEN 4

37,000

2008

C/M

BTSAS

10,500

1982

C/M

Nordtank

NB OFFEN 5

37,000

2008

C/M

BTSAS

NORDIC SWAN4)

10,600

1986

C/M

Nordtank

NB OFFEN 6

37,000

2008

C/M

BTSAS

BRO JOINVILLE

13,000

1993

100

BTAB

NB OFFEN 7

37,000

2008

C/M

BTSAS

FURENÄS

13,000

1998

C/M

Nordtank

NB OFFEN 8

37,000

2008

C/M

BTSAS

BRO TRADER1) 6)

14,350

1988

100

BTAB

BRO CATHERINE

44,800

1997

100

BTLTD

BRO JUNO

14,350

1999

100

BTAB

BRO CECILE

44,800

1997

100

BTLTD

BRO JUPITER

14,350

1999

100

BTAB

CILAOS

44,900

1996

BTSAS

BRO TRANSPORTER1) 6) 14,350

1989

77.50

BTAB

BRO CAROLINE

45,000

1996

100

BTLTD BTLTD

BRO DELIVERER

14,750

2006

100

BTAB

BRO CHARLOTTE

45,000

1997

100

BRO DESIGNER

14,750

2006

100

BTAB

BRO PREMIUM

45,000

1999

100

BTLTD

BRO DISTRIBUTOR

14,750

2006

100

BTAB

BRO PROMOTION

45,000

1999

100

BTLTD

BRO ARTHUR

46,000

1995

100

BTLTD

BRO ALEXANDRE

46,000

1995

100

BTLTD BTLTD

BRO DEVELOPER

14,750

2007

100

BTAB

EURO SWAN

14,800

1991

C/M

Nordtank

FURE STAR

15,000

1995

Nordtank

BRO ALBERT

46,000

1995

100

FURE SUN

15,000

1995

Nordtank

GAN-VENTURE

46,600

2006

T/C

BTLTD

FIONIA SWAN

15,000

2005

C/M

Nordtank

SETO EAGLE

47,000

2004

T/C

BTLTD

RAMONA

16,000

2004

C/M

Nordtank

GAN-VOYAGER

47,000

2007

C/M

BTLTD

FURE NORD

16,000

2004

Nordtank

NB Hyundai Mipo 0324 47,000

2007

C/M

BTLTD

FURE WEST

16,000

2006

C/M

Nordtank

NB Hyundai Mipo 0325 47,000

2007

C/M

BTLTD

NAVIGO

16,600

1992

29.75

BTAB

GÖNEN6)

47,100

2000

C/M

BTLTD

BRO ANTON

16,800

1998

100

BTAB

GANMUR

47,100

2000

C/M

BTLTD

BRO ATLAND

16,800

1999

BTAB

GAN-SURE

51,000

2006

T/C

BTLTD

BRO AXEL

16,800

1998

100

BTAB

GAN-SHIELD

51,000

2006

C/M

BTLTD

NB GEMAK 028

17,000

2007

C/M

BTAB

NB STX Shipping S1215 51,000

2007

C/M

BTLTD

NB YARDIMCI 052

17,000

2007

C/M

BTAB

NB STX Shipping S1216 51,000

2008

C/M

BTLTD

NB GEMAK 030

17,000

2007

100

BTAB

NB CELIK TEKNE 064

17,000

2007

100

BTAB

NB YARDIMCI 053

17,000

2007

100

BTAB

Double hull unless indicated otherwise

NB CELIK TEKNE 065

17,000

2008

C/M

BTAB

1) Double bottom

ALSTERSTERN

17,080

1994

C/M

BTAB

2) Single hull, double sides

HAVELSTERN

17,080

1994

C/M

BTAB

3) Reports further 25% as financial lease

RHEINSTERN

17,080

1993

C/M

BTAB

4) Stainless steel tanks

TRAVESTERN

17,080

1993

C/M

BTAB

5) Reported as financial lease

DONAUSTERN

17,080

1995

C/M

BTAB

6) Sold, delivery in March 2007

ISARSTERN

17,080

1995

C/M

BTAB

PROSPERO

18,000

2000

BTAB

BRO SINCERO

18,000

2002

BTAB

NB EDWARDS 137

19,500

2007

C/M

BTAB

EVINCO

19,900

2005

BTAB

Small = 5 - 10 kdwt Intermediate = 10 - 20 kdwt Handy = 20 - 40 kdwt Handy max = 40 - 50 kdwt

WEICHSELSTERN

21,150

1999

C/M

BTAB

NB = Newbuilding

WOLGASTERN

21,150

1999

C/M

BTAB

B/B = Bareboat charter

THEMSESTERN

21,850

2000

C/M

BTAB

T/C = Time charter

RHONESTERN

21,850

2000

C/M

BTAB

C/M = Commercial management

VEGA SPIRIT

22,800

2001

T/C

BTLTD

Nordtank = Nordtank Shipping AS, Holbaek (Denmark)

VEGA SPRING

22,800

2001

T/C

BTLTD

BTAB = Broström Tankers AB, Göteborg (Sweden)

GREAT SWAN

23,400

1991

C/M

Nordtank

VOYAGER A

31,300

1994

T/C

BTLTD

BTSAS = Broström Tankers SAS, Paris (France) BTLTD = Broström Tankers Ltd (Sandefjord, Norway and Singapore)

B RO S T RÖ M E X T R A

The world’s most modern product tankers On 17 January 2007 the BRO DISTRIBUTOR was ofﬁcially named by Maud Olofsson, Sweden’s Minister for Enterprise, Energy and Communications. At the ceremony in Göteborg, ties were drawn between modern times – represented by the world’s most modern product tankers – and Göteborg’s maritime history. The BRO DISTRIBUTOR is one of Broström’s four D-class

Behind the design work of the D-class vessels is extensive devel-

vessels. In February 2006, Lloyd’s List, the internationally

opment work conducted by Broström and its suppliers – most

leading daily journal of the shipping industry, designated

of which are in Sweden.

its identical sister vessel, the BRO DELIVERER, as Ship of the Year. Broström’s D-class vessels meet the most stringent demands on eﬃciency, quality, safety and environmental

Moreover, the BRO DISTRIBUTOR will be sailing under the Swedish ﬂag, with Göteborg as its home port. The naming ceremony gave many of Broström’s employees

performance. Their design has been adapted to the future

an opportunity to become acquainted with the new vessel. It

transport needs identiﬁed by Broström’s customers.

thereby contributed to tying the company’s operations closer to

Even though the vessels were built in China, the naming ceremony put the spotlight on Sweden as a maritime nation.

each other. And of course, it was hard not to notice the pride that many employees felt for the ﬁnished result of their joint eﬀorts.

QUA L I T Y, S A FE T Y, T H E EN V I RO N M EN T A N D I T

Shipping increasingly environmentally friendly The shipping industry is currently in the midst of a process in which rules governing both safety and the environment are being sharpened step by step. For example, in 2006, requirements were adopted for low-sulphur bunker oil in trafďŹ c on the Baltic Sea. Starting on 1 January 2007, new rules apply for chemical transports. BrostrĂśm welcomes this trend and is well prepared for continued development in this area.

Quality

for BrostrĂśmâ&#x20AC;&#x2122;s vessels was 1.0 (0.6) according to the Paris

BrostrĂśm strives to always provide the same high standards of

MOU, compared with nearly three for the commercial world

service and quality to all of its customers. Toward this end, the

ďŹ&#x201A;eet. Of BrostrĂśmâ&#x20AC;&#x2122;s vessels, 57% (77) passed inspections

companyâ&#x20AC;&#x2122;s shipping activities work according to a joint quality

entirely without comment, compared with 46% for the com-

system that includes uniform work models and a uniform level

mercial world ďŹ&#x201A;eet.

of quality, among other things.

Self assessment for the beneďŹ t of customers Tanker shipping under constant oversight

In 2006 BrostrĂśm continued its work on living up to the oil

The shipping industry, and especially tanker shipping, is

companiesâ&#x20AC;&#x2122; new, industry-wide Tanker Management Self

constantly subject to external quality evaluations. The most

Assessment (TMSA) guidelines. Vessel operators are individ-

important of these are the oil industryâ&#x20AC;&#x2122;s vetting of suppliers,

ually responsible for evaluating and reporting to a database,

the yearly inspections conducted by ďŹ&#x201A;ag states, port state

which the companyâ&#x20AC;&#x2122;s customers can access to see the results.

controls (which are a matter of public record), and the

The oil companies also conduct their own spot checks.

inspections performed by the classiďŹ cation societies. Added to these are BrostrĂśmâ&#x20AC;&#x2122;s own internal controls.

The system is based on four levels, where the ďŹ rst consists of stipulations made by law and other regulatory bodies.

These controls involve the inspection of navigation equip-

The requirements then become increasingly stringent with

ment and routines, rescue equipment, ďŹ re-ďŹ ghting equipment,

each level. Today BrostrĂśm meets level two, and the goal is to

cargo handling systems, oil clean-up equipment, crisis-man-

measure up to level three in the relatively near future.

agement routines, vessel construction and their general condition. In addition, controls are performed of crew numbers

Safety and the environment

and certiďŹ cation, as well as of the vesselsâ&#x20AC;&#x2122; logs and certiďŹ cates.

Safety and environmental issues are closely related. Bro-

Onshore operations are controlled through audits of all pro-

strĂśmâ&#x20AC;&#x2122;s Group-wide Safety, Health and Environmental (SHE)

cesses and routines that are subject to certiďŹ cation.

policy sets minimum standards and requirements for report-

The average number of remarks per port state inspection

ing in a number of areas, including environmental emissions,

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Age structure (share of ďŹ&#x201A;eet)

World tanker ďŹ&#x201A;eet older than 20 years

BrostrĂśm has a modern ďŹ&#x201A;eet. Sixty-four per cent of BrostrĂśmâ&#x20AC;&#x2122;s ďŹ&#x201A;eet is younger than 10 years.

One in every three vessels in the world ďŹ&#x201A;eet in BrostrĂśmâ&#x20AC;&#x2122;s segment is still older than 20 years.

Many of BrostrĂśmâ&#x20AC;&#x2122;s voyages pass through narrow shipping lanes in sensitive natural environments. This puts high demands on safety for vessels as well as crews.

incidents and accidents, and absences caused by illness and work injuries.

spill incident. No serious incidents were reported in 2006. Environmental impact is minimised and serious accidents are avoided through competent and well-trained crews,

Requirements from several bodies

well-working routines, and top-notch vessels and technical

The UNâ&#x20AC;&#x2122;s International Maritime Organisation (IMO) is the

equipment.

over-arching international regulatory body for environmental and safety matters. The EU also has major inďŹ&#x201A;uence, as do the

Shipping increasingly cleaner

maritime authorities in the countries called on by vessels or

The rules governing vessel exhaust emissions have been

under whose ďŹ&#x201A;ags they sail. The international classiďŹ cation

gradually sharpened in recent years. Starting in May 2006,

societies are yet another important group.

vessels operating in the Baltic Sea are prohibited from using

The EUâ&#x20AC;&#x2122;s regulations contain stipulations calling for the

high-sulphur bunker oil. In November 2007 the same rules

phase-out of single-hulled tankers and a ban on all transports

will apply for the North Sea and the English Channel. This

of heavy oil in single-hulled tankers. These rules apply for

is leading to improvements in the shipping industryâ&#x20AC;&#x2122;s envi-

transports within the EU, as well as for EU-ďŹ&#x201A;agged vessels

ronmental performance in the area in which the potential for

around the world.

improvement is the greatest compared with other modes of

Starting in 2007, new rules also apply for chemical transports. These include requirements that every vessel must have a chemical transport certiďŹ cate for transports of vegetable oils,

transport. Rules aimed at lowering emissions of carbon dioxide and nitrogen oxides have already been in place for some time. However, it is important to note that shipping today

methanol and MTBE, among other things. All of BrostrĂśmâ&#x20AC;&#x2122;s

accounts for only 2% of the worldâ&#x20AC;&#x2122;s total CO2 emissions.

vessels already meet the standards of these new rules.

The European Commission estimates that shipping exhaust emissions amount to approximately 10g CO2 per tonne-kilo-

Oil spills rare

metre, compared with 20g for rail and 90g for road transport.

Today oil spills are very rare. Through strict reporting

Shipping is also better than both road and rail transport with

routines, BrostĂśm has complete control over every single

respect to nitrogen oxide emissions. While the shipping

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Breakdown of tanker ďŹ&#x201A;eet by hull type Ninety-eight per cent of BrostrĂśmâ&#x20AC;&#x2122;s tonnage is double-hulled, compared with sixty-three per cent for the world ďŹ&#x201A;eet in BrostrĂśmâ&#x20AC;&#x2122;s size segment.

QUA L I T Y, S A FE T Y, T H E EN V I RO N M EN T A N D I T

industry’s nitrogen oxide emissions amount to approximately 0.3g per tonne-kilometre, the corresponding ﬁgure for rail and road transport is 0.5g and 1.0g, respectively. Moreover, compared with other modes of transport, shipping is highly energy-eﬃcient. A small product tanker

“When Broström called, I don’t know if I was more happy or surprised”

consumes only about 0.3 megajoules per tonne-kilometre, compared with 0.6 megajoules for rail and 0.7-1.2 megajoules for road transport. From a socio-economic standpoint as well, shipping oﬀers major advantages compared with other modes of transport, including very limited external costs in the form of noise, environmental impact and accidents.

Steady improvements in vessel design Broström’s D-class vessels are the first tankers in the world to receive the classification society DNV’s Clean Design classification. This means, among other things, that they are fitted with catalytic exhaust cleaning. Several of Broström’s other

“Toward the end of my education in 2002 I applied for internships with several companies, including Broström. Their response I’d

vessels are prepared to be ﬁtted with catalytic converters. Emissions of nitrogen oxides and sulphur dioxide are

heard before: Thank you for your interest, we will contact you if

mainly dependent on the type of fuel. However, a transition

anything shows up. Nevertheless, I did land another internship.

to more environmentally friendly fuels requires extensive

After a year, Broström’s HR department called and asked if I was

infrastructure investments at ports and terminals. At the

interested in a ‘starting position’ at Broström’s ofﬁce in Paris. Of

same time, environmentally friendly fuels need to be made

course, I accepted gladly, at the same time that I managed to tone down my surprise; after all, their promise proved to be not just empty words ...

more readily available. In pace with the enactment of stricter regulations, both investments in and the supply of fuels are expected to rise.

“After nearly four years with Broström, I can testify that we still stand by what we say. We have quality vessels, talented employees and clear objectives – which are all important. And we have a very positive climate for development – you don’t need to ﬁght for the opportunity to attend courses and training. But what I

Broström’s new vessels have fuel tanks that allow them to handle several diﬀerent fuel grades and are thus equipped to be able to use more environmentally friendly fuels as conditions allow.

think most of us appreciate the most is the daily learning that takes place. We travel a lot and meet colleagues, and this opens

Vessel security standards

doors to new solutions and a more reﬁned type of co-operation.

Vessel security involves protection against external threats

“As a charterer, my job is to come up with solutions. When I go

such as terrorist attacks, hijackings and maritime piracy. This

to work, I know where our vessels are. Employing the vessels in

work is governed by the IMO’s International Ship and Port

the best manner – coming up

Facilities Security (ISPS) code. The ISPS code sets standards

with optimal transports and

for vessel equipment and requires every vessel to have routines

struggling to get them – is a

as well as a specially trained crew member who is responsible

challenge that I look forward to. Plus I love our international perspective. Even when I’m

for these matters. All of Broström’s vessels meet the requirements of the ISPS code.

not travelling myself, I have a presence with our vessels at all ports.”

Quality certiﬁcations ISO 9001:2000 Broström Tankers AB Broström Tankers SAS

Benoît Person, Charterer, Broström Tankers SAS, Paris, France

Broström Ship Management AB Broström Tankers Ltd AB August Lefﬂer & Son Broström AB

Through uninterrupted Internet access, crews onboard vessels can stay in touch with daily life back home by both e-mail and Web access.

Continuous Internet access keeps vessels and seamen closer to home In 2006 Broström began installation of a system for continuous Internet access onboard the vessels operated in the company’s European operations, opening a world of opportunities – commercially and socially – for the employees working onboard. Enabling vessels to stay online is leading to more eﬀective

installing a similar system on vessels operated globally. However,

communication with customers, authorities and Broström’s

this will require a somewhat diﬀerent technical solution, and a

shore-based organisation. For example, there is now no limit to

project for this is expected to be launched in 2007.

the size of documents can be sent to and from the commercial and technical departments on shore. At the same time, crews

Vessels loaded with IT

onboard have direct access to databases and quality systems, for

Through the Internet access project, Broström has now nearly

example, as well as to spare parts lists from suppliers.

ﬁnished its work on establishing a joint IT structure onboard its

Another advantage of wireless online systems onboard is

vessels. The vessels operated technically by Broström thereby

that the vessels can more easily be controlled by distance from

have a modern and uniform IT platform. Among other things,

land and that updating and certain services can be provided

the system includes document and reporting systems for sharing

from land. It is now even possible to conduct distance training

with the shore-based organisation and customers, navigation

courses and conferences which crews can participate in via

systems, and now also a joint communication system.

Internet link. For vessel crews, the new Internet access is opening up op-

In 2006 a new system for knowledge-sharing between vessels and the shore-based organisation was implemented. The system

portunities to maintain closer contact with friends and family

is designed to share experiences and thereby enable employees

ashore. For example, crew members can share pictures with

to learn from each other in areas such as technology, safety and

their children or other family members and also access news-

commercial operation.

papers and other news channels online.

In the future Broström will also be upgrading the structure of its shore-based IT tools in order to enable the exchange of

Project together with eight shipowners

knowledge and expertise between the Group’s various opera-

The speciﬁcations and procurement of the VSAT Internet

tions. This will enhance ﬂexibility and adaptability, and thereby

access system have been made in co-operation with eight

make it possible for Broström to more quickly respond to

Swedish shipowners and a total of 52 vessels. This has enabled

changes in its business environment.

them to lower their cost while devising a partly customised solution. For Broström this procurement involves 19 vessels in

Investments that must be protected

European traﬃc.

Broström works actively with IT security. This work is focused

The system is being installed in connection with vessel

primarily on spam, virus attacks and intrusions. In Broström’s

dockings for planned maintenance. To date the system has

opinion, its IT security and reliability are good, and in recent

been installed on six vessels.

years the company has not suﬀered from any serious operating

Broström has also begun looking into the possibility of

disruptions or incidents.

SE V ER A L-Y E A R OV ERV I E W

Several-year overview Co n d e n s e d in co m e s t a te m e nt s SEK m Net sales Operating profit (EBIT) Net financial items Profit after net financial items

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

3,386.1

3,818.1

3,206.8

3,267.3

2,587.1

2,642.0

2,498.7

2,033.9

2,126.8

1,807.5 199.6

771.7

812.4

403.8

355.1

324.7

580.2

499.1

90.3

158.0

-191.9

-92.3

-79.1

-117.0

-185.4

-145.8

-180.0

-120.2

-128.7

-84.9

579.8

720.1

324.7

238.1

139.3

434.4

319.1

-29.9

29.3

114.7

Tax on profit for the year

-76.8

-97.2

162.0

-47.9

-42.4

-122.8

-104.3

1.2

-11.6

-34.2

Consolidated profit for the year

503.0

622.9

486.7

190.2

96.9

311.6

214.8

-28.7

17.7

80.5

7.9

11.8

8.5

11.4

1.7

3.9

3.3

0.5

1.9

20.1

Of which, minority interest

Net sales

Sales in 2006 were favourably aﬀected by the acquisitions

Broström’s net sales target is to achieve average annual growth

made in 2005 and new partnerships, while sales decreased as a

of 10% over a three-year period. For the commercial operations,

result of the divestment of the Bulk Logistics (2005) and Travel

the growth target in the form of net sales including partners is

Agency (2006) business areas and a weaker dollar.

20%. During the last three years, average annual growth in sales has been 1.2%. In Shipping, growth has been approximately 9%. Net sales have increased both organically and as a result of

Operating overhead Broström’s operating overhead consists of variable costs (mainly

acquisitions. In 1998 Broström acquired Van Ommeren’s prod-

port calling fees, bunker charges and other contract expenses),

uct tanker operations and 40% of Iver Ships. The decrease from

operating expenses (mainly charter rates and vessel operating

1998 to 1999 was due primarily to the very weak freight market

and maintenance costs), personnel costs and depreciation. The

caused by the Asian crisis, among other things. After 1999, this

proportional relation between the various types of operating

was followed by a strengthening of the freight market and a

overhead is relatively stable.

strong US dollar, at the same time that Broström expanded its

Earnings

ﬂeet with a large number of newly built vessels. The freight market has thereafter become characterised by

Broström’s earnings trend has essentially reﬂected the growth

a sensitive balance between supply and demand. Due to more

in sales. Proﬁt in 2000 was favourably aﬀected by the repay-

stringent demands on quality and safety, many older vessels

ment of SEK 161.3 m in surplus pension funds from Alecta. The

have disappeared from the market, which has led to a situation

average return on capital employed is shown in the table below.

in which even minor events have a large impact on freight rates.

Broström’s target is that the return on capital employed should

A cold winter and a number of other factors that contrib-

exceed the interest rate of a 10-year US government bond dur-

uted to high freight rates had an impact on Broström’s net sales

ing the past three years plus a risk premium of 5%. For 2006 this

in 2003. During that same year, Broström increased its owner-

corresponded to a target of 9.2%.

ship in Iver Ships. The market conditions remained favourable Return on capital employed

in 2004, although the weaker dollar had a negative impact. The dollar recovered in 2005 at the same time that Broström acquired Nordtank and the outstanding 50% stake in Iver Ships. This added a large number of vessels to the ﬂeet.

2004 - 2006 (3 years)

12.4

2002 - 2006 (5 years)

10.4

1997 - 2006 (10 years)

11.3

Sales and earnings per quarter 2006 SEK m

2004

802.4

849.8

769.3

964.6

1,127.5

943.8

986.4

760.4

845.5

Operating profit (EBIT)

94.7

213.3

112.7

351.0

310.0

120.8

198.6

183.0

106.7

Profit after net financial items

42.2

162.6

64.9

310.1

280.4

92.6

185.5

161.6

83.5

579.6

818.0

748.0

868.6

720.1

523.2

474.4

386.4

324.8

Net sales

Moving 12 months

2005

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Net debt and debt/equity ratio

Equity/assets ratio II

The trend in BrostrĂśmâ&#x20AC;&#x2122;s debt/equity ratio is relatively stable, despite the rise in net debt in 2006.

The equity/assets ratio II has averaged 36.7% during the last three years.

C o n d e n s e d b alan ce s h e e t s SEK m Non-current assets Current assets excluding liquid assets

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

6,111.4

5,787.2

4,061.5

3,984.5

4,157.3

3,611.0

3,173.5

3,333.6

3,061.1

1,430.5 253.8

556.0

646.9

524.4

717.7

565.3

602.2

649.5

464.8

482.7

Liquid assets and short-term investments

1,283.4

1,480.5

954.9

944.6

971.8

1,150.5

598.0

432.8

651.2

419.3

Total assets

7,950.8

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

Shareholdersâ&#x20AC;&#x2122; equity, incl. minority interests

2,606.4

2,709.5

1,799.5

1,501.5

1,416.1

1,467.5

1,154.6

863.3

957.2

333.8

29.5

30.7

160.3

230.6

250.9

237.0

221.0

112.5

Equalisation reserve

149.7

205.3

107.3

105.9

143.3

72.9

81.2

116.1

162.0

â&#x20AC;&#x201C;

Deferred tax

481.0

473.1

344.5

561.5

520.4

495.9

353.5

308.6

315.3

108.1

3,969.2

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

715.0

695.1

766.0

781.4

741.2

771.7

636.8

568.8

559.9

367.9

7,950.8

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

Debenture loan

Non-current liabilities and provisions Current liabilities Total shareholdersâ&#x20AC;&#x2122; equity and liabilities

Shipping is by tradition very capital-intensive. In BrostrĂśmâ&#x20AC;&#x2122;s

connection with vessel purchases and the addition of retained

case, tied-up capital is reduced by maintaining focus on com-

earnings. Deferred tax pertains primarily to the diďŹ&#x20AC;erence

mercial operation, with vessel ownership in many cases that is

between taxable and book depreciation of vessels.

shared in full or in part with external partners. Liabilities in the balance sheet consist primarily of: 2006

2005

Non-current liabilities and provisions, %

Shareholdersâ&#x20AC;&#x2122; equity, %

BrostrĂśmâ&#x20AC;&#x2122;s assets consist of: 2006

2005

Non-current assets, mainly in the form of vessels and vessel contracts, %

Current liabilities, %

Liquid assets, %

Deferred tax, %

Current assets, %

The average equity/assets ratio and debt/equity ratio are In 1998 BrostrĂśm acquired Van Ommerenâ&#x20AC;&#x2122;s product tanker

shown in the table below. One of BrostrĂśmâ&#x20AC;&#x2122;s ďŹ nancial targets

business and at the same time carried out a non-cash issue of

is to maintain an adjusted equity/assets ratio of greater than

SEK 332 m, which increased the companyâ&#x20AC;&#x2122;s non-current assets.

30%. BrostrĂśmâ&#x20AC;&#x2122;s focus on transport services and the compa-

A new issue in connection with the companyâ&#x20AC;&#x2122;s listing on the

nyâ&#x20AC;&#x2122;s relatively even earnings capacity put special focus on the

Stockholm Stock Exchange added SEK 215 m in equity.

companyâ&#x20AC;&#x2122;s ability to generate stable cash ďŹ&#x201A;ows.

Following the delivery of newbuildings and vessel acquisitions, non-current assets increased rapidly between 2000

Equity/assets ratio II, %

Debt/equity ratio (multiple)

and 2002. The same applied for 2005, when a large number of

2004 - 2006 (3 years)

36.7

1.0

vessels were added to the BrostrĂśm ďŹ&#x201A;eet. Shareholdersâ&#x20AC;&#x2122; equity

2002 - 2006 (5 years)

34.6

1.1

increased from 2003 to 2006, mainly due to new issues in

1997 - 2006 (10 years)

31.7

1.4

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Liquid assets and cash ďŹ&#x201A;ow

Share dividend in relation to shareholdersâ&#x20AC;&#x2122; equity

BrostrĂśmâ&#x20AC;&#x2122;s focus on transports of affreightment contributes to stable cash ďŹ&#x201A;ows.

Stable cash ďŹ&#x201A;ows have enabled BrostrĂśm to pay a stable, high share dividend.

Co n d e n s e d c a s h flow s t a te m e nt s SEK m

2006

2005

2004

2003

2002

2001

2000

1999

1998

Operating activities

755.4

776.5

334.5

420.6

419.6

612.1

371.4

52.1

165.3

Change in working capital

98.3

-157.2

95.1

-76.7

-5.9

174.5

-109.6

26.9

184.5

853.7

619.3

429.6

343.9

413.7

786.6

261.8

79.0

349.8

Cash flow from investing activities

-1,594.8

-491.3

-441.7

0.7

-517.6

-218.5

85.0

-523.7

393.0

Cash flow from financing activities

961.8

457.2

92.1

-239.9

116.9

61,2

-154.8

168.0

-458.1

Dividend to shareholders and minority holders -269.1

Cash flow from operating activities

Translation difference Cash flow for the year Liquid assets at start of year

-172.8

-131.6

-87.1

-122.5

-57.6

-7.2

-14.4

-13.3

â&#x20AC;&#x201C;

1.1

-16.3

-41.3

-36.5

49.8

-39.4

-48.4

412.4

-51.6

18.7

-125.8

530.4

148.3

-241.3

232.0

1,480.5

954.9

944.5

971.8

1,150.5

598.0

432.8

651.2

419.2

â&#x20AC;&#x201C;

Liquid assets pertaining to change in consolidation

â&#x20AC;&#x201C;

25.7

21.7

â&#x20AC;&#x201C;

Exchange rate difference in liquid assets

- 148.7

113.2

36.3

-67.7

-52.9

22.1

16.9

22.9

â&#x20AC;&#x201C;

Liquid assets at year-end

1,283.4

1,480.5

954.9

944.5

971.8

1,150.5

598.0

432.8

651.2

During the nine years that BrostrĂśm has presented cash ďŹ&#x201A;ow

A stable and positive cash ďŹ&#x201A;ow is a prerequisite in order for

statements, average cash ďŹ&#x201A;ow from operating activities has

BrostrĂśm to be able to provide a steady, high dividend to its

been SEK 459.7 m. Owing to stable cash ďŹ&#x201A;ow from operating

shareholders. During its time as a listed company, BrostrĂśm has

activities, BrostrĂśm has been able to ďŹ nance a large part of its

paid a dividend every year. The average dividend, including

substantial vessel investments with own funds. These invest-

the proposed dividend for 2006, has been SEK 3.94 per share,

ments are the main reason for the substantial outďŹ&#x201A;ow of funds

corresponding to an average dividend yield of 6.3%.

from investing activities in 1999, 2001, 2002 and 2004. In 1998 and 2003 BrostrĂśm carried out a number of vessel sales and repaid loans in connection with these, which resulted in positive cash ďŹ&#x201A;ows from investing activities and negative outďŹ&#x201A;ows from ďŹ nancing activities.

#SPTUSĂ&#x161;N Market capitalisation at 31 December 2006

+BNFT 'JTIFS

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Company

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BrostrĂśm

545

4,935

2,788

25,234

445

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Odfjell

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OMI Corporation

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BrostrĂśm Logistics Index (BLX)

BrostrĂśm Logistics Index (BLX) â&#x20AC;&#x201C; Price trend for individual companies in 2006

BrostrĂśm Logistics Index (BLX)

The BrostrĂśm Logistics Index includes six companies with market capitalisation ranging from approximately SEK 1 billion to more than SEK 25 billion.

After having outperformed the BLX for several consecutive years, BrostrĂśmâ&#x20AC;&#x2122;s shares performed below the index in 2006. The calculation above is in euros.

The BLX gained 8% in 2006. The smallest company in the index showed the strongest performance.

BrostrĂśm Logistics Index (BLX) BrostrĂśm is the only listed Swedish company to publish its own share index, the BrostrĂśm Logistics Index (BLX). The BrostrĂśm Logistics Index (BLX) compares BrostrĂśmâ&#x20AC;&#x2122;s

The BLX index was created against the background of restruc-

Class B-shares with the shares of six Swedish and foreign com-

turing taking place among customers in the oil and chemical

panies. The aim of the BLX is to facilitate an understanding

industry for some time, which is also leading to changes in the

and analysis of BrostrĂśm and contribute to a correct valuation

market for product and chemical tanker shipping. Traditional

of the companyâ&#x20AC;&#x2122;s shares. BrostrĂśm has presented the BLX since

tanker shipping companies are concentrating on purchases

1999, and during these years BrostrĂśmâ&#x20AC;&#x2122;s shares have clearly out-

and sales of vessels and are becoming less active in commercial

performed the other shares in the index. However, in 2006 the

operations. BrostrĂśm has a more distinct focus on the actual

BLX index rose more than BrostrĂśmâ&#x20AC;&#x2122;s share price. The BLX is

transport and logistics services.

updated every day and can be found on the share data page on BrostrĂśmâ&#x20AC;&#x2122;s website: www.brostrom.se.

Companies in the BrostrĂśm Logistics Index DSV

www.dsv.com

OMI Corporation

www.omicorp.com

Through its subsidiary DSV Air & Sea AB, the Danish company DSV provides land and marine transports of passengers and goods. The DSV Group, with head ofďŹ ces in BrĂ¸ndy, Denmark, is listed on the Copenhagen Stock Exchange.

OMI Corporation is a large international shipowner that operates a ďŹ&#x201A;eet of slightly more than 40 tankers (30,000165,000 dwt). OMIâ&#x20AC;&#x2122;s head ofďŹ ces are located in Stamford, Connecticut, USA.

James Fisher & Sons

Transatlantic

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 & Sonsâ&#x20AC;&#x2122; head ofďŹ ces are located in Barrow-in-Furness, UK.

Odfjell

www.rabt.se

Transatlantic conducts industrial shipping and ship management, with more than 30 small and mid-size bulk and ro/ro vessels and a small number of icebreakers. The companyâ&#x20AC;&#x2122;s head ofďŹ ces are located in SkĂ¤rhamn, Sweden.

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 ďŹ&#x201A;eet of nearly 100 chemical tankers (4,000-45,000 dwt), including several parcel tankers. In addition, the company has approximately 30 newbuildings on order. Odfjellâ&#x20AC;&#x2122;s head ofďŹ ces are in Bergen, Norway.

B RO S T RÖ M ’ S S H A R E S

Broström’s shares Broström’s shares were introduced on the Stockholm Stock

Agreement between holders of A-shares

Exchange O-list on 17 June 1998 and were quoted on the

Broström’s A-shareholders have had an agreement since 2004

Attract 40 list between July 2002 and 1 October 2006. Since

concerning consensus on the election of board members and that

1 October 2006 the shares have been traded on the Stockholm

the A-shares shall carry a right of ﬁrst refusal.

Stock Exchange Nordic List, within the Mid Cap segment and under the Energy sector. A round lot is 100 shares. The abbrevia-

Dividend policy and proposed dividend

tion is BRO-B and the ISIN code is SE0000254880.

The Board’s aim is that the dividend should reflect the company’s current level of profit, financial position and capital requirement.

Trading volume and price trend

In consideration of these factors, the aim is for the dividend to be

Following several very good years, Broström’s share price fell

around 40%-50% of proﬁt after tax. It is also the Board’s aim to

by 6% in 2006. Trading volume in Broström’s shares in 2006

maintain steady dividend growth.

was 38.9 million shares (30.8), for a total value of SEK 5,934 m (4,049), corresponding to a turnover rate of 128% (104).

The Board proposes a dividend of SEK 8.00 per share (8.00) for 2006, corresponding to 52% (42) of proﬁt after tax.

Average trading volume per business day was 155,051 shares (121,929), or SEK 23,640 thousand (16,002). Broström’s shares

Persons with insider status

closed the year at SEK 150.00 (160.00), and the market capi-

Trading in shares in a company in which a person has insider sta-

talisation, including A-shares, was SEK 4,935 m (5,220).

tus is called insider trading. By law, such trading requires notiﬁcation and must be reported to the Swedish Financial Supervisory

Share capital

Authority. Broström is required to provide the Financial Super-

Broström’s share capital is described in the tables on the next

visory Authority with the names of persons who have insider

page and in the Corporate Governance Report on page 76.

information about Broström. These persons are required to notify any holdings of Broström shares that they have and any changes

Ownership

in their holdings. Certain related natural and legal persons are

On 31 December 2006 Broström had 18,969 shareholders

also covered by the notiﬁcation requirement. A complete list of

(14,975), an increase of 27% compared with the preceding year.

persons with insider status at Broström can be found by visiting

Since the stock market introduction in 1998, a number of

the Financial Supervisory Authority’s website: www.ﬁ.se.

ownership changes have taken place. In May 2002, Broström’s former principal owner, Vopak, sold its entire holding to a

Investor relations at Broström

number of institutions. Two years later, Siem Industrikapi-

Broström aspires to maintain good relations with all sharehold-

tal AB sold all of its shares in Broström to Arvid Svensson

ers. In 2006 the company participated in a large number of stock

Invest AB, Shipinvest Intressenter AB, the Per Dreijer family

market and customer meetings at banks, as well as at “Stora Ak-

(through the company Lunaria AB), Lennart Simonsson and

tiedagen”, an annual investor conference arranged by the Swedish

institutional investors. At year-end 2004, the shares owned

Shareholders’ Association. In connection with the publication

up until that time by Shipinvest Intressenter were sold to

of ﬁnancial reports during the year, Broström met with analysts

that company’s shareholders. Shipinvest Intressenter thereby

and other professional investors, either on location Stockholm

ceased to be a shareholder of Broström.

or via teleconferences. On these occasions Broström also held

Foreign ownership on 31 December 2006 amounted to

webcasts on its website, making the information readily available

20.0% (32.4) of the share capital and 13.5% (21.2) of

for all shareholders. Broström’s management also conducted road

the votes. Total institutional ownership (according to the

shows during the year in Boston, London, New York, Oslo and

deﬁnition provided by SIS Ägarservice) was 35.7% of the

Geneva, among other locations. A list of analysts who monitor

capital (30.3) and 41.5% of the votes (38.0). The Board

Broström is provided on Broström’s website: www.brostrom.se.

and management (including related companies) together

Financial information about Broström is also provided on the

control 22.0% of the number of shares and 46.3% of the

company’s website, as well as information on the dates on which

number of votes.

the company will be making presentations for investor associations, foreign and Swedish stockbrokers, and banks.

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Trading volume per business day

Price trend, BrostrĂśm B, 1 January 2006â&#x20AC;&#x201C;31 December 2006

Trading in BrostrĂśmâ&#x20AC;&#x2122;s shares has risen steadily during the last ďŹ ve years. This has led to greater interest from both personal and professional investors.

BrostrĂśmâ&#x20AC;&#x2122;s share price fell by 6% in 2006.

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Number of shareholders

Price trend, BrostrĂśm B, 17 June 1998â&#x20AC;&#x201C;31 December 2006

On 31 December 2006 BrostrĂśm had approximately 19,000 shareholders

BrostrĂśmâ&#x20AC;&#x2122;s shares have clearly outperformed the General Index since the end of 2001. A stable dividend is also apparent in the high total return.

Shareholders (on 31 December 2006) Shareholder Arvid Svensson Invest AB

Number of A-shares

Shareholders by size class (as per 31 December 2006)

Number of B-shares

Percentage of capital votes

1,037,984

3,621,391

14.2

26.9

734,954

1,559,705

7.0

17.1

2,645,000

8.0

5.1

171,840

278,698

1.4

3.8

Lennart Simonsson

96,042

205,270

0.9

2.2

Kenneth Nilsson

84,908

267,072

1.1

2.2

Case

610,000

1.8

1.2

Michael HjortbĂśl

485,280

1.5

0.9

Swedbank Robur

479,439

1.5

0.9

Handelsbanken Fonder

437,589

1.3

0.8

20,183,420

61.3

38.9

30,772,864

100.0

Dreijer families Odin Fonder, Oslo BjĂśrnram family

Others* Total

2,125,728

Sweden

2,079,328

24,230,489

80.0

86.5

Abroad

46,400

6,542,375

20.0

13.5

* Non-Swedish shareholders reported under this heading are nominee shareholders, entailing that the individual shareholders are not officially registered.

Shareholder categories (as per 31 December 2006) Owners Legal entities Natural persons Total

Number of shares 18,120,773 14,777,819 32,898,592

Number of votes 28,056,629 23,973,515 52,030,144

Percentage of capital votes 55.1 44.9 100.0

53.9 46.1 100.0

Size of holding

Number of shares

Number of shareholders

1 - 500

2,283,763

6.9

13,394

70.6

501 - 1 000

2,634,400

8.0

3,021

15.9

1,001 - 5,000

4,811,530

14.6

2,034

10.7

5,001 - 10,000

2,061,164

6.3

267

1.4

10,001 - 15,000

937,492

2.8

0.4

15,001 - 20,000

747,120

2.3

0.2

20,001 -

19,423,123

59.0

139

0.7

Total

32,898,592

100.0

18,969

100.0

Growth of share capital Year

Change in number of shares

1981

Par Total number value of shares

Total share capital

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

2,657,160

21,257,280

1995 New issue

1,200,000

3,857,160

30,857,280

1997 New issue

576,922

4,434,082

35,472,656

13,302,246

17,736,328

35,472,656

1998 Non-cash issue

4,936,803

22,673,131

45,346,262

1998 New issue

6,142,857

28,815,988

57,631,976

2002 New issue

212,000

29,027,988

58,055,976

2003 New issue

212,000

29,239,988

58,479,976

2004 Non-cash issue

2,154,818

31,394,806

62,789,612

2005 Non-cash/new issue

1,228,036

32,622,842

65,245,684

275,750

32,898,592

65,797,184

1982 New issue

1998 Split

2006 New issue

S H A R E DATA

Share data 2006

2005

2004

2003

2002

2001

2000

1999

1998

Price-related share data Share price at year-end (closing price paid), SEK

150.00

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

179.00

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

125.00

90.25

68.00

34.70

31.00

17.00

9.30

11.00

4,935

5,220

3,100

2,105

1,118

1,196

530

337

349

P/E ratio

9.9

8.5

6.0

11.7

3.9

2.5

negative

16.9

P/EBITDA

4.4

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

5.7

8.4

6.1

2.6

1.5

2.1

5.0

0.9

Dividend yield, %

5.3

5.0

5.1

6.3

7.8

10.1

10.9

2.1

4.1

EBITDA

34.01

33.08

21.63

20.53

18.91

26.32

23.22

8.77

12.42

EBIT (operating profit)

23.60

25.12

13.79

12.10

11.23

20.13

17.32

3.13

6.40

Profit after net financial items

17.73

22.26

11.09

8.17

4.82

15.07

11.08

-1.04

1.19

Profit for the year

15.14

18.89

16.33

6.14

3.28

10.68

7.34

-1.01

0.64

Profit for the year including dilution

15.14

18.76

15.10

6.08

3.27

10.61

7.34

-1.01

0.64

Market capitalisation at year-end, SEK m

Per-share data (SEK)

Shareholders’ equity

78.71

82.69

56.30

50.51

48.31

50.53

39.96

29.90

33.14

Shareholders’ equity including dilution

78.71

82.13

55.79

50.22

48.09

50.20

39.96

29.90

33.14

Cash flow from operating activities

26.11

19.15

14.65

11.81

14.31

27.30

9.09

2.83

14.35

Cash flow for the year

-1.48

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

32,898,592

32,622,842

31,394,806

29,239,988

29,027,988

28,815,988

–

32,697,907

32,346,920

29,287,217

29,119,946

28,901,613

28,815,988

24,686,223

400,000

675,750

648,500

212,000

424,000

–

1,132

218,771

283,583

167,611

130,550

185,700

–

At year-end with dilution

32,899,724

32,841,613

31,678,389

29,407,599

29,158,538

29,001,688

28,815,988

Average with dilution

32,699,039

32,565,691

29,570,800

29,287,557

29,032,163

29,001,688

28,815,988

24,686,223

Proposed dividend Number of shares outstanding At year-end Holdings of treasury shares Average Stock options outstanding Dilutive shares

Deﬁnitions P/E ratio

Shareholders’ equity per share

Earnings per share

Market price at year-end divided by proﬁt

Shareholders’ equity excluding minority

Net proﬁt for the year less minority interests

for the year less minority interest per

interests divided by the number of shares.

divided by the average number of shares.

Shareholders’ equity per share including dilution

Earnings per share including dilution

P/EBITDA Market price at year-end divided by

Shareholders’ equity excluding minority

divided by the average number of shares including

operating proﬁt per share before

interests divided by the average number

dilutive shares.

depreciation.

of shares including dilutive shares.

P/EBIT

EBITDA per share

Cash ﬂow from operating activities per share

Market price at year-end divided by

Operating proﬁt before depreciation divided

Cash ﬂow from operating activities, after

operating proﬁt per share.

by the average number of shares.

change in working capital, divided by the

P/CE

EBIT per share

Market price at year-end divided by cash

Operating proﬁt divided by the average

Cash ﬂow for the year per share

ﬂow from operating activities per share.

number of shares.

Cash ﬂow for the year divided by the average

Dividend yield Dividend in relation to the market price

Proﬁt after net ﬁnancial items per share

at year-end.

Proﬁt after net ﬁnancial items divided by

share. Net proﬁt for the year less minority interests

average number of shares.

number of shares.

the average number of shares.

K E Y R AT I O S

Key ratios 2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

EBITDA margin, %

32.8

28.0

19.8

18.3

21.1

28.7

26.8

12.4

14.4

15.1

EBIT margin (operating margin), %

22.8

21.3

12.6

10.9

12.6

22.0

20.0

4.4

7.4

11.0

Profit margin, %

17.1

18.9

10.1

7.3

5.4

16.4

12.8

negative

1.4

6.3

Capital employed, %

11.3

15.9

9.9

7.5

7.2

17.7

16.2

5.2

8.3

13.8

Shareholders’ equity, %

18.6

27.1

30.0

12.4

6.7

23.6

21.0

negative

2.4

21.0

9.7

13.6

8.0

5.9

5.7

13.9

13.1

4.2

7.1

11.3

13.4

18.5

11.7

9.8

9.6

19.6

17.3

3.2

8.0

–

Margins

Returns Return on:

Total capital,% Working capital, % Capital structure Capital turnover rate, multiple

0.6

0.9

0.8

0.9

0.7

1.1

–

Debt/equity ratio, multiple

1.2

1.0

0.9

1.2

1.3

1.0

1.4

2.1

1.5

2.3

Interest cover ratio, multiple

3.8

5.7

4.2

3.4

1.8

2.8

2.3

0.9

1.2

2.1

Equity/assets ratio I, %

32.8

34.2

32.5

26.6

24.9

27.4

26.1

20.4

22.8

15.9

Equity/assets ratio II, %

35.0

37.2

38.0

31.9

30.9

32.6

32.3

27.4

30.5

21.2

Share of risk-bearing capital, %

41.1

43.2

44.2

42.5

40.9

42.4

41.0

35.7

39.5

26.4

Net sales per employee, SEK 000s

3,274

3,785

3,231

3,136

3,113

3,145

2,608

2,064

2,204

–

Value-added per employee, SEK 000s

1,243

1,322

912

823

754

1,031

777

438

470

–

746

805

407

341

342

626

456

141

–

10.2

9.7

8.9

6.2

8.4

5.0

0.8

1.5

–

Capital employed, weighted average 1), SEK 000s

6,986

5,484

4,338

4,489

4,400

3,906

3,496

3,377

2,500

1,627

Capital employed, year-end 2), SEK 000s

6,904

6,825

4,637

4,438

4,541

4,259

3,553

3,438

3,315

1,714

Operating capital 3), SEK 000s

5,772

5,521

3,760

3,563

3,666

3,107

2,818

2,947

2,681

–

Net debt 4), SEK 000s

3,015

2,608

1,657

1,745

1,895

1,394

1,568

1,846

1,402

856

Average number of employees 5)

1,034

1,009

992

1,042

831

840

958

985

965

673

Employees

Operating profit per employee, SEK 000s Appropriation of profits Dividend in relation to shareholders’ equity, % Other

Weighted average balance sheet total for the year, less non-interest-bearing liabilities.

Balance sheet total less non-interest-bearing liabilities.

Balance sheet total less liquid assets, interest-bearing financial assets, non-interest-bearing liabilities and deferred tax.

Interest-bearing liabilities less liquid assets including short-term investments.

Excluding temporary employees.

EBITDA margin

Return on total capital

Equity/assets ratio II

Operating proﬁt before depreciation as a

Operating proﬁt plus ﬁnancial income in

Shareholders’ equity, debenture loans and

percentage of net sales.

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

Operating proﬁt in relation to average

Share of risk-bearing capital

net sales.

operating capital.

Shareholders’ equity plus debenture loans,

Proﬁt margin

Capital turnover rate

Proﬁt after ﬁnancial items as a percentage

Net sales divided by average operating

of net sales for the year.

capital.

sheet total.

equalisation reserve and deferred tax in relation to balance sheet total.

Net sales per employee Net sales divided by average number of

Return on capital employed

Debt/equity ratio

Operating proﬁt plus ﬁnancial income including

Net debt in relation to shareholders’ equity.

Value-added per employee

exchange rate differences of assets, in relation to average capital employed.

Return on shareholders’ equity

Interest cover ratio

Operating proﬁt plus costs for employed

Proﬁt after net ﬁnancial items plus interest

staff divided by the number of employees.

expenses in relation to interest expenses.

Operating proﬁt per employee

Proﬁt for the year in relation to average shareholders’ equity excluding minority interests.

employees.

Equity/assets ratio I

Operating proﬁt divided by the average

Shareholders’ equity in relation to balance

number of employees.

sheet total.

R I S K FAC TO R S A N D S EN 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 helps minimise the risks that are traditionally associated with shipping.

The ﬁnancial risks that Broström is exposed to consist primar-

Freight rates

ily of currency and interest rate risks. These are described in

In product and chemical tanker shipping, freight rates vary

the Accounting principles section on page 62. Shipping is less

greatly. For the most part, proﬁt after net ﬁnancial items changes

sensitive to credit risk than other industries through the ability

in proportion to increases and decreases in daily earnings. The

to use marine liens.

ﬂuctuations are greatest in global segments, while prices are more stable in coastal shipping. Broström’s strategy of maintaining a

Global risks

high proportion of long-term contracts reduces its sensitivity to

Economic cycle dependency, freight rates, political factors, oil

ﬂuctuation in freight rates.

prices, and risks associated with war and terrorism are the main global risks that Broström is exposed to.

Oil prices Oil prices have historically been characterised by considerable

Economic cycle dependency

ﬂuctuation. Broström is mainly aﬀected by changes in the price

Consumption of oil and chemical products is strongly related

of bunker oil. Sensitivity to bunker prices is limited by volume

to the trend in the economy. This also applies to demand for

contracts which contain clauses that partly compensate for large

transports, which aﬀects Broström. The eﬀects of an econom-

bunker price ﬂuctuations. Broström does not work with forward

ic decline are greatest on the global shipping segment and on

hedges of bunker prices.

the spot market. In small segments in which vessels typically

There is also some correlation between the price of oil and

work within the oil and chemical industry’s internal distribu-

demand for transport capacity. Demand tends to fall when the

tion systems and under longer contracts of aﬀreightment, the

spot price of oil is higher than the forward price. While this

sensitivity is less. Broström limits economic cycle dependency

causes changes in consumption, demand for oil products stored

through its strategy of working under contracts of aﬀreight-

in depots rises when regional diﬀerences are smoothened out,

ment and by operating primarily within its customers’ distri-

which creates assignments for Broström and lowers its sensitivity

bution systems.

to this risk.

Political factors

Risks associated with war and terrorism

Regulations surrounding international trade, various tax rules,

Supply of oil products can quickly change, since a large share of

and political decisions regarding the environment and safety

the world’s oil production takes place in regions with a relatively

have an impact on product and chemical tanker shipping.

high risk of war. How this aﬀects the need for transport is uncer-

Environmental legislation also has an impact, covering vessel

tain, however. The negative eﬀects of lower supply and a global

design and operation as well as the employees’ competence and

economic downturn caused by a war could be oﬀset by greater

the company’s routines onboard and ashore. Regulations and

transports to and from various storage depots, and by an increase

inspections are being made increasingly stringent, and demand

in transport distances.

for transports using older tonnage is expected to decline. This

By taking all of the actions required by authorities and

trend can be viewed more as an opportunity rather than a risk

customers, Broström also lowers its risk of being subject to acts

for a quality player like Broström.

of terrorism. Through tried and tested routines onboard and

Trade restrictions and actions taken by countries to

surrounding the vessels, Broström meets the standards set

protect their domestic shipping are on the decline, which is

by the UN’s International Maritime Organisation and indi-

leading to increasingly freer global trade, with fewer trade

vidual countries.

policy interventions. The tax-policy risk is also lower than in

the past due to greater consensus and competitive neutrality

Operational risks

in the EU.

Operating vessels always involves some level of risk. Other risks

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4PVSDF $MBSLTPO 3FTFBSDI 4UVEJFT

Currency rate movement

Interest rate trend (USD Libor 6 months)

Bunker prices (IFO 380)

The weakening of the US dollar in relation to the Swedish krona in 2006 had a negative impact on BrostrĂśmâ&#x20AC;&#x2122;s earnings.

Although rising interest rates in the US levelled off in 2006, interest rates are still quite a bit higher than previous levels.

Bunker prices follow the trend in oil prices, but have a limited impact on BrostrĂśmâ&#x20AC;&#x2122;s earnings.

related to operations include risks associated with expansion

BrostrĂśmâ&#x20AC;&#x2122;s warrant programme (see page 80).

and investment, and employee-related risks. Risks associated with investments and expansion Vessel operation and insurance matters

The companyâ&#x20AC;&#x2122;s ďŹ nancial position weakens when new vessels are

In addition to preventive work, BrostrĂśm strives to minimise

purchased or in connection with company acquisitions. How-

injuries sustained by employees and damage caused to custom-

ever, this risk is mitigated through BrostrĂśmâ&#x20AC;&#x2122;s growth strategy,

ersâ&#x20AC;&#x2122; property and the marine environment in the event an ac-

which involves strategic partnerships and various forms of struc-

cident should occur, despite all prevention measures. BrostrĂśm

tural deals. In these partnerships, BrostrĂśm takes responsibility

has taken out a level of insurance cover that is customary for

for the commercial operation of vessels, while responsibility for

the industry.

technical operation and all or parts of ownership lie with the

Vessels are insured against damage and loss in an amount

partner. BrostrĂśmâ&#x20AC;&#x2122;s focus on commercial operation of vessels

corresponding to their market value. BrostrĂśmâ&#x20AC;&#x2122;s liability insur-

based on long-term contracts of aďŹ&#x20AC;reightment also minimises

ance (P&I) applies without limit, except for with respect to oil

the risk of speculative wrong investments in new vessels.

damage, where the maximum indemniďŹ cation is USD 1 billion per claim. In order to receive a CertiďŹ cate of Financial Respon-

Sensitivity analysis

sibility (COFR) in the US pursuant to the Oil Petroleum Act

Certain risks have a direct impact on BrostrĂśmâ&#x20AC;&#x2122;s earnings.

of 1990, BrostrĂśm has contracted the services of the insurance

In other cases, the eďŹ&#x20AC;ect is indirect and less predictable. There-

company SIGCO.

fore, in addition to the above-mentioned risks, the table below

BrostrĂśmâ&#x20AC;&#x2122;s Group-wide insurance contracts were taken out

takes into account calculations of BrostrĂśmâ&#x20AC;&#x2122;s sensitivity to

in 2003 and continue indeďŹ nitely, with premium renegotiation

changes in a number of central income and expense items. All

every 12 months. Premiums are based on claim and accident

calculations 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 has

ties not later than 14 months before the end of the 12-month

been in the respective factors during the past year. However,

period after which the cancellation is to take eďŹ&#x20AC;ect.

the freight rate and interest rate data are based on market levels, not on the freight rates or interest rates that apply for

Employee-related risks

BrostrĂśmâ&#x20AC;&#x2122;s operations.

In its operations, BrostrĂśm is dependent on its ability to attract and retain employees with a high level of professional expertise and experience in a number of diďŹ&#x20AC;erent areas. This applies not

ProďŹ t after net ďŹ nancial items

least to customer contacts, where personal relationships are of

Parameter

vital importance. BrostrĂśm is therefore actively committed to

Freight rate/day

USD +/- 500

SEK

+/-

34 m

fostering a workplace where employees feel comfortable and

Dollar rate

SEK +/- 0.10

SEK

+/-

12 m

can develop professionally as well as personally (see page 26).

Bunker price

Moreover, all employees of the shore-based organisation and

Change

Effect on profit

+/- 10 %

SEK

- /+

53 m

Net sales

+/- 1 %

SEK

+/-

34 m

External costs

+/- 1 %

SEK

- /+

19 m

onboard (including contract employees) are included in the

Personnel costs

+/- 1 %

SEK

- /+

companyâ&#x20AC;&#x2122;s proďŹ t-sharing system. In addition, all permanent

Depreciation and write-downs

+/- 1 %

SEK

- /+

employees ashore and at sea have been oďŹ&#x20AC;ered to participate in

Interest rates

+/- 1%-pt.

SEK

- /+

22 m

FI N A N C I A L R EP O R T S

Directors’ report Operations Broström AB (publ), reg. no. 556005-1467, with registered office in Göteborg, 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 2006 was characterised by a volatile freight market. The year began with a very strong spot market. This was followed by a gradual decline in freight rates until the end of the second quarter, when a recovery was noted, especially for large tonnage. This upturn continued into the third quarter, with a slight slowing toward the end of the period. Hurricane activity in the Gulf of Mexico during the third and fourth quarters of 2006 was considerably lower than a year earlier, entailing that a similar strong rise in the freight market as during the third and fourth quarters a year earlier did not materialise in 2006. Stocks of oil products were built up in advance of the feared hurricane season and were at a relatively high level heading into the approaching winter season, which had a negative impact on demand for shipments during the fourth quarter. Supply and demand in the oil energy sector are essentially in balance, entailing that small disruptions in the production and distribution chain have a quick impact on the freight market. This means that the spot market price for transports will fluctuate sharply during a given year. Transports will be made to an increasing extent over longer distances, which will have a favourable impact on the transport sector, given a greater need for shipments. In the current market, the ability to swiftly adapt to changes in the market and at the same time offer reliable transports is growing in importance. Critical mass and geographic presence are becoming increasingly significant competitive advantages. The shipyards’ orderbooks continue to be well-filled. Newbuilding prices remain high, and delivery times are very long. The price trend for quality second-hand tonnage is following the same pattern. Development for Broström In 2006 Broström continued to strengthen its positions in product and chemical tanker shipping. Additional vessels were added to the fleet and older vessels were sold. Six second-hand vessels were acquired during the last 12month period. A gradual and systematic upgrading of these vessels has taken place, which had a negative impact on earnings for 2006. Completed contract negotiations during the year had a favourable outcome in terms of both price and volume. During the year, the freight market in Broström’s segment was characterised by substantial volatility, which had a major impact on earnings during individual quarters. The mild weather in the northern hemisphere for most of 2006 resulted in lower consumption of oil products. As a result, the normal freight upturn during the fourth quarter did not materialise. This, in combination with a weak freight market in both Asia and the Atlantic during the same period, had an

adverse impact on earnings during the fourth quarter. In addition, during the fourth quarter, contract volumes from northern Russia decreased due to production disruptions at refineries, which had an adverse impact on earnings during the period. One characteristic of Broström’s business model is optimised utilisation of the fleet by combining transports under contracts of affreightment with transports on the open spot market. This creates conditions for more stable long-term profitability. Of Broström’s total transport capacity, 50%–60% is employed under contracts of affreightment. This level was maintained in 2006, despite an increase in the number of vessels in the fleet. Broström’s commercial fleet currently consists or around 80 vessels. After the newbuildings currently on order have been delivered – in about two years – the commercial fleet is expected to amount to approximately 100 vessels. The acquisitions made and new partnerships that have been entered into in recent years are now increasingly contributing to higher employment and enabling improved capacity utilisation of Broström’s fleet. This will gradually have a greater impact on the company’s earnings. Broström intends to continue taking advantage of potential consolidation opportunities in the segments in which the company is active. Substantial surplus value of ﬂeet Prices of existing tonnage as well as of newbuilding contracts have risen considerably in recent years. To help the market make an assessment of Broström’s financial position, external appraisals have been commissioned for existing vessels in the fleet, existing newbuilding contracts and existing call options on vessels that Broström has. These appraisals were ordered from two external appraisal firms, and the average of these has been used as the value. As per 31 December 2006, the average value of these units in the Group exceeded the book value by approximately SEK 2.5 bn. Tonnage tax Starting in 2004, Broström’s entire French operation became affiliated with the tonnage tax system, in accordance with the EU’s shipping policy. In Sweden a proposal has been submitted on the introduction of a tonnage tax. The proposal calls for Sweden to adopt the EU’s maritime policies and thereby achieve competitive neutrality with respect to other maritime nations within the EU. 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 2006, amounting to SEK 481.0 m, SEK 449.1 m pertains to the Swedish shipping operation. Until a formal decision has been made on tonnage taxes for the Swedish shipping industry, Broström will not operate its future newbuildings under the Swedish flag. These vessels will mainly operate under another EU flag. Sales and earnings Net sales for the Shipping operations area amounted to SEK

FI N A N C I A L R EP O R T S

3,171.2 m (3,073.0) for the full year. Operating profit was SEK 779.2 m (807.3). Performance and profit during the period were satisfactory.

Business development – Marine & Logistics Services Following the sale of Broströms Resebyrå AB in early May and the divestment of Nordic Bulkers in 2005, Broström’s Marine & Logistics Services operations now consist solely of the activities conducted by the Broström Ship Agency Network. The sale of Broströms Resebyrå AB generated a capital gain of SEK 11.3 m and a liquidity contribution of SEK 16.9 m, which were included in the 2006 half-year report. Activity was high at most ports at which the Broström Ship Agency Network is represented. Swedish export volumes were high, with the exception of certain types of products destined for the USA, which decreased due to the weak US dollar. Demand for project forwarding services was high, which contributed to the satisfactory earnings for the business area as a whole. Sales and earnings Net sales for the Marine & Logistics Services business area totalled SEK 210.2 m (743.3) for the full year. The decrease is attributable to the sale of Nordic Bulkers AB in October 2005 and the sale of Broströms Resebyrå in May 2006. Sales in 2005 excluding the divested businesses totalled SEK 118.5 m. Operating profit was SEK 9.0 m (22.7).

Signiﬁcant developments after year-end

and Russian exports of oil via the Baltic Sea are contributing to higher demand for shipments of oil and chemical products. Since there is a virtual balance between supply and demand in the market, events that disrupt various flows will cause the freight market to be periodically characterised by considerable volatility. However, the underlying long-term trend is judged to be positive. The increasingly stringent requirements being made by authorities and customers with respect to quality, safety and the environment are putting higher 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 2007 as a whole is considered to be favourable. However, deviations may occur from quarter to quarter. Completed acquisitions and established partnerships are expected to gradually contribute to improved earnings in pace with the addition of vessels to Broström’s fleet. The shipyards’ orderbooks are at historically high levels in Broström’s vessel segments, and a large number of vessels will be delivered in the years immediately ahead. In Broström’s view, however, this additional tonnage will be offset to a large degree by the major need for replacement and structural changes in the market. The value of the US dollar relative to the Swedish krona is an uncertainty factor to note. 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 effect.

See Note 46 on page 73.

Investments and divestments Consolidated sales and earnings Consolidated net sales for the year amounted to SEK 3,386.1 m (3,818.1). Sales in 2005 excluding Nordic Bulkers AB and Broströms Resebyrå AB totalled SEK 3,279.1 m, entailing volume growth of 3.3% for continuing operations. The share in associated companies’ profit was SEK 15.0 m (12.5). Operating profit was SEK 771.7 m (812.4). Net interest expense amounted to SEK -186.0 m (-105.1). The USD Libor (6 month) interest rate changed during the year, from 4.7% on 31 December 2005 to 5.4% on 31 December 2006. Net financial items amounted to SEK -191.9 m (-92.3), which resulted in a profit of SEK 579.8 m (720.1) after net financial items. The return on capital employed was 11.3% (15.9%). Tax expenses during the year amounted to SEK -76.8 m (-97.2), corresponding to 13.2% (13.5) of profit before tax. Current tax amounted to SEK -4.4 m (-17.6). The figures for the period include capital gains of SEK 126.5 m (122.4) on sales of vessels and businesses.

Future outlook The spot market has improved in Broström’s market segments in early 2007 compared with the fourth quarter of 2006. The oil energy market today is essentially in balance. It appears that investments in refinery capacity will meet the rise in demand in the years ahead, which points to continued high capacity utilisation and vulnerability to external disruptions. Shipments are being made over increasingly longer distances, and regional imbalances are expected to continue growing. Moreover, the rapidly growing Chinese economy, US oil needs

Total investments within the Group during the year amounted to SEK 1,687.5 m (1,620.0). Divestments totalled SEK 390.7 m (405.5). Of total investments, SEK 1,682.0 m (1,398.2) pertained to vessels and newbuilding contracts.

Acquired and newly delivered vessels in 2006 Name

Built

Dwt

Ownership

BRO PROMOTION

1999

45,000

100%

BRO PREMIUM

1999

45,000

100%

BRO ERIK

2005

37,000

100%

BRO EDGAR

2004

37,000

100%

BRO DELIVERER

2006

14,500

100%

BRO DESIGNER

2006

14,500

100%

BRO DISTRIBUTOR

2006

14,500

100%

In February the BRO PROMOTION (formerly the IVER EXAMPLE) and the BRO PREMIUM (formerly the IVER EXACT), both of 45,000 dwt, were taken over. These vessels were previously part of Broström’s commercial fleet but were owned by the Dutch company Vroon. Broström now owns 100% of both vessels. During the third quarter, the vessels GEESTESTERN and LEINESTERN, both of 37,000 dwt and built in 2004 and 2005, respectively, were acquired from Broström’s partner Rigel Schiffart. The vessels were renamed as the BRO EDGAR and the BRO ERIK, respectively. Three of Broström’s D-class vessels, all of 14,500 dwt, were delivered in 2006. The BRO DELIVERER was delivered to Broström in April 2006, the BRO DESIGNER was delivered in June 2006, and the BRO DISTRIBUTOR was delivered in September 2006. The last vessel in this series, the BRO DEVELOPER, was delivered in February 2007.

FI N A N C I A L R EP O R T S

Vessels sold in 2006 Name

Built

Dwt

Ownership

BRO STELLA

1995

69,930

100%

BRO TRAVELLER

1988

14,320

100%

TREGUIER

1986

32,000

50%

During the first quarter the BRO STELLA (69,930 dwt, built in 1995) was delivered to her buyer. The sale generated a pre-tax gain of SEK 85.1 m and a cash contribution of SEK 226.5 m. During the third quarter, the BRO TRAVELLER (14,320 dwt, built in 1988) and the TREGUIER (32,000 dwt, built in 1986) were delivered to their buyers. These sales generated a combined pre-tax capital gain of SEK 30 m and a cash contribution of SEK 87 m. BrostrĂśm is currently financially involved in investments in five newbuildings.

Newbuildings on order Name

Delivery

Dwt

Ownership

NB 030

2007

17,000

100%

Partner

NB 053

2007

17,000

100%

NB 064

2007

17,000

100%

NB 386

2009

7,500

50%

Thun

NB 387

2009

7,500

50%

Thun

It should be noted that in connection with the adoption of IFRS, the company has decided not to restate the book value of its vessels to market value. With todayâ&#x20AC;&#x2122;s market values of the BrostrĂśm fleet it can be asserted that a substantial surplus value exists compared to book values. BrostrĂśmâ&#x20AC;&#x2122;s financial position is strong and enables continued investment and participation in possible structural changes in the industry.

Financing During the year the Groupâ&#x20AC;&#x2122;s borrowings were affected by changes in the fleet. Three newly delivered vessels, purchases of an additional four vessels and current newbuildings were financed. In addition, loans were dissolved in connection with the sales of three vessels. Together with other loan transactions, the net change in loans â&#x20AC;&#x201C; including currency movements â&#x20AC;&#x201C; was an increase of SEK 164.5 m. This includes a decrease in financial leasing liabilities, totalling SEK 305 m. Approximately 20% 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 4.7% at year-end 2005 to 5.4% on the balance sheet date.

Pledged assets and contingent liabilities

Added to these will be further vessels and newbuildings under various partnerships. An updated specification of BrostrĂśmâ&#x20AC;&#x2122;s fleet can be found at www.brostrom.se.

Pledged assets increased by SEK 300.1 m during the year and amounted to SEK 5,782.2 m (5,482.1). Contingent liabilities decreased by SEK 30.8 m during the year and amounted to SEK 83.1 m (113.9).

Personnel Cash ďŹ&#x201A;ow Cash flow from operating activities amounted to SEK 853.7 m (619.3), or SEK 26.11 (19.15) per share. In 2006 a shareholder dividend of SEK 261.0 m (161.7), or SEK 8.00 (5.00) per share, was paid.

Financing and liquidity The Groupâ&#x20AC;&#x2122;s disposable liquidity on 31 December 2006 amounted to SEK 1,109.7 m (1,294.9). This amount includes SEK 52.3 m (52.5) in unutilised overdraft facilities. Net debt increased during the year from SEK 2,608.2 m to SEK 3,015.0 m, mainly due to investments in vessels and operations. Shareholdersâ&#x20AC;&#x2122; equity on 31 December 2006 was SEK 2,606.4 m (2,709.5), and the equity/assets ratio I was 32.8% (34.2%). The equity/assets ratio II was 35.0% (37.2%), which is higher than BrostrĂśmâ&#x20AC;&#x2122;s target of 30%.

N $VSSFOU MJBCJMJUJFT N /PO DVSSFOU MJBCJMJUJFT JOUFSFTU CFBSJOH N /PO DVSSFOU MJBCJMJUJFT OPOJOUFSFTU CFBSJOH N 4IBSFIPMEFSTh FRVJUZ BOE NJOPSJUZ JOUFSFTUT

The average number of employees in 2006 was 1,034 (1,009). The Boardâ&#x20AC;&#x2122;s proposed guidelines for compensation of the Managing Director and Deputy Managing Director are as follows: Compensation levels shall be in line with the going rate in the market. For satisfactory performance, compensation shall be paid in the form of a base salary. Pension terms shall be in line with the going rate. Termination salary and severance pay together shall not exceed the equivalent of 24 monthsâ&#x20AC;&#x2122; salary for the respective executives. In addition to base salary, variable compensation can be offered in accordance with a profit-sharing system. The Board shall have the right to depart from these guidelines if there are special reasons for doing so in an individual case. Pension terms, compensation terms and the profit-sharing system are described in Note 11 on page 66.

Shareholdersâ&#x20AC;&#x2122; equity and liabilities

N %FQSFDJBUJPO N 1FSTPOOFM DPTUT N 0QFSBUJOH FYQFOTFT N 7BSJBCMF DPTUT

Operating expenses

N (PPEXJMM FUD N 7FTTFMT FRVJQNFOU N 'JOBODJBM BTTFUT OPO DVSSFOU N $VSSFOU BTTFUT N $BTI BOE DBTI FRVJWBMFOUT

Assets

FI N A N C I A L R EP O R T S

Consolidated income statement SEK m

Net sales

Note

2006

2005

3,386.1

3,818.1

Capitalised work for own account

10.5

14.1

Other income

122.8

149.6

Share in associated companiesâ&#x20AC;&#x2122; profit after tax

15.0

12.5

External expenses

-1,908.0

-2,403.1

Personnel costs

-514.2

-521.2

18, 19, 21

-340.5

-257.6

771.7

812.4

Depreciation and write-downs Operating profit (EBIT) Dividends from securities and receivables

â&#x20AC;&#x201C;

0.1

Financial income

16.8

61.1

Financial expenses

-208.7

-153.5

-191.9

-92.3

579.8

720.1

-76.8

-97.2

503.0

622.9

495.1

611.1

7.9

11.8

15.14

18.89

15.14

18.76

8.00

SEK/USD

7.38

7.48

SEK/EUR

9.25

9.28

Net financial items Profit after net financial items Tax on profit for the year

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

Average exchange rates

FI N A N C I A L R EP O R T S

Consolidated balance sheet Note

31/12/2006

31/12/2005

Goodwill

124.0

141.1

Other intangible assets

2.5

3.7

126.5

144.8

SEK m

ASSETS

Non-current assets Intangible assets

Total intangible assets Tangible assets Vessels

5,775.6

5,141.5

Newbuilding contracts

89.3

357.4

Other tangible assets

42.5

50.8

5,907.4

5,549.7

Total tangible assets Financial assets Participations in associated companies and joint ventures

48.8

64.4

Other financial assets

28.7

28.3

77.5

92.7

6,111.4

5,787.2

63.6

59.1

Accounts receivable â&#x20AC;&#x201C; trade

235.7

276.8

Derivative instruments

Total financial assets Total non-current assets Current assets Inventories, etc. Current receivables

Other receivables Prepaid expenses and accrued income

Total current receivables

â&#x20AC;&#x201C;

5.4

102.3

122.8

154.4

182.8

492.4

587.8

Short-term investments

226.0

260.6

Cash and cash equivalents

1,057.4

1,219.9

Total current assets

1,839.4

2,127.4

TOTAL ASSETS

7,950.8

7,914.6

Year-end exchange rates

SEK/USD

6.87

7.95

SEK/EUR

9.05

9.43

FI N A N C I A L R EP O R T S

SEK m

Note

31/12/2006

31/12/2005

SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity Share capital Other capital contributions Other reserves

Profit brought forward Minority interest Total shareholders’ equity

65.8

65.2

870.3

-286.7

62.3

1,924.3

1,676.9

2,573.7

2,674.7

32.7

34.8

2,606.4

2,709.5

Non-current liabilities, noninterest-bearing Equalisation reserve

149.7

205.3

Deferred tax

481.0

473.1

Other non-current liabilities, noninterest-bearing

29.1

26.5

659.8

704.9

274.8

318.0

Total non-current liabilities, noninterest-bearing Non-current interest-bearing liabilities Bond issues Debenture loans

Credit institutions

29.5

30.7

2,267.9

1,464.8

Leasing liabilities

599.9

889.4

Other non-current interest-bearing liabilities

797.5

1,102.2

3,969.6

3,805.1

Total non-current interest-bearing liabilities

Current liabilities Credit institutions and other, interest-bearing

295.6

234.8

Leasing liabilities

33.2

48.8

Accounts payable – trade

58.1

78.7

Current tax Other current liabilities Accrued expenses and prepaid income

Total current liabilities TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

1.2

11.5

55.0

100.3

271.9

221.0

715.0

695.1

7,950.8

7,914.6

Pledged assets

5,782.2

5,482.1

Contingent liabilities

83.1

113.9

FI N A N C I A L R EP O R T S

Changes in shareholders’ equity, Group AT TRIBUTABLE TO EQUIT Y HOLDERS OF THE PARENT

SEK m

Equity at 1/1/2005

Share capital

Other capital contributions

Other reserves

Profit brought forward

MINORIT Y INTERESTS Minority interests

Total shareholders’ equity

62.8

764.7

-287.6

1,227.5

32.1

1,799.5

Exchange rate differences

–

406.8

–

1.7

408.5

Acquisition of minority interest

–

0.3

Tax pertaining to functional currency

–

-62.1

–

-62.1

–

5.4

–

5.4

derivative instruments

–

-0.2

–

-0.2

PROFIT FOR THE YEAR

–

611.1

11.8

622.9

–

-161.7

-11.1

-172.8

Derivative instruments, cash flow hedging Tax pertaining to

Dividend

–

2.4

105.6

65.2

870.3

principles

–

Exchange rate differences

–

Sale of minority interest

–

Tax pertaining to functional currency

–

cash flow hedging Tax pertaining to cash flow hedging PROFIT FOR THE YEAR

New share issue

EQUITY at 31/12/2005

108.0

62.3

1,676.9

34.8

2,709.5

–

-2.6

–

-2.6

–

-395.4

–

-1.6

-397.0

–

-0.3

–

50.9

–

50.9

–

-4.7

–

-4.7

–

0.2

–

0.2

–

495.1

7.9

503.0

Application of new accounting

Derivative instruments,

Dividend New share issue

Equity at 31/12/2006

–

-261.0

-8.1

-269.1

0.6

–

15.9

–

16.5

65.8

870.3

-286.7

1,924.3

32.7

2,606.4

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 for the associated companies Broström Holding BV (the owner of Broström Tankers SAS), Broström Tankers Ltd and Broström Tankers AB.

FI N A N C I A L R EP O R T S

Cash ﬂow statement, Group* SEK m

Note

2006

2005

Operating activities Operating profit (EBIT)

771.7

812.4

Depreciation

340.5

257.6

-246.3

-210.5

60.4

47.1

Other adjustment items

Interest received Dividends received Interest paid Income tax paid

0.2

0.9

-166.7

-113.4

-4.4

-17.6

Increase/decrease in Inventories Current receivables

-4.5

-24.1

112.8

-128.9

Current operating liabilities

-10.0

-4.2

Cash flow from operating activities

853.7

619.3

Investing activities Purchase of Intangible assets Tangible non-current assets

-0.4

-1.5

-1,982.9

-1,015.2

373.8

543.8

Sale of Tangible non-current assets Acquisition of Subsidiaries Associated companies

–

-58.2

-0.1

–

15.2

37.1

Sale of Subsidiaries

Change in other financial assets Cash flow from investing activities

-0.4

2.7

-1,594.8

-491.3

-261.0

-161.7

-8.1

-11.1

Financing activities Dividend to shareholders Dividend to minority owners New share issue New loans raised Repayment of loans

16.5

17.7

1,276.5

1,099.6

-331.2

-660.1

Cash flow from financing activities

692.7

284.4

CASH FLOW FOR THE YEAR

-48.4

412.4

1,480.5

954.9

-48.4

412.4

Cash and cash equivalents and short-term investments Opening balance Cash flow for the year Exchange rate difference Cash and cash equivalents and short-term investments, closing balance

-148.7

113.2

1,283.4

1,480.5

* Indirect method.

FI N A N C I A L R EP O R T S

Parent company income statement SEK m

Net sales Other income

Note

2006

2005

31.9

29.2

20.4

39.1

-30.1

-26.0

-34.7

-32.9

18, 21

-6.2

-6.1

Operating profit/loss (EBIT)

-18.7

3.3

Gains/dividends from securities and receivables

268.3

436.5

External expenses Personnel costs Depreciation and write-downs

Financial income

-2.6

34.5

Financial expenses

-12.7

-44.7

Net financial items

253.0

426.3

Profit after net financial items

234.3

429.6

3.4

-3.4

237.7

426.2

12.8

14.5

250.5

440.7

Appropriations Profit before tax Tax on profit for the year PROFIT FOR THE YEAR

FI N A N C I A L R EP O R T S

Parent company balance sheet SEK m

Note

31/12/2006

31/12/2005

ASSETS Non-current assets Intangible assets

1.1

1.0

Tangible assets

18.5

22.7

Participations in Group companies

1,941.5

1,943.7

Receivables from Group companies

8.9

Deferred tax asset

Financial assets

11.2

–

Total financial assets

1,961.6

1,952.6

Total non-current assets

1,981.2

1,976.3

Current assets Accounts receivable – trade

Receivables from Group companies Other receivables Prepaid expenses and accrued income

Total current receivables

0.4

–

889.4

586.7

171.9

324.6

4.8

5.4

1,066.5

916.7

Short-term investments

–

22.9

Cash and cash equivalents

960.8

1 016.6

Total current assets

2,027.3

1,956.2

TOTAL ASSETS

4,008.5

3,932.5

1,776.4

1,766.3

–

3.4

SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity

Untaxed reserves Non-current liabilities Bond issues

274.8

318.0

Credit institutions

51.0

91.0

Group companies

668.1

Total non-current liabilities

993.9

1 077.1

40.0

Current liabilities Credit institutions and others, non-current

Accounts payable – trade Liabilities to Group companies Current tax Other current liabilities

4.0

3.7

1,181.8

1,021.1

–

6.1

0.7

11.7

14.1

Total current liabilities

1,238.2

1,085.7

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

4,008.5

3,932.5

Accrued expenses and deferred income

Pledged assets

3.5

Contingent liabilities

3,296.9

2,700.6

FI N A N C I A L R EP O R T S

Changes in shareholders’ equity, parent company Restricted reserves

Unrestricted reserves

62.8

827.6

433.8

Group contributions received

–

82.2

Tax on Group contributions received

–

-23.0

Group contributions rendered

–

-5.9

Tax on Group contributions rendered

–

1.7

PROFIT FOR THE YEAR

–

440.7

SEK m

Equity at 31/12/2004

Dividend

Total shareholders’ equity

1,324.2

–

-161.7

2.4

105.6

–

108.0

65.2

933.3

767.8

1,766.3

Group contributions received

–

8.9

Tax on Group contributions received

–

-2.5

Group contributions rendered

–

-3.1

Tax on Group contributions rendered

–

0.9

PROFIT FOR THE YEAR

–

250.5

New share issue

Equity at 31/12/2005

Dividend New share issue

Equity at 31/12/2006

Share capital

–

-261.0

0.6

–

15.9

16.5

65.8

933.3

777.3

1,776.4

FI N A N C I A L R EP O R T S

Cash ﬂow statement, parent company* SEK m

2006

2005

Operating activities Operating profit/loss (EBIT) Depreciation Other adjustment items Interest received

-18.7

3.3

6.2

6.1

-14.7

-38.4

41.9

21.6

Dividends received

268.4

436.5

Interest paid

-56.0

-41.3

–

-6.1

Income tax paid Increase/decrease in Current receivables

-221.7

-765.4

Current operating liabilities

154.8

136.6

Cash flow from operating activities

160.2

-247.1

Investing activities Purchase of Intangible assets

-0.2

–

Tangible non-current assets

-1.8

-2.9

–

-187.7

Sale of/shareholders’ contribution to Subsidiaries Sale of Subsidiaries Change in other financial assets Cash flow from investing activities

16.9

50.9

–

17.9

14.9

-121.8

Financing activities Dividend to shareholders

-261.0

-161.7

New share issue

16.5

108.2

New loans raised

-83.2

777.8

Group contribution received Cash flow from financing activities

CASH FLOW FOR THE YEAR

76.4

57.6

-251.3

781.9

-76.2

413.0

1,039.5

614.3

-76.2

413.0

Cash and cash equivalents and short-term investments Opening balance Cash flow for the year Exchange rate difference Cash and cash equivalents and short-term investments, closing balance

-2.5

12.2

960.8

1,039.5

* Indirect method.

FI N A N C I A L R EP O R T S

Accounting and valuation principles Note 1. General information Broström is one of the leading logistics companies for the oil and chemical industry, focused on industrial product tanker shipping and marine services. Broström AB (publ), registered number 556005-1467, with registered office in Göteborg, Sweden, is a limited liability company that is quoted on the Nordic list. The Annual Report was adopted by the Board and approved for publication on 20 March 2007.

the acquisition. Any surplus, consisting of the difference between the cost and fair value of the Group’s share of identifiable acquired net assets, is reported as goodwill. If the cost falls below the fair value of the acquired subsidiary’s net assets, the difference is reported directly in the income statement. 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.

Associated companies

Note 2. Summary of signiﬁcant accounting principles Basis of preparation The consolidated financial statements of the Broström Group have been prepared in conformity with the Swedish Annual Accounts Act, Swedish Financial Accounting Standards Council recommendation RR30 “Complementary Accounting Rules for Groups”, and with International Financial Reporting Standards (IFRSs) as adopted by the EU. Preparing reports that are in conformity with IFRS requires the use of a number of accounting estimations. Further, management makes certain assessments in applying the company’s accounting principles. Areas that contain assessments that are so complex or areas in which assumptions and estimations are of such material significance for the consolidated accounting are specified in Note 4, Significant estimations and assessments. 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. 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 2006 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. The parent company applies the same accounting principles as the Group, except in the cases indicated in Note 5, Accounting principles of the parent company.

Consolidated accounting Subsidiaries The consolidated financial statements 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. Subsidiaries are derecognised in the consolidated accounting starting on the day that the controlling influence ceased. The consolidated financial statements have been prepared in accordance with the acquisition method. Thus only the part of subsidiaries’ equity that has arisen after the date of acquisition is included in the Group’s equity. Identifiable assets acquired and liabilities taken over in a company acquisition, as well as contingent liabilities, are initially carried at fair value as per the date of acquisition regardless of the extent of any minority interests. The cost of an acquisition consists of the fair value of assets provided as consideration plus costs directly attributable to

Associated companies are companies in which the Group has a significant number of votes, but not a controlling interest, directly or indirectly, which as a rule applies for holdings of between 20% and 50% of the votes. Associated companies are consolidated in accordance with the equity method, which entails that the book value of the shares in an associated company are 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.

Joint ventures and shipping partnerships Joint ventures include holdings other than shipping partnerships 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. 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.

Minority shares Minority shares are reported as a part of shareholders’ equity in the consolidated balance sheet. The consolidated income statement includes the minority’s share of profit for the year.

Translation of foreign currencies 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 primarily active (functional currency). In the Annual Report and consolidated financial statements, the Swedish krona (SEK) is used, which is the parent company’s functional and reporting currency. All amounts are stated in thousands of kronor, unless otherwise indicated. According to IAS 21 Effects of Changes in Foreign Exchange Rates, every legal entity shall determine its functional currency. This currency is the one in which the company has the largest share of its income and expenses and which is the most important financing currency. Broström has determined that the main shipping companies in the Group have the US dollar (USD) as their functional currency, while the functional currency of other companies corresponds to their respective local currencies. This means that vessels are carried at historical cost in USD, taking into account normal depreciation schedules, and that loans are stated in their nominal USD amounts. These values are then translated in the consolidated

FI N A N C I A L R EP O R T S

financial statements to the year-end USD rate relative to SEK. Deferred tax on changed asset and liability values due to the translation to the functional currency has been taken into account. As a result of the accounting technique described here, the temporary differences between the book value and tax value will vary along with changes in exchange rates. The tax effect of this is reported against shareholders’ equity.

Other income

Transactions and balance sheet items

Dividend income

Transactions in foreign currency are translated to the functional currency using the exchange rates in effect on the transaction date. Receivables and liabilities in foreign currency are valued at the exchange rate in effect on the balance sheet date. 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.

Dividend income is recognised when the right to receive payment is judged to be certain.

Group companies Profit/loss and the financial position of all Group companies that have another functional currency than the reporting currency are translated to the Group’s reporting currency as follows: (I) assets and liabilities in each of the balance sheets are translated at the exchange rate in effect on the balance sheet date; (II) revenues and expenses in each of the income statements are translated at the average exchange rate (to the extent this average rate is a reasonable approximation of the accumulated effect of the exchanges rates that applied on the transaction dates; (III) all exchange rate differences that arise upon translation of subsidiaries and associated companies are reported as a separate part of shareholders’ equity. Upon consolidation, exchange rate differences that arise upon translation of net investments in foreign operations and of borrowings and other currency instruments that are identified as hedges of such investments, are applied to shareholders’ equity. Upon the sale of a foreign operation, such exchange rate difference in the income statement is reported as a part of the capital gain/loss. Goodwill and surplus values related to acquired foreign subsidiaries and associated companies are included in the foreign net investment and are therefore valued in their function currencies. Translation is done at the exchange rate in effect on the balance sheet date.

Other income includes other operating income that is not derived from the actual business activities, such as capital gains on sales of non-current 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.

Interest income Interest income is recognised when over the term of the underlying source of interest using the effective interest method.

Government assistance Government assistance is reported in accordance with IAS 20. The maritime subsidies received by Broström are considered to be “related to income” and are reported as a reduction of the costs they are intended to cover during the pertinent periods.

Employee beneﬁts 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 permanent employees of the Group are included in a profit-sharing system that is described in Note 11 on page 66.

Pension obligations The Group has both defined contribution and 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. The Group thus has no legal or constructive obligation to pay further contributions if Alecta/Collectum does not have sufficient assets to pay benefits to employees in association with employees’ current or prior service. A defined benefit pension plan is a pension plan that indicates a set level of pension benefits that an employee receives after retirement, ordinarily based on one or more factors such as age, service period or salary. In addition to the ITP plan, which is secured through contributions to Alecta/Collectum, there are a few less extensive defined benefit plans. At present Alecta/Collectum cannot provide the information needed to report the plan as a defined benefit plan. The contributions are reported among personnel costs when they fall due for payment.

Intra-Group pricing The principles for the pricing of internal sales are the same as for external sales.

Related party transactions Related party transactions are conducted at market terms.

Recognition of revenues Net sales 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.

Borrowing costs In the consolidated financial statements, 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.

FI N A N C I A L R EP O R T S

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. 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.

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 are depreciated up to and including 25 years after their original delivery from the shipyard. The residual value, which is represented as the scrapping value, is calculated yearly as a vessel’s lightweight multiplied by the 5 most recent years’ average quoted scrapping prices for tankers in USD per tonne. Depreciation of all assets is reported under the heading “Depreciation and write-downs” in the income statement.

Intangible assets

Impairment

Goodwill

Broström’s business concept is to conduct industrial product and chemical tanker shipping, and marine services. The services involve transports of refined oil products and chemicals. Transports often take place within the customers’ logistic systems and are made primarily from refineries to oil depots and between various depots. Broström’s strategy is to work with long-term volume contracts – Contracts of Affreightment – to a level that accounts for a majority of Broström’s fleet capacity. The customers are global players and typically can be anywhere in the world when they request Broström’s transport services. Broström can meet this demand by maintaining an integrated global presence via the various shipping companies and various size segments of vessel capacity. As a result, the commercial connection and dependence between the shipping companies and the entire fleet within Broström are substantial. Against this background, Broström regards all shipping companies as a single cash-generating unit. When assessing the value of goodwill, a yearly impairment test is conducted to determine any need to recognise impairment. In this impairment testing, the book value of the cash-generating unit to which the goodwill belongs is compared with the higher of the fair value and value in use of the aggregate parts belonging to the unit. If this value is higher than the book value, then there is no need to recognise impairment. Each year an assessment is also done to determine any indication of a need to recognise impairment of the fleet. If there is a need to recognise impairment of the fleet, the total impairment amount shall be apportioned among the vessels in proportion to the book value of the respective vessels relative to the book value of the entire fleet. Cash flows are calculated for a period corresponding to the asset’s value in use (for vessels this is currently up to 25 years) by discounting future cash flows using an interest rate that takes into account the market’s estimation of risk-free interest and the risk associated with the specific asset. The discounting factor is indicated before tax and consists of the WACC interest rate, i.e., the weighted average cost of capital before tax. Recoverable values are apportioned among the vessels in proportion to previously recognised impairment, but not at a higher value than that the carried amount does not exceed the lower of the recoverable value and the carrying amount that would have applied if no impairment had been recognised.

Goodwill consists of the amount whereby 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, goodwill is tested for impairment annually and when a need for goodwill impairment becomes evident. 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.

Other intangible assets Internally developed values in intangible assets, such as software development and licence rights, are reported as an asset.

Tangible assets – non-current Vessels For vessels, the purchase price, interest on borrowed capital and own inspection work in newbuilding activities are capitalised. Vessels are reported for sale when a binding agreement has been signed with a buyer. Additional costs are added to the asset’s carrying amount only when it is likely probable that the future economic benefit associated with the asset will benefit the Group and the asset’s acquisition cost can be measured in a reliable manner. All other forms of repairs and maintenance are reported as expenses in the income statement during the periods in which they were incurred.

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.

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 non-current assets are depreciated or amortised systematically over their estimated useful life as follows: Method Vessels Linear Computers Linear Software, incl. internally developed Linear Machinery and equipment Linear Buildings Linear

Years Residual value 25 Estimated scrap value 3-5 3-5 5 - 10 25 - 50 -

Leasing Leases and charter contracts are classified in the consolidated financial statements as finance or operating leases. Assets are reported among finance leases when the economic reward and risks associated with the ownership has been transferred for all intents and purpose to the lessee. The leased asset is then carried as an asset on the balance sheet at the same time that the present value of the minimum lease payments is reported as a liability. Taking these criteria into account, a bareboat charter

FI N A N C I A L R EP O R T S

with a call option is ordinarily classified as a finance lease. A lease is classified as an operating lease when a significant share of the risks and rewards incidental to ownership of the leased asset is retained by the lessor. Lease payments made under operating leases are recognised as an expense on a straight-line basis in the income statement over the lease period.

Valuation of inventories Bunker and lubricating oil stocks are valued at cost. Other inventories are valued at the lower of cost and net sales value. The cost is determined using the first-in first-out (FIFU) method. Bunkers and lubrication oil are used exclusively in the Group’s own operations and are not sold secondarily as traditional inventory. Therefore, there is no need for write-downs or obsolescence.

Financial instruments Broström classifies its financial instruments as follows: (I) financial assets and liabilities carried at fair value through the income statement, (II) receivables and liabilities, (III) financial assets that can be sold. The classification is dependent on the purpose for which the instrument was acquired.

(I) Financial assets and liabilities carried at fair value through the income statement This category includes financial assets and liabilities held for sale and such that upon inception are classified in the category carried at fair value via the income statement. Derivative instruments are categorised as held for sale if they are not identified as hedges.

(II) Receivables and liabilities Loan receivables, trade accounts receivable, trade accounts payable and other liabilities are non-derivative financial instruments with payments that are set or can be set and which are not quoted on an active market. Trade accounts receivable and other current receivables are valued on the balance sheet date based on an individual assessment. A reserve provision is made for a drop in value of trade accounts receivable when there is objective evidence that the Group will not be able to receive all amounts due in the original amounts of the receivable. The reserved amount is reported in the income statement. Trade accounts payable are valued on a continuing basis at amortised cost. Since trade accounts payable have a short anticipated life, valuation is done without discounting to nominal amounts. Borrowings are initially stated at fair value, net after transaction costs and thereafter at amortised cost. Any difference between the received amount and the repayment amount is reported in the income statement apportioned over the term of the loan using the effective interest method. Borrowings are classified as interest-bearing non-current or current liabilities in the balance sheet.

Derivative instruments Derivative instruments are reported at fair value under a separate heading in the balance sheet. Broström identifies its derivative instruments as cash flow hedging instruments when the following criteria are met: – There is formal identification and documentation of the hedge relationship and of the company’s goals for risk management and risk management strategies – The hedge is very effective in achieving counterbalancing changes in the cash flows attributable to the hedged risk – The prognosticated, hedged transaction is very probable and entails an exposure to changes in cash flows that can affect consolidated profit – The hedge is assessed on a continuing basis. It can also be determined as being very effective during the period for which the hedge is identified The effective portion of the change in the fair value of the derivative instrument that has been identified as a cash flow hedge and which meets the requirement for hedge accounting as above, is reported in equity. Changes attributable to ineffective portions are reported directly in the income statement. Any difference in interest 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 early repayment of loans are recognised immediately. Changes in value of equity that are attributable to hedge accounting are reversed in the income statement in the period in which the hedged item affected profit. If a hedge instrument is sold, expires or no longer meets the requirements for hedge accounting, the accumulated changes in equity pertaining to the hedge are returned to the income statement in the same period that the prognosticated transaction is reported in the income statement. In cases where the prognosticated transaction can no longer be expected to occur, the accumulated changes in value are reported in equity immediately in the income statement.

Short-term investments Short-term investments include money market investments and deposits with a term of more than 3 months. Money market investments and 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.

Cash and cash equivalents Cash and cash equivalents include bank accounts in all currencies and certificates of deposit as well as money market instruments with a term of 3 months or less. Foreign currencies are 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.

Group equity (III) Financial assets that can be sold

Share capital

Financial assets that can be sold are non-derivative assets that have either been classified in this category or not classified in any of the other categories. This category includes short-term shareholdings, among other things. Unrealised gains and losses due to changes in the fair value of non-monetary instruments classified as assets that can be sold are reported in equity. When financial instruments that are classified as assets that can be sold are sold, or when there is a need to recognise impairment for these, the accumulated adjustments of fair value are reported in the income statement as revenue from financial instruments.

The share capital amounted to SEK 65,797,184 on 31 December 2006. The quota value per share is SEK 2.

Other capital contributions Other capital contributions pertain to all contributions from the owners in connection with issues above and beyond such amounts reported as share capital. Transaction costs that arise in connection with new issues are booked directly against equity.

Other reserves Other reserves pertain to transactions which, due to IFRS rules, are to be applied directly to equity.

FI N A N C I A L R EP O R T S

Translation reserve The translation reserve includes 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. Hedge reserve The hedge reserve includes the effective portion of the accumulated net change of fair value of a cash flow hedging instrument attributable to hedge transactions that have not yet taken place.

Proﬁt brought forward Profit brought forward includes historically earned profits plus profit for the year for the parent company and its subsidiaries, associated companies and joint venture companies, with deduction for dividends rendered. Share repurchases and holdings of treasury shares and other capital instruments are reported as a decrease of profit brought forward.

Primary segments The Shipping operations area consists of tanker shipping through distribution of refined oil products and chemicals, and ship management. The Marine & Logistics operations area consists of shipping agencies and travel agency business. However, the travel agency business was sold on 4 May 2006. Other operations in the Group pertain primarily to administration in the parent company.

Secondary segments No reporting is done by geographic areas, since application of the recommended accounting is not relevant for Broström’s operations with respect to the location of assets or customers. Assets consist primarily of vessels which operate worldwide and not exclusively in strict geographic markets. With respect to customers, their location can be entirely different than the geographic area in which the freight assignments are carried out.

Note 3. Financial risk management

Minority interests

Financial risk factors

The minority’s share of net assets carried at fair value is transferred to minority interests when the Group relationship arises. Minority interests are thereafter adjusted with the minority’s share of profit for the year and other changes in reserves.

In the course of its operations the Group is subject to various financial risks: market risk, credit risk, liquidity risk and interest rate risk. The Group’s overall risk management policy focuses on predictability in the financial markets and strives to minimise potentially unfavourable effects on the Group’s financial results. The Group’s finance activities and management of financial risks are centralised in the Group’s finance department. The Group’s finance department identifies, evaluates and hedges financial risks in close collaboration with the Group’s operative units. The Group uses derivative instruments to hedge some risk exposure.

Deferred tax Deferred tax is calculated according to the balance sheet method on all temporary differences that arise between the taxable value of assets and liabilities and the reported amount in the consolidated financial statements. Deferred tax is calculated using tax rates that have been determined or announced as per the balance sheet date and which are expected to apply when the deferred tax asset in question is realised or when the deferred tax liability is settled. 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 taxable deductions are reported to the extent it is probable that the deduction can be offset against profits in connection with future taxation.

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.

Market risk Currency risk The Group works internationally and is subject to currency risks from various currency exposures, mainly pertaining to the US dollar. Currency risks arise through future business transactions, reported assets and liabilities, and net investments in foreign operations. The most important companies in Broström 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 relative to the Swedish krona by 0.10 would be SEK +/- 12 m. Currency risks arise when future business transactions or reported assets and liabilities are expressed in a currency that is not the unit’s functional currency. Broström manages currency risks that arise through forward hedges. No forward hedges existed on the balance sheet date.

Cash ﬂow statements

The cash flow statements are prepared in accordance with the indirect method. Reported cash flow includes only transactions that give rise to incoming or outgoing payments. Cash and cash equivalents are classified as, in addition to cash and bank balances, short-term financial investments that are subject only to a negligible risk for fluctuations in value and which are traded on an open market at known amounts or which have a shorter remaining term than three months from the date of acquisition. In acquisition and sale amounts pertaining to subsidiaries, these are included in the company’s cash and cash equivalents. Acquisition amounts also include shareholder contributions. For foreign subsidiaries, all transactions are reported after recalculation to the average exchange rate.

Price risk In product and chemical tanker shipping, freight rates vary greatly. For the most part, profit after net financial items changes in pace with increases and decreases in daily earnings. The fluctuations are greatest in the global segments, while prices are more stable in coastal shipping. Broström’s strategy of maintaining a high proportion of long-term contracts reduces its sensitivity to fluctuation in freight rates.

Segment reporting

Liquidity risk

Broström breaks down its operations into the Shipping, Marine & Logistics Services and Other segments.

Short-term investments of cash and cash equivalents are steered by the company’s investment policy. This policy entails that investments are made in accordance with a conservative strategy, and

Credit risk The Group has a few, major global customers with high credit rating, and thus the Group’s credit risk is very low. In addition, Broström has security through marine liens.

FI N A N C I A L R EP O R T S

investments are made only in companies judged to have a low risk.

Interest rate risk 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 with interest rate swaps. For floating rate loans, less cash and cash equivalents, a 1 percentage point change in interest rates would affect profit after net financial items on a yearly basis by SEK +/-22 m.

Reporting of derivative instruments and hedges Cash ﬂow hedges The effective portion of the change in the fair value of the derivative instrument that has been identified as a cash flow hedge and which meets the requirement for hedge accounting is reported in equity. The profit or loss attributable to the ineffective portion is reported directly in the income statement.

Note 5. 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 32:5 “Accounting for Legal Entities” and applicable statements issued by the Swedish Financial Accounting Standards Council’s Emerging Issues Task Force. The parent company applies for the most part the same principles described above with respect to the consolidated financial statements. The deviations that exist between the parent company’s and Group’s principles stem from limitations in the opportunity to apply IFRS in the parent company due to the Annual Accounts Act and in some cases to tax legislation. The most significant deviations between the Group’s and parent company’s accounting principles are described below.

Borrowing costs Borrowing costs are charged against profit in the period they pertain to.

Calculation of fair value

Group contributions and shareholder contributions

The fair value of interest rate swaps is calculated as the present value of estimated future cash flows. The fair value of currency forward con-tracts is determined by using market prices for forward contracts on the balance sheet date.

Group contributions and shareholders contributions are reported in accordance with statement URA 7 issued by the Swedish Financial Accounting Standards Council’s Emerging Issues Task Force. The statement refers to reporting that reflects the economic significance of the Group contribution and shareholder contribution. This means than Group contributions and shareholder contributions are reported as a capital transfer. As a result of this reporting, only the tax that is attributable to revenues and expenses in the income statement will be reported in the income statement.

Note 4. Critical assessments and estimations for accounting purposes In preparation of the financial statements in accordance with IFRS and generally accepted accounting principles, assessments and estimations are made with respect to the future which affect the reported assets and liabilities as well as revenues and expenses and other information proved in the year-end accounts. These estimations are based on historical experience and the various assumptions that are judged to be reasonable given the prevailing circumstances.

Impairment testing of goodwill Once a year, as well as when the need to recognise impairment exists, an assessment is made if there is a need to recognise impairment of goodwill. See also the description under the heading “Impairment” in Note 2.

Testing of the need to recognised impairment of surplus values of vessels Once a year, as well as when the need to recognise impairment exists, an assessment is made if there is a need to recognise impairment of vessel values. See also the description under the heading “Impairment” in Note 2. The recoverable amount has been determined based on calculations of value in use. These calculations are based on estimated future cash flows. There was no need to recognise impairment as per 31/12/2006. If the estimated discount rate (the WACC rate) had been 1% higher than the assumed interest rate of 6.97% (6.25), there would not have been any need to recognise impairment of the reported value.

Subsidiaries Subsidiaries are reported using the cost method, which entails that holdings are reported in the balance sheet at cost less any impairment. Dividends from subsidiaries are reported as dividend income.

Accumulated excess depreciation Taxable depreciation in excess of plan is treated as excess depreciation, which constitutes an untaxed reserve. Any change in this reserve is reported as an appropriation in the income statement.

Equity for the parent company Equity for the parent company is reported in accordance with the rules of the Annual Accounts Act, broken down into restricted and unrestricted equity.

Unrestricted equity Share premium reserve When shares are issued at a premium, i.e., when the price paid for shares is higher than their quota value, an amount corresponding to the received amount that is higher than the quota value of the shares is allocated to the share premium reserve. Proﬁt brought forward Profit brought forward consists of the preceding year’s unrestricted equity after any provisions to the statutory reserve and after any profit distribution has been made. This, together with profit for the year, makes up the amount that is available for distribution to the shareholders.

Valuation of deferred tax pertaining to tax-loss carryforwards In valuations of deferred tax assets, estimations are made of the future taxable surplus in the respective countries and thus of the opportunities to use tax-loss carryforwards.

Employee absences in the parent company Pursuant to the Annual Accounts Act, disclosures shall be made of employee absences due to illness during the financial year, broken down into various categories. A specification and account of this is provided in Note 11 on page 65.

FI N A N C I A L R EP O R T S

Notes Note 6 Reporting by activity (primary classification) Shipping SEK m 2006 2005 Income and expenses External income 3,281.2 3,186.7 Internal income 390.8 275.5 Share in associated companies’ profit 13.6 11.5 Total income 3,685.6 3,473.7 Operating expenses Depreciation Operating profit/loss

-2,553.0 -353.4 779.2

-2,424.7 -241.7 807.3

Marine & Logistics Services Other 2006 2005 2006 2005

Eliminations 2006 2005

210.0 9.8 1.4 221.2

745.2 19.3 1.0 765.6

21.7 28.0 49.7

30.4 28.0 58.4

6.5 -428.6 -422.1

19.5 -322.9 -303.4

-211.5 -0.7 9.0

-733.3 -9.5 22.7

-59.7 -6.5 -16.5

-69.7 -6.4 -17.6

401.9 20.0 -

303.4 -

Net financial items Profit after net financial items Tax on profit for the year Net profit for the year

Total 2006 2005 3,519.4 15.0 3,534.6

3,981.8 12.5 3,994.3

-2,422.3 -2,924.3 -340.6 -257.6 771.7 812.4 -191.9 579.8

-92.3 720.1

-76.8 503.0

-97.2 622.9

Assets and liabilities Goodwill 124.0 Tangible non-current assets 5,880.9 Participations in associated companies 32.5 Other assets 2,522.9

135.2 5,516.6 49.6 2,303.5

0.9 16.3 43.0

5.9 3.0 14.8 104.4

25.7 4,031.5

30.7 3,994.9

-4,726.8

-4,243.4

124.0 5,907.4 48.8 1,870.6

141.1 5,549.7 64.4 2,159.4

Current liabilities Non-current liabilities

1,337.7 4,303.0

1,061.2 4,085.1

43.8 -

107.9 0.2

1,434.0 1,010.0

1,126.2 1,126.0

-2,100.5 -683.6

-1,600.2 -701.2

715.0 4,629.4

695.1 4,510.0

Investments

1,685.3

1,512.9

0.1

14.7

2.1

92.4

1,687.5

1,620.0

964

850

135

1,034

1,009

Average number of employees

Expenses other than depreciation not corresponding to payments are negligible. Reporting by geographic area (secondary classification) Reporting by geographic area is not performed since application 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.

Note 7 Net sales

Other disclosures The principles for pricing of internal sales are the same as for external sales. 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 (sold on 4 May 2006) Other – Primarily administration in parent company

Note 9 Share in associated companies’ profit after tax

Net sales per business area

SEK m Shipping Marine & Logistics Services Other

Group 2006 2005 3,171.2 3,073.0 210.2 743.3 4.7 1.8 3,386.1 3,818.1

Parent company 2006 2005 31.9 29.2 31.9 29.2

Group 2006 2005 0.3 13.4 11.5 0.5 0.5 1.0 0.2 0.1 15.0 12.5

The share in associated companies’ profit after tax is reported as a part of operating profit.

Note 8 Other income Group SEK m 2006 2005 Profit on sales of vessels 99.5 94.4 Profit on sales of subsidiaries 11.3 10.7 Profit on sales of associated companies 16.6 Insurance reimbursements, monetary 6.5 19.5 Other 5.5 8.4 122.8 149.6

SEK m ISAB-Verbrügge Iberica SRL (37.4%) SNC Union Maritime de l’Ocean Indien (50.0%) Percy Tham i Oxelösund AB (50.0%) Uddevalla Hamnterminal AB (39.9%) Net Ship Management, Inc. (25.0%)

Parent company 2006 2005 14.7 22.6 15.8 5.7 0.7 20.4 39.1

FI N A N C I A L R EP O R T S

Note 10 External expenses External expenses in the Group, pertaining to government maritime subsidies, have decreased by SEK 10.2 m (8.5). Auditors’ fees and remuneration SEK m Öhrlings PricewaterhouseCoopers Auditing assignment Other assignments Acrevi Revision Auditing assignment Other auditors Auditing assignment Other assignments

Group 2006 2005

Parent company 2006 2005

2.0 1.4

1.8 1.5

0.3 1.3

0.4 1.1

0.3

0.4

0.3

0.1 3.8

0.3 4.0

1.9

1.8

Note 11 Personnel costs Average number of employees

Shore-based employees Parent company Sweden Subsidiaries Sweden France Denmark Norway Singapore Philippines

Onboard employees Swedish crews French crews

Total average no. of employees

2006 No. Of whom employees men

2005 No. Of whom employees men

119 54 13 21 6 240

75 30 10 14 6 149

204 54 13 22 4 3 324

129 29 10 14 3 1 197

406 388 794

393 386 779

341 344 685

327 342 669

1,034

928

1,009

866

Salaries, other remuneration and payroll overhead SEK m Parent company Salaries and other remuneration 18.2 Remuneration from profitsharing systems, etc. 0.8 Payroll overhead (excl. pension costs) 6.8 Pension costs 5.1 Other personnel costs 3.8 Reduced payroll costs due to French government shipping subsidies Reduced payroll costs due to Swedish government shipping subsidies 34.7

2006 Subsidiaries 370.5

Group 388.7

15.6 134.8 31.3 21.4

16.4 141.6 36.4 25.2

-20.5

-73.6 479.5

-73.5 514.3

SEK m Parent company Salaries and other remuneration 15.4 Remuneration from profitsharing systems, etc. 3.5 Payroll overhead (excl. pension costs) 7.4 Pension costs 4.4 Other payroll costs 2.2 Reduced payroll costs due to French government shipping subsidies Reduced payroll costs due to Swedish government shipping subsidies 32.9

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

-49.8 488.3

-49.8 521.2

Of the parent company’s pension cost, SEK 3.1 m (2.7) pertains to the Managing Director and Deputy Managing Director. The corresponding amount for the Group is SEK 7.5 m (5.5). 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. Obligations for retirement pension and family pension for salaried employees in Sweden are secured through insurance with Alecta. According to statement URA 42 issued by the Swedish Financial Accounting Standards Council Emerging Issues Task Force, this is classified as a multi-employer defined benefit plan. For the 2006 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 19.2 m (19.5). The corresponding amount for the parent company amounted to SEK 1.3 m (1.2). Alecta’s surplus can be apportioned among the policyholders and/or the insureds. Breakdown of salaries and other remuneration before payroll overhead by country Remuneration from profit-sharing systems or similar is shown in parentheses. 2006 2005 Board, MD Other Board, MD Other SEK m and Deputy MD employees and Deputy MD employees Parent company Sweden 9.1 (0.4) 12.1 (0.7) 9.8 (2.2) 10.9 (1.3) Parent company, total 9.1 (0.4) 12.1 (0.7) 9.8 (2.2) 10.9 (1.3) Subsidiaries Sweden France Denmark Norway Singapore Philippines Subsidiaries, total Group, total

2.5 (0.3) 198.7 (6.8) 3.3 (0.1) 140.1 (3.1) - (-) 13.8 (0.5) 1.6 (0.1) 18.8 (3.7) 1.6 (0.2) 3.4 (0.5) - (-) - (-) 9.0 (0.7) 374.8 (14.6)

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)

18.1 (1.1) 386.9 (15.3)

18.4 (3.2)

377.6 (7.7)

Sick leave as percentage of employees’ normal working hours (parent company) Percentage of sick leave in the respective categories

All employees Women Men Employees aged 29 or younger Employees aged 30-49 Employees aged 50 or older Proportion of all employees’ sick leave that exceeded 60 days *

2006 1.2% 1.5% 0.9%

2005 1.8% 2.8% 0.5%

1.8% 0.4%

2.7% 0.8%

Fewer than 11 employees.

FI N A N C I A L R EP O R T S

Remuneration and benefits of senior executives Board of Directors The Annual General Meeting resolved on 3 May 2006 that the directors’ fees shall amount SEK 2,175,000 (1,725,000). In addition, the Annual General Meeting resolved that the Board’s committees would receive a fixed fee of SEK 275,000, (100,000) to be apportioned among the members at the Board’s discretion. In 2006 director’s and committee fees of SEK 620,000 (520,000) 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 2006 no fees (95,000) were paid to the law firm in which board member Claes Lundblad is employed, for assignments he was consulted for. In 2006 a fee of SEK 539,767 (915,080) 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 1,517,500 (1,167,500) were paid to the other company directors. No other remuneration or benefits were paid out. Managing Director Salary and taxable benefits and other remuneration were paid out during the year to Broström AB’s managing director, Lennart Simonsson, as follows:

Profit-sharing systems The management of subsidiaries, all salaried employees and seamen 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 profitsharing system based on the 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 2006 this entailed an interval between 5.5% and 13.5%. 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 Managing Director can receive a maximum of 50% of his yearly salary, and the other executives a maximum of 30% of their yearly salaries. Based on the consolidated profit for 2006, the dividend from the profit-sharing system will amount to SEK 5.7 m (7.3) for shore-based employees. For onboard employees, the dividend for 2006 will amount to SEK 3.9 m (5.7). For the members of the Group Management, the dividend will amount to SEK 0.7 m (3.6) for 2006. Gender breakdown of board and management

SEK m Salary Profit-sharing for 2006 Other benefits

Amount 4.4 0.3 0.1

Of which, pensionable 4.4 -

During the year, pension premiums totalling SEK 1.5 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 Managing Director for severance pay amounting to two years’ salary in the event the company serves notice. The Managing Director cannot trigger severance pay himself. Other senior executives Salary and taxable benefits and other remuneration were paid during the year to other senior executives, as follows: SEK m Salary Profit-sharing for 2006 Other benefits

Amount 10.4 0.4 0.6

Of which, pensionable 10.4 -

During the year, pension premiums totalling SEK 1.9 m in excess of the ITP plan were booked as an expense. For one of these executives, the pension is a defined benefit obligation. 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. One member has a defined contribution pension that is payable from 63 to 65 years of age. Another of the members has a lifetime defined contribution pension plan that becomes payable at 65 years of age. Two of the members of Group Management have no pension benefits other than the statutory pension, ITP pension or similar. All pensions for members of Group Management are vested. For all members, after reaching the statutory age of retirement, no pension benefits are payable other than the statutory retirement pension, ITP pension or similar. Agreements have been made with two 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 directors of two subsidiaries for severance pay equivalent to one year’s salary in the event the company serves notice. These managing directors have no possibility to trigger severance pay themselves.

Group Men Women 85 15 91 9

Board of Directors, % Management, %

Parent company Men Women 100 0 83 17

Note 12 Profit from securities and receivables SEK m Dividends

Group 2006 2005 0.1 0.1

Parent company 2006 2005 -

Group 2006 2005

Parent company 2006 2005

Note 13 Financial income SEK m Interest income External Group companies Exchange rate differences Cash and cash equivalents Other

60.9 -

47.2 -

39.7 5.7

19.3 2.1

-46.3 2.2 16.8

13.0 0.9 61.1

-45.7 -2.3 -2.6

12.1 1.0 34.5

Note 14 Financial expenses SEK m Interest expenses Loans Group companies Exchange rate differences Realised Unrealised Other

Of the above expenses, finance leases account for

Group 2006 2005

Parent company 2006 2005

-245.4 -

-151.4 -

-22.7 -33.3

-14.9 -20.5

-0.4 38.6 -1.5 -208.7

-8.4 7.1 -0.8 -153.5

43.3 -12.7

-8.7 -0.6 -44.7

-50.4

-30.1

FI N A N C I A L R EP O R T S

Note 15 Tax on profit for the year SEK m Significant sub-amounts Current tax on profit for the year Deferred tax, temporary differences Deferred tax, tax-loss carryforward

Group Parent company 2006 2005 2006 2005 -3.7 -82.2 9.2 -76.7

Relationship between reported pre-tax profit and tax expense for the period Reported profit before tax 579.8 Tax according to national tax rates -159.3 Effect of tonnage-based income tax 90.1 Effect of local tax rate -1.6 Effect of non-taxable profit/loss items -7.0 Adjustment of current tax for previous years 1.0 -76.8 Current and deferred tax booked directly against shareholders’ equity Effect of Group contribution Effect of functional currency Effect of new accounting principle (Note 36) Translation differences Derivative instruments

-17.6 -78.9 -0.7 -97.2

1.6 11.2 12.8

-6.1 21.4 -0.8 14.5

Goodwill is tested for impairment annually and when a need for goodwill impairment becomes evident. The recoverable amount 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 6.97% (6.25). There was no need to recognise impairment as per 31/12/2006. In the company’s opinion, a change of 1 percentage point did not result in any difference.

Note 18 Other intangible assets 720.1 -188.2 95.0 -2.3 -0.9

237.6 -66.5 79.3

426.2 -119.4 133.9

-0.8 -97.2

12.8

14.5

-51.0

62.1

-1.6 -

-21.4 -

-1.1 -12.6 -0.2 -64.9

-7.8 0.2 54.5

-1.6

-21.4

Note 16 Earnings per share

SEK m Opening cost New acquisition/capitalisation Sales and scrapping Exchange rate difference Closing cost

Group Parent company 2006 2005 2006 2005 16.4 19.6 1.4 1.4 0.4 1.2 0.2 -0.9 -4.7 -0.4 0.3 15.5 16.4 1.6 1.4

Opening amortisation Sales and scrapping Amortisation for the year Exchange rate difference Closing accumulated amortisation

-12.7 0.8 -1.4 0.3 -13.0

-12.0 1.7 -2.1 -0.3 -12.7

-0.4 -0.1 -0.5

-0.3 -0.1 -0.4

2.5

3.7

1.1

1.0

Patents and trademarks

0.4

Licence rights for software

2.1

3.3

0.9

1.0

Closing residual value according to plan of which

Note 19 Vessels Group

SEK m Profit used as basis for calculating earnings per share before and after dilution Average number of shares outstanding before dilutive effect Dilution shares Average number of shares after dilutive effect Profit for the year per share, SEK The average number of shares is calculated as a weighted average of the following factors: Opening number of shares at 1/1/2006 New issue 22/9/2006 Closing number of shares at 31/12/2006

Group

2006

2005

495.1

611.1

32,697,907 1,132

32,346,920 218,771

32,699,039

32,565,691

15.14

18.89

32,622,842 275,750 32,898,592

SEK m Opening cost New acquisition/capitalisation Sale of subsidiary Translation difference Closing cost

2006 6,441.2 1,269.8 -480.2 681.5 -859.3 7,053.0

2005 4,439.6 1,175.4 -281.8 264.2 843.8 6,441.2

Opening depreciation Sales and scrapping Depreciation for the year Reclassifications Exchange rate difference Closing accumulated depreciation

-1,298.3 195.7 -328.5 153.7 -1,277.4

-987.7 125.6 -202.8 -48.2 -185.2 -1,298.3

Total residual value according to plan

5,775.6

5,141.5

Closing cost Closing accumulated depreciation Residual value according to plan

974.0 -85.2 888.8

1,419.5 -105.0 1 314.5

The cost of vessels includes capitalised interest: During the year Accumulated

6.2 101.9

0.5 130.8

Of which, finance leases

Note 17 Goodwill Group 2006 2005 141.1 49.7 82.5 -5.9 -11.2 8.9 124.0 141.1

SEK m Opening cost New acquisition/capitalisation Sales and scrapping Reclassifications Exchange rate difference Closing cost

Parent company 2006 2005 -

Based on the current market values of the vessels in Broström’s fleet, it can be ascertained that a surplus value exists in the range of SEK 2.4 billion compared with book values.

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 separate legal entities is irrelevant.

FI N A N C I A L R EP O R T S

Participations in subsidiaries and Group companies

Note 20 Newbuilding contracts Group SEK m 2006 2005 Opening balance 357.4 268.7 Expenses incurred during the year 412.2 227.4 Reclassifications -681.5 -140.6 Exchange rate difference 1.2 1.9 Closing balance 89.3 357.4

Parent company 2006 2005 -

Newbuilding contracts include both the expenses relating to the projects and advances to shipyards.

SEK m Capitalised interest in newbuilding contracts During the year Accumulated

Group 2006 2005

4.3 6.5

Parent company 2006 2005

10.0 11.5

Note 21 Other tangible non-current assets

Share of equity, % Foreign subsidiaries Brostrรถm Holding BV* Brostrรถm Tankers SAS* Brostrรถm Tankers Ltd* Brostrรถm Shipping Company, Inc. Swedish subsidiaries Rederi AB Ankaret* Nordia Shipping AB* Brostrรถm Oil AB* Brostrรถm Ship Agency Network AB* Brostrรถm Ship Management AB* Brostrรถm Tankers AB* Wintria AB *

Group 2006 2005 101.2 226.1 4.9 33.9 -9.1 -158.5 -0.5 -0.3 96.5 101.2

Opening depreciation Sales and scrapping Depreciation for the year Translation difference Closing accumulated depreciation

-45.4 7.1 -10.6 -0.1 -49.0

-117.3 93.3 -19.1 -2.3 -45.4

-15.9 -5.9 -21.8

-12.4 2.6 -6.1 -15.9

Closing accumulated write-downs

-5.0

Closing residual value according to plan

42.5

50.8

18.5

22.7

Parent company 2006 2005 38.6 38.3 1.7 2.9 -2.6 40.3 38.6

21.2 2.9 3.5 14.9

22.0 2.9 4.2 21.7

9.2 9.3

9.4 13.3

Planned residual value of property in Sweden

12.0

16.7

9.2

9.4

Assessed taxable value of property in Sweden Of which, building value

8.5 6.8

8.4 6.7

8.5 6.8

8.4 6.7

Closing book value

100 100 100 100

1,500 850,000 10,000 410

455.3

100 100 100

20,500 10,000 10,000

2.6 2.5 1.3

100

1,000

15.1

100 100 100

100 200,000 0.8 100 13,819,891 1,295.3 100 1,000 0.1 1,941.5

168.1 0.4

Reg. no.

Registered office

B.V.327.944

Rotterdam, Netherlands Paris, France Bahamas Delaware, USA

R.C.S. B 308 276 591 Brostrรถm Tankers SAS* 21,798 B Brostrรถm Tankers Ltd* Brostrom Shipping Company, Inc. 8044976 Swedish subsidiaries Rederi AB Ankaret* Nordia Shipping AB* Brostrรถm Oil AB* Brostrรถm Ship Agency Network AB* Brostrรถm Ship Management AB* Brostrรถm Tankers AB* Wintria AB

556028-0504 556243-7243 556212-6234 556202-7218 556001-0596 556308-1545 556237-1947

Gรถteborg Gรถteborg Gรถteborg Gรถteborg Tjรถrn Gรถteborg Gรถteborg

Group

Minor changes have been made in subsidiary groups.

Parent company 2006 2005 2,115.1 1,975.2 89.5 -2.2 -28.2 78.6 2,112.9 2,115.1 1.1

Note 23 Receivables from Group companies Parent company 2006 2005 8.9 8.9

SEK m Opening cost Closing book residual value

8.9

Note 24 Participations in associated companies and joint ventures

Note 22 Participations in group companies

Closing accumulated write-downs

100 100 100 100

Group

Foreign subsidiaries Brostrรถm Holding BV*

Closing residual value according to plan consists of: Buildings Land Machinery Equipment

Closing accumulated revaluations

Book value

Information on subsidiariesโ and Group companiesโ registered numbers and registered offices

SEK m Opening cost New acquisition/capitalisation Sales and scrapping Exchange rate difference Closing cost

SEK m Opening cost Acquisitions during the year Sales during the year Reclassifications Closing cost

No. shares/ Share of particivotes, % pations

1.1

-172.5

1,941.5

1,943.7

SEK m Opening cost Sales during the year Reclassifications Translation difference Closing cost

2006 12.9 0.1 -0.1 12.9

Group 2005 9.4 -3.8 7.0 0.3 12.9

Parent company 2006 2005 80.8 -2.1 -78.7 0.0

Opening change in share of equity 51.5 Change in share of equity for the year 9.9 Reclassifications -24.5 Exchange rate differences -1.0 Closing change in share of equity 35.9

40.6

11.2 -1.9 1.6 51.5

Closing value of participations

64.4

48.8

FI N A N C I A L R EP O R T S

Share of equity/votes, % Owned by subsidiaries SNC Union Maritime de l’Ocean Indien, France 1) Percy Tham i Oxelösund AB, Sweden Uddevalla Hamnterminal AB, Sweden Net Ship Management, Inc. Philippines

No. shares/ participations

50.0 50.0 39.9 25.0

Group book value

500 9,576 57,973

32.2 1.5 14.8 0.3 48.8

The book value in the Group exceeds the Group’s share in associated companies’ and joint ventures’ equity by SEK 5.1 m (6.4) and consists in its entirety of consolidated goodwill. If the share in equity in associated companies had been reported in accordance with the cost method, it would have had an immaterial impact on the Group’s equity. Associated companies’ combined assets amounted to SEK 278.7 m and do not make up any material part of the Group’s total assets. 1)

This company form is equivalent to 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 Uddevalla Hamnterminal AB 556064-2745 Uddevalla Net Ship Management, Inc. AS 091-191928 Manila

Note 25 Other financial non-current assets SEK m Opening cost Cleared receivables/disposals Exchange rate differences Closing cost

Group 2006 2005 28.3 29.2 -0.1 -0.3 0.5 -0.6 28.7 28.3

Parent company 2006 2005 -

Note 28 Derivative instruments SEK m Assets Interest-rate swaps Total

Group 2006 2005 -

5.4 5.4

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.

Note 29 Prepaid expenses and accrued income SEK m Prepaid expenses Prepaid vessel expenses Prepaid charter hires Other prepaid expenses Accrued income Accrued interest income Other accrued income Total

Group 2006 2005

Parent company 2006 2005

43.4 14.0 44.0

42.6 6.9 68.2

4.8

5.4

1.9 51.1 154.4

1.3 63.8 182.8

4.8

5.4

Note 30 Short-term investments SEK m Money market investments Deposits Total short-term investments

Group 2006 2005 22.9 226.0 237.7 226.0 260.6

Maturities of short-term investments within 3-6 months after 6 months 226.0 226.0

22.9 237.7 260.6

Parent company 2006 2005 22.9 22.9

22.9 22.9

Consists of Receivables from associated companies Deposits in USD, fixed interest, maturity year 2011 Other

15.1

17.2

13.3 0.3

10.8 0.3

Note 26 Inventories, etc. SEK m Bunkers and lubrication oil Goods for resale Advances to suppliers

Group 2006 2005 63.5 58.8 0.1 0.2 0.1 63.6 59.1

Parent company 2006 2005 -

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.

Note 27 Trade accounts receivable SEK m Trade accounts receivable, gross Less reserve for decline in value of trade accounts receivable Total trade accounts receivable

Group 2006 2005 238.6 280.0 -2.9 235.7

-3.2 276.8

Note 31 Cash and cash equivalents Group SEK m 2006 2005 Money market investments 308.2 265.6 Deposits 270.0 583.6 Cash and bank balances 479.2 370.7 Total cash and cash equivalents 1,057.4 1,219.9

Parent company 2006 2005 308.2 265.6 270.0 583.6 382.6 167.4 960.8 1,016.6

The granted amount in the bank overdraft facility is SEK 52.3 m (52.5) for the Group and SEK 52.3 m (52.5) for the parent company.

Disposable liquidity: Group SEK m 2006 2005 Total short-term investments 226.0 260.6 Total cash and cash equivalents 1,057.4 1,219.9 Unutilised bank overdraft facility 52.3 52.5 Less: pledged funds -226.0 -238.1 Total disposable liquidity 1,109.7 1,294.9

Parent company 2006 2005 22.9 960.8 1,016.6 52.3 52.5 1,013.1 1,092.0

Parent company 2006 2005 0.4 0.4

FI N A N C I A L R EP O R T S

Summary of number of warrants in the programme from 2005

Note 32 Shareholders’ equity SEK m Restricted shareholders’ equity Share capital Statutory reserve Total restricted shareholders’ equity Unrestricted shareholders’ equity Profit brought forward Profit for the year Total unrestricted shareholders’ equity Total shareholders’ equity

Parent company 2006 2005 65.8 933.3 999.1

65.2 933.3 998.5

526.8 250.5 777.3

327.1 440.7 767.8

1,776.4 1,766.3

Proposed dividend for AGM decision, SEK per share Total amount SEK m

8.00 261.6

8.00 261.0

There are no preferential rights to accumulative dividends. Number of shares At start of year New subscription during the year At year-end

Class A Quota value Class B Quota value

2,125,728 30,497,114

Class B Quota value SEK 2.00 Class A Quota value Class B Quota value

275,750 2,125,728 30,772,864

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. Broström has an ongoing warrant programme, which was adopted by resolution of a nine-tenths majority at the 2005 Annual General Meeting and which is directed at all permanent employees of the Broström Group and to employees of part-owned companies in which the Group’s ownership is at least 50%. The warrant programme is based on the issue of two debentures, each with a nominal value of SEK 1,000 and linked to two warrant series containing a total of 1,000,000 detachable warrants for the subscription of 1,000,000 Class B shares. Each employee was entitled to 1,250 warrants. If the offer was not fully subscribed, an additional maximum of 98,750 warrants could be subscribed. The subscription period ran through September 2005, and the debentures were subscribed at the nominal amount with interest. The debentures fell due for payment on 30 September 2005. The warrants are not employee stock options, but are entirely market-based. They were acquired at market value based on the BlackScholes option pricing model. The valuation was performed by an independent expert. The following factors were used to calculate the market value: – the share price at the time of issue was SEK 120.90 – volatility was calculated to be 25% – risk-free interest during the term of the warrants was calculated to be 3% – the anticipated yearly dividend during the term of the options was calculated to be SEK 5 per share The price of each warrant was SEK 6.25 for series 2005:1 and SEK 8.50 for series 2005:2. Each warrant entitles its bearer to subscribe for one share at a price of SEK 157.20, corresponding to 130% of the average, volume-weighted price paid for Broström’s Class B shares on the Stockholm Stock Exchange during the period 1 June 2005 - 14 June 2005. An offer was made during the autumn to new employees. The price was SEK 10.70 for each warrant in series 2005:1 and SEK 16.80 for each warrant in series 2005:2. On 31 December 2006 a total of 397,800 warrants had been subscribed and 600,000 had been cancelled. A total of 2,200 warrants were outstanding on the balance sheet date.

Number of warrants upon issue in 2005 Warrants subscribed in 2005 Warrants cancelled in 2005 Closing number of warrants at 31/12/2005 Warrants subscribed in 2006 Remaining number of warrants at 31/12/2006

1,000,000 - 366,550 - 600,000 33,450 - 31,250 2,200

Note 33 Other reserves SEK m Opening balance, 1/1/2005 Exchange rate differences Tax, function currency Derivative instruments Tax, derivative instruments Closing balance, 31/1/2005

Recalculation reserve -287.6 406.8 -62.1 57.1

Hedge reserve 5.4 0.2 5.2

Total -287.6 406.8 -62.1 5.4 -0.2 62.3

-394.7 50.9 -286.7

-0.7 -4.7 0.2 0.0

-395.4 50.9 -4.7 0.2 -286.7

Exchange rate differences Tax, functional currency Derivative instruments Tax, derivative instruments Closing balance, 31/12/2006

Note 34 Equalisation reserve SEK m

US Pickle-lease French tax leasing

Dissolved

Position

Year

2006 31/12/06

Total

28.6 28.6

26.4

21.3

18.1

18.0

8.7

149.7

27.7

149.7

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 pickle-lease use the same currency, USD, and match each other, Broström is taking no currency risk with the exception of the future profit referred to above. In 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 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 Broström. The vessels are reported as finance leases in Broström’s financial statements. One condition for receiving 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 financial statements for the same period. The BRO ELIZABETH was released from the lease in 2006 according to an agreement. However, the vessel still has amounts that are being dissolved from the equalisation reserve until the vessel is eight years old.

FI N A N C I A L R EP O R T S

Group

Note 35 Deferred tax liability Group 2006 2005

SEK m Deferred tax liabilities Non-current assets Docking expenses Other Total deferred tax liabilities

Parent company 2006 2005

489.9 3.7 1.4 495.0

472.3 2.8 2.2 477.3

Deferred tax assets Non-current assets Associated companies Tax-loss carryforwards Other Total deferred tax assets

2.0 11.2 0.8 14.0

2.1 0.2 1.9 4.2

11.2 11.2

Total deferred tax (net)

481.0

473.1

11.2

Deferred tax assets and liabilities are offset when there is a legal offsetting right. The offset amounts are as follows:

Deferred tax assets Utilised after more than 12 months Utilised within 12 months Total deferred tax (net)

2006

2005

449.6 45.4 495.0

453.0 24.3 477.3

8.2 5.8 14.0

2.1 2.1 4.2

481.0

473.1

The gross change pertaining to deferred taxes is as follows: SEK m At start of year Exchange rate differences Acquisition of subsidiaries Sale of subsidiaries (Note 44) Reporting in income statement (Note 15) Tax reported in other reserves (Note 33) At year-end

2006 473.1 -12.6 -0.3 73.0 -52.2 481.0

Reporting in the income statement pertaining to pension benefits

2006

2005

1.9

2.2

29.8 -18.5 11.3

-9.4 1.9

24.7 2.1 1.2 4.1 -2.2 -0.1 29.8

20.3 1.1 -4.4 -1.4 3.0 -0.1 18.5

The pension benefits reported in the balance sheet have been calculated as follows: Present value of funded obligations Fair value of plan assets Unreported actuarial losses Net debt in balance sheet The change in the defined benefit obligation during the year was as follows:

All tax-loss carryforwards deemed possible to utilise have been taken into account.

SEK m Deferred tax liabilities Paid after more than 12 months Paid within 12 months

SEK m Obligations in the balance sheet for pension benefits

2005 344.5 -7.0 2.9 -9.2 79.6 62.3 473.1

At start of year Current service cost Interest expense Actuarial losses (+)/gains(-) Exchange rate differences Claims paid At year-end The change in the fair value of plan assets during the year was as follows: At start of year Anticipated return on plan assets Actuarial losses (-)/gains (+) Exchange rate differences Employer contributions Claims paid At year-end

The amounts reported in the income statement are as follows: Current service cost Interest expense Anticipated return on plan assets Actuarial net losses Total, included in personnel costs, Note 11

2.1 1.2 -1.1 2.2

The actual return on plan assets was SEK -3.2 m. The most important actuarial assumptions used were as follows:

Note 36 Other noninterest-bearing non-current liabilities

SEK m At start of year Provision during the year Utilised during the year Reversed during the year Translation difference Liability at year-end

Group Pensions Other 26.5 5.7 -2.0 -0.1 -1.0 29.1 -

Parent company Pensions Other -

The pension liability (not defined benefit) pertains primarily to employees of the French subsidiary Brostrรถm Tankers SAS. Pension obligations, defined benefit Information has been received during the year pertaining to certain defined benefit pension obligations. Previously it was not possible to obtain this information. The comparison figures have therefore not been recalculated.

Discount rate Anticipated return on plan assets Future salary increases Future pension increases

4.4% 5.4% 4.5% 1.6%

SEK m Plan assets consist of the following:

2006

2005

27% 57% 16% 100%

29.8 -18.5 11.3

4.4

Group

Equities Fixed-income securities Other At year-end As per 31 December 2006 Present value of defined benefit obligation Fair value of plan assets Deficit (+)/Surplus (-) Experience-based adjustments of defined benefit obligations Experience-based adjustments of plan assets

The anticipated injection to the plan for 2007 amounts to SEK 2.3 m.

FI N A N C I A L R EP O R T S

Note 37 Debenture loans SEK m Partners in foreign subsidiaries

Note 39 Accrued expenses and deferred income Group 2006 2005 29.5 30.7 29.5 30.7

Parent company 2006 2005 -

Partners in foreign subsidiaries Pertains to debenture loans in a subsidiary 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 company’s earnings allow. The subsidiary bareboat charters the vessel BRO ELLEN. Through the exercise of call options, the vessel will come under the subsidiary’s ownership in 2007. If the lender has not received said return, after 8 years (2010) it can call for the sale of the vessel and demand repayment of the loans plus an additional 4% annual return for the entire holding period if the company’s earnings allow.

Note 38 Non-current interest-bearing liabilities SEK m Broken down by currency SEK USD EUR Interest-bearing liabilities Maturity within 1 year Non-current interest-bearing liabilities Maturity after 1 year but within 5 years Maturity after 5 years

Group 2006 2005

Parent company 2006 2005

122.2 3,871.8 304.4 4,298.4

168.3 3,575.6 344.8 4,088.7

91.0 274.8 365.8

131.0 318.0 449.0

-328.8

-283.6

-40.0

3,969.6

3,805.1

325.8

409.0

1,446.1 2,523.5 3,969.6

1,401.0 2,404.1 3,805.1

325.8 325.8

409.0 409.0

The majority of interest-bearing liabilities are renewed over interest periods of 6-12 months. On the balance sheet date there were interest swap agreements and restricted loans with remaining duration in excess of:

SEK m 12 months with the following amounts

Group 2006 2005 555.9

700.7

125.8 81.1 39.1 14.4

82.3 82.5 24.5 20.4

7.5 3.5 -

9.7 3.5 -

8.9 2.6 271.9

10.0 1.3 221.0

0.7 11.7

0.9 14.1

SEK m Liabilities to credit institutions Cash and cash equivalents Net assets in subsidiaries Floating charges Vessel mortgages

Group 2006 2005 226.0 1,029.2 3.5 4,523.5 5,782.2

Parent company 2006 2005

238.1 1,171.0 3.5 4,069.5 5,482.1

3.5 3.5

Note 41 Contingent liabilities SEK m Guarantees and other contingent liabilities Contingent liabilities for the benefit of: Subsidiaries Associated companies

Group 2006 2005 20.6

29.2

62.5 83.1

84.7 113.9

182.9

190.2

Parent company 2006 2005 -

3,296.9 2,700.6 3,296.9 2,700.6

Contingent liabilities for associated companies are a joint and several payment obligation that the Group has for financing of the vessel CILAOS.

Note 42 Related party agreements Of net sales in the parent company, Group companies accounted for 86.9%. Purchases from Group companies accounted for 4.1% of total. In other respects, no related party transactions were made during the year. With respect to remuneration of key persons, see Note 11.

Note 43 Other adjustment items Group

Principal/option sum maturity date

Net debt (at booked rate) Interest-bearing liabilities Cash and cash equivalents

Parent company 2006 2005

Finance leases Finance leases consist primarily of bareboat chartering of vessels where the minimum lease payments 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.

SEK m Within 1 year After 1 but within 5 years After 5 years

Group 2006 2005

Note 40 Pledged assets

Assets in associated companies concerned

Parent company 2006 2005 -

SEK m Accrued expenses Vessel expenses Personnel costs Interest expenses Other expenses Deferred income Charter hires Other income

Group 2006 2005 33.1 48.8 102.3 223.9 497.6 665.5 633.0 938.2 4,298.4 -1,283.4 3,015.0

4,088.7 -1,480.5 2,608.2

Parent company 2006 2005 -

SEK m Share of associated companies’ loss Change in equalisation reserve Finance lease payments Capital gains/losses on sales of assets Change in other non-current assets, noninterest-bearing

2006 -15.0 -29.7 -91.9 -112.2

2005 -12.5 -15.0 -62.0 -122.4

2.5 -246.3

1.4 -210.5

FI N A N C I A L R EP O R T S

Note 44 Sales of subsidiaries

Note 46 Significant events after year-end

Broströms Resebyrå AB was sold on 4 May 2006. Nordic Bulkers AB was sold on 17 October 2005.

Against the background of the resolution made by the Board of Directors on 14 December 2006 to repurchase up to 1 million Class B shares in Broström, within the framework of the authorisation granted by the 2006 Annual General Meeting, a total of 198,000 Class B shares were repurchased, starting on 3 January 2007, at an average price of SEK 145.67. Broström’s total holding of treasury shares as per 23 February 2007 amounted to 198,000 B-shares. The BRO DEVELOPER (14,500 dwt), the last D-class vessel in a series of four, was delivered on 12 February 2007 from the shipyard in China. The vessel is wholly owned by Broström and is being employed in Broström’s European traffic. In February 2007 Broström signed a partnership agreement with Reederei Claus-Peter Offen, under which eight 37,000 dwt product chemical tankers will be added to Broström’s commercial fleet. The vessels are currently being built at a shipyard in Korea and will be delivered between June and December 2008. Following delivery of these new vessels, which will be owned by Reederei Claus-Peter Offen, Broström will have at its disposal a commercial fleet of 16 units in the same size class to be employed in the European market. In February 2007 Broström also signed an agreement for a sale of the BRO TRANSPORTER (14,400 dwt, built in 1989 and 77.5%-owned by Broström) and the BRO TRADER (14,320 dwt, built in 1988). The sales generated a capital gain of approximately SEK 1 m and a cash contribution of approximately SEK 87 m. Both vessels were delivered to their new owners in March 2007.

Group SEK m 2006 Intangible non-current assets 6.1 Tangible non-current assets 1.8 Shares in associated companies Financial non-current assets 0.1 Current assets 25.2 Deferred tax -0.7 Non-current liabilities Current liabilities -30.0 Book value of associated companies 12.7 Total cash flow pertaining to sales of subsidiaries 15.2 Cash and cash equivalents in sold subsidiaries Total purchase price paid

2005 2.9 64.5 1.2 0.1 68.9 -9.2 -19.6 -82.4 10.7 37.1

1.7 16.9

13.8 50.9

Note 45 Cash flow from investing activities Group SEK m Investments as per balance sheet Adjustment of net investment Issuance of treasury shares Exchange rate differences Cash and cash equivalents in acquired companies that are consolidated Finance leases not affecting cash flow Divestments Change in non-current receivables Cash flow from investing activities

2006 -1,687.5 -126.1

2005 -1,620.0 24.5 90.5 33.5

-169.8 389.0 -0.4 -1,594.8

39.1 357.5 580.9 2.7 -491.3

FI N A N C I A L R EP O R T 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 Share premium reserve, unrestricted shareholders’ equity Profit for the year Total

SEK 506,808,259 4,149,320 15,981,988 250,428,141 777,367,711

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

261,604,736 515,762,975 777,367,711

The results and financial position of the Group and parent company are shown in the income statements, balance sheets, cash flow statements and notes. The income statements and balance sheets will be presented to the Annual General Meeting on 3 May 2007 for adoption. In accordance with a resolution made by the Annual General Meeting on 3 May 2006, in 2007 the Board purchased 198,000 treasury shares at price of SEK 28,842,660. This amount uses reported unrestricted earnings as per 31 December 2006, at the same time that the shares are not entitled to the dividend, corresponding to SEK 1,584,000. Similarly, any additional treasury shares acquired up until the Annual General Meeting will reduce the amount of unrestricted earnings available for the dividend. Information about this will be provided at the Annual General Meeting. Disclosures about share repurchases will also be provided on a regular basis on the company’s website. The number of shares on 31 December 2006 was 32,898,592. The undersigned herewith certify, to the best of their knowledge, that the annual report is prepared in accordance with generally accepted accounting principles for listed companies, that the information provided reflects the actual conditions and that nothing of material importance has been omitted that could affect the picture of the company presented by the annual report.

Göteborg, 20 March 2007

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 2007

Pär Sundaeus

Authorised Public Accountant

Lars Nordberg

Authorised Public Accountant

FI N A N C I A L R EP O R T 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 2006. The company’s annual report is included in the printed version of this document, on pages 46-74. 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, as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the 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 and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and give a true and fair view of the company’s 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 2007

Pär Sundaeus

Authorised Public Accountant

Lars Nordberg

Authorised Public Accountant

CO R P O R AT E G OV ER N A N C E R EP O R T

Corporate Governance Report Broström, its board and its management strive to live up to the 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 AB (publ) is a Swedish public limited liability

Class B shares. The quota value per share is SEK 2.00. Each

company operating under Swedish jurisdiction. Corporate

A-share carries entitlement to ten votes, while each B-share

governance at Broström is based on Swedish legislation, mainly

carries entitlement to one vote. All shares carry equal entitle-

the Swedish Companies Act, the listing agreement with the

ment to a share of company’s proﬁt and assets.

Stockholm Stock Exchange, and other relevant rules and guidelines. The Swedish Code of Corporate Governance (“the

Annual General Meeting

Code”) is included as part of the listing agreement with the

The Annual General Meeting (AGM) of Broström AB (publ)

Stockholm Stock Exchange as from 1 July 2005.

is the Broström Group’s highest decision-making body and the

Broström adheres to the Code since 1 July 2006. The

shareholders’ forum for exercising their direct inﬂuence over

only departure from the Code is that the company does not

the company. The AGM’s duties are governed by the Swedish

have a nominating committee (see below under Nomination

Companies Act and the company’s Articles of Association,

procedure).

which are available at www.brostrom.se. The AGM shall be held not later than six months after the

This corporate governance report has not been reviewed by

end of the ﬁnancial year. Notice of the AGM must be issued

the company’s auditors.

not earlier than six weeks and not later than four weeks prior

Share capital

to the meeting.

On 31 December 2006, Broström’s share capital amounted

According to the Articles of Association, all shareholders

to SEK 65.8 m (65.2). The number of shares was 32,898,592,

have an equal right to present proposals and participate at

broken down into 2,125,728 Class A shares and 30,772,864

general meetings of shareholders. Each B-share carries entitle-

Corporate governance structure External auditors

Shareholders via AGM

Nomination procedure

Board of Directors

Audit and Compensation Committees

MD and Group Management

Important external rules that affect Broström’s governance: Swedish Companies Act Listing Agreement with Stockholm Stock Exchange Swedish Code of Corporate Governance

Internal functions: Finance Accounting IT

Corporate Communications Quality Human Resources

Examples of policies and codes: The Board’s Rules of Procedure Code of Conduct SHE policy (Safety, Health and Environment) Information policy, finance and credit policies, accounting manual, etc. Processes for internal control and risk management Employee Manual

CO R P O R AT E G OV ER N A N C E R EP O R T

ment to one vote, and each A-share carries entitlement to ten

Composition of the Board

votes. (See page 41 for details on the share capital). Sharehold-

The Board shall consist of at least four and not more than nine

ers who are registered in the shareholder register as per the

directors, with an equal number of deputies. The directors and

record date and who have given notiﬁcation have the right to

their deputies are elected by the AGM for a term extending

participate in the AGM, personally or by proxy. Decisions at

until the end the ﬁrst AGM that is held after the year in which

AGMs are normally made by a simple majority. However, for

they were appointed. There is no limit for how long an indi-

certain matters, the Companies Act requires a higher percent-

vidual director can remain on the Board. However, according

age of shares and votes represented at an AGM in order for a

to practice there is an upper age limit of 70 for board members.

proposal to be approved.

The Board has consisted of eight AGM-elected directors since the 2006 AGM.

2006 AGM

None of the AGM-elected directors may have or have an

The last AGM was held on 3 May 2006 at Lorensbergsteatern in operative role within the Broström Group. Nor have any of Göteborg. At the meeting, 335 (286) shareholders participated,

these directors been employed by the Broström Group during

representing 38% (29) of the number of shares and 61% (55)

the past ﬁve years. With the exception of Fredrik Svensson,

of the votes. The AGM discharged the departing board from

who is Managing Director of Arvid Svensson AB (see page 85),

liability and resolved to re-elect all of the current directors.

at year-end no AGM-elected director had any directorships or

The AGM authorised the Board to decide on acquisitions

other relations with any of Broström’s ten largest shareholders.

and transfers of treasury shares corresponding to one-tenth of

The other seven AGM-elected directors meet all the require-

all of the shares in the company.

ments made by the Code regarding directors’ independence in

In addition, the AGM authorised the Board – pursuant to

relation to the company or major shareholders.

the Articles of Association and without pre-emption rights for the shareholders – to decide on new share issues of a maximum

Chairman of the Board

of 3,262,284 B-shares on one or more occasions during the

At its statutory meeting on 3 May 2006, the Board re-elected

period until the next AGM, for cash consideration.

Lars-Olof Gustavsson as Chairman of the Board. The Chairman

The share dividend was set at SEK 8.00 per share.

monitors the development of the company’s business and is

Seven of the total of nine directors as well as the company’s

responsible for ensuring that the other directors are continu-

auditors were present at the meeting.

ously provided with the information they need to perform their board duties and maintain quality in accordance with the Swed-

2007 AGM

ish Companies Act. Lars-Olof Gustavsson has been Chairman

The next AGM will be held on 3 may 2007 at Konserthuset,

of the Board since 1995.

Göteborg.

Board committees Board of Directors

Audit Committee

Between AGMs, the Board of Directors is the highest deci-

The Board has an audit committee that is tasked with exam-

sion-making body in the Broström Group. The Board’s duties

ining and preparing decisions by the Board with respect to

are regulated by the Articles of Association and the Swedish

ﬁnancial information and with monitoring the focus of the

Companies Act, as well as by the rules of procedure adopted by

company’s external audit and the auditors’ independence. The

the Board each year. These stipulate the division of duties and

committee is also responsible for monitoring the Board’s annual

responsibility between the Board, its chairman, and the compa- report on internal control. ny’s managing director (MD). The Board is responsible for adopting strategies, business

The members of the Audit Committee are Lars-Olof Gustavsson (committee chair), Stig-Arne Blom and Leif

plans and budgets, and interim reports and preliminary earnings

Rogersson. During the time up until the publication of this

reports. In addition, the Board is tasked with appointing and

annual report, the Audit Committee held four meetings which

removing the MD and with deciding on the compensation and

were documented by minutes and reported to the Board.

beneﬁts of the MD and Deputy MD. The Board also decides on material changes in Broström’s organisation and operations. The

Compensation Committee

rules of procedure also deﬁne monetary limits for when a board

The Board has also appointed a compensation committee

decision is required for investment, acquisitions and loans.

consisting of Lars-Olof Gustavsson and board member Leif

CO R P O R AT E G OV ER N A N C E R EP O R T

Rogersson. The committee is tasked with drawing up guide-

B-shares. The repurchases would be possible during the period

lines on compensation of the MD and Deputy MD. These

up until the next AGM. Broström’s holdings of treasury shares

guidelines are then adopted by the AGM. During the time up

as per 23 February 2007 amounted to 198,000 B-shares, which

until the publication of this annual report, the Compensation

were repurchased at an average price of SEK 145.67 per share.

Committee held four meetings, which were documented by

In 2006, an evaluation of the Board’s work was performed

minutes and reported to the Board. Directors’ fees are set

by an external consultant. The conclusions drawn from this

by the AGM based on recommendations from Broström’s

evaluation are that the board work has been performed very

A-shareholders.

well and is characterised by stability and continuity, and that the Board has a well balanced combination of expertise.

The work of the Board The Board constitutes itself at the ﬁrst board meeting held

Attendance at board and committee meetings is shown in the table below:

directly after the AGM (the statutory meeting). At this meeting the Board also adopts its rules of procedure and instruc-

Director

tions for the MD.

Stig-Arne Blom

Since the 2006 AGM the Board held seven meetings up until the adoption of this Annual Report. The main items of business covered at these meetings are outlined below:

Compensation Audit Board Committee Committee 7

Peter Cowling

Carel van den Driest

Lars-Olof Gustavsson

Claes Lundblad

Leif Rogersson

May

Interim report January-March

Fredrik Svensson

May

Statutory meeting, adoption of rules of procedure

Wilhelm Wilhelmsen

and MD’s instructions, appointment of company

Rolf Öström

signatories

Total number of meetings

August

Interim report January-June, strategy discussions

Average no. of directors in attendance

October

Interim report January-September

8.0

2.0

2.8

December Budget and business plan for 2007

Nomination procedure

February

Preliminary report on 2006 results, report on

Broström does not have a nominating committee, since an

evaluation of the Board’s work

agreement exists between the company’s A-shareholders (see

Annual Report 2006

page 40). One of the aims of this agreement is to establish

March

consensus on nomination matters, which are drafted by the The Board’s administrative director, Margareta Alestig John-

A-shareholders, who jointly submit their recommendations to

son, served as company secretary for the Board during the year.

the AGM for a decision. This procedure also includes nomi-

Early in the year the Board’s discussions included the

nating a chairman to preside over the AGM and the Chairman

broadened partnership with Dünya concerning the order of

of the Board, and drawing up recommendations for directors’

six product tankers and progress of the work at the Chinese

fees, election of directors and auditors’ fees.

shipyard, where the company’s four D-class vessels were being

The Board’s aim is to maintain extensive breadth and di-

built. The Board also discussed matters concerning the sale of

versity regarding the expertise and experience of its members.

older vessels.

Certain directors on the Board have depth of experience in

In May the Board decided to sell Broströms Resebyrå.

both Swedish and international shipping, while others have a

Decisions were also made in spring and summer on purchases

background in more traditional logistics companies. One of the

of two vessels with an option for a third which to date were

directors has experience from the oil industry. In addition, sev-

owned by the partner Rigel Schiﬀahrts, and on the sale of two

eral directors have extensive knowledge in economics, ﬁnanc-

older vessels.

ing matters and law. The A-shareholders strive for the greatest

During the autumn, the Board decided to acquire an addi-

possible openness and therefore welcome proposals and views

tional 21% of the FURE NORD, which is now 30%-owned by

from other shareholders. Shareholders who wish to nominate a

Broström. Further, in December it was decided that the com-

director to the board, or who for other reason want to contact a

pany, pursuant to the authorisation granted by the AGM on 3

representative of the A-shareholders, are instructed to contact

May 2006, would repurchase up to a million of the company’s

the Chairman of the Board.

CO R P O R AT E G OV ER N A N C E R EP O R T

Managing Director and Group Management The MD manages the business in accordance with the adopted

election of auditors will take place at the 2007 AGM. The company’s auditors are Pär Sundaeus, from Öhrlings

rules of procedure and the Board’s instructions. The MD is

PricewaterhouseCoopers AB, and Lars Nordberg, from Acrevi

responsible for ensuring that the Board receives information

Revision KB. Authorised Public Accountant Pär Sundaeus is

and necessary decision-making documentation, and makes

Group Auditor. Per Sundaeus is among others also auditor in

presentations at board meetings. However, following a policy

Borås Wäfveri AB.

decision in 1998, neither the MD nor any other senior execu-

Öhrlings PricewaterhouseCoopers and Acrevi Revision

tives of the company are members of the Board. The MD

have had auditing assignments from Broström since 1982 and

keeps the Board and Chairman informed about the company’s

2000, respectively.

and Group’s ﬁnancial position and development. Assisting the MD is a Group Management Team com-

Auditors

Assignment Born since

prising ﬁve other members, who are presented on page 83.

Name

Title

Company

During the year, Wladimir Pallu de Beaupuy joined the Group

Pär Sundaeus

Auth. Publ. Acc.

Öhrlings PricewaterhouseCoopers AB 1947 1986

Management Team and thereby took the place of Hans Jörgen

Lars Nordberg

Auth. Publ. Acc.

Acrevi Revision KB

1943 1994

Assignment Born since

Firing, who left his assignment on 31 December 2005, at which time his employment was ended. In 2006 the Group Manage-

Deputy Auditors

ment Team held seven formal meetings and a large number of

Name

Title

Company

informal meetings. These meetings are presided by the MD,

Bror Frid

Auth. Publ. Acc.

Öhrlings PricewaterhouseCoopers AB 1957 1998

who makes decisions in consultation with the other members.

Berth Hilmersson Auth. Publ. Acc.

Organisation and reporting systems

In brief, the auditing assignment has been performed through

The Broström Group consists of the parent company,

continuous audits and examination of the Annual Report. Pär

Broström AB (publ), 11 subsidiaries and four associated

Sundaeus participated in a number of meetings with the Audit

companies, which are listed in Note 22 (page 68) and Note 24

Committee and at the Board’s meeting in February. The audi-

(page 68). All operating subsidiaries and associated companies

tors have also held special meetings for reporting to the Group

report directly to the MD or Deputy MD, as well as additional

Management. Aside from regular auditing duties, Öhrlings

three executives of Broström AB. Reporting is conducted

PricewaterhouseCoopers assists Broström primarily with

on a monthly basis. The subsidiary and associated company

consulting on tax matters. This consulting is not considered to

boards consist preferentially of members of Broström’s Group

constitute any conﬂict of interest.

Management. All chairman positions are held by MD Lennart Simonsson or Deputy MD Anders Dreijer.

Acrevi Revision KB

1948 1996

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 auditors’ fees is provided in Note

Internal communication

10 on page 65.

Internal communication is important for ensuring that all employees have access to the same information about events

Related party agreements

taking place within the Group. Communication also contrib-

There are no related party agreements.

utes to a sense of involvement among all employees and helps ensure that everyone is working towards the same goals. Bro Connection is the Broström Group’s internal quar-

Compensation matters To be able to attract and retain competent employees,

terly news magazine. All employees also have access to the

Broström strives to oﬀer its employees an attractive and

company’s intranet. Another internal source of information

competitive compensation package. Reward is perform-

is “Lessons to Learn”, covering incidents or experiences at

ance-related and linked to results both for the company and

sea. Added to this are various information channels at the

the individual employee over the short and long term. All of

company level.

Broström’s permanent employees receive compensation in the form of a ﬁxed salary. All employees are also included in

External audit

a general proﬁt-sharing system. Additionally, all permanent

Broström’s auditors are elected by the AGM for a term of

employees of the Group have been invited to participate in

four years. The current term was begun in 2003, and the next

warrant programmes oﬀered by Broström.

CO R P O R AT E G OV ER N A N C E R EP O R T

Proﬁt-sharing system

The warrants are not employee stock options, but are

All employees of the Group – including shore-based employees

entirely market-based. They were acquired at market value

as well as seamen, including contract employees – are included

based on the Black-Scholes option pricing model. The

in a proﬁt-sharing system that is based on the Group’s proﬁt

valuation was performed by an independent expert. The

performance.

following factors were used to calculate the market value:

The amount distributable in the proﬁt-sharing system is

– the share price at the time of issue was SEK 120.90

based on the return on capital employed. Proﬁt shares be-

– volatility was calculated to be 25%

come payable when the return exceeds the STIBOR rate as

– risk-free interest during the term of the warrants was

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 2006 this entailed an interval between 3.5%

calculated to be 3% – the anticipated yearly dividend during the term of the options was calculated to be SEK 5 per share

and 14.5%. The total proﬁt share is equivalent to one-fourth of

The price of each warrant was SEK 6.25 for series 2005:1 and

the Base Amount to two times the Base Amount, depending on

SEK 8.50 for series 2005:2.

the employee’s position. A similar system has been in place for the Group Manage-

Bearers of warrants in series 2005:1 are entitled to subscribe for one new Class B shares in Broström AB (publ) in Septem-

ment since 2002, which pays a proﬁt share when the return on

ber 2007 at a subscription price of SEK 157.20, which corre-

capital employed reaches 10%-15% according to a progressive

sponds to 130% of the average, volume-weighted price paid for

scale. The MD can receive a maximum of 50% of his annual sal-

Broström’s Class B shares on the Stockholm Stock Exchange

ary, and the other executives a maximum of 30%.

during the period 1 June 2005 – 14 June 2005. For series 2005:2,

Based on consolidated proﬁt for 2006, the dividend from the proﬁt-sharing system will amount to SEK 5.7 m for shore-

the same right applies in September 2008. The warrants that were not purchased were oﬀered to

based employees. The proﬁt share will amount to SEK 3.9 m for

future new employees. Such an oﬀer was made in autumn

seamen and SEK 0.7 m for Group Management. For 2005, the

2006. The price was SEK 10.70 for each warrant in series 2005:1

bonus based on consolidated proﬁt was SEK 7.3 m for shore-

and SEK 16.80 for each warrant in series 2005:2. On 31 Decem-

based employees, SEK 5.7m for seamen and SEK 3.6 m for

ber 2006 a total of 397,800 warrants had been subscribed and

Group Management.

600,000 had been cancelled. A total of 2,200 warrants were outstanding.

Warrant programmes

Options exercised in the option programme entail an

Broström has a warrant programme in progress, which was ap-

increase in the number of shares and votes by 1.2% and 0.8%,

proved by a nine-tenths majority at the 2005 Annual General

respectively. There was no dilutive eﬀect in terms of value on

Meeting and which is directed at all permanent employees of

the balance sheet date.

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 programme is to stimulate interest

Previous incentive programmes The company has previously directed a total of three warrant

in the company’s operations and earnings performance, as well

programmes at employees. Two of these expired prior to year-

as to energise employees and enhance their sense of belonging

end 2005, while the third expired in 2006.

with the company. The warrant programme is based on the issuance of two

Other beneﬁts

debentures, each with a nominal value of SEK 1,000 and linked

Aside from the use of a company car for a limited number of

to two warrant series containing a total of 1,000,000 detachable

persons, in 2006 Broström’s employees did not receive any

warrants for the subscription of 1,000,000 Class B shares. All

material beneﬁts other than their ﬁxed and variable salaries.

permanent employees have been oﬀered to purchase 1,250 warrants each. If the oﬀer was not fully subscribed, an additional

Directors’ fees

maximum of 98,750 warrants could be subscribed.

The AGM-elected directors are paid a directors’ fee that is set

The subscription period ran through September 2005,

according to a decision by the AGM, which is to be appor-

and the debenture loans were subscribed at the nominal

tioned among the directors at the Board’s discretion. From the

amount with interest. The loans fell due for payment on

AGM on 3 May 2006 until the next AGM, the directors’ fee is

30 September 2005.

SEK 2,175,000 (1,725,000). In addition, pursuant to a decision

CO R P O R AT E G OV ER N A N C E R EP O R T

by the AGM, the committees appointed by the Board receive

This pension is a deﬁned beneﬁt obligation and is vested, which

a ﬁxed fee of SEK 275,000 (100,000), to be apportioned at the

means that it will remain unaﬀected by any future employment.

Board’s discretion.

Pension beneﬁts are payable between 60 and 65 years of age in

The Chairman of the Board, Lars-Olof Gustavsson, was paid

an amount equivalent to 75% of the MD’s annual salary at 60

a director’s fee of SEK 550,000 (475,000) in 2006, plus a fee of

years of age. After the MD has turned 65, no pension is payable

SEK 70,000 (45,000) for committee work. No other remunera-

other than statutory retirement pension and ITP pension.

tion or beneﬁts were paid to the Chairman. The other directors

For the ﬁve other members of the Group Management, com-

received a combined total of SEK 1,400,000 (1,062,500) in direc-

bined pension premiums of SEK 1.9 m above and beyond the

tors’ fees, which was paid out in the amount of SEK 200,000 per

ITP plan were booked during the year as an expense. For one

director. A fee of SEK 117,500 (105,000) was apportioned among

of these executives, the pension is a deﬁned beneﬁt obligation.

the other directors for committee work. The law ﬁrm at which

Pension beneﬁts are payable between 60 and 65 years of age in

company director Claes Lundblad works was not paid any fee

an amount equivalent to 70% of the executive’s annual salary at

in 2006 (95,000) for assignments he was requested to perform.

60 years of age.

A combined total of SEK 539,767 (915,080) in fees were paid to this law ﬁrm for assignments it was hired to perform.

One member has a deﬁned contribution pension that is payable from 63 to 65 years of age. Another of the members has a life-

Apart from reimbursement for travel expenses, no other

time deﬁned contribution pension plan that becomes payable

remuneration or beneﬁts were paid. The employee representa-

at 65 years of age. Two of the members of Group Management

tives on the Board do not receive any fee for their board duties,

have no pension beneﬁts other than the statutory pension, ITP

other than reimbursement for costs in connection with their

pension or similar. All pensions for members of Group Manage-

board work.

ment are vested. For all members, after reaching the statutory age of retirement, no pension beneﬁts are payable other than the

Compensation of the Managing Director and Group Management

statutory retirement pension, ITP pension or similar.

Compensation and the terms of employment for the MD and

Term of notice and severance pay

Deputy MD are set by the Board, based on recommendations

In the event the company serves notice, the MD is entitled

made by the Compensation Committee. The MD decides on

by an agreement to two years’ salary, regardless of whether he

the salary and terms of employment for the other four members

receives compensation from another employer. The MD cannot

of the Group Management (see page 83). Starting in 2007,

trigger severance pay himself. The MD and Broström are each

the AGM will set guidelines for compensation of the MD and

bound to a six-month term of notice. Agreements have been

Deputy MD. These guidelines were drafted by the Compensa-

made with other senior executives entitling them to severance

tion Committee. All remuneration paid in 2006 to the MD and

pay equivalent to two years’ salary, with another for severance

Group Management is shown in the table below. Aside from

pay equivalent to 18 months’ salary, and with two executives

the current Group Management, no salary or other remunera-

entitling them to one year’s salary in the event the company

tion was paid during the year to former senior executives. Since

serves notice. Compensation from Broström remains if payment

the current warrant programme have been subscribed at mar-

is received from another employer. There is no possibility for

ket terms, it is not classiﬁed as compensation or beneﬁts.

any of these executives to trigger severance pay themselves.

Pension terms for the Managing Director and Group Management

agreement has been made with the managing directors of two

Pension premiums of SEK 1.5 m (1.3) above and beyond the ITP

the event the company serves notice. These managing directors

plan were booked during the year as an expense for the MD.

have no possibility to trigger severance pay themselves.

In addition to the senior executives referred to above, an subsidiaries for severance pay equivalent to one year’s salary in

Remuneration of Managing Director and Group Management SEK m

MD Other members of Group Management Total

Fixed salary

Profit share

Other benefits

Pension costs

Total

Number of warrants granted

51,250

4.4 (3.5)

0.3 (1.6)

0.1 (0.1)

1.5 (1.3)

6.3 (6.5)

10.4 (8.5)

0.4 (2.0)

0.6 (0.6)

2.5 (1.0)

13.9 (12.1)

57,250

14.8 (12.0)

0.7 (3.6)

0.7 (0.7)

4.0 (2.3)

20.2 (18.6)

108,500

T H E B OA R D ’ S R E P O R T

The Board’s Report The Board of Directors of Broström AB herewith submits its report on internal control concerning the ﬁnancial reporting for the 2006 ﬁnancial year.

This report is prepared in accordance with the Swedish Code

Control activities

of Corporate Governance and the guidelines issued by FAR

The ﬁnancial reporting process is controlled in part through

(the institute of the accounting profession in Sweden) and

built-in system controls and in part through manual reason-

the Confederation of Swedish Enterprise, and in adherence to

ability controls from the transaction level to ﬁnal report.

the “Instructions on the Code’s rules on reporting of internal

The design and execution of these control activities are

control” issued by the Swedish Corporate Governance Board

steered by detailed accounting instructions at both the local

on 5 September 2006. In adhering to these instructions, the

and central levels. The system for the control activities will be

Board limits its report to describing how the internal control

further strengthened through the current integration of the

regarding the ﬁnancial reporting is organised.

company’s IT platform.

This report is not a part of the formal annual report and has not been reviewed by the company’s auditors.

Information and communication To ensure correct ﬁnancial reporting, the company works

Control environment

with detailed manuals and timetables in which the pertinent

The foundation for the internal control of ﬁnancial reporting

employees are informed about the importance of providing

within the Broström Group consists of the Code of Conduct

correct information to the market. These are updated and

adopted by the Board and its guidelines on ﬁnancial report-

communicated on a continuing basis within the organisation.

ing, which are communicated in all parts of the Group. These guidelines are speciﬁed in the Board’s and Managing Direc-

Monitoring

tor’s rules of procedure, which stipulate that the Board is

The Audit Committee, together with the company’s audi-

responsible for all external ﬁnancial reporting. The Managing

tors and the company’s central ﬁnance function, continuously

Director is responsible for ensuring that the internal control

monitor the internal control of the ﬁnancial reporting to

is suited for its purpose and eﬀectively lives up to the Board’s

ensure that it lives up to the set level. During the ﬁnancial year

demands. Internal control within the organisation is steered

this was investigated and ascertained under the Audit Com-

by the Board’s and management’s policies, guidelines and in-

mittee’s attention. The result of this study has been discussed

structions with respect to trademark protection, investment

by the Board, and certain additional eﬃciency improvement

activities, ﬁnancial management, income and cost control,

measures have been decided on.

and qualiﬁcation requirements for employees involved in the ﬁnancial reporting.

Internal audit The company has no independent internal audit function.

Risk assessment

The Board is of the opinion that internal control of the ﬁnan-

The Audit Committee within the Board is responsible for

cial reporting as described above is satisﬁed without having to

monitoring and assessing the risk of errors in the ﬁnancial

establish a special internal audit function.

reporting. In 2006 the committee performed a review of this risk for error and ascertained that the risk of error is within the framework of the quality requirements set by the Board. Further, the Audit Committee works together with the

Göteborg, March 2007

company’s auditors on a continuing basis and has follow-up responsibility within the Board for the auditors’ yearly report on internal control, which is a part of its continuing review.

The Board of Directors of Broström AB

M A N AG EM EN T

Margareta Alestig Johnson

Anders Dreijer

Lennart Simonsson

Deputy Managing Director, employed since 1984.

Managing Director, employed since 1982.

Administrative Director, employed since 2003.

Born 1953, Swedish citizen.

Born 1950, Swedish citizen.

Born 1961, Swedish citizen.

Education: M.Sc. Engineering.

Education: Business Economist.

Education: B.Sc. Econ.

Professional background: Senior positions within the Broström Group. Formerly employed by Atlanticargo and the Johansson Group.

Professional background: Senior positions within the Broström Group. Prior to this, served with Peabody Group and Iwema Pack.

Professional background: Senior positions in administration and finance for Swisslog, Applied Biosystems, SwedPower and SveaBanken. Holdings of shares and warrants in Broström AB: 2,500 B-shares, 4,000 warrants.

Own holdings of shares and warrants in Broström AB: 98,721 A-shares, 316,138 B-shares and 51,250 warrants.

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. Holdings of shares and warrants in Broström AB: 96,042 A-shares, 205,270 B-shares and 51,250 warrants.

Patrick Decavèle Managing Director of Broström Tankers SAS, employed since 1980.

Wladimir Pallu de Beaupuy

Tore Angervall Managing Director of Broström Tankers AB, employed since 1970.

Born 1950, French citizen.

Commercial Director Broström Tankers Ltd, employed since 1982.

Born 1944, Swedish citizen.

Education: Ph.D. Econ.

Born 1957, French citizen.

Education: B.A.

Professional background: Senior positions within the Broström Group. Previous employed by Alstom.

Education: DESMM and IEP Insead, Executive Programme.

Holdings of shares and warrants in Broström AB: None.

Professional background: Senior positions within the Broström Group. Previously held various positions as Chief Officer, Deck and Engine Officer.

Professional background: Senior positions within the Broström Group, including subsidiary Managing Director and Shipping Manager. Holdings of shares and warrants in Broström AB: 3,500 B-shares and 2,000 warrants.

Holding of shares and warrants in Broström AB: None.

BOA R D O F D I R EC TO R S

Lars-Olof Gustavsson

Stig-Arne Blom

Elected 1995, Chairman of the Board, member of the Compensation Committee and the Audit Committee.

Elected 2002, director, member of the Audit Committee.

Born 1943, Swedish citizen.

Education: M.Sc. Engineering.

Education: MBA.

Primary occupation: Management Consulting.

Primary occupation: Venture capitalist.

Professional background: Extensive experience from senior positions at IRO and Volvo.

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. Other directorships: Chairman of Four Seasons Venture Capital Management AB and the Finja Group. Director of Data Respons ASA, Emotron AB, Mikroponent AB, Siem Capital AB, Siem Industrikapital AB and SJ AB.

Born 1948, Swedish citizen.

Other directorships: Chairman of Borås Wäfveri AB, AP&T, Pulsen AB and Lidhs Förvaltnings AB. Director of Handelsbanken Västra Sverige, Beijer Electronics, Westergyllen AB, UEAB and Atlet. 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 Elected 2004, director. Born 1937, Norwegian citizen. Education: Company economist and internal education assignments for the Wilh. Wilhelmsen Group. Primary occupation: Shipowner. 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. Managing Director of Skips AS Tudor. Council member of Norges Investor AB. Chairman of the ForArts Council. Australian Honorary Consul in Norway. Former Chairman of Saga Petroleum and Det Norske Veritas. Holdings of shares and warrants in Broström AB: 50,000 B-shares, of which 40,000 are owned through companies.

BOA R D O F D I R EC TO R S

Peter Cowling

Leif Rogersson

Fredrik Svensson

Elected 1999, director.

Elected 1994, director, member of the Compensation Committee and the Audit Committee.

Elected 2005, director.

Born 1939, British citizen. Education: Fellow of the Institute of Chartered Shipbrokers.

Born 1940, Swedish citizen.

Primary occupation: Shipbroker.

Education: MBA, B.Sc. Engineering.

Professional background: Has served in various senior positions for British shipping companies, including Managing Director of Wallem Group Ltd.

Primary occupation: Board assignments.

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.

Other directorships: Chairman of De Laval AB.

Professional background: CEO and Chairman, plus various other senior positions at Alfa Laval AB.

Holdings of shares and warrants in Broström AB: 7,000 B-shares.

Born 1961, Swedish citizen. Education: M.Sc. Econ. Primary occupation: Managing Director of AB Arvid Svensson. 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. Vice Chairman of Sardus. Director of Klövern, Balder, Ramnäs Bruk AB and United Logistics. Holdings of shares and warrants in Broström AB: 1,037,984 A-shares through AB Arvid Svensson and 3,621,391 B-shares.

Holdings of shares and warrants in Broström AB: None.

Carel van den Driest

Claes Lundblad

Rolf Öström

Elected 2004, director.

Elected 1998, director.

Born 1947, Dutch citizen.

Born 1946, Swedish citizen.

Education: MBA.

Education: LL.B.

Elected 1999, director, employee representative elected by the Swedish Ship Officers’ Association.

Primary occupation: Board assignments and consultant.

Primary occupation: Member of the Swedish Bar and partner of Mannheimer Swartling Advokatbyrå.

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. 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., Kon Vopak N.V., Van Oord N.V. and Stork N.V. , Honorary Consul General for Singapore in the Netherlands.

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. Visiting Professor of Law, School of Economics at Gothenburg University.

Born 1944, Swedish citizen. Education: LL.B., Master Mariner. 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.

Holdings of shares and warrants in Broström AB: None.

No board member or member of Broström’s Group Management has any substantial shareholdings in companies with which Broström has significant business relations.

A D D R ES S ES

Broström AB (publ), SE-403 30 Göteborg, Östra Hamngatan 7, Sweden. Tel +46 31 61 61 00, fax +46 31 711 80 30 info@brostrom.se, www.brostrom.se

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

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

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 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 Tankers Ltd 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

Broström Tankers Asia Pte Ltd 460 Alexandra road # 31-02 PSA Building Singapore 119963 Tel: +65 6273 5677 Fax: +65 6273 3607 pacific@brostrom.no

As from 4 June 2007 Broström Ship Management AB SE-403 30 Göteborg, Sweden Östra Hamngatan 7 Tel: +46 31 61 62 00 Fax: +46 31 711 80 30 Telex 2428 fman s shipman@brostrom.se

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

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

Nordtank Shipping A/S Lindevej 16 DK-4300 Holbaek Denmark Tel: +45 59444466 Telex: 19505 Fax: +45 59444460 nordtank@nordtank.com www.nordtank.com